Notes to Consolidated Financial Statements (Unaudited)
1. ACCOUNTING POLICIES
The Company
Headquartered in Richmond, Virginia, Union Bankshares Corporation is the holding company for Union Bank & Trust. Union Banks & Trust has
155
branches,
15
of which are operated as Access National Bank, a division of Union Bank & Trust of Richmond Virginia, or Middleburg Bank, a division of Union Bank & Trust of Virginia and
7
of which are operated as Xenith Bank, a division of Union Bank & Trust of Richmond, Virginia, and approximately
200
ATMs located throughout Virginia and in portions of Maryland and North Carolina. Certain non-bank affiliates of the Company include: Old Dominion Capital Management, Inc., and its subsidiary Outfitter Advisors, Ltd., Dixon, Hubard, Feinour & Brown, Inc., Capital Fiduciary Advisors, LLC, and Middleburg Investment Services, LLC, all of which provide investment advisory and/or brokerage services; Union Insurance Group, LLC, which offers various line of insurance products; and Middleburg Trust Company, which provides trust services.
Effective May 17, 2019 (after market close), Union Bankshares Corporation will change its name to Atlantic Union Bankshares Corporation and Union Bank & Trust will change its name to Atlantic Union Bank. The name change was approved by the Board of Directors at the Company's January 23, 2019 Board meeting and a related amendment to the Company’s articles of incorporation was approved by the Company’s shareholders at its 2019 Annual Meeting on May 2, 2019. The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements; however, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other period.
These unaudited consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company’s 2018 Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.
Business Combinations and Divestitures
On February 1, 2019, the Company completed the acquisition of Access National Corporation (and its subsidiaries), a bank holding company based in Reston, Virginia for a purchase price of approximately
$500.0 million
.
Access's common stockholders received
0.75
shares of the Company's common stock in exchange for each share of Access's common stock, resulting in the Company issuing
15,842,026
shares of common stock. In addition, the Company paid cash of approximately
$12,000
in lieu of fractional shares.
In connection with the transaction, the Company recorded
$200.6 million
in goodwill and
$44.2 million
of amortizable assets, which primarily relate to core deposit intangibles. The Company currently estimates that these other intangibles assets will be amortized over
10
years using various methods. The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition.
Affordable Housing Entities
The Company invests in private investment funds that make equity investments in multifamily affordable housing properties that provide affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and debt. For the
three
months ended
March 31, 2019
and
March 31, 2018
, the Company recognized amortization of
$500,000
and
$235,000
, respectively, and tax credits of
$611,000
and
$283,000
, respectively, associated with these investments within “Income tax expense” on the Company’s Consolidated Statements of Income. The carrying value of the Company’s investments in these qualified affordable housing projects was
$28.4 million
and
$10.8 million
as of
March 31, 2019
and
December 31, 2018
, respectively. At
March 31, 2019
and
December 31, 2018
, the Company's recorded liability totaled
$16.0 million
and $
9.9 million
, respectively, for the related unfunded commitments, which are expected to be paid throughout the years 2019 - 2033.
Adoption of New Accounting Standards
On January 1, 2019, the Company adopted ASU No. 2016-02,
"Leases (Topic 842)."
The adoption of this standard required lessees to recognize right of use assets and lease liabilities on the Consolidated Balance Sheet and disclose key information about leasing arrangements. The Company adopted this ASU on January 1, 2019 under the modified retrospective approach. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to not reassess the lease classification of existing leases, as well as not reassess whether any expired or existing contracts are or contain a lease; and maintain consistent treatment of initial direct costs on existing leases. In addition, the Company elected the short-term lease exemption practical expedient in which leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheet. The Company also elected the practical expedient related to accounting for lease and non-lease components as a single lease component. Adoption of this standard resulted in the Company recording a lease liability of
$53.2 million
and right of use assets of
$48.9 million
as of January 1, 2019. Operating leases have been included within other assets and other liabilities on the Company's Consolidated Balance Sheet. The implementation of this standard resulted in a
$1.1 million
decrease to Retained Earnings. There was no impact on the Company's Consolidated Statement of Cash Flows. Refer to Note 6 "Leases" for further discussion regarding the adoption.
In August 2018, the FASB issued ASU No. 2018-15,
"Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract."
This ASU amends the Intangibles—Goodwill and Other Topic of the Accounting Standards Codification to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This ASU will be effective for the Company for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company adopted this standard in the first quarter of 2019 using the prospective approach. The adoption of ASU 2018-15 did not have a material impact on the Company's consolidated financial statements.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
”
This ASU contains significant differences from existing GAAP and is effective for fiscal years beginning after December 15, 2019. This ASU updates the existing guidance to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. This ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The CECL model will replace the Company's current accounting for PCI and impaired loans. This ASU also amends the AFS debt securities OTTI model. The Company has established a cross-functional governance structure for the implementation of CECL. In addition, the Company is beginning the process of validating the models that will be used upon adoption of the standard. The implementation of this ASU will result in increases to the Company's reserves for credit losses of financial instruments; however, the quantitative impact cannot be reasonably estimated since this ASU relies on economic conditions and trends that will impact the Company's portfolio at the time of adoption. The Company is continuing to evaluate the impact ASU No. 2016-13 will have on its consolidated financial statements.
2. ACQUISITIONS
Access Acquisition
On February 1, 2019, the Company completed its acquisition of Access National Corporation (and its subsidiaries), a bank holding company based in Reston, Virginia. Holders of shares of Access's common stock received
0.75
shares of the Company's common stock in exchange for each share of Access's common stock, resulting in the Company issuing
15,842,026
shares of the Company's common stock at a fair value of approximately $
500.0 million
. In addition, the Company paid approximately$
12,000
cash in lieu of fractional shares.
The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition, in accordance with ASC 350,
Intangibles-Goodwill and Other
. The goodwill is not expected to be deductible for tax purposes. The following table provides a preliminary assessment of the consideration transferred, assets acquired, and liabilities assumed as of the date of the acquisition (dollars in thousands):
|
|
|
|
|
|
|
|
Purchase Price:
|
|
|
Fair value of shares of the Company's common stock issued
|
|
$
|
499,974
|
|
Cash paid for fractional shares
|
|
12
|
|
Total purchase price
|
|
$
|
499,986
|
|
|
|
|
Fair value of assets acquired:
|
|
|
Cash and cash equivalents
|
$
|
46,164
|
|
|
Investments
|
464,742
|
|
|
Loans
|
2,175,525
|
|
|
Premises and equipment
|
27,675
|
|
|
Core deposit intangibles
|
40,860
|
|
|
Other assets
|
103,082
|
|
|
Total assets
|
$
|
2,858,048
|
|
|
|
|
|
Fair value of liabilities assumed:
|
|
|
Deposits
|
$
|
2,227,073
|
|
|
Short-term borrowings
|
220,685
|
|
|
Long-term borrowings
|
70,535
|
|
|
Other liabilities
|
40,345
|
|
|
Total liabilities
|
$
|
2,558,638
|
|
|
|
|
|
Net assets acquired
|
|
$
|
299,410
|
|
Preliminary goodwill
|
|
$
|
200,576
|
|
The acquired loans were recorded at fair value at the acquisition date without carryover of Access’s previously established ALL. The fair value of the loans was determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected on the loans and leases and then applying a market-based discount rate to those cash flows. In this regard, the acquired loans were segregated into pools based on loan type and credit risk. Loan type was determined based on collateral type, purpose, and lien position. Credit risk characteristics included risk rating groups (pass rated loans and adversely classified loans) and past due status. For valuation purposes, these pools were further disaggregated by maturity, pricing characteristics (e.g., fixed-rate, adjustable-rate) and re-payment structure (e.g., interest only, fully amortizing, balloon). If new information is obtained about facts and circumstances about expected cash flows that existed as of the acquisition date, management will adjust fair values in accordance with accounting for business combinations.
The acquired loans were divided into loans with evidence of credit quality deterioration which are accounted for under ASC 310-30,
Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality
, (acquired impaired) and loans that do not meet these criteria, which are accounted for under ASC 310-20,
Receivables - Nonrefundable Fees and Other Costs
, (acquired performing). The fair values of the acquired performing loans were $
2.1 billion
and the fair values of the acquired
impaired loans were $
17.9 million
. The gross contractually required principal and interest payments receivable for acquired performing loans was $
2.5 billion
. The best estimate of contractual cash flows not expected to be collected related to the acquired performing loans is $
12.3 million
.
The following table presents the acquired impaired loans receivable at the acquisition date (dollars in thousands):
|
|
|
|
|
Contractually required principal and interest payments
|
$
|
24,329
|
|
Nonaccretable difference
|
(4,003
|
)
|
Cash flows expected to be collected
|
20,326
|
|
Accretable difference
|
(2,432
|
)
|
Fair value of loans acquired with a deterioration of credit quality
|
$
|
17,894
|
|
The following table presents certain pro forma information as if Access had been acquired on January 1, 2018. These results combine the historical results of Access in the Company's Consolidated Statements of Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2018. In particular, no adjustments have been made to eliminate the amount of Access’s provision for credit losses that would not have been necessary had the acquired loans been recorded at fair value as of January 1, 2018. Pro forma adjustments below include the net impact of accretion for 2018 and the elimination of merger-related costs for 2019. The Company expects to achieve further operating cost savings and other business synergies, including branch closures, as a result of the acquisition which are not reflected in the pro forma amounts below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Pro forma for the three months ended
|
|
March 31,
|
|
2019
|
|
2018
|
|
(unaudited)
|
|
(unaudited)
|
Total revenues
(1)
|
$
|
163,210
|
|
|
$
|
156,414
|
|
Net income
|
$
|
52,336
|
|
|
$
|
24,667
|
|
EPS
|
$
|
0.64
|
|
|
$
|
0.30
|
|
(1)
Includes net interest income and noninterest income.
The revenue and earnings amounts specific to Access since the acquisition date that are included in the consolidated results for 2019 are not readily determinable. The disclosures of these amounts are impracticable due to the merging of certain processes and systems at the acquisition date.
Merger-related costs associated with the acquisition of Access were $
17.8 million
and $
0
for the three months ended
March 31, 2019
and
2018
, respectively. Such costs include legal and accounting fees, lease and contract termination expenses, system conversion, and employee severances, which have been expensed as incurred.
3. SECURITIES
Available for Sale
The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of
March 31, 2019
and
December 31, 2018
are summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
Gross Unrealized
|
|
Estimated
|
|
Cost
|
|
Gains
|
|
(Losses)
|
|
Fair Value
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
$
|
4,451
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
4,457
|
|
Obligations of states and political subdivisions
|
516,897
|
|
|
14,972
|
|
|
(81
|
)
|
|
531,788
|
|
Corporate and other bonds
(1)
|
177,910
|
|
|
1,784
|
|
|
(807
|
)
|
|
178,887
|
|
Mortgage-backed securities
|
1,386,056
|
|
|
10,465
|
|
|
(6,128
|
)
|
|
1,390,393
|
|
Other securities
|
3,537
|
|
|
—
|
|
|
—
|
|
|
3,537
|
|
Total AFS securities
|
$
|
2,088,851
|
|
|
$
|
27,227
|
|
|
$
|
(7,016
|
)
|
|
$
|
2,109,062
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
466,588
|
|
|
$
|
3,844
|
|
|
$
|
(1,941
|
)
|
|
$
|
468,491
|
|
Corporate and other bonds
(1)
|
167,561
|
|
|
1,118
|
|
|
(983
|
)
|
|
167,696
|
|
Mortgage-backed securities
|
1,138,034
|
|
|
4,452
|
|
|
(12,621
|
)
|
|
1,129,865
|
|
Other securities
|
8,769
|
|
|
—
|
|
|
—
|
|
|
8,769
|
|
Total AFS securities
|
$
|
1,780,952
|
|
|
$
|
9,414
|
|
|
$
|
(15,545
|
)
|
|
$
|
1,774,821
|
|
(1)
Other bonds includes asset-backed securities.
The following table shows the gross unrealized losses and fair value of the Company’s AFS securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of
March 31, 2019
and
December 31, 2018
(dollars in thousands). These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
More than 12 months
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
777
|
|
|
$
|
(4
|
)
|
|
$
|
4,823
|
|
|
$
|
(77
|
)
|
|
$
|
5,600
|
|
|
$
|
(81
|
)
|
Corporate bonds and other securities
|
34,413
|
|
|
(206
|
)
|
|
39,561
|
|
|
(601
|
)
|
|
73,974
|
|
|
(807
|
)
|
Mortgage-backed securities
|
69,850
|
|
|
(207
|
)
|
|
458,646
|
|
|
(5,921
|
)
|
|
528,496
|
|
|
(6,128
|
)
|
Total AFS securities
|
$
|
105,040
|
|
|
$
|
(417
|
)
|
|
$
|
503,030
|
|
|
$
|
(6,599
|
)
|
|
$
|
608,070
|
|
|
$
|
(7,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
133,513
|
|
|
$
|
(1,566
|
)
|
|
$
|
10,145
|
|
|
$
|
(375
|
)
|
|
$
|
143,658
|
|
|
$
|
(1,941
|
)
|
Corporate bonds and other securities
|
35,478
|
|
|
(315
|
)
|
|
33,888
|
|
|
(668
|
)
|
|
69,366
|
|
|
(983
|
)
|
Mortgage-backed securities
|
306,038
|
|
|
(3,480
|
)
|
|
341,400
|
|
|
(9,141
|
)
|
|
647,438
|
|
|
(12,621
|
)
|
Total AFS securities
|
$
|
475,029
|
|
|
$
|
(5,361
|
)
|
|
$
|
385,433
|
|
|
$
|
(10,184
|
)
|
|
$
|
860,462
|
|
|
$
|
(15,545
|
)
|
As of
March 31, 2019
, there were
$503.0 million
, or
187
issues, of individual AFS securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of
$6.6 million
. As of
December 31, 2018
, there were
$385.4 million
, or
138
issues, of individual securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of
$10.2 million
. The Company has determined that these securities were temporarily impaired at
March 31, 2019
and
December 31, 2018
for the reasons set out below:
Obligations of state and political subdivisions.
This category’s unrealized losses are primarily the result of interest rate fluctuations and ratings downgrades for a limited number of securities. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
Corporate and other bonds.
This category's unrealized losses are the result of interest rate fluctuations and ratings downgrades for a limited number of securities. The majority of these securities remain investment grade and the Company’s analysis did not indicate the existence of a credit loss. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
Mortgage-backed securities.
