ITEM 1. FINANCIAL STATEMENTS
1ST UNITED BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2013
|
|
December 31,
2012
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
67,089
|
|
|
$
|
206,871
|
|
Federal funds sold
|
|
|
199
|
|
|
|
246
|
|
Cash and cash equivalents
|
|
|
67,288
|
|
|
|
207,117
|
|
Securities available for sale
|
|
|
341,879
|
|
|
|
260,122
|
|
Loans held for sale
|
|
|
—
|
|
|
|
524
|
|
Loans, net of allowance of $9,907 and $9,788 at September 30, 2013 and December 31, 2012
|
|
|
1,112,123
|
|
|
|
903,600
|
|
Nonmarketable equity securities
|
|
|
11,016
|
|
|
|
8,625
|
|
Premises and equipment, net
|
|
|
17,255
|
|
|
|
17,780
|
|
Other real estate owned
|
|
|
16,452
|
|
|
|
19,529
|
|
Company-owned life insurance
|
|
|
24,543
|
|
|
|
21,092
|
|
FDIC loss share receivable
|
|
|
31,271
|
|
|
|
46,735
|
|
Goodwill
|
|
|
64,228
|
|
|
|
58,499
|
|
Core deposit intangible
|
|
|
4,008
|
|
|
|
3,268
|
|
Accrued interest receivable and other assets
|
|
|
25,858
|
|
|
|
19,888
|
|
Total assets
|
|
$
|
1,715,921
|
|
|
$
|
1,566,779
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
467,666
|
|
|
$
|
426,968
|
|
Interest bearing
|
|
|
931,574
|
|
|
|
876,054
|
|
Total deposits
|
|
|
1,399,240
|
|
|
|
1,303,022
|
|
Federal funds purchased and repurchase agreements
|
|
|
12,213
|
|
|
|
19,855
|
|
Federal Home Loan Bank Advances
|
|
|
60,021
|
|
|
|
—
|
|
Accrued interest payable and other liabilities
|
|
|
10,763
|
|
|
|
7,212
|
|
Total liabilities
|
|
|
1,482,237
|
|
|
|
1,330,089
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
Preferred stock – no par, 5,000,000 shares authorized; no shares issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock – $0.01 par value; 60,000,000 shares authorized; 34,288,841 and 34,070,270 issued and outstanding at September 30, 2013 and December 31, 2012, respectively
|
|
|
343
|
|
|
|
341
|
|
Additional paid-in capital
|
|
|
239,227
|
|
|
|
238,089
|
|
Accumulated deficit
|
|
|
(416
|
)
|
|
|
(3,998
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(5,470
|
)
|
|
|
2,258
|
|
Total shareholders’ equity
|
|
|
233,684
|
|
|
|
236,690
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,715,921
|
|
|
$
|
1,566,779
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
1st UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
17,353
|
|
|
$
|
17,933
|
|
|
$
|
52,266
|
|
|
$
|
49,608
|
|
Securities available for sale
|
|
|
2,012
|
|
|
|
1,032
|
|
|
|
5,028
|
|
|
|
4,036
|
|
Federal funds sold and other
|
|
|
155
|
|
|
|
218
|
|
|
|
492
|
|
|
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
19,520
|
|
|
|
19,183
|
|
|
|
57,786
|
|
|
|
54,237
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
872
|
|
|
|
1,274
|
|
|
|
2,751
|
|
|
|
4,175
|
|
Federal funds purchased and repurchase agreements
|
|
|
3
|
|
|
|
3
|
|
|
|
12
|
|
|
|
9
|
|
Federal Home Loan Bank and Federal Reserve Bank borrowings
|
|
|
45
|
|
|
|
—
|
|
|
|
45
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
920
|
|
|
|
1,277
|
|
|
|
2,808
|
|
|
|
4,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
18,600
|
|
|
|
17,906
|
|
|
|
54,978
|
|
|
|
50,046
|
|
Provision for loan losses
|
|
|
745
|
|
|
|
1,050
|
|
|
|
2,695
|
|
|
|
5,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
17,855
|
|
|
|
16,856
|
|
|
|
52,283
|
|
|
|
44,596
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees on deposit accounts
|
|
|
870
|
|
|
|
883
|
|
|
|
2,469
|
|
|
|
2,594
|
|
Net gains on sales of other real estate owned
|
|
|
179
|
|
|
|
1,020
|
|
|
|
1,012
|
|
|
|
2,974
|
|
Net gains on sales of securities
|
|
|
93
|
|
|
|
—
|
|
|
|
824
|
|
|
|
1,673
|
|
Net gains on sales of loans held for sale
|
|
|
1
|
|
|
|
15
|
|
|
|
58
|
|
|
|
81
|
|
Increase in cash surrender value of Company owned life insurance
|
|
|
158
|
|
|
|
155
|
|
|
|
452
|
|
|
|
343
|
|
Adjustment to FDIC loss share receivable
|
|
|
(2,835
|
)
|
|
|
(4,150
|
)
|
|
|
(10,576
|
)
|
|
|
(9,268
|
)
|
Other
|
|
|
223
|
|
|
|
208
|
|
|
|
743
|
|
|
|
605
|
|
Total non-interest income
|
|
|
(1,311
|
)
|
|
|
(1,869
|
)
|
|
|
(5,018
|
)
|
|
|
(998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
6,601
|
|
|
|
6,157
|
|
|
|
18,828
|
|
|
|
18,104
|
|
Occupancy and equipment
|
|
|
2,175
|
|
|
|
2,057
|
|
|
|
6,113
|
|
|
|
6,022
|
|
Data processing
|
|
|
1,039
|
|
|
|
974
|
|
|
|
2,895
|
|
|
|
2,790
|
|
Telephone
|
|
|
223
|
|
|
|
244
|
|
|
|
670
|
|
|
|
719
|
|
Stationery and supplies
|
|
|
96
|
|
|
|
123
|
|
|
|
286
|
|
|
|
386
|
|
Amortization of intangibles
|
|
|
205
|
|
|
|
181
|
|
|
|
544
|
|
|
|
506
|
|
Professional fees
|
|
|
434
|
|
|
|
359
|
|
|
|
1,273
|
|
|
|
1,177
|
|
Advertising
|
|
|
65
|
|
|
|
67
|
|
|
|
200
|
|
|
|
201
|
|
Merger reorganization expense
|
|
|
1,618
|
|
|
|
24
|
|
|
|
1,745
|
|
|
|
1,784
|
|
Disposal of banking center
|
|
|
228
|
|
|
|
—
|
|
|
|
632
|
|
|
|
—
|
|
Regulatory assessment
|
|
|
453
|
|
|
|
382
|
|
|
|
1,181
|
|
|
|
1,127
|
|
Other real estate owned expense
|
|
|
456
|
|
|
|
206
|
|
|
|
1,492
|
|
|
|
968
|
|
Loan expense
|
|
|
419
|
|
|
|
548
|
|
|
|
1,221
|
|
|
|
1,797
|
|
Other
|
|
|
1,165
|
|
|
|
1,131
|
|
|
|
3,402
|
|
|
|
3,209
|
|
Total non-interest expense
|
|
|
15,177
|
|
|
|
12,453
|
|
|
|
40,482
|
|
|
|
38,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
1,367
|
|
|
|
2,534
|
|
|
|
6,783
|
|
|
|
4,808
|
|
Income tax expense
|
|
|
487
|
|
|
|
960
|
|
|
|
2,516
|
|
|
|
1,807
|
|
Net income
|
|
$
|
880
|
|
|
$
|
1,574
|
|
|
$
|
4,267
|
|
|
$
|
3,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.13
|
|
|
$
|
0.09
|
|
Diluted earnings per common share
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.13
|
|
|
$
|
0.09
|
|
See accompanying notes to the consolidated
financial statements.
1st UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
(unaudited)
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Net income
|
|
$
|
880
|
|
|
$
|
1,574
|
|
|
$
|
4,267
|
|
|
$
|
3,001
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on securities available for sale
|
|
|
325
|
|
|
|
1,944
|
|
|
|
(11,566
|
)
|
|
|
3,235
|
|
Reclassification adjustment for security gains included in net income
(1)
|
|
|
(93
|
)
|
|
|
—
|
|
|
|
(824
|
)
|
|
|
(1,673
|
)
|
Income tax benefit (expense)
|
|
|
(87
|
)
|
|
|
(731
|
)
|
|
|
4,662
|
|
|
|
(585
|
)
|
Other comprehensive income (loss)
|
|
|
(145
|
)
|
|
|
1,213
|
|
|
|
(7,728
|
)
|
|
|
977
|
|
Comprehensive income (loss)
|
|
$
|
1,025
|
|
|
$
|
2,787
|
|
|
$
|
(3,461
|
)
|
|
$
|
3,978
|
|
|
(1)
|
Amounts are included in net gains on sales of securities on the Consolidated Statements of Operations in total non-interest income. Income tax expense associated with the reclassification adjustment for the three months ended September 30, 2013 and 2012 was $35 and $0, respectively. Income tax expense associated with the reclassification adjustment for the nine months ended September 30, 2013 and 2012 was $310 and $630, respectively.
|
See accompanying notes to the consolidated financial
statements.
1st UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Nine months ended September 30, 2013 and 2012
(Dollars in thousands)
(unaudited)
|
|
Shares of
Common
Stock
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
Shareholders’
Equity
|
Balance at January 1,
2012
|
|
|
30,569,032
|
|
|
$
|
307
|
|
|
$
|
217,800
|
|
|
$
|
(5,319
|
)
|
|
$
|
2,563
|
|
|
$
|
215,351
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,001
|
|
|
|
—
|
|
|
|
3,001
|
|
Other comprehensive
income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
977
|
|
|
|
977
|
|
Stock-based compensation
expense
|
|
|
—
|
|
|
|
—
|
|
|
|
930
|
|
|
|
—
|
|
|
|
—
|
|
|
|
930
|
|
Restricted stock grants
|
|
|
360,884
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Issuance of common stock, net of costs of $61
|
|
|
3,140,354
|
|
|
|
31
|
|
|
|
19,034
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,065
|
|
Balance at September 30, 2012
|
|
|
34,070,270
|
|
|
$
|
341
|
|
|
$
|
237,761
|
|
|
$
|
(2,318
|
)
|
|
$
|
3,540
|
|
|
$
|
239,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1,
2013
|
|
|
34,070,270
|
|
|
$
|
341
|
|
|
$
|
238,089
|
|
|
$
|
(3,998
|
)
|
|
$
|
2,258
|
|
|
$
|
236,690
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,267
|
|
|
|
—
|
|
|
|
4,267
|
|
Other comprehensive
income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,728
|
)
|
|
|
(7,728
|
)
|
Stock-based compensation
expense
|
|
|
—
|
|
|
|
—
|
|
|
|
1,129
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,129
|
|
Dividends paid ($0.01 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(685
|
)
|
|
|
—
|
|
|
|
(685
|
)
|
Exercise of stock options
|
|
|
1,785
|
|
|
|
—
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
Restricted stock grants
|
|
|
216,786
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at September 30, 2013
|
|
|
34,288,841
|
|
|
$
|
343
|
|
|
$
|
239,227
|
|
|
$
|
(416
|
)
|
|
$
|
(5,470
|
)
|
|
$
|
233,684
|
|
See accompanying notes to the consolidated financial
statements.
1st UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2013 and 2012
(Dollars in thousands)
(unaudited)
|
|
2013
|
|
2012
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,267
|
|
|
$
|
3,001
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
2,695
|
|
|
|
5,450
|
|
Depreciation and amortization
|
|
|
2,798
|
|
|
|
2,485
|
|
Net accretion of purchase accounting adjustments
|
|
|
(16,137
|
)
|
|
|
(13,775
|
)
|
Net amortization of securities
|
|
|
2,738
|
|
|
|
1,806
|
|
Adjustment to FDIC receivable
|
|
|
10,576
|
|
|
|
9,268
|
|
Increase in cash surrender value of company-owned life insurance
|
|
|
(452
|
)
|
|
|
(343
|
)
|
Stock-based compensation expense
|
|
|
1,129
|
|
|
|
930
|
|
Net gains on sales of securities
|
|
|
(824
|
)
|
|
|
(1,673
|
)
|
Net gains on other real estate owned
|
|
|
(1,012
|
)
|
|
|
(2,974
|
)
|
Net loss on premises and equipment
|
|
|
17
|
|
|
|
5
|
|
Net gain on sale of loans held for sale
|
|
|
(58
|
)
|
|
|
(81
|
)
|
Write-down of other real estate owned
|
|
|
785
|
|
|
|
340
|
|
Disposal of branch
|
|
|
632
|
|
|
|
—
|
|
Loans originated for sale
|
|
|
(3,107
|
)
|
|
|
(4,905
|
)
|
Proceeds from sale of loans held for sale
|
|
|
3,689
|
|
|
|
4,504
|
|
Net change in:
|
|
|
|
|
|
|
|
|
Deferred loan fees
|
|
|
44
|
|
|
|
6
|
|
Accrued interest receivable and other assets
|
|
|
(984
|
)
|
|
|
2,766
|
|
Accrued interest payable and other liabilities
|
|
|
1,868
|
|
|
|
(5,600
|
)
|
Net cash provided by operating activities
|
|
|
8,664
|
|
|
|
1,210
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Proceeds from sales of securities
|
|
|
33,705
|
|
|
|
102,521
|
|
Proceeds from security maturities calls and prepayments
|
|
|
48,626
|
|
|
|
53,843
|
|
Purchases of securities
|
|
|
(174,421
|
)
|
|
|
(138,803
|
)
|
Loan originations and payments, net
|
|
|
(41,340
|
)
|
|
|
60,399
|
|
Cash received from FDIC loss sharing agreements
|
|
|
4,888
|
|
|
|
11,735
|
|
Redemption (purchase) of nonmarketable equity securities, net
|
|
|
(536
|
)
|
|
|
3,078
|
|
Purchase of Company owned life insurance
|
|
|
(3,000
|
)
|
|
|
(15,500
|
)
|
Proceeds from the sale of other real estate owned
|
|
|
8,286
|
|
|
|
23,208
|
|
Net cash received (paid) in connection with merger
|
|
|
39,861
|
|
|
|
(11,211
|
)
|
Additions to premises and equipment, net
|
|
|
(701
|
)
|
|
|
(1,609
|
)
|
Net cash provided by (used in) investing activities
|
|
|
(84,632
|
)
|
|
|
87,661
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net change in deposits
|
|
|
(80,545
|
)
|
|
|
(53,228
|
)
|
Net change in federal funds purchased and repurchase agreements
|
|
|
(7,642
|
)
|
|
|
1,330
|
|
Net change in Federal Home Loan Bank advance
|
|
|
25,000
|
|
|
|
(5,000
|
)
|
Proceeds from exercise of stock options
|
|
|
11
|
|
|
|
—
|
|
Dividends paid
|
|
|
(685
|
)
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
|
|
(63,861
|
)
|
|
|
(56,898
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(139,829
|
)
|
|
|
31,973
|
|
Beginning cash and cash equivalents
|
|
|
207,117
|
|
|
|
165,424
|
|
Ending cash and cash equivalents
|
|
$
|
67,288
|
|
|
$
|
197,397
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,862
|
|
|
$
|
4,235
|
|
Taxes paid
|
|
|
2,910
|
|
|
|
357
|
|
Transfer of loans to other real estate owned
|
|
|
4,982
|
|
|
|
24,353
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated
financial statements.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 1 – BASIS OF PRESENTATION
Nature of Operations and Principles of Consolidation
:
The consolidated financial statements include 1st United Bancorp, Inc. (“Bancorp or “Company”) and its wholly-owned
subsidiaries, 1st United Bank (“1st United”) and Equitable Equity Lending (“EEL”), together referred to
as “the Company.” Intercompany transactions and balances are eliminated in consolidation.
Bancorp’s primary business is the ownership and operation
of 1st United. 1st United is a state chartered commercial bank that provides financial services through its five offices in Palm
Beach County; four offices in Broward County; four offices in Miami-Dade County; one office each in the cities of Vero Beach, Sebastian
and Barefoot Bay; four offices in Pinellas County; and one office each in Orange and Hillsborough counties. 1st United’s
primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are commercial
and residential mortgages, and commercial and installment loans. Substantially all loans are secured by specific items of collateral
including commercial and residential real estate, business assets and consumer assets. Commercial loans are expected to be repaid
from the cash flow supporting the operations of businesses.
EEL is a commercial finance subsidiary that from time to
time will hold foreclosed assets, performing loans or non-performing loans. At September 30, 2013, EEL held $2,397 in performing
loans.
The accompanying consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for
a complete presentation of the financial position, results of operations and cash flow activity required in accordance with accounting
principles generally accepted in the United States. In the opinion of management of the Company, all adjustments (consisting only
of normal recurring adjustments) necessary for a fair statement of results for the interim periods have been made. These consolidated
financial statements and notes should be read in conjunction with the consolidated financial statements and notes included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
In preparing the consolidated financial statements, management
is required to make estimates and assumptions that affect the reported asset and liability balances and revenue and expense amounts
and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates. Certain
amounts for the prior year have been reclassified to conform to the current year’s presentation.
Operations are managed and financial performance is evaluated
on a company-wide basis. Accordingly, all financial operations are considered by management to be aggregated in one reportable
operating segment.
Earnings Per Common Share
: Basic earnings per common
share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per
share include the dilutive effect of additional potential common shares issuable under stock options and restricted stock. Earnings
per common share is restated for all stock splits and stock dividends through the date of issue of the consolidated financial statements.
Stock options to acquire 1,279,271 and 2,590,790 shares
of common stock were not considered in computing diluted earnings per share for the quarters ended September 30, 2013 and
2012, respectively, because consideration of those instruments would be antidilutive. Stock options to acquire 1,263,160
and 3,990,788 shares of common stock were not considered in computing diluted earnings per share for the nine months ended
September 30, 2013 and 2012, respectively, because consideration of those instruments would be antidilutive.
FDIC Loss Share Receivable
. The FDIC Loss Share Receivable
represents the estimated amounts due from the Federal Deposit Insurance Corporation (“FDIC”) related to the loss share
agreements which were booked as of the acquisition dates of Republic Federal Bank, N.A. (“Republic”), The Bank of Miami,
N.A. (“TBOM”) and Old Harbor Bank of Florida (“Old Harbor”). The receivable represents the discounted value
of the FDIC’s reimbursable portion of estimated losses we expect to realize on loans and other real estate (“Covered
Assets”) acquired as a result of the TBOM, Republic and Old Harbor acquisitions. As losses are realized on Covered Assets,
the portion that the FDIC pays the Company in cash for principal and up to 90 days of interest reduces the FDIC Loss Share Receivable.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 1 – BASIS OF PRESENTATION (continued)
The FDIC Loss Share Receivable is reviewed quarterly and
adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the Covered
Assets. Prior to October 1, 2012, any increases in cash flows of Covered Assets would be accreted into income over the life of
the Covered Asset and would reduce immediately the FDIC Loss Share Receivable. Subsequent to October 1, 2012, due to the adoption
of new guidance by the Financial Accounting Standards Board (“FASB”), any increases in cash flows of Covered Assets
will be accreted into income over the life of the covered asset with a reduction to the FDIC Loss Share Receivable over the shorter
of the life of the loan or the remaining term of the respective Loss Share Agreements. Any decreases in the expected cash flows
of the Covered Assets will result in the impairment to the Covered Asset and an increase in the FDIC Loss Share Receivable to be
reflected immediately. Non-cash adjustments to the FDIC Loss Share Receivable are recorded to non-interest income.
Certain Acquired Loans
: As part of business acquisitions,
the Company evaluated each of the acquired loans under ASC 310-30 to determine whether (1) there was evidence of credit deterioration
since origination, and (2) it was probable that we would not collect all contractually required payment receivable. The Company
determined the best indicator of such evidence was an individual loan’s payment status and/or whether a loan was determined
to be classified by us based on our review of each individual loan. Therefore, generally each individual loan that should have
been or was on nonaccrual at the acquisition date, loans contractually past due 60 days or more, and each individual loan that
was classified by us were included subject to ASC 310-30. These loans were recorded at the discounted expected cash flows of the
individual loan and are currently disclosed in Note 4.
Loans which were evaluated under ASC 310-30, and where the
timing and amount of cash flows can be reasonably estimated, were accounted for in accordance with ASC 310-30-35. The Company applies
the interest method for these loans under this subtopic and the loans are excluded from non-accrual. If, at acquisition, we identified
loans that we could not reasonably estimate cash flows or if subsequent to acquisition such cash flows could not be estimated,
such loans would be included in non-accrual. These acquired loans are recorded at the allocated fair value, such that there is
no carryover of the seller’s allowance for loan losses. Such acquired loans are accounted for individually. The Company estimates
the amount and timing of expected cash flows for each purchased loan, and the expected cash flows in excess of the allocated fair
value is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual
principal and interest over expected cash flows is not recorded (non-accretable difference). Over the life of the loan, expected
cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded
through the allowance for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized
as part of future interest income.
Allowance for Loan Losses
. In originating loans, the
Company recognizes that credit losses will be experienced and the risk of loss will vary with, among other things: general economic
conditions; the type of loan being made; the creditworthiness of the borrower over the term of the loan; and, in the case of a
collateralized loan, the quality of the collateral for such a loan. The allowance for loan losses represents our estimate of the
allowance necessary to provide for probable incurred losses in the loan portfolio. In making this determination, the Company analyzes
the ultimate collectability of the loans in its portfolio, feedback provided by internal loan staff, the independent loan review
function and information provided by examinations performed by regulatory agencies.
The allowance for loan losses is evaluated at the portfolio
segment level using the same methodology for each segment. The historical net losses for a rolling three year period is the basis
for the general reserve for each segment which is adjusted for each of the same qualitative factors (i.e., nature and volume of
portfolio, economic and business conditions, classification, past due and non-accrual trends) evaluated by each individual segment.
Impaired loans and related specific reserves for each of the segments are also evaluated using the same methodology for each segment.
The qualitative factors totaled approximately 8 and 11 basis points of the allowance for loan losses at September 30, 2013 and
December 31, 2012, respectively.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 1 – BASIS OF PRESENTATION (continued)
A loan is considered impaired when, based on current information
and events, it is probable the Company will be unable to collect the scheduled payments of principal or interest when due according
to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status,
collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant
payment delays (loan payments made within 90 days of the due date) and payment shortfalls (which are tracked as past due amounts)
generally are not classified as impaired. The Company determines the past due status of a loan based on the number of days contractually
past due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for
the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest
owed.
Charge-offs of loans are made by portfolio segment at the
time that the collection of the full principal, in management’s judgment, is doubtful. This methodology for determining charge-offs
is consistently applied to each segment.
On a quarterly basis, management reviews the adequacy of
the allowance for loan losses. Commercial credits are graded by risk management and the loan review function validates the assigned
credit risk grades. In the event that a loan is downgraded, it is included in the allowance analysis at the lower grade. To establish
the appropriate level of the allowance, the Company reviews and classifies loans (including all impaired and nonperforming loans)
as to potential loss exposure. The Company’s analysis of the allowance for loan losses consists of three components: (i)
specific credit allocation established for expected losses resulting from analysis developed through specific credit allocations
on individual loans for which the recorded investment in the loan exceeds the fair value; (ii) general portfolio allocation based
on historical loan loss experience for each loan category; and (iii) qualitative reserves based on general economic conditions
as well as specific economic factors in the markets in which the Company operates.
The specific credit allocation component of the allowance
for loan losses is based on a regular analysis of loans where the internal credit rating is at or below the substandard classification
and the loan is determined to be impaired as determined by management.
The impairment, if any, is determined based on either the
present value expected future cash flows discounted at the loan’s effective interest rate, the market price of the loan,
or if the loan is collateral dependent, the fair value of the underlying collateral less estimated cost of sale. The Company may
classify a loan as substandard; however, it may not be classified as impaired. A loan may be classified as substandard by management
if, for example, the primary source of repayment is insufficient, the financial condition of the borrower and/or guarantors has
deteriorated or there are chronic delinquencies.
Troubled Debt Restructurings
. A loan is considered
a troubled debt restructured loan based on individual facts and circumstances. A modification may include either an increase or
reduction in interest rate or deferral of principal payments or both. Loans for which the terms have been modified resulting in
a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings. The
Company classifies troubled debt restructured loans as impaired and evaluates the need for an allowance for loan losses on a loan-by-loan
basis. An allowance for loan losses is based on either the present value of estimated future cash flows or the estimated fair value
of the underlying collateral. Loans retain their interest accrual status at the time of modification.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 2 – ACQUISITIONS
Enterprise Bancorp
On July 1, 2013, the Company completed its acquisition of
Enterprise Bancorp, Inc., a Florida corporation (“EBI”), and its wholly-owned subsidiary Enterprise Bank of Florida,
a Florida-chartered commercial bank (“Enterprise”), pursuant to the Agreement and Plan of Merger (the “Merger
Agreement”), dated March 22, 2013, as amended, by and among the Company, 1st United Bank, EBI and Enterprise. In accordance
with the Merger Agreement, the Company acquired EBI through the merger of a wholly-owned subsidiary of the Company with and into
EBI and 1st United Bank acquired Enterprise Bank through the merger of Enterprise Bank with and into 1st United Bank (collectively,
the “Merger”).
