Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 – BASIS OF PRESENTATION
Organization
BNC Bancorp (the "Company") was formed in 2002 to serve as a one-bank holding company for Bank of North Carolina d/b/a BNC Bank (the "Bank"). The Bank is incorporated under the laws of the State of North Carolina and provides a wide range of banking services tailored to the particular banking needs of the communities we serve. The Bank is principally engaged in the business of attracting deposits from the general public and using those deposits, together with other funding from our lines of credit, to make commercial and consumer loans. The Bank also offers a wide range of banking services, including traditional products such as checking and savings accounts. The Bank conducts operations through
76
full-service banking offices, including
41
branches in North Carolina,
26
branches in South Carolina and
nine
branches in Virginia.
The Company is subject to the rules and regulations of the Board of Governors of the Federal Reserve System. The Bank operates under the banking laws of North Carolina, and is subject to the rules and regulations of the North Carolina Commissioner of Banks and the Federal Deposit Insurance Corporation (“FDIC”). Accordingly, the Company and BNC are examined periodically by those regulatory authorities.
On January 22, 2017, the Company and Pinnacle Financial Partners, Inc. ("Pinnacle") entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Pinnacle will acquire the Company. Under the Merger Agreement, a wholly owned subsidiary of Pinnacle will merge with and into the Company, with the Company remaining as the surviving entity and becoming a wholly owned subsidiary of Pinnacle (the "merger"). Such surviving entity will, as soon as reasonably practicable following the merger and as part of a single integrated transaction, merge with and into Pinnacle, with Pinnacle remaining as the surviving entity (the “second step merger”). Immediately following the completion of the second step merger, the Bank will merge with and into Pinnacle Bank, a Tennessee state bank and wholly owned subsidiary of Pinnacle, with Pinnacle Bank as the surviving bank. In the merger, each outstanding share of the Company's common stock will convert to the right to receive
0.5235
shares of Pinnacle’s common stock. The transaction is expected to close late in the second quarter or early in the third quarter of 2017, subject to shareholder approval and other customary closing conditions.
These consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, all normal recurring adjustments necessary for a fair statement of the consolidated financial position and consolidated results of operations have been made. The information contained in the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 should be referred to in connection with these unaudited interim consolidated financial statements.
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, the Company evaluates its estimates, including those relating to the allowance for loan losses, determination of fair value of acquired assets and assumed liabilities, and valuation of goodwill and intangible assets.
Recently Adopted and Issued Accounting Standards
In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-08,
Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
, which shortens the amortization period for certain callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date. ASU 2017-08 is effective for public business entities beginning after December 15, 2018 and interim periods thereafter. Early adoption is permitted. As the Company is currently amortizing the premium on these securities to the earliest call date, the adoption of this ASU will not have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04,
Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for public business entities that are SEC filers for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
. This ASU clarifies certain existing principles in ASC Topic 230, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. For public companies, ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For public companies, this ASU will be effective for interim and annual periods beginning after December 15, 2019. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which will require lessees to record an asset on the balance sheet for the right to use the leased asset and a liability for the corresponding lease obligation for leases with terms of more than 12 months. The accounting treatment for lessors will remain relatively unchanged. The ASU also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
, which revises the accounting treatment related to classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured as fair value. Upon adoption, investments in equity securities, except those accounted for under the equity method or that result in the consolidation of the investee, will be measured at fair value with changes in fair value recognized in net income. Equity investments that do not have a readily determinable fair value may be measured at cost minus impairment, plus or minus changes from observable price changes in an orderly transaction. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption of certain provisions is permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. This ASU was developed as a joint project with the International Accounting Standards Board to remove inconsistencies in revenue requirements and provide a more robust framework for addressing revenue issues. The ASU’s core principle is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date by one year (i.e., interim and annual reporting periods beginning after December 15, 2017). Early adoption is permitted, but not before the original effective date (i.e., interim and annual reporting periods beginning after December 15, 2016). The ASU may be adopted using either a modified retrospective method or a full retrospective method. The Company intends to adopt the ASU during the first quarter of 2018, as required, using a modified retrospective approach. The Company's preliminary analysis suggests that the adoption of this accounting guidance is not expected to have a material impact on the Company's consolidated financial statements. The FASB continues to release new accounting guidance related to the adoption of this ASU and the results of the Company's materiality analysis may change based on conclusions reached as to the application of this new guidance.
NOTE 2 – ACQUISITIONS
Acquisition of High Point Bank Corporation
On November 1, 2016, the Company completed the acquisition of High Point Bank Corporation ("High Point"), pursuant to the terms of the Agreement and Plan of Merger dated November 13, 2015.
A summary of the fair value of assets received and liabilities assumed are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Recorded by High Point
|
|
Fair
Value Adjustments
|
|
As Recorded
by BNC
|
Assets
|
(Dollars in thousands)
|
Cash
|
$
|
100,457
|
|
|
$
|
—
|
|
|
$
|
100,457
|
|
Investment securities available-for-sale
|
147,723
|
|
|
1,965
|
|
(1)
|
149,688
|
|
Loans
|
467,953
|
|
|
(8,392
|
)
|
(2)
|
459,561
|
|
Premises and equipment
|
20,691
|
|
|
3,338
|
|
(3)
|
24,029
|
|
Other real estate owned
|
176
|
|
|
—
|
|
|
176
|
|
Core deposit and other intangible assets
|
—
|
|
|
9,469
|
|
(4)
|
9,469
|
|
Other assets
|
59,476
|
|
|
—
|
|
|
59,476
|
|
Total assets acquired
|
796,476
|
|
|
6,380
|
|
|
802,856
|
|
Liabilities
|
|
|
|
|
|
Deposits
|
(667,791
|
)
|
|
(112
|
)
|
(5)
|
(667,903
|
)
|
Borrowings
|
(18,664
|
)
|
|
(138
|
)
|
(6)
|
(18,802
|
)
|
Other liabilities
|
(15,875
|
)
|
|
(2,765
|
)
|
(7)
|
(18,640
|
)
|
Total liabilities assumed
|
(702,330
|
)
|
|
(3,015
|
)
|
|
(705,345
|
)
|
Net assets acquired
|
$
|
94,146
|
|
|
$
|
3,365
|
|
|
97,511
|
|
Total consideration paid
|
|
|
|
|
141,264
|
|
Goodwill
|
|
|
|
|
$
|
43,753
|
|
Explanation of fair value adjustments:
|
|
(1)
|
Adjustment to reflect estimated fair value of investment securities available-for-sale.
|
|
|
(2)
|
Adjustment to reflect estimated fair value of loans.
|
|
|
(3)
|
Adjustment to reflect estimated fair value of premises and equipment.
|
|
|
(4)
|
Adjustment to reflect estimated fair value of core deposit and other intangible assets.
|
|
|
(5)
|
Adjustment to reflect estimated fair value of time deposits based on market rates for similar products.
|
|
|
(6)
|
Adjustment to reflect estimated fair value of borrowings based on market rates for similar products.
|
|
|
(7)
|
Adjustment to reflect the estimated fair market value of certain leases, deferred income taxes, and other assumed liabilities.
|
A summary of the consideration paid is as follows:
|
|
|
|
|
|
(Dollars in thousands)
|
Common stock issued (4,034,743 shares)
|
$
|
98,882
|
|
Cash payments to common shareholders
|
42,382
|
|
Total consideration paid
|
$
|
141,264
|
|
This acquisition expanded and further strengthened the Company's presence in the Greensboro, Winston-Salem, and High Point, North Carolina area and expanded the Company's product offerings to include trust and insurance services. None of the goodwill associated with this acquisition is deductible for income tax purposes. All goodwill related to this acquisition was allocated to the banking operations reporting unit.
Acquisition of Southcoast Financial Corporation
On June 17, 2016, the Company completed the acquisition of Southcoast Financial Corporation ("Southcoast") pursuant to the terms of the Agreement and Plan of Merger dated August 14, 2015, as amended.
A summary of the fair value of assets received and liabilities assumed are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Recorded by Southcoast
|
|
Fair
Value Adjustments
|
|
Recast Adjustments
|
|
As Recorded
by BNC
|
Assets
|
(Dollars in thousands)
|
Cash
|
$
|
24,019
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,019
|
|
Investment securities available-for-sale
|
30,607
|
|
|
(1,094
|
)
|
(1)
|
692
|
|
|
30,205
|
|
Loans
|
365,232
|
|
|
(9,233
|
)
|
(2)
|
—
|
|
|
355,999
|
|
Premises and equipment
|
19,585
|
|
|
2,304
|
|
(3)
|
—
|
|
|
21,889
|
|
Other real estate owned
|
306
|
|
|
—
|
|
|
—
|
|
|
306
|
|
Core deposit intangible
|
—
|
|
|
3,058
|
|
(4)
|
—
|
|
|
3,058
|
|
Other assets
|
23,082
|
|
|
845
|
|
(5)
|
(256
|
)
|
|
23,671
|
|
Total assets acquired
|
462,831
|
|
|
(4,120
|
)
|
|
436
|
|
|
459,147
|
|
Liabilities
|
|
|
|
|
|
|
|
Deposits
|
(335,924
|
)
|
|
(175
|
)
|
(6)
|
—
|
|
|
(336,099
|
)
|
Borrowings
|
(69,300
|
)
|
|
(1,255
|
)
|
(7)
|
—
|
|
|
(70,555
|
)
|
Other liabilities
|
(4,789
|
)
|
|
(91
|
)
|
(8)
|
—
|
|
|
(4,880
|
)
|
Total liabilities assumed
|
(410,013
|
)
|
|
(1,521
|
)
|
|
—
|
|
|
(411,534
|
)
|
Net assets acquired
|
$
|
52,818
|
|
|
$
|
(5,641
|
)
|
|
$
|
436
|
|
|
47,613
|
|
Total consideration paid
|
|
|
|
|
|
|
98,970
|
|
Goodwill
|
|
|
|
|
|
|
$
|
51,357
|
|
Explanation of fair value adjustments:
|
|
(1)
|
Adjustment to reflect estimated fair value of investment securities available-for-sale.
|
|
|
(2)
|
Adjustment to reflect estimated fair value of loans.
|
|
|
(3)
|
Adjustment to reflect estimated fair value of premises and equipment.
|
|
|
(4)
|
Adjustment to reflect recording of core deposit intangible.
|
|
|
(5)
|
Adjustment to reflect recording of deferred tax asset recognized from acquisition.
|
|
|
(6)
|
Adjustment to reflect estimated fair value of time deposits based on market rates for similar products.
|
|
|
(7)
|
Adjustment to reflect estimated fair value of borrowings based on market rates for similar products.
|
|
|
(8)
|
Adjustment to reflect the estimated fair market value of certain leases and other assumed liabilities.
|
A summary of the consideration paid is as follows:
|
|
|
|
|
|
(Dollars in thousands)
|
Common stock issued (4,310,445 shares)
|
$
|
98,968
|
|
Cash payments to common shareholders
|
2
|
|
Total consideration paid
|
$
|
98,970
|
|
This acquisition expanded and further strengthened the Company's presence in the Charleston, South Carolina metropolitan area and provided a low-cost base of core deposits. None of the goodwill associated with this acquisition is deductible for income tax purposes. All goodwill related to this acquisition was allocated to the banking operations reporting unit.