This category’s unrealized losses are primarily the result of interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not intend to sell the investments, and the accounting standard of "more likely than not" has not been met for the Company to be required to sell any of the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired. Also, the majority of the Company’s mortgage-backed securities are agency-backed securities, which have a government guarantee.
The following table presents the amortized cost and estimated fair value of AFS securities as of
March 31, 2019
and
December 31, 2018
, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
Due in one year or less
|
$
|
21,087
|
|
|
$
|
21,214
|
|
|
$
|
22,653
|
|
|
$
|
22,789
|
|
Due after one year through five years
|
280,969
|
|
|
281,047
|
|
|
191,003
|
|
|
188,999
|
|
Due after five years through ten years
|
257,437
|
|
|
258,813
|
|
|
218,211
|
|
|
217,304
|
|
Due after ten years
|
1,529,358
|
|
|
1,547,988
|
|
|
1,349,085
|
|
|
1,345,729
|
|
Total AFS securities
|
$
|
2,088,851
|
|
|
$
|
2,109,062
|
|
|
$
|
1,780,952
|
|
|
$
|
1,774,821
|
|
Refer to Note 8 "Commitments and Contingencies" for information regarding the estimated fair value of AFS securities that were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of
March 31, 2019
and
December 31, 2018
.
Held to Maturity
The Company reports HTM securities on the Company's Consolidated Balance Sheets at carrying value. Carrying value is amortized cost which includes any unamortized unrealized gains and losses recognized in accumulated other comprehensive income prior to reclassifying the securities from AFS securities to HTM securities. Investment securities transferred into the HTM category from the AFS category are recorded at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the HTM securities. Such unrealized gains or losses are accreted over the remaining life of the security with no impact on future net income.
The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of
March 31, 2019
and
December 31, 2018
are summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
Gross Unrealized
|
|
Estimated
|
|
Value
|
|
Gains
|
|
(Losses)
|
|
Fair Value
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
548,383
|
|
|
$
|
25,179
|
|
|
$
|
—
|
|
|
$
|
573,562
|
|
Mortgage-backed securities
|
10,997
|
|
|
47
|
|
|
—
|
|
|
11,044
|
|
Total held-to-maturity securities
|
$
|
559,380
|
|
|
$
|
25,226
|
|
|
$
|
—
|
|
|
$
|
584,606
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
492,272
|
|
|
$
|
7,375
|
|
|
$
|
(146
|
)
|
|
$
|
499,501
|
|
The following table shows the gross unrealized losses and fair value (dollars in thousands) of the Company’s HTM securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of
March 31, 2019
and
December 31, 2018
(dollars in thousands). These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
More than 12 months
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
1,219
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,219
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
43,206
|
|
|
$
|
(146
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43,206
|
|
|
$
|
(146
|
)
|
As of
March 31, 2019
and
December 31, 2018
there were
no
issues of individual HTM securities that had been in a continuous loss position for more than 12 months.
The following table presents the amortized cost and estimated fair value of HTM securities as of
March 31, 2019
and
December 31, 2018
, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
Due in one year or less
|
$
|
252
|
|
|
$
|
252
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Due after one year through five years
|
8,212
|
|
|
8,332
|
|
|
3,893
|
|
|
3,900
|
|
Due after five years through ten years
|
4,010
|
|
|
4,054
|
|
|
3,480
|
|
|
3,507
|
|
Due after ten years
|
546,906
|
|
|
571,968
|
|
|
484,899
|
|
|
492,094
|
|
Total HTM securities
|
$
|
559,380
|
|
|
$
|
584,606
|
|
|
$
|
492,272
|
|
|
$
|
499,501
|
|
Refer to Note 8 "Commitments and Contingencies" for information regarding the estimated fair value of HTM securities that were pledged to secure public deposits as permitted or required by law as of
March 31, 2019
and
December 31, 2018
.
Restricted Stock, at cost
Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. At
March 31, 2019
and
December 31, 2018
, the FHLB required the Bank to maintain stock in an amount equal to
4.25%
of outstanding borrowings and a specific percentage of the Bank’s total assets. The Federal Reserve Bank required the Bank to
maintain stock with a par value equal to
6%
of the Bank's outstanding capital at both
March 31, 2019
and
December 31, 2018
. Restricted equity securities consist of Federal Reserve Bank stock in the amount of
$61.8 million
and
$52.6 million
for
March 31, 2019
and
December 31, 2018
and FHLB stock in the amount of
$74.1 million
and
$72.0 million
as of
March 31, 2019
and
December 31, 2018
, respectively.
Other-Than-Temporary-Impairment
During each quarter, the Company conducts an assessment of the securities portfolio for OTTI consideration. The assessment considers factors such as external credit ratings, delinquency coverage ratios, market price, management’s judgment, expectations of future performance, and relevant industry research and analysis. An impairment is other-than-temporary if any of the following conditions exist: the entity intends to sell the security; it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or the entity does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell). If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated into a credit portion to be recognized in earnings and the remaining amount relating to all other factors recognized as other comprehensive loss. Based on the assessment for the
three
months ended
March 31, 2019
, and in accordance with accounting guidance,
no
OTTI was recognized.
Realized Gains and Losses
The following table presents the gross realized gains and losses on and the proceeds from the sale of securities during the
three
months ended
March 31, 2019
and
2018
(dollars in thousands).
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2019
|
|
Three Months Ended March 31, 2018
|
Realized gains (losses):
|
|
|
|
|
|
Gross realized gains
|
$
|
1,213
|
|
|
$
|
697
|
|
Gross realized losses
|
(1,062
|
)
|
|
(484
|
)
|
Net realized gains
|
$
|
151
|
|
|
$
|
213
|
|
|
|
|
|
Proceeds from sales of securities
|
$
|
208,249
|
|
|
$
|
115,850
|
|
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at their face amount, net of deferred fees and costs, and consist of the following at
March 31, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Construction and Land Development
|
$
|
1,326,679
|
|
|
$
|
1,194,821
|
|
Commercial Real Estate - Owner Occupied
|
1,921,464
|
|
|
1,337,345
|
|
Commercial Real Estate - Non-Owner Occupied
|
2,970,453
|
|
|
2,467,410
|
|
Multifamily Real Estate
|
591,431
|
|
|
548,231
|
|
Commercial & Industrial
|
1,866,625
|
|
|
1,317,135
|
|
Residential 1-4 Family - Commercial
|
815,309
|
|
|
713,750
|
|
Residential 1-4 Family - Mortgage
|
865,502
|
|
|
600,578
|
|
Auto
|
300,631
|
|
|
301,943
|
|
HELOC
|
672,087
|
|
|
613,383
|
|
Consumer
|
397,491
|
|
|
379,694
|
|
Other Commercial
|
224,638
|
|
|
241,917
|
|
Total loans held for investment, net
(1)
|
$
|
11,952,310
|
|
|
$
|
9,716,207
|
|
(1)
Loans, as presented, are net of deferred fees and costs totaling
$5.8 million
and
$5.1 million
as of
March 31, 2019
and
December 31, 2018
, respectively.
The following table shows the aging of the Company’s loan portfolio, by segment, at
March 31, 2019
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
Greater than 90
Days and still
Accruing
|
|
PCI
|
|
Nonaccrual
|
|
Current
|
|
Total Loans
|
Construction and Land Development
|
$
|
1,019
|
|
|
$
|
526
|
|
|
$
|
1,997
|
|
|
$
|
12,600
|
|
|
$
|
5,513
|
|
|
$
|
1,305,024
|
|
|
$
|
1,326,679
|
|
Commercial Real Estate - Owner Occupied
|
4,052
|
|
|
480
|
|
|
2,908
|
|
|
26,836
|
|
|
3,307
|
|
|
1,883,881
|
|
|
1,921,464
|
|
Commercial Real Estate - Non-Owner Occupied
|
760
|
|
|
4,129
|
|
|
—
|
|
|
18,850
|
|
|
1,787
|
|
|
2,944,927
|
|
|
2,970,453
|
|
Multifamily Real Estate
|
596
|
|
|
—
|
|
|
—
|
|
|
90
|
|
|
—
|
|
|
590,745
|
|
|
591,431
|
|
Commercial & Industrial
|
2,565
|
|
|
438
|
|
|
313
|
|
|
4,159
|
|
|
721
|
|
|
1,858,429
|
|
|
1,866,625
|
|
Residential 1-4 Family - Commercial
|
4,059
|
|
|
1,365
|
|
|
1,490
|
|
|
13,693
|
|
|
4,244
|
|
|
790,458
|
|
|
815,309
|
|
Residential 1-4 Family - Mortgage
|
5,889
|
|
|
2,196
|
|
|
2,476
|
|
|
17,180
|
|
|
7,119
|
|
|
830,642
|
|
|
865,502
|
|
Auto
|
2,152
|
|
|
297
|
|
|
153
|
|
|
7
|
|
|
523
|
|
|
297,499
|
|
|
300,631
|
|
HELOC
|
5,020
|
|
|
1,753
|
|
|
518
|
|
|
5,138
|
|
|
1,395
|
|
|
658,263
|
|
|
672,087
|
|
Consumer
|
1,963
|
|
|
1,135
|
|
|
1,098
|
|
|
693
|
|
|
124
|
|
|
392,478
|
|
|
397,491
|
|
Other Commercial
|
—
|
|
|
62
|
|
|
—
|
|
|
686
|
|
|
108
|
|
|
223,782
|
|
|
224,638
|
|
Total loans held for investment
|
$
|
28,075
|
|
|
$
|
12,381
|
|
|
$
|
10,953
|
|
|
$
|
99,932
|
|
|
$
|
24,841
|
|
|
$
|
11,776,128
|
|
|
$
|
11,952,310
|
|
The following table shows the aging of the Company’s loan portfolio, by segment, at
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
Greater than 90
Days and still
Accruing
|
|
PCI
|
|
Nonaccrual
|
|
Current
|
|
Total Loans
|
Construction and Land Development
|
$
|
759
|
|
|
$
|
6
|
|
|
$
|
180
|
|
|
$
|
8,654
|
|
|
$
|
8,018
|
|
|
$
|
1,177,204
|
|
|
$
|
1,194,821
|
|
Commercial Real Estate - Owner Occupied
|
8,755
|
|
|
1,142
|
|
|
3,193
|
|
|
25,644
|
|
|
3,636
|
|
|
1,294,975
|
|
|
1,337,345
|
|
Commercial Real Estate - Non-Owner Occupied
|
338
|
|
|
41
|
|
|
—
|
|
|
17,335
|
|
|
1,789
|
|
|
2,447,907
|
|
|
2,467,410
|
|
Multifamily Real Estate
|
—
|
|
|
146
|
|
|
—
|
|
|
88
|
|
|
—
|
|
|
547,997
|
|
|
548,231
|
|
Commercial & Industrial
|
3,353
|
|
|
389
|
|
|
132
|
|
|
2,156
|
|
|
1,524
|
|
|
1,309,581
|
|
|
1,317,135
|
|
Residential 1-4 Family - Commercial
|
6,619
|
|
|
1,577
|
|
|
1,409
|
|
|
13,707
|
|
|
2,481
|
|
|
687,957
|
|
|
713,750
|
|
Residential 1-4 Family - Mortgage
|
12,049
|
|
|
5,143
|
|
|
2,437
|
|
|
16,766
|
|
|
7,276
|
|
|
556,907
|
|
|
600,578
|
|
Auto
|
3,320
|
|
|
403
|
|
|
195
|
|
|
7
|
|
|
576
|
|
|
297,442
|
|
|
301,943
|
|
HELOC
|
4,611
|
|
|
1,644
|
|
|
440
|
|
|
5,115
|
|
|
1,518
|
|
|
600,055
|
|
|
613,383
|
|
Consumer
|
1,504
|
|
|
1,096
|
|
|
870
|
|
|
32
|
|
|
135
|
|
|
376,057
|
|
|
379,694
|
|
Other Commercial
|
126
|
|
|
—
|
|
|
—
|
|
|
717
|
|
|
—
|
|
|
241,074
|
|
|
241,917
|
|
Total loans held for investment
|
$
|
41,434
|
|
|
$
|
11,587
|
|
|
$
|
8,856
|
|
|
$
|
90,221
|
|
|
$
|
26,953
|
|
|
$
|
9,537,156
|
|
|
$
|
9,716,207
|
|
The following table shows the PCI loan portfolios, by segment and their delinquency status, at
March 31, 2019
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 Days Past
Due
|
|
Greater than 90
Days
|
|
Current
|
|
Total
|
Construction and Land Development
|
$
|
220
|
|
|
$
|
1,257
|
|
|
$
|
11,123
|
|
|
$
|
12,600
|
|
Commercial Real Estate - Owner Occupied
|
453
|
|
|
4,891
|
|
|
21,492
|
|
|
26,836
|
|
Commercial Real Estate - Non-Owner Occupied
|
146
|
|
|
1,773
|
|
|
16,931
|
|
|
18,850
|
|
Multifamily Real Estate
|
—
|
|
|
—
|
|
|
90
|
|
|
90
|
|
Commercial & Industrial
|
275
|
|
|
1,283
|
|
|
2,601
|
|
|
4,159
|
|
Residential 1-4 Family - Commercial
|
2,990
|
|
|
971
|
|
|
9,732
|
|
|
13,693
|
|
Residential 1-4 Family - Mortgage
|
2,761
|
|
|
2,158
|
|
|
12,261
|
|
|
17,180
|
|
Auto
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
HELOC
|
808
|
|
|
105
|
|
|
4,225
|
|
|
5,138
|
|
Consumer
|
5
|
|
|
7
|
|
|
681
|
|
|
693
|
|
Other Commercial
|
—
|
|
|
—
|
|
|
686
|
|
|
686
|
|
Total
|
$
|
7,658
|
|
|
$
|
12,445
|
|
|
$
|
79,829
|
|
|
$
|
99,932
|
|
The following table shows the PCI loan portfolios, by segment and their delinquency status, at
