ITEM 1. FINANCIAL STATEMENTS
1st UNITED BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2014
|
|
December
31,
2013
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
77,995
|
|
|
$
|
197,813
|
|
Federal funds sold
|
|
|
319
|
|
|
|
408
|
|
Cash and cash equivalents
|
|
|
78,314
|
|
|
|
198,221
|
|
Securities available for sale
|
|
|
323,828
|
|
|
|
327,961
|
|
Loans, net of allowance of $10,033 and
$9,648 at March 31, 2014 and December 31, 2013
|
|
|
1,149,316
|
|
|
|
1,124,571
|
|
Nonmarketable equity securities
|
|
|
9,488
|
|
|
|
9,977
|
|
Premises and equipment, net
|
|
|
16,634
|
|
|
|
16,944
|
|
Other real estate owned
|
|
|
16,238
|
|
|
|
18,580
|
|
Company-owned life insurance
|
|
|
24,869
|
|
|
|
24,710
|
|
FDIC loss share receivable
|
|
|
25,951
|
|
|
|
29,331
|
|
Goodwill
|
|
|
63,991
|
|
|
|
63,991
|
|
Core deposit intangible
|
|
|
3,612
|
|
|
|
3,807
|
|
Accrued interest receivable and other assets
|
|
|
26,154
|
|
|
|
27,020
|
|
Total assets
|
|
$
|
1,738,395
|
|
|
$
|
1,845,113
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
539,640
|
|
|
$
|
526,311
|
|
Interest bearing
|
|
|
889,741
|
|
|
|
1,021,602
|
|
Total deposits
|
|
|
1,429,381
|
|
|
|
1,547,913
|
|
Federal funds purchased and repurchase agreements
|
|
|
23,113
|
|
|
|
14,363
|
|
Federal Home Loan Bank Advances
|
|
|
35,015
|
|
|
|
35,018
|
|
Accrued interest payable and other liabilities
|
|
|
15,645
|
|
|
|
17,711
|
|
Total liabilities
|
|
|
1,503,154
|
|
|
|
1,615,005
|
|
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; 34,489,547 and 34,288,841 issued and outstanding at March 31, 2014 and December 31, 2013, respectively
|
|
|
345
|
|
|
|
343
|
|
Additional paid-in capital
|
|
|
240,023
|
|
|
|
239,606
|
|
Accumulated earnings (deficit)
|
|
|
417
|
|
|
|
(1,584
|
)
|
Accumulated other comprehensive loss
|
|
|
(5,544
|
)
|
|
|
(8,257
|
)
|
Total shareholders’ equity
|
|
|
235,241
|
|
|
|
230,108
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,738,395
|
|
|
$
|
1,845,113
|
|
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
March 31,
|
|
|
|
2014
|
|
2013
|
|
Interest income:
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
17,287
|
|
$
|
16,171
|
|
Securities available for sale
|
|
|
2,103
|
|
|
1,368
|
|
Federal funds sold and other
|
|
|
148
|
|
|
181
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
19,538
|
|
|
17,720
|
|
Interest expense:
|
|
|
|
|
|
|
|
Deposits
|
|
|
797
|
|
|
985
|
|
Federal funds purchased and repurchase agreements
|
|
|
4
|
|
|
6
|
|
Federal Home Loan Bank and Federal Reserve Bank borrowings
|
|
|
57
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
858
|
|
|
991
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
18,680
|
|
|
16,729
|
|
Provision for loan losses
|
|
|
333
|
|
|
650
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
18,347
|
|
|
16,079
|
|
Non-interest income:
|
|
|
|
|
|
|
|
Service charges and fees on deposit accounts
|
|
|
809
|
|
|
796
|
|
Net gains on sales of other real estate owned
|
|
|
213
|
|
|
441
|
|
Net gains on sales of securities
|
|
|
—
|
|
|
122
|
|
Net gains on sales of loans held for sale
|
|
|
—
|
|
|
46
|
|
Increase in cash surrender value of Company owned life insurance
|
|
|
159
|
|
|
147
|
|
Adjustment to FDIC loss share receivable
|
|
|
(2,648
|
)
|
|
(2,820
|
)
|
Other
|
|
|
221
|
|
|
280
|
|
Total non-interest income
|
|
|
(1,246
|
)
|
|
(988
|
)
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
6,556
|
|
|
6,199
|
|
Occupancy and equipment
|
|
|
2,021
|
|
|
1,969
|
|
Data processing
|
|
|
984
|
|
|
930
|
|
Telephone
|
|
|
259
|
|
|
229
|
|
Stationery and supplies
|
|
|
74
|
|
|
91
|
|
Amortization of intangibles
|
|
|
195
|
|
|
172
|
|
Professional fees
|
|
|
417
|
|
|
387
|
|
Advertising
|
|
|
69
|
|
|
88
|
|
Regulatory assessment
|
|
|
420
|
|
|
358
|
|
Other real estate owned expense
|
|
|
401
|
|
|
579
|
|
Loan expense
|
|
|
361
|
|
|
347
|
|
Other
|
|
|
1,143
|
|
|
1,127
|
|
Total non-interest expense
|
|
|
12,900
|
|
|
12,476
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
4,201
|
|
|
2,615
|
|
Income tax
|
|
|
1,515
|
|
|
995
|
|
Net income
|
|
$
|
2,686
|
|
$
|
1,620
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.08
|
|
$
|
0.05
|
|
Diluted earnings per common share
|
|
$
|
0.08
|
|
$
|
0.05
|
|
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
March 31,
|
|
|
2014
|
|
2013
|
|
Net income
|
$
|
2,686
|
|
$
|
1,620
|
|
Other comprehensive income:
|
|
|
|
|
|
|
Unrealized
holding gains (losses) on securities available for sale
|
|
4,350
|
|
|
(749
|
)
|
Reclassification adjustment for security gains included in net income
(1)
|
|
—
|
|
|
(122
|
)
|
Income tax benefit (expense)
|
|
(1,637
|
)
|
|
328
|
|
Other comprehensive income (loss)
|
|
2,713
|
|
|
(543
|
)
|
Comprehensive income
|
$
|
5,399
|
|
$
|
1,077
|
|
|
(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 March 31, 2014 and 2013 was $0 and $46, respectively.
|
See accompanying notes to the consolidated financial
statements.
1st UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Three months ended March 31, 2014 and 2013
(Dollars in thousands)
(unaudited)
|
|
Shares of
Common Stock
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Earnings (Deficit)
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
Shareholders’
Equity
|
|
Balance at January 1, 2013
|
|
|
34,070,270
|
|
$
|
341
|
|
$
|
238,089
|
|
$
|
(3,998
|
)
|
$
|
2,258
|
|
$
|
236,690
|
|
Net income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,620
|
|
|
—
|
|
|
1,620
|
|
Other comprehensive income (loss)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(543
|
)
|
|
(543
|
)
|
Stock-based compensation expense
|
|
|
—
|
|
|
—
|
|
|
343
|
|
|
—
|
|
|
—
|
|
|
343
|
|
Restricted stock grants
|
|
|
216,786
|
|
|
2
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at March 31, 2013
|
|
|
34,287,056
|
|
$
|
343
|
|
$
|
238,430
|
|
$
|
(2,378
|
)
|
$
|
1,715
|
|
$
|
238,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014
|
|
|
34,288,841
|
|
$
|
343
|
|
$
|
239,606
|
|
$
|
(1,584
|
)
|
$
|
(8,257
|
)
|
$
|
230,108
|
|
Net income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,686
|
|
|
—
|
|
|
2,686
|
|
Other comprehensive income (loss)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,713
|
|
|
2,713
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
—
|
|
|
419
|
|
|
—
|
|
|
—
|
|
|
419
|
|
Dividend paid ($0.02
per share)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(685
|
)
|
|
—
|
|
|
(685
|
)
|
Restricted stock grants
|
|
|
200,706
|
|
|
2
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at March 31, 2014
|
|
|
34,489,547
|
|
$
|
345
|
|
$
|
240,023
|
|
$
|
417
|
|
$
|
(5,544
|
)
|
$
|
235,241
|
|
See accompanying notes to the consolidated financial
statements.
1st UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2014 and 2013
(Dollars in thousands)
(unaudited)
|
|
2014
|
|
2013
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,686
|
|
|
$
|
1,620
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
333
|
|
|
|
650
|
|
Depreciation and amortization
|
|
|
904
|
|
|
|
875
|
|
Net accretion of purchase accounting adjustments
|
|
|
(3,941
|
)
|
|
|
(5,047
|
)
|
Net amortization of securities
|
|
|
528
|
|
|
|
1,008
|
|
Adjustment to FDIC receivable
|
|
|
2,648
|
|
|
|
2,820
|
|
Increase in cash surrender value of company-owned life insurance
|
|
|
(159
|
)
|
|
|
(147
|
)
|
Stock-based compensation expense
|
|
|
419
|
|
|
|
343
|
|
Net gains on sales of securities
|
|
|
—
|
|
|
|
(122
|
)
|
Net gains on other real estate owned
|
|
|
(213
|
)
|
|
|
(441
|
)
|
Net loss on premises and equipment
|
|
|
9
|
|
|
|
5
|
|
Write-down of other real estate owned
|
|
|
244
|
|
|
|
464
|
|
Net gain on sale of loans held for sale
|
|
|
—
|
|
|
|
(46)
|
|
Loans originated for sale
|
|
|
—
|
|
|
|
(2,096
|
)
|
Proceeds from sale of loans held for sale
|
|
|
—
|
|
|
|
2,666
|
|
Net change in:
|
|
|
|
|
|
|
|
|
Deferred loan fees
|
|
|
(44
|
)
|
|
|
(78
|
)
|
Accrued interest receivable and other assets
|
|
|
(1,192
|
)
|
|
|
446
|
|
Accrued interest payable and other liabilities
|
|
|
(2,155
|
)
|
|
|
(760
|
)
|
Net cash provided by operating activities
|
|
|
67
|
|
|
|
2,160
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Proceeds from sales of securities
|
|
|
—
|
|
|
|
8,815
|
|
Proceeds from security maturities calls and prepayments
|
|
|
7,955
|
|
|
|
18,300
|
|
Purchases of securities
|
|
|
—
|
|
|
|
(79,707
|
)
|
Loan originations and payments, net
|
|
|
(23,737
|
)
|
|
|
(12,776
|
)
|
Cash received from FDIC loss sharing agreements
|
|
|
1,003
|
|
|
|
2,726
|
|
Redemption (purchase) of nonmarketable equity securities, net
|
|
|
489
|
|
|
|
584
|
|
Proceeds from the sale of other real estate owned
|
|
|
4,918
|
|
|
|
2,626
|
|
Additions to premises and equipment, net
|
|
|
(169
|
)
|
|
|
(30
|
)
|
Net cash provided by (used in) investing activities
|
|
|
(9,541
|
)
|
|
|
(59,462
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net change in deposits
|
|
|
(118,498
|
)
|
|
|
(2,608
|
)
|
Net change in federal funds purchased and repurchase agreements
|
|
|
8,750
|
|
|
|
(3,245
|
)
|
Dividends paid
|
|
|
(685
|
)
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
|
|
(110,433
|
)
|
|
|
(5,853
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(119,907
|
)
|
|
|
(63,155
|
)
|
Beginning cash and cash equivalents
|
|
|
198,221
|
|
|
|
207,117
|
|
Ending cash and cash equivalents
|
|
$
|
78,314
|
|
|
$
|
143,962
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
819
|
|
|
$
|
972
|
|
Taxes paid
|
|
|
—
|
|
|
|
125
|
|
Transfer of loans to other real estate owned
|
|
|
2,607
|
|
|
|
2,247
|
|
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 1
st
United. 1
st
United is a state chartered commercial bank that provides financial services
through its five offices in Palm Beach County, three 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 and one office each in Orange and Hillsborough
Counties. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are
commercial and residential mortgages, 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 cash flow from operations of businesses. However, the customers’ ability to repay their loans is dependent
on the real estate and general market conditions. Other financial instruments, which potentially represent concentrations of credit
risk, include deposit accounts in other financial institutions and federal funds sold.
EEL is a commercial finance subsidiary that from time to
time will hold foreclosed assets, performing loans or non-performing loans. At March 31, 2014, EEL held $2,388 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, 2013.
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 1,286,145 and 2,571,673 shares of
common stock were not considered in computing diluted earnings per share for the quarters ended March 31, 2014 and 2013, 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. 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 7 basis points of the allowance for
loan losses at March 31, 2014 and December 31, 2013, 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.
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”).
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 2 – ACQUISITIONS (continued)
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 $6.01 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 $5,492 which is not deductible for tax purposes. The Company acquired a net deferred tax
liability of $233 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 over loans are subject to refinement
as additional information relative to the closing date fair values becomes available through the measurement period.