During the third quarter of 2016, the Company revised its initial estimates and assumptions regarding the valuation of certain acquired investment securities and acquired deferred tax assets. Because such revision occurred during the first 12 months following the date of acquisition and was not the result of an event that occurred subsequent to the acquisition date, the Company has increased the goodwill recorded in the Southcoast acquisition by
$0.4 million
to reflect this change in estimate.
The Company incurred total transaction-related costs of
$13.3 million
and
$1.4 million
during the three months ended March 31, 2017 and 2016, respectively. Transaction-related costs, which are expensed as incurred as a component of non-interest expense, primarily include, but are not limited to, severance costs, professional services, data processing fees, and marketing and advertising expenses.
The Company has determined the above noted acquisitions each constitute a business combination as defined by ASC Topic 805, which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired and the liabilities assumed. The Company has recorded the assets purchased and liabilities assumed at their estimated fair value in accordance with ASC Topic 805.
The estimated fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding closing date fair value becomes available. During this one year period, the causes of any changes in cash flow estimates are considered to determine whether the change results from circumstances that existed at the acquisition date or if the change results from an event that occurred after the acquisition date.
NOTE 3 - EARNINGS PER SHARE
Basic earnings per common share is computed using the weighted average number of common shares and participating securities outstanding during the reporting period. Diluted earnings per common share is the amount of earnings available to each share of common stock during the reporting period adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issued for stock options and restricted stock awards (collectively referred to herein as “Stock Rights”). Potentially dilutive common shares are excluded from the computation of dilutive earnings per share in the periods in which the effect would be anti-dilutive.
The Company's basic and diluted earnings per share calculations are presented in the following table:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
(Dollars in thousands, except per share amounts)
|
Net income
|
$
|
14,431
|
|
|
$
|
14,435
|
|
|
|
|
|
Weighted average common shares - basic
|
52,204,933
|
|
|
40,789,597
|
|
Add: Effect of dilutive Stock Rights
|
151,764
|
|
|
95,671
|
|
Weighted average common shares - diluted
|
52,356,697
|
|
|
40,885,268
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.28
|
|
|
$
|
0.35
|
|
Diluted earnings per common share
|
$
|
0.28
|
|
|
$
|
0.35
|
|
For the three months ended
March 31, 2017
and 2016, respectively, there were no shares of Stock Rights excluded in computing diluted common shares outstanding.
NOTE 4 – INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated fair values of investment securities are presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
March 31, 2017
|
(Dollars in thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
U.S. Government agencies
|
$
|
24,249
|
|
|
$
|
85
|
|
|
$
|
308
|
|
|
$
|
24,026
|
|
State and municipals
|
202,149
|
|
|
4,907
|
|
|
746
|
|
|
206,310
|
|
Corporate debt securities
|
49,871
|
|
|
608
|
|
|
4
|
|
|
50,475
|
|
Asset-backed debt securities
|
152,486
|
|
|
658
|
|
|
463
|
|
|
152,681
|
|
Equity securities
|
35,406
|
|
|
454
|
|
|
459
|
|
|
35,401
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
Residential government sponsored
|
111,776
|
|
|
277
|
|
|
1,818
|
|
|
110,235
|
|
Other government sponsored
|
735
|
|
|
19
|
|
|
—
|
|
|
754
|
|
|
$
|
576,672
|
|
|
$
|
7,008
|
|
|
$
|
3,798
|
|
|
$
|
579,882
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
State and municipals
|
$
|
295,039
|
|
|
$
|
3,089
|
|
|
$
|
5,867
|
|
|
$
|
292,261
|
|
Corporate debt securities
|
18,079
|
|
|
607
|
|
|
—
|
|
|
18,686
|
|
|
$
|
313,118
|
|
|
$
|
3,696
|
|
|
$
|
5,867
|
|
|
$
|
310,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
December 31, 2016
|
(Dollars in thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
U.S. Government agencies
|
$
|
25,610
|
|
|
$
|
118
|
|
|
$
|
334
|
|
|
$
|
25,394
|
|
State and municipals
|
205,488
|
|
|
4,574
|
|
|
1,357
|
|
|
208,705
|
|
Corporate debt securities
|
50,440
|
|
|
523
|
|
|
125
|
|
|
50,838
|
|
Asset-backed debt securities
|
164,497
|
|
|
342
|
|
|
1,088
|
|
|
163,751
|
|
Equity securities
|
15,448
|
|
|
87
|
|
|
—
|
|
|
15,535
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
Residential government sponsored
|
115,933
|
|
|
241
|
|
|
2,225
|
|
|
113,949
|
|
Other government sponsored
|
927
|
|
|
25
|
|
|
—
|
|
|
952
|
|
|
$
|
578,343
|
|
|
$
|
5,910
|
|
|
$
|
5,129
|
|
|
$
|
579,124
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
State and municipals
|
$
|
295,573
|
|
|
$
|
2,613
|
|
|
$
|
8,064
|
|
|
$
|
290,122
|
|
Corporate debt securities
|
22,089
|
|
|
597
|
|
|
—
|
|
|
22,686
|
|
|
$
|
317,662
|
|
|
$
|
3,210
|
|
|
$
|
8,064
|
|
|
$
|
312,808
|
|
The amortized cost and estimated fair value of investment securities at
March 31, 2017
, by contractual maturity, are shown below. The expected life of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay the underlying mortgage loans with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities have been included in maturity groupings based on the contractual maturity.
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Fair Value
|
Available-for-sale:
|
(Dollars in thousands)
|
Due after one through five years
|
$
|
30,255
|
|
|
$
|
30,342
|
|
Due after five through ten years
|
115,596
|
|
|
115,940
|
|
Due after ten years
|
395,415
|
|
|
398,199
|
|
Total debt securities
|
541,266
|
|
|
544,481
|
|
Equity securities
|
35,406
|
|
|
35,401
|
|
|
$
|
576,672
|
|
|
$
|
579,882
|
|
Held-to-maturity:
|
|
|
|
Due after one year through five years
|
$
|
10,760
|
|
|
$
|
10,770
|
|
Due after five through ten years
|
41,460
|
|
|
42,013
|
|
Due after ten years
|
260,898
|
|
|
258,164
|
|
|
$
|
313,118
|
|
|
$
|
310,947
|
|
At
March 31, 2017
and December 31, 2016, respectively, investment securities with an estimated fair value of approximately
$348.5 million
and
$372.4 million
, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.
The following table presents a summary of realized gains and losses from the sale of investment securities:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
(Dollars in thousands)
|
Proceeds from sales
|
$
|
—
|
|
|
$
|
5,368
|
|
|
|
|
|
Gross realized gains on sales
|
$
|
—
|
|
|
$
|
130
|
|
Gross realized losses on sales
|
—
|
|
|
(169
|
)
|
Total realized losses, net
|
$
|
—
|
|
|
$
|
(39
|
)
|
The following tables detail gross unrealized losses and fair values of investment securities aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
|
Number of Securities
|
|
Fair Value
|
|
Unrealized Losses
|
|
Number of Securities
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
March 31, 2017
|
(Dollars in thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
110
|
|
|
$
|
60,044
|
|
|
$
|
746
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
60,044
|
|
|
$
|
746
|
|
Mortgage-backed securities
|
50
|
|
|
96,380
|
|
|
1,684
|
|
|
4
|
|
|
3,911
|
|
|
134
|
|
|
100,291
|
|
|
1,818
|
|
U.S. Government agencies
|
8
|
|
|
14,516
|
|
|
308
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,516
|
|
|
308
|
|
Asset-backed debt securities
|
3
|
|
|
12,573
|
|
|
43
|
|
|
9
|
|
|
32,789
|
|
|
420
|
|
|
45,362
|
|
|
463
|
|
Equity securities
|
1
|
|
|
23,981
|
|
|
116
|
|
|
1
|
|
|
636
|
|
|
343
|
|
|
24,617
|
|
|
459
|
|
Corporate debt securities
|
1
|
|
|
400
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
400
|
|
|
4
|
|
|
173
|
|
|
$
|
207,894
|
|
|
$
|
2,901
|
|
|
14
|
|
|
$
|
37,336
|
|
|
$
|
897
|
|
|
$
|
245,230
|
|
|
$
|
3,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
136
|
|
|
$
|
158,504
|
|
|
$
|
5,638
|
|
|
6
|
|
|
$
|
4,769
|
|
|
$
|
229
|
|
|
$
|
163,273
|
|
|
$
|
5,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
|
Number of Securities
|
|
Fair Value
|
|
Unrealized Losses
|
|
Number of Securities
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
December 31, 2016
|
(Dollars in thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
134
|
|
|
$
|
89,604
|
|
|
$
|
1,357
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
89,604
|
|
|
$
|
1,357
|
|
Mortgage-backed securities
|
58
|
|
|
102,459
|
|
|
2,123
|
|
|
2
|
|
|
2,519
|
|
|
102
|
|
|
104,978
|
|
|
2,225
|
|
Asset-backed debt securities
|
9
|
|
|
33,888
|
|
|
119
|
|
|
17
|
|
|
60,255
|
|
|
969
|
|
|
94,143
|
|
|
1,088
|
|
U.S. Government agencies
|
8
|
|
|
14,830
|
|
|
334
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,830
|
|
|
334
|
|
Corporate debt securities
|
3
|
|
|
16,755
|
|
|
121
|
|
|
1
|
|
|
4,325
|
|
|
4
|
|
|
21,080
|
|
|
125
|
|
|
212
|
|
|
$
|
257,536
|
|
|
$
|
4,054
|
|
|
20
|
|
|
$
|
67,099
|
|
|
$
|
1,075
|
|
|
$
|
324,635
|
|
|
$
|
5,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
145
|
|
|
$
|
169,782
|
|
|
$
|
7,767
|
|
|
7
|
|
|
$
|
5,645
|
|
|
$
|
297
|
|
|
$
|
175,427
|
|
|
$
|
8,064
|
|
The Company reviews the investment securities portfolio on a quarterly basis to monitor its exposure to other-than-temporary impairment. A determination as to whether a security’s decline in fair value is other-than-temporary takes into consideration numerous factors and the relative significance of any single factor can vary by security. Some factors the Company may consider in the other-than-temporary impairment analysis include the length of time and extent to which the security has been in an unrealized loss position, changes in security ratings, financial condition and near-term prospects of the issuer, as well as security and industry specific economic conditions.
Based on this evaluation, the Company does not believe any unrealized loss at March 31, 2017 represents an other-than-temporary impairment, as these unrealized losses are primarily attributable to changes in interest rates and the current market conditions, and not credit deterioration. The Company has concluded there are no concerns about the long-term viability of the issuers of these securities and the Company currently does not intend to sell, nor does it believe that it will be required to sell, these securities before recovery of their amortized cost basis.
