NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(UNAUDITED)
1. Basis of Presentation, Summary of Significant Accounting Policies and Subsequent Business Combinations
The unaudited consolidated financial statements include the accounts of Fidelity Southern Corporation (“FSC” or “Fidelity”) and its wholly-owned subsidiaries. FSC owns
100%
of Fidelity Bank (the “Bank”) and LionMark Insurance Company, an insurance agency offering consumer credit related insurance products. FSC also owns
three
subsidiaries established to issue trust preferred securities, which are not consolidated for financial reporting purposes in accordance with current accounting guidance, as FSC is not the primary beneficiary. The “Company” or “our,” as used herein, includes FSC and its subsidiaries, unless the context otherwise requires.
These unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles followed within the financial services industry for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements.
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan losses, the calculations of, amortization of, and the potential impairment of capitalized servicing rights, the valuation of loans held-for-sale and certain derivatives, the valuation of real estate or other assets acquired in connection with foreclosures or in satisfaction of loans, estimates used for fair value acquisition accounting and valuation of deferred income taxes. In addition, the actual lives of certain amortizable assets and income items are estimates subject to change. The Company principally operates in
one
business segment, which is community banking.
In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and results of operations for the interim periods have been included. All such adjustments are normal recurring accruals. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts have been reclassified to conform to current year presentation. These reclassifications had no impact on previously reported net income and shareholders’ equity.
Operating results for the
three
-month period ended
March 31, 2016
, are not necessarily indicative of the results that may be expected for the year ended
December 31, 2016
. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K and Annual Report to Shareholders for the year ended
December 31, 2015
.
The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in the
2015
Annual Report on Form 10-K filed with the Securities and Exchange Commission. There were no new accounting policies or changes to existing policies adopted in the first
three
months of
2016
which had a significant effect on the results of operations or statement of financial condition. For interim reporting purposes, the Company follows the same basic accounting policies and considers each interim period as an integral part of an annual period.
Recent Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, “
Improvements to Employee Share-Based Payment Accounting
” as part of its simplification initiative. This ASU affects all entities that issue share-based payment awards to their employees. Some of the key provisions of this new ASU include: (1) companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. The guidance also eliminates the requirement that excess tax benefits be realized before companies can recognize them. In addition, the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance will also require an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. ASU No. 2016-09 is effective for public business entities for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted, but all of the guidance must be adopted in the same period. The Company is currently evaluating the provisions of ASU No. 2016-09 to determine the potential impact the new standard will have on its Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, “
Leases
.” The new standard requires the recognition of assets and liabilities arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. Accordingly, a lessee will recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. Both the asset and liability will initially be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement, including the presentation of expenses and cash flows, will depend on the classification of the lease as either a finance or an operating lease. Initial costs directly attributable to negotiating and arranging the lease will be included in the asset. For leases with a term of 12 months or less, a lessee can make an accounting policy election by class of underlying asset to not recognize an asset and corresponding liability. Lessees will also be required to provide additional qualitative and quantitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. These disclosures are intended to supplement the amounts recorded in the financial statements and provide additional information about the nature of an organization’s leasing activities. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. In transition, lessees are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The transition guidance also provides specific guidance for sale and leaseback transactions, build-to-suit leases and amounts previously recognized in accordance with the business combinations guidance for leases. The Company is continuing to evaluate the impact of this ASU on its Consolidated Financial Statements.
In January 2016, the FASB issued ASU 2016-01, “
Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
.” The new guidance is intended to improve the recognition and measurement of financial instruments by requiring: equity investments that do not result in consolidation and are not accounted for under the equity method to be measured at fair value through net income, unless they qualify for the practicability exception for investments that do not have readily determinable fair values; changes in instrument-specific credit risk for financial liabilities that are measured under the fair value option will be recognized in other comprehensive income; and entities will make the assessment of the realizability of a deferred tax asset related to an available-for-sale debt security in combination with other deferred tax assets. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods therein. Early adoption is permitted. The adoption of this ASU is not expected to have a significant impact on its Consolidated Financial Statements.
In August 2015, the FASB issued ASU 2015-14, “
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
” which deferred the effective date of ASU 2014-09, “
Revenue from Contracts with Customers,
” by one year to annual reporting periods beginning after December 15, 2017, and interim reporting periods therein. The FASB had previously issued ASU 2014-09 in May 2014. The amendments in ASU 2014-09 indicate that entities should recognize revenue to reflect the transfers of goods or services to customers in an amount equal to the consideration the entity receives or expects to receive. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that period. The Company is continuing to evaluate the impact of this ASU on its Consolidated Financial Statements.
Other accounting standards that have been issued by the FASB or other standard-setting bodies are not expected to have a material impact on the Company's financial position, results of operations or cash flows.
Contingencies
Due to the nature of their activities, the Company and its subsidiaries are at times engaged in various legal proceedings that arise in the course of normal business, some of which were outstanding as of
March 31, 2016
. Although the ultimate outcome of all claims and lawsuits outstanding as of
March 31, 2016
cannot be ascertained at this time, it is the opinion of management that these matters, when resolved, will not have a material adverse effect on the Company's results of operations or financial condition.
2. Business Combinations
The Company accounts for its acquisitions as business combinations. As such, the purchase price is allocated to the fair value of the assets acquired and liabilities assumed as of the acquisition date. Determining the fair value of assets and liabilities, particularly illiquid assets and liabilities, is a complicated process involving significant judgment regarding estimates and assumptions used to calculate estimated fair value. Information regarding the Company's loan discount and core deposit intangible asset may be adjusted as the Company refines its estimates. Purchase price allocations on completed acquisitions may be modified through the measurement date which cannot exceed one year from the acquisition date. If we recognize adjustments to provisional amounts that are identified during the measurement period, the amounts will be reported in the period in which the adjustment amounts are determined. Fair value adjustments based on updated estimates could materially affect the goodwill, if any, recorded on the acquisition. The Company may incur losses on the acquired loans that are materially different from losses originally projected. Acquisition related costs are expensed.
The effects of the acquired assets and liabilities have been included in the consolidated financial statements since their respective acquisition date. Pro forma results have not been disclosed as those amounts are not significant to the unaudited consolidated financial statements.
American Enterprise Bankshares, Inc.
On
March 1, 2016
, the Company acquired American Enterprise Bankshares, Inc. (“AEB”), the holding company for American Enterprise Bank of Florida, a Jacksonville, Florida-based community bank. The Company acquired all of the outstanding common stock of the former AEB shareholders, including common shares issued upon conversion of subordinated debentures prior to the acquisition. Total consideration of
$22.8 million
was issued in the transaction. AEB shareholders received
0.299
shares of Fidelity common stock for each share of AEB common stock, as well as a cash payment for any fractional shares, resulting in the issuance of
1,470,068
shares of Fidelity common stock. All unexercised AEB stock options at the closing date were settled for cash at the volume weighted average price of Fidelity common stock (“VWAP”) as defined in the merger agreement between AEB and Fidelity.
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Number of Shares
|
|
Amount
|
Equity consideration
|
|
|
|
|
Common stock issued
|
|
1,470,068
|
|
|
$
|
22,727
|
|
Total equity consideration
|
|
|
|
22,727
|
|
|
|
|
|
|
Non-equity considerations
|
|
|
|
|
Cash
|
|
|
|
32
|
|
Total consideration paid
|
|
|
|
22,759
|
|
|
|
|
|
|
Fair value of net assets assumed
|
|
|
|
17,922
|
|
Goodwill
|
|
|
|
$
|
4,837
|
|
AEB merged with and into the Company and American Enterprise Bank of Florida merged with and into Fidelity Bank. With this acquisition, the Company added approximately
$208.8 million
in assets,
$147.4 million
in loans,
$1.3 million
in core deposit intangible,
$7.7 million
in premises and equipment,
$5.7 million
in deferred tax assets,
$4.8 million
in goodwill, and
$181.8 million
in deposits and expanded and strengthened its retail branch footprint by adding two branches in the Jacksonville, Florida area. The Company projects cost savings will be recognized in future periods once the conversion and integration activities related to the acquisition are completed.
Acquisitions during 2015
The Bank of Georgia
On
October 2, 2015
, the Bank entered into a Purchase and Assumption Agreement (“Agreement”) with the Federal Deposit Insurance Corporation (the “FDIC”), as Receiver of The Bank of Georgia, located in Peachtree City, Georgia (“The Bank of Georgia”), and the FDIC, acting in its corporate capacity, pursuant to which the Bank acquired substantially all of the assets and assumed all of the deposits of The Bank of Georgia.
Under the terms of the Agreement, the Bank acquired approximately
$280.8 million
in assets, including approximately
$144.8 million
in loans, and assumed approximately
$266.4 million
in customer deposits. Pursuant to the Agreement, the Bank received a fair value adjustment on the assets in the amount of
$20.4 million
on the assets acquired and paid the FDIC a premium of
3.0%
to assume all customer deposits. To settle the transaction, the FDIC made a cash payment to the Bank totaling approximately
$41.4 million
, based on the differential between liabilities assumed and assets acquired. Additionally, the Bank acquired The Bank of Georgia's
seven
branches, which are located in the following Georgia cities: Peachtree City, Fayetteville, Tyrone, Sharpsburg, Newnan, and Fairburn. With this acquisition, the Company expanded its retail branch footprint in Coweta and Fayette counties, both of which are suburbs of Atlanta.
The terms of the Agreement provide for the FDIC to indemnify the Company against certain claims, including, but not limited to, claims with respect to liabilities and assets of The Bank of Georgia or any of their affiliates not assumed or otherwise purchased by the Company, with respect to claims made by shareholders of The Bank of Georgia, with respect to claims based on the rights of any creditors of The Bank of Georgia and with respect to claims based on any action by The Bank of Georgia’s former directors, officers and other employees. The transaction did not include a loss sharing agreement with the FDIC.
First Bank
On September 11, 2015, the Company acquired certain loans and deposits from First Bank, a Missouri bank, and
eight
branches in the Sarasota-Bradenton, Florida area which expanded the Company's presence in that market. Net cash proceeds of
$116.0 million
were received in the transaction.
Florida Capital Bank, NA Branch
On January 5, 2015, the Company acquired certain loans and deposits from the St. Augustine, Florida branch of Florida Capital Bank, N.A. Net cash proceeds of
$30.7 million
were received in the transaction.
3. Investment Securities
Management's primary objective in managing the investment securities portfolio includes maintaining a portfolio of high quality investments with competitive returns while providing for pledging and liquidity needs within overall asset and liability management parameters. The Company is required under federal regulations to maintain adequate liquidity to ensure safe and sound operations. As such, management regularly evaluates the investment portfolio for cash flows, the level of loan production, current interest rate risk strategies and the potential future direction of market interest rate changes. Individual investment securities differ in terms of default, interest rate, liquidity and expected rate of return risk.
