ITEM 1. FINANCIAL STATEMENTS
1st UNITED BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
December 31,
2013
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
68,094
|
|
|
$
|
197,813
|
|
Federal funds sold
|
|
|
342
|
|
|
|
408
|
|
Cash and cash equivalents
|
|
|
68,436
|
|
|
|
198,221
|
|
Securities available for sale
|
|
|
320,471
|
|
|
|
327,961
|
|
Loans, net of allowance of $10,023 and $9,648 at June 30, 2014 and December 31, 2013
|
|
|
1,132,414
|
|
|
|
1,124,571
|
|
Nonmarketable equity securities
|
|
|
9,496
|
|
|
|
9,977
|
|
Premises and equipment, net
|
|
|
16,145
|
|
|
|
16,944
|
|
Other real estate owned
|
|
|
13,300
|
|
|
|
18,580
|
|
Company-owned life insurance
|
|
|
25,024
|
|
|
|
24,710
|
|
FDIC loss share receivable
|
|
|
23,148
|
|
|
|
29,331
|
|
Goodwill
|
|
|
63,991
|
|
|
|
63,991
|
|
Core deposit intangible
|
|
|
3,426
|
|
|
|
3,807
|
|
Accrued interest receivable and other assets
|
|
|
23,036
|
|
|
|
27,020
|
|
Total assets
|
|
$
|
1,698,887
|
|
|
$
|
1,845,113
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
529,047
|
|
|
$
|
526,311
|
|
Interest bearing
|
|
|
863,771
|
|
|
|
1,021,602
|
|
Total deposits
|
|
|
1,392,818
|
|
|
|
1,547,913
|
|
Federal funds purchased and repurchase agreements
|
|
|
16,457
|
|
|
|
14,363
|
|
Federal Home Loan Bank Advances
|
|
|
35,011
|
|
|
|
35,018
|
|
Accrued interest payable and other liabilities
|
|
|
13,863
|
|
|
|
17,711
|
|
Total liabilities
|
|
|
1,458,149
|
|
|
|
1,615,005
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
Preferred stock – no par, 5,000,000 shares authorized; no shares issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock – $0.01 par value; 60,000,000 shares authorized; 34,496,189 and 34,288,841 issued and outstanding at June 30, 2014 and December 31, 2013, respectively
|
|
|
345
|
|
|
|
343
|
|
Additional paid-in capital
|
|
|
240,498
|
|
|
|
239,606
|
|
Accumulated earnings (deficit)
|
|
|
1,727
|
|
|
|
(1,584
|
)
|
Accumulated other comprehensive loss
|
|
|
(1,832
|
)
|
|
|
(8,257
|
)
|
Total shareholders’ equity
|
|
|
240,738
|
|
|
|
230,108
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,698,887
|
|
|
$
|
1,845,113
|
|
See accompanying notes to the consolidated financial
statements.
UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
16,957
|
|
|
$
|
18,741
|
|
|
$
|
34,244
|
|
|
$
|
34,912
|
|
Securities available for sale
|
|
|
2,011
|
|
|
|
1,648
|
|
|
|
4,114
|
|
|
|
3,016
|
|
Federal funds sold and other
|
|
|
153
|
|
|
|
157
|
|
|
|
301
|
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
19,121
|
|
|
|
20,546
|
|
|
|
38,659
|
|
|
|
38,266
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
782
|
|
|
|
894
|
|
|
|
1,579
|
|
|
|
1,879
|
|
Federal funds purchased and repurchase agreements
|
|
|
5
|
|
|
|
4
|
|
|
|
9
|
|
|
|
10
|
|
Federal Home Loan Bank and Federal Reserve Bank borrowings
|
|
|
49
|
|
|
|
—
|
|
|
|
105
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
836
|
|
|
|
898
|
|
|
|
1,693
|
|
|
|
1,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
18,285
|
|
|
|
19,648
|
|
|
|
36,966
|
|
|
|
36,377
|
|
Provision for loan losses
|
|
|
550
|
|
|
|
1,300
|
|
|
|
883
|
|
|
|
1,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
17,735
|
|
|
|
18,348
|
|
|
|
36,083
|
|
|
|
34,427
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees on deposit accounts
|
|
|
828
|
|
|
|
803
|
|
|
|
1,638
|
|
|
|
1,599
|
|
Net gains on sales of other real estate owned
|
|
|
437
|
|
|
|
393
|
|
|
|
651
|
|
|
|
833
|
|
Net gains on sales of securities
|
|
|
—
|
|
|
|
609
|
|
|
|
—
|
|
|
|
732
|
|
Net gains on sales of loans held for sale
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
|
|
58
|
|
Increase in cash surrender value of Company owned life insurance
|
|
|
156
|
|
|
|
146
|
|
|
|
314
|
|
|
|
293
|
|
Adjustment to FDIC loss share receivable
|
|
|
(2,324
|
)
|
|
|
(4,922
|
)
|
|
|
(4,972
|
)
|
|
|
(7,741
|
)
|
Other
|
|
|
172
|
|
|
|
240
|
|
|
|
392
|
|
|
|
520
|
|
Total non-interest income
|
|
|
(731
|
)
|
|
|
(2,719
|
)
|
|
|
(1,977
|
)
|
|
|
(3,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
6,120
|
|
|
|
6,028
|
|
|
|
12,677
|
|
|
|
12,227
|
|
Occupancy and equipment
|
|
|
2,062
|
|
|
|
1,969
|
|
|
|
4,083
|
|
|
|
3,938
|
|
Data processing
|
|
|
963
|
|
|
|
926
|
|
|
|
1,948
|
|
|
|
1,856
|
|
Telephone
|
|
|
255
|
|
|
|
218
|
|
|
|
514
|
|
|
|
447
|
|
Stationery and supplies
|
|
|
88
|
|
|
|
98
|
|
|
|
162
|
|
|
|
189
|
|
Amortization of intangibles
|
|
|
186
|
|
|
|
166
|
|
|
|
381
|
|
|
|
339
|
|
Professional fees
|
|
|
362
|
|
|
|
452
|
|
|
|
779
|
|
|
|
839
|
|
Advertising
|
|
|
54
|
|
|
|
47
|
|
|
|
123
|
|
|
|
135
|
|
Merger reorganization expense
|
|
|
962
|
|
|
|
128
|
|
|
|
962
|
|
|
|
128
|
|
Disposal of banking center
|
|
|
37
|
|
|
|
404
|
|
|
|
37
|
|
|
|
404
|
|
Regulatory assessment
|
|
|
360
|
|
|
|
370
|
|
|
|
779
|
|
|
|
728
|
|
Other real estate owned expense
|
|
|
437
|
|
|
|
457
|
|
|
|
839
|
|
|
|
1,037
|
|
Loan expense
|
|
|
257
|
|
|
|
455
|
|
|
|
618
|
|
|
|
803
|
|
Other
|
|
|
1,071
|
|
|
|
1,110
|
|
|
|
2,213
|
|
|
|
2,234
|
|
Total non-interest expense
|
|
|
13,214
|
|
|
|
12,828
|
|
|
|
26,115
|
|
|
|
25,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
3,790
|
|
|
|
2,801
|
|
|
|
7,991
|
|
|
|
5,417
|
|
Income tax expense
|
|
|
1,790
|
|
|
|
1,034
|
|
|
|
3,305
|
|
|
|
2,029
|
|
Net income
|
|
$
|
2,000
|
|
|
$
|
1,767
|
|
|
$
|
4,686
|
|
|
$
|
3,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.06
|
|
|
$
|
0.05
|
|
|
$
|
0.14
|
|
|
$
|
0.10
|
|
Diluted earnings per common share
|
|
$
|
0.06
|
|
|
$
|
0.05
|
|
|
$
|
0.14
|
|
|
$
|
0.10
|
|
See accompanying notes to the consolidated
financial statements.
1st UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
(unaudited)
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Net income
|
|
$
|
2,000
|
|
|
$
|
1,767
|
|
|
$
|
4,686
|
|
|
$
|
3,388
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on securities available for sale
|
|
|
5,906
|
|
|
|
(11,142
|
)
|
|
|
10,257
|
|
|
|
(11,892
|
)
|
Reclassification adjustment for security gains included in net income
(1)
|
|
|
—
|
|
|
|
(609
|
)
|
|
|
—
|
|
|
|
(732
|
)
|
Income tax benefit (expense)
|
|
|
(2,195
|
)
|
|
|
4,422
|
|
|
|
(3,832
|
)
|
|
|
4,750
|
|
Other comprehensive income (loss)
|
|
|
3,711
|
|
|
|
(7,329
|
)
|
|
|
6,425
|
|
|
|
(7,874
|
)
|
Comprehensive income (loss)
|
|
$
|
5,711
|
|
|
$
|
(5,562
|
)
|
|
$
|
11,111
|
|
|
$
|
(4,486
|
)
|
|
(1)
|
Amounts are included in net gains on sales of securities on the Consolidated Statements of Operations in total non-interest income. Income tax expense associated with the reclassification adjustment for the three months ended June 30, 2014 and 2013 was $0 and $229, respectively. Income tax expense associated with the reclassification adjustment for the six months ended June 30, 2014 and 2013 was $0 and $275, respectively.
|
See accompanying notes to the consolidated financial
statements.
1st UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Six months ended June 30, 2014 and 2013
(Dollars in thousands)
(unaudited)
|
|
Shares of
Common Stock
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Earnings (Deficit)
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
Shareholders’
Equity
|
Balance at January 1, 2013
|
|
|
34,070,270
|
|
|
$
|
341
|
|
|
$
|
238,089
|
|
|
$
|
(3,998
|
)
|
|
$
|
2,258
|
|
|
$
|
236,690
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,388
|
|
|
|
—
|
|
|
|
3,388
|
|
Other comprehensive income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,874
|
)
|
|
|
(7,874
|
)
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
727
|
|
|
|
—
|
|
|
|
—
|
|
|
|
727
|
|
Dividend paid ($0.01 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
(342
|
)
|
|
|
—
|
|
|
|
(342
|
)
|
Restricted stock grants
|
|
|
216,786
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at June 30, 2013
|
|
|
34,287,056
|
|
|
$
|
343
|
|
|
$
|
238,814
|
|
|
$
|
(952
|
)
|
|
$
|
(5,616
|
)
|
|
$
|
232,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014
|
|
|
34,288,841
|
|
|
$
|
343
|
|
|
$
|
239,606
|
|
|
$
|
(1,584
|
)
|
|
$
|
(8,257
|
)
|
|
$
|
230,108
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,686
|
|
|
|
—
|
|
|
|
4,686
|
|
Other comprehensive income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,425
|
|
|
|
6,425
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
856
|
|
|
|
—
|
|
|
|
—
|
|
|
|
856
|
|
Stock option exercise
|
|
|
6,642
|
|
|
|
—
|
|
|
|
38
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38
|
|
Dividend paid ($0.02 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
(1,375
|
)
|
|
|
—
|
|
|
|
(1,375
|
)
|
Restricted stock grants
|
|
|
200,706
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Balance at June 30, 2014
|
|
|
34,496,189
|
|
|
$
|
345
|
|
|
$
|
240,498
|
|
|
$
|
1,727
|
|
|
$
|
(1,832
|
)
|
|
$
|
240,738
|
|
See accompanying notes to the consolidated financial
statements.
1st UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2014 and 2013
(Dollars in thousands)
(unaudited)
|
|
2014
|
|
2013
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,686
|
|
|
$
|
3,388
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
883
|
|
|
|
1,950
|
|
Depreciation and amortization
|
|
|
1,857
|
|
|
|
1,816
|
|
Net accretion of purchase accounting adjustments
|
|
|
(7,640
|
)
|
|
|
(10,337
|
)
|
Net amortization of securities
|
|
|
1,078
|
|
|
|
1,954
|
|
Adjustment to FDIC receivable
|
|
|
4,972
|
|
|
|
7,741
|
|
Increase in cash surrender value of company-owned life insurance
|
|
|
(314
|
)
|
|
|
(293
|
)
|
Stock-based compensation expense
|
|
|
856
|
|
|
|
727
|
|
Net gains on sales of securities
|
|
|
—
|
|
|
|
(732
|
)
|
Net gains on other real estate owned
|
|
|
(651
|
)
|
|
|
(833
|
)
|
Net loss on premises and equipment
|
|
|
2
|
|
|
|
—
|
|
Write-down of other real estate owned
|
|
|
590
|
|
|
|
642
|
|
Net gain on sale of loans held for sale
|
|
|
—
|
|
|
|
(58
|
)
|
Disposal of banking center
|
|
|
37
|
|
|
|
404
|
|
Loans originated for sale
|
|
|
—
|
|
|
|
(2,871
|
)
|
Proceeds from sale of loans held for sale
|
|
|
—
|
|
|
|
3,453
|
|
Net change in:
|
|
|
|
|
|
|
|
|
Deferred loan fees
|
|
|
(67
|
)
|
|
|
64
|
|
Accrued interest receivable and other assets
|
|
|
65
|
|
|
|
(1,058
|
)
|
Accrued interest payable and other liabilities
|
|
|
(1,125
|
)
|
|
|
102
|
|
Net cash provided by operating activities
|
|
|
5,229
|
|
|
|
6,059
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Proceeds from sales of securities
|
|
|
—
|
|
|
|
30,755
|
|
Proceeds from security maturities calls and prepayments
|
|
|
16,669
|
|
|
|
35,074
|
|
Purchases of securities
|
|
|
—
|
|
|
|
(174,421
|
)
|
Loan originations and payments, net
|
|
|
(3,942
|
)
|
|
|
(16,614
|
)
|
Cash received from FDIC loss sharing agreements
|
|
|
1,485
|
|
|
|
3,745
|
|
Redemption of nonmarketable equity securities, net
|
|
|
481
|
|
|
|
597
|
|
Proceeds from the sale of other real estate owned
|
|
|
8,193
|
|
|
|
5,178
|
|
Additions to premises and equipment, net
|
|
|
(197
|
)
|
|
|
(409
|
)
|
Net cash used in investing activities
|
|
|
22,689
|
|
|
|
(116,095
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net change in deposits
|
|
|
(155,031
|
)
|
|
|
(10,656
|
)
|
Net change in federal funds purchased and repurchase agreements
|
|
|
2,094
|
|
|
|
(6,972
|
)
|
Exercise of stock options
|
|
|
38
|
|
|
|
—
|
|
Dividends paid
|
|
|
(4,804
|
)
|
|
|
(342
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(157,703
|
)
|
|
|
(17,970
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(129,785
|
)
|
|
|
(128,006
|
)
|
Beginning cash and cash equivalents
|
|
|
198,221
|
|
|
|
207,117
|
|
Ending cash and cash equivalents
|
|
$
|
68,436
|
|
|
$
|
79,111
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
1,767
|
|
|
$
|
1,940
|
|
Taxes paid
|
|
|
4,020
|
|
|
|
1,585
|
|
Transfer of loans to other real estate owned
|
|
|
2,852
|
|
|
|
3,562
|
|
See accompanying notes to the consolidated financial
statements.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 1 – BASIS OF PRESENTATION
Nature of Operations and Principles of Consolidation
: The
consolidated financial statements include 1st United Bancorp, Inc. (“Bancorp or “Company”) and its wholly owned
subsidiaries, 1st United Bank (“1st United”) and Equitable Equity Lending (“EEL”), together referred to
as “the Company.” Intercompany transactions and balances are eliminated in consolidation.
Bancorp’s primary business is the ownership and operation
of 1
st
United. 1
st
United is a state chartered commercial bank that provides financial services through its
five offices in Palm Beach County, three offices in Broward County, four offices in Miami-Dade County, one office each in the cities
of Vero Beach, Sebastian and Barefoot Bay, four offices in Pinellas and one office each in Orange and Hillsborough Counties. Its
primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are commercial
and residential mortgages, commercial, and installment loans. Substantially all loans are secured by specific items of collateral
including commercial and residential real estate, business assets and consumer assets. Commercial loans are expected to be repaid
from cash flow from operations of businesses. However, the customers’ ability to repay their loans is dependent on the real
estate and general market conditions. Other financial instruments, which potentially represent concentrations of credit risk, include
deposit accounts in other financial institutions and federal funds sold.
EEL is a commercial finance subsidiary that from time to time will
hold foreclosed assets, performing loans or non-performing loans. At June 30, 2014 and December 31, 2013, EEL held $2,129 and $2,388,
respectively, in performing loans.
The accompanying consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete
presentation of the financial position, results of operations and cash flow activity required in accordance with accounting principles
generally accepted in the United States. In the opinion of management of the Company, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair statement of results for the interim periods have been made. These consolidated financial
statements and notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2013.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported asset and liability balances and revenue and expense amounts
and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates. Certain
amounts for the prior year have been reclassified to conform to the current year’s presentation.
Operations are managed and financial performance is evaluated on
a company-wide basis. Accordingly, all financial operations are considered by management to be aggregated in one reportable operating
segment.
On May 7, 2014, the Company entered into an agreement and plan of
merger with Valley National Bancorp, Inc. See Note 10 for additional information.
Earnings Per Common Share
: Basic earnings per common share
is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share
include the dilutive effect of additional potential common shares issuable under stock options and restricted stock. Earnings per
common share is restated for all stock splits and stock dividends through the date of issue of the consolidated financial statements.
Stock options to acquire 1,090,083 and 2,571,673 shares of common
stock were not considered in computing diluted earnings per share for the quarters ended June 30, 2014 and 2013, respectively,
because consideration of those instruments would be antidilutive. Stock options to acquire 1,142,787 and 2,571,673 shares
of common stock were not considered in computing diluted earnings per share for the six months ended June 30, 2014 and 2013, respectively,
because consideration of those instruments would be antidilutive.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 1 – BASIS OF PRESENTATION (continued)
FDIC Loss Share Receivable
. The FDIC Loss Share Receivable
represents the estimated amounts due from the Federal Deposit Insurance Corporation (“FDIC”) related to the loss share
agreements which were booked as of the acquisition dates of Republic Federal Bank, N.A. (“Republic”), The Bank of Miami,
N.A. (“TBOM”) and Old Harbor Bank of Florida (“Old Harbor”). The receivable represents the discounted value
of the FDIC’s reimbursable portion of estimated losses we expect to realize on loans and other real estate (“Covered
Assets”) acquired as a result of the TBOM, Republic and Old Harbor acquisitions. As losses are realized on Covered Assets,
the portion that the FDIC pays the Company in cash for principal and up to 90 days of interest reduces the FDIC Loss Share Receivable.
The FDIC Loss Share Receivable is reviewed quarterly and adjusted
for any changes in expected cash flows based on recent performance and expectations for future performance of the Covered Assets.
Any increases in cash flows of Covered Assets will be accreted into income over the life of the covered asset with a reduction
to the FDIC Loss Share Receivable over the shorter of the life of the loan or the remaining term of the respective Loss Share Agreements.
Any decreases in the expected cash flows of the Covered Assets will result in the impairment to the Covered Asset and an increase
in the FDIC Loss Share Receivable to be reflected immediately. Non-cash adjustments to the FDIC Loss Share Receivable are recorded
to non-interest income.
Certain Acquired Loans
: As part of business acquisitions,
the Company evaluated each of the acquired loans under ASC 310-30 to determine whether (1) there was evidence of credit deterioration
since origination, and (2) it was probable that we would not collect all contractually required payment receivable. The Company
determined the best indicator of such evidence was an individual loan’s payment status and/or whether a loan was determined
to be classified by us based on our review of each individual loan. Therefore, generally each individual loan that should have
been or was on nonaccrual at the acquisition date, loans contractually past due 60 days or more, and each individual loan that
was classified by us were included subject to ASC 310-30. These loans were recorded at the discounted expected cash flows of the
individual loan and are currently disclosed in Note 4.
Loans which were evaluated under ASC 310-30, and where the timing
and amount of cash flows can be reasonably estimated, were accounted for in accordance with ASC 310-30-35. The Company applies
the interest method for these loans under this subtopic and the loans are excluded from non-accrual. If, at acquisition, we identified
loans that we could not reasonably estimate cash flows or if subsequent to acquisition such cash flows could not be estimated,
such loans would be included in non-accrual. These acquired loans are recorded at the allocated fair value, such that there is
no carryover of the seller’s allowance for loan losses. Such acquired loans are accounted for individually. The Company estimates
the amount and timing of expected cash flows for each purchased loan, and the expected cash flows in excess of the allocated fair
value is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual
principal and interest over expected cash flows is not recorded (non-accretable difference). Over the life of the loan, expected
cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded
through the allowance for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized
as part of future interest income.
Allowance for Loan Losses
. In originating loans, the Company
recognizes that credit losses will be experienced and the risk of loss will vary with, among other things: general economic conditions;
the type of loan being made; the creditworthiness of the borrower over the term of the loan; and, in the case of a collateralized
loan, the quality of the collateral for such a loan. The allowance for loan losses represents our estimate of the allowance necessary
to provide for probable incurred losses in the loan portfolio. In making this determination, the Company analyzes the ultimate
collectability of the loans in its portfolio, feedback provided by internal loan staff, the independent loan review function and
information provided by examinations performed by regulatory agencies.
The allowance for loan losses
is evaluated at the portfolio segment level using the same methodology for each segment. The historical net losses for a rolling
three year period is the basis for the general reserve for each segment which is adjusted for each of the same qualitative factors
(i.e., nature and volume of portfolio, economic and business conditions, classification, past due and non-accrual trends) evaluated
by each individual segment. Impaired loans and related specific reserves for each of the segments are also evaluated using the
same methodology for each segment. The qualitative factors totaled approximately 8 and 7 basis points of the allowance for loan
losses at June 30, 2014 and December 31, 2013, respectively.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 1 – BASIS OF PRESENTATION (continued)
A loan is considered impaired when, based on current information
and events, it is probable the Company will be unable to collect the scheduled payments of principal or interest when due according
to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status,
collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant
payment delays (loan payments made within 90 days of the due date) and payment shortfalls (which are tracked as past due amounts)
generally are not classified as impaired. The Company determines the past due status of a loan based on the number of days contractually
past due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for
the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest
owed.
Charge-offs of loans are made by portfolio segment at the time that
the collection of the full principal, in management’s judgment, is doubtful. This methodology for determining charge-offs
is consistently applied to each segment.
On a quarterly basis, management reviews the adequacy of the allowance
for loan losses. Commercial credits are graded by risk management and the loan review function validates the assigned credit risk
grades. In the event that a loan is downgraded, it is included in the allowance analysis at the lower grade. To establish the appropriate
level of the allowance, the Company reviews and classifies loans (including all impaired and nonperforming loans) as to potential
loss exposure. The Company’s analysis of the allowance for loan losses consists of three components: (i) specific credit
allocation established for expected losses resulting from analysis developed through specific credit allocations on individual
loans for which the recorded investment in the loan exceeds the fair value; (ii) general portfolio allocation based on historical
loan loss experience for each loan category; and (iii) qualitative reserves based on general economic conditions as well as specific
economic factors in the markets in which the Company operates.
The specific credit allocation component of the allowance for loan
losses is based on a regular analysis of loans where the internal credit rating is at or below the substandard classification and
the loan is determined to be impaired as determined by management.
The impairment, if any, is determined based on either the present
value expected future cash flows discounted at the loan’s effective interest rate, the market price of the loan, or if the
loan is collateral dependent, the fair value of the underlying collateral less estimated cost of sale. The Company may classify
a loan as substandard; however, it may not be classified as impaired. A loan may be classified as substandard by management if,
for example, the primary source of repayment is insufficient, the financial condition of the borrower and/or guarantors has deteriorated
or there are chronic delinquencies.
Troubled Debt Restructurings
. A loan is considered a troubled
debt restructured loan based on individual facts and circumstances. A modification may include either an increase or reduction
in interest rate or deferral of principal payments or both. Loans for which the terms have been modified resulting in a concession,
and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings. The Company classifies
troubled debt restructured loans as impaired and evaluates the need for an allowance for loan losses on a loan-by-loan basis. An
allowance for loan losses is based on either the present value of estimated future cash flows or the estimated fair value of the
underlying collateral. Loans retain their interest accrual status at the time of modification.
NOTE 2 – ACQUISITION
Enterprise Bancorp
On July 1, 2013, the Company completed its acquisition of Enterprise
Bancorp, Inc., a Florida corporation (“EBI”), and its wholly owned subsidiary Enterprise Bank of Florida, a Florida-chartered
commercial bank (“Enterprise”), pursuant to the Agreement and Plan of Merger (the “Merger Agreement”),
dated March 22, 2013, as amended, by and among the Company, 1st United Bank, EBI and Enterprise. In accordance with the Merger
Agreement, the Company acquired EBI through the merger of a wholly owned subsidiary of the Company with and into EBI and 1st United
Bank acquired Enterprise Bank through the merger of Enterprise Bank with and into 1st United Bank (collectively, the “Merger”).
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 2 – ACQUISITION (continued)
Pursuant to the terms of the Merger Agreement, each share of EBI
common stock issued and outstanding was converted into the right to receive consideration based on EBI’s total consolidated
assets and the EBI Tangible Book Value (as defined in the Merger Agreement) as of June 30, 2013. The total value of the consideration
paid to EBI shareholders was approximately $45,565, which consisted of approximately $5,115 in cash (less the $400 holdback described
below), $22,138 in loans (including all nonperforming loans), other real estate, and repossessed assets of Enterprise and $18,312
in impaired and below investment grade securities and other investments of Enterprise. Each holder of a share of EBI common stock
was entitled to consideration from the Company equal to approximately $6.01 per share (less their per share pro rata portion of
the $400 holdback described below). The total consideration paid to all EBI shareholders in connection with the Merger was subject
to a holdback amount of $400 to defray potential damages and related expenses incurred to defend or settle certain litigation.