NOTE 5 – LOANS AND ALLOWANCE FOR LOAN LOSSES
Major categories of loans are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Originated
|
|
Acquired
|
|
Total
|
|
Originated
|
|
Acquired
|
|
Total
|
|
(Dollars in thousands)
|
Commercial real estate
|
$
|
2,202,342
|
|
|
$
|
761,742
|
|
|
$
|
2,964,084
|
|
|
$
|
2,076,834
|
|
|
$
|
820,886
|
|
|
$
|
2,897,720
|
|
Commercial construction
|
531,308
|
|
|
103,800
|
|
|
635,108
|
|
|
459,398
|
|
|
103,821
|
|
|
563,219
|
|
Commercial and industrial
|
384,887
|
|
|
127,191
|
|
|
512,078
|
|
|
369,287
|
|
|
131,974
|
|
|
501,261
|
|
Leases
|
30,553
|
|
|
—
|
|
|
30,553
|
|
|
29,529
|
|
|
—
|
|
|
29,529
|
|
Total commercial
|
3,149,090
|
|
|
992,733
|
|
|
4,141,823
|
|
|
2,935,048
|
|
|
1,056,681
|
|
|
3,991,729
|
|
Residential construction
|
109,317
|
|
|
16,076
|
|
|
125,393
|
|
|
93,202
|
|
|
21,613
|
|
|
114,815
|
|
Residential mortgage
|
644,646
|
|
|
685,839
|
|
|
1,330,485
|
|
|
599,666
|
|
|
725,774
|
|
|
1,325,440
|
|
Consumer and other
|
18,012
|
|
|
5,154
|
|
|
23,166
|
|
|
17,771
|
|
|
5,955
|
|
|
23,726
|
|
Total portfolio loans
|
$
|
3,921,065
|
|
|
$
|
1,699,802
|
|
|
$
|
5,620,867
|
|
|
$
|
3,645,687
|
|
|
$
|
1,810,023
|
|
|
$
|
5,455,710
|
|
The following table presents a summary of the activity of the Company's purchased loans accounted for under ASC 310-30:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
(Dollars in thousands)
|
Balance at beginning of period
|
$
|
127,559
|
|
|
$
|
142,671
|
|
Accretion
|
2,288
|
|
|
1,157
|
|
Transfer to other real estate owned
|
—
|
|
|
(745
|
)
|
Net payments received
|
(8,528
|
)
|
|
(8,245
|
)
|
Net charge-offs
|
(80
|
)
|
|
(517
|
)
|
Other activity, net
|
21
|
|
|
383
|
|
Balance at end of period
|
$
|
121,260
|
|
|
$
|
134,704
|
|
The following table presents a summary of changes in accretable difference on purchased loans accounted for under ASC 310-30:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
(Dollars in thousands)
|
Balance at beginning of period
|
$
|
3,060
|
|
|
$
|
2,853
|
|
Accretion
|
(2,288
|
)
|
|
(1,157
|
)
|
Adjustment due to changes in expected future cash flows
|
1,053
|
|
|
889
|
|
Balance at end of period
|
$
|
1,825
|
|
|
$
|
2,585
|
|
The Company has the ability to borrow funds from the Federal Home Loan Bank of Atlanta ("FHLB") and from the Federal Reserve Bank of Richmond (the "Federal Reserve"). At
March 31, 2017
and December 31, 2016, commercial and real estate loans with carrying values of
$2.35 billion
and
$2.25 billion
, respectively, were pledged to secure borrowing facilities from these institutions.
A summary of the changes to the allowance for loan losses, by class of financing receivable, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2017
|
|
Commercial real estate
|
|
Commercial construction
|
|
Commercial and industrial
|
|
Leases
|
|
Residential construction
|
|
Residential mortgage
|
|
Consumer and other
|
|
Total
|
|
|
(Dollars in thousands)
|
Balance December 31, 2016
|
|
$
|
15,641
|
|
|
$
|
5,921
|
|
|
$
|
5,490
|
|
|
$
|
255
|
|
|
$
|
767
|
|
|
$
|
9,123
|
|
|
$
|
304
|
|
|
$
|
37,501
|
|
Charge-offs
|
|
—
|
|
|
(145
|
)
|
|
—
|
|
|
—
|
|
|
(160
|
)
|
|
(46
|
)
|
|
|
|
(351
|
)
|
Recoveries
|
|
82
|
|
|
132
|
|
|
323
|
|
|
—
|
|
|
5
|
|
|
412
|
|
|
39
|
|
|
993
|
|
Provision
|
|
1,094
|
|
|
392
|
|
|
(55
|
)
|
|
10
|
|
|
253
|
|
|
(417
|
)
|
|
(55
|
)
|
|
1,222
|
|
Balance March 31, 2017
|
|
$
|
16,817
|
|
|
$
|
6,300
|
|
|
$
|
5,758
|
|
|
$
|
265
|
|
|
$
|
865
|
|
|
$
|
9,072
|
|
|
$
|
288
|
|
|
$
|
39,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2016
|
|
Commercial real estate
|
|
Commercial construction
|
|
Commercial and industrial
|
|
Leases
|
|
Residential construction
|
|
Residential mortgage
|
|
Consumer and other
|
|
Total
|
|
|
(Dollars in thousands)
|
Balance December 31, 2015
|
|
$
|
13,471
|
|
|
$
|
4,525
|
|
|
$
|
4,586
|
|
|
$
|
78
|
|
|
$
|
466
|
|
|
$
|
8,201
|
|
|
$
|
320
|
|
|
$
|
31,647
|
|
Charge-offs
|
|
(188
|
)
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
(216
|
)
|
|
(9
|
)
|
|
(416
|
)
|
Recoveries
|
|
53
|
|
|
204
|
|
|
154
|
|
|
—
|
|
|
7
|
|
|
142
|
|
|
58
|
|
|
618
|
|
Provision
(1)
|
|
589
|
|
|
591
|
|
|
(238
|
)
|
|
29
|
|
|
79
|
|
|
(323
|
)
|
|
(80
|
)
|
|
647
|
|
Change in FDIC indemnification asset
(1)
|
|
(4
|
)
|
|
(106
|
)
|
|
(31
|
)
|
|
—
|
|
|
—
|
|
|
216
|
|
|
(23
|
)
|
|
52
|
|
Balance March 31, 2016
|
|
$
|
13,921
|
|
|
$
|
5,214
|
|
|
$
|
4,468
|
|
|
$
|
107
|
|
|
$
|
552
|
|
|
$
|
8,020
|
|
|
$
|
266
|
|
|
$
|
32,548
|
|
|
|
(1)
|
The provision for loan losses includes the "net" provision on covered loans after coverage provided by FDIC loss-share agreements, which totaled
$(0.4) million
for the three months ended March 31, 2016. For the three months ended March 31, 2016, this resulted in an increase in the FDIC indemnification asset of
$0.1 million
, which is the difference between the net provision on covered loans and the total reduction to the allowance for loan losses allocable to the covered loan portfolio of
$0.3 million
.
|
The following table provides a breakdown of the recorded investment in loans and the allowance for loan losses based on the method of determining the allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
Commercial construction
|
|
Commercial and industrial
|
|
Leases
|
|
Residential construction
|
|
Residential mortgage
|
|
Consumer and other
|
|
Total
|
Balances at March 31, 2017:
|
|
(Dollars in thousands)
|
Specific reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
766
|
|
|
$
|
73
|
|
|
$
|
466
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,631
|
|
|
$
|
1
|
|
|
$
|
2,937
|
|
Purchase credit impaired loans
|
|
1,157
|
|
|
263
|
|
|
33
|
|
|
—
|
|
|
149
|
|
|
1,022
|
|
|
1
|
|
|
2,625
|
|
Total specific reserves
|
|
1,923
|
|
|
336
|
|
|
499
|
|
|
—
|
|
|
149
|
|
|
2,653
|
|
|
2
|
|
|
5,562
|
|
General reserves
|
|
14,894
|
|
|
5,964
|
|
|
5,259
|
|
|
265
|
|
|
716
|
|
|
6,419
|
|
|
286
|
|
|
33,803
|
|
Total
|
|
$
|
16,817
|
|
|
$
|
6,300
|
|
|
$
|
5,758
|
|
|
$
|
265
|
|
|
$
|
865
|
|
|
$
|
9,072
|
|
|
$
|
288
|
|
|
$
|
39,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
19,576
|
|
|
$
|
2,248
|
|
|
$
|
2,487
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,505
|
|
|
$
|
11
|
|
|
$
|
40,827
|
|
Purchase credit impaired loans
|
|
70,284
|
|
|
10,692
|
|
|
1,655
|
|
|
—
|
|
|
312
|
|
|
38,218
|
|
|
99
|
|
|
121,260
|
|
Loans collectively evaluated for impairment
|
|
2,874,224
|
|
|
622,168
|
|
|
507,936
|
|
|
30,553
|
|
|
125,081
|
|
|
1,275,762
|
|
|
23,056
|
|
|
5,458,780
|
|
Total
|
|
$
|
2,964,084
|
|
|
$
|
635,108
|
|
|
$
|
512,078
|
|
|
$
|
30,553
|
|
|
$
|
125,393
|
|
|
$
|
1,330,485
|
|
|
$
|
23,166
|
|
|
$
|
5,620,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
607
|
|
|
$
|
147
|
|
|
$
|
365
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,255
|
|
|
$
|
1
|
|
|
$
|
2,375
|
|
Purchase credit impaired loans
|
|
811
|
|
|
321
|
|
|
37
|
|
|
—
|
|
|
146
|
|
|
1,084
|
|
|
2
|
|
|
2,401
|
|
Total specific reserves
|
|
1,418
|
|
|
468
|
|
|
402
|
|
|
—
|
|
|
146
|
|
|
2,339
|
|
|
3
|
|
|
4,776
|
|
General reserves
|
|
14,223
|
|
|
5,453
|
|
|
5,088
|
|
|
255
|
|
|
621
|
|
|
6,784
|
|
|
301
|
|
|
32,725
|
|
Total
|
|
$
|
15,641
|
|
|
$
|
5,921
|
|
|
$
|
5,490
|
|
|
$
|
255
|
|
|
$
|
767
|
|
|
$
|
9,123
|
|
|
$
|
304
|
|
|
$
|
37,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
19,602
|
|
|
$
|
3,145
|
|
|
$
|
1,844
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,738
|
|
|
$
|
9
|
|
|
$
|
39,338
|
|
Purchase credit impaired loans
|
|
73,515
|
|
|
11,556
|
|
|
1,999
|
|
|
—
|
|
|
501
|
|
|
39,881
|
|
|
107
|
|
|
127,559
|
|
Loans collectively evaluated for impairment
|
|
2,804,603
|
|
|
548,518
|
|
|
497,418
|
|
|
29,529
|
|
|
114,314
|
|
|
1,270,821
|
|
|
23,610
|
|
|
5,288,813
|
|
Total
|
|
$
|
2,897,720
|
|
|
$
|
563,219
|
|
|
$
|
501,261
|
|
|
$
|
29,529
|
|
|
$
|
114,815
|
|
|
$
|
1,325,440
|
|
|
$
|
23,726
|
|
|
$
|
5,455,710
|
|
The following tables present information related to impaired loans, excluding purchased impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans - With Allowance
|
|
Impaired Loans - With No Allowance
|
|
Recorded Investment
|
|
Unpaid Principal Balance
|
|
Allowances for Loan Losses Allocated
|
|
Recorded Investment
|
|
Unpaid Principal Balance
|
March 31, 2017
|
(Dollars in thousands)
|
Originated:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
$
|
4,155
|
|
|
$
|
4,141
|
|
|
$
|
608
|
|
|
$
|
12,787
|
|
|
$
|
12,744
|
|
Commercial construction
|
811
|
|
|
807
|
|
|
46
|
|
|
1,264
|
|
|
1,262
|
|
Commercial and industrial
|
1,566
|
|
|
1,559
|
|
|
290
|
|
|
390
|
|
|
389
|
|
Residential mortgage
|
5,604
|
|
|
5,576
|
|
|
581
|
|
