UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
| |
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2018
OR
|
| |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 0-20293
UNION BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
|
| |
VIRGINIA | 54-1598552 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
1051 East Cary Street
Suite 1200
Richmond, Virginia 23219
(Address of principal executive offices) (Zip Code)
(804) 633-5031
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | | |
Large accelerated filer | x | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) |
| | Smaller reporting company | ¨ |
| | Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of shares of common stock outstanding as of May 2, 2018 was 65,909,642.
UNION BANKSHARES CORPORATION
FORM 10-Q
INDEX
|
| | | |
ITEM | | | PAGE |
| | | |
| | | |
| | | |
Item 1. | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Item 2. | | | |
| | | |
Item 3. | | | |
| | | |
Item 4. | | | |
| | | |
| | | |
| | | |
Item 1. | | | |
| | | |
Item 1A. | | | |
| | | |
Item 2. | | | |
| | | |
Item 6. | | | |
| | | |
| | | |
Glossary of Acronyms and Defined Terms
|
| | |
2017 Form 10-K | – | Annual Report on Form 10-K for the year ended December 31, 2017 |
AFS | – | Available for sale |
ALCO | – | Asset Liability Committee |
ALL | – | Allowance for loan losses |
ASC | – | Accounting Standards Codification |
ASU | – | Accounting Standards Update |
ATM | – | Automated teller machine |
the Bank | – | Union Bank & Trust |
BOLI | – | Bank-owned life insurance |
bps | – | Basis points |
CECL | – | Current expected credit losses |
the Company | – | Union Bankshares Corporation and its subsidiaries |
DHFB | – | Dixon, Hubard, Feinour, & Brown, Inc. |
Dodd-Frank Act | – | Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 |
EPS | – | Earnings per share |
Exchange Act | – | Securities Exchange Act of 1934 |
FASB | – | Financial Accounting Standards Board |
FDIC | – | Federal Deposit Insurance Corporation |
Federal Reserve | – | Board of Governors of the Federal Reserve System |
Federal Reserve Bank | – | Federal Reserve Bank of Richmond |
FHLB | – | Federal Home Loan Bank of Atlanta |
U.S. GAAP or GAAP | – | Accounting principles generally accepted in the United States |
HELOC | – | Home equity line of credit |
HTM | – | Held to maturity |
IDC | – | Interactive Data Corporation |
LIBOR | – | London Interbank Offered Rate |
NPA | – | Nonperforming assets |
OCI | – | Other comprehensive income |
OREO | – | Other real estate owned |
OTTI | – | Other than temporary impairment |
PCI | – | Purchased credit impaired |
ROA | – | Return on average assets |
ROE | – | Return on average common equity |
ROTCE | – | Return on average tangible common equity |
SEC | – | Securities and Exchange Commission |
Tax Act | – | Tax Cuts and Jobs Act |
TDR | – | Troubled debt restructuring |
UMG | – | Union Mortgage Group, Inc. |
Xenith | – | Xenith Bankshares, Inc. |
PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data) |
| | | | | | | |
| March 31, 2018 | | December 31, 2017 |
| (Unaudited) | | (Audited) |
ASSETS | |
| | |
|
Cash and cash equivalents: | |
| | |
|
Cash and due from banks | $ | 137,761 |
| | $ | 117,586 |
|
Interest-bearing deposits in other banks | 196,456 |
| | 81,291 |
|
Federal funds sold | 8,246 |
| | 496 |
|
Total cash and cash equivalents | 342,463 |
| | 199,373 |
|
Securities available for sale, at fair value | 1,253,179 |
| | 974,222 |
|
Securities held to maturity, at carrying value | 198,733 |
| | 199,639 |
|
Restricted stock, at cost | 105,261 |
| | 75,283 |
|
Loans held for sale, at fair value | 27,727 |
| | 40,662 |
|
Loans held for investment, net of deferred fees and costs | 9,805,723 |
| | 7,141,552 |
|
Less allowance for loan losses | 40,629 |
| | 38,208 |
|
Net loans held for investment | 9,765,094 |
| | 7,103,344 |
|
Premises and equipment, net | 163,076 |
| | 119,981 |
|
Other real estate owned, net of valuation allowance | 10,099 |
| | 6,636 |
|
Goodwill | 724,106 |
| | 298,528 |
|
Amortizable intangibles, net | 50,092 |
| | 14,803 |
|
Bank owned life insurance | 258,381 |
| | 182,854 |
|
Other assets | 251,081 |
| | 99,854 |
|
Total assets | $ | 13,149,292 |
| | $ | 9,315,179 |
|
LIABILITIES | |
| | |
|
Noninterest-bearing demand deposits | $ | 2,057,425 |
| | $ | 1,502,208 |
|
Interest-bearing deposits | 7,620,530 |
| | 5,489,510 |
|
Total deposits | 9,677,955 |
| | 6,991,718 |
|
Securities sold under agreements to repurchase | 31,593 |
| | 49,152 |
|
Other short-term borrowings | 1,022,000 |
| | 745,000 |
|
Long-term borrowings | 481,433 |
| | 425,262 |
|
Other liabilities | 105,234 |
| | 57,718 |
|
Total liabilities | 11,318,215 |
| | 8,268,850 |
|
Commitments and contingencies (Note 7) |
|
| |
|
|
STOCKHOLDERS' EQUITY | |
| | |
|
Common stock, $1.33 par value, shares authorized 100,000,000; issued and outstanding, 65,895,421 shares and 43,743,318 shares, respectively. | 87,091 |
| | 57,744 |
|
Additional paid-in capital | 1,373,997 |
| | 610,001 |
|
Retained earnings | 382,299 |
| | 379,468 |
|
Accumulated other comprehensive income | (12,310 | ) | | (884 | ) |
Total stockholders' equity | 1,831,077 |
| | 1,046,329 |
|
Total liabilities and stockholders' equity | $ | 13,149,292 |
| | $ | 9,315,179 |
|
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except share and per share data) |
| | | | | | | |
| Three Months Ended |
| March 31, 2018 | | March 31, 2017 |
Interest and dividend income: | | | |
Interest and fees on loans | $ | 112,927 |
| | $ | 68,084 |
|
Interest on deposits in other banks | 647 |
| | 71 |
|
Interest and dividends on securities: | | | |
Taxable | 7,072 |
| | 4,923 |
|
Nontaxable | 4,008 |
| | 3,562 |
|
Total interest and dividend income | 124,654 |
| | 76,640 |
|
Interest expense: | | | |
Interest on deposits | 11,212 |
| | 5,077 |
|
Interest on short-term borrowings | 4,249 |