The Company finalized the litigation in the second quarter 2014 with the remaining litigation holdback of approximately $263 to
be distributed to EBI shareholders. The Company recorded goodwill associated with the transaction of approximately $5,492 which
is not deductible for tax purposes. The Company acquired a net deferred tax liability of $233 and recorded a deferred tax asset
in other assets as a result of purchase accounting adjustments.
The Company accounted for the transaction under the acquisition
method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at
the date of acquisition. See Note 4 for additional information related to the fair value of loans acquired. The Company determined
the fair value of core deposit intangibles, securities, and deposits with the assistance of third party valuations. The valuation
of FHLB advances was based on current rates for similar borrowings. The estimated fair values over loans are subject to refinement
as additional information relative to the closing date fair values becomes available through the measurement period. As a result,
the Company completed its evaluation of the fair value of the assets and liabilities acquired as of June 30, 2014.
The acquisition of EBI is consistent with the Company’s plans
to continue to enhance its market area and competitive position within the state of Florida. This acquisition expands the Company’s
existing presence in the Northern Palm Beach County marketplace and adds one new banking center. The Company believes it is well-positioned
to deliver superior customer service, achieve stronger financial performance and enhance shareholder value through the synergies
of combined operations. All of these contributed to the resulting goodwill in the transaction. The fair value of assets acquired
and liabilities assumed on July 1, 2013 were as follows:
|
|
July 1, 2013
|
Cash
|
|
$
|
44,576
|
|
Securities available for sale
|
|
|
3,972
|
|
Federal Home Loan Bank stock
|
|
|
1,855
|
|
Loans
|
|
|
159,168
|
|
Core deposit intangible
|
|
|
1,283
|
|
Fixed assets
|
|
|
421
|
|
Other assets
|
|
|
1,039
|
|
TOTAL ASSETS ACQUIRED
|
|
$
|
212,314
|
|
|
|
|
|
|
Deposits
|
|
$
|
177,160
|
|
Federal Home Loan Advances
|
|
|
35,025
|
|
Other
|
|
|
906
|
|
TOTAL LIABILITIES ASSUMED
|
|
$
|
213,091
|
|
|
|
|
|
|
Excess of liabilities assumed over assets acquired
|
|
$
|
777
|
|
Cash paid
|
|
|
4,715
|
|
Goodwill
|
|
$
|
5,492
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 2 – ACQUISITION (continued)
The following summarizes the net interest and other income, net
income and earnings per share as if the merger with EBI was effective as of January 1, 2013, the beginning of the annual period
prior to acquisition. There were no material, nonrecurring adjustments to the pro forma net interest and other income, net income
and earnings per share presented below:
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
2014
(1)
|
|
2013
|
|
2014
(1)
|
|
2013
|
Net interest and non-interest income
|
|
$
|
17,554
|
|
|
$
|
16,929
|
|
|
$
|
34,989
|
|
|
$
|
37,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
2,000
|
|
|
|
770
|
|
|
|
4,686
|
|
|
|
2,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
0.06
|
|
|
|
0.02
|
|
|
|
0.14
|
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
0.06
|
|
|
|
0.02
|
|
|
|
0.14
|
|
|
|
0.08
|
|
(1)
The merger was effective
July 1, 2013. There were no pro forma adjustments subsequent to July 1, 2013.
NOTE 3 – SECURITIES
The amortized cost and fair value of securities available for
sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows.
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
933
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
937
|
|
Municipal Securities
|
|
|
6,368
|
|
|
|
37
|
|
|
|
(131
|
)
|
|
|
6,274
|
|
Commercial mortgaged-backed
|
|
|
4,420
|
|
|
|
—
|
|
|
|
(213
|
)
|
|
|
4,207
|
|
Residential collateralized mortgage obligations
|
|
|
270
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
268
|
|
Residential mortgage-backed
|
|
|
311,462
|
|
|
|
1,428
|
|
|
|
(4,105
|
)
|
|
|
308,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
323,453
|
|
|
$
|
1,469
|
|
|
$
|
(4,451
|
)
|
|
$
|
320,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
935
|
|
|
$
|
—
|
|
|
$
|
(17
|
)
|
|
$
|
918
|
|
Municipal Securities
|
|
|
6,368
|
|
|
|
—
|
|
|
|
(764
|
)
|
|
|
5,604
|
|
Commercial mortgaged-backed
|
|
|
4,469
|
|
|
|
—
|
|
|
|
(395
|
)
|
|
|
4,074
|
|
Residential collateralized mortgage obligations
|
|
|
826
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
818
|
|
Residential mortgage-backed
|
|
|
328,602
|
|
|
|
442
|
|
|
|
(12,497
|
)
|
|
|
316,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
341,200
|
|
|
$
|
442
|
|
|
$
|
(13,681
|
)
|
|
$
|
327,961
|
|
At June 30, 2014 and December 31, 2013, there were no holdings of
securities of any one issuer, other than the government agencies, in an amount greater than 10% of shareholders’ equity.
All of the residential collateralized mortgage obligations and residential mortgage-backed securities at June 30, 2014 and December
31, 2013 were issued or sponsored by U.S. government agencies.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 3 – SECURITIES (continued)
The amortized cost and fair value of debt securities at June
30, 2014 by contractual maturity were as shown in the table below. Securities not due at a single maturity date, primarily mortgage-backed
securities, are shown separately.
|
|
Amortized
Cost
|
|
Fair
Value
|
Due in one year or less
|
|
$
|
—
|
|
|
$
|
—
|
|
Due from one to five years
|
|
|
—
|
|
|
|
—
|
|
Due from five to ten years
|
|
|
933
|
|
|
|
937
|
|
Due after ten years
|
|
|
6,368
|
|
|
|
6,274
|
|
Commercial mortgage-backed
|
|
|
4,420
|
|
|
|
4,207
|
|
Residential mortgage-backed and residential collateralized mortgage obligations
|
|
|
311,732
|
|
|
|
309,053
|
|
|
|
$
|
323,453
|
|
|
$
|
320,471
|
|
Securities as of June 30, 2014 and December 31, 2013 with a fair
value of $34,183 and $30,208, respectively, were pledged to secure public deposits and repurchase agreements.
Proceeds and gross gains and (losses) from the sale of securities
available for sales for the three and six months ended June 30, 2014 and 2013, respectively, were as follows:
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Proceeds from sale
|
|
$
|
—
|
|
|
$
|
21,939
|
|
|
$
|
—
|
|
|
$
|
30,755
|
|
Gross gain
|
|
|
—
|
|
|
|
609
|
|
|
|
—
|
|
|
|
732
|
|
Gross (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net gains (losses) on sales of securities
|
|
$
|
—
|
|
|
$
|
609
|
|
|
$
|
—
|
|
|
$
|
732
|
|
Gross unrealized losses at June 30, 2014 and December 31, 2013,
respectively, aggregated by investment category and length of time that individual securities have been in a continuous unrealized
loss position, were as follows.
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Municipal securities
|
|
|
1,633
|
|
|
|
(11
|
)
|
|
|
3,161
|
|
|
|
(120
|
)
|
|
|
4,794
|
|
|
|
(131
|
)
|
Residential collateralized mortgage obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
268
|
|
|
|
(2
|
)
|
|
|
268
|
|
|
|
(2
|
)
|
Commercial mortgaged-backed
|
|
|
—
|
|
|
|
—
|
|
|
|
4,206
|
|
|
|
(213
|
)
|
|
|
4,206
|
|
|
|
(213
|
)
|
Residential mortgage-backed
|
|
|
3,033
|
|
|
|
(6
|
)
|
|
|
226,010
|
|
|
|
(4,099
|
)
|
|
|
229,043
|
|
|
|
(4,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,666
|
|
|
$
|
(17
|
)
|
|
$
|
233,645
|
|
|
$
|
(4,434
|
)
|
|
$
|
238,311
|
|
|
$
|
(4,451
|
)
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
918
|
|
|
$
|
(17
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
918
|
|
|
$
|
(17
|
)
|
Municipal securities
|
|
|
5,190
|
|
|
|
(678
|
)
|
|
|
413
|
|
|
|
(86
|
)
|
|
|
5,603
|
|
|
|
(764
|
)
|
Residential collateralized mortgage obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
818
|
|
|
|
(8
|
)
|
|
|
818
|
|
|
|
(8
|
)
|
Commercial mortgaged-backed
|
|
|
—
|
|
|
|
—
|
|
|
|
4,073
|
|
|
|
(395
|
)
|
|
|
4,073
|
|
|
|
(395
|
)
|
Residential mortgage-backed
|
|
|
277,291
|
|
|
|
(12,353
|
)
|
|
|
3,644
|
|
|
|
(144
|
)
|
|
|
280,935
|
|
|
|
(12,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
283,399
|
|
|
$
|
(13,048
|
)
|
|
$
|
8,948
|
|
|
$
|
(633
|
)
|
|
$
|
292,347
|
|
|
$
|
(13,681
|
)
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 3 – SECURITIES (continued)
In determining other than temporary impairment (“OTTI”)
for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value
has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was
affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than
not will be required to sell the debt security before its anticipated recovery. The assessment of whether OTTI exists involves
a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
At June 30, 2014, there were 67 available for sale securities with
unrealized losses of which seven were municipal securities, two were residential collateralized mortgage obligations, one was a
commercial mortgage-backed security and 57 were residential mortgage-backed securities. At December 31, 2013, there were 92 available
for sale securities with unrealized losses of which one was a U.S. Treasury security, eight were municipal securities, three were
residential collateralized mortgage obligations, one was a commercial mortgage-backed security and 79 were residential mortgage-backed
securities. At June 30, 2014 and December 31, 2013, securities with unrealized losses had declined in fair value by 1.87% and 4.68%,
respectively, from the Company’s amortized cost basis. The decline in fair value is attributable to changes in interest rates
and liquidity, and not credit quality. The Company does not have the intent to sell these mortgage-backed securities and it is
likely that it will not be required to sell these securities prior to their anticipated recovery. The Company does not consider
these securities to be other–than–temporarily impaired at June 30, 2014.
NOTE 4 – LOANS
Loans at June 30, 2014 and December 31, 2013 were as follows:
|
|
June 30, 2014
|
|
December 31, 2013
|
|
|
Loans Subject to Loss Share Agreements
|
|
Loans Not Subject to Loss Share Agreements
|
|
Total
|
|
Loans Subject to Loss Share Agreements
|
|
Loans Not Subject to Loss Share Agreements
|
|
Total
|
Commercial
|
|
$
|
18,316
|
|
|
$
|
174,369
|
|
|
$
|
192,685
|
|
|
$
|
27,573
|
|
|
$
|
182,691
|
|
|
$
|
210,264
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
60,069
|
|
|
|
131,173
|
|
|
|
191,242
|
|
|
|
68,259
|
|
|
|
110,585
|
|
|
|
178,844
|
|
Commercial
|
|
|
122,109
|
|
|
|
583,424
|
|
|
|
705,533
|
|
|
|
144,311
|
|
|
|
555,540
|
|
|
|
699,851
|
|
Construction and land development
|
|
|
6,258
|
|
|
|
35,042
|
|
|
|
41,300
|
|
|
|
6,505
|
|
|
|
28,781
|
|
|
|
35,286
|
|
Consumer and other
|
|
|
—
|
|
|
|
11,371
|
|
|
|
11,371
|
|
|
|
2
|
|
|
|
9,733
|
|
|
|
9,735
|
|
|
|
$
|
206,752
|
|
|
$
|
935,379
|
|
|
|
1,142,131
|
|
|
$
|
246,650
|
|
|
$
|
887,330
|
|
|
|
1,133,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned income and net deferred loan costs
|
|
|
|
|
|
|
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
239
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
(10,023
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,648
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
1,132,414
|
|
|
|
|
|
|
|
|
|
|
$
|
1,124,571
|
|
The Company has segregated and evaluated its loan portfolio through
five portfolio segments. The five segments are residential real estate, commercial, commercial real estate, construction and land
development, and consumer and other. The Company’s business activity is concentrated with customers located in Brevard, Broward,
Hillsborough, Indian River, Miami-Dade, Orange, Hillsborough, Palm Beach and Pinellas Counties. Therefore, the Company’s
exposure to credit risk is significantly affected by changes in these counties.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
Residential real estate loans are a mixture of fixed rate and adjustable
rate residential mortgage loans. As a policy, the Company holds adjustable and fixed rate loans and also sells to the secondary
market. Changes in interest rates or market conditions may impact a borrower’s ability to meet contractual principal and
interest payments. Residential real estate loans are secured by real property.
Commercial loan borrowers consist of small- to medium-sized businesses
including professional associations, medical services, retail trade, construction, transportation, wholesale trade, manufacturing
and tourism. Commercial loans are derived from our market areas and are underwritten based on the borrower’s ability to service
debt from the business’s underlying cash flows. As a general practice, we obtain collateral such as real estate, equipment
or other assets, although other commercial loans may be unsecured but guaranteed.
Commercial real estate loans include loans secured by office buildings,
warehouses, retail stores and other property located in or near our markets. These loans are originated based on the borrower’s
ability to service the debt and secondarily based on the fair value of the underlying collateral.
Construction loans include residential and commercial real estate
loans and are typically for owner-occupied or pre-sold/pre-leased properties. The terms of these loans are generally short-term
with permanent financing upon completion. Land development loans include loans to develop both residential and commercial properties.
Consumer and other loans include second mortgage loans, home equity
loans secured by junior and senior liens on residential real estate and home improvement loans. These loans are originated based
primarily on credit scores, debt-to-income ratios and loan-to-value ratios.
Activity in the allowance for loan losses for the three and six
months ended June 30, 2014 was as follows:
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance April 1, 2014
|
|
$
|
2,645
|
|
|
$
|
2,809
|
|
|
$
|
3,991
|
|
$
|
483
|
|
|
$
|
105
|
|
$
|
10,033
|
|
Provisions for loan losses
|
|
|
46
|
|
|
|
548
|
|
|
|
38
|
|
|
(89
|
)
|
|
|
7
|
|
|
550
|
|
Loans charged off
|
|
|
(585
|
)
|
|
|
(44
|
)
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(629
|
)
|
Recoveries
|
|
|
6
|
|
|
|
—
|
|
|
|
53
|
|
|
10
|
|
|
|
—
|
|
|
69
|
|
Ending Balance, June 30, 2014
|
|
$
|
2,112
|
|
|
$
|
3,313
|
|
|
$
|
4,082
|
|
$
|
404
|
|
|
$
|
112
|
|
$
|
10,023
|
|
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, January 1, 2014
|
|
$
|
3,084
|
|
|
$
|
2,437
|
|
|
$
|
3,550
|
|
$
|
485
|
|
|
$
|
92
|
|
$
|
9,648
|
|
Provisions for loan losses
|
|
|
(335
|
)
|
|
|
962
|
|
|
|
329
|
|
|
(93
|
)
|
|
|
20
|
|
|
883
|
|
Loans charged off
|
|
|
(671
|
)
|
|
|
(86
|
)
|
|
|
(169)
|
|
|
—
|
|
|
|
—
|
|
|
(926
|
)
|
Recoveries
|
|
|
34
|
|
|
|
—
|
|
|
|
372
|
|
|
12
|
|
|
|
—
|
|
|
418
|
|
Ending Balance, June 30, 2014
|
|
$
|
2,112
|
|
|
$
|
3,313
|
|
|
$
|
4,082
|
|
$
|
404
|
|
|
$
|
112
|
|
$
|
10,023
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
Activity in the allowance for loan losses for the three and six
months ended June 30, 2013 was as follows:
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, April 1, 2013
|
|
$
|
3,519
|
|
|
$
|
1,936
|
|
|
$
|
3,623
|
|
$
|
404
|
|
|
$
|
41
|
|
$
|
9,523
|
|
Provisions for loan losses
|
|
|
82
|
|
|
|
362
|
|
|
|
665
|
|
|
202
|
|
|
|
(11)
|
|
|
1,300
|
|
Loans charged off
|
|
|
—
|
|
|
|
(54
|
)
|
|
|
(739)
|
|
|
—
|
|
|
|
—
|
|
|
(793
|
)
|
Recoveries
|
|
|
18
|
|
|
|
—
|
|
|
|
2
|
|
|
2
|
|
|
|
11
|
|
|
33
|
|
Ending Balance, June 30, 2013
|
|
$
|
3,619
|
|
|
$
|
2,244
|
|
|
$
|
3,551
|
|
$
|
608
|
|
|
$
|
41
|
|
$
|
10,063
|
|
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, January 1, 2013
|
|
$
|
2,735
|
|
|
$
|
1,869
|
|
|
$
|
3,398
|
|
$
|
1,745
|
|
|
$
|
41
|
|
$
|
9,788
|
|
Provisions for loan losses
|
|
|
850
|
|
|
|
480
|
|
|
|
947
|
|
|
(332
|
)
|
|
|
5
|
|
|
1,950
|
|
Loans charged off
|
|
|
—
|
|
|
|
(106
|
)
|
|
|
(798)
|
|
|
(898
|
)
|
|
|
(16)
|
|
|
(1,818
|
)
|
Recoveries
|
|
|
34
|
|
|
|
1
|
|
|
|
4
|
|
|
93
|
|
|
|
11
|
|
|
143
|
|
Ending Balance, June 30, 2013
|
|
$
|
3,619
|
|
|
$
|
2,244
|
|
|
$
|
3,551
|
|
$
|
608
|
|
|
$
|
41
|
|
$
|
10,063
|
|
Allowance for Loan Losses Allocation
As of June 30, 2014:
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Specific Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
524
|
|
|
$
|
723
|
|
|
$
|
202
|
|
|
$
|
181
|
|
|
$
|
9
|
|
|
$
|
1,639
|
|
Purchase credit impaired loans
|
|
|
462
|
|
|
|
320
|
|
|
|
676
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,458
|
|
Total specific reserves
|
|
|
986
|
|
|
|
1,043
|
|
|
|
878
|
|
|
|
181
|
|
|
|
9
|
|
|
|
3,097
|
|
General reserves
|
|
|
1,126
|
|
|
|
2,270
|
|
|
|
3,204
|
|
|
|
223
|
|
|
|
103
|
|
|
|
6,926
|
|
Total
|
|
$
|
2,112
|
|
|
$
|
3,313
|
|
|
$
|
4,082
|
|
|
$
|
404
|
|
|
$
|
112
|
|
|
$
|
10,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
3,261
|
|
|
$
|
3,464
|
|
|
$
|
15,361
|
|
|
$
|
3,740
|
|
|
$
|
9
|
|
|
$
|
25,835
|
|
Purchase credit impaired loans
|
|
|
7,036
|
|
|
|
12,073
|
|
|
|
31,176
|
|
|
|
2,258
|
|
|
|
21
|
|
|
|
52,564
|
|
Loans collectively evaluated for impairment
|
|
|
182,388
|
|
|
|
175,705
|
|
|
|
658,996
|
|
|
|
35,302
|
|
|
|
11,341
|
|
|
|
1,063,732
|
|
Total
|
|
$
|
192,685
|
|
|
$
|
191,242
|
|
|
$
|
705,533
|
|
|
$
|
41,300
|
|
|
$
|
11,371
|
|
|
$
|
1,142,131
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
As of December 31, 2013:
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Specific Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
835
|
|
|
$
|
460
|
|
|
$
|
413
|
|
|
$
|
271
|
|
|
$
|
—
|
|
|
$
|
1,979
|
|
Purchase credit impaired loans
|
|
|
464
|
|
|
|
269
|
|
|
|
278
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,011
|
|
Total specific reserves
|
|
|
1,299
|
|
|
|
729
|
|
|
|
691
|
|
|
|
271
|
|
|
|
—
|
|
|
|
2,990
|
|
General reserves
|
|
|
1,785
|
|
|
|
1,708
|
|
|
|
2,859
|
|
|
|
214
|
|
|
|
92
|
|
|
|
6,658
|
|
Total
|
|
$
|
3,084
|
|
|
$
|
2,437
|
|
|
$
|
3,550
|
|
|
$
|
485
|
|
|
$
|
92
|
|
|
$
|
9,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
3,937
|
|
|
$
|
3,567
|
|
|
$
|
19,625
|
|
|
$
|
3,830
|
|
|
$
|
—
|
|
|
$
|
30,959
|
|
Purchase credit impaired loans
|
|
|
7,426
|
|
|
|
16,556
|
|
|
|
38,854
|
|
|
|
2,354
|
|
|
|
25
|
|
|
|
65,215
|
|
Loans collectively evaluated for impairment
|
|
|
198,901
|
|
|
|
158,721
|
|
|
|
641,372
|
|
|
|
29,102
|
|
|
|
9,710
|
|
|
|
1,037,806
|
|
Total
|
|
$
|
210,264
|
|
|
$
|
178,844
|
|
|
$
|
699,851
|
|
|
$
|
35,286
|
|
|
$
|
9,735
|
|
|
$
|
1,133,980
|
|
The following tables present loans individually evaluated for impairment
by class of loan as of June 30, 2014 and December 31, 2013, respectively.
|
|
Recorded Investment in Impaired Loans
With Allowance
|
As of June 30, 2014
|
|
Loans Subject to Loss
Share Agreements
|
|
Loans Not Subject to Loss
Share Agreements
|
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
841
|
|
|
$
|
732
|
|
|
$
|
126
|
|
|
$
|
713
|
|
|
$
|
713
|
|
|
$
|
175
|
|
HELOCs and equity
|
|
|
39
|
|
|
|
37
|
|
|
|
37
|
|
|
|
517
|
|
|
|
517
|
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
33
|
|
|
|
33
|
|
|
|
32
|
|
|
|
2,760
|
|
|
|
1,169
|
|
|
|
492
|
|
Secured – real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
897
|
|
|
|
897
|
|
|
|
28
|
|
Non-owner occupied
|
|
|
463
|
|
|
|
316
|
|
|
|
59
|
|
|
|
2,558
|
|
|
|
2,558
|
|
|
|
115
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
384
|
|
|
|
384
|
|
|
|
181
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total June 30, 2014
|
|
$
|
1,376
|
|
|
$
|
1,118
|
|
|
$
|
254
|
|
|
$
|
7,838
|
|
|
$
|
6,247
|
|
|
$
|
1,385
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
|
|
Recorded Investment in Impaired Loans
|
|
|
With No Allowance
|
As of June 30, 2014
|
|
Loans Subject to Loss
Share Agreements
|
|
Loans Not Subject to Loss
Share Agreements
|
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
1,568
|
|
|
$
|
1,254
|
|
|
$
|
149
|
|
|
$
|
49
|
|
HELOCs and equity
|
|
|
226
|
|
|
|
162
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
2,056
|
|
|
|
908
|
|
Secured – real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
1,151
|
|
|
|
1,151
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
288
|
|
|
|
248
|
|
|
|
4,574
|
|
|
|
3,990
|
|
Non-owner occupied
|
|
|
1,167
|
|
|
|
1,001
|
|
|
|
6,483
|
|
|
|
6,351
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
7,565
|
|
|
|
3,356
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total June 30, 2014
|
|
$
|
3,249
|
|
|
$
|
2,665
|
|
|
$
|
21,978
|
|
|
$
|
15,805
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
|
|
Recorded Investment in Impaired Loans
With Allowance
|
As of December 31, 2013
|
|
Loans Subject to Loss
Share Agreements
|
|
Loans Not Subject to Loss
Share Agreements
|
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
1,254
|
|
|
$
|
1,089
|
|
|
$
|
192
|
|
|
$
|
632
|
|
|
$
|
632
|
|
|
$
|
171
|
|
HELOCs and equity
|
|
|
39
|
|
|
|
38
|
|
|
|
38
|
|
|
|
191
|
|
|
|
191
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
359
|
|
|
|
357
|
|
|
|
53
|
|
|
|
3,719
|
|
|
|
1,537
|
|
|
|
730
|
|
Secured – real estate
|
|
|
54
|
|
|
|
52
|
|
|
|
52
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
302
|
|
|
|
274
|
|
|
|
23
|
|
|
|
1,469
|
|
|
|
1,049
|
|
|
|
41
|
|
Non-owner occupied
|
|
|
466
|
|
|
|
329
|
|
|
|
76
|
|
|
|
4,291
|
|
|
|
4,283
|
|
|
|
273
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
527
|
|
|
|
527
|
|
|
|
271
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total December 31, 2013
|
|
$
|
2,474
|
|
|
$
|
2,139
|
|
|
$
|
434
|
|
|
$
|
10,829
|
|
|
$
|
8,219
|
|
|
$
|
1,545
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
|
|
Recorded Investment in Impaired Loans
|
|
|
With No Allowance
|
As of December 31, 2013
|
|
Loans Subject to Loss
Share Agreements
|
|
Loans Not Subject to Loss
Share Agreements
|
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
|
Unpaid
Principal
|
|
Recorded
Investment
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
1,451
|
|
|
$
|
1,170
|
|
|
$
|
106
|
|
|
$
|
—
|
|
HELOCs and equity
|
|
|
59
|
|
|
|
—
|
|
|
|
447
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
1,126
|
|
|
|
810
|
|
Secured – real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
1,181
|
|
|
|
1,181
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
5,437
|
|
|
|
5,287
|
|
Non-owner occupied
|
|
|
1,597
|
|
|
|
1,374
|
|
|
|
7,144
|
|
|
|
7,029
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
7,597
|
|
|
|
3,303
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total December 31, 2013
|
|
$
|
3,107
|
|
|
$
|
2,544
|
|
|
$
|
23,038
|
|
|
$
|
18,057
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
Average of impaired loans and related interest income for the three
and six months ended June 30, 2014 and 2013, respectively, were as follows:
|
|
Three months ended
June 30, 2014
|
|
Six months ended
June 30, 2014
|
|
|
Average
Recorded
Investment
|
|
Interest
Income
|
|
Cash
Basis
|
|
Average
Recorded
Investment
|
|
Interest
Income
|
|
Cash
Basis
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
2,753
|
|
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
2,673
|
|
|
$
|
14
|
|
|
$
|
14
|
|
HELOC and equity
|
|
|
717
|
|
|
|
1
|
|
|
|
2
|
|
|
|
718
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured non real estate
|
|
|
2,656
|
|
|
|
9
|
|
|
|
9
|
|
|
|
2,480
|
|
|
|
18
|
|
|
|
19
|
|
Secured real estate
|
|
|
1,156
|
|
|
|
11
|
|
|
|
12
|
|
|
|
1,163
|
|
|
|
23
|
|
|
|
27
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
5,158
|
|
|
|
25
|
|
|
|
25
|
|
|
|
5,189
|
|
|
|
50
|
|
|
|
50
|
|
Non-owner occupied
|
|
|
10,260
|
|
|
|
95
|
|
|
|
96
|
|
|
|
10,318
|
|
|
|
189
|
|
|
|
190
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved Land
|
|
|
3,753
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3,781
|
|
|
|
4
|
|
|
|
4
|
|
Unimproved Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and Other:
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,462
|
|
|
$
|
150
|
|
|
$
|
152
|
|
|
$
|
26,332
|
|
|
$
|
301
|
|
|
$
|
307
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
|
|
Three months ended
June 30, 2013
|
|
Six months ended
June 30, 2013
|
|
|
Average
Recorded
Investment
|
|
Interest
Income
|
|
Cash
Basis
|
|
Average
Recorded
Investment
|
|
Interest
Income
|
|
Cash
Basis
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
2,357
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
2,329
|
|
|
$
|
9
|
|
|
$
|
8
|
|
HELOC and equity
|
|
|
902
|
|
|
|
2
|
|
|
|
2
|
|
|
|
911
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured non real estate
|
|
|
3,992
|
|
|
|
26
|
|
|
|
23
|
|
|
|
3,560
|
|
|
|
60
|
|
|
|
57
|
|
Secured real estate
|
|
|
1,262
|
|
|
|
12
|
|
|
|
12
|
|
|
|
1,268
|
|
|
|
24
|
|
|
|
24
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
10,667
|
|
|
|
81
|
|
|
|
76
|
|
|
|
10,707
|
|
|
|
162
|
|
|
|
152
|
|
Non-owner occupied
|
|
|
11,758
|
|
|
|
84
|
|
|
|
84
|
|
|
|
11,819
|
|
|
|
166
|
|
|
|
167
|
|
Multifamily
|
|
|
1,370
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,465
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved Land
|
|
|
3,909
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3,738
|
|
|
|
8
|
|
|
|
8
|
|
Unimproved Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and Other:
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,217
|
|
|
$
|
211
|
|
|
$
|
202
|
|
|
$
|
35,797
|
|
|
$
|
432
|
|
|
$
|
419
|
|
Generally, interest accrued on loans is credited to income based
upon the principal balance outstanding. It is management’s policy to discontinue the accrual of interest income and classify
a loan as non-accrual when principal or interest is past due 90 days or more unless, in the determination of management, the principal
and interest on the loan are well collateralized and in the process of collection. Consumer installment loans are generally charged-off
after 90 plus days past due unless adequately collateralized and in the process of collection. Loans are not returned to accrual
status until principal and interest payments are brought current and future payments appear reasonably certain. Interest accrued
and unpaid at the time a loan is placed on non-accrual status is charged against interest income. During the three months ended
June 30, 2014 and 2013, interest income not recognized on non-accrual loans (but would have been recognized if these loans were
current) was approximately $176 and $273, respectively. During the six months ended June 30, 2014 and 2013, interest income not
recognized on non-accrual loans (but would have been recognized if these loans were current) was approximately $333 and $524, respectively.