|
3,998
|
|
|
3,992
|
|
Consumer and other
|
8
|
|
|
8
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Total originated
|
12,144
|
|
|
12,091
|
|
|
1,526
|
|
|
18,439
|
|
|
18,387
|
|
Acquired:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
1,212
|
|
|
1,220
|
|
|
158
|
|
|
1,487
|
|
|
1,486
|
|
Commercial construction
|
176
|
|
|
175
|
|
|
27
|
|
|
—
|
|
|
—
|
|
Commercial and industrial
|
533
|
|
|
631
|
|
|
176
|
|
|
—
|
|
|
—
|
|
Residential mortgage
|
5,263
|
|
|
5,736
|
|
|
1,050
|
|
|
1,642
|
|
|
1,670
|
|
Consumer and other
|
3
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total acquired
|
7,187
|
|
|
7,767
|
|
|
1,411
|
|
|
3,129
|
|
|
3,156
|
|
Total impaired loans
|
$
|
19,331
|
|
|
$
|
19,858
|
|
|
$
|
2,937
|
|
|
$
|
21,568
|
|
|
$
|
21,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans - With Allowance
|
|
Impaired Loans - With No Allowance
|
|
Recorded Investment
|
|
Unpaid Principal Balance
|
|
Allowances for Loan Losses Allocated
|
|
Recorded Investment
|
|
Unpaid Principal Balance
|
December 31, 2016
|
(Dollars in thousands)
|
Originated:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
$
|
7,230
|
|
|
$
|
7,208
|
|
|
$
|
448
|
|
|
$
|
10,040
|
|
|
$
|
9,993
|
|
Commercial construction
|
1,247
|
|
|
1,244
|
|
|
102
|
|
|
1,295
|
|
|
1,293
|
|
Commercial and industrial
|
1,214
|
|
|
1,209
|
|
|
265
|
|
|
397
|
|
|
396
|
|
Residential mortgage
|
4,921
|
|
|
4,885
|
|
|
482
|
|
|
4,275
|
|
|
4,271
|
|
Consumer and other
|
8
|
|
|
8
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Total originated
|
14,620
|
|
|
14,554
|
|
|
1,298
|
|
|
16,007
|
|
|
15,953
|
|
Acquired:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
1,179
|
|
|
1,192
|
|
|
159
|
|
|
1,224
|
|
|
1,236
|
|
Commercial construction
|
264
|
|
|
278
|
|
|
45
|
|
|
343
|
|
|
343
|
|
Commercial and industrial
|
235
|
|
|
392
|
|
|
100
|
|
|
1
|
|
|
—
|
|
Residential mortgage
|
3,913
|
|
|
4,396
|
|
|
773
|
|
|
1,649
|
|
|
1,677
|
|
Consumer and other
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total acquired
|
5,591
|
|
|
6,264
|
|
|
1,077
|
|
|
3,217
|
|
|
3,256
|
|
Total impaired loans
|
$
|
20,211
|
|
|
$
|
20,818
|
|
|
$
|
2,375
|
|
|
$
|
19,224
|
|
|
$
|
19,209
|
|
The following table presents information related to the average recorded investment and interest income recognized on impaired loans, excluding purchased impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
Average Recorded Investment
|
|
Interest Income
|
|
Average Recorded Investment
|
|
Interest Income
|
Impaired loans with allowance:
|
(Dollars in thousands)
|
Commercial real estate
|
$
|
6,681
|
|
|
$
|
46
|
|
|
$
|
12,909
|
|
|
$
|
103
|
|
Commercial construction
|
1,197
|
|
|
13
|
|
|
1,670
|
|
|
15
|
|
Commercial and industrial
|
1,659
|
|
|
53
|
|
|
1,654
|
|
|
34
|
|
Residential construction
|
—
|
|
|
—
|
|
|
378
|
|
|
4
|
|
Residential mortgage
|
9,159
|
|
|
74
|
|
|
13,246
|
|
|
61
|
|
Consumer and other
|
9
|
|
|
4
|
|
|
33
|
|
|
—
|
|
Total impaired loans with allowance
|
$
|
18,705
|
|
|
$
|
190
|
|
|
$
|
29,890
|
|
|
$
|
217
|
|
Impaired loans with no allowance:
|
|
|
|
|
|
|
|
Commercial real estate
|
$
|
12,721
|
|
|
$
|
83
|
|
|
$
|
13,805
|
|
|
$
|
129
|
|
Commercial construction
|
1,389
|
|
|
14
|
|
|
1,739
|
|
|
189
|
|
Commercial and industrial
|
493
|
|
|
—
|
|
|
126
|
|
|
—
|
|
Residential construction
|
—
|
|
|
—
|
|
|
68
|
|
|
—
|
|
Residential mortgage
|
6,622
|
|
|
—
|
|
|
5,646
|
|
|
23
|
|
Total impaired loans with no allowance
|
$
|
21,225
|
|
|
$
|
97
|
|
|
$
|
21,384
|
|
|
$
|
341
|
|
For the three months ended
March 31, 2017
and
2016
, the amount of interest income recognized within the period that the loans were impaired was primarily related to loans modified as a troubled debt restructuring ("TDR") that remained on accrual status. The amount of interest income recognized using a cash-basis method of accounting during the period that the loans were impaired was not material.
At
March 31, 2017
and December 31, 2016, respectively, the Company had
$2.6 million
and
$1.3 million
of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in progress.
The following tables present an aging analysis of the recorded investment in the Company's loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
30-59 Days Past Due
|
|
60-89 Days Past Due
|
|
Greater than 90 Days Past Due
|
|
Non-Accrual
|
|
Total Loans
|
March 31, 2017
|
(Dollars in thousands)
|
Originated:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
$
|
2,193,873
|
|
|
$
|
4,962
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,507
|
|
|
$
|
2,202,342
|
|
Commercial construction
|
531,191
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
94
|
|
|
531,308
|
|
Commercial and industrial
|
383,076
|
|
|
466
|
|
|
—
|
|
|
—
|
|
|
1,345
|
|
|
384,887
|
|
Leases
|
30,553
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,553
|
|
Residential construction
|
109,135
|
|
|
182
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
109,317
|
|
Residential mortgage
|
638,025
|
|
|
1,534
|
|
|
718
|
|
|
—
|
|
|
4,369
|
|
|
644,646
|
|
Consumer and other
|
17,982
|
|
|
15
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
18,012
|
|
Total originated
|
3,903,835
|
|
|
7,182
|
|
|
733
|
|
|
—
|
|
|
9,315
|
|
|
3,921,065
|
|
Acquired:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
756,988
|
|
|
1,791
|
|
|
443
|
|
|
—
|
|
|
2,520
|
|
|
761,742
|
|
Commercial construction
|
103,182
|
|
|
338
|
|
|
—
|
|
|
—
|
|
|
280
|
|
|
103,800
|
|
Commercial and industrial
|
126,046
|
|
|
439
|
|
|
249
|
|
|
—
|
|
|
457
|
|
|
127,191
|
|
Residential construction
|
15,659
|
|
|
417
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,076
|
|
Residential mortgage
|
674,368
|
|
|
5,029
|
|
|
238
|
|
|
—
|
|
|
6,204
|
|
|
685,839
|
|
Consumer and other
|
5,097
|
|
|
44
|
|
|
10
|
|
|
—
|
|
|
3
|
|
|
5,154
|
|
Total acquired
|
1,681,340
|
|
|
8,058
|
|
|
940
|
|
|
—
|
|
|
9,464
|
|
|
1,699,802
|
|
Total loans
|
$
|
5,585,175
|
|
|
$
|
15,240
|
|
|
$
|
1,673
|
|
|
$
|
—
|
|
|
$
|
18,779
|
|
|
$
|
5,620,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
30-59 Days Past Due
|
|
60-89 Days Past Due
|
|
Greater than 90 Days Past Due
|
|
Non-Accrual
|
|
Total Loans
|
December 31, 2016
|
(Dollars in thousands)
|
Originated:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
$
|
2,074,100
|
|
|
$
|
573
|
|
|
$
|
504
|
|
|
$
|
—
|
|
|
$
|
1,657
|
|
|
$
|
2,076,834
|
|
Commercial construction
|
458,576
|
|
|
387
|
|
|
—
|
|
|
—
|
|
|
435
|
|
|
459,398
|
|
Commercial and industrial
|
368,025
|
|
|
490
|
|
|
—
|
|
|
—
|
|
|
772
|
|
|
369,287
|
|
Leases
|
29,529
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29,529
|
|
Residential construction
|
92,784
|
|
|
418
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
93,202
|
|
Residential mortgage
|
592,975
|
|
|
2,368
|
|
|
425
|
|
|
115
|
|
|
3,783
|
|
|
599,666
|
|
Consumer and other
|
17,644
|
|
|
102
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
17,771
|
|
Total originated
|
3,633,633
|
|
|
4,338
|
|
|
954
|
|
|
115
|
|
|
6,647
|
|
|
3,645,687
|
|
Acquired:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
814,277
|
|
|
2,816
|
|
|
1,556
|
|
|
—
|
|
|
2,237
|
|
|
820,886
|
|
Commercial construction
|
102,727
|
|
|
294
|
|
|
90
|
|
|
—
|
|
|
710
|
|
|
103,821
|
|
Commercial and industrial
|
130,937
|
|
|
713
|
|
|
161
|
|
|
—
|
|
|
163
|
|
|
131,974
|
|
Residential construction
|
21,613
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,613
|
|
Residential mortgage
|
714,386
|
|
|
5,473
|
|
|
1,036
|
|
|
—
|
|
|
4,879
|
|
|
725,774
|
|
Consumer and other
|
5,903
|
|
|
47
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5,955
|
|
Total acquired
|
1,789,843
|
|
|
9,343
|
|
|
2,848
|
|
|
—
|
|
|
7,989
|
|
|
1,810,023
|
|
Total loans
|
$
|
5,423,476
|
|
|
$
|
13,681
|
|
|
$
|
3,802
|
|
|
$
|
115
|
|
|
$
|
14,636
|
|
|
$
|
5,455,710
|
|
Credit Quality Indicators
The Company uses several credit quality indicators to manage credit risk in an ongoing manner. The Company's primary credit quality indicators use an internal credit risk rating system that categorizes loans and leases into pass, special mention, or classified categories. Credit risk ratings are applied individually to those classes of loans and leases that have significant or unique credit characteristics that benefit from a case-by-case evaluation. These are typically loans and leases to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans and leases that are underwritten and structured using standardized criteria and characteristics are typically risk rated and monitored collectively. These are typically loans and leases to individuals in the classes which comprise the consumer portfolio segment.
