10-Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 __________________________________________________________________
FORM 10-Q
 __________________________________________________________________
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2015
Commission file number 001-34981
 __________________________________________________________________
Fidelity Southern Corporation
(Exact name of registrant as specified in its charter)
 __________________________________________________________________
 
Georgia
 
58-1416811
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3490 Piedmont Road, Suite 1550
Atlanta, Georgia
 
30305
(Address of principal executive offices)
 
(Zip Code)

(404) 639-6500
(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  ý  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  ý  No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
¨
  
Accelerated filer
 
ý
 
Non-accelerated filer
 
o
 
Smaller reporting company
 
o
 
 
 
  
 
 
 
 
(Do not check if smaller reporting company)
 
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨  No  ý
As of October 31, 2015 (the most recent practicable date), the Registrant had outstanding 23,067,158 shares of Common Stock.



FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES
Report on Form 10-Q
September 30, 2015


TABLE OF CONTENTS
 
 
 
 
Page
Part I.
 
 
 
 
 
 
 
Item l.
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
Part II.
 
 
 
 
 
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
Item 6.
 



Table of Contents

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
 
($ in thousands)
September 30,
2015
 
December 31,
2014
Assets
 
 
 
Cash and due from banks
$
15,618

 
$
13,246

Interest-bearing deposits with banks
71,755

 
58,359

Cash and cash equivalents
87,373

 
71,605

Investment securities available-for-sale
155,749

 
149,590

Investment securities held-to-maturity
12,816

 
7,349

Loans held-for-sale (includes loans at fair value of $218,308 and $181,424, respectively)
339,651

 
368,935

Loans (includes covered loans of $23,823 and $34,813, respectively)
2,641,814

 
2,253,306

Allowance for loan losses
(24,750
)
 
(25,450
)
Loans, net of allowance for loan losses
2,617,064

 
2,227,856

Premises and equipment, net
69,356

 
60,857

Other real estate, net (includes covered assets of $4,189 and $7,581, respectively)
14,707

 
22,564

Bank owned life insurance
66,008

 
59,553

Servicing rights, net
82,659

 
64,897

Other assets
54,082

 
51,929

Total assets
$
3,499,465

 
$
3,085,135

Liabilities
 
 
 
Deposits
 
 
 
Noninterest-bearing demand deposits
$
722,771

 
$
558,018

Interest-bearing deposits
2,189,267

 
1,900,004

Total deposits
2,912,038

 
2,458,022

Short-term borrowings
137,186

 
291,087

Subordinated debt, net
120,289

 
46,303

Other liabilities
34,666

 
24,772

Total liabilities
3,204,179

 
2,820,184

Shareholders’ equity
 
 
 
Preferred stock, no par value. Authorized 10,000,000; zero issued and outstanding

 

Common stock, no par value. Authorized 50,000,000; issued and outstanding 23,009,904
 and 21,365,098, respectively
166,989

 
162,575

Accumulated other comprehensive income, net of tax
2,702

 
2,814

Retained earnings
125,595

 
99,562

Total shareholders’ equity
295,286

 
264,951

Total liabilities and shareholders’ equity
$
3,499,465

 
$
3,085,135

See accompanying notes to unaudited consolidated financial statements.

1

Table of Contents

FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
($ in thousands, except per share data)
2015
 
2014
 
2015
 
2014
Interest income:
 
 
 
 
 
 
 
Loans, including fees
$
28,462

 
$
24,690

 
$
80,133

 
$
71,282

Investment securities:
 
 
 
 
 
 
 
Taxable interest income
1,030

 
1,165

 
3,158

 
3,455

Nontaxable interest income
78

 
18

 
255

 
221

Federal funds sold and bank deposits
27

 
18

 
53

 
76

Total interest income
29,597

 
25,891

 
83,599

 
75,034

Interest expense:
 
 
 
 
 
 
 
Deposits
2,866

 
2,282

 
8,041

 
7,098

Other borrowings
179

 
163

 
517

 
276

Subordinated debt
1,415

 
282

 
2,349

 
834

Total interest expense
4,460

 
2,727

 
10,907

 
8,208

Net interest income
25,137

 
23,164

 
72,692

 
66,826

Provision for loan losses
1,328

 
1,859

 
1,254

 
(25
)
Net interest income after provision for loan losses
23,809

 
21,305

 
71,438

 
66,851

Noninterest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
1,230

 
1,141

 
3,508

 
3,209

Other fees and charges
1,327

 
1,140

 
3,767

 
3,160

Mortgage banking activities
20,799

 
16,135

 
66,734

 
40,292

Indirect lending activities
4,037

 
6,303

 
15,047

 
14,610

SBA lending activities
1,494

 
1,479

 
3,788

 
3,682

Bank owned life insurance
496

 
313

 
1,488

 
1,369

Other
1,236

 
1,397

 
5,020

 
4,287

Total noninterest income
30,619

 
27,908

 
99,352

 
70,609

Noninterest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
17,800

 
17,022

 
56,290

 
49,080

Commissions
7,270

 
5,363

 
21,224

 
14,443

Occupancy
4,270

 
3,467

 
11,206

 
9,477

Communication
1,083

 
963

 
3,133

 
2,829

Other
9,626

 
8,895

 
27,996

 
26,280

Total noninterest expense
40,049

 
35,710

 
119,849

 
102,109

Income before income tax expense
14,379

 
13,503

 
50,941

 
35,351

Income tax expense
5,162

 
4,701

 
18,583

 
12,528

Net income
$
9,217

 
$
8,802

 
$
32,358

 
$
22,823

 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.41

 
$
0.41

 
$
1.48

 
$
1.07

Diluted
$
0.39

 
$
0.38

 
$
1.42

 
$
0.97

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.10

 
$
0.09

 
$
0.29

 
$
0.21

 
 