The following table summarizes the amortized cost and fair value of debt securities and the related gross unrealized gains and losses at
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(in thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government sponsored enterprises
|
|
$
|
36,730
|
|
|
$
|
1,325
|
|
|
$
|
—
|
|
|
$
|
38,055
|
|
Municipal securities
|
|
14,497
|
|
|
630
|
|
|
—
|
|
|
15,127
|
|
Residential mortgage-backed securities
|
|
95,158
|
|
|
2,475
|
|
|
(48
|
)
|
|
97,585
|
|
Commercial mortgage-backed securities
|
|
2,076
|
|
|
28
|
|
|
—
|
|
|
2,104
|
|
SBA pool securities
|
|
14,700
|
|
|
46
|
|
|
(43
|
)
|
|
14,703
|
|
Total available-for-sale
|
|
$
|
163,161
|
|
|
$
|
4,504
|
|
|
$
|
(91
|
)
|
|
$
|
167,574
|
|
|
|
|
|
|
|
|
|
|
Investment securities held-to-maturity:
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
1,589
|
|
|
$
|
44
|
|
|
$
|
—
|
|
|
$
|
1,633
|
|
Residential mortgage-backed securities
|
|
9,494
|
|
|
329
|
|
|
(10
|
)
|
|
9,813
|
|
Commercial mortgage-backed securities
|
|
4,165
|
|
|
—
|
|
|
—
|
|
|
4,165
|
|
Total held-to-maturity
|
|
$
|
15,248
|
|
|
$
|
373
|
|
|
$
|
(10
|
)
|
|
$
|
15,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(in thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government sponsored enterprises
|
|
$
|
41,252
|
|
|
$
|
674
|
|
|
$
|
(83
|
)
|
|
$
|
41,843
|
|
Municipal securities
|
|
14,513
|
|
|
491
|
|
|
(53
|
)
|
|
14,951
|
|
Residential mortgage-backed securities
|
|
99,338
|
|
|
2,080
|
|
|
(455
|
)
|
|
100,963
|
|
SBA pool securities
|
|
14,803
|
|
|
—
|
|
|
(163
|
)
|
|
14,640
|
|
Total available-for-sale
|
|
$
|
169,906
|
|
|
$
|
3,245
|
|
|
$
|
(754
|
)
|
|
$
|
172,397
|
|
|
|
|
|
|
|
|
|
|
Investment securities held-to-maturity:
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
1,589
|
|
|
$
|
—
|
|
|
$
|
(10
|
)
|
|
$
|
1,579
|
|
Residential mortgage-backed securities
|
|
8,621
|
|
|
263
|
|
|
(53
|
)
|
|
8,831
|
|
Commercial mortgage-backed securities
|
|
4,188
|
|
|
—
|
|
|
—
|
|
|
4,188
|
|
Total held-to-maturity
|
|
$
|
14,398
|
|
|
$
|
263
|
|
|
$
|
(63
|
)
|
|
$
|
14,598
|
|
The Company held
4
and
19
investment securities available-for-sale that were in an unrealized loss position at
March 31, 2016
and
December 31, 2015
, respectively, as well as
two
and
four
securities held-to-maturity that were in an unrealized loss position at
March 31, 2016
, and
December 31, 2015
, respectively. The following table reflects the gross unrealized losses and fair values of the investment securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
12 Months or Less
|
|
More Than 12 Months
|
(in thousands)
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,312
|
|
|
$
|
(48
|
)
|
SBA pool securities
|
|
6,251
|
|
|
(43
|
)
|
|
—
|
|
|
—
|
|
Total available-for-sale
|
|
$
|
6,251
|
|
|
$
|
(43
|
)
|
|
$
|
3,312
|
|
|
$
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
Investment securities held-to-maturity:
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
$
|
2,585
|
|
|
$
|
(10
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Total held-to-maturity
|
|
$
|
2,585
|
|
|
$
|
(10
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
12 Months or Less
|
|
More Than 12 Months
|
(in thousands)
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government sponsored enterprises
|
|
$
|
25,993
|
|
|
$
|
(83
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Municipal securities
|
|
2,915
|
|
|
(53
|
)
|
|
—
|
|
|
—
|
|
Residential mortgage-backed securities
|
|
20,979
|
|
|
(420
|
)
|
|
3,619
|
|
|
(35
|
)
|
SBA pool securities
|
|
14,640
|
|
|
(163
|
)
|
|
—
|
|
|
—
|
|
Total available-for-sale
|
|
$
|
64,527
|
|
|
$
|
(719
|
)
|
|
$
|
3,619
|
|
|
$
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
Investment securities held-to-maturity:
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
1,579
|
|
|
$
|
(10
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Residential mortgage-backed securities
|
|
4,204
|
|
|
(53
|
)
|
|
—
|
|
|
—
|
|
Total held-to-maturity
|
|
$
|
5,783
|
|
|
$
|
(63
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
At
March 31, 2016
and
December 31, 2015
, the unrealized losses on investment securities were related to interest rate fluctuations. Management does not have the intent to sell the temporarily impaired securities and it is not more likely than not that the Company will be required to sell the investments before recovery of the amortized cost. Accordingly, as of
March 31, 2016
, management believes the impairment detailed in the table above is temporary and no other-than-temporary impairment loss has been recognized in the Company’s Consolidated Statements of Comprehensive Income.
The amortized cost and fair value of investment securities at
March 31, 2016
and
December 31, 2015
are categorized in the following table by contractual maturity. Securities not due at a single maturity (i.e., mortgage-backed securities) are shown separately.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
(in thousands)
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government sponsored enterprises
|
|
|
|
|
|
|
|
|
Due after one year through five years
|
|
$
|
24,482
|
|
|
$
|
25,358
|
|
|
$
|
17,877
|
|
|
$
|
18,176
|
|
Due five years through ten years
|
|
12,244
|
|
|
12,693
|
|
|
23,375
|
|
|
23,667
|
|
Due after ten years
|
|
4
|
|
|
4
|
|
|
—
|
|
|
—
|
|
Municipal securities
|
|
|
|
|
|
|
|
|
Due five years through ten years
|
|
4,095
|
|
|
4,308
|
|
|
3,316
|
|
|
3,399
|
|
Due after ten years
|
|
10,402
|
|
|
10,819
|
|
|
11,197
|
|
|
11,552
|
|
SBA pool securities
|
|
|
|
|
|
|
|
|
Due within one year
|
|
2
|
|
|
2
|
|
|
5
|
|
|
5
|
|
Due after five years through ten years
|
|
8,575
|
|
|
8,591
|
|
|
8,605
|
|
|
8,554
|
|
Due after ten years
|
|
6,123
|
|
|
6,110
|
|
|
6,193
|
|
|
6,081
|
|
Residential mortgage-backed securities
|
|
95,158
|
|
|
97,585
|
|
|
99,338
|
|
|
100,963
|
|
Commercial mortgage-backed securities
|
|
2,076
|
|
|
2,104
|
|
|
—
|
|
|
—
|
|
Total available-for-sale
|
|
$
|
163,161
|
|
|
$
|
167,574
|
|
|
$
|
169,906
|
|
|
$
|
172,397
|
|
|
|
|
|
|
|
|
|
|
Investment securities held-to-maturity:
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
|
|
|
|
|
|
|
Due after ten years
|
|
$
|
1,589
|
|
|
$
|
1,633
|
|
|
$
|
1,589
|
|
|
$
|
1,579
|
|
Residential mortgage-backed securities
|
|
9,494
|
|
|
9,813
|
|
|
8,621
|
|
|
8,831
|
|
Commercial mortgage-backed securities
|
|
4,165
|
|
|
4,165
|
|
|
4,188
|
|
|
4,188
|
|
Total held-to-maturity
|
|
$
|
15,248
|
|
|
$
|
15,611
|
|
|
$
|
14,398
|
|
|
$
|
14,598
|
|
There was one investment security called during the
three
months ended
March 31, 2016
and no investment securities were sold or called for the
three
months ended March 31,
2015
. For the investment security that was called during the
three
months ended
March 31, 2016
, gross gains totaled
$82,000
. There were no transfers from investment securities available-for-sale to investment securities held-to-maturity during the three months ended March 31, 2016. There were
$3.2 million
in transfers from investment securities available-for-sale to investment securities held-to-maturity during the three months ended
March 31, 2015
.
The following table summarizes the investment securities that were pledged as collateral at
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2016
|
|
December 31, 2015
|
Public deposits
|
|
$
|
100,935
|
|
|
$
|
93,983
|
|
Securities sold under repurchase agreements
|
|
22,039
|
|
|
23,058
|
|
Total pledged securities
|
|
$
|
122,974
|
|
|
$
|
117,041
|
|
4. Loans Held-for-Sale
Residential mortgage loans held-for-sale are carried at fair value and SBA and indirect automobile loans are carried at the lower of cost or market value. The following table summarizes loans held-for-sale at
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2016
|
|
December 31, 2015
|
Residential mortgage
|
|
$
|
232,794
|
|
|
$
|
233,525
|
|
SBA
|
|
14,085
|
|
|
14,309
|
|
Indirect automobile
|
|
150,000
|
|
|
150,000
|
|
Total loans held-for-sale
|
|
$
|
396,879
|
|
|
$
|
397,834
|
|
During
the three months ended March 31, 2016
, the Company transferred loans with unpaid principal balances of
$2.2 million
to the held for investment residential mortgage portfolio. During the three months ended March 31, 2015, there were no transfers to the held for investment residential mortgage portfolio.
The Company had residential mortgage loans held-for-sale with unpaid principal balances of
$139.2 million
and
$173.4 million
pledged to the FHLB at
March 31, 2016
and
December 31, 2015
, respectively.