Non-accrual loans represent loans which are 90 days and over past
due and loans for which management believes collection of contractual amounts due are uncertain of collection. Nonperforming loans
represent loans which are not performing in accordance with the contractual loan agreements. Included in the tables that follow
are loans in non-accrual and 90 plus days past due categories with a carrying value of $14,467 and $15,836 as of June 30, 2014
and December 31, 2013, respectively. There were no loans which were 90 days or greater past due and accruing interest income at
June 30, 2014 and December 31, 2013, respectively. Nonperforming loans and impaired loans are defined differently. As such, some
loans may be included in both categories, whereas other loans may only be included in one category.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
The book balance of loans accounted for under ASC 310-30 at June
30, 2014 and December 31, 2013 which were contractually accruing 30 to 59 days past due were $0 and $6,508, respectively; 30 to
59 days contractually past due and non-accrual were $620 and $0, respectively; contractually 60 to 89 days past due and accruing
were $0 and $0, respectively; contractually 60 to 89 days past due and non-accrual were $605 and $0, respectively; contractually
90 plus days past due and accruing were $0 and $0, respectively and contractually 90 plus days past due and non-accrual were $12,041
and $28,815, respectively. These amounts are excluded from the disclosures of loans past due and on non-accrual.
The following tables summarize past due and non-accrual loans by
the number of days past due as of June 30, 2014 and December 31, 2013.
|
|
Accruing 30 - 59
|
|
Accruing 60-89
|
|
Non-Accrual/Accrual and
90 days and over past due
|
|
Total
|
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
185
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,751
|
|
|
$
|
43
|
|
|
$
|
2,936
|
|
|
$
|
43
|
|
HELOCs and equity
|
|
|
—
|
|
|
|
56
|
|
|
|
—
|
|
|
|
—
|
|
|
|
254
|
|
|
|
373
|
|
|
|
254
|
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
—
|
|
|
|
202
|
|
|
|
—
|
|
|
|
81
|
|
|
|
—
|
|
|
|
1,297
|
|
|
|
—
|
|
|
|
1,580
|
|
Secured – real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
334
|
|
|
|
—
|
|
|
|
334
|
|
|
|
—
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
674
|
|
|
|
2,679
|
|
|
|
674
|
|
|
|
2,679
|
|
Non-owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,877
|
|
|
|
471
|
|
|
|
1,877
|
|
|
|
471
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
53
|
|
|
|
—
|
|
|
|
53
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,599
|
|
|
|
—
|
|
|
|
3,599
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32
|
|
|
|
—
|
|
|
|
32
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
29
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30
|
|
|
|
—
|
|
|
|
59
|
|
Total June 30, 2014
|
|
$
|
185
|
|
|
$
|
287
|
|
|
$
|
—
|
|
|
$
|
81
|
|
|
$
|
5,975
|
|
|
$
|
8,492
|
|
|
$
|
6,160
|
|
|
$
|
8,860
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
|
|
Accruing 30 - 59
|
|
Accruing 60-89
|
|
Non-Accrual/Accrual and
90 days and over past due
|
|
Total
|
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
|
Loans
Subject to
Loss Share
Agreements
|
|
Loans Not
Subject to
Loss Share
Agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
306
|
|
|
$
|
1,085
|
|
|
$
|
—
|
|
|
$
|
24
|
|
|
$
|
3,137
|
|
|
$
|
48
|
|
|
$
|
3,443
|
|
|
$
|
1,157
|
|
HELOCs and equity
|
|
|
27
|
|
|
|
—
|
|
|
|
162
|
|
|
|
—
|
|
|
|
96
|
|
|
|
491
|
|
|
|
285
|
|
|
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
—
|
|
|
|
461
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
|
|
1,518
|
|
|
|
39
|
|
|
|
1,979
|
|
Secured – real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
416
|
|
|
|
—
|
|
|
|
416
|
|
|
|
—
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,737
|
|
|
|
722
|
|
|
|
1,115
|
|
|
|
722
|
|
|
|
2,852
|
|
Non-owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,261
|
|
|
|
2,182
|
|
|
|
2,261
|
|
|
|
2,182
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62
|
|
|
|
—
|
|
|
|
62
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,688
|
|
|
|
—
|
|
|
|
3,688
|
|
Unimproved land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35
|
|
|
|
—
|
|
|
|
35
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
—
|
|
|
|
34
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
|
|
—
|
|
|
|
60
|
|
Total December 31, 2013
|
|
$
|
333
|
|
|
$
|
1,580
|
|
|
$
|
162
|
|
|
$
|
1,761
|
|
|
$
|
6,768
|
|
|
$
|
9,068
|
|
|
$
|
7,263
|
|
|
$
|
12,409
|
|
Modifications of terms for the Company’s loans and their inclusion
as troubled debt restructurings are based on individual facts and circumstances. Loan modifications that are included as troubled
debt restructurings may involve a reduction of the stated interest rate of the loan, an extension of the maturity date at a stated
rate of interest lower than the current market rate for new debt with similar risk, or deferral of principal payments, regardless
of the period of the modification. Generally, the Company will allow interest rate reductions for a period of less than two years
after which the loan reverts back to the contractual interest rate. Each of the loans included as troubled debt restructurings
at June 30, 2014 had either an interest rate modification from 6 months to 2 years before reverting back to the original interest
rate or a deferral of principal payments which can range from 6 to 12 months before reverting back to an amortizing loan. All of
the loans were modified due to financial stress of the borrower. In order to determine if a borrower is experiencing financial
difficulty, an evaluation is performed to determine the probability that the borrower will be in payment default on any of its
debt in the foreseeable future with the modification. This evaluation is performed under the Company’s internal underwriting
policy.
Loans retain their accrual status at the time of their modification.
As a result, if a loan is on non-accrual at the time it is modified, it stays as non-accrual, and if a loan is on accrual at the
time of the modification, it generally stays on accrual. A loan on non-accrual will be individually evaluated based on sustained
adherence to the terms of the modification agreement prior to being reclassified to accrual status. The Company monitors the
performance of loans modified on a monthly basis. A modified loan will be reclassified to non-accrual and is in default if the
loan is not performing in accordance with the modification agreement, the loan becomes contractually past due in accordance with
the modification agreement or other weaknesses are observed which makes collection of principal and interest unlikely. The Company’s
policy is to evaluate and potentially return a troubled debt restructured loan from a non-accrual to accrual status upon the receipt
of all past due principal or interest payments since the date of and in accordance with the terms of the modification agreement
and when future payments are reasonable assured. The average yield on the performing loans classified as troubled debt restructurings
were 4.23% and 4.38%, respectively, as of June 30, 2014 and December 31, 2013. Troubled debt restructuring loans are considered
impaired.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
During the quarter ended June 30, 2014, the Company modified $32
in commercial loans. During the six months ended June 30, 2014 the Company modified $134 in residential loans and $32 in commercial
loans. During the quarter ended June 30, 2013, the Company modified $837 in commercial real estate loans. During the six months
ended June 30, 2013, the Company modified $1,108 in commercial real estate loans. All troubled debt restructurings are classified
as either special mention or substandard by the Company.
The following is a summary of the Company’s performing troubled
debt restructurings as of June 30, 2014 and December 31, 2013, respectively, all of which were performing in accordance with
the restructured terms:
|
|
June 30,
2014
|
|
December 31,
2013
|
Residential real estate
|
|
$
|
903
|
|
|
$
|
834
|
|
Commercial real estate
|
|
|
11,485
|
|
|
|
15,341
|
|
Construction and land development
|
|
|
140
|
|
|
|
143
|
|
Commercial
|
|
|
1,967
|
|
|
|
2,328
|
|
Total
|
|
$
|
14,495
|
|
|
$
|
18,646
|
|
Of the $14,495 of performing troubled debt restructurings at June
30, 2014, $10,014 was classified as special mention and $4,481 was classified as substandard. Of the $18,646 of performing troubled
debt restructurings at December 31, 2013, $11,062 was classified as special mention and $7,584 was classified as substandard. These
loans had a specific reserve in the allowance for loan losses at June 30, 2014 and December 31, 2013 of $572 and $635, respectively.
Total non-accruing troubled debt restructurings as of June 30, 2014
and December 31, 2013, respectively, were as follows:
|
|
June 30,
2014
|
|
December 31,
2013
|
Residential real estate
|
|
$
|
307
|
|
|
$
|
330
|
|
Commercial real estate
|
|
|
3,565
|
|
|
|
3,307
|
|
Construction and land development
|
|
|
3,215
|
|
|
|
3,303
|
|
Commercial
|
|
|
319
|
|
|
|
536
|
|
Consumer
|
|
|
9
|
|
|
|
—
|
|
Total
|
|
$
|
7,415
|
|
|
$
|
7,476
|
|
These loans had a specific reserve in the allowance for loan losses
at June 30, 2014 and December 31, 2013 of $357 and $608, respectively. There were two loans for $266 which were modified within
the twelve months ended June 30, 2014 that defaulted within the three months ended June 30, 2014 and had a specific reserve of
$19 at June 30, 2014. There were four loans for $1,975 which were modified within the twelve months ended June 30, 2014 that defaulted
within the six months ended June 30, 2014 and had a specific reserve of $28 at June 30, 2014. There were no loans modified within
the twelve months ended June 30, 2013 which defaulted within the three or six months ended June 30, 2013.
During the three and six month periods ended June 30, 2014, the
Company lowered the interest rate on $1,367 and $3,015, respectively, of loans prior to maturity which the Company did not consider
to be troubled debt restructurings. During the twelve month ended December 31, 2013, the Company lowered the interest rate on $10,618
of loans prior to maturity to competitively retain the loan. Due to the borrowers’ significant deposit balances or overall
quality of the loans, these loans were not included in troubled debt restructurings. In addition, each of these borrowers were
not considered to be in financial distress and the modified terms matched current market terms for borrowers with similar risk
characteristics. The Company had no other loans where we extended the maturity or forgave principal that were not already included
in troubled debt restructurings or otherwise impaired.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
The Company had no commitments to lend additional funds for loans
classified as troubled debt restructurings at June 30, 2014. The Company has allocated $928 and $1,243 of specific reserves to
customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2014 and December 31, 2013, respectively.
Credit Quality Indicators:
The Company categorizes loans into risk categories based on relevant
information about the ability of borrowers to service their debt such as: current financial information, historical payment experience,
credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually
by classifying the loans as to credit risk. Loans classified as substandard or special mention are reviewed quarterly by the Company
for further deterioration or improvement to determine if appropriately classified and impairment. All other loans greater than
$1,000, commercial and personal lines of credit greater than $100, and unsecured loans greater than $100 are specifically reviewed
at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well if a
loan becomes past due, the Company will evaluate the loan grade.
Loans excluded from the scope of the annual review process above
are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the
credit worthiness of the borrower; or (c) the customer contacts the Company for a modification. In these circumstances, the loan
is specifically evaluated for potential classification as to special mention, substandard or doubtful. The Company uses the following
definitions for risk ratings:
Special Mention.
Loans classified as special mention
have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may
result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard.
Loans classified as substandard are inadequately
protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified
have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct
possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful.
Loans classified as doubtful have all the
weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation
in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. There were no doubtful
loans at June 30, 2014 or December 31, 2013.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
|
|
|
|
Loans Subject to Loss
Share Agreements
|
|
Loans Not Subject to Loss
Share Agreements
|
As of June 30, 2014
|
|
Total
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
127,050
|
|
|
$
|
48,163
|
|
|
$
|
1,239
|
|
|
$
|
2,751
|
|
|
$
|
69,950
|
|
|
$
|
4,057
|
|
|
$
|
890
|
|
HELOCs and equity
|
|
|
64,192
|
|
|
|
7,631
|
|
|
|
31
|
|
|
|
254
|
|
|
|
49,808
|
|
|
|
1,643
|
|
|
|
4,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
135,238
|
|
|
|
9,205
|
|
|
|
—
|
|
|
|
32
|
|
|
|
122,884
|
|
|
|
1,089
|
|
|
|
2,028
|
|
Secured – real estate
|
|
|
51,015
|
|
|
|
8,675
|
|
|
|
—
|
|
|
|
334
|
|
|
|
40,501
|
|
|
|
800
|
|
|
|
705
|
|
Unsecured
|
|
|
6,432
|
|
|
|
70
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,857
|
|
|
|
101
|
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
214,765
|
|
|
|
24,827
|
|
|
|
7,485
|
|
|
|
674
|
|
|
|
173,588
|
|
|
|
1,230
|
|
|
|
6,961
|
|
Non-owner occupied
|
|
|
441,788
|
|
|
|
74,707
|
|
|
|
403
|
|
|
|
1,877
|
|
|
|
357,082
|
|
|
|
4,689
|
|
|
|
3,030
|
|
Multi-family
|
|
|
48,980
|
|
|
|
12,083
|
|
|
|
—
|
|
|
|
53
|
|
|
|
36,844
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
13,100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,100
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
16,934
|
|
|
|
2,402
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,915
|
|
|
|
2,632
|
|
|
|
3,985
|
|
Unimproved land
|
|
|
11,266
|
|
|
|
3,824
|
|
|
|
—
|
|
|
|
32
|
|
|
|
7,410
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
11,371
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,816
|
|
|
|
438
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total June 30, 2014
|
|
$
|
1,142,131
|
|
|
$
|
191,587
|
|
|
$
|
9,158
|
|
|
$
|
6,007
|
|
|
$
|
895,755
|
|
|
$
|
16,679
|
|
|
$
|
22,945
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 4 – LOANS (continued)
|
|
|
|
Loans Subject to Loss
Share Agreements
|
|
Loans Not Subject to Loss
Share Agreements
|
As of December 31, 2013
|
|
Total
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
$
|
117,830
|
|
|
$
|
56,000
|
|
|
$
|
1,121
|
|
|
$
|
3,137
|
|
|
$
|
52,822
|
|
|
$
|
4,032
|
|
|
$
|
718
|
|
HELOCs and equity
|
|
|
61,014
|
|
|
|
7,712
|
|
|
|
31
|
|
|
|
258
|
|
|
|
46,437
|
|
|
|
629
|
|
|
|
5,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
145,298
|
|
|
|
17,555
|
|
|
|
319
|
|
|
|
39
|
|
|
|
123,168
|
|
|
|
1,733
|
|
|
|
2,484
|
|
Secured – real estate
|
|
|
57,052
|
|
|
|
9,168
|
|
|
|
—
|
|
|
|
416
|
|
|
|
45,955
|
|
|
|
800
|
|
|
|
713
|
|
Unsecured
|
|
|
7,914
|
|
|
|
76
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,311
|
|
|
|
114
|
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
209,467
|
|
|
|
26,129
|
|
|
|
7,638
|
|
|
|
722
|
|
|
|
167,238
|
|
|
|
315
|
|
|
|
7,425
|
|
Non-owner occupied
|
|
|
451,982
|
|
|
|
93,010
|
|
|
|
409
|
|
|
|
2,261
|
|
|
|
345,941
|
|
|
|
5,009
|
|
|
|
5,352
|
|
Multi-family
|
|
|
38,402
|
|
|
|
14,080
|
|
|
|
—
|
|
|
|
62
|
|
|
|
24,260
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
7,366
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,366
|
|
|
|
—
|
|
|
|
—
|
|
Improved land
|
|
|
16,538
|
|
|
|
2,943
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,851
|
|
|
|
2,656
|
|
|
|
4,088
|
|
Unimproved land
|
|
|
11,382
|
|
|
|
3,527
|
|
|
|
—
|
|
|
|
35
|
|
|
|
7,820
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
9,735
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,135
|
|
|
|
480
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total December 31, 2013
|
|
$
|
1,133,980
|
|
|
$
|
230,202
|
|
|
$
|
9,518
|
|
|
$
|
6,930
|
|
|
$
|
844,304
|
|
|
$
|
15,768
|
|
|
$
|
27,258
|
|
The Company acquired certain loans for which there was, at acquisition,
evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required
payments would not be collected. The carrying amount of these loans at June 30, 2014 was approximately $52,564, net of a discount
of $21,777. The Company maintained an allowance for loan losses of $1,458 at June 30, 2014 for loans acquired with deteriorated
credit quality. The Company did not acquire any loans for which there was evidence of credit deterioration since origination in
connection with the acquisition of EBI. During the three and six months ended June 30, 2014, the Company accreted $2,506 and $5,210,
respectively, into interest income on acquired loans. During the three and six months ended June 30, 2013, the Company accreted
$5,107 and $7,959, respectively, into interest income on acquired loans. The remaining accretable discount was $9,847 at June 30,
2014. In addition, $50,348 of these $52,564 in loans is covered by the FDIC loss share agreements.
The fair value for loans acquired from EBI without specifically
identified credit deficiencies was based primarily on a discounted cash flow methodology that considered factors including the
type of loan and related collateral, classification and accrual status, fixed or variable interest rate, term of loan and whether
or not the loan was amortizing, and current discount rates. Loans were grouped together according to similar characteristics and
were treated in the aggregate when applying various valuation techniques. The discount rates used for loans were based on current
market rates for new originations of comparable loans and included adjustments for liquidity concerns. The discount rate does not
include a factor for credit losses as that has been included in the estimated cash flows. Management prepared the purchase price
allocations, and in part relied on a third party for the valuation of covered non-impaired loans at the date of each acquisition,
respectively. The fair value of loans acquired from EBI was $159,168. The gross contractual amount acquired was $161,078 and the
Company expects to collect a majority of this amount based on current information available.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 5 – FAIR VALUES
Fair Value Measurements
Fair value is defined as the
price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels
of inputs that may be used to measure fair value:
|
●
|
Level I: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to
access as of the measurement date.
|
|
●
|
Level II: Significant other observable inputs other than Level I prices such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
|
|
●
|
Level III: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that
market participants would use in pricing an asset or liability.
|
The fair values of securities available for sale are determined
by obtaining quoted prices on nationally recognized securities exchanges (Level I inputs) or matrix pricing, which is a mathematical
technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities
but rather by relying on the securities’ relationship to other benchmark quoted securities (Level II inputs).
Assets measured at fair value on a recurring basis at June
30, 2014 and December 31, 2013, are summarized below.
|
|
Fair value measurements at June 30, 2014 using
|
|
|
June 30,
2014
|
|
Quoted prices
in active markets
for identical
assets
(Level I)
|
|
Significant
other
observable
inputs
(Level II)
|
|
Significant
unobservable
inputs
(Level III)
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
937
|
|
|
$
|
—
|
|
|
$
|
937
|
|
|
$
|
—
|
|
Municipal securities
|
|
|
6,274
|
|
|
|
—
|
|
|
|
6,274
|
|
|
|
—
|
|
Commercial mortgage-backed
|
|
|
4,207
|
|
|
|
—
|
|
|
|
4,207
|
|
|
|
—
|
|
Residential collateralized mortgage obligations
|
|
|
268
|
|
|
|
—
|
|
|
|
268
|
|
|
|
—
|
|
Residential mortgage-backed
|
|
|
308,785
|
|
|
|
—
|
|
|
|
308,785
|
|
|
|
—
|
|
|
|
$
|
320,471
|
|
|
$
|
—
|
|
|
$
|
320,471
|
|
|
$
|
—
|
|
|
|
Fair value measurements at December, 2013 using
|
|
|
December 31,
2013
|
|
Quoted prices
in active markets
for identical
assets
(Level I)
|
|
Significant
other
observable
inputs
(Level II)
|
|
Significant
unobservable
inputs
(Level III)
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
918
|
|
|
$
|
—
|
|
|
$
|
918
|
|
|
$
|
—
|
|
Municipal securities
|
|
|
5,604
|
|
|
|
—
|
|
|
|
5,604
|
|
|
|
—
|
|
Commercial mortgage-backed
|
|
|
4,074
|
|
|
|
—
|
|
|
|
4,074
|
|
|
|
—
|
|
Residential collateralized mortgage obligations
|
|
|
818
|
|
|
|
—
|
|
|
|
818
|
|
|
|
—
|
|
Residential mortgage-backed
|
|
|
316,547
|
|
|
|
—
|
|
|
|
316,547
|
|
|
|
—
|
|
|
|
$
|
327,961
|
|
|
$
|
—
|
|
|
$
|
327,961
|
|
|
$
|
—
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 5 – FAIR VALUES (continued)
There were no liabilities measured at fair value on a recurring
basis at June 30, 2014 and December 31, 2013.
The fair value of impaired loans with specific allocations of the allowance for
loan losses and other real estate owned is based on recent real estate appraisals less estimated costs of sale. For residential
real estate impaired loans and other real estate owned, appraised values are based on the comparative sales approach. For commercial
and commercial real estate impaired loans and other real estate owned, appraisers may use either a single valuation approach or
a combination of approaches such as comparative sales, cost or the income approach. A significant unobservable input in the income
approach is the estimated income capitalization rate for a given piece of collateral. Adjustments to appraisals may be made by
the appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of a given
assets over time. As such, the fair value of impaired loans and other real estate owned are considered a Level III in the fair
value hierarchy.
The Company recovers the carrying value of other real estate owned
through the sale of the property. The ability to affect future sales prices is subject to market conditions and factors beyond
our control and may impact the estimated fair value of a property.
Appraisals for impaired loans and other real estate owned are performed
by certified general appraisers whose qualifications and licenses have been reviewed and verified by the Company. Once reviewed,
a member of the appraisal department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting
fair value in comparisons to independent data sources such as recent market data or industry wide statistics. On an annual basis,
the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine
what additional adjustments, if any, should be made on collateral for impaired loans and other real estate owned which has not
been sold to the appraisal value to arrive at fair value. Based on our most recent analysis, no discounts to current appraisals
have been warranted.