| | 950 |
|
Interest on long-term borrowings | 5,446 |
| | 4,046 |
|
Total interest expense | 20,907 |
| | 10,073 |
|
Net interest income | 103,747 |
| | 66,567 |
|
Provision for credit losses | 3,500 |
| | 2,122 |
|
Net interest income after provision for credit losses | 100,247 |
| | 64,445 |
|
Noninterest income: | | | |
Service charges on deposit accounts | 5,894 |
| | 4,516 |
|
Other service charges and fees | 1,233 |
| | 1,139 |
|
Interchange fees, net | 4,489 |
| | 3,582 |
|
Fiduciary and asset management fees | 3,056 |
| | 2,794 |
|
Mortgage banking income, net | 2,041 |
| | 2,025 |
|
Gains on securities transactions, net | 213 |
| | 481 |
|
Bank owned life insurance income | 1,667 |
| | 2,125 |
|
Loan-related interest rate swap fees | 718 |
| | 1,180 |
|
Other operating income | 2,998 |
| | 997 |
|
Total noninterest income | 22,309 |
| | 18,839 |
|
Noninterest expenses: | | | |
Salaries and benefits | 42,329 |
| | 32,168 |
|
Occupancy expenses | 6,310 |
| | 4,903 |
|
Furniture and equipment expenses | 3,033 |
| | 2,603 |
|
Printing, postage, and supplies | 1,073 |
| | 1,150 |
|
Communications expense | 1,097 |
| | 910 |
|
Technology and data processing | 4,649 |
| | 3,900 |
|
Professional services | 2,597 |
| | 1,658 |
|
Marketing and advertising expense | 1,443 |
| | 1,740 |
|
FDIC assessment premiums and other insurance | 2,185 |
| | 706 |
|
Other taxes | 2,886 |
| | 2,022 |
|
Loan-related expenses | 1,471 |
| | 1,329 |
|
OREO and credit-related expenses | 1,532 |
| | 541 |
|
Amortization of intangible assets | 3,181 |
| | 1,637 |
|
Training and other personnel costs | 1,027 |
| | 969 |
|
Merger-related costs | 27,712 |
| | — |
|
Other expenses | 1,483 |
| | 1,159 |
|
Total noninterest expenses | 104,008 |
| | 57,395 |
|
Income before income taxes | 18,548 |
| | 25,889 |
|
Income tax expense | 1,909 |
| | 6,765 |
|
Net income | $ | 16,639 |
| | $ | 19,124 |
|
Basic earnings per common share | $ | 0.25 |
| | $ | 0.44 |
|
Diluted earnings per common share | $ | 0.25 |
| | $ | 0.44 |
|
Dividends declared per common share | $ | 0.21 |
| | $ | 0.20 |
|
Basic weighted average number of common shares outstanding | 65,554,630 |
| | 43,654,498 |
|
Diluted weighted average number of common shares outstanding | 65,636,262 |
| | 43,725,923 |
|
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in thousands)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2018 | | 2017 |
| | | |
Net income | $ | 16,639 |
| | $ | 19,124 |
|
Other comprehensive income (loss): | |
| | |
|
Cash flow hedges: | |
| | |
|
Change in fair value of cash flow hedges | 1,964 |
| | (31 | ) |
Reclassification adjustment for losses (gains) included in net income (net of tax, $66 and $97 for the three months ended March 31, 2018 and 2017, respectively) | 249 |
| | 180 |
|
AFS securities: | |
| | |
|
Unrealized holding gains (losses) arising during period (net of tax, $3,506 and $1,958 for the three months ended March 31, 2018 and 2017, respectively) | (13,191 | ) | | 3,637 |
|
Reclassification adjustment for losses (gains) included in net income (net of tax, $45 and $168 for the three months ended March 31, 2018 and 2017, respectively) | (168 | ) | | (313 | ) |
HTM securities: | |
| | |
|
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $80 and $99 for the three months ended March 31, 2018 and 2017, respectively) | (299 | ) | | (184 | ) |
Bank owned life insurance: | | | |
Reclassification adjustment for losses included in net income | 19 |
| | 109 |
|
Other comprehensive income (loss) | (11,426 | ) | | 3,398 |
|
Comprehensive income | $ | 5,213 |
| | $ | 22,522 |
|
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2018 AND 2017
(Dollars in thousands, except share and per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
| | | | | | | | | |
Balance - December 31, 2016 | $ | 57,506 |
| | $ | 605,397 |
| | $ | 341,938 |
| | $ | (3,809 | ) | | $ | 1,001,032 |
|
Net income - 2017 | |
| | |
| | 19,124 |
| | |
| | 19,124 |
|
Other comprehensive income (net of taxes of $1,788) | |
| | |
| | |
| | 3,398 |
| | 3,398 |
|
Dividends on common stock ($0.20 per share) | |
| | |
| | (8,727 | ) | | |
| | (8,727 | ) |
Issuance of common stock under Equity Compensation Plans (29,008 shares) | 39 |
| | 489 |
| | |
| | |
| | 528 |
|
Issuance of common stock for services rendered (4,856 shares) | 6 |
| | 170 |
| | |
| | |
| | 176 |
|
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (58,679 shares) | 78 |
| | (1,126 | ) | | |
| | |
| | (1,048 | ) |
Stock-based compensation expense | |
| | 1,148 |
| | |
| | |
| | 1,148 |
|
Balance - March 31, 2017 | $ | 57,629 |
| | $ | 606,078 |
| | $ | 352,335 |
| | $ | (411 | ) | | $ | 1,015,631 |
|
| | | | | | | | | |
Balance - December 31, 2017 | $ | 57,744 |
| | $ | 610,001 |
| | $ | 379,468 |
| | $ | (884 | ) | | $ | 1,046,329 |
|
Net income - 2018 | |
| | |
| | 16,639 |
| | |
| | 16,639 |
|
Other comprehensive income (net of taxes of $3,565) | |
| | |
| | |
| | (11,426 | ) | | (11,426 | ) |
Issuance of common stock in regard to acquisition (21,922,077 shares)(1) | 29,156 |
| | 765,653 |
| | | | | | 794,809 |
|
Dividends on common stock ($0.21 per share) | |
| | |
| | (13,808 | ) | | |
| | (13,808 | ) |
Issuance of common stock under Equity Compensation Plans (68,495 shares) | 91 |
| | 836 |
| | |
| | |
| | 927 |
|
Issuance of common stock for services rendered (4,914 shares) | 7 |
| | 177 |
| | |
| | |
| | 184 |
|
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (69,562 shares) | 93 |
| | (2,363 | ) | | |
| | |
| | (2,270 | ) |
Cancellation of warrants | | | (1,530 | ) | | | | | | (1,530 | ) |
Stock-based compensation expense | |
| | 1,223 |
| | |
| | |
| | 1,223 |
|
Balance - March 31, 2018 | $ | 87,091 |
| | $ | 1,373,997 |
| | $ | 382,299 |
| | $ | (12,310 | ) | | $ | 1,831,077 |
|
(1) Includes conversion of Xenith warrants to Union warrants.