The Company uses the following definitions for risk ratings:
Pass -
Loans classified as pass are considered to be a satisfactory credit risk and generally considered to be collectible in full.
Special Mention
- Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard
- Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful
- Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss
- Loans classified as loss are considered uncollectable and are in the process of being charged-off, as soon as practicable, once so classified.
The following tables present the recorded investment in the Company’s loans by credit quality indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total
|
March 31, 2017
|
|
(Dollars in thousands)
|
Originated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
2,133,061
|
|
|
$
|
52,514
|
|
|
$
|
16,767
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,202,342
|
|
Commercial construction
|
|
524,874
|
|
|
4,892
|
|
|
1,542
|
|
|
—
|
|
|
—
|
|
|
531,308
|
|
Commercial and industrial
|
|
378,155
|
|
|
3,407
|
|
|
3,325
|
|
|
—
|
|
|
—
|
|
|
384,887
|
|
Leases
|
|
30,512
|
|
|
41
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,553
|
|
Residential construction
|
|
109,013
|
|
|
304
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
109,317
|
|
Residential mortgage
|
|
613,064
|
|
|
22,043
|
|
|
9,539
|
|
|
—
|
|
|
—
|
|
|
644,646
|
|
Consumer and other
|
|
17,692
|
|
|
312
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
18,012
|
|
Total originated
|
|
3,806,371
|
|
|
83,513
|
|
|
31,181
|
|
|
—
|
|
|
—
|
|
|
3,921,065
|
|
Acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
699,784
|
|
|
27,309
|
|
|
34,448
|
|
|
201
|
|
|
—
|
|
|
761,742
|
|
Commercial construction
|
|
90,486
|
|
|
5,292
|
|
|
7,919
|
|
|
103
|
|
|
—
|
|
|
103,800
|
|
Commercial and industrial
|
|
117,708
|
|
|
2,436
|
|
|
7,047
|
|
|
—
|
|
|
—
|
|
|
127,191
|
|
Residential construction
|
|
15,637
|
|
|
127
|
|
|
312
|
|
|
—
|
|
|
—
|
|
|
16,076
|
|
Residential mortgage
|
|
631,728
|
|
|
35,402
|
|
|
18,552
|
|
|
157
|
|
|
—
|
|
|
685,839
|
|
Consumer and other
|
|
5,043
|
|
|
108
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
5,154
|
|
Total acquired
|
|
1,560,386
|
|
|
70,674
|
|
|
68,281
|
|
|
461
|
|
|
—
|
|
|
1,699,802
|
|
Total loans
|
|
$
|
5,366,757
|
|
|
$
|
154,187
|
|
|
$
|
99,462
|
|
|
$
|
461
|
|
|
$
|
—
|
|
|
$
|
5,620,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total
|
December 31, 2016
|
|
(Dollars in thousands)
|
Originated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
2,004,386
|
|
|
$
|
55,028
|
|
|
$
|
17,420
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,076,834
|
|
Commercial construction
|
|
451,314
|
|
|
5,354
|
|
|
2,730
|
|
|
—
|
|
|
—
|
|
|
459,398
|
|
Commercial and industrial
|
|
363,028
|
|
|
3,209
|
|
|
3,050
|
|
|
—
|
|
|
—
|
|
|
369,287
|
|
Leases
|
|
29,486
|
|
|
43
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29,529
|
|
Residential construction
|
|
92,831
|
|
|
371
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
93,202
|
|
Residential mortgage
|
|
568,875
|
|
|
21,669
|
|
|
9,122
|
|
|
—
|
|
|
—
|
|
|
599,666
|
|
Consumer and other
|
|
17,426
|
|
|
336
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
17,771
|
|
Total originated
|
|
3,527,346
|
|
|
86,010
|
|
|
32,331
|
|
|
—
|
|
|
—
|
|
|
3,645,687
|
|
Acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
755,908
|
|
|
31,145
|
|
|
33,629
|
|
|
204
|
|
|
—
|
|
|
820,886
|
|
Commercial construction
|
|
87,857
|
|
|
6,867
|
|
|
8,994
|
|
|
103
|
|
|
—
|
|
|
103,821
|
|
Commercial and industrial
|
|
122,637
|
|
|
3,170
|
|
|
6,167
|
|
|
—
|
|
|
—
|
|
|
131,974
|
|
Residential construction
|
|
20,912
|
|
|
—
|
|
|
701
|
|
|
—
|
|
|
—
|
|
|
21,613
|
|
Residential mortgage
|
|
670,683
|
|
|
37,181
|
|
|
17,747
|
|
|
163
|
|
|
—
|
|
|
725,774
|
|
Consumer and other
|
|
5,875
|
|
|
80
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,955
|
|
Total acquired
|
|
1,663,872
|
|
|
78,443
|
|
|
67,238
|
|
|
470
|
|
|
—
|
|
|
1,810,023
|
|
Total loans
|
|
$
|
5,191,218
|
|
|
$
|
164,453
|
|
|
$
|
99,569
|
|
|
$
|
470
|
|
|
$
|
—
|
|
|
$
|
5,455,710
|
|
Modifications
Loan modifications are considered a TDR if concessions have been granted to borrowers that are experiencing financial difficulty. The concessions granted generally involve the modification of terms of the loan, such as changes in payment schedule or interest rate, which generally would not otherwise be considered. Restructured loans can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Nonaccrual restructured loans are included and treated with all other nonaccrual loans. In addition, all accruing restructured loans are reported as TDRs, which are considered and accounted for as impaired loans. Generally, restructured loans remain on nonaccrual until the customer has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of six months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual status.
Loans modified in a TDR are, in many cases, already on nonaccrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR for the Company may have the financial effect of increasing the specific allowance associated with the loan. An allowance for impaired consumer and commercial loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. Once we classify a loan as a TDR, the loan is only removed from TDR classification under three circumstances: (1) the loan is paid off, (2) the loan is charged off or (3) if, at the beginning of the current fiscal year, the loan has performed in accordance with the modified terms for a minimum of six consecutive months and at the time of modification the loan’s interest rate represented a then current market interest rate for a loan of similar risk.
The following tables provide a summary of loans modified as TDRs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual
|
|
Nonaccrual
|
|
Total TDRs
|
|
Allowance for Loan Losses Allocated
|
March 31, 2017
|
(Dollars in thousands)
|
Commercial real estate
|
$
|
2,024
|
|
|
$
|
167
|
|
|
$
|
2,191
|
|
|
$
|
176
|
|
Commercial construction
|
765
|
|
|
—
|
|
|
765
|
|
|
—
|
|
Commercial and industrial
|
141
|
|
|
—
|
|
|
141
|
|
|
14
|
|
Residential mortgage
|
4,477
|
|
|
—
|
|
|
4,477
|
|
|
260
|
|
Consumer and other
|
8
|
|
|
—
|
|
|
8
|
|
|
1
|
|
Total modifications
|
$
|
7,415
|
|
|
$
|
167
|
|
|
$
|
7,582
|
|
|
$
|
451
|
|
Number of contracts
|
23
|
|
|
4
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual
|
|
Nonaccrual
|
|
Total TDRs
|
|
Allowance for Loan Losses Allocated
|
December 31, 2016
|
(Dollars in thousands)
|
Commercial real estate
|
$
|
2,048
|
|
|
$
|
173
|
|
|
$
|
2,221
|
|
|
$
|
125
|
|
Commercial construction
|
765
|
|
|
—
|
|
|
765
|
|
|
—
|
|
Commercial and industrial
|
379
|
|
|
—
|
|
|
379
|
|
|
37
|
|
Residential mortgage
|
4,492
|
|
|
—
|
|
|
4,492
|
|
|
286
|
|
Consumer and other
|
9
|
|
|
—
|
|
|
9
|
|
|
1
|
|
Total modifications
|
$
|
7,693
|
|
|
$
|
173
|
|
|
$
|
7,866
|
|
|
$
|
449
|
|
Number of contracts
|
25
|
|
|
4
|
|
|
29
|
|
|
|
At
March 31, 2017
and December 31, 2016, respectively, the Company had
no
available commitments outstanding on TDRs.
The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories:
Rate modification
- A modification in which the interest rate is changed.
Term modification
- A modification in which the maturity date, timing of payments or frequency of payments is changed.
Payment modification
– A modification in which the principal and interest payment are lowered from the original contractual terms.
Interest only modification
– A modification in which the loan is converted to interest only payments for a period of time.
Combination modification
– Any other type of modification, including the use of multiple categories above.
There were no new TDRs during the three months ended March 31, 2017, while the amount of new TDRs during the three months ended March 31, 2016 was immaterial.
The amount of loans modified and classified as TDRs in the previous twelve months that defaulted during the three months ended March 31, 2017 was immaterial. No loans modified and classified as TDRs in the previous twelve months defaulted during the three months ended March 31, 2016. The Company defines payment default as movement of the restructuring to nonaccrual status, foreclosure or charge-off, whichever occurs first.
Loans Held for Sale
The Company originates certain single family, residential first mortgage loans for sale on a presold basis. Loan sale activity is summarized below:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
(Dollars in thousands)
|
Loans held for sale at period end
|
$
|
23,453
|
|
|
$
|
33,455
|
|
Proceeds from sales of mortgage loans originated for sale
|
95,855
|
|
|
84,088
|
|
Gain on sales of mortgage loans originated for sale
|
2,037
|
|
|
2,543
|
|
NOTE 6 – DERIVATIVES
The Company utilizes derivative financial instruments primarily to hedge its exposure to changes in interest rates. All derivative financial instruments are recorded on the balance sheet at their respective fair values. The Company does not use financial instruments or derivatives for any trading or other speculative purposes.
The primary focus of the Company’s asset/liability management program is to monitor the sensitivity of the Company’s net portfolio value and net income under varying interest rate scenarios to take steps to control its risks. On a quarterly basis, the Company simulates the net portfolio value and net income expected to be earned over a twelve-month period following the date of simulation. The simulation is based on a projection of market interest rates at varying levels and estimates the impact of such market rates on the levels of interest-earning assets and interest-bearing liabilities during the measurement period. Based upon the outcome of the simulation analysis, the Company considers the use of derivatives as a means of reducing the volatility of net portfolio value and projected net income within certain ranges of projected changes in interest rates. The Company evaluates the effectiveness of entering into any derivative instrument agreement by measuring the cost of such an agreement in relation to the reduction in net portfolio value and net income volatility within an assumed range of interest rates. The Company also has derivatives that are a result of a service it provides to certain qualifying customers, which includes a matched book of derivative instruments offered to customers in order to minimize their interest rate risk.