Pursuant to the terms of the Merger Agreement, each
share of EBI common stock issued and outstanding was converted into the right to receive consideration based on EBI’s
total consolidated assets and the EBI Tangible Book Value (as defined in the Merger Agreement) as of June 30, 2013. The total
value of the consideration paid to EBI shareholders was approximately $45,565, which consisted of approximately $5,115 in
cash(less the $400 holdback described below), $22,138 in loans (including all nonperforming loans), other real estate, and
repossessed assets of Enterprise and $18,312 in impaired and below investment grade securities and other investments of
Enterprise. Each holder of a share of EBI common stock was entitled to consideration from the Company equal to approximately
$6.05 per share (less their per share pro rata portion of the $400 holdback described below). The total consideration paid to
all EBI shareholders in connection with the Merger was subject to a holdback amount of $400 to defray potential damages and
related expenses incurred to defend or settle certain litigation. The Company does not anticipate the litigation and related
costs will exceed the $400. The Company recorded goodwill associated with the transaction of approximately $5,729 which is
not deductible for tax purposes. The Company acquired a net deferred tax liability of $23 and recorded a deferred tax asset
in other assets as a result of purchase accounting adjustments.
The Company accounted for the transaction under the acquisition
method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at
the date of acquisition. See Note 4 for additional information related to the fair value of loans acquired. The Company determined
the fair value of core deposit intangibles, securities, and deposits with the assistance of third party valuations. The valuation
of FHLB advances was based on current rates for similar borrowings. The estimated fair values are subject to refinement as additional
information relative to the closing date fair values becomes available through the measurement period.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 2 – ACQUISITIONS (continued)
The acquisition of EBI is consistent with the Company’s
plans to continue to enhance its market area and competitive position within the state of Florida. This acquisition expands the
Company’s existing presence in the Northern Palm Beach County marketplace and adds one new banking center. The Company believes
it is well-positioned to deliver superior customer service, achieve stronger financial performance and enhance shareholder value
through the synergies of combined operations. All of these contributed to the resulting goodwill in the transaction. The fair value
of assets acquired and liabilities assumed on July 1, 2013 were as follows:
|
|
July 1, 2013
|
Cash
|
|
$
|
44,576
|
|
Securities available for sale
|
|
|
3,972
|
|
Federal Home Loan Bank stock
|
|
|
1,855
|
|
Loans
|
|
|
159,168
|
|
Core deposit intangible
|
|
|
1,283
|
|
Fixed assets
|
|
|
421
|
|
Other assets
|
|
|
1,039
|
|
TOTAL ASSETS ACQUIRED
|
|
$
|
212,314
|
|
|
|
|
|
|
Deposits
|
|
$
|
177,160
|
|
Federal Home Loan Advances
|
|
|
35,025
|
|
Other
|
|
|
1,143
|
|
TOTAL LIABILITIES ASSUMED
|
|
$
|
213,328
|
|
|
|
|
|
|
Excess of liabilities assumed over assets acquired
|
|
$
|
1,014
|
|
Cash paid
|
|
|
4,715
|
|
Goodwill
|
|
$
|
5,729
|
|
The following summarizes the net interest and other income,
net income and earnings per share as if the merger with EBI was effective as of January 1, 2012, the beginning of the annual period
prior to acquisition. There were no material, nonrecurring adjustments to the pro forma net interest and other income, net income
and earnings per share presented below:
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2013
(1)
|
|
|
2012
(1)
|
|
|
2013
(1)
|
|
|
2012
(1)
|
|
Net interest and non-interest income
|
|
$
|
17,289
|
|
|
$
|
21,050
|
|
|
$
|
55,187
|
|
|
$
|
65,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
880
|
|
|
|
2,980
|
|
|
|
3,643
|
|
|
|
5,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
0.03
|
|
|
|
0.09
|
|
|
|
0.11
|
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
0.03
|
|
|
|
0.09
|
|
|
|
0.11
|
|
|
|
0.20
|
|
(1)
|
The merger was effective July 1, 2013. There were no proforma adjustments subsequent to July 1, 2013.
|
Anderen Bank
On April 1, 2012, the
Company completed its acquisition of Anderen Financial, Inc., a Florida corporation and its wholly-owned subsidiary Anderen Bank,
a Florida-chartered commercial bank (Anderen Financial, Inc. and Anderen Bank are subsequently referred to herein collectively
as “AFI”), pursuant to the Agreement and Plan of Merger, dated October 24, 2011 (the “Merger Agreement”).
Pursuant to the terms of the Merger Agreement, each share of AFI common stock, $0.01 par value per share, was cancelled and automatically
converted into the right to receive cash, common stock of the Company or a combination of cash and common stock of the Company.
AFI shareholders could elect to receive cash, stock, or a combination of 50% cash and 50% stock, provided, however, that each such
election was subject to mandatory allocation procedures to ensure the total consideration was approximately 50% cash and 50% stock.
The total value of the consideration paid to AFI shareholders was $38,250 which consisted of approximately $19,125 in cash and
3,140,354 shares of the Company’s common stock. The
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 2 – ACQUISITIONS (continued)
Company’s common
stock was valued at $6.09 per share, which was determined to be the fair value of the stock on the date of acquisition, with a
total value of $19,065. The Company incurred $1,309 in merger reorganization expense during the year ended December 31, 2012 related
to this acquisition. The Company recorded goodwill of $5,994 as a result of the merger which is not deductible for tax purposes.
Total net deferred tax assets acquired was $5,651, primarily related to loss carry forwards. Additionally, the Company recorded
$4,251 in deferred tax assets, which are included in other assets, as a result of purchase accounting adjustments. The Company
completed the integration of AFI in June 2012.
The Company accounted for the transaction under the acquisition
method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at
the date of acquisition. See Note 4 for additional information related to the fair value of loans acquired. The Company determined
the fair value of core deposit intangibles, securities, fixed assets and deposits with the assistance of third party valuations.
The fair value of other real estate owned (“OREO”) was based on recent appraisals of the properties. The estimated
fair values were subject to refinement as additional information relative to the closing date fair values became available through
the measurement period. As a result, the Company updated the previously reported consolidated balance sheet for the year ended
December 31, 2012 for the final measurement period adjustments.
The following summarizes the net interest and other income,
net income and earnings per share as if the merger with AFI was effective as of January 1, 2012, the beginning of the annual period
prior to acquisition. There were no material, nonrecurring adjustments to the pro forma net interest and other income, net income
and earnings per share presented below:
|
|
Three months ended September 30,
|
|
|
Nine
months ended September 30,
|
|
|
|
2013
(1)
|
|
|
2012
(1)
|
|
|
2013
(1)
|
|
|
2012
(1)
|
|
Net interest and non-interest income
|
|
$
|
17,289
|
|
|
$
|
16,037
|
|
|
$
|
49,960
|
|
|
$
|
51,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
880
|
|
|
|
1,574
|
|
|
|
4,627
|
|
|
|
3,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
0.03
|
|
|
|
0.05
|
|
|
|
0.13
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
0.03
|
|
|
|
0.05
|
|
|
|
0.13
|
|
|
|
0.09
|
|
|
(1)
|
The merger was effective April 1, 2012. There were no proforma adjustments subsequent to April 1, 2012.
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 3 – SECURITIES
The amortized cost and fair value of securities available
for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as
follows.
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
936
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
939
|
|
Municipal Securities
|
|
|
6,367
|
|
|
|
—
|
|
|
|
(743
|
)
|
|
|
5,624
|
|
Residential collateralized mortgage obligations
|
|
|
1,202
|
|
|
|
—
|
|
|
|
(15
|
)
|
|
|
1,187
|
|
Residential mortgage-backed
|
|
|
342,144
|
|
|
|
1,018
|
|
|
|
(9,033
|
)
|
|
|
334,129
|
|
|
|
$
|
350,649
|
|
|
$
|
1,021
|
|
|
$
|
(9,791
|
)
|
|
$
|
341,879
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Securities
|
|
$
|
500
|
|
|
$
|
—
|
|
|
$
|
(31
|
)
|
|
$
|
469
|
|
Residential collateralized mortgage obligations
|
|
|
3,793
|
|
|
|
—
|
|
|
|
(34
|
)
|
|
|
3,759
|
|
Residential mortgage-backed
|
|
|
252,208
|
|
|
|
3,831
|
|
|
|
(145
|
)
|
|
|
255,894
|
|
|
|
$
|
256,501
|
|
|
$
|
3,831
|
|
|
$
|
(210
|
)
|
|
$
|
260,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2013 and December 31, 2012, there were no holdings
of securities of any one issuer, other than the government agencies, in an amount greater than 10% of shareholders’ equity.
All of the residential collateralized mortgage obligations and residential mortgage-backed securities at September 30, 2013 and
December 31, 2012 were issued or sponsored by U.S. government agencies.
The amortized cost and fair value of debt securities at September
30, 2013 by contractual maturity were as shown in the table below. Securities not due at a single maturity date, primarily mortgage-backed
securities, are shown separately.
|
|
Amortized
Cost
|
|
Fair
Value
|
Due in one year or less
|
|
$
|
—
|
|
|
$
|
—
|
|
Due from one to five years
|
|
|
—
|
|
|
|
—
|
|
Due from five to ten years
|
|
|
936
|
|
|
|
939
|
|
Due after ten years
|
|
|
6,367
|
|
|
|
5,624
|
|
Residential mortgage-backed and residential collateralized mortgage obligations
|
|
|
343,346
|
|
|
|
335,316
|
|
|
|
$
|
350,649
|
|
|
$
|
341,879
|
|
Securities as of September 30, 2013 and December 31, 2012
with a fair value of $31,553 and $28,891, respectively, were pledged to secure public deposits and repurchase agreements.
Proceeds and gross gains and (losses) from the sale of
securities available for sales for the three and nine months ended September 30, 2013 and 2012, respectively, were as follows:
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Proceeds from sale
|
|
$
|
2,950
|
|
|
$
|
—
|
|
|
$
|
33,705
|
|
|
$
|
102,521
|
|
Gross gain
|
|
|
125
|
|
|
|
—
|
|
|
|
856
|
|
|
|
1,673
|
|
Gross (loss)
|
|
|
(32
|
)
|
|
|
—
|
|
|
|
(32
|
)
|
|
|
—
|
|
Net gains (losses) on sales of securities
|
|
$
|
93
|
|
|
$
|
—
|
|
|
$
|
824
|
|
|
$
|
1,673
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 3 – SECURITIES (continued)
Gross unrealized losses at September 30, 2013 and December
31, 2012, respectively, aggregated by investment category and length of time that individual securities have been in a continuous
unrealized loss position, were as follows.
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
Municipal Securities
|
|
|
5,624
|
|
|
|
(743
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
5,624
|
|
|
|
(743
|
)
|
Residential collateral mortgage obligations
|
|
|
852
|
|
|
|
(8
|
)
|
|
|
19
|
|
|
|
(7
|
)
|
|
|
871
|
|
|
|
(15
|
)
|
Residential mortgage-backed
|
|
|
269,928
|
|
|
|
(9,033
|
)
|
|
|
336
|
|
|
|
—
|
|
|
|
270,264
|
|
|
|
(9,033
|
)
|
|
|
$
|
276,404
|
|
|
$
|
(9,784
|
)
|
|
$
|
355
|
|
|
$
|
(7
|
)
|
|
$
|
276,759
|
|
|
$
|
(9,791
|
)
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Securities
|
|
$
|
469
|
|
|
$
|
(31
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
469
|
|
|
$
|
(31
|
)
|
Residential collateral mortgage obligations
|
|
|
3,759
|
|
|
|
(34
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
3,759
|
|
|
|
(34
|
)
|
Residential mortgage-backed
|
|
|
35,838
|
|
|
|
(145
|
)
|
|
|
14
|
|
|
|
—
|
|
|
|
35,852
|
|
|
|
(145
|
)
|
|
|
$
|
40,066
|
|
|
$
|
(210
|
)
|
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
40,080
|
|
|
$
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In determining other than temporary impairment (“OTTI”)
for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value
has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was
affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than
not will be required to sell the debt security before its anticipated recovery. The assessment of whether OTTI exists involves
a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
At September 30, 2013, there were 79 available for sale securities
with unrealized losses, of which 8 were municipal securities, 3 were residential collateral mortgage obligations, and 68 were residential
mortgage-backed securities. At December 31, 2012, there were 15 available for sale securities with unrealized losses, of which
one was a municipal security, three were residential collateral mortgage obligations, and 11 were residential mortgage-backed securities.
At September 30, 2013 and December 31, 2012, securities with unrealized losses had declined in fair value by 3.54% and 0.52%, respectively,
from the Company’s amortized cost basis. The decrease in fair value is attributable to changes in the interest rate environment.
Based on the Company’s assessment, the unrealized losses at September 30, 2013 and December 31, 2012 were deemed to be temporary.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS
Loans at September 30, 2013 and December 31, 2012 were as follows:
|
|
September 30, 2013
|
|
December 31, 2012
|
|
|
Loans Subject to Loss Share Agreements
|
|
Loans Not Subject to Loss Share Agreements
|
|
Total
|
|
Loans Subject to Loss Share Agreements
|
|
Loans Not Subject to Loss Share Agreements
|
|
Total
|
Commercial
|
|
$
|
30,452
|
|
|
$
|
169,729
|
|
|
$
|
200,181
|
|
|
$
|
33,025
|
|
|
$
|
146,473
|
|
|
$
|
179,498
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
73,387
|
|
|
|
98,770
|
|
|
|
172,157
|
|
|
|
86,981
|
|
|
|
78,936
|
|
|
|
165,917
|
|
Commercial
|
|
|
157,701
|
|
|
|
531,210
|
|
|
|
688,911
|
|
|
|
198,666
|
|
|
|
315,908
|
|
|
|
514,574
|
|
Construction and land development
|
|
|
7,651
|
|
|
|
43,349
|
|
|
|
51,000
|
|
|
|
8,426
|
|
|
|
33,463
|
|
|
|
41,889
|
|
Consumer and other
|
|
|
4
|
|
|
|
9,601
|
|
|
|
9,605
|
|
|
|
11
|
|
|
|
11,279
|
|
|
|
11,290
|
|
|
|
$
|
269,195
|
|
|
$
|
852,659
|
|
|
|
1,121,854
|
|
|
$
|
327,109
|
|
|
$
|
586,059
|
|
|
|
913,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned income and net deferred loan (fees) costs
|
|
|
|
|
|
|
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
220
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
(9,907
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,788
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
1,112,123
|
|
|
|
|
|
|
|
|
|
|
$
|
903,600
|
|
The Company has segregated and evaluates its loan portfolio
through five portfolio segments. The five segments are residential real estate, commercial, commercial real estate, construction
and land development, and consumer and other. The Company’s business activity is concentrated with customers located in Palm
Beach, Broward, Miami-Dade, Pinellas, Orange and Hillsborough counties. Therefore, the Company’s exposure to credit risk
is significantly affected by changes in these counties.
Residential real estate loans are a mixture of fixed rate
and adjustable rate residential mortgage loans. As a policy, the Company holds adjustable and fixed rate loans and also sells to
the secondary market. Changes in interest rates or market conditions may impact a borrower’s ability to meet contractual
principal and interest payments. Residential real estate loans are secured by real property.
Commercial loan borrowers consist of small- to medium-sized
businesses including professional associations, medical services, retail trade, construction, transportation, wholesale trade,
manufacturing and tourism. Commercial loans are derived from our market areas and underwritten based on the borrower’s ability
to service debt from the business’s underlying cash flows. As a general practice, we obtain collateral such as real estate,
equipment or other assets, although other commercial loans may be uncollateralized but guaranteed.
Commercial real estate loans include loans secured by office
buildings, warehouses, retail stores and other property located in or near our markets. These loans are originated based on the
borrower’s ability to service the debt and secondarily based on the fair value of the underlying collateral.
Construction loans include residential and commercial real
estate loans and are typically for owner-occupied or pre-sold/pre-leased properties. The terms of these loans are generally short-term
with permanent financing upon completion. Land development loans include loans to develop both residential and commercial properties.
Consumer and other loans include second mortgage loans, home
equity loans secured by junior and senior liens on residential real estate and home improvement loans. These loans are originated
based primarily on credit scores, debt-to-income ratios and loan-to-value ratios.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
Activity in the allowance for loan losses for the three
and nine months ended September 30, 2013 was as follows:
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, July 1, 2013
|
|
$
|
3,619
|
|
|
$
|
2,244
|
|
|
$
|
3,551
|
|
|
$
|
608
|
|
|
$
|
41
|
|
|
$
|
10,063
|
|
Provisions for loan losses
|
|
|
258
|
|
|
|
(23
|
)
|
|
|
544
|
|
|
|
(34
|
)
|
|
|
—
|
|
|
|
745
|
|
Loans charged off
|
|
|
(514
|
)
|
|
|
(90
|
)
|
|
|
(322
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(926
|
)
|
Recoveries
|
|
|
13
|
|
|
|
1
|
|
|
|
9
|
|
|
|
2
|
|
|
|
—
|
|
|
|
25
|
|
Ending Balance, September 30, 2013
|
|
$
|
3,376
|
|
|
$
|
2,132
|
|
|
$
|
3,782
|
|
|
$
|
576
|
|
|
$
|
41
|
|
|
$
|
9,907
|
|
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, January 1,
2013
|
|
$
|
2,735
|
|
|
$
|
1,869
|
|
|
$
|
3,398
|
|
|
$
|
1,745
|
|
|
$
|
41
|
|
|
$
|
9,788
|
|
Provisions for loan losses
|
|
|
1,107
|
|
|
|
458
|
|
|
|
1,492
|
|
|
|
(366
|
)
|
|
|
4
|
|
|
|
2,695
|
|
Loans charged off
|
|
|
(514
|
)
|
|
|
(196
|
)
|
|
|
(1,120
|
)
|
|
|
(898
|
)
|
|
|
(16
|
)
|
|
|
(2,744
|
)
|
Recoveries
|
|
|
48
|
|
|
|
1
|
|
|
|
12
|
|
|
|
95
|
|
|
|
12
|
|
|
|
168
|
|
Ending Balance, September 30, 2013
|
|
$
|
3,376
|
|
|
$
|
2,132
|
|
|
$
|
3,782
|
|
|
$
|
576
|
|
|
$
|
41
|
|
|
$
|
9,907
|
|
Activity in the allowance for loan losses for the three and nine
months ended September 30, 2012 was as follows:
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, July 1, 2012
|
|
$
|
2,786
|
|
|
$
|
1,412
|
|
|
$
|
3,440
|
|
|
$
|
1,680
|
|
|
$
|
38
|
|
|
$
|
9,356
|
|
Provisions for loan losses
|
|
|
113
|
|
|
|
510
|
|
|
|
655
|
|
|
|
(238
|
)
|
|
|
10
|
|
|
|
1,050
|
|
Loans charged off
|
|
|
(239
|
)
|
|
|
(351
|
)
|
|
|
(526
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,116
|
)
|
Recoveries
|
|
|
4
|
|
|
|
61
|
|
|
|
1
|
|
|
|
2
|
|
|
|
—
|
|
|
|
68
|
|
Ending Balance, September 30, 2012
|
|
$
|
2,664
|
|
|
$
|
1,632
|
|
|
$
|
3,570
|
|
|
$
|
1,444
|
|
|
$
|
48
|
|
|
$
|
9,358
|
|
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, January 1,
2012
|
|
$
|
3,111
|
|
|
$
|
1,945
|
|
|
$
|
5,302
|
|
|
$
|
2,409
|
|
|
$
|
69
|
|
|
$
|
12,836
|
|
Provisions for loan losses
|
|
|
4,940
|
|
|
|
504
|
|
|
|
1,065
|
|
|
|
(988
|
)
|
|
|
(71
|
)
|
|
|
5,450
|
|
Loans charged off
|
|
|
(5,421
|
)
|
|
|
(992
|
)
|
|
|
(2,905
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,318
|
)
|
Recoveries
|
|
|
34
|
|
|
|
175
|
|
|
|
108
|
|
|
|
23
|
|
|
|
50
|
|
|
|
390
|
|
Ending Balance, September 30, 2012
|
|
$
|
2,664
|
|
|
$
|
1,632
|
|
|
$
|
3,570
|
|
|
$
|
1,444
|
|
|
$
|
48
|
|
|
$
|
9,358
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
Allowance for Loan Losses Allocation
As of September 30, 2013:
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Specific Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
1,168
|
|
|
$
|
502
|
|
|
$
|
777
|
|
|
$
|
275
|
|
|
$
|
—
|
|
|
$
|
2,722
|
|
Purchase credit impaired loans
|
|
|
466
|
|
|
|
157
|
|
|
|
357
|
|
|
|
—
|
|
|
|
—
|
|
|
|
980
|
|
Total specific reserves
|
|
|
1,634
|
|
|
|
659
|
|
|
|
1,134
|
|
|
|
275
|
|
|
|
—
|
|
|
|
3,702
|
|
General reserves
|
|
|
1,742
|
|
|
|
1,473
|
|
|
|
2,648
|
|
|
|
301
|
|
|
|
41
|
|
|
|
6,205
|
|
Total
|
|
$
|
3,376
|
|
|
$
|
2,132
|
|
|
$
|
3,782
|
|
|
$
|
576
|
|
|
$
|
41
|
|
|
$
|
9,907
|
|
Loans individually evaluated for impairment
|
|
$
|
6,433
|
|
|
$
|
3,598
|
|
|
$
|
22,871
|
|
|
$
|
3,860
|
|
|
$
|
—
|
|
|
$
|
36,762
|
|
Purchase credit impaired loans
|
|
|
9,000
|
|
|
|
17,044
|
|
|
|
41,584
|
|
|
|
4,116
|
|
|
|
26
|
|
|
|
71,770
|
|
Loans collectively evaluated for impairment
|
|
|
184,748
|
|
|
|
151,515
|
|
|
|
624,456
|
|
|
|
43,024
|
|
|
|
9,579
|
|
|
|
1,013,322
|
|
Total
|
|
$
|
200,181
|
|
|
$
|
172,157
|
|
|
$
|
688,911
|
|
|
$
|
51,000
|
|
|
$
|
9,605
|
|
|
$
|
1,121,854
|
|
As of December 31, 2012:
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Specific Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
510
|
|
|
$
|
474
|
|
|
$
|
1,128
|
|
|
$
|
1,002
|
|
|
$
|
—
|
|
|
$
|
3,114
|
|
Purchase credit impaired loans
|
|
|
355
|
|
|
|
359
|
|
|
|
306
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,020
|
|
Total Specific Reserves
|
|
|
865
|
|
|
|
833
|
|
|
|
1,434
|
|
|
|
1,002
|
|
|
|
—
|
|
|
|
4,134
|
|
General reserves
|
|
|
1,870
|
|
|
|
1,036
|
|
|
|
1,964
|
|
|
|
743
|
|
|
|
41
|
|
|
|
5,654
|
|
Total
|
|
$
|
2,735
|
|
|
$
|
1,869
|
|
|
$
|
3,398
|
|
|
$
|
1,745
|
|
|
$
|
41
|
|
|
$
|
9,788
|
|
Loans individually evaluated for impairment
|
|
$
|
4,168
|
|
|
$
|
5,825
|
|
|
$
|
24,006
|
|
|
$
|
6,094
|
|
|
$
|
—
|
|
|
$
|
40,093
|
|
Purchase credit impaired loans
|
|
|
8,923
|
|
|
|
18,363
|
|
|
|
52,276
|
|
|
|
4,221
|
|
|
|
30
|
|
|
|
83,813
|
|
Loans collectively evaluated for impairment
|
|
|
166,407
|
|
|
|
141,729
|
|
|
|
438,292
|
|
|
|
31,574
|
|
|
|
11,260
|
|
|
|
789,262
|
|
Total
|
|
$
|
179,498
|
|
|
$
|
165,917
|
|
|
$
|
514,574
|
|
|
$
|
41,889
|
|
|
$
|
11,290
|
|
|
$
|
913,168
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
The following tables present loans individually evaluated
for impairment by class of loan as of September 30, 2013 and December 31, 2012, respectively.