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2018 AND 2017
(Dollars in thousands)
|
| | | | | | | |
| 2018 | | 2017 |
Operating activities: | |
| | |
|
Net income | $ | 16,639 |
| | $ | 19,124 |
|
Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities: | |
| | |
|
Depreciation of premises and equipment | 3,480 |
| | 2,645 |
|
Writedown of OREO | 759 |
| | 238 |
|
Amortization, net | 3,776 |
| | 3,396 |
|
Amortization (accretion) related to acquisition, net | (2,691 | ) | | 144 |
|
Provision for credit losses | 3,500 |
| | 2,122 |
|
Gains on securities transactions, net | (213 | ) | | (481 | ) |
BOLI income | (1,667 | ) | | (2,125 | ) |
Decrease (increase) in loans held for sale, net | 12,935 |
| | 16,511 |
|
Gains on sales of other real estate owned, net | (21 | ) | | (36 | ) |
Losses (gains) on sales of premises, net | (153 | ) | | 26 |
|
Stock-based compensation expenses | 1,223 |
| | 1,148 |
|
Issuance of common stock for services | 184 |
| | 176 |
|
Net decrease (increase) in other assets | (18,216 | ) | | 2,241 |
|
Net increase in other liabilities | 16,228 |
| | 5,347 |
|
Net cash and cash equivalents provided by (used in) operating activities | 35,763 |
| | 50,476 |
|
Investing activities: | |
| | |
|
Purchases of securities available for sale and restricted stock | (154,512 | ) | | (53,782 | ) |
Purchases of securities held to maturity | — |
| | (4,878 | ) |
Proceeds from sales of securities available for sale and restricted stock | 115,850 |
| | 21,306 |
|
Proceeds from maturities, calls and paydowns of securities available for sale | 33,909 |
| | 26,167 |
|
Proceeds from maturities, calls and paydowns of securities held to maturity | — |
| | 1,001 |
|
Net increase in loans held for investment | (201,369 | ) | | (246,258 | ) |
Net increase in premises and equipment | (902 | ) | | (3,156 | ) |
Proceeds from sales of other real estate owned | 1,157 |
| | 206 |
|
Cash paid in acquisition | (6,170 | ) | | — |
|
Cash acquired in acquisitions | 174,218 |
| | — |
|
Net cash and cash equivalents provided by (used in) investing activities | (37,819 | ) | | (259,394 | ) |
Financing activities: | |
| | |
|
Net increase in noninterest-bearing deposits | 43,846 |
| | 97,174 |
|
Net increase in interest-bearing deposits | 93,540 |
| | 137,532 |
|
Net increase (decrease) in short-term borrowings | 24,441 |
| | (9,694 | ) |
Cash paid for contingent consideration | — |
| | (2,265 | ) |
Cash dividends paid - common stock | (13,808 | ) | | (8,727 | ) |
Cancellation of warrants | (1,530 | ) | | — |
|
Issuance of common stock | 927 |
| | 528 |
|
Vesting of restricted stock, net of shares held for taxes | (2,270 | ) | | (1,048 | ) |
Net cash and cash equivalents provided by (used in) financing activities | 145,146 |
| | 213,500 |
|
Increase (decrease) in cash and cash equivalents | 143,090 |
| | 4,582 |
|
Cash and cash equivalents at beginning of the period | 199,373 |
| | 179,237 |
|
Cash and cash equivalents at end of the period | $ | 342,463 |
| | $ | 183,819 |
|
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2018 AND 2017
(Dollars in thousands)
|
| | | | | | | |
| 2018 | | 2017 |
Supplemental Disclosure of Cash Flow Information | | | |
Cash payments for: | | | |
Interest | $ | 18,011 |
| | $ | 8,141 |
|
Income taxes | — |
| | — |
|
| | | |
Supplemental schedule of noncash investing and financing activities | | | |
Transfers between loans and OREO | (54 | ) | | (71 | ) |
Issuance of common stock in exchange for net assets in acquisition | 794,809 |
| | — |
|
| | | |
Transactions related to acquisitions | | | |
Assets acquired | 3,249,420 |
| | — |
|
Liabilities assumed | 2,874,018 |
| | — |
|
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements; however, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year.
These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2017 Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.
Business Combinations
On January 1, 2018, the Company completed the acquisition of Xenith, a bank holding company based in Richmond, Virginia, for a purchase price of approximately $801.0 million. Under the terms of the merger agreement, Xenith’s common stockholders received 0.9354 shares of the Company’s common stock in exchange for each share of Xenith’s common stock, resulting in the Company issuing 21,922,077 shares of the Company's common stock. In addition, the Company paid $6.2 million in exchange for Xenith's outstanding options.
In connection with the acquisition, the Company recorded $425.6 million in goodwill and $38.5 million of amortizable assets, which relate to core deposit intangibles. The goodwill is not expected to be deductible for tax purposes. The Company currently estimates that these intangibles assets will be amortized over 10 years using sum-of-years digits. The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition.
Affordable Housing Entities
The Company invests in private investment funds that make equity investments in multifamily affordable housing properties that provide affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and debt. For the three months ended March 31, 2018 and March 31, 2017, the Company recognized amortization of $235,000 and $223,000, respectively, and tax credits of $283,000 and $309,000, respectively, associated with these investments within “Income tax expense” on the Company’s Consolidated Statements of Income. The carrying value of the Company’s investments in these qualified affordable housing projects was $11.6 million and $11.0 million as of March 31, 2018 and December 31, 2017, respectively. At March 31, 2018 and December 31, 2017, the Company's recorded liability totaled $8.3 million and $7.3 million, respectively, for the related unfunded commitments, which are expected to be paid from 2018 to 2019.
Adoption of New Accounting Standards
On January 1, 2018, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606” and all subsequent amendments to the ASU (“Topic 606”). This ASU revised guidance for the recognition, measurement, and disclosure of revenue from contracts with customers. The guidance, as amended, is applicable to all entities and replaces a significant portion of existing industry and transaction-specific revenue recognition rules with a more principles-based recognition model. Most revenue associated with financial instruments, including interest income, loan origination fees, and credit card fees, is outside the scope of the guidance. Gains and losses on investment securities, derivatives, and sales of financial instruments are similarly excluded from the scope. The Company adopted this ASU using the modified retrospective approach, which requires a cumulative effect adjustment to retained earnings as of the beginning of the reporting period in which the entity first applies the new guidance. The adoption of ASU No. 2016-09 did not have a material impact on the Company’s consolidated financial results but did result in expanded disclosures related to noninterest income and enhanced qualitative disclosures on the revenues within the scope of the new guidance. Refer to Note 11 “Revenue" for further discussion on the Company's accounting policies for revenue sources within the scope of ASC 606.