5. Loans
Loans outstanding, by class, are summarized in the following table at carrying value and include net unamortized costs of
$28.4 million
and
$31.9 million
at
March 31, 2016
and
December 31, 2015
, respectively. Covered loans represent previously acquired loans covered under Loss Share Agreements with the FDIC. Non-covered loans represent loans acquired that are not covered under Loss Share Agreements with the FDIC and legacy Bank originated loans. Legacy Bank loans represent existing portfolio loans prior to the past FDIC-assisted transactions with Loss Share Agreements and additional loans originated subsequent to the past FDIC-assisted transactions with Loss Share Agreements (collectively, “legacy loans”). Because of the difference in accounting for acquired loans, the tables below further segregate the Company’s non-covered loans between legacy loans and acquired loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
Non-covered Loans
|
|
Covered Loans Acquired
(1)
|
|
|
(in thousands)
|
|
Legacy
|
|
Acquired
|
|
|
Total
|
Commercial
|
|
$
|
608,893
|
|
|
$
|
174,701
|
|
|
$
|
13,501
|
|
|
$
|
797,095
|
|
SBA
|
|
134,056
|
|
|
2,801
|
|
|
364
|
|
|
137,221
|
|
Total commercial loans
|
|
742,949
|
|
|
177,502
|
|
|
13,865
|
|
|
934,316
|
|
Construction
|
|
170,288
|
|
|
28,239
|
|
|
1,555
|
|
|
200,082
|
|
Indirect automobile
|
|
1,463,005
|
|
|
—
|
|
|
—
|
|
|
1,463,005
|
|
Installment
|
|
34,796
|
|
|
3,493
|
|
|
259
|
|
|
38,548
|
|
Total consumer loans
|
|
1,497,801
|
|
|
3,493
|
|
|
259
|
|
|
1,501,553
|
|
Residential mortgage
|
|
269,987
|
|
|
51,462
|
|
|
386
|
|
|
321,835
|
|
Home equity lines of credit
|
|
107,626
|
|
|
22,105
|
|
|
5,115
|
|
|
134,846
|
|
Total mortgage loans
|
|
377,613
|
|
|
73,567
|
|
|
5,501
|
|
|
456,681
|
|
Total loans
|
|
$
|
2,788,651
|
|
|
$
|
282,801
|
|
|
$
|
21,180
|
|
|
$
|
3,092,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Non-covered Loans
|
|
Covered Loans Acquired
(1)
|
|
|
(in thousands)
|
|
Legacy
|
|
Acquired
|
|
|
Total
|
Commercial
|
|
$
|
569,440
|
|
|
$
|
119,595
|
|
|
$
|
14,256
|
|
|
$
|
703,291
|
|
SBA
|
|
131,244
|
|
|
4,383
|
|
|
366
|
|
|
135,993
|
|
Total commercial loans
|
|
700,684
|
|
|
123,978
|
|
|
14,622
|
|
|
839,284
|
|
Construction
|
|
157,476
|
|
|
17,393
|
|
|
2,164
|
|
|
177,033
|
|
Indirect automobile
|
|
1,449,481
|
|
|
—
|
|
|
—
|
|
|
1,449,481
|
|
Installment
|
|
12,031
|
|
|
1,720
|
|
|
304
|
|
|
14,055
|
|
Total consumer loans
|
|
1,461,512
|
|
|
1,720
|
|
|
304
|
|
|
1,463,536
|
|
Residential mortgage
|
|
284,313
|
|
|
17,683
|
|
|
382
|
|
|
302,378
|
|
Home equity lines of credit
|
|
93,093
|
|
|
16,456
|
|
|
5,168
|
|
|
114,717
|
|
Total mortgage loans
|
|
377,406
|
|
|
34,139
|
|
|
5,550
|
|
|
417,095
|
|
Total loans
|
|
$
|
2,697,078
|
|
|
$
|
177,230
|
|
|
$
|
22,640
|
|
|
$
|
2,896,948
|
|
(1)
Included in covered loans at March 31, 2016 and December 31, 2015 is $
13.9 million
and
$14.8 million
, respectively, of assets whose reimbursable loss periods will end as of January 1, 2017.
The Company has extended loans to certain officers and directors. The Company does not believe these loans involve more than the normal risk of collectability or present other unfavorable features when originated. None of the related party loans were classified as nonaccrual, past due, restructured, or potential problem loans at
March 31, 2016
or
December 31, 2015
.
Nonaccrual Loans
The accrual of interest income is generally discontinued when a loan becomes 90 days past due. Past due status is based on the contractual terms of the loan agreement. A loan may be placed on nonaccrual status sooner if reasonable doubt exists as to the full, timely collection of principal or interest. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed against current period interest income. Subsequent interest collected is recorded as a principal reduction. Nonaccrual loans are returned to accrual status when all contractually due principal and interest amounts are brought current and the future payments are reasonably assured.
Loans in nonaccrual status are presented by class of loans in the following table. Purchased credit impaired loans are considered to be performing due to the application of the accretion method and are excluded from the table.
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Commercial
|
|
$
|
9,128
|
|
|
$
|
9,228
|
|
SBA
|
|
8,521
|
|
|
6,599
|
|
Total commercial loans
|
|
17,649
|
|
|
15,827
|
|
Construction
|
|
5,703
|
|
|
5,940
|
|
Indirect automobile
|
|
797
|
|
|
1,116
|
|
Installment
|
|
576
|
|
|
602
|
|
Total consumer loans
|
|
1,373
|
|
|
1,718
|
|
Residential mortgage
|
|
3,480
|
|
|
2,514
|
|
Home equity lines of credit
|
|
1,406
|
|
|
1,129
|
|
Total mortgage loans
|
|
4,886
|
|
|
3,643
|
|
Total nonaccrual loans
|
|
$
|
29,611
|
|
|
$
|
27,128
|
|
If such nonaccrual loans had been on a full accrual basis, interest income on these loans for the
the three months ended March 31, 2016 and 2015
would have been
$457,000
and
$488,000
, respectively.
Accruing loans delinquent
30
-
89
days, 90 days or more, and troubled debt restructured loans (“TDRs”) accruing interest, presented by class of loans at
March 31, 2016
and
December 31, 2015
, were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
(in thousands)
|
|
Accruing
Delinquent
30-89 Days
|
|
Accruing
Delinquent
90 Days or More
|
|
TDRs
Accruing
|
|
Accruing
Delinquent
30-89 Days
|
|
Accruing
Delinquent
90 Days or More
|
|
TDRs
Accruing
|
Commercial
|
|
$
|
2,235
|
|
|
$
|
—
|
|
|
$
|
6,652
|
|
|
$
|
428
|
|
|
$
|
—
|
|
|
$
|
9,105
|
|
SBA
|
|
855
|
|
|
—
|
|
|
3,871
|
|
|
3,352
|
|
|
—
|
|
|
3,912
|
|
Construction
|
|
—
|
|
|
—
|
|
|
155
|
|
|
58
|
|
|
—
|
|
|
160
|
|
Indirect automobile
|
|
1,086
|
|
|
—
|
|
|
1,714
|
|
|
1,829
|
|
|
—
|
|
|
1,567
|
|
Installment
|
|
306
|
|
|
—
|
|
|
57
|
|
|
185
|
|
|
—
|
|
|
59
|
|
Residential mortgage
|
|
1,448
|
|
|
1,344
|
|
|
614
|
|
|
1,558
|
|
|
1,284
|
|
|
618
|
|
Home equity lines of credit
|
|
2,250
|
|
|
—
|
|
|
—
|
|
|
682
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
8,180
|
|
|
$
|
1,344
|
|
|
$
|
13,063
|
|
|
$
|
8,092
|
|
|
$
|
1,284
|
|
|
$
|
15,421
|
|
TDR Loans
The following table presents TDRs that occurred during
the three months ended March 31, 2016 and 2015
, along with the type of modification. Modified purchased credit impaired loans are not removed from their accounting pool and accounted for as TDRs, even if those loans would otherwise be deemed TDRs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2016
|
|
Three Months Ended
March 31, 2015
|
(in thousands)
|
|
Interest Rate
|
|
Term
|
|
Interest Rate
|
|
Term
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,006
|
|
SBA
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Indirect automobile
|
|
—
|
|
|
331
|
|
|
—
|
|
|
394
|
|
Installment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential mortgage
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Home equity lines of credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
331
|
|
|
$
|
—
|
|
|
$
|
1,400
|
|
During
the three months ended March 31, 2016
, the amount of loans which were restructured and subsequently redefaulted were
$3,000
, which were all indirect automobile loans. There were
no
restructured and subsequently redefaulted loans during
the three months ended March 31, 2015
. The company defines subsequently redefaulted as a payment default within 12 months of the restructuring date.
The Company had total TDRs with a balance of
$18.2 million
and
$22.5 million
at
March 31, 2016
and
December 31, 2015
, respectively. There were (recoveries)/charge-offs of TDR loans of
$(773,000)
and
$21,000
for the three months ended March 31, 2016 and 2015, respectively. Charge-offs on such loans are factored into the rolling historical loss rate, which is used in the calculation of the allowance for loan losses. The Company is not committed to lend additional amounts as of
March 31, 2016
or
December 31, 2015
to customers with outstanding loans that are classified as TDRs.
Pledged Loans
Presented in the following table is the unpaid principal balance of loans held for investment that were pledged to the Federal Home Loan Bank of Atlanta (“FHLB of Atlanta”) as collateral for borrowings at
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Commercial real estate
|
|
$
|
232,263
|
|
|
$
|
231,227
|
|
Home equity lines of credit
|
|
78,283
|
|
|
73,755
|
|
Residential mortgage
|
|
197,608
|
|
|
181,180
|
|
Total
|
|
$
|
508,154
|
|
|
$
|
486,162
|
|
Indirect automobile loans with an unpaid principal balance of approximately
$354.5 million
and
$319.7 million
were pledged to the Federal Reserve Bank of Atlanta (“FRB”) at
March 31, 2016
and
December 31, 2015
, respectively, as collateral for potential Discount Window borrowings.
Impaired Loans
The following tables present by class the unpaid principal balance, amortized cost and related allowance for impaired loans at
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
(in thousands)
|
|
Unpaid
Principal
Balance
|
|
Recorded
Investment
(1)
|
|
Related
Allowance
|
|
Unpaid
Principal
Balance
|
|
Recorded
Investment
(1)
|
|
Related
Allowance
|
Impaired Loans with Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
5,445
|
|
|
$
|
3,527
|
|
|
$
|
1,358
|
|
|
$
|
6,631
|
|
|
$
|
4,731
|
|
|
$
|
1,280
|
|
SBA
|
|
4,177
|
|
|
3,920
|
|
|
157
|
|
|
3,236
|
|
|
2,833
|
|
|
327
|
|
Construction
|
|
155
|
|
|
155
|
|
|
74
|
|
|
160
|
|
|
160
|
|
|
78
|
|
Indirect automobile
|
|
2,127
|
|
|
1,745
|
|
|
10
|
|
|
2,077
|
|
|
1,681
|
|
|
8
|
|
Installment
|
|
291
|
|
|
248
|
|
|
248
|
|
|
294
|
|
|
252
|
|
|
252
|
|
Residential mortgage
|
|
3,372
|
|
|
3,372
|
|
|
693
|
|
|
2,519
|
|
|
2,519
|
|
|
421
|
|
Home equity lines of credit
|
|
659
|
|
|
532
|
|
|
532
|
|
|
812
|
|
|
675
|
|
|
675
|
|
Loans
|
|
$
|
16,226
|
|
|
$
|
13,499
|
|
|
$
|
3,072
|
|
|
$
|
15,729
|
|
|
$
|
12,851
|
|
|
$
|
3,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
(in thousands)
|
|
Unpaid
Principal
Balance
|
|
Recorded
Investment
(1)
|
|
Unpaid
Principal
Balance
|
|
Recorded
Investment
(1)
|
Impaired Loans with No Allowance
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
12,410
|
|
|
$
|
10,829
|
|
|
$
|
17,345
|
|
|
$
|
14,580
|
|
SBA
|
|
12,689
|
|
|
9,075
|
|
|
14,118
|
|
|
10,499
|
|
Construction
|
|
7,806
|
|
|
5,703
|
|
|
8,045
|
|
|
5,940
|
|
Indirect automobile
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Installment
|
|
1,469
|
|
|
182
|
|
|
1,487
|
|
|
191
|
|
Residential mortgage
|
|
2,029
|
|
|
2,029
|
|
|
2,713
|
|
|
2,712
|
|
Home equity lines of credit
|
|
151
|
|
|
134
|
|
|
—
|
|
|
—
|
|
Loans
|
|
$
|
36,554
|
|
|
$
|
27,952
|
|
|
$
|
43,708
|
|
|
$
|
33,922
|
|
(
1)
The primary difference between the unpaid principal balance and recorded investment represents charge offs previously taken; it excludes accrued interest receivable due to materiality.