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 Days Past
Due
|
|
Greater than 90
Days
|
|
Current
|
|
Total
|
Construction and Land Development
|
$
|
108
|
|
|
$
|
1,424
|
|
|
$
|
7,122
|
|
|
$
|
8,654
|
|
Commercial Real Estate - Owner Occupied
|
658
|
|
|
4,281
|
|
|
20,705
|
|
|
25,644
|
|
Commercial Real Estate - Non-Owner Occupied
|
61
|
|
|
1,810
|
|
|
15,464
|
|
|
17,335
|
|
Multifamily Real Estate
|
—
|
|
|
—
|
|
|
88
|
|
|
88
|
|
Commercial & Industrial
|
47
|
|
|
1,092
|
|
|
1,017
|
|
|
2,156
|
|
Residential 1-4 Family - Commercial
|
931
|
|
|
3,464
|
|
|
9,312
|
|
|
13,707
|
|
Residential 1-4 Family - Mortgage
|
1,899
|
|
|
2,412
|
|
|
12,455
|
|
|
16,766
|
|
Auto
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
HELOC
|
498
|
|
|
252
|
|
|
4,365
|
|
|
5,115
|
|
Consumer
|
5
|
|
|
9
|
|
|
18
|
|
|
32
|
|
Other Commercial
|
57
|
|
|
—
|
|
|
660
|
|
|
717
|
|
Total
|
$
|
4,264
|
|
|
$
|
14,744
|
|
|
$
|
71,213
|
|
|
$
|
90,221
|
|
The Company measures the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. The following table shows the Company’s impaired loans, excluding PCI loans, by segment at
March 31, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
Loans without a specific allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development
|
$
|
4,954
|
|
|
$
|
5,858
|
|
|
$
|
—
|
|
|
$
|
10,290
|
|
|
$
|
12,038
|
|
|
$
|
—
|
|
Commercial Real Estate - Owner Occupied
|
7,315
|
|
|
7,750
|
|
|
—
|
|
|
8,386
|
|
|
9,067
|
|
|
—
|
|
Commercial Real Estate - Non-Owner Occupied
|
4,717
|
|
|
4,791
|
|
|
—
|
|
|
6,578
|
|
|
6,929
|
|
|
—
|
|
Commercial & Industrial
|
1,028
|
|
|
1,045
|
|
|
—
|
|
|
3,059
|
|
|
3,251
|
|
|
—
|
|
Residential 1-4 Family - Commercial
|
4,686
|
|
|
4,773
|
|
|
—
|
|
|
4,516
|
|
|
4,576
|
|
|
—
|
|
Residential 1-4 Family - Mortgage
|
8,338
|
|
|
8,975
|
|
|
—
|
|
|
8,504
|
|
|
9,180
|
|
|
—
|
|
HELOC
|
2,247
|
|
|
2,262
|
|
|
—
|
|
|
1,150
|
|
|
1,269
|
|
|
—
|
|
Consumer
|
31
|
|
|
102
|
|
|
—
|
|
|
30
|
|
|
102
|
|
|
—
|
|
Other Commercial
|
—
|
|
|
—
|
|
|
—
|
|
|
478
|
|
|
478
|
|
|
—
|
|
Total impaired loans without a specific allowance
|
$
|
33,316
|
|
|
$
|
35,556
|
|
|
$
|
—
|
|
|
$
|
42,991
|
|
|
$
|
46,890
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with a specific allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development
|
$
|
3,756
|
|
|
$
|
5,034
|
|
|
$
|
89
|
|
|
$
|
372
|
|
|
$
|
491
|
|
|
$
|
63
|
|
Commercial Real Estate - Owner Occupied
|
4,182
|
|
|
4,293
|
|
|
256
|
|
|
4,304
|
|
|
4,437
|
|
|
359
|
|
Commercial Real Estate - Non-Owner Occupied
|
2,234
|
|
|
2,511
|
|
|
4
|
|
|
391
|
|
|
391
|
|
|
1
|
|
Commercial & Industrial
|
1,040
|
|
|
1,452
|
|
|
208
|
|
|
1,183
|
|
|
1,442
|
|
|
752
|
|
Residential 1-4 Family - Commercial
|
5,194
|
|
|
5,275
|
|
|
397
|
|
|
3,180
|
|
|
3,249
|
|
|
185
|
|
Residential 1-4 Family - Mortgage
|
6,261
|
|
|
6,522
|
|
|
539
|
|
|
5,329
|
|
|
5,548
|
|
|
374
|
|
Auto
|
523
|
|
|
787
|
|
|
208
|
|
|
576
|
|
|
830
|
|
|
231
|
|
HELOC
|
1,191
|
|
|
1,290
|
|
|
348
|
|
|
724
|
|
|
807
|
|
|
188
|
|
Consumer
|
179
|
|
|
340
|
|
|
57
|
|
|
178
|
|
|
467
|
|
|
64
|
|
Other Commercial
|
583
|
|
|
583
|
|
|
31
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total impaired loans with a specific allowance
|
$
|
25,143
|
|
|
$
|
28,087
|
|
|
$
|
2,137
|
|
|
$
|
16,237
|
|
|
$
|
17,662
|
|
|
$
|
2,217
|
|
Total impaired loans
|
$
|
58,459
|
|
|
$
|
63,643
|
|
|
$
|
2,137
|
|
|
$
|
59,228
|
|
|
$
|
64,552
|
|
|
$
|
2,217
|
|
The following table shows the average recorded investment and interest income recognized for the Company’s impaired loans, excluding PCI loans, by segment for the
three
months ended
March 31, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2019
|
|
Three Months Ended March 31, 2018
|
|
Average
Investment
|
|
Interest Income
Recognized
|
|
Average
Investment
|
|
Interest Income
Recognized
|
Construction and Land Development
|
$
|
9,425
|
|
|
$
|
39
|
|
|
$
|
12,326
|
|
|
$
|
74
|
|
Commercial Real Estate - Owner Occupied
|
11,554
|
|
|
105
|
|
|
17,112
|
|
|
160
|
|
Commercial Real Estate - Non-Owner Occupied
|
6,956
|
|
|
59
|
|
|
7,904
|
|
|
61
|
|
Commercial & Industrial
|
2,224
|
|
|
14
|
|
|
4,933
|
|
|
45
|
|
Residential 1-4 Family - Commercial
|
9,939
|
|
|
69
|
|
|
6,618
|
|
|
56
|
|
Residential 1-4 Family - Mortgage
|
14,793
|
|
|
77
|
|
|
16,529
|
|
|
77
|
|
Auto
|
600
|
|
|
—
|
|
|
836
|
|
|
5
|
|
HELOC
|
3,472
|
|
|
40
|
|
|
4,784
|
|
|
32
|
|
Consumer
|
215
|
|
|
2
|
|
|
272
|
|
|
—
|
|
Other Commercial
|
588
|
|
|
8
|
|
|
492
|
|
|
7
|
|
Total impaired loans
|
$
|
59,766
|
|
|
$
|
413
|
|
|
$
|
71,806
|
|
|
$
|
517
|
|
The Company considers TDRs to be impaired loans. A modification of a loan’s terms constitutes a TDR if the creditor grants a concession that it would not otherwise consider to the borrower for economic or legal reasons related to the borrower’s financial difficulties. All loans that are considered to be TDRs are evaluated for impairment in accordance with the Company’s allowance for loan loss methodology and are included in the preceding impaired loan tables. For the
three
months ended
March 31, 2019
, the recorded investment in TDRs prior to modifications was not materially impacted by the modification.
The following table provides a summary, by segment, of TDRs that continue to accrue interest under the terms of the applicable restructuring agreement, which are considered to be performing, and TDRs that have been placed on nonaccrual status, which are considered to be nonperforming, as of
March 31, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
No. of
Loans
|
|
Recorded
Investment
|
|
Outstanding
Commitment
|
|
No. of
Loans
|
|
Recorded
Investment
|
|
Outstanding
Commitment
|
Performing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development
|
5
|
|
|
$
|
2,464
|
|
|
$
|
—
|
|
|
5
|
|
|
$
|
2,496
|
|
|
$
|
—
|
|
Commercial Real Estate - Owner Occupied
|
8
|
|
|
2,772
|
|
|
—
|
|
|
8
|
|
|
2,783
|
|
|
—
|
|
Commercial Real Estate - Non-Owner Occupied
|
4
|
|
|
4,429
|
|
|
—
|
|
|
4
|
|
|
4,438
|
|
|
—
|
|
Commercial & Industrial
|
4
|
|
|
1,199
|
|
|
—
|
|
|
4
|
|
|
978
|
|
|
—
|
|
Residential 1-4 Family - Commercial
|
34
|
|
|
3,800
|
|
|
—
|
|
|
30
|
|
|
2,887
|
|
|
—
|
|
Residential 1-4 Family - Mortgage
|
30
|
|
|
5,586
|
|
|
—
|
|
|
30
|
|
|
5,070
|
|
|
—
|
|
HELOC
|
2
|
|
|
57
|
|
|
—
|
|
|
2
|
|
|
58
|
|
|
—
|
|
Consumer
|
3
|
|
|
28
|
|
|
—
|
|
|
1
|
|
|
13
|
|
|
—
|
|
Other Commercial
|
1
|
|
|
474
|
|
|
—
|
|
|
1
|
|
|
478
|
|
|
—
|
|
Total performing
|
91
|
|
|
$
|
20,809
|
|
|
$
|
—
|
|
|
85
|
|
|
$
|
19,201
|
|
|
$
|
—
|
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development
|
1
|
|
|
$
|
1,557
|
|
|
$
|
—
|
|
|
2
|
|
|
$
|
3,474
|
|
|
$
|
—
|
|
Commercial Real Estate - Owner Occupied
|
2
|
|
|
190
|
|
|
—
|
|
|
2
|
|
|
198
|
|
|
—
|
|
Commercial & Industrial
|
4
|
|
|
285
|
|
|
—
|
|
|
6
|
|
|
461
|
|
|
—
|
|
Residential 1-4 Family - Commercial
|
1
|
|
|
60
|
|
|
—
|
|
|
1
|
|
|
60
|
|
|
—
|
|
Residential 1-4 Family - Mortgage
|
14
|
|
|
2,528
|
|
|
—
|
|
|
15
|
|
|
3,135
|
|
|
—
|
|
HELOC
|
2
|
|
|
62
|
|
|
—
|
|
|
2
|
|
|
62
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
7
|
|
|
—
|
|
Total nonperforming
|
24
|
|
|
$
|
4,682
|
|
|
$
|
—
|
|
|
29
|
|
|
$
|
7,397
|
|
|
$
|
—
|
|
Total performing and nonperforming
|
115
|
|
|
$
|
25,491
|
|
|
$
|
—
|
|
|
114
|
|
|
$
|
26,598
|
|
|
$
|
—
|
|
The Company considers a default of a TDR to occur when the borrower is
90 days
past due following the restructure or a foreclosure and repossession of the applicable collateral occurs. During the
three
months ended
March 31, 2019
and
2018
, the Company did not have any material loans that went into default that had been restructured in the twelve-month period prior to the time of default.
The following table shows, by segment and modification type, TDRs that occurred during the
three
months ended
March 31, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Restructurings
|
|
Three Months Ended
March 31, 2019
|
|
Three Months Ended
March 31, 2018
|
|
No. of
Loans
|
|
Recorded
Investment at
Period End
|
|
No. of
Loans
|
|
Recorded
Investment at
Period End
|
Modified to interest only, at a market rate
|
|
|
|
|
|
|
|
Total interest only at market rate of interest
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Term modification, at a market rate
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate - Owner Occupied
|
—
|
|
|
$
|
—
|
|
|
3
|
|
|
$
|
811
|
|
Commercial & Industrial
|
1
|
|
|
441
|
|
|
—
|
|
|
—
|
|
Residential 1-4 Family - Commercial
|
2
|
|
|
300
|
|
|
1
|
|
|
152
|
|
Residential 1-4 Family - Mortgage
|
1
|
|
|
38
|
|
|
1
|
|
|
140
|
|
Consumer
|
1
|
|
|
10
|
|
|
—
|
|
|
—
|
|
Total loan term extended at a market rate
|
5
|
|
|
$
|
789
|
|
|
5
|
|
|
$
|
1,103
|
|
|
|
|
|
|
|
|
|
Term modification, below market rate
|
|
|
|
|
|
|
|
Residential 1-4 Family - Commercial
|
5
|
|
|
$
|
937
|
|
|
—
|
|
|
$
|
—
|
|
Residential 1-4 Family - Mortgage
|
—
|
|
|
—
|
|
|
2
|
|
|
164
|
|
Consumer
|
1
|
|
|
6
|
|
|
—
|
|
|
—
|
|
Total loan term extended at a below market rate
|
6
|
|
|
$
|
943
|
|
|
2
|
|
|
$
|
164
|
|
|
|
|
|
|
|
|
|
Total
|
11
|
|
|
$
|
1,732
|
|
|
7
|
|
|
$
|
1,267
|
|
The following tables show the ALL activity by segment for the
three
months ended
March 31, 2019
and
2018
. The tables below include the provision for loan losses. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Allowance for loan losses
|
|
Balance,
beginning of the
year
|
|
Recoveries
credited to
allowance
|
|
Loans charged
off
|
|
Provision
charged to
operations
|
|
Balance, end of
period
|
Construction and Land Development
|
$
|
6,803
|
|
|
$
|
27
|
|
|
$
|
(732
|
)
|
|
$
|
126
|
|
|
$
|
6,224
|
|
Commercial Real Estate - Owner Occupied
|
4,023
|
|
|
25
|
|
|
(47
|
)
|
|
29
|
|
|
4,030
|
|
Commercial Real Estate - Non-Owner Occupied
|
8,865
|
|
|
89
|
|
|
—
|
|
|
82
|
|
|
9,036
|
|
Multifamily Real Estate
|
649
|
|
|
85
|
|
|
—
|
|
|
(74
|
)
|
|
660
|
|
Commercial & Industrial
|
7,636
|
|
|
360
|
|
|
(980
|
)
|
|
395
|
|
|
7,411
|
|
Residential 1-4 Family - Commercial
|
1,984
|
|
|
87
|
|
|
(66
|
)
|
|
74
|
|
|
2,079
|
|
Residential 1-4 Family - Mortgage
|
1,200
|
|
|
155
|
|
|
(32
|
)
|
|
90
|
|
|
1,413
|
|
Auto
|
1,443
|
|
|
186
|
|
|
(399
|
)
|
|
216
|
|
|
1,446
|
|
HELOC
|
1,297
|
|
|
87
|
|
|
(216
|
)
|
|
238
|
|
|
1,406
|
|
Consumer and all other
(1)
|
7,145
|
|
|
595
|
|
|
(3,467
|
)
|
|
2,849
|
|
|
7,122
|
|
Total
|
$
|
41,045
|
|
|
$
|
1,696
|
|
|
$
|
(5,939
|
)
|
|
$
|
4,025
|
|
|
$
|
40,827
|
|
(1)
Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Allowance for loan losses
|
|
Balance,
beginning of the
year
|
|
Recoveries
credited to
allowance
|
|
Loans charged
off
|
|
Provision
charged to
operations
|
|
Balance, end of
period
|
Construction and Land Development
|
$
|
9,709
|
|
|
$
|
226
|
|
|
$
|
(6
|
)
|
|
$
|
287
|
|
|
$
|
10,216
|
|
Commercial Real Estate - Owner Occupied
|
2,931
|
|
|
109
|
|
|
(125
|
)
|
|
1,057
|
|
|
3,972
|
|
Commercial Real Estate - Non-Owner Occupied
|
7,544
|
|
|
4
|
|
|
(94
|
)
|
|
(353
|
)
|
|
7,101
|
|
Multifamily Real Estate
|
1,092
|
|
|
5
|
|
|
—
|
|
|
290
|
|
|
1,387
|
|
Commercial & Industrial
|
4,552
|
|
|
186
|
|
|
(206
|
)
|
|
1,162
|
|
|
5,694
|
|
Residential 1-4 Family - Commercial
|
4,437
|
|
|
52
|
|
|
(10
|
)
|
|
(1,787
|
)
|
|
2,692
|
|
Residential 1-4 Family - Mortgage
|
1,524
|
|
|
153
|
|
|
(100
|
)
|
|
638
|
|
|
2,215
|
|
Auto
|
975
|
|
|
88
|
|
|
(168
|
)
|
|
125
|
|
|
1,020
|
|
HELOC
|
1,360
|
|
|
276
|
|
|
(84
|
)
|
|
(81
|
)
|
|
1,471
|
|
Consumer and all other
(1)
|
4,084
|
|
|
381
|
|
|
(1,766
|
)
|
|
2,162
|
|
|
4,861
|
|
Total
|
$
|
38,208
|
|
|
$
|
1,480
|
|
|
$
|
(2,559
|
)
|
|
$
|
3,500
|
|
|
$
|
40,629
|
|
(1)
Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.