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
|
|
|
906
|
|
TOTAL LIABILITIES ASSUMED
|
|
$
|
213,091
|
|
|
|
|
|
|
Excess of liabilities assumed over assets acquired
|
|
$
|
777
|
|
Cash paid
|
|
|
4,715
|
|
Goodwill
|
|
$
|
5,492
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 2 – ACQUISITIONS (continued)
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, 2013, 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 March
31,
|
|
|
2014
(1)
|
|
2013
|
Net interest and other income
|
|
$
|
17,434
|
|
$
|
20,834
|
|
|
|
|
|
|
|
Net income
|
|
|
2,686
|
|
|
2,826
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
0.08
|
|
|
0.08
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
0.08
|
|
|
0.08
|
(1)
|
The merger was effective July 1, 2013. There were no proforma adjustments subsequent to July 1, 2013.
|
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
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
934
|
|
|
$
|
—
|
|
|
$
|
(8
|
)
|
|
$
|
926
|
|
Municipal Securities
|
|
|
6,368
|
|
|
|
—
|
|
|
|
(355
|
)
|
|
|
6,013
|
|
Commercial mortgaged-backed
|
|
|
4,444
|
|
|
|
—
|
|
|
|
(308
|
)
|
|
|
4,136
|
|
Residential collateralized mortgage obligations
|
|
|
554
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
550
|
|
Residential mortgage-backed
|
|
|
320,417
|
|
|
|
604
|
|
|
|
(8,818
|
)
|
|
|
312,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
332,717
|
|
|
$
|
604
|
|
|
$
|
(9,493
|
)
|
|
$
|
323,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
935
|
|
|
$
|
—
|
|
|
$
|
(17
|
)
|
|
$
|
918
|
|
Municipal Securities
|
|
|
6,368
|
|
|
|
—
|
|
|
|
(764
|
)
|
|
|
5,604
|
|
Commercial mortgaged-backed
|
|
|
4,469
|
|
|
|
—
|
|
|
|
(395
|
)
|
|
|
4,074
|
|
Residential collateralized mortgage obligations
|
|
|
826
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
818
|
|
Residential mortgage-backed
|
|
|
328,602
|
|
|
|
442
|
|
|
|
(12,497
|
)
|
|
|
316,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
341,200
|
|
|
$
|
442
|
|
|
$
|
(13,681
|
)
|
|
$
|
327,961
|
|
At March 31, 2014 and December 31, 2013, 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 March 31, 2014 and December
31, 2013 were issued or sponsored by U.S. government agencies.
The amortized cost and fair value of debt securities at March
31, 2014 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
|
|
|
934
|
|
|
|
926
|
|
Due after ten years
|
|
|
6,368
|
|
|
|
6,013
|
|
Commercial mortgage-backed
|
|
|
4,444
|
|
|
|
4,136
|
|
Residential mortgage-backed and residential collateralized mortgage obligations
|
|
|
320,971
|
|
|
|
312,753
|
|
|
|
$
|
332,717
|
|
|
$
|
323,828
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 3 – SECURITIES (continued)
Securities as of March 31, 2014 and December 31, 2013 with
a fair value of $32,636 and $30,208, 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 months ended March 31, 2014 and 2013, respectively, were as follows:
|
|
Three months ended
March 31,
|
|
|
|
2014
|
|
2013
|
|
Proceeds from sale
|
|
$
|
—
|
|
$
|
8,815
|
|
Gross gain
|
|
$
|
—
|
|
$
|
122
|
|
Gross (loss)
|
|
|
—
|
|
|
—
|
|
Net gains on sales of securities
|
|
$
|
—
|
|
$
|
122
|
|
Gross unrealized losses at March 31, 2014 and December
31, 2013, 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
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
926
|
|
|
$
|
(8
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
926
|
|
|
$
|
(8
|
)
|
Municipal securities
|
|
|
5,568
|
|
|
|
(299
|
)
|
|
|
445
|
|
|
|
(56
|
)
|
|
|
6,013
|
|
|
|
(355
|
)
|
Residential collateralized mortgage obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
550
|
|
|
|
(4
|
)
|
|
|
550
|
|
|
|
(4
|
)
|
Commercial mortgaged-backed
|
|
|
4,136
|
|
|
|
(308
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4,136
|
|
|
|
(308
|
)
|
Residential mortgage-backed
|
|
|
256,848
|
|
|
|
(8,270
|
)
|
|
|
9,064
|
|
|
|
(548
|
)
|
|
|
265,912
|
|
|
|
(8,818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
267,478
|
|
|
$
|
(8,885
|
)
|
|
$
|
10,059
|
|
|
$
|
(608
|
)
|
|
$
|
277,537
|
|
|
$
|
(9,493
|
)
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
918
|
|
|
$
|
(17
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
918
|
|
|
$
|
(17
|
)
|
Municipal securities
|
|
|
5,190
|
|
|
|
(678
|
)
|
|
|
413
|
|
|
|
(86
|
)
|
|
|
5,603
|
|
|
|
(764
|
)
|
Residential collateralized mortgage obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
818
|
|
|
|
(8
|
)
|
|
|
818
|
|
|
|
(8
|
)
|
Commercial mortgaged-backed
|
|
|
—
|
|
|
|
—
|
|
|
|
4,073
|
|
|
|
(395
|
)
|
|
|
4,073
|
|
|
|
(395
|
)
|
Residential mortgage-backed
|
|
|
277,291
|
|
|
|
(12,353
|
)
|
|
|
3,644
|
|
|
|
(144
|
)
|
|
|
280,935
|
|
|
|
(12,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
283,399
|
|
|
$
|
(13,048
|
)
|
|
$
|
8,948
|
|
|
$
|
(633
|
)
|
|
$
|
292,347
|
|
|
$
|
(13,681
|
)
|
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 March 31, 2014, there were 84 available for sale securities
with unrealized losses of which one was a U.S. Treasury security, eight were municipal securities, three were residential collateralized
mortgage obligations, one was a commercial mortgage-backed security and 71 were residential mortgage backed securities. At December
31, 2013, there were 92 available for sale securities with unrealized losses of which one was a U.S. Treasury security, eight were
municipal securities, three were residential collateralized mortgage obligations, one was a commercial mortgage-backed security
and 79 were residential mortgage-backed securities. At March 31, 2014 and December 31, 2013, securities with unrealized losses
had declined in fair value by 3.42% and 4.68%, respectively, from the Company’s amortized cost basis. The decline in fair
value is attributable to changes in interest rates and liquidity, and not credit quality. The Company does not have the intent
to sell these mortgage backed securities and it is likely that it will not be required to sell these securities prior to their
anticipated recovery. The Company does not consider these securities to be other–than–temporarily impaired at March
31, 2014.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS
Loans at March 31, 2014 and December 31, 2013 were as follows:
|
|
March 31, 2014
|
|
December 31, 2013
|
|
|
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
|
|
$
|
26,444
|
|
|
$
|
185,118
|
|
|
$
|
211,562
|
|
|
$
|
27,573
|
|
|
$
|
182,691
|
|
|
$
|
210,264
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
61,389
|
|
|
|
117,017
|
|
|
|
178,406
|
|
|
|
68,259
|
|
|
|
110,585
|
|
|
|
178,844
|
|
Commercial
|
|
|
135,510
|
|
|
|
581,277
|
|
|
|
716,787
|
|
|
|
144,311
|
|
|
|
555,540
|
|
|
|
699,851
|
|
Construction and land development
|
|
|
6,325
|
|
|
|
35,043
|
|
|
|
41,368
|
|
|
|
6,505
|
|
|
|
28,781
|
|
|
|
35,286
|
|
Consumer and other
|
|
|
—
|
|
|
|
10,943
|
|
|
|
10,943
|
|
|
|
2
|
|
|
|
9,733
|
|
|
|
9,735
|
|
|
|
$
|
229,668
|
|
|
$
|
929,398
|
|
|
|
1,159,066
|
|
|
$
|
246,650
|
|
|
$
|
887,330
|
|
|
|
1,133,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned income and net deferred loan costs
|
|
|
|
|
|
|
|
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
239
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
(10,033
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,648
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
1,149,316
|
|
|
|
|
|
|
|
|
|
|
$
|
1,124,571
|
|
The Company has segregated and evaluated 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 Brevard,
Broward, Hillsborough, Indian River, Miami-Dade, Orange, Hillsborough, Palm Beach and Pinellas 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 are 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 unsecured 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
months ended March 31, 2014 and 2013 was as follows:
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, January 1, 2014
|
|
$
|
3,084
|
|
|
$
|
2,437
|
|
|
$
|
3,550
|
|
|
$
|
485
|
|
|
$
|
92
|
|
|
$
|
9,648
|
|
Provisions for loan losses
|
|
|
(382
|
)
|
|
|
414
|
|
|
|
292
|
|
|
|
(4
|
)
|
|
|
13
|
|
|
|
333
|
|
Loans charged off
|
|
|
(86
|
)
|
|
|
(42
|
)
|
|
|
(169
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(297
|
)
|
Recoveries
|
|
|
29
|
|
|
|
—
|
|
|
|
318
|
|
|
|
2
|
|
|
|
—
|
|
|
|
349
|
|
Ending Balance, March 31, 2014
|
|
$
|
2,645
|
|
|
$
|
2,809
|
|
|
$
|
3,991
|
|
|
$
|
483
|
|
|
$
|
105
|
|
|
$
|
10,033
|
|
|
|
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
|
|
|
768
|
|
|
|
119
|
|
|
|
281
|
|
|
|
(534
|
)
|
|
|
16
|
|
|
|
650
|
|
Loans charged off
|
|
|
—
|
|
|
|
(53
|
)
|
|
|
(58
|
)
|
|
|
(898
|
)
|
|
|
(16
|
)
|
|
|
(1,025
|
)
|
Recoveries
|
|
|
16
|
|
|
|
1
|
|
|
|
2
|
|
|
|
91
|
|
|
|
—
|
|
|
|
110
|
|
Ending Balance, March 31, 2013
|
|
$
|
3,519
|
|
|
$
|
1,936
|
|
|
$
|
3,623
|
|
|
$
|
404
|
|
|
$
|
41
|
|
|
$
|
9,523
|
|
Allowance for Loan Losses Allocation
As of March 31, 2014:
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Specific Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
735
|
|
|
$
|
847
|
|
|
$
|
232
|
|
|
$
|
269
|
|
|
$
|
10
|
|
|
|
2,093
|
|
Purchase credit impaired loans
|
|
|
463
|
|
|
|
320
|
|
|
|
689
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,472
|
|
Total specific reserves
|
|
|
1,198
|
|
|
|
1,167
|
|
|
|
921
|
|
|
|
269
|
|
|
|
10
|
|
|
|
3,565
|
|
General reserves
|
|
|
1,447
|
|
|
|
1,642
|
|
|
|
3,070
|
|
|
|
214
|
|
|
|
95
|
|
|
|
6,468
|
|
Total
|
|
$
|
2,645
|
|
|
$
|
2,809
|
|
|
$
|
3,991
|
|
|
$
|
483
|
|
|
$
|
105
|
|
|
$
|
10,033
|
|
Loans individually evaluated for
impairment
|
|
$
|
3,791
|
|
|
$
|
3,347
|
|
|
$
|
16,898
|
|
|
|
3,791
|
|
|
$
|
10
|
|
|
$
|
27,837
|
|
Purchase credit impaired loans
|
|
|
7,369
|
|
|
|
12,784
|
|
|
|
32,784
|
|
|
|
2,265
|
|
|
|
24
|
|
|
|
55,226
|
|
Loans collectively evaluated for
impairment
|
|
|
200,402
|
|
|
|
162,275
|
|
|
|
667,105
|
|
|
|
35,312
|
|
|
|
10,909
|
|
|
|
1,076,003
|
|
Total
|
|
$
|
211,562
|
|
|
$
|
178,406
|
|
|
$
|
716,787
|
|
|
$
|
41,368
|
|
|
$
|
10,943
|
|
|
$
|
1,159,066
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
As of December 31, 2013:
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Specific Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
835
|
|
|
$
|
460
|
|
|
$
|
413
|
|
|
$
|
271
|
|
|
$
|
—
|
|
|
$
|
1,979
|
|
Purchase credit impaired loans
|
|
|
464
|
|
|
|
269
|
|
|
|
278
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,011
|
|
Total specific reserves
|
|
|
1,299
|
|
|
|
729
|
|
|
|
691
|
|
|
|
271
|
|
|
|
—
|
|
|
|
2,990
|
|
General reserves
|
|
|
1,785
|
|
|
|
1,708
|
|
|
|
2,859
|
|
|
|
214
|
|
|
|
92
|
|
|
|
6,658
|
|
Total
|
|
$
|
3,084
|
|
|
$
|
2,437
|
|
|
$
|
3,550
|
|
|
$
|
485
|
|
|
$
|
92
|
|
|
$
|
9,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
3,937
|
|
|
$
|
3,567
|
|
|
$
|
19,625
|
|
|
$
|
3,830
|
|
|
$
|
—
|
|
|
$
|
30,959
|
|
Purchase credit impaired loans
|
|
|
7,426
|
|
|
|
16,556
|
|
|
|
38,854
|
|
|
|
2,354
|
|
|
|
25
|
|
|
|
65,215
|
|
Loans collectively evaluated for impairment
|
|
|
198,901
|
|
|
|
158,721
|
|
|
|
641,372
|
|
|
|
29,102
|
|
|
|
9,710
|
|
|
|
1,037,806
|
|
Total
|
|
$
|
210,264
|
|
|
$
|
178,844
|
|
|
$
|
699,851
|
|
|
$
|
35,286
|
|
|
$
|
9,735
|
|
|
$
|
1,133,980
|
|
The following tables present loans individually evaluated
for impairment by class of loan as of March 31, 2014 and December 31, 2013, respectively.