|
|
Recorded Investment in Impaired Loans
With Allowance
|
September 30, 2013
|
|
Loans Subject to Loss
Share Agreements
|
|
Loans Not Subject to Loss
Share Agreements
|
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
1,551
|
|
|
$
|
1,321
|
|
|
$
|
217
|
|
|
$
|
635
|
|
|
$
|
635
|
|
|
$
|
195
|
|
HELOCs and equity
|
|
|
39
|
|
|
|
39
|
|
|
|
38
|
|
|
|
53
|
|
|
|
52
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
336
|
|
|
|
336
|
|
|
|
21
|
|
|
|
6,456
|
|
|
|
3,835
|
|
|
|
1,095
|
|
Secured – real estate
|
|
|
54
|
|
|
|
52
|
|
|
|
52
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
2,531
|
|
|
|
1,977
|
|
|
|
118
|
|
|
|
915
|
|
|
|
915
|
|
|
|
47
|
|
Non-owner occupied
|
|
|
1,394
|
|
|
|
1,074
|
|
|
|
313
|
|
|
|
4,314
|
|
|
|
4,307
|
|
|
|
292
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
323
|
|
|
|
322
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
528
|
|
|
|
528
|
|
|
|
275
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total September 30, 2013
|
|
$
|
5,905
|
|
|
$
|
4,799
|
|
|
$
|
759
|
|
|
$
|
13,224
|
|
|
$
|
10,594
|
|
|
$
|
1,963
|
|
1st UNITED BANCORP,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
|
|
Recorded Investment in Impaired Loans
|
|
|
With No Allowance
|
September 30, 2013
|
|
Loans Subject to
Loss Share Agreements
|
|
Loans Not Subject to
Loss Share Agreements
|
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
1,159
|
|
|
$
|
955
|
|
|
$
|
110
|
|
|
$
|
—
|
|
HELOCs and equity
|
|
|
59
|
|
|
|
—
|
|
|
|
596
|
|
|
|
596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
1346
|
|
|
|
1,017
|
|
Secured – real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
1,193
|
|
|
|
1,193
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
7,959
|
|
|
|
7,335
|
|
Non-owner occupied
|
|
|
1,616
|
|
|
|
1,393
|
|
|
|
5,620
|
|
|
|
5,548
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
7,653
|
|
|
|
3,332
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total September 30, 2013
|
|
$
|
2,834
|
|
|
$
|
2,348
|
|
|
$
|
24,477
|
|
|
$
|
19,021
|
|
1st UNITED BANCORP,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
|
|
Recorded Investment in Impaired Loans
With Allowance
|
December 31, 2012
|
|
Loans Subject to Loss
Share Agreements
|
|
Loans Not Subject to Loss
Share Agreements
|
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
1,823
|
|
|
$
|
1,414
|
|
|
$
|
355
|
|
|
$
|
393
|
|
|
$
|
393
|
|
|
$
|
62
|
|
HELOCs and equity
|
|
|
40
|
|
|
|
40
|
|
|
|
40
|
|
|
|
156
|
|
|
|
156
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
473
|
|
|
|
473
|
|
|
|
122
|
|
|
|
2,337
|
|
|
|
1,453
|
|
|
|
388
|
|
Secured – real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
2,538
|
|
|
|
2,277
|
|
|
|
233
|
|
|
|
2,973
|
|
|
|
2,540
|
|
|
|
185
|
|
Non-owner occupied
|
|
|
470
|
|
|
|
353
|
|
|
|
25
|
|
|
|
4,680
|
|
|
|
4,680
|
|
|
|
437
|
|
Multi-family
|
|
|
1,250
|
|
|
|
1,250
|
|
|
|
248
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
148
|
|
|
|
148
|
|
|
|
42
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,506
|
|
|
|
2,506
|
|
|
|
960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total December 31, 2012
|
|
$
|
6,594
|
|
|
$
|
5,807
|
|
|
$
|
1,023
|
|
|
$
|
13,193
|
|
|
$
|
11,876
|
|
|
$
|
2,091
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
|
|
Recorded Investment in Impaired Loans
|
|
|
With No Allowance
|
December 31, 2012
|
|
Loans Subject to
Loss Share Agreements
|
|
Loans Not Subject to
Loss Share Agreements
|
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
1,682
|
|
|
$
|
1,065
|
|
|
$
|
2,638
|
|
|
$
|
1,961
|
|
HELOCs and equity
|
|
|
59
|
|
|
|
—
|
|
|
|
796
|
|
|
|
796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
3,791
|
|
|
|
1,012
|
|
Secured – real estate
|
|
|
397
|
|
|
|
—
|
|
|
|
1,530
|
|
|
|
1,230
|
|
Unsecured
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
6,363
|
|
|
|
6,151
|
|
Non-owner occupied
|
|
|
757
|
|
|
|
648
|
|
|
|
5,867
|
|
|
|
5,792
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
315
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
7,865
|
|
|
|
3,440
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total December 31, 2012
|
|
$
|
2,898
|
|
|
$
|
1,713
|
|
|
$
|
29,166
|
|
|
$
|
20,697
|
|
1st UNITED BANCORP,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
Average of impaired loans
and related interest income for three and nine months ended September 30, 2013 and 2012, respectively, were as follows:
|
|
Three months ended September 30, 2013
|
|
Nine months ended September 30, 2013
|
|
|
Average
Recorded
Investment
|
|
Interest
Income
|
|
Cash
Basis
|
|
Average
Recorded
Investment
|
|
Interest
Income
|
|
Cash
Basis
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
2,921
|
|
|
$
|
6
|
|
|
$
|
9
|
|
|
$
|
2,440
|
|
|
$
|
43
|
|
|
$
|
31
|
|
HELOC and equity
|
|
|
691
|
|
|
|
2
|
|
|
|
2
|
|
|
|
706
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured non real estate
|
|
|
5,403
|
|
|
|
20
|
|
|
|
22
|
|
|
|
4,190
|
|
|
|
115
|
|
|
|
112
|
|
Secured real estate
|
|
|
1,248
|
|
|
|
12
|
|
|
|
12
|
|
|
|
1,261
|
|
|
|
36
|
|
|
|
36
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
10,463
|
|
|
|
75
|
|
|
|
71
|
|
|
|
10,516
|
|
|
|
241
|
|
|
|
226
|
|
Non-owner occupied
|
|
|
12,338
|
|
|
|
86
|
|
|
|
78
|
|
|
|
11,992
|
|
|
|
268
|
|
|
|
260
|
|
Multifamily
|
|
|
320
|
|
|
|
—
|
|
|
|
—
|
|
|
|
317
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved Land
|
|
|
3,872
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3,911
|
|
|
|
6
|
|
|
|
6
|
|
Unimproved Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and Other:
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,256
|
|
|
$
|
203
|
|
|
$
|
196
|
|
|
$
|
35,333
|
|
|
$
|
714
|
|
|
$
|
676
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
|
|
Three months ended September 30, 2012
|
|
Nine months ended September 30, 2012
|
|
|
Average
Recorded
Investment
|
|
Interest
Income
|
|
Cash
Basis
|
|
Average
Recorded
Investment
|
|
Interest
Income
|
|
Cash
Basis
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
4,891
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
4,060
|
|
|
$
|
38
|
|
|
$
|
38
|
|
HELOC and equity
|
|
|
1,809
|
|
|
|
2
|
|
|
|
3
|
|
|
|
1,245
|
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured non real estate
|
|
|
2,065
|
|
|
|
21
|
|
|
|
21
|
|
|
|
1,818
|
|
|
|
66
|
|
|
|
67
|
|
Secured real estate
|
|
|
1,246
|
|
|
|
12
|
|
|
|
13
|
|
|
|
1,257
|
|
|
|
41
|
|
|
|
42
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
9,115
|
|
|
|
77
|
|
|
|
75
|
|
|
|
9,766
|
|
|
|
299
|
|
|
|
306
|
|
Non-owner occupied
|
|
|
13,903
|
|
|
|
122
|
|
|
|
133
|
|
|
|
11,921
|
|
|
|
398
|
|
|
|
399
|
|
Multifamily
|
|
|
1,582
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,374
|
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved Land
|
|
|
3,624
|
|
|
|
2
|
|
|
|
1
|
|
|
|
3,529
|
|
|
|
57
|
|
|
|
56
|
|
Unimproved Land
|
|
|
2,512
|
|
|
|
27
|
|
|
|
32
|
|
|
|
2,514
|
|
|
|
81
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and Other:
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,747
|
|
|
$
|
267
|
|
|
$
|
282
|
|
|
$
|
37,484
|
|
|
$
|
1,007
|
|
|
$
|
1,026
|
|
1st UNITED BANCORP,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
Modifications of terms for the Company’s loans and
their inclusion as troubled debt restructurings are based on individual facts and circumstances. Loan modifications that are included
as troubled debt restructurings may involve a reduction of the stated interest rate of the loan, an extension of the maturity date
at a stated rate of interest lower than the current market rate for new debt with similar risk, or deferral of principal payments,
regardless of the period of the modification. Generally, the Company will allow interest rate reductions for a period of less than
two years after which the loan reverts back to the contractual interest rate. Each of the loans included as troubled debt restructurings
at September 30, 2013 had either an interest rate modification from 6 months to 2 years before reverting back to the original interest
rate or a deferral of principal payments which can range from 6 to 12 months before reverting back to an amortizing loan. All of
the loans were modified due to financial stress of the borrower. In order to determine if a borrower is experiencing financial
difficulty, an evaluation is performed to determine the probability that the borrower will be in payment default on any of its
debt in the foreseeable future with the modification. This evaluation is performed under the Company’s internal underwriting
policy.
Loans retain their accrual status at the time of their modification.
As a result, if a loan is on non-accrual at the time it is modified, it stays as non-accrual, and if a loan is on accrual at the
time of the modification, it generally stays on accrual. A loan on non-accrual will be individually evaluated based on sustained
adherence to the terms of the modification agreement prior to being reclassified to accrual status. The Company monitors the
performance of loans modified on a monthly basis. A modified loan will be reclassified to non-accrual and is in default if the
loan is not performing in accordance with the modification agreement, the loan becomes contractually past due in accordance with
the modification agreement or other weaknesses are observed which makes collection of principal and interest unlikely. The Company’s
policy is to evaluate and potentially return a troubled debt restructured loan from a non-accrual to accrual status upon the receipt
of all past due principal and/or interest payments since the date of and in accordance with the terms of the modification agreement
and when future payments are reasonable assured. The average yield on the performing loans classified as troubled debt restructurings
were 4.37% and 4.76% as of September 30, 2013 and December 31, 2012, respectively. Troubled debt restructuring loans are considered
impaired.
During the quarter ended September 30, 2013, the Company
modified $90 in commercial loans, $379 in commercial real estate loans and $247 in residential real estate loans. During the nine
months ended September 30, 2013, the Company modified $1,409 in commercial real estate loans, $90 in commercial loans and $247
in residential real estate loans. During the quarter ended September 30, 2012, the Company modified $3,275 in commercial real estate
loans, $149 in construction and land development loans, $144 in residential real estate loans and $425 in commercial loans. During
the nine months ended September 30, 2012, the Company modified $6,691 in commercial real estate loans, $149 in construction and
land development loans, $144 in residential real estate loans and $718 in commercial loans. All troubled debt restructurings are
classified as either special mention or substandard by the Company.
The following is a summary of the Company’s performing
troubled debt restructurings as of September 30, 2013 and December 31, 2012, respectively, all of which were performing in accordance
with the restructured terms:
|
|
September 30,
2013
|
|
December 31,
2012
|
Residential real estate
|
|
$
|
841
|
|
|
$
|
605
|
|
Commercial real estate
|
|
|
15,428
|
|
|
|
17,315
|
|
Construction and land development
|
|
|
144
|
|
|
|
2,654
|
|
Commercial
|
|
|
2,782
|
|
|
|
3,699
|
|
Total
|
|
$
|
19,195
|
|
|
$
|
24,273
|
|
|
|
|
|
|
|
|
|
|
Of the $19,195 of performing trouble debt restructurings at September
30, 2013, $12,083 was classified as special mention and $7,112 was classified as substandard. Of the $24,273 of performing trouble
debt restructurings at December 31, 2012, $12,416 was classified as special mention and $11,857 was classified as substandard.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
Total non-accruing troubled debt restructurings as of September
30, 2013 and December 31, 2012, respectively, were as follows:
|
|
September 30,
2013
|
|
December 31,
2012
|
Residential real estate
|
|
$
|
285
|
|
|
$
|
1,885
|
|
Commercial real estate
|
|
|
2,815
|
|
|
|
166
|
|
Construction and land development
|
|
|
3,331
|
|
|
|
3,440
|
|
Commercial
|
|
|
692
|
|
|
|
185
|
|
Total
|
|
$
|
7,123
|
|
|
$
|
5,676
|
|
|
|
|
|
|
|
|
|
|
These loans had a specific reserve in the allowance for loan
losses at September 30, 2013 and December 31, 2012 of $612 and $66, respectively. There was one loan for $283 which modified
within the twelve months ended September 30, 2013 that defaulted within the three or nine months ending September 30, 2013.
There were no loans modified within the twelve months ended September 30, 2012 which defaulted within the three or nine
months ended September 30, 2012.
During the three and nine month periods ended September 30,
2013, the Company lowered the interest rate on $1,507 and $5,507, respectively, of loans prior to maturity which the Company did
not consider to be troubled debt restructurings. During the year ended December 31, 2012, we had approximately $11,800 in loans
on which we lowered the interest rate prior to maturity to competitively retain the loan. Due to the borrowers’ significant
deposit balances and/or overall quality of the loans, these loans were not included in troubled debt restructurings. In addition,
each of these borrowers were not considered to be in financial distress and the modified terms matched current market terms for
borrowers with similar risk characteristics. The Company had no other loans where we extended the maturity or forgave principal
that were not already included in troubled debt restructurings or otherwise impaired.
The Company had no commitments to lend additional funds for
loans classified as troubled debt restructurings at September 30, 2013. The Company has allocated $1,387 and $2,030 of specific
reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2013 and December
31, 2012, respectively.
Interest accrued and unpaid at the time a loan is placed
on non-accrual status is charged against interest income. During the quarters ended September 30, 2013 and 2012, interest income
not recognized on non-accrual loans (but would have been recognized if these loans were current) was approximately $252 and $311,
respectively. During nine months ended September 30, 2013 and 2012, interest income not recognized on non-accrual loans (but would
have been recognized if these loans were current) was approximately $777 and $1,069, respectively.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
Non-accrual loans represent loans which are 90 days and
over past due and loans for which management believes collection of contractual amounts due are uncertain of collection. Included
in the tables that follow are loans in non-accrual as well as 90 days and over past due categories with a carrying value of $21,742
and $23,416 as of September 30, 2013 and December 31, 2012, respectively. Loans accounted for under ASC 310-30 at September 30,
2013 and December 31, 2012 which were contractually accruing 30 to 59 days past due were $0 and $2,720, respectively; 30 to 59
days contractually past due and non-accrual were $432 and $274, respectively; contractually 60 to 89 days past due and accruing
were $392 and $0, respectively; contractually 60 to 89 days past due and non-accrual were $654 and $805, respectively; contractually
90 plus days past due and accruing were $0 and $1,804, respectively and contractually 90 plus days past due and non-accrual were
$19,559 and $20,666, respectively. These amounts are excluded from the disclosures of loans past due and on non-accrual. Loans
which are 90 days or greater past due and accruing interest income were $0 and $2,109 at September 30, 2013 and December 31, 2012,
respectively. The following tables summarize past due and non-accrual loans by the number of days past due as of September 30,
2013 and December 31, 2012, respectively:
|
|
Accruing 30 – 59
|
|
Accruing 60-89
|
|
Non-Accrual and
90 days and over past due
|
|
Total
|
September 30, 2013
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,272
|
|
|
$
|
50
|
|
|
$
|
3,272
|
|
|
$
|
50
|
|
HELOCs and equity
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
|
|
—
|
|
|
|
98
|
|
|
|
498
|
|
|
|
98
|
|
|
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,600
|
|
|
|
—
|
|
|
|
3,602
|
|
Secured – real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
430
|
|
|
|
—
|
|
|
|
430
|
|
|
|
—
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,737
|
|
|
|
2,431
|
|
|
|
1,447
|
|
|
|
2,431
|
|
|
|
3,184
|
|
Non-owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,279
|
|
|
|
2,225
|
|
|
|
3,279
|
|
|
|
2,225
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
67
|
|
|
|
322
|
|
|
|
67
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
1,891
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,891
|
|
Improved land
|
|
|
—
|
|
|
|
314
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,715
|
|
|
|
—
|
|
|
|
4,029
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
282
|
|
|
|
—
|
|
|
|
282
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
|
|
—
|
|
|
|
26
|
|
Total September 30, 2013
|
|
$
|
—
|
|
|
$
|
2,219
|
|
|
$
|
—
|
|
|
$
|
1,737
|
|
|
$
|
9,859
|
|
|
$
|
11,883
|
|
|
$
|
9,859
|
|
|
$
|
15,839
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
|
|
Accruing 30 – 59
|
|
Accruing 60-89
|
|
Non-Accrual and
90 days and over past due
|
|
Total
|
December 31, 2012
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
1,013
|
|
|
$
|
95
|
|
|
$
|
1,207
|
|
|
$
|
—
|
|
|
$
|
4,085
|
|
|
$
|
2,019
|
|
|
$
|
6,305
|
|
|
$
|
2,114
|
|
HELOCs and equity
|
|
|
—
|
|
|
|
197
|
|
|
|
—
|
|
|
|
—
|
|
|
|
103
|
|
|
|
796
|
|
|
|
103
|
|
|
|
993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
|
|
|
|
200
|
|
|
|
—
|
|
|
|
94
|
|
|
|
147
|
|
|
|
805
|
|
|
|
147
|
|
|
|
1,099
|
|
Secured – real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
424
|
|
|
|
—
|
|
|
|
424
|
|
|
|
—
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
—
|
|
|
|
1,873
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,820
|
|
|
|
2,487
|
|
|
|
2,820
|
|
|
|
4,360
|
|
Non-owner occupied
|
|
|
581
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,707
|
|
|
|
2,242
|
|
|
|
2,085
|
|
|
|
2,823
|
|
|
|
3,792
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,331
|
|
|
|
315
|
|
|
|
1,331
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,440
|
|
|
|
—
|
|
|
|
3,440
|
|
Unimproved land
|
|
|
—
|
|
|
|
2,767
|
|
|
|
—
|
|
|
|
—
|
|
|
|
288
|
|
|
|
—
|
|
|
|
288
|
|
|
|
2,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
99
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29
|
|
|
|
—
|
|
|
|
128
|
|
Total December 31, 2012
|
|
$
|
1,594
|
|
|
$
|
5,231
|
|
|
$
|
1,207
|
|
|
$
|
1,801
|
|
|
$
|
11,440
|
|
|
$
|
11,976
|
|
|
$
|
14,241
|
|
|
$
|
19,008
|
|
Credit Quality Indicators:
The Company categorizes loans into risk categories based
on relevant information about the ability of borrowers to service their debt such as: current financial information, historical
payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes
loans individually by classifying the loans as to credit risk. Loans classified as substandard or special mention are reviewed
quarterly by the Company for further deterioration or improvement to determine if appropriately classified and impairment. All
other loans greater than $1,000, commercial and personal lines of credit greater than $100, and unsecured loans greater than $100
are specifically reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process
of any loan, as well if a loan becomes past due, the Company will evaluate the loan grade.
Loans excluded from the scope of the annual review process
above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in
the credit worthiness of the borrower; or (c) the customer contacts the Company for a modification. In these circumstances, the
loan is specifically evaluated for potential classification as to special mention, substandard or doubtful. The Company uses the
following definitions for risk ratings:
Special Mention.
Loans classified as special
mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses
may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future
date.
NOTE 4 – LOANS (continued)
Substandard.
Loans classified as substandard
are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans
so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by
the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful.
Loans classified as doubtful have
all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection
or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. There
were no doubtful loans at September 30, 2013 or December 31, 2012.
|
|
|
|
Loans Subject to Loss Share
Agreements
|
|
Loans Not Subject to Loss Share
Agreements
|
|
|
Total
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
109,821
|
|
|
$
|
60,936
|
|
|
$
|
1,174
|
|
|
$
|
3,272
|
|
|
$
|
41,331
|
|
|
$
|
2,495
|
|
|
$
|
613
|
|
HELOCs and equity
|
|
|
62,336
|
|
|
|
7,876
|
|
|
|
31
|
|
|
|
98
|
|
|
|
47,742
|
|
|
|
632
|
|
|
|
5,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real
estate
|
|
|
136,792
|
|
|
|
18,621
|
|
|
|
336
|
|
|
|
—
|
|
|
|
111,238
|
|
|
|
1,758
|
|
|
|
4,839
|
|
Secured – real estate
|
|
|
55,440
|
|
|
|
10,988
|
|
|
|
—
|
|
|
|
430
|
|
|
|
42,502
|
|
|
|
800
|
|
|
|
720
|
|
Unsecured
|
|
|
7,949
|
|
|
|
77
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,898
|
|
|
|
558
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
202,421
|
|
|
|
25,863
|
|
|
|
7,712
|
|
|
|
2,432
|
|
|
|
158,245
|
|
|
|
731
|
|
|
|
7,438
|
|
Non-owner occupied
|
|
|
448,417
|
|
|
|
103,397
|
|
|
|
412
|
|
|
|
3,278
|
|
|
|
330,868
|
|
|
|
5,051
|
|
|
|
5,411
|
|
Multi-family
|
|
|
38,073
|
|
|
|
14,540
|
|
|
|
—
|
|
|
|
67
|
|
|
|
23,144
|
|
|
|
—
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
20,544
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,544
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
17,999
|
|
|
|
3,806
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,392
|
|
|
|
2,678
|
|
|
|
4,123
|
|
Unimproved land
|
|
|
12,457
|
|
|
|
3,563
|
|
|
|
—
|
|
|
|
282
|
|
|
|
8,612
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
9,605
|
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,972
|
|
|
|
506
|
|
|
|
123
|
|
Total September 30, 2013
|
|
$
|
1,121,854
|
|
|
$
|
249,671
|
|
|
$
|
9,665
|
|
|
$
|
9,859
|
|
|
$
|
807,488
|
|
|
$
|
15,209
|
|
|
$
|
29,962
|
|
NOTE 4 – LOANS (continued)
|
|
|
|
Loans Subject to Loss Share
Agreements
|
|
Loans Not Subject to Loss Share
Agreements
|
|
|
Total
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
109,562
|
|
|
$
|
71,487
|
|
|
$
|
2,547
|
|
|
$
|
4,085
|
|
|
$
|
26,304
|
|
|
$
|
2,552
|
|
|
$
|
2,587
|
|
HELOCs and equity
|
|
|
56,355
|
|
|
|
8,728
|
|
|
|
31
|
|
|
|
103
|
|
|
|
39,180
|
|
|
|
5,375
|
|
|
|
2,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
127,514
|
|
|
|
19,801
|
|
|
|
405
|
|
|
|
115
|
|
|
|
99,537
|
|
|
|
4,346
|
|
|
|
3,310
|
|
Secured – real estate
|
|
|
43,613
|
|
|
|
12,199
|
|
|
|
—
|
|
|
|
425
|
|
|
|
28,227
|
|
|
|
2,030
|
|
|
|
732
|
|
Unsecured
|
|
|
8,371
|
|
|
|
80
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,724
|
|
|
|
140
|
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
187,007
|
|
|
|
37,696
|
|
|
|
7,943
|
|
|
|
2,820
|
|
|
|
123,106
|
|
|
|
6,285
|
|
|
|
9,157
|
|
Non-owner occupied
|
|
|
290,858
|
|
|
|
123,224
|
|
|
|
2,321
|
|
|
|
2,242
|
|
|
|
147,104
|
|
|
|
11,278
|
|
|
|
4,689
|
|
Multi-family
|
|
|
36,709
|
|
|
|
21,089
|
|
|
|
—
|
|
|
|
1,331
|
|
|
|
13,974
|
|
|
|
—
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
3,481
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,481
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
20,117
|
|
|
|
4,033
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,071
|
|
|
|
3,138
|
|
|
|
3,875
|
|
Unimproved land
|
|
|
18,291
|
|
|
|
3,888
|
|
|
|
—
|
|
|
|
505
|
|
|
|
11,392
|
|
|
|
—
|
|
|
|
2,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
11,290
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,552
|
|
|
|
584
|
|
|
|
143
|
|
Total December 31, 2012
|
|
$
|
913,168
|
|
|
$
|
302,236
|
|
|
$
|
13,247
|
|
|
$
|
11,626
|
|
|
$
|
519,652
|
|
|
$
|
35,728
|
|
|
$
|
30,679
|
|
As part of the AFI merger as well as acquisitions of
Old Harbor in 2011, TBOM in 2010 and Republic in 2009 from the FDIC and of Equitable Financial Group, Inc. and Citrus Bank,
N.A. in 2008, the Company acquired certain loans for which there was, at acquisition, evidence of deterioration of credit
quality since origination and it was probable, at acquisition, that all contractually required payments would not be
collected. The carrying amount of these loans at September 30, 2013 was approximately $71,770, net of a discount of $19,351.
The Company maintained an allowance for loan losses of $980 at September 30, 2013 for loans acquired with deteriorated credit
quality. The Company did not acquire any loans for which there was evidence of credit deterioration since origination in
connection with the acquisition of EBI.
During the three months ended September 30, 2013 and 2012,
the Company accreted $2,144 and $4,269, respectively, into interest income on acquired loans. During the nine months ended September
30, 2013 and 2012, the Company accreted $10,103 and $9,142, respectively, into interest income on acquired loans. The remaining
accretable discount was $15,850 at September 30, 2013. In addition, $67,528 of the $71,770 in loans are covered by the FDIC loss
share agreements.
Loans related to the AFI merger for which it was probable
at acquisition that all contractually required payments would not be collected were as follows:
|
|
April 2012
|
Contractually required payments receivable of loans purchased during the year ended
December 31, 2012:
|
|
$
|
15,339
|
|
|
|
|
|
|
Cash flows expected to be collected at acquisition
|
|
$
|
8,602
|
|
Fair value of acquired loans at acquisition
|
|
$
|
7,716
|
|
Accretable yield
|
|
$
|
886
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
Loans acquired from AFI for which we were unable to reasonably
estimate cash flows were $1,559 on the date of acquisition and were included in non-accrual loans.
The initial fair value for loans acquired from AFI or
EBI without specifically identified credit deficiencies was based primarily on a discounted cash flow methodology that
considered factors including the type of loan and related collateral, classification and accrual status, fixed or variable
interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. Loans were grouped
together according to similar characteristics and were treated in the aggregate when applying various valuation techniques.