Derivatives Designated as Cash Flow Hedges of Interest Rate Risk
The Company has variable rate funding which creates exposure to variability in interest payments due to changes in interest rates. The Company is party to an interest rate swap transaction with a notional amount of
$125 million
. The interest rate swap was designated as a hedge against the changes in cash flows attributable to changes in one-month LIBOR, the benchmark interest rate being hedged, associated with the interest payments made on the first
$125 million
of the Company's variable rate money market funding arrangement.
The Company receives interest at the one-month LIBOR rate and pays a fixed interest rate under the terms of the swap agreement. The termination date of the swap agreement is
March 18, 2019
.
Derivatives Not Designated as Hedges
The Company utilizes derivative financial instruments, which may include interest rate swaps, caps and/or floors, as part of its ongoing efforts to mitigate its interest rate risk exposure and to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with these customer contracts, the Company enters into an offsetting derivative contract position. These derivative positions are recorded at fair value on the Company’s consolidated balance sheet and, due to the matched nature of these derivative instruments, changes in fair value do not impact the Company’s earnings.
The following table presents the fair value of the Company’s derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Notional Amount
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Notional Amount
|
|
Balance Sheet Location
|
|
Fair Value
|
Derivative assets:
|
(Dollars in thousands)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
79,183
|
|
|
Other assets
|
|
$
|
1,217
|
|
|
$
|
70,777
|
|
|
Other assets
|
|
$
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
$
|
125,000
|
|
|
Accrued expenses and other liabilities
|
|
$
|
113
|
|
|
$
|
125,000
|
|
|
Accrued expenses and other liabilities
|
|
$
|
557
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
79,183
|
|
|
Accrued expenses and other liabilities
|
|
$
|
1,217
|
|
|
$
|
70,777
|
|
|
Accrued expenses and other liabilities
|
|
$
|
1,224
|
|
The derivative instruments held by the Company are subject to master netting arrangements which contain a legally enforceable right to offset recognized amounts and settle such amounts on a net basis. The Company has elected to present the financial assets and financial liabilities associated with these arrangements on a gross basis in the Consolidated Balance Sheets. Cash collateral is posted by the counterparty with net liability positions in accordance with contract thresholds.
Information about financial instruments that are eligible for offset in the consolidated balance sheets is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the
Consolidated Balance Sheets
|
|
Gross Amount Recognized
|
|
Gross Amounts Offset in the
Consolidated Balance Sheets
|
|
Net Amounts
Presented in the
Consolidated Balance Sheets
|
|
Financial Instruments
|
|
Collateral Held/Pledged
|
|
Net
|
March 31, 2017
|
(Dollars in thousands)
|
Derivative assets
|
$
|
1,217
|
|
|
$
|
—
|
|
|
$
|
1,217
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,679
|
|
Derivative liabilities
|
1,330
|
|
|
—
|
|
|
1,330
|
|
|
—
|
|
|
1,330
|
|
|
—
|
|
Total derivative instruments
|
$
|
2,547
|
|
|
$
|
—
|
|
|
$
|
2,547
|
|
|
$
|
—
|
|
|
$
|
1,330
|
|
|
$
|
2,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
$
|
1,224
|
|
|
$
|
—
|
|
|
$
|
1,224
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,679
|
|
Derivative liabilities
|
1,781
|
|
|
—
|
|
|
1,781
|
|
|
—
|
|
|
1,781
|
|
|
—
|
|
Total derivative instruments
|
$
|
3,005
|
|
|
$
|
—
|
|
|
$
|
3,005
|
|
|
$
|
—
|
|
|
$
|
1,781
|
|
|
$
|
2,679
|
|
The Company has recorded a loss of
$0.1 million
, net of tax, as component of accumulated other comprehensive income at March 31, 2017 associated with the cash flow hedging instrument and expects
$0.4 million
, net of tax, to be reclassified as an increase to interest expense during the next 12 months.
The following table presents the amounts recorded in the Consolidated Statements of Comprehensive Income relating to derivative instruments designated as cash flow hedges, net of tax:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
(Dollars in thousands)
|
Amount of net gains (losses) recorded in OCI (effective portion)
|
$
|
280
|
|
|
$
|
(1,016
|
)
|
No amount of net gains or losses were reclassified to earnings during the three months ended March 31, 2017 and 2016, respectively.
The amounts included in accumulated other comprehensive income will be reclassified to interest expense should the hedge no longer be considered effective. No amount of ineffectiveness was included in net income for the three months ended
March 31, 2017
and
2016
, respectively. The Company will continue to assess the effectiveness of the hedge on a quarterly basis.
Counterparty Credit Risk
–
By entering into derivative instrument contracts, the Company exposes itself, from time to time, to counterparty credit risk. Counterparty credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is in an asset position, the counterparty has a liability to the Company, which creates credit risk for the Company. The Company attempts to minimize this risk by selecting counterparties with investment grade credit ratings, limiting its exposure to any single counterparty and regularly monitoring its market position with each counterparty.
Credit-Risk Related Contingent Features
– The Company’s derivative instruments contain provisions allowing the financial institution counterparty to terminate the contracts in certain circumstances, such as a default by the Company on its indebtedness or the failure to maintain its regulatory status as a well-capitalized institution. These derivative agreements also contain provisions regarding the posting of collateral by each party. At
March 31, 2017
, the aggregate fair value of derivative instruments with credit-risk-related contingent features that were in a net liability position was
$1.3 million
, for which the Company has posted collateral with a fair value of
$6.0 million
.
NOTE 7 – BORROWINGS
The following table presents the Company’s short-term borrowings:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
(Dollars in thousands)
|
Repurchase agreements
(1)
|
$
|
65,468
|
|
|
$
|
70,704
|
|
Federal funds purchased
|
—
|
|
|
20,000
|
|
Advances from FHLB
|
30,600
|
|
|
77,600
|
|
Total short-term borrowings
|
$
|
96,068
|
|
|
$
|
168,304
|
|
(1)
Securities sold under agreements to repurchase generally mature within one day from the transaction date and are collateralized by either U.S. Government Agency obligations, government sponsored mortgage-backed securities or securities issued by local governmental municipalities.
The Company may purchase federal funds through unsecured federal funds lines of credit totaling
$155.0 million
at March 31, 2017. These lines are intended for short-term borrowings and are subject to restrictions limiting the frequency and terms of advances. These lines of credit are payable on demand and bear interest based upon the daily federal funds rate.
The Company has an uncollateralized
364
-day revolving credit facility (the “Credit Agreement”) for an aggregate principal amount of up to
$25 million
at any time outstanding. The Credit Agreement matures on
November 11, 2017
with an interest rate the greater of i)
3.25%
, ii) the Prime Rate, or iii) the Federal Funds rate, plus
0.50%
. There were
no
borrowings outstanding under the Credit Agreement at March 31, 2017.
The following table presents the Company’s long-term debt:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
(Dollars in thousands)
|
Advances from FHLB, net
(1)
|
$
|
76,379
|
|
|
$
|
86,626
|
|
Subordinated notes, net
(1)
|
70,613
|
|
|
70,648
|
|
Junior subordinated debentures, net
(1)
|
44,456
|
|
|
44,374
|
|
Total long-term debt
|
$
|
191,448
|
|
|
$
|
201,648
|
|
(1)
Long-term debt balances are presented net of debt issuance costs and unamortized premiums or discounts.
The Company has
$74.0 million
of long-term advances outstanding with the FHLB as of March 31, 2017, with maturity dates ranging from
2018
to
2021
and an average interest rate of
2.21%
. At March 31, 2017, commercial and real estate loans and investment securities with carrying values of
$1.88 billion
and
$5.6 million
, respectively, were assigned under this arrangement.
The Parent Company has issued
$60.0 million
of
5.50%
Fixed to Floating Rate Subordinated Notes (the "Subordinated Notes"), all of which are outstanding at March 31, 2017. The Subordinated Notes bear interest at a fixed rate of
5.50%
per year for the first
5
years and, from October 1, 2019 to the October 1, 2024 maturity date, the interest rate will reset quarterly to an annual interest rate equal to the then current three-month LIBOR plus
359
basis points. The Subordinated Notes are redeemable by the Parent Company at any quarterly interest payment date beginning on October 1, 2019 to maturity at par, plus accrued and unpaid interest.
The Company previously assumed a junior subordinated note with an outstanding balance of
$10.6 million
at March 31, 2017. The junior subordinated note bears interest at a variable rate of 30-day LIBOR plus
5.00%
per annum, with a floor of
5.50%
and a cap of
9.50%
, and has a maturity date of October 15, 2023. The interest rate for the subordinated note was
5.78%
at March 31, 2017.
In addition, the Company has the ability to borrow funds from the Federal Reserve utilizing the discount window and the borrower-in-custody of collateral arrangement. At
March 31, 2017
, commercial and real estate loans and investment securities with carrying values of
$463.5 million
and
$2.8 million
, respectively, were assigned under these arrangements. The Company had
no
outstanding borrowings with the Federal Reserve at March 31, 2017.
The following table details the junior subordinated debentures outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued
|
|
Interest rate
|
|
Maturity date
|
|
March 31,
2017
|
|
December 31,
2016
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
BNC Bancorp Capital Trust I
|
5,000
|
|
LIBOR plus 3.25%
|
|
4/15/2033
|
|
$
|
5,155
|
|
|
$
|
5,155
|
|
BNC Bancorp Capital Trust II
|
6,000
|
|
LIBOR plus 2.80%
|
|
4/7/2034
|
|
6,186
|
|
|
6,186
|
|
BNC Capital Trust III
|
5,000
|
|
LIBOR plus 2.40%
|
|
9/23/2034
|
|
5,155
|
|
|
5,155
|
|
BNC Capital Trust IV
|
7,000
|
|
LIBOR plus 1.70%
|
|
12/31/2036
|
|
7,217
|
|
|
7,217
|
|
Southcoast Capital Trust III
|
10,000
|
|
LIBOR plus 1.50%
|
|
9/30/2035
|
|
10,310
|
|
|
10,310
|
|
Valley Financial (VA) Statutory Trust I
|
4,000
|
|
LIBOR plus 3.10%
|
|
6/26/2033
|
|
4,124
|
|
|
4,124
|
|
Valley Financial (VA) Statutory Trust II
|
7,000
|
|
LIBOR plus 1.49%
|
|
12/15/2035
|
|
7,217
|
|
|
7,217
|
|
Valley Financial Statutory Trust III
|
5,000
|
|
LIBOR plus 1.73%
|
|
1/30/2037
|
|
5,155
|
|
|
5,155
|
|
|
|
|
|
|
|
|
50,519
|
|
|
50,519
|
|
Unamortized discount
|
|
|
|
|
|
|
5,891
|
|
|
5,970
|
|
Unamortized debt issuance costs
|
|
|
|
|
|
|
172
|
|
|
175
|
|
|
|
|
|
|
|
|
$
|
44,456
|
|
|
$
|
44,374
|
|
The Company was not aware of any violations of loan covenants at March 31, 2017.
