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Section 1: 8-K (FORM 8-K)


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

June 24, 2019
Date of Report
(Date of earliest event reported)

SYNOVUS FINANCIAL CORP.
(Exact Name of Registrant as Specified in its Charter)

Georgia
1-10312
58-1134883
 (State of incorporation)  (Commission File Number)  (IRS Employer Identification No.)

1111 Bay Avenue, Suite 500, Columbus, Georgia 31901
(Address of principal executive offices) (Zip Code)

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

_____________________________________
(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))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $1.00 Par Value
SNV
New York Stock Exchange
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D
SNV-PrD
New York Stock Exchange

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 8.01
Other Events.

As previously reported, on January 1, 2019, Synovus Financial Corp. (“Synovus”) completed its merger with FCB Financial Holdings, Inc. (“FCB”), pursuant to which FCB was ultimately merged with and into Synovus, with Synovus continuing as the surviving entity (the “Merger”).  Synovus is filing this Current Report in order to provide historical audited financial information with respect to FCB as of and for the year ended December 31, 2018, and certain unaudited pro forma financial information giving effect to the Merger as though it had been completed on the date set forth in such information.

Item 9.01
Financial Statements and Exhibits.

(a)
Financial Statements of Business Acquired

The audited consolidated financial statements of FCB as of December 31, 2018 and for the year ended December 31, 2018, as well as the accompanying notes thereto and the related Report of Independent Registered Public Accounting Firm, are filed hereto as Exhibit 99.1.

(b)
Pro Forma Financial Information

The unaudited pro forma combined condensed consolidated statement of income for the year ended December 31, 2018, giving effect to the Merger as if it occurred on January 1, 2018, is filed hereto as Exhibit 99.2.

(d)
Exhibits

Consent of Grant Thornton LLP.
   
Audited consolidated financial statements of FCB as of and for the year ended December 31, 2018.
   
Unaudited pro forma combined condensed consolidated statement of income for the year ended December 31, 2018, giving effect to the Merger as if it occurred on January 1, 2018.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
SYNOVUS FINANCIAL CORP.
     
Dated: June 24, 2019
By:
/s/ Allan E. Kamensky
   
Allan E. Kamensky
   
Executive Vice President, General Counsel and Secretary


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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 21, 2019 with respect to the consolidated financial statements and internal control over financial reporting of FCB Financial Holdings, Inc. included in the Current Report of Synovus Financial Corp on Form 8-K filed on June 24, 2019, which are incorporated by reference in this Registration Statement.  We consent to the incorporation by reference of the aforementioned reports in the Registration Statements of Synovus Financial Corp. on Forms S-3 (File No. 333-212916 and File No. 333-219862) and Forms S-8 (File No. 333-143035, File No. 333-187464, File No. 333-187465 and File No. 333-188254), and to the use of our name as it appears under the caption “Experts.”

/s/ GRANT THORNTON LLP
Fort Lauderdale, Florida
June 24, 2019



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Section 3: EX-99.1 (EXHIBIT 99.1)


Exhibit 99.1

 
Financial Statements and Report of Independent Registered Public Accounting Firm
 
FCB Financial Holdings, Inc.
 
December 31, 2018
 

Contents
 
Management’s Assessment of Internal Control over Financial Reporting
1
 
 
Reports of Independent Registered Public Accounting Firm
2 - 5
 
 
Consolidated Balance Sheets as of December 31, 2018 and 2017
6
 
 
Consolidated Statements of Income for the Years Ended December 31, 2018, and 2017 and 2016
7
 
 
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2018, 2017 and 2016
8
 
 
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2018, 2017 and 2016
9
 
 
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016
10 - 11
 
 
Notes to Consolidated Financial Statements
12 - 79

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 fmancial 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 fmancial statements.
 
Because of its inherent limitations, internal control over fmancial 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 ofthe effectiveness of internal control over fmancial reporting. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, 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, 2018, 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, 2018, has been audited by Grant Thornton LLP, an independent public accounting firm, as stated in their report dated February 21, 2019.
     
   
FCB FINANCIAL HOLDINGS, INC.
     
   
Date:
February 21, 2019
 
   
Kent S. Ellert
   
President and Chief Executive Officer
   
(Principal Executive Officer)
     

   
Date:
February 21, 2019
 
    Jack Partagas
   
Senior Vice President and Chief Financial Officer
   
(Principal Financial Officer and
   
Principal Accounting Officer)


 
     
     
GRANT THORNTON LLP
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
1301 International Parkway, Suite 300
   
Fort Lauderdale, FL 33323
   
     
D     +1 954 768 9900
   
F     +1 954 768 9908
   
S     linkedin/grantthorntonus
 
Board of Directors and Stockholders
       twitter.com/granthorntonus
 
     
   
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, 2018 and 2017, 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, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, 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”), and in accordance with auditing standards generally accepted in the United States of America the Company’s internal control over financial reporting as of December 31, 2018, 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 21, 2019 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 U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
     
   
     
     
GT.COM
 
Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and each of its member firms are separate legal entities and are not a worldwide partnership.

 
   
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. 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 include 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.
     
   
     
   
We have served as the Company’s auditor since 2010.
     
   
Fort Lauderdale, Florida
   
February 21, 2019
 

     
     
GRANT THORNTON LLP
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
1301 International Parkway, Suite 300
   
Fort Lauderdale, FL 33323
   
     
D     +1 954 768 9900
   
F     +1 954 768 9908
   
S     linkedin/grantthorntonus
 
Board of Directors and Stockholders
       twitter.com/granthorntonus
   
     
   
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, 2018, 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, 2018, 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”), and in accordance with auditing standards generally accepted in the United States of America the consolidated financial statements of the Company as of and for the year ended December 31, 2018, and our report dated February 21, 2019 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 and in accordance with auditing standards generally accepted in the United States of America. 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.
     