Average impaired loans and interest income recognized for
the three months ended March 31, 2016 and 2015
, by class, are summarized in the table below. Interest income recognized during the periods on a cash basis was insignificant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
(in thousands)
|
|
Average
Balance
|
|
Interest
Income
Recognized
|
|
Average
Balance
|
|
Interest
Income
Recognized
|
Commercial
|
|
$
|
16,727
|
|
|
$
|
183
|
|
|
$
|
22,691
|
|
|
$
|
239
|
|
SBA
|
|
13,399
|
|
|
156
|
|
|
16,921
|
|
|
207
|
|
Construction
|
|
5,951
|
|
|
4
|
|
|
7,453
|
|
|
8
|
|
Indirect automobile
|
|
2,278
|
|
|
72
|
|
|
1,924
|
|
|
73
|
|
Installment
|
|
435
|
|
|
28
|
|
|
504
|
|
|
31
|
|
Residential mortgage
|
|
5,503
|
|
|
45
|
|
|
4,974
|
|
|
22
|
|
Home equity lines of credit
|
|
670
|
|
|
22
|
|
|
904
|
|
|
14
|
|
Total
|
|
$
|
44,963
|
|
|
$
|
510
|
|
|
$
|
55,371
|
|
|
$
|
594
|
|
Credit Quality Indicators
The Company uses an asset quality ratings system to assign a numeric indicator of the credit quality and level of existing credit risk inherent in a loan. These ratings are adjusted periodically as the Company becomes aware of changes in the credit quality of the underlying loans.
Indirect automobile loans typically receive a risk rating only when being downgraded to an adverse rating which typically occurs when payments of principal and interest are greater than 90 days past due. The Company uses a number of factors, including FICO scoring, to help evaluate the likelihood consumer borrowers will pay their credit obligations as agreed. The weighted-average FICO score for the indirect automobile portfolio was
750
at
March 31, 2016
and
749
at
December 31, 2015
.
The following are definitions of the asset rating categories.
•
Pass
– These categories include loans rated satisfactory with high, good, average or acceptable business and credit risk.
•
Special Mention
– A special mention asset has potential weaknesses that deserve management’s close attention.
•
Substandard
– A substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. A substandard asset has a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt.
•
Doubtful
– Doubtful assets have all the weaknesses inherent in assets classified 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.
•
Loss
– Loss assets are considered uncollectable and of such little value that their continuance as recorded assets is not warranted.
The following tables present the recorded investment in loans, by loan rating category, as of
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2016
|
Asset Rating
|
|
Commercial
|
|
SBA
|
|
Construction
|
|
Indirect
Automobile
|
|
Installment
|
|
Residential
Mortgage
|
|
Home Equity
Lines of Credit
|
|
Total
|
Pass
|
|
$
|
730,351
|
|
|
$
|
120,159
|
|
|
$
|
189,567
|
|
|
$
|
—
|
|
|
$
|
37,571
|
|
|
$
|
295,993
|
|
|
$
|
132,824
|
|
|
$
|
1,506,465
|
|
Special Mention
|
|
18,501
|
|
|
6,920
|
|
|
2,270
|
|
|
—
|
|
|
239
|
|
|
10,866
|
|
|
257
|
|
|
39,053
|
|
Substandard
|
|
48,243
|
|
|
10,142
|
|
|
8,245
|
|
|
3,295
|
|
|
738
|
|
|
14,976
|
|
|
1,765
|
|
|
87,404
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
797,095
|
|
|
137,221
|
|
|
200,082
|
|
|
3,295
|
|
|
38,548
|
|
|
321,835
|
|
|
134,846
|
|
|
1,632,922
|
|
Ungraded Performing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,459,710
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,459,710
|
|
Total
|
|
$
|
797,095
|
|
|
$
|
137,221
|
|
|
$
|
200,082
|
|
|
$
|
1,463,005
|
|
|
$
|
38,548
|
|
|
$
|
321,835
|
|
|
$
|
134,846
|
|
|
$
|
3,092,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31, 2015
|
Asset Rating
|
|
Commercial
|
|
SBA
|
|
Construction
|
|
Indirect
Automobile
|
|
Installment
|
|
Residential
Mortgage
|
|
Home Equity
Lines of Credit
|
|
Total
|
Pass
|
|
$
|
638,051
|
|
|
$
|
119,690
|
|
|
$
|
166,811
|
|
|
$
|
—
|
|
|
$
|
12,839
|
|
|
$
|
289,091
|
|
|
$
|
112,700
|
|
|
$
|
1,339,182
|
|
Special Mention
|
|
12,136
|
|
|
5,477
|
|
|
2,040
|
|
|
—
|
|
|
418
|
|
|
3,358
|
|
|
267
|
|
|
23,696
|
|
Substandard
|
|
53,104
|
|
|
10,826
|
|
|
8,182
|
|
|
3,537
|
|
|
798
|
|
|
9,929
|
|
|
1,750
|
|
|
88,126
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
703,291
|
|
|
135,993
|
|
|
177,033
|
|
|
3,537
|
|
|
14,055
|
|
|
302,378
|
|
|
114,717
|
|
|
1,451,004
|
|
Ungraded Performing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,445,944
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,445,944
|
|
Total
|
|
$
|
703,291
|
|
|
$
|
135,993
|
|
|
$
|
177,033
|
|
|
$
|
1,449,481
|
|
|
$
|
14,055
|
|
|
$
|
302,378
|
|
|
$
|
114,717
|
|
|
$
|
2,896,948
|
|
Acquired Loans
As discussed in Note 2, on March 1,
2016
, the Company acquired loans with a fair value of
$147.4 million
. Of this amount,
$145.9 million
were determined to have no evidence of deteriorated credit quality and are accounted for as acquired performing loans. The remaining
$1.5 million
were determined to have exhibited deteriorated credit quality since origination and were accounted for as purchased credit impaired (“PCI”) loans.
The tables below show the balances acquired for these two subsections of the portfolio as of the acquisition date.
Acquired Performing Loans
|
|
|
|
|
|
(in thousands)
|
|
2016
|
Contractually required principal and interest at acquisition
|
|
$
|
173,726
|
|
Fair value of acquired performing loans at acquisition
|
|
$
|
145,913
|
|
Acquired PCI Loans
|
|
|
|
|
|
|
(in thousands)
|
|
|
2016
|
Contractually required principal and interest at acquisition
|
|
|
$
|
2,524
|
|
Nonaccretable difference (expected losses and foregone interest)
|
|
|
962
|
|
Cash flows expected to be collected at acquisition
|
|
|
1,562
|
|
Accretable yield
|
|
|
101
|
|
Basis in acquired PCI loans at acquisition
|
|
|
$
|
1,461
|
|
The Company also acquired PCI loans in its past acquisitions. The carrying amount and outstanding balance at March 31, 2016 of the PCI loans from these acquisitions as well as the PCI loans acquired during 2016 was
$41.0 million
and
$54.7 million
, respectively. The carrying amount and outstanding balance of the PCI loans from the past FDIC-assisted acquisitions was
$44.5 million
and
$58.1 million
, respectively, at December 31, 2015.
Accretable yield, or income expected to be collected on PCI loans at
March 31, 2016
and
December 31, 2015
, was as follows.
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31,
2016
|
|
December 31, 2015
|
Beginning balance
|
|
$
|
3,797
|
|
|
$
|
1,649
|
|
Increase due to acquired loans
|
|
92
|
|
|
1,371
|
|
Accretion of income
|
|
(549
|
)
|
|
(768
|
)
|
Other activity, net
|
|
178
|
|
|
1,545
|
|
Ending balance
|
|
$
|
3,518
|
|
|
$
|
3,797
|
|
6. Allowance for Loan Losses
A summary of changes in the allowance for loan losses (“ALL”) by loan portfolio type is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
(in thousands)
|
|
Commercial
|
|
Construction
|
|
Consumer
|
|
Mortgage
|
|
Unallocated
|
|
Total
|
Beginning balance
|
|
$
|
11,025
|
|
|
$
|
1,711
|
|
|
$
|
8,668
|
|
|
$
|
4,284
|
|
|
$
|
776
|
|
|
$
|
26,464
|
|
Charge-offs
|
|
(269
|
)
|
|
—
|
|
|
(1,163
|
)
|
|
(44
|
)
|
|
—
|
|
|
(1,476
|
)
|
Recoveries
|
|
722
|
|
|
534
|
|
|
358
|
|
|
1
|
|
|
—
|
|
|
1,615
|
|
Net recoveries / (charge offs)
|
|
453
|
|
|
534
|
|
|
(805
|
)
|
|
(43
|
)
|
|
—
|
|
|
139
|
|
Decrease in FDIC indemnification asset
|
|
(53
|
)
|
|
(348
|
)
|
|
—
|
|
|
24
|
|
|
—
|
|
|
(377
|
)
|
Provision for loan losses
(1)
|
|
(544
|
)
|
|
28
|
|
|
603
|
|
|
305
|
|
|
108
|
|
|
500
|
|
Ending balance
|
|
$
|
10,881
|
|
|
$
|
1,925
|
|
|
$
|
8,466
|
|
|
$
|
4,570
|
|
|
$
|
884
|
|
|
$
|
26,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
(in thousands)
|
|
Commercial
|
|
Construction
|
|
Consumer
|
|
Mortgage
|
|
Unallocated
|
|
Total
|
Beginning balance
|
|
$
|
13,167
|
|
|
$
|
1,486
|
|
|
$
|
6,591
|
|
|
$
|
3,475
|
|
|
$
|
731
|
|
|
$
|
25,450
|
|
Charge-offs
|
|
(886
|
)
|
|
—
|
|
|
(1,255
|
)
|
|
(40
|
)
|
|
—
|
|
|
(2,181
|
)
|
Recoveries
|
|
71
|
|
|
98
|
|
|
383
|
|
|
1
|
|
|
—
|
|
|
553
|
|
Net (charge offs) / recoveries
|
|
(815
|
)
|
|
98
|
|
|
(872
|
)
|
|
(39
|
)
|
|
—
|
|
|
(1,628
|
)
|
Decrease in FDIC indemnification asset
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(172
|
)
|
|
—
|
|
|
(172
|
)
|
Provision for loan losses
(1)
|
|
(845
|
)
|
|
(230
|
)
|
|
1,034
|
|
|
59
|
|
|
90
|
|
|
108
|
|
Ending balance
|
|
$
|
11,507
|
|
|
$
|
1,354
|
|
|
$
|
6,753
|
|
|
$
|
3,323
|
|
|
$
|
821
|
|
|
$
|
23,758
|
|
(1)
Net of benefit attributable to FDIC indemnification asset.