The discount rates used for loans were based on current market rates for new originations of comparable loans and included
adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included
in the estimated cash flows. Management prepared the purchase price allocations, and in part relied on a third party for the
valuation of covered non-impaired loans at the date of each acquisition, respectively. The fair value of loans acquired from
EBI was $159,168. The gross contractual amount acquired was $161,078 and the Company expects to collect a majority of this
amount based on current information available.
NOTE 5 – FAIR VALUES
Fair Value Measurements
Fair value is defined as the price that would be received
on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. The accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be
used to measure fair value:
|
●
|
Level I: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
|
|
|
|
|
●
|
Level II: Significant other observable inputs other than Level I prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
|
|
|
|
|
●
|
Level III: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
|
The fair values of securities available for sale are determined
by obtaining quoted prices on nationally recognized securities exchanges (Level I inputs) or matrix pricing, which is a mathematical
technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities
but rather by relying on the securities’ relationship to other benchmark quoted securities (Level II inputs).
Assets measured at fair value on a recurring basis at September
30, 2013 and December 31, 2012, are summarized below.
|
|
Fair value measurements at September 30, 2013 using
|
|
|
September 30, 2013
|
|
Quoted prices
in active markets
for identical
assets
(Level I)
|
|
Significant
other
observable
inputs
(Level II)
|
|
Significant
unobservable
inputs
(Level III)
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
939
|
|
|
$
|
—
|
|
|
$
|
939
|
|
|
$
|
—
|
|
Municipal Securities
|
|
|
5,624
|
|
|
|
—
|
|
|
|
5,624
|
|
|
|
—
|
|
Residential collateralized mortgage obligations
|
|
|
1,187
|
|
|
|
—
|
|
|
|
1,187
|
|
|
|
—
|
|
Residential mortgage-backed
|
|
|
334,129
|
|
|
|
—
|
|
|
|
334,129
|
|
|
|
—
|
|
|
|
$
|
341,879
|
|
|
$
|
—
|
|
|
$
|
341,879
|
|
|
$
|
—
|
|
1st UNITED BANCORP,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 5 – FAIR VALUES (continued)
|
|
Fair value measurements at December 31, 2012 using
|
|
|
December 31, 2012
|
|
Quoted prices
in active markets
for identical
assets
(Level I)
|
|
Significant
other
observable
inputs
(Level II)
|
|
Significant
unobservable
inputs
(Level III)
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Securities
|
|
$
|
469
|
|
|
$
|
—
|
|
|
$
|
469
|
|
|
$
|
—
|
|
Residential collateralized mortgage
obligations
|
|
|
3,759
|
|
|
|
—
|
|
|
|
3,759
|
|
|
$
|
—
|
|
Residential mortgage-backed
|
|
|
255,894
|
|
|
|
—
|
|
|
|
255,894
|
|
|
|
—
|
|
|
|
$
|
260,122
|
|
|
$
|
—
|
|
|
$
|
260,122
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no liabilities measured at fair value on a recurring
basis at September 30, 2013 and December 31, 2012.
The fair value of impaired loans with specific allocations
of the allowance for loan losses and other real estate owned is based on recent real estate appraisals less estimated costs of
sale. For residential real estate impaired loans and other real estate owned, appraised values are based on the comparative sales
approach. For commercial and commercial real estate impaired loans and other real estate owned, appraisers may use either a single
valuation approach or a combination of approaches such as comparative sales, cost or the income approach. A significant unobservable
input in the income approach is the estimated income capitalization rate for a given piece of collateral. Adjustments to appraisals
may be made by the appraiser to reflect local market conditions or other economic factors and may result in changes in the fair
value of a given assets over time. As such, the fair value of impaired loans and other real estate owned are considered a Level
III in the fair value hierarchy.
The Company recovers the carrying value of other real estate
owned through the sale of the property. The ability to affect future sales prices is subject to market conditions and factors beyond
our control and may impact the estimated fair value of a property.
Appraisals for impaired loans and other real estate owned
are performed by certified general appraisers whose qualifications and licenses have been reviewed and verified by the Company.
Once reviewed, a member of the appraisal department reviews the assumptions and approaches utilized in the appraisal as well as
the overall resulting fair value in comparisons to independent data sources such as recent market data or industry wide statistics.
On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised
value to determine what additional adjustments, if any, should be made to the appraisal value to arrive at fair value. Based on
our most recent analysis, no discounts to current appraisals have been warranted.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 5 – FAIR VALUES (continued)
The significant unobservable inputs used in the fair value
measurements for Level 3 assets measured at fair value on a nonrecurring basis as of September 30, 2013 and December 31, 2012 are
as follows:
Impaired Loans
|
|
Valuation
Techniques
|
|
Range of Unobservable Inputs
|
|
|
|
|
|
Residential
|
|
Appraisals of collateral value
|
|
Adjustment for age of comparable sales, generally an increase of 0% to 25%
|
Commercial
|
|
Discounted cash flow model
|
|
Discount rate from 0% to 6%
|
Commercial Real Estate
|
|
Appraisals of collateral value
|
|
Market capitalization rates between 8% and 12%. Market rental rates for similar properties
|
Construction and land development
|
|
Appraisals of collateral value
|
|
Adjustment for age of comparable sales, generally a decline of 5% to no change
|
|
|
|
|
|
Other real estate
|
|
|
|
|
|
|
|
|
|
Residential
|
|
Appraisals of collateral value
|
|
Adjustment for age of comparable sales, generally an increase of 0% to 25%
|
Commercial
|
|
Appraisals of collateral value
|
|
Adjustment for age of comparable sales, generally a decline of 15% to no change
|
|
|
|
|
|
Assets measured at fair value on a non-recurring basis are
summarized below.
|
|
Fair value measurements at September 30, 2013 using
|
|
|
September 30, 2013
|
|
Quoted prices
in active markets
for identical assets
(Level I)
|
|
Significant
other
observable
inputs
(Level II)
|
|
Significant
unobservable
inputs
(Level III)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
1,545
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,545
|
|
Commercial
|
|
|
3,055
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,055
|
|
Commercial real estate
|
|
|
7,818
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,818
|
|
Construction and land development
|
|
|
253
|
|
|
|
—
|
|
|
|
—
|
|
|
|
253
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
12,671
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,671
|
|
Other real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
12,460
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,460
|
|
Residential real estate
|
|
|
3,992
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,992
|
|
|
|
$
|
16,452
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,452
|
|
At September 30, 2013, impaired loans, which had a specific
allowance for loan losses allocated, had a carrying amount of $15,393, with a valuation allowance of $2,722 resulting in an additional
provision of loan losses of $562 during the nine months ended September 30, 2013.
1st UNITED BANCORP,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 5 – FAIR VALUES (continued)
Other real estate owned, which are measured for impairment
using the fair value of the collateral less estimated cost to sell, had a carrying amount of $16,452, and had no valuation allowance
at September 30, 2013. During the three and nine months ended September 30, 2013, the Company recorded write-downs to other real
estate owned of $143 and $785, respectively, due to reductions in the estimated fair value of properties.
|
|
Fair value measurements at December 31, 2012 using
|
|
|
December 31, 2012
|
|
Quoted prices in
active markets
for identical assets
(Level I)
|
|
Significant
other
observable
inputs
(Level II)
|
|
Significant
unobservable
inputs
(Level III)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
1,529
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,529
|
|
Commercial
|
|
|
1,416
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,416
|
|
Commercial real estate
|
|
|
9,972
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,972
|
|
Construction and land development
|
|
|
1,652
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,652
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
14,569
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,569
|
|
Other real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
16,080
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,080
|
|
Residential real estate
|
|
|
3,449
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,449
|
|
|
|
$
|
19,529
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,529
|
|
Impaired loans, which are measured for impairment using the
fair value of the collateral for collateral dependent loans, had a carrying amount of $17,683, with a valuation allowance of $3,114
resulting in an additional provision for loan losses of $3,778 for the year ended December 31, 2012.
Other real estate owned, which are measured for impairment
using the fair value of the collateral less estimated cost to sell, had a carrying amount of $19,529, with no valuation allowance
for the year ended December 31, 2012.
Transfers of assets and liabilities between levels within
the fair value hierarchy are recognized when an event or change in circumstances occurs. There have been no transfers between fair
value levels for 2013 and 2012.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 5 – FAIR VALUES (continued)
Carrying amount and estimated fair values of financial
instruments were as follows at September 30, 2013 and December 31, 2012, respectively.
|
|
September 30, 2013
|
|
December 31, 2012
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67,288
|
|
|
$
|
67,288
|
|
|
$
|
207,117
|
|
|
$
|
207,117
|
|
Securities available for sale
|
|
|
341,879
|
|
|
|
341,879
|
|
|
|
260,122
|
|
|
|
260,122
|
|
Loans, net, including loans held for sale
|
|
|
1,112,123
|
|
|
|
1,120,885
|
|
|
|
904,124
|
|
|
|
910,761
|
|
Nonmarketable equity securities
|
|
|
11,016
|
|
|
|
N/A
|
|
|
|
8,625
|
|
|
|
N/A
|
|
FDIC loss share receivable
|
|
|
31,271
|
|
|
|
31,271
|
|
|
|
46,735
|
|
|
|
46,735
|
|
Accrued interest receivable
|
|
|
4,037
|
|
|
|
4,037
|
|
|
|
3,428
|
|
|
|
3,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,399,240
|
|
|
$
|
1,373,561
|
|
|
$
|
1,303,022
|
|
|
$
|
1,299,140
|
|
Federal funds purchased and repurchase agreements
|
|
|
12,213
|
|
|
|
12,213
|
|
|
|
19,855
|
|
|
|
19,855
|
|
Federal Home Loan Bank Advances
|
|
|
60,021
|
|
|
|
60,182
|
|
|
|
—
|
|
|
|
—
|
|
Accrued interest payable
|
|
|
260
|
|
|
|
260
|
|
|
|
314
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value methods and assumptions are periodically evaluated by
the Company. The methods and assumptions used to estimate fair value are described as follows:
Cash and cash equivalents
The carrying amounts of cash and cash equivalents approximate
the fair value and are classified as Level I in the fair value hierarchy.
Loans, net
The fair value of variable rate loans that re-price frequently
and with no significant change in credit risk is based on the carrying value and results in a classification of Level III within
the fair value hierarchy. Fair value for other loans are estimated using discounted cash flows analysis using interest rates currently
being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level III classification in the
fair value hierarchy. The methods used to estimate the fair value of loans do not necessarily represent an exit price.
Nonmarketable equity securities
Nonmarketable equity securities include Federal Home Loan
Bank Stock and Federal Reserve Bank Stock. It is not practicable to determine the fair value of nonmarketable equity securities
due to restrictions placed on their transferability.
FDIC Loss Share Receivable
The fair value of the FDIC Loss Share Receivable represents
the discounted value of the FDIC’s reimbursed portion of estimated losses the Company expects to realize on loans and other
real estate owned covered under Loss Sharing Agreements. As a result, the fair value is considered a Level III classification in
the fair value hierarchy.
1st UNITED BANCORP,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 5 – FAIR VALUES (continued)
Deposits
The fair value of non-interest bearing demand deposits is
equal to the amount payable at the reporting date (i.e. carrying value) resulting in a Level 1 classification in the fair value
hierarchy. The fair value of interest bearing demand deposits (e.g. interest bearing, savings and certain types of money market
accounts) are, by definition, equal to the amount payable in demand at the reporting date (i.e. carrying value) resulting in a
Level II classification in the fair value hierarchy. The carrying amounts of variable rate, fixed-term money market accounts and
certificate of deposits approximates their fair value at the reporting date in a Level II classification in the fair value hierarchy.
Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest
rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting
in a Level II classification.
Federal Funds purchased and repurchase agreements
The carrying amounts of federal funds and repurchase agreements
generally mature within ninety days and approximate their fair value resulting in a Level II classification in the fair value hierarchy.
Federal Home Loan Advances
The fair value of Federal Home Loan Bank Advances are estimated
using a discounted cash flow analysis based on the current borrowing rates for similar types of borrowings and are classified as
a Level II in the fair value hierarchy.
Accrued interest receivable/payable
The carrying amounts of accrued interest receivable approximate
fair value resulting in a Level III classification. The carrying amounts of accrued interest payable approximate fair value resulting
in a Level II classification.
Off-balance sheet instruments
The fair value of off-balance-sheet instruments is based
on the current fees that would be charged to enter into or terminate such arrangements, taking into account the remaining terms
of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.
NOTE 6 – FDIC LOSS SHARE RECEIVABLE
The activity in the FDIC loss share receivable which resulted
from the acquisition of financial institutions covered under loss share agreements with the FDIC were as follows:
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
35,249
|
|
|
$
|
56,609
|
|
|
$
|
46,735
|
|
|
$
|
72,895
|
|
Cash received
|
|
|
(1,143
|
)
|
|
|
(667
|
)
|
|
|
(4,888
|
)
|
|
|
(11,743
|
)
|
Discount accretion
|
|
|
75
|
|
|
|
371
|
|
|
|
551
|
|
|
|
880
|
|
Reduction for changes in cash flow estimates
|
|
|
(2,910
|
)
|
|
|
(4,521
|
)
|
|
|
(11,127
|
)
|
|
|
(10,148
|
)
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
92
|
|
End of period
|
|
$
|
31,271
|
|
|
$
|
51,792
|
|
|
$
|
31,271
|
|
|
$
|
(51,792
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2013 and December 31, 2012, the Company has
determined that the FDIC loss share receivable is collectible. The reduction for changes in cash flow estimates is primarily due
to resolutions of covered assets in excess of the amount expected, which includes sales, payoffs and transfers to (and sales of)
other real estate owned as well as a reduction due to changes in expected cash flows of the remaining covered assets.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 7 – ADOPTION OF NEW ACCOUNTING STANDARDS
In February 2013, the Financial Accounting Standards Board
(FASB) issued updated guidance related to disclosure of reclassification amounts out of other comprehensive income. The standard
requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect
of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income
statement line items affected by the reclassification. The new requirements will take effect for public companies in fiscal years,
and interim periods within those years, beginning after December 15, 2012. The Company adopted this standard on January 1, 2013.
The effect of adopting this standard increased our disclosure surrounding reclassification items out of accumulated other comprehensive income.
NOTE 8 – EARNINGS PER COMMON SHARE
Basic earnings per common share is net income divided by
the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the dilutive effect
of additional potential common shares issuable under stock options and restricted stock.
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Net income
|
|
$
|
880
|
|
|
$
|
1,574
|
|
|
$
|
4,267
|
|
|
$
|
3,001
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
33,776,048
|
|
|
|
34,096,224
|
|
|
|
33,774,244
|
|
|
|
32,682,543
|
|
Basic EPS
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.13
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
33,776,048
|
|
|
|
34,096,224
|
|
|
|
33,774,244
|
|
|
|
32,682,543
|
|
Effect of dilutive shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
220,046
|
|
|
|
10,192
|
|
|
|
207,125
|
|
|
|
—
|
|
Restricted stock
|
|
|
95,901
|
|
|
|
8,457
|
|
|
|
62,915
|
|
|
|
4,814
|
|
Total dilutive shares
|
|
|
34,091,995
|
|
|
|
34,114,873
|
|
|
|
34,044,284
|
|
|
|
32,687,357
|
|
Diluted EPS
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.13
|
|
|
$
|
0.09
|
|
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The Company issues loan commitments, lines of credit, and
letters of credit to meet its customers’ financing needs. Commitments to make loans are generally made for periods ranging
from 60 to 90 days and may expire without being used. Off balance sheet risk to credit loss may exist up to the face amount of
these instruments. The Company uses the same credit policies to make such commitments as are used to originate loans which include
obtaining collateral at the time exercise of the commitment.
The contractual amount of financial instruments with off-balance
sheet risk were as follows at September 30, 2013 and December 31, 2012.
|
|
September 30, 2013
|
|
December 31, 2012
|
|
|
Fixed
Rate
|
|
Variable
Rate
|
|
Fixed
Rate
|
|
Variable
Rate
|
Commitments to make loans
|
|
$
|
34,615
|
|
|
$
|
26,779
|
|
|
$
|
23,661
|
|
|
$
|
2,958
|
|
Unused lines of credit
|
|
|
1,596
|
|
|
|
93,160
|
|
|
|
664
|
|
|
|
72,103
|
|
Stand-by letters of credit
|
|
|
7,219
|
|
|
|
901
|
|
|
|
5,349
|
|
|
|
1,610
|
|
The fixed rate loan commitments have interest rates ranging
from 3.0% to 7.00% and the underlying loans have maturities ranging from four months to 30 years.
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management’s discussion and analysis
of certain significant factors that have affected our financial condition and operating results during the periods included in
the accompanying consolidated financial statements, and should be read in conjunction with such financial statements. Management’s
discussion and analysis is divided into subsections entitled “Business Overview,” “Operating Results,”
“Financial Condition,” “Capital Resources,” “Cash Flows and Liquidity,” “Off Balance
Sheet Arrangements,” and “Critical Accounting Policies.” Our financial condition and operating results principally
reflect those of its wholly-owned subsidiaries, 1st United Bank (“1st United”) and Equitable Equity Lending (“EEL”).
The consolidated entity is referred to as the “Company,” “Bancorp,” “we,” “us,”
or “our.”
The following discussion should be read in conjunction with
the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.
CAUTION CONCERNING FORWARD-LOOKING
STATEMENTS
This Quarterly Report on Form 10-Q, including this MD&A
section, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations,
estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors,
many of which are beyond our control. The words “may,” “could,” “should,” “would,”
“believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,”
“target,” “goal,” and similar expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject
to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements.
Please see the Introductory Note and Item 1A. Risk Factors of our Annual Report on Form 10-K, as updated from time to time, and
in our other filings made from time to time with the SEC after the date of this report.
However, other factors besides those listed above, or in
our Quarterly Report or in our Annual Report, also could adversely affect our results, and you should not consider any such list
of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us or on our behalf
speak only as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable
law.
BUSINESS OVERVIEW
We are a financial holding company headquartered in Boca
Raton, Florida with principal corporate operations in West Palm Beach, Florida.
We follow a business plan that emphasizes the delivery of
banking services to businesses and individuals in our geographic market who desire a high level of personalized service. The business
plan includes business banking, services to professionals, real estate lending and private banking, as well as full community banking
products and services. The business plan also provides for an emphasis on our Small Business Administration and Export-Import Bank
lending programs, as well as on small business lending. We focus on the building of a balanced loan and deposit portfolio, with
emphasis on low cost liabilities.
As is the case with banking institutions generally, our operations
are materially and significantly influenced by general economic conditions and by related monetary and fiscal policies of financial
institution regulatory agencies, including the Federal Reserve Bank and the FDIC. Deposit flows and costs of funds are influenced
by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand
for financing of real estate and other types of loans, which in turn is affected by the interest rates at which such financing
may be offered and other factors affecting local demand and availability of funds. We face strong competition in the attraction
of deposits (our primary source of lendable funds) and in the origination of loans.
Recent Mergers & Acquisitions
Merger of Enterprise Bancorp, Inc.
On July 1, 2013, we completed our acquisition of
Enterprise Bancorp, Inc., a Florida corporation (“EBI”), and its wholly-owned subsidiary Enterprise Bank of
Florida, a Florida-chartered commercial bank (“Enterprise”), pursuant to the Agreement and Plan of Merger (the
“Merger Agreement”), dated March 22, 2013, as amended, by and among the Company, 1st United Bank, EBI and
Enterprise. 1st United acquired approximately $159.2 million in loans, with an average yield of 5.08%, and approximately $177
million of deposits, with an average cost of 0.53%. Total consideration for the net assets acquired was $45.6 million (or
1.22 times tangible book value, as defined by the Merger Agreement) which was comprised of $5.1 million in cash, $20.5
million in classified and non-performing loans, $18.3 million in non-investment grade and non-performing investments, other
investments and derivatives and $1.7 million in OREO and other repossessed assets. The Company did not acquire any
non-performing loans, OREO or non-investment grade investments due to the acquisition of EBI.
We accounted for the transaction under the acquisition method
of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date
of acquisition. See Note 4 for additional information related to the fair value of loans acquired. We use third party valuations
to determine the fair value of the core deposit intangible, securities and deposits. The valuation of FHLB advances was based on
current rates for similar borrowings. The estimated fair values are considered preliminary and are subject to refinement as additional
information relative to the closing date fair values becomes available during the measurement period. While additional significant
changes to the closing date fair values are not expected, any information relative to the changes in these fair values will be
evaluated to determine if such changes are due to events and circumstances that existed as of the acquisition date.
The former Enterprise provides 1st United
continued expansion within the attractive northern Palm Beach County, Florida marketplace, providing opportunities for new
loan and deposit growth. In addition, of the three banking centers acquired one EBI banking center was consolidated into an
existing 1st United banking center during the third quarter 2013. In addition, one of 1
st
United’s banking
centers was consolidated into a banking center of the former Enterprise. The result was one net new 1st United banking center
located in Jupiter, Florida. We incurred merger related expenses of $1.7 million primarily during the third quarter of 2013
related to the integration of operations and terminations of leases and contracts. Total goodwill recorded was $5.7 million
with an estimated three-year earn-back period. We integrated the EBI operations during the third quarter of 2013.
Merger of AFI Financial, Inc.
On April 1, 2012, we completed our acquisition of Anderen
Financial, Inc., a Florida corporation and its wholly-owned subsidiary Anderen Bank, a Florida-chartered commercial bank (collectively
referred to herein as “AFI”), pursuant to the Agreement and Plan of Merger, dated October 24, 2011. Pursuant to the
terms of the merger agreement, each share of AFI common stock, $0.01 par value per share, was cancelled and automatically converted
into the right to receive cash, common stock of the Company or a combination of cash and common stock of the Company. AFI shareholders
could elect to receive cash, stock, or a combination of 50% cash and 50% stock, provided, however, that each such election was
subject to mandatory allocation procedures to ensure the total consideration was approximately 50% cash and 50% stock. The value
of the per share consideration was $7.73. The total value of the consideration paid to AFI shareholders was $38.3 million, which
consisted of approximately $19.1 million in cash and 3,140,354 shares of our common stock. Our common stock was valued at $6.09
per share with a total value of $19.1 million. We recorded goodwill of $6.0 million as a result of the merger which is not deductible
for tax purposes. Total net deferred tax assets acquired were $5.9 million, primarily related to loss carry forwards. We completed
the integration of AFI in June 2012.
We accounted for the transaction under the acquisition method
of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date
of acquisition. See Note 4 for additional information related to the fair value of loans acquired. We use third party valuations
to determine the fair value of the core deposit intangible, securities, fixed assets and deposits. The fair value of other real
estate owned was based on recent appraisals of the properties. The estimated fair values were finalized in early 2013. The acquisition
of AFI is consistent with our plans to continue to enhance its footprint and competitive position within the state of Florida.
This acquisition complemented the initial expansion into the Florida Gulf Coast markets with the acquisition of Old Harbor. We
believe we are well-positioned to deliver superior customer service, achieve stronger financial performance and enhance shareholder
value through the synergies of combined operations. All of these factors contributed to the resulting goodwill in the transaction.