     
 GT.COM   Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and each of its member firms are separate legal entities and are not a worldwide partnership.

 
   
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. 
     
   
     
 
Fort Lauderdale, Florida
February 21, 2019
 


FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
(Dollars in thousands, except share and per share data)
 
   
December 31,
 
   
2018
   
2017
 
Assets:
           
Cash and due from banks
 
$
54,550
   
$
60,787
 
Interest-earning deposits in other banks
   
171,726
     
55,134
 
Investment securities:
               
Available for sale debt securities, at fair value
   
2,304,509
     
2,030,696
 
Preferred stock and other equity securities, at fair value
   
12,727
     
90,107
 
Federal Home Loan Bank and other bank stock, at cost
   
40,412
     
56,881
 
Total investment securities
   
2,357,648
     
2,177,684
 
Loans held for sale
   
1,111
     
12,736
 
Loans:
               
New loans
   
8,770,177
     
7,661,385
 
Acquired loans
   
653,996
     
316,399
 
Allowance for loan losses
   
(50,910
)
   
(47,145
)
Loans, net
   
9,373,263
     
7,930,639
 
Premises and equipment, net
   
42,770
     
36,144
 
Other real estate owned
   
10,243
     
14,906
 
Goodwill
   
139,529
     
81,204
 
Core deposit intangible
   
6,843
     
3,668
 
Deferred tax assets, net
   
44,302
     
27,043
 
Bank-owned life insurance
   
216,848
     
201,069
 
Other assets
   
106,973
     
76,065
 
Total assets
 
$
12,525,806
   
$
10,677,079
 
Liabilities and Stockholders’ Equity
               
Liabilities:
               
Deposits:
               
Transaction accounts:
               
Noninterest-bearing
 
$
1,516,583
   
$
1,236,685
 
Interest-bearing
   
4,653,103
     
4,830,525
 
Total transaction accounts
   
6,169,686
     
6,067,210
 
Time deposits
   
4,718,487
     
2,606,717
 
Total deposits
   
10,888,173
     
8,673,927
 
Borrowings (including FHLB advances of $150,000 and $670,000, respectively)
   
179,139
     
749,113
 
Other liabilities
   
55,942
     
74,867
 
Total liabilities
   
11,123,254
     
9,497,907
 
Commitments and contingencies (Note 17)
               
Stockholders’ Equity:
               
Class A common stock, par value $0.001 per share; 100 million shares authorized; 49,563,735, 47,065,593 issued and 46,806,641, 44,371,104 outstanding
   
50
      47  
Class B common stock, par value $0.001 per share; 50 million shares authorized; 192,132, 192,132 issued and 0, 0 outstanding
   
     
 
Additional paid-in capital
   
1,042,142
     
933,960
 
Retained earnings
   
481,057
     
313,645
 
Accumulated other comprehensive income (loss)
   
(43,324
)
   
8,893
 
Treasury stock, at cost; 2,757,094, 2,694,489 Class A and 192,132, 192,132 Class B common  shares
   
(77,373
   
(77,373
Total stockholders’ equity
   
1,402,552
     
1,179,172
 
Total liabilities and stockholders’ equity
 
$
12,525,806
   
$
10,677,079
 
 
The accompanying notes are an integral part of these consolidated financial statements
Page 6 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share and per share data)
 
   
Years Ended December 31,
 
   
2018
   
2017
   
2016
 
Interest income:
                 
Interest and fees on loans
 
$
401,413
   
$
295,400
   
$
258,261
 
Interest and dividends on investment securities
   
93,145
     
78,176
     
60,706
 
Other interest income
   
2,169
     
525
     
349
 
Total interest income
   
496,727
     
374,101
     
319,316
 
Interest expense:
                       
Interest on deposits
   
125,128
     
66,066
     
44,329
 
Interest on borrowings
   
11,011
     
12,583
     
7,271
 
Total interest expense
   
136,139
     
78,649
     
51,600
 
Net interest income
   
360,588
     
295,452
     
267,716
 
Provision for loan losses
   
16,485
     
9,415
     
7,655
 
Net interest income after provision for loan losses
   
344,103
     
286,037
     
260,061
 
Noninterest income:
                       
Service charges and fees
   
4,797
     
3,736
     
3,467
 
Loan and other fees
   
15,704
     
11,415
     
8,895
 
Bank-owned life insurance income
   
5,654
     
5,647
     
5,192
 
Income from resolution of acquired assets
   
1,196
     
1,973
     
3,345
 
Gain (loss) on sales of other real estate owned
   
109
     
(176
)
   
3,126
 
Gain (loss) on investment securities and extinguishment of debt, net
   
1,374
     
1,933
     
1,819
 
Other noninterest income
   
4,657
     
10,488
     
3,873
 
Total noninterest income
   
33,491
     
35,016
     
29,717
 
Noninterest expense:
                       
Salaries and employee benefits
   
91,533
     
84,830
     
76,231
 
Occupancy and equipment expenses
   
15,693
     
13,463
     
13,591
 
Loan and other real estate related expenses
   
3,757
     
3,623
     
7,356
 
Professional services
   
8,935
     
5,940
     
5,207
 
Data processing and network
   
15,013
     
12,565
     
11,461
 
Regulatory assessments and insurance
   
10,533
     
8,971
     
7,872
 
Amortization of intangibles
   
1,405
     
1,023
     
1,189
 
Marketing and promotions
   
6,099
     
4,587
     
3,851
 
Other operating expenses
   
7,664
     
6,692
     
7,199
 
Total noninterest expense
   
160,632
     
141,694
     
133,957
 
Income before income tax expense
   
216,962
     
179,359
     
155,821
 
Income tax expense
   
48,824
     
54,165
     
55,905
 
Net income
 
$
168,138
   
$
125,194
   
$
99,916
 
Earnings per share:
                       
