Toggle SGML Header (+)


Section 1: 8-K (8-K)

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 8-K
 


CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 2, 2019 (January 1, 2019)
 


Synovus Financial Corp.
(Exact name of registrant as specified in its charter)
 


Georgia
(State or other jurisdiction
of incorporation)
 
1-10312
(Commission
File Number)
 
58-1134883
(IRS Employer
Identification No.)
   
1111 Bay Avenue, Suite 500, Columbus, Georgia
(Address of principal executive offices)
 
31901
(Zip Code)

Registrant’s telephone number, including area code (706) 649-2311

Not Applicable
(Former name or former address, if changed since last report.)
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company  ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐


Item 2.01 Completion of Acquisition or Disposition of Assets.

On January 1, 2019, pursuant to the terms and conditions of the Agreement and Plan of Merger, dated as of July 23, 2018 (the “Merger Agreement”), by and among FCB Financial Holdings, Inc. (“FCB”), Synovus Financial Corp. (“Synovus”) and Azalea Merger Sub Corp., a wholly-owned Subsidiary of Synovus (“Merger Sub”), Merger Sub merged with and into FCB, with FCB continuing as the surviving corporation (the “Merger”). Immediately following the Merger, FCB merged with and into Synovus, with Synovus continuing as the surviving entity.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), holders of FCB Class A common stock, par value $0.001 per share (“FCB Class A common stock”), became entitled to receive 1.055 shares (the “Exchange Ratio” and such shares, the “Merger Consideration”) of Synovus common stock, par value $1.00 per share (“Synovus common stock”), for each share of FCB Class A common stock issued and outstanding immediately prior to the Effective Time (other than shares owned by FCB as treasury stock or owned by FCB or Synovus (with limited exceptions)), with cash payable in lieu of any fractional shares.

Further, at the Effective Time, each FCB option granted by FCB to purchase shares of FCB Class A common stock, whether or not vested, and each unvested time-vested restricted stock unit (other than those restricted stock units held by non-employee directors), in each case granted under the FCB stock incentive plans (as defined below), was assumed and converted into awards covering Synovus common stock, with appropriate adjustments to reflect application of the Exchange Ratio.  Unvested restricted stock units held by non-employee directors, vested time-vested restricted stock units, performance-vested restricted stock units and shares of restricted stock, whether or not vested, in each case granted under the FCB stock incentive plans, were cancelled at the Effective Time in exchange for Merger Consideration (with any performance-based vesting condition applicable to any share of restricted stock or performance-vested restricted stock unit deemed to have been fully achieved (or, if the award contemplated multiple levels of achievement, achieved at the greater of the target level and the level of performance projected as of the Effective Time)).  Each cash phantom unit award granted under the FCB stock incentive plans fully vested as of the Effective Time (with any performance-based vesting condition applicable to such awards deemed to have been fully achieved (or, if the award contemplated multiple levels of achievement, achieved at the greater of the target level and the level of performance projected as of the Effective Time)) and was cancelled and converted automatically into the right to receive an amount in cash equal to the product of (x) the Exchange Ratio and (y) the average closing price of the Synovus common stock for the five full trading days preceding the effective date of the Merger, in respect of each share of FCB Class A common stock underlying such award.

In connection therewith, at the Effective Time, Synovus assumed (i) the FCB Financial Holdings, Inc. 2016 Stock Incentive Plan, as amended by Amendment No. 1, dated May 5, 2016 (the “2016 Plan”), (ii) the Bond Street Holdings, Inc. 2013 Stock Incentive Plan (the “2013 Plan”) and (iii) the Bond Street Holdings, LLC 2009 Option Plan (the “2009 Plan” and together with the 2016 Plan and the 2013 Plan, the “FCB stock incentive plans” and each an “FCB stock incentive plan”).

Immediately following the Upstream Merger, Florida Community Bank, National Association, a national banking association (“FCB Bank”), merged with and into Synovus Bank, a Georgia state member bank, with Synovus Bank as the surviving entity.

The foregoing description of the Merger and the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is attached as Exhibit 2.1 to this report and is incorporated herein by reference.

Item 7.01 Regulation FD Disclosure

On January 2, 2019, Synovus issued a press release announcing the completion of the Merger. A copy of the press release is attached as Exhibit 99.1 to this report and is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits

(a)
Financial Statements of Business Acquired

The audited consolidated financial statements of FCB as of December 31, 2017 and 2016, and for each of the years ended December 31, 2017 and 2016, as well as the accompanying notes thereto and the related Report of Independent Registered Public Accounting Firm, are filed as Exhibit 99.2 and incorporated herein by reference.

The unaudited consolidated financial statements of FCB as of and for the nine months ended September 30, 2018, as well as the accompanying notes thereto, are filed as Exhibit 99.3 and incorporated herein by reference.
 
(b)
Pro Forma Financial Information

The following unaudited pro forma combined condensed consolidated financial information giving effect to the Merger is filed as Exhibit 99.4 attached hereto:
 
 
 
Unaudited pro forma combined condensed balance sheet as of September 30, 2018, giving effect to the Merger as if it occurred on September 30, 2018;

 
 
unaudited pro forma combined condensed consolidated statement of income for the nine months ended September 30, 2018, giving effect to the Merger as if it occurred on January 1, 2017; and
 
 
 
unaudited pro forma combined condensed consolidated statement of income for the year ended December 31, 2017, giving effect to the Merger as if it occurred on January 1, 2017.

(c)
The following Exhibits are filed herewith.

Exhibit No.
Description
   
2.1
Agreement and Plan of Merger, dated as of July 23, 2018, by and among FCB Financial Holdings, Inc., Synovus Financial Corp. and Azalea Merger Sub Corp. (incorporated herein by reference to Annex A of the Form S-4, filed by the Registrant on October 29, 2018)
   
23.1
Consent of Grant Thornton LLP.*
   
99.1
Press Release, dated January 2, 2019
   
99.2
Audited consolidated financial statements of FCB as of and for the years ended December 31, 2017 and 2016*
   
99.3
Unaudited consolidated financial statements of FCB as of and for the nine months ended September 30, 2018*
   
99.4
Unaudited pro forma combined condensed balance sheet as of September 30, 2018, giving effect to the Merger as if it occurred on September 30, 2018; unaudited pro forma combined condensed statement of income for the nine months ended September 30, 2018, giving effect to the Merger as if it occurred on January 1, 2017; and unaudited pro forma combined condensed consolidated statement of income for the year ended December 31, 2017, giving effect to the Merger as if it occurred on January 1, 2017.*


*
Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.
 
     
   
Synovus Financial Corp.
   
(Registrant)
     
Date: January 2, 2019
By:
/s/ Allan E. Kamensky
   
(Signature)
     
 
Name:
Allan E. Kamensky, Esq.
 
Title:
Executive Vice President, General Counsel and Secretary


(Back To Top)

Section 2: EX-23.1 (EXHIBIT 23.1)


Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated February 23, 2018 with respect to the consolidated financial statements and internal control over financial reporting of FCB Financial Holdings, Inc. included in this Current Report of Synovus Financial Corp on Form 8-K filed on January 2, 2019.  We consent to the incorporation by reference of the said reports in the Registration Statements of Synovus Financial Corp on Forms S-3 (File No. 333212916 and File No. 333-219862) and Forms S-8 (File No. 333143035, File No. 333187464, File No. 333187465, and File No. 333188254).

/s/ GRANT THORNTON LLP
Fort Lauderdale, Florida
January 2, 2019


(Back To Top)

Section 3: EX-99.1 (EXHIBIT 99.1)


Exhibit 99.1


Media Contacts
Investor Contacts
Lee Underwood, 706.644.0528
Steve Adams, 706.641.6462

Synovus Completes Acquisition of FCB Financial Holdings, Inc.
Systems and customer transition expected during second quarter of 2019

COLUMBUS, GA, Jan. 2, 2019 — Synovus Financial Corp. (NYSE: SNV) announced today that it has completed the acquisition of FCB Financial Holdings, Inc. (NYSE: FCB), owner of Florida Community Bank, National Association. Effective January 1, 2019, Florida Community Bank merged into Synovus Bank. Transition of FCB systems, customers, branches, and branding to Synovus is expected during the second quarter of 2019.

With the merger of FCB, Synovus is a top five regional bank by deposits in the Southeast, with approximately $45 billion in assets, $37 billion in deposits, $35 billion in loans, and 300 branches in Georgia, Alabama, South Carolina, Tennessee, and Florida — including 51 former FCB branches in many of Florida’s highest-growth markets.

“Synovus has long been known for combining the personal service of a community bank with the financial resources and market capabilities of a large regional bank,” said Kessel Stelling, Synovus chairman and CEO. “The addition of FCB, with its complementary culture, capabilities, and commitment to service, significantly increases the value-creation potential we offer customers, communities, and shareholders. We are happy to welcome FCB customers and team members to Synovus and are excited to begin working together as a single company.”

“This is a great day for Synovus and the customers and communities we serve in south Florida and around the Southeast,” said Kent Ellert, Florida Division CEO and former President and CEO of FCB Financial Holdings. “We’re proud to be joining this team and excited about everything we’re going to accomplish together.”

FCB customers will experience no changes to their existing accounts or banking services until the second quarter, when accounts will transition to Synovus. Additional customer information about the transition is available at https://www.synovus.com/welcomefcb.

FCB, headquartered in Weston, Florida, had $12.4 billion in assets and $10.2 billion in deposits as of Sept 30, 2018, and 51 branches in Florida. The acquisition was announced July 24, 2018.