The significant unobservable inputs used in the fair value measurements
for Level 3 assets measured at fair value on a nonrecurring basis as of June 30, 2014 and December 31, 2013 are as follows:
Impaired Loans
|
|
Valuation
Techniques
|
|
Range of Unobservable Inputs
|
|
|
|
|
|
Residential
|
|
Appraisals of collateral value
|
|
Adjustment for sales comparatives related to physical features including gross living area, site size, location and condition, generally a decline of 10% to an increase of 25%
|
Commercial
|
|
Discounted cash flow model
|
|
Discount rate from 0% to 6%
|
Commercial Real Estate
|
|
Appraisals of collateral value
|
|
Market capitalization rates between 8% and 12%. Market rental rates for similar properties ranging from $14 to $34 per square foot
|
Construction and land development
|
|
Appraisals of collateral value
|
|
Adjustment for age of comparable sales, generally a decline of 35% to no change
|
|
|
|
|
|
Other Real Estate
|
|
|
|
|
|
|
|
|
|
Residential
|
|
Appraisals of collateral value
|
|
Adjustment for sales comparatives related to physical features including gross living area, site size, location and condition, generally an decline of 10% to an increase of 25%
|
Commercial
|
|
Appraisals of collateral value
|
|
Adjustment for age and physical conditions of comparable sales, generally a decline of 20% to an increase of 30%
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 5 – FAIR VALUES (continued)
Assets measured at fair value on a non-recurring basis are summarized
below.
|
|
Fair value measurements at June 30, 2014 using
|
|
|
June 30,
2014
|
|
Quoted prices
in active markets for identical assets (Level I)
|
|
Significant other observable inputs
(Level II)
|
|
Significant
unobservable
inputs
(Level III)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
1,276
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,276
|
|
Commercial
|
|
|
678
|
|
|
|
—
|
|
|
|
—
|
|
|
|
678
|
|
Commercial real estate
|
|
|
3,569
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,569
|
|
Construction and land development
|
|
|
203
|
|
|
|
—
|
|
|
|
—
|
|
|
|
203
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
5,726
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,726
|
|
Other real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
9,195
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,195
|
|
Residential real estate
|
|
|
4,105
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,105
|
|
|
|
$
|
13,300
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,300
|
|
At June 30, 2014, impaired loans, which had a specific allowance
for loan losses allocated, had a carrying amount of $7,365, with a valuation allowance of $1,639 resulting in an additional provision
of loan losses of $99 and $511 during the three and six months ended June 30, 2014, respectively.
Other real estate owned, which are measured for impairment using
the fair value of the collateral less estimated cost to sell, had a carrying amount of $13,300, and had no valuation allowance
at June 30, 2014. During the three and six months ended June 30, 2014 the Company recorded write-downs to other real estate owned
of $345 and $590 due to reductions in the estimated fair value of properties.
|
|
Fair value measurements at December 31, 2013 using
|
|
|
December 31,
2013
|
|
Quoted prices in active markets for identical assets
(Level I)
|
|
Significant
other
observable
Inputs
(Level II)
|
|
Significant
unobservable
inputs
(Level III)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
1,490
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,490
|
|
Commercial
|
|
|
1,111
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,111
|
|
Commercial real estate
|
|
|
5,522
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,522
|
|
Construction and land development
|
|
|
256
|
|
|
|
—
|
|
|
|
—
|
|
|
|
256
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
8,379
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,379
|
|
Other real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
14,740
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,740
|
|
Residential
|
|
|
3,840
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,840
|
|
|
|
$
|
18,580
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,580
|
|
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 5 – FAIR VALUES (continued)
At December 31, 2013, impaired loans, which had a specific allowance
for loan losses allocated, had a carrying amount of $10,358, with a valuation allowance of $1,979. For the three and six months
ended June 30, 2013, we recorded additional provision for loan losses of $908 and $1,675, respectively.
Other real estate owned, which are measured for impairment using
the fair value of the collateral less estimated cost to sell, had a carrying amount of $18,580, and had no valuation allowance
at December 31, 2013. During the three and six months ended June 30, 2013, the Company recorded write-downs to other real estate
owned of $114 and $641, respectively, due to reductions in the estimated fair value of properties.
Transfers of assets and liabilities between levels within the fair
value hierarchy are recognized when an event or change in circumstances occurs. There have been no transfers between fair value
levels for 2014 and 2013.
Carrying amount and estimated fair values of financial instruments
were as follows at June 30, 2014 and December 31, 2013, respectively.
|
|
June 30, 2014
|
|
December 31, 2103
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
68,436
|
|
|
$
|
68,436
|
|
|
$
|
198,221
|
|
|
$
|
198,221
|
|
Securities available for sale
|
|
|
320,471
|
|
|
|
320,471
|
|
|
|
327,961
|
|
|
|
327,961
|
|
Loans, net, including loans held for sale
|
|
|
1,132,414
|
|
|
|
1,137,525
|
|
|
|
1,124,571
|
|
|
|
1,130,355
|
|
Nonmarketable equity securities
|
|
|
9,496
|
|
|
|
N/A
|
|
|
|
9,977
|
|
|
|
N/A
|
|
FDIC loss share receivable
|
|
|
23,148
|
|
|
|
23,148
|
|
|
|
29,331
|
|
|
|
29,331
|
|
Accrued interest receivable
|
|
|
3,600
|
|
|
|
3,600
|
|
|
|
3,991
|
|
|
|
3,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,392,818
|
|
|
$
|
1,393,576
|
|
|
$
|
1,547,913
|
|
|
$
|
1,548,743
|
|
Federal funds purchased and repurchase agreements
|
|
|
16,457
|
|
|
|
16,458
|
|
|
|
14,363
|
|
|
|
14,364
|
|
Federal Home Loan Bank advances
|
|
|
35,011
|
|
|
|
35,142
|
|
|
|
35,018
|
|
|
|
35,167
|
|
Accrued interest payable
|
|
|
219
|
|
|
|
219
|
|
|
|
282
|
|
|
|
282
|
|
Fair value methods and assumptions are periodically evaluated by
the Company. The methods and assumptions used to estimate fair value are described as follows:
Cash and cash equivalents
The carrying amounts of cash and cash equivalents approximate the
fair value and are classified as Level I in the fair value hierarchy.
Loans, net
The fair value of variable rate loans that re-price frequently and
with no significant change in credit risk is based on the carrying value and results in a classification of Level III within the
fair value hierarchy. Fair value for other loans are estimated using discounted cash flows analysis using interest rates currently
being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level III classification in the
fair value hierarchy. The methods used to estimate the fair value of loans do not necessarily represent an exit price.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 5 – FAIR VALUES (continued)
Nonmarketable equity securities
Nonmarketable equity securities include Federal Home Loan Bank Stock
and Federal Reserve Bank Stock. It is not practicable to determine the fair value of nonmarketable equity securities due to restrictions
placed on their transferability.
FDIC Loss Share Receivable
The fair value of the FDIC Loss Share Receivable represents the
discounted value of the FDIC’s reimbursed portion of estimated losses the Company expects to realize on loans and other real
estate owned covered under Loss Sharing Agreements. As a result, the fair value is considered a Level III classification in the
fair value hierarchy.
Deposits
The fair value of non-interest bearing demand deposits is equal
to the amount payable at the reporting date (i.e. carrying value) resulting in a Level 1 classification in the fair value hierarchy.
The fair value of interest bearing demand deposits (e.g. interest bearing, savings and certain types of money market accounts)
are, by definition, equal to the amount payable in demand at the reporting date (i.e. carrying value) resulting in a Level II classification
in the fair value hierarchy. The carrying amounts of variable rate, fixed-term money market accounts and certificate of deposits
approximates their fair value at the reporting date in a Level II classification in the fair value hierarchy. Fair values for fixed
rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level II classification.
Federal Funds purchased and repurchase agreements
The carrying amounts of federal funds and repurchase agreements
generally mature within ninety days and approximate their fair value resulting in a Level II classification in the fair value hierarchy.
Federal Home Loan Advances
The fair value of Federal Home Loan Bank Advances are estimated
using a discounted cash flow analysis based on the current borrowing rates for similar types of borrowings and are classified as
a Level II in the fair value hierarchy.
Accrued interest receivable/payable
The carrying amounts of accrued interest receivable approximate
fair value resulting in a Level III classification. The carrying amounts of accrued interest payable approximate fair value resulting
in a Level II classification.
Off-balance sheet instruments
The fair value of off-balance-sheet instruments is based on the
current fees that would be charged to enter into or terminate such arrangements, taking into account the remaining terms of the
agreements and the counterparties’ credit standing. The fair value of commitments is not material.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 6 – FDIC LOSS SHARE RECEIVABLE
The activity in the FDIC loss share receivable which resulted from
the acquisition of financial institutions covered under loss share agreements with the FDIC were as follows:
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
25,951
|
|
|
$
|
41,189
|
|
|
$
|
29,331
|
|
|
$
|
46,735
|
|
Cash received
|
|
|
(482
|
)
|
|
|
(1,018
|
)
|
|
|
(1,485
|
)
|
|
|
(3,745
|
)
|
Discount accretion
|
|
|
20
|
|
|
|
239
|
|
|
|
41
|
|
|
|
477
|
|
Reduction for changes in cash flow estimates
|
|
|
(2,344
|
)
|
|
|
(5,161
|
)
|
|
|
(5,013
|
)
|
|
|
(8,218
|
)
|
Other
|
|
|
3
|
|
|
|
—
|
|
|
|
274
|
|
|
|
—
|
|
End of period
|
|
$
|
23,148
|
|
|
$
|
35,249
|
|
|
$
|
23,148
|
|
|
$
|
35,249
|
|
The reduction for changes in cash flow estimates is primarily due
to resolutions of covered assets in excess of the amount expected, which includes sales, payoffs and transfers to (and sales of)
other real estate owned as well as a reduction due to changes in expected cash flows of the remaining covered assets.
Pursuant to each loss share agreement, the Company calculates an
estimated amount due to the FDIC related to losses in acquired assets. An amount is payable at the end of the year of each respective
loss share agreement and is generally based on the actual losses incurred. At June 30, 2014 and December 31, 2013, the Company
calculated $4,488 and $4,218, respectively, due to the FDIC pursuant to these contracts and recorded these amounts in other liabilities
in the consolidated balance sheets.
NOTE 7 – ADOPTION OF NEW ACCOUNTING STANDARDS
ASU No. 2014-04, “Receivables-Troubled Debt Restructurings
by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,”
clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession
of residential real estate property collateralizing a consumer mortgage loan, upon either the creditor obtaining legal title to
the residential real estate property upon completion of a foreclosure, or the borrower conveying all interest in the residential
real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar
legal agreement. Additionally, this ASU requires interim and annual disclosure of both the amount of foreclosed residential real
estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real
estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No.
2014-04 is effective for annual and interim periods beginning after December 15, 2014. The adoption of this standard is not expected
to have an impact on the consolidated financial statements.
ASU No. 2014-09, “Revenue from Contracts with Customers (Topic
606)” was a joint project initiated by the Financial Accounting Standards Board (FASB) and the International Accounting Standards
Board (IASB) to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosures for U.S.
and international accounting standards that would: (1) remove inconsistencies and weaknesses in revenue requirements; (2) provide
a more robust framework for addressing revenue issues; (3) improve comparability of revenue recognition practices across entities,
industries, jurisdictions, and capital markets; (4) provide more useful information to users of financial statements through improved
disclosure requirements and (5) simplify the preparation of financial statements by reducing the number of requirements to which
an entity must refer. The guidance affects any entity that either enters into contracts with customers to transfer goods or services
or enters into contracts for the
transfer of nonfinancial assets. The core principle is that an
entity should recognize revenue to depict the transfer of promised 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. The guidance provides steps to
follow to achieve the core principle. An entity should disclose sufficient information to enable users of financial statements
to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative
and quantitative information is required about contracts with customers, significant judgments and changes in judgments, and assets
recognized from the costs to obtain or fulfill a contract. This ASU is
effective for annual reporting periods beginning
after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company
is currently evaluating the effects of this guidance on its financial statements and disclosures, if any.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 8 – EARNINGS PER COMMON SHARE
Basic earnings per common share is net income divided by the weighted
average number of common shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional
potential common shares issuable under stock options and restricted stock.
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Net income
|
|
$
|
2,000
|
|
|
$
|
1,767
|
|
|
$
|
4,686
|
|
|
$
|
3,388
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
34,232,947
|
|
|
|
33,772,105
|
|
|
|
33,852,193
|
|
|
|
33,773,327
|
|
Basic EPS
|
|
$
|
0.06
|
|
|
$
|
0.05
|
|
|
$
|
0.14
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
34,232,947
|
|
|
|
33,772,105
|
|
|
|
33,852,193
|
|
|
|
33,773,327
|
|
Effect of dilutive shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
681,547
|
|
|
|
141,446
|
|
|
|
586,006
|
|
|
|
112,311
|
|
Restricted stock
|
|
|
131,963
|
|
|
|
43,816
|
|
|
|
109,851
|
|
|
|
34,238
|
|
Total dilutive shares
|
|
|
35,046,457
|
|
|
|
33,957,367
|
|
|
|
34,548,050
|
|
|
|
33,919,876
|
|
Diluted EPS
|
|
$
|
0.06
|
|
|
$
|
0.05
|
|
|
$
|
0.14
|
|
|
$
|
0.10
|
|
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The Company issues loan commitments, lines of credit, and letters
of credit to meet its customers’ financing needs. Commitments to make loans are generally made for periods ranging from 60
to 90 days and may expire without being used. Off balance sheet risk to credit loss may exist up to the face amount of these instruments.
The Company uses the same credit policies to make such commitments as are used to originate loans which include obtaining collateral
at the time of exercise of the commitment.
The contractual amount of financial instruments with off-balance
sheet risk was as follows at June 30, 2014 and December 31, 2013.
|
|
June 30, 2014
|
|
December 31, 2013
|
|
|
Fixed
Rate
|
|
Variable
Rate
|
|
Fixed
Rate
|
|
Variable
Rate
|
Commitments to make loans
|
|
$
|
35,331
|
|
|
$
|
25,010
|
|
|
$
|
29,104
|
|
|
$
|
22,557
|
|
Unused lines of credit
|
|
|
12,514
|
|
|
|
97,815
|
|
|
|
9,283
|
|
|
|
98,035
|
|
Stand-by letters of credit
|
|
|
8,121
|
|
|
|
707
|
|
|
|
7,205
|
|
|
|
782
|
|
The fixed rate loan commitments have interest rates generally ranging
from 2.0% to 7.75% and the underlying loans have maturities ranging from three months to 30 years.
1st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 10 –MERGER WITH VALLEY NATIONAL BANCORP
On May 7, 2014, the Company entered into an Agreement and Plan of
Merger (the “Valley Merger Agreement”) with Valley National Bancorp (“Valley”), with Valley as the surviving
entity (the “Valley Merger”). Immediately following the Valley Merger, 1st United Bank will merge with and into Valley
National Bank, a national banking association and wholly owned subsidiary of Valley, with Valley National Bank surviving the Valley
Merger. Subject to the terms and conditions of the Valley Merger Agreement, each share of common stock of the Company will be converted
into 0.89 of a share of Valley common stock, subject to adjustment in the event the average closing price of Valley’s common
stock during the 20 day business period ended five days prior to the closing of the Valley Merger (“Average Closing Price”),
falls below $8.09 or rises above $12.13 and subject to the payment of cash in lieu of fractional shares (the “Exchange Ratio”).
In the event the Average Closing Price of Valley’s common stock is less than $8.09, then Valley will increase the 0.89 exchange
ratio (or, in lieu of such increase, make a cash payment to shareholders of the Company) so that shareholders of the Company receive
$7.20
of value in Valley common stock for each share of the Company’s common stock that
they hold. In the event the Average Closing Price is greater than $12.13, then Valley will decrease the 0.89 exchange ratio so
that shareholders of the Company receive $10.80 of value in merger consideration for each share of the Company’s common
stock that they hold. In addition, outstanding options to acquire shares of the Company’s common stock will become vested
and each option share will be converted into the right to receive a cash payment from the Company immediately prior to the effective
time of the Valley Merger equal to the per share consideration paid under the Valley Merger Agreement less the option exercise
price per share.
The Valley Merger Agreement provides certain termination rights
for both Valley and the Company, and further provides that upon termination of the Valley Merger Agreement under certain circumstances,
the Company will be obligated to pay Valley a termination fee of $14,500, plus Valley’s reasonable out-of-pocket expenses
up to $750.
Completion of the Valley Merger is subject to satisfaction of various
conditions, including (i) receipt of the requisite approval of the Valley Merger by the Company’s shareholders, (ii) receipt
of the requisite approval of the amendment to Valley’s Restated Certificate of Incorporation to increase the number of shares
of authorized Valley common stock by shareholders of Valley, (iii) receipt of regulatory approvals, (iv) the absence of any law
or order prohibiting the Valley Merger, (v) effectiveness of the registration statement on Form S-4 filed by Valley with respect
to the Valley common stock to be issued to the Company’s shareholders upon consummation the Valley Merger, and (vi) qualification
of the Valley Merger as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended. Completion
of the Valley Merger is also subject to prior receipt by Valley of the written consent of the FDIC for the assignment of the shared-loss
agreements between the Company and the FDIC to Valley, which was received during the quarter ended June 30, 2014.
During the quarter ended June 30, 2014, the Company incurred merger
related expenses of $962 related to this transaction.
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management’s discussion and analysis of certain
significant factors that have affected our financial condition and operating results during the periods included in the accompanying
consolidated financial statements, and should be read in conjunction with such financial statements. Management’s discussion
and analysis is divided into subsections entitled “Business Overview,” “Operating Results,” “Financial
Condition,” “Capital Resources,” “Cash Flows and Liquidity,” “Off Balance Sheet Arrangements,”
and “Critical Accounting Policies.” Our financial condition and operating results principally reflect those of its
wholly-owned subsidiaries, 1st United Bank (“1st United”) and Equitable Equity Lending (“EEL”). The consolidated
entity is referred to as the “Company,” “Bancorp,” “we,” “us,” or “our.”
The following discussion should be read in conjunction with the
condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.
CAUTION CONCERNING FORWARD-LOOKING
STATEMENTS
This Quarterly Report on Form 10-Q, including this MD&A section,
contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates
and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many
of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,”
“anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,”
“goal,” and similar expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to
risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements.
Please see the Introductory Note and Item 1A. Risk Factors of our Annual Report on Form 10-K, as updated from time to time, and
in our other filings made from time to time with the SEC after the date of this report.
However, other factors besides those listed above, or in our Quarterly
Report or in our Annual Report, also could adversely affect our results, and you should not consider any such list of factors to
be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us or on our behalf speak only
as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable law.
BUSINESS OVERVIEW
We are a financial holding company headquartered in Boca Raton,
Florida with principal corporate operations in West Palm Beach, Florida.
We follow a business plan that emphasizes the delivery of banking
services to businesses and individuals in our geographic market who desire a high level of personalized service. The business plan
includes business banking, services to professionals, real estate lending and private banking, as well as full community banking
products and services. The business plan also provides for an emphasis on our Small Business Administration and Export-Import Bank
lending programs, as well as on small business lending. We focus on the building of a balanced loan and deposit portfolio, with
emphasis on low cost liabilities.
As is the case with banking institutions generally, our operations
are materially and significantly influenced by general economic conditions and by related monetary and fiscal policies of financial
institution regulatory agencies, including the Federal Reserve Bank and the FDIC. Deposit flows and costs of funds are influenced
by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand
for financing of real estate and other types of loans, which in turn is affected by the interest rates at which such financing
may be offered and other factors affecting local demand and availability of funds. We face strong competition in the attraction
of deposits (our primary source of lendable funds) and in the origination of loans.
Recent Development - Merger with Valley National Bancorp
On May 7, 2014, the Company entered into the Valley Merger Agreement
with Valley, with Valley as the surviving entity (the “Valley Merger”). Immediately following the Valley Merger, 1st
United Bank will merge with and into Valley National Bank, a national banking association and wholly owned subsidiary of Valley,
with Valley National Bank surviving the merger. Subject to the terms and conditions of the Valley Merger Agreement, each share
of common stock of the Company will be converted into 0.89 of a share of Valley common stock, subject to adjustment in the event
the Average Closing Price of Valley’s common stock during the 20 day business period ending five days prior to the closing
of the Valley Merger (“Average Closing Price”), falls below $8.09 or rises above $12.13 and subject to the payment
of cash in lieu of fractional shares (the “Exchange Ratio”). In the event the Average Closing Price of Valley’s
common stock is less than $8.09, then Valley will increase the 0.89 exchange ratio (or, in lieu of such increase, make a cash
payment to shareholders of the Company) so that shareholders of the Company receive $7.20 in Valley common stock for each share
of the Company’s common stock that they hold. In the event the Average Closing Price is greater than $12.13, then Valley
will decrease the 0.89 exchange ratio so that shareholders of the Company receive $10.80 in merger consideration for each share
of the Company’s common stock that they hold. In addition, outstanding options to acquire shares of the Company’s
common stock will become vested and each option share will be converted into the right to receive a cash payment from the Company
immediately prior to the effective time of the Valley Merger equal to the per share consideration paid under the Valley Merger
Agreement less the option exercise price per share.
The Valley Merger Agreement contains customary representations,
warranties, and covenants of Valley and the Company, including, among others, a covenant that requires (i) each of Valley and the
Company to conduct its business in the ordinary course and consistent with past banking practice during the period between the
execution of the Valley Merger Agreement and consummation of the Valley Merger and (ii) the Company to not engage in certain kinds
of transactions during such period (without the prior written consent of Valley). The Company has also agreed, subject to certain
exceptions generally related to the Board’s evaluation and exercise of its fiduciary duties, to not (i) solicit proposals
relating to alternative business combination transactions from third parties or (ii) enter into discussions or negotiations with,
or provide confidential information to, any third party in connection with any proposals for alternative business combination transactions.
Valley has also agreed, as a condition to closing the Valley Merger, to seek shareholder approval of an amendment to Valley’s
Restated Certificate of Incorporation to increase the number of shares of authorized common stock of Valley by 100 million shares.
The Valley Merger Agreement provides certain termination rights for both Valley and the Company, and further provides that upon
termination of the Valley Merger Agreement under certain circumstances, the Company will be obligated to pay Valley a termination
fee of $14.5 million, plus Valley’s reasonable out-of-pocket expenses up to $750,000.
Completion of the Valley Merger is subject to satisfaction of various
conditions, including (i) receipt of the requisite approval of the Valley Merger by the Company’s shareholders, (ii) receipt
of the requisite approval of the amendment to Valley’s Restated Certificate of Incorporation to increase the number of shares
of authorized Valley common stock by shareholders of Valley, (iii) receipt of regulatory approvals, (iv) the absence of any law
or order prohibiting the Valley Merger, (v) effectiveness of the registration statement on Form S-4 filed by Valley with respect
to the Valley common stock to be issued to the Company’s shareholders upon consummation the Valley Merger, and (vi) qualification
of the Valley Merger as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended. Completion
of the Valley Merger is also subject to prior receipt by Valley of the written consent of the FDIC for the assignment of the shared-loss
agreements between the Company and the FDIC to Valley, which was received during the quarter ended June 30, 2014. In addition,
each party’s obligation to consummate the Valley Merger is subject to certain other conditions, including the accuracy of
the representations and warranties of the other party and compliance by the other party with its covenants in all material respects.
Four actions were filed in the Circuit Court for the 15th Judicial
Circuit in and for Palm Beach County, Florida, each on behalf of a putative class of Company shareholders, against the Company,
the Company’s directors and Valley, challenging the Valley Merger of the Company with and into Valley. Those cases were
filed on May 22, 2014 (
Louis Chaykin v. 1st United et al.,
No. 2014-CA-006268), May 27, 2014 (
John Solak v. 1
st
United et al.,
No. 2014-CA-6391), and June 23, 2014 (
Elaine Berman v. 1st United et al.,
No. 2014-CA-007628 and
Rice v. 1st United et al.,
No. 2014-CA-007624).
Chaykin v. 1st United
was voluntarily dismissed by the named plaintiff
on June 2, 2014;
Solak v. 1st United
was voluntarily dismissed by the named plaintiff on July 7, 2014;
Berman v. 1
st
United
was voluntarily dismissed by the named plaintiff on July 10, 2014; and
Rice v. 1st United Berman v. 1st United
was voluntarily dismissed by the named plaintiff on July 21, 2014. The complaints had alleged that the individual defendants,
who are directors of the Company, breached their fiduciary duties of loyalty, care, diligence, candor, independence, good faith
and fair dealing owed to the shareholders of the Company; that the Company and Valley aided and abetted the alleged fiduciary
breaches; that the Valley Merger consideration is unfair to the Company shareholders; that management of the Company have material
conflicts of interest; and that the Valley Merger Agreement has preclusive deal protection devices. The complaints sought, among
other things, an order enjoining the defendants from proceeding with and consummating the transaction, and other equitable and
monetary relief. The Company, the individual defendants and Valley vigorously denied the claims. The Company’s Board of
Directors believed that these were typical meritless strike suits. The Company, the individual defendants and Valley vigorously
defended the claims, which were then dismissed.
Recent Mergers & Acquisitions
Merger of Enterprise Bancorp, Inc.