On January 1, 2018, the Company adopted ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU requires an entity to, among other things: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in
instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. The ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. The ASU also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. The adoption of ASU 2016-01 did not have a material impact on the Company’s consolidated financial statements and resulted in enhancements to the financial instrument disclosures.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This ASU requires lessees to put most leases on their balance sheets, but recognize expenses in the income statement in a manner similar to today’s accounting. The guidance also eliminates the real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs, and lease executory costs for all entities. For lessors, this ASU modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently working to identify the complete lease population, including potential embedded leases. The adoption of this standard is expected to result in additional assets and liabilities, as the Company will be required to recognize operating leases on the Consolidated Balance Sheet. Other implementation matters to be addressed include, but are not limited to, the determination of effects on the financial and capital ratios and the quantification of the impacts that this accounting guidance will have on the Company's 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.” This ASU updates the existing guidance to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The CECL model will replace the Company's current accounting for PCI and impaired loans. The guidance also amends the AFS debt securities OTTI model. The amendment is effective for fiscal years beginning after December 15, 2019. The Company is currently assessing the requirements and necessary changes to the existing credit loss estimation methods and identifying a complete set of data requirements and sources. The Company is currently evaluating the impact ASU No. 2016-13 will have on its consolidated financial statements. This guidance may result in material changes in the Company's accounting for credit losses on financial instruments.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” This ASU relates to any entity that elects to apply hedge accounting in accordance with current GAAP. The amendment simplifies the application of the hedge accounting guidance and improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The targeted improvements in ASU No. 2017-12 will allow the Company a one-time transfer of certain debt securities from HTM to AFS. The amendments will be effective for the Company for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. The Company plans to early adopt this standard in the second quarter of 2018 using the modified retrospective approach. As part of this adoption, the Company plans to make the one time election to transfer eligible HTM securities to the AFS category in order to optimize the investment portfolio management for capital and risk management considerations. The Company plans to transfer HTM securities with a carrying amount of approximately $200 million, which will result in an impact to accumulated other comprehensive income. The consolidated financial statements for the quarter ended June 30, 2018, will also include a cumulative effect adjustment to the opening balance of retained earnings to reflect the application of the new guidance related to the fair value hedges. The Company is in the process of developing the required disclosures, which will be included in its second quarter 2018 Quarterly Report on Form 10-Q.
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act and requires certain disclosures about the stranded tax effects. The amendments will be effective for the Company for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. The Company plans to adopt this guidance in 2018 via the retrospective approach applying the effect of the change to the date of the enacted Tax Act, which was December 22, 2017. The Company has concluded the adoption of ASU No. 2018-02 will not have a material impact on its consolidated financial statements.
2. ACQUISITIONS
On January 1, 2018, the Company completed its acquisition of Xenith, a bank holding company based in Richmond, Virginia. Xenith's common stockholders received 0.9354 shares of the Company's common stock in exchange for each share of Xenith's common stock, resulting in the Company issuing 21,922,077 shares of the Company's common stock at a fair value of $794.8 million. In addition, the Company paid $6.2 million in exchange for Xenith's outstanding stock options.
The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition, in accordance with ASC 350, Intangibles-Goodwill and Other. The following table provides a preliminary assessment of the consideration transferred, assets acquired, and liabilities assumed as of the date of the acquisition (dollars in thousands):
|
| | | | | | |
Purchase Price: | | |
Fair value of shares of Union common stock issued & warrants converted | | $ | 794,809 |
|
Cash paid for Xenith options | | 6,170 |
|
Total purchase price | | $ | 800,979 |
|
| | |
Fair value of assets acquired: | | |
Cash and cash equivalents | $ | 174,218 |
| |
Securities available for sale | 295,782 |
| |
Restricted stock, at cost | 27,569 |
| |
Net loans | 2,458,981 |
| |
Premises and equipment | 45,520 |
| |
OREO | 5,412 |
| |
Core deposit intangibles | 38,470 |
| |
Other assets | 203,468 |
| |
Total assets | $ | 3,249,420 |
| |
| | |
Fair value of liabilities assumed: | | |
Deposits | $ | 2,549,683 |
| |
Other short-term borrowings | 235,000 |
| |
Borrowings | 55,542 |
| |
Other liabilities | 33,793 |
| |
Total liabilities | $ | 2,874,018 |
| |
| | |
Net assets acquired | | $ | 375,402 |
|
Preliminary goodwill | | $ | 425,577 |
|
The acquired loans were recorded at fair value at the acquisition date without carryover of Xenith’s previously established allowance for loan losses. The fair value of the loans was determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected on the loans and leases and then applying a market-based discount rate to those cash flows. In this regard, the acquired loans were segregated into pools based on loan type and credit risk. Loan type was determined based on collateral type, purpose, and lien position. Credit risk characteristics included risk rating groups (pass rated loans and adversely classified loans), and past due status. For valuation purposes, these pools were further disaggregated by maturity, pricing characteristics (e.g., fixed-rate, adjustable-rate) and re-payment structure (e.g., interest only, fully amortizing, balloon). If new information is obtained about facts and circumstances about expected cash flows that existed as of the acquisition date, management will adjust fair values in accordance with accounting for business combinations.
The acquired loans were divided into loans with evidence of credit quality deterioration which are accounted for under ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality, (acquired impaired) and loans that
do not meet these criteria, which are accounted for under ASC 310-20, Receivables - Nonrefundable Fees and Other Costs, (acquired performing). The fair values of the acquired performing loans were $2.4 billion and the fair values of the acquired impaired loans were $68.5 million. The gross contractually required principal and interest payments receivable for acquired performing loans was $2.7 billion. The best estimate of contractual cash flows not expected to be collected related to the acquired performing loans is $22.2 million.