The following tables show the loan and ALL balances based on impairment methodology by segment as of
March 31, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Loans individually evaluated
for impairment
|
|
Loans collectively evaluated for
impairment
|
|
Loans acquired with
deteriorated credit quality
|
|
Total
|
|
Loans
|
|
ALL
|
|
Loans
|
|
ALL
|
|
Loans
|
|
ALL
|
|
Loans
|
|
ALL
|
Construction and Land Development
|
$
|
8,710
|
|
|
$
|
89
|
|
|
$
|
1,305,369
|
|
|
$
|
6,135
|
|
|
$
|
12,600
|
|
|
$
|
—
|
|
|
$
|
1,326,679
|
|
|
$
|
6,224
|
|
Commercial Real Estate - Owner Occupied
|
11,497
|
|
|
256
|
|
|
1,883,131
|
|
|
3,774
|
|
|
26,836
|
|
|
—
|
|
|
1,921,464
|
|
|
4,030
|
|
Commercial Real Estate - Non-Owner Occupied
|
6,951
|
|
|
4
|
|
|
2,944,652
|
|
|
9,032
|
|
|
18,850
|
|
|
—
|
|
|
2,970,453
|
|
|
9,036
|
|
Multifamily Real Estate
|
—
|
|
|
—
|
|
|
591,341
|
|
|
660
|
|
|
90
|
|
|
—
|
|
|
591,431
|
|
|
660
|
|
Commercial & Industrial
|
2,068
|
|
|
208
|
|
|
1,860,398
|
|
|
7,203
|
|
|
4,159
|
|
|
—
|
|
|
1,866,625
|
|
|
7,411
|
|
Residential 1-4 Family - Commercial
|
9,880
|
|
|
397
|
|
|
791,736
|
|
|
1,682
|
|
|
13,693
|
|
|
—
|
|
|
815,309
|
|
|
2,079
|
|
Residential 1-4 Family - Mortgage
|
14,599
|
|
|
539
|
|
|
833,723
|
|
|
874
|
|
|
17,180
|
|
|
—
|
|
|
865,502
|
|
|
1,413
|
|
Auto
|
523
|
|
|
208
|
|
|
300,101
|
|
|
1,238
|
|
|
7
|
|
|
—
|
|
|
300,631
|
|
|
1,446
|
|
HELOC
|
3,438
|
|
|
348
|
|
|
663,511
|
|
|
1,058
|
|
|
5,138
|
|
|
—
|
|
|
672,087
|
|
|
1,406
|
|
Consumer and all other
(1)
|
793
|
|
|
88
|
|
|
619,957
|
|
|
7,034
|
|
|
1,379
|
|
|
—
|
|
|
622,129
|
|
|
7,122
|
|
Total loans held for investment, net
|
$
|
58,459
|
|
|
$
|
2,137
|
|
|
$
|
11,793,919
|
|
|
$
|
38,690
|
|
|
$
|
99,932
|
|
|
$
|
—
|
|
|
$
|
11,952,310
|
|
|
$
|
40,827
|
|
(1)
Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Loans individually evaluated
for impairment
|
|
Loans collectively evaluated for
impairment
|
|
Loans acquired with
deteriorated credit quality
|
|
Total
|
|
Loans
|
|
ALL
|
|
Loans
|
|
ALL
|
|
Loans
|
|
ALL
|
|
Loans
|
|
ALL
|
Construction and Land Development
|
$
|
10,662
|
|
|
$
|
63
|
|
|
$
|
1,175,505
|
|
|
$
|
6,740
|
|
|
$
|
8,654
|
|
|
$
|
—
|
|
|
$
|
1,194,821
|
|
|
$
|
6,803
|
|
Commercial Real Estate - Owner Occupied
|
12,690
|
|
|
359
|
|
|
1,299,011
|
|
|
3,664
|
|
|
25,644
|
|
|
—
|
|
|
1,337,345
|
|
|
4,023
|
|
Commercial Real Estate - Non-Owner Occupied
|
6,969
|
|
|
1
|
|
|
2,443,106
|
|
|
8,864
|
|
|
17,335
|
|
|
—
|
|
|
2,467,410
|
|
|
8,865
|
|
Multifamily Real Estate
|
—
|
|
|
—
|
|
|
548,143
|
|
|
649
|
|
|
88
|
|
|
—
|
|
|
548,231
|
|
|
649
|
|
Commercial & Industrial
|
4,242
|
|
|
752
|
|
|
1,310,737
|
|
|
6,884
|
|
|
2,156
|
|
|
—
|
|
|
1,317,135
|
|
|
7,636
|
|
Residential 1-4 Family - Commercial
|
7,696
|
|
|
185
|
|
|
692,347
|
|
|
1,799
|
|
|
13,707
|
|
|
—
|
|
|
713,750
|
|
|
1,984
|
|
Residential 1-4 Family - Mortgage
|
13,833
|
|
|
374
|
|
|
569,979
|
|
|
826
|
|
|
16,766
|
|
|
—
|
|
|
600,578
|
|
|
1,200
|
|
Auto
|
576
|
|
|
231
|
|
|
301,360
|
|
|
1,212
|
|
|
7
|
|
|
—
|
|
|
301,943
|
|
|
1,443
|
|
HELOC
|
1,874
|
|
|
188
|
|
|
606,394
|
|
|
1,109
|
|
|
5,115
|
|
|
—
|
|
|
613,383
|
|
|
1,297
|
|
Consumer and all other
(1)
|
686
|
|
|
64
|
|
|
620,176
|
|
|
7,081
|
|
|
749
|
|
|
—
|
|
|
621,611
|
|
|
7,145
|
|
Total loans held for investment, net
|
$
|
59,228
|
|
|
$
|
2,217
|
|
|
$
|
9,566,758
|
|
|
$
|
38,828
|
|
|
$
|
90,221
|
|
|
$
|
—
|
|
|
$
|
9,716,207
|
|
|
$
|
41,045
|
|
(1)
Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.
The Company uses a risk rating system and past due status as the primary credit quality indicators for the loan categories. The risk rating system on a scale of 0 through 9 is used to determine risk level as used in the calculation of the ALL; on those loans without a risk rating, the Company uses past due status to determine risk level. The risk levels, as described below, do not necessarily follow the regulatory definitions of risk levels with the same name. A general description of the characteristics of the risk levels follows:
Pass is determined by the following criteria:
•
Risk rated 0 loans have little or no risk and are with General Obligation Municipal Borrowers;
•
Risk rated 1 loans have little or no risk and are generally secured by cash or cash equivalents;
•
Risk rated 2 loans have minimal risk to well qualified borrowers and no significant questions as to safety;
•
Risk rated 3 loans are satisfactory loans with strong borrowers and secondary sources of repayment;
•
Risk rated 4 loans are satisfactory loans with borrowers not as strong as risk rated 3 loans and may exhibit a greater
degree of financial risk based on the type of business supporting the loan; or
•
Loans that are not risk rated but that are 0 to 29 days past due.
Watch & Special Mention is determined by the following criteria:
•
Risk rated 5 loans are watch loans that warrant more than the normal level of supervision and have the possibility of an
event occurring that may weaken the borrower’s ability to repay;
•
Risk rated 6 loans have increasing potential weaknesses beyond those at which the loan originally was granted and if
not addressed could lead to inadequately protecting the Company’s credit position; or
•
Loans that are not risk rated but that are 30 to 89 days past due.
Substandard is determined by the following criteria:
•
Risk rated 7 loans are substandard loans and are inadequately protected by the current sound worth or paying capacity
of the obligor or the collateral pledged; these have well defined weaknesses that jeopardize the liquidation of the debt
with the distinct possibility the Company will sustain some loss if the deficiencies are not corrected; or
•
Loans that are not risk rated but that are 90 to 149 days past due.
Doubtful is determined by the following criteria:
•
Risk rated 8 loans are doubtful of collection and the possibility of loss is high but pending specific borrower plans for
recovery, its classification as a loss is deferred until its more exact status is determined;
•
Risk rated 9 loans are loss loans which are considered uncollectable and of such little value that their continuance as
bankable assets is not warranted; or
•
Loans that are not risk rated but that are over 149 days past due.
The following table shows the recorded investment in all loans, excluding PCI loans, by segment with their related risk level as of
March 31, 2019
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Watch & Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
Construction and Land Development
|
$
|
1,256,927
|
|
|
$
|
44,734
|
|
|
$
|
12,413
|
|
|
$
|
5
|
|
|
$
|
1,314,079
|
|
Commercial Real Estate - Owner Occupied
|
1,798,015
|
|
|
76,629
|
|
|
19,984
|
|
|
—
|
|
|
1,894,628
|
|
Commercial Real Estate - Non-Owner Occupied
|
2,890,489
|
|
|
54,050
|
|
|
7,064
|
|
|
—
|
|
|
2,951,603
|
|
Multifamily Real Estate
|
580,548
|
|
|
10,793
|
|
|
—
|
|
|
—
|
|
|
591,341
|
|
Commercial & Industrial
|
1,753,278
|
|
|
106,629
|
|
|
2,559
|
|
|
—
|
|
|
1,862,466
|
|
Residential 1-4 Family - Commercial
|
766,837
|
|
|
26,790
|
|
|
7,989
|
|
|
—
|
|
|
801,616
|
|
Residential 1-4 Family - Mortgage
|
827,008
|
|
|
4,776
|
|
|
16,538
|
|
|
—
|
|
|
848,322
|
|
Auto
|
296,700
|
|
|
2,207
|
|
|
1,717
|
|
|
—
|
|
|
300,624
|
|
HELOC
|
654,804
|
|
|
5,830
|
|
|
6,315
|
|
|
—
|
|
|
666,949
|
|
Consumer
|
395,747
|
|
|
778
|
|
|
273
|
|
|
—
|
|
|
396,798
|
|
Other Commercial
|
220,323
|
|
|
3,521
|
|
|
108
|
|
|
—
|
|
|
223,952
|
|
Total
|
$
|
11,440,676
|
|
|
$
|
336,737
|
|
|
$
|
74,960
|
|
|
$
|
5
|
|
|
$
|
11,852,378
|
|
The following table shows the recorded investment in all loans, excluding PCI loans, by segment with their related risk level as of
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Watch & Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
Construction and Land Development
|
$
|
1,130,577
|
|
|
$
|
43,894
|
|
|
$
|
11,696
|
|
|
$
|
—
|
|
|
$
|
1,186,167
|
|
Commercial Real Estate - Owner Occupied
|
1,231,422
|
|
|
50,939
|
|
|
29,340
|
|
|
—
|
|
|
1,311,701
|
|
Commercial Real Estate - Non-Owner Occupied
|
2,425,500
|
|
|
17,648
|
|
|
6,927
|
|
|
—
|
|
|
2,450,075
|
|
Multifamily Real Estate
|
537,572
|
|
|
10,571
|
|
|
—
|
|
|
—
|
|
|
548,143
|
|
Commercial & Industrial
|
1,273,549
|
|
|
34,864
|
|
|
6,566
|
|
|
—
|
|
|
1,314,979
|
|
Residential 1-4 Family - Commercial
|
677,109
|
|
|
17,086
|
|
|
5,848
|
|
|
—
|
|
|
700,043
|
|
Residential 1-4 Family - Mortgage
|
554,192
|
|
|
14,855
|
|
|
14,765
|
|
|
—
|
|
|
583,812
|
|
Auto
|
296,907
|
|
|
3,590
|
|
|
1,439
|
|
|
—
|
|
|
301,936
|
|
HELOC
|
598,444
|
|
|
6,316
|
|
|
3,508
|
|
|
—
|
|
|
608,268
|
|
Consumer
|
378,873
|
|
|
547
|
|
|
242
|
|
|
—
|
|
|
379,662
|
|
Other Commercial
|
239,857
|
|
|
864
|
|
|
479
|
|
|
—
|
|
|
241,200
|
|
Total
|
$
|
9,344,002
|
|
|
$
|
201,174
|
|
|
$
|
80,810
|
|
|
$
|
—
|
|
|
$
|
9,625,986
|
|
The following table shows the recorded investment in only PCI loans by segment with their related risk level as of
March 31, 2019
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Watch & Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
Construction and Land Development
|
$
|
1,760
|
|
|
$
|
4,430
|
|
|
$
|
6,410
|
|
|
$
|
—
|
|
|
$
|
12,600
|
|
Commercial Real Estate - Owner Occupied
|
8,194
|
|
|
6,741
|
|
|
11,901
|
|
|
—
|
|
|
26,836
|
|
Commercial Real Estate - Non-Owner Occupied
|
4,596
|
|
|
7,323
|
|
|
6,931
|
|
|
—
|
|
|
18,850
|
|
Multifamily Real Estate
|
—
|
|
|
90
|
|
|
—
|
|
|
—
|
|
|
90
|
|
Commercial & Industrial
|
107
|
|
|
1,182
|
|
|
2,870
|
|
|
—
|
|
|
4,159
|
|
Residential 1-4 Family - Commercial
|
6,673
|
|
|
2,907
|
|
|
4,043
|
|
|
70
|
|
|
13,693
|
|
Residential 1-4 Family - Mortgage
|
10,701
|
|
|
1,614
|
|
|
4,865
|
|
|
—
|
|
|
17,180
|
|
Auto
|
4
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
7
|
|
HELOC
|
3,395
|
|
|
1,192
|
|
|
551
|
|
|
—
|
|
|
5,138
|
|
Consumer
|
681
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
693
|
|
Other Commercial
|
55
|
|
|
631
|
|
|
—
|
|
|
—
|
|
|
686
|
|
Total
|
$
|
36,166
|
|
|
$
|
26,110
|
|
|
$
|
37,586
|
|
|
$
|
70
|
|
|
$
|
99,932
|
|
The following table shows the recorded investment in only PCI loans by segment with their related risk level as of
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Watch & Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
Construction and Land Development
|
$
|
1,835
|
|
|
$
|
1,308
|
|
|
$
|
5,511
|
|
|
$
|
—
|
|
|
$
|
8,654
|
|
Commercial Real Estate - Owner Occupied
|
8,347
|
|
|
6,685
|
|
|
10,612
|
|
|
—
|
|
|
25,644
|
|
Commercial Real Estate - Non-Owner Occupied
|
4,789
|
|
|
7,992
|
|
|
4,554
|
|
|
—
|
|
|
17,335
|
|
Multifamily Real Estate
|
—
|
|
|
88
|
|
|
—
|
|
|
—
|
|
|
88
|
|
Commercial & Industrial
|
762
|
|
|
134
|
|
|
1,260
|
|
|
—
|
|
|
2,156
|
|
Residential 1-4 Family - Commercial
|
6,512
|
|
|
2,771
|
|
|
4,424
|
|
|
—
|
|
|
13,707
|
|
Residential 1-4 Family - Mortgage
|
9,894
|
|
|
1,030
|
|
|
5,842
|
|
|
—
|
|
|
16,766
|
|
Auto
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
HELOC
|
3,438
|
|
|
1,031
|
|
|
646
|
|
|
—
|
|
|
5,115
|
|
Consumer
|
17
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
32
|
|
Other Commercial
|
57
|
|
|
660
|
|
|
—
|
|
|
—
|
|
|
717
|
|
Total
|
$
|
35,658
|
|
|
$
|
21,699
|
|
|
$
|
32,864
|
|
|
$
|
—
|
|
|
$
|
90,221
|
|
Loans acquired are originally recorded at fair value, with certain loans being identified as impaired at the date of purchase. The fair values were determined based on the credit quality of the portfolio, expected future cash flows, and timing of those expected future cash flows.