 
 
 
 
 
 
Net income
$
9,217

 
$
8,802

 
$
32,358

 
$
22,823

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in net unrealized gains (losses) on available-for-sale securities, net of income taxes of $141, $(268), $(69) and $857, respectively
230

 
(437
)
 
(112
)
 
1,399

Other comprehensive income (loss), net of tax
230

 
(437
)
 
(112
)
 
1,399

Total comprehensive income
$
9,447

 
$
8,365

 
$
32,246

 
$
24,222

See accompanying notes to unaudited consolidated financial statements.

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Table of Contents

FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Nine Months Ended September 30,
 
2015
 
2014
(in thousands)
 
 
 
Cash flows from operating activities:
 
 
 
Net income
$
32,358

 
$
22,823

Adjustments to reconcile net income to net cash provided (used) in operating activities:
 
 
 
Provision for loan losses
1,254

 
(25
)
Depreciation and amortization of premises and equipment
3,554

 
3,197

Other amortization, net
9,543

 
5,310

Impairment of other real estate
460

 
2,111

Impairment of servicing rights valuation
1,503

 
2,332

Share-based compensation
997

 
491

Gains on loan sales, including origination of servicing rights
(67,115
)
 
(41,979
)
Net gain on sales of other real estate
(2,776
)
 
(2,485
)
Net income on bank owned life insurance
(1,455
)
 
(1,292
)
Net change in fair value of loans held-for-sale
(1,841
)
 
(1,224
)
Originations of loans held-for-sale
(2,516,693
)
 
(1,997,252
)
Proceeds from sales of loans held-for-sale
2,580,851

 
1,902,367

Net payments received from FDIC under loss-share arrangements
668

 
5,028

Other assets
(4,065
)
 
(10,018
)
Other liabilities
9,376

 
563

Net cash provided (used) in operating activities
46,619

 
(110,053
)
Cash flows from investing activities:
 
 
 
Purchases of investment securities available-for-sale
(30,821
)
 
(5,006
)
Purchases of investment securities held-to-maturity
(2,993
)
 
(4,334
)
Purchases of FHLB stock
(8,070
)
 
(10,575
)
Maturities and calls of investment securities held-to-maturity
720

 
796

Maturities and calls of investment securities available-for-sale
23,295

 
19,860

Redemption of FHLB stock
11,488

 
10,564

Net proceeds from sale of loans

 
52,211

Net increase in loans
(353,068
)
 
(245,120
)
Proceeds from bank owned life insurance

 
868

Purchase of bank owned life insurance
(5,000
)
 

Proceeds from sales of other real estate
14,240

 
14,443

Purchases of premises and equipment
(8,457
)
 
(11,052
)
Cash received in excess of cash paid for acquisitions
146,740


162,033

Net cash used in investing activities
(211,926
)
 
(15,312
)
Cash flows from financing activities:
 
 
 
Net increase in noninterest-bearing demand deposits
133,058

 
130,101

Net increase (decrease) in interest-bearing deposits
131,670

 
(44,119
)
Net (decrease) increase in other short-term borrowings
(74,358
)
 
2,169

Proceeds from FHLB advances
770,000

 
295,000

Repayments on FHLB advances
(850,000
)
 
(280,000
)
Issuance of subordinated debt
75,000

 

Payment of debt issuance costs
(1,069
)
 

Repurchase of common stock
(796
)

(708
)
Proceeds from the issuance of common stock
3,893

 
2,398

Common stock dividends paid
(6,323
)
 
(4,470
)
Net cash provided by financing activities
181,075

 
100,371

Net increase (decrease) in cash and cash equivalents
15,768

 
(24,994
)
Cash and cash equivalents, beginning of period
71,605

 
116,559

Cash and cash equivalents, end of period
$
87,373

 
$
91,565






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FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(UNAUDITED)
 
Nine Months Ended September 30,
 
2015
 
2014
(in thousands)
 
 
 
Supplemental cash flow information and non-cash disclosures:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
9,178

 
$
8,363

Income taxes
$
7,037

 
$
3,639

Transfers of loans to other real estate
$
4,067

 
$
10,086

Acquisitions
 
 
 
Assets acquired
$
43,230

 
$
9,119

Liabilities assumed
$
189,969

 
$
170,994

Transfers from investment securities available-for-sale to investment securities held-to-maturity
$
3,194

 
$

See accompanying notes to unaudited consolidated financial statements.