The following table presents the acquired impaired loans receivable at the acquisition date (dollars in thousands):
|
| | | |
Contractually required principal and interest payments | $ | 97,123 |
|
Nonaccretable difference | (16,422 | ) |
Cash flows expected to be collected | 80,701 |
|
Accretable difference | (12,225 | ) |
Fair value of loans acquired with a deterioration of credit quality | $ | 68,476 |
|
The following table presents certain pro forma information as if Xenith had been acquired on January 1, 2017. These results combine the historical results of Xenith in the Company's Consolidated Statements of Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2017. In particular, no adjustments have been made to eliminate the amount of Xenith’s provision for credit losses that would not have been necessary had the acquired loans been recorded at fair value as of January 1, 2017. Pro forma adjustments below include the net impact of accretion for 2017 and the elimination of merger-related costs for 2018. The Company expects to achieve further operating cost savings and other business synergies, including branch closures, as a result of the acquisition which are not reflected in the pro forma amounts below (dollars in thousands):
|
| | | | | | | |
| Pro forma for the three months ended |
| March 31, |
| 2018 | | 2017 |
| (unaudited) | | (unaudited) |
Total revenues (1) | $ | 126,056 |
| | $ | 116,733 |
|
Net income | $ | 38,875 |
| | $ | 25,921 |
|
Earnings per share | $ | 0.59 |
| | $ | 0.40 |
|
(1) Includes net interest income and noninterest income.
Merger-related costs associated with the acquisition of Xenith were $27.7 million for the three months ended March 31, 2018; no merger-related costs were incurred for the three months ended March 31, 2017. Such costs include legal and accounting fees, lease and contract termination expenses, system conversion, and employee severances, which have been expensed as incurred.
3. SECURITIES
Available for Sale
The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale as of March 31, 2018 and December 31, 2017 are summarized as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| Amortized | | Gross Unrealized | | Estimated |
| Cost | | Gains | | (Losses) | | Fair Value |
March 31, 2018 | |
| | |
| | |
| | |
|
Obligations of states and political subdivisions | $ | 365,816 |
| | $ | 3,002 |
| | $ | (4,179 | ) | | $ | 364,639 |
|
Corporate bonds | 122,903 |
| | 1,175 |
| | (938 | ) | | 123,140 |
|
Mortgage-backed securities | 767,366 |
| | 1,807 |
| | (14,761 | ) | | 754,412 |
|
Other securities | 11,120 |
| | — |
| | (132 | ) | | 10,988 |
|
Total available for sale securities | $ | 1,267,205 |
| | $ | 5,984 |
| | $ | (20,010 | ) | | $ | 1,253,179 |
|
| | | | | | | |
December 31, 2017 | |
| | |
| | |
| | |
|
Obligations of states and political subdivisions | $ | 295,546 |
| | $ | 6,842 |
| | $ | (564 | ) | | $ | 301,824 |
|
Corporate bonds | 113,625 |
| | 1,131 |
| | (876 | ) | | 113,880 |
|
Mortgage-backed securities | 552,431 |
| | 2,596 |
| | (6,169 | ) | | 548,858 |
|
Other securities | 9,737 |
| | — |
| | (77 | ) | | 9,660 |
|
Total available for sale securities | $ | 971,339 |
| | $ | 10,569 |
| | $ | (7,686 | ) | | $ | 974,222 |
|
The following table shows the gross unrealized losses and fair value (dollars in thousands) of the Company’s available for sale securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of March 31, 2018 and December 31, 2017. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 months | | More than 12 months | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
March 31, 2018 | |
| | |
| | |
| | |
| | |
| | |
|
Obligations of states and political subdivisions | $ | 150,366 |
| | $ | (3,288 | ) | | $ | 16,413 |
| | $ | (891 | ) | | $ | 166,779 |
| | $ | (4,179 | ) |
Mortgage-backed securities | 531,141 |
| | (10,089 | ) | | 139,217 |
| | (4,672 | ) | | 670,358 |
| | (14,761 | ) |
Corporate bonds and other securities | 21,775 |
| | (156 | ) | | 37,591 |
| | (914 | ) | | 59,366 |
| | (1,070 | ) |
Total available for sale securities | $ | 703,282 |
| | $ | (13,533 | ) | | $ | 193,221 |
| | $ | (6,477 | ) | | $ | 896,503 |
| | $ | (20,010 | ) |
| | | | | | | | | | | |
December 31, 2017 | |
| | |
| | |
| | |
| | |
| | |
|
Obligations of states and political subdivisions | $ | 25,790 |
| | $ | (132 | ) | | $ | 16,934 |
| | $ | (432 | ) | | $ | 42,724 |
| | $ | (564 | ) |
Mortgage-backed securities | 298,439 |
| | (3,267 | ) | | 136,298 |
| | (2,902 | ) | | 434,737 |
| | (6,169 | ) |
Corporate bonds and other securities | 10,976 |
| | (99 | ) | | 44,408 |
| | (854 | ) | | 55,384 |
| | (953 | ) |
Total available for sale securities | $ | 335,205 |
| | $ | (3,498 | ) | | $ | 197,640 |
| | $ | (4,188 | ) | | $ | 532,845 |
| | $ | (7,686 | ) |
As of March 31, 2018, there were $193.2 million, or 74 issues, of individual available for sale securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $6.5 million. As of December 31, 2017, there were $197.6 million, or 71 issues, of individual securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $4.2 million. The Company has determined that these securities are temporarily impaired at March 31, 2018 and December 31, 2017 for the reasons set out below:
Mortgage-backed securities. This category’s unrealized losses are primarily the result of interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not intend to sell the investments, and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired. Also, the majority of the Company’s mortgage-backed securities are agency-backed securities, which have a government guarantee.
Obligations of state and political subdivisions. This category’s unrealized losses are primarily the result of interest rate fluctuations and also a certain few ratings downgrades brought about by the impact of the credit crisis on states and political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
Corporate bonds. The Company’s unrealized losses in corporate debt securities are related to both interest rate fluctuations and ratings downgrades for a limited number of securities. The majority of the securities remain investment grade and the Company’s analysis did not indicate the existence of a credit loss. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
The following table presents the amortized cost and estimated fair value of available for sale securities as of March 31, 2018 and December 31, 2017, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
| | | | | | | | | | | | | | | |
| March 31, 2018 | | December 31, 2017 |
| Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
Due in one year or less | $ | 30,048 |
| | $ | 30,097 |
| | $ | 25,179 |
| | $ | 25,326 |
|
Due after one year through five years | 201,580 |
| | 199,198 |
| | 145,276 |
| | 145,980 |
|
Due after five years through ten years | 228,924 |
| | 228,561 |
| | 223,210 |
| | 226,251 |
|
Due after ten years | 806,653 |
| | 795,323 |
| | 577,674 |
| | 576,665 |
|
Total securities available for sale | $ | 1,267,205 |
| | $ | 1,253,179 |
| | $ | 971,339 |
| | $ | 974,222 |
|
For information regarding the estimated fair value of available for sale securities which were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of March 31, 2018 and December 31, 2017, see Note 7 “Commitments and Contingencies.”