The following shows changes in the accretable yield for loans accounted for under ASC 310-30,
Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality,
for the periods presented (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31,
|
|
2019
|
|
2018
|
Balance at beginning of period
|
$
|
31,201
|
|
|
$
|
14,563
|
|
Additions
|
2,432
|
|
|
12,225
|
|
Accretion
|
(2,385
|
)
|
|
(2,144
|
)
|
Reclassification of nonaccretable difference due to improvement in expected cash flows
|
465
|
|
|
(35
|
)
|
Other, net
(1)
|
1,508
|
|
|
293
|
|
Balance at end of period
|
$
|
33,221
|
|
|
$
|
24,902
|
|
(1)
This line item represents changes in the cash flows expected to be collected due to the impact of non-credit changes such as prepayment assumptions, changes in interest rates on variable rate PCI loans, and discounted payoffs that occurred in the quarter.
The carrying value of the Company’s PCI loan portfolio, accounted for under ASC 310-30, Receivables -
Loans and Debt Securities Acquired with Deteriorated Credit Quality
, totaled
$99.9 million
at
March 31, 2019
and
$90.2 million
at
December 31, 2018
. The outstanding balance of the Company’s PCI loan portfolio totaled
$125.0 million
at
March 31, 2019
and
$113.5 million
at
December 31, 2018
. The carrying value of the Company’s acquired performing loan portfolio, accounted for under ASC 310-20,
Receivables – Nonrefundable Fees and Other Costs
, totaled
$3.9 billion
at
March 31, 2019
and
$2.0 billion
at
December 31, 2018
; the remaining discount on these loans totaled
$63.5 million
at
March 31, 2019
and
$30.3 million
at
December 31, 2018
.
5.
INTANGIBLE ASSETS
The Company’s intangible assets consist of core deposits, goodwill, and other intangibles arising from acquisitions. The Company has determined that core deposit intangibles have finite lives and amortizes them over their estimated useful lives. Core deposit intangibles are being amortized over the period of expected benefit, which ranges from
1
to
10 years
, using an accelerated method. Other amortizable intangible assets are being amortized over the period of expected benefit, which ranges from
5
to
10 years
, using various methods. Refer to Note 2 "Acquisitions" for further information regarding intangible assets.
In accordance with ASC 350,
Intangibles-Goodwill and Other,
the Company reviews the carrying value of indefinite lived intangible assets at least annually or more frequently if certain impairment indicators exist. The Company performed its annual impairment testing in the second quarter of 2018. In connection with the wind down of UMG, during the second quarter of 2018, the Company wrote off the goodwill in the amount of $
864,000
, which is included in discontinued operations.
Amortization expense of intangibles for the
three
months ended
March 31, 2019
and
2018
totaled
$4.2 million
and
$3.2 million
, respectively. As of
March 31, 2019
, the estimated remaining amortization expense of intangibles is as follows for the years ending (dollars in thousands):
|
|
|
|
|
For the remaining nine months of 2019
|
$
|
14,613
|
|
2020
|
16,514
|
|
2021
|
13,905
|
|
2022
|
11,520
|
|
2023
|
9,717
|
|
Thereafter
|
22,286
|
|
Total estimated amortization expense
|
$
|
88,555
|
|
6. LEASES
The Company leases branch locations, office space, land, and equipment. The Company determines if an arrangement is a lease at inception. As of
March 31, 2019
, all leases have been classified as operating leases with approximately
170
non-cancellable operating leases where the Company is the lessee. The Company does not have any material arrangements where the Company is the lessor or in a sublease contract.
Operating leases have been reported on the Company’s Consolidated Balance Sheet as an operating ROU asset within Other Assets and an operating lease liability within Other Liabilities. The ROU asset represents the Company’s right to use an underlying asset over the course of the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease liabilities are recognized at the commencement date based on the present value of the remaining lease payments, discounted using the incremental borrowing rate. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating ROU Asset is recognized at commencement date based on the initial measurement of the lease liability, any lease payments made excluding lease incentives, and any initial direct costs incurred.
Total lease expenses are recorded in Occupancy Expense on the Company’s Consolidated Statement of Income. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Most of the Company’s leases include one or more options to renew, however, the Company is not reasonably certain to exercise those options and therefore does not include the renewal options in the measurement of the ROU Asset and lease liabilities.
Leases where the Company is a lessee are primarily for real estate leases with remaining lease terms of up to
30
years. The Company’s real estate lease agreements do not contain restrictive covenants or residual value guarantees. At
March 31, 2019
, the total ROU Asset was
$58.5 million
and total operating lease liabilities were
$71.2 million
. Total operating lease expenses were
$3.2 million
for the three months ended
March 31, 2019
.
As of
March 31, 2019
, the Company had
no
operating leases that have not yet commenced and
no
sales leaseback transactions.
Maturities of operating lease liabilities as of
March 31, 2019
are as follows for the years ending (dollars in thousands):
|
|
|
|
|
|
For the remaining nine months of 2019
|
|
$
|
10,307
|
|
2020
|
|
12,164
|
|
2021
|
|
10,414
|
|
2022
|
|
9,618
|
|
2023
|
|
8,822
|
|
2024
|
|
7,606
|
|
Thereafter
|
|
23,533
|
|
Total future lease payments
|
|
82,464
|
|
Less: Interest
|
|
11,292
|
|
Present value of lease liabilities
|
|
$
|
71,172
|
|
Other lease information is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
March 31, 2019
|
Lease Term and Discount Rate of Operating leases:
|
|
|
Weighted-average remaining lease term (years)
|
|
8.54
|
|
Weighted-average discount rate
(1)
|
|
3.13
|
%
|
Cash paid for amounts included in measurement of lease liabilities:
|
|
|
Operating Cash Flows from Operating Leases
|
|
$
|
3,468
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
Operating leases
|
|
4,346
|
|
(1)
An incremental borrowing rate is used based on information available at commencement date of lease.
|
7. BORROWINGS
Short-term Borrowings
The Company classifies all borrowings that will mature within a year from the date on which the Company enters into them as short-term borrowings. Total short-term borrowings consist primarily of advances from the FHLB, federal funds purchased (which are secured overnight borrowings from other financial institutions), and other lines of credit. Also included in total short-term borrowings are securities sold under agreements to repurchase, which are secured transactions with customers and generally mature the day following the date sold. Total short-term borrowings consist of the following as of
March 31, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
Securities sold under agreements to repurchase
|
$
|
73,774
|
|
|
$
|
39,197
|
|
FHLB
|
939,700
|
|
|
1,043,600
|
|
Other short-term borrowings
|
—
|
|
|
5,000
|
|
Total short-term borrowings
|
$
|
1,013,474
|
|
|
$
|
1,087,797
|
|
|
|
|
|
Maximum month-end outstanding balance
|
$
|
1,198,370
|
|
|
$
|
1,087,797
|
|
Average outstanding balance during the period
|
1,075,595
|
|
|
968,014
|
|
Average interest rate (during the period)
|
2.47
|
%
|
|
1.91
|
%
|
Average interest rate at end of period
|
2.44
|
%
|
|
2.43
|
%
|
The Bank maintains federal funds lines with several correspondent banks, the remaining available balance of which was
$602.0 million
and
$382.0 million
at
March 31, 2019
and
December 31, 2018
, respectively. The Company maintains an alternate line of credit at a correspondent bank, the available balance of which was $
25.0 million
at both
March 31, 2019
and
December 31, 2018
. The Company has certain restrictive covenants related to certain asset quality, capital, and profitability metrics associated with these lines and is considered to be in compliance with such covenants as of
March 31, 2019
. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to
$4.1 billion
and
$4.0 billion
at
March 31, 2019
and
December 31, 2018
, respectively.
Long-term Borrowings
In connection with several previous bank acquisitions, the Company issued and acquired trust preferred capital notes of
$58.5 million
and
$87.0 million
, respectively. Most recently, in connection with the acquisition of Access on February 1, 2019, the Company acquired additional trust preferred capital notes totaling $
5.0 million
with a fair value premium of $
25,000
. The remaining fair value discount on all acquired trust preferred capital notes was
$15.5 million
at
March 31, 2019
. The trust preferred capital notes currently qualify for Tier 2 capital of the Company for regulatory purposes. Our trust preferred capital notes consist of the following as of
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
Preferred
Capital
Securities
(1)
|
|
Investment
(1)
|
|
Spread to
3-Month LIBOR
|
|
Rate
(2)
|
|
Maturity
|
Trust Preferred Capital Note - Statutory Trust I
|
$
|
22,500,000
|
|
|
$
|
696,000
|
|
|
2.75
|
%
|
|
5.35
|
%
|
|
6/17/2034
|
Trust Preferred Capital Note - Statutory Trust II
|
36,000,000
|
|
|
1,114,000
|
|
|
1.40
|
%
|
|
4.00
|
%
|
|
6/15/2036
|
VFG Limited Liability Trust I Indenture
|
20,000,000
|
|
|
619,000
|
|
|
2.73
|
%
|
|
5.33
|
%
|
|
3/18/2034
|
FNB Statutory Trust II Indenture
|
12,000,000
|
|
|
372,000
|
|
|
3.10
|
%
|
|
5.70
|
%
|
|
6/26/2033
|
Gateway Capital Statutory Trust I
|
8,000,000
|
|
|
248,000
|
|
|
3.10
|
%
|
|
5.70
|
%
|
|
9/17/2033
|
Gateway Capital Statutory Trust II
|
7,000,000
|
|
|
217,000
|
|
|
2.65
|
%
|
|
5.25
|
%
|
|
6/17/2034
|
Gateway Capital Statutory Trust III
|
15,000,000
|
|
|
464,000
|
|
|
1.50
|
%
|
|
4.10
|
%
|
|
5/30/2036
|
Gateway Capital Statutory Trust IV
|
25,000,000
|
|
|
774,000
|
|
|
1.55
|
%
|
|
4.15
|
%
|
|
7/30/2037
|
MFC Capital Trust II
|
5,000,000
|
|
|
155,000
|
|
|
2.85
|
%
|
|
5.45
|
%
|
|
1/23/2034
|
Total
|
$
|
150,500,000
|
|
|
$
|
4,659,000
|
|
|
|
|
|
|
|
|
|
(1)
The total of the trust preferred capital securities and investments in the respective trusts represents the principal asset of the Company's junior subordinated debt securities with like maturities and like interest rates to the capital securities. The Company's investment in the trusts is reported in "Other Assets" on the Company's Consolidated Balance Sheets.
(2)
Rate as of
March 31, 2019
.
During the fourth quarter of 2016, the Company issued
$150.0 million
of fixed-to-floating rate subordinated notes with an initial fixed interest rate of
5.00%
through December 15, 2021. The interest rate then changes to a floating rate of LIBOR plus
3.175%
through its maturity date on
December 15, 2026
. In connection with the acquisition of Xenith on January 1, 2018, the Company acquired
$8.5 million
of subordinated notes with a fair value premium of
$259,000
, which was $
129,000
at
March 31, 2019
. The acquired subordinated notes have a fixed interest rate of
6.75%
and a maturity date of
June 30, 2025
. At
March 31, 2019
and
December 31, 2018
, the contractual principal reported for subordinated notes was
$158.5 million
; remaining issuance discount as of
March 31, 2019
and
December 31, 2018
is
$1.5 million
and $
1.6 million
, respectively. The subordinated notes qualify as Tier 2 capital for the Company for regulatory purposes. The Company has certain restrictive covenants related to certain asset quality, capital, and profitability metrics associated with the acquired subordinated notes and is considered to be in compliance with these covenants as of
March 31, 2019
.