|
|
Recorded Investment in Impaired Loans
With Allowance
|
As of March 31, 2014
|
|
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
|
|
$
|
841
|
|
|
$
|
732
|
|
|
$
|
125
|
|
|
$
|
716
|
|
|
$
|
716
|
|
|
$
|
176
|
|
HELOCs and equity
|
|
|
207
|
|
|
|
200
|
|
|
|
115
|
|
|
|
563
|
|
|
|
563
|
|
|
|
431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
311
|
|
|
|
311
|
|
|
|
17
|
|
|
|
3,507
|
|
|
|
1,464
|
|
|
|
666
|
|
Secured – real estate
|
|
|
54
|
|
|
|
52
|
|
|
|
52
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
302
|
|
|
|
274
|
|
|
|
9
|
|
|
|
902
|
|
|
|
902
|
|
|
|
34
|
|
Non-owner occupied
|
|
|
465
|
|
|
|
324
|
|
|
|
67
|
|
|
|
2,576
|
|
|
|
2,576
|
|
|
|
122
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
526
|
|
|
|
526
|
|
|
|
269
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total March 31, 2014
|
|
$
|
2,180
|
|
|
$
|
1,893
|
|
|
$
|
385
|
|
|
$
|
8,800
|
|
|
$
|
6,757
|
|
|
$
|
1,708
|
|
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
|
As of March 31, 2014
|
|
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
|
|
$
|
1,388
|
|
|
$
|
1,090
|
|
|
$
|
151
|
|
|
$
|
46
|
|
HELOCs and equity
|
|
|
59
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
1,280
|
|
|
|
801
|
|
Secured – real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
1,163
|
|
|
|
1,163
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
28
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
5,960
|
|
|
|
5,388
|
|
Non-owner occupied
|
|
|
1,199
|
|
|
|
1,032
|
|
|
|
6,525
|
|
|
|
6,402
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
7,524
|
|
|
|
3,265
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total March 31, 2014
|
|
$
|
2,646
|
|
|
$
|
2,122
|
|
|
$
|
22,631
|
|
|
$
|
17,065
|
|
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
|
As of December 31, 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
|
|
$
|
1,254
|
|
|
$
|
1,089
|
|
|
$
|
192
|
|
|
$
|
632
|
|
|
$
|
632
|
|
|
$
|
171
|
|
HELOCs and equity
|
|
|
39
|
|
|
|
38
|
|
|
|
38
|
|
|
|
191
|
|
|
|
191
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
359
|
|
|
|
357
|
|
|
|
53
|
|
|
|
3,719
|
|
|
|
1,537
|
|
|
|
730
|
|
Secured – real estate
|
|
|
54
|
|
|
|
52
|
|
|
|
52
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
302
|
|
|
|
274
|
|
|
|
23
|
|
|
|
1,469
|
|
|
|
1,049
|
|
|
|
41
|
|
Non-owner occupied
|
|
|
466
|
|
|
|
329
|
|
|
|
76
|
|
|
|
4,291
|
|
|
|
4,283
|
|
|
|
273
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
527
|
|
|
|
527
|
|
|
|
271
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total December 31, 2013
|
|
$
|
2,474
|
|
|
$
|
2,139
|
|
|
$
|
434
|
|
|
$
|
10,829
|
|
|
$
|
8,219
|
|
|
$
|
1,545
|
|
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
|
As of December 31, 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
|
|
$
|
1,451
|
|
|
$
|
1,170
|
|
|
$
|
106
|
|
|
$
|
—
|
|
HELOCs and equity
|
|
|
59
|
|
|
|
—
|
|
|
|
447
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
1,126
|
|
|
|
810
|
|
Secured – real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
1,181
|
|
|
|
1,181
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
5,437
|
|
|
|
5,287
|
|
Non-owner occupied
|
|
|
1,597
|
|
|
|
1,374
|
|
|
|
7,144
|
|
|
|
7,029
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
7,597
|
|
|
|
3,303
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total December 31, 2013
|
|
$
|
3,107
|
|
|
$
|
2,544
|
|
|
$
|
23,038
|
|
|
$
|
18,057
|
|
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
the three months ended March 31, 2014 and 2013, respectively, were as follows:
|
|
Three months ended March 31, 2014
|
|
Three months ended March 31, 2013
|
|
|
|
Average
Recorded
Investment
|
|
Interest
Income
|
|
Cash
Basis
|
|
Average
Recorded
Investment
|
|
Interest
Income
|
|
Cash
Basis
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
2,593
|
|
$
|
7
|
|
$
|
8
|
|
$
|
3,994
|
|
$
|
4
|
|
$
|
4
|
|
HELOC and equity
|
|
|
763
|
|
|
4
|
|
|
3
|
|
|
1,306
|
|
|
2
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured non real estate
|
|
|
2,618
|
|
|
12
|
|
|
12
|
|
|
3,127
|
|
|
25
|
|
|
26
|
|
Secured real estate
|
|
|
1,222
|
|
|
11
|
|
|
15
|
|
|
1,274
|
|
|
13
|
|
|
13
|
|
Unsecured
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
6,582
|
|
|
61
|
|
|
37
|
|
|
10,748
|
|
|
81
|
|
|
76
|
|
Non-owner occupied
|
|
|
10,375
|
|
|
95
|
|
|
95
|
|
|
11,880
|
|
|
86
|
|
|
86
|
|
Multifamily
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,560
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Improved Land
|
|
|
3,810
|
|
|
2
|
|
|
2
|
|
|
3,566
|
|
|
2
|
|
|
2
|
|
Unimproved Land
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and Other:
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
27,973
|
|
$
|
192
|
|
$
|
172
|
|
$
|
37,455
|
|
$
|
213
|
|
$
|
209
|
|
Generally, interest accrued on loans 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 installment loans are
generally charged-off after 90 plus days past due 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. During
the three months ended March 31, 2014 and 2013, interest income not recognized on non-accrual loans (but would have been recognized
if these loans were current) was approximately $153 and $251, respectively.
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.
Nonperforming loans represent loans which are not performing in accordance with the contractual loan agreements. Included in
the tables that follow are loans in non-accrual and 90 plus days past due categories with a carrying value of $14,929 and
$15,836 as of March 31, 2014 and December 31, 2013, respectively. There were one loan which was 90 days or greater past due
and accruing interest income at March 31, 2014 for $361 and no loans which were 90 days or greater past due and accruing
interest income at December 31, 2013. Nonperforming loans and impaired loans are defined differently. As such, some loans may
be included in both categories, whereas other loans may only be included in one category.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
The book balance of loans accounted for under ASC 310-30 at March
31, 2104 and December 31, 2013 which were contractually accruing 30 to 59 days past due were $0 and $6,508, respectively; 30 to
59 days contractually past due and non-accrual were $0 and $0, respectively; contractually 60 to 89 days past due and accruing
were $0 and $0, respectively; contractually 60 to 89 days past due and non-accrual were $434 and $0, respectively; contractually
90 plus days past due and accruing were $0 and $0, respectively and contractually 90 plus days past due and non-accrual were $13,534
and $28,815, 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 $361 and $0 at March 31, 2014 and December 31, 2013, respectively.
The following tables summarize past due and non-accrual loans
by the number of days past due as of March 31, 2014 and December 31, 2013
|
|
Accruing 30 - 59
|
|
Accruing 60-89
|
|
Non-Accrual/Accrual and
90 days and over past due
|
|
Total
|
|
|
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
|
|
$
|
260
|
|
|
$
|
447
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,626
|
|
|
$
|
46
|
|
|
$
|
2,886
|
|
|
$
|
493
|
|
HELOCs and equity
|
|
|
149
|
|
|
|
58
|
|
|
|
—
|
|
|
|
—
|
|
|
|
256
|
|
|
|
418
|
|
|
|
405
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
—
|
|
|
|
326
|
|
|
|
—
|
|
|
|
270
|
|
|
|
—
|
|
|
|
1,459
|
|
|
|
—
|
|
|
|
2,055
|
|
Secured – real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
352
|
|
|
|
401
|
|
|
|
361
|
|
|
|
401
|
|
|
|
713
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
—
|
|
|
|
1,674
|
|
|
|
—
|
|
|
|
—
|
|
|
|
713
|
|
|
|
2,834
|
|
|
|
713
|
|
|
|
4,508
|
|
Non-owner occupied
|
|
|
502
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,918
|
|
|
|
482
|
|
|
|
2,420
|
|
|
|
482
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
58
|
|
|
|
—
|
|
|
|
58
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,650
|
|
|
|
—
|
|
|
|
3,650
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34
|
|
|
|
—
|
|
|
|
34
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34
|
|
|
|
—
|
|
|
|
34
|
|
Total March 31, 2014
|
|
$
|
911
|
|
|
$
|
2,505
|
|
|
$
|
—
|
|
|
$
|
622
|
|
|
$
|
6,006
|
|
|
$
|
9,284
|
|
|
$
|
6,917
|
|
|
$
|
12,411
|
|
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/Accrual and
90 days and over past due
|
|
Total
|
|
|
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
|
|
$
|
306
|
|
|
$
|
1,085
|
|
|
$
|
—
|
|
|
$
|
24
|
|
|
$
|
3,137
|
|
|
$
|
48
|
|
|
$
|
3,443
|
|
|
$
|
1,157
|
|
HELOCs and equity
|
|
|
27
|
|
|
|
—
|
|
|
|
162
|
|
|
|
—
|
|
|
|
96
|
|
|
|
491
|
|
|
|
285
|
|
|
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
—
|
|
|
|
461
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
|
|
1,518
|
|
|
|
39
|
|
|
|
1,979
|
|
Secured – real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
416
|
|
|
|
—
|
|
|
|
416
|
|
|
|
—
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,737
|
|
|
|
722
|
|
|
|
1,115
|
|
|
|
722
|
|
|
|
2,852
|
|
Non-owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,261
|
|
|
|
2,182
|
|
|
|
2,261
|
|
|
|
2,182
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62
|
|
|
|
—
|
|
|
|
62
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,688
|
|
|
|
—
|
|
|
|
3,688
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35
|
|
|
|
—
|
|
|
|
35
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
34
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
|
|
—
|
|
|
|
60
|
|
Total December 31, 2013
|
|
$
|
333
|
|
|
$
|
1,580
|
|
|
$
|
162
|
|
|
$
|
1,761
|
|
|
$
|
6,768
|
|
|
$
|
9,068
|
|
|
$
|
7,263
|
|
|
$
|
12,409
|
|
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 March 31, 2014 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 4.18% and 4.38% as of March 31, 2014 and December 31, 2013. Troubled debt restructuring loans are considered impaired.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
During the quarter ended March 31, 2014, the Company modified
$134 in residential real estate loans. During the quarter ended March 31, 2013, the Company modified $272 in commercial real estate
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 March 31, 2014 and December 31, 2013, respectively, all of which were performing in accordance
with the restructured terms:
|
|
March 31,
2014
|
|
December
31,
2013
|
|
Residential real estate
|
|
$
|
907
|
|
|
$
|
834
|
|
Commercial real estate
|
|
|
12,907
|
|
|
|
15,341
|
|
Construction and land development
|
|
|
142
|
|
|
|
143
|
|
Commercial
|
|
|
2,279
|
|
|
|
2,328
|
|
Total
|
|
$
|
16,235
|
|
|
$
|
18,646
|
|
Of the $16,235 of performing troubled debt restructurings at March
31, 2014, $11,756 was classified as special mention and $4,479 was classified as substandard. Of the $18,646 of performing troubled
debt restructurings at December 31, 2013, $11,062 was classified as special mention and $7,584 was classified as substandard.
These loans had a specific reserve in the allowance for loan losses at March 31, 2014 and December 31, 2013 of $622 and $635,
respectively.
Total non-accruing troubled debt restructurings as of March
31, 2014 and December 31, 2013, respectively, were as follows:
|
|
March 31,
2014
|
|
December 31,
2013
|
Residential real estate
|
|
$
|
317
|
|
|
$
|
330
|
|
Commercial real estate
|
|
|
3,332
|
|
|
|
3,307
|
|
Construction and land development
|
|
|
3,266
|
|
|
|
3,303
|
|
Commercial
|
|
|
473
|
|
|
|
536
|
|
Consumer
|
|
|
10
|
|
|
|
—
|
|
Total
|
|
$
|
7,398
|
|
|
$
|
7,476
|
|
These loans had a specific reserve in the allowance for loan losses
at March 31, 2014 and December 31, 2013 of $487 and $608, respectively. There were 2 loans for $1,740 which were modified within
the twelve months ended March 31, 2014 that defaulted within the three months ending March 31, 2014 and had a specific reserve
of $10 at March 31, 2014. There were no loans modified within the twelve months ended March 31, 2013 which defaulted within
the three months ended March 31, 2013.
During the three month period ended March 31, 2014, the Company
lowered the interest rate on $470 of loans prior to maturity which the Company did not consider to be troubled debt restructurings.
During the year ended December 31, 2013, the Company lowered the interest rate on $10,618 of loans 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 March 31, 2014. The Company has allocated $1,109 and $1,243 of specific reserves
to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2014 and December 31, 2013, respectively.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
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.