Financial Overview
OPERATING RESULTS
For the quarter ended September 30, 2013, we reported
net income of $880,000 compared to net income of $1.6 million for the quarter ended September 30, 2012. For the nine months
ended September 30, 2013, we reported net income of $4.3 million compared to net income of $3.0 million for the nine months
ended September 30, 2012. The decrease in net income for the three months ended September 30, 2013 as compared to the same
period ended September 30, 2012 was mostly due to one-time merger and integration and banking center disposal expenses
incurred in 2013. The increase in net income for the nine months ended September 30, 2013 as compared to the prior period was
due to an increase in net interest income and a decrease in the provision for loan losses offset by an increase in operating
expenses.
|
●
|
During the three months and nine months ended September 30, 2013, we incurred approximately $1.6 million and $1.7 million, respectively, in personnel, IT, facilities and merger reorganization expense that related to the integration of EBI. During the three and nine months ended September 30, 2012, we incurred approximately $24,000 and $1.8 million, respectively, in personnel, IT and facilities costs and merger reorganization expense that related to the integrations of AFI and Old Harbor.
|
|
|
|
|
●
|
During the three and nine months ended September 30, 2013, we strategically approved the closure of two banking centers. During the second quarter of 2013, we approved the closure of one banking center on the west coast of Florida, which was closed on October 4, 2013. An additional banking center located in Broward County was approved to be closed in the third quarter of 2013 and it is anticipated to be closed early in the first quarter of 2014. As a result of these banking center closures, we recorded termination expenses of $228,000 and $632,000 related to the facility leases, fixed assets and severance expense during the three and nine months ended September 30, 2013, respectively.
|
|
|
|
|
●
|
Net interest margin was 4.88% for the quarter ended September 30, 2013 compared to 5.33% for the quarter ended September 30, 2012. Net interest margin was 5.24% for the nine months ended September 30, 2013 compared to 5.08% for the nine months ended September 30, 2012.
|
|
|
|
|
●
|
The Company recorded provision for loan losses of $745,000 and $2.7 million for the three and nine months ended September 30, 2013, respectively, compared to provision for loan losses of $1.1 million and $5.5 million, respectively, for similar periods in 2012.
|
|
|
|
|
●
|
Net loans increased by approximately $208.5 million to $1.11 billion for the nine months
ended September 30, 2013 resulting from the acquisition of loans from EBI of $159.2, new loan production and loan advances of
$246.0 million which was partially offset by payoffs, resolutions, including transfers to OREO, and principal payments of
$196.8 million during the period. Net loans increased by approximately $187.4 million from $924.7 million at June 30, 2013 to
$1.11 billion at September 30, 2013 resulting from the acquisition of loans from EBI of $159.2 million, new loan production
and loan advances of $97.3 million which was partially offset by payoffs, resolutions, including transfer to OREO, and
principal payments of $69.2 million during the period.
|
|
|
|
|
●
|
Non-performing assets at September 30, 2013 represented 2.23% of total assets compared to
2.74% at December 31, 2012. Non-performing assets not covered by the Loss Share Agreements represented 1.10% of total assets
at September 30, 2013 compared to 1.17% at December 31, 2012.
|
|
|
|
|
●
|
Securities available for sale increased by approximately $81.8 million from December 31, 2012 to $341.9 million at September 30, 2013. The increase was a result of security purchases of $174.4 million and the acquisition of $4.0 million of EBI securities partially offset by investment maturities and prepayments of $48.6 million and proceeds from sales of $33.7 million resulting in gains on sales of $824,000 for the nine months ended September 30, 2013. Gains on the sale of securities for the nine months ended September 30, 2012 were $1.7 million. Gains on the sale of securities for the three months ended September 30, 2013 were $93,000 as compared to no gains on sale of securities for the three months ended September 30, 2012.
|
|
|
|
|
●
|
Other real estate owned (“OREO”) decreased by $3.1 million to $16.5 million at September 30, 2013 from $19.5 million at December 31, 2012. The change was due to OREO sales of $8.3 million and fair value adjustments on existing properties of $785,000 which was partially offset by the foreclosure of $5.0 million of loans. Gains on the sale of OREO for three months ended September 30, 2013 and 2012 were $179,000 and $1.0 million, respectively. Gains on the sale of OREO for nine months ended September 30, 2013 and 2012 were $1.0 million and $3.0 million, respectively. At September 30, 2013, we had $1.1 million of OREO under contract for sale and expected to close in the fourth quarter of 2013 with no additional loss anticipated.
|
|
|
|
|
●
|
The FDIC loss share receivable was reduced by approximately $15.5 million from $46.7 million at December 31, 2012 to $31.3 million at September 30, 2013. The decrease was due to cash receipts of approximately $4.9 million, a reduction of $11.1 million related to adjustments resulting from the disposition of acquired loans at above their discounted carrying values and the impact of changes in anticipated cash flows offset by accretion of income on the receivable of $551,000.
|
|
|
|
|
●
|
Goodwill increased $5.7 million from $58.5 million to $64.2 million due to the acquisition of EBI.
|
|
|
|
|
●
|
Deposits increased by $96.2 million from $1.303 billion at December 31, 2012 to $1.4 billion at September 30, 2013 due primarily to the acquisition of $177.2 million in deposits from the EBI acquisition offset by a reduction in higher priced certificates of deposits and normal customer balance fluctuations. Non-interest bearing deposits increased by $40.7 million to $467.7 million at September 30, 2013, as compared to December 31, 2012, with $26.6 million of the increase from the EBI acquisition and the remaining amount due to our continued emphasis on this strategic initiative. The percentage of non-interest bearing deposits to total deposits was approximately 33% at September 30, 2013 and December 31, 2012.
|
Analysis for Three Month Periods ended September 30, 2013 and
2012
Net Interest Income
Net interest income, which constitutes our principal source
of income, represents the excess of interest income on interest-earning assets over interest expense on interest-bearing liabilities.
Our principal interest-earning assets are federal funds sold, investment securities and loans. Our interest-bearing liabilities
primarily consist of time deposits, interest-bearing checking accounts (“NOW accounts”), savings deposits and money
market accounts. We invest the funds attracted by these interest-bearing liabilities in interest-earning assets. Accordingly, our
net interest income depends upon the volume of average interest-earning assets and average interest-bearing liabilities and the
interest rates earned or paid on them.
The following table reflects the components of net interest
income, setting forth for the periods presented, (1) average assets, liabilities and shareholders’ equity, (2) interest income
earned on interest-earning assets and interest paid on interest-bearing liabilities, (3) average yields earned on interest-earning
assets and average rates paid on interest-bearing liabilities, (4) our net interest spread (i.e., the average yield on interest-earning
assets less the average rate on interest-bearing liabilities) and (5) our net interest margin (i.e., the net yield on interest-earning
assets).
Net interest earnings for the three months ended September
30, 2013 and 2012, respectively, are reflected in the following table:
|
|
September 30, 2013
|
|
September 30, 2012
|
(Dollars in thousands)
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rates
Earned/
Paid
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rates
Earned/
Paid
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
1,103,522
|
|
|
$
|
17,353
|
|
|
|
6.24
|
%
|
|
$
|
940,792
|
|
|
$
|
17,933
|
|
|
|
7.56
|
%
|
Investment securities
|
|
|
346,681
|
|
|
|
2,012
|
|
|
|
2.32
|
%
|
|
|
190,527
|
|
|
|
1,032
|
|
|
|
2.17
|
%
|
Federal funds sold and securities
purchased under resale agreements
|
|
|
63,142
|
|
|
|
155
|
|
|
|
0.97
|
%
|
|
|
202,494
|
|
|
|
218
|
|
|
|
0.43
|
%
|
Total interest-earning assets
|
|
|
1,513,345
|
|
|
$
|
19,520
|
|
|
|
5.12
|
%
|
|
$
|
1,333,813
|
|
|
$
|
19,183
|
|
|
|
5.71
|
%
|
Non interest-earning assets
|
|
|
233,537
|
|
|
|
|
|
|
|
|
|
|
|
250,204
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(10,029
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,680
|
)
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,736,853
|
|
|
|
|
|
|
|
|
|
|
$
|
1,574,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
218,029
|
|
|
$
|
73
|
|
|
|
0.13
|
%
|
|
$
|
157,299
|
|
|
$
|
60
|
|
|
|
0.15
|
%
|
Money market accounts
|
|
|
380,278
|
|
|
|
309
|
|
|
|
0.32
|
%
|
|
|
349,320
|
|
|
|
355
|
|
|
|
0.40
|
%
|
Savings accounts
|
|
|
63,510
|
|
|
|
42
|
|
|
|
0.26
|
%
|
|
|
65,250
|
|
|
|
46
|
|
|
|
0.28
|
%
|
Certificates of deposit
|
|
|
301,709
|
|
|
|
448
|
|
|
|
0.59
|
%
|
|
|
341,128
|
|
|
|
813
|
|
|
|
0.95
|
%
|
Fed funds purchased and repurchase agreements
|
|
|
12,756
|
|
|
|
3
|
|
|
|
0.09
|
%
|
|
|
10,144
|
|
|
|
3
|
|
|
|
0.12
|
%
|
Federal Home Loan Bank advances and other borrowings
|
|
|
38,486
|
|
|
|
45
|
|
|
|
0.46
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
0.00
|
%
|
Total interest-bearing liabilities
|
|
|
1,014,768
|
|
|
|
920
|
|
|
|
0.36
|
%
|
|
|
923,141
|
|
|
|
1,277
|
|
|
|
0.55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit accounts
|
|
|
478,456
|
|
|
|
|
|
|
|
|
|
|
|
404,962
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
11,394
|
|
|
|
|
|
|
|
|
|
|
|
7,829
|
|
|
|
|
|
|
|
|
|
Total non-interest-bearing liabilities
|
|
|
489,850
|
|
|
|
|
|
|
|
|
|
|
|
412,791
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
232,235
|
|
|
|
|
|
|
|
|
|
|
|
238,405
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’
equity
|
|
$
|
1,736,853
|
|
|
|
|
|
|
|
|
|
|
$
|
1,574,337
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
$
|
18,600
|
|
|
|
4.76
|
%
|
|
|
|
|
|
$
|
17,906
|
|
|
|
5.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest on average earning assets –
Margin
|
|
|
|
|
|
|
|
|
|
|
4.88
|
%
|
|
|
|
|
|
|
|
|
|
|
5.33
|
%
|
Our net interest income for the three months ended
September 30, 2013 was impacted by an increase in total average earning assets of $179.5 million as well as a decrease in the
overall yield paid on interest bearing liabilities as compared to the three months ended September 30, 2012. The increase in
total average earning assets was due to the EBI acquisition, the purchase of investment securities with excess cash reserves
and net growth on originated loans.
Interest earnings for the current quarter were
positively impacted by the accretion of discounts related to acquired loans of approximately $4.0 million as compared to $5.9
million for the same period in 2012. Included in the $4.0 million of accretion of discount for the quarter ended September
30, 2013 was approximately $2.8 million related to the disposition of assets acquired in the transactions above the
discounted carrying value of the asset and accretion of discounts on purchase credit impaired loans due to increases in
estimated cash flows. For the quarter ended September 30, 2013, we took a charge of approximately $2.9 million, including
$263,000 related to the resolution of other real estate owned, as an adjustment to the FDIC loss share receivable. This
charge was recorded in non-interest income within the consolidated statements of operations and was substantially related to
changes in cash flows of loss share assets. Included in the $5.9 million of accretion discount for the quarter ended
September 30, 2012 was approximately $3.6 million related to the disposition of assets above the discounted carrying values
and accretion of discounts on purchase credit impaired loans due to increases in estimated cash flows. For the quarter ended
September 30, 2012, we took a charge of approximately $4.5 million, including $1.1 million related to the resolution of other
real estate owned, as an adjustment to the FDIC loss share receivable. This charge was recorded in non-interest income within
the consolidated statements of operations substantially related to changes in cash flows of loss share assets.
Net interest income was $18.6 million for the three months
ended September 30, 2013, as compared to $17.9 million for the three months ended September 30, 2012, an increase of $694,000,
or 3.9%. The increase resulted primarily from increase in average earning assets of $179.5 million or 13.5% and a reduction in
yield on deposits offset by a reduction in accretion income from the resolution of acquired assets. Accretion income decreased
quarter over quarter by $1.9 million and was offset with a reduction in the cost of funds of 14 basis points.
The net interest margin (i.e., net interest income divided
by average earning assets) decreased 45 basis points from 5.33% during the three months ended September 30, 2012 to 4.88% during
the three months ended September 30, 2013. Accretion of $4.0 million on acquired loans added approximately 105 basis points to
the quarter ended September 30, 2013 net interest margin. Of the 105 basis points, 73 basis points related to resolved loss share
assets and changes in cash flows during the quarter. This compares to accretion of loan discount of $5.9 million during the three
months ended September 30, 2012, which added approximately 176 basis points to the September 30, 2012 margin. Of the 176 basis
points for the quarter ended September 30, 2012, 108 basis points related to resolved loss share assets and changes in cash flows.
For the three months ended September 30, 2013, average loans represented 63.5% of total average assets and 75.9% of total average
deposits and customer repurchase agreements, compared to average loans of 59.8% of total average assets and average loans of 70.8%
to total average deposits and customer repurchase agreements at September 30, 2012. Our cost of funds was approximately 14 basis
points lower for the three months ended September 30, 2013, as compared to September 30, 2012, primarily as a result of lower rates
offered on our deposit products.
Rate Volume Analysis
The following table sets forth certain information regarding
changes in our interest income and interest expense for the three months ended September 30, 2013 as compared to the three months
ended September 30, 2012. For each category of interest-earning assets and interest-bearing liabilities, information is provided
on changes attributable to changes in interest rate and changes in the volume. Changes in both volume and rate have been allocated
based on the proportionate absolute changes in each category.
Changes in interest earnings for the three months ended
September 30, 2013 and 2012:
|
|
September 30, 2013 and 2012
|
(Dollars in thousands)
|
|
Change
in
Interest
Income/
Expense
|
|
Variance
Due to
Volume
Changes
|
|
Variance
Due to
Rate
Changes
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
(580
|
)
|
|
$
|
2,832
|
|
|
$
|
(3,412
|
)
|
Investment securities
|
|
|
980
|
|
|
|
901
|
|
|
|
79
|
|
Federal funds sold and securities purchased under resale agreements
|
|
|
(63
|
)
|
|
|
(217
|
)
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
337
|
|
|
$
|
3,516
|
|
|
$
|
(3,179
|
)
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
13
|
|
|
$
|
21
|
|
|
$
|
(8
|
)
|
Money market accounts
|
|
|
(46
|
)
|
|
|
30
|
|
|
|
(76
|
)
|
Savings accounts
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
Certificates of deposit
|
|
|
(365
|
)
|
|
|
(86
|
)
|
|
|
(279
|
)
|
Fed funds purchased and repurchase agreements
|
|
|
—
|
|
|
|
1
|
|
|
|
(1
|
)
|
Other borrowings
|
|
|
45
|
|
|
|
45
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
(357
|
)
|
|
|
10
|
|
|
|
(367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
$
|
694
|
|
|
$
|
3,506
|
|
|
$
|
(2,812
|
)
|
Non-interest Income, Non-interest Expense, Provision
for Loan Losses, and Income Tax Expense
Non-interest income includes service charges and fees on
deposit accounts, net gains or losses on sales of securities, and all other items of income, other than interest, resulting from
our business activities. Non-interest income increased by $558,000 for the quarter ended September 30, 2013 when compared to the
quarter ended September 30, 2012. The increase was principally a result of a decrease in the adjustment to the FDIC loss share
receivable due to less resolution of assets above their carrying value offset by a reduction in the gain on the sales of securities
and a reduction in the gains on the sale of other real estate owned quarter over quarter.
During the three months ended September 30, 2013, we sold
approximately $2.9 million in securities for gains on the sale of $93,000. There were no sales during the third quarter of 2012.
During the three months ended September 30, 2013, we received
proceeds from the sale of OREO properties of $3.1 million with a carrying value of $2.9 million and recorded a net gain of $179,000
on the these dispositions as compared to sales of $15.1 million of OREO with a carrying value of $12.0 million resulting in a net
gain of $1.0 million for the three months ended September 30, 2012. Net gains on the resolution of OREO covered under loss sharing
agreements for the three months ended September 30, 2013 and 2012 were $150,000 and $1.1 million, respectively.
The adjustment to the FDIC loss share receivable
during the quarter ended September 30, 2013 represented a $2.9 million expense related to changes in cash flows on assets covered
by Loss Share Agreements and the resolution of OREO property which reduces the FDIC receivable. This compares to $4.5 million
for the quarter ended September 30, 2012. These amounts were partially offset by interest income earned on the FDIC receivable
of $75,000 and $371,000 for the quarters ended September 30, 2013 and 2012, respectively.
Non-interest expense is comprised of salaries and employee
benefits, occupancy and equipment expense and other operating expenses incurred in supporting our various business activities.
Non-interest expense increased by $2.7 million, or 21.9%, from $12.5 million for the three months ended September 30, 2012 to $15.2
million for the three months ended September 30, 2013, primarily due to merger reorganization expense from the acquisition and
integration of EBI operations, termination expense associated with the closure of one banking center and the assumption of staff
and operations from the EBI acquisition.
The following summarizes the changes in non-interest expense
accounts for the three months ended September 30, 2013 compared to the three months ended September 30, 2012:
|
|
Three months ended
|
|
|
|
|
(Dollars in thousands)
|
|
September
30,
2013
|
|
|
September
30,
2012
|
|
|
Difference
|
|
Salaries and employee benefits
|
|
$
|
6,601
|
|
|
$
|
6,157
|
|
|
$
|
444
|
|
Occupancy and equipment
|
|
|
2,175
|
|
|
|
2,057
|
|
|
|
118
|
|
Data processing
|
|
|
1,039
|
|
|
|
974
|
|
|
|
65
|
|
Telephone
|
|
|
223
|
|
|
|
244
|
|
|
|
(21
|
)
|
Stationery and supplies
|
|
|
96
|
|
|
|
123
|
|
|
|
(27
|
)
|
Amortization of intangibles
|
|
|
205
|
|
|
|
181
|
|
|
|
24
|
|
Professional fees
|
|
|
434
|
|
|
|
359
|
|
|
|
75
|
|
Advertising
|
|
|
65
|
|
|
|
67
|
|
|
|
(2
|
)
|
Merger reorganization expense
|
|
|
1,618
|
|
|
|
24
|
|
|
|
1,594
|
|
Disposal of banking centers
|
|
|
228
|
|
|
|
—
|
|
|
|
228
|
|
Regulatory assessment
|
|
|
453
|
|
|
|
382
|
|
|
|
71
|
|
Other real estate owned expense
|
|
|
456
|
|
|
|
206
|
|
|
|
250
|
|
Loan expense
|
|
|
419
|
|
|
|
548
|
|
|
|
(129
|
)
|
Other
|
|
|
1,165
|
|
|
|
1,131
|
|
|
|
34
|
|
Total non-interest expense
|
|
$
|
15,177
|
|
|
$
|
12,453
|
|
|
$
|
2,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and employee benefits increased by approximately $444,000
or 7.2% to $6.6 million for the three months ended September 30, 2013 as compared to $6.2 million for the three months ended September
30, 2012. The increase was primarily due to staff additions from the EBI acquisition as well as increased loan production staff
quarter-over-quarter. Of the total EBI employees, we retained a total of 14 new employees subsequent to the integration in late
September.
Occupancy expense increased by $118,000 to $2.2 million for
the quarter ended September 30, 2013 as compared to $2.1 million for the quarter ended September 30, 2012. The increase was due
to the acquisition of EBI facilities. In connection with the merger, we closed one EBI location, relocated one legacy banking center
to an existing EBI banking center and will reduce our space at a third location. In addition, during the three months ended September
30, 2013, we strategically approved the closure of one banking center located in Broward County which is expected to be closed
in early January 2014. Total expense including lease, fixed assets and severance, associated with the closure of this location
was $228,000 with an annualized cost savings to occupancy expense of approximately $400,000. During the second quarter 2013, we
additionally closed one banking center on the west coast of Florida for an annual savings of approximately $400,000. Inclusive
of all of these changes, the Company estimates annualized cost savings of approximately $1.0 million for 2014.
Merger reorganization expenses were $1.6 million for the
quarter ended September 30, 2013 as compared to $24,000 for the quarter ended September 30, 2012. Merger reorganization expense
incurred during the quarter ended September 30, 2013 was related to legal, professional, IT integration and conversion, and severance
and lease termination expenses associated with the merger and integration of EBI which was completed in September 2013.
Other real estate owned (“OREO”) expense increased
by approximately $250,000 to $456,000 for the three months ended September 30, 2013, as compared to $206,000 for the three months
ended September 30, 2012. The change was primarily due to an increase in write downs of $143,000 on OREO properties due to changes
in estimated fair values during the quarter ended September 30, 2013 as compared to $14,000 for the quarter ended September 30,
2012 as well as an increase in repairs and maintenance expense on existing properties.
Loan expense includes the costs associated with the collection
of legacy as well as loss sharing assets. Loan expense decreased by $129,000 from $548,000 for the three months ended September
30, 2012 as compared to $419,000 for the three months ended September 30, 2013. The change was primarily due to a reduction in
non-performing assets period-over-period.
The provision for loan losses is charged to earnings to bring
the allowance for loan losses to a level deemed adequate by management and is based upon anticipated experience, the volume and
type of lending conducted by us, the amounts of past due and non-performing loans, general economic conditions, particularly as
they relate to our market area, and other factors related to the collectability of our loan portfolio. During the quarter ended
September 30, 2013, we recorded $745,000 in provision for loan losses as compared to $1.1 million for the three months ended September
30, 2012. The decrease in the provision for loan losses quarter-over-quarter was due to a reduction in net charge-offs and the
continued reduction of impaired assets. Net charge-offs for the quarter ended September 30, 2013 were $901,000 as compared to $1.0
million for the quarter ended September 30, 2012.
We recorded income tax expense of $487,000 for the three
months ended September 30, 2013, compared to $960,000 for the three months ended September 30, 2012. The decrease is due to lower
pretax income for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012.
Analysis for Nine Month Periods ended September 30,
2013 and 2012
Net Interest Income
Net interest income, which constitutes our principal source
of income, represents the excess of interest income on interest-earning assets over interest expense on interest-bearing liabilities.
Our principal interest-earning assets are federal funds sold, investment securities and loans. Our interest-bearing liabilities
primarily consist of time deposits, interest-bearing checking accounts (“NOW accounts”), savings deposits and money
market accounts. We invest the funds attracted by these interest-bearing liabilities in interest-earning assets. Accordingly, our
net interest income depends upon the volume of average interest-earning assets and average interest-bearing liabilities and the
interest rates earned or paid on them.
Net interest earnings for the nine month periods ended
September 30, 2013 and 2012 are reflected in the following table:
|
|
September 30, 2013
|
|
September 30, 2012
|
(Dollars in thousands)
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rates
Earned/
Paid
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rates
Earned/
Paid
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
986,044
|
|
|
$
|
52,266
|
|
|
|
7.09
|
%
|
|
$
|
934,326
|
|
|
$
|
49,608
|
|
|
|
7.07
|
%
|
Investment securities
|
|
|
321,461
|
|
|
|
5,028
|
|
|
|
2.09
|
%
|
|
|
213,115
|
|
|
|
4,036
|
|
|
|
2.53
|
%
|
Federal funds sold and securities purchased under resale agreements
|
|
|
95,498
|
|
|
|
492
|
|
|
|
0.69
|
%
|
|
|
165,784
|
|
|
|
593
|
|
|
|
0.48
|
%
|
Total interest-earning assets
|
|
|
1,403,003
|
|
|
|
57,786
|
|
|
|
5.51
|
%
|
|
|
1,313,225
|
|
|
|
54,237
|
|
|
|
5.50
|
%
|
Non interest-earning assets
|
|
|
227,751
|
|
|
|
|
|
|
|
|
|
|
|
223,841
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(10,002
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,973
|
)
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,620,752
|
|
|
|
|
|
|
|
|
|
|
$
|
1,525,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
192,169
|
|
|
$
|
187
|
|
|
|
0.13
|
%
|
|
$
|
151,185
|
|
|
$
|
177
|
|
|
|
0.16
|
%
|
Money market accounts
|
|
|
339,626
|
|
|
|
808
|
|
|
|
0.32
|
%
|
|
|
339,293
|
|
|
|
1,276
|
|
|
|
0.50
|
%
|
Savings accounts
|
|
|
62,900
|
|
|
|
122
|
|
|
|
0.26
|
%
|
|
|
63,625
|
|
|
|
151
|
|
|
|
0.32
|
%
|
Certificates of deposit
|
|
|
298,789
|
|
|
|
1,634
|
|
|
|
0.73
|
%
|
|
|
342,536
|
|
|
|
2,571
|
|
|
|
1.00
|
%
|
Fed funds purchased and repurchase agreements
|
|
|
16,040
|
|
|
|
12
|
|
|
|
0.11
|
%
|
|
|
10,431
|
|
|
|
9
|
|
|
|
0.11
|
%
|
Federal Home Loan Bank advances and
other borrowings
|
|
|
12,970
|
|
|
|
45
|
|
|
|
0.45
|
%
|
|
|
183
|
|
|
|
7
|
|
|
|
5.10
|
%
|
Total interest-bearing liabilities
|
|
|
922,494
|
|
|
|
2,808
|
|
|
|
0.41
|
%
|
|
|
907,253
|
|
|
|
4,191
|
|
|
|
0.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit accounts
|
|
|
453,791
|
|
|
|
|
|
|
|
|
|
|
|
378,083
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
8,169
|
|
|
|
|
|
|
|
|
|
|
|
9,050
|
|
|
|
|
|
|
|
|
|
Total non-interest-bearing liabilities
|
|
|
461,960
|
|
|
|
|
|
|
|
|
|
|
|
387,133
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
236,298
|
|
|
|
|
|
|
|
|
|
|
|
230,707
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,620,752
|
|
|
|
|
|
|
|
|
|
|
$
|
1,525,093
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
$
|
54,978
|
|
|
|
5.10
|
%
|
|
|
|
|
|
$
|
50,046
|
|
|
|
4.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest on average earning assets – Margin
|
|
|
|
|
|
|
|
|
|
|
5.24
|
%
|
|
|
|
|
|
|
|
|
|
|
5.08
|
%
|
Our net interest income for the nine months ended
September 30, 2013 was positively impacted by the increase in average earning assets of $89.8 million or 6.8% compared to the
nine months ended September 30, 2012 primarily the result of the EBI acquisition of loans.
Interest earnings for the nine months ended September 30,
2013 were also positively impacted by the accretion of discounts related to acquired loans of approximately $16.2 million as compared
to $14.2 million for the same period in 2012. Included in the $16.2 million of accretion of discount in the nine months ended September
30, 2013 was approximately $11.2 million related to the disposition of loans acquired in the FDIC transactions above the discounted
carrying value of the asset and accretion of discounts on purchase credit impaired loans due to increases in estimated cash flows.
For the nine months ended September 30, 2013, we took a charge of approximately $11.1 million, which included $922,000 related
to the resolution of other real estate owned, as an adjustment to the FDIC loss share receivable. This charge was recorded in non-interest
income within the consolidated statements of operations and was substantially related to changes in cash flows of loss share assets.
Included in the $14.2 million of accretion discount in the nine months ended September 30, 2012 was approximately $7.3 million
related to the disposition of assets above the discounted carrying values and accretion of discounts on purchase credit impaired
loans due to increases in estimated cash flows. For the nine months ended September 30, 2012, we took a charge of approximately
$10.1 million, which included $3.1 million related to the resolution of other real estate owned, as an adjustment to the FDIC loss
share receivable. This charge was recorded in non-interest income due to changes in cash flows of loss share assets.