Synovus Financial Corp. is a financial services company based in Columbus, Georgia, with approximately $32 billion in assets. Synovus provides commercial and retail banking, investment, and mortgage services through 249 branches in Georgia, Alabama, South Carolina, Florida, and Tennessee. Synovus Bank, a wholly owned subsidiary of Synovus, was named one of American Banker’s “Best Banks to Work For” in 2018 and has been recognized as one of the country’s 10 “Most Reputable Banks” by American Banker and the Reputation Institute for four consecutive years. Synovus is on the web at synovus.com, and on Twitter, Facebook, LinkedIn, and Instagram.


(Back To Top)

Section 4: EX-99.2 (EXHIBIT 99.2)

Document
 


Exhibit 99.2

Item 8. Financial Statements and Supplementary Data
FCB FINANCIAL HOLDINGS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


F-1

Table of Contents
Index to Financial Statements

MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING
FCB Financial Holdings, Inc.’s (the “Company”) internal control over financial reporting is a process effected by those charged with governance, management, and other personnel, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention, or timely detection and correction of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management is responsible for establishing and maintaining effective internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, based on the 2013 updated framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based upon its assessment, management has concluded that, as of December 31, 2017, the Company’s internal control over financial reporting is effective based on the criteria established in Internal Control—Integrated Framework.
Management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2017, has been audited by Grant Thornton LLP, an independent public accounting firm, as stated in their report dated February 23, 2018.
 
 
 
 
 
 
 
 
 
 
FCB FINANCIAL HOLDINGS, INC.
 
 
 
Date:
February 23, 2018
 
 
/s/ Kent S. Ellert
 
 
 
 
Kent S. Ellert
 
 
 
 
President and Chief Executive Officer
 
 
 
 
(Principal Executive Officer)
 
 
 
Date:
February 23, 2018
 
 
/s/ Jack Partagas
 
 
 
 
Jack Partagas
 
 
 
 
Senior Vice President and Chief Financial Officer
 
 
 
 
(Principal Financial Officer and
 
 
 
 
Principal Accounting Officer)


F-2

Table of Contents

Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
FCB Financial Holdings, Inc.


Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of FCB Financial Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 23, 2018 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2010.
Fort Lauderdale, Florida
February 23, 2018

F-3

Table of Contents

Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
FCB Financial Holdings, Inc.


Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of FCB Financial Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2017, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2017, and our report dated February 23, 2018 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Fort Lauderdale, Florida
February 23, 2018

F-4

Table of Contents
Index to Financial Statements

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
 
December 31,
 
2017
 
2016
Assets:
 
 
 
Cash and due from banks
$
60,787

 
$
52,903

Interest-earning deposits in other banks
55,134

 
30,973

Investment securities:
 
 
 
Available for sale securities, at fair value
2,120,803

 
1,876,434

Federal Home Loan Bank and other bank stock, at cost
56,881

 
51,656

Total investment securities
2,177,684

 
1,928,090

Loans held for sale
12,736

 
20,220

Loans:
 
 
 
New loans
7,661,385

 
6,259,406

Acquired loans
316,399

 
375,488

Allowance for loan losses
(47,145
)
 
(37,897
)
Loans, net
7,930,639

 
6,596,997

Premises and equipment, net
36,144

 
36,652

Other real estate owned
14,906

 
19,228

Goodwill
81,204

 
81,204

Core deposit intangible
3,668

 
4,691

Deferred tax assets, net
27,043

 
61,391

Bank-owned life insurance
201,069

 
198,438

Other assets
76,065

 
59,347

Total assets
$
10,677,079

 
$
9,090,134

Liabilities and Stockholders’ Equity
 
 
 
Liabilities:
 
 
 
Deposits:
 
 
 
Transaction accounts:
 
 
 
Noninterest-bearing
$
1,236,685

 
$
905,905

Interest-bearing
4,830,525

 
4,183,972

Total transaction accounts
6,067,210

 
5,089,877

Time deposits
2,606,717

 
2,215,794

Total deposits
8,673,927

 
7,305,671

Borrowings (including FHLB advances of $670,000 and $592,250, respectively)
749,113

 
751,103

Other liabilities
74,867

 
50,919

Total liabilities
9,497,907

 
8,107,693

Commitments and contingencies (Note 17)

 

Stockholders’ Equity:
 
 
 
Class A common stock, par value $0.001 per share; 100 million shares authorized; 47,065,593, 43,663,586 issued and 44,371,104, 40,969,097 outstanding
47

 
44

Class B common stock, par value $0.001 per share; 50 million shares authorized; 192,132, 380,606 issued and 0, 197,950 outstanding

 

Additional paid-in capital
933,960

 
875,314

Retained earnings
313,645

 
188,451

Accumulated other comprehensive income (loss)
8,893

 
(3,995
)
Treasury stock, at cost; 2,694,489, 2,694,489 Class A and 192,132, 192,132 Class B common shares
(77,373
)
 
(77,373
)
Total stockholders’ equity
1,179,172

 
982,441

Total liabilities and stockholders’ equity
$
10,677,079

 
$
9,090,134

The accompanying notes are an integral part of these consolidated financial statements

F-5

Table of Contents
Index to Financial Statements

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share and per share data)
 
Years Ended December 31,
 
2017
 
2016
 
2015
Interest income:
 
 
 
 
 
Interest and fees on loans
$
295,400

 
$
258,261

 
$
196,123

Interest and dividends on investment securities
78,176

 
60,706

 
52,741

Other interest income
525

 
349

 
176

Total interest income
374,101

 
319,316

 
249,040

Interest expense:
 
 
 
 
 
Interest on deposits
66,066

 
44,329

 
26,141

Interest on borrowings
12,583

 
7,271

 
5,103

Total interest expense
78,649

 
51,600

 
31,244

Net interest income
295,452

 
267,716

 
217,796

Provision for loan losses
9,415

 
7,655

 
6,823

Net interest income after provision for loan losses
286,037

 
260,061

 
210,973

Noninterest income:
 
 
 
 
 
Service charges and fees
3,736

 
3,467

 
3,184

Loan and other fees
11,415

 
8,895

 
8,611

Bank-owned life insurance income
5,647

 
5,192

 
4,610

FDIC loss share indemnification loss

 

 
(65,529
)
Income from resolution of acquired assets
1,973

 
3,345

 
9,605

Gain (loss) on sales of other real estate owned
(176
)
 
3,126

 
8,107

Gain on investment securities
1,933

 
1,819

 
1,906

Other noninterest income
10,488

 
3,873

 
4,184

Total noninterest income (loss)
35,016

 
29,717

 
(25,322
)
Noninterest expense:
 
 
 
 
 
Salaries and employee benefits
84,830

 
76,231

 
69,021

Occupancy and equipment expenses
13,463

 
13,591

 
14,397

Loan and other real estate related expenses
3,623

 
7,356

 
7,740

Professional services
5,940

 
5,207

 
5,412

Data processing and network
12,565

 
11,461

 
10,671

Regulatory assessments and insurance
8,971

 
7,872

 
8,196

Amortization of intangibles
1,023

 
1,189

 
1,631

Marketing and promotions
4,587

 
3,851

 
3,612

Other operating expenses
6,692

 
7,199

 
5,924

Total noninterest expense
141,694

 
133,957

 
126,604

Income before income tax expense
179,359

 
155,821

 
59,047

Income tax expense
54,165

 
55,905

 
5,656

Net income
$
125,194

 
$
99,916

 
$
53,391

Earnings per share:
 
 
 
 
 
Basic
$
2.92

 
$
2.45

 
$
1.29

Diluted
$
2.71

 
$
2.31

 
$
1.23

Weighted average shares outstanding:
 
 
 
 
 
Basic
42,887,142

 
40,716,588

 
41,300,979

Diluted
46,120,930

 
43,225,164

 
43,293,607

The accompanying notes are an integral part of these consolidated financial statements

F-6

Table of Contents
Index to Financial Statements

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
 
 
Years Ended December 31,
 
2017
 
2016
 
2015
Net income
$
125,194

 
$
99,916

 
$
53,391

Other comprehensive income (loss):
 
 
 
 
 
Unrealized net holding gains (losses) on investment securities available for sale, net of taxes of $(9,244), $(4,467), and $5,399, respectively
14,868

 
7,115

 
(8,598
)
Reclassification adjustment for realized (gains) losses on investment securities available for sale included in net income, net of taxes of $1,226, $1,048, and $956, respectively
(1,980
)
 
(1,667
)
 
(1,524
)
Total other comprehensive income (loss)
12,888

 
5,448

 
(10,122
)
Total comprehensive income
$
138,082

 
$
105,364

 
$
43,269

The accompanying notes are an integral part of these consolidated financial statements


F-7

Table of Contents
Index to Financial Statements

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands, except for share data)
 
Common Stock
Shares Outstanding
 
Common Stock
Issued
 
Additional
Paid in Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Income (loss)
 
Total Stockholders Equity
 
Class A
 
Class B
 
Class A
 
Class B
 
 
 
 
 
Balance as of January 1, 2015
34,469,650

 
6,940,048

 
$
36

 
$
7

 
$
834,538

 
$
35,144

 
$
(18,751
)
 
$
679

 
$
851,653

Net income

 

 

 

 

 
53,391

 

 

 
53,391

Exchange of B shares to A shares
3,206,166

 
(3,206,166
)
 
3

 
(3
)
 

 

 

 

 

Stock-based compensation and warrant expense

 

 

 

 
5,290

 

 

 

 
5,290

Excess tax benefit of stock-based compensation

 

 

 

 
2,048

 

 

 

 
2,048

Treasury stock purchases
(1,050,062
)
 

 

 

 

 

 
(34,884
)
 

 
(34,884
)
Stock issued in connection with equity awards and warrants
500,817

 

 

 

 
8,793

 

 

 

 
8,793

Other

 

 

 

 
(60
)
 

 

 