4

Table of Contents

FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(UNAUDITED)
1. Basis of Presentation, Summary of Significant Accounting Policies and Subsequent Business Combinations
The unaudited consolidated financial statements include the accounts of Fidelity Southern Corporation ("FSC" or "Fidelity") and its wholly-owned subsidiaries. FSC owns 100% of Fidelity Bank (the “Bank”) and LionMark Insurance Company, an insurance agency offering consumer credit related insurance products. FSC also owns three subsidiaries established to issue trust preferred securities, which are not consolidated for financial reporting purposes in accordance with current accounting guidance, as FSC is not the primary beneficiary. The “Company” or "our," as used herein, includes FSC and its subsidiaries, unless the context otherwise requires.
These unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles followed within the financial services industry for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements.
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan losses, the calculations of and the amortization of capitalized servicing rights, the valuation of loans held-for-sale and certain derivatives, the valuation of real estate or other assets acquired in connection with foreclosures or in satisfaction of loans, estimates used for fair value acquisition accounting and Federal Deposit Insurance Corporation ("FDIC") receivable for loss share agreements, and valuation of deferred income taxes. In addition, the actual lives of certain amortizable assets and income items are estimates subject to change. The Company principally operates in one business segment, which is community banking.
In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and results of operations for the interim periods have been included. All such adjustments are normal recurring accruals. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts have been reclassified to conform to current year presentation. These reclassifications had no impact on previously reported net income and shareholders’ equity.
Operating results for the nine-month period ended September 30, 2015, are not necessarily indicative of the results that may be expected for the year ended December 31, 2015. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K and Annual Report to Shareholders for the year ended December 31, 2014.
The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in the 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission. There were no new accounting policies or changes to existing policies adopted in the first nine months of 2015, which had a significant effect on the results of operations or statement of financial condition. For interim reporting purposes, the Company follows the same basic accounting policies and considers each interim period as an integral part of an annual period.
Recent Accounting Pronouncements
In June 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-10 "Technical Corrections and Improvements." The amendments in this standard clarify the guidance, correct references and make minor improvements affecting a variety of topics. The substantive amendments are effective for entities during annual reporting periods beginning after December 15, 2015, and interim periods therein, and other amendments are effective immediately. The adoption of this ASU is not expected to have a significant impact on the Company's Consolidated Financial Statements.
In April 2015, the FASB issued ASU 2015-03 "Interest - Imputation Of Interest (Subtopic 835-30)." The amendments in this standard simplify the presentation of debt issuance costs by requiring that these costs be presented as a direct reduction of the related debt liability. The update does not change the recognition and measurement guidance for debt issuance costs. The amendments are effective for entities during annual reporting periods beginning after December 15, 2015, and interim periods therein and those requirements must be applied retrospectively. Early adoption is permitted. The Company early adopted this ASU as of June 30, 2015 on a retrospective basis. The adoption of this ASU resulted in an insignificant balance sheet reclassification of $90,000 between the amounts reported as other assets and subordinated debt as of December 31, 2014.
In February 2015, the FASB issued ASU 2015-02 "Consolidation (Topic 810): Amendments to the Consolidation Analysis." The amendments in this standard provide guidance for performing a consolidation analysis and all reporting entities will be within the scope of Topic 810. As a result, the ASU clarifies when limited partnerships and other similar entities will be considered VIEs; three of the six criteria for determining if fees paid to a decision maker or service provider represent a variable interest were

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Table of Contents

eliminated; reduces the extent to which related party arrangements cause an entity to be considered a primary beneficiary, and eliminates the deferral of ASU 2009-17 for certain investment funds. The amendments are effective for entities during annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The adoption of this ASU is not expected to have a significant impact on the Company's Consolidated Financial Statements.
In January 2015, the FASB issued ASU 2015-01 "Income Statement-Extraordinary and Unusual Items: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items." The new guidance eliminates the concept of an extraordinary item. As a result, an entity will no longer segregate extraordinary items from the results of ordinary operations; separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; nor disclose income taxes and EPS data applicable to an extraordinary item. The ASU does not affect the reporting and disclosure requirements for an event that is unusual in nature or that occurs infrequently. The amendments are effective for annual reporting periods beginning after December 15, 2015, and interim reporting periods therein and those requirements may be applied prospectively or retrospectively. Early adoption is permitted. The adoption of this ASU is not expected to have a significant impact on the Company's Consolidated Financial Statements.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." The amendments in this guidance indicate that entities should recognize revenue to reflect the transfers of goods or services to customers in an amount equal to the consideration the entity receives or expects to receive. The amendments will be effective for entities during annual reporting periods beginning after December 15, 2016, and interim reporting periods therein and those requirements should be applied retrospectively. Early adoption is not permitted. The Company is continuing to evaluate the impact of this ASU. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 by one year.
In August 2015, the FASB issued ASU 2015-15, "Imputation of Interest, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting." The FASB issued this ASU to incorporate into the Accounting Standards Codification (ASC) an SEC staff announcement that the SEC staff will not object to an entity presenting the cost of securing a revolving line of credit as an asset, regardless of whether a balance is outstanding. The announcement came in response to questions that arose after the FASB issued ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs." The standard, as issued, did not address revolving lines of credit, which may not have outstanding balances. An entity that repeatedly draws on a revolving credit facility and then repays the balance could present the cost as a deferred asset and reclassify all or a portion of it as a direct deduction from the liability whenever a balance is outstanding. However, the SEC staff’s announcement provides a less-cumbersome alternative. Either way, the cost should be amortized over the term of the arrangement. This ASU was effective upon announcement by the SEC staff on June 18, 2015, and the adoption of this ASU did not have a significant impact on the Company's Consolidated Financial Statements.
In August 2015, the FASB issued ASU 2015-16, "Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments." The new guidance eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment, including the effect on earnings of any amounts it would have recorded in previous periods if the accounting had been completed at the acquisition date. The guidance is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2015. The Company will implement this ASU as of December 31, 2015. The adoption of this ASU is not expected to have a significant impact on the Company's Consolidated Financial Statements.
Other accounting standards that have been issued by the FASB or other standard-setting bodies are not expected to have a material impact on the Company's financial position, results of operations or cash flows.
Contingencies
Due to the nature of their activities, the Company and its subsidiaries are at times engaged in various legal proceedings that arise in the course of normal business, some of which were outstanding as of September 30, 2015. While it is difficult to predict or determine the outcome of these proceedings, it is the opinion of management, after consultation with its legal counsel, that there is not a reasonable possibility that the ultimate liabilities, if any, would have a material adverse impact on the Company’s consolidated results of operations, financial position, or cash flows.
Subsequent Business Combinations
On October 26, 2015, the Company entered into an Agreement and Plan of Merger with American Enterprise Bankshares, Inc. ("AEB"), the holding company for American Enterprise Bank of Florida, headquartered in Jacksonville, Florida. The Company will acquire all of the common stock of AEB in a stock transaction valued at approximately $27 million, based on the closing price of Fidelity common stock on October 23, 2015. Under the terms of the Merger Agreement, AEB will merge with and into the Company and American Enterprise Bank of Florida will merge with and into Fidelity Bank. As of September 30, 2015, AEB reported approximately $205 million in assets, $156 million in loans, and $177 million in deposits. The consummation of the