On July 1, 2013, we completed our acquisition of Enterprise Bancorp,
Inc., a Florida corporation (“EBI”), and its wholly-owned subsidiary Enterprise Bank of Florida, a Florida-chartered
commercial bank (“Enterprise”), pursuant to the Agreement and Plan of Merger (the “EBI Merger Agreement”),
dated March 22, 2013, as amended, by and among the Company, 1st United Bank, EBI and Enterprise. 1st United acquired approximately
$159.2 million in loans, with an average yield of 5.08%, and approximately $177 million of deposits, with an average cost of 0.53%.
Total consideration for the net assets acquired was $45.6 million (or 1.22 times tangible book value, as defined by the EBI Merger
Agreement) which was comprised of $5.1 million in cash, $20.1 million in classified and non-performing loans, $18.3 million in
non-investment grade and non-performing investments, other investments and derivatives and $1.7 million in OREO and other repossessed
assets. The Company did not acquire any non-performing loans, OREO or non-investment grade investments due to the acquisition of
EBI.
We accounted for the transaction under the acquisition method of
accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of
acquisition. See Note 4 for additional information related to the fair value of loans acquired. We use third party valuations to
determine the fair value of the core deposit intangible, securities and deposits. The valuation of FHLB advances was based on current
rates for similar borrowings. As of June 30, 2014, the estimated fair values are considered final.
The former Enterprise provides 1st United continued expansion within
the attractive northern Palm Beach County, Florida marketplace, providing opportunities for new loan and deposit growth. In addition,
of the three banking centers acquired one EBI banking center was consolidated into an existing 1st United banking center during
the third quarter 2013. In addition, one of 1
st
United’s banking centers was consolidated into a banking center
of the former Enterprise. The result was one net new 1st United banking center located in Jupiter, Florida. We incurred merger
related expenses of $1.7 million primarily during the third quarter of 2013 related to the integration of operations and terminations
of leases and contracts. Total goodwill recorded was $5.5 million. We integrated the EBI operations during the third quarter of
2013.
Financial Overview
OPERATING RESULTS
For the quarter ended June 30, 2014, we reported net income of $2.0
million compared to net income of $1.8 million for the quarter ended June 30, 2013. The increase in net income was due to increased
interest income on securities, an increase in average balance of loans held and the related interest income offset by a reduction
in gain accretion from acquired loans, a reduction in provision for loan losses and operating expenses. The quarter was also impacted
by $962,000 in merger expenses related to the Valley Merger. The Company reported earnings per share of $0.06 per share for the
three months ended June 30, 2014 as compared to $0.05 per share for the comparable quarter in 2013. Excluding the merger related
expenses, pro-forma earnings per share would have been $0.09 per share for the quarter ended June 30, 2014.
For the six months ended June 30, 2014, we reported net income of
$4.7 million, compared to net income of $3.4 million for the six months ended June 30, 2013. The increase in net income for the
six months ended June 30, 2014 as compared to the same period ended June 30, 2013 was mostly the result of an increase in interest
income on securities, an increase in average balance of loans held and the related interest income offset by a reduction in gain
accretion from acquired loans and a reduction in the provision for loan losses offset by an increase in salaries and employee benefits
and merger related expenses. The Company reported earnings per share of $0.14 per share for the six months ended June 30, 2014
as compared to $0.10 per share for the comparable six months in 2013. Excluding the merger related expenses, pro-forma earnings
per share would have been $0.16 per share for the six months ended June 30, 2014.
|
●
|
Net interest margin was 4.85% for the quarter ended June 30, 2014 compared to 5.79% for the quarter ended June 30, 2013. Net
interest margin was 4.91% for the six months ended June 30, 2014 compared to 5.45% for the six months ended June 30, 2013.
|
|
●
|
The Company recorded provision for loan losses of $550,000 and $883,000 for the three and six months ended June 30, 2014, compared
to provision for loan losses of $1.3 million and $2.0 million for the three and six months ended June 30, 2013.
|
|
●
|
Net loans increased by approximately $7.8 million to $1.13 billion at June 30, 2014 as compared to December 31, 2013 as a result
of new loan production and loan advances of $162.6 million which was partially offset by payoffs, resolutions, including transfers
to OREO and charge-offs, and principal payments of $154.5 million during the period.
|
|
●
|
Non-performing assets at June 30, 2014 represented 1.63% of total assets compared to 1.87% at December 31, 2013. Non-performing
assets not covered by the Loss Share Agreements represented 0.78% of total assets at June 30, 2014 compared to 0.91% at December
31, 2013.
|
|
●
|
There were no gains on sales of securities for the three and six months ended June 30, 2014 as compared to gains on sales of
securities of $609,000 and $732,000, respectively, for the three and six months ended June 30, 2013.
|
|
●
|
Other real estate owned (“OREO”) decreased by $5.3 million to $13.3 million at June 30, 2014 from $18.6 million
at December 31, 2013. The change was due to the sale of OREO of $8.2 million and fair value adjustments on existing properties
of $590,000 which was partially offset by the foreclosure of $2.9 million of loans. Net gains on the sale of OREO for three months
ended June 30, 2014 and 2013 were $437,000 and $393,000, respectively. Net, gains on the sale of OREO for six months ended June
30, 2014 and 2013 were $651,000 and $833,000, respectively.
|
|
●
|
The FDIC loss share receivable was reduced by approximately $6.2 million from $29.3 million at December 31, 2013 to $23.1 million
at June 30, 2014. The decrease was due to cash receipts of approximately $1.5 million, a reduction of $5.0 million related to adjustments
resulting from the disposition of acquired loans at above their discounted carrying values and the impact of changes in anticipated
cash flows offset by accretion of income on the receivable of $41,000.
|
|
●
|
Deposits decreased by $155.1 million from $1.55 billion at December 31, 2013 to $1.39 billion at June 30, 2014 due to the payout
of a $128 million short term deposit in January 2014 and normal customer balance fluctuations. Non-interest bearing deposits increased
by $2.7 million to $529.0 million at June 30, 2014, as compared to December 31, 2013. The percentage of non-interest
bearing deposits to total deposits was approximately 38% at June 30, 2014 and approximately 34% at December 31, 2013.
|
Analysis for Three Month Periods ended June 30, 2014 and 2013
Net Interest Income
Net interest income, which constitutes our principal source of income,
represents the excess of interest income on interest-earning assets over interest expense on interest-bearing liabilities. Our
principal interest-earning assets are federal funds sold, investment securities and loans. Our interest-bearing liabilities primarily
consist of time deposits, interest-bearing checking accounts (“NOW accounts”), savings deposits and money market accounts.
We invest the funds attracted by these interest-bearing liabilities in interest-earning assets. Accordingly, our net interest income
depends upon the volume of average interest-earning assets and average interest-bearing liabilities and the interest rates earned
or paid on them.
The following table reflects the components of net interest income,
setting forth for the periods presented, (1) average assets, liabilities and shareholders’ equity, (2) interest income earned
on interest-earning assets and interest paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets
and average rates paid on interest-bearing liabilities, (4) our net interest spread (i.e., the average yield on interest-earning
assets less the average rate on interest-bearing liabilities) and (5) our net interest margin (i.e., the net yield on interest-earning
assets).
Net interest earnings for the
three months ended June 30, 2014 and 2013, respectively, are reflected in the following table:
|
|
June 30, 2014
|
|
June 30, 2013
|
(Dollars in thousands)
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rates
Earned/
Paid
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rates
Earned/
Paid
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
1,142,130
|
|
|
$
|
16,957
|
|
|
|
5.96
|
%
|
|
$
|
938,128
|
|
|
$
|
18,741
|
|
|
|
8.01
|
%
|
Investment securities
|
|
|
323,075
|
|
|
|
2,011
|
|
|
|
2.49
|
%
|
|
|
326,100
|
|
|
|
1,648
|
|
|
|
2.02
|
%
|
Federal funds sold and securities purchased under resale agreements
|
|
|
46,555
|
|
|
|
153
|
|
|
|
1.32
|
%
|
|
|
97,027
|
|
|
|
157
|
|
|
|
0.65
|
%
|
Total interest-earning assets
|
|
|
1,511,760
|
|
|
|
19,121
|
|
|
|
5.07
|
%
|
|
|
1,361,255
|
|
|
|
20,546
|
|
|
|
6.05
|
%
|
Non interest-earning assets
|
|
|
219,024
|
|
|
|
|
|
|
|
|
|
|
|
220,682
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(10,117
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,915
|
)
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,720,667
|
|
|
|
|
|
|
|
|
|
|
$
|
1,572,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
210,133
|
|
|
$
|
61
|
|
|
|
0.12
|
%
|
|
$
|
186,017
|
|
|
$
|
59
|
|
|
|
0.13
|
%
|
Money market accounts
|
|
|
329,443
|
|
|
|
248
|
|
|
|
0.30
|
%
|
|
|
320,558
|
|
|
|
243
|
|
|
|
0.30
|
%
|
Savings accounts
|
|
|
55,569
|
|
|
|
16
|
|
|
|
0.12
|
%
|
|
|
62,069
|
|
|
|
40
|
|
|
|
0.26
|
%
|
Certificates of deposit
|
|
|
280,396
|
|
|
|
457
|
|
|
|
0.65
|
%
|
|
|
288,290
|
|
|
|
552
|
|
|
|
0.77
|
%
|
Fed funds purchased and repurchase agreements
|
|
|
20,106
|
|
|
|
5
|
|
|
|
0.10
|
%
|
|
|
16,147
|
|
|
|
4
|
|
|
|
0.10
|
%
|
Federal Home Loan Bank advances and other borrowings
|
|
|
35,013
|
|
|
|
49
|
|
|
|
0.56
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
0.00
|
%
|
Total interest-bearing liabilities
|
|
|
930,660
|
|
|
|
836
|
|
|
|
0.36
|
%
|
|
|
873,081
|
|
|
|
898
|
|
|
|
0.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit accounts
|
|
|
536,530
|
|
|
|
|
|
|
|
|
|
|
|
453,339
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
14,650
|
|
|
|
|
|
|
|
|
|
|
|
6,584
|
|
|
|
|
|
|
|
|
|
Total non-interest-bearing liabilities
|
|
|
551,180
|
|
|
|
|
|
|
|
|
|
|
|
459,923
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
238,827
|
|
|
|
|
|
|
|
|
|
|
|
239,018
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,720,667
|
|
|
|
|
|
|
|
|
|
|
$
|
1,572,022
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
$
|
18,285
|
|
|
|
4.71
|
%
|
|
|
|
|
|
$
|
19,648
|
|
|
|
5.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest on average earning assets – Margin
|
|
|
|
|
|
|
|
|
|
|
4.85
|
%
|
|
|
|
|
|
|
|
|
|
|
5.79
|
%
|
Net interest income was $18.3 million for the three months ended
June 30, 2014, as compared to $19.6 million for the three months ended June 30, 2013, a decrease of $1.4 million, or 6.9%. The
decrease resulted primarily from a decrease in accretion income on resolved acquired assets offset by an increase in interest income
related to loans and securities due to an increase in the average balances. Total accretion income decreased quarter over quarter
by $3.6 million which includes a decrease of $2.7 million of accretion on the disposal of assets acquired above the discounted
carrying value of the asset and accretion of discounts on purchased credit impaired loans due to changes in the estimated cash
flows. The increase in average loans was due to the acquisition of EBI on July 1, 2013 and net loan originations.
Interest earnings for the current quarter were positively impacted
by the accretion of discounts related to acquired loans of approximately $3.6 million as compared to $7.3 million for the same
period in 2013. Included in the $3.6 million of accretion of discount for the quarter ended June 30, 2014 was approximately $2.7
million related to the disposition of assets acquired in the transactions above the discounted carrying value of the asset and
accretion of discounts on purchase credit impaired loans due to increases in estimated cash flows. For the quarter ended June 30,
2014, we took a charge of approximately $2.3 million, including $335,000 related to the resolution of other real estate owned,
as an adjustment to the FDIC loss share receivable. This charge was recorded in non-interest income within the consolidated statements
of operations and was substantially related to changes in cash flows of loss share assets. Included in the $7.3 million of accretion
discount for the quarter ended June 30, 2013 was approximately $5.4 million related to the disposition of assets above the discounted
carrying values and accretion of discounts on purchase credit impaired loans due to increases in estimated cash flows. For the
quarter ended June 30, 2013, we took a charge of approximately $5.2 million, including $312,000 million related to the resolution
of other real estate owned, as an adjustment to the FDIC loss share receivable. This charge was recorded in non-interest income
within the consolidated statements of operations substantially related to changes in cash flows of loss share assets.
The net interest margin (i.e., net interest income divided by average
earning assets) decreased 94 basis points from 5.79% during the three months ended June 30, 2013 to 4.85% during the three months
ended June 30, 2014. Accretion of loan discounts of $3.6 million on acquired loans added approximately 98 basis points to the quarter
ended June 30, 2014 net interest margin. Of the 98 basis points, 71 basis points related to resolved loss share assets and changes
in cash flows during the quarter. This compares to accretion of loan discount of $7.3 million during the three months ended June
30, 2013, which added approximately 215 basis points to the June 30, 2013 margin. Of the 215 basis points for the quarter ended
June 30, 2013, 159 basis points related to resolved loss share assets and changes in cash flows. For the three months ended June
30, 2014, average loans represented 66.4% of total average assets and 79.8% of total average deposits and customer repurchase agreements,
compared to average loans of 59.9% of total average assets and average loans of 70.73% to total average deposits and customer repurchase
agreements at June 30, 2013. Our cost of funds was approximately 4 basis points lower for the three months ended June 30, 2014,
as compared to June 30, 2013, primarily as a result of lower rates offered on our deposit products.
Rate Volume Analysis
The following table sets forth certain information regarding changes
in our interest income and interest expense for the three months ended June 30, 2014 as compared to the three months ended June
30, 2013. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable
to changes in interest rate and changes in the volume. Changes in both volume and rate have been allocated based on the proportionate
absolute changes in each category.
Changes in interest earnings for the three months ended June 30,
2014 and 2013:
|
|
June 30, 2014 and 2013
|
(Dollars in thousands)
|
|
Change in
Interest
Income/
Expense
|
|
Variance
Due to
Volume
Changes
|
|
Variance
Due to
Rate
Changes
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
(1,784
|
)
|
|
$
|
3,595
|
|
|
$
|
(5,379
|
)
|
Investment securities
|
|
|
363
|
|
|
|
(15
|
)
|
|
|
378
|
|
Federal funds sold and securities purchased under resale agreements
|
|
|
(4
|
)
|
|
|
(110
|
)
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
(1,425
|
)
|
|
$
|
3,470
|
|
|
$
|
(4,895
|
)
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
2
|
|
|
$
|
7
|
|
|
$
|
(5
|
)
|
Money market accounts
|
|
|
5
|
|
|
|
7
|
|
|
|
(2
|
)
|
Savings accounts
|
|
|
(24
|
)
|
|
|
(4
|
)
|
|
|
(20
|
)
|
Certificates of deposit
|
|
|
(95
|
)
|
|
|
(15
|
)
|
|
|
(80
|
)
|
Fed funds purchased and repurchase agreements
|
|
|
1
|
|
|
|
1
|
|
|
|
—
|
|
Other borrowings
|
|
|
49
|
|
|
|
49
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
(62
|
)
|
|
|
45
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
$
|
(1,363
|
)
|
|
$
|
3,425
|
|
|
$
|
(4,788
|
)
|
Non-interest Income, Non-interest Expense, Provision for Loan
Losses, and Income Tax Expense - Three Month Periods Ended June 30, 2014 and June 30, 2013
The following is a schedule of non-interest income for three months
ended June 30, 2014 and 2013, respectively:
|
|
Three months ended
|
|
|
(Dollars in thousands)
|
|
June 30,
2014
|
|
June 30,
2013
|
|
Difference
|
Service charges and fees on deposit accounts
|
|
$
|
828
|
|
|
$
|
803
|
|
|
$
|
25
|
|
Net gains on sales of other real estate owned
|
|
|
437
|
|
|
|
393
|
|
|
|
44
|
|
Net gains on sales of securities
|
|
|
—
|
|
|
|
609
|
|
|
|
(609
|
)
|
Net gains on sales of loans held for sale
|
|
|
—
|
|
|
|
12
|
|
|
|
(12
|
)
|
Increase in cash surrender value of Company owned life insurance
|
|
|
156
|
|
|
|
146
|
|
|
|
10
|
|
Adjustment to FDIC loss share receivable
|
|
|
(2,324
|
)
|
|
|
(4,922
|
)
|
|
|
2,598
|
|
Other
|
|
|
172
|
|
|
|
240
|
|
|
|
(68
|
)
|
Total non-interest income
|
|
$
|
(731
|
)
|
|
$
|
(2,719
|
)
|
|
$
|
1,988
|
|
Non-interest income includes service charges and fees on deposit
accounts, net gains or losses on sales of securities, and all other items of income, other than interest, resulting from our business
activities. Non-interest income increased by $2.0 million for the quarter ended June 30, 2014 when compared to the quarter ended
June 30, 2013. The increase was principally a result of the decrease in the adjustment to the FDIC loss share receivable due to
less resolution of assets above their carrying value offset by a reduction in gains on the sales of securities quarter over quarter.
During the three months ended June 30, 2014, we received proceeds
from the sale of OREO properties of $3.1 million with a carrying value of $2.6 million and recorded a net gain of $437,000 on the
these dispositions as compared to sales of $2.6 million of OREO with a carrying value of $2.2 million resulting in a net gain of
$393,000 for the three months ended June 30, 2013. Net gains on the resolution of OREO covered under loss sharing agreements
for the three months ended June 30, 2014 and 2013 were $428,000 and $388,000, respectively.
During the three months ended June 30, 2014, we had no sales of
securities. During the three months ended June 30, 2013, we sold approximately $21.9 million in securities for gains on the sale
of $609,000.
The adjustment to the FDIC loss share receivable during the quarter
ended June 30, 2014 represented a $2.3 million expense related to changes in cash flows on assets covered by Loss Share Agreements
and the resolution of OREO property which reduces the FDIC receivable. This compares to $5.2 million for the quarter ended June
30, 2013. These amounts were partially offset by interest income earned on the FDIC receivable of $20,000 and $239,000 for the
quarters ended June 30, 2014 and 2013, respectively.
Non-interest expense is comprised of salaries and employee benefits,
occupancy and equipment expense and other operating expenses incurred in supporting our various business activities. Non-interest
expense increased by $386,000, or 3.0%, from $12.8 million for the three months ended June 30, 2013 to $13.2 million for the three
months ended June 30, 2014. The increase was due to expense of merger costs related to the Valley acquisition in the second quarter
2014 offset by a reduction in branch disposal costs and a reduction in loan expenses.
The following summarizes the changes in non-interest expense accounts
for the three months ended June 30, 2014 compared to the three months ended June 30, 2013:
|
|
Three months ended
|
|
|
(Dollars in thousands)
|
|
June 30,
2014
|
|
June 30,
2013
|
|
Difference
|
Salaries and employee benefits
|
|
$
|
6,120
|
|
|
$
|
6,028
|
|
|
$
|
92
|
|
Occupancy and equipment
|
|
|
2,062
|
|
|
|
1,969
|
|
|
|
93
|
|
Data processing
|
|
|
963
|
|
|
|
926
|
|
|
|
37
|
|
Telephone
|
|
|
255
|
|
|
|
218
|
|
|
|
37
|
|
Stationery and supplies
|
|
|
88
|
|
|
|
98
|
|
|
|
(10
|
)
|
Amortization of intangibles
|
|
|
186
|
|
|
|
166
|
|
|
|
20
|
|
Professional fees
|
|
|
362
|
|
|
|
452
|
|
|
|
(90
|
)
|
Advertising
|
|
|
54
|
|
|
|
47
|
|
|
|
7
|
|
Merger reorganization expense
|
|
|
962
|
|
|
|
128
|
|
|
|
834
|
|
Disposal of banking center
|
|
|
37
|
|
|
|
404
|
|
|
|
(367
|
)
|
Regulatory assessment
|
|
|
360
|
|
|
|
370
|
|
|
|
(10
|
)
|
Other real estate owned expense
|
|
|
437
|
|
|
|
457
|
|
|
|
(20
|
)
|
Loan expense
|
|
|
257
|
|
|
|
455
|
|
|
|
(198
|
)
|
Other
|
|
|
1,071
|
|
|
|
1,110
|
|
|
|
(39
|
)
|
Total non-interest expense
|
|
$
|
13,214
|
|
|
$
|
12,828
|
|
|
$
|
386
|
|
Salary and employee benefits increased by approximately $92,000
or 1.5% to $6.1 million for the three months ended June 30, 2014 as compared to $6.0 million for the three months ended June 30,
2013. The increase was primarily due to staff additions from the EBI acquisition and increased incentive compensation related to
various production goals period-over-period.
Merger reorganization expense in the second quarter 2014 of $962,000
included legal and investment adviser fees associated with the acquisition of the Company by Valley. Merger reorganization expenses
for the quarter ended June 30, 2013 related to the acquisition of EBI on July 1, 2013.
Disposal of banking centers for the quarter ended June 30, 2014
relates to the strategic decision to close one banking center on the west coast of Florida during the third quarter 2014. The $37,000
relates to the remaining lease expense for that location. The $404,000 expense in the second quarter of 2013 relates to facility
lease and leasehold improvement expense for the closure of one banking center on the west coast of Florida.
Other real estate owned (“OREO”) expense decreased by
approximately $20,000 to $437,000 for the three months ended June 30, 2014, as compared to $457,000 for the three months ended
June 30, 2013. The change was primarily due to an increase in write downs on OREO properties offset by a reduction in OREO expenses
period over period due to changes in estimated fair values. Total write downs were $345,000 during the quarter ended June 30, 2014
as compared to $114,000 for the quarter ended June 30, 2013.
Loan expense primarily includes the costs associated with the collection
of legacy as well as loss sharing assets. Loan expense decreased by $198,000 from $455,000 for the three months ended June 30,
2013 as compared to $257,000 for the three months ended June 30, 2014. The change was primarily due to a reduction in non-performing
non-loss share assets period-over-period and a reduction in expenses associated with loss share loans.
The provision for loan losses is charged to earnings to bring the
allowance for loan losses to a level deemed adequate by management and is based upon anticipated experience, the volume and type
of lending conducted by us, the amounts of past due and non-performing loans, general economic conditions, particularly as they
relate to our market area, and other factors related to the collectability of our loan portfolio. During the quarter ended June
30, 2014, we recorded $550,000 in provision for loan losses as compared to $1.3 million for the three months ended June 30, 2013.
The decrease in the provision for loan losses quarter-over-quarter was due to a reduction in charge-offs and a reduction of impaired
assets. Total charge-offs were $629,000 for the quarter ended June 30, 2014 compared to $793,000 for the quarter ended June 30,
2013. Impaired loans were $35.6 million at June 30, 2013 compared to $25.8 million at June 30, 2014.
We recorded income tax expense of $1.8 million for the three months
ended June 30, 2014, compared to $1.0 million for the three months ended June 30, 2013. Part of the increase was due to higher
pretax income for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. Additionally, our income
tax expense was impacted by merger expenses of $962,000, a portion of which are considered non-deductible from an income tax perspective.
Analysis for Six Month Periods ended June 30, 2014 and 2013
Net Interest Income
Net interest income, which constitutes our principal source of income,
represents the excess of interest income on interest-earning assets over interest expense on interest-bearing liabilities. Our
principal interest-earning assets are federal funds sold, investment securities and loans. Our interest-bearing liabilities primarily
consist of time deposits, interest-bearing checking accounts (“NOW accounts”), savings deposits and money market accounts.
We invest the funds attracted by these interest-bearing liabilities in interest-earning assets. Accordingly, our net interest income
depends upon the volume of average interest-earning assets and average interest-bearing liabilities and the interest rates earned
or paid on them.