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 March 31, 2014 or December 31, 2013.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
|
|
|
|
Loans Subject to Loss Share Agreements
|
|
Loans Not Subject to Loss Share Agreements
|
As of March 31, 2014
|
|
Total
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
113,992
|
|
|
$
|
49,610
|
|
|
$
|
1,060
|
|
|
$
|
2,626
|
|
|
$
|
55,887
|
|
|
$
|
4,096
|
|
|
$
|
713
|
|
HELOCs and equity
|
|
|
64,414
|
|
|
|
7,805
|
|
|
|
31
|
|
|
|
256
|
|
|
|
49,943
|
|
|
|
510
|
|
|
|
5,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
148,293
|
|
|
|
16,572
|
|
|
|
311
|
|
|
|
—
|
|
|
|
127,339
|
|
|
|
1,664
|
|
|
|
2,407
|
|
Secured – real estate
|
|
|
55,813
|
|
|
|
9,086
|
|
|
|
—
|
|
|
|
401
|
|
|
|
44,813
|
|
|
|
800
|
|
|
|
713
|
|
Unsecured
|
|
|
7,456
|
|
|
|
75
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,866
|
|
|
|
107
|
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
222,285
|
|
|
|
25,306
|
|
|
|
7,562
|
|
|
|
713
|
|
|
|
181,004
|
|
|
|
313
|
|
|
|
7,387
|
|
Non-owner occupied
|
|
|
447,417
|
|
|
|
86,389
|
|
|
|
406
|
|
|
|
1,918
|
|
|
|
350,655
|
|
|
|
4,990
|
|
|
|
3,059
|
|
Multi-family
|
|
|
47,085
|
|
|
|
13,158
|
|
|
|
—
|
|
|
|
58
|
|
|
|
33,869
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
12,480
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,480
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
17,724
|
|
|
|
2,869
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,169
|
|
|
|
2,644
|
|
|
|
4,042
|
|
Unimproved land
|
|
|
11,164
|
|
|
|
3,422
|
|
|
|
—
|
|
|
|
34
|
|
|
|
7,708
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
10,943
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,367
|
|
|
|
454
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total March 31, 2014
|
|
$
|
1,159,066
|
|
|
$
|
214,292
|
|
|
$
|
9,370
|
|
|
$
|
6,006
|
|
|
$
|
889,100
|
|
|
$
|
15,578
|
|
|
$
|
24,720
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
|
|
|
|
Loans Subject to Loss Share Agreements
|
|
Loans Not Subject to Loss Share Agreements
|
As of December 31, 2013
|
|
Total
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
117,830
|
|
|
$
|
56,000
|
|
|
$
|
1,121
|
|
|
$
|
3,137
|
|
|
$
|
52,822
|
|
|
$
|
4,032
|
|
|
$
|
718
|
|
HELOCs and equity
|
|
|
61,014
|
|
|
|
7,712
|
|
|
|
31
|
|
|
|
258
|
|
|
|
46,437
|
|
|
|
629
|
|
|
|
5,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
145,298
|
|
|
|
17,555
|
|
|
|
319
|
|
|
|
39
|
|
|
|
123,168
|
|
|
|
1,733
|
|
|
|
2,484
|
|
Secured – real estate
|
|
|
57,052
|
|
|
|
9,168
|
|
|
|
—
|
|
|
|
416
|
|
|
|
45,955
|
|
|
|
800
|
|
|
|
713
|
|
Unsecured
|
|
|
7,914
|
|
|
|
76
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,311
|
|
|
|
114
|
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
209,467
|
|
|
|
26,129
|
|
|
|
7,638
|
|
|
|
722
|
|
|
|
167,238
|
|
|
|
315
|
|
|
|
7,425
|
|
Non-owner occupied
|
|
|
451,982
|
|
|
|
93,010
|
|
|
|
409
|
|
|
|
2,261
|
|
|
|
345,941
|
|
|
|
5,009
|
|
|
|
5,352
|
|
Multi-family
|
|
|
38,402
|
|
|
|
14,080
|
|
|
|
—
|
|
|
|
62
|
|
|
|
24,260
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
7,366
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,366
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
16,538
|
|
|
|
2,943
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,851
|
|
|
|
2,656
|
|
|
|
4,088
|
|
Unimproved land
|
|
|
11,382
|
|
|
|
3,527
|
|
|
|
—
|
|
|
|
35
|
|
|
|
7,820
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
9,735
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,135
|
|
|
|
480
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total December 31, 2013
|
|
$
|
1,133,980
|
|
|
$
|
230,202
|
|
|
$
|
9,518
|
|
|
$
|
6,930
|
|
|
$
|
844,304
|
|
|
$
|
15,768
|
|
|
$
|
27,258
|
|
As part of the AFI merger in 2012, the 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 March 31, 2014 was approximately $55,226, net of a discount of $27,130. The Company
maintained an allowance for loan losses of $1,472 at March 31, 2014 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 March 31, 2014 and 2013, the Company accreted $2,704 and $2,852,
respectively, into interest income on acquired loans. The remaining accretable discount was $17,643 at March 31, 2014. In
addition, $52,958 of the $55,226 in loans is covered by the FDIC loss share agreements.
The initial fair value for loans acquired from 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.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
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 March
31, 2014 and December 31, 2013, are summarized below.
|
|
Fair value measurements at March 31, 2014 using
|
|
|
March 31,
2014
|
|
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
|
|
$
|
926
|
|
|
$
|
—
|
|
|
$
|
926
|
|
|
$
|
—
|
|
Municipal securities
|
|
|
6,013
|
|
|
|
—
|
|
|
|
6,013
|
|
|
|
—
|
|
Commercial mortgage-backed
|
|
|
4,136
|
|
|
|
—
|
|
|
|
4,136
|
|
|
|
—
|
|
Residential collateralized mortgage
obligations
|
|
|
550
|
|
|
|
—
|
|
|
|
550
|
|
|
|
—
|
|
Residential mortgage-backed
|
|
|
312,203
|
|
|
|
—
|
|
|
|
312,203
|
|
|
|
—
|
|
|
|
$
|
323,828
|
|
|
$
|
—
|
|
|
$
|
323,828
|
|
|
$
|
—
|
|
|
|
Fair value measurements at December, 2013 using
|
|
|
December 31,
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
|
|
$
|
918
|
|
|
$
|
—
|
|
|
$
|
918
|
|
|
$
|
—
|
|
Municipal securities
|
|
|
5,604
|
|
|
|
—
|
|
|
|
5,604
|
|
|
|
—
|
|
Commercial mortgage-backed
|
|
|
4,074
|
|
|
|
—
|
|
|
|
4,074
|
|
|
|
—
|
|
Residential collateralized mortgage
obligations
|
|
|
818
|
|
|
|
—
|
|
|
|
818
|
|
|
|
—
|
|
Residential mortgage-backed
|
|
|
316,547
|
|
|
|
—
|
|
|
|
316,547
|
|
|
|
—
|
|
|
|
$
|
327,961
|
|
|
$
|
—
|
|
|
$
|
327,961
|
|
|
$
|
—
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 5 – FAIR VALUES (continued)
There were no liabilities measured at fair value on a recurring
basis at March 31, 2014 and December 31, 2013.
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 on collateral for impaired loans and other real estate owned
which has not been sold to the appraisal value to arrive at fair value. Based on our most recent analysis, no discounts to current
appraisals have been warranted.
The significant unobservable inputs used in the fair value
measurements for Level 3 assets measured at fair value on a nonrecurring basis as of March 31, 2014 and December 31, 2013 are as
follows:
Impaired Loans
|
|
Valuation
Techniques
|
|
Range of Unobservable Inputs
|
|
|
|
|
|
Residential
|
|
Appraisals of collateral value
|
|
Adjustment for sales comparatives related to physical features including gross living area, site size, location and condition, generally a decline of 10% to an increase of 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 35% to no change
|
|
|
|
|
|
Other Real Estate
|
|
|
|
|
|
|
|
|
|
Residential
|
|
Appraisals of collateral value
|
|
Adjustment for sales comparatives related to physical features including gross living area, site size, location and condition, generally an decline of 10% to an increase of 25%
|
Commercial
|
|
Appraisals of collateral value
|
|
Adjustment for age and physical conditions of comparable sales, generally a decline of 20% to an increase of 30%
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 5 – FAIR VALUES (continued)
Assets measured at fair value on a non-recurring basis are
summarized below.
|
|
Fair value measurements at March 31, 2014 using
|
|
|
March 31,
2014
|
|
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
|
|
$
|
1,364
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,364
|
|
Commercial
|
|
|
1,092
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,092
|
|
Commercial real estate
|
|
|
3,844
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,844
|
|
Construction and land development
|
|
|
257
|
|
|
|
—
|
|
|
|
—
|
|
|
|
257
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
6,557
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,557
|
|
Other real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
11,751
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,751
|
|
Residential real estate
|
|
|
4,487
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,487
|
|
|
|
$
|
16,238
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,238
|
|
At March 31, 2014, impaired loans, which had a specific allowance
for loan losses allocated, had a carrying amount of $8,650, with a valuation allowance of $2,093 resulting in an additional provision
of loan losses of $412 during the three months ended March 31, 2014.
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 $16,238, and had no valuation allowance
at March 31, 2014. During the three months ended March 31, 2014 the Company recorded write-downs to other real estate owned
of $244 due to reductions in the estimated fair value of properties.
|
|
Fair value measurements at December 31, 2013 using
|
|
|
December 31,
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
|
|
$
|
1,490
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,490
|
|
Commercial
|
|
|
1,111
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,111
|
|
Commercial real estate
|
|
|
5,522
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,522
|
|
Construction and land development
|
|
|
256
|
|
|
|
—
|
|
|
|
—
|
|
|
|
256
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
8,379
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,379
|
|
Other real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
14,740
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,740
|
|
Residential
|
|
|
3,840
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,840
|
|
|
|
$
|
18,580
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,580
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 5 – FAIR VALUES (continued)
At December 31, 2013, impaired loans, which
had a specific allowance for loan losses allocated, had a carrying amount of $10,358, with a valuation allowance of $1,979. For
the quarter ended March 31, 2013, we recorded additional provision for loan losses of $787.
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 $18,580, and had no valuation allowance
at December 31, 2013. During the three months ended March 31, 2013, the Company recorded write-downs to other real estate owned
of $464 due to reductions in the estimated fair value of properties.
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 2014 and 2013.
Carrying amount and estimated fair values of financial instruments
were as follows at March 31, 2014 and December 31, 2013, respectively.
|
|
March 31, 2014
|
|
December 31, 2103
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
78,314
|
|
|
$
|
78,314
|
|
|
$
|
198,221
|
|
|
$
|
198,221
|
|
Securities available for sale
|
|
|
323,828
|
|
|
|
323,828
|
|
|
|
327,961
|
|
|
|
327,961
|
|
Loans, net, including loans held for sale
|
|
|
1,149,316
|
|
|
|
1,152,545
|
|
|
|
1,124,571
|
|
|
|
1,130,355
|
|
Nonmarketable equity securities
|
|
|
9,488
|
|
|
|
N/A
|
|
|
|
9,977
|
|
|
|
N/A
|
|
FDIC loss share receivable
|
|
|
25,951
|
|
|
|
25,951
|
|
|
|
29,331
|
|
|
|
29,331
|
|
Accrued interest receivable
|
|
|
3,988
|
|
|
|
3,988
|
|
|
|
3,991
|
|
|
|
3,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,429,381
|
|
|
$
|
1,430,115
|
|
|
$
|
1,547,913
|
|
|
$
|
1,548,743
|
|
Federal funds purchased and repurchase agreements
|
|
|
23,113
|
|
|
|
23,114
|
|
|
|
14,363
|
|
|
|
14,364
|
|
Federal Home Loan Bank advances
|
|
|
35,015
|
|
|
|
35,165
|
|
|
|
35,018
|
|
|
|
35,167
|
|
Accrued interest payable
|
|
|
321
|
|
|
|
321
|
|
|
|
282
|
|
|
|
282
|
|
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.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 5 – FAIR VALUES (continued)
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.
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.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
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
March 31,
|
|
|
2014
|
|
2013
|
|
|
|
|
|
Beginning of period
|
|
$
|
29,331
|
|
|
$
|
48,568
|
|
Cash received
|
|
|
(1,003
|
)
|
|
|
(2,726
|
)
|
Discount accretion
|
|
|
21
|
|
|
|
238
|
|
Reduction for changes in cash flow estimates
|
|
|
(2,669
|
)
|
|
|
(3,058
|
)
|
Other
|
|
|
271
|
|
|
|
—
|
|
End of period
|
|
$
|
25,951
|
|
|
$
|
43,022
|
|
As of March 31, 2014 and December 31, 2013, 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.
Pursuant to each loss share agreement, the Company calculates an
estimated amount due to the FDIC related to losses in acquired assets. An amount is payable at the end of the year of each respective
loss share agreement and is generally based on the actual losses incurred. At March 31, 2014 and December 31, 2013, the Company
calculated $4,488 and 4,218 due to the FDIC pursuant to these contracts and recorded these amounts in other liabilities in the
consolidated balance sheets.
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.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
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
March 31,
|
|
2014
|
|
2013
|
Net income
|
$
|
2,686
|
|
$
|
1,620
|
Basic EPS:
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
33,847,574
|
|
|
33,772,105
|
Basic
EPS
|
$
|
0.08
|
|
$
|
0.05
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
33,847,574
|
|
|
33,772,105
|
Effect of dilutive shares:
|
|
|
|
|
|
Stock
options
|
|
490,757
|
|
|
77,029
|
Restricted stock
|
|
113,892
|
|
|
37,596
|
Total dilutive shares
|
|
34,452,223
|
|
|
33,886,730
|
Diluted EPS
|
$
|
0.08
|
|
$
|
0.05
|
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 was as follows at March 31, 2014 and December 31, 2013.
|
|
March 31, 2014
|
|
December 31, 2013
|
|
|
Fixed
Rate
|
|
Variable
Rate
|
|
Fixed
Rate
|
|
Variable
Rate
|
Commitments to make loans
|
|
$
|
32,196
|
|
|
$
|
18,450
|
|
|
$
|
29,104
|
|
|
$
|
22,557
|
|
Unused lines of credit
|
|
|
7,029
|
|
|
|
90,229
|
|
|
|
9,283
|
|
|
|
98,035
|
|
Stand-by letters of credit
|
|
|
6,882
|
|
|
|
707
|
|
|
|
7,205
|
|
|
|
782
|
|
The fixed rate loan commitments have interest rates ranging
from 3.0% to 6.25% and the underlying loans have maturities ranging from seven 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 “EBI 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 EBI Merger
Agreement) which was comprised of $5.1 million in cash, $20.1 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 $5.5 million. We integrated the EBI operations during the third
quarter of 2013.