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transaction is subject to customary closing conditions, including receipt of all necessary regulatory approvals, and is expected to be completed in the first quarter of 2016.
On October 2, 2015, the Company acquired certain loans and deposits from The Bank of Georgia, headquartered in Peachtree City, Georgia, in a Purchase and Assumption agreement with the FDIC. Net cash proceeds of $41.3 million were received in the transaction, representing $280.0 million of deposit balances assumed at closing, net of amounts bid of approximately $142.3 million for loans, $75.9 million in liquid assets, $8.9 million for real and personal property, and $3.5 million for other assets acquired in the transaction and a 3.05% premium on deposits, which equates to $8.1 million.

2. Business Combinations
On September 11, 2015, the Company acquired certain loans and deposits from eight branches of First Bank, a Missouri bank, in the Sarasota-Bradenton, Florida area. Net cash of $116.0 million was received in the transaction, representing the deposit balances assumed at closing, net of amounts paid for real and personal property acquired of $3.6 million, $29.7 million for loans acquired in the transaction and a 1.0% premium on deposits. Customer deposit balances were recorded at $151.1 million, other assets of $243,000, core deposit intangible of $2.3 million was recognized, and $682,000 in other liabilities were recorded in the transaction. The amount allocated to goodwill was insignificant.
On January 5, 2015, the Company acquired certain loans and deposits from the St. Augustine, Florida branch of Florida Capital Bank, N.A. Net cash of $30.7 million was received in the transaction, representing the deposit balances assumed at closing, net of amounts paid of $6.8 million for loans acquired in the transaction and a 1.75% premium on deposits. Customer deposit balances of $38.2 million and core deposit intangible of $631,000 were recorded in the transaction. The amount allocated to goodwill was insignificant.
The effects of the acquired assets and liabilities have been included in the consolidated financial statements since their respective acquisition date. Pro forma results have not been disclosed as those amounts are not significant to the unaudited consolidated financial statements.

3. Investment Securities
Management's primary objective in managing the investment securities portfolio includes maintaining a portfolio of high quality investments with competitive returns while providing for pledging and liquidity needs within overall asset and liability management parameters. The Company is required under federal regulations to maintain adequate liquidity to ensure safe and sound operations. As such, management regularly evaluates the investment portfolio for cash flows, the level of loan production, current interest rate risk strategies and the potential future direction of market interest rate changes. Individual investment securities differ in terms of default, interest rate, liquidity and expected rate of return risk.
The following table summarizes the amortized cost and fair value of debt securities and the related gross unrealized gains and losses at September 30, 2015 and December 31, 2014.
 