 
(60
)
Other comprehensive income (loss)

 

 

 

 

 

 

 
(10,122
)
 
(10,122
)
Balance as of December 31, 2015
37,126,571

 
3,733,882

 
$
39

 
$
4

 
$
850,609

 
$
88,535

 
$
(53,635
)
 
$
(9,443
)
 
$
876,109

Net income

 

 

 

 

 
99,916

 

 

 
99,916

Exchange of B shares to A shares
3,545,408

 
(3,545,408
)
 
4

 
(4
)
 

 

 

 

 

Stock-based compensation and warrant expense

 

 

 

 
5,613

 

 

 

 
5,613

Excess tax benefit of stock-based compensation

 

 

 

 
2,110

 

 

 

 
2,110

Treasury stock purchases
(717,115
)
 

 

 

 

 

 
(23,738
)
 

 
(23,738
)
Stock issued in connection with equity awards and warrants
1,014,233

 

 
1

 

 
17,041

 

 

 

 
17,042

Other

 

 

 

 
(59
)
 

 

 

 
(59
)
Other comprehensive income (loss)

 

 

 

 

 

 

 
5,448

 
5,448

Balance as of December 31, 2016
40,969,097

 
188,474

 
$
44

 
$

 
$
875,314

 
$
188,451

 
$
(77,373
)
 
$
(3,995
)
 
$
982,441

Net income

 

 

 

 

 
125,194

 

 

 
125,194

Exchange of B shares to A shares
188,474

 
(188,474
)
 

 

 

 

 

 

 

Stock-based compensation and warrant expense

 

 

 

 
8,038

 

 

 

 
8,038

Stock issued in connection with equity awards and warrants
3,213,533

 

 
3

 

 
50,667

 

 

 

 
50,670

Other

 

 

 

 
(59
)
 

 

 

 
(59
)
Other comprehensive income (loss)

 

 

 

 

 

 

 
12,888

 
12,888

Balance as of December 31, 2017
44,371,104

 

 
$
47

 
$

 
$
933,960

 
$
313,645

 
$
(77,373
)
 
$
8,893

 
$
1,179,172

The accompanying notes are an integral part of these consolidated financial statements

F-8

Table of Contents
Index to Financial Statements

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
 
 
Years Ended December 31,
 
2017
 
2016
 
2015
Cash Flows From Operating Activities:
 
 
 
 
 
Net income
$
125,194

 
$
99,916

 
$
53,391

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
 
Provision for loan losses
9,415

 
7,655

 
6,823

Amortization of intangible assets
1,023

 
1,189

 
1,631

Depreciation and amortization of premises and equipment
3,618

 
3,583

 
3,792

Amortization of discount on loans
(1,265
)
 
(930
)
 
(2,657
)
Net amortization (accretion) of premium (discount) on investment securities
2,166

 
1,586

 
1,883

Net amortization (accretion) of premium (discount) on time deposits

 
(50
)
 
(336
)
Net amortization (accretion) of premium (discount) on FHLB advances and other borrowings
(846
)
 
(2,635
)
 
(2,609
)
Impairment of other real estate owned
670

 
1,751

 
728

Impairment of fixed assets HFS

 
48

 

FDIC Loss share indemnification loss

 

 
65,529

(Gain) loss on investment securities
(1,933
)
 
(1,819
)
 
(1,906
)
(Gain) loss on sale of loans
(4,860
)
 
(1,635
)
 
(1,717
)
(Gain) loss on sale of other real estate owned
176

 
(3,126
)
 
(8,107
)
(Gain) loss on sale of premises and equipment
(34
)
 
48

 
174

Deferred tax expense
26,329

 
10,364

 
(21,395
)
Stock-based compensation
8,038

 
5,613

 
5,290

Increase in cash surrender value of BOLI
(5,647
)
 
(5,192
)
 
(4,610
)
Net change in operating assets and liabilities:
 
 
 
 
 
Net change in loans held for sale
9,535

 
(16,071
)
 
(379
)
Settlement of FDIC loss share agreement

 

 
(14,815
)
Net change in other assets
(14,112
)
 
8,499

 
49

Net change in other liabilities
6,679

 
(10,717
)
 
(12,539
)
Net cash provided by (used in) operating activities
164,146

 
98,077

 
68,220

Cash Flows From Investing Activities:
 
 
 
 
 
Purchase of investment securities available for sale
(884,732
)
 
(750,482
)
 
(676,708
)
Sales of investment securities available for sale
223,726

 
342,137

 
354,733

Paydown and maturities of investment securities available for sale
451,974

 
89,421

 
139,996

Purchase of FHLB and other bank stock
(178,578
)
 
(113,362
)
 
(81,207
)
Sales of FHLB and other bank stock
173,353

 
121,183

 
88,621

Net change in loans
(1,601,014
)
 
(1,357,875
)
 
(939,514
)
Purchase of loans
(11,867
)
 
(200,480
)
 
(395,649
)
Proceeds from sale of loans
271,854

 
106,450

 
52,362

Purchase of bank-owned life insurance

 
(25,000
)
 
(25,000
)
Proceeds from sale of other real estate owned
5,520

 
34,274

 
64,139

Purchase of premises and equipment
(3,163
)
 
(4,925
)
 
(1,958
)
Proceeds from the sale of premises and equipment
87

 
1,548

 

Capitalized expenditures on foreclosed real estate

 
(543
)
 

Proceeds from life insurance
3,016

 

 
1,193

Net cash provided by (used in) investing activities
(1,549,824
)
 
(1,757,654
)
 
(1,418,992
)
Cash Flows From Financing Activities:
 
 
 
 
 
Net change in deposits
1,368,256

 
1,875,083

 
1,452,439

Net change in FHLB advances and other borrowings
77,750

 
(214,250
)
 
(177,186
)
Net change in repurchase agreements
(78,894
)
 
(15,195
)
 
94,997

Repurchase of stock

 
(23,738
)
 
(34,884
)
Exercise of stock options
50,670

 
17,042

 
8,793

Excess tax benefit from share based payments

 
2,110

 
2,048

Other financing costs
(59
)
 
(59
)
 
(60
)
Net cash provided by (used in) financing activities
1,417,723

 
1,640,993

 
1,346,147

Net Change in Cash and Cash Equivalents
32,045

 
(18,584
)
 
(4,625
)
Cash and Cash Equivalents at Beginning of Period
83,876

 
102,460

 
107,085

Cash and Cash Equivalents at End of Period
$
115,921

 
$
83,876

 
$
102,460

Supplemental Disclosures of Cash Flow Information:
 
 
 
 
 
Interest paid
$
77,859

 
$
50,631

 
$
30,788

Income taxes paid
19,719

 
60,192

 
36,304

Supplemental disclosure of noncash investing and financing activities:
 
 
 
 
 
Transfer of loans to other real estate owned
$
2,044

 
$
12,244

 
$
21,573

The accompanying notes are an integral part of these consolidated financial statements

F-9

Table of Contents
Index to Financial Statements

FCB FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
FCB Financial Holdings, Inc. (the “Company”) is a national bank holding company with one wholly-owned national bank subsidiary, Florida Community Bank, N.A. (“Florida Community Bank” or the “Bank”), headquartered in Weston, Florida, offering a comprehensive range of traditional banking products and services to individual and corporate customers through 46 banking centers located in Florida at December 31, 2017.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, the Bank, and the Bank’s subsidiaries, which consist of a group of real estate holding companies. Intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The Company’s financial reporting and accounting policies conform to U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates subject to significant change include the allowance for loan losses, valuation of and accounting for acquired loans, the carrying value of OREO, the fair value of financial instruments, the valuation of goodwill and other intangible assets, acquisition-related fair value computations, stock-based compensation and deferred taxes.
Business combinations
The Company accounts for transactions that meet the definition of a purchase business combination by recording the assets acquired and liabilities assumed at their fair value upon acquisition. The operations of the acquisitions are included in the consolidated financial statements from the date of acquisition. Intangible assets, indemnification contracts and contingent consideration are identified and recognized individually. If the fair value of the assets acquired exceeds the purchase price plus the fair value of the liabilities assumed, a bargain purchase gain is recognized. Conversely, if the purchase price plus the fair value of the liabilities assumed exceeds the fair value of the assets acquired, goodwill is recognized. The Company’s assumptions utilized to determine the fair value of assets acquired and liabilities assumed conform to market conditions at the date of acquisition. The provisional amounts recorded are updated if better information is obtained about the initial assumptions used to determine fair value or if new information is obtained regarding the facts and circumstances that existed at the date of acquisition. The provisional amounts may be adjusted through the completion of the measurement period, which does not exceed one year from the date of acquisition.
Fair Value Measurement
The Company uses estimates of fair value in applying various accounting standards for its consolidated financial statements on either a recurring or non-recurring basis. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. The Company groups its assets and liabilities measured at fair value in three hierarchy levels, based on the observability and transparency of the inputs. These levels are as follows:
Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
Level 2—Observable inputs other than level 1 inputs, including quoted prices for similar assets and liabilities, quoted prices for identical assets and liabilities in less active markets and other inputs that can be corroborated by observable market data;
Level 3—Unobservable inputs supported by limited or no market activity or data and inputs requiring significant management judgment or estimation; valuation techniques utilizing level 3 inputs include option pricing models, discounted cash flow models and similar techniques.

