Item 1:
|
Financial Statements
|
Home BancShares, Inc.
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
(In thousands, except share data)
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
185,479
|
|
|
$
|
166,915
|
|
Interest-bearing deposits with other banks
|
|
|
325,122
|
|
|
|
469,018
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
510,601
|
|
|
|
635,933
|
|
Federal funds sold
|
|
|
1,825
|
|
|
|
24,109
|
|
Investment securities
available-for-sale
|
|
|
1,693,018
|
|
|
|
1,663,517
|
|
Investment securities
held-to-maturity
|
|
|
213,731
|
|
|
|
224,756
|
|
Loans receivable
|
|
|
10,325,736
|
|
|
|
10,331,188
|
|
Allowance for loan losses
|
|
|
(110,212
|
)
|
|
|
(110,266
|
)
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
|
10,215,524
|
|
|
|
10,220,922
|
|
Bank premises and equipment, net
|
|
|
235,607
|
|
|
|
237,439
|
|
Foreclosed assets held for sale
|
|
|
20,134
|
|
|
|
18,867
|
|
Cash value of life insurance
|
|
|
147,424
|
|
|
|
146,866
|
|
Accrued interest receivable
|
|
|
45,361
|
|
|
|
45,708
|
|
Deferred tax asset, net
|
|
|
78,328
|
|
|
|
76,564
|
|
Goodwill
|
|
|
927,949
|
|
|
|
927,949
|
|
Core deposit and other intangibles
|
|
|
47,726
|
|
|
|
49,351
|
|
Other assets
|
|
|
186,001
|
|
|
|
177,779
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
14,323,229
|
|
|
$
|
14,449,760
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Demand and
non-interest-bearing
|
|
$
|
2,473,602
|
|
|
$
|
2,385,252
|
|
Savings and interest-bearing transaction accounts
|
|
|
6,437,408
|
|
|
|
6,476,819
|
|
Time deposits
|
|
|
1,485,605
|
|
|
|
1,526,431
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
10,396,615
|
|
|
|
10,388,502
|
|
Securities sold under agreements to repurchase
|
|
|
150,315
|
|
|
|
147,789
|
|
FHLB and other borrowed funds
|
|
|
1,115,061
|
|
|
|
1,299,188
|
|
Accrued interest payable and other liabilities
|
|
|
54,845
|
|
|
|
41,959
|
|
Subordinated debentures
|
|
|
368,212
|
|
|
|
368,031
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
12,085,048
|
|
|
|
12,245,469
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01; shares authorized 200,000,000 in 2018 and 2017; shares issued and
outstanding 173,603,132 in 2018 and 173,632,983 in 2017
|
|
|
1,736
|
|
|
|
1,736
|
|
Capital surplus
|
|
|
1,671,141
|
|
|
|
1,675,318
|
|
Retained earnings
|
|
|
585,586
|
|
|
|
530,658
|
|
Accumulated other comprehensive loss
|
|
|
(20,282
|
)
|
|
|
(3,421
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,238,181
|
|
|
|
2,204,291
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
14,323,229
|
|
|
$
|
14,449,760
|
|
|
|
|
|
|
|
|
|
|
See Condensed Notes to Consolidated Financial Statements.
4
Home BancShares, Inc.
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(In thousands, except per share data)
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
Interest income:
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
148,065
|
|
|
$
|
105,762
|
|
Investment securities
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
8,970
|
|
|
|
5,478
|
|
Tax-exempt
|
|
|
3,006
|
|
|
|
2,944
|
|
Deposits other banks
|
|
|
929
|
|
|
|
308
|
|
Federal funds sold
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
160,976
|
|
|
|
114,494
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
14,806
|
|
|
|
5,486
|
|
Federal funds purchased
|
|
|
1
|
|
|
|
|
|
FHLB and other borrowed funds
|
|
|
4,580
|
|
|
|
3,589
|
|
Securities sold under agreements to repurchase
|
|
|
376
|
|
|
|
165
|
|
Subordinated debentures
|
|
|
5,004
|
|
|
|
439
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
24,767
|
|
|
|
9,679
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
136,209
|
|
|
|
104,815
|
|
Provision for loan losses
|
|
|
1,600
|
|
|
|
3,914
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
134,609
|
|
|
|
100,901
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
6,075
|
|
|
|
5,982
|
|
Other service charges and fees
|
|
|
10,155
|
|
|
|
8,917
|
|
Trust fees
|
|
|
446
|
|
|
|
456
|
|
Mortgage lending income
|
|
|
2,657
|
|
|
|
2,791
|
|
Insurance commissions
|
|
|
679
|
|
|
|
545
|
|
Increase in cash value of life insurance
|
|
|
654
|
|
|
|
310
|
|
Dividends from FHLB, FRB, Bankers Bank & other
|
|
|
877
|
|
|
|
1,149
|
|
Gain on acquisitions
|
|
|
|
|
|
|
3,807
|
|
Gain on sale of SBA loans
|
|
|
182
|
|
|
|
188
|
|
Gain (loss) on sale of branches, equipment and other assets, net
|
|
|
7
|
|
|
|
(56
|
)
|
Gain (loss) on OREO, net
|
|
|
405
|
|
|
|
121
|
|
Gain (loss) on securities, net
|
|
|
|
|
|
|
423
|
|
Other income
|
|
|
3,668
|
|
|
|
1,837
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest
income
|
|
|
25,805
|
|
|
|
26,470
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
35,014
|
|
|
|
27,421
|
|
Occupancy and equipment
|
|
|
8,983
|
|
|
|
6,681
|
|
Data processing expense
|
|
|
3,986
|
|
|
|
2,723
|
|
Other operating expenses
|
|
|
15,397
|
|
|
|
18,316
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest
expense
|
|
|
63,380
|
|
|
|
55,141
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
97,034
|
|
|
|
72,230
|
|
Income tax expense
|
|
|
23,970
|
|
|
|
25,374
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
73,064
|
|
|
$
|
46,856
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.42
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.42
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
See Condensed Notes to Consolidated Financial Statements.
5
Home BancShares, Inc.
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
Net income available to all stockholders
|
|
$
|
73,064
|
|
|
$
|
46,856
|
|
Net unrealized gain (loss) on
available-for-sale
securities
|
|
|
(21,633
|
)
|
|
|
1,428
|
|
Less: reclassification adjustment for realized (gains) losses included in income
|
|
|
|
|
|
|
(423
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), before tax effect
|
|
|
(21,633
|
)
|
|
|
1,005
|
|
Tax effect on other comprehensive (loss) income
|
|
|
5,762
|
|
|
|
(395
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(15,871
|
)
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
57,193
|
|
|
$
|
47,466
|
|
|
|
|
|
|
|
|
|
|
Home BancShares, Inc.
Consolidated Statements of Stockholders Equity
Three Months Ended March 31, 2018 and 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share data)
|
|
Common
Stock
|
|
|
Capital
Surplus
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
|
|
Balances at January 1, 2017
|
|
|
1,405
|
|
|
|
869,737
|
|
|
|
455,948
|
|
|
|
400
|
|
|
|
1,327,490
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
46,856
|
|
|
|
|
|
|
|
46,856
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
610
|
|
|
|
610
|
|
Net issuance of 91,081 shares of common stock from exercise of stock options
|
|
|
1
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
Issuance of 2,738,038 shares of common stock from acquisition of GHI, net of issuance costs of
approximately $195
|
|
|
27
|
|
|
|
77,290
|
|
|
|
|
|
|
|
|
|
|
|
77,317
|
|
Share-based compensation net issuance of 140,500 shares of restricted common stock
|
|
|
1
|
|
|
|
1,854
|
|
|
|
|
|
|
|
|
|
|
|
1,855
|
|
Cash dividends Common Stock, $0.0900 per share
|
|
|
|
|
|
|
|
|
|
|
(12,662
|
)
|
|
|
|
|
|
|
(12,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2017 (unaudited)
|
|
$
|
1,434
|
|
|
$
|
948,982
|
|
|
$
|
490,142
|
|
|
$
|
1,010
|
|
|
$
|
1,441,568
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
88,227
|
|
|
|
|
|
|
|
88,227
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,431
|
)
|
|
|
(4,431
|
)
|
Net issuance of 94,035 shares of common stock from exercise of stock options
|
|
|
1
|
|
|
|
979
|
|
|
|
|
|
|
|
|
|
|
|
980
|
|
Issuance of 30,863,658 shares of common stock from acquisition of Stonegate, net of issuance costs
of approximately $630
|
|
|
309
|
|
|
|
741,324
|
|
|
|
|
|
|
|
|
|
|
|
741,633
|
|
Repurchase of 857,800 shares of common stock
|
|
|
(9
|
)
|
|
|
(20,816
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,825
|
)
|
Share-based compensation net issuance of 91,266 shares of restricted common stock
|
|
|
1
|
|
|
|
4,849
|
|
|
|
|
|
|
|
|
|
|
|
4,850
|
|
Cash dividends Common Stock, $0.3100 per share
|
|
|
|
|
|
|
|
|
|
|
(47,711
|
)
|
|
|
|
|
|
|
(47,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2017
|
|
$
|
1,736
|
|
|
$
|
1,675,318
|
|
|
$
|
530,658
|
|
|
$
|
(3,421
|
)
|
|
$
|
2,204,291
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
73,064
|
|
|
|
|
|
|
|
73,064
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,871
|
)
|
|
|
(15,871
|
)
|
Net issuance of 142,116 shares of common stock from exercise of stock options
|
|
|
1
|
|
|
|
899
|
|
|
|
|
|
|
|
|
|
|
|
900
|
|
Impact of adoption of new accounting
standards
(1)
|
|
|
|
|
|
|
|
|
|
|
990
|
|
|
|
(990
|
)
|
|
|
|
|
Repurchase of 303,637 shares of common stock
|
|
|
(3
|
)
|
|
|
(7,111
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,114
|
)
|
Share-based compensation net issuance of 147,000 shares of restricted common stock
|
|
|
2
|
|
|
|
2,035
|
|
|
|
|
|
|
|
|
|
|
|
2,037
|
|
Cash dividends Common Stock, $0.1100 per share
|
|
|
|
|
|
|
|
|
|
|
(19,126
|
)
|
|
|
|
|
|
|
(19,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2018 (unaudited)
|
|
$
|
1,736
|
|
|
$
|
1,671,141
|
|
|
$
|
585,586
|
|
|
$
|
(20,282
|
)
|
|
$
|
2,238,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the impact of adopting Accounting Standard Update (ASU)
2016-01.
See Note 1 to the consolidated financial statements for more information.
|
See Condensed Notes to Consolidated Financial Statements.
6
Home BancShares, Inc.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
73,064
|
|
|
$
|
46,856
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3,317
|
|
|
|
2,674
|
|
Amortization/(accretion)
|
|
|
5,127
|
|
|
|
3,724
|
|
Share-based compensation
|
|
|
2,037
|
|
|
|
1,855
|
|
(Gain) loss on assets
|
|
|
1,962
|
|
|
|
(833
|
)
|
Gain on acquisitions
|
|
|
|
|
|
|
(3,807
|
)
|
Provision for loan losses
|
|
|
1,600
|
|
|
|
3,914
|
|
Deferred income tax effect
|
|
|
3,998
|
|
|
|
2,130
|
|
Increase in cash value of life insurance
|
|
|
(654
|
)
|
|
|
(310
|
)
|
Originations of mortgage loans held for sale
|
|
|
(72,636
|
)
|
|
|
(78,691
|
)
|
Proceeds from sales of mortgage loans held for sale
|
|
|
80,250
|
|
|
|
84,244
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
347
|
|
|
|
(244
|
)
|
Indemnification and other assets
|
|
|
(8,219
|
)
|
|
|
(1,645
|
)
|
Accrued interest payable and other liabilities
|
|
|
12,886
|
|
|
|
3,012
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
103,079
|
|
|
|
62,879
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Net (increase) decrease in federal funds sold
|
|
|
22,284
|
|
|
|
(150
|
)
|
Net (increase) decrease in loans, excluding purchased loans
|
|
|
(10,724
|
)
|
|
|
(29,229
|
)
|
Purchases of investment securities
available-for-sale
|
|
|
(141,812
|
)
|
|
|
(206,216
|
)
|
Proceeds from maturities of investment securities
available-for-sale
|
|
|
86,674
|
|
|
|
39,615
|
|
Proceeds from sale of investment securities
available-for-sale
|
|
|
809
|
|
|
|
15,538
|
|
Purchases of investment securities
held-to-maturity
|
|
|
|
|
|
|
(163
|
)
|
Proceeds from maturities of investment securities
held-to-maturity
|
|
|
10,899
|
|
|
|
7,411
|
|
Proceeds from foreclosed assets held for sale
|
|
|
3,391
|
|
|
|
6,165
|
|
Proceeds from sale of SBA Loans
|
|
|
2,837
|
|
|
|
4,170
|
|
Purchases of premises and equipment, net
|
|
|
(3,941
|
)
|
|
|
(5,636
|
)
|
Return of investment on cash value of life insurance
|
|
|
|
|
|
|
592
|
|
Net cash proceeds (paid) received market acquisitions
|
|
|
|
|
|
|
41,363
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(29,583
|
)
|
|
|
(126,540
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits, excluding deposits acquired
|
|
|
8,113
|
|
|
|
181,025
|
|
Net increase (decrease) in securities sold under agreements to repurchase
|
|
|
2,526
|
|
|
|
2,503
|
|
Net increase (decrease) in FHLB and other borrowed funds
|
|
|
(184,127
|
)
|
|
|
93,328
|
|
Proceeds from exercise of stock options
|
|
|
900
|
|
|
|
102
|
|
Repurchase of common stock
|
|
|
(7,114
|
)
|
|
|
|
|
Common stock issuance costs market acquisitions
|
|
|
|
|
|
|
(195
|
)
|
Tax benefits from stock options exercised
|
|
|
|
|
|
|
|
|
Dividends paid on common stock
|
|
|
(19,126
|
)
|
|
|
(12,662
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(198,828
|
)
|
|
|
264,101
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(125,332
|
)
|
|
|
200,440
|
|
Cash and cash equivalents beginning of year
|
|
|
635,933
|
|
|
|
216,649
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
510,601
|
|
|
$
|
417,089
|
|
|
|
|
|
|
|
|
|
|
See Condensed Notes to Consolidated Financial Statements.
7
Home BancShares, Inc.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. Nature of Operations and
Summary of Significant Accounting Policies
Nature of Operations
Home BancShares, Inc. (the Company or HBI) is a bank holding company headquartered in Conway, Arkansas. The Company is
primarily engaged in providing a full range of banking services to individual and corporate customers through its wholly-owned community bank subsidiary Centennial Bank (sometimes referred to as Centennial or the
Bank). The Bank has branch locations in Arkansas, Florida, South Alabama and New York City. The Company is subject to competition from other financial institutions. The Company also is subject to the regulation of certain federal and
state agencies and undergoes periodic examinations by those regulatory authorities.
A summary of the significant accounting policies of
the Company follows:
Operating Segments
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in assessing performance. The Bank is the only significant subsidiary upon which management makes decisions regarding how to allocate resources and assess performance. Each of
the branches of the Bank provide a group of similar banking services, including such products and services as commercial, real estate and consumer loans, time deposits, checking and savings accounts. The individual bank branches have similar
operating and economic characteristics. While the chief decision maker monitors the revenue streams of the various products, services and branch locations, operations are managed and financial performance is evaluated on a Company-wide basis.
Accordingly, all of the banking services and branch locations are considered by management to be aggregated into one reportable operating segment.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance for loan losses, the valuation of investment securities, the valuation of foreclosed assets and the valuations of assets acquired and liabilities assumed in business combinations. In
connection with the determination of the allowance for loan losses and the valuation of foreclosed assets, management obtains independent appraisals for significant properties.
Principles of Consolidation
The consolidated financial statements include the accounts of HBI and its subsidiaries. Significant intercompany accounts and transactions have
been eliminated in consolidation.
Reclassifications
Various items within the accompanying consolidated financial statements for previous years have been reclassified to provide more comparative
information. These reclassifications had no effect on net earnings or stockholders equity.
Interim financial information
The accompanying unaudited consolidated financial statements as of March 31, 2018 and 2017 have been prepared in condensed
format, and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
8
The information furnished in these interim statements reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the
results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys 2017 Form
10-K,
filed with the Securities and Exchange Commission.
Revenue Recognition.
Accounting Standards Codification (ASC) Topic 606,
Revenue from Contracts with Customers
(ASC Topic 606),
establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entitys contracts to provide goods or services to customers. The core principle requires an entity to
recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are
satisfied. The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans, letters of credit and investment securities, as these activities are subject
to other GAAP discussed elsewhere within our disclosures. Descriptions of our revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our income statements as components of non-interest income are as follows:
|
|
|
Service charges on deposit accounts These represent general service fees for monthly account maintenance and activity or transaction based fees and consist of transaction-based revenue, time-based revenue
(service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been
completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.
|
|
|
|
Other service charges and fees These represent credit card interchange fees and Centennial CFG loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally
the cash basis based on an agreed upon contract with Mastercard. The Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310.
|
|
|
|
Mortgage lending income This represents fee income on secondary market lending which is accounted for under ASC Topic 310 and transfer of loans based on a bid agreement with the investor which is
accounted for under ASC Topic 860,
Transfers and Servicing.
|
Earnings per Share
Basic earnings per share is computed based on the weighted-average number of shares outstanding during each year. Diluted earnings per share is
computed using the weighted-average shares and all potential dilutive shares outstanding during the period. The following table sets forth the computation of basic and diluted earnings per share (EPS) for the following periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands,
except per share data)
|
|
Net income
|
|
$
|
73,064
|
|
|
$
|
46,856
|
|
|
|
|
Average shares outstanding
|
|
|
173,761
|
|
|
|
141,785
|
|
Effect of common stock based compensation
|
|
|
622
|
|
|
|
707
|
|
|
|
|
|
|
|
|
|
|
Average diluted shares outstanding
|
|
|
174,383
|
|
|
|
142,492
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.42
|
|
|
$
|
0.33
|
|
Diluted earnings per share
|
|
|
0.42
|
|
|
|
0.33
|
|
2. Business Combinations
Acquisition of Stonegate Bank
On September 26, 2017, the Company, completed the acquisition of all of the issued and outstanding shares of common stock of Stonegate
Bank (Stonegate), and merged Stonegate into Centennial. The Company paid a purchase price to the Stonegate shareholders of approximately $792.4 million for the Stonegate acquisition. Under the terms of the merger agreement,
shareholders of Stonegate received 30,863,658 shares of HBI common stock valued at approximately $742.3 million plus approximately $50.1 million in cash in exchange for all outstanding shares of Stonegate common stock. In addition, the
holders of outstanding stock options of Stonegate received approximately $27.6 million in cash in connection with the cancellation of their options immediately before the acquisition closed, for a total transaction value of approximately
$820.0 million.
9
Including the effects of the purchase accounting adjustments, as of acquisition date, Stonegate
had approximately $2.89 billion in total assets, $2.37 billion in loans and $2.53 billion in customer deposits. Stonegate formerly operated its banking business from 24 locations in key Florida markets with significant presence in Broward and
Sarasota counties.
The Company has determined that the acquisition of the net assets of Stonegate constitutes a business combination as
defined by the ASC Topic 805. Accordingly, the assets acquired and liabilities assumed are presented at their fair values as required. Fair values were determined based on the requirements of ASC Topic 820. In many cases, the determination of these
fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. The following schedule is a breakdown of the
assets acquired and liabilities assumed as of the acquisition date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stonegate Bank
|
|
|
|
Acquired
from Stonegate
|
|
|
Fair Value
Adjustments
|
|
|
As Recorded
by HBI
|
|
|
|
(Dollars in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
100,958
|
|
|
$
|
|
|
|
$
|
100,958
|
|
Interest-bearing deposits with other banks
|
|
|
135,631
|
|
|
|
|
|
|
|
135,631
|
|
Federal funds sold
|
|
|
1,515
|
|
|
|
|
|
|
|
1,515
|
|
Investment securities
|
|
|
103,041
|
|
|
|
474
|
|
|
|
103,515
|
|
Loans receivable
|
|
|
2,446,149
|
|
|
|
(74,067
|
)
|
|
|
2,372,082
|
|
Allowance for loan losses
|
|
|
(21,507
|
)
|
|
|
21,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
|
2,424,642
|
|
|
|
(52,560
|
)
|
|
|
2,372,082
|
|
Bank premises and equipment, net
|
|
|
38,868
|
|
|
|
(3,572
|
)
|
|
|
35,296
|
|
Foreclosed assets held for sale
|
|
|
4,187
|
|
|
|
(801
|
)
|
|
|
3,386
|
|
Cash value of life insurance
|
|
|
48,000
|
|
|
|
|
|
|
|
48,000
|
|
Accrued interest receivable
|
|
|
7,088
|
|
|
|
|
|
|
|
7,088
|
|
Deferred tax asset, net
|
|
|
27,340
|
|
|
|
11,990
|
|
|
|
39,330
|
|
Goodwill
|
|
|
81,452
|
|
|
|
(81,452
|
)
|
|
|
|
|
Core deposit and other intangibles
|
|
|
10,505
|
|
|
|
20,364
|
|
|
|
30,869
|
|
Other assets
|
|
|
9,598
|
|
|
|
255
|
|
|
|
9,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
2,992,825
|
|
|
$
|
(105,302
|
)
|
|
$
|
2,887,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and
non-interest-bearing
|
|
$
|
585,959
|
|
|
$
|
|
|
|
$
|
585,959
|
|
Savings and interest-bearing transaction accounts
|
|
|
1,776,256
|
|
|
|
|
|
|
|
1,776,256
|
|
Time deposits
|
|
|
163,567
|
|
|
|
(85
|
)
|
|
|
163,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
2,525,782
|
|
|
|
(85
|
)
|
|
|
2,525,697
|
|
FHLB borrowed funds
|
|
|
32,667
|
|
|
|
184
|
|
|
|
32,851
|
|
Securities sold under agreements to repurchase
|
|
|
26,163
|
|
|
|
|
|
|
|
26,163
|
|
Accrued interest payable and other liabilities
|
|
|
8,100
|
|
|
|
(484
|
)
|
|
|
7,616
|
|
Subordinated debentures
|
|
|
8,345
|
|
|
|
1,489
|
|
|
|
9,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
2,601,057
|
|
|
|
1,104
|
|
|
|
2,602,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity assumed
|
|
|
391,768
|
|
|
|
(391,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity assumed
|
|
$
|
2,992,825
|
|
|
$
|
(390,664
|
)
|
|
|
2,602,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
|
|
|
|
|
|
|
|
285,362
|
|
Purchase price
|
|
|
|
|
|
|
|
|
|
|
792,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
$
|
507,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
The following is a description of the methods used to determine the fair values of significant
assets and liabilities presented above:
Cash and due from banks, interest-bearing deposits with other banks and federal funds sold
The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.
Investment securities
Investment securities were acquired from Stonegate with an approximately $474,000 adjustment to market
value based upon quoted market prices.
Loans
Fair values for loans were based on a discounted cash flow methodology that
considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. The discount rates used for loans are
based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns.
The Company
evaluated $2.37 billion of the loans purchased in conjunction with the acquisition in accordance with the provisions of FASB ASC Topic
310-20,
Nonrefundable Fees and Other Costs,
which were
recorded with a $73.3 million discount. As a result, the fair value discount on these loans is being accreted into interest income over the weighted average life of the loans using a constant yield method. The remaining $74.3 million of
loans evaluated were considered purchased credit impaired loans within the provisions of FASB ASC Topic
310-30,
Loans and Debt Securities Acquired with Deteriorated Credit Quality,
and were recorded
with a $23.3 million discount. These purchase credit impaired loans will recognize interest income through accretion of the difference between the carrying amount of the loans and the expected cash flows. The acquired Stonegate loan balance and
the fair value adjustment on loans receivable includes $22.6 million of discount on purchased loans, respectively.
Bank premises
and equipment
Bank premises and equipment were acquired from Stonegate with a $3.6 million adjustment to market value. This represents the difference between current appraisals completed in connection with the acquisition and book
value acquired.
Foreclosed assets held for sale
These assets are presented at the estimated fair values that management
expects to receive when the properties are sold, net of related costs of disposal.
Cash value of life insurance
Cash value
of life insurance was acquired from Stonegate at market value.
Accrued interest receivable
Accrued interest receivable was
acquired from Stonegate at market value.
Deferred tax asset
The current and deferred income tax assets and liabilities are
recorded to reflect the differences in the carrying values of the acquired assets and assumed liabilities for financial reporting purposes and the cost basis for federal income tax purposes, at the Companys statutory federal and state income
tax rate which was 39.225% at the time of acquisition.
Core deposit intangible
This intangible asset represents the value
of the relationships that Stonegate had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of
the deposit base, and the net maintenance cost attributable to customer deposits. The Company recorded $30.9 million of core deposit intangible.
Deposits
The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition
equal the amount payable on demand at the acquisition date. The $85,000 fair value adjustment applied for time deposits was because the weighted average interest rate of Stonegates certificates of deposits were estimated to be below the
current market rates.
FHLB borrowed funds
The fair value of FHLB borrowed funds is estimated based on borrowing rates
currently available to the Company for borrowings with similar terms and maturities.
Securities sold under agreements to
repurchase
Securities sold under agreements to repurchase were acquired from Stonegate at market value.
Accrued interest
payable and other liabilities
Accrued interest payable and other liabilities were acquired from Stonegate at market value.
11
Subordinated debentures
The fair value of subordinated debentures is estimated
based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.
The unaudited
pro-forma
combined consolidated financial information presents how the combined financial information of HBI and Stonegate might have appeared had the businesses actually been combined. The following schedule
represents the unaudited pro forma combined financial information as of the years ended December 31, 2017 and 2016, assuming the acquisition was completed as of January 1, 2017 and 2016, respectively:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands, except per share data)
|
|
Total interest income
|
|
$
|
610,697
|
|
|
$
|
538,258
|
|
Total
non-interest
income
|
|
|
107,179
|
|
|
|
95,555
|
|
Net income available to all shareholders
|
|
|
143,979
|
|
|
|
206,081
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.79
|
|
|
$
|
1.20
|
|
Diluted earnings per common share
|
|
|
0.79
|
|
|
|
1.20
|
|
The unaudited
pro-forma
consolidated financial information is
presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the beginning of the period presented and had the impact of possible significant revenue
enhancements and expense efficiencies from
in-market
cost savings, among other factors, been considered and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily
reflect what the historical results of the combined company would have been had the companies been combined during this period.
Acquisition of The Bank of Commerce
On February 28, 2017, the Company completed its acquisition of all of the issued and outstanding shares of common stock of The Bank of
Commerce (BOC), a Florida state-chartered bank that operated in the Sarasota, Florida area, pursuant to an acquisition agreement, dated December 1, 2016, by and between HBI and Bank of Commerce Holdings, Inc. (BCHI),
parent company of BOC. The Company merged BOC with and into Centennial effective as of the close of business on February 28, 2017.
The acquisition of BOC was conducted in accordance with the provisions of Section 363 of the United States Bankruptcy Code (the
Bankruptcy Code) pursuant to a voluntary petition for relief under Chapter 11 of the Bankruptcy Code filed by BCHI with the United States Bankruptcy Court for the Middle District of Florida (the Bankruptcy Court). The sale of
BOC by BCHI was subject to certain bidding procedures approved by the Bankruptcy Court, under which the Company submitted an initial bid to purchase the outstanding shares of BOC and was deemed to be the successful bidder after a subsequent auction
was held. The Bankruptcy Court entered a final order on December 9, 2016 approving the sale of BOC to the Company pursuant to and in accordance with the acquisition agreement.
Under the terms of the acquisition agreement, the Company paid an aggregate of approximately $4.2 million in cash for the acquisition,
which included the purchase of all outstanding shares of BOC common stock, the discounted purchase of certain subordinated debentures issued by BOC from the existing holders of the subordinated debentures, and an expense reimbursement to BCHI for
approved administrative claims in connection with the bankruptcy proceeding.
BOC formerly operated three branch locations in the
Sarasota, Florida area. Including the effects of the purchase accounting adjustments, as of acquisition date, BOC had approximately $178.1 million in total assets, $118.5 million in loans after $5.8 million of loan discounts, and
$139.8 million in deposits.
12
The Company has determined that the acquisition of the net assets of BOC constitutes a business
combination as defined by the ASC Topic 805. Accordingly, the assets acquired and liabilities assumed are presented at their fair values as required. Fair values were determined based on the requirements of ASC Topic 820. In many cases, the
determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. The following schedule
is a breakdown of the assets acquired and liabilities assumed as of the acquisition date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank of Commerce
|
|
|
|
Acquired
from BOC
|
|
|
Fair Value
Adjustments
|
|
|
As Recorded
by HBI
|
|
|
|
(Dollars in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
4,610
|
|
|
$
|
|
|
|
$
|
4,610
|
|
Interest-bearing deposits with other banks
|
|
|
14,360
|
|
|
|
|
|
|
|
14,360
|
|
Investment securities
|
|
|
25,926
|
|
|
|
(113
|
)
|
|
|
25,813
|
|
Loans receivable
|
|
|
124,289
|
|
|
|
(5,751
|
)
|
|
|
118,538
|
|
Allowance for loan losses
|
|
|
(2,037
|
)
|
|
|
2,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
|
122,252
|
|
|
|
(3,714
|
)
|
|
|
118,538
|
|
Bank premises and equipment, net
|
|
|
1,887
|
|
|
|
|
|
|
|
1,887
|
|
Foreclosed assets held for sale
|
|
|
8,523
|
|
|
|
(3,165
|
)
|
|
|
5,358
|
|
Accrued interest receivable
|
|
|
481
|
|
|
|
|
|
|
|
481
|
|
Deferred tax asset, net
|
|
|
|
|
|
|
4,198
|
|
|
|
4,198
|
|
Core deposit intangible
|
|
|
|
|
|
|
968
|
|
|
|
968
|
|
Other assets
|
|
|
1,880
|
|
|
|
|
|
|
|
1,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
179,919
|
|
|
$
|
(1,826
|
)
|
|
$
|
178,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and
non-interest-bearing
|
|
$
|
27,245
|
|
|
$
|
|
|
|
$
|
27,245
|
|
Savings and interest-bearing transaction accounts
|
|
|
32,300
|
|
|
|
|
|
|
|
32,300
|
|
Time deposits
|
|
|
79,945
|
|
|
|
270
|
|
|
|
80,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
139,490
|
|
|
|
270
|
|
|
|
139,760
|
|
FHLB borrowed funds
|
|
|
30,000
|
|
|
|
42
|
|
|
|
30,042
|
|
Accrued interest payable and other liabilities
|
|
|
564
|
|
|
|
(255
|
)
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
$
|
170,054
|
|
|
$
|
57
|
|
|
|
170,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
|
|
|
|
|
|
|
|
7,982
|
|
Purchase price
|
|
|
|
|
|
|
|
|
|
|
4,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
gain on acquisition
|
|
|
|
|
|
|
|
|
|
$
|
3,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a description of the methods used to determine the fair values of significant assets and
liabilities presented above:
Cash and due from banks and interest-bearing deposits with other banks
The carrying amount of
these assets is a reasonable estimate of fair value based on the short-term nature of these assets.