On August 23, 2012, the Company modified its fixed rate FHLB advances to floating rate advances, which resulted in reducing the Company’s FHLB borrowing costs. In connection with this modification, the Company incurred a prepayment penalty of
$19.6 million
on the original advances, which is included as a component of long-term borrowings on the Company’s Consolidated Balance Sheet. In accordance with ASC 470-50,
Modifications and Extinguishments
, the Company is amortizing this prepayment penalty over the term of the modified advances using the effective rate method. The amortization expense is included as a component of interest expense on long-term borrowings on the Company’s Consolidated Statements of Income. Amortization expense for the
three
months ended
March 31, 2019
and
2018
was
$493,000
and
$481,000
, respectively.
As of
March 31, 2019
, the Company had long-term advances from the FHLB consisting of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Type
|
|
Spread to
3-Month LIBOR
|
|
Interest Rate
(1)
|
|
Maturity Date
|
|
Advance Amount
|
Adjustable Rate Credit
|
|
0.44
|
%
|
|
3.04
|
%
|
|
8/23/2022
|
|
$
|
55,000
|
|
Adjustable Rate Credit
|
|
0.45
|
%
|
|
3.05
|
%
|
|
11/23/2022
|
|
65,000
|
|
Adjustable Rate Credit
|
|
0.45
|
%
|
|
3.05
|
%
|
|
11/23/2022
|
|
10,000
|
|
Adjustable Rate Credit
|
|
0.45
|
%
|
|
3.05
|
%
|
|
11/23/2022
|
|
10,000
|
|
Fixed Rate Convertible
|
|
—
|
|
|
1.78
|
%
|
|
10/26/2028
|
|
200,000
|
|
Fixed Rate Hybrid
|
|
—
|
|
|
2.37
|
%
|
|
10/10/2019
|
|
25,000
|
|
Fixed Rate Hybrid
|
|
—
|
|
|
1.58
|
%
|
|
5/18/2020
|
|
20,000
|
|
Fixed Rate Hybrid
|
|
—
|
|
|
2.65
|
%
|
|
10/24/2019
|
|
25,000
|
|
Fixed Rate Credit
|
|
—
|
|
|
1.54
|
%
|
|
10/2/2020
|
|
10,000
|
|
Fixed Rate Credit
|
|
—
|
|
|
1.32
|
%
|
|
10/2/2020
|
|
10,000
|
|
Fixed Rate Credit
|
|
—
|
|
|
1.13
|
%
|
|
4/4/2019
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
450,000
|
|
(1)
Interest rates calculated using non-rounded numbers.
|
|
|
|
|
|
|
|
|
As of
December 31, 2018
, the Company had long-term advances from the FHLB consisting of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Type
|
|
Spread to
3-Month LIBOR
|
|
Interest Rate
(1)
|
|
Maturity Date
|
|
Advance Amount
|
|
|
|
|
|
|
|
|
|
Adjustable Rate Credit
|
|
0.44
|
%
|
|
3.25
|
%
|
|
8/23/2022
|
|
$
|
55,000
|
|
Adjustable Rate Credit
|
|
0.45
|
%
|
|
3.26
|
%
|
|
11/23/2022
|
|
65,000
|
|
Adjustable Rate Credit
|
|
0.45
|
%
|
|
3.26
|
%
|
|
11/23/2022
|
|
10,000
|
|
Adjustable Rate Credit
|
|
0.45
|
%
|
|
3.26
|
%
|
|
11/23/2022
|
|
10,000
|
|
Fixed Rate Convertible
|
|
—
|
|
|
1.78
|
%
|
|
10/26/2028
|
|
200,000
|
|
Fixed Rate Hybrid
|
|
—
|
|
|
2.37
|
%
|
|
10/10/2019
|
|
25,000
|
|
Fixed Rate Hybrid
|
|
—
|
|
|
1.58
|
%
|
|
5/18/2020
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
385,000
|
|
(1)
Interest rates calculated using non-rounded numbers.
|
|
|
|
|
|
|
|
|
For information on the carrying value of loans and securities pledged as collateral on FHLB advances as of
March 31, 2019
and
December 31, 2018
, refer to Note 8 "Commitments and Contingencies."
As of
March 31, 2019
, the contractual maturities of long-term debt are as follows for the years ending (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
Preferred
Capital
Notes
|
|
Subordinated
Debt
|
|
FHLB
Advances
|
|
Fair Value
Premium
(Discount)
(1)
|
|
Prepayment
Penalty
|
|
Total Long-term
Borrowings
|
For the remaining nine months of 2019
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
80,000
|
|
|
$
|
(441
|
)
|
|
$
|
(1,525
|
)
|
|
$
|
78,034
|
|
2020
|
—
|
|
|
—
|
|
|
30,000
|
|
|
(834
|
)
|
|
(2,074
|
)
|
|
27,092
|
|
2021
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,008
|
)
|
|
(2,119
|
)
|
|
(3,127
|
)
|
2022
|
—
|
|
|
—
|
|
|
140,000
|
|
|
(1,030
|
)
|
|
(1,707
|
)
|
|
137,263
|
|
2023
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,053
|
)
|
|
—
|
|
|
(1,053
|
)
|
Thereafter
|
155,159
|
|
|
158,500
|
|
|
200,000
|
|
|
(12,239
|
)
|
|
—
|
|
|
501,420
|
|
Total long-term borrowings
|
$
|
155,159
|
|
|
$
|
158,500
|
|
|
$
|
450,000
|
|
|
$
|
(16,605
|
)
|
|
$
|
(7,425
|
)
|
|
$
|
739,629
|
|
(1)
Includes discount on issued subordinated notes.
8. COMMITMENTS AND CONTINGENCIES
Litigation Matters
In the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business, financial condition, or results of operations of the Company.
Financial Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amount recognized on the Company’s Consolidated Balance Sheet. The contractual amounts of these instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit written is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Company does not require collateral or other security to support off-balance sheet financial instruments with credit risk. The Company considers credit losses related to off-balance sheet commitments by undergoing a similar process in evaluating losses for loans that are carried on the balance sheet. The Company considers historical loss rates, current economic conditions, risk ratings, and past due status among other factors in the consideration of whether credit losses are inherent in the Company’s off-balance sheet commitments to extend credit. The Company also records an indemnification reserve that includes balances relating to mortgage loans previously sold based on historical statistics and loss rates. As of
March 31, 2019
and
December 31, 2018
, the Company's reserves for off-balance sheet credit risk and indemnification were
$3.4 million
and
$1.4 million
, respectively.
Commitments to extend credit are agreements to lend to customers as long as there are no violations of any conditions established in the contracts. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Letters of credit are conditional commitments issued by the Company to guarantee the performance of customers to third parties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.
The following table presents the balances of commitments and contingencies (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Commitments with off-balance sheet risk:
|
|
|
|
|
|
Commitments to extend credit
(1)
|
$
|
3,763,137
|
|
|
$
|
3,167,085
|
|
Standby letters of credit
|
189,975
|
|
|
167,597
|
|
Total commitments with off-balance sheet risk
|
$
|
3,953,112
|
|
|
$
|
3,334,682
|
|
(1)
Includes unfunded overdraft protection.
The Company must maintain a reserve against its deposits in accordance with Regulation D of the Federal Reserve Act. For the final weekly reporting period in the period ended
March 31, 2019
, the aggregate amount of daily average required reserves was approximately
$75.3 million
and was satisfied by deposits maintained with the Federal Reserve Bank.
As of
March 31, 2019
, the Company had approximately
$74.4 million
in deposits in other financial institutions, of which
$38.9 million
served as collateral for cash flow and loan swap derivatives. The Company had approximately
$33.1 million
in deposits in other financial institutions that were uninsured at
March 31, 2019
. At least annually, the Company’s management evaluates the loss risk of its uninsured deposits in financial counterparties.
For asset/liability management purposes, the Company uses interest rate swap agreements to hedge various exposures or to modify the interest rate characteristics of various balance sheet accounts. Refer to Note 9 “Derivatives” for additional information.
As part of the Company's liquidity management strategy, it pledges collateral to secure various financing and other activities that occur during the normal course of business. The following tables present the types of collateral pledged, at
March 31, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pledged Assets as of March 31, 2019
|
|
|
Cash
|
|
AFS Securities
(1)
|
|
HTM Securities
(1)
|
|
Loans
(2)
|
|
Total
|
Public deposits
|
$
|
—
|
|
|
$
|
516,691
|
|
|
$
|
231,418
|
|
|
$
|
—
|
|
|
$
|
748,109
|
|
Repurchase agreements
|
—
|
|
|
94,741
|
|
|
4,785
|
|
|
—
|
|
|
99,526
|
|
FHLB advances
|
—
|
|
|
91,054
|
|
|
—
|
|
|
3,779,006
|
|
|
3,870,060
|
|
Derivatives
|
38,948
|
|
|
1,748
|
|
|
—
|
|
|
—
|
|
|
40,696
|
|
Other purposes
|
—
|
|
|
105,013
|
|
|
11,976
|
|
|
—
|
|
|
116,989
|
|
Total pledged assets
|
$
|
38,948
|
|
|
$
|
809,247
|
|
|
$
|
248,179
|
|
|
$
|
3,779,006
|
|
|
$
|
4,875,380
|
|
(1)
Balance represents market value.
(2)
Balance represents book value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pledged Assets as of December 31, 2018
|
|
|
Cash
|
|
AFS Securities
(1)
|
|
HTM Securities
(1)
|
|
Loans
(2)
|
|
Total
|
Public deposits
|
$
|
—
|
|
|
$
|
293,169
|
|
|
$
|
7,407
|
|
|
$
|
—
|
|
|
$
|
300,576
|
|
Repurchase agreements
|
—
|
|
|
55,269
|
|
|
—
|
|
|
—
|
|
|
55,269
|
|
FHLB advances
|
—
|
|
|
488
|
|
|
—
|
|
|
3,337,289
|
|
|
3,337,777
|
|
Derivatives
|
13,509
|
|
|
1,938
|
|
|
—
|
|
|
—
|
|
|
15,447
|
|
Other purposes
|
—
|
|
|
23,217
|
|
|
—
|
|
|
—
|
|
|
23,217
|
|
Total pledged assets
|
$
|
13,509
|
|
|
$
|
374,081
|
|
|
$
|
7,407
|
|
|
$
|
3,337,289
|
|
|
$
|
3,732,286
|
|
(1)
Balance represents market value.
(2)
Balance represents book value.
9. DERIVATIVES
The Company is exposed to economic risks arising from its business operations and uses derivatives primarily to manage risk associated with changing interest rates, and to assist customers with their risk management objectives. The Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship (cash flow or fair value hedge). The remaining are classified as free-standing derivatives consisting of customer accommodation loan swaps and interest rate lock commitments that do not qualify for hedge accounting.
Derivatives Counterparty Credit Risk
Derivative instruments contain an element of credit risk that arises from the potential failure of a counterparty to perform according to the terms of the contract. The Company’s exposure to derivative counterparty credit risk, at any point in time, is equal to the amount reported as a derivative asset on the Company’s Consolidated Balance Sheets, assuming no recoveries of underlying collateral.
Effective January 1, 2019, as required under the Dodd-Frank Act, the Company clears eligible derivative transactions through CCPs such as the CME and LCH, which are often referred to as “central clearinghouses”. The Company clears certain OTC derivatives with central clearinghouses through FCMs as part of the regulatory requirement. The use of the CCPs and the FCMs reduces the Company’s bilateral counterparty credit exposures while it increases the Company’s credit exposures to CCPs and FCMs. The Company is required by CCPs to post initial and variation margin to mitigate the risk of non-payment through the Company’s FCMs. The Company’s FCM agreements governing these derivative transactions generally include provisions that may require the Company to post more collateral or otherwise change terms in the Company’s agreements under certain circumstances. For CME and LCH-cleared OTC derivatives, the Company characterizes variation margin cash payments as settlements.
The Company also enters into legally enforceable master netting agreements and collateral agreements, where possible, with certain derivative counterparties to mitigate the risk of default on a bilateral basis. These bilateral agreements typically provide the right to offset exposures and require one counterparty to post collateral on derivative instruments in a net liability position to the other counterparty.
Cash Flow Hedges
The Company designates derivatives as cash flow hedges when they are used to manage exposure to variability in cash flows related to forecasted transactions on variable rate borrowings, such as trust preferred capital notes, FHLB borrowings, and prime commercial loans. The Company uses interest rate swap agreements as part of its hedging strategy by exchanging a notional amount, equal to the principal amount of the borrowings or commercial loans, for fixed-rate interest based on benchmarked interest rates. The original terms and conditions of the interest rate swaps vary and range in length with a maximum hedging time through
November 2022
. Amounts receivable or payable are recognized as accrued under the terms of the agreements.
All swaps were entered into with counterparties that met the Company’s credit standards, and the agreements contain collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in the contract is not significant.
The Company assesses the effectiveness of each hedging relationship on a periodic basis using statistical regression analysis. The Company also measures the ineffectiveness of each hedging relationship using the change in variable cash flows method which compares the cumulative changes in cash flows of the hedging instrument relative to cumulative changes in the hedged item’s cash flows. In accordance with ASC 815, Derivatives and Hedging, the effective portions of the derivatives’ unrealized gains or losses are recorded as a component of other comprehensive income. Based on the Company’s assessment, its cash flow hedges are highly effective, but to the extent that any ineffectiveness exists in the hedge relationships, the amounts would be recorded in interest income or interest expense on the Company’s Consolidated Statements of Income.
On
June 13, 2016
, the Company terminated
three
interest rate swaps designated as cash flow hedges prior to their respective maturity dates. The unrealized gain of
$1.3 million
within accumulated other comprehensive income will be reclassified into earnings over a three-year period, the term of the hedged item, using the effective interest method. The estimated net amount of gains expected to be reclassified into earnings within the next twelve months is
$195,000
.
Fair Value Hedge
Derivatives are designated as fair value hedges when they are used to manage exposure to changes in the fair value of certain financial assets and liabilities, referred to as the hedged items, which fluctuate in value as a result of movements in interest rates.
Loans:
During the normal course of business, the Company enters into swap agreements to convert certain long-term fixed-rate loans to floating rates to hedge the Company’s exposure to interest rate risk. The Company pays a fixed interest rate to the counterparty and receives a floating rate from the same counterparty calculated on the aggregate notional amount. For the periods ended
March 31, 2019
and
December 31, 2018
, the aggregate notional amount of the related hedged items for certain long-term fixed rate loans totaled
$86.5 million
and
$87.6 million
, respectively, and the fair value of the related hedged items was an unrealized loss of
$299,000
and
$1.6 million
, respectively.