Net interest earnings for the six months ended June 30, 2014 and
2013, respectively, are reflected in the following table:
|
|
June 30, 2014
|
|
June 30, 2013
|
(Dollars in thousands)
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rates
Earned/
Paid
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rates
Earned/
Paid
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
1,148,345
|
|
|
$
|
34,244
|
|
|
|
6.01
|
%
|
|
$
|
926,331
|
|
|
$
|
34,912
|
|
|
|
7.60
|
%
|
Investment securities
|
|
|
325,663
|
|
|
|
4,114
|
|
|
|
2.53
|
%
|
|
|
308,642
|
|
|
|
3,016
|
|
|
|
1.95
|
%
|
Federal funds sold and securities purchased under resale agreements
|
|
|
43,537
|
|
|
|
301
|
|
|
|
1.39
|
%
|
|
|
111,944
|
|
|
|
338
|
|
|
|
0.61
|
%
|
Total interest-earning assets
|
|
|
1,517,545
|
|
|
|
38,659
|
|
|
|
5.14
|
%
|
|
|
1,346,917
|
|
|
|
38,266
|
|
|
|
5.73
|
%
|
Non interest-earning assets
|
|
|
222,980
|
|
|
|
|
|
|
|
|
|
|
|
224,811
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(9,968
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,988
|
)
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,730,557
|
|
|
|
|
|
|
|
|
|
|
$
|
1,561,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
212,398
|
|
|
$
|
122
|
|
|
|
0.12
|
%
|
|
$
|
179,024
|
|
|
$
|
113
|
|
|
|
0.13
|
%
|
Money market accounts
|
|
|
330,261
|
|
|
|
493
|
|
|
|
0.30
|
%
|
|
|
318,964
|
|
|
|
500
|
|
|
|
0.32
|
%
|
Savings accounts
|
|
|
56,873
|
|
|
|
32
|
|
|
|
0.11
|
%
|
|
|
62,590
|
|
|
|
80
|
|
|
|
0.26
|
%
|
Certificates of deposit
|
|
|
284,188
|
|
|
|
932
|
|
|
|
0.66
|
%
|
|
|
297,305
|
|
|
|
1,186
|
|
|
|
0.80
|
%
|
Fed funds purchased and repurchase agreements
|
|
|
18,531
|
|
|
|
9
|
|
|
|
0.10
|
%
|
|
|
17,710
|
|
|
|
10
|
|
|
|
0.11
|
%
|
Federal Home Loan Bank advances and other borrowings
|
|
|
45,015
|
|
|
|
105
|
|
|
|
0.47
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
0.00
|
%
|
Total interest-bearing liabilities
|
|
|
947,266
|
|
|
|
1,693
|
|
|
|
0.36
|
%
|
|
|
875,593
|
|
|
|
1,889
|
|
|
|
0.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit accounts
|
|
|
531,672
|
|
|
|
|
|
|
|
|
|
|
|
441,255
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
14,700
|
|
|
|
|
|
|
|
|
|
|
|
6,529
|
|
|
|
|
|
|
|
|
|
Total non-interest-bearing liabilities
|
|
|
546,372
|
|
|
|
|
|
|
|
|
|
|
|
447,784
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
236,919
|
|
|
|
|
|
|
|
|
|
|
|
238,363
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,730,557
|
|
|
|
|
|
|
|
|
|
|
$
|
1,561,740
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
$
|
36,966
|
|
|
|
4.78
|
%
|
|
|
|
|
|
$
|
36,377
|
|
|
|
5.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest on average earning assets – Margin
|
|
|
|
|
|
|
|
|
|
|
4.91
|
%
|
|
|
|
|
|
|
|
|
|
|
5.45
|
%
|
Net interest income was $37.0 million for the six months ended
June 30, 2014, as compared to $36.4 million for the six months ended June 30, 2013, an increase of $589,000, or 1.6%. The
increase resulted primarily from increase in average earning assets of $170.6 million or 12.7% due the acquisition of EBI in
July 2013 and net loan originations as well as increases in securities offset by a reduction in accretion income. Accretion
income decreased period-over-period by $4.6 million which includes a decrease in accretion of $2.9 million on the disposal of
assets acquired above the discounted carrying value of the asset and accretion of discounts on purchased credit impaired
loans due to changes in the estimated cash flows. Cost of funds were reduced by 12 basis points period over period.
Interest earnings for the six months ended June 30, 2014 were positively
impacted by the accretion of discounts related to acquired loans of approximately $7.6 million as compared to $12.2 million for
the same period in 2013. Included in the $7.6 million of accretion of discount for the six months ended June 30, 2014 was approximately
$5.5 million related to the disposition of assets acquired in the transactions above the discounted carrying value of the asset
and accretion of discounts on purchase credit impaired loans due to increases in estimated cash flows. For the six months ended
June 30, 2014, we took a charge of approximately $5.0 million, including $633,000 related to the resolution of other real estate
owned, as an adjustment to the FDIC loss share receivable. This charge was recorded in non-interest income within the consolidated
statements of operations and was substantially related to changes in cash flows of loss share assets. Included in the $12.2 million
of accretion discount for the six months ended June 30, 2013 was approximately $8.4 million related to the disposition of assets
above the discounted carrying values and accretion of discounts on purchase credit impaired loans due to increases in estimated
cash flows. For the six months ended June 30, 2013, we took a charge of approximately $8.2 million, including $658,000 related
to the resolution of other real estate owned, as an adjustment to the FDIC loss share receivable. This charge was recorded in non-interest
income within the consolidated statements of operations substantially related to changes in cash flows of loss share assets.
The net interest margin (i.e., net interest income divided by average
earning assets) decreased 54 basis points from 5.45% during the six months ended June 30, 2013 to 4.91% during the six months ended
June 30, 2014. Accretion of loan discounts of $7.6 million on acquired loans added approximately 101 basis points to the net interest
margin for the six months ended June 30, 2014. Of the 101 basis points, 73 basis points related to resolved loss share assets and
changes in cash flows during the period. This compares to accretion of loan discount of $12.2 million during the six months ended
June 30, 2013, which added approximately 182 basis points to the June 30, 2013 margin. Of the 182 basis points for the six months
ended June 30, 2013, 126 basis points related to resolved loss share assets and changes in cash flows. For the six months ended
June 30, 2014, average loans represented 66.4% of total average assets and 80.1% of total average deposits and customer repurchase
agreements, compared to average loans of 59.31% of total average assets and average loans of 70.34% to total average deposits and
customer repurchase agreements at June 30, 2013. Our cost of funds was approximately 12 basis points lower for the six months ended
June 30, 2014, as compared to June 30, 2013, primarily as a result of lower rates offered on our deposit products.
Rate Volume Analysis
The following table sets forth certain information regarding
changes in our interest income and interest expense for the six months ended June 30, 2014 as compared to the six months ended
June 30, 2013. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes
attributable to changes in interest rate and changes in the volume. Changes in both volume and rate have been allocated based on
the proportionate absolute changes in each category.
Changes in interest earnings for the six months ended June 30, 2014
and 2013:
|
|
June 30, 2014 and 2013
|
(Dollars in thousands)
|
|
Change in
Interest
Income/
Expense
|
|
Variance
Due to
Volume
Changes
|
|
Variance
Due to
Rate
Changes
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
(668
|
)
|
|
$
|
7,434
|
|
|
$
|
(8,102
|
)
|
Investment securities
|
|
|
1,098
|
|
|
|
174
|
|
|
|
924
|
|
Federal funds sold and securities purchased under resale agreements
|
|
|
(37
|
)
|
|
|
(292
|
)
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
393
|
|
|
$
|
7,316
|
|
|
$
|
(6,923
|
)
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
9
|
|
|
$
|
20
|
|
|
$
|
(11
|
)
|
Money market accounts
|
|
|
(7
|
)
|
|
|
17
|
|
|
|
(24
|
)
|
Savings accounts
|
|
|
(48
|
)
|
|
|
(7
|
)
|
|
|
(41
|
)
|
Certificates of deposit
|
|
|
(254
|
)
|
|
|
(50
|
)
|
|
|
(204
|
)
|
Fed funds purchased and repurchase agreements
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(1
|
)
|
Other borrowings
|
|
|
105
|
|
|
|
105
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
(196
|
)
|
|
|
85
|
|
|
|
(281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
$
|
589
|
|
|
$
|
7,231
|
|
|
$
|
(6,642
|
)
|
Non-interest Income, Non-interest Expense, Provision for Loan
Losses, and Income Tax Expense – Six Month Periods Ended June 30, 2014 and June 30, 2013
The following is a schedule of non-interest income for six months
ended June 30, 2014 and 2013, respectively:
|
|
Six months ended
|
|
|
(Dollars in thousands)
|
|
June 30,
2014
|
|
June 30,
2013
|
|
Difference
|
Service charges and fees on deposit accounts
|
|
$
|
1,638
|
|
|
$
|
1,599
|
|
|
$
|
39
|
|
Net gains on sales of other real estate owned
|
|
|
651
|
|
|
|
833
|
|
|
|
(182
|
)
|
Net gains on sales of securities
|
|
|
—
|
|
|
|
732
|
|
|
|
(732
|
)
|
Net gains on sales of loans held for sale
|
|
|
—
|
|
|
|
58
|
|
|
|
(58
|
)
|
Increase in cash surrender value of Company owned life insurance
|
|
|
314
|
|
|
|
293
|
|
|
|
21
|
|
Adjustment to FDIC loss share receivable
|
|
|
(4,972
|
)
|
|
|
(7,741
|
)
|
|
|
2,769
|
|
Other
|
|
|
392
|
|
|
|
520
|
|
|
|
(128
|
)
|
Total non-interest income
|
|
$
|
(1,977
|
)
|
|
$
|
(3,706
|
)
|
|
$
|
1,729
|
|
Non-interest income includes service charges and fees on deposit
accounts, net gains or losses on sales of securities, and all other items of income, other than interest, resulting from our business
activities. Non-interest income increased by $1.7 for the six months ended June 30, 2014 when compared to the six months ended
June 30, 2013. The increase was principally a result of a decrease in the adjustment to the FDIC loss share receivable due to less
resolution of assets above their carrying value period- over-period offset by a reduction in the gains on the sales of other real
estate, no sales of securities or loans held for sale in the current year. .
During the six months ended June 30, 2014, we received proceeds
from the sale of OREO properties of $8.2 million with a carrying value of $7.5 million and recorded a net gain of $651,000 on the
these dispositions as compared to sales of $5.2 million of OREO with a carrying value of $4.4 million resulting in a net gain of
$833,000 million for the six months ended June 30, 2013. Net gains on the resolution of OREO covered under loss sharing agreements
for the six months ended June 30, 2014 and 2013 were $739,000 and $797,000, respectively.
During the six months ended June 30, 2014, we had no sales of securities.
During the six months ended June 30, 2013, we sold approximately $30.8 million in securities for gains on the sale of $732,000.
The adjustment to the FDIC loss share receivable during the six
months ended June 30, 2014 represented a $5.0 million expense related to changes in cash flows on assets covered by Loss Share
Agreements and the resolution of OREO property which reduces the FDIC receivable. This compares to $8.2 million for the six months
ended June 30, 2013. These amounts were partially offset by interest income earned on the FDIC receivable of $41,000 and $477,000
for the six months ended June 30, 2014 and 2013, respectively.
Non-interest expense is comprised of salaries and employee benefits,
occupancy and equipment expense and other operating expenses incurred in supporting our various business activities. Non-interest
expense increased by $811,000, or 3.2%, from $25.3 million for the six months ended June 30, 2013 to $26.1 million for the six
months ended June 30, 2014. The increase was due to the inclusion of merger expenses associated with the Valley transaction and
increase in salary and occupancy expense in 2014 due to the acquisition of EBI in July 2013 offset by a reduction in costs associated
with the disposal of a banking center and reductions in loan and OREO expenses period over period.
The following summarizes the changes in non-interest expense
accounts for the six months ended June 30, 2014 compared to the six months ended June 30, 2013:
|
|
Six months ended
|
|
|
(Dollars in thousands)
|
|
June 30,
2014
|
|
June 30,
2013
|
|
Difference
|
Salaries and employee benefits
|
|
$
|
12,677
|
|
|
$
|
12,227
|
|
|
$
|
450
|
|
Occupancy and equipment
|
|
|
4,083
|
|
|
|
3,938
|
|
|
|
145
|
|
Data processing
|
|
|
1,948
|
|
|
|
1,856
|
|
|
|
92
|
|
Telephone
|
|
|
514
|
|
|
|
447
|
|
|
|
67
|
|
Stationery and supplies
|
|
|
162
|
|
|
|
189
|
|
|
|
(27
|
)
|
Amortization of intangibles
|
|
|
381
|
|
|
|
339
|
|
|
|
42
|
|
Professional fees
|
|
|
779
|
|
|
|
839
|
|
|
|
(60
|
)
|
Advertising
|
|
|
123
|
|
|
|
135
|
|
|
|
(12
|
)
|
Merger reorganization expense
|
|
|
962
|
|
|
|
128
|
|
|
|
834
|
|
Disposal of banking center
|
|
|
37
|
|
|
|
404
|
|
|
|
(367
|
)
|
Regulatory assessment
|
|
|
779
|
|
|
|
728
|
|
|
|
51
|
|
OREO expense
|
|
|
839
|
|
|
|
1,037
|
|
|
|
(198
|
)
|
Loan expense
|
|
|
618
|
|
|
|
803
|
|
|
|
(185
|
)
|
Other
|
|
|
2,213
|
|
|
|
2,234
|
|
|
|
(21
|
)
|
Total non-interest expense
|
|
$
|
26,115
|
|
|
$
|
25,304
|
|
|
$
|
811
|
|
Salary and employee benefits increased by approximately $450,000
to $12.7 million for the six months ended June 30, 2014 as compared to $12.2 million for the six months ended June 30, 2013,
primarily due to an increase in costs associated with employee benefit programs and the increase in the number of employees due
to the acquisition of EBI.
Occupancy expenses increased by $145,000 or 3.7% from $3.9
million for the six months ended June 30, 2013 to $4.1 million for the six months ended June 30, 2014. The increase was due to
lease expense associated with the acquisition of EBI.
Merger reorganization expense in the six months ended June 30, 2014
of $962,000 included legal and investment adviser fees associated with the acquisition of the Company by Valley. Merger reorganization
expenses for the six months ended June 30, 2013 related to the acquisition of EBI on July 1, 2013.
Disposal of banking centers for the six months ended June 30, 2014
relates to the strategic decision to close one banking center on the west coast of Florida during the third quarter 2014. The $37,000
relates to the remaining lease expense for that location. The $404,000 expense in the second quarter of 2013 relates to facility
lease and leasehold improvement expense for the closure of one banking center on the west coast of Florida.
OREO expense decreased by $198,000 to $839,000 for the six
months ended June 30, 2014, as compared to $1.0 million for the six months ended June 30, 2013. The change was due to a slight
decrease in write downs on OREO due to changes in estimated fair values during the six months ended June 30, 2014 on properties
of $590,000 as compared to $642,000 for the six months ended June 30, 2013 and a reduction in overall OREO expenses.
Loan expenses primarily include the costs associated with
the collection of non-loss sharing agreements as well as loss sharing assets. Loan expenses decreased by $185,000 from $803,000
for the six months ended June 30, 2013 to $618,000 for the six months ended June 30, 2014. The change was primarily due a
reduction in impaired and classified loans period-over-period and a reduction in expenses associated with loss share loans.
The provision for loan losses is charged to earnings to bring
the allowance for loan losses to a level deemed adequate by management and is based upon anticipated experience, the volume and
type of lending conducted by us, the amounts of past due and non-performing loans, general economic conditions, particularly as
they relate to our market area, and other factors related to the collectability of our loan portfolio. During the six months ended
June 30, 2014, we recorded $883,000 in provision for loan losses as compared to $2.0 million for the six months ended June 30,
2013. The decrease in the provision for loan losses between the two periods was primarily due to a reduction in impaired and classified
loans period-over-period and a reduction in charge-offs. Charge-offs for the six months ended June 30, 2014 were $926,000 as compared
to $1.8 million for the six months ended June 30, 2013.
We recorded income tax expense of $3.3 million for the six
months ended June 30, 2014, compared to $2.0 for the six months ended June 30, 2013. Part of the increase was due to higher pretax
income for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. Additionally, our income tax expense
was impacted by merger expenses of $962,000 which a portion are considered non-deductible from an income tax perspective
FINANCIAL CONDITION
At June 30, 2014, our total assets were $1.7 billion and
our net loans were $1.132 billion or 66.7% of total assets. At December 31, 2013, our total assets were $1.845 billion and our
net loans were $1.125 million or 61.0% of total assets. Cash and cash equivalents decreased primarily as a result of the withdrawal
by one customer of a short term deposit of $128 million in January 2014 and net loan origination for the six months ended June
30, 2014. Total loans increased by approximately $7.8 million to $1.13 billion at June 30, 2014 due to new loan production and
loan advances of $162.6 million offset by payoffs, resolutions, including transfers to OREO and charge-offs, and principal reductions
of $154.5 million.
At June 30, 2014, the allowance for loan losses was $10.0 million
or 0.88% of total loans. At December 31, 2013, the allowance for loan losses was $9.6 million or 0.85% of total loans.
Securities available for sale decreased by $7.5 million to $320.5
million at June 30, 2014 due to maturities and principal payments of $16.7 million offset by a reduction in the net unrealized
loss of $10.3 million since December 31, 2013.
At June 30, 2014, our total deposits were $1.39 billion, a decrease
of $155.1 million compared to $1.548 billion at December 31, 2013, mostly due to the withdrawal by one customer of a short
term deposit of $128 million in January of 2014. Non-interest bearing deposits represented 38.0% of total deposits at June 30,
2014 compared to 34.0% at December 31, 2013.
Loan Quality
Management seeks to maintain a high quality loan portfolio through
sound underwriting and lending practices. The banking industry and its regulators view elements of loan concentrations as a concern
that can give rise to deterioration in loan quality if not managed effectively. As of June 30, 2014 and December 31, 2013, 86.6%
and 85.6%, respectively, of the total loan portfolio was collateralized by commercial and residential real estate mortgages.
Loan concentrations are defined as amounts loaned to a number of
borrowers engaged in similar activities, and/or located in the same region, sufficient to cause them to be similarly impacted by
economic or other conditions. We regularly monitor these concentrations in order to consider adjustments in our lending practices
to reflect economic conditions, loan-to-deposit ratios, and industry trends. As of June 30, 2014 and December 31, 2013, there were
no concentration of loans within any portfolio category to any group of borrowers engaged in similar activities or in a similar
business (other than noted below) that exceeded 10% of total loans, except that as of such dates loans collateralized with mortgages
on real estate represented 86.6% and 85.6%, respectively, of the total loan portfolio and were to a broad base of borrowers in
varying activities, businesses, locations and real estate types.
At 1st United, we consider our focus to be in business banking.
Through our business banking activities, we provide commercial purpose real estate secured loans as referenced above and also provide
commercial and residential real estate loans. Business banking also provides loan facilities ranging from commercial purpose non-real
estate secured loans, to lines of credit, Export/Import Bank loans, SBA loans and letters of credit.
Commercial loans, unlike residential real estate loans (which generally
are made on the basis of the borrower’s ability to repay from employment and other income and which are collateralized by
real property with values tending to be more readily ascertainable), are non-real estate secured commercial loans typically underwritten
on the basis of the borrower’s ability to make repayment from the cash flow of its business and generally are collateralized
by a variety of business assets, such as accounts receivable, equipment and inventory. As a result, the availability of funds for
the repayment of commercial loans may be substantially dependent on the success of the business itself, which is subject to adverse
conditions in the economy. Commercial loans are generally repaid from operational earnings, the collection of rent, or conversion
of assets. Commercial loans can also entail certain additional risks when they involve larger loan balances to single borrowers
or a related group of borrowers, resulting in a more concentrated loan portfolio. Further, the collateral underlying the loans
may depreciate over time, cannot be appraised with as much precision as residential real estate, and may fluctuate in value based
on the success of the business.
The following charts illustrate the composition of loans in our
loan portfolio as of June 30, 2014 and December 31, 2013.
Loan Portfolio as of June 30, 2014
(Dollars in thousands)
|
|
Total
Loans
|
|
Total
|
|
Percent of
Loan Portfolio
|
|
Percent of
Total Assets
|
Loan Types
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
|
502
|
|
|
$
|
127,050
|
|
|
|
11.12
|
%
|
|
|
7.48
|
%
|
HELOCs and equity
|
|
|
397
|
|
|
|
64,192
|
|
|
|
5.62
|
%
|
|
|
3.78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
695
|
|
|
|
135,238
|
|
|
|
11.84
|
%
|
|
|
7.96
|
%
|
Secured – real estate
|
|
|
90
|
|
|
|
51,015
|
|
|
|
4.47
|
%
|
|
|
3.00
|
%
|
Unsecured
|
|
|
53
|
|
|
|
6,432
|
|
|
|
0.56
|
%
|
|
|
0.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
274
|
|
|
|
214,765
|
|
|
|
18.80
|
%
|
|
|
12.64
|
%
|
Non-owner occupied
|
|
|
340
|
|
|
|
441,788
|
|
|
|
38.68
|
%
|
|
|
26.00
|
%
|
Multi-family
|
|
|
73
|
|
|
|
48,980
|
|
|
|
4.29
|
%
|
|
|
2.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
16
|
|
|
|
13,100
|
|
|
|
1.15
|
%
|
|
|
0.77
|
%
|
Improved land
|
|
|
24
|
|
|
|
16,934
|
|
|
|
1.48
|
%
|
|
|
1.00
|
%
|
Unimproved land
|
|
|
18
|
|
|
|
11,266
|
|
|
|
0.99
|
%
|
|
|
0.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
184
|
|
|
|
11,371
|
|
|
|
1.00
|
%
|
|
|
0.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total June 30, 2014
|
|
|
2,666
|
|
|
$
|
1,142,131
|
|
|
|
100
|
%
|
|
|
67.22
|
%
|
Loan Portfolio as of December 31, 2013
(Dollars in thousands)
|
|
Total
Loans
|
|
Total
|
|
Percent of
Loan Portfolio
|
|
Percent of
Total Assets
|
Loan Types
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages
|
|
|
490
|
|
|
$
|
117,830
|
|
|
|
10.39
|
%
|
|
|
6.39
|
%
|
HELOCs and equity
|
|
|
400
|
|
|
|
61,014
|
|
|
|
5.38
|
%
|
|
|
3.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – non-real estate
|
|
|
697
|
|
|
|
145,298
|
|
|
|
12.81
|
%
|
|
|
7.87
|
%
|
Secured – real estate
|
|
|
91
|
|
|
|
57,052
|
|
|
|
5.03
|
%
|
|
|
3.09
|
%
|
Unsecured
|
|
|
57
|
|
|
|
7,914
|
|
|
|
0.70
|
%
|
|
|
0.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
268
|
|
|
|
209,467
|
|
|
|
18.47
|
%
|
|
|
11.35
|
%
|
Non-owner occupied
|
|
|
328
|
|
|
|
451,982
|
|
|
|
39.85
|
%
|
|
|
24.50
|
%
|
Multi-family
|
|
|
72
|
|
|
|
38,402
|
|
|
|
3.39
|
%
|
|
|
2.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
12
|
|
|
|
7,366
|
|
|
|
0.65
|
%
|
|
|
0.40
|
%
|
Improved land
|
|
|
24
|
|
|
|
16,538
|
|
|
|
1.46
|
%
|
|
|
0.90
|
%
|
Unimproved land
|
|
|
19
|
|
|
|
11,382
|
|
|
|
1.00
|
%
|
|
|
0.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
178
|
|
|
|
9,735
|
|
|
|
0.87
|
%
|
|
|
0.53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total December 31, 2013
|
|
|
2,636
|
|
|
$
|
1,133,980
|
|
|
|
100.00
|
%
|
|
|
61.47
|
%
|
The following chart illustrates the composition of our construction
and land development loan portfolio as of June 30, 2014 and December 31, 2013.
|
|
June 30, 2014
|
|
December 31, 2013
|
(Dollars in thousands)
|
|
Balance
|
|
% of
Total Loans
|
|
Balance
|
|
% of
Total Loans
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
1,098
|
|
|
|
0.10
|
%
|
|
$
|
272
|
|
|
|
0.02
|
%
|
Residential spec
|
|
|
4,266
|
|
|
|
0.37
|
%
|
|
|
1,423
|
|
|
|
0.13
|
%
|
Commercial
|
|
|
7,736
|
|
|
|
0.68
|
%
|
|
|
5,671
|
|
|
|
0.50
|
%
|
Commercial spec
|
|
|
—
|
|
|
|
0.00
|
%
|
|
|
—
|
|
|
|
0.00
|
%
|
Land Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
4,700
|
|
|
|
0.41
|
%
|
|
|
5,377
|
|
|
|
0.47
|
%
|
Residential spec
|
|
|
4,646
|
|
|
|
0.41
|
%
|
|
|
5,223
|
|
|
|
0.45
|
%
|
Commercial
|
|
|
7,213
|
|
|
|
0.63
|
%
|
|
|
6,044
|
|
|
|
0.55
|
%
|
Commercial spec
|
|
|
11,640
|
|
|
|
1.02
|
%
|
|
|
11,276
|
|
|
|
0.99
|
%
|
Total
|
|
$
|
41,299
|
|
|
|
3.62
|
%
|
|
$
|
35,286
|
|
|
|
3.11
|
%
|
We have identified certain assets as non-performing and troubled
debt restructuring assets. These assets include non-accruing loans, foreclosed real estate, loans that are contractually past due
90 days or more as to principal or interest payments and still accruing, and troubled debt restructurings. All troubled debt restructurings,
non-accruing loans and loans accruing 90 days or more past due are considered impaired. These assets present more than the normal
risk that we will be unable to eventually collect or realize their full carrying value.
Modifications of terms for our loans and their inclusion as troubled
debt restructurings are based on individual facts and circumstances. Loan modifications that are included as troubled debt restructurings
may involve a reduction of the stated interest rate on the loan, extension of the maturity date at a stated rate of interest lower
than the current market rate for new debt with similar risk, deferral of principal payments or forgiveness of principal, regardless
of the period of the modification. Generally, we will allow interest rate reductions for a period of less than two years after
which the loan reverts back to the contractual interest rate. Each of the loans included as troubled debt restructurings at June
30, 2014 and December 31, 2013 had either an interest rate modification ranging from 6 months to 2 years before reverting back
to the original interest rate or a deferral of principal payments which can range from 6 to 12 months before reverting back to
an amortizing loan. All of the loans were modified due to financial distress of the borrower. The following is a summary of the
unpaid principal balance of loans classified as troubled debt restructurings as of June 30, 2014, and December 31, 2013, which
are performing in accordance with their modification agreements.
(Dollars in thousands)
|
|
June 30,
2014
|
|
December 31,
2013
|
Residential real estate
|
|
$
|
903
|
|
|
$
|
834
|
|
Commercial real estate
|
|
|
11,485
|
|
|
|
15,341
|
|
Construction and land development
|
|
|
140
|
|
|
|
143
|
|
Commercial
|
|
|
1,967
|
|
|
|
2,328
|
|
Total
|
|
$
|
14,495
|
|
|
$
|
18,646
|
|
The decrease of $4.1 million in performing restructured loans to
$14.5 million at June 30, 2014 from $18.6 million at December 31, 2013 was due to new performing modifications of approximately
$166,000 offset by approximately $1.7 million in loans that defaulted under the terms of their modification agreement and were
included in nonaccrual loans at June 30, 2014. In addition, there were approximately $2.6 in repayments and resolutions of modified
loans.