Investment securities
Investment securities were acquired from BOC with an $113,000 adjustment to market value based upon quoted market prices.
Loans
Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan
was amortizing, and current discount rates. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns.
13
The Company evaluated $106.8 million of the loans purchased in conjunction with the
acquisition in accordance with the provisions of FASB ASC Topic
310-20,
Nonrefundable Fees and Other Costs,
which were recorded with a $3.0 million discount. As a result, the fair value discount on
these loans is being accreted into interest income over the weighted-average life of the loans using a constant yield method. The remaining $17.5 million of loans evaluated were considered purchased credit impaired loans within the provisions
of FASB ASC Topic
310-30,
Loans and Debt Securities Acquired with Deteriorated Credit Quality,
and were recorded with a $2.8 million discount. These purchase credit impaired loans will recognize
interest income through accretion of the difference between the carrying amount of the loans and the expected cash flows.
Bank
premises and equipment
Bank premises and equipment were acquired from BOC at market value.
Foreclosed assets held for
sale
These assets are presented at the estimated fair values that management expects to receive when the properties are sold, net of related costs to sell.
Accrued interest receivable
Accrued interest receivable was acquired from BOC at market value.
Deferred tax asset
The current and deferred income tax assets and liabilities are recorded to reflect the differences in the
carrying values of the acquired assets and assumed liabilities for financial reporting purposes and the cost basis for federal income tax purposes, at the Companys statutory federal and state income tax rate which was 39.225% at the time of
acquisition.
Core deposit intangible
This intangible asset represents the value of the relationships that BOC had with its
deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, and the net maintenance cost
attributable to customer deposits. The Company recorded $968,000 of core deposit intangible.
Deposits
The fair values used
for the demand and savings deposits that comprise the transaction accounts acquired, by definition equal the amount payable on demand at the acquisition date. The $270,000 fair value adjustment applied for time deposits was because the
weighted-average interest rate of BOCs certificates of deposits was estimated to be above the current market rates.
FHLB
borrowed funds
The fair value of FHLB borrowed funds is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.
Accrued interest payable and other liabilities
The fair value used represents the adjustment of certain estimated liabilities
from BOC.
The Companys operating results for the period ended December 31, 2017, include the operating results of the acquired
assets and assumed liabilities subsequent to the acquisition date. Due to the fair value adjustments recorded and the fact BOC total assets acquired are less than 5% of total assets as of December 31, 2017 excluding BOC as recorded by HBI as of
acquisition date, historical results are not believed to be material to the Companys results, and thus no
pro-forma
information is presented.
Acquisition of Giant Holdings, Inc.
On February 23, 2017, the Company completed its acquisition of Giant Holdings, Inc. (GHI), parent company of Landmark Bank,
N.A. (Landmark), pursuant to a definitive agreement and plan of merger whereby GHI merged with and into HBI and, immediately thereafter, Landmark merged with and into Centennial. The Company paid a purchase price to the GHI shareholders
of approximately $96.0 million for the GHI acquisition. Under the terms of the agreement, shareholders of GHI received 2,738,038 shares of its common stock valued at approximately $77.5 million as of February 23, 2017, plus
approximately $18.5 million in cash in exchange for all outstanding shares of GHI common stock.
GHI formerly operated six branch
locations in the Ft. Lauderdale, Florida area. Including the effects of the purchase accounting adjustments, as of acquisition date, GHI had approximately $398.1 million in total assets, $327.8 million in loans after $8.1 million of
loan discounts, and $304.0 million in deposits.
14
The Company has determined that the acquisition of the net assets of GHI constitutes a business
combination as defined by the ASC Topic 805. Accordingly, the assets acquired and liabilities assumed are presented at their fair values as required. Fair values were determined based on the requirements of ASC Topic 820. In many cases, the
determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. The following schedule
is a breakdown of the assets acquired and liabilities assumed as of the acquisition date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Giant Holdings, Inc.
|
|
|
|
Acquired
from GHI
|
|
|
Fair Value
Adjustments
|
|
|
As Recorded
by HBI
|
|
|
|
(Dollars in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
41,019
|
|
|
$
|
|
|
|
$
|
41,019
|
|
Interest-bearing deposits with other banks
|
|
|
4,057
|
|
|
|
1
|
|
|
|
4,058
|
|
Investment securities
|
|
|
1,961
|
|
|
|
(5
|
)
|
|
|
1,956
|
|
Loans receivable
|
|
|
335,886
|
|
|
|
(6,517
|
)
|
|
|
329,369
|
|
Allowance for loan losses
|
|
|
(4,568
|
)
|
|
|
4,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
|
331,318
|
|
|
|
(1,949
|
)
|
|
|
329,369
|
|
Bank premises and equipment, net
|
|
|
2,111
|
|
|
|
608
|
|
|
|
2,719
|
|
Cash value of life insurance
|
|
|
10,861
|
|
|
|
|
|
|
|
10,861
|
|
Accrued interest receivable
|
|
|
850
|
|
|
|
|
|
|
|
850
|
|
Deferred tax asset, net
|
|
|
2,286
|
|
|
|
1,807
|
|
|
|
4,093
|
|
Core deposit and other intangibles
|
|
|
172
|
|
|
|
3,238
|
|
|
|
3,410
|
|
Other assets
|
|
|
254
|
|
|
|
(489
|
)
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
394,889
|
|
|
$
|
3,211
|
|
|
$
|
398,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and
non-interest-bearing
|
|
$
|
75,993
|
|
|
$
|
|
|
|
$
|
75,993
|
|
Savings and interest-bearing transaction accounts
|
|
|
139,459
|
|
|
|
|
|
|
|
139,459
|
|
Time deposits
|
|
|
88,219
|
|
|
|
324
|
|
|
|
88,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
303,671
|
|
|
|
324
|
|
|
|
303,995
|
|
FHLB borrowed funds
|
|
|
26,047
|
|
|
|
431
|
|
|
|
26,478
|
|
Accrued interest payable and other liabilities
|
|
|
14,552
|
|
|
|
18
|
|
|
|
14,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
344,270
|
|
|
|
773
|
|
|
|
345,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity assumed
|
|
|
50,619
|
|
|
|
(50,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity assumed
|
|
$
|
394,889
|
|
|
$
|
(49,846
|
)
|
|
|
345,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
|
|
|
|
|
|
|
|
53,057
|
|
Purchase price
|
|
|
|
|
|
|
|
|
|
|
96,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
$
|
42,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a description of the methods used to determine the fair values of significant assets and
liabilities presented above:
Cash and due from banks and interest-bearing deposits with other banks
The carrying amount of
these assets is a reasonable estimate of fair value based on the short-term nature of these assets.
Investment securities
Investment securities were acquired from GHI with an approximately $5,000 adjustment to market value based upon quoted market prices.
Loans
Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan
and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. The discount rates used for loans are based on current market rates for new
originations of comparable loans and include adjustments for liquidity concerns.
15
The Company evaluated $315.6 million of the loans purchased in conjunction with the
acquisition in accordance with the provisions of FASB ASC Topic
310-20,
Nonrefundable Fees and Other Costs,
which were recorded with a $3.6 million discount. As a result, the fair value discount on
these loans is being accreted into interest income over the weighted-average life of the loans using a constant yield method. The remaining $20.3 million of loans evaluated were considered purchased credit impaired loans within the provisions
of FASB ASC Topic
310-30,
Loans and Debt Securities Acquired with Deteriorated Credit Quality,
and were recorded with a $4.5 million discount. These purchase credit impaired loans will recognize
interest income through accretion of the difference between the carrying amount of the loans and the expected cash flows. The acquired GHI loan balance includes $1.6 million of discount on purchased loans.
Bank premises and equipment
Bank premises and equipment were acquired from GHI with a $608,000 adjustment to market value. This
represents the difference between current appraisals completed in connection with the acquisition and book value acquired.
Cash value
of life insurance
Cash value of life insurance was acquired from GHI at market value.
Accrued interest receivable
Accrued interest receivable was acquired from GHI at market value.
Deferred tax asset
The current and deferred
income tax assets and liabilities are recorded to reflect the differences in the carrying values of the acquired assets and assumed liabilities for financial reporting purposes and the cost basis for federal income tax purposes, at the
Companys statutory federal and state income tax rate which was 39.225% at the time of acquisition.
Core deposit intangible
This intangible asset represents the value of the relationships that GHI had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to
expected customer attrition rates, cost of the deposit base, and the net maintenance cost attributable to customer deposits. The Company recorded $3.4 million of core deposit intangible.
Deposits
The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition
equal the amount payable on demand at the acquisition date. The $324,000 fair value adjustment applied for time deposits was because the weighted-average interest rate of GHIs certificates of deposits was estimated to be above the current
market rates.
FHLB borrowed funds
The fair value of FHLB borrowed funds is estimated based on borrowing rates currently
available to the Company for borrowings with similar terms and maturities.
Accrued interest payable and other liabilities
The fair value used represents the adjustments of certain estimated liabilities from GHI.
16
3. Investment Securities
The amortized cost and estimated fair value of investment securities that are classified as
available-for-sale
and
held-to-maturity
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
Available-for-Sale
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Estimated
Fair Value
|
|
|
|
(In thousands)
|
|
U.S. government-sponsored enterprises
|
|
$
|
395,309
|
|
|
$
|
937
|
|
|
$
|
(4,159
|
)
|
|
$
|
392,087
|
|
Residential mortgage-backed securities
|
|
|
515,792
|
|
|
|
441
|
|
|
|
(11,852
|
)
|
|
|
504,381
|
|
Commercial mortgage-backed securities
|
|
|
517,551
|
|
|
|
71
|
|
|
|
(12,883
|
)
|
|
|
504,739
|
|
State and political subdivisions
|
|
|
253,766
|
|
|
|
2,224
|
|
|
|
(3,141
|
)
|
|
|
252,849
|
|
Other securities
|
|
|
37,821
|
|
|
|
1,458
|
|
|
|
(317
|
)
|
|
|
38,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,720,239
|
|
|
$
|
5,131
|
|
|
$
|
(32,352
|
)
|
|
$
|
1,693,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Estimated
Fair Value
|
|
|
|
(In thousands)
|
|
U.S. government-sponsored enterprises
|
|
$
|
4,043
|
|
|
$
|
|
|
|
$
|
(14
|
)
|
|
$
|
4,029
|
|
Residential mortgage-backed securities
|
|
|
54,057
|
|
|
|
27
|
|
|
|
(1,055
|
)
|
|
|
53,029
|
|
Commercial mortgage-backed securities
|
|
|
15,970
|
|
|
|
23
|
|
|
|
(268
|
)
|
|
|
15,725
|
|
State and political subdivisions
|
|
|
139,661
|
|
|
|
1,818
|
|
|
|
(130
|
)
|
|
|
141,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
213,731
|
|
|
$
|
1,868
|
|
|
$
|
(1,467
|
)
|
|
$
|
214,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Available-for-Sale
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Estimated
Fair Value
|
|
|
|
(In thousands)
|
|
U.S. government-sponsored enterprises
|
|
$
|
407,387
|
|
|
$
|
899
|
|
|
$
|
(1,982
|
)
|
|
$
|
406,304
|
|
Residential mortgage-backed securities
|
|
|
481,981
|
|
|
|
538
|
|
|
|
(4,919
|
)
|
|
|
477,600
|
|
Commercial mortgage-backed securities
|
|
|
497,870
|
|
|
|
332
|
|
|
|
(4,430
|
)
|
|
|
493,772
|
|
State and political subdivisions
|
|
|
247,292
|
|
|
|
3,783
|
|
|
|
(774
|
)
|
|
|
250,301
|
|
Other securities
|
|
|
34,617
|
|
|
|
1,225
|
|
|
|
(302
|
)
|
|
|
35,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,669,147
|
|
|
$
|
6,777
|
|
|
$
|
(12,407
|
)
|
|
$
|
1,663,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Estimated
Fair Value
|
|
|
|
(In thousands)
|
|
U.S. government-sponsored enterprises
|
|
$
|
5,791
|
|
|
$
|
15
|
|
|
$
|
(15
|
)
|
|
$
|
5,791
|
|
Residential mortgage-backed securities
|
|
|
56,982
|
|
|
|
107
|
|
|
|
(402
|
)
|
|
|
56,687
|
|
Commercial mortgage-backed securities
|
|
|
16,625
|
|
|
|
114
|
|
|
|
(40
|
)
|
|
|
16,699
|
|
State and political subdivisions
|
|
|
145,358
|
|
|
|
3,031
|
|
|
|
(27
|
)
|
|
|
148,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
224,756
|
|
|
$
|
3,267
|
|
|
$
|
(484
|
)
|
|
$
|
227,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Assets, principally investment securities, having a carrying value of approximately $1.19 and
$1.18 billion at March 31, 2018 and December 31, 2017, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. Also, investment securities pledged as collateral for repurchase
agreements totaled approximately $150.3 and $147.8 million at March 31, 2018 and December 31, 2017, respectively.
The
amortized cost and estimated fair value of securities classified as
available-for-sale
and
held-to-maturity
at March 31, 2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have
the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
Held-to-Maturity
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
|
(In thousands)
|
|
Due in one year or less
|
|
$
|
294,998
|
|
|
$
|
292,191
|
|
|
$
|
60,454
|
|
|
$
|
61,310
|
|
Due after one year through five years
|
|
|
936,617
|
|
|
|
922,056
|
|
|
|
91,149
|
|
|
|
91,000
|
|
Due after five years through ten years
|
|
|
367,552
|
|
|
|
360,108
|
|
|
|
12,183
|
|
|
|
12,006
|
|
Due after ten years
|
|
|
121,072
|
|
|
|
118,663
|
|
|
|
49,945
|
|
|
|
49,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,720,239
|
|
|
$
|
1,693,018
|
|
|
$
|
213,731
|
|
|
$
|
214,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For purposes of the maturity tables, mortgage-backed securities, which are not due at a single maturity date,
have been allocated over maturity groupings based on anticipated maturities. The mortgage-backed securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.
During the three-month period ended March 31, 2018, approximately $809,000 in
available-for-sale
securities were sold. No realized gains or losses were recorded on the sales for the three month period ended March 31, 2018. The income tax expense/benefit to net security gains and
losses was 26.135% of the gross amounts.
During the three-month period ended March 31, 2017, approximately $15.2 million, in
available-for-sale
securities were sold. The gross realized gains on the sales for the three month period ended March 31, 2017 totaled approximately $423,000. The income
tax expense/benefit to net security gains and losses was 39.225% of the gross amounts.
The Company evaluates all securities quarterly to
determine if any unrealized losses are deemed to be other than temporary. In completing these evaluations the Company follows the requirements of FASB ASC 320,
Investments - Debt and Equity Securities.
Certain investment securities are valued
less than their historical cost. These declines are primarily the result of the rate for these investments yielding less than current market rates. Based on evaluation of available evidence, management believes the declines in fair value for these
securities are temporary. The Company does not intend to sell or believe it will be required to sell these investments before recovery of their amortized cost basis, which may be maturity. Should the impairment of any of these securities become
other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.
During the three-month period ended March 31, 2018, no securities were deemed to have other-than-temporary impairment.
For the three months ended March 31, 2018, the Company had investment securities with approximately $9.3 million in unrealized
losses, which have been in continuous loss positions for more than twelve months. Excluding impairment write downs taken in prior periods, the Companys assessments indicated that the cause of the market depreciation was primarily the change in
interest rates and not the issuers financial condition, or downgrades by rating agencies. In addition, approximately 71.6% of the Companys investment portfolio matures in five years or less. As a result, the Company has the ability and
intent to hold such securities until maturity.
18
The following shows gross unrealized losses and estimated fair value of investment securities
classified as
available-for-sale
and
held-to-maturity
with unrealized losses that are not
deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position as of March 31, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
(In thousands)
|
|
U.S. government-sponsored enterprises
|
|
$
|
215,209
|
|
|
$
|
(3,024
|
)
|
|
$
|
44,139
|
|
|
$
|
(1,149
|
)
|
|
$
|
259,348
|
|
|
$
|
(4,173
|
)
|
Residential mortgage-backed securities
|
|
|
406,785
|
|
|
|
(9,538
|
)
|
|
|
101,902
|
|
|
|
(3,369
|
)
|
|
|
508,687
|
|
|
|
(12,907
|
)
|
Commercial mortgage-backed securities
|
|
|
367,845
|
|
|
|
(9,635
|
)
|
|
|
115,292
|
|
|
|
(3,516
|
)
|
|
|
483,137
|
|
|
|
(13,151
|
)
|
State and political subdivisions
|
|
|
102,212
|
|
|
|
(2,278
|
)
|
|
|
20,638
|
|
|
|
(993
|
)
|
|
|
122,850
|
|
|
|
(3,271
|
)
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
9,767
|
|
|
|
(317
|
)
|
|
|
9,767
|
|
|
|
(317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,092,051
|
|
|
$
|
(24,475
|
)
|
|
$
|
291,738
|
|
|
$
|
(9,344
|
)
|
|
$
|
1,383,789
|
|
|
$
|
(33,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
(In thousands)
|
|
U.S. government-sponsored enterprises
|
|
$
|
234,213
|
|
|
$
|
(1,288
|
)
|
|
$
|
40,122
|
|
|
$
|
(709
|
)
|
|
$
|
274,335
|
|
|
$
|
(1,997
|
)
|
Residential mortgage-backed securities
|
|
|
389,541
|
|
|
|
(3,656
|
)
|
|
|
99,989
|
|
|
|
(1,665
|
)
|
|
|
489,530
|
|
|
|
(5,321
|
)
|
Commercial mortgage-backed securities
|
|
|
314,301
|
|
|
|
(2,343
|
)
|
|
|
120,365
|
|
|
|
(2,127
|
)
|
|
|
434,666
|
|
|
|
(4,470
|
)
|
State and political subdivisions
|
|
|
41,299
|
|
|
|
(331
|
)
|
|
|
20,980
|
|
|
|
(470
|
)
|
|
|
62,279
|
|
|
|
(801
|
)
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
9,852
|
|
|
|
(302
|
)
|
|
|
9,852
|
|
|
|
(302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
979,354
|
|
|
$
|
(7,618
|
)
|
|
$
|
291,308
|
|
|
$
|
(5,273
|
)
|
|
$
|
1,270,662
|
|
|
$
|
(12,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income earned on securities for the three months ended March 31, 2018 and 2017, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Taxable:
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
$
|
8,465
|
|
|
$
|
4,794
|
|
Held-to-maturity
|
|
|
505
|
|
|
|
684
|
|
Non-taxable:
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
1,349
|
|
|
|
1,547
|
|
Held-to-maturity
|
|
|
1,657
|
|
|
|
1,397
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,976
|
|
|
$
|
8,422
|
|
|
|
|
|
|
|
|
|
|
19
4. Loans Receivable
The various categories of loans receivable are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
4,658,209
|
|
|
$
|
4,600,117
|
|
Construction/land development
|
|
|
1,641,834
|
|
|
|
1,700,491
|
|
Agricultural
|
|
|
81,151
|
|
|
|
82,229
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
1,915,346
|
|
|
|
1,970,311
|
|
Multifamily residential
|
|
|
464,194
|
|
|
|
441,303
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
8,760,734
|
|
|
|
8,794,451
|
|
Consumer
|
|
|
40,842
|
|
|
|
46,148
|
|
Commercial and industrial
|
|
|
1,324,173
|
|
|
|
1,297,397
|
|
Agricultural
|
|
|
50,770
|
|
|
|
49,815
|
|
Other
|
|
|
149,217
|
|
|
|
143,377
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
$
|
10,325,736
|
|
|
$
|
10,331,188
|
|
|
|
|
|
|
|
|
|
|
During the three-month period ended March 31, 2018, the Company sold $2.7 million of the guaranteed
portion of certain SBA loans, which resulted in a gain of approximately $182,000. During the three-month period ended March 31, 2017, the Company sold $4.0 million of the guaranteed portion of certain SBA loans, which resulted in a gain of
approximately $188,000.
Mortgage loans held for sale of approximately $36.7 million and $44.3 million at March 31, 2018
and December 31, 2017, respectively, are included in residential
1-4
family loans. Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Gains
and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts
collected or paid. The Company obtains forward commitments to sell mortgage loans to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. The forward commitments acquired by the Company for mortgage
loans in process of origination are considered mandatory forward commitments. Because these commitments are structured on a mandatory basis, the Company is required to substitute another loan or to buy back the commitment if the original loan does
not fund. These commitments are derivative instruments and their fair values at March 31, 2018 and December 31, 2017 were not material.
The Company had $3.23 billion of purchased loans, which includes $137.4 million of discount for credit losses on purchased loans, at
March 31, 2018. The Company had $49.4 million and $88.0 million remaining of
non-accretable
discount for credit losses on purchased loans and accretable discount for credit losses on purchased
loans, respectively, as of March 31, 2018. The Company had $3.46 billion of purchased loans, which includes $146.6 million of discount for credit losses on purchased loans, at December 31, 2017. The Company had $51.9 million
and $94.7 million remaining of
non-accretable
discount for credit losses on purchased loans and accretable discount for credit losses on purchased loans, respectively, as of December 31, 2017.
20
5. Allowance for Loan Losses, Credit Quality and Other
The Companys allowance for loan loss as March 31, 2018 and December 31, 2017 was significantly impacted by Hurricane Irma which made
initial landfall in the Florida Keys and a second landfall just south of Naples, Florida, as a Category 4 hurricane on September 10, 2017. Based on initial assessments of the potential credit impact and damage to the approximately $2.41 billion in
legacy loans receivable we have in the disaster area, the Company established a $32.9 million storm-related provision for loan losses as of December 31, 2017. As of March 31, 2018, charge-offs of $2.2 million have been taken against the
storm-related provision for loan losses.
The following table presents a summary of changes in the allowance for loan losses:
|
|
|
|
|
|
|
Three Months Ended
March 31, 2018
|
|
|
|
(In thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
Beginning balance
|
|
$
|
110,266
|
|
Loans charged off
|
|
|
(2,540
|
)
|
Recoveries of loans previously charged off
|
|
|
886
|
|
|
|
|
|
|
Net loans recovered (charged off)
|
|
|
(1,654
|
)
|
|
|
|
|
|
Provision for loan losses
|
|
|
1,600
|
|
|
|
|
|
|
Balance, March 31, 2018
|
|
$
|
110,212
|
|
|
|
|
|
|
The following tables present the balance in the allowance for loan losses for the three-month period ended
March 31, 2018, and the allowance for loan losses and recorded investment in loans based on portfolio segment by impairment method as of March 31, 2018. Allocation of a portion of the allowance to one type of loans does not preclude its
availability to absorb losses in other categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
|
Construction/
Land
Development
|
|
|
Other
Commercial
Real Estate
|
|
|
Residential
Real
Estate
|
|
|
Commercial
&
Industrial
|
|
|
Consumer
& Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
20,343
|
|
|
$
|
43,939
|
|
|
$
|
24,506
|
|
|
$
|
15,292
|
|
|
$
|
3,334
|
|
|
$
|
2,852
|
|
|
$
|
110,266
|
|
Loans charged off
|
|
|
(8
|
)
|
|
|
(447
|
)
|
|
|
(779
|
)
|
|
|
(814
|
)
|
|
|
(492
|
)
|
|
|
|
|
|
|
(2,540
|
)
|
Recoveries of loans previously charged off
|
|
|
30
|
|
|
|
101
|
|
|
|
361
|
|
|
|
98
|
|
|
|
296
|
|
|
|
|
|
|
|
886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans recovered (charged off)
|
|
|
22
|
|
|
|
(346
|
)
|
|
|
(418
|
)
|
|
|
(716
|
)
|
|
|
(196
|
)
|
|
|
|
|
|
|
(1,654
|
)
|
Provision for loan losses
|
|
|
(261
|
)
|
|
|
1,238
|
|
|
|
(474
|
)
|
|
|
1,617
|
|
|
|
109
|
|
|
|
(629
|
)
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31
|
|
$
|
20,104
|
|
|
$
|
44,831
|
|
|
$
|
23,614
|
|
|
$
|
16,193
|
|
|
$
|
3,247
|
|
|
$
|
2,223
|
|
|
$
|
110,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
|
|
Construction/
Land
Development
|
|
|
Other
Commercial
Real Estate
|
|
|
Residential
Real Estate
|
|
|
Commercial
& Industrial
|
|
|
Consumer
& Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period end amount allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
1,173
|
|
|
$
|
686
|
|
|
$
|
159
|
|
|
$
|
1,590
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,608
|
|
Loans collectively evaluated for impairment
|
|
|
18,872
|
|
|
|
43,667
|
|
|
|
22,617
|
|
|
|
14,304
|
|
|
|
3,236
|
|
|
|
2,223
|
|
|
|
104,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans evaluated for impairment balance, March 31
|
|
|
20,045
|
|
|
|
44,353
|
|
|
|
22,776
|
|
|
|
15,894
|
|
|
|
3,236
|
|
|
|
2,223
|
|
|
|
108,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased credit impaired loans
|
|
|
59
|
|
|
|
478
|
|
|
|
838
|
|
|
|
299
|
|
|
|
11
|
|
|
|
|
|
|
|
1,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31
|
|
$
|
20,104
|
|
|
$
|
44,831
|
|
|
$
|
23,614
|
|
|
$
|
16,193
|
|
|
$
|
3,247
|
|
|
$
|
2,223
|
|
|
$
|
110,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period end amount allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
20,927
|
|
|
$
|
124,402
|
|
|
$
|
22,379
|
|
|
$
|
33,536
|
|
|
$
|
391
|
|
|
$
|
|
|
|
$
|
201,635
|
|
Loans collectively evaluated for impairment
|
|
|
1,606,930
|
|
|
|
4,508,644
|
|
|
|
2,311,646
|
|
|
|
1,276,843
|
|
|
|
238,180
|
|
|
|
|
|
|
|
9,942,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans evaluated for impairment balance, March 31
|
|
|
1,627,857
|
|
|
|
4,633,046
|
|
|
|
2,334,025
|
|
|
|
1,310,379
|
|
|
|
238,571
|
|
|
|
|
|
|
|
10,143,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased credit impaired loans
|
|
|
13,977
|
|
|
|
106,314
|
|
|
|
45,515
|
|
|
|
13,794
|
|
|
|
2,258
|
|
|
|
|
|
|
|
181,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31
|
|
$
|
1,641,834
|
|
|
$
|
4,739,360
|
|
|
$
|
2,379,540
|
|
|
$
|
1,324,173
|
|
|
$
|
240,829
|
|
|
$
|
|
|
|
$
|
10,325,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following tables present the balances in the allowance for loan losses for the three-month
period ended March 31, 2017 and the year ended December 31, 2017, and the allowance for loan losses and recorded investment in loans receivable based on portfolio segment by impairment method as of December 31, 2017. Allocation of a
portion of the allowance to one type of loans does not preclude its availability to absorb losses in other categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
Construction/
Land
Development
|
|
|
Other
Commercial
Real Estate
|
|
|
Residential
Real Estate
|
|
|
Commercial
& Industrial
|
|
|
Consumer
& Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
11,522
|
|
|
$
|
28,188
|
|
|
$
|
16,517
|
|
|
$
|
12,756
|
|
|
$
|
4,188
|
|
|
$
|
6,831
|
|
|
$
|
80,002
|
|
Loans charged off
|
|
|
(207
|
)
|
|
|
(1,464
|
)
|
|
|
(1,891
|
)
|
|
|
(645
|
)
|
|
|
(499
|
)
|
|
|
|
|
|
|
(4,706
|
)
|
Recoveries of loans previously charged off
|
|
|
199
|
|
|
|
331
|
|
|
|
133
|
|
|
|
182
|
|
|
|
256
|
|
|
|
|
|
|
|
1,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans recovered (charged off)
|
|
|
(8
|
)
|
|
|
(1,133
|
)
|
|
|
(1,758
|
)
|
|
|
(463
|
)
|
|
|
(243
|
)
|
|
|
|
|
|
|
(3,605
|
)
|
Provision for loan losses
|
|
|
559
|
|
|
|
1,868
|
|
|
|
3,481
|
|
|
|
1,091
|
|
|
|
(575
|
)
|
|
|
(2,510
|
)
|
|
|
3,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31
|
|
|
12,073
|
|
|
|
28,923
|
|
|
|
18,240
|
|
|
|
13,384
|
|
|
|
3,370
|
|
|
|
4,321
|
|
|
|
80,311
|
|
Loans charged off
|
|
|
(1,425
|
)
|
|
|
(2,285
|
)
|
|
|
(2,089
|
)
|
|
|
(4,933
|
)
|
|
|
(2,033
|
)
|
|
|
|
|
|
|
(12,765
|
)
|
Recoveries of loans previously charged off
|
|
|
263
|
|
|
|
711
|
|
|
|
543
|
|
|
|
282
|
|
|
|
585
|
|
|
|
|
|
|
|
2,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans recovered (charged off)
|
|
|
(1,162
|
)
|
|
|
(1,574
|
)
|
|
|
(1,546
|
)
|
|
|
(4,651
|
)
|
|
|
(1,448
|
)
|
|
|
|
|
|
|
(10,381
|
)
|
Provision for loan losses
|
|
|
9,432
|
|
|
|
16,590
|
|
|
|
7,812
|
|
|
|
6,559
|
|
|
|
1,412
|
|
|
|
(1,469
|
)
|
|
|
40,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
20,343
|
|
|
$
|
43,939
|
|
|
$
|
24,506
|
|
|
$
|
15,292
|
|
|
$
|
3,334
|
|
|
$
|
2,852
|
|
|
$
|
110,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
|
Construction/
Land
Development
|
|
|
Other
Commercial
Real Estate
|
|
|
Residential
Real Estate
|
|
|
Commercial
& Industrial
|
|
|
Consumer
& Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period end amount allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
1,378
|
|
|
$
|
768
|
|
|
$
|
188
|
|
|
$
|
843
|
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
3,184
|
|
Loans collectively evaluated for impairment
|
|
|
18,954
|
|
|
|
42,824
|
|
|
|
23,341
|
|
|
|
14,290
|
|
|
|
3,310
|
|
|
|
2,852
|
|
|
|
105,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans evaluated for impairment balance, December 31
|
|
|
20,332
|
|
|
|
43,592
|
|
|
|
23,529
|
|
|
|
15,133
|
|
|
|
3,317
|
|
|
|
2,852
|
|
|
|
108,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased credit impaired loans
|
|
|
11
|
|
|
|
347
|
|
|
|
977
|
|
|
|
159
|
|
|
|
17
|
|
|
|
|
|
|
|
1,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
20,343
|
|
|
$
|
43,939
|
|
|
$
|
24,506
|
|
|
$
|
15,292
|
|
|
$
|
3,334
|
|
|
$
|
2,852
|
|
|
$
|
110,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period end amount allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
26,860
|
|
|
$
|
124,124
|
|
|
$
|
20,431
|
|
|
$
|
21,867
|
|
|
$
|
500
|
|
|
$
|
|
|
|
$
|
193,782
|
|
Loans collectively evaluated for impairment
|
|
|
1,658,519
|
|
|
|
4,442,201
|
|
|
|
2,341,081
|
|
|
|
1,261,161
|
|
|
|
236,392
|
|
|
|
|
|
|
|
9,939,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans evaluated for impairment balance, December 31
|
|
|
1,685,379
|
|
|
|
4,566,325
|
|
|
|
2,361,512
|
|
|
|
1,283,028
|
|
|
|
236,892
|
|
|
|
|
|
|
|
10,133,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased credit impaired loans
|
|
|
15,112
|
|
|
|
116,021
|
|
|
|
50,102
|
|
|
|
14,369
|
|
|
|
2,448
|
|
|
|
|
|
|
|
198,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
1,700,491
|
|
|
$
|
4,682,346
|
|
|
$
|
2,411,614
|
|
|
$
|
1,297,397
|
|
|
$
|
239,340
|
|
|
$
|
|
|
|
$
|
10,331,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
The following is an aging analysis for loans receivable as of March 31, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
Loans
Past Due
30-59 Days
|
|
|
Loans
Past Due
60-89 Days
|
|
|
Loans
Past Due
90 Days
or More
|
|
|
Total
Past Due
|
|
|
Current
Loans
|
|
|
Total Loans
Receivable
|
|
|
Accruing
Loans
Past Due
90 Days
or More
|
|
|
|
(In thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
1,126
|
|
|
$
|
8,043
|
|
|
$
|
14,011
|
|
|
$
|
23,180
|
|
|
$
|
4,635,029
|
|
|
$
|
4,658,209
|
|
|
$
|
5,300
|
|
Construction/land development
|
|
|
429
|
|
|
|
1,000
|
|
|
|
8,768
|
|
|
|
10,197
|
|
|
|
1,631,637
|
|
|
|
1,641,834
|
|
|
|
3,278
|
|
Agricultural
|
|
|
45
|
|
|
|
|
|
|
|
276
|
|
|
|
321
|
|
|
|
80,830
|
|
|
|
81,151
|
|
|
|
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
3,436
|
|
|
|
2,216
|
|
|
|
18,487
|
|
|
|
24,139
|
|
|
|
1,891,207
|
|
|
|
1,915,346
|
|
|
|
2,451
|
|
Multifamily residential
|
|
|
472
|
|
|
|
|
|
|
|
251
|
|
|
|
723
|
|
|
|
463,471
|
|
|
|
464,194
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
5,508
|
|
|
|
11,259
|
|
|
|
41,793
|
|
|
|
58,560
|
|
|
|
8,702,174
|
|
|
|
8,760,734
|
|
|
|
11,128
|
|
Consumer
|
|
|
74
|
|
|
|
36
|
|
|
|
196
|
|
|
|
306
|
|
|
|
40,536
|
|
|
|
40,842
|
|
|
|
27
|
|
Commercial and industrial
|
|
|
2,234
|
|
|
|
1,283
|
|
|
|
7,321
|
|
|
|
10,838
|
|
|
|
1,313,335
|
|
|
|
1,324,173
|
|
|
|
2,068
|
|
Agricultural and other
|
|
|
1,308
|
|
|
|
8
|
|
|
|
179
|
|
|
|
1,495
|
|
|
|
198,492
|
|
|
|
199,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,124
|
|
|
$
|
12,586
|
|
|
$
|
49,489
|
|
|
$
|
71,199
|
|
|
$
|
10,254,537
|
|
|
$
|
10,325,736
|
|
|
$
|
13,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Loans
Past Due
30-59 Days
|
|
|
Loans
Past Due
60-89 Days
|
|
|
Loans
Past Due
90 Days
or More
|
|
|
Total
Past Due
|
|
|
Current
Loans
|
|
|
Total Loans
Receivable
|
|
|
Accruing
Loans
Past Due
90 Days
or More
|
|
|
|
(In thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
6,331
|
|
|
$
|
1,480
|
|
|
$
|
12,719
|
|
|
$
|
20,530
|
|
|
$
|
4,579,587
|
|
|
$
|
4,600,117
|
|
|
$
|
3,119
|
|
Construction/land development
|
|
|
834
|
|
|
|
13
|
|
|
|
8,258
|
|
|
|
9,105
|
|
|
|
1,691,386
|
|
|
|
1,700,491
|
|
|
|
3,247
|
|
Agricultural
|
|
|
|
|
|
|
221
|
|
|
|
19
|
|
|
|
240
|
|
|
|
81,989
|
|
|
|
82,229
|
|
|
|
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
9,066
|
|
|
|
2,013
|
|
|
|
16,612
|
|
|
|
27,691
|
|
|
|
1,942,620
|
|
|
|
1,970,311
|
|
|
|
2,175
|
|
Multifamily residential
|
|
|
|
|
|
|
|
|
|
|
253
|
|
|
|
253
|
|
|
|
441,050
|
|
|
|
441,303
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
16,231
|
|
|
|
3,727
|
|
|
|
37,861
|
|
|
|
57,819
|
|
|
|
8,736,632
|
|
|
|
8,794,451
|
|
|
|
8,641
|
|
Consumer
|
|
|
252
|
|
|
|
51
|
|
|
|
171
|
|
|
|
474
|
|
|
|
45,674
|
|
|
|
46,148
|
|
|
|
26
|
|
Commercial and industrial
|
|
|
2,073
|
|
|
|
1,030
|
|
|
|
6,528
|
|
|
|
9,631
|
|
|
|
1,287,766
|
|
|
|
1,297,397
|
|
|
|
1,944
|
|
Agricultural and other
|
|
|
288
|
|
|
|
113
|
|
|
|
137
|
|
|
|
538
|
|
|
|
192,654
|
|
|
|
193,192
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,844
|
|
|
$
|
4,921
|
|
|
$
|
44,697
|
|
|
$
|
68,462
|
|
|
$
|
10,262,726
|
|
|
$
|
10,331,188
|
|
|
$
|
10,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accruing
loans at March 31, 2018 and December 31, 2017
were $36.3 million and $34.0 million, respectively.