AFS Securities:
During the fourth quarter 2018, the Company entered into a swap agreement to hedge the interest rate risk on a portion of its fixed rate available for sale securities. For the periods ended
March 31, 2019
and
December 31, 2018
, the aggregate notional amount of the related hedged items of the available for sale securities totaled
$50 million
and the fair value of the related hedged items was an unrealized loss of
$2.4 million
and
$1.4 million
, respectively.
The Company applies hedge accounting in accordance with ASC 815, Derivatives and Hedging, and the fair value hedge and the underlying hedged item, attributable to the risk being hedged, are recorded at fair value with unrealized gains and losses being recorded on the Company’s Consolidated Statements of Income. Statistical regression analysis is used to assess hedge effectiveness, both at inception of the hedging relationship and on an ongoing basis. The regression analysis involves regressing the periodic change in fair value of the hedging instrument against the periodic changes in fair value of the asset being hedged due to changes in the hedged risk. The Company’s fair value hedges continue to be highly effective and had no material impact on the Consolidated Statements of Income, but if any ineffectiveness exists, portions of the unrealized gains or losses would be recorded in interest income or interest expense on the Company’s Consolidated Statements of Income.
Loan Swaps
During the normal course of business, the Company enters into interest rate swap loan relationships (“loan swaps”) with borrowers to meet their financing needs. Upon entering into the loan swaps, the Company enters into offsetting positions with a third party in order to minimize interest rate risk. These back-to-back loan swaps qualify as financial derivatives with fair values as reported in “Other Assets” and “Other Liabilities” on the Company’s Consolidated Balance Sheets.
Mortgage Banking Derivatives
During the normal course of business, the Company enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding (“rate lock commitments”). The Company commits to deliver the loan if settlement occurs ("best efforts") or commits to deliver the locked loan in a binding ("mandatory") delivery program with an investor. Certain loans under interest rate lock commitments are covered under forward sales contracts of MBS. Rate lock commitments on mortgage loans that are intended to be sold in the secondary market and commitments to deliver loans to investors are considered to be derivatives. The Company uses these derivatives as part of an overall strategy to manage market risk primarily due to fluctuations in interest rates, and to capture improved margins resulting from the mandatory delivery of loans. Mortgage banking derivatives as of March 31, 2019 did not have a material impact on the Company's Consolidated Financial Statements.
The market values of rate lock commitments and best efforts forward delivery commitments is not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded in stand-alone markets. The Company determines the fair value of rate lock commitments, delivery contracts, and forward sales contracts of MBS by measuring the change in the value of the underlying asset, while taking into consideration the probability that the rate lock commitments will close or will be funded.
Certain risks arise from the forward delivery contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. Additional risks inherent in mandatory delivery programs include the risk that, if the Company does not close the loans subject to rate lock commitments, it will still be obligated to deliver MBS to the counterparty under the forward sales agreement.
The following table summarizes key elements of the Company’s derivative instruments as of
March 31, 2019
and
December 31, 2018
, segregated by derivatives that are considered accounting hedges and those that are not (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Derivative (2)
|
|
|
Derivative (2)
|
|
Notional or
Contractual
Amount
(1)
|
|
Assets
|
|
Liabilities
|
|
|
Notional or
Contractual
Amount
(1)
|
|
Assets
|
|
Liabilities
|
Derivatives designated as accounting hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
$
|
252,500
|
|
|
$
|
—
|
|
|
$
|
6,328
|
|
|
|
$
|
152,500
|
|
|
$
|
—
|
|
|
$
|
4,786
|
|
Fair value hedges
|
136,527
|
|
|
893
|
|
|
3,027
|
|
|
|
137,596
|
|
|
1,872
|
|
|
1,684
|
|
Derivatives not designated as accounting hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Swaps :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed - receive floating interest rate swaps
|
999,550
|
|
|
4,961
|
|
|
19,904
|
|
|
|
878,446
|
|
|
10,120
|
|
|
9,306
|
|
Pay floating - receive fixed interest rate swaps
|
999,550
|
|
|
19,904
|
|
|
4,961
|
|
|
|
878,446
|
|
|
9,306
|
|
|
10,120
|
|
(1)
Notional amounts are not recorded on the Company's Consolidated Balance Sheet and are generally used only as a basis on which interest and other payments are determined.
(2)
Balances
represent fair value of derivative financial instruments.
The following table summarizes the carrying value of the Company’s hedged assets in fair value hedges and the associated cumulative basis adjustments included in those carrying values as of
March 31, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Carrying Amount of Hedged Assets/(Liabilities)
Amount
(1)
|
|
Cumulative Amount of Basis Adjustments Included in the Carrying Amount of the Hedged Assets/(Liabilities)
|
|
Carrying Amount of Hedged Assets/(Liabilities)
Amount
(1)
|
|
Cumulative Amount of Basis Adjustments Included in the Carrying Amount of the Hedged Assets/(Liabilities)
|
Line items on the Consolidated Balance Sheets in which the hedged item is included:
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
(1) (2)
|
$
|
225,063
|
|
|
$
|
2,430
|
|
|
$
|
224,241
|
|
|
$
|
1,399
|
|
Loans
|
86,527
|
|
|
(280
|
)
|
|
87,596
|
|
|
(1,572
|
)
|
(1) These amounts include the amortized cost basis of the investment securities designated in hedging relationships for which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. For the periods ended
March 31, 2019
and
December 31, 2018
, the amortized cost basis of this portfolio was
$225 million
and
$224 million
, respectively and the cumulative basis adjustment associated with this hedge was
$2.4 million
and
$1.4 million
, respectively. The amount of the designated hedged item was
$50 million
.
(2) Carrying value represents amortized cost.
10. STOCKHOLDERS' EQUITY
Serial Preferred Stock
The Company has the authority to issue up to
500,000
shares of serial preferred stock with a par value of
$10.00
per share. As of
March 31, 2019
and
December 31, 2018
, the Company had no shares issued or outstanding.
Accumulated Other Comprehensive Income (Loss)
The change in accumulated other comprehensive income (loss) for the
three
months ended
March 31, 2019
is summarized as follows, net of tax (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gains (Losses)
on AFS
Securities
|
|
Unrealized Gains (Losses)
for AFS
Securities
Transferred to
HTM
|
|
Change in Fair
Value of Cash
Flow Hedge
|
|
Unrealized Gains (Losses) on BOLI
|
|
Total
|
Balance - December 31, 2018
|
$
|
(5,949
|
)
|
|
$
|
95
|
|
|
$
|
(3,393
|
)
|
|
$
|
(1,026
|
)
|
|
$
|
(10,273
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassification
|
20,081
|
|
|
—
|
|
|
(1,460
|
)
|
|
—
|
|
|
18,621
|
|
Amounts reclassified from AOCI into earnings
|
(85
|
)
|
|
(5
|
)
|
|
120
|
|
|
19
|
|
|
49
|
|
Net current period other comprehensive income (loss)
|
19,996
|
|
|
(5
|
)
|
|
(1,340
|
)
|
|
19
|
|
|
18,670
|
|
Balance - March 31, 2019
|
$
|
14,047
|
|
|
$
|
90
|
|
|
$
|
(4,733
|
)
|
|
$
|
(1,007
|
)
|
|
$
|
8,397
|
|
The change in accumulated other comprehensive income (loss) for the
three
months ended
March 31, 2018
is summarized as follows, net of tax (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gains (Losses)
on AFS
Securities
|
|
Unrealized Gain (Losses)
for AFS
Securities
Transferred to
HTM
|
|
Change in Fair
Value of Cash
Flow Hedge
|
|
Unrealized Gains (Losses) on BOLI
|
|
Total
|
Balance - December 31, 2017
|
$
|
1,874
|
|
|
$
|
2,705
|
|
|
$
|
(4,361
|
)
|
|
$
|
(1,102
|
)
|
|
$
|
(884
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassification
|
(13,191
|
)
|
|
—
|
|
|
1,964
|
|
|
—
|
|
|
(11,227
|
)
|
Amounts reclassified from AOCI into earnings
|
(168
|
)
|
|
(299
|
)
|
|
249
|
|
|
19
|
|
|
(199
|
)
|
Net current period other comprehensive income (loss)
|
(13,359
|
)
|
|
(299
|
)
|
|
2,213
|
|
|
19
|
|
|
(11,426
|
)
|
Balance - March 31, 2018
|
$
|
(11,485
|
)
|
|
$
|
2,406
|
|
|
$
|
(2,148
|
)
|
|
$
|
(1,083
|
)
|
|
$
|
(12,310
|
)
|
11. FAIR VALUE MEASUREMENTS
The Company follows ASC 820,
Fair Value Measurements and Disclosures
, to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. ASC 820 clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants.
ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy under ASC 820 based on these two types of inputs are as follows:
|
|
|
|
Level 1
|
|
Valuation is based on quoted prices in active markets for identical assets and liabilities.
|
|
|
|
Level 2
|
|
Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the markets.
|
|
|
|
Level 3
|
|
Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. These unobservable inputs reflect the Company’s assumptions about what market participants would use and information that is reasonably available under the circumstances without undue cost and effort.
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements.
Derivative instruments
As discussed in Note 9 “Derivatives”, the Company records derivative instruments at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. Third party valuations are validated by the Company using Bloomberg Valuation Service’s derivative pricing functions. No material differences were identified during the validation as of
March 31, 2019
and
December 31, 2018
. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities. Mortgage banking derivatives as of March 31, 2019 did not have a material impact on the Company's Consolidated Financial Statements.
During the ordinary course of business, the Company enters into interest rate lock commitments related to the origination of mortgage loans held for sale, as well as best efforts or mandatory delivery programs and forward sales contracts of MBS. These instruments are used to mitigate interest rate risk. The Company determines the fair value of these instruments by measuring the fair value of the underlying asset, which in turn is based on quoted prices for similar loans in the secondary market. This value, however, is adjusted by a pull-through rate applied at the loan level, which considers the likelihood that the loan in a lock position will ultimately close. The pull-through rate is derived from the Company’s internal data, as well as input from third party sources, and is adjusted using significant management judgment. It is largely dependent on the loan processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock. As such, interest rate lock commitments are classified as Level 3. An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative will result in positive fair value adjustments, while a decrease in the pull-through rate will result in a negative fair value adjustment. As of
March 31, 2019
, the weighted average pull-through rate was approximately
90%
. As a result of the UMG wind-down, at
December 31, 2018
, the Company had
no
interest rate locks.
AFS Securities
AFS securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data (Level 2). If the inputs used to provide the evaluation for certain securities are unobservable and/or there is little, if any, market activity, then the security would fall to the lowest level of the hierarchy (Level 3).
The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is IDC, which evaluates securities based on market data. IDC utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs.
The vendor utilizes proprietary valuation matrices for valuing all municipals securities. The initial curves for determining the price, movement, and yield relationships within the municipal matrices are derived from industry benchmark curves or sourced from a municipal trading desk. The securities are further broken down according to issuer, credit support, state of issuance, and rating to incorporate additional spreads to the industry benchmark curves.
The Company primarily uses Bloomberg Valuation Service, an independent information source that draws on quantitative models and market data contributed from over
4,000
market participants, to validate third party valuations. Any material differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No material differences were identified during the validation as of
March 31, 2019
and
December 31, 2018
.
The carrying value of restricted Federal Reserve Bank and FHLB stock approximates fair value based on the redemption provisions of each entity and is therefore excluded from the table below.
Loans Held for Sale
Loans held for sale are carried at fair value. These loans currently consist of residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). Gains and losses on the sale of loans are recorded in current period earnings as a component of "Mortgage banking income, net" on the Company’s Consolidated Statements of Income.
The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis at
March 31, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2019 using
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
AFS securities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
$
|
—
|
|
|
$
|
4,457
|
|
|
$
|
—
|
|
|
$
|
4,457
|
|
Obligations of states and political subdivisions
|
—
|
|
|
531,788
|
|
|
—
|
|
|
531,788
|
|
Corporate and other bonds
|
—
|
|
|
178,887
|
|
|
—
|
|
|
178,887
|
|
Mortgage-backed securities
|
—
|
|
|
1,390,393
|
|
|
—
|
|
|
1,390,393
|
|
Other securities
|
—
|
|
|
3,537
|
|
|
—
|
|
|
3,537
|
|
Loans held for sale
|
—
|
|
|
28,712
|
|
|
—
|
|
|
28,712
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
—
|
|
|
24,865
|
|
|
—
|
|
|
24,865
|
|
Fair value hedges
|
—
|
|
|
893
|
|
|
—
|
|
|
893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
$
|
—
|
|
|
$
|
24,865
|
|
|
$
|
—
|
|
|
$
|
24,865
|
|
Cash flow hedges
|
—
|
|
|
6,328
|
|
|
—
|
|
|
6,328
|
|
Fair value hedges
|
—
|
|
|
3,027
|
|
|
—
|
|
|
3,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018 using
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
AFS securities:
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
—
|
|
|
$
|
468,491
|
|
|
$
|
—
|
|
|
$
|
468,491
|
|
Corporate and other bonds
|
—
|
|
|
167,696
|
|
|
—
|
|
|
167,696
|
|
Mortgage-backed securities
|
—
|
|
|
1,129,865
|
|
|
—
|
|
|
1,129,865
|
|
Other securities
|
—
|
|
|
8,769
|
|
|
—
|
|
|
8,769
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
—
|
|
|
19,426
|
|
|
—
|
|
|
19,426
|
|
Fair value hedges
|
—
|
|
|
1,872
|
|
|
—
|
|
|
1,872
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
$
|
—
|
|
|
$
|
19,426
|
|
|
$
|
—
|
|
|
$
|
19,426
|
|
Cash flow hedges
|
—
|
|
|
4,786
|
|
|
—
|
|
|
4,786
|
|
Fair value hedges
|
—
|
|
|
1,684
|
|
|
—
|
|
|
1,684
|
|
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets are measured at fair value on a nonrecurring basis in accordance with U.S. GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.
The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements.
Impaired loans
Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreements will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral dependent loans are reported at the fair value of the underlying collateral if repayment is solely from the underlying value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the Company’s collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data. When evaluating the fair value, management may discount the appraisal further if, based on their understanding of the market conditions, it is determined the collateral is further impaired below the appraised value (Level 3). At
March 31, 2019
and
December 31, 2018
, the Level 3 weighted average adjustments related to impaired loans were
3.0%
and
5.3%
, respectively. The value of business equipment is based upon an outside appraisal, of one year or less, if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Collateral dependent impaired loans allocated to the ALL are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Company’s Consolidated Statements of Income.
