Attached files
| file | filename |
|---|---|
| EX-99.4 - EXHIBIT 99.4 - SYNOVUS FINANCIAL CORP | s002604x1_ex99-4.htm |
| EX-99.3 - EXHIBIT 99.3 - SYNOVUS FINANCIAL CORP | s002604x1_ex99-3.htm |
| EX-99.1 - EXHIBIT 99.1 - SYNOVUS FINANCIAL CORP | s002604x1_ex99-1.htm |
| EX-23.1 - EXHIBIT 23.1 - SYNOVUS FINANCIAL CORP | s002604x1_ex23-1.htm |
| 8-K - 8-K - SYNOVUS FINANCIAL CORP | s002604x1_8k.htm |
Exhibit 99.2
Item 8. Financial Statements and Supplementary Data
FCB FINANCIAL HOLDINGS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
|
|
Page
|
F-1
MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING
FCB Financial Holdings, Inc.’s (the “Company”) internal control over financial reporting is a process effected by those charged with
governance, management, and other personnel, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding
prevention, or timely detection and correction of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management is responsible for establishing and maintaining effective internal control over financial reporting and for the assessment of the
effectiveness of internal control over financial reporting. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, based on the 2013 updated framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control—Integrated Framework. Based upon its assessment, management has concluded that, as of December 31, 2017, the Company’s internal control over financial reporting is effective based on the criteria established in Internal
Control—Integrated Framework.
Management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2017, has been audited by Grant Thornton LLP, an independent public accounting firm, as stated in their report dated February 23, 2018.
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FCB FINANCIAL HOLDINGS, INC.
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||
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Date:
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February 23, 2018
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/s/ Kent S. Ellert
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Kent S. Ellert
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||
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President and Chief Executive Officer
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(Principal Executive Officer)
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Date:
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February 23, 2018
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/s/ Jack Partagas
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Jack Partagas
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||
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Senior Vice President and Chief Financial Officer
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||
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(Principal Financial Officer and
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||
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Principal Accounting Officer)
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||
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
FCB Financial Holdings, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of FCB Financial Holdings, Inc. (a Delaware corporation) and subsidiaries (the
“Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017 and the related notes
(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and
our report dated February 23, 2018 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2010.
Fort Lauderdale, Florida
February 23, 2018
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
FCB Financial Holdings, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of FCB Financial Holdings, Inc. (a Delaware corporation) and subsidiaries (the
“Company”) as of December 31, 2017, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
consolidated financial statements of the Company as of and for the year ended December 31, 2017, and our report dated February 23, 2018
expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Fort Lauderdale, Florida
February 23, 2018
F-4
FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
|
|
December 31,
|
||||||
|
|
2017
|
2016
|
|||||
|
Assets:
|
|||||||
|
Cash and due from banks
|
$
|
60,787
|
|
$
|
52,903
|
|
|
|
Interest-earning deposits in other banks
|
55,134
|
|
30,973
|
|
|||
|
Investment securities:
|
|||||||
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Available for sale securities, at fair value
|
2,120,803
|
|
1,876,434
|
|
|||
|
Federal Home Loan Bank and other bank stock, at cost
|
56,881
|
|
51,656
|
|
|||
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Total investment securities
|
2,177,684
|
|
1,928,090
|
|
|||
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Loans held for sale
|
12,736
|
|
20,220
|
|
|||
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Loans:
|
|||||||
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New loans
|
7,661,385
|
|
6,259,406
|
|
|||
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Acquired loans
|
316,399
|
|
375,488
|
|
|||
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Allowance for loan losses
|
(47,145
|
)
|
(37,897
|
)
|
|||
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Loans, net
|
7,930,639
|
|
6,596,997
|
|
|||
|
Premises and equipment, net
|
36,144
|
|
36,652
|
|
|||
|
Other real estate owned
|
14,906
|
|
19,228
|
|
|||
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Goodwill
|
81,204
|
|
81,204
|
|
|||
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Core deposit intangible
|
3,668
|
|
4,691
|
|
|||
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Deferred tax assets, net
|
27,043
|
|
61,391
|
|
|||
|
Bank-owned life insurance
|
201,069
|
|
198,438
|
|
|||
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Other assets
|
76,065
|
|
59,347
|
|
|||
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Total assets
|
$
|
10,677,079
|
|
$
|
9,090,134
|
|
|
|
Liabilities and Stockholders’ Equity
|
|||||||
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Liabilities:
|
|||||||
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Deposits:
|
|||||||
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Transaction accounts:
|
|||||||
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Noninterest-bearing
|
$
|
1,236,685
|
|
$
|
905,905
|
|
|
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Interest-bearing
|
4,830,525
|
|
4,183,972
|
|
|||
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Total transaction accounts
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6,067,210
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|
5,089,877
|
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|||
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Time deposits
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2,606,717
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|
2,215,794
|
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|||
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Total deposits
|
8,673,927
|
|
7,305,671
|
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Borrowings (including FHLB advances of $670,000 and $592,250, respectively)
|
749,113
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751,103
|
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|||
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Other liabilities
|
74,867
|
|
50,919
|
|
|||
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Total liabilities
|
9,497,907
|
|
8,107,693
|
|
|||
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Commitments and contingencies (Note 17)
|
|
|
|||||
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Stockholders’ Equity:
|
|||||||
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Class A common stock, par value $0.001 per share; 100 million shares authorized; 47,065,593, 43,663,586 issued and 44,371,104, 40,969,097
outstanding
|
47
|
|
44
|
|
|||
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Class B common stock, par value $0.001 per share; 50 million shares authorized; 192,132, 380,606 issued and 0, 197,950 outstanding
|
—
|
|
—
|
|
|||
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Additional paid-in capital
|
933,960
|
|
875,314
|
|
|||
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Retained earnings
|
313,645
|
|
188,451
|
|
|||
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Accumulated other comprehensive income (loss)
|
8,893
|
|
(3,995
|
)
|
|||
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Treasury stock, at cost; 2,694,489, 2,694,489 Class A and 192,132, 192,132 Class B common shares
|
(77,373
|
)
|
(77,373
|
)
|
|||
|
Total stockholders’ equity
|
1,179,172
|
|
982,441
|
|
|||
|
Total liabilities and stockholders’ equity
|
$
|
10,677,079
|
|
$
|
9,090,134
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
F-5
FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share and per share data)
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
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Interest income:
|
|||||||||||
|
Interest and fees on loans
|
$
|
295,400
|
|
$
|
258,261
|
|
$
|
196,123
|
|
||
|
Interest and dividends on investment securities
|
78,176
|
|
60,706
|
|
52,741
|
|
|||||
|
Other interest income
|
525
|
|
349
|
|
176
|
|
|||||
|
Total interest income
|
374,101
|
|
319,316
|
|
249,040
|
|
|||||
|
Interest expense:
|
|||||||||||
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Interest on deposits
|
66,066
|
|
44,329
|
|
26,141
|
|
|||||
|
Interest on borrowings
|
12,583
|
|
7,271
|
|
5,103
|
|
|||||
|
Total interest expense
|
78,649
|
|
51,600
|
|
31,244
|
|
|||||
|
Net interest income
|
295,452
|
|
267,716
|
|
217,796
|
|
|||||
|
Provision for loan losses
|
9,415
|
|
7,655
|
|
6,823
|
|
|||||
|
Net interest income after provision for loan losses
|
286,037
|
|
260,061
|
|
210,973
|
|
|||||
|
Noninterest income:
|
|||||||||||
|
Service charges and fees
|
3,736
|
|
3,467
|
|
3,184
|
|
|||||
|
Loan and other fees
|
11,415
|
|
8,895
|
|
8,611
|
|
|||||
|
Bank-owned life insurance income
|
5,647
|
|
5,192
|
|
4,610
|
|
|||||
|
FDIC loss share indemnification loss
|
—
|
|
—
|
|
(65,529
|
)
|
|||||
|
Income from resolution of acquired assets
|
1,973
|
|
3,345
|
|
9,605
|
|
|||||
|
Gain (loss) on sales of other real estate owned
|
(176
|
)
|
3,126
|
|
8,107
|
|
|||||
|
Gain on investment securities
|
1,933
|
|
1,819
|
|
1,906
|
|
|||||
|
Other noninterest income
|
10,488
|
|
3,873
|
|
4,184
|
|
|||||
|
Total noninterest income (loss)
|
35,016
|
|
29,717
|
|
(25,322
|
)
|
|||||
|
Noninterest expense:
|
|||||||||||
|
Salaries and employee benefits
|
84,830
|
|
76,231
|
|
69,021
|
|
|||||
|
Occupancy and equipment expenses
|
13,463
|
|
13,591
|
|
14,397
|
|
|||||
|
Loan and other real estate related expenses
|
3,623
|
|
7,356
|
|
7,740
|
|
|||||
|
Professional services
|
5,940
|
|
5,207
|
|
5,412
|
|
|||||
|
Data processing and network
|
12,565
|
|
11,461
|
|
10,671
|
|
|||||
|
Regulatory assessments and insurance
|
8,971
|
|
7,872
|
|
8,196
|
|
|||||
|
Amortization of intangibles
|
1,023
|
|
1,189
|
|
1,631
|
|
|||||
|
Marketing and promotions
|
4,587
|
|
3,851
|
|
3,612
|
|
|||||
|
Other operating expenses
|
6,692
|
|
7,199
|
|
5,924
|
|
|||||
|
Total noninterest expense
|
141,694
|
|
133,957
|
|
126,604
|
|
|||||
|
Income before income tax expense
|
179,359
|
|
155,821
|
|
59,047
|
|
|||||
|
Income tax expense
|
54,165
|
|
55,905
|
|
5,656
|
|
|||||
|
Net income
|
$
|
125,194
|
|
$
|
99,916
|
|
$
|
53,391
|
|
||
|
Earnings per share:
|
|||||||||||
|
Basic
|
$
|
2.92
|
|
$
|
2.45
|
|
$
|
1.29
|
|
||
|
Diluted
|
$
|
2.71
|
|
$
|
2.31
|
|
$
|
1.23
|
|
||
|
Weighted average shares outstanding:
|
|||||||||||
|
Basic
|
42,887,142
|
|
40,716,588
|
|
41,300,979
|
|
|||||
|
Diluted
|
46,120,930
|
|
43,225,164
|
|
43,293,607
|
|
|||||
The accompanying notes are an integral part of these consolidated financial statements
F-6
FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
Net income
|
$
|
125,194
|
|
$
|
99,916
|
|
$
|
53,391
|
|
||
|
Other comprehensive income (loss):
|
|||||||||||
|
Unrealized net holding gains (losses) on investment securities available for sale, net of taxes of $(9,244), $(4,467), and $5,399, respectively
|
14,868
|
|
7,115
|
|
(8,598
|
)
|
|||||
|
Reclassification adjustment for realized (gains) losses on investment securities available for sale included in net income, net of taxes of $1,226,
$1,048, and $956, respectively
|
(1,980
|
)
|
(1,667
|
)
|
(1,524
|
)
|
|||||
|
Total other comprehensive income (loss)
|
12,888
|
|
5,448
|
|
(10,122
|
)
|
|||||
|
Total comprehensive income
|
$
|
138,082
|
|
$
|
105,364
|
|
$
|
43,269
|
|
||
The accompanying notes are an integral part of these consolidated financial statements
F-7
FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(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, 2015
|
34,469,650
|
|
6,940,048
|
|
$
|
36
|
|
$
|
7
|
|
$
|
834,538
|
|
$
|
35,144
|
|
$
|
(18,751
|
)
|
$
|
679
|
|
$
|
851,653
|
|
||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
53,391
|
|
—
|
|
—
|
|
53,391
|
|
|||||||||||||||
|
Exchange of B shares to A shares
|
3,206,166
|
|
(3,206,166
|
)
|
3
|
|
(3
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Stock-based compensation and warrant expense
|
—
|
|
—
|
|
—
|
|
—
|
|
5,290
|
|
—
|
|
—
|
|
—
|
|
5,290
|
|
|||||||||||||||
|
Excess tax benefit of stock-based compensation
|
—
|
|
—
|
|
—
|
|
—
|
|
2,048
|
|
—
|
|
—
|
|
—
|
|
2,048
|
|
|||||||||||||||
|
Treasury stock purchases
|
(1,050,062
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(34,884
|
)
|
—
|
|
(34,884
|
)
|
|||||||||||||||
|
Stock issued in connection with equity awards and warrants
|
500,817
|
|
—
|
|
—
|
|
—
|
|
8,793
|
|
—
|
|
—
|
|
—
|
|
8,793
|
|
|||||||||||||||
|
Other
|
—
|
|
—
|
|
—
|
|
—
|
|
(60
|
)
|
—
|
|
—
|
|
—
|
|
(60
|
)
|
|||||||||||||||
|
Other comprehensive income (loss)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(10,122
|
)
|
(10,122
|
)
|
|||||||||||||||
|
Balance as of December 31, 2015
|
37,126,571
|
|
3,733,882
|
|
$
|
39
|
|
$
|
4
|
|
$
|
850,609
|
|
$
|
88,535
|
|
$
|
(53,635
|
)
|
$
|
(9,443
|
)
|
$
|
876,109
|
|
||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
99,916
|
|
—
|
|
—
|
|
99,916
|
|
|||||||||||||||
|
Exchange of B shares to A shares
|
3,545,408
|
|
(3,545,408
|
)
|
4
|
|
(4
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Stock-based compensation and warrant expense
|
—
|
|
—
|
|
—
|
|
—
|
|
5,613
|
|
—
|
|
—
|
|
—
|
|
5,613
|
|
|||||||||||||||
|
Excess tax benefit of stock-based compensation
|
—
|
|
—
|
|
—
|
|
—
|
|
2,110
|
|
—
|
|
—
|
|
—
|
|
2,110
|
|
|||||||||||||||
|
Treasury stock purchases
|
(717,115
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(23,738
|
)
|
—
|
|
(23,738
|
)
|
|||||||||||||||
|
Stock issued in connection with equity awards and warrants
|
1,014,233
|
|
—
|
|
1
|
|
—
|
|
17,041
|
|
—
|
|
—
|
|
—
|
|
17,042
|
|
|||||||||||||||
|
Other
|
—
|
|
—
|
|
—
|
|
—
|
|
(59
|
)
|
—
|
|
—
|
|
—
|
|
(59
|
)
|
|||||||||||||||
|
Other comprehensive income (loss)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,448
|
|
5,448
|
|
|||||||||||||||
|
Balance as of December 31, 2016
|
40,969,097
|
|
188,474
|
|
$
|
44
|
|
$
|
—
|
|
$
|
875,314
|
|
$
|
188,451
|
|
$
|
(77,373
|
)
|
$
|
(3,995
|
)
|
$
|
982,441
|
|
||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
125,194
|
|
—
|
|
—
|
|
125,194
|
|
|||||||||||||||
|
Exchange of B shares to A shares
|
188,474
|
|
(188,474
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Stock-based compensation and warrant expense
|
—
|
|
—
|
|
—
|
|
—
|
|
8,038
|
|
—
|
|
—
|
|
—
|
|
8,038
|
|
|||||||||||||||
|
Stock issued in connection with equity awards and warrants
|
3,213,533
|
|
—
|
|
3
|
|
—
|
|
50,667
|
|
—
|
|
—
|
|
—
|
|
50,670
|
|
|||||||||||||||
|
Other
|
—
|
|
—
|
|
—
|
|
—
|
|
(59
|
)
|
—
|
|
—
|
|
—
|
|
(59
|
)
|
|||||||||||||||
|
Other comprehensive income (loss)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
12,888
|
|
12,888
|
|
|||||||||||||||
|
Balance as of December 31, 2017
|
44,371,104
|
|
—
|
|
$
|
47
|
|
$
|
—
|
|
$
|
933,960
|
|
$
|
313,645
|
|
$
|
(77,373
|
)
|
$
|
8,893
|
|
$
|
1,179,172
|
|
||||||||
The accompanying notes are an integral part of these consolidated financial statements
F-8
FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
Cash Flows From Operating Activities:
|
|||||||||||
|
Net income
|
$
|
125,194
|
|
$
|
99,916
|
|
$
|
53,391
|
|
||
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|||||||||||
|
Provision for loan losses
|
9,415
|
|
7,655
|
|
6,823
|
|
|||||
|
Amortization of intangible assets
|
1,023
|
|
1,189
|
|
1,631
|
|
|||||
|
Depreciation and amortization of premises and equipment
|
3,618
|
|
3,583
|
|
3,792
|
|
|||||
|
Amortization of discount on loans
|
(1,265
|
)
|
(930
|
)
|
(2,657
|
)
|
|||||
|
Net amortization (accretion) of premium (discount) on investment securities
|
2,166
|
|
1,586
|
|
1,883
|
|
|||||
|
Net amortization (accretion) of premium (discount) on time deposits
|
—
|
|
(50
|
)
|
(336
|
)
|
|||||
|
Net amortization (accretion) of premium (discount) on FHLB advances and other borrowings
|
(846
|
)
|
(2,635
|
)
|
(2,609
|
)
|
|||||
|
Impairment of other real estate owned
|
670
|
|
1,751
|
|
728
|
|
|||||
|
Impairment of fixed assets HFS
|
—
|
|
48
|
|
—
|
|
|||||
|
FDIC Loss share indemnification loss
|
—
|
|
—
|
|
65,529
|
|
|||||
|
(Gain) loss on investment securities
|
(1,933
|
)
|
(1,819
|
)
|
(1,906
|
)
|
|||||
|
(Gain) loss on sale of loans
|
(4,860
|
)
|
(1,635
|
)
|
(1,717
|
)
|
|||||
|
(Gain) loss on sale of other real estate owned
|
176
|
|
(3,126
|
)
|
(8,107
|
)
|
|||||
|
(Gain) loss on sale of premises and equipment
|
(34
|
)
|
48
|
|
174
|
|
|||||
|
Deferred tax expense
|
26,329
|
|
10,364
|
|
(21,395
|
)
|
|||||
|
Stock-based compensation
|
8,038
|
|
5,613
|
|
5,290
|
|
|||||
|
Increase in cash surrender value of BOLI
|
(5,647
|
)
|
(5,192
|
)
|
(4,610
|
)
|
|||||
|
Net change in operating assets and liabilities:
|
|||||||||||
|
Net change in loans held for sale
|
9,535
|
|
(16,071
|
)
|
(379
|
)
|
|||||
|
Settlement of FDIC loss share agreement
|
—
|
|
—
|
|
(14,815
|
)
|
|||||
|
Net change in other assets
|
(14,112
|
)
|
8,499
|
|
49
|
|
|||||
|
Net change in other liabilities
|
6,679
|
|
(10,717
|
)
|
(12,539
|
)
|
|||||
|
Net cash provided by (used in) operating activities
|
164,146
|
|
98,077
|
|
68,220
|
|
|||||
|
Cash Flows From Investing Activities:
|
|||||||||||
|
Purchase of investment securities available for sale
|
(884,732
|
)
|
(750,482
|
)
|
(676,708
|
)
|
|||||
|
Sales of investment securities available for sale
|
223,726
|
|
342,137
|
|
354,733
|
|
|||||
|
Paydown and maturities of investment securities available for sale
|
451,974
|
|
89,421
|
|
139,996
|
|
|||||
|
Purchase of FHLB and other bank stock
|
(178,578
|
)
|
(113,362
|
)
|
(81,207
|
)
|
|||||
|
Sales of FHLB and other bank stock
|
173,353
|
|
121,183
|
|
88,621
|
|
|||||
|
Net change in loans
|
(1,601,014
|
)
|
(1,357,875
|
)
|
(939,514
|
)
|
|||||
|
Purchase of loans
|
(11,867
|
)
|
(200,480
|
)
|
(395,649
|
)
|
|||||
|
Proceeds from sale of loans
|
271,854
|
|
106,450
|
|
52,362
|
|
|||||
|
Purchase of bank-owned life insurance
|
—
|
|
(25,000
|
)
|
(25,000
|
)
|
|||||
|
Proceeds from sale of other real estate owned
|
5,520
|
|
34,274
|
|
64,139
|
|
|||||
|
Purchase of premises and equipment
|
(3,163
|
)
|
(4,925
|
)
|
(1,958
|
)
|
|||||
|
Proceeds from the sale of premises and equipment
|
87
|
|
1,548
|
|
—
|
|
|||||
|
Capitalized expenditures on foreclosed real estate
|
—
|
|
(543
|
)
|
—
|
|
|||||
|
Proceeds from life insurance
|
3,016
|
|
—
|
|
1,193
|
|
|||||
|
Net cash provided by (used in) investing activities
|
(1,549,824
|
)
|
(1,757,654
|
)
|
(1,418,992
|
)
|
|||||
|
Cash Flows From Financing Activities:
|
|||||||||||
|
Net change in deposits
|
1,368,256
|
|
1,875,083
|
|
1,452,439
|
|
|||||
|
Net change in FHLB advances and other borrowings
|
77,750
|
|
(214,250
|
)
|
(177,186
|
)
|
|||||
|
Net change in repurchase agreements
|
(78,894
|
)
|
(15,195
|
)
|
94,997
|
|
|||||
|
Repurchase of stock
|
—
|
|
(23,738
|
)
|
(34,884
|
)
|
|||||
|
Exercise of stock options
|
50,670
|
|
17,042
|
|
8,793
|
|
|||||
|
Excess tax benefit from share based payments
|
—
|
|
2,110
|
|
2,048
|
|
|||||
|
Other financing costs
|
(59
|
)
|
(59
|
)
|
(60
|
)
|
|||||
|
Net cash provided by (used in) financing activities
|
1,417,723
|
|
1,640,993
|
|
1,346,147
|
|
|||||
|
Net Change in Cash and Cash Equivalents
|
32,045
|
|
(18,584
|
)
|
(4,625
|
)
|
|||||
|
Cash and Cash Equivalents at Beginning of Period
|
83,876
|
|
102,460
|
|
107,085
|
|
|||||
|
Cash and Cash Equivalents at End of Period
|
$
|
115,921
|
|
$
|
83,876
|
|
$
|
102,460
|
|
||
|
Supplemental Disclosures of Cash Flow Information:
|
|||||||||||
|
Interest paid
|
$
|
77,859
|
|
$
|
50,631
|
|
$
|
30,788
|
|
||
|
Income taxes paid
|
19,719
|
|
60,192
|
|
36,304
|
|
|||||
|
Supplemental disclosure of noncash investing and financing activities:
|
|||||||||||
|
Transfer of loans to other real estate owned
|
$
|
2,044
|
|
$
|
12,244
|
|
$
|
21,573
|
|
||
The accompanying notes are an integral part of these consolidated financial statements
F-9
FCB FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
FCB Financial Holdings, Inc. (the “Company”) is a national bank holding company with one wholly-owned national bank subsidiary, Florida Community Bank, N.A. (“Florida Community Bank” or the “Bank”), headquartered in Weston, Florida, offering a comprehensive range of traditional banking
products and services to individual and corporate customers through 46 banking centers located in Florida at December 31, 2017.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, the Bank, and the Bank’s subsidiaries,
which consist of a group of real estate holding companies. Intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The Company’s financial reporting and accounting policies conform to U.S. GAAP. The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates subject to significant change include the allowance for loan losses, valuation of and accounting for acquired loans, the
carrying value of OREO, the fair value of financial instruments, the valuation of goodwill and other intangible assets, acquisition-related fair value computations, stock-based compensation and deferred taxes.
Business combinations
The Company accounts for transactions that meet the definition of a purchase business combination by recording the assets acquired and
liabilities assumed at their fair value upon acquisition. The operations of the acquisitions are included in the consolidated financial statements from the date of acquisition. Intangible assets, indemnification contracts and contingent consideration
are identified and recognized individually. If the fair value of the assets acquired exceeds the purchase price plus the fair value of the liabilities assumed, a bargain purchase gain is recognized. Conversely, if the purchase price plus the fair
value of the liabilities assumed exceeds the fair value of the assets acquired, goodwill is recognized. The Company’s assumptions utilized to determine the fair value of assets acquired and liabilities assumed conform to market conditions at the date
of acquisition. The provisional amounts recorded are updated if better information is obtained about the initial assumptions used to determine fair value or if new information is obtained regarding the facts and circumstances that existed at the date
of acquisition. The provisional amounts may be adjusted through the completion of the measurement period, which does not exceed one year from the date of acquisition.