23
The following is a summary of the impaired loans as of March 31, 2018 and December 31,
2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Unpaid
Contractual
Principal
Balance
|
|
|
Total
Recorded
Investment
|
|
|
Allocation
of Allowance
for Loan
Losses
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Recognized
|
|
|
|
(In thousands)
|
|
Loans without a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
29
|
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
29
|
|
|
$
|
|
|
Construction/land development
|
|
|
19
|
|
|
|
19
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
Agricultural
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
155
|
|
|
|
155
|
|
|
|
|
|
|
|
135
|
|
|
|
3
|
|
Multifamily residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
220
|
|
|
|
220
|
|
|
|
|
|
|
|
224
|
|
|
|
3
|
|
Consumer
|
|
|
16
|
|
|
|
16
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
Commercial and industrial
|
|
|
202
|
|
|
|
202
|
|
|
|
|
|
|
|
154
|
|
|
|
3
|
|
Agricultural and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans without a specific valuation allowance
|
|
|
438
|
|
|
|
438
|
|
|
|
|
|
|
|
395
|
|
|
|
6
|
|
Loans with a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
|
33,188
|
|
|
|
31,283
|
|
|
|
676
|
|
|
|
30,161
|
|
|
|
371
|
|
Construction/land development
|
|
|
13,264
|
|
|
|
12,208
|
|
|
|
1,173
|
|
|
|
12,183
|
|
|
|
87
|
|
Agricultural
|
|
|
540
|
|
|
|
544
|
|
|
|
10
|
|
|
|
414
|
|
|
|
7
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
23,752
|
|
|
|
20,511
|
|
|
|
100
|
|
|
|
19,600
|
|
|
|
322
|
|
Multifamily residential
|
|
|
1,737
|
|
|
|
1,714
|
|
|
|
59
|
|
|
|
1,670
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
72,481
|
|
|
|
66,260
|
|
|
|
2,018
|
|
|
|
64,028
|
|
|
|
806
|
|
Consumer
|
|
|
201
|
|
|
|
195
|
|
|
|
|
|
|
|
184
|
|
|
|
18
|
|
Commercial and industrial
|
|
|
23,524
|
|
|
|
15,885
|
|
|
|
1,590
|
|
|
|
14,445
|
|
|
|
150
|
|
Agricultural and other
|
|
|
179
|
|
|
|
179
|
|
|
|
|
|
|
|
244
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with a specific valuation allowance
|
|
|
96,385
|
|
|
|
82,519
|
|
|
|
3,608
|
|
|
|
78,901
|
|
|
|
977
|
|
Total impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
|
33,217
|
|
|
|
31,312
|
|
|
|
676
|
|
|
|
30,190
|
|
|
|
371
|
|
Construction/land development
|
|
|
13,283
|
|
|
|
12,227
|
|
|
|
1,173
|
|
|
|
12,225
|
|
|
|
87
|
|
Agricultural
|
|
|
557
|
|
|
|
561
|
|
|
|
10
|
|
|
|
432
|
|
|
|
7
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
23,907
|
|
|
|
20,666
|
|
|
|
100
|
|
|
|
19,735
|
|
|
|
325
|
|
Multifamily residential
|
|
|
1,737
|
|
|
|
1,714
|
|
|
|
59
|
|
|
|
1,670
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
72,701
|
|
|
|
66,480
|
|
|
|
2,018
|
|
|
|
64,252
|
|
|
|
809
|
|
Consumer
|
|
|
217
|
|
|
|
211
|
|
|
|
|
|
|
|
201
|
|
|
|
18
|
|
Commercial and industrial
|
|
|
23,726
|
|
|
|
16,087
|
|
|
|
1,590
|
|
|
|
14,599
|
|
|
|
153
|
|
Agricultural and other
|
|
|
179
|
|
|
|
179
|
|
|
|
|
|
|
|
244
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
96,823
|
|
|
$
|
82,957
|
|
|
$
|
3,608
|
|
|
$
|
79,296
|
|
|
$
|
983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
: Purchased credit impaired loans are accounted for on a pooled basis under ASC
310-30.
All of these pools are currently considered to be performing resulting in none of the purchased credit impaired loans being classified as impaired loans as of March 31, 2018.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
Unpaid
Contractual
Principal
Balance
|
|
|
Total
Recorded
Investment
|
|
|
Allocation
of Allowance
for Loan
Losses
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Recognized
|
|
|
|
(In thousands)
|
|
Loans without a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
29
|
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
23
|
|
|
$
|
2
|
|
Construction/land development
|
|
|
64
|
|
|
|
64
|
|
|
|
|
|
|
|
31
|
|
|
|
3
|
|
Agricultural
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
115
|
|
|
|
115
|
|
|
|
|
|
|
|
135
|
|
|
|
7
|
|
Multifamily residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
227
|
|
|
|
208
|
|
|
|
|
|
|
|
189
|
|
|
|
13
|
|
Consumer
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Commercial and industrial
|
|
|
105
|
|
|
|
105
|
|
|
|
|
|
|
|
85
|
|
|
|
7
|
|
Agricultural and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans without a specific valuation allowance
|
|
|
350
|
|
|
|
313
|
|
|
|
|
|
|
|
274
|
|
|
|
21
|
|
Loans with a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
|
29,666
|
|
|
|
29,040
|
|
|
|
757
|
|
|
|
41,772
|
|
|
|
1,498
|
|
Construction/land development
|
|
|
12,976
|
|
|
|
12,157
|
|
|
|
1,378
|
|
|
|
10,556
|
|
|
|
262
|
|
Agricultural
|
|
|
281
|
|
|
|
303
|
|
|
|
11
|
|
|
|
268
|
|
|
|
11
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
19,770
|
|
|
|
18,689
|
|
|
|
124
|
|
|
|
22,347
|
|
|
|
363
|
|
Multifamily residential
|
|
|
1,627
|
|
|
|
1,627
|
|
|
|
64
|
|
|
|
1,412
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
64,320
|
|
|
|
61,816
|
|
|
|
2,334
|
|
|
|
76,355
|
|
|
|
2,215
|
|
Consumer
|
|
|
179
|
|
|
|
191
|
|
|
|
|
|
|
|
163
|
|
|
|
|
|
Commercial and industrial
|
|
|
16,777
|
|
|
|
13,007
|
|
|
|
843
|
|
|
|
9,726
|
|
|
|
121
|
|
Agricultural and other
|
|
|
297
|
|
|
|
309
|
|
|
|
7
|
|
|
|
644
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with a specific valuation allowance
|
|
|
81,573
|
|
|
|
75,323
|
|
|
|
3,184
|
|
|
|
86,888
|
|
|
|
2,344
|
|
Total impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
|
29,695
|
|
|
|
29,069
|
|
|
|
757
|
|
|
|
41,795
|
|
|
|
1,500
|
|
Construction/land development
|
|
|
13,040
|
|
|
|
12,221
|
|
|
|
1,378
|
|
|
|
10,587
|
|
|
|
265
|
|
Agricultural
|
|
|
300
|
|
|
|
303
|
|
|
|
11
|
|
|
|
268
|
|
|
|
12
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
19,885
|
|
|
|
18,804
|
|
|
|
124
|
|
|
|
22,482
|
|
|
|
370
|
|
Multifamily residential
|
|
|
1,627
|
|
|
|
1,627
|
|
|
|
64
|
|
|
|
1,412
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
64,547
|
|
|
|
62,024
|
|
|
|
2,334
|
|
|
|
76,544
|
|
|
|
2,228
|
|
Consumer
|
|
|
197
|
|
|
|
191
|
|
|
|
|
|
|
|
163
|
|
|
|
1
|
|
Commercial and industrial
|
|
|
16,882
|
|
|
|
13,112
|
|
|
|
843
|
|
|
|
9,811
|
|
|
|
128
|
|
Agricultural and other
|
|
|
297
|
|
|
|
309
|
|
|
|
7
|
|
|
|
644
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
81,923
|
|
|
$
|
75,636
|
|
|
$
|
3,184
|
|
|
$
|
87,162
|
|
|
$
|
2,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
:
Purchased credit impaired loans are accounted for on a pooled basis under ASC
310-30.
All of these pools are currently considered to be performing resulting in none of the purchased credit impaired loans being
classified as impaired loans as of December 31, 2017.
Interest recognized on impaired loans during the three months ended
March 31, 2018 and 2017 was approximately $983,000 and $514,000, respectively. The amount of interest recognized on impaired loans on the cash basis is not materially different than the accrual basis.
25
Credit Quality Indicators.
As part of the
on-going
monitoring of the credit quality of the Companys loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk rating of loans, (ii) the level of classified loans, (iii) net
charge-offs,
(iv) non-performing
loans and (v) the general economic conditions in Arkansas, Florida, Alabama and New York.
The Company utilizes a risk rating matrix to assign a risk rating to each of its loans. Loans are rated on a scale from 1 to 8. Descriptions
of the general characteristics of the 8 risk ratings are as follows:
|
|
|
Risk rating 1 Excellent.
Loans in this category are to persons or entities of unquestionable financial strength, a highly liquid financial position, with collateral that is liquid and well
margined. These borrowers have performed without question on past obligations, and the Bank expects their performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial
margin. Loans secured by bank certificates of deposit and savings accounts, with appropriate holds placed on the accounts, are to be rated in this category.
|
|
|
|
Risk rating 2 Good.
These are loans to persons or entities with strong financial condition and above-average liquidity that have previously satisfactorily handled their obligations with the
Bank. Collateral securing the Banks debt is margined in accordance with policy guidelines. Internally generated cash flow covers current maturities of long-term debt more than adequately. Unsecured loans to individuals supported
by strong financial statements and on which repayment is satisfactory may be included in this classification.
|
|
|
|
Risk rating 3 Satisfactory.
Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt, and net worth comprised mainly
of fixed assets are included in this category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future. Closely held corporations or businesses where a majority of the
profits are withdrawn by the owners or paid in dividends are included in this rating category. Overall, these loans are basically sound.
|
|
|
|
Risk rating 4 Watch.
Borrowers who have marginal cash flow, marginal profitability or have experienced an unprofitable year and a declining financial condition characterize these loans. The borrower
has in the past satisfactorily handled debts with the Bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are
decreasing, despite the borrowers continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that
appears to limit exposure. Included in this category are loans to borrowers in industries that are experiencing elevated risk.
|
|
|
|
Risk rating 5 Other Loans Especially Mentioned (OLEM)
. A loan criticized as OLEM has potential weaknesses that deserve managements close attention. If left uncorrected, these
potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institutions credit position at some future date. OLEM assets are not adversely classified and do not expose the institution to sufficient
risk to warrant adverse classification.
|
|
|
|
Risk rating 6 Substandard.
A loan classified as substandard is inadequately protected by the sound worth and paying capacity of the borrower or the collateral pledged. Loss potential, while
existing in the aggregate amount of substandard loans, does not have to exist in individual assets.
|
|
|
|
Risk rating 7 Doubtful.
A loan classified as doubtful has all the weaknesses inherent in a loan 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. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower
presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the loan.
|
|
|
|
Risk rating 8 Loss.
Assets classified as loss are considered uncollectible and of such little value that the continuance as bankable assets is not warranted. This classification does not mean that the
asset has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may occur in the future. This classification is based upon current
facts, not probabilities. Assets classified as loss should be
charged-off
in the period in which they became uncollectible.
|
26
The Companys classified loans include loans in risk ratings 6, 7 and 8. The following is a
presentation of classified loans (excluding loans accounted for under ASC Topic
310-30)
by class as of March 31, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
Risk Rated 6
|
|
|
Risk Rated 7
|
|
|
Risk Rated 8
|
|
|
Classified Total
|
|
|
|
(In thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
22,426
|
|
|
$
|
568
|
|
|
$
|
|
|
|
$
|
22,994
|
|
Construction/land development
|
|
|
23,607
|
|
|
|
|
|
|
|
|
|
|
|
23,607
|
|
Agricultural
|
|
|
573
|
|
|
|
|
|
|
|
|
|
|
|
573
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
24,051
|
|
|
|
661
|
|
|
|
|
|
|
|
24,712
|
|
Multifamily residential
|
|
|
936
|
|
|
|
|
|
|
|
|
|
|
|
936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
71,593
|
|
|
|
1,229
|
|
|
|
|
|
|
|
72,822
|
|
Consumer
|
|
|
179
|
|
|
|
2
|
|
|
|
|
|
|
|
181
|
|
Commercial and industrial
|
|
|
14,636
|
|
|
|
249
|
|
|
|
|
|
|
|
14,885
|
|
Agricultural and other
|
|
|
195
|
|
|
|
3
|
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk rated loans
|
|
$
|
86,603
|
|
|
$
|
1,483
|
|
|
$
|
|
|
|
$
|
88,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Risk Rated 6
|
|
|
Risk Rated 7
|
|
|
Risk Rated 8
|
|
|
Classified Total
|
|
|
|
(In thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
20,933
|
|
|
$
|
518
|
|
|
$
|
|
|
|
$
|
21,451
|
|
Construction/land development
|
|
|
24,013
|
|
|
|
204
|
|
|
|
|
|
|
|
24,217
|
|
Agricultural
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
321
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
23,420
|
|
|
|
564
|
|
|
|
|
|
|
|
23,984
|
|
Multifamily residential
|
|
|
939
|
|
|
|
|
|
|
|
|
|
|
|
939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
69,626
|
|
|
|
1,286
|
|
|
|
|
|
|
|
70,912
|
|
Consumer
|
|
|
159
|
|
|
|
9
|
|
|
|
|
|
|
|
168
|
|
Commercial and industrial
|
|
|
12,818
|
|
|
|
80
|
|
|
|
|
|
|
|
12,898
|
|
Agricultural and other
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk rated loans
|
|
$
|
82,739
|
|
|
$
|
1,375
|
|
|
$
|
|
|
|
$
|
84,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans may be classified, but not considered impaired, due to one of the following reasons: (1) The
Company has established minimum dollar amount thresholds for loan impairment testing. All loans over $2.0 million that are rated 5 8 are individually assessed for impairment on a quarterly basis. Loans rated 5 8 that fall under
the threshold amount are not individually tested for impairment and therefore are not included in impaired loans; (2) of the loans that are above the threshold amount and tested for impairment, after testing, some are considered to not be
impaired and are not included in impaired loans.
27
The following is a presentation of loans receivable by class and risk rating as of March 31,
2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
Risk
Rated 1
|
|
|
Risk
Rated 2
|
|
|
Risk
Rated 3
|
|
|
Risk
Rated 4
|
|
|
Risk
Rated 5
|
|
|
Classified
Total
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
1,009
|
|
|
$
|
436
|
|
|
$
|
2,635,934
|
|
|
$
|
1,769,225
|
|
|
$
|
122,506
|
|
|
$
|
22,994
|
|
|
$
|
4,552,104
|
|
Construction/land development
|
|
|
25
|
|
|
|
575
|
|
|
|
271,278
|
|
|
|
1,330,942
|
|
|
|
1,430
|
|
|
|
23,607
|
|
|
|
1,627,857
|
|
Agricultural
|
|
|
|
|
|
|
|
|
|
|
51,568
|
|
|
|
27,653
|
|
|
|
1,148
|
|
|
|
573
|
|
|
|
80,942
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
807
|
|
|
|
849
|
|
|
|
1,438,822
|
|
|
|
399,975
|
|
|
|
12,067
|
|
|
|
24,712
|
|
|
|
1,877,232
|
|
Multifamily residential
|
|
|
|
|
|
|
|
|
|
|
294,675
|
|
|
|
160,970
|
|
|
|
212
|
|
|
|
936
|
|
|
|
456,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
1,841
|
|
|
|
1,860
|
|
|
|
4,692,277
|
|
|
|
3,688,765
|
|
|
|
137,363
|
|
|
|
72,822
|
|
|
|
8,594,928
|
|
Consumer
|
|
|
12,391
|
|
|
|
724
|
|
|
|
18,742
|
|
|
|
7,809
|
|
|
|
73
|
|
|
|
181
|
|
|
|
39,920
|
|
Commercial and industrial
|
|
|
22,871
|
|
|
|
7,175
|
|
|
|
659,521
|
|
|
|
576,476
|
|
|
|
29,451
|
|
|
|
14,885
|
|
|
|
1,310,379
|
|
Agricultural and other
|
|
|
1,711
|
|
|
|
3,867
|
|
|
|
141,820
|
|
|
|
51,055
|
|
|
|
|
|
|
|
198
|
|
|
|
198,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk rated loans
|
|
$
|
38,814
|
|
|
$
|
13,626
|
|
|
$
|
5,512,360
|
|
|
$
|
4,324,105
|
|
|
$
|
166,887
|
|
|
$
|
88,086
|
|
|
|
10,143,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased credit impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,325,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Risk
Rated 1
|
|
|
Risk
Rated 2
|
|
|
Risk
Rated 3
|
|
|
Risk
Rated 4
|
|
|
Risk
Rated 5
|
|
|
Classified
Total
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
1,015
|
|
|
$
|
558
|
|
|
$
|
2,595,844
|
|
|
$
|
1,745,778
|
|
|
$
|
119,656
|
|
|
$
|
21,451
|
|
|
$
|
4,484,302
|
|
Construction/land development
|
|
|
28
|
|
|
|
583
|
|
|
|
280,980
|
|
|
|
1,373,133
|
|
|
|
6,438
|
|
|
|
24,217
|
|
|
|
1,685,379
|
|
Agricultural
|
|
|
|
|
|
|
19
|
|
|
|
53,018
|
|
|
|
27,515
|
|
|
|
1,150
|
|
|
|
321
|
|
|
|
82,023
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
1,140
|
|
|
|
969
|
|
|
|
1,414,849
|
|
|
|
475,619
|
|
|
|
11,658
|
|
|
|
23,984
|
|
|
|
1,928,219
|
|
Multifamily residential
|
|
|
|
|
|
|
|
|
|
|
329,070
|
|
|
|
103,071
|
|
|
|
213
|
|
|
|
939
|
|
|
|
433,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
2,183
|
|
|
|
2,129
|
|
|
|
4,673,761
|
|
|
|
3,725,116
|
|
|
|
139,115
|
|
|
|
70,912
|
|
|
|
8,613,216
|
|
Consumer
|
|
|
13,106
|
|
|
|
808
|
|
|
|
22,479
|
|
|
|
8,532
|
|
|
|
70
|
|
|
|
168
|
|
|
|
45,163
|
|
Commercial and industrial
|
|
|
20,870
|
|
|
|
7,543
|
|
|
|
627,316
|
|
|
|
592,088
|
|
|
|
22,313
|
|
|
|
12,898
|
|
|
|
1,283,028
|
|
Agricultural and other
|
|
|
1,986
|
|
|
|
3,914
|
|
|
|
147,323
|
|
|
|
38,370
|
|
|
|
|
|
|
|
136
|
|
|
|
191,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk rated loans
|
|
$
|
38,145
|
|
|
$
|
14,394
|
|
|
$
|
5,470,879
|
|
|
$
|
4,364,106
|
|
|
$
|
161,498
|
|
|
$
|
84,114
|
|
|
|
10,133,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased credit impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,331,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
The following is a presentation of troubled debt restructurings (TDRs) by class as of
March 31, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
Number
of Loans
|
|
|
Pre-
Modification
Outstanding
Balance
|
|
|
Rate
Modification
|
|
|
Term
Modification
|
|
|
Rate
& Term
Modification
|
|
|
Post-
Modification
Outstanding
Balance
|
|
|
|
(Dollars in thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
|
15
|
|
|
$
|
15,856
|
|
|
$
|
8,770
|
|
|
$
|
247
|
|
|
$
|
5,502
|
|
|
$
|
14,519
|
|
Construction/land development
|
|
|
3
|
|
|
|
641
|
|
|
|
555
|
|
|
|
72
|
|
|
|
|
|
|
|
627
|
|
Agricultural
|
|
|
2
|
|
|
|
345
|
|
|
|
282
|
|
|
|
20
|
|
|
|
|
|
|
|
302
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
17
|
|
|
|
3,605
|
|
|
|
1,626
|
|
|
|
77
|
|
|
|
1,194
|
|
|
|
2,897
|
|
Multifamily residential
|
|
|
3
|
|
|
|
1,701
|
|
|
|
1,327
|
|
|
|
|
|
|
|
287
|
|
|
|
1,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
40
|
|
|
|
22,148
|
|
|
|
12,560
|
|
|
|
416
|
|
|
|
6,983
|
|
|
|
19,959
|
|
Consumer
|
|
|
3
|
|
|
|
19
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
Commercial and industrial
|
|
|
11
|
|
|
|
1,201
|
|
|
|
704
|
|
|
|
47
|
|
|
|
|
|
|
|
751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
54
|
|
|
$
|
23,368
|
|
|
$
|
13,264
|
|
|
$
|
478
|
|
|
$
|
6,983
|
|
|
$
|
20,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Number
of Loans
|
|
|
Pre-
Modification
Outstanding
Balance
|
|
|
Rate
Modification
|
|
|
Term
Modification
|
|
|
Rate
& Term
Modification
|
|
|
Post-
Modification
Outstanding
Balance
|
|
|
|
(Dollars in thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
|
16
|
|
|
$
|
16,853
|
|
|
$
|
8,815
|
|
|
$
|
250
|
|
|
$
|
5,513
|
|
|
$
|
14,578
|
|
Construction/land development
|
|
|
5
|
|
|
|
782
|
|
|
|
689
|
|
|
|
75
|
|
|
|
|
|
|
|
764
|
|
Agricultural
|
|
|
2
|
|
|
|
345
|
|
|
|
282
|
|
|
|
22
|
|
|
|
|
|
|
|
304
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
21
|
|
|
|
5,607
|
|
|
|
1,926
|
|
|
|
81
|
|
|
|
1,238
|
|
|
|
3,245
|
|
Multifamily residential
|
|
|
3
|
|
|
|
1,701
|
|
|
|
1,340
|
|
|
|
|
|
|
|
287
|
|
|
|
1,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
47
|
|
|
|
25,288
|
|
|
|
13,052
|
|
|
|
428
|
|
|
|
7,038
|
|
|
|
20,518
|
|
Consumer
|
|
|
3
|
|
|
|
19
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
18
|
|
Commercial and industrial
|
|
|
11
|
|
|
|
951
|
|
|
|
445
|
|
|
|
50
|
|
|
|
1
|
|
|
|
496
|
|
Agricultural and other
|
|
|
1
|
|
|
|
166
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
62
|
|
|
$
|
26,424
|
|
|
$
|
13,663
|
|
|
$
|
496
|
|
|
$
|
7,039
|
|
|
$
|
21,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a presentation of TDRs on
non-accrual
status as of
March 31, 2018 and December 31, 2017 because they are not in compliance with the modified terms:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Number of Loans
|
|
|
Recorded Balance
|
|
|
Number of Loans
|
|
|
Recorded Balance
|
|
|
|
(Dollars in thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
|
1
|
|
|
$
|
1,189
|
|
|
|
2
|
|
|
$
|
1,161
|
|
Agricultural
|
|
|
1
|
|
|
|
20
|
|
|
|
1
|
|
|
|
22
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
6
|
|
|
|
807
|
|
|
|
8
|
|
|
|
850
|
|
Multifamily residential
|
|
|
1
|
|
|
|
152
|
|
|
|
1
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
9
|
|
|
|
2,168
|
|
|
|
12
|
|
|
|
2,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
1
|
|
|
|
232
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10
|
|
|
$
|
2,400
|
|
|
|
13
|
|
|
$
|
2,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
The following is a presentation of total foreclosed assets as of March 31, 2018 and
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(In thousands)
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
8,720
|
|
|
$
|
9,766
|
|
Construction/land development
|
|
|
5,292
|
|
|
|
5,920
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
5,660
|
|
|
|
2,654
|
|
Multifamily residential
|
|
|
462
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
Total foreclosed assets held for sale
|
|
$
|
20,134
|
|
|
$
|
18,867
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the purchased credit impaired loans acquired in the GHI, BOC and Stonegate
acquisitions during 2017 as of the dates of acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GHI
|
|
|
BOC
|
|
|
Stonegate
|
|
|
|
(In thousands)
|
|
Contractually required principal and interest at acquisition
|
|
$
|
22,379
|
|
|
$
|
18,586
|
|
|
$
|
98,444
|
|
Non-accretable
difference (expected losses and foregone
interest)
|
|
|
4,462
|
|
|
|
2,811
|
|
|
|
23,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows expected to be collected at acquisition
|
|
|
17,917
|
|
|
|
15,775
|
|
|
|
75,147
|
|
Accretable yield
|
|
|
2,071
|
|
|
|
1,043
|
|
|
|
11,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis in purchased credit impaired loans at acquisition
|
|
$
|
15,846
|
|
|
$
|
14,732
|
|
|
$
|
63,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the carrying amount of the accretable yield for purchased credit impaired loans were as follows for
the three-month period ended March 31, 2018 for the Companys acquisitions:
|
|
|
|
|
|
|
|
|
|
|
Accretable Yield
|
|
|
Carrying
Amount of
Loans
|
|
|
|
(In thousands)
|
|
Balance at beginning of period
|
|
$
|
41,803
|
|
|
$
|
198,052
|
|
Reforecasted future interest payments for loan pools
|
|
|
202
|
|
|
|
|
|
Accretion recorded to interest income
|
|
|
(4,670
|
)
|
|
|
4,670
|
|
Adjustment to yield
|
|
|
1,589
|
|
|
|
|
|
Transfers to foreclosed assets held for sale
|
|
|
|
|
|
|
(870
|
)
|
Payments received, net
|
|
|
|
|
|
|
(19,994
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
38,924
|
|
|
$
|
181,858
|
|
|
|
|
|
|
|
|
|
|
The loan pools were evaluated by the Company and are currently forecasted to have a slower
run-off
than originally expected. As a result, the Company has reforecast the total accretable yield expectations for those loan pools by $202,000. This updated forecast does not change the expected weighted average
yields on the loan pools.