Basic
 
$
3.63
   
$
2.92
   
$
2.45
 
Diluted
 
$
3.47
   
$
2.71
   
$
2.31
 
Weighted average shares outstanding:
                       
Basic
   
46,343,401
     
42,887,142
     
40,716,588
 
Diluted
   
48,429,925
     
46,120,930
     
43,225,164
 
 
The accompanying notes are an integral part of these consolidated financial statements
Page 7 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
 
 
 
Years Ended December 31,
 
 
 
2018
   
2017
   
2016
 
Net income
 
$
168,138
   
$
125,194
   
$
99,916
 
Other comprehensive income (loss):
                       
Net unrealized holding gains (losses) on investment securities available for sale, net of taxes of $16,917, $(9,244), and $(4,467), respectively
   
(50,883
)
   
14,868
     
7,115
 
Reclassification adjustment for realized (gains) losses on investment securities available for sale included in net income, net of taxes of $(186), $1,226, and $1,048, respectively
   
559
     
(1,980
)
   
(1,667
)
Cumulative adjustment from adoption of new accounting standards (1)
   
726
     
     
 
Net change in unrealized gains (losses) on available for sale debt securities
   
(49,598
)
   
12,888
     
5,448
 
Unrealized losses on derivative instruments:
                       
Net unrealized holding loss on derivative instrument, net of taxes of $871, $0, and $0, respectively
   
(2,619
)
   
     
 
Net change in unrealized loss on derivative instrument
   
(2,619
)
   
     
 
Net change in accumulated other comprehensive income (loss)
 
$
(52,217
)
 
$
12,888
   
$
5,448
 
Total comprehensive income
 
$
115,921
   
$
138,082
   
$
105,364
 
 

(1) Includes adjustments from adoption of ASU 2016-01 and ASU 2018-02. See Note 1 for additional information.
 
The accompanying notes are an integral part of these consolidated financial statements
Page 8 of 79

 
 

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands, except for share data)

 

Accumulated





Common Stock

Common Stock

Additional







Other

Total


Shares Outstanding

Issued

Paid in

Retained

Treasury

Comprehensive

Stockholders


Class A

Class B

Class A

Class B

Capital

Earnings

Stock

Income (loss)

Equity
Balance as of January 1, 2016
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 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 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
Net income 168,138 168,138
Cumulative effects of adoption of accounting standards (1) (726 ) 726
Stock issued in connection with acquisition, net of issuance cost 1,754,362 2 94,120 94,122
Stock-based compensation and warrant expense 9,053 9,053
Stock issued in connection with equity awards and warrants 743,780 1 8,439 8,440
Shares surrendered for tax withholding obligations (62,605 ) (3,048 ) (3,048 )
Other (382 ) (382 )
Other comprehensive loss (52,943 ) (52,943 )
Balance as of December 31, 2018
46,806,641 $ 50 $ $ 1,042,142 $ 481,057 $ (77,373 ) $ (43,324 ) $ 1,402,552

 


(1) Includes $1.0 million from adoption of ASU 2016-01 and $(1.7) million from adoption of ASU 2018-02. See Note 1 for additional information.

 

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

Page 9 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

 

Years Ended December 31,


2018

2017

2016
Cash Flows From Operating Activities:
Net income (loss) $ 168,138 $ 125,194 $ 99,916
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses 16,485 9,415 7,655
Amortization of intangible assets 1,405 1,023 1,189
Depreciation and amortization of premises and equipment 3,770 3,618 3,583
Amortization of discount on loans (3,068 ) (1,265 ) (930 )
Net amortization (accretion) of premium (discount) on investment securities 2,406 2,166 1,586
Net amortization (accretion) of premium (discount) on time deposits (253 ) (50 )
Net amortization (accretion) on FHLB advances and other borrowings (846 ) (2,635 )
Impairment of other real estate owned 1,223 670 1,751
Impairment of fixed assets HFS 110 48
(Gain) loss on available for sale debt securities 2,819 (1,933 ) (1,819 )
(Gain) loss on sale of loans (782 ) (4,860 ) (1,635 )
(Gain) loss on sale of other real estate owned (109 ) 176 (3,126 )
(Gain) loss on debt extinguishment (6,255 )
Unrealized (gain) loss on preferred stock and equity securities 2,062
(Gain) loss on sale of premises and equipment 185 (34 ) 48
Deferred tax expense 5,655 26,329 10,364
Stock-based compensation and warrant expense 9,053 8,038 5,613
Increase in cash surrender value of BOLI (5,654 ) (5,647 ) (5,192 )
Net change in operating assets and liabilities:
Net change in loans held for sale 1,644 9,535 (16,071 )
Net change in other assets (18,463 ) (14,112 ) 8,499
Net change in other liabilities (8,519 ) 6,679 (10,717 )
Net cash provided by (used in) operating activities 171,852 164,146 98,077
Cash Flows From Investing Activities:
Purchase of equity securities (56 ) (6,051 ) (72,989 )
Purchase of available for sale debt securities (820,279 ) (878,681 ) (677,493 )
Sales of equity investment securities 75,373 54,759 106,933
Sales of available for sale debt securities 112,145 168,967 235,204
Paydown and maturities of available for sale debt securities 358,920 451,974 89,421
Purchase of FHLB and other bank stock (99,058 ) (178,578 ) (113,362 )
Sales of FHLB and other bank stock 118,968 173,353 121,183
Cash received in acquisition 16,656
Net change in loans (1,041,587 ) (1,601,014 ) (1,357,875 )
Purchase of loans (8,543 ) (11,867 ) (200,480 )
Proceeds from sale of loans 30,285 271,854 106,450
Page 10 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – (CONTINUED)