Fair Value Measurement
The Company uses estimates of fair value in applying various accounting standards for its consolidated financial statements on either a
recurring or non-recurring basis. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. The Company groups its assets and liabilities measured at fair value
in three hierarchy levels, based on the observability and transparency of the inputs. These levels are as follows:
Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
Level 2—Observable inputs other than level 1 inputs, including quoted prices for similar assets and liabilities, quoted prices for identical
assets and liabilities in less active markets and other inputs that can be corroborated by observable market data;
Level 3—Unobservable inputs supported by limited or no market activity or data and inputs requiring significant management judgment or
estimation; valuation techniques utilizing level 3 inputs include option pricing models, discounted cash flow models and similar techniques.
F-10
It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs in estimating fair value.
Unobservable inputs are utilized in determining fair value estimates only to the extent that observable inputs are not available. The need to use unobservable inputs generally results from a lack of market liquidity and trading volume. Transfers
between levels of fair value hierarchy are recorded at the end of the reporting period.
Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments, allows the Company an irrevocable option for measurement of
eligible financial assets or financial liabilities at fair value on an instrument by instrument basis (the fair value option). An election may be made at the time an eligible financial asset, financial liability or firm commitment is recognized or
when certain specified reconsideration events occur. The Company has not elected the fair value option for any eligible financial instrument as of December 31, 2017 or 2016.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. A gain or loss is recognized in
earnings upon completion of the sale based on the difference between the sales proceeds and the carrying value of the assets. Control over the transferred assets is deemed to have been surrendered when the assets have been isolated from the Company,
the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and the Company does not maintain effective control over the transferred assets through an
agreement to repurchase them before their maturity.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-bearing deposits with banks, Federal funds sold and securities purchased
under resale agreements or similar arrangements. Cash and cash equivalents have original maturities of three months or less.
Accordingly, the carrying amount of such instruments is considered a reasonable estimate of fair value.
Restrictions on Cash
The Bank is required to maintain reserve balances with the FRB. Such reserve requirements are based on a percentage of deposit liabilities and
may be satisfied by cash on hand or on deposit. Because the amount of cash on hand exceeded the requirement, there was no reserve with the FRB as of December 31, 2017 or 2016.
Investment Securities
Securities transactions are recorded on the trade date basis. The Company determines the classification of investment securities at the time of purchase. If
the Company has the intent and the ability at the time of purchase to hold debt securities until maturity, they are classified as held-to-maturity. Investment securities held-to-maturity are stated at amortized cost. Debt securities the Company does
not intend to hold to maturity are classified as available for sale and carried at estimated fair value with unrealized gains or losses reported as a separate component of stockholders’ equity in accumulated other comprehensive income, net of
applicable income taxes. Available for sale securities are a part of the Company’s asset/liability management strategy and may be sold in response to changes in interest rates, prepayment risk or other market factors.
Interest income and dividends on securities are recognized in interest income on an accrual basis. Premiums and discounts on debt securities
are amortized as an adjustment to interest income over the period to maturity of the related security using the effective interest method. Realized gains or losses on the sale of securities are determined using the specific identification method.
The Company reviews investment securities for impairment on a quarterly basis or more frequently if events and circumstances warrant. In
order to determine if a decline in fair value below amortized cost represents other-than-temporary impairment (“OTTI”), management considers several factors, including but not limited to, the length of time and extent to which the fair value has been
less than the amortized cost basis, the financial condition and near-term prospects of the issuer (considering factors such as adverse conditions specific to the issuer and the security and ratings agency actions) and the Company’s intent and ability
to retain the investment in order to allow for an anticipated recovery in fair value.
F-11
The Company recognizes OTTI of a debt security for which there has been a decline in fair value below amortized cost if (i) management
intends to sell the security, (ii) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, or (iii) the Company does not expect to recover the entire amortized cost basis of the
security. The amount by which amortized cost exceeds the fair value of a debt security that is considered to have OTTI is separated into a component representing the credit loss, which is recognized in earnings, and a component related to all other
factors, which is recognized in other comprehensive income. The measurement of the credit loss component is equal to the difference between the debt security’s amortized cost basis and the present value of its expected future cash flows discounted at
the security’s effective yield. If the Company intends to sell the security, or if it is more likely than not it will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the entire difference
between the amortized cost basis and fair value of the security.
The Bank, as a member of the FHLB is required to maintain an investment in the stock of the FHLB. No market exists for this stock, and the
Bank’s investment can be liquidated only through redemption by the FHLB, at the discretion of and subject to conditions imposed by the FHLB. Historically, FHLB stock redemptions have been at cost (par value), which equals the Company’s carrying
value. The Company monitors its investment in FHLB stock for impairment through review of recent financial results of the FHLB including capital adequacy and liquidity position, dividend payment history, redemption history and information from credit
agencies. The Company has not identified any indicators of impairment of FHLB stock.
Loans
The Company’s accounting methods for loans differ depending on whether the loans are new (“New” loans) or acquired (“Acquired” loans), and for
acquired loans, whether the loans were acquired at a discount as a result of credit deterioration since the date of origination.
New Loans
The Company accounts for originated loans and purchased loans not acquired through business acquisitions as New loans. New loans that
management has the intent and ability to hold for the foreseeable future are reported at their outstanding principal balances net of any allowance for loan losses, unamortized deferred fees and costs and unamortized premiums or discounts. The net
amount of nonrefundable loan origination fees and certain direct costs associated with the lending process are deferred and amortized into interest income over the contractual lives of the New loans using methods which approximate the effective yield
method. Discounts and premiums are amortized or accreted into interest income over the estimated term of the New loans using methods that approximate the effective yield method. Interest income on New loans is accrued based on the unpaid principal
balance outstanding and the contractual terms of the loan agreements.
Acquired Loans
Acquired loans are accounted for under ASC 310-30 unless the loan type is excluded from the scope of ASC 310-30 (i.e. loans where borrowers
have revolving privileges at acquisition date, or “Non-ASC 310-30” loans). The Company has elected to account for loans acquired with deteriorated credit quality since origination under ASC 310-30 (“ASC 310-30” loans or pools) due to the following:
|
•
|
There is evidence of credit quality deterioration since origination resulting in a “Day 1” discount attributable, at least in part, to
credit quality;
|
|
•
|
The loans were acquired in a business combination or asset purchase; and
|
|
•
|
The loans are not to be subsequently accounted for at fair value.
|
The Company has elected this policy for loans acquired through business combinations exhibiting credit deterioration since origination,
except those loan types which have been scoped out of ASC 310-30. Substantially all loans acquired through the FDIC-assisted acquisitions had a fair value discount at acquisition date due at least in part to deterioration in credit quality since
origination. However, there was a separate grouping of loans individually identified with substantial credit impairment that would be explicitly scoped into ASC 310-30 from those that were classified by analogy. The Company determined that a loan
would be explicitly scoped into ASC 310-30 if there was evidence of credit deterioration at Day 1 and that it was probable that the Company would be unable to collect all contractual cash flows receivable. The loans that were classified by analogy
were determined to have evidence of credit deterioration at Day 1 and that it was possible, not probable, that the Company would be unable to collect all contractual cash flows receivable.
F-12
For each acquisition, ASC 310-30 loans are aggregated into pools based on common risk characteristics, which includes similar credit risk of
the loans based on whether loans were analogized or were explicitly scoped into ASC 310-30, internal risk ratings for commercial real estate, land and development and commercial loans; and performing status for consumer and single family residential
loans. Pools of loans are further aggregated by collateral type (e.g. commercial real estate, single family residential, etc.). The Company did not elect to aggregate loans into pools that were acquired from separate acquisitions completed in the
same fiscal quarter.
Acquired loans are recorded at their fair value at the acquisition date. Fair value for acquired loans is based on a discounted cash flow
methodology that considers factors including the type of loan and related collateral type, delinquency and credit classification status, fixed or variable interest rate, term of loan, whether or not the loan was amortizing, and current discount
rates. Additional assumptions used include default rates, loss severity, loss curves and prepayment speeds. Discounts due to credit quality are included in the determination of fair value; therefore an allowance for loan losses is not recorded at the
acquisition date. The discount rates used for the cash flow methodology are based on market rates for new originations of comparable loans at the time of acquisition and include adjustments for liquidity concerns. The fair value is determined from
the discounted cash flows for each individual loan, and for ASC 310-30 loans are then aggregated at the unit of account, or pool level.
For acquired loans with deteriorated credit quality, the Company makes an estimate of the total cash flows it expects to collect from the
loans in each pool, which includes undiscounted expected principal and interest as well as cash received through other forms of satisfaction (e.g. foreclosure). The excess of contractual amounts over the total cash flows expected to be collected from
the loans is referred to as non-accretable difference, which is not accreted into income. The excess of the expected undiscounted cash flows over the carrying value of the loans is referred to as accretable discount. Accretable discount is recognized
as interest income on a level-yield basis over the expected term of the loans in each pool.
The Company continues to estimate cash flows expected to be collected over the expected term of the ASC 310-30 loans on a quarterly basis.
Subsequent increases in total cash flows expected to be collected are recognized as an adjustment to the accretable discount with the amount of periodic accretion adjusted over the remaining expected term of the loans. Subsequent decreases in cash
flows expected to be collected over the expected term of the loans are recognized as impairment in the current period through a provision for loan losses.
Each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Resolutions of
loans may include sales to third parties, receipt of payments in settlement with the borrower, or foreclosure of the collateral. Upon these resolutions, the Company’s policy is to remove an individual ASC 310-30 loan from a pool based on comparing
the amount received from its resolution with its contractual amount. Any difference between these amounts is absorbed by the nonaccretable difference. This removal method assumes that the amount received from these resolutions approximates the pool
performance expectations of cash flows. The accretable yield percentage is unaffected by the resolution. Any changes in the effective yield for the remaining loans in the pool are addressed by the quarterly cash flow evaluation process for each pool.
For loans that are resolved by payment in full, there is no release of the nonaccretable difference for the pool because there is no difference between the amount received at resolution and the contractual amount of the loan.
Payments received in excess of expected cash flows may result in an ASC 310-30 pool becoming fully amortized and its carrying value reduced
to zero even though outstanding contractual balances remain related to loans in the pool. Once the carrying value of an ASC 310-30 pool is reduced to zero, any future proceeds from the borrower or from the sale of loans are recognized as interest
income upon receipt. There were six ASC 310-30 pools whose carrying value had been reduced to zero as of December 31, 2017. These pools had an aggregate Unpaid Principal Balance (“UPB” or “UPBs”) of $399 thousand as of December 31, 2017. For the year ended December 31, 2017, the Company sold approximately $11.7 million of loans accounted for under ASC 310-30. These sales resulted in proceeds that exceeded the carrying value of the accounting pool in
which the loans resided of $3.3 million which was recognized as interest income. There were six ASC 310-30 pools whose carrying value had been reduced to zero as of December 31, 2016. These pools had an aggregate UPB of $456 thousand as of December 31, 2016. For the year ended December 31, 2016, the Company sold approximately $75.3 million of loans accounted for under ASC 310-30.
These sales resulted in proceeds that exceeded the carrying value of the accounting pool in which the loans resided of $27.2 million
which was recognized as interest income.
Non-ASC 310-30 loans are recorded at their estimated fair value as of the acquisition date and subsequently accounted for under ASC Topic
310-20, Receivables—Nonrefundable Fees and Other Costs (“ASC 310-20”). The fair value discount is accreted using methods which approximate the level-yield method over the remaining term of the loans and is recognized as a component of interest
income.
F-13
Loans Held for Sale
Certain residential fixed rate and adjustable rate mortgage loans originated by the Company with the intent to sell in the secondary market
are carried at the lower of cost or fair value, as determined by outstanding commitments from investors or prevailing market prices. These loans are generally sold on a non-recourse basis with servicing released. Gains and losses on the sale of loans
recognized in earnings are measured based on the difference between proceeds received and the carrying amount of the loans, inclusive of deferred origination fees and costs, if any.
Nonaccrual Loans
For New and Non-ASC 310-30 loans, the Company classifies loans as past due when the payment of principal or interest is greater than 30 days
delinquent based on the contractual next payment due date. The Company’s policies related to when loans are placed on nonaccrual status conform to guidelines prescribed by regulatory authorities. Loans are placed on nonaccrual status when it is
probable that principal or interest is not fully collectible, or generally when principal or interest becomes 90 days past due, whichever occurs first. Loans secured by 1-4 single family residential properties may remain in accruing status until they
are 180 days past due if management determines that it does not have concern over the collectability of principal and interest because the loan is adequately collateralized and in the process of collection. When loans are placed on nonaccrual status,
interest receivable is reversed against interest income in the current period and amortization of any discount ceases. Interest payments received thereafter are applied as a reduction to the remaining principal balance unless management believes that
the ultimate collection of the principal is likely, in which case payments are recognized in earnings on a cash basis. Loans are removed from nonaccrual status when they become current as to both principal and interest and the collectability of
principal and interest is no longer doubtful.
Generally, a nonaccrual loan that is restructured remains on nonaccrual for a period of six months to demonstrate the borrower can meet the
restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and may result in the loan being returned to
accrual status after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains classified as a nonaccrual loan. Contractually delinquent ASC 310-30 loans are not
classified as nonaccrual as long as the discount continues to be accreted on the corresponding ASC 310-30 pool.
Troubled Debt Restructurings
In certain situations, due to economic or legal reasons related to a borrower’s financial difficulties, the Company may grant a concession to
the borrower for other than an insignificant period of time that it would not otherwise consider. At that time, except for ASC 310-30 loans, which are accounted for as pools, the related loan is classified as a troubled debt restructuring (“TDR”) and
considered impaired. Modified ASC 310-30 loans accounted for in pools are not accounted for as TDRs, are not separated from the pools and are not classified as impaired loans. The concessions granted may include rate reductions, principal
forgiveness, payment forbearance, extensions of maturity at rates of interest below those commensurate with the risk profile of the borrower, and other actions intended to minimize economic loss. A troubled debt restructured loan is generally placed
on nonaccrual status at the time of the modification unless the borrower has no history of missed payments for six months prior to the restructuring. If the borrower performs pursuant to the modified loan terms for at least six months and the
remaining loan balance is considered collectible, the loan is returned to accrual status.
Impaired Loans
An ASC 310-30 pool is considered to be impaired when it is probable that the Company will be unable to collect all the cash flows expected at
acquisition, plus additional cash flows expected to be collected arising from changes in estimates after acquisition. All ASC 310-30 pools are evaluated individually for impairment based their expected total cash flows. The discount continues to be
accreted on ASC 310-30 pools as long as there are expected future cash flows in excess of the current carrying amount of the pool.
Non-ASC 310-30 and New loans are considered impaired when, based on current information and events, it is probable that the Company will be
unable to collect the scheduled payments of principal or interest when due, according to the contractual terms of the loan agreements.
All Non-ASC 310-30 and New loans of $250,000 or greater with an internal risk rating of substandard or below and on nonaccrual, as well as loans classified as TDRs are reviewed individually for impairment on a quarterly basis.
F-14
Allowance for Loan Losses (“ALL”)
The Company’s ALL is established for both performing and nonperforming loans. The Company’s ALL is the amount considered adequate to absorb
probable losses within the portfolio based on management’s evaluation of the size and current risk characteristics of the loan portfolio. Such evaluation considers numerous factors including, but not limited to, internal risk ratings, loss forecasts,
collateral values, geographic location, borrower FICO scores, delinquency rates, nonperforming and restructured loans, origination channels, product mix, underwriting practices, industry conditions, economic trends and net charge-off trends. The ALL
relates to New loans, estimated additional losses arising on Non-ASC 310-30 loans subsequent to the acquisitions and additional impairment recognized as a result of decreases in expected cash flows on ASC 310-30 pools due to further credit
deterioration or other factors since the acquisitions. The ALL consists of both specific and general components.
For ASC 310-30 pools, a specific valuation allowance is established when it is probable that the Company will be unable to collect all of the
cash flows expected at acquisition, plus the additional cash flows expected to be collected arising from changes in estimates after acquisition. Expected cash flows are estimated on an individual loan basis and then aggregated at the ASC 310-30 pool
level. The analysis of expected pool cash flows incorporates updated pool level expected prepayment rate, default rate, delinquency level and loss severity given default assumptions. These analyses incorporate information about loan performance,
collateral values, the financial condition of the borrower, internal risk ratings, the Company’s own and industry historical delinquency and default severity data. The carrying value for ASC 310-30 pools is reduced by the amount of the calculated
impairment, which is also the basis in which future accretion income is calculated. A charge-off is taken for an individual ASC 310-30 loan when it is deemed probable that the loan will be resolved for an amount less than its carrying value. The
charge-off is taken to the specific allowance or mark as applicable. Alternatively, an improvement in the expected cash flows related to ASC 310-30 pools results in a reduction or recoupment of any previously established specific allowance with a
corresponding credit to the provision for loan losses. Any recoupment recorded is limited to the amount of the remaining specific allowance for that pool, with any excess of expected cash flow resulting in a reclassification from non-accretable to
accretable yield and an increase in the prospective yield of the pool.
The New and Non-ASC 310-30 loan portfolios have limited delinquency and credit loss history and have not yet exhibited an observable loss
trend. The credit quality of loans in these loan portfolios are impacted by delinquency status and debt service coverage generated by the borrowers’ businesses and fluctuations in the value of real estate collateral. Management considers delinquency
status to be the most meaningful indicator of the credit quality of one-to-four single family residential, home equity loans and lines of credit and other 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 a key factor in identifying loans that are individually
evaluated for impairment and impact management’s estimates of loss factors used in determining the amount of the ALL. Internal risk ratings are updated on a continuous basis. Relationships with balances in excess of $250,000 are re-evaluated at least annually and more frequently if circumstances indicate that a change in risk rating may be warranted.
New and Non-ASC 310-30 loans of $250,000 or greater with an internal risk rating of substandard or below and on nonaccrual, as well as loans classified as TDR are reviewed individually for impairment on a quarterly basis. The specific allowance
established for these loans is based on a thorough analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flows, the loan’s estimated market value or the estimated fair value of the
underlying collateral less costs of disposition. General allowances are established for new and Non-ASC 310-30 loans that are not evaluated individually for impairment, which are evaluated by loan category based on common risk characteristics. In
this process, general loan loss factors are established based on the following: industry historical losses segmented by portfolio and asset categories; trends in delinquencies and nonaccruals by loan portfolio segment and asset categories within
those segments; portfolio segment and asset category production trends, including average risk ratings and loan-to value (“LTV”) ratios; current industry conditions, including real estate market trends; general economic conditions; credit
concentrations by portfolio and asset categories; and portfolio quality, which encompasses an assessment of the quality and relevance of borrowers’ financial information and collateral valuations and average risk rating and migration trends within
portfolios and asset categories.
Other adjustments for qualitative factors may be made to the allowance after an assessment of internal and external influences on credit
quality and loss severity that are not fully reflected in the historical loss or risk rating data. For these measurements, the Company uses assumptions and methodologies that are relevant to estimating the level of impairment and probable losses in
the loan portfolio. To the extent that the data supporting such assumptions has limitations, management’s judgment and experience play a key role in recording the allowance estimates. Qualitative adjustments are considered for: portfolio credit
quality trends, including levels of delinquency, charge-offs, nonaccrual, restructuring and other factors; policy and credit standards, including quality and experience of lending and credit management; and general economic factors, including
national, regional and local conditions and trends.
F-15
Additions to the ALL are made by provisions charged to earnings. The allowance is decreased by charge-offs of balances no longer deemed
collectible. Charge-offs on new and Non-ASC 310-30 loans are recognized as follows: commercial loans are written-off when management determines them to be uncollectible; for unsecured consumer loans at 90 days past due; and for residential real
estate loans and secured consumer loans when they become 120 to 180 days past due, depending on the collateral type. The Company reports recoveries on a cash basis at the time received. Recoveries on ASC 310-30 loans that were charged-off and Non-ASC
310-30 loans that were charged-off prior to the Acquisitions are recognized in earnings as income from resolution of acquired assets and do not affect the allowance for loan losses. All other recoveries are credited to the ALL.
Loss Share Indemnification Asset and Clawback Liability
On March 4, 2015, the Bank entered into an agreement with the FDIC to terminate all loss sharing agreements which were entered into in 2010
and 2011 in conjunction with the Bank’s acquisition of substantially all of the assets (“Covered Assets”) and assumption of substantially all of the liabilities of six failed banks in FDIC-assisted acquisitions. Under the early termination, all
rights and obligations of the Bank and the FDIC under the loss share agreements, including the clawback provisions, have been eliminated.
The amounts previously covered by the loss sharing agreements were the pre-acquisition book value of the underlying assets, the contractual
balance of unfunded commitments that were acquired, and certain future net direct costs applicable to the Covered Assets. As required by the respective loss sharing agreements, the Company submitted a loss share certificate to the FDIC on a quarterly
basis requesting reimbursement for losses on covered assets and covered expenses. Covered expenses were recorded in non-interest expense when incurred with an offsetting increase to the loss share indemnification asset and non-interest income for the
amount expected to be reimbursed by the FDIC. Certain covered expenses were claimed upon resolution of the Covered Asset, resulting in the expense and the related reimbursements from the FDIC occurring in different periods.
The Company reviewed and updated the cash flows expected to be collected on Covered Assets and the FDIC loss share indemnification asset on a
quarterly basis as loss and recovery estimates related to Covered Assets change. Decreases in the amount of cash flows expected to be collected on Covered Loans after acquisition resulted in a provision for loan loss, an increase in the ALL, and a
proportional increase to the FDIC loss share indemnification asset and income for the estimated amount to be reimbursed. Increases in the amount of cash flows expected to be collected on Covered Loans after acquisition resulted in the reversal of any
previously-recorded provision for loan losses and related ALL and a decrease to the FDIC loss share indemnification asset, or prospective adjustment to the accretable discount if no provision for loan losses had been previously recorded. If no
provision for loan losses had been previously recorded, improvements in the expected cash flows from the Covered Loans, which was reflected as an adjustment to yield and accreted into income over the remaining expected term of the loans, decreases
the expected cash flows to be collected from the loss sharing agreement, with such decreases reducing the yield to be accreted on a prospective basis if the total expected cash flows from the loss sharing agreement exceeded its carrying amount; and,
if the carrying amount of the FDIC loss share indemnification asset exceeded the total expected cash flows, the excess was amortized as a reduction of income over the shorter of (1) the remaining expected term of the respective loans or (2) the
remaining term of the loss sharing agreement.
As a result, the value of the FDIC loss share indemnification asset fluctuated over time based upon the performance of the Covered Assets and
as the Company received payments from the FDIC under the loss sharing agreements.
The loss sharing agreements between the Company and the FDIC for certain of the Acquisitions included clawback provisions that obligated the
Company to pay the FDIC a certain amount in the event that losses incurred by the Company did not reach a specified threshold upon expiration of the loss sharing agreement. The fair value of the clawback liability was initially estimated using the
same discounted cash flow model used to determine the loss share indemnification asset, using a discount rate that took into account the Company’s credit risk. The clawback liability was re-measured quarterly based on the terms of the applicable loss
sharing agreement, changes in projected losses on Covered Assets and the cumulative servicing amount, if applicable.
The clawback liability was included in other liabilities and the amortization and loss on re-measurement was included in loss share
indemnification loss within noninterest income in the accompanying Consolidated Statements of Income.
F-16
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation or amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the related assets, except for land which is stated at cost. The useful lives of premises and equipment are: 39 years for bank premises; 3 to 5 years for computer equipment and software; and 5 years for furniture and equipment.
Leasehold improvements are amortized on a straight-line basis over the lesser of the lease terms, including certain renewals that were deemed
probable at lease inception, or the estimated useful lives of the improvements. Purchased software and external direct costs of computer software developed for internal use are capitalized provided certain criteria are met and amortized over the
useful lives of the software. Rent expense and rental income on operating leases are recorded using the straight-line method over the appropriate lease terms.