During the 2018 impairment tests on the estimated cash flows of loans, the Company established that several
loan pools were determined to have a materially projected credit improvement. As a result of this improvement, the Company will recognize approximately $1.6 million as an additional adjustment to yield over the weighted average life of the
loans.
30
6. Goodwill and Core Deposits and Other Intangibles
Changes in the carrying amount and accumulated amortization of the Companys goodwill and core deposits and other intangibles at
March 31, 2018 and December 31, 2017, were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(In thousands)
|
|
Goodwill
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
927,949
|
|
|
$
|
377,983
|
|
Acquisitions
|
|
|
|
|
|
|
549,966
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
927,949
|
|
|
$
|
927,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(In thousands)
|
|
Core Deposit and Other Intangibles
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
49,351
|
|
|
$
|
18,311
|
|
Acquisition
|
|
|
|
|
|
|
4,378
|
|
Amortization expense
|
|
|
(1,625
|
)
|
|
|
(804
|
)
|
|
|
|
|
|
|
|
|
|
Balance, March 31
|
|
$
|
47,726
|
|
|
|
21,885
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
|
|
|
|
30,869
|
|
Amortization expense
|
|
|
|
|
|
|
(3,403
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
|
|
|
$
|
49,351
|
|
|
|
|
|
|
|
|
|
|
The carrying basis and accumulated amortization of core deposits and other intangibles at March 31, 2018
and December 31, 2017 were:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(In thousands)
|
|
Gross carrying basis
|
|
$
|
86,625
|
|
|
$
|
86,625
|
|
Accumulated amortization
|
|
|
(38,899
|
)
|
|
|
(37,274
|
)
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
$
|
47,726
|
|
|
$
|
49,351
|
|
|
|
|
|
|
|
|
|
|
Core deposit and other intangible amortization expense was approximately $1.6 million and $804,000 for
the three months ended March 31, 2018 and 2017, respectively. Including all of the mergers completed as of December 31, 2017, HBIs estimated amortization expense of core deposits and other intangibles for each of the years 2018
through 2022 is approximately: 2018 $6.6 million; 2019 $6.5 million; 2020 $5.9 million; 2021 $5.7 million; 2022 $5.7 million.
The carrying amount of the Companys goodwill was $927.9 million at March 31, 2018 and December 31, 2017. Goodwill is
tested annually for impairment during the fourth quarter. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in
goodwill value are not recognized in the consolidated financial statements.
7. Other Assets
Other assets consist primarily of equity securities without a readily determinable fair value and other miscellaneous assets. As of
March 31, 2018 and December 31, 2017 other assets were $186.0 million and $177.8 million, respectively.
The Company
has equity securities without readily determinable fair values such as stock holdings in Federal Home Loan Bank (FHLB) and Federal Reserve Bank (Federal Reserve) which are outside the scope of ASC Topic 321, Investments
Equity Securities
(ASC Topic 321)
. These equity securities without a readily determinable fair value were $132.4 million and $132.1 million at March 31, 2018 and December 31, 2017, respectively, and are accounted for at
cost.
31
The Company has equity securities such as stock holdings in Bankers Bank and other
miscellaneous holdings which are accounted for under ASC Topic 321. These equity securities without a readily determinable fair value were $23.8 million and $23.9 million at March 31, 2018 and December 31, 2017,
respectively. It is not practical to determine the fair value of bank stocks due to restrictions placed on the transferability of Bankers Bank stock. Therefore, these are accounted for at cost as cost is considered to approximate fair
value due to these securities having no recent trades.
8. Deposits
The aggregate amount of time deposits with a minimum denomination of $250,000 was $580.9 million and $636.9 million at March 31,
2018 and December 31, 2017, respectively. The aggregate amount of time deposits with a minimum denomination of $100,000 was $1.00 billion and $998.3 million at March 31, 2018 and December 31, 2017, respectively. Interest
expense applicable to certificates in excess of $100,000 totaled $2.8 million and $1.7 million for the three months ended March 31, 2018 and 2017, respectively. As of March 31, 2018 and December 31, 2017, brokered deposits
were $962.3 million and $1.03 billion, respectively.
Deposits totaling approximately $1.46 billion and $1.51 billion
at March 31, 2018 and December 31, 2017, respectively, were public funds obtained primarily from state and political subdivisions in the United States.
9. Securities Sold Under Agreements to Repurchase
At March 31, 2018 and December 31, 2017, securities sold under agreements to repurchase totaled $150.3 million and
$147.8 million, respectively. For the three-month periods ended March 31, 2018 and 2017, securities sold under agreements to repurchase daily weighted-average totaled $152.7 million and $124.1 million, respectively.
The remaining contractual maturity of securities sold under agreements to repurchase in the consolidated balance sheets as of March 31,
2018 and December 31, 2017 is presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
Overnight and
Continuous
|
|
|
Up to 30
Days
|
|
|
30-90
Days
|
|
|
Greater than
90 Days
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Securities sold under agreements to repurchase:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored enterprises
|
|
$
|
18,506
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,506
|
|
Mortgage-backed securities
|
|
|
6,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,565
|
|
State and political subdivisions
|
|
|
101,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,722
|
|
Other securities
|
|
|
23,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
$
|
150,315
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
150,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Overnight and
Continuous
|
|
|
Up to 30
Days
|
|
|
30-90
Days
|
|
|
Greater than
90 Days
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Securities sold under agreements to repurchase:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored enterprises
|
|
$
|
11,525
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,000
|
|
|
$
|
21,525
|
|
Mortgage-backed securities
|
|
|
21,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,255
|
|
State and political subdivisions
|
|
|
85,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,428
|
|
Other securities
|
|
|
19,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
$
|
137,789
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,000
|
|
|
$
|
147,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
10. FHLB Borrowed Funds
The Companys FHLB borrowed funds, which are secured by our loan portfolio, were $1.12 billion and $1.30 billion at
March 31, 2018 and December 31, 2017, respectively. At March 31, 2018, $475.0 million and $640.1 million of the outstanding balance were issued as short-term and long-term advances, respectively. At December 31, 2017,
$525.0 million and $774.2 million of the outstanding balance were issued as short-term and long-term advances, respectively. The FHLB advances mature from the current year to 2027 with fixed interest rates ranging from 0.85% to 4.80% and
are secured by loans and investments securities. Maturities of borrowings as of March 31, 2018 include: 2018 $800.2 million; 2019 $143.1 million; 2020 $146.4 million; 2021 zero; after 2021
$25.4 million. Expected maturities will differ from contractual maturities because FHLB may have the right to call or HBI the right to prepay certain obligations.
Additionally, the Company had $697.3 and $695.3 million at March 31, 2018 and December 31, 2017, respectively, in letters of
credit under a FHLB blanket borrowing line of credit, which are used to collateralize public deposits at March 31, 2018 and December 31, 2017, respectively.
11. Other Borrowings
The Company had
zero other borrowings at March 31, 2018. The Company took out a $20.0 million unsecured line of credit for general corporate purposes during 2015. The balance on this line of credit at March 31, 2018 and December 31, 2017 was
zero.
12. Subordinated Debentures
Subordinated debentures at March 31, 2018 and December 31, 2017 consisted of guaranteed payments on trust preferred securities with
the following components:
|
|
|
|
|
|
|
|
|
|
|
As of
March 31,
|
|
|
As of
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Trust preferred securities
|
|
|
|
|
|
|
|
|
Subordinated debentures, issued in 2006, due 2036, fixed rate of 6.75% during the first five years
and at a floating rate of 1.85% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty
|
|
$
|
3,093
|
|
|
$
|
3,093
|
|
Subordinated debentures, issued in 2004, due 2034, fixed rate of 6.00% during the first five years
and at a floating rate of 2.00% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty
|
|
|
15,464
|
|
|
|
15,464
|
|
Subordinated debentures, issued in 2005, due 2035, fixed rate of 5.84% during the first five years
and at a floating rate of 1.45% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty
|
|
|
25,774
|
|
|
|
25,774
|
|
Subordinated debentures, issued in 2004, due 2034, fixed rate of 4.29% during the first five years
and at a floating rate of 2.50% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty
|
|
|
16,495
|
|
|
|
16,495
|
|
Subordinated debentures, issued in 2005, due 2035, floating rate of 2.15% above the three-month
LIBOR rate, reset quarterly, currently callable without penalty
|
|
|
4,316
|
|
|
|
4,304
|
|
Subordinated debentures, issued in 2006, due 2036, fixed rate of 7.38% during the first five years
and at a floating rate of 1.62% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty
|
|
|
5,592
|
|
|
|
5,569
|
|
Subordinated debt securities
|
|
|
|
|
|
|
|
|
Subordinated notes, net of issuance costs, issued in 2017, due 2027, fixed rate of 5.625% during
the first five years and at a floating rate of 3.575% above the then three-month LIBOR rate, reset quarterly, thereafter, callable in 2022 without penalty
|
|
|
297,478
|
|
|
|
297,332
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
368,212
|
|
|
$
|
368,031
|
|
|
|
|
|
|
|
|
|
|
33
The Company holds trust preferred securities with a face amount of $73.3 million which are
currently callable without penalty based on the terms of the specific agreements. The trust preferred securities are
tax-advantaged
issues that qualify for Tier 1 capital treatment subject to certain
limitations. Distributions on these securities are included in interest expense. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in the Companys
subordinated debentures, the sole asset of each trust. The trust preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the
subordinated debentures held by the trust. The Company wholly owns the common securities of each trust. Each trusts ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related
subordinated debentures. The Companys obligations under the subordinated securities and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of each respective trusts obligations
under the trust securities issued by each respective trust.
The Bank acquired $12.5 million in trust preferred securities with a
fair value of $9.9 million and $9.8 million at March 31, 2018 and December 31, 2017, respectively, from the Stonegate acquisition. The difference between the fair value purchased of $9.9 million and the $12.5 million
face amount, will be amortized into interest expense over the remaining life of the debentures. The associated subordinated debentures are redeemable, in whole or in part, prior to maturity at our option on a quarterly basis when interest is due and
payable and in whole at any time within 90 days following the occurrence and continuation of certain changes in the tax treatment or capital treatment of the debentures.
13. Income Taxes
On December 22,
2017, the Tax Cuts and Jobs Act (TCJA) was signed into law. The TCJA makes broad and complex changes to the U.S. tax code that affected our income tax rate in 2017. The TCJA reduces the U.S. federal corporate income tax rate from 35% to
21%. The TCJA also establishes new tax laws that will affect 2018.
ASC 740 requires a company to record the effects of a tax law change
in the period of enactment; however, shortly after the enactment of the TCJA, the SEC staff issued SAB 118, which allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in
reasonable detail to complete its accounting for the change in the tax law. The measurement period ends when the company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.
The following is a summary of the components of the provision (benefit) for income taxes for the three-month periods ended March 31,
2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
15,005
|
|
|
$
|
19,392
|
|
State
|
|
|
4,967
|
|
|
|
3,852
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
19,972
|
|
|
|
23,244
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
3,004
|
|
|
|
1,777
|
|
State
|
|
|
994
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
3,998
|
|
|
|
2,130
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
23,970
|
|
|
$
|
25,374
|
|
|
|
|
|
|
|
|
|
|
34
The reconciliation between the statutory federal income tax rate and effective income tax rate is
as follows for the three-month periods ended March 31, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Statutory federal income tax rate
|
|
|
21.00
|
%
|
|
|
35.00
|
%
|
Effect of
non-taxable
interest income
|
|
|
(0.74
|
)
|
|
|
(1.51
|
)
|
Effect of gain on acquisitions
|
|
|
|
|
|
|
(1.84
|
)
|
Stock compensation
|
|
|
(0.83
|
)
|
|
|
(1.09
|
)
|
State income taxes, net of federal benefit
|
|
|
4.10
|
|
|
|
3.93
|
|
Other
|
|
|
1.17
|
|
|
|
0.64
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
24.70
|
%
|
|
|
35.13
|
%
|
|
|
|
|
|
|
|
|
|
The types of temporary differences between the tax basis of assets and liabilities and their financial
reporting amounts that give rise to deferred income tax assets and liabilities, and their approximate tax effects, are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(In thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
30,075
|
|
|
$
|
29,515
|
|
Deferred compensation
|
|
|
1,093
|
|
|
|
1,142
|
|
Stock compensation
|
|
|
2,989
|
|
|
|
2,731
|
|
Real estate owned
|
|
|
1,565
|
|
|
|
1,731
|
|
Unrealized loss on securities
available-for-sale
|
|
|
7,233
|
|
|
|
1,471
|
|
Loan discounts
|
|
|
28,246
|
|
|
|
32,784
|
|
Tax basis premium/discount on acquisitions
|
|
|
8,990
|
|
|
|
8,802
|
|
Investments
|
|
|
1,062
|
|
|
|
1,155
|
|
Other
|
|
|
11,677
|
|
|
|
11,663
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
92,930
|
|
|
|
90,994
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Accelerated depreciation on premises and equipment
|
|
|
383
|
|
|
|
291
|
|
Core deposit intangibles
|
|
|
10,895
|
|
|
|
11,258
|
|
FHLB dividends
|
|
|
1,712
|
|
|
|
1,625
|
|
Other
|
|
|
1,612
|
|
|
|
1,256
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
14,602
|
|
|
|
14,430
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
78,328
|
|
|
$
|
76,564
|
|
|
|
|
|
|
|
|
|
|
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and the states of
Arkansas, Alabama, Florida and New York. The Company is no longer subject to U.S. federal and state tax examinations by tax authorities for years before 2013.
14. Common Stock, Compensation Plans and Other
Common Stock
The
Companys Restated Articles of Incorporation, as amended, authorize the issuance of up to 200,000,000 shares of common stock, par value $0.01 per share.
The Company also has the authority to issue up to 5,500,000 shares of preferred stock, par value $0.01 per share under the Companys
Restated Articles of Incorporation.
35
Stock Repurchases
On February 21, 2018, the Companys Board of Directors authorized the repurchase of up to an additional 5,000,000 shares of its
common stock under the previously approved stock repurchase program, which brought the total amount of authorized shares to repurchase to 14,752,000 shares. During 2018, the Company utilized a portion of this stock repurchase program.
During first three months of 2018, the Company repurchased a total of 303,637 shares with a weighted-average stock price of $23.41 per share. The 2018
earnings were used to fund the repurchases during the year. Shares repurchased under the program as of March 31, 2018 total 4,828,501 shares. The remaining balance available for repurchase is 9,923,499 shares at March 31, 2018.
Stock Compensation Plans
The Company has a stock option and performance incentive plan known as the Amended and Restated 2006 Stock Option and Performance Incentive
Plan (the Plan). The purpose of the Plan is to attract and retain highly qualified officers, directors, key employees, and other persons, and to motivate those persons to improve the Companys business results. On April 19,
2018 at the Annual Meeting of Shareholders of the Company, the shareholders approved, as proposed in the Proxy Statement, an amendment to the Plan to increase the number of shares of the Companys common stock available for issuance under the
Plan by 2,000,000 shares to 13,288,000 shares. The Plan provides for the granting of incentive and
non-qualified
stock options to and other equity awards, including the issuance of restricted shares. As of
March 31, 2018, the maximum total number of shares of the Companys common stock available for issuance under the Plan was 11,288,000. At March 31, 2018, the Company had approximately 2,132,000 shares of common stock remaining
available for future grants and approximately 4,319,000 shares of common stock reserved for issuance pursuant to outstanding awards under the Plan.
The intrinsic value of the stock options outstanding and stock options vested at March 31, 2018 was $13.2 million and
$8.0 million, respectively. Total unrecognized compensation cost, net of income tax benefit, related to
non-vested
stock option awards, which are expected to be recognized over the vesting periods, was
approximately $4.8 million as of March 31, 2018. For the first three months of 2018, the Company has expensed approximately $503,000 for the
non-vested
awards.
The table below summarizes the stock option transactions under the Plan at March 31, 2018 and December 31, 2017 and changes during
the three-month period and year then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended March 31, 2018
|
|
|
For the Year Ended
December 31, 2017
|
|
|
|
Shares (000)
|
|
|
Weighted-
Average
Exercisable
Price
|
|
|
Shares (000)
|
|
|
Weighted-
Average
Exercisable
Price
|
|
Outstanding, beginning of year
|
|
|
2,274
|
|
|
$
|
16.23
|
|
|
|
2,397
|
|
|
$
|
15.19
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
25.96
|
|
Forfeited/Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(142
|
)
|
|
|
8.82
|
|
|
|
(203
|
)
|
|
|
7.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period
|
|
|
2,132
|
|
|
|
16.72
|
|
|
|
2,274
|
|
|
|
16.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of period
|
|
|
933
|
|
|
$
|
14.19
|
|
|
|
1,016
|
|
|
$
|
13.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Stock-based compensation expense for stock-based compensation awards granted is based on the
grant-date fair value. For stock option awards, the fair value is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the
fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Accordingly, while management believes that the
Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Companys employee stock options. No options were granted during the three
months ended March 31, 2018. The weighted-average fair value of options granted during the year ended December 31, 2017 was $7.10 per share. The fair value of each option granted is estimated on the date of grant using the Black-Scholes
option-pricing model based on the weighted-average assumptions for expected dividend yield, expected stock price volatility, risk-free interest rate, and expected life of options granted.
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Year Ended
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Expected dividend yield
|
|
Not applicable
|
|
|
1.39
|
%
|
Expected stock price volatility
|
|
Not applicable
|
|
|
28.47
|
%
|
Risk-free interest rate
|
|
Not applicable
|
|
|
2.06
|
%
|
Expected life of options
|
|
Not applicable
|
|
|
6.5 years
|
|
The following is a summary of currently outstanding and exercisable options at March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Exercise Prices
|
|
Options
Outstanding
Shares
(000)
|
|
|
Weighted-
Average
Remaining
Contractual
Life (in years)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Options
Exercisable
Shares (000)
|
|
|
Weighted-
Average
Exercise
Price
|
|
$2.10 to $2.66
|
|
|
14
|
|
|
|
1.17
|
|
|
|
2.59
|
|
|
|
14
|
|
|
|
2.59
|
|
$5.68 to $6.56
|
|
|
99
|
|
|
|
3.40
|
|
|
|
6.45
|
|
|
|
99
|
|
|
|
6.45
|
|
$8.62 to $9.54
|
|
|
264
|
|
|
|
4.92
|
|
|
|
9.05
|
|
|
|
232
|
|
|
|
8.98
|
|
$14.71 to $16.86
|
|
|
262
|
|
|
|
6.51
|
|
|
|
16.00
|
|
|
|
154
|
|
|
|
15.98
|
|
$17.12 to $17.40
|
|
|
203
|
|
|
|
6.66
|
|
|
|
17.19
|
|
|
|
94
|
|
|
|
17.25
|
|
$18.46 to $18.46
|
|
|
1,010
|
|
|
|
7.40
|
|
|
|
18.46
|
|
|
|
289
|
|
|
|
18.46
|
|
$20.16 to $20.58
|
|
|
80
|
|
|
|
7.52
|
|
|
|
20.37
|
|
|
|
27
|
|
|
|
20.34
|
|
$21.25 to $21.25
|
|
|
120
|
|
|
|
8.06
|
|
|
|
21.25
|
|
|
|
24
|
|
|
|
21.25
|
|
$25.96 to $25.96
|
|
|
80
|
|
|
|
9.06
|
|
|
|
25.96
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,132
|
|
|
|
|
|
|
|
|
|
|
|
933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below summarized the activity for the Companys restricted stock issued and outstanding at
March 31, 2018 and December 31, 2017 and changes during the period and year then ended:
|
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2018
|
|
|
As of
December 31, 2017
|
|
|
|
(In thousands)
|
|
Beginning of year
|
|
|
1,145
|
|
|
|
958
|
|
Issued
|
|
|
162
|
|
|
|
232
|
|
Vested
|
|
|
(143
|
)
|
|
|
(45
|
)
|
Forfeited
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
|
1,149
|
|
|
|
1,145
|
|
|
|
|
|
|
|
|
|
|
Amount of expense for three months and twelve months ended, respectively
|
|
$
|
1,601
|
|
|
$
|
5,237
|
|
|
|
|
|
|
|
|
|
|
37
Total unrecognized compensation cost, net of income tax benefit, related to
non-vested
restricted stock awards, which are expected to be recognized over the vesting periods, was approximately $14.9 million as of March 31, 2018.
15.
Non-Interest
Expense
The table below shows the components of
non-interest
expense for the three months ended March 31,
2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Salaries and employee benefits
|
|
$
|
35,014
|
|
|
$
|
27,421
|
|
Occupancy and equipment
|
|
|
8,983
|
|
|
|
6,681
|
|
Data processing expense
|
|
|
3,986
|
|
|
|
2,723
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
962
|
|
|
|
698
|
|
Merger and acquisition expenses
|
|
|
|
|
|
|
6,727
|
|
Amortization of intangibles
|
|
|
1,625
|
|
|
|
804
|
|
Electronic banking expense
|
|
|
1,878
|
|
|
|
1,519
|
|
Directors fees
|
|
|
330
|
|
|
|
313
|
|
Due from bank service charges
|
|
|
219
|
|
|
|
420
|
|
FDIC and state assessment
|
|
|
1,608
|
|
|
|
1,288
|
|
Insurance
|
|
|
887
|
|
|
|
578
|
|
Legal and accounting
|
|
|
778
|
|
|
|
627
|
|
Other professional fees
|
|
|
1,639
|
|
|
|
1,153
|
|
Operating supplies
|
|
|
600
|
|
|
|
467
|
|
Postage
|
|
|
344
|
|
|
|
286
|
|
Telephone
|
|
|
373
|
|
|
|
324
|
|
Other expense
|
|
|
4,154
|
|
|
|
3,112
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses
|
|
|
15,397
|
|
|
|
18,316
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest
expense
|
|
$
|
63,380
|
|
|
$
|
55,141
|
|
|
|
|
|
|
|
|
|
|
16. Significant Estimates and Concentrations of Credit Risks
Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current
vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses and certain concentrations of credit risk are reflected in Note 5, while deposit concentrations are reflected in Note 8.
The Companys primary market areas are in Arkansas, Florida, South Alabama and New York. The Company primarily grants loans to customers
located within these markets unless the borrower has an established relationship with the Company.
The diversity of the Companys
economic base tends to provide a stable lending environment. Although the Company has a loan portfolio that is diversified in both industry and geographic area, a substantial portion of its debtors ability to honor their contracts is dependent
upon real estate values, tourism demand and the economic conditions prevailing in its market areas.
Although the Company has a
diversified loan portfolio, commercial real estate loans represented 61.8% of total loans receivable at each of March 31, 2018 and December 31, 2017, and 285.1% and 289.6% of total stockholders equity at March 31, 2018 and
December 31, 2017, respectively. Residential real estate loans represented 23.0% and 23.3% of total loans receivable and 106.3% and 109.4% of total stockholders equity at March 31, 2018 and December 31, 2017, respectively.
Approximately 91.2% of the Companys total loans and 91.4% of the Companys real estate loans as of March 31, 2018, are to
borrowers whose collateral is located in Alabama, Arkansas, Florida and New York, the states in which the Company has its branch locations.
38
Although general economic conditions in our market areas have improved, both nationally and
locally, in recent years and have shown signs of continued improvement, financial institutions still face circumstances and challenges which, in some cases, have resulted and could potentially result, in large declines in the fair values of
investments and other assets, constraints on liquidity and significant credit quality problems, including severe volatility in the valuation of real estate and other collateral supporting loans. The financial statements have been prepared using
values and information currently available to the Company.
Any future volatility in the economy could cause the values of assets and
liabilities recorded in the financial statements to change rapidly, resulting in material future adjustments in asset values, the allowance for loan losses and capital that could negatively impact the Companys ability to meet regulatory
capital requirements and maintain sufficient liquidity.
17. Commitments and Contingencies
In the ordinary course of business, the Company makes various commitments and incurs certain contingent liabilities to fulfill the financing
needs of their customers. These commitments and contingent liabilities include lines of credit and commitments to extend credit and issue standby letters of credit. The Company applies the same credit policies and standards as they do in the lending
process when making these commitments. The collateral obtained is based on the assessed creditworthiness of the borrower.
At
March 31, 2018 and December 31, 2017, commitments to extend credit of $2.14 billion and $2.38 billion, respectively, were outstanding. A percentage of these balances are participated out to other banks; therefore, the Company can
call on the participating banks to fund future draws. Since some of these commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.
Outstanding standby letters of credit are contingent commitments issued by the Company, generally to guarantee the performance of a customer
in third-party borrowing arrangements. The term of the guarantee is dependent upon the creditworthiness of the borrower, some of which are long-term. The amount of collateral obtained, if deemed necessary, is based on managements credit
evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of
credit as it does for
on-balance-sheet
instruments. The maximum amount of future payments the Company could be required to make under these guarantees at March 31, 2018 and December 31, 2017, is
$68.3 million and $70.5 million, respectively.
The Company and/or its bank subsidiary have various unrelated legal proceedings,
most of which involve loan foreclosure activity pending, which, in the aggregate, are not expected to have a material adverse effect on the financial position or results of operations or cash flows of the Company and its subsidiary.
18. Regulatory Matters
The Bank is
subject to a legal limitation on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. Arkansas bank regulators have specified that the maximum dividend limit state banks may pay to the parent
company without prior approval is 75% of the current year earnings plus 75% of the retained net earnings of the preceding year. Since the Bank is also under supervision of the Federal Reserve, it is further limited if the total of all dividends
declared in any calendar year by the Bank exceeds the Banks net profits to date for that year combined with its retained net profits for the preceding two years. During the first quarter of 2018, the Company requested approximately
$30.3 million in regular dividends from its banking subsidiary. This dividend is equal to approximately 38.6% of the Companys banking subsidiarys first quarter 2018 earnings.
39
The Companys banking subsidiary is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the
Companys consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Companys
assets, liabilities and certain
off-balance-sheet
items as calculated under regulatory accounting practices. The Companys capital amounts and classifications are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors. Furthermore, the Companys regulators could require adjustments to regulatory capital not reflected in the consolidated financial statements.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of
total, common Tier 1 equity and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of March 31, 2018, the Company
meets all capital adequacy requirements to which it is subject.
In July 2013, the Federal Reserve Board and the other federal bank
regulatory agencies issued a final rule to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on
Banking Supervision in Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems and certain provisions of the Dodd-Frank Act (Basel III). Basel III applies to all depository institutions, bank
holding companies with total consolidated assets of $500 million or more, and savings and loan holding companies. Basel III became effective for the Company and its bank subsidiary on January 1, 2015. The capital conservation buffer
requirement began being phased in beginning January 1, 2016 at the 0.625% level and will increase by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019 when the
phase-in
period ends and the full capital conservation buffer requirement becomes effective.
Basel III amended the prompt corrective action rules to incorporate a common equity Tier 1 capital requirement and to raise the
capital requirements for certain capital categories. In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization will be required to have at least a 4.5% common equity Tier 1 risk-based
capital ratio, a 4% Tier 1 leverage capital ratio, a 6% Tier 1 risk-based capital ratio and an 8% total risk-based capital ratio.
The Federal Reserve Boards risk-based capital guidelines include the definitions for (1) a well-capitalized institution,
(2) an adequately-capitalized institution, and (3) an undercapitalized institution. Under Basel III, the criteria for a well-capitalized institution are now: a 6.5% common equity Tier 1 risk-based capital ratio, a 5% Tier
1 leverage capital ratio, an 8% Tier 1 risk-based capital ratio, and a 10% total risk-based capital ratio. As of March 31, 2018, the Bank met the capital standards for a well-capitalized institution. The
Companys common equity Tier 1 risk-based capital ratio, Tier 1 leverage capital ratio, Tier 1 risk-based capital ratio, and total risk-based capital ratio were 11.34%, 10.21%, 11.96%, and 15.56%,
respectively, as of March 31, 2018.
19. Additional Cash Flow Information
In connection with the GHI acquisition, accounted for using the purchase method, the Company acquired approximately $398.1 million in
assets, including $41.0 million in cash and cash equivalents, assumed $345.0 million in liabilities, issued 2,738,038 shares of its common stock valued at approximately $77.5 million as of February 23, 2017, and paid
approximately $18.5 million in cash in exchange for all outstanding shares of GHI common stock.
In connection with the BOC
acquisition, accounted for using the purchase method, the Company acquired approximately $178.1 million in assets, including $4.6 million in cash and cash equivalents, assumed $170.1 million in liabilities, issued no equity and paid
approximately $4.2 million in cash. As a result, the Company recorded a bargain purchase gain of $3.8 million.
In connection
with the Stonegate acquisition, accounted for using the purchase method, the Company acquired approximately $2.89 billion in assets, including $101.0 million in cash and cash equivalents, assumed $2.60 billion in liabilities, issued
30,863,658 shares of its common stock valued at approximately $742.3 million as of September 26, 2017, and paid $50.1 million in cash in exchange for all outstanding shares of Stonegate common stock.
40
The following is a summary of the Companys additional cash flow information during the
three-month periods ended:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Interest paid
|
|
$
|
19,296
|
|
|
$
|
2,209
|
|
Income taxes paid
|
|
|
865
|
|
|
|
|
|
Assets acquired by foreclosure
|
|
|
4,253
|
|
|
|
2,041
|
|
20. Financial Instruments
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There is a hierarchy of three levels of inputs that may be used to measure fair values:
|
Level
1
|
Quoted prices in active markets for identical assets or liabilities
|
|
Level
2
|
Observable inputs other than Level 1 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 for substantially the full term of the assets or liabilities
|
|
Level
3
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
|
A financial instruments level within the fair value hierarchy is based on the lowest level of input that is significant to the fair
value measurement. Transfers of financial instruments between levels within the fair value hierarchy are recognized on the date management determines that the underlying circumstances or assumptions have changed.
Financial Assets and Liabilities Measured on a Recurring Basis
Available-for-sale
securities are the only material financial
instruments valued on a recurring basis which are held by the Company at fair value. The Company does not have any Level 1 securities. Primarily all of the Companys securities are considered to be Level 2 securities. These
Level 2 securities consist primarily of U.S. government-sponsored enterprises, mortgage-backed securities plus state and political subdivisions. For these securities, the Company obtains fair value measurements from an independent pricing
service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit
information and the bonds terms and conditions, among other things. As of March 31, 2018 and December 31, 2017, Level 3 securities were immaterial. In addition, there were no material transfers between hierarchy levels during
2018 and 2017.
The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing
methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment portfolio securities with complicated structures. Pricing for the Companys
investment securities is fairly generic and is easily obtained.
Financial Assets and Liabilities Measured on a Nonrecurring Basis
Impaired loans that are collateral dependent are the only material financial assets valued on a
non-recurring
basis which are held by the Company at fair value. Loan impairment is reported when full payment under the loan terms is not expected. Impaired loans are carried at the net realizable value of
the collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan
losses to require an increase, such increase is reported as a component of the provision for loan losses. The fair value of loans with specific allocated losses was $79.3 million and $72.5 million as of March 31, 2018 and
December 31, 2017, respectively. This valuation is considered Level 3, consisting of appraisals of underlying collateral. The Company reversed approximately $195,000 and $165,000 of accrued interest receivable when impaired loans were
put on
non-accrual
status during the three months ended March 31, 2018 and 2017, respectively.