The following tables present, by loan portfolio type, the balance in the ALL disaggregated on the basis of the Company’s impairment measurement method and the related recorded investment in loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(in thousands)
|
|
Commercial
|
|
Construction
|
|
Consumer
|
|
Mortgage
|
|
Unallocated
|
|
Total
|
Individually evaluated for impairment
|
|
$
|
1,515
|
|
|
$
|
74
|
|
|
$
|
258
|
|
|
$
|
1,225
|
|
|
$
|
—
|
|
|
$
|
3,072
|
|
Collectively evaluated for impairment
|
|
8,724
|
|
|
1,834
|
|
|
8,208
|
|
|
3,322
|
|
|
884
|
|
|
22,972
|
|
Acquired with deteriorated credit quality
|
|
642
|
|
|
17
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
682
|
|
Total allowance for loan losses
|
|
$
|
10,881
|
|
|
$
|
1,925
|
|
|
$
|
8,466
|
|
|
$
|
4,570
|
|
|
$
|
884
|
|
|
$
|
26,726
|
|
Individually evaluated for impairment
|
|
$
|
27,351
|
|
|
$
|
5,858
|
|
|
$
|
2,175
|
|
|
$
|
6,067
|
|
|
$
|
—
|
|
|
$
|
41,451
|
|
Collectively evaluated for impairment
|
|
875,311
|
|
|
191,966
|
|
|
1,498,955
|
|
|
441,828
|
|
|
—
|
|
|
3,008,060
|
|
Acquired with deteriorated credit quality
|
|
31,654
|
|
|
2,258
|
|
|
423
|
|
|
8,786
|
|
|
—
|
|
|
43,121
|
|
Total loans
|
|
$
|
934,316
|
|
|
$
|
200,082
|
|
|
$
|
1,501,553
|
|
|
$
|
456,681
|
|
|
$
|
—
|
|
|
$
|
3,092,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(in thousands)
|
|
Commercial
|
|
Construction
|
|
Consumer
|
|
Mortgage
|
|
Unallocated
|
|
Total
|
Individually evaluated for impairment
|
|
$
|
1,607
|
|
|
$
|
78
|
|
|
$
|
260
|
|
|
$
|
1,096
|
|
|
$
|
—
|
|
|
$
|
3,041
|
|
Collectively evaluated for impairment
|
|
8,850
|
|
|
1,612
|
|
|
8,408
|
|
|
3,165
|
|
|
776
|
|
|
22,811
|
|
Acquired with deteriorated credit quality
|
|
568
|
|
|
21
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
612
|
|
Total allowance for loan losses
|
|
$
|
11,025
|
|
|
$
|
1,711
|
|
|
$
|
8,668
|
|
|
$
|
4,284
|
|
|
$
|
776
|
|
|
$
|
26,464
|
|
Individually evaluated for impairment
|
|
$
|
32,643
|
|
|
$
|
6,100
|
|
|
$
|
2,124
|
|
|
$
|
5,906
|
|
|
$
|
—
|
|
|
$
|
46,773
|
|
Collectively evaluated for impairment
|
|
787,493
|
|
|
168,953
|
|
|
1,460,039
|
|
|
389,209
|
|
|
—
|
|
|
2,805,694
|
|
Acquired with deteriorated credit quality
|
|
19,148
|
|
|
1,980
|
|
|
1,373
|
|
|
21,980
|
|
|
—
|
|
|
44,481
|
|
Total loans
|
|
$
|
839,284
|
|
|
$
|
177,033
|
|
|
$
|
1,463,536
|
|
|
$
|
417,095
|
|
|
$
|
—
|
|
|
$
|
2,896,948
|
|
The determination of the overall allowance for credit losses has two components, the allowance for originated loans and the allowance for acquired loans.
Total loans includes acquired loans of
$304.0 million
and
$199.9 million
at
March 31, 2016
and
December 31, 2015
, respectively, which were recorded at fair value when acquired. The ALL for acquired loans is evaluated at each reporting date subsequent to acquisition. For acquired performing loans, an allowance is determined for each loan pool using a methodology similar to that used for originated loans and then compared to the remaining fair value discount for that pool. For purchased credit impaired loans, estimated cash flows expected to be collected are re-evaluated at each reporting date for each loan pool. The methodology also considers the remaining fair value discounts recognized upon acquisition associated with purchased non-impaired loans in estimating a general allowance and also includes establishing an ALL for purchased credit-impaired loans that have deteriorated since acquisition.
7. Other Real Estate
The following table segregates the other real estate (“ORE”) by type.
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Commercial
|
|
$
|
8,616
|
|
|
$
|
7,147
|
|
Residential
|
|
5,892
|
|
|
1,263
|
|
Undeveloped property
|
|
4,974
|
|
|
10,267
|
|
Total ORE, net
|
|
$
|
19,482
|
|
|
$
|
18,677
|
|
The following table summarizes the changes in ORE.
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Beginning balance
|
|
$
|
18,677
|
|
|
$
|
22,564
|
|
ORE acquired in acquisition
|
|
809
|
|
|
—
|
|
Transfers of loans to ORE
|
|
2,683
|
|
|
835
|
|
Sales
|
|
(2,303
|
)
|
|
(3,177
|
)
|
Write-downs
|
|
(384
|
)
|
|
(234
|
)
|
Ending balance
|
|
$
|
19,482
|
|
|
$
|
19,988
|
|
At
March 31, 2016
, there were no residential mortgage loans in the process of foreclosure. The unpaid principal balance of residential mortgage loans in the process of foreclosure at
December 31, 2015
was
$142,000
.
8. Fair Value of Financial Instruments
Mortgage Loans Held-for-Sale
The Company records mortgage loans held-for-sale at fair value. The Company chose to fair value these mortgage loans held-for-sale to align results with the underlying economic changes in value of the loans and related hedge instruments. Interest income on mortgage loans held-for-sale is recorded on an accrual basis in the Consolidated Statements of Comprehensive Income under the heading “Interest income-loans, including fees.” The servicing value is included in the fair value of the mortgage loans held-for-sale and initially recognized at the time the Company enters into Interest Rate Lock Commitments (“IRLCs”) with borrowers.
The mark-to-market adjustments related to loans held-for-sale and the associated economic hedges are reported in noninterest income from mortgage banking activities in the Consolidated Statements of Comprehensive Income.
Valuation Methodologies and Fair Value Hierarchy
The primary financial instruments that the Company carries at fair value include investment securities available-for-sale, derivative instruments including IRLCs, and loans held-for-sale.
Debt securities issued by U.S. Government corporations and agencies, debt securities issued by states and political subdivisions, and agency residential mortgage-backed securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs. 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 bond’s terms and conditions, among other things. The investments in the Company’s portfolio are generally not quoted on an exchange but are actively traded in the secondary institutional markets.
The fair value of mortgage loans held-for-sale is based on what secondary markets are currently offering for portfolios with similar characteristics. The fair value measurements consider observable data that may include market trade pricing from brokers and investors and the mortgage-backed security markets. As such, the Company classifies these loans as Level 2.
The Company classifies IRLCs on residential mortgage loans held-for-sale, which are derivatives under ASC 815-10-15, on a gross basis within other assets or other liabilities. The fair value of these commitments, while based on interest rates observable in the market, is highly dependent on the ultimate closing of the loans. These “pull-through” rates are based on both the Company’s historical data and the current interest rate environment and reflect the Company’s best estimate of the likelihood that a commitment will ultimately result in a closed loan. The loan servicing value is also included in the fair value of IRLCs. Because these inputs are not transparent in market trades, IRLCs are considered to be Level 3 assets.
Derivative instruments are primarily transacted in the secondary mortgage and institutional dealer markets and priced with observable market assumptions at a mid-market valuation point, with appropriate valuation adjustments for liquidity and credit risk. For purposes of valuation adjustments to its derivative positions, the Company has evaluated liquidity premiums that may be demanded by market participants, as well as the credit risk of its counterparties and its own credit if applicable. To date, no material losses due to a counterparty’s inability to pay any net uncollateralized position have occurred. Derivative instruments are considered to be Level 3.
The credit risk associated with the underlying cash flows of an instrument carried at fair value was a consideration in estimating the fair value of certain financial instruments. Credit risk was considered in the valuation through a variety of inputs, as applicable, including, the actual default and loss severity of the collateral, and level of subordination. The assumption used to estimate credit risk applied relevant information that a market participant would likely use in valuing an instrument. Because mortgage loans held-for-sale are sold within a few weeks of origination, they are unlikely to demonstrate any of the credit weaknesses discussed above and as a result, there were no credit related adjustments to fair value during
the three months ended March 31, 2016 and 2015
.
The following tables present the financial instruments measured at fair value on a recurring basis by level within the fair value hierarchy based on the inputs used to estimate the fair value at the measurement date. There were no transfers between Levels 1, 2, and 3 during
the three months ended March 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(in thousands)
|
|
Total Fair Value
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Investment securities available-for-sale
|
|
$
|
167,574
|
|
|
$
|
—
|
|
|
$
|
167,574
|
|
|
$
|
—
|
|
Mortgage loans held-for-sale
|
|
232,794
|
|
|
—
|
|
|
232,794
|
|
|
—
|
|
Other assets
(1)
|
|
7,181
|
|
|
—
|
|
|
—
|
|
|
7,181
|
|
Other liabilities
(1)
|
|
(2,497
|
)
|
|
—
|
|
|
—
|
|
|
(2,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(in thousands)
|
|
Total Fair Value
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Investment securities available-for-sale
|
|
$
|
172,397
|
|
|
$
|
—
|
|
|
$
|
172,397
|
|
|
$
|
—
|
|
Mortgage loans held-for-sale
|
|
233,525
|
|
|
—
|
|
|
233,525
|
|
|
—
|
|
Other assets
(1)
|
|
4,022
|
|
|
—
|
|
|
—
|
|
|
4,022
|
|
Other liabilities
(1)
|
|
(651
|
)
|
|
—
|
|
|
—
|
|
|
(651
|
)
|
(1)
Includes mortgage-related IRLCs and derivative financial instruments to hedge interest rate risk. IRLCs are recorded on a gross basis.