Other Real Estate Owned (“OREO”)
Real estate properties acquired through, or in lieu of, foreclosure or in connection with the Acquisitions, are held for sale and are
initially recorded at their fair value less disposition costs. When such assets are acquired, any shortfall between the loan carrying value and the estimated fair value of the underlying collateral less disposition costs is recorded as an adjustment
to the allowance for loan losses while any excess is recognized in income. The Company periodically performs a valuation of the property held; any excess of carrying value over fair value less disposition costs is charged to earnings as impairment.
Routine maintenance and real estate taxes are expensed as incurred.
Bank-Owned Life Insurance (“BOLI”)
The Bank owns life insurance policies on certain directors and current and former employees. These policies are recorded at the amount that
can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement, if applicable. Increases in the cash surrender value of these
policies are included in noninterest income in the Consolidated Statements of Income. The Company’s BOLI policies are invested in general account and hybrid account products that have been underwritten by highly-rated third party insurance carriers.
Goodwill and Other Intangible Assets
Goodwill represents the excess of consideration transferred in business combinations over the fair value of net tangible and identifiable
intangible assets acquired. Goodwill is not amortized, but is tested for impairment annually or more frequently if events or circumstances indicate that impairment may have occurred. The Company performs its annual goodwill impairment test in the
fourth fiscal quarter. The Company has a single reporting unit. The impairment test compares the estimated fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit exceeds its carrying amount, no impairment is
indicated. If the fair value of the reporting unit is less than its carrying amount, impairment of goodwill is measured as the excess of the carrying amount of goodwill over its implied fair value. The Company uses the fair value of the Company’s
publicly traded stock to estimate the fair value of the reporting unit. The estimated fair value of the reporting unit at the last impairment testing date exceeded its carrying amount; therefore, no impairment of goodwill was indicated.
Core deposit intangible (“CDI”) is a measure of the value of checking and savings deposit relationships acquired in a business combination.
The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding relative to an alternative source of funding. CDI is amortized over the
estimated useful lives of the existing deposit relationships acquired, but does not exceed 10 years. The Company evaluates such
identifiable intangibles for impairment when events and circumstances indicate that its carrying amount may not be recoverable. If an impairment loss is determined to exist, the loss is reflected as an impairment charge in the Consolidated Statements
of Income for the period in which such impairment is identified. No impairment charges were required to be recorded for the years ended
December 31, 2017, 2016
or 2015.
F-17
Income Taxes
Income tax expense (benefit) is determined using the asset and liability method and consists of income taxes that are currently payable and
deferred income taxes. Deferred income tax expense is determined by recognizing deferred tax assets and liabilities for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in years in which those temporary differences are expected to be recovered or
settled. Changes in tax rates on deferred tax assets and liabilities are recognized in income in the period that includes the enactment date. A valuation allowance is established for deferred tax assets when management determines that it is more
likely than not that some portion or all of a deferred tax asset will not be realized. In making such determinations, the Company considers all available positive and negative evidence that may impact the realization of deferred tax assets. These
considerations include the amount of taxable income generated in statutory carryback periods, future reversals of existing taxable temporary differences, projected future taxable income and available tax planning strategies.
The Company files a consolidated federal income tax return including the results of its wholly owned subsidiary, the Bank. The Company
estimates income taxes payable based on the amount it expects to owe the various tax authorities (i.e., federal and state). Income taxes represent the net estimated amount due to, or to be received from, such tax authorities. In estimating income
taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the context of the Company’s tax position. Although the Company uses the
best available information to record income taxes, underlying estimates and assumptions can change over time as a result of unanticipated events or circumstances such as changes in tax laws and judicial guidance influencing its overall tax position.
An uncertain tax position is recognized only if it is more-likely-than-not to be sustained upon examination, including resolution of any
related appeals or litigation process, based on the technical merits of the position. The amount of tax benefit recognized in the financial statements is the largest amount of benefit that is more than fifty percent likely to be sustained upon
ultimate settlement of the uncertain tax position. If the initial assessment fails to result in recognition of a tax benefit, the Company subsequently recognizes a tax benefit if there are changes in tax law or case law that raise the likelihood of
prevailing on the technical merits of the position to more-likely-than-not, the statute of limitations expires, or there is a completion of an examination resulting in a settlement of that tax year or position with the appropriate agency. The Company
recognizes interest related to unrecognized tax benefits in income tax expense (benefit) and penalties, if any, in other operating expenses.
Derivatives
The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging.” All derivatives are evaluated at
inception as to whether or not they are hedging or non-hedging activities, and appropriate documentation is maintained to support the final determination. The Company recognizes all derivatives as either assets or liabilities on the Consolidated
Balance Sheets and measures those instruments at fair value.
Certain derivative transactions with a particular counterparty, another financial institution, are subject to an enforceable master netting
arrangement. The gross liabilities and gross assets to this counterparty are reported on a net basis.
Management periodically reviews contracts from various functional areas of the Company to identify potential derivatives embedded within
selected contracts. As of December 31, 2017, the Company had interest rate derivative contracts that are not designated as hedging instruments. See Note 8 “Derivatives” for a description of these instruments.
Off-Balance Sheet Arrangements
The Company enters into contractual loan commitments to extend credit, normally with fixed expiration dates or termination clauses, at
specified rates and for specific purposes. Since a portion of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Substantially all of the commitments to
extend credit are contingent upon customers maintaining specific credit standards until the time of loan funding. The Company decreases its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
F-18
Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third
party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required
to make is represented by the contractual amount of the commitment. If the commitment is funded, the Company would be entitled to seek recovery from the customer. The Company’s policies generally require that standby letter of credit arrangements
contain security and debt covenants similar to those contained in loan agreements.
The Company assesses the credit risk associated with certain commitments to extend credit and establish a liability for probable credit
losses. The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company records a reserve in the amount considered adequate to absorb estimated losses. Since the Company has limited credit loss
history, management performs an analysis of reserve rates for a peer group comprised of banks of similar size, loan portfolio composition and geographic footprint to which FCB, its board of directors, and analysts benchmark the Banks’ performance.
This analysis involves calculating an average reserve rate for unfunded commitments using a rolling twelve quarter basis of the most recent data available. Based on this peer group analysis, FCB records a reserve for unfunded commitments calculated
using a rate in line with peer banks.
Stock-based Compensation
The Company sponsors an incentive stock option plan established in 2009 (the “2009 Option Plan”) under which options may be granted
periodically to key employees and directors of the Company or its affiliates at a specific exercise price to acquire shares of the Company’s Class A common stock. Compensation cost is measured based on the estimated fair value of the award at the
grant date and is recognized in earnings on a straight-line basis over the requisite service period. The fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model. This model requires assumptions as to
the expected stock volatility, dividends, terms and risk-free rates. The expected volatility is based on the volatility of comparable peer banks. The expected term represents the period of time that options are expected to be outstanding from the
grant date. The risk-free interest rate is based on the US Treasury yield curve in effect at the time of grant for the appropriate life of each option. The expected dividend yield was determined by management based on the expected dividends to be
declared over the expected term of the options.
In the fourth quarter of 2013, the Company established the 2013 Stock Incentive Plan (the “2013 Incentive Plan”) covering its executive
management, directors, individual consultants and employees to receive stock awards for the Company’s common stock. The 2013 Incentive Plan provided that the awards were not exercisable until certain performance conditions were met, which included
the completion of an IPO raising at least $100 million (a “Qualified IPO”) or a “Special Transaction”, generally defined as the
consummation of a transaction representing a change of control of the Company. On August 6, 2014, the Company completed the initial public offering of 7,520,000 shares of Class A common stock for $22.00 per share. This public offering constituted a
“Qualified IPO” with respect to the Company’s Option awards and 2013 Incentive Plan.
In 2016, the Company approved the FCB Financial Holdings, Inc. 2016 Stock Incentive Plan (the “2016 Incentive Plan”) covering its executive
management, directors, individual consultants and employees. The 2016 Incentive Plan provides that awards may be granted under the plan with respect to an aggregate of 2,000,000 shares of Class A Common Stock of the Company. Shares issued pursuant to the Plan may be authorized but unissued Common Stock, authorized and issued Common Stock held in the Company’s treasury or Common
Stock acquired by the Company for the purposes of the Plan. See Note 14 “Stock-based Compensation and Other Benefit Plans” for further information regarding the 2009 Option Plan and the 2013 and 2016 Incentive Plans.
Earnings per Share
Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per common share reflect the effect of common stock equivalents, including stock options and unvested shares, calculated using the treasury stock method. Common stock equivalents are excluded
from the computation of diluted earnings per common share in periods in which the effect is anti-dilutive.
F-19
Segment Reporting
The Company operates in one
reportable segment of business, Community Banking, which includes the Bank, the Company’s sole banking subsidiary. Through the Bank, the Company provides a broad range of retail and commercial banking services. Management makes operating decisions
and assesses performance based on an ongoing review of these banking operations, which constitute the Company’s only operating segment.
Recently Adopted Accounting Pronouncements
In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting” which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the
statement of cash flows. This ASU eliminates equity treatment for tax benefits or deficiencies that result from differences between the compensation cost recognized for GAAP purposes and the related tax deduction at settlement or expiration with such
changes recognized in income tax expense and excludes excess tax benefits and tax deficiencies from the calculation of assumed proceeds for earnings per share purposes since such amounts are recognized in the income statement. In addition, this ASU
simplifies the statements of cash flows by eliminating the bifurcation of excess tax benefits from operating activities to financing activities. The Company recognized approximately $22.0
million of tax benefit in the consolidated statement of income during the year ended December 31, 2017 as a result of the adoption of this guidance that previously would have been recorded in
additional paid in capital. The requirement to recognize excess tax benefits and tax deficiencies in the income statement was applied prospectively. This ASU became effective for the first quarter ended March 31, 2017.
In March 2016, the FASB issued ASU No. 2016-06, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments”
which clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the
amendments in this ASU is required to assess the embedded call (put) options solely in accordance with the four-stop decision sequence. This ASU became effective for the first quarter ended March 31, 2017. The adoption of this guidance did not have a
material impact on the consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-07, “Investments-Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the
Equity Method of Accounting” which eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment,
results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add
the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting.
Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this ASU require that an entity that has an available-for-sale equity security that becomes qualified for the
equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. This ASU became effective for the first
quarter ended March 31, 2017. The adoption of this guidance did not have a material impact on the consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40)”. This update
requires management to evaluate whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern. The guidance is intended to incorporate into GAAP a requirement that management perform a
going concern evaluation similar to the auditor’s evaluation required by standards issued by the Public Company Accounting Oversight Board (“PCAOB”) and American Institute of Certified Public Accountants (“AICPA”). This ASU became effective for the
first quarter ended March 31, 2017. The adoption of this guidance did not have a material impact on the consolidated financial statements.
F-20
Recent Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which will supersede the revenue
recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Accounting Standards Codification. Under ASU No. 2014-09, revenue should be recognized to depict the transfer of goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the guidance, an entity should 1) identify the contract(s) with a customer, 2)
identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when the entity satisfies a performance obligation.
For public entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In August 2015, the FASB issued ASU No. 2015-14 delaying the
effective date of ASU No. 2014-09. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017, including
interim reporting periods within that reporting period. This guidance should be applied to all contracts with customers except those that are within the scope of other standards. 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 is not expected to have material impact upon adoption. The Company conducted an analysis to determine the impact this
guidance would have on the components of noninterest income and did not identify any material changes on to the method of revenue recognition. Accordingly, the Company does not expect the adoption of this guidance to have a material impact on the
Company’s consolidated financial position, results of operations or cash flows. The Company has elected to adopt the new guidance under the modified retrospective approach.
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.
|
For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim
periods within those fiscal years. Early application by public business entities to financial statements of fiscal years or interim periods that have not yet been issued or, by all other entities, that have not yet been made available for issuance of
the following amendments in this ASU are permitted as of the beginning of the fiscal year of adoption:
|
1.
|
An entity should 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 if the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.
|
|
2.
|
Entities that are not public business entities are not required to apply the fair value of financial instruments disclosure guidance in the General
Subsection of Section 825-10-50.
|
Except for the early application guidance discussed above, early adoption of the amendments in this ASU is not permitted.
F-21
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. As of
December 31, 2017, the Company has equity securities in a net unrealized gain position of $1.6 million that will be reclassified from
other comprehensive income to retained earnings upon adoption.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” which created Topic 842, Leases, and supersedes the leases
requirements in Topic 840, Leases. Topic 842 specifies the accounting for leases. The core principal of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of
financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an
accounting policy election by class of underlying asset not to recognize lease assets and liabilities. For public entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years. Early application of the amendments in this ASU is permitted. 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 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)”, which is not yet effective. The effective date and
transition requirements for the amendments in this ASU are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by ASU 2014-09). ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral
of the Effective Date”, deferred the effective date of ASU 2014-09 by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods
beginning after December 15, 2017, including interim reporting periods within that reporting period. Management does not expect the adoption of this guidance to 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), which is not yet effective. The effective date and transition
requirements for the amendments in this ASU are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by ASU 2014-09). ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the
Effective Date”, deferred the effective date of ASU 2014-09 by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning
after December 15, 2017, including interim reporting periods within that reporting period. Management does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial position, results of operations or
cash flows.
F-22
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit losses (Topic 326): Measurement of credit losses on financial
instruments.” Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition
threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to
present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than
as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases,
off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For public business entities that are SEC filers, the amendments in this ASU are
effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2020,
including interim periods within those fiscal years. All entities may adopt the amendments in this ASU earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. An entity will apply the
amendments in this ASU through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). A prospective transition approach is
required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the effective date
of this ASU. Amounts previously recognized in accumulated other comprehensive income as of the date of adoption that relate to improvements in cash flows expected to be collected should continue to be accreted into income over the remaining life of
the asset. Recoveries of amounts previously written off relating to improvements in cash flows after the date of adoption should be recorded in earnings when received. The Company is currently evaluating this guidance to determine the impact on its
consolidated financial position, results of operations or cash flows.
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.
The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The
amendments in this ASU should be applied using a retrospective transition method to each period presented. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated cash flow statement.
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 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. For public business entities, the amendments in this guidance are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is
permitted for all entities as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. That is, earlier adoption should be in the first interim period if an
entity issues interim financial statements. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
F-23
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. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes
that interim period. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated cash
flow statement.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”
The amendments in this ASU modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair
value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a
business combination. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2019 including any interim periods within that reporting period where goodwill impairment tests are performed.
Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating this guidance to determine the impact on its consolidated financial position, results of
operations or cash flows.
In 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. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017.
Public entities may apply the guidance earlier but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company does not expect the adoption of this guidance to
have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In March 2017, the FASB issued ASU No. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on
Purchased Callable Debt Securities.” This ASU shortens the amortization period for certain purchased callable debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not
require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating this guidance to determine the impact on its consolidated financial position, results of operations or
cash flows.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting.” This ASU
provides clarity when applying the guidance in Topic 718, specifically relating to a modification of a share-based payment award. Entities should treat changes as modifications unless the fair value, vesting conditions, and classification of the
modified awards are unchanged from the conditions immediately before the change. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted,
including adoption in an interim period. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
F-24
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. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2018. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating this guidance to determine the impact on its consolidated financial position, results of operations or cash flows.
In 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. The amendments of ASU 2018-02 allow 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 the amendments of ASU 2018-02 in any interim period for which the financial statements have not yet been
issued. The amendments of 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 comprehensive income included $1.9 million of stranded tax effects at December 31, 2017. The Company intends to early adopt the amendments of ASU 2018-02 during the first quarter
of 2018 and plans to make an election to reclassify the stranded tax effects from accumulated other comprehensive income to retained earnings at the beginning of the period of adoption. Disclosures required by the amendments of ASU 2018-02 will be
presented in the Quarterly Report on Form 10-Q for the period ending March 31, 2018. Adoption of ASU 2018-02 is not expected to have a material impact on the Company’s consolidated financial statements.
NOTE 2. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and approximate fair values of securities available for sale are as follows:
|
|
Amortized
Cost
|
Unrealized
|
Fair
Value
|
||||||||||||
|
December 31, 2017
|
Gains
|
Losses
|
|||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
|
Available for sale:
|
|||||||||||||||
|
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
|
|
|||||||
|
Preferred stock and other equity securities
|
88,520
|
|
2,279
|
|
692
|
|
90,107
|
|
|||||||
|
Total available for sale
|
$
|
2,106,401
|
|
$
|
24,686
|
|
$
|
10,284
|
|
$
|
2,120,803
|
|
|||
F-25
|
|
Amortized
Cost
|
Unrealized
|
Fair
Value
|
||||||||||||
|
December 31, 2016
|
Gains
|
Losses
|
|||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
|
Available for sale:
|
|||||||||||||||
|
U.S. Government agencies and sponsored enterprises obligations
|
$
|
16,512
|
|
$
|
76
|
|
$
|
274
|
|
$
|
16,314
|
|
|||
|
U.S. Government agencies and sponsored enterprises mortgage-backed securities
|
566,377
|
|
1,760
|
|
9,691
|
|
558,446
|
|
|||||||
|
State and municipal obligations
|
28,109
|
|
148
|
|
578
|
|
27,679
|
|
|||||||
|
Asset-backed securities
|
574,521
|
|
3,852
|
|
550
|
|
577,823
|
|
|||||||
|
Corporate bonds and other debt securities
|
560,191
|
|
4,490
|
|
5,387
|
|
559,294
|
|
|||||||
|
Preferred stock and other equity securities
|
137,228
|
|
814
|
|
1,164
|
|
136,878
|
|
|||||||
|
Total available for sale
|
$
|
1,882,938
|
|
$
|
11,140
|
|
$
|
17,644
|
|
$
|
1,876,434
|
|
|||
As part of the Company’s liquidity management strategy, the Company pledges loans and securities to secure borrowings from the FHLB and the
FRB. The Company also pledges securities to collateralize repurchase agreements and interest rate swaps. Additionally, the Company has a Letter of Credit with the FHLB to collateralize public funds. The carrying value of all pledged securities
totaled $834.9 million and $594.0 million at December 31, 2017 and 2016, respectively.
The amortized cost and estimated fair value of securities available for sale, by contractual maturity, are as follows:
|
Amortized
Cost
|
Fair
Value
|
||||||
|
December 31, 2017
|
|||||||
|
|
(Dollars in thousands)
|
||||||
|
Available for sale:
|
|||||||
|
Due in one year or less
|
$
|
58,061
|
|
$
|
58,605
|
|
|
|
Due after one year through five years
|
225,134
|
|
228,557
|
|
|||
|
Due after five years through ten years
|
177,272
|
|
177,697
|
|
|||
|
Due after ten years
|
305,293
|
|
317,216
|
|
|||
|
U.S. Government agencies and sponsored enterprises obligations, mortgage-backed securities and tax-exempt mortgage securities, and asset-backed
securities
|
1,252,121
|
|
1,248,621
|
|
|||
|
Preferred stock and other equity securities
|
88,520
|
|
90,107
|
|
|||
|
Total available for sale
|
$
|
2,106,401
|
|
$
|
2,120,803
|
|
|
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.
F-26
The following tables present the estimated fair values and gross unrealized losses on investment securities available for sale, aggregated by
investment category and length of time individual securities have been in a continuous unrealized loss position as of the periods presented:
|
|
Less than 12 Months
|
12 Months or More
|
Total
|
||||||||||||||||||||
|
December 31, 2017
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||||||
|
Available for sale:
|
|||||||||||||||||||||||
|
U.S. Government agencies and sponsored enterprises obligations
|
$
|
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
|
|
|||||||||||
|
Preferred stock and other equity securities
|
6,041
|
|
26
|
|
20,337
|
|
666
|
|
26,378
|
|
692
|
|
|||||||||||
|
Total available for sale
|
$
|
468,080
|
|
$
|
3,472
|
|
$
|
237,959
|
|
$
|
6,812
|
|
$
|
706,039
|
|
$
|
10,284
|
|
|||||
|
|
Less than 12 Months
|
12 Months or More
|
Total
|
||||||||||||||||||||
|
December 31, 2016
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||||||
|
Available for sale:
|
|||||||||||||||||||||||
|
U.S. Government agencies and sponsored enterprises obligations
|
$
|
11,577
|
|
$
|
274
|
|
$
|
—
|
|
$
|
—
|
|
$
|
11,577
|
|
$
|
274
|
|
|||||
|
U.S. Government agencies and sponsored enterprises mortgage-backed securities
|
372,145
|
|
9,261
|
|
11,781
|
|
430
|
|
383,926
|
|
9,691
|
|
|||||||||||
|
State and municipal obligations
|
25,490
|
|
578
|
|
—
|
|
—
|
|
25,490
|
|
578
|
|
|||||||||||
|
Asset-backed securities
|
11,309
|
|
21
|
|
34,855
|
|
529
|
|
46,164
|
|
550
|
|
|||||||||||
|
Corporate bonds and other debt securities
|
179,925
|
|
3,042
|
|
77,934
|
|
2,345
|
|
257,859
|
|
5,387
|
|
|||||||||||
|
Preferred stock and other equity securities
|
49,996
|
|
1,144
|
|
5,123
|
|
20
|
|
55,119
|
|
1,164
|
|
|||||||||||
|
Total available for sale
|
$
|
650,442
|
|
$
|
14,320
|
|
$
|
129,693
|
|
$
|
3,324
|
|
$
|
780,135
|
|
$
|
17,644
|
|
|||||
At December 31, 2017, the
Company’s security portfolio consisted of 352 securities, of which 143 securities were in an unrealized loss position. A total of 85 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 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 December 31, 2017 or 2016. The
following describes the basis under which the Company has evaluated OTTI:
F-27
U.S. Government Agencies and Sponsored Enterprises Obligations and Agency Mortgage-Backed Securities (“MBS”):
The unrealized losses associated with U.S. Government agencies and sponsored enterprises obligations and agency MBS are primarily driven by
changes in interest rates. These securities have either an explicit or implicit U.S. government guarantee.
Asset-Backed Securities and Corporate Bonds & Other Debt Securities:
Securities were generally underwritten in accordance with the Company’s investment standards prior to the decision to purchase, without
relying on a bond issuer’s guarantee in making the investment decision. These investments are investment grade and will continue to be monitored as part of the Company’s ongoing impairment analysis, but are expected to perform in accordance with
their terms.
Preferred Stock and Other Equity Securities:
The unrealized losses associated with preferred stock and other equity securities in large U.S. financial institutions are primarily driven by
changes in interest rates and spreads. These securities were generally underwritten in accordance with the Company’s investment standards prior to the decision to purchase.
Gross realized gains and losses on the sale of securities available for sale are shown below. The cost of securities sold is based on the
specific identification method.
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Gross realized gains
|
$
|
4,364
|
|
$
|
3,645
|
|
$
|
2,065
|
|
||
|
Gross realized losses
|
(5,252
|
)
|
(2,066
|
)
|
(1,047
|
)
|
|||||
|
Net realized gains (losses)
|
$
|
(888
|
)
|
|
$
|
1,579
|
|
$
|
1,018
|
|
|
NOTE 3. LOANS, NET
The Company’s loan portfolio consists of New and Acquired loans. The Company classifies originated loans and purchased loans not acquired
through business combinations as New loans. The Company classifies loans acquired through business combinations as Acquired loans. All acquired loans not specifically excluded under ASC 310-30 are accounted for under ASC 310-30. The remaining
portfolio of acquired loans excluded under ASC 310-30 are accounted for under ASC 310-20 and are classified as Non-ASC 310-30 loans.