(Dollars in thousands)

 

Years Ended December 31,


2018

2017

2016
Purchase of bank-owned life insurance (25,000 )
Proceeds from sale of other real estate owned 4,112 5,520 34,274
Purchase of premises and equipment (8,333 ) (3,163 ) (4,925 )
Proceeds from the sale of premises and equipment 1,067 87 1,548
Capitalized expenditures on foreclosed real estate (543 )
Proceeds from life insurance 365 3,016
Net cash provided by (used in) investing activities (1,259,965 ) (1,549,824 ) (1,757,654 )
Cash Flows From Financing Activities:
Net change in deposits 1,832,166 1,368,256 1,875,083
Net change in FHLB advances and other borrowings (585,149 ) 77,750 (214,250 )
Net change in repurchase agreements (51,959 ) (78,894 ) (15,195 )
Repurchase of stock (23,738 )
Cash paid for witholding taxes on share based payments (4,648 )
Exercise of stock options 8,440 50,670 17,042
Excess tax benefit from share-based payments 2,110
Other financing costs (382 ) (59 ) (59 )
Net cash provided by (used in) financing activities 1,198,468 1,417,723 1,640,993
Net Change in Cash and Cash Equivalents 110,355 32,045 (18,584 )
Cash and Cash Equivalents at Beginning of Period 115,921 83,876 102,460
Cash and Cash Equivalents at End of Period $ 226,276 $ 115,921 $ 83,876
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 132,156 $ 77,859 $ 50,631
Income taxes paid 40,729 19,719 60,192
Supplemental disclosure of noncash investing and financing activities:
Transfer of loans to other real estate owned $ 462 $ 2,044 $ 12,244
Transfer from loans held for sale to portfolio loans 10,683
(Purchase) sale of investment securities settled in subsequent period, net 38,452 (14,664 ) (23,788 )
See Note 2 regarding non-cash transactions included in the acquisition

 

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

Page 11 of 79


 
FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Nature of Operations
 
The Company is a national bank holding company with two wholly-owned subsidiaries: (i) Florida Community Bank, N.A., a national bank (“Florida Community Bank” or the “Bank”); and (ii) Floridian Custody Services, Inc. (“Custody Services”). Florida Community Bank, headquartered in Weston, Florida, offers a comprehensive range of traditional banking products and services to individual and corporate customers through 52 banking centers located in Florida. Custody Services, headquartered in Davie, Florida, provides clearing and custodian services to deposit brokers and their clients.

On July 24, 2018, the Company announced the entry into a definitive merger agreement under which it would be acquired by Columbus, Georgia based Synovus Financial Corp. (“Synovus”). Under the terms of the merger agreement, the Company’s shareholders received a fixed ratio of 1.055 shares of Synovus common stock for each common share of the Company in an all-stock transaction. The merger agreement was unanimously approved by both companies’ Boards of Directors and approved by the shareholders of both companies and by state and federal bank regulators. The transaction closed on January 1, 2019.
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, Custody Services and Florida Community 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.
 
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FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
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.

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, 2018 or 2017.

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, 2018 or 2017.
Page 13 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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.

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.
Page 14 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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.

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.
Page 15 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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 seven ASC 310-30 pools whose carrying value had been reduced to zero as of December 31, 2018. These pools had an aggregate Unpaid Principal Balance (“UPB” or “UPBs”) of $330 thousand as of December 31, 2018. For the year ended December 31, 2018, the Company sold approximately $600 thousand 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 $120 thousand 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, 2017. These pools had an aggregate UPB 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.

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.

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.
Page 16 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
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.

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.
 
Page 17 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
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.
 
Page 18 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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 generally 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.

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.
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FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
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, 2018, 2017 or 2016.

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 subsidiaries, the Bank and Custody Services. 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.
 
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FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
Management periodically reviews contracts from various functional areas of the Company to identify potential derivatives embedded within selected contracts. As of December 31, 2018, 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.

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.
 
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FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
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.

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 May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which superseded 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. This guidance should be applied to all contracts with customers except those that are within the scope of other standards. This ASU became effective for the quarter ended March 31, 2018. The Company elected to adopt the new guidance under the modified retrospective approach. 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 did not have a material impact upon adoption. In addition, the adoption of this guidance did not result in any material changes to the method of revenue recognition on the components of noninterest income. Accordingly, the adoption of this guidance did not 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. 2016-10, “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)”. This ASU became effective for the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
 
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FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
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)”. This ASU became effective for the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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.
 
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. This ASU became effective for the quarter ended March 31, 2018. As of January 1, 2018, the Company had equity securities in a net pre-tax unrealized gain position of $1.6 million for which $1.0 million, the tax effected balance, was reclassified from other comprehensive income to beginning retained earnings at adoption.

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. This ASU became effective for the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
Page 23 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
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. This ASU became effective for the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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. This ASU became effective for the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company’s 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. This ASU became effective for the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company’s 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. This ASU became effective for the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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. The Company early adopted ASU 2017-12 during the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company’s 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. ASU 2018-02 allows 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 ASU 2018-02 in any interim period for which the financial statements have not yet been issued. 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 $1.7 million of stranded tax effects at December 31, 2017. The Company early adopted ASU 2018-02 during the quarter ended March 31, 2018 and made the election to reclassify the stranded tax effects from accumulated other comprehensive income to retained earnings at the beginning of the period of adoption.
Page 24 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Recent Issued Accounting Pronouncements

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 anticipates the adoption of this guidance will result in the recognition of a right of use asset and corresponding lease liability and an immaterial impact in the results of operations and cash flows.