 
September 30, 2015
 (in thousands)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Other than
Temporary
Impairment
 
Fair Value
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
Obligations of U.S. Government sponsored enterprises
 
$
40,899

 
$
1,079

 
$

 
$

 
$
41,978

Municipal securities
 
11,551

 
564

 

 

 
12,115

Residential mortgage-backed securities
 
98,941

 
2,747

 
(32
)
 

 
101,656

Total available-for-sale
 
$
151,391

 
$
4,390

 
$
(32
)
 
$

 
$
155,749

 
 
 
 
 
 
 
 
 
 
 
Investment securities held-to-maturity:
 
 
 
 
 
 
 
 
 
 
   Municipal securities
 
$
1,589

 
$

 
$

 
$

 
$
1,589

Residential mortgage-backed securities
 
7,017

 
263

 
(28
)
 

 
7,252

  Commercial mortgage-backed securities
 
4,210

 

 

 

 
4,210

Total held-to-maturity
 
$
12,816

 
$
263

 
$
(28
)
 
$

 
$
13,051


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December 31, 2014
 (in thousands)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Other than
Temporary
Impairment
 
Fair Value
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
Obligations of U.S. Government sponsored enterprises
 
$
25,717

 
$
567

 
$

 
$

 
$
26,284

Municipal securities
 
14,170

 
690

 

 

 
14,860

Residential mortgage-backed securities
 
105,165

 
3,299

 
(18
)
 

 
108,446

Total available-for-sale
 
$
145,052

 
$
4,556

 
$
(18
)
 
$

 
$
149,590

 
 
 
 
 
 
 
 
 
 
 
Investment securities held-to-maturity:
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities
 
$
3,072

 
$
342

 
$

 
$

 
$
3,414

  Commercial mortgage-backed securities
 
4,277

 

 

 

 
4,277

Total held-to-maturity
 
$
7,349

 
$
342

 
$

 
$

 
$
7,691

The Company held one and three investment securities available-for-sale that were in an unrealized loss position at September 30, 2015 and December 31, 2014, respectively, as well as three securities held-to-maturity that were in an unrealized loss position at September 30, 2015, and none at December 31, 2014. The following table reflects the gross unrealized losses and fair values of the investment securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

 
 
September 30, 2015
 
 
12 Months or Less
 
More Than 12 Months
(in thousands)
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
Obligations of U.S. Government sponsored enterprises
 
$

 
$

 
$

 
$

Municipal securities
 

 

 

 

Residential mortgage-backed securities
 
3,860

 
(32
)
 

 

Total available-for-sale
 
$
3,860

 
$
(32
)
 
$

 
$

 
 
 
 
 
 
 
 
 
Investment securities held-to-maturity:
 
 
 
 
 
 
 
 
Residential mortgage-backed securities
 
$
4,488

 
$
(28
)
 
$

 
$

  Commercial mortgage-backed securities
 

 

 

 

Total held-to-maturity
 
$
4,488

 
$
(28
)
 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
12 Months or Less
 
More Than 12 Months
(in thousands)
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
Obligations of U.S. Government sponsored enterprises
 
$

 
$

 
$

 
$

Municipal securities
 

 

 

 

Residential mortgage-backed securities
 
4,971

 
(6
)
 
3,195

 
(12
)
Total available-for-sale
 
$
4,971

 
$
(6
)
 
$
3,195

 
$
(12
)
    
At September 30, 2015 and December 31, 2014, the unrealized losses on investment securities related to interest rate fluctuations. Management does not have the intent to sell the impaired securities and it is not more likely than not that the Company will be required to sell the investments before recovery of the amortized cost. Accordingly, as of September 30, 2015, management believes the impairment detailed in the table above is temporary and no other-than-temporary impairment loss has been recognized in the Company’s Consolidated Statements of Comprehensive Income.
The amortized cost and fair value of investment securities at September 30, 2015 and December 31, 2014 are categorized in the following table by contractual maturity. Securities not due at a single maturity (i.e., mortgage-backed securities) are shown separately.

8

Table of Contents

 
 
September 30, 2015
 
December 31, 2014
(in thousands)
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
Obligations of U.S. Government sponsored enterprises
 
 
 
 
 
 
 
 
Due after one year through five years
 
$
28,638

 
$
29,535

 
$

 
$

Due five years through ten years
 
12,261

 
12,443

 
24,713

 
25,210

Due after ten years
 

 

 
1,004

 
1,074

Municipal securities
 

 

 
 
 
 
Due within one year
 

 

 
817

 
819

Due after one year through five years
 

 

 
885

 
895

Due five years through ten years
 
3,398

 
3,574

 
688

 
727

Due after ten years
 
8,153

 
8,541

 
11,780

 
12,419

Residential mortgage-backed securities
 
98,941

 
101,656

 
105,165

 
108,446

Total available-for-sale
 
$
151,391

 
$
155,749

 
$
145,052

 
$
149,590

 
 
 
 
 
 
 
 
 
Investment securities held-to-maturity:
 
 
 
 
 
 
 
 
   Municipal securities
 

 

 

 

Due after ten years
 
1,589

 
1,589

 

 

Residential mortgage-backed securities
 
7,017

 
7,252

 
3,072

 
3,414

Commercial mortgage-backed securities
 
4,210

 
4,210

 
4,277

 
4,277

Total held-to-maturity
 
$
12,816

 
$
13,051

 
$
7,349

 
$
7,691

There were no investment securities sold during the nine months ended September 30, 2015 or 2014.