The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during
the three months ended March 31, 2016 and 2015
. The changes in the fair value of economic hedges were recorded in noninterest income from mortgage banking activities in the Consolidated Statements of Comprehensive Income and are designed to partially offset the change in fair value of the financial instruments referenced in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
(in thousands)
|
|
Other
Assets
(1)
|
|
Other
Liabilities
(1)
|
|
Other
Assets
(1)
|
|
Other
Liabilities
(1)
|
Beginning balance
|
|
$
|
4,022
|
|
|
$
|
(651
|
)
|
|
$
|
2,691
|
|
|
$
|
(1,341
|
)
|
Total gains (losses) included in earnings:
|
|
|
|
|
|
|
|
|
Issuances
|
|
7,181
|
|
|
(2,497
|
)
|
|
9,426
|
|
|
(4,602
|
)
|
Settlements and closed loans
|
|
(4,000
|
)
|
|
651
|
|
|
(2,588
|
)
|
|
1,341
|
|
Expirations
|
|
(22
|
)
|
|
—
|
|
|
(103
|
)
|
|
—
|
|
Ending balance
|
|
$
|
7,181
|
|
|
$
|
(2,497
|
)
|
|
$
|
9,426
|
|
|
$
|
(4,602
|
)
|
(1)
Includes mortgage-related IRLCs and derivative financial instruments entered to hedge interest rate risk.
The following tables present the financial assets measured at fair value on a nonrecurring basis by level within the fair value hierarchy based on the inputs used to estimate the fair value at the measurement date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(in thousands)
|
|
Total Fair Value
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Impaired loans
|
|
$
|
9,996
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,996
|
|
ORE, net
|
|
873
|
|
|
—
|
|
|
—
|
|
|
873
|
|
Residential mortgage servicing rights
|
|
67,703
|
|
|
—
|
|
|
—
|
|
|
67,703
|
|
SBA servicing rights
|
|
2,122
|
|
|
—
|
|
|
—
|
|
|
2,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(in thousands)
|
|
Total Fair Value
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Impaired loans
|
|
$
|
8,447
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,447
|
|
ORE, net
|
|
1,847
|
|
|
—
|
|
|
—
|
|
|
1,847
|
|
Residential mortgage servicing rights
|
|
40,713
|
|
|
—
|
|
|
—
|
|
|
40,713
|
|
SBA servicing rights
|
|
2,132
|
|
|
—
|
|
|
—
|
|
|
2,132
|
|
Quantitative Information about Level 3 Fair Value Measurements
The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
|
Valuation
Technique
|
|
Unobservable
Inputs
|
|
Range/Weighted
Average at
March 31, 2016
|
|
Range/Weighted
Average at
December 31, 2015
|
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
9,996
|
|
|
$
|
8,447
|
|
|
Appraised value
less
estimated
selling costs
|
|
Estimated
selling costs
|
|
0% - 10%
9.40%
|
|
|
0% - 10%
9.70%
|
|
Other real estate
|
|
873
|
|
|
1,847
|
|
|
Appraised value
less
estimated
selling costs
|
|
Estimated
selling costs
|
|
0 - 10%
8.58%
|
|
|
0% - 10%
8.29%
|
|
Residential mortgage servicing rights
|
|
67,703
|
|
|
40,713
|
|
|
Discounted
cash flows
|
|
Discount rate
|
|
9.397% - 10.875%
9.62%
|
|
|
9.75% - 12.50%
10.06%
|
|
|
|
|
|
|
|
|
|
Modeled prepayment
speeds
|
|
10.04% - 21.34%
11.48%
|
|
|
7.56% - 15.24%
8.66%
|
|
SBA servicing rights
|
|
2,122
|
|
|
2,132
|
|
|
Discounted
cash flows
|
|
Discount rate
|
|
12.78
|
%
|
|
13.25
|
%
|
|
|
|
|
|
|
|
|
Modeled prepayment
speeds
|
|
8.88
|
%
|
|
9.41
|
%
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs
|
|
6,630
|
|
|
3,001
|
|
|
Pricing
model
|
|
Pull-through
ratio
|
|
80.00
|
%
|
|
80.00
|
%
|
Forward commitments
|
|
(1,946
|
)
|
|
369
|
|
|
Investor
pricing
|
|
Pricing spreads
|
|
90.00% - 105.72%
103.23%
|
|
|
90.00% - 106.20%
102.67%
|
|
The tables above exclude the initial measurement of assets and liabilities that were added pursuant to acquisitions. These assets and liabilities were recorded at their fair value upon acquisition and were not remeasured during the periods presented unless specifically required by GAAP. Acquisition date fair values represent either Level 2 fair value measurements (investment securities, ORE, property, equipment and borrowings) or Level 3 fair value measurements (loans, deposits and core deposit intangible asset).
Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair value less estimated closing costs. Measuring the impairment of loans using the present value of expected future cash flows, discounted at the loan's effective interest rate, is not considered a fair value measurement. For collateral-dependent loans, fair value is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. Collateral may include real estate or business assets, including equipment, inventory and accounts receivable. The value of real estate collateral is determined based on an appraisal by qualified licensed appraisers ordered by the Company. If significant, the value of business equipment is based on an appraisal by qualified licensed appraisers ordered by the Company; otherwise, the equipment’s net book value on the business’ financial statements is the basis for the value of business equipment. Inventory and accounts receivable collateral are valued based on independent field examiner review or aging reports. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business. Impaired loans are evaluated on at least a quarterly basis for additional impairment and adjusted accordingly.
Foreclosed assets are adjusted to fair value less estimated selling costs upon transfer of the loans to ORE, which becomes the new carrying value of the ORE. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value less estimated selling costs. Fair value is based on independent market prices, appraised values of the collateral, sales agreements, or management’s estimation of the value of the collateral using market data including recent sales activity for similar assets in the property's market. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3. Appraised and reported values may
be discounted based on management's historical knowledge, changes in market conditions from the time of the valuation, and management's expertise and knowledge of the client's business. Management continues to evaluate the appropriateness of appraised values on an annual basis.
Mortgage and SBA servicing rights are initially recorded at fair value when loans are sold with servicing retained. These assets are then amortized in proportion to and over the period of estimated net servicing income. On at least a quarterly basis, these servicing assets are assessed for impairment based on fair value. Management uses a model operated and maintained by a third party to determine fair value which stratifies the servicing portfolio into homogeneous subsets with unique behavior characteristics. The model then converts those characteristics into income and expense streams, adjusting those streams for prepayments, present values the adjusted streams, and combines the present values into a total. If the cost basis of any loan stratification tranche is higher than the present value of the tranche, an impairment is recorded. See Note 11 for additional disclosures related to assumptions used in the fair value calculation for mortgage and SBA servicing rights.
Management makes certain estimates and assumptions related to costs to service varying types of loans and pools of loans, prepayment speeds, the projected lives of loans and pools of loans sold servicing retained, and discount factors used in calculating the present values of servicing fees projected to be received. No less frequently than quarterly, management reviews the status of mortgage loans held-for-sale for which fair value has been elected and pools of servicing assets to determine if there is any impairment to those assets due to such factors as earlier than estimated repayments or significant prepayments. Any impairment identified in these assets results in reductions in their carrying values through a valuation allowance and a corresponding increase in operating expenses.
The significant unobservable input used in the fair value measurement of the Company's IRLCs is the pull-through ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. Generally, the fair value of an IRLC is positive (negative) if the prevailing interest rate is lower (higher) than the IRLC rate. Therefore, an increase in the pull-through ratio (i.e., higher percentage of loans are estimated to close) will result in the fair value of the IRLC increasing if in a gain position, or decreasing if in a loss position. The pull-through ratio is largely dependent on the processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock. The pull-through ratio is computed by the secondary marketing department using historical data and the ratio is periodically reviewed by the Company's Secondary Marketing Department of the Mortgage Banking Division for reasonableness.
Forward commitments are instruments that are used to hedge the value of the IRLC's and mortgage loans held-for-sale. The Company takes investor commitments to sell a loan or pool of newly originated loans to an investor for an agreed upon price for delivery in the future. This type of forward commitment is also known as a mandatory commitment. Generally, the fair value of a forward commitment is negative (positive) if the prevailing interest rate is lower (higher) than the current commitment interest rate. The value of these commitments is ultimately determined by the investor that sold the commitment and represents a significant unobservable input used in the fair value measurement of the Company's fair value of forward commitments.
Fair Value Option
The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held-for-sale for which the fair value option (“FVO”) has been elected as of
March 31, 2016
and
December 31, 2015
. There were no loans held-for-sale that were
90
days or more past due or in nonaccrual status at
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Aggregate Fair Value
March 31, 2016
|
|
Aggregate Unpaid
Principal Balance Under
FVO at March 31, 2016
|
|
Fair Value Over
Unpaid Principal
|
Residential mortgage loans held-for-sale
|
|
$
|
232,794
|
|
|
$
|
226,327
|
|
|
$
|
6,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Aggregate Fair Value
December 31, 2015
|
|
Aggregate Unpaid
Principal Balance Under
FVO at December 31, 2015
|
|
Fair Value Over
Unpaid Principal
|
Residential mortgage loans held-for-sale
|
|
$
|
233,525
|
|
|
$
|
228,586
|
|
|
$
|
4,939
|
|
The fair value gain related to mortgage banking activities for items measured at fair value pursuant to election of the FVO was
$1.5 million
and
$494,000
for
the three months ended March 31, 2016 and 2015
, respectively.