Foreclosed Properties & Former Bank Premises
Foreclosed properties and former bank premises are evaluated for impairment at least quarterly by the Bank’s Special Asset Loan Committee and any necessary write downs to fair values are recorded as impairment and included as a component of noninterest expense. Fair values of foreclosed properties and former bank premises are carried at fair value less selling costs. Fair value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as Level 3 valuation. At
March 31, 2019
and
December 31, 2018
, the Level 3 weighted average adjustments related to foreclosed property were approximately
3.5%
and
3.7%
, respectively. At
March 31, 2019
and
December 31, 2018
, there were
no
Level 3 weighted average adjustments related to bank premises.
Total valuation expenses related to foreclosed properties for the three months ended
March 31, 2019
and
2018
totaled
$51,000
and
$759,000
, respectively. For the three months ended
March 31, 2019
and
2018
there were
no
valuation expenses related to former bank premises.
The following tables summarize the Company’s financial assets that were measured at fair value on a nonrecurring basis at
March 31, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2019 using
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,263
|
|
|
$
|
7,263
|
|
Foreclosed properties
|
—
|
|
|
—
|
|
|
7,353
|
|
|
7,353
|
|
Former bank premises
|
—
|
|
|
—
|
|
|
2,695
|
|
|
2,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018 using
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,734
|
|
|
$
|
3,734
|
|
Foreclosed properties
|
—
|
|
|
—
|
|
|
6,722
|
|
|
6,722
|
|
Former bank premises
|
—
|
|
|
—
|
|
|
2,090
|
|
|
2,090
|
|
Fair Value of Financial Instruments
ASC 825,
Financial Instruments,
requires disclosure about fair value of financial instruments for interim periods and excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
Cash and Cash Equivalents
For those short-term instruments, the carrying amount is a reasonable estimate of fair value.
HTM Securities
The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is IDC, which evaluates securities based on market data. IDC utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs.
The vendor utilizes proprietary valuation matrices for valuing all municipals securities. The initial curves for determining the price, movement, and yield relationships within the municipal matrices are derived from industry benchmark curves or sourced from a municipal trading desk. The securities are further broken down according to issuer, credit support, state of issuance, and rating to incorporate additional spreads to the industry benchmark curves.
The Company primarily uses Bloomberg Valuation Service, an independent information source that draws on quantitative models and market data contributed from over
4,000
market participants, to validate third party valuations. Any material differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No material differences were identified during the validation as of
March 31, 2019
and
December 31, 2018
.
The Company's level 3 securities are a result of the Access acquisition and are comprised of asset-backed securities and municipal bonds. Valuations of the asset-backed securities are provided by a third party vendor specializing in the SBA markets, and are based on underlying loan pool information, market data, and recent trading activity for similar securities. Valuations of the municipal bonds are provided by a third party vendor that specializes in hard-to-value securities, and are based on a discounted cash flow model and considerations for the complexity of the instrument, likelihood it will be called and credit ratings. The Company reviews the valuation of both security types for reasonableness in the context of market conditions and to similar bonds in the Company's portfolio. Any material differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No material differences were identified during the validation as of March 31, 2019.
Loans
With the adoption of ASU No. 2016-01 in 2018, the fair value of loans at
March 31, 2019
were estimated using an exit price, representing the amount that would be expected to be received if the Company sold the loans. In the first quarter of 2019, the fair value of performing loans were estimated by utilizing two data sources for the selection of discount rates: either the recent origination rates from the Company over a 12-month period or an index to use recent originations from the market over a three-month period. At
December 31, 2018
, the fair value of performing loans were estimated by discounting expected future cash flows using a yield curve that was constructed by adding a loan spread to a market yield curve. Loan spreads were based on spreads observed in the market for loans of similar type and structure. Fair value for impaired loans and their respective level
within the fair value hierarchy are described in the previous disclosure related to fair value measurements of assets that are measured on a nonrecurring basis.
BOLI
The carrying value of BOLI approximates fair value. The Company records these policies at their cash surrender value, which is estimated using information provided by insurance carriers.
Deposits
The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposits were valued using a discounted cash flow calculation that includes a market rate analysis of the current rates offered by market participants for certificates of deposits that mature in the same period.
Accrued Interest
The carrying amounts of accrued interest approximate fair value.
The carrying values and estimated fair values of the Company’s financial instruments at
March 31, 2019
and
December 31, 2018
are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2019 using
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
Total Fair
Value
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
165,041
|
|
|
$
|
165,041
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
165,041
|
|
AFS securities
|
2,109,062
|
|
|
—
|
|
|
2,109,062
|
|
|
—
|
|
|
2,109,062
|
|
HTM securities
|
559,380
|
|
|
—
|
|
|
566,541
|
|
|
18,065
|
|
|
584,606
|
|
Restricted stock
|
135,911
|
|
|
—
|
|
|
135,911
|
|
|
—
|
|
|
135,911
|
|
Loans held for sale
|
28,712
|
|
|
—
|
|
|
28,712
|
|
|
—
|
|
|
28,712
|
|
Net loans
|
11,911,483
|
|
|
—
|
|
|
—
|
|
|
11,785,466
|
|
|
11,785,466
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
24,865
|
|
|
—
|
|
|
24,865
|
|
|
—
|
|
|
24,865
|
|
Fair value hedge
|
893
|
|
|
—
|
|
|
893
|
|
|
—
|
|
|
893
|
|
Accrued interest receivable
|
56,681
|
|
|
—
|
|
|
56,681
|
|
|
—
|
|
|
56,681
|
|
BOLI
|
317,990
|
|
|
—
|
|
|
317,990
|
|
|
—
|
|
|
317,990
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
$
|
12,489,330
|
|
|
$
|
—
|
|
|
$
|
12,515,527
|
|
|
$
|
—
|
|
|
$
|
12,515,527
|
|
Borrowings
|
1,753,103
|
|
|
—
|
|
|
1,739,009
|
|
|
—
|
|
|
1,739,009
|
|
Accrued interest payable
|
8,389
|
|
|
—
|
|
|
8,389
|
|
|
—
|
|
|
8,389
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
24,865
|
|
|
—
|
|
|
24,865
|
|
|
—
|
|
|
24,865
|
|
Cash flow hedges
|
6,328
|
|
|
—
|
|
|
6,328
|
|
|
—
|
|
|
6,328
|
|
Fair value hedges
|
3,027
|
|
|
—
|
|
|
3,027
|
|
|
—
|
|
|
3,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018 using
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
Total Fair
Value
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
261,199
|
|
|
$
|
261,199
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
261,199
|
|
AFS securities
|
1,774,821
|
|
|
—
|
|
|
1,774,821
|
|
|
—
|
|
|
1,774,821
|
|
HTM securities
|
492,272
|
|
|
—
|
|
|
499,501
|
|
|
—
|
|
|
499,501
|
|
Restricted stock
|
124,602
|
|
|
—
|
|
|
124,602
|
|
|
—
|
|
|
124,602
|
|
Net loans
|
9,675,162
|
|
|
—
|
|
|
—
|
|
|
9,534,717
|
|
|
9,534,717
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
19,426
|
|
|
—
|
|
|
19,426
|
|
|
—
|
|
|
19,426
|
|
Fair value hedges
|
1,872
|
|
|
—
|
|
|
1,872
|
|
|
—
|
|
|
1,872
|
|
Accrued interest receivable
|
46,062
|
|
|
—
|
|
|
46,062
|
|
|
—
|
|
|
46,062
|
|
BOLI
|
263,034
|
|
|
—
|
|
|
263,034
|
|
|
—
|
|
|
263,034
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
$
|
9,970,960
|
|
|
$
|
—
|
|
|
$
|
9,989,788
|
|
|
$
|
—
|
|
|
$
|
9,989,788
|
|
Borrowings
|
1,756,278
|
|
|
—
|
|
|
1,742,038
|
|
|
—
|
|
|
1,742,038
|
|
Accrued interest payable
|
5,284
|
|
|
—
|
|
|
5,284
|
|
|
—
|
|
|
5,284
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
19,426
|
|
|
—
|
|
|
19,426
|
|
|
—
|
|
|
19,426
|
|
Cash flow hedges
|
4,786
|
|
|
—
|
|
|
4,786
|
|
|
—
|
|
|
4,786
|
|
Fair value hedges
|
1,684
|
|
|
—
|
|
|
1,684
|
|
|
—
|
|
|
1,684
|
|
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. Borrowers with fixed rate obligations, however, are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
12. REVENUE
The majority of the Company’s noninterest income comes from short term contracts associated with fees for services provided on deposit accounts, credit cards, and wealth management accounts and is being accounted for in accordance with ASU No. 2014-09, “
Revenue from Contracts with Customers: Topic 606
." Typically, the duration of a contract does not extend beyond the services performed; therefore, the Company concluded that discussion regarding contract balances is immaterial.
The Company’s performance obligations on revenue from interchange fees and deposit accounts are generally satisfied immediately, when the transaction occurs or by month-end. Performance obligations on revenue from fiduciary and asset management fees are generally satisfied monthly or quarterly. For a majority of fee income on deposit accounts the Company is a principal controlling the promised good or service before transferring it to the customer. However, for income related to most wealth management income, the Company is an agent responsible for arranging for the provision of goods and services by another party.
Noninterest income disaggregated by major source, for the
three
months ended
March 31, 2019
and
2018
, consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2019
|
|
March 31, 2018
|
Noninterest income:
|
|
|
|
Deposit Service Charges
(1)
:
|
|
|
|
Overdraft fees, net
|
$
|
5,782
|
|
|
$
|
4,820
|
|
Maintenance fees & other
|
1,376
|
|
|
1,074
|
|
Other service charges and fees
(1)
|
1,664
|
|
|
1,233
|
|
Interchange fees, net
(1)
|
5,045
|
|
|
4,489
|
|
Fiduciary and asset management fees
(1)
:
|
|
|
|
Trust asset management fees
|
1,339
|
|
|
1,345
|
|
Registered advisor management fees, net
|
2,875
|
|
|
720
|
|
Brokerage management fees, net
|
840
|
|
|
991
|
|
Mortgage banking income, net
|
1,454
|
|
|
—
|
|
Gains (losses) on securities transactions, net
|
151
|
|
|
213
|
|
Bank owned life insurance income
|
2,055
|
|
|
1,667
|
|
Loan-related interest rate swap fees
|
1,460
|
|
|
718
|
|
Other operating income
(2)
|
897
|
|
|
2,997
|
|
Total noninterest income
(3)
|
$
|
24,938
|
|
|
$
|
20,267
|
|
(1) Income within scope of Topic 606.
(2) Includes income within the scope of Topic 606 of
$813,000
and
$706,000
for the three months ended March 31, 2019 and 2018, respectively. The remaining balance is outside the scope of Topic 606.
(3) Noninterest income for the discontinued mortgage segment is reported in Note 14, "Segment Reporting & Discontinued Operations."
13. EARNINGS PER SHARE
Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, including the effect of dilutive potential common shares outstanding attributable to stock awards and warrants.
The following table presents EPS from continuing operations, discontinued operations and total net income available to common shareholders for the
three
months ended
March 31, 2019
and
2018
(dollars in thousands except per share data):
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
2018
|
Net Income:
|
|
|
Income from continuing operations
|
$
|
35,716
|
|
$
|
16,575
|
|
Income (loss) from discontinued operations
|
(85
|
)
|
64
|
|
Net income available to common shareholders
|
$
|
35,631
|
|
$
|
16,639
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic
|
76,472
|
|
65,555
|
|
Dilutive effect of stock awards and warrants
|
61
|
|
81
|
|
Weighted average shares outstanding, diluted
|
76,533
|
|
65,636
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
EPS from continuing operations
|
$
|
0.47
|
|
$
|
0.25
|
|
EPS from discontinued operations
|
—
|
|
—
|
|
EPS available to common shareholders
|
$
|
0.47
|
|
$
|
0.25
|
|
|
|
|
Diluted EPS:
|
|
|
EPS from continuing operations
|
$
|
0.47
|
|
$
|
0.25
|
|
EPS from discontinued operations
|
—
|
|
—
|
|
EPS available to common shareholders
|
$
|
0.47
|
|
$
|
0.25
|
|
|
|
|
14. SEGMENT REPORTING & DISCONTINUED OPERATIONS
On May 23, 2018, the Bank announced that it had entered into an agreement with a third party mortgage company TFSB to allow TFSB to offer residential mortgages from certain Bank locations on the terms and conditions set forth in the agreement. Concurrently with this arrangement, the Bank began the process of winding down the operations of UMG, the Company's reportable mortgage segment. Effective at the close of business June 1, 2018, UMG was no longer originating mortgages in its name. The decision to exit the mortgage business was based on a number of strategic priorities and other factors, including the additional investment in the business required to achieve the necessary scale to be competitive. As a result of this decision, the community bank segment is the only remaining reportable segment and does not require separate reporting disclosures.
As of
March 31, 2019
, the Company's Consolidated Balance Sheet included assets and liabilities from discontinued operations of
$1.1 million
and
$1.2 million
, respectively. As of
December 31, 2018
, the Company's Consolidated Balance Sheet included assets and liabilities from discontinued operations of
$1.5 million
and
$1.7 million
, respectively. Management believes there are no material on-going obligations with respect to the mortgage banking business that have not been recorded in the Company's consolidated financial statements.
The following table presents summarized operating results of the discontinued mortgage segment for the three months ended March 31, 2019 and 2018, respectively (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
Net interest income
|
$
|
—
|
|
|
$
|
275
|
|
Provision for credit losses
|
—
|
|
|
(24
|
)
|
Net interest income after provision for credit losses
|
—
|
|
|
299
|
|
Noninterest income
|
1
|
|
|
2,042
|
|
Noninterest expenses
|
116
|
|
|
2,265
|
|
Income before income taxes
|
(115
|
)
|
|
76
|
|
Income tax expense (benefit)
|
(30
|
)
|
|
12
|
|
Net income (loss) on discontinued operations
|
$
|
(85
|
)
|
|
$
|
64
|
|
15. SUBSEQUENT EVENTS
Effective May 17, 2019 (after market close), Union Bankshares Corporation will change its name to Atlantic Union Bankshares Corporation and Union Bank & Trust will change its name to Atlantic Union Bank. Also effective May 17, 2019 (after market close), the number of authorized shares of common stock of Union Bankshares Corporation will increase from
100,000,000
to
200,000,000
. In connection with the name change, Union Bankshares Corporation will change its stock ticker from "UBSH" to "AUB" effective on May 20, 2019.