Net interest income was $55.0 million for the nine
months ended September 30, 2013, as compared to $50.0 million for the nine months ended September 30, 2012, an increase of
$5.0 million, or 9.9%. The increase in net interest income resulted primarily from an increase in average earning assets of
$89.8 million due to assets acquired from EBI, the increase in interest accretion on acquired loans of $2.0 million as well
as a reduction of the costs of funds of 12 basis points. These increases were offset by a reduction in the overall yield
earned on investment securities period-over-period.
The net interest margin (i.e., net interest income
divided by average earning assets) increased 16 basis points from 5.08% during the nine months ended September 30, 2012 to
5.24% at September 30, 2013, mainly the result of an increase in accretion earned on acquired assets and a decrease in the
cost of funds offset by lower overall yields earned on the investment securities. Accretion of $16.2 million on acquired
loans added approximately 154 basis points to the net interest margin for the nine months ended September 30, 2013. Of the
154 basis points, 107 basis points related to the accretion of the disposition of loans acquired above the discounted
carrying value. This compares to accretion of loan discount of $14.2 million during the nine months ended September 30, 2012,
which added approximately 144 basis points to the September 30, 2012 margin. Within the 144 basis points at September 30,
2012, 74 basis points related to the accretion of the disposition of assets acquired above the discounted carrying value. For
the nine months ended September 30, 2013, average loans represented 60.8% of total average assets and 72.3% of total average
deposits and customer repurchase agreements, compared to average loans of 61.3% of total average assets and average loans of
72.7% to total average deposits and customer repurchase agreements at September 30, 2012. Our cost of funds was approximately
12 basis points lower for the nine months ended September 30, 2013, as compared to 2012, primarily the result of lower rates
on savings, money market and certificates of deposits.
Rate Volume Analysis
The following table sets forth certain information regarding
changes in our interest income and interest expense for the nine months ended September 30, 2013 as compared to the nine months
ended September 30, 2012. For each category of interest-earning assets and interest-bearing liabilities, information is provided
on changes attributable to changes in interest rate and changes in the volume. Changes in both volume and rate have been allocated
based on the proportionate absolute changes in each category.
Changes in interest earnings for the nine months ended
September 30, 2013 and 2012:
|
|
September 30, 2013 and 2012
|
(Dollars in thousands)
|
|
Change
in
Interest
Income/
Expense
|
|
Variance
Due to
Volume
Changes
|
|
Variance
Due to
Rate
Changes
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
2,658
|
|
|
$
|
2,741
|
|
|
$
|
(83
|
)
|
Investment securities
|
|
|
992
|
|
|
|
1,786
|
|
|
|
(794
|
)
|
Federal funds sold and securities purchased under resale agreements
|
|
|
(101
|
)
|
|
|
(306
|
)
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
3,549
|
|
|
$
|
4,221
|
|
|
$
|
(672
|
)
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
10
|
|
|
$
|
43
|
|
|
$
|
(33
|
)
|
Money market accounts
|
|
|
(468
|
)
|
|
|
1
|
|
|
|
(469
|
)
|
Savings accounts
|
|
|
(29
|
)
|
|
|
(2
|
)
|
|
|
(27
|
)
|
Certificates of deposit
|
|
|
(937
|
)
|
|
|
(300
|
)
|
|
|
(637
|
)
|
Fed funds purchased and repurchase agreements
|
|
|
4
|
|
|
|
5
|
|
|
|
(1
|
)
|
Other borrowings
|
|
|
37
|
|
|
|
49
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
(1,383
|
)
|
|
|
(204
|
)
|
|
|
(1,179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
$
|
4,932
|
|
|
$
|
4,425
|
|
|
$
|
507
|
|
Non-interest Income, Non-interest Expense,
Provision for Loan Losses, and Income Tax Expense – Nine Month Periods Ended September 30, 2013 and September 30,
2012
Non-interest income includes service charges and fees on
deposit accounts, net gains or losses on sales of securities, and all other items of income, other than interest, resulting from
our business activities. Non-interest income decreased $4.0 million for the nine months ended September 30, 2013 when compared
to the nine months ended September 30, 2012. The decrease was principally a result of an adjustment to the FDIC loss share receivable
due to the resolution of assets above their carrying value, a reduction in the gain on the sales of securities and a reduction
in gains on the sale of other real estate owned during the nine months ended September 30, 2013.
The adjustment to the FDIC loss share receivable
during the nine months ended September 30, 2013 represented an $11.1 million charge related to changes in cash flows on assets
covered by Loss Share Agreements and the resolution of OREO property which reduces the FDIC receivable. This compares to $10.1
million for the nine months ended September 30, 2012. These amounts were partially offset by interest income earned on the FDIC
receivable of $551,000 and $880,000 for the nine months ended September 30, 2013 and 2012, respectively.
During the nine months ended September 30, 2013, the Company
had sales of $33.7 million of available for sale securities for a net gain of $824,000 as compared to sales of $102.5 million of
available for sale securities for a net gain of $1.7 million during the nine months ended September 30, 2012.
During the nine months ended September 30, 2013, the Bank
received proceeds of $8.3 million from the sales of OREO properties with a carrying value of $7.3 million and recorded net gains
on the dispositions of $1.0 million as compared to sales of $23.2 million in OREO properties with a carrying value of $20.2 million
and recorded gains on the dispositions of $3.0 million for the nine month period ended September 30, 2012. Net gains related to
the resolution of OREO covered under loss sharing agreements was $957,000 and $3.1 million for the nine months ended September
30, 2013 and 2012, respectively.
Non-interest expense is comprised of salaries and employee
benefits, occupancy and equipment expense and other operating expenses incurred in supporting our various business activities.
Non-interest expense increased by $1.7 million, or 4.36%, from $38.8 million for the nine months ended September 30, 2012 to $40.5
million for the nine months ended September 30, 2013, due to an increase in salaries and employee benefits and the banking center
disposition expenses period over period.
The following summarizes the changes in non-interest expense
accounts for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012:
|
|
Nine months ended
|
|
|
(Dollars in thousands)
|
|
September 30,
2013
|
|
September 30,
2012
|
|
Difference
|
Salaries and employee benefits
|
|
$
|
18,828
|
|
|
$
|
18,104
|
|
|
$
|
724
|
|
Occupancy and equipment
|
|
|
6,113
|
|
|
|
6,022
|
|
|
|
91
|
|
Data processing
|
|
|
2,895
|
|
|
|
2,790
|
|
|
|
105
|
|
Telephone
|
|
|
670
|
|
|
|
719
|
|
|
|
(49
|
)
|
Stationery and supplies
|
|
|
286
|
|
|
|
386
|
|
|
|
(100
|
)
|
Amortization of intangibles
|
|
|
544
|
|
|
|
506
|
|
|
|
38
|
|
Professional fees
|
|
|
1,273
|
|
|
|
1,177
|
|
|
|
96
|
|
Advertising
|
|
|
200
|
|
|
|
201
|
|
|
|
(1
|
)
|
Merger reorganization expense
|
|
|
1,745
|
|
|
|
1,784
|
|
|
|
(39
|
)
|
Disposal of banking centers
|
|
|
632
|
|
|
|
―
|
|
|
|
632
|
|
Regulatory assessment
|
|
|
1,181
|
|
|
|
1,127
|
|
|
|
54
|
|
OREO expense
|
|
|
1,492
|
|
|
|
968
|
|
|
|
524
|
|
Loan expense
|
|
|
1,221
|
|
|
|
1,797
|
|
|
|
(576
|
)
|
Other
|
|
|
3,402
|
|
|
|
3,209
|
|
|
|
193
|
|
Total non-interest expense
|
|
$
|
40,482
|
|
|
$
|
38,790
|
|
|
$
|
1,692
|
|
Salary and employee benefits increased by approximately
$724,000 to $18.8 million for the nine months ended September 30, 2013 as compared to $18.1 million for the nine months
ended September 30, 2012, primarily the result of employees added from the EBI acquisition, the higher salaries associated
with the addition of new loan production employees and higher incentive compensation related to the increase in loan
production period-over-period. Of the total 44 EBI employees, the Company retained a total of 14 new employees subsequent to
the integration in late September,
Merger reorganization expenses were consistent period over
period. The $1.7 million of expense for the nine months ended September 30, 2013 was due to the merger and integration of EBI which
was completed during the third quarter of 2013. Merger reorganization expense for the nine months ended September 30, 2012 related
to the integration of Old Harbor as well as the merger and integration of AFI. Merger reorganization expenses include legal and
professional, IT integration and conversion, severance and lease termination expense.
Occupancy expense increased by $91,000 to $6.1 million
for the nine months ended September 30, 2013 as compared to $6.0 million for the nine months ended September 30, 2012. The
increase was due to the acquisition of EBI facilities. In connection with the acquisition, the Company closed one EBI
location, relocated one legacy banking center to an existing EBI banking center and reduced our space at a third location.
Additionally, during the nine months ended September 30, 2013, the Company determined to strategically close one banking
center in south Florida in the first quarter of 2014, close one banking center on the west coast of Florida during the fourth
quarter of 2013 and relocate one banking center to a new Miami location during the third quarter 2013. The Company recorded
an expense of $632,000 for the remaining facility lease, write-off of leasehold improvements and other fixed assets and
severance costs. Total estimated annualized occupancy savings due to closure of these banking centers is approximately $1.0
million per year.
OREO expense increased by $524,000 to $1.5 million for the
nine months ended September 30, 2013, as compared to $968,000 for the nine months ended September 30, 2012. The change was due
to an increase in write downs on OREO due to changes in estimated fair values during the nine months ended September 30, 2013 on
properties of $785,000 as compared to $340,000 for the nine months ended September 30, 2012.
Loan expenses primarily include the costs associated with
the collection of non-loss sharing agreements as well as loss sharing assets. Loan expenses decreased by $576,000 from $1.8 million
for the nine months ended September 30, 2012 to $1.2 million for the nine months ended September 30, 2013. The change was primarily
due a reduction in impaired and classified loans period-over-period and a reduction in loans covered under loss sharing agreements.
The provision for loan losses is charged to earnings to
bring the allowance for loan losses to a level deemed adequate by management and is based upon anticipated experience, the
volume and type of lending conducted by us, the amounts of past due and non-performing loans, general economic conditions,
particularly as they relate to our market area, and other factors related to the collectability of our loan portfolio. During
the nine months ended September 30, 2013, we recorded $2.7 million in provision for loan losses as compared to $5.5 million
for the nine months ended September 30, 2012. The decrease in the provision for loan losses between the two periods was
primarily due to a reduction in impaired and classified loans period-over-period and further stabilization of the values on
the underlying collateral on impaired loans. Net charge-offs for the nine months ended September 30, 2013 were $2.6 million
as compared to $8.9 million for the nine months ended September 30, 2012.
We recorded income tax expense of $2.5 million for the nine
months ended September 30, 2013, compared to $1.8 for the nine months ended September 30, 2012. The increase is due to higher pretax
income for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012.
FINANCIAL CONDITION
At September 30, 2013, our total assets were $1.716
billion and our net loans were $1.1 billion or 64.8% of total assets. At December 31, 2012, our total assets were $1.567
billion and our net loans were $903.6 million or 57.7% of total assets. Cash and cash equivalents decreased since December
31, 2012 through the funding of net loan growth, purchases of securities and run-off in higher cost deposits during the nine
months ended September 30, 2013. Net total loans increased by approximately $208.5 million to $1.1 billion at September 30,
2013 due $159.2 million in acquired EBI loans in addition to new loan production and loan advances of $246.0 million offset
by payoffs, resolutions, including transfer to OREO, and principal reductions of $196.8 million.
At September 30, 2013, the allowance for loan losses was
$9.9 million or 0.88% of total loans. At December 31, 2012, the allowance for loan losses was $9.8 million or 1.07% of total loans.
Securities available for sale increased by $81.8 million
to $341.9 million at September 30, 2013 due to purchases of $174.4 million, offset by sales of $33.7 million and maturities and
prepayments of $48.6 million since December 31, 2012.
At September 30, 2013, our total deposits were $1.399 billion,
an increase of $96.2 million compared to $1.303 billion at December 31, 2012, primarily the result of deposits acquired from EBI
offset by reductions in higher cost deposits and normal customer activity. Non-interest bearing deposits represented 33.4% of total
deposits at September 30, 2013 compared to 32.8% at December 31, 2012.
At September 30, 2013, Federal Home Loan Advances were $60.0
million with $35.0 million acquired as part of the EBI merger and $25.0 million of short-term borrowings. The Company repaid the
overnight borrowings in October 2013.
Loan Quality
Management seeks to maintain a high quality loan portfolio
through sound underwriting and lending practices. The banking industry and its regulators view elements of loan concentrations
as a concern that can give rise to deterioration in loan quality if not managed effectively. As of September 30, 2013 and December
31, 2012, approximately 86.2% and 83.9%, respectively, of the total loan portfolio was collateralized by commercial and residential
real estate mortgages.
Loan concentrations are defined as amounts loaned to a number
of borrowers engaged in similar activities, and/or located in the same region, sufficient to cause them to be similarly impacted
by economic or other conditions. We regularly monitor these concentrations in order to consider adjustments in our lending practices
to reflect economic conditions, loan-to-deposit ratios, and industry trends. As of September 30, 2013 and December 31, 2012, there
were no concentration of loans within any portfolio category to any group of borrowers engaged in similar activities or in a similar
business (other than noted below) that exceeded 10% of total loans, except that as of such dates loans collateralized with mortgages
on real estate represented 86.2% and 83.9%, respectively, of the total loan portfolio and were to a broad base of borrowers in
varying activities, businesses, locations and real estate types.
At 1st United, we consider our focus to be in business banking.
Through our business banking activities, we provide commercial purpose real estate secured loans as referenced above and also provide
commercial and residential real estate loans. Business banking also provides loan facilities ranging from commercial purpose non-real
estate secured loans, to lines of credit, Export/Import Bank loans, SBA loans and letters of credit.
Commercial loans, unlike residential real estate loans (which
generally are made on the basis of the borrower’s ability to repay from employment and other income and which are collateralized
by real property with values tending to be more readily ascertainable), are non-real estate secured commercial loans typically
underwritten on the basis of the borrower’s ability to make repayment from the cash flow of its business and generally are
collateralized by a variety of business assets, such as accounts receivable, equipment and inventory. As a result, the availability
of funds for the repayment of commercial loans may be substantially dependent on the success of the business itself, which is subject
to adverse conditions in the economy. Commercial loans are generally repaid from operational earnings, the collection of rent,
or conversion of assets. Commercial loans can also entail certain additional risks when they involve larger loan balances to single
borrowers or a related group of borrowers, resulting in a more concentrated loan portfolio. Further, the collateral underlying
the loans may depreciate over time, cannot be appraised with as much precision as residential real estate, and may fluctuate in
value based on the success of the business.
The following charts illustrate the composition of loans
in our loan portfolio as of September 30, 2013 and December 31, 2012.
Loan Portfolio as of September
30, 2013
(Dollars in thousands)
|
|
Total
Loans
|
|
Total
|
|
Percent of
Loan
Portfolio
|
|
Percent of
Total
Assets
|
Loan Types
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
|
478
|
|
|
$
|
109,821
|
|
|
|
9.79
|
%
|
|
|
6.40
|
%
|
HELOCs and equity
|
|
|
406
|
|
|
|
62,336
|
|
|
|
5.56
|
%
|
|
|
3.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
705
|
|
|
|
136,792
|
|
|
|
12.19
|
%
|
|
|
7.97
|
%
|
Secured – real estate
|
|
|
91
|
|
|
|
55,440
|
|
|
|
4.94
|
%
|
|
|
3.23
|
%
|
Unsecured
|
|
|
58
|
|
|
|
7,949
|
|
|
|
0.71
|
%
|
|
|
0.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
258
|
|
|
|
202,421
|
|
|
|
18.04
|
%
|
|
|
11.80
|
%
|
Non-owner occupied
|
|
|
326
|
|
|
|
448,417
|
|
|
|
39.97
|
%
|
|
|
26.13
|
%
|
Multi-family
|
|
|
71
|
|
|
|
38,073
|
|
|
|
3.39
|
%
|
|
|
2.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
13
|
|
|
|
20,544
|
|
|
|
1.83
|
%
|
|
|
1.20
|
%
|
Improved land
|
|
|
27
|
|
|
|
17,999
|
|
|
|
1.60
|
%
|
|
|
1.05
|
%
|
Unimproved land
|
|
|
21
|
|
|
|
12,457
|
|
|
|
1.12
|
%
|
|
|
0.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
182
|
|
|
|
9,605
|
|
|
|
0.86
|
%
|
|
|
0.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total September 30, 2013
|
|
|
2,636
|
|
|
$
|
1,121,854
|
|
|
|
100.00
|
%
|
|
|
65.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Portfolio as of December
31, 2012
(Dollars in thousands)
|
|
Total
Loans
|
|
Total
|
|
Percent of
Loan
Portfolio
|
|
Percent of
Total
Assets
|
Loan Types
|
|
|
|
|
|
|
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
|
461
|
|
|
$
|
109,562
|
|
|
|
12.00
|
%
|
|
|
6.99
|
%
|
HELOCs and equity
|
|
|
315
|
|
|
|
56,355
|
|
|
|
6.17
|
%
|
|
|
3.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
669
|
|
|
|
127,514
|
|
|
|
13.96
|
%
|
|
|
8.14
|
%
|
Secured – real estate
|
|
|
86
|
|
|
|
43,613
|
|
|
|
4.78
|
%
|
|
|
2.78
|
%
|
Unsecured
|
|
|
43
|
|
|
|
8,371
|
|
|
|
0.92
|
%
|
|
|
0.53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
233
|
|
|
|
187,007
|
|
|
|
20.48
|
%
|
|
|
11.94
|
%
|
Non-owner occupied
|
|
|
268
|
|
|
|
290,858
|
|
|
|
31.85
|
%
|
|
|
18.56
|
%
|
Multi-family
|
|
|
71
|
|
|
|
36,709
|
|
|
|
4.02
|
%
|
|
|
2.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
6
|
|
|
|
3,481
|
|
|
|
0.38
|
%
|
|
|
0.22
|
%
|
Improved land
|
|
|
34
|
|
|
|
20,117
|
|
|
|
2.20
|
%
|
|
|
1.28
|
%
|
Unimproved land
|
|
|
25
|
|
|
|
18,291
|
|
|
|
2.00
|
%
|
|
|
1.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
196
|
|
|
|
11,290
|
|
|
|
1.24
|
%
|
|
|
0.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total December 31, 2012
|
|
|
2,407
|
|
|
$
|
913,168
|
|
|
|
100.00
|
%
|
|
|
58.27
|
%
|
The following chart illustrates the composition of our
construction and land development loan portfolio as of September 30, 2013 and December 31, 2012.
|
|
September 30, 2013
|
|
December 31, 2012
|
(Dollars in thousands)
|
|
Balance
|
|
% of
Total Loans
|
|
Balance
|
|
% of
Total Loans
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
3,008
|
|
|
|
0.27
|
%
|
|
$
|
2,721
|
|
|
|
0.30
|
%
|
Residential spec
|
|
|
870
|
|
|
|
0.08
|
%
|
|
|
—
|
|
|
|
—
|
%
|
Commercial
|
|
|
16,665
|
|
|
|
1.49
|
%
|
|
|
760
|
|
|
|
0.08
|
%
|
Commercial spec
|
|
|
—
|
|
|
|
—
|
%
|
|
|
—
|
|
|
|
—
|
%
|
Land Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
6,402
|
|
|
|
0.57
|
%
|
|
|
4,798
|
|
|
|
0.53
|
%
|
Residential spec
|
|
|
5,560
|
|
|
|
0.49
|
%
|
|
|
11,829
|
|
|
|
1.28
|
%
|
Commercial
|
|
|
6,740
|
|
|
|
0.60
|
%
|
|
|
8,538
|
|
|
|
0.93
|
%
|
Commercial spec
|
|
|
11,755
|
|
|
|
1.05
|
%
|
|
|
13,243
|
|
|
|
1.45
|
%
|
Total
|
|
$
|
51,000
|
|
|
|
4.55
|
%
|
|
$
|
41,889
|
|
|
|
4.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generally, interest on loans accrues and is credited to income based
upon the principal balance outstanding. It is management’s policy to discontinue the accrual of interest income and classify
a loan as non-accrual when principal or interest is past due 90 days or more unless, in the determination of management, the principal
and interest on the loan are well collateralized and in the process of collection. Consumer loans are generally charged-off after
90 days of delinquency unless adequately collateralized and in the process of collection. Loans are not returned to accrual status
until principal and interest payments are brought current and future payments appear reasonably certain. Interest accrued and unpaid
at the time a loan is placed on non-accrual status is charged against interest income.
We have identified certain assets as non-performing and troubled
debt restructuring assets. These assets include non-accruing loans, foreclosed real estate, loans that are contractually past due
90 days or more as to principal or interest payments and still accruing, and troubled debt restructurings. All troubled debt restructurings,
non-accruing loans and loans accruing 90 days or more past due are considered impaired. These assets present more than the normal
risk that we will be unable to eventually collect or realize their full carrying value.
Modifications of terms for our loans and their inclusion
as troubled debt restructurings are based on individual facts and circumstances. Loan modifications that are included as troubled
debt restructurings may involve a reduction of the stated interest rate on the loan, extension of the maturity date at a stated
rate of interest lower than the current market rate for new debt with similar risk, deferral of principal payments and/or forgiveness
of principal, regardless of the period of the modification. Generally, we will allow interest rate reductions for a period of less
than two years after which the loan reverts back to the contractual interest rate. Each of the loans included as troubled debt
restructurings at September 30, 2013 and December 31, 2012 had either an interest rate modification ranging from 6 months to 2
years before reverting back to the original interest rate and/or a deferral of principal payments which can range from 6 to 12
months before reverting back to an amortizing loan. All of the loans were modified due to financial distress of the borrower. The
following is a summary of the unpaid principal balance of loans classified as troubled debt restructurings as of September 30,
2013, and December 31, 2012, which are performing in accordance with their modification agreements.
(Dollars in thousands)
|
|
September 30, 2013
|
|
December 31, 2012
|
Residential real estate
|
|
$
|
841
|
|
|
$
|
605
|
|
Commercial real estate
|
|
|
15,428
|
|
|
|
17,315
|
|
Construction and land development
|
|
|
144
|
|
|
|
2,654
|
|
Commercial
|
|
|
2,782
|
|
|
|
3,699
|
|
Total
|
|
$
|
19,195
|
|
|
$
|
24,273
|
|
|
|
|
|
|
|
|
|
|
The decrease of $5.1 million in performing restructured loans to
$19.2 million at September 30, 2013 from $24.3 million at December 31, 2012 was due to new performing modifications of approximately
$1.9 million offset by approximately $3.6 million in loans that defaulted under the terms of their modification agreement and were
included in nonaccrual loans at September 30, 2013. In addition, there were approximately $3.4 million in repayments and resolutions
of modified loans.
At September 30, 2013, there were 17 loans that were troubled
debt restructured loans with a carrying amount of $7.1 million and specific reserves of $612,000 that were non-accrual and included
in non-accrual loans. At December 31, 2012, there were 12 loans which were troubled debt restructured loans with a carrying amount
of $5.7 million and specific reserves of $66,000 that were non-accrual and included in non-accrual loans. Loans retain their accrual
status at their time of modification. As a result, if the loan is on non-accrual at the time that it is modified, it stays on non-accrual,
and if a loan is accruing at the time of modification, it generally stays on accrual. A loan on non-accrual will be individually
evaluated based on sustained adherence to the terms of the modification agreement prior to being placed on accrual status. Troubled
debt restructurings are considered impaired. The average yield on the loans classified as troubled debt restructurings was 4.37%
and 4.76% at September 30, 2013 and December 31, 2012, respectively.
During the nine months ended September 30, 2013, we had $5.6
million in loans for which we lowered the interest rate prior to maturity to competitively retain a loan. During the year ended
December 31, 2012, we had approximately $11.8 million in loans on which we lowered the interest rate prior to maturity to competitively
retain a loan. Due to the borrowers’ significant deposit balances and/or the overall quality of the loans, these loans were
not included in troubled debt restructurings. In addition, each of these borrowers was not considered to be in financial distress
and the modified terms matched current market terms for borrowers with similar risk characteristics. We had no other loans where
we extended the maturity or forgave principal that were not already included in troubled debt restructurings or otherwise impaired.
During the three months ended September 30, 2013 and 2012,
interest income not recognized on non-accrual loans (but would have been recognized if these loans were current) were approximately
$252,000 and $311,000, respectively. During the nine months ended September 30, 2013 and 2012, interest income not recognized on
non-accrual loans were approximately $777,000 and $1.1 million, respectively.