The following table includes the estimated fair value of the Company's financial instruments. The estimated fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on settlements using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets, and, in many cases, could not be realized in immediate settlement of the instrument. The aggregate fair value amounts presented in the table below do not represent the underlying value of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2016
|
(in thousands)
|
|
Carrying
Amount
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total Fair
Value
|
Financial instruments (assets):
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
125,289
|
|
|
$
|
125,289
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
125,289
|
|
Investment securities available-for-sale
|
|
167,574
|
|
|
—
|
|
|
167,574
|
|
|
—
|
|
|
167,574
|
|
Investment securities held-to-maturity
|
|
15,248
|
|
|
—
|
|
|
11,446
|
|
|
4,165
|
|
|
15,611
|
|
Total loans, net
|
|
3,462,785
|
|
|
—
|
|
|
232,794
|
|
|
3,020,019
|
|
|
3,252,813
|
|
Financial instruments (liabilities):
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
|
885,319
|
|
|
—
|
|
|
—
|
|
|
885,319
|
|
|
885,319
|
|
Interest-bearing deposits
|
|
2,536,129
|
|
|
—
|
|
|
—
|
|
|
2,536,455
|
|
|
2,536,455
|
|
Short-term borrowings
|
|
189,278
|
|
|
—
|
|
|
189,278
|
|
|
—
|
|
|
189,278
|
|
Subordinated debt
|
|
120,355
|
|
|
—
|
|
|
117,730
|
|
|
—
|
|
|
117,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2015
|
(in thousands)
|
|
Carrying
Amount
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total Fair
Value
|
Financial instruments (assets):
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
86,133
|
|
|
$
|
86,133
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
86,133
|
|
Investment securities available-for-sale
|
|
172,397
|
|
|
—
|
|
|
172,397
|
|
|
—
|
|
|
172,397
|
|
Investment securities held-to-maturity
|
|
14,398
|
|
|
—
|
|
|
10,410
|
|
|
4,188
|
|
|
14,598
|
|
Total loans, net
|
|
3,268,318
|
|
|
—
|
|
|
233,525
|
|
|
2,846,139
|
|
|
3,079,664
|
|
Financial instruments (liabilities):
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
|
786,779
|
|
|
—
|
|
|
—
|
|
|
786,779
|
|
|
786,779
|
|
Interest-bearing deposits
|
|
2,392,732
|
|
|
—
|
|
|
—
|
|
|
2,391,993
|
|
|
2,391,993
|
|
Short-term borrowings
|
|
209,730
|
|
|
—
|
|
|
209,730
|
|
|
—
|
|
|
209,730
|
|
Subordinated debt
|
|
120,322
|
|
|
—
|
|
|
116,706
|
|
|
—
|
|
|
116,706
|
|
The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents approximate the fair values of those assets. For investment securities, fair value equals quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities or dealer quotes.
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type. The fair value of performing loans is calculated by discounting scheduled cash flows through the remaining maturities using estimated market discount rates that reflect the credit and interest rate risk inherent in the loans along with a market risk premium and liquidity discount. Covered loans are measured using projections of expected cash flows, exclusive of the loss sharing agreements with the FDIC.
Fair value for significant nonperforming loans is estimated taking into consideration recent external appraisals of the underlying collateral for loans that are collateral dependent. If appraisals are not available or if the loan is not collateral dependent, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information.
The fair value of deposits with no stated maturities, such as noninterest-bearing demand deposits, savings, interest-bearing demand, and money market accounts, is equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows based on the discount rates currently offered for deposits of similar remaining maturities.
The fair value of the Company's borrowings is estimated based on the quoted market price for the same or similar issued or on the current rates offered for debt of the same remaining maturities.
For off-balance sheet instruments, fair values are based on rates currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing for loan commitments and letters of credit. Fees related to these instruments were immaterial at
March 31, 2016
and
December 31, 2015
, and the carrying amounts represent a reasonable approximation of their fair values. Loan commitments, letters and lines of credit, and similar obligations typically have variable interest rates and clauses that deny funding if the customer’s credit quality deteriorates. Therefore, the fair values of these items are not significant and are not included in the foregoing schedule.
Netting of Financial Instruments
Securities sold under repurchase agreements consist primarily of balances in the transaction accounts of commercial customers swept nightly to an overnight investment account. Securities sold under repurchase agreements are collateralized with investment securities having a market value no less than the balance borrowed, which can fluctuate daily. Securities sold under repurchase agreements are not subject to offset.
The following table presents the net position of securities sold under repurchase agreements.
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2016
|
|
December 31, 2015
|
Securities sold under repurchase agreements
(1)
|
|
$
|
14,278
|
|
|
$
|
19,730
|
|
Fair value of securities pledged
|
|
22,039
|
|
|
23,058
|
|
Net position of overnight repurchase agreements
|
|
$
|
7,761
|
|
|
$
|
3,328
|
|
(1)
Included as part of Short-term borrowings on the Consolidated Balance Sheets
The following table summarizes the collateral type pledged for the securities sold under repurchase agreements presented above.
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2016
|
|
December 31, 2015
|
Municipal securities
|
|
$
|
7,690
|
|
|
$
|
8,240
|
|
Obligations of U.S. Government sponsored enterprises
|
|
4,994
|
|
|
4,932
|
|
Residential mortgage-backed securities
|
|
9,355
|
|
|
9,886
|
|
Total fair value of securities pledged
|
|
$
|
22,039
|
|
|
$
|
23,058
|
|
For both periods presented, all of the repurchase agreements contractually mature overnight. Risk arises if the collateral value drops below agreed upon levels and the Company would be required to pledge further securities. Management has mitigated this risk by reviewing the collateral on a daily basis, and reviewing the market value of the collateral on a monthly basis.
There are no derivative contracts subject to master netting agreements.
9. Derivative Financial Instruments
Gains
of
$1.3 million
and
$3.5 million
were recorded for the three months ended
March 31, 2016
and
2015
, respectively, for all mortgage-related derivatives, and are recorded in the Consolidated Statements of Comprehensive Income as part of noninterest income from mortgage banking activities.
The Company’s derivative positions were as follows:
|
|
|
|
|
|
|
|
|
|
Contract or Notional Amount as of
|
(in thousands)
|
March 31,
2016
|
|
December 31,
2015
|
Forward rate commitments
|
$
|
536,223
|
|
|
$
|
410,152
|
|
Interest rate lock commitments
|
296,397
|
|
|
181,188
|
|
Total derivatives contracts
|
$
|
832,620
|
|
|
$
|
591,340
|
|
The Company's derivative contracts are not subject to master netting arrangements.
10. Earnings Per Common Share
Earnings per common share (“EPS”) were calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands, except per share data)
|
|
2016
|
|
2015
|
Net income
|
|
$
|
4,541
|
|
|
$
|
10,690
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
(1)
|
|
24,273
|
|
|
21,380
|
|
Effect of dilutive stock options and warrants
(2)
|
|
568
|
|
|
2,303
|
|
Weighted average common shares outstanding – diluted
|
|
24,841
|
|
|
23,683
|
|
|
|
|
|
|
EPS:
|
|
|
|
|
Basic
|
|
$
|
0.19
|
|
|
$
|
0.50
|
|
Diluted
|
|
$
|
0.18
|
|
|
$
|
0.45
|
|
(1)
Includes participating securities related to unvested restricted stock awards, net of forfeitures during the period
(2)
Effect of dilutive stock options and warrants includes the dilutive effect of additional potential common shares issuable under contracts
As of
March 31, 2016
and
2015
, there were
378,000
and
112,000
common stock options which were not included in the potentially dilutive stock options and warrants, respectively. These shares were not included in the computation of diluted EPS because they were anti-dilutive in the period (i.e., the options' exercise price was greater than the average market price of the common shares.)
11. Certain Transfers of Financial Assets
Servicing rights
Loan servicing rights are initially recorded at fair value and subsequently recorded at the lower of cost or fair market and are amortized over the remaining service life of the loans. The carrying value of the loan servicing assets is shown in the table below:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Servicing rights
|
|
|
|
|
Residential mortgage
|
|
$
|
69,927
|
|
|
$
|
72,766
|
|
SBA
|
|
5,449
|
|
|
5,358
|
|
Indirect automobile
|
|
7,503
|
|
|
6,820
|
|
Total servicing rights
|
|
$
|
82,879
|
|
|
$
|
84,944
|
|
Residential Mortgage Loans
The Company typically sells first-lien residential mortgage loans to third party investors, primarily Fannie Mae, Ginnie Mae, and Freddie Mac. The Company retains the related mortgage servicing rights (“MSRs”) and receives servicing fees on certain of these loans. During
the three months ended March 31, 2016 and 2015
, the Company sold
$473.5 million
and
$492.2 million
in residential mortgage loans, respectively, with servicing retained.
The net gain on loan sales, MSR impairment and amortization, and servicing fees are recorded in the Consolidated Statements of Comprehensive Income as part of noninterest income from mortgage banking activities. During
the three months ended March 31, 2016 and 2015
, the Company recorded gains on sales of residential mortgage loans of $
15.2 million
and $
19.7 million
, respectively. During
the three months ended March 31, 2016 and 2015
, the Company recorded servicing fees of $
4.5 million
and $
3.6 million
, respectively.
The table below is an analysis of the activity in the Company’s MSRs and impairment.
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Residential mortgage servicing rights
|
|
|
|
|
Beginning carrying value, net
|
|
$
|
72,766
|
|
|
$
|
56,720
|
|
Additions
|
|
5,094
|
|
|
6,790
|
|
Amortization
|
|
(3,272
|
)
|
|
(2,362
|
)
|
Impairment, net
|
|
(4,661
|
)
|
|
(2,469
|
)
|
Ending carrying value, net
|
|
$
|
69,927
|
|
|
$
|
58,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Residential mortgage servicing impairment
|
|
|
|
|
Beginning balance
|
|
$
|
9,523
|
|
|
$
|
6,452
|
|
Additions
|
|
5,822
|
|
|
3,900
|
|
Recoveries
|
|
(1,161
|
)
|
|
(1,431
|
)
|
Ending balance
|
|
$
|
14,184
|
|
|
$
|
8,921
|
|
The fair value of MSRs, key metrics, and the sensitivity of the fair value to adverse changes in model inputs and/or assumptions are summarized below.
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Residential Mortgage Servicing Rights
|
|
|
|
|
Fair Value
|
|
$
|
70,012
|
|
|
$
|
74,366
|
|
Composition of residential loans serviced for others:
|
|
|
|
|
Fixed-rate
|
|
99.32
|
%
|
|
99.28
|
%
|
Adjustable-rate
|
|
0.68
|
%
|
|
0.72
|
%
|
Total
|
|
100.00
|
%
|
|
100.00
|
%
|
Weighted average remaining term (years)
|
|
25.8
|
|
|
26.0
|
|
Modeled repayment speed
|
|
11.48
|
%
|
|
8.66
|
%
|
Decline in fair value due to a 10% adverse change
|
|
$
|
(3,089
|
)
|
|
$
|
(2,572
|
)
|
Decline in fair value due to a 20% adverse change
|
|
(5,697
|
)
|
|
(4,978
|
)
|
Weighted average discount rate
|
|
9.62
|
%
|
|
10.06
|
%
|
Decline in fair value due to a 10% adverse change
|
|
$
|
(2,746
|
)
|
|
$
|
(3,004
|
)
|
Decline in fair value due to a 20% adverse change
|
|
(5,079
|
)
|
|
(5,762
|
)
|
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in value based on adverse changes in model inputs and/or assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in value may not be linear. In addition, the effect of an adverse variation in a particular assumption on the value of the MSRs is calculated without changing any other assumptions. In reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the effect of the change.