F-10

Table of Contents
Index to Financial Statements

It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs in estimating fair value. Unobservable inputs are utilized in determining fair value estimates only to the extent that observable inputs are not available. The need to use unobservable inputs generally results from a lack of market liquidity and trading volume. Transfers between levels of fair value hierarchy are recorded at the end of the reporting period.
Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments, allows the Company an irrevocable option for measurement of eligible financial assets or financial liabilities at fair value on an instrument by instrument basis (the fair value option). An election may be made at the time an eligible financial asset, financial liability or firm commitment is recognized or when certain specified reconsideration events occur. The Company has not elected the fair value option for any eligible financial instrument as of December 31, 2017 or 2016.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. A gain or loss is recognized in earnings upon completion of the sale based on the difference between the sales proceeds and the carrying value of the assets. Control over the transferred assets is deemed to have been surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-bearing deposits with banks, Federal funds sold and securities purchased under resale agreements or similar arrangements. Cash and cash equivalents have original maturities of three months or less. Accordingly, the carrying amount of such instruments is considered a reasonable estimate of fair value.
Restrictions on Cash
The Bank is required to maintain reserve balances with the FRB. Such reserve requirements are based on a percentage of deposit liabilities and may be satisfied by cash on hand or on deposit. Because the amount of cash on hand exceeded the requirement, there was no reserve with the FRB as of December 31, 2017 or 2016.
Investment Securities
Securities transactions are recorded on the trade date basis. The Company determines the classification of investment securities at the time of purchase. If the Company has the intent and the ability at the time of purchase to hold debt securities until maturity, they are classified as held-to-maturity. Investment securities held-to-maturity are stated at amortized cost. Debt securities the Company does not intend to hold to maturity are classified as available for sale and carried at estimated fair value with unrealized gains or losses reported as a separate component of stockholders’ equity in accumulated other comprehensive income, net of applicable income taxes. Available for sale securities are a part of the Company’s asset/liability management strategy and may be sold in response to changes in interest rates, prepayment risk or other market factors.
Interest income and dividends on securities are recognized in interest income on an accrual basis. Premiums and discounts on debt securities are amortized as an adjustment to interest income over the period to maturity of the related security using the effective interest method. Realized gains or losses on the sale of securities are determined using the specific identification method.
The Company reviews investment securities for impairment on a quarterly basis or more frequently if events and circumstances warrant. In order to determine if a decline in fair value below amortized cost represents other-than-temporary impairment (“OTTI”), management considers several factors, including but not limited to, the length of time and extent to which the fair value has been less than the amortized cost basis, the financial condition and near-term prospects of the issuer (considering factors such as adverse conditions specific to the issuer and the security and ratings agency actions) and the Company’s intent and ability to retain the investment in order to allow for an anticipated recovery in fair value.

F-11

Table of Contents
Index to Financial Statements

The Company recognizes OTTI of a debt security for which there has been a decline in fair value below amortized cost if (i) management intends to sell the security, (ii) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, or (iii) the Company does not expect to recover the entire amortized cost basis of the security. The amount by which amortized cost exceeds the fair value of a debt security that is considered to have OTTI is separated into a component representing the credit loss, which is recognized in earnings, and a component related to all other factors, which is recognized in other comprehensive income. The measurement of the credit loss component is equal to the difference between the debt security’s amortized cost basis and the present value of its expected future cash flows discounted at the security’s effective yield. If the Company intends to sell the security, or if it is more likely than not it will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the entire difference between the amortized cost basis and fair value of the security.
The Bank, as a member of the FHLB is required to maintain an investment in the stock of the FHLB. No market exists for this stock, and the Bank’s investment can be liquidated only through redemption by the FHLB, at the discretion of and subject to conditions imposed by the FHLB. Historically, FHLB stock redemptions have been at cost (par value), which equals the Company’s carrying value. The Company monitors its investment in FHLB stock for impairment through review of recent financial results of the FHLB including capital adequacy and liquidity position, dividend payment history, redemption history and information from credit agencies. The Company has not identified any indicators of impairment of FHLB stock.
Loans
The Company’s accounting methods for loans differ depending on whether the loans are new (“New” loans) or acquired (“Acquired” loans), and for acquired loans, whether the loans were acquired at a discount as a result of credit deterioration since the date of origination.
New Loans
The Company accounts for originated loans and purchased loans not acquired through business acquisitions as New loans. New loans that management has the intent and ability to hold for the foreseeable future are reported at their outstanding principal balances net of any allowance for loan losses, unamortized deferred fees and costs and unamortized premiums or discounts. The net amount of nonrefundable loan origination fees and certain direct costs associated with the lending process are deferred and amortized into interest income over the contractual lives of the New loans using methods which approximate the effective yield method. Discounts and premiums are amortized or accreted into interest income over the estimated term of the New loans using methods that approximate the effective yield method. Interest income on New loans is accrued based on the unpaid principal balance outstanding and the contractual terms of the loan agreements.
Acquired Loans
Acquired loans are accounted for under ASC 310-30 unless the loan type is excluded from the scope of ASC 310-30 (i.e. loans where borrowers have revolving privileges at acquisition date, or “Non-ASC 310-30” loans). The Company has elected to account for loans acquired with deteriorated credit quality since origination under ASC 310-30 (“ASC 310-30” loans or pools) due to the following:
 
There is evidence of credit quality deterioration since origination resulting in a “Day 1” discount attributable, at least in part, to credit quality;
The loans were acquired in a business combination or asset purchase; and
The loans are not to be subsequently accounted for at fair value.
The Company has elected this policy for loans acquired through business combinations exhibiting credit deterioration since origination, except those loan types which have been scoped out of ASC 310-30. Substantially all loans acquired through the FDIC-assisted acquisitions had a fair value discount at acquisition date due at least in part to deterioration in credit quality since origination. However, there was a separate grouping of loans individually identified with substantial credit impairment that would be explicitly scoped into ASC 310-30 from those that were classified by analogy. The Company determined that a loan would be explicitly scoped into ASC 310-30 if there was evidence of credit deterioration at Day 1 and that it was probable that the Company would be unable to collect all contractual cash flows receivable. The loans that were classified by analogy were determined to have evidence of credit deterioration at Day 1 and that it was possible, not probable, that the Company would be unable to collect all contractual cash flows receivable.

F-12

Table of Contents
Index to Financial Statements

For each acquisition, ASC 310-30 loans are aggregated into pools based on common risk characteristics, which includes similar credit risk of the loans based on whether loans were analogized or were explicitly scoped into ASC 310-30, internal risk ratings for commercial real estate, land and development and commercial loans; and performing status for consumer and single family residential loans. Pools of loans are further aggregated by collateral type (e.g. commercial real estate, single family residential, etc.). The Company did not elect to aggregate loans into pools that were acquired from separate acquisitions completed in the same fiscal quarter.
Acquired loans are recorded at their fair value at the acquisition date. Fair value for acquired loans is based on a discounted cash flow methodology that considers factors including the type of loan and related collateral type, delinquency and credit classification status, fixed or variable interest rate, term of loan, whether or not the loan was amortizing, and current discount rates. Additional assumptions used include default rates, loss severity, loss curves and prepayment speeds. Discounts due to credit quality are included in the determination of fair value; therefore an allowance for loan losses is not recorded at the acquisition date. The discount rates used for the cash flow methodology are based on market rates for new originations of comparable loans at the time of acquisition and include adjustments for liquidity concerns. The fair value is determined from the discounted cash flows for each individual loan, and for ASC 310-30 loans are then aggregated at the unit of account, or pool level.
For acquired loans with deteriorated credit quality, the Company makes an estimate of the total cash flows it expects to collect from the loans in each pool, which includes undiscounted expected principal and interest as well as cash received through other forms of satisfaction (e.g. foreclosure). The excess of contractual amounts over the total cash flows expected to be collected from the loans is referred to as non-accretable difference, which is not accreted into income. The excess of the expected undiscounted cash flows over the carrying value of the loans is referred to as accretable discount. Accretable discount is recognized as interest income on a level-yield basis over the expected term of the loans in each pool.
The Company continues to estimate cash flows expected to be collected over the expected term of the ASC 310-30 loans on a quarterly basis. Subsequent increases in total cash flows expected to be collected are recognized as an adjustment to the accretable discount with the amount of periodic accretion adjusted over the remaining expected term of the loans. Subsequent decreases in cash flows expected to be collected over the expected term of the loans are recognized as impairment in the current period through a provision for loan losses.
Each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Resolutions of loans may include sales to third parties, receipt of payments in settlement with the borrower, or foreclosure of the collateral. Upon these resolutions, the Company’s policy is to remove an individual ASC 310-30 loan from a pool based on comparing the amount received from its resolution with its contractual amount. Any difference between these amounts is absorbed by the nonaccretable difference. This removal method assumes that the amount received from these resolutions approximates the pool performance expectations of cash flows. The accretable yield percentage is unaffected by the resolution. Any changes in the effective yield for the remaining loans in the pool are addressed by the quarterly cash flow evaluation process for each pool. For loans that are resolved by payment in full, there is no release of the nonaccretable difference for the pool because there is no difference between the amount received at resolution and the contractual amount of the loan.
Payments received in excess of expected cash flows may result in an ASC 310-30 pool becoming fully amortized and its carrying value reduced to zero even though outstanding contractual balances remain related to loans in the pool. Once the carrying value of an ASC 310-30 pool is reduced to zero, any future proceeds from the borrower or from the sale of loans are recognized as interest income upon receipt. There were six ASC 310-30 pools whose carrying value had been reduced to zero as of December 31, 2017. These pools had an aggregate Unpaid Principal Balance (“UPB” or “UPBs”) of $399 thousand as of December 31, 2017. For the year ended December 31, 2017, the Company sold approximately $11.7 million of loans accounted for under ASC 310-30. These sales resulted in proceeds that exceeded the carrying value of the accounting pool in which the loans resided of $3.3 million which was recognized as interest income. There were six ASC 310-30 pools whose carrying value had been reduced to zero as of December 31, 2016. These pools had an aggregate UPB of $456 thousand as of December 31, 2016. For the year ended December 31, 2016, the Company sold approximately $75.3 million of loans accounted for under ASC 310-30. These sales resulted in proceeds that exceeded the carrying value of the accounting pool in which the loans resided of $27.2 million which was recognized as interest income.
Non-ASC 310-30 loans are recorded at their estimated fair value as of the acquisition date and subsequently accounted for under ASC Topic 310-20, Receivables—Nonrefundable Fees and Other Costs (“ASC 310-20”). The fair value discount is accreted using methods which approximate the level-yield method over the remaining term of the loans and is recognized as a component of interest income.