41
Nonfinancial Assets and Liabilities Measured on a Nonrecurring Basis
Foreclosed assets held for sale are the only material
non-financial
assets valued on a
non-recurring
basis which are held by the Company at fair value, less estimated costs to sell. At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the
Companys recorded investment in the related loan, a write-down is recognized through a charge to the allowance for loan losses. Additionally, valuations are periodically performed by management and any subsequent reduction in value is
recognized by a charge to income. The fair value of foreclosed assets held for sale is estimated using Level 3 inputs based on appraisals of underlying collateral. As of March 31, 2018 and December 31, 2017, the fair value of
foreclosed assets held for sale, less estimated costs to sell, was $20.1 million and $18.9 million, respectively.
No foreclosed
assets held for sale were remeasured during the three months ended March 31, 2018. Regulatory guidelines require the Company to reevaluate the fair value of foreclosed assets held for sale on at least an annual basis. The Companys policy
is to comply with the regulatory guidelines.
The significant unobservable (Level 3) inputs used in the fair value measurement of
collateral for collateral-dependent impaired loans and foreclosed assets primarily relate to customized discounting criteria applied to the customers reported amount of collateral. The amount of the collateral discount depends upon the
condition and marketability of the underlying collateral. As the Companys primary objective in the event of default would be to monetize the collateral to settle the outstanding balance of the loan, less marketable collateral would receive a
larger discount. During the reported periods, collateral discounts ranged from 20% to 50% for commercial and residential real estate collateral.
42
Fair Values of Financial Instruments
The following table presents the estimated fair values of the
Companys financial instruments. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Level
|
|
|
|
(In thousands)
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
510,601
|
|
|
$
|
510,601
|
|
|
|
1
|
|
Federal funds sold
|
|
|
1,825
|
|
|
|
1,825
|
|
|
|
1
|
|
Investment securities
held-to-maturity
|
|
|
213,731
|
|
|
|
214,132
|
|
|
|
2
|
|
Loans receivable, net of impaired loans and allowance
|
|
|
10,136,175
|
|
|
|
9,932,701
|
|
|
|
3
|
|
Accrued interest receivable
|
|
|
45,361
|
|
|
|
45,361
|
|
|
|
1
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and
non-interest
bearing
|
|
$
|
2,473,602
|
|
|
$
|
2,473,602
|
|
|
|
1
|
|
Savings and interest-bearing transaction accounts
|
|
|
6,437,408
|
|
|
|
6,437,408
|
|
|
|
1
|
|
Time deposits
|
|
|
1,485,605
|
|
|
|
1,474,065
|
|
|
|
3
|
|
Securities sold under agreements to repurchase
|
|
|
150,315
|
|
|
|
150,315
|
|
|
|
1
|
|
FHLB and other borrowed funds
|
|
|
1,115,061
|
|
|
|
1,110,809
|
|
|
|
2
|
|
Accrued interest payable
|
|
|
11,054
|
|
|
|
11,054
|
|
|
|
1
|
|
Subordinated debentures
|
|
|
368,212
|
|
|
|
379,471
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Level
|
|
|
|
(In thousands)
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
635,933
|
|
|
$
|
635,933
|
|
|
|
1
|
|
Federal funds sold
|
|
|
24,109
|
|
|
|
24,109
|
|
|
|
1
|
|
Investment securities
held-to-maturity
|
|
|
224,756
|
|
|
|
227,539
|
|
|
|
2
|
|
Loans receivable, net of impaired loans and allowance
|
|
|
10,148,470
|
|
|
|
10,055,901
|
|
|
|
3
|
|
Accrued interest receivable
|
|
|
45,708
|
|
|
|
45,708
|
|
|
|
1
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and
non-interest
bearing
|
|
$
|
2,385,252
|
|
|
$
|
2,385,252
|
|
|
|
1
|
|
Savings and interest-bearing transaction accounts
|
|
|
6,476,819
|
|
|
|
6,476,819
|
|
|
|
1
|
|
Time deposits
|
|
|
1,526,431
|
|
|
|
1,514,670
|
|
|
|
3
|
|
Securities sold under agreements to repurchase
|
|
|
147,789
|
|
|
|
147,789
|
|
|
|
1
|
|
FHLB and other borrowed funds
|
|
|
1,299,188
|
|
|
|
1,299,961
|
|
|
|
2
|
|
Accrued interest payable
|
|
|
5,583
|
|
|
|
5,583
|
|
|
|
1
|
|
Subordinated debentures
|
|
|
368,031
|
|
|
|
379,146
|
|
|
|
3
|
|
43
21. Recent Accounting Pronouncements
In May 2014, the FASB issued ASU
2014-09,
Revenue from Contracts with Customers (Topic 606)
. ASU
2014-09
provides guidance that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods and services. In August 2015, the FASB issued ASU
No. 2015-14,
Revenue from Contracts with Customers (Topic 606)
, which defers the effective date of this
standard to annual and interim periods beginning after December 15, 2017; however, early adoption is permitted for annual and interim reporting periods beginning after December 15, 2016. In April 2016, the FASB issued ASU
2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
, which amends certain aspects of the guidance in ASU
2014-09
(FASBs new revenue standard) on (1) identifying performance obligations and (2) licensing. ASU
2014-10s
effective date and transition
provisions are aligned with the requirements in ASU
2014-09.
In May 2016, the FASB issued ASU
2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope
Improvements and Practical Expedients
, which amends certain aspects of the FASBs new revenue standard, ASU
2014-09.
ASU
2016-12s
effective date and
transition provisions are aligned with the requirements in ASU
2014-09
The guidance issued in ASU
2014-09,
ASU
2015-14,
ASU
2016-10
and ASU
2016-12
permit two implementation approaches,
one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The Company adopted the guidance effective
January 1, 2018 and its adoption did not have a significant impact on our financial position or financial statement disclosures.
In
January 2016, the FASB issued ASU
2016-01,
Financial Instruments - Overall
(Subtopic
825-10):
Recognition and Measurement of Financial Assets and Financial
Liabilities
. Changes to the current GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. ASU 2016-01
requires equity investments, other than equity method investments, to be measured at fair value with changes in fair value recognized in net income. The ASU requires a cumulative-effect adjustment to retained earnings as of the beginning of the
reporting period of adoption to reclassify the cumulative change in fair value of equity securities previously recognized in AOCI. In addition, ASU
2016-01
clarifies guidance related to the valuation allowance
assessment when recognizing deferred tax assets resulting from unrealized losses on
available-for-sale
securities. The new guidance is effective for annual reporting
period and interim reporting periods within those annual periods, beginning after December 15, 2017. The Company adopted the guidance effective January 1, 2018 and recorded a cumulative-effect adjustment to retained earnings of $990,000 to
reclassify the cumulative change in fair value of equity securities previously recognized in AOCI. For additional information on fair value of assets and liabilities, see Note 20.
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842).
The amendments in ASU
2016-02
address several aspects of lease accounting with the significant change being the recognition of lease assets and lease liabilities for leases previously classified as operating leases. ASU
2016-02
is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in ASU
2016-02
is permitted for all entities. The Company has several lease agreements for which the amendments will require the Company to recognize a lease liability to make lease payments and a
right-of-use
asset which will represent its right to use the underlying asset for the lease term. The Company is currently reviewing the amendments to ensure it is fully
compliant by the adoption date and does not expect to early adopt. The impact is not expected to have a material effect on the Companys financial position or results of operations as the Company does not have a material amount of lease
agreements. In addition, the Company will change its current accounting policies to comply with the amendments with such changes as mentioned above. For additional information on the Companys leases, see Note 18 Leases in the Notes
to Consolidated Financial Statements in the Companys Annual Report on Form
10-K
for the year ended December 31, 2017.
44
In May 2016, the FASB issued ASU
2016-11,
Revenue
Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates
2014-09
and
2014-16
Pursuant to Staff
Announcements at the March
3, 2016 EITF Meeting (SEC Update)
, which rescinds certain SEC guidance from the FASB Accounting Standards Codification in response to announcements made by the SEC staff at the Emerging Issues Task
Forces (EITF) March 3, 2016, meeting. ASU
2016-11
is effective at the same time as ASU
2014-09
and ASU
2014-16.
The Company adopted the guidance effective January 1, 2018 and its adoption did not have a significant impact on the Companys financial position or financial statement disclosures.
In June 2016, the FASB issued ASU
2016-13,
Measurement of Credit Losses on Financial
Instruments
, which amends the FASBs guidance on the impairment of financial instruments. The amendments in ASU
2016-13
replace the incurred loss model with a methodology that reflects expected credit
losses over the life of the loan and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates, known as the current expected credit loss (CECL) model. Under the new guidance,
an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. ASU
2016-13
is also intended to reduce the complexity
of U.S. GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. ASU
2016-13
is effective for fiscal years beginning after December 15, 2019, including
interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The allowance for loan losses is a material estimate of the Company
and given the change from an incurred loss model to a methodology that considers the credit loss over the life of the loan, there is the potential for an increase in the allowance for loan losses at adoption date. The Company is anticipating a
significant change in the processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that
utilizes the incurred loss model. The Company will also develop new procedures for determining an allowance for credit losses relating to
held-to-maturity
investment
securities. In addition, the current accounting policy and procedures for other-than-temporary impairment on
available-for-sale
investment securities will be replaced
with an allowance approach. The Company is currently evaluating the impact, if any, ASU
2016-13
will have on its financial position and results of operations and currently does not know or cannot reasonably
quantify the impact of the adoption of the amendments as a result of the complexity and extensive changes from the amendments. It is too early to assess the impact that the implementation of this guidance will have on the Companys consolidated
financial statements; however, the Company has begun developing processes and procedures to ensure it is fully compliant with the amendments at the required adoption date. Among other things, the Company has initiated data gathering and assessment
to support forecasting of asset quality, loan balances, and portfolio net charge-offs and has developed an
in-house
data warehouse, developed asset quality forecast models and evaluated potential software
vendors in preparation for the implementation of this standard. For additional information on the allowance for loan losses, see Note 5.
45
In August 2016, the FASB issued ASU
2016-15,
Classification of Certain Cash Receipts and Cash Payments,
which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of ASU
2016-15
is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. ASU
2016-15s
amendments add or clarify guidance on
eight cash flow issues including debt prepayment or debt extinguishment costs; settlement of
zero-coupon
debt instruments or other debt instruments with coupon interest rates that are insignificant in relation
to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies;
including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. ASU
2016-15
is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted and the guidance must be applied retrospectively to all
periods presented but may be applied prospectively from the earliest date practicable if retrospective application would be impracticable. The Company adopted the guidance effective January 1, 2018 and its adoption did not have a significant
impact on the Companys statement of cash flows or financial statement disclosures.
In October 2016, the FASB issued ASU
2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than
inventory when the transfer occurs. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied on a modified retrospective basis through a
cumulative-effect adjustment directly to retained earnings at the beginning period of adoption. Early adoption is permitted in the first interim period of an annual reporting period for which financial statements have not been issued. The Company
adopted the guidance effective January 1, 2018 and its adoption did not have a significant impact on the Companys financial position or financial statement disclosures.
In November 2016, the FASB issued ASU
2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
(a consensus of the FASB Emerging Issues Task Force)
, which clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows, and, as a result, entities will no longer present transfers between
cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. An entity with a material balance of restricted cash and restricted cash equivalents must disclose information about the nature of the
restrictions. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted and the new guidance must be applied retrospectively to all periods
presented. The Company adopted the guidance effective January 1, 2018 and its adoption did not have a significant impact on the Companys financial position or financial statement disclosures.
In January 2017, the FASB issued ASU
2017-01,
Business Combinations (Topic 805): Clarifying the
Definition of a Business
, which provides guidance to entities to assist with evaluating when a set of transferred assets and activities (collectively, the set) is a business and provides a screen to determine when a set is not a
business. Under the new guidance, when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset, or group of similar assets, the assets acquired would not represent a business.
Also, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to produce outputs. The new standard is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2017, and should be applied on a prospective basis to any transactions occurring within the period of adoption. Early adoption is permitted for interim or annual periods in which the
financial statements have not been issued. The Company adopted the guidance effective January 1, 2018 and its adoption is not anticipated to have a significant impact on the Companys financial position or financial statement disclosures.
46
In January 2017, the FASB issued ASU
2017-03,
Accounting Changes and Error Corrections (Topic 250) and InvestmentsEquity Method and Joint Ventures (Topic 323)
. The amendments in the update relate to SEC paragraphs pursuant to Staff Announcements at the September 22, 2016 and
November 17, 2016 EITF meetings related to disclosure of the impact of recently issued accounting standards. The SEC staffs view that a registrant should evaluate ASC updates that have not yet been adopted to determine the appropriate
financial disclosures about the potential material effects of the updates on the financial statements when adopted. If a registrant does not know or cannot reasonably estimate the impact of an update, then in addition to making a statement to that
effect, the registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact. The staff expects the additional qualitative disclosures to include a description of the
effect of the accounting policies expected to be applied compared to current accounting policies. Also, the registrant should describe the status of its process to implement the new standards and the significant implementation matters yet to be
addressed. The amendments specifically addressed recent ASC amendments to ASU
2016-02,
Leases
, and ASU
2014-09,
Revenue from Contracts with Customers
,
although, the amendments apply to any subsequent amendments to guidance in the ASC. The Company adopted the amendments in this update during the fourth quarter of 2016 and appropriate disclosures have been included in this Note for each recently
issued accounting standard.
In January 2017, the FASB issued ASU
2017-04,
Intangibles -
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
, which eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the
amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the
reporting units fair value; however, the loss should not exceed the total amount of goodwill allocated to that reporting unit. The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after
December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017. The Company has goodwill from prior business combinations and
performs an annual impairment test or more frequently if changes or circumstances occur that would
more-likely-than-not
reduce the fair value of the reporting unit below its carrying value. During 2017, the
Company performed its impairment assessment and determined the fair value of the aggregated reporting units exceed the carrying value, such that the Companys goodwill was not considered impaired. Although the Company cannot anticipate future
goodwill impairment assessments, based on the most recent assessment it is unlikely that an impairment amount would need to be calculated and, therefore, the Company does not anticipate a material impact from these amendments to the Companys
financial position and results of operations. The current accounting policies and processes are not anticipated to change, except for the elimination of the Step 2 analysis.
In February 2017, the FASB issued ASU
2017-05,
Other Income: Gains and Losses from the
Derecognition of Nonfinancial Assets
, which clarifies the scope of the FASBs guidance on nonfinancial asset derecognition (ASC
610-20)
as well as the accounting for partial sales of nonfinancial
assets. The ASU conforms the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard (ASC 606, as amended). The ASU requires an entity to derecognize the nonfinancial asset or
in-substance
nonfinancial asset in a partial sale transaction when (1) the entity ceases to have a controlling financial interest in a subsidiary under ASC 810 and (2) control of the asset is transferred
in accordance with ASC 606. The entity therefore has to consider repurchase agreements (e.g., a call option to repurchase the ownership interest in a subsidiary) in its assessment and may not be able to derecognize the nonfinancial assets, even
though it no longer has a controlling financial interest in a subsidiary in accordance with ASC 810. The ASU illustrates the application of this guidance in ASC
610-20-55-15
and
55-16.
The effective date of the new guidance is aligned with the requirements in the new revenue standard, which is effective for public
entities for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017, and for nonpublic entities for annual reporting periods beginning after December 15, 2018, and interim
reporting periods within annual reporting periods beginning after December 15, 2019. The Company adopted the guidance effective January 1, 2018 and its adoption is not anticipated to have a significant impact on the Companys
financial position or financial statement disclosures.
47
In March 2017, the FASB issued ASU
2017-08,
Receivables - Nonrefundable Fees and Other Costs (Topic 310): Premium Amortization on Purchased Callable Debt Securities
, which amends the amortization period for certain purchased callable debt securities held at a premium. This ASU will
shorten the amortization period for the premium to be amortized to the earliest call date. This ASU does not apply to securities held at a discount, which will continue to be amortized to maturity. This ASU is effective for interim and annual
reporting periods beginning after December 15, 2018. The guidance should be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Early
adoption is permitted, including adoption in an interim period. The Company early adopted the guidance effective January 1, 2018 and its adoption is not anticipated to have a significant impact on the Companys financial position or
financial statement disclosures.
In May 2017, the FASB issued ASU
2017-09,
Compensation -
Stock Compensation (Topic 718): Scope of Modification Accounting
, which amends the scope of modification accounting for share-based payment arrangements. Specifically, an entity would not apply modification accounting if the fair value, vesting
conditions, and classification of the awards are the same immediately before and after the modification. The amendments in ASU
2017-09
should be applied prospectively to an award modified on or after the
adoption date. This ASU is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company adopted the guidance effective January 1,
2018. The Company does not anticipate any modifications to its existing awards and therefore the adoption of ASU
2017-09
is not expected to have a significant impact on the Companys financial position,
results of operations, or its financial statement disclosures.
In July 2017, the FASB issued ASU
2017-11,
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features;
II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable
Non-controlling
Interests with a Scope
Exception.
Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the
strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round
features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating
Topic 480, Distinguishing Liabilities from Equity
, because of the existence of extensive
pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain
mandatorily redeemable
non-controlling
interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for interim and annual reporting periods beginning after
December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact, if any, ASU
2017-11
will have on its financial position, results of
operations, and its financial statement disclosures. The Companys evaluation process includes, but is not limited to, identifying transactions and accounts within the scope of the guidance, reviewing its accounting and disclosures for these
transactions and accounts, and identifying and implementing any necessary changes to its accounting and disclosures as a result of the guidance. The Company is also identifying and implementing changes to its business processes, systems and controls
to support adoption of the new standard in 2019.
48
In August 2017, the FASB issued ASU
2017-12,
Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities
, which amends the hedge accounting model to provide better insight to risk management activities in the financial statements, reduces the
complexity in cash flow hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness, requires the entire change in the fair value of a hedging instrument included in the assessment of the hedge
effectiveness to be recorded in other comprehensive income, with amounts reclassified to earnings to be presented in the same line item used to present the earnings effect of the hedged item when the hedged item affects earnings and allows the
initial prospective quantitative assessment of hedge effectiveness to be performed at any time after hedge designation, but no later than the first quarterly effectiveness testing date. This ASU is effective for interim and annual periods beginning
after December 15, 2018, and early adoption is permitted. The amendments in this standard must be applied using the modified retrospective approach for cash flow and net investment hedge relationships existing on the date of adoption. The
Company is currently evaluating the impact, if any, ASU
2017-12
will have on its financial position, results of operations, and its financial statement disclosures. The Companys evaluation process
includes, but is not limited to, identifying transactions and accounts within the scope of the guidance, reviewing its accounting and disclosures for these transactions and accounts, and identifying and implementing any necessary changes to its
accounting and disclosures as a result of the guidance. The Company is also identifying and implementing changes to its business processes, systems and controls to support adoption of the new standard in 2019.
In February 2018, the FASB issued ASU
2018-02,
Income StatementReporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
, which was issued to address the income tax accounting treatment of the stranded tax effects within other comprehensive income due to the
prohibition of backward tracing due to an income tax rate change that was initially recorded in other comprehensive income. This issue came about from the enactment of the TCJA on December 22, 2017 that changed the Companys federal income
tax rate from 35% to 21%. The ASU changed current accounting whereby an entity may elect to reclassify the stranded tax effect from accumulated other comprehensive income to retained earnings. The amendments in this ASU are effective for interim and
annual reporting periods beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. Adoption of this ASU is to be applied either in the period of adoption or retrospectively to each period in which
the effect of the change in the tax laws or rates were recognized. The Company plans to adopt the guidance January 1, 2019. As of March 31, 2018, the balance of the stranded tax effects within other comprehensive income was $604,000.
In February 2018, the FASB issued ASU
2018-03,
Technical Corrections and Improvements to Financial
Instruments Overall (Subtopic
825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities
. The amendments in ASU
2018-03
make technical
corrections to certain aspects of ASU
2016-01
(on recognition of financial assets and financial liabilities), including the following:
|
|
|
Equity securities without a readily determinable fair value discontinuation.
|
|
|
|
Equity securities without a readily determinable fair value adjustments.
|
|
|
|
Forward contracts and purchased options.
|
|
|
|
Presentation requirements for certain fair value option liabilities.
|
|
|
|
Fair value option liabilities denominated in a foreign currency.
|
|
|
|
Transition guidance for equity securities without a readily determinable fair value.
|
The
amendments in ASU
2018-03
are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Early adoption of ASU
2018-03
is permitted for all entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, if they have adopted ASU
2016-01. The
Company has adopted the guidance January 1, 2018 and its adoption did not have a significant impact on our financial position or financial statement disclosures.
49
In March 2018, the FASB issued ASU
2018-04,
Amendments
to SEC paragraphs Pursuant to SEC Staff Accounting Bulletin No.
117 and SEC Release No.
33-9273
. The ASU adds, amends, and supersedes various paragraphs that
contain SEC guidance in ASC 320,
Investments Debt Securities
, and ASC 980,
Regulated Operations
. The effective date for the amendments to ASC 320 is the same as the effective date of ASU
2016-01.
Other amendments are effective upon issuance. The Company has adopted the amendments to ASC 320 January 1, 2018 and the adoption did not have a significant impact on our financial position or
financial statement disclosures. The Company has adopted the other amendments effective March 9, 2018 and the adoption did not have a significant impact on our financial position or financial statement disclosures.
In March 2018, the FASB issued ASU
2018-05,
Amendments to SEC Paragraphs Pursuant to SEC Staff
Accounting Bulletin No.
118
. The ASU adds seven paragraphs to ASC 740, Income Taxes, that contain SEC guidance related to SAB 118 (codified as SEC SAB Topic 5.EE,
Income Tax Accounting Implications of the Tax Cuts and Jobs
Act
. This ASU was effective upon issuance. The Company has adopted the guidance effective March 13, 2018 and its adoption did not have a significant impact on our financial position or financial statement disclosures.
50
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Home
BancShares, Inc.
Conway, Arkansas
Results of Review of
Interim Consolidated Financial Statements
We have reviewed the condensed consolidated balance sheet of Home BancShares, Inc. (the Company)
as of March 31, 2018, and the related condensed consolidated statements of income, comprehensive income, stockholders equity and cash flows for the three-month periods ended March 31, 2018, and 2017, and the related notes (collectively
referred to as the interim financial
statements). Based on our reviews, we are not aware of any material modifications that should be made to
the condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheet of the Company and subsidiaries as of December 31, 2017, and the related consolidated statements of income, comprehensive income, stockholders equity and cash flows for the year then ended (not presented
herein), and in our report dated February 27, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Result
These financial statements are
the responsibility of the Companys management. We conducted our reviews in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of
persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
/s/
BKD,
LLP
Little Rock, Arkansas
May 7, 2018
51
Item 2:
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion should be read in conjunction with our Form
10-K,
filed with the Securities
and Exchange Commission on February 27, 2018, which includes the audited financial statements for the year ended December 31, 2017.
Unless the context requires otherwise, the terms Company, us, we,
and our refer to Home BancShares, Inc. on a consolidated basis.
General
We are a bank holding company headquartered in Conway, Arkansas, offering a broad array of financial services through our wholly-owned bank
subsidiary, Centennial Bank (sometimes referred to as Centennial or the Bank). As of March 31, 2018, we had, on a consolidated basis, total assets of $14.32 billion, loans receivable, net of $10.22 billion,
total deposits of $10.40 billion, and stockholders equity of $2.24 billion.
We generate most of our revenue from interest
on loans and investments, service charges, and mortgage banking income. Deposits and Federal Home Loan Bank (FHLB) and other borrowed funds are our primary source of funding. Our largest expenses are interest on our funding sources,
salaries and related employee benefits and occupancy and equipment. We measure our performance by calculating our return on average common equity, return on average assets and net interest margin. We also measure our performance by our efficiency
ratio, which is calculated by dividing
non-interest
expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and
non-interest
income. The efficiency ratio, as adjusted is a
non-GAAP
measure and is calculated by dividing
non-interest
expense
less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and
non-interest
income excluding adjustments such as merger expenses and/or gains and losses.
Table 1: Key Financial Measures
|
|
|
|
|
|
|
|
|
|
|
As of or for the Three Months
Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in thousands, except per
share data)
|
|
Total assets
|
|
$
|
14,323,229
|
|
|
$
|
10,717,468
|
|
Loans receivable
|
|
|
10,325,736
|
|
|
|
7,849,645
|
|
Allowance for loan losses
|
|
|
110,212
|
|
|
|
80,311
|
|
Total deposits
|
|
|
10,396,615
|
|
|
|
7,567,207
|
|
Total stockholders equity
|
|
|
2,238,181
|
|
|
|
1,441,568
|
|
Net income
|
|
|
73,064
|
|
|
|
46,856
|
|
Basic earnings per share
|
|
|
0.42
|
|
|
|
0.33
|
|
Diluted earnings per share
|
|
|
0.42
|
|
|
|
0.33
|
|
Annualized net interest margin FTE (non-GAAP)
|
|
|
4.46
|
%
|
|
|
4.70
|
%
|
Efficiency ratio
|
|
|
37.83
|
|
|
|
40.76
|
|
Efficiency ratio, as adjusted (non-GAAP)
|
|
|
37.97
|
|
|
|
36.96
|
|
Annualized return on average assets
|
|
|
2.08
|
|
|
|
1.86
|
|
Annualized return on average common equity
|
|
|
13.38
|
|
|
|
13.85
|
|
52
Overview
Results of Operations for the Three Months Ended March 31, 2018 and 2017
Our net income increased $26.2 million, or 55.9%, to $73.1 million for the three-month period ended March 31, 2018, from
$46.9 million for the same period in 2017. On a diluted earnings per share basis, our earnings were $0.42 per share and $0.33 per share for the three-month periods ended March 31, 2018 and 2017, respectively. Excluding the
$3.8 million of
one-time
non-taxable
gain on acquisition and $6.7 million of merger expenses associated with the 2017 acquisitions, our net income increased
$25.7 million, or 54.2%, to 73.1 million for the three-month period ended March 31, 2018, from $47.4 million for the same period in 2017 (See Table 18 for the
non-GAAP
tabular
reconciliation). Of the $25.7 million increase in net income excluding the $3.8 million of
one-time
non-taxable
gain on acquisition and $6.7 million of
merger expenses associated with the 2017 acquisitions, $12.1 million was due to savings from the TCJA. The remaining $13.6 million is primarily associated with additional net income largely resulting from our acquisitions plus a
$2.3 million decrease in provision for loan losses in first quarter of 2018.
Our net interest margin decreased from 4.70% for the
three-month period ended March 31, 2017 to 4.46% for the three-month period ended March 31, 2018. The yield on loans was 5.82% and 5.66% for the three months ended March 31, 2018 and 2017, respectively as average loans increased from
$7.59 billion to $10.33 billion. The increase in loan balances is primarily due to the acquisitions we completed during 2017. For the three months ended March 31, 2018 and 2017, we recognized $10.6 million and $7.7 million
in total net accretion for acquired loans and deposits. The rate on subordinated debentures increased from 2.93% as of March 31, 2017 to 5.51% as of March 31, 2018. This was primarily due to the $300.0 million subordinated debt
issuance at 5.625% completed by the Company on April 3, 2017. Additionally, the rate on interest bearing deposits increased to 0.76% as of March 31, 2018 from 0.40% as of March 31, 2017 with average balances of $7.92 billion and
$5.50 billion, respectively. The growth of average interest earning assets of $3.27 billion, which was primarily due to acquisitions completed in 2017, and the increase in yield were offset by the increase in interest bearing liabilities
and the rate on interest bearing liabilities, which led to a decrease in net interest margin for the quarter ended March 31, 2018.
Our efficiency ratio was 37.83% for the three months ended March 31, 2018, compared to 40.76% for the same period in 2017. For the first
quarter of 2018, our efficiency ratio, as adjusted (non-GAAP) was 37.97%, an increase of 101 basis points from the 36.96% reported for first quarter of 2017 (See Table 23 for the non-GAAP tabular reconciliation). The increase in the efficiency ratio
is primarily due to the acquisitions completed in 2017, primarily the acquisition of Stonegate Bank which was not converted until February 9, 2018. As a result, the first quarter of 2018 does not fully include the anticipated cost savings that we
expect will bring the Stonegate franchise up to our historical efficiency standards.
Our annualized return on average assets was 2.08%
for the three months ended March 31, 2018, compared to 1.86% for the same period in 2017. Our annualized return on average common equity was 13.38% for the three months ended March 31, 2018, compared to 13.85% for the same period in 2017.
Excluding the $12.1 million effect of the TCJA, our annualized return on average assets was 1.74% for the three months ended March 31, 2018 and our annualized return on average common equity was 11.17%.
Financial Condition as of and for the Period Ended March 31, 2018 and December 31, 2017
Our total assets as of March 31, 2018 decreased $126.5 million to $14.32 billion from the $14.45 billion reported as of
December 31, 2017. Cash and cash equivalents decreased $125.3 million or 19.7% for the quarter ended March 31, 2018. These funds were primarily used in order to reduce the balance of our FHLB borrowed funds from $1.30 billion as
of December 31, 2017 to $1.12 billion as of March 31, 2018. Our loan portfolio balance remained substantially flat at $10.33 billion as of March 31, 2018, and December 31, 2017. Total deposits increased
$8.1 million to $10.40 billion as of March 31, 2018 from $10.39 billion as of December 31, 2017. Stockholders equity increased $33.9 million to $2.24 billion as of March 31, 2018, compared to
$2.20 billion as of December 31, 2017. The increase in stockholders equity is primarily associated with quarterly net income of $73.1 million, which was partially offset by the $19.1 million dividend paid during the first
quarter of 2018, stock repurchases of $7.1 million and $15.9 million of other comprehensive losses resulting from an $21.6 million unrealized loss on available for sale securities and $5.8 million of deferred tax impact. The
annualized improvement in stockholders equity for the first three months of 2018 was 6.24%.
53
As of March 31, 2018, our
non-performing
loans
increased to $49.5 million, or 0.48%, of total loans from $44.7 million, or 0.43%, of total loans as of December 31, 2017. The allowance for loan losses as a percent of
non-performing
loans
decreased to 222.70% as of March 31, 2018, from 246.70% as of December 31, 2017.
Non-performing
loans from our Arkansas franchise were $14.5 million at March 31, 2018 compared to
$15.5 million as of December 31, 2017.
Non-performing
loans from our Florida franchise were $34.9 million at March 31, 2018 compared to $28.2 million as of December 31, 2017.
Non-performing
loans from our Alabama franchise were $42,000 at March 31, 2018 compared to $929,000 as of December 31, 2017. There were no
non-performing
loans from
our Centennial CFG franchise.
As of March 31, 2018, our
non-performing
assets increased to
$69.6 million, or 0.49%, of total assets from $63.6 million, or 0.44%, of total assets as of December 31, 2017.
Non-performing
assets from our Arkansas franchise were $25.2 million at
March 31, 2018 compared to $25.6 million as of December 31, 2017.
Non-performing
assets from our Florida franchise were $43.0 million at March 31, 2018 compared to $36.4 million
as of December 31, 2017.
Non-performing
assets from our Alabama franchise were $1.4 million at March 31, 2018 compared to $1.6 million as of December 31, 2017. There were no
non-performing
assets from our Centennial CFG franchise.