Our non-performing and troubled debt restructuring assets
at September 30, 2013 and December 31, 2012 were as follows:
|
|
September 30, 2013
|
|
December 31, 2012
|
(Dollars in thousands)
|
|
Assets Not
Subject to
Loss Share
Agreements
|
|
Assets
Subject to
Loss Share
Agreements
|
|
Total
|
|
Assets Not
Subject to
Loss Share
Agreements
|
|
Assets
Subject to
Loss Share
Agreements
|
|
Total
|
Non-Accrual Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
50
|
|
|
$
|
3,272
|
|
|
$
|
3,322
|
|
|
$
|
2,019
|
|
|
$
|
4,085
|
|
|
$
|
6,104
|
|
Home equity lines
|
|
|
498
|
|
|
|
98
|
|
|
|
596
|
|
|
|
796
|
|
|
|
103
|
|
|
|
899
|
|
Commercial real estate
|
|
|
3,994
|
|
|
|
5,777
|
|
|
|
9,771
|
|
|
|
3,430
|
|
|
|
6,393
|
|
|
|
9,823
|
|
Construction and land development
|
|
|
3,715
|
|
|
|
282
|
|
|
|
3,997
|
|
|
|
3,440
|
|
|
|
288
|
|
|
|
3,728
|
|
Commercial
|
|
|
3,600
|
|
|
|
430
|
|
|
|
4,030
|
|
|
|
185
|
|
|
|
539
|
|
|
|
724
|
|
Other
|
|
|
26
|
|
|
|
—
|
|
|
|
26
|
|
|
|
29
|
|
|
|
—
|
|
|
|
29
|
|
Total
|
|
$
|
11,883
|
|
|
$
|
9,859
|
|
|
$
|
21,742
|
|
|
$
|
9,899
|
|
|
$
|
11,408
|
|
|
$
|
21,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing => 90 days past due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Home equity lines
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,457
|
|
|
|
—
|
|
|
|
1,457
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
620
|
|
|
|
32
|
|
|
|
652
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,077
|
|
|
$
|
32
|
|
|
$
|
2,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accruing loans
|
|
$
|
11,883
|
|
|
$
|
9,859
|
|
|
$
|
21,742
|
|
|
$
|
9,899
|
|
|
$
|
11,408
|
|
|
$
|
21,307
|
|
Accruing => 90 days past due
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,077
|
|
|
|
32
|
|
|
|
2,109
|
|
Foreclosed real estate
|
|
|
7,039
|
|
|
|
9,413
|
|
|
|
16,452
|
|
|
|
6,354
|
|
|
|
13,175
|
|
|
|
19,529
|
|
Total non-performing assets
|
|
|
18,922
|
|
|
|
19,272
|
|
|
|
38,194
|
|
|
|
18,330
|
|
|
|
24,615
|
|
|
|
42,945
|
|
Trouble debt restructured loans
|
|
|
17,806
|
|
|
|
1,389
|
|
|
|
19,195
|
|
|
|
23,844
|
|
|
|
429
|
|
|
|
24,273
|
|
Total non-performing assets and troubled debt restructured loans
|
|
$
|
36,728
|
|
|
$
|
20,661
|
|
|
$
|
57,389
|
|
|
$
|
42,174
|
|
|
$
|
25,044
|
|
|
$
|
67,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accruing and accruing => 90 days past due to total loans
|
|
|
1.06
|
%
|
|
|
0.88
|
%
|
|
|
1.94
|
%
|
|
|
1.31
|
%
|
|
|
1.25
|
%
|
|
|
2.56
|
%
|
Total non-performing assets to total assets
|
|
|
1.10
|
%
|
|
|
1.12
|
%
|
|
|
2.23
|
%
|
|
|
1.17
|
%
|
|
|
1.57
|
%
|
|
|
2.74
|
%
|
Total non-performing assets and troubled debt restructured loans to total assets
|
|
|
2.14
|
%
|
|
|
1.20
|
%
|
|
|
3.34
|
%
|
|
|
2.69
|
%
|
|
|
1.60
|
%
|
|
|
4.29
|
%
|
Included in non-accrual loans are purchase credit impaired
loans of $3.4 million for which cash flows could not be reasonably estimated with $3.4 million of these loans subject to Loss Share
Agreements. Of the non-performing assets and performing troubled debt restructured loans at September 30, 2013, $20.7 million were
acquired in the Old Harbor, TBOM and Republic transactions and are all covered under the Loss Share Agreements as compared to $25.0
million at December 31, 2012.
At September 30, 2013, we had approximately $1.1 million
of other real estate owned and non-accrual loans approved for sale and pending closing during the third quarter 2013 for which
no additional losses are expected.
Since December 31, 2012, for non-performing assets not subject
to Loss Share Agreements, we had approximately $687,000 in non-accrual loans which were charged off, $2.4 million were paid off
or principal payments were applied, $2.1 million were transferred to OREO, approximately $7.2 million were added to non-accrual
and $29,000 was returned to accrual status during the nine months ended September 30, 2013.
Past due loans, categorized by loans subject to Loss Share
Agreements and those not subject to Loss Share Agreements, at September 30, 2013 and December 31, 2012, were as follows:
September 30, 2013
(Dollars in thousands)
|
|
Accruing 30 - 59
|
|
Accruing 60-89
|
|
Non-Accrual or
Accrual and
90 days and over
|
|
Total
|
|
|
Loans
Subject to
Loss Share
Agreement
|
|
Loans Not
Subject to
Loss Share
Agreement
|
|
Loans
Subject to
Loss Share
Agreement
|
|
Loans Not
Subject to
Loss Share
Agreement
|
|
Loans
Subject to
Loss Share
Agreement
|
|
Loans Not
Subject to
Loss Share
Agreement
|
|
Loans
Subject
to Loss
Share
Agreement
|
|
Loans Not
Subject to
Loss Share
Agreement
|
Residential Real Estate
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,370
|
|
|
$
|
548
|
|
|
$
|
3,370
|
|
|
$
|
560
|
|
Commercial
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
430
|
|
|
|
3,600
|
|
|
|
430
|
|
|
|
3,602
|
|
Commercial Real Estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,737
|
|
|
|
5,777
|
|
|
|
3,994
|
|
|
|
5,777
|
|
|
|
5,731
|
|
Construction and Land Development
|
|
|
—
|
|
|
|
2,205
|
|
|
|
—
|
|
|
|
—
|
|
|
|
282
|
|
|
|
3,715
|
|
|
|
282
|
|
|
|
5,920
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
|
|
—
|
|
|
|
26
|
|
Total September 30, 2013
|
|
$
|
—
|
|
|
$
|
2,219
|
|
|
$
|
—
|
|
|
$
|
1,737
|
|
|
$
|
9,859
|
|
|
$
|
11,883
|
|
|
$
|
9,859
|
|
|
$
|
15,839
|
|
December 31, 2012
(Dollars in thousands)
|
|
Accruing 30 - 59
|
|
Accruing 60-89
|
|
Non-Accrual or
Accrual and
90 days and over
|
|
Total
|
|
|
Loans
Subject to
Loss Share
Agreement
|
|
Loans Not
Subject to
Loss Share
Agreement
|
|
Loans
Subject to
Loss Share
Agreement
|
|
Loans Not
Subject to
Loss Share
Agreement
|
|
Loans
Subject to
Loss Share
Agreement
|
|
Loans Not
Subject to
Loss Share
Agreement
|
|
Loans
Subject
to Loss
Share
Agreement
|
|
Loans Not
Subject to
Loss Share
Agreement
|
Residential Real Estate
|
|
$
|
1,013
|
|
|
$
|
292
|
|
|
$
|
1,207
|
|
|
$
|
—
|
|
|
$
|
4,188
|
|
|
$
|
2,815
|
|
|
$
|
6,408
|
|
|
$
|
3,107
|
|
Commercial
|
|
|
—
|
|
|
|
200
|
|
|
|
—
|
|
|
|
94
|
|
|
|
571
|
|
|
|
805
|
|
|
|
571
|
|
|
|
1,099
|
|
Commercial Real Estate
|
|
|
581
|
|
|
|
1,873
|
|
|
|
—
|
|
|
|
1,707
|
|
|
|
6,393
|
|
|
|
4,887
|
|
|
|
6,974
|
|
|
|
8,467
|
|
Construction and Land Development
|
|
|
—
|
|
|
|
2,767
|
|
|
|
—
|
|
|
|
—
|
|
|
|
288
|
|
|
|
3,440
|
|
|
|
288
|
|
|
|
6,207
|
|
Consumer and other
|
|
|
—
|
|
|
|
99
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29
|
|
|
|
—
|
|
|
|
128
|
|
Total December 31, 2012
|
|
$
|
1,594
|
|
|
$
|
5,231
|
|
|
$
|
1,207
|
|
|
$
|
1,801
|
|
|
$
|
11,440
|
|
|
$
|
11,976
|
|
|
$
|
14,241
|
|
|
$
|
19,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due loans subject to Loss Share Agreements decreased by
$4.4 million from $14.2 million at December 31, 2012 to $9.9 million at September 30, 2013. Past due loans not subject to
Loss Share Agreements decreased by $3.2 million from $19.0 million at December 31, 2012 to $15.8 million at September 30,
2013. The change in past due loans covered under Loss Share Agreements was due to a decrease in accruing loans which were
past due less than 90 days by $2.8 million and a decrease in loans past due greater than 90 days and on non-accrual of $1.6
million as the Company continues to work towards resolutions and work out solutions for these assets. A decrease in loans
30-59 days past due was also noted for loans not covered under Loss Share Agreements which declined by $3.0 million during
the nine months ended September 30, 2013 with minor decrease in the 60-89 days past due category and non-accrual and 90 days
or more past due category.
Certain Acquired Loans
: As part of business acquisitions,
the Company evaluated each of the acquired loans under ASC 310-30 to determine whether (1) there was evidence of credit deterioration
since origination, and (2) it was probable that we would not collect all contractually required payment receivable. The Company
determined the best indicator of such evidence was an individual loan’s payment status and/or whether a loan was determined
to be classified by us based on our review of each individual loan. Therefore, generally each individual loan that should have
been or was on nonaccrual at the acquisition date, loans contractually past due 60 days or more, and each individual loan that
was classified by us were included subject to ASC 310-30. These loans were recorded at the discounted expected cash flows of the
individual loan and are currently disclosed in Note 4.
Loans which were evaluated under ASC 310-30, and where the
timing and amount of cash flows can be reasonably estimated, were accounted for in accordance with ASC 310-30-35. The Company applies
the interest method for these loans under this subtopic and the loans are excluded from non-accrual. If at acquisition we identified
loans that we could not reasonably estimate cash flows or if subsequent to acquisition such cash flows could not be estimated,
such loans would be included in non-accrual. These acquired loans are recorded at the allocated fair value, such that there is
no carryover of the seller’s allowance for loan losses. Such acquired loans are accounted for individually. The Company estimates
the amount and timing of expected cash flows for each purchased loan, and the expected cash flows in excess of the allocated fair
value is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual
principal and interest over expected cash flows is not recorded (non-accretable difference). Over the life of the loan, expected
cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded
through the allowance for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized
as part of future interest income. The Company had $19.6 million of loans evaluated under ASC 310-30 which were on nonaccrual and
past due greater than 90 days in accordance with their loan documents but were performing in accordance with their estimated cash
flows. These loans are excluded from the past due categories.
Impaired Loans
The following tables present loans individually evaluated
for impairment by class of loan as September 30, 2013 and December 31, 2012.
|
|
Recorded Investment in Impaired Loans
|
|
|
With Allowance
|
|
With No Allowance
|
September 30, 2013
|
|
Loans Subject to
Loss
Share Agreements
|
|
Loans Not Subject to
Loss
Share Agreements
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to Loss Share
Agreements
|
(Dollars in thousands)
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
|
Recorded
Investment
|
|
Recorded
Investment
|
Residential Real Estate
|
|
$
|
1,360
|
|
|
$
|
255
|
|
|
$
|
687
|
|
|
$
|
247
|
|
|
$
|
955
|
|
|
$
|
596
|
|
Commercial
|
|
|
388
|
|
|
|
73
|
|
|
|
3,835
|
|
|
|
1,095
|
|
|
|
—
|
|
|
|
2,210
|
|
Commercial Real Estate
|
|
|
3,051
|
|
|
|
431
|
|
|
|
5,544
|
|
|
|
346
|
|
|
|
1,393
|
|
|
|
12,883
|
|
Construction and Land Development
|
|
|
—
|
|
|
|
—
|
|
|
|
528
|
|
|
|
275
|
|
|
|
—
|
|
|
|
3,332
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total September 30, 2013
|
|
$
|
4,799
|
|
|
$
|
759
|
|
|
$
|
10,594
|
|
|
$
|
1,963
|
|
|
$
|
2,348
|
|
|
$
|
19,021
|
|
|
|
Recorded Investment in Impaired Loans
|
December 31, 2012
|
|
With Allowance
|
|
With No Allowance
|
|
|
Loans Subject to
Loss
Share Agreements
|
|
Loans Not Subject to
Loss
Share Agreements
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to Loss Share
Agreements
|
(Dollars in thousands)
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
|
Recorded
Investment
|
|
Recorded
Investment
|
Residential Real Estate
|
|
$
|
1,454
|
|
|
$
|
395
|
|
|
$
|
549
|
|
|
$
|
79
|
|
|
$
|
1,065
|
|
|
$
|
2,757
|
|
Commercial
|
|
|
473
|
|
|
|
122
|
|
|
|
1,453
|
|
|
|
388
|
|
|
|
—
|
|
|
|
2,242
|
|
Commercial Real Estate
|
|
|
3,880
|
|
|
|
506
|
|
|
|
7,220
|
|
|
|
622
|
|
|
|
648
|
|
|
|
12,258
|
|
Construction and Land Development
|
|
|
—
|
|
|
|
—
|
|
|
|
2,654
|
|
|
|
1,002
|
|
|
|
—
|
|
|
|
3,440
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total December 31, 2012
|
|
$
|
5,807
|
|
|
$
|
1,023
|
|
|
$
|
11,876
|
|
|
$
|
2,091
|
|
|
$
|
1,713
|
|
|
$
|
20,697
|
|
Overall impaired loans decreased by $3.3 million from $40.1
million at December 31, 2012 to $36.8 million at September 30, 2013. Impaired loans subject to loss share agreements decreased
by $373,000. Impaired loans not subject to loss share agreements decreased by $3.0 million from December 31, 2012 to September
30, 2013 primarily due to resolution, including sales, payoffs and transfer to other real estate owned.
Allowance for Loan Losses
At September 30, 2013, the allowance for loan losses
was $9.9 million or 0.88% of total loans. Inclusive within total loans is $159.2 million in loans acquired from EBI on July
1, 2013 which are recorded at fair value and for which no allowance was allocated at September 30, 2013. Excluding those
loans, the allowance for loan losses as a percentage of total loans would be 1.02%. At December 31, 2012, the allowance for
loan losses was $9.8 million or 1.07% of total loans. At December 31, 2012, we had $11.9 million of impaired loans not
covered by Loss Share Agreements with an allocated allowance for loan loss of $2.1 million, as compared to $10.6 million of
impaired loans not covered by Loss Share Agreements with an allocated allowance of $2.0 million at September 30, 2013.
Charge-offs for the nine months ended September 30, 2013 were $2.6 million of which $1.5 million was provided for as of
December 31, 2012. In addition, overall loans graded special mention and substandard not covered by Loss Share Agreements
decreased by $21.2 million (or 31.98%) from December 31, 2012 to September 30, 2013 which had a positive impact on the
general allowance for loan losses. In originating loans, we recognize that credit losses will be experienced and the risk of
loss will vary with, among other things: general economic conditions; the type of loan being made; the creditworthiness of
the borrower and guarantors over the term of the loan; insurance; whether the loan is covered by a loss share agreement; and,
in the case of a collateralized loan, the quality of the collateral for such a loan. The allowance for loan losses represents
our estimate of the amount necessary to provide for probable incurred losses in the loan portfolio. In making this
determination, we analyze the ultimate collectability of the loans in our portfolio, feedback provided by internal loan
staff, the independent loan review function and information provided by examinations performed by
regulatory agencies.
The allowance for loan losses is evaluated at the portfolio
segment level using the same methodology for each segment. The historical net losses for a rolling three year period is the basis
for the general reserve for each segment which is adjusted for each of the same qualitative factors (i.e., nature and volume of
portfolio, economic and business conditions, classification, past due and non-accrual trends) evaluated by each individual segment.
Impaired loans and related specific reserves for each of the segments are also evaluated using the same methodology for each
segment. The qualitative factors totaled approximately 8 and 11 basis points of the allowance for loan losses as of both September
30, 2013 and December 31, 2012, respectively.
A loan is 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 agreement. Loans for which the terms have been modified and for which the borrower
is experiencing financial difficulties are considered troubled debt restructurings and generally classified as impaired.
Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays (loan payments made within 90 days of the due date) and payment shortfalls (which
are tracked as past due amounts) generally are not classified as impaired. Management determines the significance of payment delays
and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the
borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, the borrower’s
and guarantor’s financial condition and the amount of the shortfall in relation to the principal and interest owed.
Charge-offs of loans are made by portfolio segment at the
time that the collection of the full principal, in management’s judgment, is doubtful. This methodology for determining charge-offs
is consistently applied to each segment.
On a quarterly basis, management reviews the adequacy of
the allowance for loan losses. Commercial credits are graded by risk management and the loan review function validates the assigned
credit risk grades. In the event that a loan is downgraded, it is included in the allowance analysis at the lower grade. To establish
the appropriate level of the allowance, we review and classify loans (including all impaired and non-performing loans) as to potential
loss exposure.
Our analysis of the allowance for loan losses consists of
three components: (i) specific credit allocation established for expected losses resulting from analysis developed through specific
credit allocations on individual loans for which the recorded investment in the loan exceeds the fair value; (ii) general portfolio
allocation based on historical loan loss experience for each loan category; and (iii) qualitative reserves based on general economic
conditions as well as specific economic factors in the markets in which we operate.
The specific credit allocation component of the allowance
for loan losses is based on a regular analysis of loans where the loan is determined to be impaired as determined by management.
The amount of impairment, if any, is determined based on either the present value of expected future cash flows discounted at the
loan’s effective interest rate, the market price of the loan, or, if the loan is collateral dependent, the fair value of
the underlying collateral less cost of sale. Third party appraisals are used to determine the fair value of underlying collateral.
At a minimum a new appraisal is obtained annually for all impaired loans based on an “as is” value. Generally no adjustments,
other than a reduction for estimated disposal costs, are made by the Company to third party appraisals to determine the fair value
of the assets. The impact on the allowance for loan losses for new appraisals is reflected in the period the appraisal is received.
A loan may also be classified as substandard and not be classified as impaired by management. A loan may be classified as substandard
by management if, for example, the primary source of repayment is insufficient, the financial condition of the borrower and/or
guarantors has deteriorated or there are chronic delinquencies.
The following is a summary of our loan classifications
at September 30, 2013 and December 31, 2012:
|
|
|
|
Loans Subject to Loss Share
Agreements
|
|
Loans Not Subject to Loss Share
Agreements
|
(Dollars in thousands)
|
|
Total
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
$
|
172,157
|
|
|
$
|
68,812
|
|
|
$
|
1,205
|
|
|
$
|
3,370
|
|
|
$
|
89,073
|
|
|
$
|
3,127
|
|
|
$
|
6,570
|
|
Commercial
|
|
|
200,181
|
|
|
|
29,686
|
|
|
|
336
|
|
|
|
430
|
|
|
|
160,638
|
|
|
|
3,116
|
|
|
|
5,975
|
|
Commercial Real Estate
|
|
|
688,911
|
|
|
|
143,800
|
|
|
|
8,124
|
|
|
|
5,777
|
|
|
|
512,257
|
|
|
|
5,782
|
|
|
|
13,171
|
|
Construction and Land Development:
|
|
|
51,000
|
|
|
|
7,369
|
|
|
|
—
|
|
|
|
282
|
|
|
|
36,548
|
|
|
|
2,678
|
|
|
|
4,123
|
|
Consumer and other
|
|
|
9,605
|
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,972
|
|
|
|
506
|
|
|
|
123
|
|
Total September 30,
2013
|
|
$
|
1,121,854
|
|
|
$
|
249,671
|
|
|
$
|
9,665
|
|
|
$
|
9,859
|
|
|
$
|
807,488
|
|
|
$
|
15,209
|
|
|
$
|
29,962
|
|
|
|
|
|
Loans Subject to Loss Share
Agreements
|
|
Loans Not Subject to Loss Share
Agreements
|
(Dollars in thousands)
|
|
Total
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
$
|
165,917
|
|
|
$
|
80,215
|
|
|
$
|
2,578
|
|
|
$
|
4,188
|
|
|
$
|
65,484
|
|
|
$
|
7,927
|
|
|
$
|
5,525
|
|
Commercial
|
|
|
179,498
|
|
|
|
32,080
|
|
|
|
405
|
|
|
|
540
|
|
|
|
135,488
|
|
|
|
6,516
|
|
|
|
4,469
|
|
Commercial Real Estate
|
|
|
514,574
|
|
|
|
182,009
|
|
|
|
10,264
|
|
|
|
6,393
|
|
|
|
284,184
|
|
|
|
17,563
|
|
|
|
14,161
|
|
Construction and Land Development:
|
|
|
41,889
|
|
|
|
7,921
|
|
|
|
—
|
|
|
|
505
|
|
|
|
23,944
|
|
|
|
3,138
|
|
|
|
6,381
|
|
Consumer and other
|
|
|
11,290
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,552
|
|
|
|
584
|
|
|
|
143
|
|
Total December 31, 2012
|
|
$
|
913,168
|
|
|
$
|
302,236
|
|
|
$
|
13,247
|
|
|
$
|
11,626
|
|
|
$
|
519,652
|
|
|
$
|
35,728
|
|
|
$
|
30,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All non-accrual loans are included in substandard loans.
Loans classified as troubled debt restructured loans, which are performing under the terms of their modification agreements, are
credit graded based on the individual qualities and payment performance of the loan under the terms of the modification agreement.
At September 30, 2013 and December 31, 2012, loans which were classified as troubled debt restructured loans which were performing
under the terms of their modification agreements and were credit graded as substandard were $7.1 million and $11.9 million, respectively.
Substandard loans totaled $39.8 million at September
30, 2013 (of which $9.9 million were subject to the Loss Share Agreements) and $42.3 million at December 31, 2012 (of which
$11.6 million were subject to the Loss Share Agreements). The decrease of $2.5 million since December 31, 2012 was primarily
due to the resolution of loans not covered under Loss Share Agreements of $717,000 through sale, payoffs, charge-offs or
foreclosure and transfer to other real estate owned during the period offset by the inclusion of one new relationship as
substandard during the quarter ending September 30, 2013. There was a decrease of $1.8 million in the total substandard loans
covered under Loss Share Agreements period-over-period. We regularly evaluate classifications of loans and recommend either
upgrades or downgrades as events or circumstances warrant. In addition, at September 30, 2013, we had $36.8 million (or 3.3%
of total loans) of loans classified as impaired. This compares to $40.1 million (or 4.4% of total loans) at December 31,
2012. The decrease was primarily due to the net resolution of loans, including sales, payoffs and transfers to other real
estate owned during the year. At September 30, 2013 and December 31, 2012, the specific credit allocation included in the
allowance for loan losses for loans impaired was approximately $2.7 million and $3.1 million, respectively. The specific
credit allocation for impaired loans is adjusted based on appraisals if collateral dependent or anticipated cash flows if not
collateral dependent. All loans classified as substandard that are collateralized by real estate are also re-appraised at a
minimum on an annual basis.
We also have loans classified as Special Mention. We classify
loans as Special Mention if there are declining trends in the borrower’s business, questions regarding condition or value
of the collateral, or other weaknesses. At September 30, 2013, we had $24.9 million (2.22% of outstanding loans), which included
$9.7 million in loans subject to Loss Share Agreements, which compares to $49.0 million (5.40% of outstanding loans) of which $13.2
million were subject to Loss Share Agreements at December 31, 2012. Special mention loans not subject to Loss Share Agreements
were $15.2 million at September 30, 2013, a decrease of $20.5 million from December 31, 2012. The decrease is attributable to resolution
of loans, including sales, payoffs and downgrades to substandard as well as ongoing reviews and upgrading of loans classified as
special mention. If there is further deterioration on these loans, they may be classified substandard in the future, and depending
on whether the loan is considered impaired, a specific credit allocation may be needed resulting in increased provisions for loan
losses. Improvement in the underlying loan qualities can also provide for an upgrading of a loan to a watch category.
We determine the general portfolio allocation component of
the allowance for loan losses statistically using a loss analysis that examines historical loan loss experience adjusted for current
environmental factors. We perform the loss analysis quarterly and update loss factors regularly based on actual experience. The
general portfolio allocation element of the allowance for loan losses also includes consideration of the amounts necessary for
concentrations and changes in portfolio mix and volume.
We base the allowance for loan losses on estimates and ultimate
realized losses may vary from current estimates. We review these estimates quarterly, and as adjustments, either positive or negative,
become necessary, we make a corresponding increase or decrease in the provision for loan losses. The methodology used to determine
the adequacy of the allowance for loan losses is consistent with prior years and there were no reallocations.
Management remains watchful of credit quality issues. Should
the economic climate deteriorate from current levels, borrowers may experience difficulty repaying loans and the level of non-performing
loans, charge-offs and delinquencies could rise and require further increases in loan loss provisions.
During the three and nine months ended September 30, 2013,
we recorded $745,000 and $2.7 million, respectively, in provision for loan losses primarily as a result of charge-offs during the
periods offset by a reduction in classified and non-accrual loans and a leveling of real estate values on the underlying collateral
of impaired loans.