F-13

Table of Contents
Index to Financial Statements

Loans Held for Sale
Certain residential fixed rate and adjustable rate mortgage loans originated by the Company with the intent to sell in the secondary market are carried at the lower of cost or fair value, as determined by outstanding commitments from investors or prevailing market prices. These loans are generally sold on a non-recourse basis with servicing released. Gains and losses on the sale of loans recognized in earnings are measured based on the difference between proceeds received and the carrying amount of the loans, inclusive of deferred origination fees and costs, if any.
Nonaccrual Loans
For New and Non-ASC 310-30 loans, the Company classifies loans as past due when the payment of principal or interest is greater than 30 days delinquent based on the contractual next payment due date. The Company’s policies related to when loans are placed on nonaccrual status conform to guidelines prescribed by regulatory authorities. Loans are placed on nonaccrual status when it is probable that principal or interest is not fully collectible, or generally when principal or interest becomes 90 days past due, whichever occurs first. Loans secured by 1-4 single family residential properties may remain in accruing status until they are 180 days past due if management determines that it does not have concern over the collectability of principal and interest because the loan is adequately collateralized and in the process of collection. When loans are placed on nonaccrual status, interest receivable is reversed against interest income in the current period and amortization of any discount ceases. Interest payments received thereafter are applied as a reduction to the remaining principal balance unless management believes that the ultimate collection of the principal is likely, in which case payments are recognized in earnings on a cash basis. Loans are removed from nonaccrual status when they become current as to both principal and interest and the collectability of principal and interest is no longer doubtful.
Generally, a nonaccrual loan that is restructured remains on nonaccrual for a period of six months to demonstrate the borrower can meet the restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains classified as a nonaccrual loan. Contractually delinquent ASC 310-30 loans are not classified as nonaccrual as long as the discount continues to be accreted on the corresponding ASC 310-30 pool.
Troubled Debt Restructurings
In certain situations, due to economic or legal reasons related to a borrower’s financial difficulties, the Company may grant a concession to the borrower for other than an insignificant period of time that it would not otherwise consider. At that time, except for ASC 310-30 loans, which are accounted for as pools, the related loan is classified as a troubled debt restructuring (“TDR”) and considered impaired. Modified ASC 310-30 loans accounted for in pools are not accounted for as TDRs, are not separated from the pools and are not classified as impaired loans. The concessions granted may include rate reductions, principal forgiveness, payment forbearance, extensions of maturity at rates of interest below those commensurate with the risk profile of the borrower, and other actions intended to minimize economic loss. A troubled debt restructured loan is generally placed on nonaccrual status at the time of the modification unless the borrower has no history of missed payments for six months prior to the restructuring. If the borrower performs pursuant to the modified loan terms for at least six months and the remaining loan balance is considered collectible, the loan is returned to accrual status.
Impaired Loans
An ASC 310-30 pool is considered to be impaired when it is probable that the Company will be unable to collect all the cash flows expected at acquisition, plus additional cash flows expected to be collected arising from changes in estimates after acquisition. All ASC 310-30 pools are evaluated individually for impairment based their expected total cash flows. The discount continues to be accreted on ASC 310-30 pools as long as there are expected future cash flows in excess of the current carrying amount of the pool.
Non-ASC 310-30 and New loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due, according to the contractual terms of the loan agreements.
All Non-ASC 310-30 and New loans of $250,000 or greater with an internal risk rating of substandard or below and on nonaccrual, as well as loans classified as TDRs are reviewed individually for impairment on a quarterly basis.

F-14

Table of Contents
Index to Financial Statements

Allowance for Loan Losses (“ALL”)
The Company’s ALL is established for both performing and nonperforming loans. The Company’s ALL is the amount considered adequate to absorb probable losses within the portfolio based on management’s evaluation of the size and current risk characteristics of the loan portfolio. Such evaluation considers numerous factors including, but not limited to, internal risk ratings, loss forecasts, collateral values, geographic location, borrower FICO scores, delinquency rates, nonperforming and restructured loans, origination channels, product mix, underwriting practices, industry conditions, economic trends and net charge-off trends. The ALL relates to New loans, estimated additional losses arising on Non-ASC 310-30 loans subsequent to the acquisitions and additional impairment recognized as a result of decreases in expected cash flows on ASC 310-30 pools due to further credit deterioration or other factors since the acquisitions. The ALL consists of both specific and general components.
For ASC 310-30 pools, a specific valuation allowance is established when it is probable that the Company will be unable to collect all of the cash flows expected at acquisition, plus the additional cash flows expected to be collected arising from changes in estimates after acquisition. Expected cash flows are estimated on an individual loan basis and then aggregated at the ASC 310-30 pool level. The analysis of expected pool cash flows incorporates updated pool level expected prepayment rate, default rate, delinquency level and loss severity given default assumptions. These analyses incorporate information about loan performance, collateral values, the financial condition of the borrower, internal risk ratings, the Company’s own and industry historical delinquency and default severity data. The carrying value for ASC 310-30 pools is reduced by the amount of the calculated impairment, which is also the basis in which future accretion income is calculated. A charge-off is taken for an individual ASC 310-30 loan when it is deemed probable that the loan will be resolved for an amount less than its carrying value. The charge-off is taken to the specific allowance or mark as applicable. Alternatively, an improvement in the expected cash flows related to ASC 310-30 pools results in a reduction or recoupment of any previously established specific allowance with a corresponding credit to the provision for loan losses. Any recoupment recorded is limited to the amount of the remaining specific allowance for that pool, with any excess of expected cash flow resulting in a reclassification from non-accretable to accretable yield and an increase in the prospective yield of the pool.
The New and Non-ASC 310-30 loan portfolios have limited delinquency and credit loss history and have not yet exhibited an observable loss trend. The credit quality of loans in these loan portfolios are impacted by delinquency status and debt service coverage generated by the borrowers’ businesses and fluctuations in the value of real estate collateral. Management considers delinquency status to be the most meaningful indicator of the credit quality of one-to-four single family residential, home equity loans and lines of credit and other consumer loans. Delinquency statistics are updated at least monthly. Internal risk ratings are considered the most meaningful indicator of credit quality for Non-ASC 310-30 and new commercial, construction, land and development, and commercial real estate loans. Internal risk ratings are a key factor in identifying loans that are individually evaluated for impairment and impact management’s estimates of loss factors used in determining the amount of the ALL. Internal risk ratings are updated on a continuous basis. Relationships with balances in excess of $250,000 are re-evaluated at least annually and more frequently if circumstances indicate that a change in risk rating may be warranted.
New and Non-ASC 310-30 loans of $250,000 or greater with an internal risk rating of substandard or below and on nonaccrual, as well as loans classified as TDR are reviewed individually for impairment on a quarterly basis. The specific allowance established for these loans is based on a thorough analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flows, the loan’s estimated market value or the estimated fair value of the underlying collateral less costs of disposition. General allowances are established for new and Non-ASC 310-30 loans that are not evaluated individually for impairment, which are evaluated by loan category based on common risk characteristics. In this process, general loan loss factors are established based on the following: industry historical losses segmented by portfolio and asset categories; trends in delinquencies and nonaccruals by loan portfolio segment and asset categories within those segments; portfolio segment and asset category production trends, including average risk ratings and loan-to value (“LTV”) ratios; current industry conditions, including real estate market trends; general economic conditions; credit concentrations by portfolio and asset categories; and portfolio quality, which encompasses an assessment of the quality and relevance of borrowers’ financial information and collateral valuations and average risk rating and migration trends within portfolios and asset categories.
Other adjustments for qualitative factors may be made to the allowance after an assessment of internal and external influences on credit quality and loss severity that are not fully reflected in the historical loss or risk rating data. For these measurements, the Company uses assumptions and methodologies that are relevant to estimating the level of impairment and probable losses in the loan portfolio. To the extent that the data supporting such assumptions has limitations, management’s judgment and experience play a key role in recording the allowance estimates. Qualitative adjustments are considered for: portfolio credit quality trends, including levels of delinquency, charge-offs, nonaccrual, restructuring and other factors; policy and credit standards, including quality and experience of lending and credit management; and general economic factors, including national, regional and local conditions and trends.

