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)
__________________________________________________________________
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| | |
Georgia | | 58-1416811 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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| | |
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. |
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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
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Part I. | | | |
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| Item l. | | |
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| | | |
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| | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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Part II. | | | |
| | | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| Item 5. | | |
| Item 6. | | |
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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.
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.
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 |
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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 |
|
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.
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
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
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 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | 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.
|
| | | | | | | | | | | | | | | | |
| | 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
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 |
|
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.
|
| | | | | | | | | | | | | | | | |
| | 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 |
|
|
| | | | | | | | | | | | |
| | 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 |
|
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 |
|
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 |
|
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 |
| | $ |