NOTE 8 – ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents the changes in accumulated other comprehensive income, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Holding Gains on Investment Securities Available-For-Sale
|
|
Unrealized Holding Gains on Investment Securities Transferred from Available-For-Sale to Held-to-Maturity
|
|
Unrealized Holding Losses on Cash Flow Hedging Activities
|
|
Total Accumulated Other Comprehensive Income
|
|
|
(Dollars in thousands)
|
Balance at December 31, 2016
|
|
$
|
492
|
|
|
$
|
1,698
|
|
|
$
|
(352
|
)
|
|
$
|
1,838
|
|
Other comprehensive income before reclassifications
|
|
1,530
|
|
|
—
|
|
|
280
|
|
|
1,810
|
|
Reclassifications from accumulated other comprehensive income
|
|
—
|
|
|
(190
|
)
|
|
—
|
|
|
(190
|
)
|
Net current period other comprehensive income (loss)
|
|
1,530
|
|
|
(190
|
)
|
|
280
|
|
|
1,620
|
|
Balance at March 31, 2017
|
|
$
|
2,022
|
|
|
$
|
1,508
|
|
|
$
|
(72
|
)
|
|
$
|
3,458
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
5,227
|
|
|
$
|
2,787
|
|
|
$
|
(685
|
)
|
|
$
|
7,329
|
|
Other comprehensive loss before reclassifications
|
|
(633
|
)
|
|
—
|
|
|
(1,016
|
)
|
|
(1,649
|
)
|
Reclassifications from accumulated other comprehensive income
|
|
25
|
|
|
(310
|
)
|
|
—
|
|
|
(285
|
)
|
Net current period other comprehensive loss
|
|
(608
|
)
|
|
(310
|
)
|
|
(1,016
|
)
|
|
(1,934
|
)
|
Balance at March 31, 2016
|
|
$
|
4,619
|
|
|
$
|
2,477
|
|
|
$
|
(1,701
|
)
|
|
$
|
5,395
|
|
The following table details reclassification adjustments from accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Component of Accumulated Other Comprehensive Income
|
|
2017
|
|
2016
|
|
Affected Line Item in the Consolidated Statement of Income
|
|
|
(Dollars in thousands)
|
|
Unrealized holding gains on investment securities available-for-sale
|
|
$
|
—
|
|
|
$
|
(39
|
)
|
|
Loss on sale of investment securities, net
|
|
|
—
|
|
|
14
|
|
|
Income tax expense
|
|
|
—
|
|
|
(25
|
)
|
|
Total, net of tax
|
|
|
|
|
|
|
|
Unrealized holding gains on investment securities transferred from available-for-sale to held-to-maturity
(1)
|
|
302
|
|
|
492
|
|
|
Interest income - investment securities
|
|
|
(112
|
)
|
|
(182
|
)
|
|
Income tax expense
|
|
|
190
|
|
|
310
|
|
|
Total, net of tax
|
Total reclassifications for the period
|
|
$
|
190
|
|
|
$
|
285
|
|
|
|
|
|
(1)
|
The amortization of the unrealized holding gains in accumulated other comprehensive income at the date of transfer partially offsets the amortization of the difference between the par value and fair value of the investment securities at the date of transfer. Both components are amortized as an adjustment of yield.
|
NOTE 9 - FAIR VALUE MEASUREMENT
ASC Topic 820
, Fair Value Measurements and Disclosures
, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability at the measurement date. The three levels of valuations are defined as follows:
Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement, and require significant management judgment or estimation using pricing models, discounted cash flow methodologies or similar techniques.
Fair Value on a Recurring Basis
– The Company measures certain assets at fair value on a recurring basis and the following is a general description of the methods used to value such assets.
Investment securities available-for-sale
– The Company's equity securities available-for-sale are valued using Level 1 inputs in the fair value hierarchy, as there is an active market for determining the fair value of identical securities. The remainder of the investment securities available-for-sale are valued by a third-party pricing service which normally derive security prices from recently reported trades for similar securities, making adjustments based on significant observable transactions. At each balance sheet date, observable market inputs may include trade information, broker or dealer quotes, bids, offers or a combination of these data sources. The Company has determined the remainder of the investment securities available-for-sale portfolio are valued using Level 2 inputs.
Derivative assets and liabilities –
The values of derivative instruments held or issued by the Company for risk management purposes are traded in over-the-counter markets where quoted market prices are not readily available. For those derivatives, the Company measures fair value using models that use primarily market observable inputs, such as yield curves and option volatilities, and include the value associated with counterparty credit risk. The Company has determined the fair value of derivative instruments utilize Level 2 inputs.
The following tables present information about certain assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Measured at Fair Value
|
|
Fair Value Measured Using
|
Description
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
March 31, 2017
|
|
(Dollars in thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
24,026
|
|
|
$
|
—
|
|
|
$
|
24,026
|
|
|
$
|
—
|
|
State and municipals
|
|
206,310
|
|
|
—
|
|
|
206,310
|
|
|
—
|
|
Corporate debt securities
|
|
50,475
|
|
|
—
|
|
|
50,475
|
|
|
—
|
|
Asset backed securities
|
|
152,681
|
|
|
—
|
|
|
152,681
|
|
|
—
|
|
Equity securities
|
|
35,401
|
|
|
30,176
|
|
|
5,225
|
|
|
—
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Residential government sponsored
|
|
110,235
|
|
|
—
|
|
|
110,235
|
|
|
—
|
|
Other government sponsored
|
|
754
|
|
|
—
|
|
|
754
|
|
|
—
|
|
Total investment securities available-for-sale
|
|
579,882
|
|
|
30,176
|
|
|
549,706
|
|
|
—
|
|
Derivative instruments:
|
|
|
|
|
|
|
|
|
Interest rate swaps - not designated
|
|
1,217
|
|
|
—
|
|
|
1,217
|
|
|
—
|
|
Total derivative instruments
|
|
1,217
|
|
|
—
|
|
|
1,217
|
|
|
—
|
|
Total assets measured at fair value on a recurring basis
|
|
$
|
581,099
|
|
|
$
|
30,176
|
|
|
$
|
550,923
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swap - cash flow hedge
|
|
$
|
113
|
|
|
$
|
—
|
|
|
$
|
113
|
|
|
$
|
—
|
|
Interest rate swaps - not designated
|
|
1,217
|
|
|
—
|
|
|
1,217
|
|
|
—
|
|
Total liabilities measured at fair value on a recurring basis
|
|
$
|
1,330
|
|
|
$
|
—
|
|
|
$
|
1,330
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Measured at Fair Value
|
|
Fair Value Measured Using
|
Description
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
December 31, 2016
|
|
(Dollars in thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
25,394
|
|
|
$
|
—
|
|
|
$
|
25,394
|
|
|
$
|
—
|
|
State and municipals
|
|
208,705
|
|
|
—
|
|
|
208,705
|
|
|
—
|
|
Corporate debt securities
|
|
50,838
|
|
|
—
|
|
|
50,838
|
|
|
—
|
|
Other debt securities
|
|
163,751
|
|
|
—
|
|
|
163,751
|
|
|
—
|
|
Equity securities
|
|
15,535
|
|
|
10,272
|
|
|
5,263
|
|
|
—
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Residential government sponsored
|
|
113,949
|
|
|
—
|
|
|
113,949
|
|
|
—
|
|
Other government sponsored
|
|
952
|
|
|
—
|
|
|
952
|
|
|
—
|
|
Total investment securities available-for-sale
|
|
579,124
|
|
|
10,272
|
|
|
568,852
|
|
|
—
|
|
Derivative instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap - not designated
|
|
1,224
|
|
|
—
|
|
|
1,224
|
|
|
—
|
|
Total derivative instruments
|
|
1,224
|
|
|
—
|
|
|
1,224
|
|
|
—
|
|
Total assets measured at fair value on a recurring basis
|
|
$
|
580,348
|
|
|
$
|
10,272
|
|
|
$
|
570,076
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swap - cash flow hedge
|
|
$
|
557
|
|
|
$
|
—
|
|
|
$
|
557
|
|
|
$
|
—
|
|
Interest rate swap - not designated
|
|
1,224
|
|
|
—
|
|
|
1,224
|
|
|
—
|
|
Total liabilities measured at fair value on a recurring basis
|
|
$
|
1,781
|
|
|
$
|
—
|
|
|
$
|
1,781
|
|
|
$
|
—
|
|
Fair Value on a Nonrecurring Basis –
The Company measures certain assets at fair value on a nonrecurring basis and the following is a general description of the methods used to value such assets.
Loans held for sale
– Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. The Company has determined loans held for sale are valued using Level 2 inputs.
Impaired loans –
The Company considers a loan impaired when it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. Management has determined that nonaccrual loans and loans that have had their terms restructured in a TDR meet this impaired loan definition. For individually evaluated impaired loans, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the estimated fair value of the underlying collateral for collateral-dependent loans. The Company has determined impaired loans are valued using Level 3 inputs.
Other Real Estate Owned –
Other real estate owned ("OREO") is initially recorded at the lower of carrying value or fair value, less costs to sell. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. The Company has determined OREO is valued using Level 3 inputs.