The following table summarizes the investment securities that were pledged as collateral at September 30, 2015 and December 31, 2014.
(in thousands)
 
September 30, 2015
 
December 31, 2014
Public deposits
 
$
89,904

 
$
95,003

Securities sold under repurchase agreements
 
23,871

 
18,778

Total pledged securities
 
$
113,775

 
$
113,781


   
4. Loans Held-for-Sale
The following table summarizes loans held-for-sale at September 30, 2015 and December 31, 2014.
(in thousands)
 
September 30, 2015
 
December 31, 2014
Residential mortgage
 
$
218,308

 
$
181,424

SBA
 
11,343

 
12,511

Indirect automobile
 
110,000

 
175,000

  Total loans held-for-sale
 
$
339,651

 
$
368,935

During the three and nine months ended September 30, 2015 and 2014 , the Company transferred $4.6 million and $2.8 million, respectively, to the held for investment residential mortgage portfolio.
The Company had $151.8 million and $141.1 million in residential mortgage loans held-for-sale pledged to the FHLB at September 30, 2015 and December 31, 2014, respectively.

5. Loans
Loans outstanding, by class, are summarized in the following table and include net unamortized costs of $32.6 million and $30.0 million at September 30, 2015 and December 31, 2014, respectively. Non-covered loans represent existing portfolio loans

9

Table of Contents

prior to the FDIC-assisted transactions, loans not covered under the Loss Share Agreements, and additional loans originated subsequent to the FDIC-assisted transactions.
 
 
September 30, 2015
 
December 31, 2014
(in thousands)
 
Non-Covered
 
Covered
 
Non-Covered
 
Covered
Commercial
 
$
565,615

 
$
13,704

 
$
502,938

 
$
21,207

SBA
 
137,709

 
369

 
134,142

 
624

Construction
 
151,879

 
2,456

 
120,128

 
3,866

Indirect automobile
 
1,399,932

 

 
1,219,232

 

Installment
 
11,723

 
513

 
12,342

 
880

Residential mortgage
 
247,182

 
1,515

 
156,841

 
1,657

Home equity lines of credit
 
103,951

 
5,266

 
72,870

 
6,579

Total loans
 
$
2,617,991

 
$
23,823

 
$
2,218,493

 
$
34,813

Loans in nonaccrual status are presented by class of loans in the following table.
(in thousands)
 
September 30,
2015
 
December 31,
2014
Commercial
 
$
11,372

 
$
12,414

SBA
 
6,520

 
10,637

Construction
 
6,087

 
7,031

Indirect automobile
 
811

 
715

Installment
 
543

 
623

Residential mortgage
 
2,133

 
2,299

Home equity lines of credit
 
1,026

 
1,137

Total nonaccrual loans
 
$
28,492

 
$
34,856


If such nonaccrual loans had been on a full accrual basis, interest income on these loans for the the three months ended September 30, 2015 and 2014 would have been $497,000 and $535,000, respectively. For the the nine months ended September 30, 2015 and 2014 the interest income would have been $1.2 million and $1.3 million, respectively.
Accruing loans delinquent 30-89 days, 90 days or more, and troubled debt restructured loans ("TDRs") accruing interest, presented by class of loans at September 30, 2015 and December 31, 2014, were as follows:
 
 
September 30, 2015
 
December 31, 2014
(in thousands)
 
Accruing
Delinquent
30-89 Days
 
Accruing
Delinquent
90 Days or More
 
TDRs
Accruing
 
Accruing
Delinquent
30-89 Days
 
Accruing
Delinquent
90 Days or More
 
TDRs
Accruing
Commercial
 
$
665

 
$

 
$
9,167

 
$
215

 
$

 
$
9,521

SBA
 
2,497

 
2,579

 
3,931

 
830

 

 
4,164

Construction
 
1,111

 

 
284

 

 

 
445

Indirect automobile
 
1,381

 

 
1,944

 
1,547

 

 
1,779

Installment
 
87

 

 
62

 
42

 

 
18

Residential mortgage
 
158

 
1,389

 
621

 
475

 
827

 
632

Home equity lines of credit
 
1,119

 

 

 
1,442

 

 

Total
 
$
7,018

 
$
3,968

 
$
16,009

 
$
4,551

 
$
827

 
$
16,559


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Table of Contents

TDR Loans
The following tables present loans, by class, which were modified as TDRs that occurred during the three and nine months ended September 30, 2015 and 2014, along with the type of modification.

 
 
Troubled Debt Restructured
During the Three Months Ended
September 30, 2015
 
Troubled Debt Restructured
During the Three Months Ended
September 30, 2014
(in thousands)
 
Interest Rate
 
Term
 
Interest Rate
 
Term
Commercial
 
$

 
$

 
$

 
$

SBA
 

 

 

 

Construction
 

 

 

 

Indirect automobile
 

 
484

 

 
275

Installment
 

 

 

 
42

Residential mortgage
 

 

 

 

Home equity lines of credit
 

 

 

 

Total
 
$

 
$
484

 
$

 
$
317


 
 
Troubled Debt Restructured
During the Nine Months Ended
September 30, 2015
 
Troubled Debt Restructured
During the Nine Months Ended
September 30, 2014
(in thousands)
 
Interest Rate
 
Term
 
Interest Rate
 
Term
Commercial
 
$

 
$
1,006

 
$

 
$

SBA
 

 

 

 

Construction
 

 

 

 

Indirect automobile
 

 
952

 

 
657

Installment
 

 

 
127

 
60

Residential mortgage
 

 

 
155

 

Home equity lines of credit
 

 

 

 
217

Total
 
$

 
$
1,958

 
$
282

 
$
934

The following tables present the amount of TDRs that were restructured in the previous twelve months and subsequently redefaulted during the three and nine months ended September 30, 2015 and 2014.