Held to Maturity
The Company reports securities held to maturity on the Consolidated Balance Sheets at carrying value. Carrying value is amortized cost which includes any unamortized unrealized gains and losses recognized in accumulated other comprehensive income prior to reclassifying the securities from securities available for sale to securities held to maturity. Investment securities transferred into the held to maturity category from the available for sale category are recorded at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the securities held to maturity. Such unrealized gains or losses are accreted over the remaining life of the security with no impact on future net income.
The carrying value, gross unrealized gains and losses, and estimated fair values of securities held to maturity as of March 31, 2018 and December 31, 2017 are summarized as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| Carrying | | Gross Unrealized | | Estimated |
| Value (1) | | Gains | | (Losses) | | Fair Value |
March 31, 2018 | |
| | |
| | |
| | |
|
Obligations of states and political subdivisions | $ | 198,733 |
| | $ | 1,540 |
| | $ | (369 | ) | | $ | 199,904 |
|
| | | | | | | |
December 31, 2017 | |
| | |
| | |
| | |
|
Obligations of states and political subdivisions | $ | 199,639 |
| | $ | 4,014 |
| | $ | (170 | ) | | $ | 203,483 |
|
(1) The carrying value includes $3.2 million as of March 31, 2018 and $3.6 million as of December 31, 2017 of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion.
The following table shows the gross unrealized losses and fair value (dollars in thousands) of the Company’s held to maturity securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of March 31, 2018 and December 31, 2017. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 months | | More than 12 months | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
March 31, 2018 | |
| | |
| | |
| | |
| | |
| | |
|
Obligations of states and political subdivisions | $ | 57,691 |
| | $ | (302 | ) | | $ | 2,629 |
| | $ | (67 | ) | | $ | 60,320 |
| | $ | (369 | ) |
| | | | | | | | | | | |
December 31, 2017 | | | | | | | | | | | |
Obligations of states and political subdivisions | $ | 18,896 |
| | $ | (139 | ) | | $ | 1,084 |
| | $ | (31 | ) | | $ | 19,980 |
| | $ | (170 | ) |
As of March 31, 2018, there was $2.6 million, or four issues, of individual held to maturity securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $67,000. As of December 31, 2017, there was $1.1 million, or two issues, of individual held to maturity securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $31,000. These securities are municipal bonds with minimal credit exposure. For this reason, the Company has determined that these securities in a loss position were temporarily impaired as of March 31, 2018 and December 31, 2017. Because the Company does not intend to sell these investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
The following table presents the amortized cost and estimated fair value of held to maturity securities as of March 31, 2018 and December 31, 2017, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
| | | | | | | | | | | | | | | |
| March 31, 2018 | | December 31, 2017 |
| Carrying Value (1) | | Estimated Fair Value | | Carrying Value (1) | | Estimated Fair Value |
Due in one year or less | $ | 6,764 |
| | $ | 6,780 |
| | $ | 3,221 |
| | $ | 3,230 |
|
Due after one year through five years | 48,016 |
| | 48,265 |
| | 44,289 |
| | 44,601 |
|
Due after five years through ten years | 78,816 |
| | 79,099 |
| | 79,114 |
| | 80,532 |
|
Due after ten years | 65,137 |
| | 65,760 |
| | 73,015 |
| | 75,120 |
|
Total securities held to maturity | $ | 198,733 |
| | $ | 199,904 |
| | $ | 199,639 |
| | $ | 203,483 |
|
(1) The carrying value includes $3.2 million as of March 31, 2018 and $3.6 million as of December 31, 2017 of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion.
For information regarding the estimated fair value of held to maturity securities which were pledged to secure public deposits as permitted or required by law as of March 31, 2018 and December 31, 2017, see Note 7 “Commitments and Contingencies.”
Restricted Stock, at cost
Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. At March 31, 2018 and December 31, 2017, the FHLB required the Bank to maintain stock in an amount equal to 4.25% of outstanding borrowings and a specific percentage of the Bank’s total assets. The Federal Reserve Bank required the Bank to maintain stock with a par value equal to 6% of the Bank's outstanding capital at both March 31, 2018 and December 31, 2017. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $42.0 million and $27.6 million for March 31, 2018 and December 31, 2017 and FHLB stock in the amount of $63.2 million and $47.7 million as of March 31, 2018 and December 31, 2017, respectively.
Other-Than-Temporary-Impairment
During each quarter, the Company conducts an assessment of the securities portfolio for OTTI consideration. The assessment considers factors such as external credit ratings, delinquency coverage ratios, market price, management’s judgment, expectations of future performance, and relevant industry research and analysis. An impairment is other-than-temporary if any of the following conditions exist: the entity intends to sell the security; it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or the entity does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell). If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated into a credit portion to be recognized in earnings and the remaining amount relating to all other factors recognized as other comprehensive loss. Based on the assessment for the three months ended March 31, 2018, and in accordance with accounting guidance, no OTTI was recognized.
Realized Gains and Losses
The following table presents the gross realized gains and losses on and the proceeds from the sale of securities during the three months ended March 31, 2018 and 2017 (dollars in thousands).
|
| | | | | | | |
| Three Months Ended March 31, 2018 | | Three Months Ended March 31, 2017 |
Realized gains (losses): | |
| | |
|
Gross realized gains | $ | 697 |
| | $ | 481 |
|
Gross realized losses | (484 | ) | | — |
|
Net realized gains | $ | 213 |
| | $ | 481 |
|
| | | |
Proceeds from sales of securities | $ | 115,850 |
| | $ | 21,306 |
|
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at their face amount, net of deferred fees and costs, and consist of the following at March 31, 2018 and December 31, 2017 (dollars in thousands):
|
| | | | | | | |
| March 31, 2018 | | December 31, 2017 |
Construction and Land Development | $ | 1,249,196 |
| | $ | 948,791 |
|
Commercial Real Estate - Owner Occupied | 1,279,155 |
| | 943,933 |
|
Commercial Real Estate - Non-Owner Occupied | 2,230,463 |
| | 1,713,659 |
|
Multifamily Real Estate | 547,520 |
| | 357,079 |
|
Commercial & Industrial | 1,125,733 |
| | 612,023 |
|
Residential 1-4 Family - Commercial | 714,660 |
| | 612,395 |
|
Residential 1-4 Family - Mortgage | 604,354 |
| | 485,690 |
|
Auto | 288,089 |
| | 282,474 |
|
HELOC | 642,084 |
| | 537,521 |
|
Consumer | 839,699 |
| | 408,667 |
|
Other Commercial | 284,770 |
| | 239,320 |
|
Total loans held for investment, net (1) | $ | 9,805,723 |
| | $ | 7,141,552 |
|
(1) Loans, as presented, are net of deferred fees and costs totaling $2.7 million and $1.3 million as of March 31, 2018 and December 31, 2017, respectively.