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.
Page 25 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
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 January 2018, the FASB issued ASU No. 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842.” This ASU provides an optional transition practical expedient to not evaluate under Topic 842, existing or expired land easements that were not previously accounted for as leases under the current leases guidance in Topic 840. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date that the entity adopts Topic 842. An entity that does not elect this practical expedient should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. The amendments in this guidance affect the amendments in ASU 2016-02, which are not yet effective but may be early adopted. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02. An entity that early adopted Topic 842 should apply the amendments in this ASU upon issuance. Management does not intend to early adopt this guidance. 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 June 2018, the FASB issued ASU 2018-07, “Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” The amendments of this ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. 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 July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements.” The amendments of this ASU provide another transition method for the adoption of the new leases standard. Currently, entities are required to adopt the new leases standard using a modified retrospective transition method. The amendments of this ASU provide another transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Additionally, this ASU also provides lessors a practical expedient to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees. The amendments related to separating components of a contract affect the amendments in ASU 2016-02, which are not yet effective but can be early adopted. For entities that have not adopted Topic 842 before the issuance of this ASU, the effective date and transition requirements for the amendments in this ASU related to separating components of a contract are the same as the effective date and transition requirements in ASU 2016-02. Management does not intend to early adopt this guidance. 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.
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FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments of this ASU modify the disclosure requirements about recurring or nonrecurring fair value measurements required under Topic 820, Fair Value Measurement, and require additional disclosures related to unrealized gains and losses included in other comprehensive income. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this ASU. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. 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 August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period, for all entities. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. 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.

NOTE 2. BUSINESS ACQUISITIONS

On March 1, 2018, the Company acquired 100% of the outstanding common stock of Floridian Community Holdings, Inc., (“Floridian”) the parent company of Floridian Community Bank and Floridian Custody Services, Inc. Under the terms of the acquisition, each share of Floridian common stock was converted into 0.4584 shares of FCB Class A common stock at the effective date. A total of 1,754,362 shares of FCB Class A common stock were issued to holders of Floridian common stock. The Company also paid cash of $7 thousand for fractional shares resulting from the application of the exchange ratio. In addition, the Company incurred a liability of $5.2 million related to Floridian’s outstanding stock options that were settled in cash subsequent to the acquisition. The Floridian acquisition (i) expanded the Company’s business within demographically attractive markets in southeast Florida; (ii) increased the Company’s core deposit base, an important funding source; and (iii) provided the opportunity to sell the Company’s broad array of products to Floridians’ client base, among other benefits. The results of operations were included in the Company’s results beginning on March 1, 2018, the date of acquisition. The fair value of the common shares issued as part of the consideration paid for Floridian was determined using the closing price of the Company’s common shares on February 28, 2018. Floridian had total assets of $506.8 million, total liabilities of $465.8 million and operated 5 full-service branches in South Florida as of March 1, 2018. Goodwill of $58.3 million was recognized in the transaction. None of the goodwill recognized is expected to be deductible for income tax purposes.

The Company determined that the acquisition of Floridian constituted a business combination as defined by ASC Topic 805, “Business Combinations”. The acquisition was not considered to be a significant business combination. The assets acquired and liabilities assumed were recorded at their fair values on the date of acquisition. Fair values were determined in accordance with the guidance provided in ASC Topic 820, “Fair Value Measurements”. In many cases, the determination of fair value required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. The Company utilized the assistance of third-party advisors in the determination of fair value for loans, deposits, other real estate owned and deferred tax assets acquired.
 
During the quarter ended September 30, 2018, the Company finalized its valuation of the Floridian acquisition.
Page 27 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
The following table presents a summary of the assets acquired and liabilities assumed in the Floridian acquisition recorded at fair value:
 
 
 
Acquisition Date Fair Value
 
       
 
 
(Dollars in thousands)
 
Consideration transferred:
     
Common stock issued
 
$
94,122
 
Liability incurred related to settlement of outstanding stock options
   
5,198
 
Total consideration transferred
   
99,320
 
Fair value of assets acquired:
       
Cash and cash equivalents
   
16,656
 
Investment securities
   
38,772
 
Loans
   
425,894
 
Other real estate owned
   
111
 
Core deposit intangible
   
4,580
 
Fixed assets
   
3,425
 
Deferred tax asset, net
   
4,804
 
Bank-owned life insurance
   
10,489
 
Other assets
   
2,104
 
Total identifiable assets acquired
   
506,835
 
Fair value of liabilities assumed:
       
Deposits
   
382,333
 
FHLB advances and other borrowings
   
73,389
 
Other liabilities
   
10,118
 
Total liabilities assumed
   
465,840
 
Fair value of net assets acquired
   
40,995
 
Goodwill resulting from acquisition
 
$
58,325
 
 
On July 24, 2018, the Company announced the entry into a definitive merger agreement under which it would be acquired by Columbus, Georgia based Synovus Financial Corp. (“Synovus”). Under the terms of the merger agreement, the Company’s shareholders received a fixed ratio of 1.055 shares of Synovus common stock for each common share of the Company in an all-stock transaction. The merger agreement was unanimously approved by both companies’ Boards of Directors and approved by the shareholders of both companies and by state and federal bank regulators. The transaction closed on January 1, 2019.
Page 28 of 79

 

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

 

NOTE 3. INVESTMENT SECURITIES

 

The amortized cost, gross unrealized gains and losses and approximate fair values of securities available for sale are as follows:

 