F-15

Table of Contents
Index to Financial Statements

Additions to the ALL are made by provisions charged to earnings. The allowance is decreased by charge-offs of balances no longer deemed collectible. Charge-offs on new and Non-ASC 310-30 loans are recognized as follows: commercial loans are written-off when management determines them to be uncollectible; for unsecured consumer loans at 90 days past due; and for residential real estate loans and secured consumer loans when they become 120 to 180 days past due, depending on the collateral type. The Company reports recoveries on a cash basis at the time received. Recoveries on ASC 310-30 loans that were charged-off and Non-ASC 310-30 loans that were charged-off prior to the Acquisitions are recognized in earnings as income from resolution of acquired assets and do not affect the allowance for loan losses. All other recoveries are credited to the ALL.
Loss Share Indemnification Asset and Clawback Liability
On March 4, 2015, the Bank entered into an agreement with the FDIC to terminate all loss sharing agreements which were entered into in 2010 and 2011 in conjunction with the Bank’s acquisition of substantially all of the assets (“Covered Assets”) and assumption of substantially all of the liabilities of six failed banks in FDIC-assisted acquisitions. Under the early termination, all rights and obligations of the Bank and the FDIC under the loss share agreements, including the clawback provisions, have been eliminated.
The amounts previously covered by the loss sharing agreements were the pre-acquisition book value of the underlying assets, the contractual balance of unfunded commitments that were acquired, and certain future net direct costs applicable to the Covered Assets. As required by the respective loss sharing agreements, the Company submitted a loss share certificate to the FDIC on a quarterly basis requesting reimbursement for losses on covered assets and covered expenses. Covered expenses were recorded in non-interest expense when incurred with an offsetting increase to the loss share indemnification asset and non-interest income for the amount expected to be reimbursed by the FDIC. Certain covered expenses were claimed upon resolution of the Covered Asset, resulting in the expense and the related reimbursements from the FDIC occurring in different periods.
The Company reviewed and updated the cash flows expected to be collected on Covered Assets and the FDIC loss share indemnification asset on a quarterly basis as loss and recovery estimates related to Covered Assets change. Decreases in the amount of cash flows expected to be collected on Covered Loans after acquisition resulted in a provision for loan loss, an increase in the ALL, and a proportional increase to the FDIC loss share indemnification asset and income for the estimated amount to be reimbursed. Increases in the amount of cash flows expected to be collected on Covered Loans after acquisition resulted in the reversal of any previously-recorded provision for loan losses and related ALL and a decrease to the FDIC loss share indemnification asset, or prospective adjustment to the accretable discount if no provision for loan losses had been previously recorded. If no provision for loan losses had been previously recorded, improvements in the expected cash flows from the Covered Loans, which was reflected as an adjustment to yield and accreted into income over the remaining expected term of the loans, decreases the expected cash flows to be collected from the loss sharing agreement, with such decreases reducing the yield to be accreted on a prospective basis if the total expected cash flows from the loss sharing agreement exceeded its carrying amount; and, if the carrying amount of the FDIC loss share indemnification asset exceeded the total expected cash flows, the excess was amortized as a reduction of income over the shorter of (1) the remaining expected term of the respective loans or (2) the remaining term of the loss sharing agreement.
As a result, the value of the FDIC loss share indemnification asset fluctuated over time based upon the performance of the Covered Assets and as the Company received payments from the FDIC under the loss sharing agreements.
The loss sharing agreements between the Company and the FDIC for certain of the Acquisitions included clawback provisions that obligated the Company to pay the FDIC a certain amount in the event that losses incurred by the Company did not reach a specified threshold upon expiration of the loss sharing agreement. The fair value of the clawback liability was initially estimated using the same discounted cash flow model used to determine the loss share indemnification asset, using a discount rate that took into account the Company’s credit risk. The clawback liability was re-measured quarterly based on the terms of the applicable loss sharing agreement, changes in projected losses on Covered Assets and the cumulative servicing amount, if applicable.
The clawback liability was included in other liabilities and the amortization and loss on re-measurement was included in loss share indemnification loss within noninterest income in the accompanying Consolidated Statements of Income.

F-16

Table of Contents
Index to Financial Statements

Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation or amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets, except for land which is stated at cost. The useful lives of premises and equipment are: 39 years for bank premises; 3 to 5 years for computer equipment and software; and 5 years for furniture and equipment.
Leasehold improvements are amortized on a straight-line basis over the lesser of the lease terms, including certain renewals that were deemed probable at lease inception, or the estimated useful lives of the improvements. Purchased software and external direct costs of computer software developed for internal use are capitalized provided certain criteria are met and amortized over the useful lives of the software. Rent expense and rental income on operating leases are recorded using the straight-line method over the appropriate lease terms.
Other Real Estate Owned (“OREO”)
Real estate properties acquired through, or in lieu of, foreclosure or in connection with the Acquisitions, are held for sale and are initially recorded at their fair value less disposition costs. When such assets are acquired, any shortfall between the loan carrying value and the estimated fair value of the underlying collateral less disposition costs is recorded as an adjustment to the allowance for loan losses while any excess is recognized in income. The Company periodically performs a valuation of the property held; any excess of carrying value over fair value less disposition costs is charged to earnings as impairment. Routine maintenance and real estate taxes are expensed as incurred.
Bank-Owned Life Insurance (“BOLI”)
The Bank owns life insurance policies on certain directors and current and former employees. These policies are recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement, if applicable. Increases in the cash surrender value of these policies are included in noninterest income in the Consolidated Statements of Income. The Company’s BOLI policies are invested in general account and hybrid account products that have been underwritten by highly-rated third party insurance carriers.
Goodwill and Other Intangible Assets
Goodwill represents the excess of consideration transferred in business combinations over the fair value of net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but is tested for impairment annually or more frequently if events or circumstances indicate that impairment may have occurred. The Company performs its annual goodwill impairment test in the fourth fiscal quarter. The Company has a single reporting unit. The impairment test compares the estimated fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit exceeds its carrying amount, no impairment is indicated. If the fair value of the reporting unit is less than its carrying amount, impairment of goodwill is measured as the excess of the carrying amount of goodwill over its implied fair value. The Company uses the fair value of the Company’s publicly traded stock to estimate the fair value of the reporting unit. The estimated fair value of the reporting unit at the last impairment testing date exceeded its carrying amount; therefore, no impairment of goodwill was indicated.
Core deposit intangible (“CDI”) is a measure of the value of checking and savings deposit relationships acquired in a business combination. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding relative to an alternative source of funding. CDI is amortized over the estimated useful lives of the existing deposit relationships acquired, but does not exceed 10 years. The Company evaluates such identifiable intangibles for impairment when events and circumstances indicate that its carrying amount may not be recoverable. If an impairment loss is determined to exist, the loss is reflected as an impairment charge in the Consolidated Statements of Income for the period in which such impairment is identified. No impairment charges were required to be recorded for the years ended December 31, 2017, 2016 or 2015.

F-17

Table of Contents
Index to Financial Statements

Income Taxes
Income tax expense (benefit) is determined using the asset and liability method and consists of income taxes that are currently payable and deferred income taxes. Deferred income tax expense is determined by recognizing deferred tax assets and liabilities for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. Changes in tax rates on deferred tax assets and liabilities are recognized in income in the period that includes the enactment date. A valuation allowance is established for deferred tax assets when management determines that it is more likely than not that some portion or all of a deferred tax asset will not be realized. In making such determinations, the Company considers all available positive and negative evidence that may impact the realization of deferred tax assets. These considerations include the amount of taxable income generated in statutory carryback periods, future reversals of existing taxable temporary differences, projected future taxable income and available tax planning strategies.
The Company files a consolidated federal income tax return including the results of its wholly owned subsidiary, the Bank. The Company estimates income taxes payable based on the amount it expects to owe the various tax authorities (i.e., federal and state). Income taxes represent the net estimated amount due to, or to be received from, such tax authorities. In estimating income taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the context of the Company’s tax position. Although the Company uses the best available information to record income taxes, underlying estimates and assumptions can change over time as a result of unanticipated events or circumstances such as changes in tax laws and judicial guidance influencing its overall tax position.
An uncertain tax position is recognized only if it is more-likely-than-not to be sustained upon examination, including resolution of any related appeals or litigation process, based on the technical merits of the position. The amount of tax benefit recognized in the financial statements is the largest amount of benefit that is more than fifty percent likely to be sustained upon ultimate settlement of the uncertain tax position. If the initial assessment fails to result in recognition of a tax benefit, the Company subsequently recognizes a tax benefit if there are changes in tax law or case law that raise the likelihood of prevailing on the technical merits of the position to more-likely-than-not, the statute of limitations expires, or there is a completion of an examination resulting in a settlement of that tax year or position with the appropriate agency. The Company recognizes interest related to unrecognized tax benefits in income tax expense (benefit) and penalties, if any, in other operating expenses.
Derivatives
The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging.” All derivatives are evaluated at inception as to whether or not they are hedging or non-hedging activities, and appropriate documentation is maintained to support the final determination. The Company recognizes all derivatives as either assets or liabilities on the Consolidated Balance Sheets and measures those instruments at fair value.
Certain derivative transactions with a particular counterparty, another financial institution, are subject to an enforceable master netting arrangement. The gross liabilities and gross assets to this counterparty are reported on a net basis.
Management periodically reviews contracts from various functional areas of the Company to identify potential derivatives embedded within selected contracts. As of December 31, 2017, the Company had interest rate derivative contracts that are not designated as hedging instruments. See Note 8 “Derivatives” for a description of these instruments.
Off-Balance Sheet Arrangements
The Company enters into contractual loan commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Since a portion of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Substantially all of the commitments to extend credit are contingent upon customers maintaining specific credit standards until the time of loan funding. The Company decreases its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.