F-28
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:
|
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
|
|
||||||||||||
|
|
|
||||||||||||||
|
December 31, 2016
|
ASC
310-30
Loans
|
Non-ASC
310-30
Loans
|
New
Loans (1)
|
Total
|
|||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
|
Real estate loans:
|
|||||||||||||||
|
Commercial real estate
|
$
|
130,628
|
|
$
|
38,786
|
|
$
|
1,438,427
|
|
$
|
1,607,841
|
|
|||
|
Owner-occupied commercial real estate
|
—
|
|
18,477
|
|
769,814
|
|
788,291
|
|
|||||||
|
1-4 single family residential
|
31,476
|
|
66,854
|
|
2,012,856
|
|
2,111,186
|
|
|||||||
|
Construction, land and development
|
17,657
|
|
6,338
|
|
651,253
|
|
675,248
|
|
|||||||
|
Home equity loans and lines of credit
|
—
|
|
42,295
|
|
49,819
|
|
92,114
|
|
|||||||
|
Total real estate loans
|
$
|
179,761
|
|
$
|
172,750
|
|
$
|
4,922,169
|
|
$
|
5,274,680
|
|
|||
|
Other loans:
|
|||||||||||||||
|
Commercial and industrial
|
$
|
15,147
|
|
$
|
5,815
|
|
$
|
1,332,869
|
|
$
|
1,353,831
|
|
|||
|
Consumer
|
1,681
|
|
334
|
|
4,368
|
|
6,383
|
|
|||||||
|
Total other loans
|
16,828
|
|
6,149
|
|
1,337,237
|
|
1,360,214
|
|
|||||||
|
Total loans held in portfolio
|
$
|
196,589
|
|
$
|
178,899
|
|
$
|
6,259,406
|
|
$
|
6,634,894
|
|
|||
|
Allowance for loan losses
|
(37,897
|
)
|
|||||||||||||
|
Loans held in portfolio, net
|
$
|
6,596,997
|
|
||||||||||||
|
(1)
|
Balance includes $(6.6) million and $3.2 million of net deferred fees, costs, and premium and discount as of December 31, 2017 and 2016,
respectively.
|
At December 31, 2017 and 2016, the UPB of ASC 310-30 loans were $183.9 million and $231.5 million, respectively. At December 31, 2017 and 2016, the
Company had pledged loans as collateral for FHLB advances of $3.36 billion and $3.20 billion, respectively. The recorded investments of consumer mortgage loans secured by 1-4 family residential real estate properties for which
formal foreclosure proceedings are in process as of December 31, 2017 totaled $3.2
million. The balance of real estate owned includes $1.2 million and $1.7 million of residential real estate properties as of December 31, 2017 and 2016, respectively. The Company held $289.1 million and $433.0 million
of syndicated national loans as of December 31, 2017 and 2016, respectively.
F-29
During the years ended December 31, 2017, 2016 and 2015 the Company purchased approximately $22.9 million, $199.0 million and $379.3 million
in primarily 1-4 single family residential loans from third parties.
During the years ended December 31, 2017, 2016 and 2015, the Company sold approximately $383.6 million, $128.7 million and $91.8 million,
respectively, in loans to third parties.
The accretable discount on ASC 310-30 loans represents the amount by which the undiscounted expected cash flows on such loans exceed their
carrying value. The change in expected cash flow for certain ASC 310-30 loan pools resulted in the reclassification of $(2.3) million,
$(28.7) million and $43.0 million between non-accretable and accretable discount during the years ended December 31, 2017, 2016 and 2015, respectively.
Changes in accretable discount for ASC 310-30 loans were as follows:
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Balance at January 1,
|
$
|
60,990
|
|
$
|
144,152
|
|
$
|
156,197
|
|
||
|
Accretion
|
(17,523
|
)
|
(54,427
|
)
|
(55,019
|
)
|
|||||
|
Reclassifications from non-accretable difference
|
(2,305
|
)
|
(28,735
|
)
|
42,974
|
|
|||||
|
Balance at December 31,
|
$
|
41,162
|
|
$
|
60,990
|
|
$
|
144,152
|
|
||
NOTE 4. ALLOWANCE FOR LOAN LOSSES
The Company’s accounting method for loans and the corresponding 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 third quarter of 2017, in response to Hurricane Irma, the Company recorded an unallocated provision expense of $1.5 million to reflect management’s estimate of probable credit losses inherent in the loan portfolio related specifically to the storm.
F-30
Changes in the ALL by loan portfolio and segment for the years ended December 31,
2017, 2016, and 2015 are as follows:
|
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
|
(839
|
)
|
—
|
|
31
|
|
(51
|
)
|
—
|
|
(192
|
)
|
(99
|
)
|
(1,150
|
)
|
|||||||||||||||
|
Provision (credit) for non-ASC 310-30 loans
|
(8
|
)
|
(6
|
)
|
(146
|
)
|
(11
|
)
|
(37
|
)
|
(64
|
)
|
(29
|
)
|
(301
|
)
|
|||||||||||||||
|
Provision (credit) for New loans
|
4,723
|
|
774
|
|
720
|
|
(227
|
)
|
73
|
|
3,260
|
|
43
|
|
9,366
|
|
|||||||||||||||
|
Provision (credit) for Unallocated
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,500
|
|
|||||||||||||||
|
Total provision
|
3,876
|
|
768
|
|
605
|
|
(289
|
)
|
36
|
|
3,004
|
|
(85
|
)
|
9,415
|
|
|||||||||||||||
|
Charge-offs for ASC 310-30 loans
|
(9
|
)
|
—
|
|
(35
|
)
|
(43
|
)
|
—
|
|
(29
|
)
|
—
|
|
(116
|
)
|
|||||||||||||||
|
Charge-offs for non-ASC 310-30 loans
|
(30
|
)
|
—
|
|
(69
|
)
|
—
|
|
(7
|
)
|
(3
|
)
|
—
|
|
(109
|
)
|
|||||||||||||||
|
Charge-offs for New loans
|
(131
|
)
|
—
|
|
—
|
|
—
|
|
(3
|
)
|
(150
|
)
|
—
|
|
(284
|
)
|
|||||||||||||||
|
Total charge-offs
|
(170
|
)
|
—
|
|
(104
|
)
|
(43
|
)
|
(10
|
)
|
(182
|
)
|
—
|
|
(509
|
)
|
|||||||||||||||
|
Recoveries for ASC 310-30 loans
|
41
|
|
—
|
|
—
|
|
—
|
|
—
|
|
70
|
|
100
|
|
211
|
|
|||||||||||||||
|
Recoveries for non-ASC 310-30 loans
|
—
|
|
—
|
|
98
|
|
—
|
|
—
|
|
4
|
|
29
|
|
131
|
|
|||||||||||||||
|
Recoveries for New loans
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Total recoveries
|
41
|
|
—
|
|
98
|
|
—
|
|
—
|
|
74
|
|
129
|
|
342
|
|
|||||||||||||||
|
Ending ALL balance
|
|||||||||||||||||||||||||||||||
|
ASC 310-30 loans
|
1,448
|
|
—
|
|
25
|
|
145
|
|
—
|
|
126
|
|
145
|
|
1,889
|
|
|||||||||||||||
|
Non-ASC 310-30 loans
|
338
|
|
55
|
|
184
|
|
36
|
|
199
|
|
313
|
|
6
|
|
1,131
|
|
|||||||||||||||
|
New loans
|
12,084
|
|
3,310
|
|
7,769
|
|
4,164
|
|
475
|
|
14,702
|
|
121
|
|
42,625
|
|
|||||||||||||||
|
Unallocated
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,500
|
|
|||||||||||||||
|
Balance at December 31, 2017
|
$
|
13,870
|
|
$
|
3,365
|
|
$
|
7,978
|
|
$
|
4,345
|
|
$
|
674
|
|
$
|
15,141
|
|
$
|
272
|
|
$
|
47,145
|
|
|||||||
F-31
|
Commercial
Real Estate
|
Owner-
Occupied
Commercial
Real Estate
|
1- 4 Single
Family
Residential
|
Construction,
Land and
Development
|
Home
Equity
Loans and
Lines of
Credit
|
Commercial
and
Industrial
|
Consumer
|
Total
|
||||||||||||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||||||||||||||
|
Balance at January 1, 2016
|
$
|
8,450
|
|
$
|
2,243
|
|
$
|
6,425
|
|
$
|
3,404
|
|
$
|
483
|
|
$
|
7,665
|
|
$
|
456
|
|
$
|
29,126
|
|
|||||||
|
Provision (credit) for ASC 310-30 loans
|
(124
|
)
|
—
|
|
3
|
|
(128
|
)
|
—
|
|
(108
|
)
|
(156
|
)
|
(513
|
)
|
|||||||||||||||
|
Provision (credit) for non-ASC 310-30 loans
|
(1,512
|
)
|
(401
|
)
|
(31
|
)
|
11
|
|
(21
|
)
|
316
|
|
8
|
|
(1,630
|
)
|
|||||||||||||||
|
Provision (credit) for New loans
|
2,024
|
|
756
|
|
982
|
|
1,351
|
|
213
|
|
4,440
|
|
32
|
|
9,798
|
|
|||||||||||||||
|
Total provision
|
388
|
|
355
|
|
954
|
|
1,234
|
|
192
|
|
4,648
|
|
(116
|
)
|
7,655
|
|
|||||||||||||||
|
Charge-offs for ASC 310-30 loans
|
(429
|
)
|
—
|
|
(31
|
)
|
(33
|
)
|
—
|
|
(79
|
)
|
(106
|
)
|
(678
|
)
|
|||||||||||||||
|
Charge-offs for non-ASC 310-30 loans
|
—
|
|
(1
|
)
|
—
|
|
—
|
|
(35
|
)
|
—
|
|
(6
|
)
|
(42
|
)
|
|||||||||||||||
|
Charge-offs for New loans
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Total charge-offs
|
(429
|
)
|
(1
|
)
|
(31
|
)
|
(33
|
)
|
(35
|
)
|
(79
|
)
|
(112
|
)
|
(720
|
)
|
|||||||||||||||
|
Recoveries for ASC 310-30 loans
|
910
|
|
—
|
|
31
|
|
72
|
|
—
|
|
11
|
|
—
|
|
1,024
|
|
|||||||||||||||
|
Recoveries for non-ASC 310-30 loans
|
804
|
|
—
|
|
—
|
|
—
|
|
8
|
|
—
|
|
—
|
|
812
|
|
|||||||||||||||
|
Recoveries for New loans
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Total recoveries
|
1,714
|
|
—
|
|
31
|
|
72
|
|
8
|
|
11
|
|
—
|
|
1,836
|
|
|||||||||||||||
|
Ending ALL balance
|
|||||||||||||||||||||||||||||||
|
ASC 310-30 loans
|
2,255
|
|
—
|
|
29
|
|
239
|
|
—
|
|
277
|
|
144
|
|
2,944
|
|
|||||||||||||||
|
Non-ASC 310-30 loans
|
376
|
|
61
|
|
301
|
|
47
|
|
243
|
|
376
|
|
6
|
|
1,410
|
|
|||||||||||||||
|
New loans
|
7,492
|
|
2,536
|
|
7,049
|
|
4,391
|
|
405
|
|
11,592
|
|
78
|
|
33,543
|
|
|||||||||||||||
|
Balance at December 31, 2016
|
$
|
10,123
|
|
$
|
2,597
|
|
$
|
7,379
|
|
$
|
4,677
|
|
$
|
648
|
|
$
|
12,245
|
|
$
|
228
|
|
$
|
37,897
|
|
|||||||
F-32
|
|
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, 2015
|
$
|
8,206
|
|
$
|
1,020
|
|
$
|
4,740
|
|
$
|
2,456
|
|
$
|
355
|
|
$
|
5,745
|
|
$
|
358
|
|
$
|
22,880
|
|
|||||||
|
Provision (credit) for ASC 310-30 loans
|
(1,487
|
)
|
—
|
|
(37
|
)
|
(681
|
)
|
—
|
|
(39
|
)
|
175
|
|
(2,069
|
)
|
|||||||||||||||
|
Provision (credit) for non-ASC 310-30 loans
|
589
|
|
405
|
|
46
|
|
(39
|
)
|
138
|
|
11
|
|
6
|
|
1,156
|
|
|||||||||||||||
|
Provision (credit) for New loans
|
1,012
|
|
818
|
|
2,066
|
|
1,317
|
|
122
|
|
2,417
|
|
(16
|
)
|
7,736
|
|
|||||||||||||||
|
Total provision
|
114
|
|
1,223
|
|
2,075
|
|
597
|
|
260
|
|
2,389
|
|
165
|
|
6,823
|
|
|||||||||||||||
|
Charge-offs for ASC 310-30 loans
|
(270
|
)
|
—
|
|
(436
|
)
|
(56
|
)
|
—
|
|
(643
|
)
|
(60
|
)
|
(1,465
|
)
|
|||||||||||||||
|
Charge-offs for non-ASC 310-30 loans
|
—
|
|
—
|
|
(128
|
)
|
—
|
|
(132
|
)
|
—
|
|
(8
|
)
|
(268
|
)
|
|||||||||||||||
|
Charge-offs for New loans
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(15
|
)
|
—
|
|
(15
|
)
|
|||||||||||||||
|
Total charge-offs
|
(270
|
)
|
—
|
|
(564
|
)
|
(56
|
)
|
(132
|
)
|
(658
|
)
|
(68
|
)
|
(1,748
|
)
|
|||||||||||||||
|
Recoveries for ASC 310-30 loans
|
400
|
|
—
|
|
174
|
|
407
|
|
—
|
|
177
|
|
1
|
|
1,159
|
|
|||||||||||||||
|
Recoveries for non-ASC 310-30 loans
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Recoveries for New loans
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
12
|
|
—
|
|
12
|
|
|||||||||||||||
|
Total recoveries
|
400
|
|
—
|
|
174
|
|
407
|
|
—
|
|
189
|
|
1
|
|
1,171
|
|
|||||||||||||||
|
Ending ALL balance
|
|||||||||||||||||||||||||||||||
|
ASC 310-30 loans
|
1,898
|
|
—
|
|
26
|
|
328
|
|
—
|
|
453
|
|
406
|
|
3,111
|
|
|||||||||||||||
|
Non-ASC 310-30 loans
|
1,084
|
|
463
|
|
332
|
|
36
|
|
291
|
|
60
|
|
4
|
|
2,270
|
|
|||||||||||||||
|
New loans
|
5,468
|
|
1,780
|
|
6,067
|
|
3,040
|
|
192
|
|
7,152
|
|
46
|
|
23,745
|
|
|||||||||||||||
|
Balance at December 31, 2015
|
$
|
8,450
|
|
$
|
2,243
|
|
$
|
6,425
|
|
$
|
3,404
|
|
$
|
483
|
|
$
|
7,665
|
|
$
|
456
|
|
$
|
29,126
|
|
|||||||
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.
F-33
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
|
|
|
||||||||||||||||
|
December 31, 2017
|
30 to 59
Days Past
Due
|
60 to 89
Days Past
Due
|
90 Days or
More Past
Due
|
Non-
Accrual
|
Total
|
||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||
|
New loans:
|
|||||||||||||||||||
|
Real estate loans:
|
|||||||||||||||||||
|
Commercial real estate
|
$
|
324
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
324
|
|
||||
|
Owner-occupied commercial real estate
|
843
|
|
150
|
|
—
|
|
—
|
|
993
|
|
|||||||||
|
1-4 single family residential
|
1,179
|
|
1,310
|
|
—
|
|
3,167
|
|
5,656
|
|
|||||||||
|
Construction, land and development
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Home equity loans and lines of credit
|
—
|
|
—
|
|
—
|
|
126
|
|
126
|
|
|||||||||
|
Total real estate loans
|
$
|
2,346
|
|
$
|
1,460
|
|
$
|
—
|
|
$
|
3,293
|
|
$
|
7,099
|
|
||||
|
Other loans:
|
|||||||||||||||||||
|
Commercial and industrial
|
$
|
4,980
|
|
$
|
2,167
|
|
$
|
—
|
|
$
|
—
|
|
$
|
7,147
|
|
||||
|
Consumer
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Total other loans
|
4,980
|
|
2,167
|
|
—
|
|
—
|
|
7,147
|
|
|||||||||
|
Total New loans
|
$
|
7,326
|
|
$
|
3,627
|
|
$
|
—
|
|
$
|
3,293
|
|
$
|
14,246
|
|
||||
|
Acquired loans:
|
|||||||||||||||||||
|
Real estate loans:
|
|||||||||||||||||||
|
Commercial real estate
|
$
|
360
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,893
|
|
$
|
4,253
|
|
||||
|
Owner-occupied commercial real estate
|
290
|
|
—
|
|
—
|
|
494
|
|
784
|
|
|||||||||
|
1-4 single family residential
|
892
|
|
44
|
|
—
|
|
1,331
|
|
2,267
|
|
|||||||||
|
Construction, land and development
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Home equity loans and lines of credit
|
1,128
|
|
—
|
|
—
|
|
1,720
|
|
2,848
|
|
|||||||||
|
Total real estate loans
|
$
|
2,670
|
|
$
|
44
|
|
$
|
—
|
|
$
|
7,438
|
|
$
|
10,152
|
|
||||
|
Other loans:
|
|||||||||||||||||||
|
Commercial and industrial
|
$
|
101
|
|
$
|
—
|
|
$
|
—
|
|
$
|
394
|
|
$
|
495
|
|
||||
|
Consumer
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Total other loans
|
101
|
|
—
|
|
—
|
|
394
|
|
495
|
|
|||||||||
|
Total acquired loans
|
$
|
2,771
|
|
$
|
44
|
|
$
|
—
|
|
$
|
7,832
|
|
$
|
10,647
|
|
||||
F-34
|
|
Accruing
|
|
|
||||||||||||||||
|
December 31, 2016
|
30 to 59
Days Past
Due
|
60 to 89
Days Past
Due
|
90 Days or
More Past
Due
|
Non-
Accrual
|
Total
|
||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||
|
New loans:
|
|||||||||||||||||||
|
Real estate loans:
|
|||||||||||||||||||
|
Commercial real estate
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
581
|
|
$
|
581
|
|
||||
|
Owner-occupied commercial real estate
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
1-4 single family residential
|
1,593
|
|
—
|
|
—
|
|
1,821
|
|
3,414
|
|
|||||||||
|
Construction, land and development
|
449
|
|
—
|
|
—
|
|
—
|
|
449
|
|
|||||||||
|
Home equity loans and lines of credit
|
255
|
|
—
|
|
—
|
|
243
|
|
498
|
|
|||||||||
|
Total real estate loans
|
$
|
2,297
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,645
|
|
|
$
|
4,942
|
|
|
Other loans:
|
|||||||||||||||||||
|
Commercial and industrial
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Consumer
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Total other loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
|
Total New loans
|
$
|
2,297
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,645
|
|
$
|
4,942
|
|
||||
|
Acquired Loans:
|
|||||||||||||||||||
|
Real estate loans:
|
|||||||||||||||||||
|
Commercial real estate
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
4,720
|
|
$
|
4,720
|
|
||||
|
Owner-occupied commercial real estate
|
93
|
|
—
|
|
—
|
|
2,502
|
|
2,595
|
|
|||||||||
|
1-4 single family residential
|
207
|
|
—
|
|
—
|
|
2,728
|
|
2,935
|
|
|||||||||
|
Construction, land and development
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Home equity loans and lines of credit
|
520
|
|
42
|
|
—
|
|
2,557
|
|
3,119
|
|
|||||||||
|
Total real estate loans
|
$
|
820
|
|
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
12,507
|
|
|
$
|
13,369
|
|
|
Other loans:
|
|||||||||||||||||||
|
Commercial and industrial
|
$
|
—
|
|
$
|
128
|
|
$
|
—
|
|
$
|
325
|
|
$
|
453
|
|
||||
|
Consumer
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Total other loans
|
—
|
|
|
128
|
|
|
—
|
|
|
325
|
|
|
453
|
|
|||||
|
Total acquired loans
|
$
|
820
|
|
|
$
|
170
|
|
|
$
|
—
|
|
|
$
|
12,832
|
|
|
$
|
13,822
|
|
Loans exhibiting potential credit weaknesses that deserve management’s close attention and that, if left uncorrected, may result in
deterioration of the repayment capacity of the borrower, are categorized as special mention. Loans with well-defined credit weaknesses including payment defaults, declining collateral values, frequent overdrafts, operating losses, increasing balance
sheet leverage, inadequate cash flow, project cost overruns, unreasonable construction delays, past due real estate taxes or exhausted interest reserves, are assigned an internal risk rating of substandard. A loan with a weakness so severe that
collection in full is highly questionable or improbable will be assigned an internal risk rating of doubtful.
F-35
The following tables summarize the Company’s commercial Non-ASC 310-30 and New loans by key indicators of credit quality. Loans accounted for under ASC 310-30
are excluded from the following analysis because their related allowance is determined by loan pool performance:
|
December 31, 2017
|
Pass
|
Special
Mention
|
Substandard
|
Doubtful
|
|||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
|
New loans:
|
|||||||||||||||
|
Commercial real estate
|
$
|
2,095,560
|
|
$
|
6,066
|
|
$
|
2,162
|
|
$
|
—
|
|
|||
|
Owner-occupied commercial real estate
|
987,781
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Construction, land and development
|
684,462
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Commercial and industrial
|
1,617,462
|
|
16,910
|
|
—
|
|
—
|
|
|||||||
|
Total New loans
|
$
|
5,385,265
|
|
$
|
22,976
|
|
$
|
2,162
|
|
$
|
—
|
|
|||
|
Acquired loans:
|
|||||||||||||||
|
Commercial real estate
|
$
|
33,496
|
|
$
|
—
|
|
$
|
4,240
|
|
$
|
—
|
|
|||
|
Owner-occupied commercial real estate
|
15,607
|
|
—
|
|
493
|
|
—
|
|
|||||||
|
Construction, land and development
|
5,889
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Commercial and industrial
|
4,324
|
|
—
|
|
738
|
|
—
|
|
|||||||
|
Total acquired loans
|
$
|
59,316
|
|
$
|
—
|
|
$
|
5,471
|
|
$
|
—
|
|
|||
|
December 31, 2016
|
Pass
|
Special
Mention |
Substandard
|
Doubtful
|
|||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
|
New loans:
|
|||||||||||||||
|
Commercial real estate
|
$
|
1,435,633
|
|
$
|
—
|
|
$
|
2,794
|
|
$
|
—
|
|
|||
|
Owner-occupied commercial real estate
|
769,640
|
|
174
|
|
—
|
|
—
|
|
|||||||
|
Construction, land and development
|
651,253
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Commercial and industrial
|
1,332,869
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Total New loans
|
$
|
4,189,395
|
|
$
|
174
|
|
$
|
2,794
|
|
$
|
—
|
|
|||
|
Acquired loans:
|
|||||||||||||||
|
Commercial real estate
|
$
|
33,705
|
|
$
|
—
|
|
$
|
5,081
|
|
$
|
—
|
|
|||
|
Owner-occupied commercial real estate
|
18,388
|
|
—
|
|
89
|
|
—
|
|
|||||||
|
Construction, land and development
|
6,338
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Commercial and industrial
|
5,134
|
|
—
|
|
681
|
|
—
|
|
|||||||
|
Total acquired loans
|
$
|
63,565
|
|
$
|
—
|
|
$
|
5,851
|
|
$
|
—
|
|
|||
Internal risk ratings are a key factor in identifying loans to be individually evaluated for impairment and impact management’s estimates of
loss factors used in determining the amount of the ALL.