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Table of Contents

 
 
Troubled Debt Restructured
During the Last Twelve Months
and Subsequently
Redefaulting During the
Three Months Ended
September 30,
(1)
 
Troubled Debt Restructured
During the last Twelve Months
and Subsequently
Redefaulting During the
Nine Months Ended
September 30,
(in thousands)
 
2015
 
2014
 
2015
 
2014
Commercial
 
$

 
$

 
$

 
$

SBA
 

 

 

 

Construction
 

 

 

 

Indirect automobile
 

 

 

 

Installment
 

 
42

 

 
42

Residential mortgage
 

 

 

 
155

Home equity lines of credit
 

 

 

 
14

Total
 
$

 
$
42

 
$

 
$
211

(1) Subsequently redefaulting is defined as a payment default (i.e., 30 days contractually past due) within twelve months of restructuring date.
The Company had total TDRs with a balance of $23.4 million at September 30, 2015 and $21.3 million December 31, 2014. There were no commitments to lend any additional amounts to customers with outstanding loans that were classified as TDRs at September 30, 2015 or December 31, 2014.
There were $398.5 million and $318.5 million in loans pledged to the FHLB of Atlanta as collateral for borrowings at September 30, 2015 and December 31, 2014, respectively. Additionally, $318.3 million and $305.1 million in indirect automobile loans were pledged to the FRB at September 30, 2015 and December 31, 2014, respectively, as collateral for potential Discount Window borrowings.
Impaired Loans
The following tables present by class the unpaid principal balance, amortized cost and related allowance for impaired loans at September 30, 2015 and December 31, 2014.
 
 
September 30, 2015
 
December 31, 2014
(in thousands)
 
Unpaid
Principal
Balance
 
Recorded
Investment
(1)
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Recorded
Investment
(1)
 
Related
Allowance
Impaired Loans with Allowance
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
8,809

 
$
6,258

 
$
1,753

 
$
9,390

 
$
7,527

 
$
2,608

SBA
 
2,600

 
2,600

 
15

 
4,519

 
3,652

 
25

Construction
 
284

 
284

 
185

 
686

 
583

 
278

Indirect automobile
 
2,424

 
2,053

 
8

 
2,219

 
1,855

 
9

Installment
 
296

 
255

 
255

 
1,783

 
463

 
296

Residential mortgage
 
2,197

 
2,197

 
408

 
2,418

 
2,418

 
532

Home equity lines of credit
 
907

 
761

 
709

 
848

 
733

 
679

Loans
 
$
17,517

 
$
14,408

 
$
3,333

 
$
21,863

 
$
17,231

 
$
4,427


12

Table of Contents

 
 
September 30, 2015
 
December 31, 2014
(in thousands)
 
Unpaid
Principal
Balance
 
Recorded
Investment
(1)
 
Unpaid
Principal
Balance
 
Recorded
Investment
(1)
Impaired Loans with No Allowance
 
 
 
 
 
 
 
 
Commercial
 
17,969

 
15,304

 
18,776

 
16,316

SBA
 
15,236

 
11,314

 
13,618

 
12,578

Construction
 
8,190

 
6,087

 
9,009

 
6,893

Indirect automobile
 

 

 

 

Installment
 
1,489

 
193

 
59

 
47

Residential mortgage
 
2,544

 
2,544

 
1,921

 
1,921

Home equity lines of credit
 

 

 
143

 
133

Loans
 
45,428

 
35,442

 
43,526

 
37,888

(1)The primary difference between the unpaid principal balance and recorded investment represents charge offs previously taken; it excludes accrued interest receivable due to materiality
Average recorded investment of impaired loans and interest income recognized for the three and nine months ended September 30, 2015 and 2014, by class, are summarized in the table below. Interest income recognized during the periods on a cash basis was immaterial.
 
 
Three Months Ended September 30,
 
 
2015
 
2014
(in thousands)
 
Average
Balance
 
Interest
Income
Recognized
 
Average
Balance
 
Interest
Income
Recognized
Commercial
 
$
21,669

 
$
88

 
$
23,776

 
$
91

SBA
 
13,855

 
25

 
22,477

 
837

Construction
 
6,534

 
5

 
7,894

 
5

Indirect automobile
 
1,872

 
78

 
1,981

 
42

Installment
 
451

 
15

 
502

 
25

Residential mortgage
 
4,383

 
4

 
3,222

 
19

Home equity lines of credit
 
765

 
4

 
932

 
9

Total
 
$
49,529

 
$
219

 
$
60,784

 
$
1,028

 
 
Nine Months Ended September 30,
 
 
2015
 
2014
(in thousands)
 