At June 30, 2014, there were 18 loans that were troubled
debt restructured loans with a carrying amount of $7.4 million and specific reserves of $357,000 that were non-accrual. At December
31, 2013, there were 18 loans which were troubled debt restructured loans with a carrying amount of $7.5 million and specific reserves
of $608,000 that were non-accrual. Loans retain their accrual status at their time of modification. As a result, if the loan is
on non-accrual at the time that it is modified, it stays on non-accrual, and if a loan is accruing at the time of modification,
it generally stays on accrual. A loan on non-accrual will be individually evaluated based on sustained adherence to the terms of
the modification agreement prior to being placed on accrual status. Troubled debt restructurings are considered impaired. The average
yield on the loans classified as troubled debt restructurings was 4.23% and 4.38% at June 30, 2014 and December 31, 2013, respectively.
During the six months ended June 30, 2014, we had $3.0 million in
loans for which we lowered the interest rate prior to maturity to competitively retain a loan. During the year ended December 31,
2013, we had approximately $10.6 million in loans on which we lowered the interest rate prior to maturity to competitively retain
a loan. Due to the borrowers’ significant deposit balances or the overall quality of the loans, these loans were not included
in troubled debt restructurings. In addition, each of these borrowers was not considered to be in financial distress and the modified
terms matched current market terms for borrowers with similar risk characteristics. We had no other loans where we extended the
maturity or forgave principal that were not already included in troubled debt restructurings or otherwise impaired.
Our non-performing and troubled debt restructured assets at June
30, 2014 and December 31, 2013 were as follows:
|
|
June 30, 2014
|
|
December 31, 2013
|
(Dollars in thousands)
|
|
Assets Not
Subject to
Loss Sharing
Agreements
|
|
Assets
Subject to
Loss Sharing
Agreements
|
|
Total
|
|
Assets Not
Subject to
Loss Sharing
Agreements
|
|
Assets
Subject to
Loss Sharing
Agreements
|
|
Total
|
Non-Accrual Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential first mortgages
|
|
$
|
43
|
|
|
$
|
2,751
|
|
|
$
|
2,794
|
|
|
$
|
48
|
|
|
$
|
3,137
|
|
|
$
|
3,185
|
|
Home equity lines
|
|
|
373
|
|
|
|
254
|
|
|
|
627
|
|
|
|
491
|
|
|
|
96
|
|
|
|
587
|
|
Commercial real estate
|
|
|
3,150
|
|
|
|
2,604
|
|
|
|
5,754
|
|
|
|
3,297
|
|
|
|
3,045
|
|
|
|
6,342
|
|
Construction and land development
|
|
|
3,599
|
|
|
|
32
|
|
|
|
3,631
|
|
|
|
3,688
|
|
|
|
35
|
|
|
|
3,723
|
|
Commercial
|
|
|
1,297
|
|
|
|
334
|
|
|
|
1,631
|
|
|
|
1,518
|
|
|
|
455
|
|
|
|
1,973
|
|
Consumer
|
|
|
30
|
|
|
|
—
|
|
|
|
30
|
|
|
|
26
|
|
|
|
—
|
|
|
|
26
|
|
Total
|
|
$
|
8,492
|
|
|
$
|
5,975
|
|
|
$
|
14,467
|
|
|
$
|
9,068
|
|
|
$
|
6,768
|
|
|
$
|
15,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing => 90 days past due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Home equity lines
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accruing loans
|
|
$
|
8,492
|
|
|
$
|
5,975
|
|
|
$
|
14,467
|
|
|
$
|
9,068
|
|
|
$
|
6,768
|
|
|
$
|
15,836
|
|
Accruing => 90 days past due
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Foreclosed real estate
|
|
|
4,736
|
|
|
|
8,564
|
|
|
|
13,300
|
|
|
|
7,763
|
|
|
|
10,817
|
|
|
|
18,580
|
|
Total non-performing assets
|
|
|
13,228
|
|
|
|
14,539
|
|
|
|
27,767
|
|
|
|
16,831
|
|
|
|
17,585
|
|
|
|
34,416
|
|
Performing troubled debt restructured loans
|
|
|
13,624
|
|
|
|
871
|
|
|
|
14,495
|
|
|
|
17,281
|
|
|
|
1,365
|
|
|
|
18,646
|
|
Total non-performing assets and performing troubled debt restructured loans
|
|
$
|
26,852
|
|
|
$
|
15,410
|
|
|
$
|
42,262
|
|
|
$
|
34,112
|
|
|
$
|
18,950
|
|
|
$
|
53,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accruing and accruing => 90 days past due loans to total loans
|
|
|
0.74
|
%
|
|
|
0.52
|
%
|
|
|
1.27
|
%
|
|
|
0.80
|
%
|
|
|
0.60
|
%
|
|
|
1.40
|
%
|
Total non-performing assets to total assets
|
|
|
0.78
|
%
|
|
|
0.86
|
%
|
|
|
1.63
|
%
|
|
|
0.91
|
%
|
|
|
0.95
|
%
|
|
|
1.87
|
%
|
Total non-performing assets and performing troubled debt restructured loans to total assets
|
|
|
1.58
|
%
|
|
|
0.91
|
%
|
|
|
2.49
|
%
|
|
|
1.85
|
%
|
|
|
1.03
|
%
|
|
|
2.88
|
%
|
Included in non-accrual loans as of June 30, 2014 are purchase credit
impaired loans of $2.5 million for which cash flows could not be reasonably estimated with $2.4 million of these loans subject
to Loss Share Agreements. Additionally, included in non-accrual loans at June 30, 2014 and December 31, 2013 were $4.1 million
and $4.2 million, respectively, of loans performing in accordance with their contractual terms but which the Company placed on
non-accrual status due to identified risks within the credit. Of the non-performing assets and performing troubled debt restructured
loans at June 30, 2014, $15.4 million were acquired and are all covered under the Loss Share Agreements as compared to $19.0 million
at December 31, 2013.
Since December 31, 2013, for non-performing loans not subject to
Loss Share Agreements, we had approximately $405,000 in non-accrual loans which were charged off, $2.3 million were paid off or
principal payments were applied, no loans were transferred to OREO or returned to accrual status and $2.1 million were added to
non-accrual during the six months ended June 30, 2014.
Past due loans, categorized by loans subject to Loss Share Agreements
and those not subject to Loss Share Agreements, at June 30, 2014 and December 31, 2013, were as follows:
June 30, 2014
|
|
Accruing 30 - 59
|
|
Accruing 60-89
|
|
Non-Accrual/accrual
and
90 days and over
|
|
Total
|
(Dollars in thousands)
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to
Loss Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to Loss
Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to
Loss Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to
Loss Sharing
Agreements
|
Residential real estate
|
|
$
|
185
|
|
|
$
|
56
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,005
|
|
|
$
|
416
|
|
|
$
|
3,190
|
|
|
$
|
472
|
|
Commercial
|
|
|
—
|
|
|
|
202
|
|
|
|
—
|
|
|
|
81
|
|
|
|
334
|
|
|
|
1,297
|
|
|
|
334
|
|
|
|
1,580
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,604
|
|
|
|
3,150
|
|
|
|
2,604
|
|
|
|
3,150
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32
|
|
|
|
3,599
|
|
|
|
32
|
|
|
|
3,599
|
|
Consumer and other
|
|
|
—
|
|
|
|
29
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30
|
|
|
|
—
|
|
|
|
59
|
|
Total June 30, 2014
|
|
$
|
185
|
|
|
$
|
287
|
|
|
$
|
—
|
|
|
$
|
81
|
|
|
$
|
5,975
|
|
|
$
|
8,492
|
|
|
$
|
6,160
|
|
|
$
|
8,860
|
|
December 31, 2013
|
|
Accruing 30 - 59
|
|
Accruing 60-89
|
|
Non-Accrual/Accrual
90 days and over
|
|
Total
|
(Dollars in thousands)
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to
Loss Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to
Loss Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to
Loss Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans Not
Subject to
Loss Sharing
Agreements
|
Residential real estate
|
|
$
|
333
|
|
|
$
|
1,085
|
|
|
$
|
162
|
|
|
$
|
24
|
|
|
$
|
3,233
|
|
|
$
|
539
|
|
|
$
|
3,728
|
|
|
$
|
1,648
|
|
Commercial
|
|
|
—
|
|
|
|
461
|
|
|
|
—
|
|
|
|
—
|
|
|
|
455
|
|
|
|
1,518
|
|
|
|
455
|
|
|
|
1,979
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,737
|
|
|
|
3,045
|
|
|
|
3,297
|
|
|
|
3,045
|
|
|
|
5,034
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35
|
|
|
|
3,688
|
|
|
|
35
|
|
|
|
3,688
|
|
Consumer and other
|
|
|
—
|
|
|
|
34
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
|
|
—
|
|
|
|
60
|
|
Total December 31, 2013
|
|
$
|
333
|
|
|
$
|
1,580
|
|
|
$
|
162
|
|
|
$
|
1,761
|
|
|
$
|
6,768
|
|
|
$
|
9,068
|
|
|
$
|
7,263
|
|
|
$
|
12,409
|
|
Past due loans subject to Loss Share Agreements decreased by $1.1
million from $7.3 million at December 31, 2013 to $6.2 million at June 30, 2014. Past due loans not subject to Loss Share Agreements
decreased by $3.5 million to $8.9 million at June 30, 2014 compared to $12.4 million at December 31, 2013. The change in past due
loans covered under Loss Share Agreements was due to a decrease in accruing loans which were past due less than 90 days of $310,000
and a decrease in loans past due greater than 90 days and on non-accrual of $793,000 as the Company continues to work towards resolutions
and work out solutions for these assets. A decrease in loans 30-89 days past due was noted for loans not covered under Loss Share
Agreements which declined by $3.0 million during the six months ended June 30, 2014 along with a decrease in the non-accrual and
90 days or more past due category by $576,000.
Certain Acquired Loans
: As part of business acquisitions,
the Company evaluated each of the acquired loans under ASC 310-30 to determine whether (1) there was evidence of credit deterioration
since origination, and (2) it was probable that we would not collect all contractually required payment receivable. The Company
determined the best indicator of such evidence was an individual loan’s payment status and/or whether a loan was determined
to be classified by us based on our review of each individual loan. Therefore, generally each individual loan that should have
been or was on nonaccrual at the acquisition date, loans contractually past due 60 days or more, and each individual loan that
was classified by us were included subject to ASC 310-30. These loans were recorded at the discounted expected cash flows of the
individual loan and are currently disclosed in Note 4.
Loans which were evaluated under ASC 310-30, and where the timing
and amount of cash flows can be reasonably estimated, were accounted for in accordance with ASC 310-30-35. The Company applies
the interest method for these loans under this subtopic and the loans are excluded from non-accrual. If at acquisition we identified
loans that we could not reasonably estimate cash flows or if subsequent to acquisition such cash flows could not be estimated,
such loans would be included in non-accrual. These acquired loans are recorded at the allocated fair value, such that there is
no carryover of the seller’s allowance for loan losses. Such acquired loans are accounted for individually. The Company estimates
the amount and timing of expected cash flows for each purchased loan, and the expected cash flows in excess of the allocated fair
value is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual
principal and interest over expected cash flows is not recorded (non-accretable difference). Over the life of the loan, expected
cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded
through the allowance for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized
as part of future interest income. At June 30, 2014, the Company had $12.4 million of loans evaluated under ASC 310-30 which were
on nonaccrual and past due greater than 90 days in accordance with their loan documents but were performing in accordance with
their estimated cash flows. These loans are excluded from the past due categories.
Impaired Loans
The following tables present loans individually evaluated for impairment
by class of loan as June 30, 2014 and December 31, 2013.
|
|
Recorded Investment in Impaired Loans
|
|
|
With Allowance
|
|
With No Allowance
|
June 30, 2014
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans
Not Subject to
Loss Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans
Not Subject to
Loss Sharing
Agreements
|
(Dollars in thousands)
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
|
Recorded
Investment
|
|
Recorded
Investment
|
Residential real estate
|
|
$
|
769
|
|
|
$
|
163
|
|
|
$
|
1,230
|
|
|
|
560
|
|
|
$
|
1,416
|
|
|
$
|
49
|
|
Commercial
|
|
|
33
|
|
|
|
32
|
|
|
|
1,169
|
|
|
|
492
|
|
|
|
—
|
|
|
|
2,059
|
|
Commercial real estate
|
|
|
316
|
|
|
|
59
|
|
|
|
3,455
|
|
|
|
143
|
|
|
|
1,249
|
|
|
|
10,341
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
384
|
|
|
|
181
|
|
|
|
—
|
|
|
|
3,356
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
9
|
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
Total June 30, 2014
|
|
$
|
1,118
|
|
|
$
|
254
|
|
|
$
|
6,247
|
|
|
|
1,385
|
|
|
$
|
2,665
|
|
|
$
|
15,805
|
|
|
|
Recorded Investment in Impaired Loans
|
|
|
With Allowance
|
|
With No Allowance
|
December 31, 2013
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans
Not Subject to
Loss Sharing
Agreements
|
|
Loans
Subject to
Loss Sharing
Agreements
|
|
Loans
Not Subject to
Loss Sharing
Agreements
|
(Dollars in thousands)
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
|
Recorded
Investment
|
|
Allowance
for Loan
Losses
Allocated
|
|
Recorded
Investment
|
|
Recorded
Investment
|
Residential real estate
|
|
$
|
1,127
|
|
|
$
|
230
|
|
|
$
|
823
|
|
|
$
|
230
|
|
|
$
|
1,170
|
|
|
$
|
447
|
|
Commercial
|
|
|
409
|
|
|
|
105
|
|
|
|
1,537
|
|
|
|
730
|
|
|
|
—
|
|
|
|
1,991
|
|
Commercial real estate
|
|
|
603
|
|
|
|
99
|
|
|
|
5,332
|
|
|
|
314
|
|
|
|
1,374
|
|
|
|
12,316
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
527
|
|
|
|
271
|
|
|
|
—
|
|
|
|
3,303
|
|
Consumer and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total December 31, 2013
|
|
$
|
2,139
|
|
|
$
|
434
|
|
|
$
|
8,219
|
|
|
$
|
1,545
|
|
|
$
|
2,544
|
|
|
$
|
18,057
|
|
Overall impaired loans decreased by $5.1 million from $31.0
million at December 31, 2013 to $25.8 million at June 30, 2014. Impaired loans subject to loss share agreements decreased by $900,000.
Impaired loans not subject to loss share agreements decreased by $4.2 million from December 31, 2013 to June 30, 2014 primarily
due to resolutions, including sales, payoffs and transfers to other real estate owned.
Allowance for Loan Losses
At June 30, 2014, the allowance for loan losses was $10.0 million
or 0.88% of total loans. Inclusive within total loans is $135.2 million in loans acquired from EBI on July 1, 2013 which are recorded
at fair value and for which a minimal allowance was allocated at June 30, 2014. Excluding those loans, the allowance for loan losses
as a percentage of total loans would be 1.00% compared to 0.98% at December 31, 2013. At December 31, 2013, the allowance for loan
losses was $9.6 million or 0.85% of total loans.
At June 30, 2014 and December 31, 2013, we had $6.2 million and
$8.2 million, respectively, of impaired loans not covered by Loss Share Agreements with an allocated allowance for loan loss of
$1.4 million and $1.5 million respectively. Charge-offs for the six months ended June 30, 2014 were $926,000 offset by recoveries
of $418,000, which included a substantial recovery related to one loan. Of these charge-offs, $521,000 was provided for as of December
31, 2013. Charge-offs for the six months ended June 30, 2013 were $1.8 million offset by recoveries of $143,000. Overall loans
graded special mention and substandard not covered by Loss Share Agreements decreased by $3.4 million (or 1.6%) from December 31,
2013 to June 30, 2014 which had a positive impact on the general allowance for loan losses. In originating loans, we recognize
that credit losses will be experienced and the risk of loss will vary with, among other things: general economic conditions; the
type of loan being made; the creditworthiness of the borrower and guarantors over the term of the loan; insurance; whether the
loan is covered by a loss share agreement; and, in the case of a collateralized loan, the quality of the collateral for such a
loan. The allowance for loan losses represents our estimate of the amount necessary to provide for probable incurred losses in
the loan portfolio. In making this determination, we analyze the ultimate collectability of the loans in our portfolio, feedback
provided by internal loan staff, the independent loan review function and information provided by examinations performed by regulatory agencies.
The allowance for loan losses is evaluated at the portfolio segment
level using the same methodology for each segment. The historical net losses for a rolling three year period is the basis for the
general reserve for each segment which is adjusted for each of the same qualitative factors (i.e., nature and volume of portfolio,
economic and business conditions, classification, past due and non-accrual trends) evaluated by each individual segment. Impaired
loans and related specific reserves for each of the segments are also evaluated using the same methodology for each segment.
The qualitative factors totaled approximately 8 and 7 basis points of the allowance for loan losses as of both June 30, 2014 and
December 31, 2013, respectively.
A loan is 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 agreement. Loans for which the terms have been modified and for which the borrower
is experiencing financial difficulties are considered troubled debt restructurings and generally classified as impaired.
Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays (loan payments made within 90 days of the due date) and payment shortfalls (which are tracked
as past due amounts) generally are not classified as impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including
the length of the delay, the reasons for the delay, the borrower’s prior payment record, the borrower’s and guarantor’s
financial condition and the amount of the shortfall in relation to the principal and interest owed.
Charge-offs of loans are made by portfolio segment at the time that
the collection of the full principal, in management’s judgment, is doubtful. This methodology for determining charge-offs
is consistently applied to each segment.
On a quarterly basis, management reviews the adequacy of the allowance
for loan losses. Commercial credits are graded by risk management and the loan review function validates the assigned credit risk
grades. In the event that a loan is downgraded, it is included in the allowance analysis at the lower grade. To establish the appropriate
level of the allowance, we review and classify loans (including all impaired and non-performing loans) as to potential loss exposure.
Our analysis of the allowance for loan losses consists of three
components: (i) specific credit allocation established for expected losses resulting from analysis developed through specific credit
allocations on individual loans for which the recorded investment in the loan exceeds the fair value; (ii) general portfolio allocation
based on historical loan loss experience for each loan category; and (iii) qualitative reserves based on general economic conditions
as well as specific economic factors in the markets in which we operate.
The specific credit allocation component of the allowance for loan
losses is based on a regular analysis of loans where the loan is determined to be impaired as determined by management. The amount
of impairment, if any, is determined based on either the present value of expected future cash flows discounted at the loan’s
effective interest rate, the market price of the loan, or, if the loan is collateral dependent, the fair value of the underlying
collateral less cost of sale. Third party appraisals are used to determine the fair value of underlying collateral. At a minimum
a new appraisal is obtained annually for all impaired loans based on an “as is” value. Generally no adjustments, other
than a reduction for estimated disposal costs, are made by the Company to third party appraisals to determine the fair value of
the assets. The impact on the allowance for loan losses for new appraisals is reflected in the period the appraisal is received.
A loan may also be classified as substandard and not be classified as impaired by management. A loan may be classified as substandard
by management if, for example, the primary source of repayment is insufficient, the financial condition of the borrower or guarantors
has deteriorated or there are chronic delinquencies.
The following is a summary of our loan classifications at June 30,
2014 and December 31, 2013:
|
|
|
|
Loans Subject to Loss
Sharing Agreements
|
|
Loans Not Subject to Loss
Sharing Agreements
|
(Dollars in thousands)
|
|
Total
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
191,242
|
|
|
$
|
55,794
|
|
|
$
|
1,270
|
|
|
$
|
3,005
|
|
|
$
|
119,758
|
|
|
$
|
5,700
|
|
|
$
|
5,715
|
|
Commercial
|
|
|
192,685
|
|
|
|
17,950
|
|
|
|
—
|
|
|
|
366
|
|
|
|
169,242
|
|
|
|
1,990
|
|
|
|
3,137
|
|
Commercial real estate
|
|
|
705,533
|
|
|
|
111,617
|
|
|
|
7,888
|
|
|
|
2,604
|
|
|
|
567,514
|
|
|
|
5,919
|
|
|
|
9,991
|
|
Construction and land development:
|
|
|
41,300
|
|
|
|
6,226
|
|
|
|
—
|
|
|
|
32
|
|
|
|
28,425
|
|
|
|
2,632
|
|
|
|
3,985
|
|
Consumer and other
|
|
|
11,371
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,816
|
|
|
|
438
|
|
|
|
117
|
|
Total June 30, 2014
|
|
$
|
1,142,131
|
|
|
$
|
191,587
|
|
|
$
|
9,158
|
|
|
$
|
6,007
|
|
|
$
|
895,755
|
|
|
$
|
16,679
|
|
|
$
|
22,945
|
|
|
|
|
|
Loans Subject to Loss
Sharing Agreements
|
|
Loans Not Subject to Loss
Sharing Agreements
|
(Dollars in thousands)
|
|
Total
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
178,844
|
|
|
$
|
63,712
|
|
|
$
|
1,152
|
|
|
$
|
3,395
|
|
|
$
|
99,259
|
|
|
$
|
4,661
|
|
|
$
|
6,665
|
|
Commercial
|
|
|
210,264
|
|
|
|
26,799
|
|
|
|
319
|
|
|
|
455
|
|
|
|
176,434
|
|
|
|
2,647
|
|
|
|
3,610
|
|
Commercial real estate
|
|
|
699,851
|
|
|
|
133,219
|
|
|
|
8,047
|
|
|
|
3,045
|
|
|
|
537,439
|
|
|
|
5,324
|
|
|
|
12,777
|
|
Construction and land development:
|
|
|
35,286
|
|
|
|
6,470
|
|
|
|
—
|
|
|
|
35
|
|
|
|
22,037
|
|
|
|
2,656
|
|
|
|
4,088
|
|
Consumer and other
|
|
|
9,735
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,135
|
|
|
|
480
|
|
|
|
118
|
|
Total December 31, 2013
|
|
$
|
1,133,980
|
|
|
$
|
230,202
|
|
|
$
|
9,518
|
|
|
$
|
6,930
|
|
|
$
|
844,304
|
|
|
$
|
15,768
|
|
|
$
|
27,258
|
|
All non-accrual loans are included in substandard loans. Loans classified
as troubled debt restructured loans, which are performing under the terms of their modification agreements, are credit graded based
on the individual qualities and payment performance of the loan under the terms of the modification agreement. At June 30, 2014
and December 31, 2013, loans which were classified as troubled debt restructured loans and were performing under the terms of their
modification agreements and were credit graded as substandard were $4.5 million and $7.6 million, respectively.
Substandard loans totaled $29.0 million at June 30, 2014 (of which
$6.0 million were subject to the Loss Share Agreements) and $34.2 million at December 31, 2013 (of which $6.9 million were subject
to the Loss Share Agreements). The decrease of $5.2 million since December 31, 2013 was primarily due to the resolution of loans
not covered under Loss Share Agreements of $4.3 million through sale, payoffs, charge-offs or foreclosure and transfer to other
real estate owned during the period. There was a decrease of $923,000 in the total substandard loans covered under Loss Share Agreements
period-over-period. We regularly evaluate classifications of loans and recommend either upgrades or downgrades as events or circumstances
warrant. In addition, at June 30, 2014, we had $25.8 million (or 2.3% of total loans) of loans classified as impaired. This compares
to $31.0 million (or 2.7% of total loans) at December 31, 2013. The decrease was primarily due to the net resolution of loans,
including sales, payoffs and transfers to other real estate owned during the year. At June 30, 2014 and December 31, 2013, the
specific credit allocation included in the allowance for loan losses for loans impaired was approximately $1.6 million and $2.0
million, respectively. The specific credit allocation for impaired loans is adjusted based on appraisals if collateral dependent
or anticipated cash flows if not collateral dependent. All loans classified as substandard that are collateralized by real estate
are also re-appraised at a minimum on an annual basis.
We also have loans classified as Special Mention. We classify loans
as Special Mention if there are declining trends in the borrower’s business, questions regarding condition or value of the
collateral, or other weaknesses. At June 30, 2014, we had $25.8 million (2.3% of outstanding loans), which included $9.2 million
in loans subject to Loss Share Agreements, which compares to $25.3 million (2.2% of outstanding loans) of which $9.5 million were
subject to Loss Share Agreements at December 31, 2013. Special mention loans not subject to Loss Share Agreements were $16.7 million
at June 30, 2014, an increase of $911,000 from December 31, 2013. There was a decrease in special mention loans subject to loss
share of $360,000 from December 31, 2013 to June 30, 2014. These changes are attributable to resolution of loans, including sales,
payoffs and downgrades to substandard as well as ongoing reviews and upgrading of loans classified as special mention. If there
is further deterioration on these loans, they may be classified substandard in the future, and depending on whether the loan is
considered impaired, a specific credit allocation may be needed resulting in increased provisions for loan losses. Improvement
in the underlying loan qualities can also provide for an upgrading of a loan to a watch category.
We determine the general portfolio allocation component of the allowance
for loan losses statistically using a loss analysis that examines historical loan loss experience adjusted for current environmental
factors. We perform the loss analysis quarterly and update loss factors regularly based on actual experience. The general portfolio
allocation element of the allowance for loan losses also includes consideration of the amounts necessary for concentrations and
changes in portfolio mix and volume.