Critical Accounting Policies
Overview.
We prepare our consolidated financial statements based on the selection of certain accounting policies, generally accepted
accounting principles and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions. Our accounting policies are described in detail in the notes to our consolidated
financial statements included as part of this document.
We consider a policy critical if (i) the accounting estimate requires
assumptions about matters that are highly uncertain at the time of the accounting estimate; and (ii) different estimates that could reasonably have been used in the current period, or changes in the accounting estimate that are reasonably
likely to occur from period to period, would have a material impact on our financial statements. Using these criteria, we believe that the accounting policies most critical to us are those associated with our lending practices, including the
accounting for the allowance for loan losses, foreclosed assets, investments, intangible assets, income taxes and stock options.
Revenue Recognition.
Accounting Standards Codification (ASC) Topic 606,
Revenue from Contracts with Customers
(ASC Topic 606), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entitys contracts to provide goods or services to customers. The core
principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as
performance obligations are satisfied. The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans, letters of credit and investment securities, as
these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our income statements as components of
non-interest
income are as follows:
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|
|
Service charges on deposit accounts These represent general service fees for monthly account maintenance and activity or transaction based fees and consist of transaction-based revenue, time-based revenue
(service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been
completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.
|
|
|
|
Other service charges and fees These represent credit card interchange fees and Centennial CFG loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally
the cash basis based on an agreed upon contract with Mastercard. Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310. Centennial CFG loan fees were $1.8 million and $1.4
million for the three month period ended March 31, 2018 and March 31, 2017, respectively.
|
|
|
|
Mortgage lending income This represents fee income on secondary market lending which is accounted for under ASC Topic 310 and transfer of loans based on a bid agreement with the investor which is
accounted for under ASC Topic 860,
Transfers and Servicing.
|
54
Financial Instruments
. ASU
2016-01
Financial Instruments - Overall (Subtopic
825-10):
Recognition of Financial Assets and Financial Liabilities,
(ASU
2016-01)
makes targeted
amendments to the guidance for recognition, measurement, presentation and disclosure of financial instruments. ASU
2016-01
requires equity investments, other than equity method investments, to be measured at
fair value with changes in fair value recognized in net income. The ASU requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption to reclassify the cumulative change in fair value of equity
securities previously recognized in AOCI. ASU
2016-01
became effective for us on January 1, 2018. The adoption of the guidance resulted in a $990,000 cumulative-effect adjustment that increased retained
earnings, with offsetting related adjustments to deferred taxes and AOCI. ASU
2016-01
also emphasizes the existing requirement to use exit prices to measure fair value for disclosure purposes and clarifies
that entities should not make use of a practicability exception in determining the fair value of loans. Accordingly, we refined the calculation used to determine the disclosed fair value of our loans held for investment portfolio as part of adopting
this standard. The refined calculation did not have a significant impact on our fair value disclosures.
Investments
Available-for-sale.
Securities
available-for-sale
are reported at fair value with
unrealized holding gains and losses reported as a separate component of stockholders equity and other comprehensive income (loss), net of taxes. Securities that are held as
available-for-sale
are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment
risk, the need to increase regulatory capital, and other similar factors are classified as
available-for-sale.
Investments
Held-to-Maturity
. Securities
held-to-maturity,
which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for
amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant yield method over the period to maturity.
Loans Receivable and Allowance for Loan Losses.
Except for loans acquired during our acquisitions, substantially all of our loans
receivable are reported at their outstanding principal balance adjusted for any charge-offs, as it is managements intent to hold them for the foreseeable future or until maturity or payoff, except for mortgage loans held for sale. Interest
income on loans is accrued over the term of the loans based on the principal balance outstanding.
The allowance for loan losses is
established through a provision for loan losses charged against income. The allowance represents an amount that, in managements judgment, will be adequate to absorb probable credit losses on identifiable loans that may become uncollectible and
probable credit losses inherent in the remainder of the loan portfolio. The amounts of provisions for loan losses are based on managements analysis and evaluation of the loan portfolio for identification of problem credits, internal and
external factors that may affect collectability, relevant credit exposure, particular risks inherent in different kinds of lending, current collateral values and other relevant factors.
The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For
those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers
non-classified
loans and is based on historical
charge-off
experience and expected loss given default derived from the banks internal risk rating process. Other
adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.
Loans considered impaired, under FASB ASC
310-10-35,
are loans
for which, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The aggregate amount of impairment of loans is utilized in evaluating the
adequacy of the allowance for loan losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for loan losses when in the process of collection it appears likely that such losses will be realized. The accrual
of interest on impaired loans is discontinued when, in managements opinion the collection of interest is doubtful, or generally when loans are 90 days or more past due. When accrual of interest is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and
future payments are reasonably assured.
Groups of loans with similar risk characteristics are collectively evaluated for impairment based
on the groups historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.
55
Loans are placed on
non-accrual
status when management
believes that the borrowers financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due.
Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. Accrued interest related to
non-accrual
loans is generally charged against
the allowance for loan losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on
non-accrual
loans may be recognized to the extent cash payments
are received, although the majority of payments received are usually applied to principal.
Non-accrual
loans are generally returned to accrual status when principal and interest payments are less than 90 days
past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.
Acquisition Accounting and Acquired Loans.
We account for our acquisitions under FASB ASC Topic 805,
Business Combinations
,
which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair
value of the purchased loans incorporates assumptions regarding credit risk. All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820,
Fair Value Measurements
. The fair
value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.
Over the life of the purchased credit impaired loans, we continue to estimate cash flows expected to be collected on pools of loans sharing
common risk characteristics, which are treated in the aggregate when applying various valuation techniques. We evaluate at each balance sheet date whether the present value of our pools of loans determined using the effective interest rates has
decreased and if so, recognize a provision for loan loss in its consolidated statement of income. For any increases in cash flows expected to be collected, we adjust the amount of accretable yield recognized on a prospective basis over the
pools remaining life.
Foreclosed Assets Held for Sale.
Real estate and personal properties acquired through or in lieu of
loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Valuations are periodically performed by management, and the real estate and personal properties are carried at fair
value less costs to sell. Gains and losses from the sale of other real estate and personal properties are recorded in
non-interest
income, and expenses used to maintain the properties are included in
non-interest
expenses.
Intangible Assets.
Intangible assets consist of goodwill and core deposit
intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as
determined by valuation specialists. The core deposit intangibles are being amortized over 48 to 121 months on a straight-line basis. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We perform an annual
impairment test of goodwill and core deposit intangibles as required by FASB ASC 350,
Intangibles - Goodwill and Other,
in the fourth quarter.
Income Taxes.
We account for income taxes in accordance with income tax accounting guidance (ASC 740,
Income Taxes
). The income
tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable
income or excess of deductions over revenues. We determine deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the
book and tax basis of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if
it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms
examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the
more-likely-than-not
recognition threshold is
initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The
determination of whether or not a tax position has met the
more-likely-than-not
recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to the
managements judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
56
Both we and our subsidiary file consolidated tax returns. Our subsidiary provides for income
taxes on a separate return basis, and remits to us amounts determined to be currently payable.
Stock Compensation.
In accordance
with FASB ASC 718,
Compensation - Stock Compensation,
and FASB ASC
505-50,
Equity-Based Payments to
Non-Employees
, the fair value of each option award is
estimated on the date of grant. We recognize compensation expense for the grant-date fair value of the option award over the vesting period of the award.
Acquisitions
Acquisition of
Stonegate Bank
On September 26, 2017, the Company completed the acquisition of all of the issued and outstanding shares of
common stock of Stonegate Bank (Stonegate), and merged Stonegate into Centennial. The Company paid a purchase price to the Stonegate shareholders of approximately $792.4 million for the Stonegate acquisition. Under the terms of the
merger agreement, shareholders of Stonegate received 30,863,658 shares of HBI common stock valued at approximately $742.3 million plus approximately $50.1 million in cash in exchange for all outstanding shares of Stonegate common stock. In
addition, the holders of outstanding stock options of Stonegate received approximately $27.6 million in cash in connection with the cancellation of their options immediately before the acquisition closed, for a total transaction value of
approximately $820.0 million.
Including the effects of the purchase accounting adjustments, as of acquisition date, Stonegate had
approximately $2.89 billion in total assets, $2.37 billion in loans and $2.53 billion in customer deposits. Stonegate formerly operated its banking business from 24 locations in key Florida markets with significant presence in Broward
and Sarasota counties.
Through our acquisition and merger of Stonegate into Centennial, we maintain a customer relationship to handle the
accounts for Cubas diplomatic missions at the United Nations and for the Cuban Interests Section (now the Cuban Embassy) in Washington, D.C. This relationship was established in May 2015 pursuant to a special license granted to Stonegate by
the U.S. Treasury Departments Office of Foreign Assets Control in connection with the reestablishment of diplomatic relations between the U.S. and Cuba. In July 2015, Stonegate established a correspondent banking relationship with Banco
Internacional de Comercio, S.A. in Havana, Cuba.
See Note 2 Business Combinations in the Notes to Consolidated Financial
Statements.
Acquisition of The Bank of Commerce
On February 28, 2017, the Company completed its acquisition of all of the issued and outstanding shares of common stock of The Bank of
Commerce, a Florida state-chartered bank that operated in the Sarasota, Florida area (BOC), pursuant to an acquisition agreement, dated December 1, 2016, by and between the Company and Bank of Commerce Holdings, Inc.
(BCHI), parent company of BOC. The Company merged BOC with and into Centennial effective as of the close of business on February 28, 2017.
The acquisition of BOC was conducted in accordance with the provisions of Section 363 of the United States Bankruptcy Code (the
Bankruptcy Code) pursuant to a voluntary petition for relief under Chapter 11 of the Bankruptcy Code filed by BCHI with the United States Bankruptcy Court for the Middle District of Florida (the Bankruptcy Court). The sale of
BOC by BCHI was subject to certain bidding procedures approved by the Bankruptcy Court, under which the Company submitted an initial bid to purchase the outstanding shares of BOC and was deemed to be the successful bidder after a subsequent auction
was held. The Bankruptcy Court entered a final order on December 9, 2016 approving the sale of BOC to the Company pursuant to and in accordance with the acquisition agreement.
Under the terms of the acquisition agreement, the Company paid an aggregate of approximately $4.2 million in cash for the acquisition,
which included the purchase of all outstanding shares of BOC common stock, the discounted purchase of certain subordinated debentures issued by BOC from the existing holders of the subordinated debentures, and an expense reimbursement to BCHI for
approved administrative claims in connection with the bankruptcy proceeding.
57
BOC formerly operated three branch locations in the Sarasota, Florida area. Including the effects
of the purchase accounting adjustments, as of acquisition date, BOC had approximately $178.1 million in total assets, $118.5 million in loans after $5.8 million of loan discounts, and $139.8 million in deposits.
See Note 2 Business Combinations in the Notes to Consolidated Financial Statements.
Acquisition of Giant Holdings, Inc.
On February 23, 2017, the Company completed its acquisition of Giant Holdings, Inc. (GHI), parent company of Landmark Bank,
N.A. (Landmark), pursuant to a definitive agreement and plan of merger whereby GHI merged with and into HBI and, immediately thereafter, Landmark merged with and into Centennial. The Company paid a purchase price to the GHI shareholders
of approximately $96.0 million for the GHI acquisition. Under the terms of the agreement, shareholders of GHI received 2,738,038 shares of its common stock valued at approximately $77.5 million as of February 23, 2017, plus
approximately $18.5 million in cash in exchange for all outstanding shares of GHI common stock.
GHI formerly operated six branch
locations in the Ft. Lauderdale, Florida area. Including the effects of the purchase accounting adjustments, as of acquisition date, GHI had approximately $398.1 million in total assets, $327.8 million in loans after $8.1 million of
loan discounts, and $304.0 million in deposits.
See Note 2 Business Combinations in the Notes to Consolidated Financial
Statements.
Future Acquisitions
In our continuing evaluation of our growth plans, we believe properly priced bank acquisitions can complement our organic growth and
de
novo
branching growth strategies. In the near term, our principal acquisition focus will be to continue to expand our presence in Arkansas, Florida and Alabama and into other contiguous markets through pursuing both
non-FDIC-assisted
and FDIC-assisted bank acquisitions. However, as financial opportunities in other market areas arise, we may expand into those areas.
We will continue evaluating all types of potential bank acquisitions to determine what is in the best interest of our Company. Our goal in
making these decisions is to maximize the return to our investors.
Branches
As opportunities arise, we will continue to open new (commonly referred to as
de novo
) branches in our current markets and in other
attractive market areas.
As a result of our continued focus on efficiency primarily from our acquisitions, during the first quarter of 2018, we closed
five branches in the Central Florida Region, one branch in the South Florida Region and six branches in the Southeast Florida Region. During the remainder of 2018, we may announce additional strategic consolidations where it improves efficiency in
certain markets.
As of March 31, 2018, we had 158 branch locations. There were 76 branches in Arkansas, 76 branches in Florida, five
branches in Alabama and one branch in New York City.
58
Results of Operations
For the Three Months Ended March 31, 2018 and 2017
Our net income increased $26.2 million, or 55.9%, to $73.1 million for the three-month period ended March 31, 2018, from
$46.9 million for the same period in 2017. On a diluted earnings per share basis, our earnings were $0.42 per share and $0.33 per share for the three-month periods ended March 31, 2018 and 2017, respectively. Excluding the
$3.8 million of
one-time
non-taxable
gain on acquisition and $6.7 million of merger expenses associated with the 2017 acquisitions, our net income increased
$25.7 million, or 54.2%, to 73.1 million for the three-month period ended March 31, 2018, from $47.4 million for the same period in 2017 (see Table 18 for the
non-GAAP
tabular
reconciliation). Of the $25.7 million increase in net income excluding the $3.8 million of
one-time
non-taxable
gain on acquisition and $6.7 million of
merger expenses associated with the 2017 acquisitions, $12.1 million was due to savings from the TCJA. The remaining $13.6 million is primarily associated with additional net income largely resulting from our acquisitions plus a
$2.3 million decrease in provision for loan losses in first quarter of 2018.
Net Interest Income
Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total
interest cost of the deposits and borrowings obtained to fund those assets. Factors affecting the level of net interest income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments, rates paid
on deposits and other borrowings, the level of
non-performing
loans and the amount of
non-interest-bearing
liabilities supporting earning assets. Net interest income is
analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing
tax-exempt
income by one minus
the combined federal and state income tax rate (26.135% and 39.225% for the three-month periods ended March 31, 2018 and 2017, respectively).
The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of
interest, including the deposit and loan rates offered by financial institutions. The Federal Funds target rate, which is the cost to banks of immediately available overnight funds, has increased 25 basis points since December 31, 2017 and is
currently at 1.75% to 1.50%.
For the three months ended March 31, 2018 and 2017, we recognized $10.6 million and
$7.7 million in total net accretion for acquired loans and deposits. Purchase accounting accretion on acquired loans was $10.5 million and $7.6 million and average purchase accounting loan discounts were $164.1 million and
$102.9 million for the three-month periods ended March 31, 2018 and March 31, 2017, respectively. Net amortization of time deposit discounts was $102,000 and $88,000 and net average unamortized CD premiums were $641,000 and $597,000
for the three-month periods ended March 31, 2018 and March 31, 2017, respectively.
Our net interest margin decreased from 4.70%
for the three-month period ended March 31, 2017 to 4.46% for the three-month period ended March 31, 2018. The yield on loans was 5.82% and 5.66% for the three months ended March 31, 2018 and 2017, respectively. The rate on
subordinated debentures increased from 2.93% as of March 31, 2017 to 5.51% as of March 31, 2018. This was primarily due to the $300 million subordinated debt issuance completed by the Company in 2017. Additionally, the rate on
interest bearing deposits increased to 0.76% as of March 31, 2018 from 0.40% as of March 31, 2017 with average balances of $7.92 billion and $5.50 billion, respectively. The growth of average interest earning assets of
$3.27 billion and increase in yield was offset by the increase in interest bearing liabilities and rate on interest bearing liabilities which led to a decrease in net interest margin for the quarter ended March 31, 2018.
59
Net interest income on a fully taxable equivalent basis increased $30.6 million, or 28.6%,
to $137.4 million for the three-month period ended March 31, 2018, from $106.8 million for the same period in 2017. This increase in net interest income for the three-month period ended March 31, 2018 was the result of a
$45.7 million increase in interest income partially offset by a $15.1 million increase in interest expense. The $45.7 million increase in interest income was primarily the result of a higher level of earning assets accompanied by
higher yields on our loans. The higher level of earning assets resulted in an increase in interest income of approximately $41.9 million. The higher yield on our interest earning assets resulted in an approximately $3.8 million increase in
interest income. The $15.1 million increase in interest expense for the three-month period ended March 31, 2018, is primarily the result of an increase in interest bearing liabilities primarily resulting from a 44.2% increase in average
deposits and the $300 million subordinated debt issuance completed by the Company in April of 2017, combined with interest bearing liabilities repricing in a higher interest rate environment. The repricing of our interest bearing liabilities in
a higher interest rate environment resulted in an approximately $9.0 million increase in interest expense. The higher level of our interest bearing liabilities resulted in an increase in interest expense of approximately $6.1 million.
Tables 2 and 3 reflect an analysis of net interest income on a fully taxable equivalent basis for the three-month periods ended March 31,
2018 and 2017, as well as changes in fully taxable equivalent net interest margin for the three-month period ended March 31, 2018 compared to the same period in 2017.
Table 2: Analysis of Net Interest Income
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|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in thousands)
|
|
Interest income
|
|
$
|
160,976
|
|
|
$
|
114,494
|
|
Fully taxable equivalent adjustment
|
|
|
1,209
|
|
|
|
2,011
|
|
|
|
|
|
|
|
|
|
|
Interest income fully taxable equivalent
|
|
|
162,185
|
|
|
|
116,505
|
|
Interest expense
|
|
|
24,767
|
|
|
|
9,679
|
|
|
|
|
|
|
|
|
|
|
Net interest income fully taxable equivalent
|
|
$
|
137,418
|
|
|
$
|
106,826
|
|
|
|
|
|
|
|
|
|
|
Yield on earning assets fully taxable equivalent
|
|
|
5.27
|
%
|
|
|
5.13
|
%
|
Cost of interest-bearing liabilities
|
|
|
1.05
|
|
|
|
0.56
|
|
Net interest spread fully taxable equivalent
|
|
|
4.22
|
|
|
|
4.57
|
|
Net interest margin fully taxable equivalent
|
|
|
4.46
|
|
|
|
4.70
|
|
Table 3: Changes in Fully Taxable Equivalent Net Interest Margin
|
|
|
|
|
|
|
Three Months Ended
March 31,
2018 vs. 2017
|
|
|
|
(In thousands)
|
|
Increase (decrease) in interest income due to change in earning assets
|
|
$
|
41,909
|
|
Increase (decrease) in interest income due to change in earning asset yields
|
|
|
3,771
|
|
(Increase) decrease in interest expense due to change in interest-bearing liabilities
|
|
|
(6,083
|
)
|
(Increase) decrease in interest expense due to change in interest rates paid on interest-bearing
liabilities
|
|
|
(9,005
|
)
|
|
|
|
|
|
Increase (decrease) in net interest income
|
|
$
|
30,592
|
|
|
|
|
|
|
60
Table 4 shows, for each major category of earning assets and interest-bearing liabilities, the
average amount outstanding, the interest income or expense on that amount and the average rate earned or expensed for the three-month periods ended March 31, 2018 and 2017, respectively. The table also shows the average rate earned on all
earning assets, the average rate expensed on all interest-bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis.
Non-accrual
loans were included in average loans for the purpose of calculating the rate earned on total loans.
Table 4: Average Balance Sheets and Net Interest Income Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Average
Balance
|
|
|
Income /
Expense
|
|
|
Yield /
Rate
|
|
|
Average
Balance
|
|
|
Income /
Expense
|
|
|
Yield /
Rate
|
|
|
|
(Dollars in thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing balances due from banks
|
|
$
|
245,815
|
|
|
$
|
929
|
|
|
|
1.53
|
%
|
|
$
|
170,500
|
|
|
$
|
308
|
|
|
|
0.73
|
%
|
Federal funds sold
|
|
|
9,682
|
|
|
|
6
|
|
|
|
0.25
|
|
|
|
1,182
|
|
|
|
2
|
|
|
|
0.69
|
|
Investment securities taxable
|
|
|
1,560,464
|
|
|
|
8,970
|
|
|
|
2.33
|
|
|
|
1,110,166
|
|
|
|
5,478
|
|
|
|
2.00
|
|
Investment securities
non-taxable
|
|
|
345,217
|
|
|
|
3,997
|
|
|
|
4.70
|
|
|
|
347,085
|
|
|
|
4,786
|
|
|
|
5.59
|
|
Loans receivable
|
|
|
10,325,439
|
|
|
|
148,283
|
|
|
|
5.82
|
|
|
|
7,585,565
|
|
|
|
105,931
|
|
|
|
5.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
12,486,617
|
|
|
$
|
162,185
|
|
|
|
5.27
|
|
|
|
9,214,498
|
|
|
$
|
116,505
|
|
|
|
5.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-earning
assets
|
|
|
1,747,752
|
|
|
|
|
|
|
|
|
|
|
|
984,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
14,234,369
|
|
|
|
|
|
|
|
|
|
|
$
|
10,198,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and interest-bearing transaction accounts
|
|
$
|
6,409,585
|
|
|
$
|
11,242
|
|
|
|
0.71
|
%
|
|
$
|
4,138,813
|
|
|
$
|
3,377
|
|
|
|
0.33
|
%
|
Time deposits
|
|
|
1,513,854
|
|
|
|
3,564
|
|
|
|
0.95
|
|
|
|
1,357,300
|
|
|
|
2,109
|
|
|
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
7,923,429
|
|
|
|
14,806
|
|
|
|
0.76
|
|
|
|
5,496,113
|
|
|
|
5,486
|
|
|
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased
|
|
|
78
|
|
|
|
1
|
|
|
|
5.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreement to repurchase
|
|
|
152,716
|
|
|
|
376
|
|
|
|
1.00
|
|
|
|
124,094
|
|
|
|
165
|
|
|
|
0.54
|
|
FHLB and other borrowed funds
|
|
|
1,150,091
|
|
|
|
4,580
|
|
|
|
1.62
|
|
|
|
1,373,217
|
|
|
|
3,589
|
|
|
|
1.06
|
|
Subordinated debentures
|
|
|
368,124
|
|
|
|
5,004
|
|
|
|
5.51
|
|
|
|
60,819
|
|
|
|
439
|
|
|
|
2.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
9,594,448
|
|
|
|
24,767
|
|
|
|
1.05
|
|
|
|
7,054,243
|
|
|
|
9,679
|
|
|
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
2,381,259
|
|
|
|
|
|
|
|
|
|
|
|
1,716,452
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
44,360
|
|
|
|
|
|
|
|
|
|
|
|
56,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
12,020,067
|
|
|
|
|
|
|
|
|
|
|
|
8,827,114
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
2,214,302
|
|
|
|
|
|
|
|
|
|
|
|
1,371,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
14,234,369
|
|
|
|
|
|
|
|
|
|
|
$
|
10,198,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
4.22
|
%
|
|
|
|
|
|
|
|
|
|
|
4.57
|
%
|
Net interest income and margin
|
|
|
|
|
|
$
|
137,418
|
|
|
|
4.46
|
%
|
|
|
|
|
|
$
|
106,826
|
|
|
|
4.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
Table 5 shows changes in interest income and interest expense resulting from changes in volume
and changes in interest rates for the three-month period ended March 31, 2018 compared to the same period in 2017, on a fully taxable basis. The changes in interest rate and volume have been allocated to changes in average volume and changes in
average rates, in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.
Table 5: Volume/Rate
Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
2018 over 2017
|
|
|
|
Volume
|
|
|
Yield/Rate
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing balances due from banks
|
|
$
|
179
|
|
|
$
|
442
|
|
|
$
|
621
|
|
Federal funds sold
|
|
|
6
|
|
|
|
(2
|
)
|
|
|
4
|
|
Investment securities taxable
|
|
|
2,482
|
|
|
|
1,010
|
|
|
|
3,492
|
|
Investment securities
non-taxable
|
|
|
(26
|
)
|
|
|
(763
|
)
|
|
|
(789
|
)
|
Loans receivable
|
|
|
39,268
|
|
|
|
3,084
|
|
|
|
42,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
41,909
|
|
|
|
3,771
|
|
|
|
45,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing transaction and savings deposits
|
|
|
2,541
|
|
|
|
5,324
|
|
|
|
7,865
|
|
Time deposits
|
|
|
267
|
|
|
|
1,188
|
|
|
|
1,455
|
|
Federal funds purchased
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Securities sold under agreement to repurchase
|
|
|
45
|
|
|
|
166
|
|
|
|
211
|
|
FHLB borrowed funds
|
|
|
(656
|
)
|
|
|
1,647
|
|
|
|
991
|
|
Subordinated debentures
|
|
|
3,885
|
|
|
|
680
|
|
|
|
4,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
6,083
|
|
|
|
9,005
|
|
|
|
15,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in net interest income
|
|
$
|
35,826
|
|
|
$
|
(5,234
|
)
|
|
$
|
30,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
Our management assesses the adequacy of the allowance for loan losses by applying the provisions of FASB ASC
310-10-35.
Specific allocations are determined for loans considered to be impaired and loss factors are assigned to the remainder of the loan portfolio to determine an appropriate level in the allowance for
loan losses. The allowance is increased, as necessary, by making a provision for loan losses. The specific allocations for impaired loans are assigned based on an estimated net realizable value after a thorough review of the credit relationship. The
potential loss factors associated with the remainder of the loan portfolio are based on an internal net loss experience, as well as managements review of trends within the portfolio and related industries.
While general economic trends have continued to improve, we cannot be certain that the current economic conditions will improve in the future.
Recent and ongoing events at the national and international levels can create uncertainty in the financial markets. Despite these economic uncertainties, we continue to follow our historically conservative procedures for lending and evaluating the
provision and allowance for loan losses. Our practice continues to be primarily traditional real estate lending with strong
loan-to-value
ratios.
Generally, commercial, commercial real estate, and residential real estate loans are assigned a level of risk at origination. Thereafter,
these loans are reviewed on a regular basis. The periodic reviews generally include loan payment and collateral status, the borrowers financial data, and key ratios such as cash flows, operating income, liquidity, and leverage. A material
change in the borrowers credit analysis can result in an increase or decrease in the loans assigned risk grade. Aggregate dollar volume by risk grade is monitored on an
on-going
basis.
62
Our management reviews certain key loan quality indicators on a monthly basis, including current
economic conditions, delinquency trends and ratios, portfolio mix changes, and other information management deems necessary. This review process provides a degree of objective measurement that is used in conjunction with periodic internal
evaluations. To the extent that this review process yields differences between estimated and actual observed losses, adjustments are made to the loss factors used to determine the appropriate level of the allowance for loan losses.
Our Company is primarily a real estate lender in the markets we serve. As such, we are subject to declines in asset quality when real estate
prices fall. The recession in the latter years of the last decade harshly impacted the real estate market in Florida. The economic conditions in virtually every asset class, particularly in our Florida markets, have improved in recent years. Our
Arkansas markets economies remained relatively stable during and after the recession with no significant boom or bust.
The provision for loan losses represents managements determination of the amount necessary to be charged against the current
periods earnings, to maintain the allowance for loan losses at a level that is considered adequate in relation to the estimated risk inherent in the loan portfolio.
There was $1.6 million and $3.9 million of provision for loan losses for the three months ended March 31, 2018 and 2017,
respectively. We experienced a $2.3 million decrease in the provision for loan losses during the first three months of 2018 versus the first three months of 2017. This $2.3 million decrease is primarily a result of a 16.4% decrease in
non-performing
loans along with a decrease in net charge-offs from $3.6 million for the first three months of 2017 to $1.7 million for the first three months of 2018.
Based upon current accounting guidance, the allowance for loan losses is not carried over in an acquisition. As a result, none of the acquired
loans had any allocation of the allowance for loan losses at merger date. This is the result of all purchased loans being recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820. However, as the acquired
loans payoff or renew and the acquired footprint originates new loan production, it is necessary to establish an allowance which represents an amount that, in managements judgment, will be adequate to absorb credit losses. The allowance for
loan loss methodology for all originated loans as disclosed in Note 1 to the Notes to Consolidated Financial Statements in our Form
10-K
was used for these loans. Our current or historical provision levels
should not be relied upon as a predictor or indicator of future levels going forward.
Non-Interest
Income
Total
non-interest
income was $25.8 million for the three-month period ended March 31, 2018,
compared to $26.5 million for the same period in 2017, respectively. Our recurring
non-interest
income includes service charges on deposit accounts, other service charges and fees, trust fees, mortgage
lending, insurance, increase in cash value of life insurance and dividends.
63
Table 6 measures the various components of our
non-interest
income for the three-month periods ended March 31, 2018 and 2017, respectively, as well as changes for the three-month period ended March 31, 2018 compared to the same period in 2017.
Table 6:
Non-Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2018 Change
|
|
|
|
2018
|
|
|
2017
|
|
|
from 2017
|
|
|
|
(Dollars in thousands)
|
|
Service charges on deposit accounts
|
|
$
|
6,075
|
|
|
$
|
5,982
|
|
|
$
|
93
|
|
|
|
1.6
|
%
|
Other service charges and fees
|
|
|
10,155
|
|
|
|
8,917
|
|
|
|
1,238
|
|
|
|
13.9
|
|
Trust fees
|
|
|
446
|
|
|
|
456
|
|
|
|
(10
|
)
|
|
|
(2.2
|
)
|
Mortgage lending income
|
|
|
2,657
|
|
|
|
2,791
|
|
|
|
(134
|
)
|
|
|
(4.8
|
)
|
Insurance commissions
|
|
|
679
|
|
|
|
545
|
|
|
|
134
|
|
|
|
24.6
|
|
Increase in cash value of life insurance
|
|
|
654
|
|
|
|
310
|
|
|
|
344
|
|
|
|
111.0
|
|
Dividends from FHLB, FRB, Bankers Bank & other
|
|
|
877
|
|
|
|
1,149
|
|
|
|
(272
|
)
|
|
|
(23.7
|
)
|
Gain on acquisitions
|
|
|
|
|
|
|
3,807
|
|
|
|
(3,807
|
)
|
|
|
(100.0
|
)
|
Gain on sale of SBA loans
|
|
|
182
|
|
|
|
188
|
|
|
|
(6
|
)
|
|
|
(3.2
|
)
|
Gain (loss) on sale of branches, equipment and other assets, net
|
|
|
7
|
|
|
|
(56
|
)
|
|
|
63
|
|
|
|
112.5
|
|
Gain (loss) on OREO, net
|
|
|
405
|
|
|
|
121
|
|
|
|
284
|
|
|
|
234.7
|
|
Gain (loss) on securities, net
|
|
|
|
|
|
|
423
|
|
|
|
(423
|
)
|
|
|
(100.0
|
)
|
Other income
|
|
|
3,668
|
|
|
|
1,837
|
|
|
|
1,831
|
|
|
|
99.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest
income
|
|
$
|
25,805
|
|
|
$
|
26,470
|
|
|
$
|
(665
|
)
|
|
|
(2.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income decreased $665,000, or 2.5%, to $25.8 million
for the three-month period ended March 31, 2018 from $26.5 million for the same period in 2017.