F-18

Table of Contents
Index to Financial Statements

Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, the Company would be entitled to seek recovery from the customer. The Company’s policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.
The Company assesses the credit risk associated with certain commitments to extend credit and establish a liability for probable credit losses. The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company records a reserve in the amount considered adequate to absorb estimated losses. Since the Company has limited credit loss history, management performs an analysis of reserve rates for a peer group comprised of banks of similar size, loan portfolio composition and geographic footprint to which FCB, its board of directors, and analysts benchmark the Banks’ performance. This analysis involves calculating an average reserve rate for unfunded commitments using a rolling twelve quarter basis of the most recent data available. Based on this peer group analysis, FCB records a reserve for unfunded commitments calculated using a rate in line with peer banks.
Stock-based Compensation
The Company sponsors an incentive stock option plan established in 2009 (the “2009 Option Plan”) under which options may be granted periodically to key employees and directors of the Company or its affiliates at a specific exercise price to acquire shares of the Company’s Class A common stock. Compensation cost is measured based on the estimated fair value of the award at the grant date and is recognized in earnings on a straight-line basis over the requisite service period. The fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model. This model requires assumptions as to the expected stock volatility, dividends, terms and risk-free rates. The expected volatility is based on the volatility of comparable peer banks. The expected term represents the period of time that options are expected to be outstanding from the grant date. The risk-free interest rate is based on the US Treasury yield curve in effect at the time of grant for the appropriate life of each option. The expected dividend yield was determined by management based on the expected dividends to be declared over the expected term of the options.
In the fourth quarter of 2013, the Company established the 2013 Stock Incentive Plan (the “2013 Incentive Plan”) covering its executive management, directors, individual consultants and employees to receive stock awards for the Company’s common stock. The 2013 Incentive Plan provided that the awards were not exercisable until certain performance conditions were met, which included the completion of an IPO raising at least $100 million (a “Qualified IPO”) or a “Special Transaction”, generally defined as the consummation of a transaction representing a change of control of the Company. On August 6, 2014, the Company completed the initial public offering of 7,520,000 shares of Class A common stock for $22.00 per share. This public offering constituted a “Qualified IPO” with respect to the Company’s Option awards and 2013 Incentive Plan.
In 2016, the Company approved the FCB Financial Holdings, Inc. 2016 Stock Incentive Plan (the “2016 Incentive Plan”) covering its executive management, directors, individual consultants and employees. The 2016 Incentive Plan provides that awards may be granted under the plan with respect to an aggregate of 2,000,000 shares of Class A Common Stock of the Company. Shares issued pursuant to the Plan may be authorized but unissued Common Stock, authorized and issued Common Stock held in the Company’s treasury or Common Stock acquired by the Company for the purposes of the Plan. See Note 14 “Stock-based Compensation and Other Benefit Plans” for further information regarding the 2009 Option Plan and the 2013 and 2016 Incentive Plans.
Earnings per Share
Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share reflect the effect of common stock equivalents, including stock options and unvested shares, calculated using the treasury stock method. Common stock equivalents are excluded from the computation of diluted earnings per common share in periods in which the effect is anti-dilutive.

F-19

Table of Contents
Index to Financial Statements

Segment Reporting
The Company operates in one reportable segment of business, Community Banking, which includes the Bank, the Company’s sole banking subsidiary. Through the Bank, the Company provides a broad range of retail and commercial banking services. Management makes operating decisions and assesses performance based on an ongoing review of these banking operations, which constitute the Company’s only operating segment.
Recently Adopted Accounting Pronouncements
In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This ASU eliminates equity treatment for tax benefits or deficiencies that result from differences between the compensation cost recognized for GAAP purposes and the related tax deduction at settlement or expiration with such changes recognized in income tax expense and excludes excess tax benefits and tax deficiencies from the calculation of assumed proceeds for earnings per share purposes since such amounts are recognized in the income statement. In addition, this ASU simplifies the statements of cash flows by eliminating the bifurcation of excess tax benefits from operating activities to financing activities. The Company recognized approximately $22.0 million of tax benefit in the consolidated statement of income during the year ended December 31, 2017 as a result of the adoption of this guidance that previously would have been recorded in additional paid in capital. The requirement to recognize excess tax benefits and tax deficiencies in the income statement was applied prospectively. This ASU became effective for the first quarter ended March 31, 2017.
In March 2016, the FASB issued ASU No. 2016-06, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments” which clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this ASU is required to assess the embedded call (put) options solely in accordance with the four-stop decision sequence. This ASU became effective for the first quarter ended March 31, 2017. The adoption of this guidance did not have a material impact on the consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-07, “Investments-Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting” which eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this ASU require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. This ASU became effective for the first quarter ended March 31, 2017. The adoption of this guidance did not have a material impact on the consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40)”. This update requires management to evaluate whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern. The guidance is intended to incorporate into GAAP a requirement that management perform a going concern evaluation similar to the auditor’s evaluation required by standards issued by the Public Company Accounting Oversight Board (“PCAOB”) and American Institute of Certified Public Accountants (“AICPA”). This ASU became effective for the first quarter ended March 31, 2017. The adoption of this guidance did not have a material impact on the consolidated financial statements.

F-20

Table of Contents
Index to Financial Statements

Recent Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Accounting Standards Codification. Under ASU No. 2014-09, revenue should be recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the guidance, an entity should 1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when the entity satisfies a performance obligation. For public entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In August 2015, the FASB issued ASU No. 2015-14 delaying the effective date of ASU No. 2014-09. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. This guidance should be applied to all contracts with customers except those that are within the scope of other standards. Since the Company’s revenue is comprised primarily of net interest income from financial instruments that are within the scope of other standards, including loans and securities, the new guidance is not expected to have material impact upon adoption. The Company conducted an analysis to determine the impact this guidance would have on the components of noninterest income and did not identify any material changes on to the method of revenue recognition. Accordingly, the Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial position, results of operations or cash flows. The Company has elected to adopt the new guidance under the modified retrospective approach.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” which:
Requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.
Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.
Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.
Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.
Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.
Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.
For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application by public business entities to financial statements of fiscal years or interim periods that have not yet been issued or, by all other entities, that have not yet been made available for issuance of the following amendments in this ASU are permitted as of the beginning of the fiscal year of adoption:
1.
An entity should present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk if the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.
2.
Entities that are not public business entities are not required to apply the fair value of financial instruments disclosure guidance in the General Subsection of Section 825-10-50.
Except for the early application guidance discussed above, early adoption of the amendments in this ASU is not permitted.

F-21

Table of Contents
Index to Financial Statements

An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of the ASU. As of December 31, 2017, the Company has equity securities in a net unrealized gain position of $1.6 million that will be reclassified from other comprehensive income to retained earnings upon adoption.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” which created Topic 842, Leases, and supersedes the leases requirements in Topic 840, Leases. Topic 842 specifies the accounting for leases. The core principal of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities. For public entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in this ASU is permitted. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial position, results of operations or cash flows.
In May 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” The amendments in this ASU do not change the core principle of the guidance in Topic 606. Rather, the amendments in this ASU clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The amendments in this ASU affect the guidance in ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which is not yet effective. The effective date and transition requirements for the amendments in this ASU are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by ASU 2014-09). ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”, deferred the effective date of ASU 2014-09 by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Management does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” The amendments in this ASU do not change the core principle of the guidance in Topic 606. Rather, the amendments in this ASU clarify the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The amendments in this ASU affect the guidance in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this ASU are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by ASU 2014-09). ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”, deferred the effective date of ASU 2014-09 by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Management does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

F-22

Table of Contents
Index to Financial Statements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit losses (Topic 326): Measurement of credit losses on financial instruments.” Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For public business entities that are SEC filers, the amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. All entities may adopt the amendments in this ASU earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. An entity will apply the amendments in this ASU through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the effective date of this ASU. Amounts previously recognized in accumulated other comprehensive income as of the date of adoption that relate to improvements in cash flows expected to be collected should continue to be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after the date of adoption should be recorded in earnings when received. The Company is currently evaluating this guidance to determine the impact on its consolidated financial position, results of operations or cash flows.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of cash flows (Topic 230): Classification of certain cash receipts and cash payments.” The objective of this guidance is to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This ASU addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated cash flow statement.
In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” The objective of issuing this ASU is to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. As such, the Board decided that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this guidance eliminate the exception for an intra-entity transfer of an asset other than inventory. For public business entities, the amendments in this guidance are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. That is, earlier adoption should be in the first interim period if an entity issues interim financial statements. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

F-23

Table of Contents
Index to Financial Statements

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).” The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU do not provide a definition of restricted cash or restricted cash equivalents. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated cash flow statement.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The amendments in this ASU modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2019 including any interim periods within that reporting period where goodwill impairment tests are performed. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating this guidance to determine the impact on its consolidated financial position, results of operations or cash flows.
In February 2017, the FASB issued ASU No. 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” The FASB is issuing this ASU to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. The amendments in this ASU will require all entities to account for the derecognition of a business or nonprofit activity in accordance with Topic 810. The amendments also eliminate several accounting differences between transactions involving assets and transactions involving businesses. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017. Public entities may apply the guidance earlier but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In March 2017, the FASB issued ASU No. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This ASU shortens the amortization period for certain purchased callable debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating this guidance to determine the impact on its consolidated financial position, results of operations or cash flows.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting.” This ASU provides clarity when applying the guidance in Topic 718, specifically relating to a modification of a share-based payment award. Entities should treat changes as modifications unless the fair value, vesting conditions, and classification of the modified awards are unchanged from the conditions immediately before the change. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

F-24

Table of Contents
Index to Financial Statements

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” This ASU improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and makes certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating this guidance to determine the impact on its consolidated financial position, results of operations or cash flows.
In February 2018, the FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”  This ASU seeks to help entities reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (Tax Reform Act), enacted on December 22, 2017.  ASU 2018-02 was issued in response to concerns regarding current guidance in GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income, rather than net income, and as a result the stranded tax effects would not reflect the appropriate tax rate.  The amendments of ASU 2018-02 allow an entity to make a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects, which is the difference between the historical corporate income tax rate of 35.0% and the newly enacted corporate income tax rate of 21.0%.  The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 31, 2018; however, public business entities are allowed to early adopt the amendments of ASU 2018-02 in any interim period for which the financial statements have not yet been issued.  The amendments of ASU 2018-02 may be applied either at the beginning of the period (annual or interim) of adoption or retrospectively to each of the period(s) in which the effect of the change in the U.S. federal corporate tax rate in the Tax Reform Act is recognized.  As a result of the re-measurement of the Company’s deferred tax assets following the enactment of the Tax Reform Act, accumulated other comprehensive income included $1.9 million of stranded tax effects at December 31, 2017.  The Company intends to early adopt the amendments of ASU 2018-02 during the first quarter of 2018 and plans to make an election to reclassify the stranded tax effects from accumulated other comprehensive income to retained earnings at the beginning of the period of adoption.  Disclosures required by the amendments of ASU 2018-02 will be presented in the Quarterly Report on Form 10-Q for the period ending March 31, 2018.  Adoption of ASU 2018-02 is not expected to have a material impact on the Company’s consolidated financial statements.
NOTE 2. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and approximate fair values of securities available for sale are as follows:
 