We base the allowance for loan losses on estimates and ultimate
realized losses may vary from current estimates. We review these estimates quarterly, and as adjustments, either positive or negative,
become necessary, we make a corresponding increase or decrease in the provision for loan losses. The methodology used to determine
the adequacy of the allowance for loan losses is consistent with prior years and there were no reallocations.
Management remains watchful of credit quality issues. Should the
economic climate deteriorate from current levels, borrowers may experience difficulty repaying loans and the level of non-performing
loans, charge-offs and delinquencies could rise and require further increases in loan loss provisions.
During the three months ended June 30, 2014 and 2013, we recorded
$333,000 and $650,000, respectively, in provision for loan losses primarily as a result of charge-offs during the periods offset
by a reduction in classified and non-accrual loans.
Activity in the allowance for loan losses for the three months ended
June 30, 2014 was as follows:
(Dollars in thousands)
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance April 1, 2014
|
|
$
|
2,645
|
|
|
$
|
2,809
|
|
|
$
|
3,991
|
|
|
$
|
483
|
|
|
$
|
105
|
|
|
$
|
10,033
|
|
Provisions for loan losses
|
|
|
46
|
|
|
|
548
|
|
|
|
38
|
|
|
|
(89
|
)
|
|
|
7
|
|
|
|
550
|
|
Loans charged off
|
|
|
(585
|
)
|
|
|
(44
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(629
|
)
|
Recoveries
|
|
|
6
|
|
|
|
—
|
|
|
|
53
|
|
|
|
10
|
|
|
|
—
|
|
|
|
69
|
|
Ending Balance, June 30, 2014
|
|
$
|
2,112
|
|
|
$
|
3,313
|
|
|
$
|
4,082
|
|
|
$
|
404
|
|
|
$
|
112
|
|
|
$
|
10,023
|
|
Activity in the allowance for loan losses for the three months ended
June 30, 2013 was as follows:
(Dollars in thousands)
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, April 1, 2013
|
|
$
|
3,519
|
|
|
$
|
1,936
|
|
|
$
|
3,623
|
|
|
$
|
404
|
|
|
$
|
41
|
|
|
$
|
9,523
|
|
Provisions for loan losses
|
|
|
82
|
|
|
|
362
|
|
|
|
665
|
|
|
|
202
|
|
|
|
(11
|
)
|
|
|
1,300
|
|
Loans charged off
|
|
|
—
|
|
|
|
(54
|
)
|
|
|
(739
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(793
|
)
|
Recoveries
|
|
|
18
|
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
|
|
11
|
|
|
|
33
|
|
Ending Balance, June 30, 2013
|
|
$
|
3,619
|
|
|
$
|
2,244
|
|
|
$
|
3,551
|
|
|
$
|
608
|
|
|
$
|
41
|
|
|
$
|
10,063
|
|
Activity in the allowance for loan losses for the six months ended
June 30, 2014 was as follows:
(Dollars in thousands)
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, January 1, 2014
|
|
$
|
3,084
|
|
|
$
|
2,437
|
|
|
$
|
3,550
|
|
|
$
|
485
|
|
|
$
|
92
|
|
|
$
|
9,648
|
|
Provisions for loan losses
|
|
|
(335
|
)
|
|
|
962
|
|
|
|
329
|
|
|
|
(93
|
)
|
|
|
20
|
|
|
|
883
|
|
Loans charged off
|
|
|
(671
|
)
|
|
|
(86
|
)
|
|
|
(169
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(926
|
)
|
Recoveries
|
|
|
34
|
|
|
|
—
|
|
|
|
372
|
|
|
|
12
|
|
|
|
—
|
|
|
|
418
|
|
Ending Balance, June 30, 2014
|
|
$
|
2,112
|
|
|
$
|
3,313
|
|
|
$
|
4,082
|
|
|
$
|
404
|
|
|
$
|
112
|
|
|
$
|
10,023
|
|
Activity in the allowance for loan losses for the six months ended
June 30, 2013 was as follows:
(Dollars in thousands)
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Beginning balance, January 1, 2013
|
|
$
|
2,735
|
|
|
$
|
1,869
|
|
|
$
|
3,398
|
|
|
$
|
1,745
|
|
|
$
|
41
|
|
|
$
|
9,788
|
|
Provisions for loan losses
|
|
|
850
|
|
|
|
480
|
|
|
|
947
|
|
|
|
(332
|
)
|
|
|
5
|
|
|
|
1,950
|
|
Loans charged off
|
|
|
—
|
|
|
|
(106
|
)
|
|
|
(798
|
)
|
|
|
(898
|
)
|
|
|
(16
|
)
|
|
|
(1,818
|
)
|
Recoveries
|
|
|
34
|
|
|
|
1
|
|
|
|
4
|
|
|
|
93
|
|
|
|
11
|
|
|
|
143
|
|
Ending Balance, June 30, 2013
|
|
$
|
3,619
|
|
|
$
|
2,244
|
|
|
$
|
3,551
|
|
|
$
|
608
|
|
|
$
|
41
|
|
|
$
|
10,063
|
|
The decrease in the allowance related to commercial loans from $3.6
million at June 30, 2013 to $2.1 million at June 30, 2014 was due to a reduction in the specific reserve on impaired and a decrease
in the general portion of the reserve due to improving historical loss rates as quarters with significant charge-offs were replaced
with improved charge-off trending in this category.
The increase in the allowance for loan losses related to residential
real estate loans from $2.2 million at June 30, 2013 to $3.3 million at June 30, 2014 was due to an increase in specific reserves
on impaired loans and an increase in the general portion of the reserve due to historical loss factors and an increase in loans
collectively evaluated for impairment.
The increase in the allowance for loan losses related to commercial
real estate loans from $3.6 million at June 30, 2013 to $4.1 million at June 30, 2014 was due to a decrease in estimated cash flows
for purchased credit impaired loans with a resulting increase in the allowance related to those loans and the increase in loans
collectively evaluated for impairment.
The following tables reflect the allowance allocation per loan category
and percent of loans in each category to total loans as of June 30, 2014 and December 31, 2013:
As of June 30, 2014:
(Dollars in thousands)
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Specific Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
524
|
|
|
$
|
723
|
|
|
$
|
202
|
|
|
$
|
181
|
|
|
$
|
9
|
|
|
$
|
1,639
|
|
Purchase credit impaired loans
|
|
|
462
|
|
|
|
320
|
|
|
|
676
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,458
|
|
Total specific reserves
|
|
|
986
|
|
|
|
1,043
|
|
|
|
878
|
|
|
|
181
|
|
|
|
9
|
|
|
|
3,097
|
|
General reserves
|
|
|
1,126
|
|
|
|
2,270
|
|
|
|
3,204
|
|
|
|
223
|
|
|
|
103
|
|
|
|
6,926
|
|
Total
|
|
$
|
2,112
|
|
|
$
|
3,313
|
|
|
$
|
4,082
|
|
|
$
|
404
|
|
|
$
|
112
|
|
|
$
|
10,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
192,685
|
|
|
$
|
191,242
|
|
|
$
|
705,533
|
|
|
$
|
41,300
|
|
|
$
|
11,371
|
|
|
$
|
1,142,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance as percent of loans per category as of June 30, 2014
|
|
|
1.10
|
%
|
|
|
1.73
|
%
|
|
|
0.58
|
%
|
|
|
0.98
|
%
|
|
|
0.98
|
%
|
|
|
0.88
|
%
|
As of December 31, 2013:
(Dollars in thousands)
|
|
Commercial
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Construction
and Land
Development
|
|
Consumer
and Other
|
|
Total
|
Specific Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
835
|
|
|
$
|
460
|
|
|
$
|
413
|
|
|
$
|
271
|
|
|
$
|
—
|
|
|
$
|
1,979
|
|
Purchase credit impaired loans
|
|
|
464
|
|
|
|
269
|
|
|
|
278
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,011
|
|
Total specific reserves
|
|
|
1,299
|
|
|
|
729
|
|
|
|
691
|
|
|
|
271
|
|
|
|
—
|
|
|
|
2,990
|
|
General reserves
|
|
|
1,785
|
|
|
|
1,708
|
|
|
|
2,859
|
|
|
|
214
|
|
|
|
92
|
|
|
|
6,658
|
|
Total
|
|
$
|
3,084
|
|
|
$
|
2,437
|
|
|
$
|
3,550
|
|
|
$
|
485
|
|
|
$
|
92
|
|
|
$
|
9,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
210,264
|
|
|
$
|
178,844
|
|
|
$
|
699,851
|
|
|
$
|
35,286
|
|
|
$
|
9,735
|
|
|
$
|
1,133,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance as percent of loans per category as of December 31, 2013
|
|
|
1.47
|
%
|
|
|
1.36
|
%
|
|
|
0.51
|
%
|
|
|
1.37
|
%
|
|
|
0.95
|
%
|
|
|
0.85
|
%
|
The overall general reserve increased by $268,000 from $6.7 million
at December 31, 2013 to $6.9 million at June 30, 2014. The overall general reserve as a percentage of loans collectively evaluated
for impairment was 0.65% at June 30, 2014 as compared to 0.64% at December 31, 2013.
Other Real Estate Owned
Real estate acquired by us as a result of foreclosure or by deed
in lieu of foreclosure is classified as OREO. Write-downs in OREO are recorded at the time management believes additional deterioration
in value has occurred and are charged to non-interest expense. At June 30, 2014, we had $13.3 million of OREO property, of which
$5.9 million was a result of the Old Harbor acquisition, $2.5 million was a result of the TBOM acquisition and $217,000 as a result
of the Republic acquisition and all are covered by their respective Loss Share Agreements. At December 31, 2013, we had $18.6 million
of OREO property, of which $10.8 million were a result of the Old Harbor, TBOM and Republic acquisitions and were covered under
the respective Loss Share Agreements.
The following is a summary of other real estate owned as of June
30, 2014 and December 31, 2013:
|
|
June 30,
2014
|
|
December 31,
2013
|
(Dollars in thousands)
|
|
Assets Not
Subject to
Loss Sharing
Agreements
|
|
Assets
Subject to
Loss Sharing
Agreements
|
|
Total
|
|
Assets Not
Subject to
Loss Sharing
Agreements
|
|
Assets
Subject to
Loss Sharing
Agreements
|
|
Total
|
Commercial real estate
|
|
$
|
4,285
|
|
|
$
|
4,910
|
|
|
$
|
9,195
|
|
|
$
|
5,761
|
|
|
$
|
8,979
|
|
|
$
|
14,740
|
|
Residential real estate
|
|
|
451
|
|
|
|
3,654
|
|
|
|
4,105
|
|
|
|
2,002
|
|
|
|
1,838
|
|
|
|
3,840
|
|
Total
|
|
$
|
4,736
|
|
|
$
|
8,564
|
|
|
$
|
13,300
|
|
|
$
|
7,763
|
|
|
$
|
10,817
|
|
|
$
|
18,580
|
|
At June 30, 2014, we had $5.9 million of properties under contract
for sale which are expected to close in the third quarter of 2014.
Investment Securities
We manage our securities available for sale portfolio, which represented
21.5% of our average earning assets at June 30, 2014, as compared to 22.66% at December 31, 2013, to minimize interest rate risk,
maintain sufficient liquidity, and maximize return. The portfolio includes treasury securities, municipal securities, commercial
and residential mortgage-backed securities, and government agency collateralized mortgage obligations. Our financial planning anticipates
income streams generated by the securities portfolio based on normal maturity, pay downs and reinvestment. We may use excess liquidity
to purchase securities. We did not purchase any securities during the three or six month period ended June 30, 2014.
FDIC Loss Share Receivable
The FDIC Loss Share Receivable represents the estimated amounts
due from the FDIC related to Loss Share Agreements. The receivable represents the discounted value of the FDIC’s portion
of estimated losses expected to be realized on covered assets. The receivable is reviewed quarterly and adjusted for any changes
in expected cash flows based on recent performance and expectations for future performance of covered assets. During the six months
ended June 30, 2014, we received cash of $1.5 million from the FDIC, recorded an adjustment of $5.0 million related to the changes
in estimated cash flows of covered assets which were partially offset by the recorded discount accretion of $41,000.
Deposits
Total deposits decreased by $155.1 million from December 31, 2013
to total deposits of $1.4 billion at June 30, 2014, primarily due to withdrawal of a short-term $128 million deposit from one customer
in January 2014 offset by normal customer activity. At June 30, 2014, non-interest bearing deposits represented approximately 38.0%
of deposits compared to 34.0% at December 31, 2013. Repurchase agreements with customers increased by $2.1 million for the six
month ended June 30, 2014 due to normal customer activity. The Bank participates in the CDARS program (reciprocal) with balances
of $36.0 million at June 30, 2014 compared to $39.4 million at December 31, 2013 and maintained brokered deposits of $39.9 million
and $24.9 million at June 30, 2014 and December 31, 2013, respectively.
CAPITAL RESOURCES
We are subject to regulatory capital requirements administered
by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures
of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory
action.
The Federal banking regulatory authorities have adopted certain
“prompt corrective action” rules with respect to depository institutions. The rules establish five capital tiers: “well
capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,”
and “critically undercapitalized.” The various federal banking regulatory agencies have adopted regulations to implement
the capital rules by, among other things, defining the relevant capital measures for the five capital categories. An institution
is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based
capital ratio of 6% or greater, and a Tier 1 leverage ratio of 5% or greater and is not subject to a regulatory order, agreement,
or directive to meet and maintain a specific capital level. At June 30, 2014, we met the capital ratios of a “well capitalized”
financial holding company with a total risk-based capital ratio of 15.92%, a Tier 1 risk-based capital ratio of 15.04%, and a Tier
1 leverage ratio of 10.45%. Depository institutions which fall below the “adequately capitalized” category generally
are prohibited from making any capital distribution, are subject to growth limitations, and are required to submit a capital restoration
plan. There are a number of requirements and restrictions that may be imposed on institutions treated as “significantly undercapitalized”
and, if the institution is “critically undercapitalized,” the banking regulatory agencies have the right to appoint
a receiver or conservator. On July 2, 2013, the Federal banking regulatory authorities announced a new capital framework with which
we are required to comply by January 1, 2015. We are evaluating the impact of these changes to regulatory capital.
The following represents Bancorp’s and 1
st
United’s
regulatory capital ratios as of June 30, 2014 and December 31, 2013:
|
|
Actual
|
|
Minimum Capital
Adequacy
|
|
Minimum for
Well Capitalized
|
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
As of June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk-weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
182,438
|
|
|
|
15.92
|
%
|
|
$
|
91,702
|
|
|
|
8.00
|
%
|
|
$114,627
|
|
|
10.00
|
%
|
1
st
United
|
|
|
165,722
|
|
|
|
14.50
|
%
|
|
|
91,426
|
|
|
|
8.00
|
%
|
|
114,283
|
|
|
10.00
|
%
|
Tier I capital to risk-weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
172,415
|
|
|
|
15.04
|
%
|
|
|
45,851
|
|
|
|
4.00
|
%
|
|
68,776
|
|
|
6.00
|
%
|
1
st
United
|
|
|
155,699
|
|
|
|
13.62
|
%
|
|
|
45,713
|
|
|
|
4.00
|
%
|
|
68,570
|
|
|
6.00
|
%
|
Tier I capital to total average assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
172,415
|
|
|
|
10.45
|
%
|
|
|
66,020
|
|
|
|
4.00
|
%
|
|
82,526
|
|
|
5.00
|
%
|
1
st
United
|
|
|
155,699
|
|
|
|
9.45
|
%
|
|
|
65,893
|
|
|
|
4.00
|
%
|
|
82,366
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk-weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
172,709
|
|
|
|
15.47
|
%
|
|
$
|
89,287
|
|
|
|
8.00
|
%
|
|
$111,608
|
|
|
10.00
|
%
|
1
st
United
|
|
|
158,884
|
|
|
|
14.27
|
%
|
|
|
89,084
|
|
|
|
8.00
|
%
|
|
111,355
|
|
|
10.00
|
%
|
Tier I capital to risk-weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
163,061
|
|
|
|
14.61
|
%
|
|
|
44,643
|
|
|
|
4.00
|
%
|
|
66,965
|
|
|
6.00
|
%
|
1
st
United
|
|
|
149,236
|
|
|
|
13.40
|
%
|
|
|
44,542
|
|
|
|
4.00
|
%
|
|
66,813
|
|
|
6.00
|
%
|
Tier I capital to total average assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
163,061
|
|
|
|
9.66
|
%
|
|
|
67,489
|
|
|
|
4.00
|
%
|
|
84,361
|
|
|
5.00
|
%
|
1
st
United
|
|
|
149,236
|
|
|
|
8.86
|
%
|
|
|
67,388
|
|
|
|
4.00
|
%
|
|
84,235
|
|
|
5.00
|
%
|
We have an effective shelf registration statement, under which we
may offer additional securities for sale, from time to time if additional capital is required. There are no plans at this
time to offer any additional securities for sale.
We paid a quarterly cash dividend of $0.02 per share in March and
May of 2014. We paid a quarterly cash dividend of $0.01 per share on May 8, 2013, August 15, 2013 and November 15, 2013. Additionally,
the board of directors declared a $0.10 per share special cash dividend on December 23, 2013 totaling $3.4 million which was paid
January 2014.
CASH FLOWS AND LIQUIDITY
Our primary sources of cash are deposit growth, maturities and amortization
of loans and securities, operations, and borrowing. We use cash from these and other sources to first fund loan growth. Any remaining
cash is used primarily to purchase a combination of short, intermediate, and longer-term investment securities.
We manage our liquidity position with the objective of maintaining
sufficient funds to respond to the needs of depositors and borrowers and to take advantage of earnings enhancement opportunities.
In addition to the normal inflow of funds from core-deposit growth together with repayments and maturities of loans and investments,
we use other short-term funding sources such as brokered time deposits, securities sold under agreements to repurchase, overnight
federal funds purchased from correspondent banks, the acceptance of short-term deposits from public entities, and Federal Home
Loan Bank advances.
We monitor, stress test and manage our liquidity position on several
bases, which vary depending upon the time period. As the time period is stress test expanded, other data is factored in, including
estimated loan funding requirements, estimated loan payoffs, investment portfolio maturities or calls, and anticipated depository
buildups or runoffs.
We classify all of our securities as available-for-sale to help
maintain liquidity. Our liquidity position is further enhanced by structuring our loan portfolio interest payments as monthly,
complemented by retail credit and residential mortgage loans in our loan portfolio, resulting in a steady stream of loan repayments.
In managing our investment portfolio, we provide for staggered maturities so that cash flows are provided as such investments mature.
Our securities portfolio, federal funds sold, and cash and due from
financial institutions balances serve as primary sources of liquidity for 1st United. At June 30, 2014, we had approximately $388.9
million in cash and cash equivalents and securities, of which $34.2 million of securities, at fair value, were pledged. At December
31, 2013, we had approximately $526.2 million in cash and cash equivalents and securities, of which $30.2 million of securities,
at fair value, were pledged.
At June 30, 2014, we had no overnight borrowings from the Federal
Home Loan Bank. We had $35.0 million in borrowings from the Federal Home Loan Bank which mature throughout 2015. We acquired the
$35.0 million in Federal Home Loan Bank advances in connection with the acquisition of EBI.
At June 30, 2014, we had commitments to originate loans totaling
$60.3 million and commitments of $110.3 million in unused lines of credit. Scheduled maturities of certificates of deposit during
the twelve months following June 30, 2014 total $177.9 million. Loans maturing in the next twelve months total approximately $150.9
million.
Management believes that we have adequate resources to fund all
of our commitments, that substantially all of our existing commitments will be funded in the subsequent twelve months and, if so
desired, that we can adjust the rates on certificates of deposit and other deposit accounts to retain deposits in a changing interest
rate environment. At June 30, 2014, we had short-term lines available from correspondent banks totaling $65.0 million, Federal
Reserve Bank discount window availability of $76.6 million, and borrowing capacity from the Federal Home Loan Bank of $138.5 million
based on collateral pledged, for a total credit available of $280.1 million. Loans pledged for borrowings outstanding and available
borrowings with the Federal Home Loan Bank and the Federal Reserve Bank was $456.5 million and $108.9 million, respectively, at
June 30, 2014. In addition, being “well capitalized,” the Bank can access wholesale deposits for approximately $347.7
million based on current policy limits.
OFF-BALANCE SHEET ARRANGEMENTS
We do not currently engage in the use of derivative instruments
to hedge interest rate risks. However, we are a party to financial instruments with off-balance sheet risks in the normal course
of business to meet the financing needs of our clients.
At June 30, 2014, we had $60.3 million in commitments to originate
loans, $110.3 million in unused lines of credit and $8.8 million in standby letters of credit. Commitments to extend credit are
agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments generally
have termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional
commitments issued by us to guarantee the performance of a client to a third party. We use the same credit policies in establishing
commitments and issuing letters of credit as we do for on-balance sheet instruments.
If commitments arising from these financial instruments continue
to require funding at historical levels, management does not anticipate that such funding will adversely impact our ability to
meet on-going obligations. In the event these commitments require funding in excess of historical levels, management believes current
liquidity, available lines of credit from the FHLB, investment security maturities and our revolving credit facility provide a
sufficient source of funds to meet these commitments.
CRITICAL ACCOUNTING POLICIES
Allowance for Loan Losses
Management views critical accounting policies as accounting policies
that are important to the understanding of our financial statements and also involve estimates and judgments about inherently uncertain
matters. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated balance
sheets and assumptions that affect the recognition of income and expenses on the consolidated statements of income for the periods
presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible
to significant change in subsequent periods are described as follows.
The allowance for loan losses is established as losses are estimated
to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance for loan
losses when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited
to the allowance for loan losses.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management’s periodic review of the collectability of the loans in light of historical experience,
the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific and general components. The specific
component relates to loans that are individually evaluated for impairment. For such loans, an allowance for loan losses is established
based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the market
price of the loan, or, if the loan is collateral dependent, the fair value of the underlying collateral less estimated costs of
sale.
A loan is considered impaired when, based on current information
and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according
to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status,
collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment
delays (loan payments made within 90 days of the due date) and payment shortfalls (which are tracked as past due amounts) on a
case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation
to the principal and interest owed. Management considers loan payments made within 90 days of the due date to be insignificant
payment delays. Payment shortfalls are traced as past due amounts. Impairment is measured on a loan by loan basis for commercial
and construction and land development loans by either the present value of expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market price, or the fair value of the collateral less estimated costs of
sale if the loan is collateral dependent.
The general component considers the actual historical charge-offs
over a rolling three year period by portfolio segment. The actual historical charge-off ratio is adjusted for qualitative factors
including delinquency trends, loss and recovery trends, classified asset trends, non-accrual trends, economic and business conditions
and other external factors by portfolio segment of loans.
Goodwill and Intangible Assets
Goodwill represents the excess of cost over fair value of assets
of business acquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite
useful life are not amortized, but instead tested for impairment at least annually. Intangible assets are amortized over their
respective estimated useful lives to their estimated residual values. We were required to record the assets acquired, including
identified intangible assets, and liabilities assumed at their fair value, which involves estimates based on third party valuations,
such as appraisals, internal valuations based on discounted cash flow analyses or other valuation techniques. The determination
of the useful lives of intangible assets is subjective, as is the appropriate amortization period for such intangible assets. In
addition, purchase acquisitions typically result in recording goodwill, which is subject to ongoing periodic impairment tests based
on the fair value of the reporting unit compared to its carrying amount, including goodwill. As of December 31, 2013, the required
annual impairment test of goodwill was performed and no impairment existed as of the valuation date. If for any future period we
determine that there has been impairment in the carrying value of our goodwill balances, we will record a charge to our earnings,
which could have a material adverse effect on our net income, but not to our risk based capital ratios.
Income Taxes
Deferred income tax assets and liabilities are recorded to reflect
the tax consequences on future years of temporary differences between revenues and expenses reported for financial statements and
those reported for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be realized or settled. A valuation allowance
is provided against deferred tax assets which are not likely to be realized.
FDIC Loss Share Receivable
The FDIC Loss Share Receivable represents the estimated amounts
due from the FDIC related to the Loss Share Agreements which were booked as of the acquisition dates of Republic, TBOM, and Old
Harbor. The receivable represents the discounted value of the FDIC’s reimbursed portion of estimated losses we expect to
realize on assets that were acquired as a result of these acquisitions. The range of discount rates on the FDIC Loss Share Receivable
was 2.12% to 3.97%. As losses are realized on Covered Assets, the portion that the FDIC pays us in cash for principal and up to
90 days of interest reduces the FDIC loss share receivable.
The FDIC Loss Share Receivable is reviewed quarterly and adjusted
for any changes in expected cash flows based on recent performance and expectations for future performance of the Covered Assets.
Prior to October 1, 2012, any increases in cash flows of Covered Assets would be accreted into income over the life of the Covered
Asset and would reduce immediately the FDIC Loss Share Receivable. Subsequent to October 1, 2012, due to the adoption of new guidance
by the Financial Accounting Standards Board (“FASB”), any increases in cash flows of Covered Assets will be accreted
into income over the life of the covered asset with a reduction to the FDIC Loss Share Receivable over the shorter of the life
of the loan or the remaining term of the respective Loss Share Agreements. Any decreases in the expected cash flows of the Covered
Assets will result in the impairment to the Covered Asset and an increase in the FDIC Loss Share Receivable to be reflected immediately.
Non-cash adjustments to the FDIC Loss Share Receivable are recorded to non-interest income.