Non-interest
income excluding gain on acquisitions increased $3.1 million, or 13.9%, to
$25.8 million for the three months ended March 31, 2018 from $22.7 million for the same period in 2017.
Excluding gain on
acquisitions, the primary factors that resulted in this increase were changes related to other service charges and fees, increase in cash value of life insurance, dividends, net gain on securities, net gain on OREO and other income.
Additional details for the three months ended March 31, 2018 on some of the more significant changes are as follows:
|
|
|
The $1.2 million increase in other service charges and fees is primarily from additional loan payoff fees generated by Centennial CFG in the first quarter of 2018.
|
|
|
|
The $344,000 increase in cash value of life insurance is primarily due to the additional life insurance held by the Company as a result of the acquisition of Stonegate Bank during the third quarter of 2017.
|
|
|
|
The $272,000 decrease in dividends from FHLB, FRB, Bankers Bank & other is primarily associated with lower dividend income from equity investments.
|
|
|
|
The $284,000 increase in gain (loss) on OREO is primarily related to realizing gains on sale from OREO properties during the first three months of 2018 compared to the first three months of 2017 and a reduction in OREO
reevaluation expense compared to 2017.
|
|
|
|
The $423,000 decrease in gain (loss) on securities, net, is a result of a decrease in the volume of sales of securities in the first quarter of 2018 compared to the first quarter of 2017.
|
|
|
|
The $1.8 million increase in other income is primarily a result of an increase in loan recoveries of $931,000 on purchased loans and the reimbursement of $878,000 in legal expenses incurred in prior year.
|
Non-Interest
Expense
Non-interest
expense primarily consists of salaries and employee benefits, occupancy and equipment,
data processing, and other expenses such as advertising, merger and acquisition expenses, amortization of intangibles, electronic banking expense, FDIC and state assessment, insurance, legal and accounting fees and other professional fees.
64
Table 7 below sets forth a summary of
non-interest
expense for the three-month period ended March 31, 2018 and 2017, as well as changes for the three-month period ended March 31, 2018 compared to the same period in 2017.
Table 7:
Non-Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2018 Change
|
|
|
|
2018
|
|
|
2017
|
|
|
from 2017
|
|
|
|
(Dollars in thousands)
|
|
Salaries and employee benefits
|
|
$
|
35,014
|
|
|
$
|
27,421
|
|
|
$
|
7,593
|
|
|
|
27.7
|
%
|
Occupancy and equipment
|
|
|
8,983
|
|
|
|
6,681
|
|
|
|
2,302
|
|
|
|
34.5
|
|
Data processing expense
|
|
|
3,986
|
|
|
|
2,723
|
|
|
|
1,263
|
|
|
|
46.4
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
962
|
|
|
|
698
|
|
|
|
264
|
|
|
|
37.8
|
|
Merger and acquisition expenses
|
|
|
|
|
|
|
6,727
|
|
|
|
(6,727
|
)
|
|
|
(100.0
|
)
|
Amortization of intangibles
|
|
|
1,625
|
|
|
|
804
|
|
|
|
822
|
|
|
|
102.2
|
|
Electronic banking expense
|
|
|
1,878
|
|
|
|
1,519
|
|
|
|
359
|
|
|
|
23.6
|
|
Directors fees
|
|
|
330
|
|
|
|
313
|
|
|
|
17
|
|
|
|
5.4
|
|
Due from bank service charges
|
|
|
219
|
|
|
|
420
|
|
|
|
(201
|
)
|
|
|
(47.9
|
)
|
FDIC and state assessment
|
|
|
1,608
|
|
|
|
1,288
|
|
|
|
320
|
|
|
|
24.8
|
|
Insurance
|
|
|
887
|
|
|
|
578
|
|
|
|
309
|
|
|
|
53.5
|
|
Legal and accounting
|
|
|
778
|
|
|
|
627
|
|
|
|
151
|
|
|
|
24.1
|
|
Other professional fees
|
|
|
1,639
|
|
|
|
1,153
|
|
|
|
486
|
|
|
|
42.2
|
|
Operating supplies
|
|
|
600
|
|
|
|
467
|
|
|
|
133
|
|
|
|
28.5
|
|
Postage
|
|
|
344
|
|
|
|
286
|
|
|
|
58
|
|
|
|
20.3
|
|
Telephone
|
|
|
373
|
|
|
|
324
|
|
|
|
49
|
|
|
|
15.1
|
|
Other expense
|
|
|
4,154
|
|
|
|
3,112
|
|
|
|
1,041
|
|
|
|
33.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest
expense
|
|
$
|
63,380
|
|
|
$
|
55,141
|
|
|
$
|
8,239
|
|
|
|
14.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense increased $8.2 million, or 14.9%, to
$63.4 million for the three months ended March 31, 2018 from $55.1 million for the same period in 2017.
Non-interest
expense, excluding merger expenses, was $63.4 million for the three
months ended March 31, 2018 compared to $48.4 million for the same period in 2017.
The change in
non-interest
expense for 2018 when compared to 2017 is primarily related to the completion of the acquisition of Stonegate Bank in the third quarter of 2017, the normal increased cost of doing business and
Centennial CFG.
The Centennial CFG branch and loan production offices incurred $5.4 million of
non-interest
expense during the three months ended March 31, 2018, compared to $4.6 million of
non-interest
expense during the three months ended
March 31, 2017. While the cost of doing business in New York City is significantly higher than our Arkansas, Florida and Alabama markets, we are still committed to cost-saving measures while achieving our goals of growing the Company.
Income Taxes
The
income tax expense decreased $1.4 million, or 5.5%, to $24.0 million for the three-month period ended March 31, 2018, from $25.4 million for the same period in 2017. The effective income tax rate was 24.70% for the three-month
period ended March 31, 2018, compared to 35.13% for the same period in 2017. Since January 1, 2018, the Company has benefited from a lower marginal tax rate of 26.135% from 39.225% in previous years.
65
Financial Condition as of and for the Period Ended March 31, 2018 and December 31, 2017
Our total assets as of March 31, 2018 decreased $126.5 million to $14.32 billion from the $14.45 billion reported as of
December 31, 2017. Cash and cash equivalents decreased $125.3 million or 19.7% for the quarter ended March 31, 2018. These funds were primarily used in order to reduce the balance of FHLB and other borrowed funds from
$1.30 billion as of December 31, 2017 to $1.12 billion as of March 31, 2018. Our loan portfolio balance remained substantially flat at $10.33 billion as of March 31, 2018 and December 31, 2017. This decrease is a
result of pay downs made in the ordinary course of business since December 31, 2017. Stockholders equity increased $33.9 million to $2.24 billion as of March 31, 2018, compared to $2.20 billion as of December 31,
2017. The increase in stockholders equity is primarily associated with quarterly net income of $73.1 million, which was partially offset by the $19.1 million dividend paid during the first quarter of 2018 and $15.9 million of
other comprehensive losses resulting from a $21.6 million unrealized loss on available for sale securities and a $5.8 million of deferred tax impact. The annualized improvement in stockholders equity for the first three months of
2018 was 6.24%.
Loan Portfolio
Loans
Receivable
Our loan portfolio averaged $10.33 billion and $7.59 billion during the three-month periods ended
March 31, 2018 and 2017, respectively. Loans receivable were $10.33 billion as of March 31, 2018 and December 31, 2017.
From December 31, 2017 to March 31, 2018, the Company experienced a decline of approximately $5.5 million in loans. Centennial
CFG produced $63.8 million of organic loan growth during the first quarter of 2018, while the legacy footprint experienced $69.3 million of organic loan decline during the first quarter of 2018.
The most significant components of the loan portfolio were commercial real estate, residential real estate, consumer and commercial and
industrial loans. These loans are generally secured by residential or commercial real estate or business or personal property. Although these loans are primarily originated within our franchises in Arkansas, Florida, South Alabama and Centennial
CFG, the property securing these loans may not physically be located within our market areas of Arkansas, Florida, Alabama and New York. Loans receivable were approximately $3.4 billion, $5.2 billion, $220.0 million and
$1.5 billion as of March 31, 2018 in Arkansas, Florida, Alabama and Centennial CFG, respectively.
As of March 31, 2018, we
had approximately $543.8 million of construction land development loans which were collateralized by land. This consisted of approximately $244.7 million for raw land and approximately $299.1 million for land with commercial and or
residential lots.
Table 8 presents our loans receivable balances by category as of March 31, 2018 and December 31, 2017.
Table 8: Loans Receivable
|
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2018
|
|
|
As of
December 31, 2017
|
|
|
|
(In thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Commercial real estate loans:
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
4,658,209
|
|
|
$
|
4,600,117
|
|
Construction/land development
|
|
|
1,641,834
|
|
|
|
1,700,491
|
|
Agricultural
|
|
|
81,151
|
|
|
|
82,229
|
|
Residential real estate loans:
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
1,915,346
|
|
|
|
1,970,311
|
|
Multifamily residential
|
|
|
464,194
|
|
|
|
441,303
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
8,760,734
|
|
|
|
8,794,451
|
|
Consumer
|
|
|
40,842
|
|
|
|
46,148
|
|
Commercial and industrial
|
|
|
1,324,173
|
|
|
|
1,297,397
|
|
Agricultural
|
|
|
50,770
|
|
|
|
49,815
|
|
Other
|
|
|
149,217
|
|
|
|
143,377
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
$
|
10,325,736
|
|
|
$
|
10,331,188
|
|
|
|
|
|
|
|
|
|
|
66
Commercial Real Estate Loans.
We originate
non-farm
and
non-residential
loans (primarily secured by commercial real estate), construction/land development loans, and agricultural loans, which are generally
secured by real estate located in our market areas. Our commercial mortgage loans are generally collateralized by first liens on real estate and amortized over a 15 to 25 year period with balloon payments due at the end of one to five years. These
loans are generally underwritten by assessing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of any guarantor, the strength of the tenant (if any), the borrowers liquidity and leverage,
management experience, ownership structure, economic conditions and industry specific trends and collateral. Generally, we will loan up to 85% of the value of improved property, 65% of the value of raw land and 75% of the value of land to be
acquired and developed. A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a
case-by-case
basis.
As of March 31, 2018, commercial
real estate loans totaled $6.38 billion, or 61.8% of loans receivable, as compared to $6.38 billion, or 61.8% of loans receivable, as of December 31, 2017. Commercial real estate loans originated in our Arkansas, Florida, Alabama and
Centennial CFG markets were $1.90 billion, $3.28 billion, $114.9 million and $1.09 billion at March 31, 2018, respectively.
Residential Real Estate Loans.
We originate one to four family, residential mortgage loans generally secured by property located in our
primary market areas. Approximately 29.7% and 59.5% of our residential mortgage loans consist of owner occupied
1-4
family properties and
non-owner
occupied
1-4
family properties (rental), respectively, as of March 31, 2018. Residential real estate loans generally have a
loan-to-value
ratio of up to 90%. These loans are underwritten by giving consideration to the borrowers ability to pay, stability of employment or source of income,
debt-to-income
ratio, credit history and
loan-to-value
ratio.
As of March 31, 2018, residential real estate loans totaled $2.38 billion, or 23.0%, of loans receivable, compared to
$2.41 billion, or 23.3% of loans receivable, as of December 31, 2017. Residential real estate loans originated in our Arkansas, Florida, Alabama and Centennial CFG markets were $814.3 million, $1.35 billion, $73.9 million
and $143.8 million at March 31, 2018, respectively.
Consumer Loans.
Our consumer loans are composed of secured and
unsecured loans originated by our bank. The performance of consumer loans will be affected by the local and regional economies as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics.
As of March 31, 2018, consumer loans totaled $40.8 million, or 0.4% of loans receivable, compared to $46.1 million, or 0.4% of
loans receivable, as of December 31, 2017. Consumer loans originated in our Arkansas, Florida, Alabama and Centennial CFG markets were $22.2 million, $17.7 million, $1.0 million and zero at March 31, 2018, respectively.
Commercial and Industrial Loans.
Commercial and industrial loans are made for a variety of business purposes, including working
capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to seven years. Commercial loan applications must be supported by current financial information on the borrower and, where appropriate, by adequate
collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the borrowers liquidity and leverage, management
experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally speaking, accounts receivable are financed at between 50% and 80% of accounts
receivable less than 60 days past due. Inventory financing will range between 50% and 60% (with no work in process) depending on the borrower and nature of inventory. We require a first lien position for those loans.
As of March 31, 2018, commercial and industrial loans totaled $1.32 billion, or 12.8% of loans receivable, which is comparable to
$1.30 billion, or 12.6% of loans receivable, as of December 31, 2017. Commercial and industrial loans originated in our Arkansas, Florida, Alabama and Centennial CFG markets were $572.6 million, $448.5 million, $28.2 million
and $274.9 million at March 31, 2018, respectively.
Non-Performing
Assets
We classify our problem loans into three categories: past due loans, special mention loans and classified loans (accruing and
non-accruing).
67
When management determines that a loan is no longer performing, and that collection of interest
appears doubtful, the loan is placed on
non-accrual
status. Loans that are 90 days past due are placed on
non-accrual
status unless they are adequately secured and there
is reasonable assurance of full collection of both principal and interest. Our management closely monitors all loans that are contractually 90 days past due, treated as special mention or otherwise classified or on
non-accrual
status.
We have purchased loans with deteriorated credit quality in our March 31, 2018
financial statements as a result of our historical acquisitions. The credit metrics most heavily impacted by our acquisitions of acquired loans with deteriorated credit quality were the following credit quality indicators listed in Table 9 below:
|
|
|
Allowance for loan losses to
non-performing
loans;
|
|
|
|
Non-performing
loans to total loans; and
|
|
|
|
Non-performing
assets to total assets.
|
On the date of
acquisition, acquired credit-impaired loans are initially recognized at fair value, which incorporates the present value of amounts estimated to be collectible. As a result of the application of this accounting methodology, certain credit-related
ratios, including those referenced above, may not necessarily be directly comparable with periods prior to the acquisition of the credit-impaired loans and
non-performing
assets, or comparable with other
institutions.
Table 9 sets forth information with respect to our
non-performing
assets as of
March 31, 2018 and December 31, 2017. As of these dates, all
non-performing
restructured loans are included in
non-accrual
loans.
Table 9:
Non-performing
Assets
|
|
|
|
|
|
|
|
|
|
|
As of
March 31,
2018
|
|
|
As of
December 31,
2017
|
|
|
|
(Dollars in thousands)
|
|
Non-accrual
loans
|
|
$
|
36,266
|
|
|
$
|
34,032
|
|
Loans past due 90 days or more (principal or interest payments)
|
|
|
13,223
|
|
|
|
10,665
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing
loans
|
|
|
49,489
|
|
|
|
44,697
|
|
|
|
|
|
|
|
|
|
|
Other
non-performing
assets
|
|
|
|
|
|
|
|
|
Foreclosed assets held for sale, net
|
|
|
20,134
|
|
|
|
18,867
|
|
Other
non-performing
assets
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total other
non-performing
assets
|
|
|
20,137
|
|
|
|
18,870
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing
assets
|
|
$
|
69,626
|
|
|
$
|
63,567
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to
non-performing
loans
|
|
|
222.70
|
%
|
|
|
246.70
|
%
|
Non-performing
loans to total loans
|
|
|
0.48
|
|
|
|
0.43
|
|
Non-performing
assets to total assets
|
|
|
0.49
|
|
|
|
0.44
|
|
Our
non-performing
loans are comprised of
non-accrual
loans and accruing loans that are contractually past due 90 days. Our bank subsidiary recognizes income principally on the accrual basis of accounting. When loans are classified as
non-accrual,
the accrued interest is charged off and no further interest is accrued, unless the credit characteristics of the loan improve. If a loan is determined by management to be uncollectible, the portion of
the loan determined to be uncollectible is then charged to the allowance for loan losses.
Total
non-performing
loans were $49.5 million as of March 31, 2018, compared to $44.7 million as of December 31, 2017, an increase of $4.8 million. The $4.8 million increase in
non-performing
loans is the result of a $6.7 million increase in
non-performing
loans in our Florida market which was partially offset by a $1.0 million decrease in
non-performing
loans in our Arkansas market and an $887,000 decrease in
non-performing
loans in our Alabama market.
Non-performing
loans at March 31, 2018 are $14.5 million, $34.9 million, $42,000 and zero in the Arkansas, Florida, Alabama and Centennial CFG markets, respectively.
68
Although the current state of the real estate market has improved, uncertainties still present in
the economy may continue to increase our level of
non-performing
loans. While we believe our allowance for loan losses is adequate and our purchased loans are adequately discounted at March 31, 2018, as
additional facts become known about relevant internal and external factors that affect loan collectability and our assumptions, it may result in us making additions to the provision for loan losses during 2018. Our current or historical provision
levels should not be relied upon as a predictor or indicator of future levels going forward.
Troubled debt restructurings
(TDRs) generally occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near term. As a result, we will work with the borrower to prevent further difficulties, and ultimately to improve the
likelihood of recovery on the loan. In those circumstances it may be beneficial to restructure the terms of a loan and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it
in an unfavorable and depressed real estate market. When we have modified the terms of a loan, we usually either reduce the monthly payment and/or interest rate for generally about three to twelve months. For our TDRs that accrue interest at the
time the loan is restructured, it would be a rare exception to have
charged-off
any portion of the loan. Only
non-performing
restructured loans are included in our
non-performing
loans. As of March 31, 2018, we had $18.3 million of restructured loans that are in compliance with the modified terms and are not reported as past due or
non-accrual
in Table 9. Our Florida market contains $13.0 million and our Arkansas market contains $5.3 million of these restructured loans.
A loan modification that might not otherwise be considered may be granted resulting in classification as a TDR. These loans can involve loans
remaining on
non-accrual,
moving to
non-accrual,
or continuing on an accrual status, depending on the individual facts and circumstances of the borrower. Generally, a
non-accrual
loan that is restructured remains on
non-accrual
for a period of six months to demonstrate that the borrower can meet the restructured terms. However, performance
prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can pay under the new terms and may result in the loan being returned to an accrual status after a shorter
performance period. If the borrowers ability to meet the revised payment schedule is not reasonably assured, the loan will remain in a
non-accrual
status.
The majority of the Banks loan modifications relates to commercial lending and involves reducing the interest rate, changing from a
principal and interest payment to interest-only, a lengthening of the amortization period, or a combination of some or all of the three. In addition, it is common for the Bank to seek additional collateral or guarantor support when modifying a loan.
At March 31, 2018, the amount of TDRs was $20.7 million, a decrease of 2.2% from $21.2 million at December 31, 2017. As of March 31, 2018 and December 31, 2017, 88.4% and 89.7%, respectively, of all restructured loans
were performing to the terms of the restructure.
Total foreclosed assets held for sale were $20.1 million as of March 31, 2018,
compared to $18.9 million as of December 31, 2017 for an increase of $1.3 million. The foreclosed assets held for sale as of March 31, 2018 are comprised of $10.7 million of assets located in Arkansas, $8.1 million of
assets located in Florida, $1.4 million located in Alabama and zero from Centennial CFG.
During the first three months of 2018, we
had three foreclosed properties with a carrying value greater than $1.0 million. The first property is a development property in Northwest Arkansas which was foreclosed in the first quarter of 2011. The carrying value was $1.7 million at
March 31, 2018. The second property was a development property in Florida acquired from BOC with a carrying value of $2.1 million at March 31, 2018. The last property was a nonfarm
non-residential
property in Florida acquired from Stonegate with a carrying value of $1.9 million at March 31, 2018. The Company does not currently anticipate any additional losses on these
properties. As of March 31, 2018, no other foreclosed assets held for sale have a carrying value greater than $1.0 million.
69
Table 10 shows the summary of foreclosed assets held for sale as of March 31, 2018 and
December 31, 2017.
Table 10: Foreclosed Assets Held For Sale
|
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2018
|
|
|
As of
December 31, 2017
|
|
|
|
(In thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
8,720
|
|
|
$
|
9,766
|
|
Construction/land development
|
|
|
5,292
|
|
|
|
5,920
|
|
Agricultural
|
|
|
|
|
|
|
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
5,660
|
|
|
|
2,654
|
|
Multifamily residential
|
|
|
462
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
Total foreclosed assets held for sale
|
|
$
|
20,134
|
|
|
$
|
18,867
|
|
|
|
|
|
|
|
|
|
|
A loan is considered impaired when it is probable that we will not receive all amounts due according to the
contracted terms of the loans. Impaired loans include
non-performing
loans (loans past due 90 days or more and
non-accrual
loans), criticized and/or classified loans
with a specific allocation, loans categorized as TDRs and certain other loans identified by management that are still performing (loans included in multiple categories are only included once). As of March 31, 2018, average impaired loans were
$79.3 million compared to $87.2 million as of December 31, 2017. As of March 31, 2018, impaired loans were $83.0 million compared to $75.6 million as of December 31, 2017, for an increase of $3.7 million. This
increase is primarily associated with the increase in loan balances with a specific allocation while the specific allocation for impaired loans decreased by approximately $424,000. As of March 31, 2018, our Arkansas, Florida, Alabama and
Centennial CFG markets accounted for approximately $31.8 million, $51.1 million, $42,000 and zero of the impaired loans, respectively.
We evaluated loans purchased in conjunction with our historical acquisitions for impairment in accordance with the provisions of FASB ASC
Topic
310-30,
Loans and Debt Securities Acquired with Deteriorated Credit Quality
. Purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is
probable that not all contractually required payments will be collected. Purchased credit impaired loans are not classified as
non-performing
assets for the recognition of interest income as the pools are
considered to be performing. However, for the purpose of calculating the
non-performing
credit metrics, we have included all of the loans which are contractually 90 days past due and still accruing, including
those in performing pools. Therefore, interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all purchased impaired loans.
All purchased loans with deteriorated credit quality are considered impaired loans at the date of acquisition. Since the loans are accounted
for on a pooled basis under ASC
310-30,
individual loans are not classified as impaired. Since the loans are accounted for on a pooled basis under ASC
310-30,
individual
loans subsequently restructured within the pools are not classified as TDRs in accordance with ASC
310-30-40.
For purchased loans with deteriorated credit quality that
were deemed TDRs prior to our acquisition of them, these loans are also not considered TDRs as they are accounted for under ASC
310-30.
As of March 31, 2018 and December 31, 2017, there was not a material amount of purchased loans with deteriorated credit quality on
non-accrual
status as a result of most of the loans being accounted for on the pool basis and the pools are considered to be performing for the accruing of interest income. Also, acquired loans contractually past
due 90 days or more are accruing interest because the pools are considered to be performing for the purpose of accruing interest income.
70
Past Due and
Non-Accrual
Loans
Table 11 shows the summary of
non-accrual
loans as of March 31, 2018 and December 31, 2017:
Table 11: Total
Non-Accrual
Loans
|
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2018
|
|
|
As of
December 31, 2017
|
|
|
|
(In thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
8,711
|
|
|
$
|
9,600
|
|
Construction/land development
|
|
|
5,490
|
|
|
|
5,011
|
|
Agricultural
|
|
|
276
|
|
|
|
19
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
16,036
|
|
|
|
14,437
|
|
Multifamily residential
|
|
|
152
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
30,665
|
|
|
|
29,220
|
|
Consumer
|
|
|
169
|
|
|
|
145
|
|
Commercial and industrial
|
|
|
5,253
|
|
|
|
4,584
|
|
Agricultural
|
|
|
178
|
|
|
|
54
|
|
Other
|
|
|
1
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Total
non-accrual
loans
|
|
$
|
36,266
|
|
|
$
|
34,032
|
|
|
|
|
|
|
|
|
|
|
If the
non-accrual
loans had been accruing interest in accordance with
the original terms of their respective agreements, interest income of approximately $504,000 and $658,000 for the three-month periods ended March 31, 2018 and 2017, respectively, would have been recorded. The interest income recognized on the
non-accrual
loans for the three-month periods ended March 31, 2018 and 2017 was considered immaterial.
Table 12 shows the summary of accruing past due loans 90 days or more as of March 31, 2018 and December 31, 2017:
Table 12: Loans Accruing Past Due 90 Days or More
|
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2018
|
|
|
As of
December 31, 2017
|
|
|
|
(In thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
5,300
|
|
|
$
|
3,119
|
|
Construction/land development
|
|
|
3,278
|
|
|
|
3,247
|
|
Agricultural
|
|
|
|
|
|
|
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
2,451
|
|
|
|
2,175
|
|
Multifamily residential
|
|
|
99
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
11,128
|
|
|
|
8,641
|
|
Consumer
|
|
|
27
|
|
|
|
26
|
|
Commercial and industrial
|
|
|
2,068
|
|
|
|
1,944
|
|
Agricultural and other
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
Total loans accruing past due 90 days or more
|
|
$
|
13,223
|
|
|
$
|
10,665
|
|
|
|
|
|
|
|
|
|
|
Our total loans accruing past due 90 days or more and
non-accrual
loans to total loans was 0.48% and 0.43% as of March 31, 2018 and December 31, 2017, respectively.
71
Allowance for Loan Losses
Overview.
The allowance for loan losses is maintained at a level which our management believes is adequate to absorb all probable losses
on loans in the loan portfolio. The amount of the allowance is affected by: (i) loan charge-offs, which decrease the allowance; (ii) recoveries on loans previously charged off, which increase the allowance; and (iii) the provision of
possible loan losses charged to income, which increases the allowance. In determining the provision for possible loan losses, it is necessary for our management to monitor fluctuations in the allowance resulting from actual charge-offs and
recoveries and to periodically review the size and composition of the loan portfolio in light of current and anticipated economic conditions. If actual losses exceed the amount of allowance for loan losses, our earnings could be adversely affected.
As we evaluate the allowance for loan losses, we categorize it as follows: (i) specific allocations; (ii) allocations for
criticized and classified assets not individually evaluated for impairment; (iii) general allocations; and (iv) miscellaneous allocations.
Specific Allocations.
As a general rule, if a specific allocation is warranted, it is the result of an analysis of a previously
classified credit or relationship. Typically, when it becomes evident through the payment history or a financial statement review that a loan or relationship is no longer supported by the cash flows of the asset and/or borrower and has become
collateral dependent, we will use appraisals or other collateral analysis to determine if collateral impairment has occurred. The amount or likelihood of loss on this credit may not yet be evident, so a
charge-off
would not be prudent. However, if the analysis indicates that an impairment has occurred, then a specific allocation will be determined for this loan. If our existing appraisal is outdated or the
collateral has been subject to significant market changes, we will obtain a new appraisal for this impairment analysis. The majority of our impaired loans are collateral dependent at the present time, so third-party appraisals were used to determine
the necessary impairment for these loans. Cash flow available to service debt was used for the other impaired loans. This analysis is performed each quarter in connection with the preparation of the analysis of the adequacy of the allowance for loan
losses, and if necessary, adjustments are made to the specific allocation provided for a particular loan.
For collateral dependent loans,
we do not consider an appraisal outdated simply due to the passage of time. However, if an appraisal is older than 13 months and if market or other conditions have deteriorated and we believe that the current market value of the property is not
within approximately 20% of the appraised value, we will consider the appraisal outdated and order either a new appraisal or an internal validation report for the impairment analysis. The recognition of any provision or related
charge-off
on a collateral dependent loan is either through annual credit analysis or, many times, when the relationship becomes delinquent. If the borrower is not current, we will update our credit and cash flow
analysis to determine the borrowers repayment ability. If we determine this ability does not exist and it appears that the collection of the entire principal and interest is not likely, then the loan could be placed on
non-accrual
status. In any case, loans are classified as
non-accrual
no later than 105 days past due. If the loan requires a quarterly impairment analysis, this analysis is
completed in conjunction with the completion of the analysis of the adequacy of the allowance for loan losses. Any exposure identified through the impairment analysis is shown as a specific reserve on the individual impairment. If it is determined
that a new appraisal or internal validation report is required, it is ordered and will be taken into consideration during completion of the next impairment analysis.
In estimating the net realizable value of the collateral, management may deem it appropriate to discount the appraisal based on the applicable
circumstances. In such case, the amount charged off may result in loan principal outstanding being below fair value as presented in the appraisal.
Between the receipt of the original appraisal and the updated appraisal, we monitor the loans repayment history. If the loan is
$1.0 million or greater or the total loan relationship is $2.0 million or greater, our policy requires an annual credit review. Our policy requires financial statements from the borrowers and guarantors at least annually. In addition, we
calculate the global repayment ability of the borrower/guarantors at least annually.
As a general rule, when it becomes evident that the
full principal and accrued interest of a loan may not be collected, or by law at 105 days past due, we will reflect that loan as
non-performing.
It will remain
non-performing
until it performs in a manner that it is reasonable to expect that we will collect the full principal and accrued interest.
When the amount or likelihood of a loss on a loan has been determined, a
charge-off
should be taken in
the period it is determined. If a partial
charge-off
occurs, the quarterly impairment analysis will determine if the loan is still impaired, and thus continues to require a specific allocation.
Allocations for Criticized and Classified Assets not Individually Evaluated for Impairment.
We establish allocations for loans rated
special mention through loss in accordance with the guidelines established by the regulatory agencies. A percentage rate is applied to each loan category to determine the level of dollar allocation.
72
General Allocations.
We establish general allocations for each major loan category. This
section also includes allocations to loans, which are collectively evaluated for loss such as residential real estate, commercial real estate, consumer loans and commercial and industrial loans that fall below $2.0 million. The allocations in
this section are based on a historical review of loan loss experience and past due accounts. We give consideration to trends, changes in loan mix, delinquencies, prior losses, and other related information.
Miscellaneous Allocations.
Allowance allocations other than specific, classified, and general are included in our miscellaneous
section.
Loans Collectively Evaluated for Impairment
. Loans receivable collectively evaluated for impairment were
$9.94 billion at December 31, 2017 and March 31, 2018. The percentage of the allowance for loan losses allocated to loans receivable collectively evaluated for impairment to the total loans collectively evaluated for impairment was
1.06% at December 31, 2017 and March 31, 2018.
Hurricane Irma
. The Companys allowance for loan losses as March 31,
2018 and December 31, 2017 was significantly impacted by Hurricane Irma which made initial landfall in the Florida Keys and a second landfall just south of Naples, Florida, as a Category 4 hurricane on September 10, 2017. Based on initial
assessments of the potential credit impact and damage to the approximately $2.41 billion in legacy loans receivable we have in the disaster area, the Company established a $32.9 million storm-related provision for loan losses as of December 31,
2017. As of March 31, 2018, charge-offs of $2.2 million have been taken against the storm-related provision for loan losses. Due to the uncertainty that still exists as to the timing of the full recovery of the disaster area, we believe that the
storm-related provision recorded as of March 31, 2018 is appropriate.
Charge-offs and Recoveries.
Total charge-offs decreased to
$2.5 million for the three months ended March 31, 2018, compared to $4.7 million for the same period in 2017. Total recoveries decreased to $886,000 for the three months ended March 31, 2018, compared to $1.1 million for the
same period in 2017. For the three months ended March 31, 2018, net charge-offs were $1.3 million for Arkansas, $310,000 for Florida, $74,000 for Alabama and zero for Centennial CFG, equaling a net
charge-off
position of $1.7 million. While the 2018 charge-offs and recoveries consisted of many relationships, there were no individual relationships consisting of charge-offs greater than
$1.0 million.