Financial Overview
OPERATING RESULTS
For the quarter ended March 31, 2014, we reported net income
of $2.7 million compared to net income of $1.6 million for the quarter ended March 31, 2013. The increase in net income for the
three months ended March 31, 2014 as compared to the same period ended March 31, 2013 was mostly an increase in interest income
on loans and securities and a reduction in the provision for loan losses offset by an increase in salaries and employee benefits.
|
|
|
|
●
|
Net interest margin was 4.97% for the quarter ended March 31, 2014 compared to 5.09% for the quarter ended March 31, 2013.
|
|
|
|
|
●
|
The Company recorded provision for loan losses of $333,000 for the three months ended March 31, 2014, compared to provision for loan losses of $650,000 the three months ended March 31, 2013.
|
|
|
|
|
●
|
Total loans increased by approximately $25.1 million to $1.159 billion for the three months ended March 31, 2014 as a result of new loan production and loan advances of $79.4 million which was partially offset by payoffs, resolutions, including transfers to OREO, and principal payments of $54.3 million during the period.
|
|
|
|
|
●
|
Non-performing assets at March 31, 2014 represented 1.81% of total assets compared to 1.87% at December 31, 2013. Non-performing assets not covered by the Loss Share Agreements represented 0.87% of total assets at March 31, 2014 compared to 0.91% at December 31, 2013.
|
|
|
|
|
●
|
Securities available for sale decreased by approximately $4.1 million from December 31,
2013 to $323.8 million at March 31, 2014. The decrease was a result of investment maturities and principal payments of
$8.0 million offset by a decrease in the net unrealized loss on securities available for sale of $4.4 million. There
were no gains on sales of securities for the three months ended March 31, 2014 as compared to gains on sales of securities of
$122,000 for the three months ended March 31, 2013.
|
|
●
|
Other real estate owned (“OREO”) decreased by $2.3 million to $16.2 million at March 31, 2014 from $18.6 million at December 31, 2013. The change was due to the sale of REO of $4.9 million and fair value adjustments on existing properties of $244,000 which was partially offset by the foreclosure of $2.6 million of loans. Gains on the sale of OREO for three months ended March 31, 2014 and 2013 were $213,000 and $441,000, respectively.
|
|
|
|
|
●
|
The FDIC loss share receivable was reduced by approximately $3.4 million from $29.3 million at December 31, 2013 to $26.0 million at March 31, 2014. The decrease was due to cash receipts of approximately $1.0 million, a reduction of $2.7 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 $21,000.
|
|
|
|
|
●
|
Deposits decreased by $118.5 million from $1.55 billion at December 31, 2013 to $1.43
billion at March 31, 2014 due to the payout of a $128 million short term deposit in January 2014 and normal customer balance
fluctuations. Non-interest bearing deposits increased by $13.3 million to $539.6 million at March 31, 2014, as compared to
December 31, 2013. The percentage of non-interest bearing deposits to total deposits was approximately 38% at
March 31, 2014 and approximately 34% at December 31, 2013.
|
Analysis for Three Month Periods ended March 31, 2014
and 2013
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 March 31, 2014 and 2013, respectively, are reflected in the following table:
|
|
March 31, 2014
|
|
March 31, 2013
|
|
(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
|
|
$
|
1,154,630
|
|
$
|
17,287
|
|
|
6.07
|
%
|
$
|
914,403
|
|
$
|
16,171
|
|
|
7.17
|
%
|
Investment securities
|
|
|
328,279
|
|
|
2,103
|
|
|
2.56
|
%
|
|
290,990
|
|
|
1,368
|
|
|
1.88
|
%
|
Federal funds sold and securities purchased under resale agreements
|
|
|
40,486
|
|
|
148
|
|
|
1.49
|
%
|
|
127,027
|
|
|
181
|
|
|
0.58
|
%
|
Total interest-earning assets
|
|
|
1,523,395
|
|
|
19,538
|
|
|
5.20
|
%
|
|
1,332,420
|
|
|
17,720
|
|
|
5.39
|
%
|
Non interest-earning assets
|
|
|
226,980
|
|
|
|
|
|
|
|
|
228,582
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(9,819
|
)
|
|
|
|
|
|
|
|
(9,661
|
)
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,740,556
|
|
|
|
|
|
|
|
$
|
1,551,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
214,688
|
|
$
|
61
|
|
|
0.12
|
%
|
$
|
171,953
|
|
$
|
55
|
|
|
0.13
|
%
|
Money market accounts
|
|
|
331,087
|
|
|
245
|
|
|
0.30
|
%
|
|
317,349
|
|
|
256
|
|
|
0.33
|
%
|
Savings accounts
|
|
|
58,192
|
|
|
16
|
|
|
0.11
|
%
|
|
63,117
|
|
|
40
|
|
|
0.26
|
%
|
Certificates of deposit
|
|
|
288,022
|
|
|
475
|
|
|
0.67
|
%
|
|
306,421
|
|
|
634
|
|
|
0.84
|
%
|
Fed funds purchased and repurchase agreements
|
|
|
16,939
|
|
|
4
|
|
|
0.10
|
%
|
|
19,290
|
|
|
6
|
|
|
0.13
|
%
|
Federal Home Loan Bank advances and other borrowings
|
|
|
55,127
|
|
|
57
|
|
|
0.42
|
%
|
|
—
|
|
|
—
|
|
|
0.00
|
%
|
Total interest-bearing liabilities
|
|
|
964,055
|
|
|
858
|
|
|
0.36
|
%
|
|
878,130
|
|
|
991
|
|
|
0.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit accounts
|
|
|
526,762
|
|
|
|
|
|
|
|
|
429,035
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
14,751
|
|
|
|
|
|
|
|
|
6,473
|
|
|
|
|
|
|
|
Total non-interest-bearing liabilities
|
|
|
541,513
|
|
|
|
|
|
|
|
|
435,508
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
234,988
|
|
|
|
|
|
|
|
|
237,703
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,740,556
|
|
|
|
|
|
|
|
$
|
1,551,341
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
$
|
18,680
|
|
|
4.84
|
%
|
|
|
|
$
|
16,729
|
|
|
4.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest on average earning assets - Margin
|
|
|
|
|
|
|
|
|
4.97
|
%
|
|
|
|
|
|
|
|
5.09
|
%
|
Net interest income was $18.7 million for the three months ended
March 31, 2014, as compared to $16.7 million for the three months ended March 31, 2013, an increase of $2.0 million, or 11.7%.
The increase resulted primarily from increase in average earning assets of $191.0 million or 14.3% 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 $970,000 and was offset with a reduction in the cost of funds of 7 basis points. The increase in total average
earning assets was due to the EBI acquisition and net loan growth.
Interest earnings for the current quarter
were positively impacted by the accretion of discounts related to acquired loans of approximately $3.9 million as compared to
$4.9 million for the same period in 2013. Included in the $3.9 million of accretion of discount for the quarter ended March
31, 2014 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 March 31, 2014, we took a charge of approximately $2.7 million, including
$298,000 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 $4.9 million of accretion discount for the quarter ended March
31, 2013 was approximately $3.0 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
March 31, 2013, we took a charge of approximately $3.1 million, including $347,000 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.
The net interest margin (i.e., net interest income divided by average
earning assets) decreased 12 basis points from 5.09% during the three months ended March 31, 2013 to 4.97% during the three months
ended March 31, 2014. Accretion of loan discounts of $3.9 million on acquired loans added approximately 104 basis points
to the quarter ended March 31, 2014 net interest margin. Of the 104 basis points, 75 basis points related to resolved loss share
assets and changes in cash flows during the quarter. This compares to accretion of loan discount of $4.9 million during the three
months ended March 31, 2013, which added approximately 148 basis points to the March 31, 2013 margin. Of the 148 basis points
for the quarter ended March 31, 2013, 91 basis points related to resolved loss share assets and changes in cash flows. For the
three months ended March 31, 2014, average loans represented 66.3% of total average assets and 80.4% of total average deposits
and customer repurchase agreements, compared to average loans of 58.94% of total average assets and average loans of 69.95% to
total average deposits and customer repurchase agreements at March 31, 2013. Our cost of funds was approximately 7 basis points
lower for the three months ended March 31, 2014, as compared to March 31, 2013, 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 March 31, 2014 as compared to the three months ended
March 31, 2013. 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
March 31, 2014 and 2013:
|
|
March 31, 2014 and 2013
|
(Dollars in thousands)
|
|
Change
in
Interest
Income/
Expense
|
|
Variance
Due to
Volume
Changes
|
|
Variance
Due to
Rate
Changes
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
1,116
|
|
|
$
|
3,837
|
|
|
$
|
(2,721
|
)
|
Investment securities
|
|
|
735
|
|
|
|
192
|
|
|
|
543
|
|
Federal funds sold and securities purchased under resale agreements
|
|
|
(32
|
)
|
|
|
(182
|
)
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
1,819
|
|
|
$
|
3,847
|
|
|
$
|
(2,028
|
)
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
6
|
|
|
$
|
13
|
|
|
$
|
(7
|
)
|
Money market accounts
|
|
|
(11
|
)
|
|
|
11
|
|
|
|
(22
|
)
|
Savings accounts
|
|
|
(24
|
)
|
|
|
(3
|
)
|
|
|
(21
|
)
|
Certificates of deposit
|
|
|
(159
|
)
|
|
|
(36
|
)
|
|
|
(123
|
)
|
Fed funds purchased and repurchase agreements
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
Other borrowings
|
|
|
57
|
|
|
|
57
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
(132
|
)
|
|
|
41
|
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
$
|
1,951
|
|
|
$
|
3,806
|
|
|
$
|
(1,855
|
)
|
Non-interest Income, Non-interest Expense, Provision
for Loan Losses, and Income Tax Expense
The following is a schedule of non-interest income for three
months ended March 31, 2014 and 2013, respectively:
|
|
Three months ended
|
|
|
|
|
(Dollars in thousands)
|
|
March 31,
2014
|
|
|
March 31,
2013
|
|
|
Difference
|
|
Service charges and fees on deposit accounts
|
|
$
|
809
|
|
|
$
|
796
|
|
|
$
|
13
|
|
Net gains on sales of other real estate owned
|
|
|
213
|
|
|
|
441
|
|
|
|
(228
|
)
|
Net gains on sales of securities
|
|
|
—
|
|
|
|
122
|
|
|
|
(122
|
)
|
Net gains on sales of loans held for sale
|
|
|
—
|
|
|
|
46
|
|
|
|
(46
|
)
|
Increase in cash surrender value of Company owned life insurance
|
|
|
159
|
|
|
|
147
|
|
|
|
12
|
|
Adjustment to FDIC loss share receivable
|
|
|
(2,648
|
)
|
|
|
(2,820
|
)
|
|
|
172
|
|
Other
|
|
|
221
|
|
|
|
280
|
|
|
|
(59
|
)
|
Total non-interest income
|
|
$
|
(1,246
|
)
|
|
$
|
(988
|
)
|
|
$
|
(258
|
)
|
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 by $258,000 for the quarter ended March 31, 2014 when compared to the quarter
ended March 31, 2013. The decrease was principally a result of a reduction in the gains on the sales of other real estate, no sales
of securities or loans held for sale in the current quarter, offset by a decrease in the adjustment to the FDIC loss share receivable
due to less resolution of assets above their carrying value quarter over quarter.
During the three months ended March 31, 2014, we received
proceeds from the sale of OREO properties of $4.9 million with a carrying value of $4.7 million and recorded a net gain of $213,000
on the these dispositions as compared to sales of $2.6 million of OREO with a carrying value of $2.1 million resulting in a net
gain of $441,000 million for the three months ended March 31, 2013. Net gains on the resolution of OREO covered under loss sharing
agreements for the three months ended March 31, 2014 and 2013 were $306,000 and $441,000, respectively.
During the three months ended March 31, 2014, we had no sales
of securities. For the three months ended March 31, 2013, we sold approximately $8.8 million in securities for gains of $122,000.
The adjustment to the FDIC loss share receivable during the
quarter ended March 31, 2014 represented a $2.7 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 $3.1 million for the quarter
ended March 31, 2013. These amounts were partially offset by interest income earned on the FDIC receivable of $21,000 and $239,000
for the quarters ended March 31, 2014 and 2013, 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 $424,000, or 3.4%, from $12.5 million for the three months ended March 31, 2013
to $12.9 million for the three months ended March 31, 2014, primarily due to integration of EBI operations and the assumption
of staff and operations from the EBI acquisition offset by lower write downs of other real estate owned.
The following summarizes the changes in non-interest expense
accounts for the three months ended March 31, 2014 compared to the three months ended March 31, 2013:
|
|
Three months ended
|
|
|
|
|
(Dollars in thousands)
|
|
March 31,
2014
|
|
March 31,
2013
|
|
|
Difference
|
Salaries and employee benefits
|
|
$
|
6,556
|
|
|
$
|
6,199
|
|
|
$
|
357
|
|
Occupancy and equipment
|
|
|
2,021
|
|
|
|
1,969
|
|
|
|
52
|
|
Data processing
|
|
|
984
|
|
|
|
930
|
|
|
|
54
|
|
Telephone
|
|
|
259
|
|
|
|
229
|
|
|
|
30
|
|
Stationery and supplies
|
|
|
74
|
|
|
|
91
|
|
|
|
(17
|
)
|
Amortization of intangibles
|
|
|
195
|
|
|
|
172
|
|
|
|
23
|
|
Professional fees
|
|
|
417
|
|
|
|
387
|
|
|
|
30
|
|
Advertising
|
|
|
69
|
|
|
|
88
|
|
|
|
(19
|
)
|
Regulatory assessment
|
|
|
420
|
|
|
|
358
|
|
|
|
62
|
|
Other real estate owned expense
|
|
|
401
|
|
|
|
579
|
|
|
|
(178
|
)
|
Loan expense
|
|
|
361
|
|
|
|
347
|
|
|
|
14
|
|
Other
|
|
|
1,143
|
|
|
|
1,127
|
|
|
|
16
|
|
Total non-interest expense
|
|
$
|
12,900
|
|
|
$
|
12,476
|
|
|
$
|
424
|
|
Salary and employee benefits increased by approximately $357,000
or 5.8% to $6.6 million for the three months ended March 31, 2014 as compared to $6.2 million for the three months ended March
31, 2013. The increase was primarily due to staff additions from the EBI acquisition and increased incentive compensation related
to various production goals period over period.