The following tables present information about certain assets and liabilities measured at fair value on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Measured at Fair Value
|
|
Fair Value Measured Using
|
Description
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
March 31, 2017
|
|
(Dollars in thousands)
|
Loans held for sale
|
|
$
|
23,453
|
|
|
$
|
—
|
|
|
$
|
23,453
|
|
|
$
|
—
|
|
Impaired loans
|
|
156,525
|
|
|
—
|
|
|
—
|
|
|
156,525
|
|
OREO
|
|
24,984
|
|
|
—
|
|
|
—
|
|
|
24,984
|
|
Total assets measured at fair value on a nonrecurring basis
|
|
$
|
204,962
|
|
|
$
|
—
|
|
|
$
|
23,453
|
|
|
$
|
181,509
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
43,731
|
|
|
$
|
—
|
|
|
$
|
43,731
|
|
|
$
|
—
|
|
Impaired loans
|
|
162,121
|
|
|
—
|
|
|
—
|
|
|
162,121
|
|
OREO
|
|
26,489
|
|
|
—
|
|
|
—
|
|
|
26,489
|
|
Total assets measured at fair value on a nonrecurring basis
|
|
$
|
232,341
|
|
|
$
|
—
|
|
|
$
|
43,731
|
|
|
$
|
188,610
|
|
The following table presents the valuation and unobservable inputs for Level 3 assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Fair Value
(in thousands)
|
|
Valuation Methodology
|
|
Unobservable Inputs
|
|
Range of Inputs
|
Impaired loans
|
|
$
|
156,525
|
|
|
Appraised value
|
|
Discount to reflect current market conditions and ultimate collectability
|
|
0% - 20%
|
OREO
|
|
24,984
|
|
|
Appraised value
|
|
Discount to reflect current market conditions
|
|
0% - 20%
|
Estimated fair values of financial instruments have been estimated by the Company using the provisions of ASC Topic 825,
Financial Instruments
(“ASC 825”), which requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
The following tables present the carrying value and estimated fair values of the Company’s financial instruments, including those that are not measured and reported at fair value on a recurring basis or nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
March 31, 2017
|
(Dollars in thousands)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
296,007
|
|
|
$
|
296,007
|
|
|
$
|
296,007
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Investment securities available-for-sale
|
579,882
|
|
|
579,882
|
|
|
30,176
|
|
|
549,706
|
|
|
—
|
|
Investment securities held-to-maturity
|
313,118
|
|
|
310,947
|
|
|
—
|
|
|
310,947
|
|
|
—
|
|
Federal Home Loan Bank stock
|
11,187
|
|
|
11,187
|
|
|
—
|
|
|
11,187
|
|
|
—
|
|
Loans held for sale
|
23,453
|
|
|
23,453
|
|
|
—
|
|
|
23,453
|
|
|
—
|
|
Loans receivable, net
|
5,581,502
|
|
|
5,612,539
|
|
|
—
|
|
|
5,456,014
|
|
|
156,525
|
|
Accrued interest receivable
|
19,595
|
|
|
19,595
|
|
|
—
|
|
|
19,595
|
|
|
—
|
|
Investment in bank-owned life insurance
|
203,470
|
|
|
203,470
|
|
|
—
|
|
|
203,470
|
|
|
—
|
|
Interest rate swaps - not designated
|
1,217
|
|
|
1,217
|
|
|
—
|
|
|
1,217
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Demand deposits and savings
|
4,718,637
|
|
|
4,718,637
|
|
|
—
|
|
|
4,718,637
|
|
|
—
|
|
Time deposits
|
1,597,254
|
|
|
1,609,140
|
|
|
—
|
|
|
1,609,140
|
|
|
—
|
|
Short-term borrowings
|
96,068
|
|
|
96,068
|
|
|
—
|
|
|
96,068
|
|
|
—
|
|
Long-term debt
|
191,448
|
|
|
180,729
|
|
|
—
|
|
|
180,729
|
|
|
—
|
|
Accrued interest payable
|
2,915
|
|
|
2,915
|
|
|
—
|
|
|
2,915
|
|
|
—
|
|
Interest rate swap - cash flow hedge
|
113
|
|
|
113
|
|
|
—
|
|
|
113
|
|
|
—
|
|
Interest rate swaps - not designated
|
1,217
|
|
|
1,217
|
|
|
—
|
|
|
1,217
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
December 31, 2016
|
(Dollars in thousands)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
260,182
|
|
|
$
|
260,182
|
|
|
$
|
260,182
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Investment securities available-for-sale
|
579,124
|
|
|
579,124
|
|
|
10,272
|
|
|
568,852
|
|
|
—
|
|
Investment securities held-to-maturity
|
317,662
|
|
|
312,808
|
|
|
—
|
|
|
312,808
|
|
|
—
|
|
Federal Home Loan Bank stock
|
13,180
|
|
|
13,180
|
|
|
—
|
|
|
13,180
|
|
|
—
|
|
Loans held for sale
|
43,731
|
|
|
43,731
|
|
|
—
|
|
|
43,731
|
|
|
—
|
|
Loans receivable, net
|
5,418,209
|
|
|
5,444,530
|
|
|
—
|
|
|
5,282,409
|
|
|
162,121
|
|
Accrued interest receivable
|
22,020
|
|
|
22,020
|
|
|
—
|
|
|
22,020
|
|
|
—
|
|
Investment in bank-owned life insurance
|
202,005
|
|
|
202,005
|
|
|
—
|
|
|
202,005
|
|
|
—
|
|
Interest rate swaps - not designated
|
1,224
|
|
|
1,224
|
|
|
—
|
|
|
1,224
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Demand deposits and savings
|
4,518,914
|
|
|
4,518,914
|
|
|
—
|
|
|
4,518,914
|
|
|
—
|
|
Time deposits
|
1,564,063
|
|
|
1,575,697
|
|
|
—
|
|
|
1,575,697
|
|
|
—
|
|
Short-term borrowings
|
168,304
|
|
|
168,304
|
|
|
—
|
|
|
168,304
|
|
|
—
|
|
Long-term debt
|
201,648
|
|
|
190,851
|
|
|
—
|
|
|
190,851
|
|
|
—
|
|
Accrued interest payable
|
2,273
|
|
|
2,273
|
|
|
—
|
|
|
2,273
|
|
|
—
|
|
Interest rate swap - cash flow hedge
|
557
|
|
|
557
|
|
|
—
|
|
|
557
|
|
|
—
|
|
Interest rate swaps - not designated
|
1,224
|
|
|
1,224
|
|
|
—
|
|
|
1,224
|
|
|
—
|
|
The following methods and assumptions were used to estimate the fair value of financial instruments that have not been previously discussed:
Cash and cash equivalents
- The carrying amounts reported in the balance sheets for cash and cash equivalents approximate the fair value of those assets.
Investment securities held-to-maturity
- The Company utilizes a third-party pricing service which normally derive security prices from recently reported trades for similar securities, making adjustments based on significant observable transactions. At each balance sheet date, observable market inputs may include trade information, broker or dealer quotes, bids, offers, or a combination of these data sources.
Federal Home Loan Bank stock
- The fair value for FHLB stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for this stock and the Company, in order to be a member of the FHLB, is required to maintain a minimum investment.
Loans receivable, net
- The fair values for loans are estimated using discounted cash flow analyses using interest rates currently being offered for loans with similar terms and credit ratings for the same remaining maturities, adjusted for the allowance for loan losses.
Investment in bank-owned life insurance
- The carrying value of life insurance approximates fair value because this investment is carried at cash surrender value, as determined by the insurer.
Accrued interest receivable and accrued interest payable
- The carrying amount of accrued interest is assumed to approximate fair value.
Deposits
- The fair values disclosed for deposits with no stated maturity (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for deposits with a stated maturity date (time deposits) are estimated using a discounted cash flow calculation that applies interest rates currently being offered on these accounts to a schedule of aggregated expected monthly maturities on time deposits.
Short-term borrowings
- The carrying amount of short-term borrowings is assumed to approximate fair value.
Long-term debt
– The fair value is estimated by discounting the future contractual cash flows using current market interest rates for similar debt over the same remaining term.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
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. These financial instruments include commitments to extend credit, unfunded lines of credit, and standby letters of credit. These instruments involve elements of credit risk in excess of amounts recognized in the accompanying consolidated financial statements.
The Company's risk of loss in the event of nonperformance by the other party to the commitment to extend credit, lines of credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments under such instruments as it does for on-balance sheet instruments. The amount of collateral obtained, if any, is based on management's evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, real estate and time deposits with financial institutions. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent cash requirements.
The following table presents the outstanding off-balance sheet financial instruments whose contract amounts represent potential credit risk:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
(Dollars in thousands)
|
Commitments under unfunded loans and lines of credit
|
$
|
1,506,702
|
|
|
$
|
1,448,453
|
|
Letters of credit
|
13,373
|
|
|
14,611
|
|
In addition, we invest as a limited partner in partnerships that operate qualified affordable housing or invest in emerging companies in our geographic region. These limited partnership structures are considered to be variable interest entities ("VIEs") because the limited partners with equity at risk do not have substantive kick-out rights through voting rights or substantive participating rights over the general partner. As a limited partner, we are not the primary beneficiary of the VIEs and do not consolidate them. Our investments in these partnerships are recorded in other assets on the Consolidated Balance Sheets. The Company has commitments to invest up to
$20.1 million
in these VIEs, of which
$13.1 million
was unfunded at March 31, 2017. At March 31, 2017, our maximum exposure to loss was our
$7.0 million
recorded investment.
The Company is subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. Management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against the Company will be material to the Company’s consolidated financial position. On an on-going basis the Company assesses any potential liabilities or contingencies in connection with such legal proceedings. For those matters where it is deemed probable that the Company will incur losses and the amount of the losses can be reasonably estimated, the Company would record an expense and corresponding liability in its consolidated financial statements.
NOTE 11 – EMPLOYEE BENEFITS
The Compensation Committee of the Company's Board of Directors may grant or award eligible participants stock options, restricted stock, restricted stock units, stock appreciation rights, and other stock-based awards or any combination of awards (collectively referred to herein as “Rights”). At December 31, 2016, the Company had Rights outstanding from the 2006 BNC Bancorp Omnibus Stock Ownership and Long Term Incentive Plan (the "2006 Omnibus Plan"), the BNC Bancorp 2013 Omnibus Stock Incentive Plan (the "2013 Omnibus Plan") and the KeySource Non-Statutory and Incentive Stock Option plans (the "KeySource Plans"). The 2013 Omnibus Plan and the KeySource Plans are the only plans that are available for future grants. The Company had
66,000
Rights issued under the 2006 Omnibus Plan,
738,023
Rights issued and
323,705
Rights available for grants or awards under the 2013 Omnibus Plan, and
28,903
stock options issued and
35,607
stock options available for issuance related to the KeySource Plans.
Stock Option Awards
. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The risk-free interest rate is based on the U.S. Treasury rate for the expected life at the time of grant. Volatility is based on the average volatility of the Company based upon previous trading history. The expected life and forfeiture assumptions are based on historical data. Dividend yield is based on the yield at the time of the option grant.
A summary of the Company’s stock option activity for the three months ended March 31, 2017 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Exercise Price per Share
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value
|
|
(Dollars in thousands, except per share amounts)
|
Outstanding at December 31, 2016
|
70,446
|
|
|
$
|
9.82
|
|
|
|
|
|
Issued
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
17,661
|
|
|
10.69
|
|
|
|
|
|
Forfeited or expired
|
—
|
|
|
—
|
|
|
|
|
|
Outstanding at March 31, 2017
|
52,785
|
|
|
$
|
9.53
|
|
|
1.38
|
|
$
|
1,347
|
|
Exercisable at March 31, 2017
|
52,761
|
|
|
$
|
9.53
|
|
|
1.39
|
|
$
|
1,346
|
|
The related compensation expense recognized for stock options, the intrinsic value of stock option exercised, and the grant-date fair value of options that vested was immaterial for the three months ended
March 31, 2017
and 2016, respectively.
Restricted Stock Awards.
A summary of the activity of the Company’s unvested restricted stock awards for the three months ended March 31, 2017 is presented below:
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant-Date Fair Value per Share
|
Unvested at December 31, 2016
|
900,726
|
|
|
$
|
23.80
|
|
Granted
|
30,650
|
|
|
36.51
|
|
Vested
|
(151,982
|
)
|
|
29.16
|
|
Forfeited
|
(250
|
)
|
|
20.58
|
|
Unvested at March 31, 2017
|
779,144
|
|
|
$
|
23.25
|
|
The Company measures the fair value of restricted shares based on the price of the Company's common stock on the grant date, and compensation expense is recorded over the vesting period. The Company recognized compensation expense of
$5.5 million
and
$0.7 million
for restricted stock awards for the three months ended
March 31, 2017
and
2016
, respectively. At
March 31, 2017
, there was
$13.2 million
of total unrecognized compensation cost related to unvested restricted stock granted under the plans. That cost is expected to be recognized over a weighted average period of
1.56 years
. The grant-date fair value of restricted stock grants vested was
$4.4 million
and
$0.3 million
during the three months ended
March 31, 2017
and 2016, respectively.