The following table shows the aging of the Company’s loan portfolio, by segment, at March 31, 2018 (dollars in thousands): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 30-59 Days Past Due | | 60-89 Days Past Due | | Greater than 90 Days and still Accruing | | PCI | | Nonaccrual | | Current | | Total Loans |
Construction and Land Development | $ | 403 |
| | $ | 1,291 |
| | $ | 322 |
| | $ | 10,202 |
| | $ | 6,391 |
| | $ | 1,230,587 |
| | $ | 1,249,196 |
|
Commercial Real Estate - Owner Occupied | 4,985 |
| | 777 |
| | — |
| | 25,826 |
| | 2,539 |
| | 1,245,028 |
| | 1,279,155 |
|
Commercial Real Estate - Non-Owner Occupied | 1,867 |
| | — |
| | — |
| | 19,594 |
| | 2,089 |
| | 2,206,913 |
| | 2,230,463 |
|
Multifamily Real Estate | — |
| | — |
| | — |
| | 3,380 |
| | — |
| | 544,140 |
| | 547,520 |
|
Commercial & Industrial | 2,608 |
| | 1,254 |
| | 200 |
| | 2,890 |
| | 1,969 |
| | 1,116,812 |
| | 1,125,733 |
|
Residential 1-4 Family - Commercial | 3,707 |
| | 960 |
| | 113 |
| | 14,826 |
| | 1,512 |
| | 693,542 |
| | 714,660 |
|
Residential 1-4 Family - Mortgage | 6,210 |
| | 1,397 |
| | 1,148 |
| | 20,517 |
| | 7,929 |
| | 567,153 |
| | 604,354 |
|
Auto | 2,167 |
| | 193 |
| | 170 |
| | 14 |
| | 394 |
| | 285,151 |
| | 288,089 |
|
HELOC | 3,564 |
| | 1,346 |
| | 306 |
| | 1,884 |
| | 2,072 |
| | 632,912 |
| | 642,084 |
|
Consumer and all other(1) | 4,179 |
| | 2,074 |
| | 371 |
| | 3,728 |
| | 243 |
| | 1,113,874 |
| | 1,124,469 |
|
Total loans held for investment | $ | 29,690 |
| | $ | 9,292 |
| | $ | 2,630 |
| | $ | 102,861 |
| | $ | 25,138 |
| | $ | 9,636,112 |
| | $ | 9,805,723 |
|
(1)Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.
The following table shows the aging of the Company’s loan portfolio, by segment, at December 31, 2017 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 30-59 Days Past Due | | 60-89 Days Past Due | | Greater than 90 Days and still Accruing | | PCI | | Nonaccrual | | Current | | Total Loans |
Construction and Land Development | $ | 1,248 |
| | $ | 898 |
| | $ | 1,340 |
| | $ | 2,838 |
| | $ | 5,610 |
| | $ | 936,857 |
| | $ | 948,791 |
|
Commercial Real Estate - Owner Occupied | 444 |
| | 81 |
| | — |
| | 14,790 |
| | 2,708 |
| | 925,910 |
| | 943,933 |
|
Commercial Real Estate - Non-Owner Occupied | 187 |
| | 84 |
| | 194 |
| | 6,610 |
| | 2,992 |
| | 1,703,592 |
| | 1,713,659 |
|
Multifamily Real Estate | — |
| | — |
| | — |
| | 80 |
| | — |
| | 356,999 |
| | 357,079 |
|
Commercial & Industrial | 1,147 |
| | 109 |
| | 214 |
| | 408 |
| | 316 |
| | 609,829 |
| | 612,023 |
|
Residential 1-4 Family - Commercial | 1,682 |
| | 700 |
| | 579 |
| | 9,414 |
| | 1,085 |
| | 598,935 |
| | 612,395 |
|
Residential 1-4 Family - Mortgage | 3,838 |
| | 2,541 |
| | 546 |
| | 3,733 |
| | 6,269 |
| | 468,763 |
| | 485,690 |
|
Auto | 3,541 |
| | 185 |
| | 40 |
| | — |
| | 413 |
| | 278,295 |
| | 282,474 |
|
HELOC | 2,382 |
| | 717 |
| | 217 |
| | 950 |
| | 2,075 |
| | 531,180 |
| | 537,521 |
|
Consumer and all other(1) | 2,404 |
| | 2,052 |
| | 402 |
| | 198 |
| | 275 |
| | 642,656 |
| | 647,987 |
|
Total loans held for investment | $ | 16,873 |
| | $ | 7,367 |
| | $ | 3,532 |
| | $ | 39,021 |
| | $ | 21,743 |
| | $ | 7,053,016 |
| | $ | 7,141,552 |
|
(1)Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.
The following table shows the PCI loan portfolios, by segment and their delinquency status, at March 31, 2018 (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| 30-89 Days Past Due | | Greater than 90 Days | | Current | | Total |
Construction and Land Development | $ | 54 |
| | $ | 1,909 |
| | $ | 8,239 |
| | $ | 10,202 |
|
Commercial Real Estate - Owner Occupied | 438 |
| | 4,995 |
| | 20,393 |
| | 25,826 |
|
Commercial Real Estate - Non-Owner Occupied | 180 |
| | 1,558 |
| | 17,856 |
| | 19,594 |
|
Multifamily Real Estate | — |
| | — |
| | 3,380 |
| | 3,380 |
|
Commercial & Industrial | 38 |
| | 120 |
| | 2,732 |
| | 2,890 |
|
Residential 1-4 Family - Commercial | 383 |
| | 1,454 |
| | 12,989 |
| | 14,826 |
|
Residential 1-4 Family - Mortgage | 1,673 |
| | 4,076 |
| | 14,768 |
| | 20,517 |
|
Auto | — |
| | — |
| | 14 |
| | 14 |
|
HELOC | 83 |
| | 645 |
| | 1,156 |
| | 1,884 |
|
Consumer and all other(1) | 7 |
| | 220 |
| | 3,501 |
| | 3,728 |
|
Total | $ | 2,856 |
| | $ | 14,977 |
| | $ | 85,028 |
| | $ | 102,861 |
|
(1)Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.