Other real estate owned (“OREO”) expense
decreased by approximately $178,000 to $401,000 for the three months ended March 31, 2014, as compared to $579,000 for the
three months ended March 31, 2013. The change was primarily due to a decrease in write downs on OREO properties by $220,000
period over period due to changes in estimated fair values. Total write downs were $244,000 during the quarter ended March
31, 2014 as compared to $464,000 for the quarter ended March 31, 2013.
Loan expense includes the costs associated with the collection
of legacy as well as loss sharing assets. Loan expense was consistent $361,000 for the quarter ended March 31, 2014 as compared
to $347,000 for the three months ended March 31, 2013.
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
March 31, 2014, we recorded $333,000 in provision for loan losses as compared to $650,000 for the three months ended March 31,
2013. The decrease in the provision for loan losses quarter-over-quarter was due to a reduction in charge-offs, one large loan
recovery and a reduction of impaired assets. Total charge-offs were $297,000 with recoveries of $349,000, principally related to
one loan, for the quarter ended March 31, 2014. Net recoveries for the quarter ended March 31, 2014 were $52,000 as compared to
net charge-offs of $915,000 for the quarter ended March 31, 2013.
We recorded income tax expense of $1.5 million for the three
months ended March 31, 2014, compared to $995,000 for the three months ended March 31, 2013. The increase is due to higher pretax
income for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013.
FINANCIAL CONDITION
At March 31, 2014, our total assets were $1.738 billion
and our net loans were $1.149 billion or 66.1% of total assets. At December 31, 2013, our total assets were $1.845 billion
and our net loans were $1.125 million or 61.0% of total assets. Cash and cash equivalents decreased primarily as a result of
the withdrawal by one customer of a short term deposit of $128 million in January 2014 and net loan origination for the
quarter. Total loans increased by approximately $25.1 million to $1.159 billion at March 31, 2014 due to new loan production
and loan advances of $79.4 million offset by payoffs, resolutions, including transfer to OREO, and principal reductions of
$54.3 million.
At March 31, 2014, the allowance for loan losses was
$10.0 million or 0.87% of total loans. At December 31, 2013, the allowance for loan losses was $9.6 million or 0.85% of total
loans.
Securities available for sale decreased by $4.1 million to
$323.8 million at March 31, 2014 due to maturities and principal payments of $8.0 million and a reduction in the net unrealized
loss since December 31, 2013.
At March 31, 2014, our total deposits were $1.429 billion,
a decrease of $118.5 million compared to $1.548 billion at December 31, 2013, due to the withdrawal by one customer of a short
term deposit of $128 million in January of 2014. Non-interest bearing deposits represented 37.8% of total deposits at March 31,
2014 compared to 34.0% at December 31, 2013.
At March 31, 2014 and December 31, 2013, Federal Home Loan
Bank advances were $35.0 million and were acquired as part of the EBI merger.
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 March 31, 2014 and December
31, 2013, 85.6%, 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 March 31, 2014 and December 31, 2013, 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 85.6%, 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 March 31, 2014 and December 31, 2013.
Loan Portfolio as of March 31,
2014
(Dollars in thousands)
|
|
Total
Loans
|
|
Total
|
|
Percent of
Loan Portfolio
|
|
Percent of
Total Assets
|
Loan Types
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
|
483
|
|
|
$
|
113,992
|
|
|
|
9.83
|
%
|
|
|
6.56
|
%
|
HELOCs and equity
|
|
|
399
|
|
|
|
64,414
|
|
|
|
5.56
|
%
|
|
|
3.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
701
|
|
|
|
148,293
|
|
|
|
12.79
|
%
|
|
|
8.53
|
%
|
Secured – real estate
|
|
|
92
|
|
|
|
55,813
|
|
|
|
4.82
|
%
|
|
|
3.21
|
%
|
Unsecured
|
|
|
54
|
|
|
|
7,456
|
|
|
|
0.64
|
%
|
|
|
0.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
274
|
|
|
|
222,285
|
|
|
|
19.18
|
%
|
|
|
12.79
|
%
|
Non-owner occupied
|
|
|
337
|
|
|
|
447,417
|
|
|
|
38.60
|
%
|
|
|
25.74
|
%
|
Multi-family
|
|
|
73
|
|
|
|
47,085
|
|
|
|
4.06
|
%
|
|
|
2.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
14
|
|
|
|
12,480
|
|
|
|
1.08
|
%
|
|
|
0.72
|
%
|
Improved land
|
|
|
26
|
|
|
|
17,724
|
|
|
|
1.53
|
%
|
|
|
1.02
|
%
|
Unimproved land
|
|
|
18
|
|
|
|
11,164
|
|
|
|
0.96
|
%
|
|
|
0.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
179
|
|
|
|
10,943
|
|
|
|
0.95
|
%
|
|
|
0.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total March 31, 2014
|
|
|
2,650
|
|
|
$
|
1,159,066
|
|
|
|
100
|
%
|
|
|
66.69
|
%
|
Loan Portfolio as of December
31, 2013
(Dollars in thousands)
|
|
Total
Loans
|
|
Total
|
|
Percent of
Loan Portfolio
|
|
Percent of
Total Assets
|
Loan Types
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
|
490
|
|
|
$
|
117,830
|
|
|
|
10.39
|
%
|
|
|
6.39
|
%
|
HELOCs and equity
|
|
|
400
|
|
|
|
61,014
|
|
|
|
5.38
|
%
|
|
|
3.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
697
|
|
|
|
145,298
|
|
|
|
12.81
|
%
|
|
|
7.87
|
%
|
Secured – real estate
|
|
|
91
|
|
|
|
57,052
|
|
|
|
5.03
|
%
|
|
|
3.09
|
%
|
Unsecured
|
|
|
57
|
|
|
|
7,914
|
|
|
|
0.70
|
%
|
|
|
0.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
268
|
|
|
|
209,467
|
|
|
|
18.47
|
%
|
|
|
11.35
|
%
|
Non-owner occupied
|
|
|
328
|
|
|
|
451,982
|
|
|
|
39.85
|
%
|
|
|
24.50
|
%
|
Multi-family
|
|
|
72
|
|
|
|
38,402
|
|
|
|
3.39
|
%
|
|
|
2.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
12
|
|
|
|
7,366
|
|
|
|
0.65
|
%
|
|
|
0.40
|
%
|
Improved land
|
|
|
24
|
|
|
|
16,538
|
|
|
|
1.46
|
%
|
|
|
0.90
|
%
|
Unimproved land
|
|
|
19
|
|
|
|
11,382
|
|
|
|
1.00
|
%
|
|
|
0.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
178
|
|
|
|
9,735
|
|
|
|
0.87
|
%
|
|
|
0.53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total December 31, 2013
|
|
|
2,636
|
|
|
$
|
1,133,980
|
|
|
|
100.00
|
%
|
|
|
61.47
|
%
|
The following chart illustrates the composition of our
construction and land development loan portfolio as of March 31, 2014 and December 31, 2013.
|
|
March 31, 2014
|
|
December 31, 2013
|
(Dollars in thousands)
|
|
Balance
|
|
% of
Total Loans
|
|
Balance
|
|
% of
Total Loans
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
546
|
|
|
|
0.05
|
%
|
|
$
|
272
|
|
|
|
0.02
|
%
|
Residential spec
|
|
|
4,265
|
|
|
|
0.37
|
%
|
|
|
1,423
|
|
|
|
0.13
|
%
|
Commercial
|
|
|
7,669
|
|
|
|
0.66
|
%
|
|
|
5,671
|
|
|
|
0.50
|
%
|
Commercial spec
|
|
|
—
|
|
|
|
0.00
|
%
|
|
|
—
|
|
|
|
0.00
|
%
|
Land Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
5,240
|
|
|
|
0.45
|
%
|
|
|
5,377
|
|
|
|
0.47
|
%
|
Residential spec
|
|
|
5,079
|
|
|
|
0.44
|
%
|
|
|
5,223
|
|
|
|
0.45
|
%
|
Commercial
|
|
|
7,478
|
|
|
|
0.65
|
%
|
|
|
6,044
|
|
|
|
0.55
|
%
|
Commercial spec
|
|
|
11,091
|
|
|
|
0.96
|
%
|
|
|
11,276
|
|
|
|
0.99
|
%
|
Total
|
|
$
|
41,368
|
|
|
|
3.57
|
%
|
|
$
|
35,286
|
|
|
|
3.11
|
%
|
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 March 31, 2014 and December 31, 2013 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 March 31, 2014, and December
31, 2013, which are performing in accordance with their modification agreements.
(Dollars in thousands)
|
|
March 31,
2014
|
|
December 31,
2013
|
Residential real estate
|
|
$
|
907
|
|
|
$
|
834
|
|
Commercial real estate
|
|
|
12,907
|
|
|
|
15,341
|
|
Construction and land development
|
|
|
142
|
|
|
|
143
|
|
Commercial
|
|
|
2,279
|
|
|
|
2,328
|
|
Total
|
|
$
|
16,235
|
|
|
$
|
18,646
|
|
The decrease of $2.4 million in performing restructured loans to
$16.2 million at March 31, 2014 from $18.6 million at December 31, 2013 was due to new performing modifications of approximately
$134,000 million offset by approximately $1.7 million in loans that defaulted under the terms of their modification agreement and
were included in nonaccrual loans at March 31, 2014. In addition, there were approximately $815,000 in repayments and resolutions
of modified loans.
At March 31, 2014, there were 17 loans that were troubled
debt restructured loans with a carrying amount of $7.4 million and specific reserves of $487,000 that were non-accrual. At December
31, 2013, there were 18 loans which were troubled debt restructured loans with a carrying amount of $7.5 million and specific reserves
of $608,000 that were non-accrual. 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 4.18% and 4.38% at March 31, 2014 and December 31, 2013, respectively.
During the three months ended March 31, 2014, we had $470,000
in loans for which we lowered the interest rate prior to maturity to competitively retain a loan. During the year ended December
31, 2013, we had approximately $10.6 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 March 31, 2014 and 2013, interest
income not recognized on non-accrual loans (but would have been recognized if these loans were current) was approximately $153,000
and $251,000, respectively.
Our non-performing and troubled debt restructured assets
at March 31, 2014 and December 31, 2013 were as follows:
|
|
March 31, 2014
|
|
December 31, 2013
|
(Dollars in thousands)
|
|
Assets Not
Subject to
Loss Sharing
Agreements
|
|
Assets
Subject to
Loss Sharing
Agreements
|
|
Total
|
|
Assets Not
Subject to
Loss Sharing
Agreements
|
|
Assets
Subject to
Loss Sharing
Agreements
|
|
Total
|
Non-Accrual Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgages
|
|
$
|
46
|
|
|
$
|
2,626
|
|
|
$
|
2,672
|
|
|
$
|
48
|
|
|
$
|
3,137
|
|
|
$
|
3,185
|
|
Home equity lines
|
|
|
418
|
|
|
|
256
|
|
|
|
674
|
|
|
|
491
|
|
|
|
96
|
|
|
|
587
|
|
Commercial real estate
|
|
|
3,316
|
|
|
|
2,689
|
|
|
|
6,005
|
|
|
|
3,297
|
|
|
|
3,045
|
|
|
|
6,342
|
|
Construction and land development
|
|
|
3,650
|
|
|
|
34
|
|
|
|
3,684
|
|
|
|
3,688
|
|
|
|
35
|
|
|
|
3,723
|
|
Commercial
|
|
|
1,459
|
|
|
|
401
|
|
|
|
1,860
|
|
|
|
1,518
|
|
|
|
455
|
|
|
|
1,973
|
|
Consumer
|
|
|
34
|
|
|
|
—
|
|
|
|
34
|
|
|
|
26
|
|
|
|
—
|
|
|
|
26
|
|
Total
|
|
$
|
8,923
|
|
|
$
|
6,006
|
|
|
$
|
14,929
|
|
|
$
|
9,068
|
|
|
$
|
6,768
|
|
|
$
|
15,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing => 90 days past due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Home equity lines
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
361
|
|
|
|
—
|
|
|
|
361
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
361
|
|
|
$
|
—
|
|
|
$
|
361
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accruing loans
|
|
$
|
8,923
|
|
|
$
|
6,006
|
|
|
$
|
14,929
|
|
|
$
|
9,068
|
|
|
$
|
6,768
|
|
|
$
|
15,836
|
|
Accruing => 90 days past due
|
|
|
361
|
|
|
|
—
|
|
|
|
361
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Foreclosed real estate
|
|
|
5,795
|
|
|
|
10,443
|
|
|
|
16,238
|
|
|
|
7,763
|
|
|
|
10,817
|
|
|
|
18,580
|
|
Total non-performing assets
|
|
|
15,079
|
|
|
|
16,449
|
|
|
|
31,528
|
|
|
|
16,831
|
|
|
|
17,585
|
|
|
|
34,416
|
|
Performing troubled debt restructured loans
|
|
|
14,969
|
|
|
|
1,266
|
|
|
|
16,235
|
|
|
|
17,281
|
|
|
|
1,365
|
|
|
|
18,646
|
|
Total non-performing assets and performing troubled debt restructured loans
|
|
$
|
30,048
|
|
|
$
|
17,715
|
|
|
$
|
47,763
|
|
|
$
|
34,112
|
|
|
$
|
18,950
|
|
|
$
|
53,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accruing and accruing => 90 days past due loans to total loans
|
|
|
0.80
|
%
|
|
|
0.52
|
%
|
|
|
1.32
|
%
|
|
|
0.80
|
%
|
|
|
0.60
|
%
|
|
|
1.40
|
%
|
Total non-performing assets to total assets
|
|
|
0.87
|
%
|
|
|
0.95
|
%
|
|
|
1.81
|
%
|
|
|
0.91
|
%
|
|
|
0.95
|
%
|
|
|
1.87
|
%
|
Total non-performing assets and performing troubled debt restructured loans to total assets
|
|
|
1.73
|
%
|
|
|
1.02
|
%
|
|
|
2.75
|
%
|
|
|
1.85
|
%
|
|
|
1.03
|
%
|
|
|
2.88
|
%
|
Included in non-accrual loans are purchase credit impaired
loans of $2.6 million for which cash flows could not be reasonably estimated with $2.5 million of these loans subject to Loss Share
Agreements. Additionally, included in non-accrual loans at March 31, 2014 and December 31, 2013 were $4.8 million and $4.2 million,
respectively, of loans performing in accordance with their contractual terms but which the Company placed on non-accrual status
due to identified risks within the credit. Of the non-performing assets and performing troubled debt restructured loans at March
31, 2014, $17.7 million were acquired in the Old Harbor, TBOM and Republic transactions and are all covered under the Loss Share
Agreements as compared to $19.0 million at December 31, 2013.