Amortized
Cost
 
Unrealized
 
Fair
Value
December 31, 2017
 
Gains
 
Losses
 
 
(Dollars in thousands)
Available for sale:
 
 
 
 
 
 
 
U.S. Government agencies and sponsored enterprises obligations
$
43,471

 
$
38

 
$
671

 
$
42,838

U.S. Government agencies and sponsored enterprises mortgage-backed securities
600,310

 
1,716

 
6,789

 
595,237

State and municipal obligations
26,766

 
125

 
719

 
26,172

Asset-backed securities
608,340

 
2,306

 
100

 
610,546

Corporate bonds and other debt securities
738,994

 
18,222

 
1,313

 
755,903

Preferred stock and other equity securities
88,520

 
2,279

 
692

 
90,107

Total available for sale
$
2,106,401

 
$
24,686

 
$
10,284

 
$
2,120,803


F-25

Table of Contents
Index to Financial Statements

 
Amortized
Cost
 
Unrealized
 
Fair
Value
December 31, 2016
 
Gains
 
Losses
 
 
(Dollars in thousands)
Available for sale:
 
 
 
 
 
 
 
U.S. Government agencies and sponsored enterprises obligations
$
16,512

 
$
76

 
$
274

 
$
16,314

U.S. Government agencies and sponsored enterprises mortgage-backed securities
566,377

 
1,760

 
9,691

 
558,446

State and municipal obligations
28,109

 
148

 
578

 
27,679

Asset-backed securities
574,521

 
3,852

 
550

 
577,823

Corporate bonds and other debt securities
560,191

 
4,490

 
5,387

 
559,294

Preferred stock and other equity securities
137,228

 
814

 
1,164

 
136,878

Total available for sale
$
1,882,938

 
$
11,140

 
$
17,644

 
$
1,876,434

As part of the Company’s liquidity management strategy, the Company pledges loans and securities to secure borrowings from the FHLB and the FRB. The Company also pledges securities to collateralize repurchase agreements and interest rate swaps. Additionally, the Company has a Letter of Credit with the FHLB to collateralize public funds. The carrying value of all pledged securities totaled $834.9 million and $594.0 million at December 31, 2017 and 2016, respectively.
The amortized cost and estimated fair value of securities available for sale, by contractual maturity, are as follows:
 
Amortized
Cost
 
Fair
Value
December 31, 2017
 
 
(Dollars in thousands)
Available for sale:
 
 
 
Due in one year or less
$
58,061

 
$
58,605

Due after one year through five years
225,134

 
228,557

Due after five years through ten years
177,272

 
177,697

Due after ten years
305,293

 
317,216

U.S. Government agencies and sponsored enterprises obligations, mortgage-backed securities and tax-exempt mortgage securities, and asset-backed securities
1,252,121

 
1,248,621

Preferred stock and other equity securities
88,520

 
90,107

Total available for sale
$
2,106,401

 
$
2,120,803

For purposes of the maturity table, U.S. Government agencies and sponsored enterprises obligations, agency mortgage-backed securities and asset-backed securities, the principal of which are repaid periodically, are presented as a single amount. The expected lives of these securities will differ from contractual maturities because borrowers may have the right to prepay the underlying loans with or without prepayment penalties.

F-26

Table of Contents
Index to Financial Statements

The following tables present the estimated fair values and gross unrealized losses on investment securities available for sale, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position as of the periods presented:
 
Less than 12 Months
 
12 Months or More
 
Total
December 31, 2017
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
(Dollars in thousands)
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and sponsored enterprises obligations
$
31,518

 
$
268

 
$
7,157

 
$
403

 
$
38,675

 
$
671

U.S. Government agencies and sponsored enterprises mortgage-backed securities
207,735

 
1,836

 
175,810

 
4,953

 
383,545

 
6,789

State and municipal obligations
192

 
2

 
23,813

 
717

 
24,005

 
719

Asset-backed securities
36,542

 
100

 

 

 
36,542

 
100

Corporate bonds and other debt securities
186,052

 
1,240

 
10,842

 
73

 
196,894

 
1,313

Preferred stock and other equity securities
6,041

 
26

 
20,337

 
666

 
26,378

 
692

Total available for sale
$
468,080

 
$
3,472

 
$
237,959

 
$
6,812

 
$
706,039

 
$
10,284

 
Less than 12 Months
 
12 Months or More
 
Total
December 31, 2016
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
(Dollars in thousands)
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and sponsored enterprises obligations
$
11,577

 
$
274

 
$

 
$

 
$
11,577

 
$
274

U.S. Government agencies and sponsored enterprises mortgage-backed securities
372,145

 
9,261

 
11,781

 
430

 
383,926

 
9,691

State and municipal obligations
25,490

 
578

 

 

 
25,490

 
578

Asset-backed securities
11,309

 
21

 
34,855

 
529

 
46,164

 
550

Corporate bonds and other debt securities
179,925

 
3,042

 
77,934

 
2,345

 
257,859

 
5,387

Preferred stock and other equity securities
49,996

 
1,144

 
5,123

 
20

 
55,119

 
1,164

Total available for sale
$
650,442

 
$
14,320

 
$
129,693

 
$
3,324

 
$
780,135

 
$
17,644

At December 31, 2017, the Company’s security portfolio consisted of 352 securities, of which 143 securities were in an unrealized loss position. A total of 85 were in an unrealized loss position for less than 12 months. The unrealized losses for these securities resulted primarily from changes in interest rates and spreads.
The Company monitors its investment securities for OTTI. Impairment is evaluated on an individual security basis considering numerous factors, and their relative significance. The Company has evaluated the nature of unrealized losses in the investment securities portfolio to determine if OTTI exists. The unrealized losses relate to changes in market interest rates and market conditions that do not represent credit-related impairments. Furthermore, the Company does not intend to sell nor is it more likely than not that it will be required to sell these investments before the recovery of their amortized cost basis. Management has completed an assessment of each security in an unrealized loss position for credit impairment and has determined that no individual security was other-than-temporarily impaired at December 31, 2017 or 2016. The following describes the basis under which the Company has evaluated OTTI:

F-27

Table of Contents
Index to Financial Statements

U.S. Government Agencies and Sponsored Enterprises Obligations and Agency Mortgage-Backed Securities (“MBS”):
The unrealized losses associated with U.S. Government agencies and sponsored enterprises obligations and agency MBS are primarily driven by changes in interest rates. These securities have either an explicit or implicit U.S. government guarantee.
Asset-Backed Securities and Corporate Bonds & Other Debt Securities:
Securities were generally underwritten in accordance with the Company’s investment standards prior to the decision to purchase, without relying on a bond issuer’s guarantee in making the investment decision. These investments are investment grade and will continue to be monitored as part of the Company’s ongoing impairment analysis, but are expected to perform in accordance with their terms.
Preferred Stock and Other Equity Securities:
The unrealized losses associated with preferred stock and other equity securities in large U.S. financial institutions are primarily driven by changes in interest rates and spreads. These securities were generally underwritten in accordance with the Company’s investment standards prior to the decision to purchase.
Gross realized gains and losses on the sale of securities available for sale are shown below. The cost of securities sold is based on the specific identification method.
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(Dollars in thousands)
Gross realized gains
$
4,364

 
$
3,645

 
$
2,065

Gross realized losses
(5,252
)
 
(2,066
)
 
(1,047
)
Net realized gains (losses)
$
(888
)

$
1,579

 
$
1,018

NOTE 3. LOANS, NET
The Company’s loan portfolio consists of New and Acquired loans. The Company classifies originated loans and purchased loans not acquired through business combinations as New loans. The Company classifies loans acquired through business combinations as Acquired loans. All acquired loans not specifically excluded under ASC 310-30 are accounted for under ASC 310-30. The remaining portfolio of acquired loans excluded under ASC 310-30 are accounted for under ASC 310-20 and are classified as Non-ASC 310-30 loans.

F-28

Table of Contents
Index to Financial Statements

The following tables summarize the Company’s loans by portfolio and segment as of the periods presented, net of deferred fees, costs, premiums and discounts:
December 31, 2017
ASC
310-30
Loans
 
Non-ASC
310-30
Loans
 
New
Loans (1)
 
Total
 
(Dollars in thousands)
Real estate loans:
 
 
 
 
 
 
 
Commercial real estate
$
104,335

 
$
37,736

 
$
2,103,788

 
$
2,245,859

Owner-occupied commercial real estate

 
16,100

 
987,781

 
1,003,881

1-4 single family residential
27,513

 
57,695

 
2,185,362

 
2,270,570

Construction, land and development
13,167

 
5,889

 
684,462

 
703,518

Home equity loans and lines of credit

 
34,589

 
59,636

 
94,225

Total real estate loans
$
145,015

 
$
152,009

 
$
6,021,029

 
$
6,318,053

Other loans:
 
 
 
 
 
 
 
Commercial and industrial
$
12,631

 
$
5,062

 
$
1,634,372

 
$
1,652,065

Consumer
1,423

 
259

 
5,984

 
7,666

Total other loans
14,054

 
5,321

 
1,640,356