F-36
The following tables show the Company’s investment in loans disaggregated based on the method of evaluating impairment:
|
|
Loans - Recorded Investment
|
Allowance for Credit Loss
|
|||||||||||||||||||||
|
December 31, 2017
|
Individually
Evaluated for
Impairment
|
Collectively
Evaluated for
Impairment
|
ASC 310-
30 Loans
|
Individually
Evaluated for
Impairment
|
Collectively
Evaluated for
Impairment
|
ASC 310-
30 Loans
|
|||||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||||||
|
New loans:
|
|||||||||||||||||||||||
|
Real estate loans:
|
|||||||||||||||||||||||
|
Commercial real estate
|
$
|
—
|
|
$
|
2,103,788
|
|
$
|
—
|
|
$
|
—
|
|
$
|
12,084
|
|
$
|
—
|
|
|||||
|
Owner-occupied commercial real estate
|
—
|
|
987,781
|
|
—
|
|
—
|
|
3,310
|
|
—
|
|
|||||||||||
|
1-4 single family residential
|
1,096
|
|
2,184,266
|
|
—
|
|
—
|
|
7,769
|
|
—
|
|
|||||||||||
|
Construction, land and development
|
—
|
|
684,462
|
|
—
|
|
—
|
|
4,164
|
|
—
|
|
|||||||||||
|
Home equity loans and lines of credit
|
130
|
|
59,506
|
|
—
|
|
66
|
|
409
|
|
—
|
|
|||||||||||
|
Total real estate loans
|
$
|
1,226
|
|
$
|
6,019,803
|
|
$
|
—
|
|
$
|
66
|
|
$
|
27,736
|
|
$
|
—
|
|
|||||
|
Other loans
|
|||||||||||||||||||||||
|
Commercial and industrial
|
$
|
—
|
|
$
|
1,634,372
|
|
$
|
—
|
|
$
|
—
|
|
$
|
14,702
|
|
$
|
—
|
|
|||||
|
Consumer
|
—
|
|
5,984
|
|
—
|
|
—
|
|
121
|
|
—
|
|
|||||||||||
|
Total other loans
|
$
|
—
|
|
$
|
1,640,356
|
|
$
|
—
|
|
$
|
—
|
|
$
|
14,823
|
|
$
|
—
|
|
|||||
|
Acquired loans:
|
|||||||||||||||||||||||
|
Real estate loans:
|
|||||||||||||||||||||||
|
Commercial real estate
|
$
|
3,893
|
|
$
|
33,843
|
|
$
|
104,335
|
|
$
|
129
|
|
$
|
209
|
|
$
|
1,448
|
|
|||||
|
Owner-occupied commercial real estate
|
—
|
|
16,100
|
|
—
|
|
—
|
|
55
|
|
—
|
|
|||||||||||
|
1-4 single family residential
|
267
|
|
57,428
|
|
27,513
|
|
—
|
|
184
|
|
25
|
|
|||||||||||
|
Construction, land and development
|
—
|
|
5,889
|
|
13,167
|
|
—
|
|
36
|
|
145
|
|
|||||||||||
|
Home equity loans and lines of credit
|
495
|
|
34,094
|
|
—
|
|
—
|
|
199
|
|
—
|
|
|||||||||||
|
Total real estate loans
|
$
|
4,655
|
|
$
|
147,354
|
|
$
|
145,015
|
|
$
|
129
|
|
$
|
683
|
|
$
|
1,618
|
|
|||||
|
Other loans
|
|||||||||||||||||||||||
|
Commercial and industrial
|
272
|
|
4,790
|
|
12,631
|
|
272
|
|
41
|
|
126
|
|
|||||||||||
|
Consumer
|
—
|
|
259
|
|
1,423
|
|
—
|
|
6
|
|
145
|
|
|||||||||||
|
Total other loans
|
$
|
272
|
|
$
|
5,049
|
|
$
|
14,054
|
|
$
|
272
|
|
$
|
47
|
|
$
|
271
|
|
|||||
|
Total Loans:
|
|||||||||||||||||||||||
|
Unallocated
|
$
|
—
|
|
$
|
7,977,784
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,500
|
|
$
|
—
|
|
|||||
F-37
|
|
Loans - Recorded Investment
|
Allowance for Credit Loss
|
|||||||||||||||||||||
|
December 31, 2016
|
Individually
Evaluated for
Impairment
|
Collectively
Evaluated for
Impairment
|
ASC 310-
30 Loans
|
Individually
Evaluated for
Impairment
|
Collectively
Evaluated for
Impairment
|
ASC 310-
30 Loans
|
|||||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||||||
|
New loans:
|
|||||||||||||||||||||||
|
Real estate loans:
|
|||||||||||||||||||||||
|
Commercial real estate
|
$
|
581
|
|
$
|
1,437,846
|
|
$
|
—
|
|
$
|
221
|
|
$
|
7,271
|
|
$
|
—
|
|
|||||
|
Owner-occupied commercial real estate
|
—
|
|
769,814
|
|
—
|
|
—
|
|
2,536
|
|
—
|
|
|||||||||||
|
1-4 single family residential
|
524
|
|
2,012,332
|
|
—
|
|
—
|
|
7,049
|
|
—
|
|
|||||||||||
|
Construction, land and development
|
—
|
|
651,253
|
|
—
|
|
—
|
|
4,391
|
|
—
|
|
|||||||||||
|
Home equity loans and lines of credit
|
66
|
|
49,753
|
|
—
|
|
66
|
|
339
|
|
—
|
|
|||||||||||
|
Total real estate loans
|
$
|
1,171
|
|
$
|
4,920,998
|
|
$
|
—
|
|
$
|
287
|
|
$
|
21,586
|
|
$
|
—
|
|
|||||
|
Other loans
|
|||||||||||||||||||||||
|
Commercial and industrial
|
—
|
|
1,332,869
|
|
—
|
|
—
|
|
11,592
|
|
—
|
|
|||||||||||
|
Consumer
|
—
|
|
4,368
|
|
—
|
|
—
|
|
78
|
|
—
|
|
|||||||||||
|
Total other loans
|
$
|
—
|
|
$
|
1,337,237
|
|
$
|
—
|
|
$
|
—
|
|
$
|
11,670
|
|
$
|
—
|
|
|||||
|
Acquired Loans:
|
|||||||||||||||||||||||
|
Real estate loans:
|
|||||||||||||||||||||||
|
Commercial real estate
|
$
|
4,720
|
|
$
|
34,066
|
|
$
|
130,628
|
|
$
|
175
|
|
$
|
201
|
|
$
|
2,255
|
|
|||||
|
Owner-occupied commercial real estate
|
—
|
|
18,477
|
|
—
|
|
—
|
|
61
|
|
—
|
|
|||||||||||
|
1-4 single family residential
|
1,612
|
|
65,242
|
|
31,476
|
|
88
|
|
213
|
|
29
|
|
|||||||||||
|
Construction, land and development
|
—
|
|
6,338
|
|
17,657
|
|
—
|
|
47
|
|
239
|
|
|||||||||||
|
Home equity loans and lines of credit
|
1,050
|
|
41,245
|
|
—
|
|
—
|
|
243
|
|
—
|
|
|||||||||||
|
Total real estate loans
|
$
|
7,382
|
|
$
|
165,368
|
|
$
|
179,761
|
|
$
|
263
|
|
$
|
765
|
|
$
|
2,523
|
|
|||||
|
Other loans
|
|||||||||||||||||||||||
|
Commercial and industrial
|
325
|
|
5,490
|
|
15,147
|
|
325
|
|
51
|
|
277
|
|
|||||||||||
|
Consumer
|
—
|
|
334
|
|
1,681
|
|
—
|
|
6
|
|
144
|
|
|||||||||||
|
Total other loans
|
$
|
325
|
|
$
|
5,824
|
|
$
|
16,828
|
|
$
|
325
|
|
$
|
57
|
|
$
|
421
|
|
|||||
F-38
The following tables set forth certain information regarding the Company’s impaired loans (excluding loans accounted for under ASC 310-30) that were evaluated
for specific reserves:
|
|
Impaired Loans - With Allowance
|
Impaired Loans - With no
Allowance
|
|||||||||||||||||
|
December 31, 2017
|
Recorded
Investment
|
Unpaid
Principal
Balance
|
Related
Allowance
|
Recorded
Investment
|
Unpaid
Principal
Balance
|
||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||
|
New loans:
|
|||||||||||||||||||
|
Real estate loans:
|
|||||||||||||||||||
|
Commercial real estate
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Owner-occupied commercial real estate
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
1-4 single family residential
|
—
|
|
—
|
|
—
|
|
1,096
|
|
1,096
|
|
|||||||||
|
Construction, land and development
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Home equity loans and lines of credit
|
66
|
|
66
|
|
66
|
|
63
|
|
63
|
|
|||||||||
|
Total real estate loans
|
$
|
66
|
|
$
|
66
|
|
$
|
66
|
|
$
|
1,159
|
|
$
|
1,159
|
|
||||
|
Other loans
|
|||||||||||||||||||
|
Commercial and industrial
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Consumer
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Total other loans
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Acquired loans:
|
|||||||||||||||||||
|
Real estate loans:
|
|||||||||||||||||||
|
Commercial real estate
|
$
|
336
|
|
$
|
347
|
|
$
|
129
|
|
$
|
3,557
|
|
$
|
4,991
|
|
||||
|
Owner-occupied commercial real estate
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
1-4 single family residential
|
—
|
|
—
|
|
—
|
|
267
|
|
267
|
|
|||||||||
|
Construction, land and development
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Home equity loans and lines of credit
|
—
|
|
—
|
|
—
|
|
495
|
|
495
|
|
|||||||||
|
Total real estate loans
|
$
|
336
|
|
$
|
347
|
|
$
|
129
|
|
$
|
4,319
|
|
$
|
5,753
|
|
||||
|
Other loans
|
|||||||||||||||||||
|
Commercial and industrial
|
272
|
|
272
|
|
272
|
|
—
|
|
—
|
|
|||||||||
|
Consumer
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Total other loans
|
$
|
272
|
|
$
|
272
|
|
$
|
272
|
|
$
|
—
|
|
$
|
—
|
|
||||
F-39
|
|
Impaired Loans - With Allowance
|
Impaired Loans - With no
Allowance
|
|||||||||||||||||
|
December 31, 2016
|
Recorded
Investment
|
Unpaid
Principal
Balance
|
Related
Allowance
|
Recorded
Investment
|
Unpaid
Principal
Balance
|
||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||
|
New loans:
|
|||||||||||||||||||
|
Real estate loans:
|
|||||||||||||||||||
|
Commercial real estate
|
$
|
581
|
|
$
|
581
|
|
$
|
221
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Owner-occupied commercial real estate
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
1-4 single family residential
|
—
|
|
—
|
|
—
|
|
524
|
|
524
|
|
|||||||||
|
Construction, land and development
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Home equity loans and lines of credit
|
66
|
|
66
|
|
66
|
|
—
|
|
—
|
|
|||||||||
|
Total real estate loans
|
$
|
647
|
|
$
|
647
|
|
$
|
287
|
|
$
|
524
|
|
$
|
524
|
|
||||
|
Other loans
|
|||||||||||||||||||
|
Commercial and industrial
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Consumer
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Total other loans
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Acquired loans:
|
|||||||||||||||||||
|
Real estate loans:
|
|||||||||||||||||||
|
Commercial real estate
|
$
|
630
|
|
$
|
650
|
|
$
|
175
|
|
$
|
4,090
|
|
$
|
5,397
|
|
||||
|
Owner-occupied commercial real estate
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
1-4 single family residential
|
565
|
|
512
|
|
88
|
|
1,047
|
|
1,047
|
|
|||||||||
|
Construction, land and development
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Home equity loans and lines of credit
|
—
|
|
—
|
|
—
|
|
1,050
|
|
1,415
|
|
|||||||||
|
Total real estate loans
|
$
|
1,195
|
|
$
|
1,162
|
|
$
|
263
|
|
$
|
6,187
|
|
$
|
7,859
|
|
||||
|
Other loans
|
|||||||||||||||||||
|
Commercial and industrial
|
325
|
|
325
|
|
325
|
|
—
|
|
—
|
|
|||||||||
|
Consumer
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Total other loans
|
$
|
325
|
|
$
|
325
|
|
$
|
325
|
|
$
|
—
|
|
$
|
—
|
|
||||
F-40
The following table presents the average recorded investment and interest income recognized during the period subsequent to impairment on loans individually
evaluated for impairment:
|
|
Years Ended December 31,
|
||||||||||||||
|
|
2017
|
2016
|
|||||||||||||
|
|
Average
Recorded
Investment
|
Interest
Income
Recognized
|
Average
Recorded
Investment
|
Interest
Income
Recognized
|
|||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
|
Impaired loans with no related allowance:
|
|||||||||||||||
|
Real estate loans:
|
|||||||||||||||
|
Commercial real estate
|
$
|
3,653
|
|
$
|
—
|
|
$
|
4,245
|
|
$
|
—
|
|
|||
|
Owner-occupied commercial real estate
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
1-4 single family residential
|
1,363
|
|
—
|
|
816
|
|
—
|
|
|||||||
|
Construction, land and development
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Home equity loans and lines of credit
|
670
|
|
—
|
|
1,272
|
|
—
|
|
|||||||
|
Total real estate loans
|
$
|
5,686
|
|
|
$
|
—
|
|
|
$
|
6,333
|
|
|
$
|
—
|
|
|
Other loans:
|
|||||||||||||||
|
Commercial and industrial
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Consumer
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Total other loans
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Impaired loans with an allowance:
|
|||||||||||||||
|
Real estate loans:
|
|||||||||||||||
|
Commercial real estate
|
$
|
480
|
|
$
|
—
|
|
$
|
959
|
|
$
|
—
|
|
|||
|
Owner-occupied commercial real estate
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
1-4 single family residential
|
—
|
|
—
|
|
424
|
|
—
|
|
|||||||
|
Construction, land and development
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Home equity loans and lines of credit
|
66
|
|
—
|
|
44
|
|
—
|
|
|||||||
|
Total real estate loans
|
$
|
546
|
|
|
$
|
—
|
|
|
$
|
1,427
|
|
|
$
|
—
|
|
|
Other loans:
|
|||||||||||||||
|
Commercial and industrial
|
317
|
|
—
|
|
170
|
|
—
|
|
|||||||
|
Consumer
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Total other loans
|
$
|
317
|
|
|
$
|
—
|
|
|
$
|
170
|
|
|
$
|
—
|
|
NOTE 5. COVERED ASSETS AND LOSS SHARING AGREEMENTS
On March 4, 2015, the Bank entered into an agreement with the FDIC to terminate all loss sharing agreements which were entered into in 2010
and 2011 in conjunction with the Bank’s acquisition of substantially all of the assets and assumption of substantially all of the liabilities of six failed banks in FDIC-assisted acquisitions. Under the early termination agreements, all rights and
obligations of the Bank and the FDIC under the loss share agreements, including the clawback provisions, have been eliminated.
The Bank paid the FDIC $14.8 million as consideration for the early termination to settle its obligation under the FDIC Clawback Liability. The early termination was recorded in the Bank’s financial statements by removing the FDIC
Indemnification Asset receivable, the FDIC Clawback liability and recording a one-time, pre-tax loss on termination of $65.5 million.
F-41
Changes in the loss share indemnification asset for the periods presented were as follows:
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Balance at beginning of period
|
$
|
—
|
|
$
|
—
|
|
$
|
63,168
|
|
||
|
Termination of FDIC loss sharing agreements
|
—
|
|
—
|
|
(63,168
|
)
|
|||||
|
Balance at end of period
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||
The following table summarizes the changes in the clawback liability for the periods presented:
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Balance at beginning of period
|
$
|
—
|
|
$
|
—
|
|
$
|
13,846
|
|
||
|
Termination of FDIC loss sharing agreements
|
—
|
|
—
|
|
(13,846
|
)
|
|||||
|
Balance at end of period
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||
NOTE 6. PREMISES AND EQUIPMENT
The major components of premises and equipment are as follows:
|
|
December 31,
|
||||||
|
|
2017
|
2016
|
|||||
|
|
(Dollars in thousands)
|
||||||
|
Land
|
$
|
7,624
|
|
$
|
7,624
|
|
|
|
Building and improvements
|
24,653
|
|
24,653
|
|
|||
|
Furniture, fixtures and equipment
|
14,956
|
|
13,197
|
|
|||
|
Leasehold improvements
|
5,164
|
|
4,454
|
|
|||
|
Construction in Process
|
663
|
|
525
|
|
|||
|
Software
|
3,354
|
|
3,021
|
|
|||
|
Total
|
56,414
|
|
53,474
|
|
|||
|
Less: Accumulated depreciation
|
(20,270
|
)
|
(16,822
|
)
|
|||
|
Total premises and equipment, net
|
$
|
36,144
|
|
$
|
36,652
|
|
|
Total depreciation expense for the years ended December 31, 2017, 2016 and 2015 totaled $3.6 million, $3.6
million and $3.8 million, respectively.
Operating Leases
The Company has entered into various operating leases for premises and equipment used in its operation. Total rental expense for the years
ended December 31, 2017, 2016 and 2015 totaled $7.6 million, $7.6 million, and $7.5 million, respectively.
As of December 31, 2017,
future minimum lease payments under non-cancellable operating leases were as follows (in thousands):
|
Years Ended December 31,
|
|||||||||||||||||||||
|
2018
|
2019
|
2020
|
2021
|
2022
|
Thereafter
|
Total
|
|||||||||||||||
|
Future minimum lease payments
|
$
|
5,205
|
|
$
|
4,707
|
|
$
|
4,438
|
|
$
|
3,145
|
|
$
|
2,398
|
|
$
|
12,431
|
|
$
|
32,324
|
|
F-42
NOTE 7. GOODWILL AND INTANGIBLES
Goodwill and other intangible assets are summarized as follows:
|
|
December 31,
|
||||||
|
|
2017
|
2016
|
|||||
|
|
(Dollars in thousands)
|
||||||
|
Goodwill
|
$
|
81,204
|
|
$
|
81,204
|
|
|
|
Core deposit intangible
|
14,370
|
|
14,370
|
|
|||
|
Less: Accumulated amortization
|
(10,702
|
)
|
(9,679
|
)
|
|||
|
Net core deposit intangible
|
$
|
3,668
|
|
$
|
4,691
|
|
|
Amortization expense for core deposit intangibles for the years ended December 31,
2017, 2016, and 2015 totaled $1.0 million, $1.2
million and $1.6 million, respectively.
The estimated amount of amortization expense for core deposit intangible assets to be recognized over the next five fiscal years is as
follows:
|
2018
|
2019
|
2020
|
2021
|
2022
|
|||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||
|
Core deposit intangible
|
$
|
1,023
|
|
$
|
1,023
|
|
$
|
510
|
|
$
|
360
|
|
$
|
360
|
|
||||
NOTE 8. DERIVATIVES
No derivative positions held by the Company as of December 31, 2017 were designated as hedging instruments under ASC Topic 815-10. The Company is a party to interest rate derivatives that are not designated as hedging instruments. The Company uses interest rate derivative
contracts, such as swaps and caps, in the normal course of business to meet the financial needs of customers. The interest rate swaps that the Company enters into with customers allow the customers to convert variable rate loans to fixed rates. At
the same time the interest rate swap is entered into with the customer, an offsetting interest rate swap is entered into with another financial institution. The changes in the fair value of the swaps offset each other, except for any differences in
the credit risk of the counterparties, which is determined by considering the risk rating, probability of default and loss given default of each counterparty. The Company recorded $6.8 million, $4.4 million and $5.2 million of derivative contract fees in noninterest income in the accompanying consolidated statements of income for the years ended December 31, 2017, 2016, and 2015, respectively.
In addition, the Company has entered into two risk participation agreements. The notional amount of the risk participation agreements sold was $32.5 million as of December 31, 2017. Assuming all underlying third party customers referenced in the swap agreements defaulted at December 31, 2017, there would be an immaterial amount of exposure to the Company.
These risk participation agreements mature in 2021.
No credit changes in counterparty credit were identified. There was no change in the fair value of derivative assets and derivative
liabilities attributable to credit risk included in noninterest expense in the consolidated statements of income for the years ended December 31, 2017, 2016, and 2015.
F-43
The following tables summarize the Company’s derivatives outstanding included in other assets and other liabilities in the accompanying
consolidated balance sheets:
|
|
Derivative Assets
|
Derivative Liabilities
|
|||||||||||||
|
December 31, 2017
|
Notional
|
Fair Value
|
Notional
|
Fair Value
|
|||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
|
Derivatives not designated as hedging
instruments under ASC Topic 815-10
|
|||||||||||||||
|
Interest rate swaps—pay floating, receive fixed
|
$
|
757,887
|
|
$
|
11,678
|
|
$
|
380,233
|
|
$
|
4,180
|
|
|||
|
Interest rate swaps—pay fixed, receive floating
|
380,233
|
|
—
|
|
757,887
|
|
7,498
|
|
|||||||
|
Interest rate caps—purchased
|
94,884
|
|
155
|
|
—
|
|
—
|
|
|||||||
|
Interest rate caps—sold
|
—
|
|
—
|
|
94,884
|
|
155
|
|
|||||||
|
Total derivatives
|
$
|
1,233,004
|
|
|
$
|
11,833
|
|
|
$
|
1,233,004
|
|
|
$
|
11,833
|
|
|
|
Derivative Assets
|
Derivative Liabilities
|
|||||||||||||
|
December 31, 2016
|
Notional
|
Fair Value
|
Notional
|
Fair Value
|
|||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
|
Derivatives not designated as hedging
instruments under ASC Topic 815-10
|
|||||||||||||||
|
Interest rate swaps—pay floating, receive fixed
|
$
|
708,426
|
|
$
|
15,268
|
|
$
|
182,848
|
|
$
|
2,908
|
|
|||
|
Interest rate swaps—pay fixed, receive floating
|
182,848
|
|
—
|
|
708,426
|
|
12,360
|
|
|||||||
|
Total derivatives
|
$
|
891,274
|
|
$
|
15,268
|
|
$
|
891,274
|
|
$
|
15,268
|
|
|||
The derivative transactions entered into with a financial institution are subject to an enforceable master netting arrangement. The following
table summarizes the gross and net fair values of the Company’s derivatives outstanding with this counterparty included in other liabilities in the accompanying consolidated balance sheets:
|
December 31, 2017
|
Gross
amounts
of recognized
liabilities
|
Gross
amounts
offset in the
consolidated
balance
sheets
|
Net amounts
in the
consolidated
balance
sheets
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Offsetting derivative liabilities
|
|||||||||||
|
Counterparty A—Interest rate contracts
|
$
|
11,833
|
|
$
|
(4,491
|
)
|
$
|
7,342
|
|
||
|
Total
|
$
|
11,833
|
|
$
|
(4,491
|
)
|
$
|
7,342
|
|
||
|
December 31, 2016
|
Gross
amounts
of recognized
liabilities
|
Gross
amounts
offset in the
consolidated
balance
sheets
|
Net amounts
in the
consolidated
balance
sheets
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Offsetting derivative liabilities
|
|||||||||||
|
Counterparty A—Interest rate contracts
|
$
|
15,268
|
|
$
|
(2,908
|
)
|
$
|
12,360
|
|
||
|
Total
|
$
|
15,268
|
|
$
|
(2,908
|
)
|
$
|
12,360
|
|
||
At December 31, 2017, the
Company has pledged investment securities available for sale with a carrying amount of $25.7 million as collateral for the interest
rate swaps in a liability position. The amount of collateral required to be posted by the Company varies based on the settlement value of outstanding swaps.
As of December 31, 2017
and 2016, substantially all of the floating rate terms within the interest rate contracts held by the Company were indexed to 1-month LIBOR.
F-44
The fair value of the derivative assets and liabilities are included in a table in Note 19 “Fair Value Measurements,” in the line items
“Derivative assets” and “Derivative liabilities.”
NOTE 9. DEPOSITS
The following table sets forth the Company’s deposits by category:
|
|
December 31,
|
||||||
|
|
2017
|
2016
|
|||||
|
|
(Dollars in thousands)
|
||||||
|
Noninterest-bearing demand deposits
|
$
|
1,236,685
|
|
$
|
905,905
|
|
|
|
Interest-bearing demand deposits
|
1,454,097
|
|
1,004,452
|
|
|||
|
Interest-bearing NOW accounts
|
363,191
|
|
398,823
|
|
|||
|
Savings and money market accounts
|
3,013,237
|
|
2,780,697
|
|
|||
|
Time deposits
|
2,606,717
|
|
2,215,794
|
|
|||
|
Total deposits
|
$
|
8,673,927
|
|
$
|
7,305,671
|
|
|
|
Time deposits $100,000 and greater
|
$
|
1,983,445
|
|
$
|
1,675,162
|
|
|
|
Time deposits greater than $250,000
|
1,078,702
|
|
843,683
|
|
|||
The aggregate amount of overdraft demand deposits reclassified to loans was $1.1
million at December 31, 2017. The aggregate amount of maturities for time
deposits for each of the five years following the latest balance sheet date totaled $1.59 billion, $983.0 million, $21.7 million, $7.3 million and $6.6 million,
respectively. The Company holds brokered deposits through an insured deposit sweep program of $656.4 million and $693.9 million at December 31, 2017
and 2016, respectively. The Company holds brokered certificates of deposit of $85.2
million and $1.2 million at December 31, 2017 and 2016,
respectively.