    Amortized     Unrealized     Fair  
December 31, 2018   Cost     Gains     Losses     Value  
            (Dollars in thousands)        
Available for sale:                                
U.S. Government agencies and sponsored enterprises obligations   $ 86,870     $ 31     $ 1,020     $ 85,881  
U.S. Government agencies and sponsored enterprises mortgage-backed securities     730,367       3,827       12,477       721,717  
State and municipal obligations     23,472       66       1,422       22,116  
Asset-backed securities     784,329             20,780       763,549  
Corporate bonds and other debt securities     733,710       1,909       24,373       711,246  
Preferred stock and other equity securities     13,203             476       12,727  
Total available for sale   $ 2,371,951     $ 5,833     $ 60,548     $ 2,317,236  

 

    Amortized     Unrealized     Fair  
December 31, 2017   Cost     Gains     Losses     Value  
          (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  

 

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 Letters of Credit with the FHLB to collateralize certain obligations. The carrying value of all pledged securities totaled $860.2 million and $834.9 million at December 31, 2018 and 2017, respectively.

 

The amortized cost and estimated fair value of securities available for sale, by contractual maturity, are as follows:

 

December 31, 2018   Amortized Cost     Fair Value  
    (Dollars in thousands)  
Available for sale:                
Due in one year or less   $     $  
Due after one year through five years     290,685       288,419  
Due after five years through ten years     138,682       135,806  
Due after ten years     327,815       309,137  
U.S. Government agencies and sponsored enterprises obligations, mortgage-backed securities and tax-exempt mortgage securities, and asset-backed securities     1,601,566       1,571,147  
Preferred stock and other equity securities     13,203       12,727  
Total available for sale   $ 2,371,951     $ 2,317,236  
Page 29 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

 

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.

 

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, 2018   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   $ 19,927     $ 73     $ 33,481     $ 947     $ 53,408     $ 1,020  
U.S. Government agencies and sponsored enterprises mortgage-backed securities     108,074       1,745       403,416       10,733       511,490       12,478  
State and municipal obligations                 20,006       1,422       20,006       1,422  
Asset-backed securities     681,484       20,685       6,966       95       688,450       20,780  
Corporate bonds and other debt securities     295,800       17,210       240,065       7,162       535,865       24,372  
Preferred stock and other equity securities                 12,727       476       12,727       476  
Total available for sale
  $ 1,105,285     $ 39,713     $ 716,661     $ 20,835     $ 1,821,946     $ 60,548  

 

    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  

 

At December 31, 2018, the Company’s security portfolio consisted of 333 securities, of which 267 securities were in an unrealized loss position. A total of 114 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.

Page 30 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

 

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, 2018 or 2017. The following describes the basis under which the Company has evaluated OTTI:

 

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,  
    2018     2017     2016  
    (Dollars in thousands)  
Gross realized gains   $ 147     $ 4,364     $ 3,645  
Gross realized losses     (3,661 )     (5,252 )     (2,066 )
Net realized gains (losses)   $ (3,514 )   $ (888 )   $ 1,579  

 

The Company adopted ASU 2016-01 as of January 1, 2018. This guidance requires investments in equity securities with readily determinable fair values to be measured at fair value, with changes in the fair value recognized as a component of noninterest income in the Company’s Consolidated Statements of Income. The Company recognized $2.1 million of unrealized loss in noninterest income during the year ended December 31, 2018 related to equity securities.

 

NOTE 4. 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.

Page 31 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

 

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, 2018   ASC
310-30
Loans
    Non-ASC
310-30
Loans
    New
Loans (1)
    Total  
          (Dollars in thousands)        
Real estate loans:                                
Commercial real estate   $ 131,368     $ 103,099     $ 2,614,327     $ 2,848,794  
Owner-occupied commercial real estate           77,475       1,156,852       1,234,327  
1-4 single family residential     30,551       141,866       2,280,901       2,453,318  
Construction, land and development     26,984       31,241       746,477       804,702  
Home equity loans and lines of credit           38,371       58,954       97,325  
Total real estate loans   $ 188,903     $ 392,052     $ 6,857,511     $ 7,438,466  
Other loans:                                
Commercial and industrial   $ 14,438     $ 44,921     $ 1,909,006     $ 1,968,365  
Consumer     1,138       12,544       3,660       17,342  
Total other loans     15,576       57,465       1,912,666       1,985,707  
Total loans held in portfolio   $ 204,479     $ 449,517     $ 8,770,177     $ 9,424,173  
Allowance for loan losses                             (50,910 )
Loans held in portfolio, net                           $ 9,373,263  

 

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       1,659,731  
Total loans held in portfolio   $ 159,069     $ 157,330     $ 7,661,385     $ 7,977,784  
Allowance for loan losses                             (47,145 )
Loans held in portfolio, net                           $ 7,930,639  

  


(1) Balance includes $(8.6) million and $(6.6) million of net deferred fees, costs, and premium and discount as of December 31, 2018 and 2017, respectively.

 

At December 31, 2018 and 2017, the UPB of ASC 310-30 loans were $260.6 million and $183.9 million, respectively. At December 31, 2018 and 2017, the Company had pledged loans as collateral for FHLB advances of $3.50 billion and $3.36 billion, respectively. The recorded investments of consumer mortgage loans secured by 1-4 family residential real estate properties for which formal foreclosure proceedings are in process as of December 31, 2018 totaled $3.5 million. The balance of real estate owned includes $133 thousand and $1.2 million of residential real estate properties as of December 31, 2018 and 2017, respectively. The Company held $296.5 million and $289.1 million of syndicated national loans as of December 31, 2018 and 2017, respectively.

Page 32 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

  

During the years ended December 31, 2018, 2017 and 2016 the Company purchased approximately $8.5 million, $22.9 million and $199.0 million, respectively, in loans from third parties.