Since December 31, 2013, for non-performing loans not subject
to Loss Share Agreements, we had approximately $210,000 in non-accrual loans which were charged off, $2.0 million were paid off
or principal payments were applied, no loans were transferred to OREO or returned to accrual status and $2.1 million were added
to non-accrual during the three months ended March 31, 2014.
Past due loans, categorized by loans subject to Loss Share
Agreements and those not subject to Loss Share Agreements, at March 31, 2014 and December 31, 2013, were as follows:
March 31, 2014
|
|
Accruing 30 - 59
|
|
Accruing 60-89
|
|
Non-Accrual/accrual
and
90 days and over
|
|
Total
|
(Dollars in thousands)
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to
Loss Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to Loss
Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to
Loss Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to
Loss Sharing
Agreements
|
Residential real estate
|
|
$
|
409
|
|
|
$
|
505
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,882
|
|
|
$
|
464
|
|
|
$
|
3,291
|
|
|
$
|
969
|
|
Commercial
|
|
|
—
|
|
|
|
326
|
|
|
|
—
|
|
|
|
622
|
|
|
|
401
|
|
|
|
1,820
|
|
|
|
401
|
|
|
|
2,768
|
|
Commercial real estate
|
|
|
502
|
|
|
|
1,674
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,689
|
|
|
|
3,316
|
|
|
|
3,191
|
|
|
|
4,990
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34
|
|
|
|
3,650
|
|
|
|
34
|
|
|
|
3,650
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34
|
|
|
|
—
|
|
|
|
34
|
|
Total March 31, 2014
|
|
$
|
911
|
|
|
$
|
2,505
|
|
|
$
|
—
|
|
|
$
|
622
|
|
|
$
|
6,006
|
|
|
$
|
9,284
|
|
|
$
|
6,917
|
|
|
$
|
12,411
|
|
December 31, 2013
|
|
Accruing 30 - 59
|
|
Accruing 60-89
|
|
Non-Accrual/Accrual
90 days and over
|
|
Total
|
(Dollars in thousands)
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to
Loss Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to
Loss Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to
Loss Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to
Loss Sharing
Agreements
|
Residential real estate
|
|
$
|
333
|
|
|
$
|
1,085
|
|
|
$
|
162
|
|
|
$
|
24
|
|
|
$
|
3,233
|
|
|
$
|
539
|
|
|
$
|
3,728
|
|
|
$
|
1,648
|
|
Commercial
|
|
|
—
|
|
|
|
461
|
|
|
|
—
|
|
|
|
—
|
|
|
|
455
|
|
|
|
1,518
|
|
|
|
455
|
|
|
|
1,979
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,737
|
|
|
|
3,045
|
|
|
|
3,297
|
|
|
|
3,045
|
|
|
|
5,034
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35
|
|
|
|
3,688
|
|
|
|
35
|
|
|
|
3,688
|
|
Consumer and other
|
|
|
—
|
|
|
|
34
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
|
|
—
|
|
|
|
60
|
|
Total December 31, 2013
|
|
$
|
333
|
|
|
$
|
1,580
|
|
|
$
|
162
|
|
|
$
|
1,761
|
|
|
$
|
6,768
|
|
|
$
|
9,068
|
|
|
$
|
7,263
|
|
|
$
|
12,409
|
|
Past due loans subject to Loss Share Agreements decreased by
$346,000 from $7.3 million at December 31, 2013 to $6.9 million at March 31, 2014. Past due loans not subject to Loss Share
Agreements were consistent at $12.4 million at March 31, 2014 and December 31, 2013, respectively. The change in past
due loans covered under Loss Share Agreements was due to an increase in accruing loans which were past due less than 90 days
by $416,000 and a decrease in loans past due greater than 90 days and on non-accrual of $762,000 as the Company continues to
work towards resolutions and work out solutions for these assets. A decrease in loans 30-89 days past due was noted for loans
not covered under Loss Share Agreements which declined by $214,000 during the three months ended March 31, 2014 offset by an
increase in the non-accrual and 90 days or more past due category by $216,000.
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. At March 31, 2014, the Company had $13.5 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 March 31, 2014 and December 31, 2013.
|
|
Recorded Investment in Impaired Loans
|
|
|
With Allowance
|
|
With No Allowance
|
March 31, 2014
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans
Not Subject to
Loss Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans
Not Subject to
Loss Sharing
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
|
|
$
|
932
|
|
|
|
240
|
|
|
$
|
1,279
|
|
|
$
|
607
|
|
|
$
|
1,090
|
|
|
$
|
46
|
|
Commercial
|
|
|
363
|
|
|
|
69
|
|
|
|
1,464
|
|
|
|
666
|
|
|
|
—
|
|
|
|
1,964
|
|
Commercial real estate
|
|
|
598
|
|
|
|
76
|
|
|
|
3,478
|
|
|
|
156
|
|
|
|
1,032
|
|
|
|
11,790
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
526
|
|
|
|
269
|
|
|
|
—
|
|
|
|
3,265
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
|
|
10
|
|
|
|
—
|
|
|
|
—
|
|
Total March 31, 2014
|
|
$
|
1,893
|
|
|
$
|
385
|
|
|
$
|
6,757
|
|
|
$
|
1,708
|
|
|
$
|
2,122
|
|
|
$
|
17,065
|
|
|
|
Recorded Investment in Impaired Loans
|
|
|
With Allowance
|
|
With No Allowance
|
December 31, 2013
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans
Not Subject to
Loss Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans
Not Subject to
Loss Sharing
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
|
|
$
|
1,127
|
|
|
$
|
230
|
|
|
$
|
823
|
|
|
$
|
230
|
|
|
$
|
1,170
|
|
|
$
|
447
|
|
Commercial
|
|
|
409
|
|
|
|
105
|
|
|
|
1,537
|
|
|
|
730
|
|
|
|
—
|
|
|
|
1,991
|
|
Commercial real estate
|
|
|
603
|
|
|
|
99
|
|
|
|
5,332
|
|
|
|
314
|
|
|
|
1,374
|
|
|
|
12,316
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
527
|
|
|
|
271
|
|
|
|
—
|
|
|
|
3,303
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total December 31, 2013
|
|
$
|
2,139
|
|
|
$
|
434
|
|
|
$
|
8,219
|
|
|
$
|
1,545
|
|
|
$
|
2,544
|
|
|
$
|
18,057
|
|
Overall impaired loans decreased by $3.1 million from $31.0
million at December 31, 2013 to $27.8 million at March 31, 2014. Impaired loans subject to loss share agreements decreased by $668,000.
Impaired loans not subject to loss share agreements decreased by $2.5 million from December 31, 2013 to March 31, 2014 primarily
due to resolutions, including sales, payoffs and transfers to other real estate owned.
Allowance for Loan Losses
At March 31, 2014, the allowance for loan losses was $10.0
million or 0.87% of total loans. Inclusive within total loans is $143.7 million in loans acquired from EBI on July 1, 2013 which
are recorded at fair value and for which a minimal allowance was allocated at March 31, 2014. Excluding those loans, the allowance
for loan losses as a percentage of total loans would be 0.99% compared to 0.98% at December 31, 2013. At December 31, 2013, the
allowance for loan losses was $9.6 million or 0.85% of total loans.
At March 31, 2014 and December 31, 2013, we had $6.8
million and $8.2 million, respectively, of impaired loans not covered by Loss Share Agreements with an allocated allowance
for loan loss of $1.7 million and $1.5 million respectively. Charge-offs for the three months ended March 31, 2014 were
$297,000 offset by recoveries of $349,000, primarily related to one loan. Of these charge-offs, $259,000 was provided for as
of December 31, 2013. Overall loans graded special mention and substandard not covered by Loss Share Agreements decreased by
$2.7 million (or 6.3%) from December 31, 2013 to March 31, 2014 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 7 basis points of the allowance for loan losses as of both March 31, 2014
and December 31, 2013, 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 March 31, 2014 and December 31, 2013:
|
|
|
|
Loans Subject to Loss
Sharing Agreements
|
|
Loans Not Subject to Loss
Sharing Agreements
|
(Dollars in thousands)
|
|
Total
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
178,406
|
|
|
$
|
57,415
|
|
|
$
|
1,091
|
|
|
$
|
2,882
|
|
|
$
|
105,830
|
|
|
$
|
4,606
|
|
|
$
|
6,582
|
|
Commercial
|
|
|
211,562
|
|
|
|
25,733
|
|
|
|
311
|
|
|
|
401
|
|
|
|
179,018
|
|
|
|
2,571
|
|
|
|
3,528
|
|
Commercial real estate
|
|
|
716,787
|
|
|
|
124,853
|
|
|
|
7,968
|
|
|
|
2,689
|
|
|
|
565,528
|
|
|
|
5,303
|
|
|
|
10,446
|
|
Construction and land development:
|
|
|
41,368
|
|
|
|
6,291
|
|
|
|
—
|
|
|
|
34
|
|
|
|
28,357
|
|
|
|
2,644
|
|
|
|
4,042
|
|
Consumer and other
|
|
|
10,943
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,367
|
|
|
|
454
|
|
|
|
122
|
|
Total March 31, 2014
|
|
$
|
1,159,066
|
|
|
$
|
214,292
|
|
|
$
|
9,370
|
|
|
$
|
6,006
|
|
|
$
|
889,100
|
|
|
$
|
15,578
|
|
|
$
|
24,720
|
|
|
|
|
|
Loans Subject to Loss
Sharing Agreements
|
|
Loans Not Subject to Loss
Sharing Agreements
|
(Dollars in thousands)
|
|
Total
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
178,844
|
|
|
$
|
63,712
|
|
|
$
|
1,152
|
|
|
$
|
3,395
|
|
|
$
|
99,259
|
|
|
$
|
4,661
|
|
|
$
|
6,665
|
|
Commercial
|
|
|
210,264
|
|
|
|
26,799
|
|
|
|
319
|
|
|
|
455
|
|
|
|
176,434
|
|
|
|
2,647
|
|
|
|
3,610
|
|
Commercial real estate
|
|
|
699,851
|
|
|
|
133,219
|
|
|
|
8,047
|
|
|
|
3,045
|
|
|
|
537,439
|
|
|
|
5,324
|
|
|
|
12,777
|
|
Construction and land development:
|
|
|
35,286
|
|
|
|
6,470
|
|
|
|
—
|
|
|
|
35
|
|
|
|
22,037
|
|
|
|
2,656
|
|
|
|
4,088
|
|
Consumer and other
|
|
|
9,735
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,135
|
|
|
|
480
|
|
|
|
118
|
|
Total December 31, 2013
|
|
$
|
1,133,980
|
|
|
$
|
230,202
|
|
|
$
|
9,518
|
|
|
$
|
6,930
|
|
|
$
|
844,304
|
|
|
$
|
15,768
|
|
|
$
|
27,258
|
|
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 March 31, 2014 and December 31, 2013, loans which were classified as troubled debt restructured loans and were performing under
the terms of their modification agreements and were credit graded as substandard were $4.5 million and $7.6 million, respectively.
Substandard loans totaled $30.7 million at March 31,
2014 (of which $6.0 million were subject to the Loss Share Agreements) and $34.2 million at December 31, 2013 (of which $6.9
million were subject to the Loss Share Agreements). The decrease of $3.5 million since December 31, 2013 was primarily due to
the resolution of loans not covered under Loss Share Agreements of $2.5 million through sale, payoffs, charge-offs or
foreclosure and transfer to other real estate owned during the period. There was a decrease of $924,000 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 March 31, 2014, we had $27.8
million (or 2.4% of total loans) of loans classified as impaired. This compares to $31.0 million (or 2.7% of total loans) at
December 31, 2013. 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 March 31, 2014 and December 31, 2013, the specific credit allocation included in
the allowance for loan losses for loans impaired was approximately $2.1 million and $2.0 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 March 31, 2014, we had $24.9 million (2.2% of outstanding
loans), which included $9.4 million in loans subject to Loss Share Agreements, which compares to $25.3 million (2.2% of
outstanding loans) of which $9.5 million were subject to Loss Share Agreements at December 31, 2013. Special mention loans
not subject to Loss Share Agreements were $15.6 million at March 31, 2014, a decrease of $190,000 from December 31, 2013.