NOTE 10. FHLB AND OTHER BORROWINGS
Advances from the FHLB and other borrowings outstanding for the periods presented are as follows:
|
December 31, 2017
|
Range of
Contractual
Interest Rates
|
|||||
|
|
(Dollars in thousands)
|
|||||
|
Repayable during the years ending December 31,
|
||||||
|
2018
|
$
|
270,000
|
|
1.41% - 1.59%
|
|
|
|
2019
|
—
|
|
—
|
%
|
||
|
2020 and beyond
|
400,000
|
|
1.34% - 2.28%
|
|
||
|
Total FHLB advances
|
670,000
|
|
||||
|
Securities sold under repurchase agreements
|
50,336
|
|
1.87% - 2.41%
|
|
||
|
Retail repurchase agreements
|
28,777
|
|
0.25
|
%
|
||
|
Total contractual outstanding
|
749,113
|
|
||||
|
Fair value adjustment
|
—
|
|
||||
|
Total Borrowings
|
$
|
749,113
|
|
|||
F-45
|
December 31, 2016
|
Range of
Contractual
Interest Rates
|
|||||
|
|
||||||
|
Repayable during the years ending December 31,
|
||||||
|
2017
|
$
|
342,250
|
|
0.62% - 0.80%
|
|
|
|
2018
|
50,000
|
|
1.53
|
%
|
||
|
2019 and beyond
|
200,000
|
|
1.34% - 1.61%
|
|
||
|
Total FHLB advances
|
592,250
|
|
||||
|
Securities sold under repurchase agreements
|
131,621
|
|
1.40% - 4.35%
|
|
||
|
Retail repurchase agreements
|
26,386
|
|
0.25
|
%
|
||
|
Total contractual outstanding
|
750,257
|
|
||||
|
Fair value adjustment
|
846
|
|
||||
|
Total Borrowings
|
$
|
751,103
|
|
|||
For the years ended December 31, 2017 and 2016, the Company maintained advances with the FHLB averaging $798.4 million and $612.1 million,
respectively, with an average cost of approximately 1.45% and 0.94%, respectively. Substantially all FHLB advances outstanding at December 31, 2017 and 2016 had fixed interest rates. Interest expense on FHLB advances was $11.6 million, $5.8 million and $4.0 million for the years ended December 31, 2017, 2016 and 2015. The fair value
adjustment on repurchase agreements was amortized as a reduction to interest expense over the remaining term of the advances using the effective yield method.
The Company pledges loans and securities as collateral for FHLB advances and FRB Discount Window borrowings. See Notes 2 and 3 to these
consolidated financial statements for further information. At December 31, 2017, the Company had additional capacity to borrow from the
FHLB of $1.40 billion. Also, at December 31, 2017, the Company has unused credit lines with financial institutions of $540.0 million.
NOTE 11. REGULATORY CAPITAL
The Company and the Bank are subject to regulatory capital adequacy requirements promulgated by federal regulatory agencies. The Board of
Governors of the Federal Reserve System establishes capital requirements, including well capitalized standards, for the Company, and the OCC has similar requirements for the Bank. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. The capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
Banking regulations identify five capital categories for insured depository institutions: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically undercapitalized. As of December 31, 2017 and 2016, all capital ratios of the Company and the Bank exceeded the well capitalized levels under the applicable regulatory capital adequacy
guidelines.
The ability of the Company and the Bank to pay dividends is subject to statutory and regulatory restrictions on the payment of cash
dividends.
Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and
ratios (set forth in the following table) of total and Tier I capital (as defined) to average assets (as defined). Management believes, at December 31, 2017 and 2016, that the Company and Bank met all capital adequacy requirements to which they
are subject.
F-46
The Bank’s and Company’s regulatory capital levels are as follows:
|
|
Actual
|
Minimum Capital Requirement
|
Minimum To Be Well
Capitalized
|
|||||||||||||||||
|
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||
|
|
(Dollars in thousands)
|
|||||||||||||||||||
|
December 31, 2017
|
||||||||||||||||||||
|
Tier 1 leverage ratio
|
||||||||||||||||||||
|
Company
|
$
|
1,079,851
|
|
10.5
|
%
|
$
|
411,177
|
|
4.0
|
%
|
$
|
513,972
|
|
5.0
|
%
|
|||||
|
Bank
|
927,426
|
|
9.2
|
%
|
403,527
|
|
4.0
|
%
|
504,409
|
|
5.0
|
%
|
||||||||
|
Common equity tier 1 capital ratio
|
||||||||||||||||||||
|
Company
|
1,079,851
|
|
11.9
|
%
|
409,482
|
|
4.5
|
%
|
591,475
|
|
6.5
|
%
|
||||||||
|
Bank
|
927,426
|
|
10.4
|
%
|
400,187
|
|
4.5
|
%
|
578,047
|
|
6.5
|
%
|
||||||||
|
Tier 1 risk-based capital ratio
|
||||||||||||||||||||
|
Company
|
1,079,851
|
|
11.9
|
%
|
545,977
|
|
6.0
|
%
|
727,969
|
|
8.0
|
%
|
||||||||
|
Bank
|
927,426
|
|
10.4
|
%
|
533,582
|
|
6.0
|
%
|
711,443
|
|
8.0
|
%
|
||||||||
|
Total risk-based capital ratio
|
||||||||||||||||||||
|
Company
|
1,128,889
|
|
12.4
|
%
|
727,969
|
|
8.0
|
%
|
909,961
|
|
10.0
|
%
|
||||||||
|
Bank
|
975,663
|
|
11.0
|
%
|
711,443
|
|
8.0
|
%
|
889,304
|
|
10.0
|
%
|
||||||||
|
|
Actual
|
Minimum Capital Requirement
|
Minimum To Be Well
Capitalized
|
|||||||||||||||||
|
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||
|
|
(Dollars in thousands)
|
|||||||||||||||||||
|
December 31, 2016
|
||||||||||||||||||||
|
Tier 1 leverage ratio
|
||||||||||||||||||||
|
Company
|
$
|
891,584
|
|
10.3
|
%
|
$
|
346,518
|
|
4.0
|
%
|
$
|
433,148
|
|
5.0
|
%
|
|||||
|
Bank
|
795,207
|
|
9.3
|
%
|
340,856
|
|
4.0
|
%
|
426,070
|
|
5.0
|
%
|
||||||||
|
Common equity tier 1 capital ratio
|
||||||||||||||||||||
|
Company
|
891,584
|
|
11.9
|
%
|
336,328
|
|
4.5
|
%
|
485,807
|
|
6.5
|
%
|
||||||||
|
Bank
|
795,207
|
|
10.9
|
%
|
329,194
|
|
4.5
|
%
|
475,503
|
|
6.5
|
%
|
||||||||
|
Tier 1 risk-based capital ratio
|
||||||||||||||||||||
|
Company
|
891,584
|
|
11.9
|
%
|
448,437
|
|
6.0
|
%
|
597,916
|
|
8.0
|
%
|
||||||||
|
Bank
|
795,207
|
|
10.9
|
%
|
438,926
|
|
6.0
|
%
|
585,234
|
|
8.0
|
%
|
||||||||
|
Total risk-based capital ratio
|
||||||||||||||||||||
|
Company
|
930,821
|
|
12.5
|
%
|
597,916
|
|
8.0
|
%
|
747,395
|
|
10.0
|
%
|
||||||||
|
Bank
|
834,679
|
|
11.4
|
%
|
585,234
|
|
8.0
|
%
|
731,543
|
|
10.0
|
%
|
||||||||
The FDIC Order that the Bank entered into upon the acquisition of Premier American Bank requires the institution to maintain a ratio of Tier
1 common equity to total assets of at least 10% for a period of three years following its first FDIC-assisted transaction, and thereafter maintain a capital level sufficient to be well capitalized under regulatory standards during the remaining period of ownership of the investors
subject to the FDIC Order. The Bank is currently subject to the well capitalized requirement but is no longer subject to the 10% Tier 1 common equity ratio requirement.
The Bank is subject to regulations of certain federal and state agencies and can be periodically examined by those authorities. As a
consequence, the Bank’s business is susceptible to the impacts of federal legislation and regulations issued by, but not limited to, the Board of Governors of the Federal Reserve System, OCC and FDIC.
F-47
NOTE 12. ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in AOCI for the periods indicated are summarized as follows:
|
|
Year Ended December 31, 2017
|
||||||||||
|
|
Before
Tax
|
Tax
Effect
|
Net
of Tax
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Balance at beginning of period
|
$
|
(6,504
|
)
|
$
|
2,509
|
|
$
|
(3,995
|
)
|
||
|
Unrealized gain (loss) on investment securities available for sale:
|
|||||||||||
|
Net unrealized holdings gain (loss) arising during the period
|
24,112
|
|
(9,244
|
)
|
14,868
|
|
|||||
|
Amounts reclassified to (gain) loss on investment securities
|
(3,206
|
)
|
1,226
|
|
(1,980
|
)
|
|||||
|
Balance at end of period
|
$
|
14,402
|
|
$
|
(5,509
|
)
|
$
|
8,893
|
|
||
|
|
Year Ended December 31, 2016
|
||||||||||
|
|
Before
Tax
|
Tax
Effect
|
Net
of Tax
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Balance at beginning of period
|
$
|
(15,371
|
)
|
$
|
5,928
|
|
$
|
(9,443
|
)
|
||
|
Unrealized gain (loss) on investment securities available for sale:
|
|||||||||||
|
Net unrealized holdings gain (loss) arising during the period
|
11,582
|
|
(4,467
|
)
|
7,115
|
|
|||||
|
Amounts reclassified to (gain) loss on investment securities
|
(2,715
|
)
|
1,048
|
|
(1,667
|
)
|
|||||
|
Balance at end of period
|
$
|
(6,504
|
)
|
$
|
2,509
|
|
$
|
(3,995
|
)
|
||
|
|
Year Ended December 31, 2015
|
||||||||||
|
|
Before
Tax
|
Tax
Effect
|
Net
of Tax
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Balance at beginning of period
|
$
|
1,106
|
|
$
|
(427
|
)
|
$
|
679
|
|
||
|
Unrealized gain (loss) on investment securities available for sale:
|
|||||||||||
|
Net unrealized holdings gain (loss) arising during the period
|
(13,997
|
)
|
5,399
|
|
(8,598
|
)
|
|||||
|
Amounts reclassified to (gain) loss on investment securities
|
(2,480
|
)
|
956
|
|
(1,524
|
)
|
|||||
|
Balance at end of period
|
$
|
(15,371
|
)
|
$
|
5,928
|
|
$
|
(9,443
|
)
|
||
NOTE 13. STOCKHOLDERS’ EQUITY
Class A and Class B Common Stock
The shares of common stock of the Company are divided into two classes: Class A common stock and Class B common stock. The Class A common stock possesses all of the voting power for all matters requiring action by holders of the Company’s common stock, with certain
limited exceptions. Each share of Class B common stock is convertible into one share of Class A common stock, subject to certain restrictions. The Class A common stock is not convertible. Other than with respect to voting rights and the restrictions
on transfer and conversion relating to the Class B common stock, the Class A common stock and the Class B common stock are treated equally and identically, including with respect to distributions.
In 2017 and 2016, the Company converted 188,474
and 3,545,408, respectively, Class B common shares to Class A common shares in a voluntary exchange with certain shareholders. This
exchange was made on 1:1 ratio and no consideration was paid or received by the Company. Total Class B common shares issued and outstanding decreased by 188,474 and 3,545,408 while Class A common shares issued and outstanding increased by 188,474 and 3,545,408 for the
years ended December 31, 2017 and 2016, respectively. This is recorded as “Exchange of B shares to A shares” in the consolidated statements of changes in stockholders’ equity.
F-48
Preferred Stock
There are 10 million
preferred shares authorized and none issued and outstanding at December 31,
2017 or 2016. Preferred stock has a par value of $.001.
Treasury Stock
During the year ended December 31, 2017, the Company made no purchases of shares of Class A common stock.
During the year ended December 31, 2016 the Company repurchased 717,115 shares of Class A common stock at a weighted average price
of $33.08 per share for an aggregate amount of $23.7 million from shareholders. The Company accounted for these transactions under the cost method and held 2,886,621 common shares with a cost of $77.4 million in Treasury Stock as of December 31, 2016.These transactions are recorded as “Treasury stock purchases” in the accompanying consolidated statements of changes in
stockholders’ equity.
Warrants
The following table presents the activity during the year ended December 31, 2017 related to the Amended 2009 Warrants:
|
|
Amended 2009 Warrants
|
|||||||||||
|
|
Warrants
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
||||||||
|
|
(Dollars in thousands, except per share data)
|
|||||||||||
|
Outstanding at January 1, 2017
|
2,685,927
|
|
$
|
26.48
|
|
|||||||
|
Granted
|
—
|
|
—
|
|
||||||||
|
Exercised
|
(1,411,905
|
)
|
26.24
|
|
$
|
31,895
|
|
|||||
|
Forfeited
|
—
|
|
—
|
|
||||||||
|
Expired
|
—
|
|
—
|
|
||||||||
|
Outstanding at December 31, 2017
|
1,274,022
|
|
26.75
|
|
30,640
|
|
1.87
|
|||||
|
Exercisable at December 31, 2017
|
1,274,022
|
|
26.75
|
|
30,640
|
|
1.87
|
|||||
|
Vested at December 31, 2017
|
1,274,022
|
|
26.75
|
|
30,640
|
|
1.87
|
|||||
|
Vested and expected to vest at December 31, 2017
|
1,274,022
|
|
26.75
|
|
30,640
|
|
1.87
|
|||||
As of December 31, 2017,
there were 1,274,022 outstanding Amended 2009 Warrants with an expiration date of November 12, 2019. There is no remaining expense to be recognized from the Amended 2009 Warrants.
NOTE 14. STOCK-BASED COMPENSATION AND OTHER BENEFIT PLANS
2009 Equity Incentive Plan
In 2009, the Company approved the 2009 Equity Incentive Plan (the “2009 Option Plan”) covering its directors, employees and affiliates. The
2009 Option Plan provided for the grant of options to acquire shares of common stock up to an aggregate of the lesser of 10% of issued
common stock or 4.375 million shares of common stock. When the options are exercised, the shares issued upon such exercise will be
newly issued shares.
In November 2014, the 2009 Option Plan expired on the fifth anniversary of plan’s adoption date.
F-49
The following tables present the activity during the year ended December 31, 2017 related to the 2009 Option Plan:
|
|
2009 Option Plan
|
|||||||||||
|
|
Options
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
||||||||
|
|
(Dollars in thousands, except per share data)
|
|||||||||||
|
Outstanding at January 1, 2017
|
3,107,235
|
|
$
|
20.62
|
|
|||||||
|
Granted
|
—
|
|
—
|
|
||||||||
|
Exercised
|
(1,768,652
|
)
|
20.58
|
|
$
|
47,180
|
|
|||||
|
Forfeited
|
(21,322
|
)
|
22.72
|
|
||||||||
|
Expired
|
(2,337
|
)
|
22.97
|
|
||||||||
|
Outstanding at December 31, 2017
|
1,314,924
|
|
20.65
|
|
39,651
|
|
4.49
|
|||||
|
Exercisable at December 31, 2017
|
1,314,924
|
|
20.65
|
|
39,651
|
|
4.49
|
|||||
|
Vested at December 31, 2017
|
1,314,924
|
|
20.65
|
|
39,651
|
|
4.49
|
|||||
|
Vested and expected to vest at December 31, 2017
|
1,314,924
|
|
20.65
|
|
39,651
|
|
4.49
|
|||||
A summary of selected data related to stock-based compensation expense follows:
|
|
2009 Option Plan
|
||||||||||
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Stock-based compensation expense
|
$
|
760
|
|
$
|
1,707
|
|
$
|
2,239
|
|
||
|
Tax benefit realized from stock awards exercised
|
19,070
|
|
3,622
|
|
1,618
|
|
|||||
|
Fair value of stock-based awards that vested during the year
|
1,075
|
|
1,882
|
|
2,724
|
|
|||||
|
Amount of cash received from exercise of awards
|
36,392
|
|
11,427
|
|
8,163
|
|
|||||
|
Total intrinsic value of awards exercised during the year
|
47,180
|
|
9,547
|
|
4,940
|
|
|||||
|
|
2009 Option Plan
|
||||||||||
|
|
December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Unrecognized compensation expense related to stock-based compensation
|
$
|
—
|
|
$
|
569
|
|
$
|
2,561
|
|
||
|
Weighted-average life over which expense is expected to be recognized (years)
|
0.00
|
|
0.78
|
|
1.72
|
|
|||||
2013 Stock Incentive Plan
In 2013, the Company approved the 2013 Stock Incentive Plan (the “2013 Incentive Plan”) covering its executive management, directors,
individual consultants and employees. The 2013 Incentive Plan provides that awards may be granted under the plan with respect to an aggregate of 3,000,000 shares of common stock of the Company. Awards may be made under the 2013 Incentive Plan in the form of (a) incentive stock options, (b) options that do not qualify as incentive stock options, (c) stock
appreciation rights, (d) restricted stock, (e) restricted stock units and (f) unrestricted stock; provided, that the number of shares of restricted stock, restricted stock units, and shares of unrestricted stock awarded under the Plan shall not
exceed 500,000, in the aggregate. When the options are exercised, the shares issued upon such exercise will be newly issued shares.
2013 Incentive Plan – Stock Options
On two different dates during the year ended December 31, 2015, the Company granted an aggregate of 120,500 options with a Three Year
Vesting Period from the 2013 Option Plan to employees with a weighted average exercise price of $27.36, the estimated fair value of the
Company’s stock on the date of grant, and an aggregate fair value of $960 thousand. The options granted to employees expire 10 years from grant date.
F-50
Also in 2015, the Company granted 129,000 options from the 2013 Option Plan to directors that vest at a rate of 25% per calendar
quarter in 2015. The options have an exercise price of $23.97, the estimated fair value of the Company’s stock on the date of grant and
an aggregate fair value of $881 thousand. The options granted to directors expire 10 years from grant date.
The following tables present the activity during the year ended December 31, 2017 related to the 2013 Plan Options:
|
|
2013 Plan Options
|
|||||||||||
|
|
Options
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
||||||||
|
|
(Dollars in thousands, except per share data)
|
|||||||||||
|
Outstanding at January 1, 2017
|
2,164,258
|
|
$
|
20.63
|
|
|||||||
|
Granted
|
—
|
|
—
|
|
||||||||
|
Exercised
|
(725,970
|
)
|
20.18
|
|
$
|
20,633
|
|
|||||
|
Forfeited
|
(13,335
|
)
|
27.23
|
|
||||||||
|
Expired
|
—
|
|
—
|
|
||||||||
|
Outstanding at December 31, 2017
|
1,424,953
|
|
20.79
|
|
42,764
|
|
6.21
|
|||||
|
Exercisable at December 31, 2017
|
1,408,115
|
|
20.71
|
|
42,372
|
|
6.20
|
|||||
|
Vested at December 31, 2017
|
1,408,115
|
|
20.71
|
|
42,372
|
|
6.20
|
|||||
|
Vested and expected to vest at December 31, 2017
|
1,424,953
|
|
20.79
|
|
42,764
|
|
6.21
|
|||||
The fair value of the 2013 Plan Options granted for the years ended December 31, 2016 and 2015 were determined utilizing the Black-Scholes pricing model methodology. A summary
of assumptions used to calculate the fair values of the 2013 Plan Options awards is presented below:
|
|
2013 Plan Options
|
||||||||||
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
Expected volatility
|
—
|
%
|
24.7
|
%
|
31.1
|
%
|
|||||
|
Expected dividend yield
|
—
|
%
|
1.25
|
%
|
1.25
|
%
|
|||||
|
Expected term (years)
|
0.0
|
|
6.0
|
|
6.2
|
|
|||||
|
Risk-free interest rate
|
—
|
%
|
1.37
|
%
|
1.63
|
%
|
|||||
|
Weighted average grant date fair value
|
$
|
—
|
|
$
|
6.57
|
|
$
|
7.38
|
|
||
The expected volatility is based on the volatility of comparable peer banks. The expected term represents the period of time that the 2013
Plan Option awards are expected to be outstanding from the date of grant. The risk-free interest rate is based on the US Treasury yields for the expected term of the instrument.
A summary of selected data related to stock-based compensation expense follows:
|
|
2013 Plan Options
|
||||||||||
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Stock-based compensation expense
|
$
|
226
|
|
$
|
1,655
|
|
$
|
2,002
|
|
||
|
Tax benefit realized from stock awards exercised
|
8,019
|
|
1,380
|
|
158
|
|
|||||
|
Grant date fair value of stock-based awards that vested during the year
|
3,732
|
|
4,313
|
|
1,181
|
|
|||||
|
Amount of cash received from exercise of option awards
|
14,652
|
|
5,186
|
|
714
|
|
|||||
|
Total intrinsic value of awards exercised during the year
|
20,633
|
|
3,888
|
|
465
|
|
|||||
F-51
|
|
2013 Plan Options
|
||||||||||
|
|
December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Unrecognized compensation expense related to stock-based compensation
|
$
|
41
|
|
$
|
333
|
|
$
|
1,633
|
|
||
|
Weighted-average life over which expense is expected to be recognized (years)
|
0.28
|
|
1.24
|
|
1.53
|
|
|||||
2016 Stock Incentive Plan
In 2016, the Company approved the FCB Financial Holdings, Inc. 2016 Stock Incentive Plan (the “2016 Incentive Plan”) covering its executive
management, directors, individual consultants and employees. The 2016 Incentive Plan provides that awards may be granted under the plan with respect to an aggregate of 2,000,000 shares of Class A Common Stock of the Company. Awards may be made under the Plan in the form of (a) incentive stock options, (b) options that do not qualify as incentive stock options, (c) stock
appreciation rights, (d) restricted stock, (e) restricted stock units and (f) unrestricted stock. Awards under the Plan may also be made in the form of performance awards by making the awards subject to the achievement of performance criteria
described in the Plan or other performance criteria. An incentive stock option may be granted only to a person who is an employee of the Company or a parent or subsidiary of the Company on the date of grant. Shares issued pursuant to the Plan may be
authorized but unissued Common Stock, authorized and issued Common Stock held in the Company’s treasury or Common Stock acquired by the Company for the purposes of the Plan.
2016 Incentive Plan - Stock Options
In August 2016, the Company granted 827,500 options that vest in-full (i.e. cliff vesting) on the 5-year anniversary of the grant date
from the 2016 Incentive Plan to employees with an exercise price of $36.11, the estimated fair value of the Company’s stock on the date
of grant and an aggregate fair value of $7.1 million. The options granted to employees expire 10 years from the grant date.
On four different dates during the year ended December 31, 2017, the Company granted 37,500 options that vest in-full (i.e. cliff vesting) on the 5-year anniversary of the grant date from the 2016 Incentive Plan to employees with a weighted average exercise price of $46.89, the estimated fair value of the Company’s stock on the date of grant and an aggregate fair value of $440 thousand. The options granted to employees expire 10 years from the grant date.
The following tables present the activity during the year ended December 31, 2017 related to the 2016 Plan Options:
|
|
2016 Plan Options
|
||||||||||||
|
|
Options
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|||||||||
|
|
(Dollars in thousands, except per share data)
|
||||||||||||
|
Outstanding at January 1, 2017
|
827,500
|
|
$
|
36.11
|
|
||||||||
|
Granted
|
37,500
|
|
46.89
|
|
|||||||||
|
Exercised
|
—
|
|
—
|
|
$
|
—
|
|
||||||
|
Forfeited
|
(102,500
|
)
|
36.11
|
|
|||||||||
|
Expired
|
—
|
|
—
|
|
|||||||||
|
Outstanding at December 31, 2017
|
762,500
|
|
36.64
|
|
10,797
|
|
8.64
|
|
|||||
|
Exercisable at December 31, 2017
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
|
Vested at December 31, 2017
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
|
Vested and expected to vest at December 31, 2017
|
762,500
|
|
36.64
|
|
10,797
|
|
8.64
|
|
|||||
F-52
The fair value of the 2016 Plan Options granted for the year ended December 31,
2017 were determined utilizing the Black-Scholes pricing model methodology. A summary of assumptions used to calculate the fair values of the 2016 Plan Options awards is presented below:
|
2016 Plan Options
|
|||||||
|
December 31,
|
|||||||
|
|
2017
|
2016
|
|||||
|
Expected volatility
|
22.6% - 23.4%
|
|
24.0
|
%
|
|||
|
Expected dividend yield
|
1.25
|
%
|
1.25
|
%
|
|||
|
Expected term (years)
|
7.5
|
|
7.5
|
|
|||
|
Risk-free interest rate
|
2.04% - 2.17%
|
|
1.42
|
%
|
|||
|
Weighted average grant date fair value
|
$
|
11.73
|
|
$
|
8.62
|
|
|
The expected volatility is based on the volatility of comparable peer banks. The expected term represents the period of time that the 2016
Plan Option awards are expected to be outstanding from the date of grant. The risk-free interest rate is based on the US Treasury yields for the expected term of the instrument.