Activity in the allowance for loan losses for the three
months ended September 30, 2013 was as follows:
(Dollars in thousands)
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, July 1, 2013
|
|
$
|
3,619
|
|
|
$
|
2,244
|
|
|
$
|
3,551
|
|
|
$
|
608
|
|
|
$
|
41
|
|
|
$
|
10,063
|
|
Provisions for loan losses
|
|
|
258
|
|
|
|
(23
|
)
|
|
|
544
|
|
|
|
(34
|
)
|
|
|
—
|
|
|
|
745
|
|
Loans charged off
|
|
|
(514
|
)
|
|
|
(90
|
)
|
|
|
(322
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(926
|
)
|
Recoveries
|
|
|
13
|
|
|
|
1
|
|
|
|
9
|
|
|
|
2
|
|
|
|
—
|
|
|
|
25
|
|
Ending Balance, September 30, 2013
|
|
$
|
3,376
|
|
|
$
|
2,132
|
|
|
$
|
3,782
|
|
|
$
|
576
|
|
|
$
|
41
|
|
|
$
|
9,907
|
|
Activity in the allowance for loan losses for the three
months ended September 30, 2012 was as follows:
(Dollars in thousands)
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, July 1, 2012
|
|
$
|
2,786
|
|
|
$
|
1,412
|
|
|
$
|
3,440
|
|
|
$
|
1,680
|
|
|
$
|
38
|
|
|
$
|
9,356
|
|
Provisions for loan losses
|
|
|
113
|
|
|
|
510
|
|
|
|
655
|
|
|
|
(238
|
)
|
|
|
10
|
|
|
|
1,050
|
|
Loans charged off
|
|
|
(239
|
)
|
|
|
(351
|
)
|
|
|
(526
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,116
|
)
|
Recoveries
|
|
|
4
|
|
|
|
61
|
|
|
|
1
|
|
|
|
2
|
|
|
|
—
|
|
|
|
68
|
|
Ending Balance, September 30, 2012
|
|
$
|
2,664
|
|
|
$
|
1,632
|
|
|
$
|
3,570
|
|
|
$
|
1,444
|
|
|
$
|
48
|
|
|
$
|
9,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for loan losses for the nine months
ended September 30, 2013 was as follows:
(Dollars in thousands)
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, January 1, 2013
|
|
$
|
2,735
|
|
|
$
|
1,869
|
|
|
$
|
3,398
|
|
|
$
|
1,745
|
|
|
$
|
41
|
|
|
$
|
9,788
|
|
Provisions for loan losses
|
|
|
1,107
|
|
|
|
458
|
|
|
|
1,492
|
|
|
|
(366
|
)
|
|
|
4
|
|
|
|
2,695
|
|
Loans charged off
|
|
|
(514
|
)
|
|
|
(196
|
)
|
|
|
(1,120
|
)
|
|
|
(898
|
)
|
|
|
(16
|
)
|
|
|
(2,744
|
)
|
Recoveries
|
|
|
48
|
|
|
|
1
|
|
|
|
12
|
|
|
|
95
|
|
|
|
12
|
|
|
|
168
|
|
Ending Balance, September 30, 2013
|
|
$
|
3,376
|
|
|
$
|
2,132
|
|
|
$
|
3,782
|
|
|
$
|
576
|
|
|
$
|
41
|
|
|
$
|
9,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for loan losses for the nine months
ended September 30, 2012 was as follows:
(Dollars in thousands)
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, January 1, 2012
|
|
$
|
3,111
|
|
|
$
|
1,945
|
|
|
$
|
5,302
|
|
|
$
|
2,409
|
|
|
$
|
69
|
|
|
$
|
12,836
|
|
Provisions for loan losses
|
|
|
4,940
|
|
|
|
504
|
|
|
|
1,065
|
|
|
|
(988
|
)
|
|
|
(71
|
)
|
|
|
5,450
|
|
Loans charged off
|
|
|
(5,421
|
)
|
|
|
(992
|
)
|
|
|
(2,905
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,318
|
)
|
Recoveries
|
|
|
34
|
|
|
|
175
|
|
|
|
108
|
|
|
|
23
|
|
|
|
50
|
|
|
|
390
|
|
Ending Balance, September 30, 2012
|
|
$
|
2,664
|
|
|
$
|
1,632
|
|
|
$
|
3,570
|
|
|
$
|
1,444
|
|
|
$
|
48
|
|
|
$
|
9,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in the overall allowance for construction and land
development loans from $1.4 million at September 30, 2012 to $576,000 at September 30, 2013 related to the improvement in historical
loss factors over the previous period and the resolution and charge-off of one impaired construction and land development loan
during the quarter ended March 31, 2013, which was specifically provided for at December 31, 2012. In addition, excluding the $2.6
million in acquired EBI loans, the balance in loans held as construction and land development decreased from September 30, 2012
to September 30, 2013 by $3.6 million which was primarily driven by resolutions and payments during the year.
The increase in the allowance related to commercial loans
from $2.7 million for the quarter ended September 30, 2012 to $3.4 million of the quarter ended September 30, 2013 was due to the
movement of loans from the general to specific portions of the allowance calculation which resulted in an increase in specific
reserves on loans individually evaluated for impairment. The overall general loss factors associated with this category have remained
relatively constant throughout the period.
The increase in the allowance for loan losses related to
residential real estate loans from $1.6 million at September 30, 2012 to $2.1 million at September 30, 2013 was due to an increase
in specific reserves on impaired loans, the increase in the qualitative factor on the HELOC portion of this category period-over-period
and the increase in the loss factor related to residential loans period over period. Qualitative factors are periodically evaluated
by the Company and adjusted for internal and external environmental factors.
The following tables reflect the allowance allocation per
loan category and percent of loans in each category to total loans as of September 30, 2013 and December 31, 2012:
As of September 30, 2013:
(Dollars in thousands)
|
|
Commercial
|
|
Residential
Real
Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Specific Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
1,168
|
|
|
$
|
502
|
|
|
$
|
777
|
|
|
$
|
275
|
|
|
$
|
—
|
|
|
$
|
2,722
|
|
Purchase credit impaired loans
|
|
|
466
|
|
|
|
157
|
|
|
|
357
|
|
|
|
—
|
|
|
|
—
|
|
|
|
980
|
|
Total specific reserves
|
|
|
1,634
|
|
|
|
659
|
|
|
|
1,134
|
|
|
|
275
|
|
|
|
—
|
|
|
|
3,702
|
|
General reserves
|
|
|
1,742
|
|
|
|
1,473
|
|
|
|
2,648
|
|
|
|
301
|
|
|
|
41
|
|
|
|
6,205
|
|
Total
|
|
$
|
3,376
|
|
|
$
|
2,132
|
|
|
$
|
3,782
|
|
|
$
|
576
|
|
|
$
|
41
|
|
|
$
|
9,907
|
|
Total Loans
|
|
$
|
200,181
|
|
|
$
|
172,157
|
|
|
$
|
688,911
|
|
|
$
|
51,000
|
|
|
$
|
9,605
|
|
|
$
|
1,121,854
|
|
Allowance as percent of loans per category as of September 30, 2013
|
|
|
1.69
|
%
|
|
|
1.24
|
%
|
|
|
0.55
|
%
|
|
|
1.13
|
%
|
|
|
0.43
|
%
|
|
|
0.88
|
%%
|
As of December 31, 2012:
(Dollars in thousands)
|
|
Commercial
|
|
Residential
Real
Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Specific Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
510
|
|
|
$
|
474
|
|
|
$
|
1,128
|
|
|
$
|
1,002
|
|
|
$
|
—
|
|
|
$
|
3,114
|
|
Purchase credit impaired loans
|
|
|
355
|
|
|
|
359
|
|
|
|
306
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,020
|
|
Total specific reserves
|
|
|
865
|
|
|
|
833
|
|
|
|
1,434
|
|
|
|
1,002
|
|
|
|
—
|
|
|
|
4,134
|
|
General reserves
|
|
|
1,870
|
|
|
|
1,036
|
|
|
|
1,964
|
|
|
|
743
|
|
|
|
41
|
|
|
|
5,654
|
|
Total
|
|
$
|
2,735
|
|
|
$
|
1,869
|
|
|
$
|
3,398
|
|
|
$
|
1,745
|
|
|
$
|
41
|
|
|
$
|
9,788
|
|
Total Loans
|
|
$
|
179,498
|
|
|
$
|
165,917
|
|
|
$
|
514,574
|
|
|
$
|
41,889
|
|
|
$
|
11,290
|
|
|
$
|
913,168
|
|
Allowance as percent of loans per category as of December 31,
2012
|
|
|
1.52
|
%
|
|
|
1.13
|
%
|
|
|
0.66
|
%
|
|
|
4.17
|
%
|
|
|
0.36
|
%
|
|
|
1.07
|
%
|
The overall general reserve as a percentage of loans collectively
evaluated for impairment was 0.61% at September 30, 2013 as compared to 0.72% at December 31, 2012. The 11 basis point decrease
in this general reserve ratio as compared to December 31, 2012 was a result of an increase in loans due to the acquisition
of EBI for which no allowance was allocated at September 30, 2013 and which accounted for the 11 basis points of the decrease since
December 31, 2012. The overall general reserve increased by $551,000 from $5.7 million at December 31, 2012 to $6.2 million at
September 30, 2013 and is consistent with an increase in originated loans net of payoffs, resolutions and principal payments of
approximately $49.2 million (excluding the EBI acquisition) since December 31, 2012.
Other Real Estate Owned
Real estate acquired by us as a result of foreclosure or
by deed in lieu of foreclosure is classified as OREO. Write-downs in OREO are recorded at the time management believes additional
deterioration in value has occurred and are charged to non-interest expense. At September 30, 2013, we had $16.5 million of OREO
property, of which $8.5 million was a result of the Old Harbor acquisition, $448,000 was a result of the TBOM acquisition and $419,000
as a result of the Republic acquisition and all are covered by their respective Loss Share Agreements. At December 31, 2012, we
had $19.5 million of OREO property, of which $13.2 million were a result of the Old Harbor, TBOM and Republic acquisitions and
were covered under the respective Loss Share Agreements.
The following is a summary of other real estate owned as
of September 30, 2013 and December 31, 2012:
|
|
September 30,
2013
|
|
December 31,
2012
|
(Dollars in thousands)
|
|
Assets Not Subject to Loss Share Agreements
|
|
Assets Subject to Loss Share Agreements
|
|
Total
|
|
Assets Not Subject to Loss Share Agreements
|
|
Assets Subject to Loss Share Agreements
|
|
Total
|
Commercial real estate
|
|
$
|
5,010
|
|
|
$
|
7,450
|
|
|
$
|
12,460
|
|
|
$
|
5,708
|
|
|
$
|
10,372
|
|
|
$
|
16,080
|
|
Residential real estate
|
|
|
2,029
|
|
|
|
1,963
|
|
|
|
3,992
|
|
|
|
646
|
|
|
|
2,803
|
|
|
|
3,449
|
|
Total
|
|
$
|
7,039
|
|
|
$
|
9,413
|
|
|
$
|
16,452
|
|
|
$
|
6,354
|
|
|
$
|
13,175
|
|
|
$
|
19,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2013, we had $1.1 million of OREO under contract
for sale, all of which is covered by Loss Share Agreements.
Investment Securities
We manage our securities available for sale portfolio, which
represented 22.91% of our average earning asset base for the nine months ended September 30, 2013, as compared to 16.39% at year
ended December 31, 2012, to minimize interest rate risk, maintain sufficient liquidity, and maximize return. The portfolio includes
treasury security, municipal securities, residential mortgage-backed securities, and government agency collateralized mortgage
obligations. Our financial planning anticipates income streams generated by the securities portfolio based on normal maturity,
pay downs and reinvestment. During the nine months ended September 30, 2013, the Company utilized excess liquidity to purchase
$174.4 million in agency investment and municipal securities.
FDIC Loss Share Receivable
The FDIC Loss Share Receivable represents the estimated amounts
due from the FDIC related to Loss Share Agreements. The receivable represents the discounted value of the FDIC’s portion
of estimated losses expected to be realized on covered assets. The receivable is reviewed quarterly and adjusted for any changes
in expected cash flows based on recent performance and expectations for future performance of covered assets. During the nine months
ended September 30, 2013, the Company received cash of $4.9 million from the FDIC, recorded an adjustment of $11.1 million related
to the changes in estimated cash flows of covered assets which were partially offset by the recorded discount accretion of $551,000.
Deposits
Total deposits increased by $96.2 million from December 31,
2012 to total deposits of $1.40 billion at September 30, 2013, primarily due to deposits acquired in the EBI acquisition offset
by the run-off of higher cost time deposits and normal customer activity. At September 30, 2013, non-interest bearing deposits
represented approximately 33.4% of deposits compared to 32.8% at December 31, 2012. The Bank also participates in the CDARS program
(reciprocal) with balances of $38.2 million at September 30, 2013 compared to $24.9 million at December 31, 2012.
CAPITAL RESOURCES
We are subject to regulatory capital requirements administered
by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures
of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory
action.
The Federal banking regulatory authorities have adopted certain
“prompt corrective action” rules with respect to depository institutions. The rules establish five capital tiers: “well
capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,”
and “critically undercapitalized.” The various federal banking regulatory agencies have adopted regulations to implement
the capital rules by, among other things, defining the relevant capital measures for the five capital categories. An institution
is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based
capital ratio of 6% or greater, and a Tier 1 leverage ratio of 5% or greater and is not subject to a regulatory order, agreement,
or directive to meet and maintain a specific capital level. At September 30, 2013, the Company met the capital ratios of a “well
capitalized” financial holding company with a total risk-based capital ratio of 15.82%, a Tier 1 risk-based capital ratio
of 14.91%, and a Tier 1 leverage ratio of 9.81%. Depository institutions which fall below the “adequately capitalized”
category generally are prohibited from making any capital distribution, are subject to growth limitations, and are required to
submit a capital restoration plan. There are a number of requirements and restrictions that may be imposed on institutions treated
as “significantly undercapitalized” and, if the institution is “critically undercapitalized,” the banking
regulatory agencies have the right to appoint a receiver or conservator. On July 2, 2013, the Federal banking regulatory authorities
announced a new capital framework that requires the Company to comply by January 1, 2015. We are evaluating the impact of these
changes to regulatory capital.
The following represents Bancorp’s and 1
st
United’s regulatory capital ratios as of September 30, 2013 and December 31, 2012:
(Dollars in thousands)
|
|
Actual
|
|
Minimum for
Well Capitalized
|
|
Minimum Capital
Adequacy
|
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
As of September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk-weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
172,885
|
|
|
|
15.82
|
%
|
|
$
|
109,303
|
|
|
|
10.00
|
%
|
|
$
|
87,442
|
|
|
|
8.00
|
%
|
1st United
|
|
|
156,352
|
|
|
|
14.34
|
%
|
|
|
109,040
|
|
|
|
10.00
|
%
|
|
|
87,232
|
|
|
|
8.00
|
%
|
Tier I capital to risk-weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
162,978
|
|
|
|
14.91
|
%
|
|
|
65,582
|
|
|
|
6.00
|
%
|
|
|
43,721
|
|
|
|
4.00
|
%
|
1st United
|
|
|
146,445
|
|
|
|
13.43
|
%
|
|
|
65,424
|
|
|
|
6.00
|
%
|
|
|
43,616
|
|
|
|
4.00
|
%
|
Tier I capital to total average assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
162,978
|
|
|
|
9.81
|
%
|
|
|
88,034
|
|
|
|
5.00
|
%
|
|
|
66,427
|
|
|
|
4.00
|
%
|
1st United
|
|
|
146,445
|
|
|
|
8.83
|
%
|
|
|
82,888
|
|
|
|
5.00
|
%
|
|
|
66,310
|
|
|
|
4.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk-weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
180,143
|
|
|
|
22.43
|
%
|
|
$
|
80,301
|
|
|
|
10.00
|
%
|
|
$
|
64,241
|
|
|
|
8.00
|
%
|
1st United
|
|
|
161,884
|
|
|
|
20.27
|
%
|
|
|
79,854
|
|
|
|
10.00
|
%
|
|
|
63,883
|
|
|
|
8.00
|
%
|
Tier I capital to risk-weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
170,355
|
|
|
|
21.21
|
%
|
|
|
48,180
|
|
|
|
6.00
|
%
|
|
|
32,120
|
|
|
|
4.00
|
%
|
1st United
|
|
|
152,280
|
|
|
|
19.07
|
%
|
|
|
47,912
|
|
|
|
6.00
|
%
|
|
|
31,942
|
|
|
|
4.00
|
%
|
Tier I capital to total average assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
170,355
|
|
|
|
11.44
|
%
|
|
|
74,483
|
|
|
|
5.00
|
%
|
|
|
59,586
|
|
|
|
4.00
|
%
|
1st United
|
|
|
152,280
|
|
|
|
10.25
|
%
|
|
|
74,252
|
|
|
|
5.00
|
%
|
|
|
59,402
|
|
|
|
4.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has an effective shelf registration statement which
may be drawn on from time to time if additional capital is required.
The Company paid a special dividend of $0.10 per common share
or $3.4 million in total to holders of record during the year ended December 31, 2012. The Company paid quarterly cash dividends
of $0.01 per share on May 8, 2013 and August 15, 2013.
CASH FLOWS AND LIQUIDITY
Our primary sources of cash are deposit growth, maturities
and amortization of loans and securities, operations, and borrowing. We use cash from these and other sources to first fund loan
growth. Any remaining cash is used primarily to purchase a combination of short, intermediate, and longer-term investment securities.
We manage our liquidity position with the objective of maintaining
sufficient funds to respond to the needs of depositors and borrowers and to take advantage of earnings enhancement opportunities.
In addition to the normal inflow of funds from core-deposit growth together with repayments and maturities of loans and investments,
we use other short-term funding sources such as brokered time deposits, securities sold under agreements to repurchase, overnight
federal funds purchased from correspondent banks, the acceptance of short-term deposits from public entities, and Federal Home
Loan Bank advances.
We monitor, stress test and manage our liquidity position
on several bases, which vary depending upon the time period. As the time period is stress test expanded, other data is factored
in, including estimated loan funding requirements, estimated loan payoffs, investment portfolio maturities or calls, and anticipated
depository buildups or runoffs.
We classify all of our securities as available-for-sale to
maintain significant liquidity. Our liquidity position is further enhanced by structuring our loan portfolio interest payments
as monthly, complemented by retail credit and residential mortgage loans in our loan portfolio, resulting in a steady stream of
loan repayments. In managing our investment portfolio, we provide for staggered maturities so that cash flows are provided as such
investments mature.
Our securities portfolio, federal funds sold, and cash and
due from financial institutions balances serve as primary sources of liquidity for 1st United. At September 30, 2013, we had approximately
$409.2 million in cash and cash equivalents and securities, of which $31.6 million of securities, at fair value, were pledged.
At September 30, 2013, we had $25 million in short-term borrowings
from the Federal Home Loan Bank and $35 million in long-term borrowings from the Federal Home Loan Bank. The Company acquired $35
million in Federal Home Loan Bank advances in connection with the acquisition of EBI. The Company repaid the $25 million in short-term
borrowings in October 2013.
At September 30, 2013, we had commitments to originate loans
totaling $61.4 million and commitments of $94.8 million in unused lines of credit. Scheduled maturities of certificates of deposit
during the twelve months following September 30, 2013 total $218.8 million and loans maturing in the next twelve months total approximately
$169.7 million.
Management believes that we have adequate resources to fund
all of our commitments, that substantially all of our existing commitments will be funded in the subsequent twelve months and,
if so desired, that we can adjust the rates on certificates of deposit and other deposit accounts to retain deposits in a changing
interest rate environment. At September 30, 2013, we had short-term lines available from correspondent banks totaling $73 million,
Federal Reserve Bank discount window availability of $63.2 million, and borrowing capacity from the Federal Home Loan Bank of $7
million based on collateral pledged, for a total credit available of $143.2 million. In addition, being “well capitalized,”
the Bank can access wholesale deposits for approximately $388.8 million based on current policy limits.
OFF-BALANCE SHEET ARRANGEMENTS
We do not currently engage in the use of derivative instruments
to hedge interest rate risks. However, we are a party to financial instruments with off-balance sheet risks in the normal course
of business to meet the financing needs of our clients.
At September 30, 2013, we had $61.4 million in commitments
to originate loans, $94.8 million in unused lines of credit and $8.1 million in standby letters of credit. Commitments to extend
credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments
generally have termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit
are conditional commitments issued by us to guarantee the performance of a client to a third party. We use the same credit policies
in establishing commitments and issuing letters of credit as we do for on-balance sheet instruments.
If commitments arising from these financial instruments continue
to require funding at historical levels, management does not anticipate that such funding will adversely impact our ability to
meet on-going obligations. In the event these commitments require funding in excess of historical levels, management believes current
liquidity, available lines of credit from the FHLB, investment security maturities and our revolving credit facility provide a
sufficient source of funds to meet these commitments.
CRITICAL ACCOUNTING POLICIES
Allowance for Loan Losses
Management views critical accounting policies as accounting
policies that are important to the understanding of our financial statements and also involve estimates and judgments about inherently
uncertain matters. In preparing the financial statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated
balance sheets and assumptions that affect the recognition of income and expenses on the consolidated statements of income for
the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly
susceptible to significant change in subsequent periods are described as follows.
The allowance for loan losses is established as losses are
estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance
for loan losses when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are
credited to the allowance for loan losses.
The allowance for loan losses is evaluated on a regular basis
by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience,
the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific and general components. The specific
component relates to loans that are individually evaluated for impairment. For such loans, an allowance for loan losses is established
based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the market
price of the loan, or, if the loan is collateral dependent, the fair value of the underlying collateral less estimated costs of
sale.
A loan is considered impaired when, based on current information
and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according
to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status,
collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment
delays (loan payments made within 90 days of the due date) and payment shortfalls (which are tracked as past due amounts) on a
case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation
to the principal and interest owed. Management considers loan payments made within 90 days of the due date to be insignificant
payment delays. Payment shortfalls are traced as past due amounts. Impairment is measured on a loan by loan basis for commercial
and construction and land development loans by either the present value of expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market price, or the fair value of the collateral less estimated costs of
sale if the loan is collateral dependent.
The general component considers the actual historical charge-offs
over a rolling three year period by portfolio segment. The actual historical charge-off ratio is adjusted for qualitative factors
including delinquency trends, loss and recovery trends, classified asset trends, non-accrual trends, economic and business conditions
and other external factors by portfolio segment of loans.
Goodwill and Intangible Assets
Goodwill represents the excess of cost over fair value of
assets of business acquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have
an indefinite useful life are not amortized, but instead tested for impairment at least annually. Intangible assets with estimable
useful lives are amortized over their respective estimated useful lives to their estimated residual values. We acquired First Western
Bank, on April 7, 2004, Equitable on February 29, 2008, Citrus on August 15, 2008, Republic on December 11, 2009, TBOM on December
17, 2010, Old Harbor on October 21, 2011, AFI on April 1, 2012 and Enterprise on July 1, 2013. Consequently, we were required to
record the assets acquired, including identified intangible assets, and liabilities assumed at their fair value, which involves
estimates based on third party valuations, such as appraisals, internal valuations based on discounted cash flow analyses or other
valuation techniques. The determination of the useful lives of intangible assets is subjective, as is the appropriate amortization
period for such intangible assets. In addition, purchase acquisitions typically result in recording goodwill, which is subject
to ongoing periodic impairment tests based on the fair value of the reporting unit compared to its carrying amount, including goodwill.
As of December 31, 2012, the required annual impairment test of goodwill was performed and no impairment existed as of the valuation
date. If for any future period we determine that there has been impairment in the carrying value of our goodwill balances, we will
record a charge to our earnings, which could have a material adverse effect on our net income, but not to our risk based capital
ratios.
Income Taxes
Deferred income tax assets and liabilities are recorded to
reflect the tax consequences on future years of temporary differences between revenues and expenses reported for financial statements
and those reported for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. A valuation
allowance is provided against deferred tax assets which are not likely to be realized.
FDIC Loss Share Receivable
The FDIC Loss Share Receivable represents the estimated amounts
due from the FDIC related to the Loss Share Agreements which were booked as of the acquisition dates of Republic, TBOM, and Old
Harbor. The receivable represents the discounted value of the FDIC’s reimbursed portion of estimated losses we expect to
realize on Covered Assets acquired as a result of these acquisitions. The range of discount rates on the FDIC Loss Share Receivable
was 2.12% to 3.97%. As losses are realized on Covered Assets, the portion that the FDIC pays the Company in cash for principal
and up to 90 days of interest reduces the FDIC loss share receivable.
The FDIC Loss Share Receivable is reviewed quarterly and
adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the Covered
Assets. Prior to October 1, 2012, any increases in cash flows of Covered Assets would be accreted into income over the life of
the Covered Asset and would reduce immediately the FDIC Loss Share Receivable. Subsequent to October 1, 2012, due to the adoption
of new guidance by the Financial Accounting Standards Board (“FASB”), any increases in cash flows of Covered Assets
will be accreted into income over the life of the covered asset with a reduction to the FDIC Loss Share Receivable over the shorter
of the life of the loan or the remaining term of the respective Loss Share Agreements. Any decreases in the expected cash flows
of the Covered Assets will result in the impairment to the Covered Asset and an increase in the FDIC Loss Share Receivable to be
reflected immediately. Non-cash adjustments to the FDIC Loss Share Receivable are recorded to non-interest income.