There was also a decrease in special mention loans subject to loss share of $148,000 from December 31, 2013 to March 31,
2014. These decreases are 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 months ended March 31, 2014 and 2013,
we recorded $333,000 and $650,000, 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.
Activity in the allowance for loan losses for the three
months ended March 31, 2014 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 , 2014
|
|
$
|
3,084
|
|
$
|
2,437
|
|
$
|
3,550
|
|
$
|
485
|
|
$
|
92
|
|
$
|
9,648
|
|
Provisions for loan losses
|
|
|
(382
|
)
|
|
414
|
|
|
292
|
|
|
(4
|
)
|
|
13
|
|
|
333
|
|
Loans charged off
|
|
|
(86
|
)
|
|
(42
|
)
|
|
(169
|
)
|
|
—
|
|
|
—
|
|
|
(297
|
)
|
Recoveries
|
|
|
29
|
|
|
—
|
|
|
318
|
|
|
2
|
|
|
—
|
|
|
349
|
|
Ending Balance, March 31, 2014
|
|
$
|
2,645
|
|
$
|
2,809
|
|
$
|
3,991
|
|
$
|
483
|
|
$
|
105
|
|
$
|
10,033
|
|
Activity in the allowance for loan losses for the three
months ended March 31, 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
|
|
|
768
|
|
|
119
|
|
|
281
|
|
|
(534
|
)
|
|
16
|
|
|
650
|
|
Loans charged off
|
|
|
—
|
|
|
(53
|
)
|
|
(58
|
)
|
|
(898)
|
|
|
(16
|
)
|
|
(1,025
|
)
|
Recoveries
|
|
|
16
|
|
|
1
|
|
|
2
|
|
|
91
|
|
|
—
|
|
|
110
|
|
Ending Balance, March 31, 2013
|
|
$
|
3,519
|
|
$
|
1,936
|
|
$
|
3,623
|
|
$
|
404
|
|
$
|
41
|
|
$
|
9,523
|
|
The decrease in the allowance related to commercial loans
from $3.5 million for the quarter ended March 31, 2013 to $2.6 million of the quarter ended March 31, 2014 was due to a reduction
in the specific reserve on impaired and purchased credit impaired loans and a decrease in the general portion of the reserve due
to improving historical loss rates in this category.
The increase in the allowance for loan losses related to
residential real estate loans from $1.9 million at March 31, 2013 to $2.8 million at March 31, 2014 was due to an increase in specific
reserves on impaired loans and an increase in the general portion of the reserve due to historical loss factors.
The increase in the allowance for loan losses related to
commercial real estate loans from $3.6 million at March 31, 2013 to $4.0 million at March 31, 2014 was due to a decrease in estimated
cash flows for purchased credit impaired loans with a resulting increase in the allowance related to those loans offset by resolution
of impaired loans and improving historical loss rates.
The following tables reflect the allowance allocation per
loan category and percent of loans in each category to total loans as of March 31, 2014 and December 31, 2013:
As of March 31, 2014:
(Dollars in thousands)
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Specific Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
735
|
|
|
$
|
847
|
|
|
$
|
232
|
|
|
$
|
269
|
|
|
$
|
10
|
|
|
$
|
2,093
|
|
Purchase credit impaired loans
|
|
|
463
|
|
|
|
320
|
|
|
|
689
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,472
|
|
Total specific reserves
|
|
|
1,198
|
|
|
|
1,167
|
|
|
|
921
|
|
|
|
269
|
|
|
|
10
|
|
|
|
3,565
|
|
General reserves
|
|
|
1,447
|
|
|
|
1,642
|
|
|
|
3,070
|
|
|
|
214
|
|
|
|
95
|
|
|
|
6,468
|
|
Total
|
|
$
|
2,645
|
|
|
$
|
2,809
|
|
|
$
|
3,991
|
|
|
$
|
483
|
|
|
$
|
105
|
|
|
$
|
10,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
211,562
|
|
|
$
|
178,406
|
|
|
$
|
716,787
|
|
|
$
|
41,368
|
|
|
$
|
10,943
|
|
|
$
|
1,159,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance as percent of loans per category
as of March 31, 2014
|
|
|
1.25
|
%
|
|
|
1.57
|
%
|
|
|
0.56
|
%
|
|
|
1.17
|
%
|
|
|
0.96
|
%
|
|
|
0.87
|
%
|
As of December 31, 2013:
(Dollars in thousands)
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Specific Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
835
|
|
|
$
|
460
|
|
|
$
|
413
|
|
|
$
|
271
|
|
|
$
|
—
|
|
|
$
|
1,979
|
|
Purchase credit impaired loans
|
|
|
464
|
|
|
|
269
|
|
|
|
278
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,011
|
|
Total specific reserves
|
|
|
1,299
|
|
|
|
729
|
|
|
|
691
|
|
|
|
271
|
|
|
|
—
|
|
|
|
2,990
|
|
General reserves
|
|
|
1,785
|
|
|
|
1,708
|
|
|
|
2,859
|
|
|
|
214
|
|
|
|
92
|
|
|
|
6,658
|
|
Total
|
|
$
|
3,084
|
|
|
$
|
2,437
|
|
|
$
|
3,550
|
|
|
$
|
485
|
|
|
$
|
92
|
|
|
$
|
9,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
210,264
|
|
|
$
|
178,844
|
|
|
$
|
699,851
|
|
|
$
|
35,286
|
|
|
$
|
9,735
|
|
|
$
|
1,133,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance as percent of loans per category
as of December 31, 2013
|
|
|
1.47
|
%
|
|
|
1.36
|
%
|
|
|
0.51
|
%
|
|
|
1.37
|
%
|
|
|
0.95
|
%
|
|
|
0.85
|
%
|
The overall general reserve decreased by $190,000 from $6.7
million at December 31, 2013 to $6.5 million at March 31, 2014. The overall general reserve as a percentage of loans collectively
evaluated for impairment was 0.60% at March 31, 2014 as compared to 0.64% at December 31, 2013. The 4 basis point decrease in this
general reserve ratio as compared to December 31, 2013 was the result of improvement in historical loss rates.
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 March 31, 2014, we had $16.2 million of OREO property,
of which $7.4 million was a result of the Old Harbor acquisition, $2.6 million was a result of the TBOM acquisition and $433,000
as a result of the Republic acquisition and all are covered by their respective Loss Share Agreements. At December 31, 2013, we
had $18.6 million of OREO property, of which $10.8 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 March 31, 2014 and December 31, 2013:
|
|
March 31,
2014
|
|
December 31,
2013
|
(Dollars in thousands)
|
|
Assets Not
Subject to
Loss Sharing
Agreements
|
|
Assets
Subject to
Loss Sharing
Agreements
|
|
Total
|
|
Assets Not
Subject to
Loss Sharing
Agreements
|
|
Assets
Subject to
Loss Sharing
Agreements
|
|
Total
|
Commercial real estate
|
|
$
|
5,345
|
|
|
$
|
6,406
|
|
|
$
|
11,751
|
|
|
$
|
5,761
|
|
|
$
|
8,979
|
|
|
$
|
14,740
|
|
Residential real estate
|
|
|
450
|
|
|
|
4,037
|
|
|
|
4,487
|
|
|
|
2,002
|
|
|
|
1,838
|
|
|
|
3,840
|
|
Total
|
|
$
|
5,795
|
|
|
$
|
10,443
|
|
|
$
|
16,238
|
|
|
$
|
7,763
|
|
|
$
|
10,817
|
|
|
$
|
18,580
|
|
At March 31, 2014, we had no OREO under contract for sale.
Investment Securities
We manage our securities available for sale portfolio,
which represented 21.5% of our average earning assets at March 31, 2014, as compared to 22.66% at December 31, 2013, to
minimize interest rate risk, maintain sufficient liquidity, and maximize return. The portfolio includes treasury securities,
municipal securities, commercial and 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. We may use excess liquidity to purchase securities. We did not purchase any securities
during the quarter ended March 31, 2014.
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 three
months ended March 31, 2014, we received cash of $1.0 million from the FDIC, recorded an adjustment of $2.7 million related to
the changes in estimated cash flows of covered assets which were partially offset by the recorded discount accretion of $21,000.
Deposits
Total deposits decreased by $118.5 million from December
31, 2013 to total deposits of $1.429 billion at March 31, 2014, primarily due to withdrawal of a short-term $128 million deposit
from one customer in January 2014 offset by normal customer activity. At March 31, 2014, non-interest bearing deposits represented
approximately 37.8% of deposits compared to 34.0% at December 31, 2013. Repurchase agreements with customers increased by $8.8
million for the quarter ended March 31, 2014 due to normal customer activity. The Bank participates in the CDARS program (reciprocal)
with balances of $36.6 million at March 31, 2014 compared to $39.4 million at December 31, 2013 and maintained brokered deposits
of $39.9 million and $24.9 million at March 31, 2014 and December 31, 2013, respectively.
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 March 31, 2014, we met the capital ratios of a “well capitalized”
financial holding company with a total risk-based capital ratio of 15.58%, a Tier 1 risk-based capital ratio of 14.70%, and a Tier
1 leverage ratio of 10.09%. 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
us 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 March 31, 2014 and December 31, 2013:
|
|
Actual
|
|
Minimum Capital
Adequacy
|
|
Minimum for
Well Capitalized
|
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
As of March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk-weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
178,281
|
|
|
|
15.58
|
%
|
|
$
|
94,546
|
|
|
|
8.00
|
%
|
|
$
|
114,432
|
|
|
10.00
|
%
|
1
st
United
|
|
|
160,849
|
|
|
|
14.10
|
%
|
|
|
91,270
|
|
|
|
8.00
|
%
|
|
|
114,087
|
|
|
10.00
|
%
|
Tier I capital to risk-weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
168,248
|
|
|
|
14.70
|
%
|
|
|
45,773
|
|
|
|
4.00
|
%
|
|
|
68,659
|
|
|
6.00
|
%
|
1
st
United
|
|
|
150,816
|
|
|
|
13.22
|
%
|
|
|
45,635
|
|
|
|
4.00
|
%
|
|
|
68,452
|
|
|
6.00
|
%
|
Tier I capital to total average assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
168,248
|
|
|
|
10.09
|
%
|
|
|
66,721
|
|
|
|
4.00
|
%
|
|
|
83,401
|
|
|
5.00
|
%
|
1
st
United
|
|
|
160,849
|
|
|
|
9.07
|
%
|
|
|
66,498
|
|
|
|
4.00
|
%
|
|
|
83,122
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk-weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
172,709
|
|
|
|
15.47
|
%
|
|
$
|
89,287
|
|
|
|
8.00
|
%
|
|
$
|
111,608
|
|
|
10.00
|
%
|
1
st
United
|
|
|
158,884
|
|
|
|
14.27
|
%
|
|
|
89,084
|
|
|
|
8.00
|
%
|
|
|
111,355
|
|
|
10.00
|
%
|
Tier I capital to risk-weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
163,061
|
|
|
|
14.61
|
%
|
|
|
44,643
|
|
|
|
4.00
|
%
|
|
|
66,965
|
|
|
6.00
|
%
|
1
st
United
|
|
|
149,236
|
|
|
|
13.40
|
%
|
|
|
44,542
|
|
|
|
4.00
|
%
|
|
|
66,813
|
|
|
6.00
|
%
|
Tier I capital to total average assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
163,061
|
|
|
|
9.66
|
%
|
|
|
67,489
|
|
|
|
4.00
|
%
|
|
|
84,361
|
|
|
5.00
|
%
|
1
st
United
|
|
|
149,236
|
|
|
|
8.86
|
%
|
|
|
67,388
|
|
|
|
4.00
|
%
|
|
|
84,235
|
|
|
5.00
|
%
|
We have an effective shelf registration statement, under which we
may offer additional securities for sale, from time to time if additional capital is required.
We paid a quarterly cash dividend of $0.02 per share in March
2014. We paid a quarterly cash dividend of $0.01 per share on May 8, 2013, August 15, 2013 and November 15, 2013. Additionally,
the board of directors declared a $0.10 per share special cash dividend on December 23, 2013 of $3.4 million which was paid January
2014. During December 2012, we paid a $0.10 special cash dividend of $3.4 million to holders of common shares as of the record
date.
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
help 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 March 31, 2014, we had
approximately $402.1 million in cash and cash equivalents and securities, of which $32.6 million of securities, at fair
value, were pledged.
At March 31, 2014, we had no short-term borrowings from
the Federal Home Loan Bank and $35.0 million in long-term borrowings from the Federal Home Loan Bank. We acquired $35.0
million in Federal Home Loan Bank advances in connection with the acquisition of EBI.
At March 31, 2014, we had commitments to originate
loans totaling $50.6 million and commitments of $97.3 million in unused lines of credit. Scheduled maturities of certificates
of deposit during the twelve months following March 31, 2014 total $180.9 million. Loans maturing in the next twelve months
total approximately $171.9 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 March 31, 2014, we had short-term lines available from correspondent banks totaling $65.0 million,
Federal Reserve Bank discount window availability of $72.8 million, and borrowing capacity from the Federal Home Loan Bank of
$148.9 million based on collateral pledged, for a total credit available of $286.7 million. Loans pledged for borrowings outstanding
and available borrowings with the Federal Home Loan Bank and the Federal Reserve Bank was $456.5 million and $112.1 million, respectively,
at March 31, 2014. In addition, being “well capitalized,” the Bank can access wholesale deposits for approximately
$357.1 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 March 31, 2014, we had $50.6 million in commitments to
originate loans, $97.3 million in unused lines of credit and $7.6 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 are amortized
over their respective estimated useful lives to their estimated residual values. 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, 2013, 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 assets that were 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 us 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.