A summary of selected data related to stock-based compensation expense for the year ended December 31, 2017 are as follows:
|
2016 Plan Options
|
|||||||
|
December 31,
|
|||||||
|
|
2017
|
2016
|
|||||
|
|
(Dollars in thousands)
|
||||||
|
Stock-based compensation expense
|
$
|
1,431
|
|
$
|
570
|
|
|
|
Unrecognized compensation expense related to stock-based compensation
|
4,882
|
|
6,563
|
|
|||
|
Weighted-average life over which expense is expected to be recognized (years)
|
3.66
|
|
4.61
|
|
|||
2016 Incentive Plan - Restricted Stock Awards and Restricted Stock Unit Awards
On March 29, 2016, the Compensation Committee granted 121,212 restricted shares (the “Award”) of Class A Common Stock to certain Executives. Shareholder’s approved the Plan at the 2016 Annual Meeting of Stockholders on May 16, 2016 which was determined to be the
grand date of the Award. The fair value of the Awards on the grant date was $4.2 million and will be recognized as compensation expense
over the requisite vesting period ending December 31, 2018. The Company recognized $1.4 million of compensation expense during the year
ended December 31, 2016.
On February 7, 2017, the Compensation Committee granted certain non-employee Directors of the Company a portion of their Directors’
compensation for fiscal year 2017 in the form of restricted stock units (the “Directors’ RSU Award”). Each RSU constitutes the right to receive from the Company on the date the RSU is settled, one share of Class A Common Stock of the Company. A total
of 24,800 Directors’ RSUs were granted with a grant date fair value of $1.1
million. Twenty-five percent (25%) of the RSUs vested on each of March 30,
2017, June 30, 2017, September 30, 2017 and December 31, 2017. Compensation expense was recognized on a straight-line basis over the requisite vesting period ending December 31, 2017.
On March 28, 2017, the Compensation Committee granted 83,593 restricted shares (the “Executive RSU Award”) of Class A Common Stock to certain Executives. The fair value of the Executive RSU Awards on the grant date was $4.0 million and will be recognized as compensation expense over the requisite vesting period ending December 31, 2019.
On March 28, 2017, the Compensation Committee granted a target of 73,144 and a maximum of 91,430 restricted stock units (the “Performance RSU Award”) of Class A
Common Stock to a certain Executive. The total target grant date fair value of the Performance RSU Award was $3.5 million, up to a
maximum of $4.4 million, and will be recognized on a straight-line basis as compensation expense over the requisite vesting period
ending December 31, 2019.
On five different dates during the year ended December 31, 2017, the Company granted 81,815 restricted shares (the “Employee RSU Award”) to employees that vest in-full (i.e. cliff vesting) on the 5-year anniversary of the grant date from the 2016 Incentive Plan. The fair value of the Awards on the grant date was $4.1 million and will be recognized as compensation expense over the requisite vesting period ending on the respective 5-year anniversary of the Employee RSU Award’s grant date.
F-53
The following tables present the activity during the year ended December 31, 2017 related to restricted stock from the 2016 Plan:
|
2016 Stock Incentive Plan
|
|||||||||||||||||||||
|
Restricted Stock Awards
|
Restricted Stock Unit Awards
|
Performance Restricted Stock Unit Awards
|
|||||||||||||||||||
|
Shares
|
Weighted Average Grant Date Fair Value
|
Shares
|
Weighted Average Grant Date Fair Value
|
Shares
|
Weighted Average Grant Date Fair Value
|
||||||||||||||||
|
(Dollars in thousands, except per share data)
|
|||||||||||||||||||||
|
Outstanding at January 1, 2017
|
80,808
|
|
$
|
34.47
|
|
—
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
||||||
|
Granted
|
83,593
|
|
47.85
|
|
106,615
|
|
49.49
|
|
73,144
|
|
47.85
|
|
|||||||||
|
Vested
|
(68,268
|
)
|
39.93
|
|
(18,600
|
)
|
45.45
|
|
—
|
|
—
|
|
|||||||||
|
Canceled or forfeited
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Outstanding at December 31, 2017
|
96,133
|
|
42.23
|
|
88,015
|
|
50.34
|
|
73,144
|
|
47.85
|
|
|||||||||
The actual number of Performance Restricted Stock Units issued at the vesting date could range from 0% to 125% of the initial grant,
depending on actual performance achieved.
A summary of selected data related to stock-based compensation expense for the year ended December 31, 2017 are as follows:
|
Restricted Stock Awards
|
Restricted Stock Unit Awards
|
Performance Restricted Stock Unit Awards
|
||||||||||||||||||||||
|
December 31,
|
December 31,
|
December 31,
|
||||||||||||||||||||||
|
|
2017
|
2016
|
2017
|
2016
|
2017
|
2016
|
||||||||||||||||||
|
|
(Dollars in thousands)
|
|||||||||||||||||||||||
|
Stock-based compensation expense
|
$
|
3,672
|
|
$
|
1,393
|
|
$
|
1,225
|
|
$
|
—
|
|
$
|
968
|
|
$
|
—
|
|
||||||
|
Unrecognized compensation expense related to stock-based compensation
|
$
|
3,113
|
|
$
|
2,785
|
|
$
|
4,051
|
|
$
|
—
|
|
$
|
2,532
|
|
$
|
—
|
|
||||||
|
Weighted-average life over which expense is expected to be recognized (years)
|
1.31
|
|
2.00
|
|
4.88
|
|
0.00
|
|
2.00
|
|
0.00
|
|
||||||||||||
Florida Community Bank, N.A. 401(k) Plan
The Company sponsors the Florida Community Bank, N.A. 401(k) Plan, a tax-qualified, deferred compensation plan (the “401(k) Plan”). Under the
terms of the 401(k) Plan eligible employees may contribute a portion of compensation not exceeding the limits set by law. Employees are eligible to participate in the plan after the first month following 90 days of service. The 401(k) Plan allows a
matching employer contribution equal to 100% of elective deferrals that do not exceed 3% of compensation. Matching contributions are fully vested after three years of service. Total 401(k) matching employer contribution expense totaled $1.1 million, $978 thousand and $868 thousand
for the years ended December 31, 2017, 2016 and 2015 respectively.
Executive Incentive Plan
During the year ended December 31, 2015, the Compensation Committee of the Board of Directors of the Company approved the adoption of the FCB
Financial Holdings, Inc. Executive Incentive Plan (the “EIP”). The EIP provides for Annual Incentive Awards and Long-Term Incentive Awards, both of which are subject to achievement of specified performance goals.
Annual Incentive Awards-The Compensation Committee approved Annual
Awards under the EIP in respect to the Company’s Core Pre-Tax Profits for fiscal years 2017, 2016 and 2015. The Company
recognized $6.0 million, $6.0 million, and $5.1 million of compensation expense for the years ended December 31, 2017, 2016 and 2015, respectively.
F-54
Long-Term Incentive Awards-The Compensation Committee granted a
Long-Term Award of cash phantom units (“CPUs”) under the Long-Term Incentive component of the EIP which covers a three-year period
ending December 31, 2017 (the “Performance Period”). The value of the award is determined by the Company’s common share price at the end of the performance period. Based on the estimated value of the award, the Company recognized $105 thousand, $377 thousand and $1.1 million of compensation expense for the years ended December 31, 2017, 2016 and 2015 respectively. On January 2, 2018, upon conclusion of the Performance Period, it was determined by the Compensation Committee that the total award to be settled under this Long-Term Award plan be 103,456 shares of Class A Common Stock of the Company.
Management Long-Term Incentive Plan
During the year ended December 31, 2015, the Compensation Committee of the Board of Directors of the Company approved the FCB Financial
Holdings, Inc. Management Long-Term Incentive Plan (“MLTIP”) for certain employees of the Company. The MLTIP provides participants the opportunity to receive a cash award that may be adjusted for the Company’s performance over a three year period
ending on December 31, 2018.
The estimated award amount will be recognized over the three year service period beginning on January 1, 2016. The Company recognized $792 thousand and $1.1 million in
compensation expense related to this plan for the years ended December 31, 2017 and 2016, respectively.
NOTE 15. BASIC AND DILUTED EARNINGS PER SHARE
Basic EPS is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the effect of common stock equivalents, including stock options, warrants and unvested shares, calculated using the treasury stock method. Common stock equivalents are excluded from the computation of diluted
EPS in periods in which the effect is anti-dilutive.
The following table presents the computation of basic and diluted EPS:
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
(Dollars in thousands, except share and per share data)
|
||||||||||
|
Net income available to common stockholders
|
$
|
125,194
|
|
$
|
99,916
|
|
$
|
53,391
|
|
||
|
Weighted average number of common shares—basic
|
42,887,142
|
|
40,716,588
|
|
41,300,979
|
|
|||||
|
Effect of dilutive securities:
|
|||||||||||
|
Employee stock-based compensation awards and warrants
|
3,233,788
|
|
2,508,576
|
|
1,992,628
|
|
|||||
|
Weighted average number of common shares—diluted
|
46,120,930
|
|
43,225,164
|
|
43,293,607
|
|
|||||
|
Basic earnings per share
|
$
|
2.92
|
|
$
|
2.45
|
|
$
|
1.29
|
|
||
|
Diluted earnings per share
|
$
|
2.71
|
|
$
|
2.31
|
|
$
|
1.23
|
|
||
|
Weighted average number of anti-dilutive equity awards
|
29,114
|
|
330,095
|
|
91,923
|
|
|||||
NOTE 16. INCOME TAXES
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “TCJA”) resulted in significant changes to the U.S. tax code, including a
reduction in the maximum federal corporate income tax rate from 35% to 21%, effective January 1, 2018. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income at the time of enactment of such change in tax
rates. Accordingly, the Company was required to revalue its deferred tax assets and deferred tax liabilities to account for the future impact of lower corporate tax rates on these deferred amounts. The Company performed a preliminary analysis as of
December 31, 2017 and recorded an estimated $14.3 million impact for this one-time non-cash charge to the statement of income. The
ultimate impact may differ from this estimate due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a
result of the TCJA.
F-55
The components of the expense and benefit for income taxes for the periods presented are as follows:
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Current income tax expense:
|
|||||||||||
|
Federal
|
$
|
24,036
|
|
$
|
39,528
|
|
$
|
23,610
|
|
||
|
State
|
3,800
|
|
6,013
|
|
3,441
|
|
|||||
|
Total current income tax expense
|
27,836
|
|
45,541
|
|
27,051
|
|
|||||
|
Deferred income tax expense (benefit):
|
|||||||||||
|
Federal
|
24,795
|
|
9,161
|
|
(19,157
|
)
|
|||||
|
State
|
1,534
|
|
1,203
|
|
(2,238
|
)
|
|||||
|
Total deferred income tax expense (benefit)
|
26,329
|
|
10,364
|
|
(21,395
|
)
|
|||||
|
Total income tax expense (benefit)
|
$
|
54,165
|
|
$
|
55,905
|
|
$
|
5,656
|
|
||
A reconciliation of the expected income tax expense or benefit at the statutory federal income tax rate of 35% to the Company’s actual income tax expense or benefit and effective tax rate for the periods presented is as follows:
|
|
Years Ended December 31,
|
|||||||||||||||||||
|
|
2017
|
2016
|
2015
|
|||||||||||||||||
|
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||
|
|
(Dollars in thousands)
|
|||||||||||||||||||
|
Tax expense (benefit) at federal income tax rate
|
$
|
62,776
|
|
35.00
|
%
|
$
|
54,537
|
|
35.00
|
%
|
$
|
20,667
|
|
35.00
|
%
|
|||||
|
Increase (decrease) resulting from:
|
||||||||||||||||||||
|
Bank-owned life insurance
|
(3,186
|
)
|
(1.78
|
)%
|
(1,817
|
)
|
(1.17
|
)%
|
(1,614
|
)
|
(2.73
|
)%
|
||||||||
|
Stock compensation and excess tax benefit
|
(20,098
|
)
|
(11.21
|
)%
|
234
|
|
0.15
|
%
|
729
|
|
1.23
|
%
|
||||||||
|
Dividends received deduction
|
(1,631
|
)
|
(0.91
|
)%
|
(1,919
|
)
|
(1.23
|
)%
|
(2,104
|
)
|
(3.56
|
)%
|
||||||||
|
GFB NUBIL Revaluation
|
—
|
|
—
|
%
|
—
|
|
—
|
%
|
(4,954
|
)
|
(8.39
|
)%
|
||||||||
|
NOL Valuation Allowance
|
—
|
|
—
|
%
|
—
|
|
—
|
%
|
(9,061
|
)
|
(15.35
|
)%
|
||||||||
|
State tax, net of federal benefit
|
3,528
|
|
1.97
|
%
|
4,777
|
|
3.07
|
%
|
1,619
|
|
2.74
|
%
|
||||||||
|
Federal tax rate change
|
14,301
|
|
7.97
|
%
|
—
|
|
—
|
%
|
—
|
|
—
|
%
|
||||||||
|
Other
|
(1,525
|
)
|
(0.85
|
)%
|
93
|
|
0.06
|
%
|
374
|
|
0.62
|
%
|
||||||||
|
Total
|
$
|
54,165
|
|
30.19
|
%
|
$
|
55,905
|
|
35.88
|
%
|
$
|
5,656
|
|
9.56
|
%
|
|||||
Deferred income tax assets and liabilities reflect the tax effect of estimated temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and the amounts used for the same items for income tax reporting purposes.
F-56
The significant components of the net deferred tax assets and liabilities for the periods presented are as follows:
|
|
December 31,
|
||||||
|
|
2017
|
2016
|
|||||
|
|
(Dollars in thousands)
|
||||||
|
Deferred tax assets:
|
|||||||
|
Excess tax basis over carrying value of assets:
|
|||||||
|
Other real estate owned
|
$
|
1,456
|
|
$
|
12,991
|
|
|
|
Total
|
1,456
|
|
12,991
|
|
|||
|
Excess carrying value over tax basis of liabilities:
|
|||||||
|
Repo Loans
|
—
|
|
324
|
|
|||
|
Total
|
—
|
|
324
|
|
|||
|
Net operating loss carry forward:
|
|||||||
|
Federal
|
5,755
|
|
9,287
|
|
|||
|
State
|
534
|
|
921
|
|
|||
|
Total
|
6,289
|
|
10,208
|
|
|||
|
Amortization
|
11,717
|
|
21,555
|
|
|||
|
Depreciation
|
—
|
|
660
|
|
|||
|
Unrealized losses on securities available for sale
|
—
|
|
2,509
|
|
|||
|
Allowance for loan losses
|
11,087
|
|
12,807
|
|
|||
|
Non-qualified stock options and restricted stock
|
3,869
|
|
7,695
|
|
|||
|
Other
|
469
|
|
2,696
|
|
|||
|
Gross deferred tax assets
|
34,887
|
|
71,445
|
|
|||
|
Valuation allowance
|
—
|
|
—
|
|
|||
|
Gross deferred tax assets, net of valuation allowance
|
34,887
|
|
71,445
|
|
|||
|
Deferred tax liabilities:
|
|||||||
|
Loans
|
(947
|
)
|
(7,542
|
)
|
|||
|
Depreciation
|
(239
|
)
|
—
|
|
|||
|
Restricted securities
|
(1,475
|
)
|
(2,260
|
)
|
|||
|
Unrealized gains on securities available for sale
|
(3,594
|
)
|
—
|
|
|||
|
Other
|
(1,589
|
)
|
(252
|
)
|
|||
|
Gross deferred tax liabilities
|
(7,844
|
)
|
(10,054
|
)
|
|||
|
Deferred tax assets (liabilities), net
|
$
|
27,043
|
|
$
|
61,391
|
|
|
At December 31, 2017, the
Company had deferred tax assets for federal and state net operating losses of $5.8 million and $534 thousand, respectively. The federal and state net operating loss carryforwards are attributable to the acquisition of Great Florida Bank and are
subject to an annual limitation. These deferred tax assets for net operating losses will expire in years 2028 through 2034.
The Company records a valuation allowance to reduce its deferred tax assets if, based on the weight of available evidence, both positive and
negative, for each respective tax jurisdiction, it is more likely than not that some portion or all of such deferred tax assets will not be realized. Management believes the Company will realize the benefits from certain federal and state net
operating loss carryforwards and as such, in 2015, reversed the valuation allowance of $9.1 million previously provided on the deferred
tax assets for federal and state net operating loss carryforwards. The reversal of the valuation allowance on the deferred tax assets was recognized as a reduction of income tax expense.
The Company is subject to U.S. federal income tax as well as state income tax for Florida and New York.
The Company had no
uncertain tax positions at December 31, 2017, 2016 or 2015. The Company’s policy is to classify interest and penalties associated with income taxes within other expenses. The Company did not incur interest or penalties associated with income taxes at December 31, 2017, 2016 or 2015.
F-57
NOTE 17. COMMITMENTS AND CONTINGENCIES
The Company issues off-balance sheet financial instruments in connection with its lending activities and to meet the financing needs of its
customers. These financial instruments include commitments to fund loans and lines of credit as well as commercial and standby letters of credit. These commitments expose the Company to varying degrees of credit and market risk which are essentially
the same as those involved in extending loans to customers. The Company follows the same credit policies in making commitments as it does for instruments recorded on the Company’s consolidated balance sheet. Collateral is obtained based on
management’s assessment of the customer’s credit risk.
The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company’s reserve for unfunded
commitments totaled $1.1 million as of December 31, 2017 and $1.6 million as of December 31,
2016.
Fees collected on off-balance sheet financial instruments represent the fair value of those commitments and are deferred and amortized over
their term.
Financial Instruments Commitments
Unfunded commitments are as follows:
|
|
December 31,
|
||||||
|
|
2017
|
2016
|
|||||
|
|
(Dollars in thousands)
|
||||||
|
Commitments to fund loans
|
$
|
926,405
|
|
$
|
724,380
|
|
|
|
Unused lines of credit
|
571,587
|
|
410,068
|
|
|||
|
Commercial and standby letters of credit
|
46,520
|
|
26,200
|
|
|||
|
Total
|
$
|
1,544,512
|
|
$
|
1,160,648
|
|
|
Commitments to fund loans:
Commitments to fund loans are agreements to lend funds to customers as long as there is no violation of any condition established in the
contract. To accommodate the financial needs of customers, the Company makes commitments under various terms to lend funds to consumers and businesses. Commitments to fund loans generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Many of these commitments are expected to expire without being funded and, therefore, the total commitment amounts do not necessarily represent future liquidity requirements.
The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral required in connection with a
commitment to fund is based on management’s credit evaluation of the counterparty.
Unused lines of credit:
Unfunded commitments under lines of credit include commercial, commercial real estate, home equity and consumer lines of credit to existing
customers. Some of these commitments may mature without being fully funded.
Commercial and standby letters of credit:
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Letters of
credit are primarily issued to support trade transactions or guarantee arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds
collateral supporting those commitments if deemed necessary.
F-58
Other Commitments and Contingencies
Legal Proceedings
The Company, from time to time, is involved as plaintiff or defendant in various legal actions arising in the normal course of business. While
the ultimate outcome of any such proceedings cannot be predicted with certainty, it is the opinion of management, based upon advice of legal counsel, that no proceedings exist, either individually or in the aggregate, which, if determined adversely
to the Company, would have a material effect on the Company’s consolidated balance sheet, results of operations or cash flows.