 

During the years ended December 31, 2018, 2017 and 2016, the Company sold approximately $95.1 million, $383.6 million and $128.7 million, respectively, in loans to third parties.

 

The accretable discount on ASC 310-30 loans represents the amount by which the undiscounted expected cash flows on such loans exceed their carrying value. The change in expected cash flow for certain ASC 310-30 loan pools resulted in the reclassification of $16.9 million, $(2.3) million and $(28.7) million between non-accretable and accretable discount during the years ended December 31, 2018, 2017 and 2016, respectively.

 

Changes in accretable discount for ASC 310-30 loans were as follows:

 

    Years Ended December 31,  
    2018     2017     2016  
    (Dollars in thousands)  
Balance at January 1,   $ 41,162     $ 60,990     $ 144,152  
Additions to accretable discount from Floridian acquisition     14,393              
Accretion     (14,926 )     (17,523 )     (54,427 )
Reclassifications from non-accretable difference     16,859       (2,305 )     (28,735 )
Balance at December 31,   $ 57,488     $ 41,162     $ 60,990  

 

NOTE 5. ALLOWANCE FOR LOAN LOSSES

 

The Company’s accounting method for loans and the corresponding ALL differs depending on whether the loans are New or Acquired. The Company assesses and monitors credit risk and portfolio performance using distinct methodologies for Acquired loans, both ASC 310-30 loans and Non-ASC 310-30 Loans, and New Loans. Within each of these portfolios, the Company further disaggregates the portfolios into the following segments: Commercial real estate, Owner-occupied commercial real estate, 1-4 single family residential, Construction, land and development, Home equity loans and lines of credit, Commercial and industrial and Consumer. The ALL reflects management’s estimate of probable credit losses inherent in each of the segments.

Page 33 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

 

Changes in the ALL by loan portfolio and segment for the years ended December 31, 2018, 2017, and 2016 are as follows:

 

    Commercial Real Estate     Owner-Occupied Commercial Real Estate     1- 4 Single Family Residential     Construction, Land and Development     Home Equity Loans and Lines of Credit     Commercial and Industrial     Consumer     Total  
                            (Dollars in thousands)                          
Balance at January 1, 2018   $ 13,870     $ 3,365     $ 7,978     $ 4,345     $ 674     $ 15,141     $ 272     $ 47,145  
Provision (credit) for ASC 310-30 loans     (737 )     (3 )     (15 )     (249 )           (54 )     (22 )     (1,080 )
Provision (credit) for non-ASC 310-30 loans     (147 )     (35 )     (140 )     (20 )     (130 )     152       (5 )     (325 )
Provision (credit) for New loans     2,967       429       (1,048 )     706       (80 )     16,479       (63 )     19,390  
Provision (credit) for Unallocated                                               (1,500 )
Total provision
    2,083       391       (1,203 )     437       (210 )     16,577       (90 )     16,485  
Charge-offs for ASC 310-30 loans     (143 )           (22 )                 (17 )     (11 )     (193 )
Charge-offs for non-ASC 310-30 loans     (118 )           (14 )           (3 )     (443 )           (578 )
Charge-offs for New loans                                   (12,531 )           (12,531 )
Total charge-offs
    (261 )           (36 )           (3 )     (12,991 )     (11 )     (13,302 )
Recoveries for ASC 310-30 loans     379       3       19       106             24             531  
Recoveries for non-ASC 310-30 loans                 23                               23  
Recoveries for New loans     11       15                                     26  
Total recoveries
    390       18       42       106             24             580  
Ending ALL balance                                                                
ASC 310-30 loans     947             8       3             79       112       1,149  
Non-ASC 310-30 loans     73       20       53       16       66       22       1       251  
New loans     15,062       3,754       6,721       4,870       395       18,650       58       49,510  
Unallocated                                                
Balance at December 31, 2018
  $ 16,082     $ 3,774     $ 6,782     $ 4,889     $ 461     $ 18,751     $ 171     $ 50,910  

 

Page 34 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

 

    Commercial Real Estate     Owner- Occupied Commercial Real Estate     1- 4 Single Family Residential     Construction, Land and Development     Home Equity Loans and Lines of Credit     Commercial and Industrial     Consumer     Total  
                      (Dollars in thousands)                    
Balance at January 1, 2017   $ 10,123     $ 2,597     $ 7,379     $ 4,677     $ 648     $ 12,245     $ 228     $ 37,897  
Provision (credit) for ASC 310-30 loans     (839 )           31       (51 )           (192 )     (99 )     (1,150 )
Provision (credit) for non-ASC 310-30 loans     (8 )     (6 )     (146 )     (11 )     (37 )     (64 )     (29 )     (301 )
Provision (credit) for New loans     4,723       774       720       (227 )     73       3,260       43       9,366  
Provision (credit) for Unallocated                                               1,500  
Total provision
    3,876       768       605       (289 )     36       3,004       (85 )     9,415  
Charge-offs for ASC 310-30 loans     (9 )           (35 )     (43 )           (29 )           (116 )
Charge-offs for non-ASC 310-30 loans     (30 )           (69 )           (7 )     (3 )           (109 )
Charge-offs for New loans     (131 )                       (3 )     (150 )           (284 )
Total charge-offs
    (170 )           (104 )     (43 )     (10 )     (182 )           (509 )
Recoveries for ASC 310-30 loans     41                               70       100       211  
Recoveries for non-ASC 310-30 loans                 98                   4       29       131  
Recoveries for New loans                                                
Total recoveries
    41             98                   74       129       342  
Ending ALL balance                                                                
ASC 310-30 loans     1,448             25       145             126       145       1,889  
Non-ASC 310-30 loans     338       55       184       36       199       313       6       1,131  
New loans     12,084       3,310       7,769       4,164       475       14,702       121       42,625  
Unallocated                                               1,500  
Balance at December 31, 2017
  $ 13,870     $ 3,365     $ 7,978     $ 4,345     $ 674     $ 15,141     $ 272     $ 47,145  