We have not charged off an amount less than what was determined to be the fair value of the collateral as presented in
the appraisal, less estimated costs to sell (for collateral dependent loans), for any period presented. Loans partially charged-off are placed on
non-accrual
status until it is proven that the borrowers
repayment ability with respect to the remaining principal balance can be reasonably assured. This is usually established over a period of
6-12
months of timely payment performance.
73
Table 13 shows the allowance for loan losses, charge-offs and recoveries as of and for the
three-month periods ended March 31, 2018 and 2017.
Table 13: Analysis of Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in thousands)
|
|
Balance, beginning of period
|
|
$
|
110,266
|
|
|
$
|
80,002
|
|
Loans charged off
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Commercial real estate loans:
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
|
447
|
|
|
|
1,339
|
|
Construction/land development
|
|
|
8
|
|
|
|
207
|
|
Agricultural
|
|
|
|
|
|
|
125
|
|
Residential real estate loans:
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
779
|
|
|
|
1,877
|
|
Multifamily residential
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
1,234
|
|
|
|
3,562
|
|
Consumer
|
|
|
15
|
|
|
|
22
|
|
Commercial and industrial
|
|
|
814
|
|
|
|
645
|
|
Agricultural
|
|
|
2
|
|
|
|
|
|
Other
|
|
|
475
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
Total loans charged off
|
|
|
2,540
|
|
|
|
4,706
|
|
|
|
|
|
|
|
|
|
|
Recoveries of loans previously charged off
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Commercial real estate loans:
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
|
101
|
|
|
|
331
|
|
Construction/land development
|
|
|
30
|
|
|
|
199
|
|
Agricultural
|
|
|
|
|
|
|
|
|
Residential real estate loans:
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
327
|
|
|
|
128
|
|
Multifamily residential
|
|
|
34
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
492
|
|
|
|
663
|
|
Consumer
|
|
|
26
|
|
|
|
33
|
|
Commercial and industrial
|
|
|
98
|
|
|
|
182
|
|
Agricultural
|
|
|
46
|
|
|
|
|
|
Other
|
|
|
224
|
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
886
|
|
|
|
1,101
|
|
|
|
|
|
|
|
|
|
|
Net loans charged off (recovered)
|
|
|
1,654
|
|
|
|
3,605
|
|
Provision for loan losses
|
|
|
1,600
|
|
|
|
3,914
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31
|
|
$
|
110,212
|
|
|
$
|
80,311
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) to average loans receivable
|
|
|
0.06
|
%
|
|
|
0.19
|
%
|
Allowance for loan losses to total loans
|
|
|
1.07
|
|
|
|
1.02
|
|
Allowance for loan losses to net charge-offs (recoveries)
|
|
|
1,643
|
|
|
|
549
|
|
74
Allocated Allowance for Loan Losses.
We use a risk rating and specific reserve methodology
in the calculation and allocation of our allowance for loan losses. While the allowance is allocated to various loan categories in assessing and evaluating the level of the allowance, the allowance is available to cover charge-offs incurred in all
loan categories. Because a portion of our portfolio has not matured to the degree necessary to obtain reliable loss data from which to calculate estimated future losses, the unallocated portion of the allowance is an integral component of the total
allowance. Although unassigned to a particular credit relationship or product segment, this portion of the allowance is vital to safeguard against the imprecision inherent in estimating credit losses.
The changes for the period ended March 31, 2018 and the year ended December 31, 2017 in the allocation of the allowance for loan
losses for the individual types of loans are primarily associated with changes in the ASC 310 calculations, both individual and aggregate, and changes in the ASC 450 calculations. These calculations are affected by changes in individual loan
impairments, changes in asset quality, net charge-offs during the period and normal changes in the outstanding loan portfolio, as well any changes to the general allocation factors due to changes within the actual characteristics of the loan
portfolio.
Table 14 presents the allocation of allowance for loan losses as of March 31, 2018 and December 31, 2017.
Table 14: Allocation of Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
|
As of December 31, 2017
|
|
|
|
Allowance
Amount
|
|
|
% of
loans
(1)
|
|
|
Allowance
Amount
|
|
|
% of
loans
(1)
|
|
|
|
(Dollars in thousands)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
43,764
|
|
|
|
45.1
|
%
|
|
$
|
42,893
|
|
|
|
44.5
|
%
|
Construction/land development
|
|
|
20,104
|
|
|
|
16.0
|
|
|
|
20,343
|
|
|
|
16.4
|
|
Agricultural
|
|
|
1,067
|
|
|
|
0.8
|
|
|
|
1,046
|
|
|
|
0.8
|
|
Residential real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
1-4
family
|
|
|
20,159
|
|
|
|
18.5
|
|
|
|
21,370
|
|
|
|
19.1
|
|
Multifamily residential
|
|
|
3,455
|
|
|
|
4.5
|
|
|
|
3,136
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
88,549
|
|
|
|
84.9
|
|
|
|
88,788
|
|
|
|
85.1
|
|
Consumer
|
|
|
408
|
|
|
|
0.4
|
|
|
|
462
|
|
|
|
0.4
|
|
Commercial and industrial
|
|
|
16,193
|
|
|
|
12.8
|
|
|
|
15,292
|
|
|
|
12.6
|
|
Agricultural
|
|
|
2,665
|
|
|
|
0.5
|
|
|
|
2,692
|
|
|
|
0.5
|
|
Other
|
|
|
174
|
|
|
|
1.4
|
|
|
|
180
|
|
|
|
1.4
|
|
Unallocated
|
|
|
2,223
|
|
|
|
|
|
|
|
2,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses
|
|
$
|
110,212
|
|
|
|
100.0
|
%
|
|
$
|
110,266
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Percentage of loans in each category to total loans receivable.
|
Investment Securities
Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue.
Securities within the portfolio are classified as
held-to-maturity,
available-for-sale,
or trading based on the intent and objective of the investment and the ability to hold to maturity. Fair values of securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are
based on quoted market prices of comparable securities. The estimated effective duration of our securities portfolio was 3.2 years as of March 31, 2018.
As of March 31, 2018 and December 31, 2017, we had $213.7 million and $224.8 million of
held-to-maturity
securities, respectively. Of the $213.7 million of
held-to-maturity
securities as of March 31, 2018,
$4.0 million were invested in U.S. Government-sponsored enterprises, $70.0 million were invested in mortgage-backed securities and $139.7 million were invested in state and political subdivisions. Of the $224.8 million of
held-to-maturity
securities as of December 31, 2017, $5.8 million were invested in U.S. Government-sponsored enterprises, $73.6 million were invested in
mortgage-backed securities and $145.4 million were invested in state and political subdivisions.
75
Securities
available-for-sale
are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders equity as other
comprehensive income. Securities that are held as
available-for-sale
are used as a part of our asset/liability management strategy. Securities that may be sold in
response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as
available-for-sale.
Available-for-sale
securities were $1.69 billion and $1.66 billion as of March 31, 2018 and December 31, 2017, respectively.
As of March 31, 2018, $1.0 billion, or 59.6%, of our
available-for-sale
securities were invested in mortgage-backed securities, compared to $971.4 million, or 58.4%, of our
available-for-sale
securities as of December 31, 2017. To reduce our income tax burden, $252.8 million, or 14.9%, of our
available-for-sale
securities portfolio as of March 31, 2018, was primarily invested in
tax-exempt
obligations of state and
political subdivisions, compared to $250.3 million, or 15.0%, of our
available-for-sale
securities as of December 31, 2017. Also, we had approximately
$392.1 million, or 23.2%, invested in obligations of U.S. Government-sponsored enterprises as of March 31, 2018, compared to $406.3 million, or 24.4%, of our
available-for-sale
securities as of December 31, 2017.
Certain investment securities are valued at less than their historical cost. These declines are primarily the result of the rate for these
investments yielding less than current market rates. Based on evaluation of available evidence, we believe the declines in fair value for these securities are temporary. It is our intent to hold these securities to recovery. Should the impairment of
any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other than temporary impairment is identified.
See Note 3 Investment Securities in the Condensed Notes to Consolidated Financial Statements for the carrying value and fair value
of investment securities.
Deposits
Our deposits averaged $10.3 billion for the three-month period ended March 31, 2018. Total deposits as of March 31, 2018 were
$10.4 billion. Deposits are our primary source of funds. We offer a variety of products designed to attract and retain deposit customers. Those products consist of checking accounts, regular savings deposits, NOW accounts, money market accounts
and certificates of deposit. Deposits are gathered from individuals, partnerships and corporations in our market areas. In addition, we obtain deposits from state and local entities and, to a lesser extent, U.S. Government and other depository
institutions.
Our policy also permits the acceptance of brokered deposits. From time to time, when appropriate in order to fund strong
loan demand, we accept brokered time deposits, generally in denominations of less than $250,000, from a regional brokerage firm, and other national brokerage networks. Additionally, we participate in the Certificates of Deposit Account Registry
Service (CDARS), which provides for reciprocal
(two-way)
transactions among banks for the purpose of giving our customers the potential for multi-million-dollar FDIC insurance coverage.
Although classified as brokered deposits for regulatory purposes, funds placed through the CDARS program are our customer relationships that management views as core funding. We also participate in the
One-Way
Buy Insured Cash Sweep (ICS) service, which provides for
one-way
buy transactions among banks for the purpose of purchasing cost-effective floating-rate funding without collateralization or stock
purchase requirements. Management believes these sources represent a reliable and cost efficient alternative funding source for the Company. However, to the extent that our condition or reputation deteriorates, or to the extent that there are
significant changes in market interest rates which we do not elect to match, we may experience an outflow of brokered deposits. In that event we would be required to obtain alternate sources for funding.
76
Table 15 reflects the classification of the brokered deposits as of March 31, 2018 and
December 31, 2017.
Table 15: Brokered Deposits
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(In thousands)
|
|
Time Deposits
|
|
$
|
50,003
|
|
|
$
|
60,022
|
|
CDARS
|
|
|
57,618
|
|
|
|
53,588
|
|
Insured Cash Sweep and Other Transaction Accounts
|
|
|
854,673
|
|
|
|
915,060
|
|
|
|
|
|
|
|
|
|
|
Total Brokered Deposits
|
|
$
|
962,294
|
|
|
$
|
1,028,670
|
|
|
|
|
|
|
|
|
|
|
The interest rates paid are competitively priced for each particular deposit product and structured to meet
our funding requirements. We will continue to manage interest expense through deposit pricing. We may allow higher rate deposits to run off during periods of limited loan demand. We believe that additional funds can be attracted and deposit growth
can be realized through deposit pricing if we experience increased loan demand or other liquidity needs.
The Federal Reserve Board sets
various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. The Federal Funds target rate, which is the cost to banks
of immediately available overnight funds, was lowered on December 16, 2008 to a historic low of 0.25% to 0%, where it remained until December 16, 2015, when the target rate was increased slightly to 0.50% to 0.25%. Since December 31,
2017, the Federal Funds target rate has increased 25 basis points and is currently at 1.75% to 1.50%.
Table 16 reflects the
classification of the average deposits and the average rate paid on each deposit category, which are in excess of 10 percent of average total deposits, for the three-month periods ended March 31, 2018 and 2017.
Table 16: Average Deposit Balances and Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Average
Amount
|
|
|
Average
Rate Paid
|
|
|
Average
Amount
|
|
|
Average
Rate Paid
|
|
|
|
(Dollars in thousands)
|
|
Non-interest-bearing
transaction accounts
|
|
$
|
2,381,259
|
|
|
|
|
%
|
|
$
|
1,716,452
|
|
|
|
|
%
|
Interest-bearing transaction accounts
|
|
|
5,750,298
|
|
|
|
0.77
|
|
|
|
3,631,177
|
|
|
|
0.37
|
|
Savings deposits
|
|
|
659,287
|
|
|
|
0.19
|
|
|
|
507,636
|
|
|
|
0.08
|
|
Time deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$100,000 or more
|
|
|
1,002,725
|
|
|
|
1.14
|
|
|
|
896,586
|
|
|
|
0.76
|
|
Other time deposits
|
|
|
511,129
|
|
|
|
0.59
|
|
|
|
460,714
|
|
|
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,304,698
|
|
|
|
0.58
|
%
|
|
$
|
7,212,565
|
|
|
|
0.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Sold Under Agreements to Repurchase
We enter into short-term purchases of securities under agreements to resell (resale agreements) and sales of securities under agreements to
repurchase (repurchase agreements) of substantially identical securities. The amounts advanced under resale agreements and the amounts borrowed under repurchase agreements are carried on the balance sheet at the amount advanced. Interest incurred on
repurchase agreements is reported as interest expense. Securities sold under agreements to repurchase increased $2.5 million, or 1.7%, from $147.8 million as of December 31, 2017 to $150.3 million as of March 31, 2018.
77
FHLB Borrowed Funds
Our FHLB borrowed funds were $1.12 billion and $1.30 billion at March 31, 2018 and December 31, 2017, respectively. At
March 31, 2018, $475.0 million and $640.1 million of the outstanding balance were issued as short-term and long-term advances, respectively. At December 31, 2017, $525.0 million and $774.2 million of the outstanding
balance were issued as short-term and long-term advances, respectively. Our remaining FHLB borrowing capacity was $2.19 billion and $1.96 billion as of March 31, 2018 and December 31, 2017, respectively. Maturities of borrowings
as of March 31, 2018 include: 2018 $800.2 million; 2019 $143.1 million; 2020 $146.4 million; 2021 zero; 2022 zero; after 2022 $25.4 million. Expected maturities will differ from
contractual maturities because FHLB may have the right to call or HBI the right to prepay certain obligations.
Subordinated Debentures
Subordinated debentures, which consist of subordinated debt securities and guaranteed payments on trust preferred securities, were
$368.2 million as of March 31, 2018. As of March 31, 2017, subordinated debentures consisted of $60.8 million of guaranteed payments on trust preferred securities.
The trust preferred securities are
tax-advantaged
issues that qualify for Tier 1 capital treatment
subject to certain limitations. Distributions on these securities are included in interest expense. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in our
subordinated debentures, the sole asset of each trust. The trust preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the
subordinated debentures held by the trust. We wholly own the common securities of each trust. Each trusts ability to pay amounts due on the trust preferred securities is solely dependent upon our making payment on the related subordinated
debentures. Our obligations under the subordinated securities and other relevant trust agreements, in the aggregate, constitute a full and unconditional guarantee by us of each respective trusts obligations under the trust securities issued by
each respective trust.
During 2017, we acquired $12.5 million in trust preferred securities with a fair value of $9.8 million
from the Stonegate acquisition. The difference between the fair value purchased of $9.8 million and the $12.5 million face amount, will be amortized into interest expense over the remaining life of the debentures. The associated
subordinated debentures are redeemable, in whole or in part, prior to maturity at our option on a quarterly basis when interest is due and payable and in whole at any time within 90 days following the occurrence and continuation of certain changes
in the tax treatment or capital treatment of the debentures.
On April 3, 2017, the Company completed an underwritten public offering
of $300.0 million in aggregate principal amount of its 5.625%
Fixed-to-Floating
Rate Subordinated Notes due 2027 (the Notes). The Notes were issued at
99.997% of par, resulting in net proceeds, after underwriting discounts and issuance costs, of approximately $297.0 million. The Notes are unsecured, subordinated debt obligations of the Company and will mature on April 15, 2027. The Notes
qualify as Tier 2 capital for regulatory purposes.
Stockholders Equity
Stockholders equity was $2.24 billion at March 31, 2018 compared to $2.20 billion at December 31, 2017. The increase
in stockholders equity is primarily associated with quarterly net income of $73.1 million, which was partially offset by the $19.1 million dividend paid during the first quarter of 2018 and $15.9 million of other comprehensive
losses resulting from a $21.6 million unrealized loss on available for sale securities and a $5.8 million of deferred tax impact as well as $7.1 million in stock repurchases. The annualized improvement in stockholders equity for
the first three months of 2018 was 6.24%. As of March 31, 2018 and December 31, 2017, our equity to asset ratio was 15.63% and 15.25%, respectively. Book value per share was $12.89 as of March 31, 2018, compared to $12.70 as of
December 31, 2017, a 6.07% annualized increase.
Common Stock Cash Dividends.
We declared cash dividends on our common stock
of $0.11 per share and $0.09 per share for each of the three-month periods ended March 31, 2018 and 2017, respectively. The common stock dividend payout ratio for the three months ended March 31, 2018 and 2017 was 26.19% and 27.02%,
respectively. For the second quarter of 2018, the Board of Directors declared a regular $0.11 per share quarterly cash dividend payable June 6, 2018, to shareholders of record May 16, 2018.
78
Stock Repurchase Program.
On February 21, 2018, the Companys Board of Directors
authorized the repurchase of up to an additional 5,000,000 shares of its common stock under the previously approved stock repurchase program, which brought the total amount of authorized shares to repurchase to approximately 14,752,000 shares.
During the first quarter of 2018, the Company utilized a portion of this stock repurchase program. We repurchased a total of 303,637 shares with a weighted-average stock price of $23.41 per share during the first quarter of 2018. Shares repurchased
under the program as of March 31, 2018 total 4,828,501 shares. The remaining balance available for repurchase was 9,923,499 shares at March 31, 2018.
Liquidity and Capital Adequacy Requirements
Risk-Based Capital.
We, as well as our bank subsidiary, are subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and other discretionary actions by regulators that, if enforced, could have a direct material effect on our financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain
off-balance-sheet
items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators as to components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that, as of March 31, 2018 and December 31, 2017, we met all regulatory
capital adequacy requirements to which we were subject.
On April 3, 2017 the Company completed an underwritten public offering of
$300 million in aggregate principal amount of its 5.625%
Fixed-to-Floating
Rate Subordinated Notes due 2027 (the Notes). The Notes were issued at
99.997% of par, resulting in net proceeds, after underwriting discounts, of approximately $297.2 million. The Notes are unsecured, subordinated debt obligations of the Company and will mature on April 15, 2027. The Notes qualify as Tier 2
capital for regulatory purposes.
79
Table 17 presents our risk-based capital ratios on a consolidated basis as of March 31, 2018
and December 31, 2017.
Table 17: Risk-Based Capital
|
|
|
|
|
|
|
|
|
|
|
As of
March 31,
2018
|
|
|
As of
December 31,
2017
|
|
|
|
(Dollars in thousands)
|
|
Tier 1 capital
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
$
|
2,238,181
|
|
|
$
|
2,204,291
|
|
Goodwill and core deposit intangibles, net
|
|
|
(975,227
|
)
|
|
|
(966,890
|
)
|
Unrealized (gain) loss on
available-for-sale
securities
|
|
|
20,282
|
|
|
|
3,421
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total common equity Tier 1 capital
|
|
|
1,283,236
|
|
|
|
1,240,822
|
|
Qualifying trust preferred securities
|
|
|
70,734
|
|
|
|
70,698
|
|
|
|
|
|
|
|
|
|
|
Total Tier 1 capital
|
|
|
1,353,970
|
|
|
|
1,311,520
|
|
|
|
|
|
|
|
|
|
|
Tier 2 capital
|
|
|
|
|
|
|
|
|
Qualifying subordinated notes
|
|
|
297,478
|
|
|
|
297,332
|
|
Qualifying allowance for loan losses
|
|
|
110,212
|
|
|
|
110,266
|
|
|
|
|
|
|
|
|
|
|
Total Tier 2 capital
|
|
|
407,690
|
|
|
|
407,598
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital
|
|
$
|
1,761,660
|
|
|
$
|
1,719,118
|
|
|
|
|
|
|
|
|
|
|
Average total assets for leverage ratio
|
|
$
|
13,259,142
|
|
|
$
|
13,147,046
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets
|
|
$
|
11,318,451
|
|
|
$
|
11,424,963
|
|
|
|
|
|
|
|
|
|
|
Ratios at end of period
|
|
|
|
|
|
|
|
|
Common equity Tier 1 capital
|
|
|
11.34
|
%
|
|
|
10.86
|
%
|
Leverage ratio
|
|
|
10.21
|
|
|
|
9.98
|
|
Tier 1 risk-based capital
|
|
|
11.96
|
|
|
|
11.48
|
|
Total risk-based capital
|
|
|
15.56
|
|
|
|
15.05
|
|
Minimum guidelines Basel III
phase-in
schedule
|
|
|
|
|
|
|
|
|
Common equity Tier 1 capital
|
|
|
6.38
|
%
|
|
|
5.75
|
%
|
Leverage ratio
|
|
|
4.00
|
|
|
|
4.00
|
|
Tier 1 risk-based capital
|
|
|
7.88
|
|
|
|
7.25
|
|
Total risk-based capital
|
|
|
9.88
|
|
|
|
9.25
|
|
Minimum guidelines Basel III fully
phased-in
|
|
|
|
|
|
|
|
|
Common equity Tier 1 capital
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
Leverage ratio
|
|
|
4.00
|
|
|
|
4.00
|
|
Tier 1 risk-based capital
|
|
|
8.50
|
|
|
|
8.50
|
|
Total risk-based capital
|
|
|
10.50
|
|
|
|
10.50
|
|
Well-capitalized guidelines
|
|
|
|
|
|
|
|
|
Common equity Tier 1 capital
|
|
|
6.50
|
%
|
|
|
6.50
|
%
|
Leverage ratio
|
|
|
5.00
|
|
|
|
5.00
|
|
Tier 1 risk-based capital
|
|
|
8.00
|
|
|
|
8.00
|
|
Total risk-based capital
|
|
|
10.00
|
|
|
|
10.00
|
|
As of the most recent notification from regulatory agencies, our bank subsidiary was
well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, we, as well as our banking subsidiary, must maintain minimum common equity Tier 1 capital, leverage, Tier 1
risk-based capital, and total risk-based capital ratios as set forth in the table. There are no conditions or events since that notification that we believe have changed the bank subsidiarys category.
80
Non-GAAP
Financial Measurements
Our accounting and reporting policies conform to generally accepted accounting principles in the United States (GAAP) and the
prevailing practices in the banking industry. However, this report contains financial information determined by methods other than in accordance with generally accepted accounting principles (GAAP), including earnings, as adjusted; diluted earnings
per common share, as adjusted; tangible book value per share; return on average assets excluding intangible amortization; return on average tangible equity excluding intangible amortization; tangible equity to tangible assets; and efficiency ratio,
as adjusted.
We believe these
non-GAAP
measures and ratios, when taken together with the
corresponding GAAP measures and ratios, provide meaningful supplemental information regarding our performance. We believe investors benefit from referring to these
non-GAAP
measures and ratios in assessing our
operating results and related trends, and when planning and forecasting future periods. However, these
non-GAAP
measures and ratios should be considered in addition to, and not as a substitute for or
preferable to, ratios prepared in accordance with GAAP.
The tables below present
non-GAAP
reconciliations of earnings, as adjusted and diluted earnings per share, as adjusted as well as the
non-GAAP
computations of tangible book value per share, return on average assets, return on average tangible
equity excluding intangible amortization, tangible equity to tangible assets and the efficiency ratio, as adjusted. The items used in these calculations are included in financial results presented in accordance with generally accepted accounting
principles (GAAP).
Earnings, as adjusted, and diluted earnings per common share, as adjusted, are meaningful
non-GAAP
financial measures for management, as they exclude certain items such as merger expenses and/or certain gains and losses. Management believes the exclusion of these items in expressing earnings provides a
meaningful foundation for
period-to-period
and
company-to-company
comparisons, which
management believes will aid both investors and analysts in analyzing our financial measures and predicting future performance. These
non-GAAP
financial measures are also used by management to assess the
performance of our business, because management does not consider these items to be relevant to ongoing financial performance.
In Table
18 below, we have provided a reconciliation of the
non-GAAP
calculation of the financial measure for the periods indicated.
Table 18: Earnings, As Adjusted
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands, except per share data)
|
|
GAAP net income available to common shareholders (A)
|
|
$
|
73,064
|
|
|
$
|
46,856
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Gain on acquisitions
|
|
|
|
|
|
|
(3,807
|
)
|
Merger expenses
|
|
|
|
|
|
|
6,727
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
|
|
|
|
2,920
|
|
Tax-effect
of adjustments
(1)
|
|
|
|
|
|
|
2,382
|
|
|
|
|
|
|
|
|
|
|
Adjustments
after-tax
(B)
|
|
|
|
|
|
|
538
|
|
|
|
|
|
|
|
|
|
|
Earnings, as adjusted (C)
|
|
$
|
73,064
|
|
|
$
|
47,394
|
|
|
|
|
|
|
|
|
|
|
Average diluted shares outstanding (D)
|
|
|
174,383
|
|
|
|
142,492
|
|
|
|
|
GAAP diluted earnings per share: A/D
|
|
$
|
0.42
|
|
|
$
|
0.33
|
|
Adjustments
after-tax:
B/D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share, as adjusted: C/D
|
|
$
|
0.42
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Effective tax rate of 39.225%, adjusted for
non-taxable
gain on acquisition and
non-deductible
merger-related costs for the quarter ended
March 31, 2017.
|
81
We had $975.7 million, $977.3 million, and $442.8 million total goodwill, core
deposit intangibles and other intangible assets as of March 31, 2018, December 31, 2017 and March 31, 2017, respectively. Because of our level of intangible assets and related amortization expenses, management believes tangible book
value per share, return on average assets, return on average tangible equity excluding intangible amortization and tangible equity to tangible assets are useful in evaluating our company. These calculations, which are similar to the GAAP calculation
of diluted earnings per share, tangible book value, return on average assets, return on average equity, and equity to assets, are presented in Tables 19 through 22, respectively.
Table 19: Tangible Book Value Per Share
|
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2018
|
|
|
As of
December 31, 2017
|
|
|
|
(In thousands, except per share data)
|
|
Book value per share: A/B
|
|
$
|
12.89
|
|
|
$
|
12.70
|
|
Tangible book value per share:
(A-C-D)/B
|
|
|
7.27
|
|
|
|
7.07
|
|
|
|
|
(A) Total equity
|
|
$
|
2,238,181
|
|
|
$
|
2,204,291
|
|
(B) Shares outstanding
|
|
|
173,603
|
|
|
|
173,633
|
|
(C) Goodwill
|
|
$
|
927,949
|
|
|
$
|
927,949
|
|
(D) Core deposit and other intangibles
|
|
|
47,726
|
|
|
|
49,351
|
|
Table 20: Return on Average Assets
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in thousands)
|
|
Return on average assets: A/D
|
|
|
2.08
|
%
|
|
|
1.86
|
%
|
Return on average assets excluding intangible amortization:
B/(D-E)
|
|
|
2.27
|
|
|
|
1.96
|
|
Return on average assets excluding gain on acquisitions and merger expenses,: (A+C)/D
|
|
|
2.08
|
|
|
|
1.88
|
|
|
|
|
(A) Net income
|
|
$
|
73,064
|
|
|
$
|
46,856
|
|
Intangible amortization
after-tax
|
|
|
1,201
|
|
|
|
489
|
|
|
|
|
|
|
|
|
|
|
(B) Earnings excluding intangible amortization
|
|
$
|
74,265
|
|
|
$
|
47,345
|
|
|
|
|
|
|
|
|
|
|
(C) Adjustments
after-tax
|
|
$
|
|
|
|
$
|
538
|
|
(D) Average assets
|
|
|
14,234,369
|
|
|
|
10,198,844
|
|
(E) Average goodwill, core deposits and other intangible assets
|
|
|
976,451
|
|
|
|
415,699
|
|
82
Table 21: Return on Average Tangible Equity Excluding Intangible Amortization
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in thousands)
|
|
Return on average equity: A/C
|
|
|
13.38
|
%
|
|
|
13.85
|
%
|
Return on average tangible equity excluding intangible amortization:
B/(C-D)
|
|
|
24.33
|
|
|
|
20.08
|
|
|
|
|
(A) Net income
|
|
$
|
73,064
|
|
|
$
|
46,856
|
|
(B) Earnings excluding intangible amortization
|
|
|
74,265
|
|
|
|
47,345
|
|
(C) Average equity
|
|
|
2,214,302
|
|
|
|
1,371,730
|
|
(D) Average goodwill, core deposits and other intangible assets
|
|
|
976,451
|
|
|
|
415,699
|
|
Table 22: Tangible Equity to Tangible Assets
|
|
|
|
|
|
|
|
|
|
|
As of
March 31,
2018
|
|
|
As of
December 31,
2017
|
|
|
|
(Dollars in thousands)
|
|
Equity to assets: B/A
|
|
|
15.63
|
%
|
|
|
15.25
|
%
|
Tangible equity to tangible assets:
(B-C-D)/(A-C-D)
|
|
|
9.46
|
|
|
|
9.11
|
|
|
|
|
(A) Total assets
|
|
$
|
14,323,229
|
|
|
$
|
14,449,760
|
|
(B) Total equity
|
|
|
2,238,181
|
|
|
|
2,204,291
|
|
(C) Goodwill
|
|
|
927,949
|
|
|
|
927,949
|
|
(D) Core deposit and other intangibles
|
|
|
47,726
|
|
|
|
49,351
|
|
The efficiency ratio is a standard measure used in the banking industry and is calculated by dividing
non-interest
expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and
non-interest
income. The efficiency ratio,
as adjusted is a meaningful
non-GAAP
measure for management, as it excludes certain items and is calculated by dividing
non-interest
expense less amortization of core
deposit intangibles by the sum of net interest income on a tax equivalent basis and
non-interest
income excluding items such as merger expenses and/or certain other gains and losses. In Table 23 below, we have
provided a reconciliation of the
non-GAAP
calculation of the financial measure for the periods indicated.
83
Table 23: Efficiency Ratio, As Adjusted
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in thousands)
|
|
Net interest income (A)
|
|
$
|
136,209
|
|
|
$
|
104,815
|
|
Non-interest
income (B)
|
|
|
25,805
|
|
|
|
26,470
|
|
Non-interest
expense (C)
|
|
|
63,380
|
|
|
|
55,141
|
|
FTE Adjustment (D)
|
|
|
1,209
|
|
|
|
2,011
|
|
Amortization of intangibles (E)
|
|
|
1,625
|
|
|
|
804
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
Gain on acquisitions
|
|
$
|
|
|
|
$
|
3,807
|
|
Gain (loss) on OREO, net
|
|
|
405
|
|
|
|
121
|
|
Gain on sale of SBA loans
|
|
|
182
|
|
|
|
188
|
|
Gain (loss) on sale of branches, equipment and other assets, net
|
|
|
7
|
|
|
|
(56
|
)
|
Gain (loss) on securities, net
|
|
|
|
|
|
|
423
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest
income adjustments (F)
|
|
$
|
594
|
|
|
$
|
4,483
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
Merger expenses
|
|
$
|
|
|
|
$
|
6,727
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest
expense adjustments (G)
|
|
$
|
|
|
|
$
|
6,727
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio (reported):
((C-E)/(A+B+D))
|
|
|
37.83
|
%
|
|
|
40.76
|
%
|
Efficiency ratio, as adjusted
(non-GAAP):
((C-E-G)/(A+B+D-F))
|
|
|
37.97
|
|
|
|
36.96
|
|
Recently Issued Accounting Pronouncements
See Note 21 in the Condensed Notes to Consolidated Financial Statements for a discussion of certain recently issued and recently adopted
accounting pronouncements.