Information about the asset quality of residential mortgage loans serviced by the Company is shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Net Charge-offs
for the Three
Months Ended
March 31, 2016
|
Residential mortgage loans serviced
|
|
Unpaid
Principal
Balance
|
|
|
|
|
|
|
Delinquent (days)
|
|
(in thousands)
|
|
|
30 to 89
|
|
90+
|
|
Serviced for others
|
|
$
|
6,893,992
|
|
|
$
|
31,071
|
|
|
$
|
5,968
|
|
|
$
|
—
|
|
Held-for-sale
|
|
226,327
|
|
|
208
|
|
|
—
|
|
|
—
|
|
Held-for-investment
|
|
321,297
|
|
|
992
|
|
|
3,353
|
|
|
13
|
|
Total residential mortgage loans serviced
|
|
$
|
7,441,616
|
|
|
$
|
32,271
|
|
|
$
|
9,321
|
|
|
$
|
13
|
|
Loans serviced for others are not included in the consolidated statements of financial condition as they are not assets of the Company.
Mortgage Recourse Liability
During the last five years ending March 31, 2016, the Company has sold over
44,000
loans with a principal balance of approximately $
10.4 billion
. As seller, the Company has made various representations and warranties related to, among other things, the ownership of the loans, the validity of the liens, the loan selection and origination process, and the compliance with origination criteria established by the purchasers. In the event of a breach of these representations and warranties, the Company is obligated to repurchase loans with identified defects and/or to indemnify the purchasers. Some of these conditions include underwriting errors or omissions, fraud or material misstatements, and invalid collateral values. The contractual obligation arises only when the breach of representations and warranties is discovered and repurchase/indemnification is demanded. Generally, the maximum amount the Company would be required to pay would be equal to the unpaid principal balance of such loans that are deemed to have defects that were sold to purchasers, plus accrued interest, return of the premium received at the time of the loan sale, and reimbursement of certain expenses. To date, the claims to the Company from the purchasers to be paid upon repurchase or paid because of indemnification have been insignificant. In addition, the Company’s loan sale contracts define a condition in which the borrower defaults during a short period of time as an early payment default (“EPD”). In the event of an EPD, the Company may be required to return the premium paid for the loan, pay certain administrative fees, and may be required to repurchase the loan or indemnify the purchaser unless an EPD waiver is obtained.
Management recognizes the potential risk from costs related to breaches of representations and warranties made in connection with residential loan sales and subsequent required repurchases, indemnifications, and EPD claims. As a result, the Company has established a liability to cover potential costs related to these events based on historical experience, adjusted for any risk factors not captured in the historical losses, current business volume, and known claims outstanding. The recourse liability totaled $
1.4 million
at
March 31, 2016
and
December 31, 2015
, respectively, and management believes this amount is adequate for potential exposure related to loan sale indemnification, repurchase loans, and EPD claims. Management will continue to monitor the adequacy of the reserve level and may decide that further additions to the reserve are appropriate. However, there can be no assurance that the current balance of this reserve will prove sufficient to cover actual future losses.
It should be noted that the Company’s loan sale activity began to increase at a time when underwriting requirements were strengthened from prior years and limited documentation conventional loans (i.e., non-government insured) were no longer eligible for purchase in the secondary market. Accordingly, the population of conventional loans the Company has sold has been underwritten based on fully documented information. While this does not eliminate all risk of repurchase or indemnification costs, management believes it significantly mitigates that risk.
SBA Loans
The Company has executed certain transfers of SBA loans with third parties. These loans, which are typically partially guaranteed by the SBA or otherwise credit enhanced, are generally secured by business property such as real estate, inventory, equipment, and accounts receivable. During
the three months ended March 31, 2016 and 2015
, the Company sold
$11.5 million
and
$13.1 million
in SBA loans, respectively.
The Company retains the loan servicing rights and receives servicing fees. The net gain on SBA loan sales, servicing rights impairment and amortization and servicing fees are recorded in the Consolidated Statements of Comprehensive Income as part of noninterest income from SBA lending activities. During
the three months ended March 31, 2016 and 2015
, the Company recorded gains on sales of SBA loans of $
856,000
and $
860,000
, respectively. During
the three months ended March 31, 2016 and 2015
, the Company recorded servicing fees of $
580,000
and $
536,000
, respectively.
The table below is an analysis of the activity in the Company’s SBA loan servicing rights and impairment.
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
SBA loan servicing rights
|
|
|
|
|
Beginning carrying value, net
|
|
$
|
5,358
|
|
|
$
|
4,872
|
|
Additions
|
|
293
|
|
|
236
|
|
Amortization
|
|
(315
|
)
|
|
(516
|
)
|
Recovery, net
|
|
113
|
|
|
50
|
|
Ending carrying value, net
|
|
$
|
5,449
|
|
|
$
|
4,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
SBA servicing rights impairment
|
|
|
|
|
Beginning balance
|
|
$
|
243
|
|
|
$
|
1,818
|
|
Additions
|
|
—
|
|
|
—
|
|
Recoveries
|
|
(113
|
)
|
|
(50
|
)
|
Ending balance
|
|
$
|
130
|
|
|
$
|
1,768
|
|
The fair value of the SBA loan servicing rights, key metrics, and the sensitivity of the fair value to adverse changes in the model inputs and/or assumptions are summarized below.
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
SBA loan servicing rights
|
|
|
|
|
Fair Value
|
|
$
|
6,100
|
|
|
$
|
5,887
|
|
Composition of loans serviced for others:
|
|
|
|
|
Fixed-rate
|
|
0.20
|
%
|
|
0.05
|
%
|
Adjustable-rate
|
|
99.80
|
%
|
|
99.95
|
%
|
Total
|
|
100.00
|
%
|
|
100.00
|
%
|
Weighted average remaining term (years)
|
|
19.5
|
|
|
19.7
|
|
Modeled prepayment speed
|
|
8.88
|
%
|
|
9.41
|
%
|
Decline in fair value due to a 10% adverse change
|
|
$
|
(185
|
)
|
|
$
|
(181
|
)
|
Decline in fair value due to a 20% adverse change
|
|
(358
|
)
|
|
(353
|
)
|
Weighted average discount rate
|
|
12.78
|
%
|
|
13.25
|
%
|
Decline in fair value due to a 10% adverse change
|
|
$
|
(136
|
)
|
|
$
|
(242
|
)
|
Decline in fair value due to a 20% adverse change
|
|
(265
|
)
|
|
(466
|
)
|
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in value based on adverse changes in model inputs and/or assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in value may not be linear. In addition, the effect of an adverse variation in a particular assumption on the value of the SBA loan servicing rights is calculated without changing any other assumptions. In reality, changes in one factor may magnify or counteract the effect of the change.
Information about the asset quality of SBA loans serviced by the Company is shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Net Charge-offs
for the Three
Months Ended
March 31, 2016
|
SBA loans serviced
|
|
Unpaid
Principal
Balance
|
|
|
|
|
|
|
|
|
Delinquent (days)
|
|
(in thousands)
|
|
|
30 to 89
|
|
90+
|
|
Serviced for others
|
|
$
|
271,004
|
|
|
$
|
855
|
|
|
$
|
—
|
|
|
$
|
265
|
|
Held-for-sale
|
|
14,085
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Held-for-investment
|
|
137,379
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total SBA loans serviced
|
|
$
|
422,468
|
|
|
$
|
855
|
|
|
$
|
—
|
|
|
$
|
265
|
|
Loans serviced for others are not included in the consolidated statements of financial condition as they are not assets of the Company.
Indirect Automobile Loans
The Company purchases, on a nonrecourse basis, consumer installment contracts secured by new and used vehicles purchased by consumers from franchised motor vehicle dealers and select independent dealers. A portion of the indirect automobile loans originated is sold with servicing retained and the Company receives servicing fees. During
the three months ended March 31, 2016 and 2015
, the Company sold
$171.8 million
and
$219.8 million
in indirect automobile loans, respectively.
The gain on loan sales and servicing fees are recorded in the Consolidated Statements of Comprehensive Income as part of noninterest income from indirect lending activities. During
the three months ended March 31, 2016 and 2015
, the Company recorded gains on sales of indirect automobile loans of $
2.8 million
and $
4.5 million
, respectively. During
the three months ended March 31, 2016 and 2015
, the Company recorded servicing fees of $
663,000
and $
1.9 million
, respectively.
The table below is an analysis of the activity in the Company’s indirect automobile loan servicing rights:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31,
|
(in thousands)
|
2016
|
|
2015
|
Indirect automobile loan servicing rights
|
|
|
|
Beginning carrying value
|
$
|
6,820
|
|
|
$
|
3,305
|
|
Additions
|
1,297
|
|
|
1,861
|
|
Amortization
|
(613
|
)
|
|
(341
|
)
|
Ending carrying value
|
$
|
7,504
|
|
|
$
|
4,825
|
|
The Company has not recorded impairment on its indirect automobile loan servicing rights.
The fair value of the indirect automobile loan servicing rights, key metrics, and the sensitivity of the fair value to adverse changes in model inputs and/or assumptions are summarized below.
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Indirect loan servicing rights
|
|
|
|
|
Fair value
|
|
$
|
9,148
|
|
|
$
|
9,803
|
|
Composition of loans serviced for others:
|
|
|
|
|
Fixed-rate
|
|
100.00
|
%
|
|
100.00
|
%
|
Adjustable-rate
|
|
—
|
%
|
|
—
|
%
|
Total
|
|
100.00
|
%
|
|
100.00
|
%
|
Weighted average remaining term (years)
|
|
4.9
|
|
|
5.0
|
|
Modeled prepayment speed
|
|
20.88
|
%
|
|
20.88
|
%
|
Decline in fair value due to a 10% adverse change
|
|
$
|
(307
|
)
|
|
$
|
(322
|
)
|
Decline in fair value due to a 20% adverse change
|
|
(598
|
)
|
|
(627
|
)
|
Weighted average discount rate
|
|
6.59
|
%
|
|
6.87
|
%
|
Decline in fair value due to a 10% adverse change
|
|
$
|
(100
|
)
|
|
$
|
(109
|
)
|
Decline in fair value due to a 20% adverse change
|
|
(198
|
)
|
|
(215
|
)
|
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in value based on adverse changes in model inputs and/or assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in value may not be linear. In addition, the effect of an adverse variation in a particular assumption on the value of the indirect automobile loan servicing rights is calculated without changing any other assumptions. In reality, changes in one factor may magnify or counteract the effect of the change.
Information about the asset quality of the indirect automobile loans serviced by the Company is shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Net Charge-offs
for the Three
Months Ended
March 31, 2016
|
Indirect automobile loans serviced
|
|
Unpaid
Principal
Balance
|
|
|
|
|
|
|
|
|
Delinquent (days)
|
|
(in thousands)
|
|
|
30 to 89
|
|
90+
|
|
Serviced for others
|
|
$
|
1,171,453
|
|
|
$
|
1,087
|
|
|
$
|
—
|
|
|
$
|
797
|
|
Held-for-sale
|
|
150,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Held-for-investment
|
|
1,463,005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total indirect automobile loans serviced
|
|
$
|
2,784,458
|
|
|
$
|
1,087
|
|
|
$
|
—
|
|
|
$
|
797
|
|
Loans serviced for others are not included in the consolidated statements of financial condition as they are not assets of the Company.