Average
Balance
 
Interest
Income
Recognized
 
Average
Balance
 
Interest
Income
Recognized
Commercial
 
$
22,099

 
$
332

 
$
22,758

 
$
444

SBA
 
15,527

 
558

 
21,683

 
1,626

Construction
 
7,013

 
15

 
9,413

 
20

Indirect automobile
 
1,875

 
213

 
2,087

 
135

Installment
 
482

 
56

 
524

 
106

Residential mortgage
 
4,709

 
65

 
3,010

 
57

Home equity lines of credit
 
876

 
12

 
951

 
24

Total
 
$
52,581

 
$
1,251

 
$
60,426

 
$
2,412


13

Table of Contents

Credit Quality Indicators
The Company uses an asset quality ratings system to assign a numeric indicator of the credit quality and level of existing credit risk inherent in a loan. These ratings are adjusted periodically as the Company becomes aware of changes in the credit quality of the underlying loans.
Indirect automobile loans typically receive a risk rating only when being downgraded to an adverse rating. The Company uses a number of factors, including FICO scoring, to help evaluate the likelihood consumer borrowers will pay their credit obligations as agreed. The weighted-average FICO score for the indirect automobile portfolio was 723 at September 30, 2015 and 741 at December 31, 2014.
The following are definitions of the asset rating categories.
Pass – These categories include loans rated satisfactory with high, good, average or acceptable business and credit risk.
Special Mention – A special mention asset has potential weaknesses that deserve management’s close attention.
Substandard – A substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. A substandard asset has a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt.
Doubtful – Doubtful assets have all the weaknesses inherent in assets classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss – Loss assets are considered uncollectable and of such little value that their continuance as recorded assets is not warranted.
The following tables present the recorded investment in loans, by loan rating category, as of September 30, 2015 and December 31, 2014:
(in thousands)
 
September 30, 2015
Asset Rating
 
Commercial
 
SBA
 
Construction
 
Indirect
Automobile
 
Installment
 
Residential
Mortgage
 
Home Equity
Lines of Credit
 
Total
Pass
 
$
547,194

 
$
118,990

 
$
143,560

 
$

 
$
11,068

 
$
243,405

 
$
107,512

 
$
1,171,729

Special Mention
 
6,343

 
7,736

 
2,221

 

 
172

 
186

 
162

 
16,820

Substandard
 
25,782

 
11,352

 
8,554

 
2,581

 
996

 
5,106

 
1,543

 
55,914

Doubtful
 

 

 

 

 

 

 

 

Loss
 

 

 

 

 

 

 

 

 
 
579,319

 
138,078

 
154,335

 
2,581

 
12,236

 
248,697

 
109,217

 
1,244,463

Ungraded Performing
 

 

 

 
1,397,351

 

 

 

 
1,397,351

Total
 
$
579,319

 
$
138,078

 
$
154,335

 
$
1,399,932

 
$
12,236

 
$
248,697

 
$
109,217

 
$
2,641,814


(in thousands)
 
December 31, 2014
Asset Rating
 
Commercial
 
SBA
 
Construction
 
Indirect
Automobile
 
Installment
 
Residential
Mortgage
 
Home Equity
Lines of Credit
 
Total
Pass
 
$
479,032

 
$
115,166

 
$
113,309

 
$

 
$
11,449

 
$
153,437

 
$
77,689

 
$
950,082

Special Mention
 
15,876

 
6,024

 
217

 

 
245

 
365

 
82

 
22,809

Substandard
 
29,237

 
13,576

 
10,468

 
2,880

 
1,528

 
4,696

 
1,678

 
64,063

Doubtful
 

 

 

 

 

 

 

 

Loss
 

 

 

 

 

 

 

 

 
 
524,145

 
134,766

 
123,994

 
2,880

 
13,222

 
158,498

 
79,449

 
1,036,954

Ungraded Performing
 

 

 

 
1,216,352

 

 

 

 
1,216,352

Total
 
$
524,145

 
$
134,766

 
$
123,994

 
$
1,219,232

 
$
13,222

 
$
158,498

 
$
79,449

 
$
2,253,306


14

Table of Contents

Purchased Credit Impaired ("PCI") Loans
The carrying amount of PCI loans at September 30, 2015 and December 31, 2014 was as follows.
(in thousands)
 
September 30,
2015
 
December 31,
2014
Commercial
 
$
14,829

 
$
23,005

Construction
 
2,456

 
3,866

Consumer
 
687

 
1,756

Mortgage
 
7,070

 
8,657

Total carrying amount
 
$
25,042

 
$
37,284

Total outstanding balance
 
$
30,237

 
$
42,679

Accretable yield, or income expected to be collected on PCI loans at September 30, 2015 and December 31, 2014, was as follows.
 
 
For the Nine Months Ended
September 30,
 
For the Year Ended
December 31,
(in thousands)
 
2015
 
2014
Beginning balance
 
$
1,649

 
$
2,188

Accretion of income
 
(411
)
 
(2,162
)
Other activity, net
 
765

 
1,623

Ending balance
 
$
2,003

 
$
1,649



15

Table of Contents

6. Allowance for Loan Losses
A summary of changes in the allowance for loan losses, by loan portfolio segment, for the three and nine months ended September 30, 2015 and 2014 follows.
 
 
Three Months Ended September 30, 2015
(in thousands)
 
Commercial
 
Construction
 
Consumer
 
Mortgage
 
Covered
 
Acquired
Non-covered
 
Unallocated
 
Total
Beginning balance
 
$
10,744

 
$
1,584

 
$
6,067

 
$
3,260

 
$
230

 
$
10

 
$
1,530

 
$