NOTE 18. PARENT COMPANY FINANCIAL STATEMENTS
Condensed Balance Sheets of FCB Financial Holdings, Inc. (Parent company only) for the periods presented are as follows:
PARENT COMPANY
CONDENSED BALANCE SHEETS
|
|
December 31,
|
||||||
|
|
2017
|
2016
|
|||||
|
|
(Dollars in thousands)
|
||||||
|
Assets:
|
|||||||
|
Cash and due from banks
|
$
|
10,271
|
|
$
|
18,126
|
|
|
|
Available for sale securities
|
179,815
|
|
129,970
|
|
|||
|
Investment in bank subsidiary
|
1,025,677
|
|
885,296
|
|
|||
|
Other assets
|
13,894
|
|
9,874
|
|
|||
|
Total assets
|
$
|
1,229,657
|
|
$
|
1,043,266
|
|
|
|
Liabilities and stockholders’ equity:
|
|||||||
|
Total liabilities
|
50,783
|
|
61,182
|
|
|||
|
Stockholders’ equity
|
1,178,874
|
|
982,084
|
|
|||
|
Total liabilities and stockholders’ equity
|
$
|
1,229,657
|
|
$
|
1,043,266
|
|
|
F-59
Condensed Statements of Income of FCB Financial Holdings, Inc. (Parent company only) for the periods presented are as follows:
PARENT COMPANY
CONDENSED STATEMENTS OF INCOME
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Income:
|
|||||||||||
|
Interest and dividends on investment securities
|
$
|
8,079
|
|
$
|
7,831
|
|
$
|
8,602
|
|
||
|
Gain (loss) on investment securities
|
2,032
|
|
(586
|
)
|
688
|
|
|||||
|
Total income
|
10,111
|
|
7,245
|
|
9,290
|
|
|||||
|
Expense:
|
|||||||||||
|
Interest on borrowings
|
770
|
|
884
|
|
551
|
|
|||||
|
Stock-based compensation expense
|
1,126
|
|
577
|
|
829
|
|
|||||
|
Professional services
|
922
|
|
707
|
|
950
|
|
|||||
|
Directors fees
|
401
|
|
800
|
|
598
|
|
|||||
|
Insurance expense
|
768
|
|
1,034
|
|
1,505
|
|
|||||
|
Other noninterest expense
|
8,372
|
|
7,261
|
|
6,500
|
|
|||||
|
Total expense
|
12,359
|
|
11,263
|
|
10,933
|
|
|||||
|
Income (loss) before income taxes and equity in undistributed income of subsidiaries
|
(2,248
|
)
|
(4,018
|
)
|
(1,643
|
)
|
|||||
|
Income tax expense (benefit)
|
(5,494
|
)
|
(3,671
|
)
|
(2,901
|
)
|
|||||
|
Income (loss) before equity in undistributed income of subsidiaries
|
3,246
|
|
(347
|
)
|
1,258
|
|
|||||
|
Equity in income of subsidiary
|
121,948
|
|
100,263
|
|
52,133
|
|
|||||
|
Net income
|
$
|
125,194
|
|
$
|
99,916
|
|
$
|
53,391
|
|
||
F-60
Condensed Statements of Comprehensive Income of FCB Financial Holdings, Inc. (Parent company only) for periods presented are as follows:
PARENT COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Net income
|
$
|
125,194
|
|
$
|
99,916
|
|
$
|
53,391
|
|
||
|
Other comprehensive income (loss):
|
|||||||||||
|
Unrealized net holding gains (losses) on investment securities available for sale, net of taxes of $(1,644), $(620), and $(227), respectively
|
2,685
|
|
988
|
|
362
|
|
|||||
|
Reclassification adjustment for (gains) losses on investment securities available for sale included in net income, net of taxes of $1,050, $63, and
$384, respectively
|
(1,696
|
)
|
(100
|
)
|
(612
|
)
|
|||||
|
Total other comprehensive income (loss)
|
989
|
|
888
|
|
(250
|
)
|
|||||
|
Total comprehensive income
|
$
|
126,183
|
|
$
|
100,804
|
|
$
|
53,141
|
|
||
F-61
Condensed Statements of Cash Flows of FCB Financial Holdings, Inc. (Parent company only) for periods presented are as follows:
PARENT COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Cash flows from operating activities:
|
|||||||||||
|
Net income
|
$
|
125,194
|
|
$
|
99,916
|
|
$
|
53,391
|
|
||
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|||||||||||
|
Equity in earnings of subsidiaries
|
(121,948
|
)
|
(100,263
|
)
|
(52,133
|
)
|
|||||
|
Amortization (accretion) of premium (discount) on investment securities
|
(13
|
)
|
—
|
|
—
|
|
|||||
|
(Gain) loss on investment securities
|
(2,032
|
)
|
586
|
|
(688
|
)
|
|||||
|
Stock-based compensation and warrant expense
|
1,124
|
|
577
|
|
829
|
|
|||||
|
Depreciation of premises and equipment
|
—
|
|
—
|
|
1
|
|
|||||
|
Deferred tax expense
|
3,126
|
|
(735
|
)
|
1,272
|
|
|||||
|
Net change in operating assets and liabilities:
|
|||||||||||
|
(Increase)/decrease in due from subsidiaries
|
(472
|
)
|
4,478
|
|
8,476
|
|
|||||
|
Increase/(decrease) in due to subsidiaries
|
(1,745
|
)
|
1,745
|
|
(1,979
|
)
|
|||||
|
Net change in other assets
|
1,332
|
|
1,382
|
|
1,052
|
|
|||||
|
Net change in other liabilities
|
(8,109
|
)
|
(4,365
|
)
|
(2,806
|
)
|
|||||
|
Net cash provided by (used in) operating activities
|
(3,543
|
)
|
3,321
|
|
7,415
|
|
|||||
|
Cash flows from investing activities:
|
|||||||||||
|
Purchases of investment securities available for sale
|
(102,988
|
)
|
(67,934
|
)
|
(169,728
|
)
|
|||||
|
Sales of investment securities available for sale
|
56,791
|
|
106,347
|
|
110,649
|
|
|||||
|
Payments and maturities of investment securities
|
—
|
|
—
|
|
2,005
|
|
|||||
|
Capital contribution
|
—
|
|
—
|
|
(35,000
|
)
|
|||||
|
Net cash provided by (used in) investing activities
|
(46,197
|
)
|
38,413
|
|
(92,074
|
)
|
|||||
|
Cash flows from financing activities:
|
|||||||||||
|
Repurchase common stock
|
—
|
|
(23,738
|
)
|
(34,884
|
)
|
|||||
|
Exercise of stock options
|
50,670
|
|
17,042
|
|
8,793
|
|
|||||
|
Excess tax benefit from share-based payments
|
—
|
|
2,110
|
|
2,048
|
|
|||||
|
Net change in repurchase agreements
|
(8,785
|
)
|
(28,134
|
)
|
87,254
|
|
|||||
|
Net cash provided by (used in) financing activities
|
41,885
|
|
(32,720
|
)
|
63,211
|
|
|||||
|
Net Change in Cash
|
(7,855
|
)
|
9,014
|
|
(21,448
|
)
|
|||||
|
Cash at Beginning of Period
|
18,126
|
|
9,112
|
|
30,560
|
|
|||||
|
Cash at End of Period
|
$
|
10,271
|
|
$
|
18,126
|
|
$
|
9,112
|
|
||
F-62
NOTE 19. FAIR VALUE MEASUREMENTS
When determining the fair value measurements for assets and liabilities and the related fair value hierarchy, the Company considers the
principal or most advantageous market in which it would transact and the assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to price identical assets
or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to market observable data for similar assets and liabilities. It is the Company’s policy to maximize the use of observable inputs, minimize the
use of unobservable inputs and use unobservable inputs to measure fair value to the extent that observable inputs are not available. The need to use unobservable inputs generally results from the lack of market liquidity, resulting in diminished
observability of both actual trades and assumptions that would otherwise be available to value instruments, or the value of underlying collateral is not market observable. Although third party price indications may be available for an asset or
liability, limited trading activity would make it difficult to support the observability of these quotations.
Financial Instruments Carried at Fair Value on a Recurring Basis
The following is a description of the valuation methodologies used for financial instruments measured at fair value on a recurring basis, as
well as the general classification of each instrument under the valuation hierarchy.
Investment Securities—Investment securities available for sale are carried at fair value on a recurring basis. When available, fair value is
based on quoted prices for the identical security in an active market and as such, would be classified as Level 1. If quoted market prices are not available, fair values are estimated using quoted prices of securities with similar characteristics,
discounted cash flows or matrix pricing models. Investment securities available for sale for which Level 1 valuations are not available are classified as Level 2 if the valuation incorporates primarily observable inputs. Level 2 securities include
U.S. Government agencies and sponsored enterprises obligations and agency mortgage-backed securities; state and municipal obligations; asset-backed securities; and corporate debt and other securities. Pricing of these securities is generally spread
driven.
Observable inputs that may impact the valuation of these securities include benchmark yield curves, credit spreads, reported trades, dealer
quotes, bids, issuer spreads, current rating, historical constant prepayment rates, historical voluntary prepayment rates, structural and waterfall features of individual securities, published collateral data, and for certain securities, historical
constant default rates and default severities.
Interest Rate Derivatives—Interest rate derivatives are reported at estimated fair value utilizing Level 2 inputs and are included in other
assets and other liabilities and consist of interest rate swaps and caps where there is no significant deterioration in the counterparties (loan customers) credit risk since origination of the interest rate swap or cap. The Company values its
interest rate swap and cap positions using market prices provided by a third party which uses primarily observable market inputs. Interest rate derivatives are further described in Note 8 “Derivatives.”
For purposes of potential valuation adjustments to our derivative positions, the Company evaluates the credit risk of its counterparties as
well as its own credit risk. Accordingly, the Company has considered factors such as the likelihood of default, expected loss given default, net exposures and remaining contractual life, among other things, in determining if any estimated fair value
adjustments related to credit risk are required. The Company reviews counterparty exposure quarterly, and when necessary, appropriate adjustments are made to reflect the exposure.
For the years ended December 31, 2017, 2016 or 2015, the Company has not realized any losses due to a counterparty’s inability to pay any net uncollateralized position. As of December 31, 2017, there were no interest rate derivatives classified as Level 3.
Clawback liability—The fair value of the FDIC clawback liability was estimated using a discounted cash flow technique based on projected cash
flows related to the resolution of Covered Assets and a discount rate using a risk free rate, plus a premium that took into account the Company’s credit risk, resulting in Level 3 classification.
On March 4, 2015, the Bank entered into an agreement with the FDIC to terminate all loss sharing agreements which were entered into in 2010
and 2011 in conjunction with the Bank’s acquisition of substantially all of the assets and assumption of substantially all of the liabilities of six failed banks in FDIC-assisted acquisitions. Under the early termination, all rights and obligations
of the Bank and the FDIC under the loss share agreements, including the clawback liability, have been eliminated.
F-63
The following table presents the assets and liabilities measured at fair value on a recurring basis:
|
|
December 31, 2017
|
||||||||||||||
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
|
Assets:
|
|||||||||||||||
|
U.S. Government agencies and sponsored enterprises obligations
|
$
|
—
|
|
$
|
42,838
|
|
$
|
—
|
|
$
|
42,838
|
|
|||
|
U.S. Government agencies and sponsored enterprises mortgage-backed securities
|
—
|
|
595,237
|
|
—
|
|
595,237
|
|
|||||||
|
State and municipal obligations
|
—
|
|
26,172
|
|
—
|
|
26,172
|
|
|||||||
|
Asset-backed securities
|
—
|
|
610,546
|
|
—
|
|
610,546
|
|
|||||||
|
Corporate bonds and other debt securities
|
55,970
|
|
699,933
|
|
—
|
|
755,903
|
|
|||||||
|
Preferred stocks and other equity securities
|
12,954
|
|
77,153
|
|
—
|
|
90,107
|
|
|||||||
|
Derivative assets—Interest rate contracts
|
|
|
11,833
|
|
—
|
|
11,833
|
|
|||||||
|
Total
|
$
|
68,924
|
|
$
|
2,063,712
|
|
$
|
—
|
|
$
|
2,132,636
|
|
|||
|
Liabilities:
|
|||||||||||||||
|
Derivative liabilities—Interest rate contracts
|
$
|
—
|
|
$
|
11,833
|
|
$
|
—
|
|
$
|
11,833
|
|
|||
|
Total
|
$
|
—
|
|
$
|
11,833
|
|
$
|
—
|
|
$
|
11,833
|
|
|||
|
|
December 31, 2016
|
||||||||||||||
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
|
Assets:
|
|||||||||||||||
|
U.S. Government agencies and sponsored enterprises obligations
|
$
|
—
|
|
$
|
16,314
|
|
$
|
—
|
|
$
|
16,314
|
|
|||
|
U.S. Government agencies and sponsored enterprises mortgage-backed securities
|
—
|
|
558,446
|
|
—
|
|
558,446
|
|
|||||||
|
State and municipal obligations
|
—
|
|
27,679
|
|
—
|
|
27,679
|
|
|||||||
|
Asset-backed securities
|
—
|
|
577,823
|
|
—
|
|
577,823
|
|
|||||||
|
Corporate bonds and other debt securities
|
53,517
|
|
505,777
|
|
—
|
|
559,294
|
|
|||||||
|
Preferred stocks and other equity securities
|
6,908
|
|
129,970
|
|
—
|
|
136,878
|
|
|||||||
|
Derivative assets—Interest rate contracts
|
—
|
|
15,268
|
|
—
|
|
15,268
|
|
|||||||
|
Total
|
$
|
60,425
|
|
$
|
1,831,277
|
|
$
|
—
|
|
$
|
1,891,702
|
|
|||
|
Liabilities:
|
|||||||||||||||
|
Derivative liabilities—Interest rate contracts
|
$
|
—
|
|
$
|
15,268
|
|
$
|
—
|
|
$
|
15,268
|
|
|||
|
Total
|
$
|
—
|
|
$
|
15,268
|
|
$
|
—
|
|
$
|
15,268
|
|
|||
The Company’s policy is to recognize transfers into or out of a level of the fair value hierarchy as of the end of the reporting period.
There were no financial assets transferred from level 2 to level 1 of the fair value hierarchy during the year ended December 31, 2017. There were $53.5 million of transfers of financial assets between levels of the fair value hierarchy during the year ended December 31, 2016.
F-64
The following table reconciles changes in the fair value of liabilities measured at fair value on a recurring basis and classified in level 3
of the fair value hierarchy for the periods presented:
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
Clawback
Liability
|
Clawback
Liability
|
Clawback
Liability
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Balance at beginning of period
|
$
|
—
|
|
$
|
—
|
|
$
|
13,846
|
|
||
|
Termination of FDIC loss sharing agreements
|
—
|
|
—
|
|
(13,846
|
)
|
|||||
|
Balance at end of period
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||
For the years ended December 31, 2017 and 2016, there was not a change in the methods or significant assumptions used to
estimate fair value.
Financial Instruments Measured at Fair Value on a Non-Recurring Basis
The following is a description of the methodologies used to estimate the fair values of assets and liabilities measured at fair value on a
non-recurring basis, and the level within the fair value hierarchy in which those measurements are typically classified.
Impaired loans and OREO—The carrying amount of collateral dependent impaired loans is typically based on the fair value of the underlying
collateral, which may be real estate or other business assets, less estimated costs to sell. The carrying value of OREO is initially measured based on the fair value, less estimated cost to sell, of the real estate acquired in foreclosure and
subsequently adjusted to the lower of cost or estimated fair value, less estimated cost to sell. Fair values of real estate collateral are typically based on real estate appraisals which utilize market and income valuation techniques incorporating
both observable and unobservable inputs. When current appraisals are not available, the Company may use brokers’ price opinions, home price indices, or other available information about changes in real estate market conditions to adjust the latest
appraised value available. These adjustments to appraised values may be subjective and involve significant management judgment. The fair value of collateral consisting of other business assets is generally based on appraisals that use market
approaches to valuation, incorporating primarily unobservable inputs. Fair value measurements related to collateral dependent impaired loans and OREO are classified within level 3 of the fair value hierarchy.
The following table shows significant unobservable inputs used in the non-recurring fair value measurement of level 3 assets and liabilities:
|
Level 3 Assets:
|
December 31, 2017
|
December 31, 2016
|
Valuation Technique
|
Unobservable Inputs
|
Range (Weighted Average)
|
|||||||||
|
(Dollars in thousands)
|
||||||||||||||
|
Impaired loans
|
$
|
6,153
|
|
$
|
8,878
|
|
Third party appraisals and discounted cash flows
|
Collateral discounts and discount rates
|
0% - 100% (7.6%)
|
|
||||
|
Other real estate owned
|
14,906
|
|
19,228
|
|
Third party appraisals
|
Collateral discounts and estimated cost to sell
|
10
|
%
|
||||||
The following table provides information about certain assets measured at fair value on a non-recurring basis:
|
|
Years Ended December 31,
|
||||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Negative valuation adjustments:
|
|||||||||||
|
Impaired loans
|
$
|
—
|
|
$
|
700
|
|
$
|
1,071
|
|
||
|
Foreclosed real estate
|
670
|
|
1,219
|
|
674
|
|
|||||
Impairment charges resulting from the non-recurring changes in fair value of underlying collateral of impaired loans are included in the
provision for loan losses in the consolidated statement of income. Impairment charges resulting from the non-recurring changes in fair value of OREO are included in other real estate and acquired assets resolution expenses in the consolidated
statement of income.
F-65
The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company’s financial instruments
are as follows:
|
December 31, 2017
|
Carrying
Value
|
Fair
Value
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||
|
Financial Assets:
|
|||||||||||||||||||
|
Cash and cash equivalents
|
$
|
115,921
|
|
$
|
115,921
|
|
$
|
115,921
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Available for sale securities
|
2,120,803
|
|
2,120,803
|
|
68,924
|
|
2,051,879
|
|
—
|
|
|||||||||
|
FHLB and other bank stock
|
56,881
|
|
56,881
|
|
—
|
|
56,881
|
|
—
|
|
|||||||||
|
Loans, net
|
7,930,639
|
|
7,877,094
|
|
—
|
|
—
|
|
7,877,094
|
|
|||||||||
|
Loans held for sale
|
12,736
|
|
12,736
|
|
—
|
|
12,736
|
|
—
|
|
|||||||||
|
Bank-owned life insurance
|
201,069
|
|
201,069
|
|
—
|
|
201,069
|
|
—
|
|
|||||||||
|
Derivative assets—Interest rate contracts
|
11,833
|
|
11,833
|
|
—
|
|
11,833
|
|
—
|
|
|||||||||
|
Financial Liabilities:
|
|||||||||||||||||||
|
Deposits
|
$
|
8,673,927
|
|
$
|
8,664,125
|
|
$
|
—
|
|
$
|
8,664,125
|
|
$
|
—
|
|
||||
|
Advances from the FHLB and other borrowings
|
749,113
|
|
740,941
|
|
—
|
|
740,941
|
|
—
|
|
|||||||||
|
Derivative liabilities—Interest rate contracts
|
11,833
|
|
11,833
|
|
—
|
|
11,833
|
|
—
|
|
|||||||||
|
December 31, 2016
|
Carrying
Value
|
Fair
Value
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||
|
Financial Assets:
|
|||||||||||||||||||
|
Cash and cash equivalents
|
$
|
83,876
|
|
$
|
83,876
|
|
$
|
83,876
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Available for sale securities
|
1,876,434
|
|
1,876,434
|
|
60,425
|
|
1,816,009
|
|
—
|
|
|||||||||
|
FHLB and other bank stock
|
51,656
|
|
51,656
|
|
—
|
|
51,656
|
|
—
|
|
|||||||||
|
Loans, net
|
6,596,997
|
|
6,556,914
|
|
—
|
|
—
|
|
6,556,914
|
|
|||||||||
|
Loans held for sale
|
20,220
|
|
20,220
|
|
—
|
|
20,220
|
|
—
|
|
|||||||||
|
Bank-owned life insurance
|
198,438
|
|
198,438
|
|
—
|
|
198,438
|
|
—
|
|
|||||||||
|
Derivative assets—Interest rate contracts
|
15,268
|
|
15,268
|
|
—
|
|
15,268
|
|
—
|
|
|||||||||
|
Financial Liabilities:
|
|||||||||||||||||||
|
Deposits
|
$
|
7,305,671
|
|
$
|
7,306,148
|
|
$
|
—
|
|
$
|
7,306,148
|
|
$
|
—
|
|
||||
|
Advances from the FHLB and other borrowings
|
751,103
|
|
745,855
|
|
—
|
|
745,855
|
|
—
|
|
|||||||||
|
Derivative liabilities—Interest rate contracts
|
15,268
|
|
15,268
|
|
—
|
|
15,268
|
|
—
|
|
|||||||||
Certain financial instruments are carried at amounts that approximate fair value due to their short-term nature and generally negligible
credit risk. Financial instruments for which fair value approximates the carrying amount at December 31, 2017 and 2016, include cash and cash equivalents.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments. Estimates may differ from
actual exit value as defined by ASC Topic 820.
FHLB and Other Bank Stock:
FHLB and other bank stock can be liquidated only by redemption by the issuer, as there is no market for these securities. These securities are
carried at par, which has historically represented the redemption price and is therefore considered to approximate fair value.
F-66
Loans:
Fair values for loans are based on a discounted cash flow methodology that considers various factors, including the type of loan and related
collateral, classification status, fixed or variable interest rate, term of loan, whether or not the loan was amortizing and current discount rates. Loans are grouped together according to similar characteristics and are treated in the aggregate when
applying various valuation techniques. The discount rates used for loans are based on current market rates for new originations of comparable credit risk and include adjustments for liquidity concerns. The ALL is considered a reasonable estimate of
the required adjustment to fair value to reflect the impact of credit risk.
Loans Held for Sale:
Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices.
Bank-owned Life Insurance:
The Company holds life insurance policies on certain officers. The carrying value of these policies approximates fair value as it is based on
the cash surrender value adjusted for other charges or amounts due that are probable at settlement.
Deposits:
The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated using discounted cash flow analysis and using the rates currently offered for deposits of similar remaining maturities.
Advances from the FHLB and Other Borrowings:
The fair value of advances from the FHLB and other borrowings are estimated by discounting the future cash flows using the current rate at
which similar borrowings with similar remaining maturities could be obtained.
NOTE 20. QUARTERLY FINANCIAL DATA (UNAUDITED)
The summary quarterly financial information set forth below for each of the last eight quarters has been derived from the Company’s unaudited
interim consolidated financial statements and other financial information. The summary historical quarterly financial information includes all adjustments consisting of normal recurring accruals that the Company considers necessary for a fair
presentation of the financial position and the results of operations for these periods.
F-67
The information below is only a summary and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and the consolidated historical financial statements and the related notes thereto included in this Form 10-K filing.
|
|
Quarters Ended December 31, 2017
|
||||||||||||||
|
|
Q4
|
Q3
|
Q2
|
Q1
|
|||||||||||
|
|
(Dollars in thousands, except per share data)
|
||||||||||||||
|
Selected Income Statement data:
|
|||||||||||||||
|
Interest income
|
$
|
101,490
|
|
$
|
96,816
|
|
$
|
90,573
|
|
$
|
85,222
|
|
|||
|
Interest expense
|
23,376
|
|
21,035
|
|
18,686
|
|
15,552
|
|
|||||||
|
Net interest income
|
78,114
|
|
75,781
|
|
71,887
|
|
69,670
|
|
|||||||
|
Provision for loan losses
|
2,786
|
|
2,871
|
|
2,115
|
|
1,643
|
|
|||||||
|
Net interest income after provision for loan losses
|
75,328
|
|
72,910
|
|
69,772
|
|
68,027
|
|
|||||||
|
Noninterest income
|
7,731
|
|
8,425
|
|
8,873
|
|
9,987
|
|
|||||||
|
Noninterest expense
|
36,119
|
|
35,239
|
|
35,252
|
|
35,084
|
|
|||||||
|
Income before income tax expense
|
46,940
|
|
46,096
|
|
43,393
|
|
42,930
|
|
|||||||
|
Income tax expense
|
27,976
|
|
13,936
|
|
8,312
|
|
3,941
|
|
|||||||
|
Net income
|
$
|
18,964
|
|
$
|
32,160
|
|
$
|
35,081
|
|
$
|
38,989
|
|
|||
|
Earnings per share:
|
|||||||||||||||
|
Basic
|
$
|
0.43
|
|
$
|
0.74
|
|
$
|
0.82
|
|
$
|
0.93
|
|
|||
|
Diluted
|
$
|
0.41
|
|
$
|
0.70
|
|
$
|
0.76
|
|
$
|
0.86
|
|
|||
|
|
Quarters Ended December 31, 2016
|
||||||||||||||
|
|
Q4
|
Q3
|
Q2
|
Q1
|
|||||||||||
|
|
(Dollars in thousands, except per share data)
|
||||||||||||||
|
Selected Income Statement data:
|
|||||||||||||||
|
Interest income
|
$
|
85,580
|
|
$
|
80,800
|
|
$
|
77,208
|
|
$
|
75,728
|
|
|||
|
Interest expense
|
14,514
|
|
13,522
|
|
12,278
|
|
11,286
|
|
|||||||
|
Net interest income
|
71,066
|
|
67,278
|
|
64,930
|
|
64,442
|
|
|||||||
|
Provision for loan losses
|
2,249
|
|
1,990
|
|
1,976
|
|
1,440
|
|
|||||||
|
Net interest income after provision for loan losses
|
68,817
|
|
65,288
|
|
62,954
|
|
63,002
|
|
|||||||
|
Noninterest income
|
7,919
|
|
8,142
|
|
8,222
|
|
5,434
|
|
|||||||
|
Noninterest expense
|
33,646
|
|
33,036
|
|
33,975
|
|
33,300
|
|
|||||||
|
Income before income tax expense
|
43,090
|
|
40,394
|
|
37,201
|
|
35,136
|
|
|||||||
|
Income tax expense
|
15,194
|
|
14,330
|
|
13,697
|
|
12,684
|
|
|||||||
|
Net income
|
$
|
27,896
|
|
$
|
26,064
|
|
$
|
23,504
|
|
$
|
22,452
|
|
|||
|
Earnings per share:
|
|||||||||||||||
|
Basic
|
$
|
0.68
|
|
$
|
0.64
|
|
$
|
0.58
|
|
$
|
0.55
|
|
|||
|
Diluted
|
$
|
0.64
|
|
$
|
0.60
|
|
$
|
0.55
|
|
$
|
0.52
|
|
|||
F-68
NOTE 21. SUBSEQUENT EVENTS
Acquisitions
Floridian Community Bank
On November 27, 2017, the Company announced the signing of a definitive agreement for FCB Financial Holdings, Inc. to acquire Floridian
Community Holdings, Inc., the parent company of Floridian Community Bank (“Floridian”). On February 5, 2018, the Company announced it had received approval from both the Federal Reserve Bank of Atlanta and the Office of the Comptroller of the
Currency of its applications for the acquisition of Floridian. On February 20, 2018, Floridian shareholders approved the merger. Floridian, founded in 2003, is a state-chartered bank with 5 full-service branches located in South Florida. Under the
terms of the merger agreement, which has been unanimously approved by the Board of each company, the transaction is expected to close in March of 2018, subject to certain customary closing conditions.
F-69
Item 9. Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures as of the
end of the period covered by this report. Based upon that evaluation, they have concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed is recorded, processed, summarized and
reported within the time periods specified in the Commission’s rules and forms and are also designed to ensure that the information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Internal Control over Financial Reporting
The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, based on the 2013 updated framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based upon its assessment, management has concluded that, as of December 31, 2017, the Company’s internal control over financial reporting is effective based on the criteria established in Internal Control—Integrated Framework.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the period ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
Management’s Report on Internal Control over Financial Reporting
Management’s report set forth on page F-2.
Item 9B. Other Information
None.
F-70