 

Page 35 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

 

    Commercial Real Estate     Owner- Occupied Commercial Real Estate     1- 4 Single Family Residential     Construction, Land and Development     Home Equity Loans and Lines of Credit     Commercial and Industrial     Consumer     Total  
                      (Dollars in thousands)                    
Balance at January 1, 2016   $ 8,450     $ 2,243     $ 6,425     $ 3,404     $ 483     $ 7,665     $ 456     $ 29,126  
Provision (credit) for ASC 310-30 loans     (124 )           3       (128 )           (108 )     (156 )     (513 )
Provision (credit) for non-ASC 310-30 loans     (1,512 )     (401 )     (31 )     11       (21 )     316       8       (1,630 )
Provision (credit) for New loans     2,024       756       982       1,351       213       4,440       32       9,798  
Total provision
    388       355       954       1,234       192       4,648       (116 )     7,655  
Charge-offs for ASC 310-30 loans     (429 )           (31 )     (33 )           (79 )     (106 )     (678 )
Charge-offs for non-ASC 310-30 loans           (1 )                 (35 )           (6 )     (42 )
Charge-offs for New loans                                                
Total charge-offs
    (429 )     (1 )     (31 )     (33 )     (35 )     (79 )     (112 )     (720 )
Recoveries for ASC 310-30 loans     910             31       72             11             1,024  
Recoveries for non-ASC 310-30 loans     804                         8                   812  
Recoveries for New loans                                                
Total recoveries
    1,714             31       72       8       11             1,836  
Ending ALL balance                                                                
ASC 310-30 loans     2,255             29       239             277       144       2,944  
Non-ASC 310-30 loans     376       61       301       47       243       376       6       1,410  
New loans     7,492       2,536       7,049       4,391       405       11,592       78       33,543  
Balance at December 31, 2016
  $ 10,123     $ 2,597     $ 7,379     $ 4,677     $ 648     $ 12,245     $ 228     $ 37,897  

 

Net charge-offs to average loans receivable for the years ended December 31, 2018, 2017 and 2016 were 0.14%, 0.00% and (0.02)%, respectively.

 

Credit Quality Indicators

 

In evaluating credit risk, the Company looks at multiple factors; however, management considers delinquency status to be the most meaningful indicator of the credit quality of 1-4 single family residential, home equity loans and lines of credit and 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 updated on a continuous basis.

Page 36 of 79

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

 

The following tables present an aging analysis of the recorded investment for delinquent loans by portfolio and segment (excluding loans accounted for under ASC 310-30):

 

    Accruing              
December 31, 2018   30 to 59
Days Past
Due
    60 to 89
Days Past
Due
    90 Days or
More Past
Due
    Non-
Accrual
    Total  
    (Dollars in thousands)  
New loans:                                        
Real estate loans:                                        
Commercial real estate   $ 7     $     $     $ 736     $ 743  
Owner-occupied commercial real estate                       827       827  
1-4 single family residential     17,407       5,887       185       3,907       27,386  
Construction, land and development           99                   99  
Home equity loans and lines of credit     317                   126       443  
Total real estate loans   $ 17,731     $ 5,986     $ 185     $ 5,596     $ 29,498  
Other loans:                                        
Commercial and industrial   $ 8,722     $     $     $ 4,484     $ 13,206  
Consumer                              
Total other loans     8,722                   4,484       13,206  
Total New loans   $ 26,453     $ 5,986     $ 185     $ 10,080     $ 42,704  
                                         
Acquired loans:                                        
Real estate loans:                                        
Commercial real estate   $     $     $     $ 3,558     $ 3,558  
Owner-occupied commercial real estate           5,240             484       5,724  
1-4 single family residential     390       412             1,669       2,471  
Construction, land and development                              
Home equity loans and lines of credit     653       464             2,423       3,540  
Total real estate loans   $ 1,043     $ 6,116     $     $ 8,134     $ 15,293  
Other loans:                                        
Commercial and industrial   $ 1,312     $ 55     $     $ 2,422     $ 3,789  
Consumer                              
Total other loans     1,312       55             2,422       3,789  
Total acquired loans   $ 2,355     $ 6,171     $     $ 10,556     $ 19,082  

 

Page 37 of 79

 

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

 

    Accruing              
December 31, 2017   30 to 59
Days Past
Due
    60 to 89
Days Past
Due
    90 Days or
More Past
Due
    Non-
Accrual
    Total  
    (Dollars in thousands)  
New loans:                                        
Real estate loans:                                        
Commercial real estate   $ 324     $     $     $     $ 324  
Owner-occupied commercial real estate     843       150                   993  
1-4 single family residential     1,179       1,310             3,167       5,656  
Construction, land and development                              
Home equity loans and lines of credit                       126       126  
Total real estate loans   $ 2,346     $ 1,460     $     $ 3,293     $ 7,099  
Other loans:                                        
Commercial and industrial   $ 4,980     $ 2,167     $     $     $ 7,147  
Consumer                              
Total other loans     4,980       2,167                   7,147  
Total New loans   $ 7,326     $ 3,627     $     $ 3,293     $ 14,246  
                                         
Acquired Loans:                                        
Real estate loans:                                        
Commercial real estate   $ 360     $     $     $ 3,893     $ 4,253  
Owner-occupied commercial real estate     290