The following table shows the PCI loan portfolios, by segment and their delinquency status, at December 31, 2017 (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| 30-89 Days Past Due | | Greater than 90 Days | | Current | | Total |
Construction and Land Development | $ | 8 |
| | $ | 57 |
| | $ | 2,773 |
| | $ | 2,838 |
|
Commercial Real Estate - Owner Occupied | 381 |
| | 478 |
| | 13,931 |
| | 14,790 |
|
Commercial Real Estate - Non-Owner Occupied | 188 |
| | 233 |
| | 6,189 |
| | 6,610 |
|
Multifamily Real Estate | — |
| | — |
| | 80 |
| | 80 |
|
Commercial & Industrial | — |
| | — |
| | 408 |
| | 408 |
|
Residential 1-4 Family - Commercial | 433 |
| | 351 |
| | 8,630 |
| | 9,414 |
|
Residential 1-4 Family - Mortgage | 343 |
| | 626 |
| | 2,764 |
| | 3,733 |
|
HELOC | 291 |
| | 214 |
| | 445 |
| | 950 |
|
Consumer and all other(1) | — |
| | — |
| | 198 |
| | 198 |
|
Total | $ | 1,644 |
| | $ | 1,959 |
| | $ | 35,418 |
| | $ | 39,021 |
|
(1)Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.
The Company measures the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. The following table shows the Company’s impaired loans, excluding PCI loans, by segment at March 31, 2018 and December 31, 2017 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2018 | | December 31, 2017 |
| Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance |
Loans without a specific allowance | |
| | |
| | |
| | |
| | |
| | |
|
Construction and Land Development | $ | 11,652 |
| | $ | 11,831 |
| | $ | — |
| | $ | 16,035 |
| | $ | 16,214 |
| | $ | — |
|
Commercial Real Estate - Owner Occupied | 15,966 |
| | 16,347 |
| | — |
| | 5,427 |
| | 5,527 |
| | — |
|
Commercial Real Estate - Non-Owner Occupied | 7,545 |
| | 7,727 |
| | — |
| | 6,017 |
| | 6,103 |
| | — |
|
Commercial & Industrial | 2,313 |
| | 2,649 |
| | — |
| | 1,681 |
| | 1,933 |
| | — |
|
Residential 1-4 Family - Commercial | 5,459 |
| | 6,254 |
| | — |
| | 4,098 |
| | 4,879 |
| | — |
|
Residential 1-4 Family - Mortgage | 12,910 |
| | 13,238 |
| | — |
| | 9,512 |
| | 9,786 |
| | |
HELOC | 3,497 |
| | 3,788 |
| | — |
| | 2,056 |
| | 2,144 |
| | — |
|
Consumer and all other(1) | 585 |
| | 753 |
| | — |
| | 567 |
| | 734 |
| | — |
|
Total impaired loans without a specific allowance | $ | 59,927 |
| | $ | 62,587 |
| | $ | — |
| | $ | 45,393 |
| | $ | 47,320 |
| | $ | — |
|
| | | | | | | | | | | |
Loans with a specific allowance | |
| | |
| | |
| | |
| | |
| | |
|
Construction and Land Development | $ | 526 |
| | $ | 572 |
| | $ | 78 |
| | $ | 1,536 |
| | $ | 1,573 |
| | $ | 122 |
|
Commercial Real Estate - Owner Occupied | 820 |
| | 830 |
| | 74 |
| | 1,161 |
| | 1,161 |
| | 94 |
|
Commercial Real Estate - Non-Owner Occupied | 83 |
| | 83 |
| | 1 |
| | — |
| | — |
| | — |
|
Commercial & Industrial | 2,074 |
| | 2,113 |
| | 60 |
| | 1,295 |
| | 1,319 |
| | 128 |
|
Residential 1-4 Family - Commercial | 909 |
| | 921 |
| | 30 |
| | 1,062 |
| | 1,068 |
| | 35 |
|
Residential 1-4 Family - Mortgage | 3,279 |
| | 3,532 |
| | 88 |
| | 1,953 |
| | 2,070 |
| | 36 |
|
Auto | 740 |
| | 900 |
| | 3 |
| | 413 |
| | 577 |
| | 2 |
|
HELOC | 936 |
| | 1,053 |
| | 167 |
| | 464 |
| | 535 |
| | 51 |
|
Consumer and all other(1) | 159 |
| | 298 |
| | 1 |
| | 204 |
| | 309 |
| | 35 |
|
Total impaired loans with a specific allowance | $ | 9,526 |
| | $ | 10,302 |
| | $ | 502 |
| | $ | 8,088 |
| | $ | 8,612 |
| | $ | 503 |
|
Total impaired loans | $ | 69,453 |
| | $ | 72,889 |
| | $ | 502 |
| | $ | 53,481 |
| | $ | 55,932 |
| | $ | 503 |
|
(1)Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.
The following tables show the average recorded investment and interest income recognized for the Company’s impaired loans, excluding PCI loans, by segment for the three months ended March 31, 2018 and 2017 (dollars in thousands): |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2018 | | Three Months Ended March 31, 2017 |
| Average Investment | | Interest Income Recognized | | Average Investment | | Interest Income Recognized |
Construction and Land Development | $ | 12,326 |
| | $ | 74 |
| | $ | 17,179 |
| | $ | 139 |
|
Commercial Real Estate - Owner Occupied | 17,112 |
| | 160 |
| | 6,793 |
| | 64 |
|
Commercial Real Estate - Non-Owner Occupied | 7,904 |
| | 61 |
| | 11,540 |
| | 108 |
|
Commercial & Industrial | 4,933 |
| | 45 |
| | 6,830 |
| | 36 |
|
Residential 1-4 Family - Commercial | 6,618 |
| | 56 |
| | 5,251 |
| | 43 |
|
Residential 1-4 Family - Mortgage | 16,529 |
| | 77 |
| | 7,796 |
| | 30 |
|
Auto | 836 |
| | 5 |
| | 477 |
| | 1 |
|
HELOC | 4,784 |
| | 32 |
| | 2,366 |
| | 4 |
|
Consumer and all other(1) | 764 |
| | 7 |
| | 303 |
| | — |
|
Total impaired loans | $ | 71,806 |
| | $ | 517 |
| | $ | 58,535 |
| | $ | 425 |
|
(1)Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.
The Company considers TDRs to be impaired loans. A modification of a loan’s terms constitutes a TDR if the creditor grants a concession that it would not otherwise consider to the borrower for economic or legal reasons related to the borrower’s financial difficulties. All loans that are considered to be TDRs are evaluated for impairment in accordance with the Company’s allowance for loan loss methodology and are included in the preceding impaired loan tables. For the three months ended March 31, 2018, the recorded investment in TDRs prior to modifications was not materially impacted by the modification.
The following table provides a summary, by segment, of TDRs that continue to accrue interest under the terms of the restructuring agreement, which are considered to be performing, and TDRs that have been placed on nonaccrual status, which are considered to be nonperforming, as of March 31, 2018 and December 31, 2017 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| March 31, 2018 | | December 31, 2017 |
| No. of Loans | | Recorded Investment | | |