CENTERSTATE BANK CORPORATION (All dollar amounts presented herein are in thousands, except per share data, or
unless otherwise noted.)
COMPARISON OF BALANCE SHEETS AT
Overview
Our total assets increased approximately 8% from
Due to consolidated assets in excess of
On
Global health concerns relating to the coronavirus, COVID-19, have, and will
likely continue to, severely impact the macroeconomic environment, leading to
lower interest rates, depressed equity market valuations, heightened financial
market volatility and significant disruption in banking and other financial
activity in the areas in which South State and CenterState operate and in a
broad range of industries in which the customers of South State and CenterState
operate. The financial performance of each of South State and CenterState
generally, and in particular the ability of borrowers to pay interest on and
repay principal of outstanding loans and the value of collateral securing those
loans, as well as demand for loans and other products and services that each
company offers and whose success it relies on to drive growth, is highly
dependent upon the business environment in the primary markets in which it
operates and in
The extent to which the coronavirus pandemic impacts the businesses of South
State and CenterState will depend on future developments in
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combined company following the completion of the merger to address the adverse impacts of the coronavirus will be effective. If South State or CenterState is unable to recover from a business disruption on a timely basis, the combined company's business, financial condition and results of operations may be adversely affected. The coronavirus outbreak could also delay, increase the costs of, or otherwise adversely affect, the integration of the businesses of the two companies following the completion of the merger and make it more difficult for the combined company to realize anticipated synergies and cost savings in the amounts estimated or in the time frame contemplated or at all.
Federal funds sold and
Federal funds sold and
Available for sale debt investments
Available for sale debt securities, consisting primarily of mortgage-backed,
Trading securities
We also have a trading securities portfolio. Realized and unrealized gains and
losses are included in trading securities revenue, a component of our
non-interest income, in our Condensed Consolidated Statement of Income and
Comprehensive Income. Securities purchased for this portfolio have primarily
been various municipal securities. A list of the activity in this portfolio is
summarized below.
Three-month periods ended
March 31, 2020 March 31, 2019
Beginning balance $4,987 $1,737
Purchases 54,723 51,691
Proceeds from sales (51,431) (53,453)
Net realized gain on sales 70 25
Net unrealized gain 83 -
Ending balance $8,432 $ -
Held to maturity debt investments
At
Loans held for sale
We also have a mortgage loans held for sale portfolio, whereby we originate
single family home loans and sell those mortgages into the secondary market,
servicing released. The Company accounts for these loans under the fair value
option with changes in fair value recognized in current period earnings. At the
date of funding of the loan, the funded amount of the loan, the relative
derivative asset or liability of the associated interest rate lock commitment,
less direct costs, becomes the initial recorded investment in the loan held for
sale. Such amount approximates the fair value of the loan. Net gains from
changes in estimated fair value of mortgage loans held for sale were
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The table below presents the activity in this portfolio for the periods
indicated.
Three-month periods ended
March 31, 2020 March 31, 2019
Beginning balance $142,801 $40,399
Loans originated 423,622 134,752
Proceeds from sales (391,242) (129,657)
Net change in fair value 2,354 4
Net realized gain on sales 10,781 3,976
Ending balance $188,316 $49,474
Loans
Lending-related income is the most important component of our net interest
income and is a major contributor to profitability. The loan portfolio is the
largest component of earning assets, and it therefore generates the largest
portion of revenues. The absolute volume of loans and the volume of loans as a
percentage of earning assets is an important determinant of our net interest
margin as loans are expected to produce higher yields than securities and other
earning assets. Average loans during the three-month ended
Non-PCD loans
At
The graph below summarizes new loan originations and funded loan production, excluding acquired loans purchased pursuant to acquisitions, over the past nine quarters.
[[Image Removed]]
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PCD loans
Total Purchased Credit Deteriorated ("PCD") loans, formerly PCI loans, at
Loan concentrations are considered to exist where there are amounts loaned to multiple borrowers engaged in similar activities, which collectively could be similarly impacted by economic or other conditions and when the total of such amounts would exceed 25% of total capital. Due to the lack of diversified industry and the relative proximity of markets served, the Company has concentrations in geographic as well as in types of loans funded.
Total loans at
The following table sets forth information concerning the loan portfolio by collateral types as of the dates indicated.
March 31, 2020 December 31, 2019
Loans excluding PCD loans
Real estate loans
Residential $2,537,240 $2,512,544
Commercial 6,391,975 6,325,108
Land, development and construction 929,014 999,923
Total real estate 9,858,229 9,837,575
Commercial, industrial & factored receivables 1,778,526 1,759,074
Consumer and other loans 235,200 247,307
Loans before unearned fees and deferred cost 11,871,955 11,843,956 Net unearned fees and costs
4,954 4,519
Total loans excluding PCD loans 11,876,909 11,848,475
PCD loans (note 1)
Real estate loans
Residential 42,779 45,795
Commercial 92,281 81,576
Land, development and construction 5,447 4,655
Total real estate 140,507 132,026
Commercial and industrial 9,756 3,342
Consumer and other loans 59 100
Total PCD loans 150,322 135,468
Total loans 12,027,231 11,983,943
Allowance for credit losses for loans that (140,803) (40,429)
are not PCD loans
Allowance for credit losses for PCD loans (17,930) (226)
Total loans, net of allowance for credit $11,868,498 $11,943,288
losses
note 1: PCD loans are accounted for pursuant to ASC Topic 326
effective January 1, 2020.
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The table below summarizes the Company's loan mix for the periods presented.
March 31, 2020 December 31, 2019
Originated Loans
Real estate loans
Residential $1,224,467 $1,131,387
Commercial 3,130,140 2,922,274
Land, development and construction loans 581,997 541,741
Total real estate loans 4,936,604 4,595,402
Commercial, industrial & factored receivables 1,208,942 1,133,849
Consumer and other loans 181,414 189,109
Total loans before unearned fees and costs 6,326,960 5,918,360
Unearned fees and costs 4,954 4,519
Total originated loans 6,331,914 5,922,879
Acquired Loans (1)
Real estate loans
Residential 1,312,773 1,381,157
Commercial 3,261,835 3,402,834
Land, development and construction loans 347,017 458,182
Total real estate loans 4,921,625 5,242,173
Commercial, industrial & factored receivables 569,584 625,225
Consumer and other loans 53,786 58,198
Total acquired loans 5,544,995 5,925,596
PCD loans
Real estate loans
Residential 42,779 45,795
Commercial 92,281 81,576
Land, development and construction loans 5,447 4,655
Total real estate loans 140,507 132,026
Commercial and industrial 9,756 3,342
Consumer and other loans 59 100
Total PCD loans 150,322 135,468
Total Loans $12,027,231 $11,983,943
note 1: Acquired loans include the non-PCD loans purchased
pursuant to the following acquisitions:
• Branch and loan transaction from TD Bank (year 2011);
• Federal Trust Bank acquisition (year 2011);
• Gulfstream Business Bank acquisition (year 2014);
• First Southern Bank acquisition (year 2014);
• Community Bank of South Florida acquisition (year 2016);
• Hometown of Homestead Banking Company acquisition (year 2016);
• Platinum Bank Holding Company (year 2017);
• Gateway Financial Holdings of Florida, Inc. (year 2017);
• Sunshine Bancorp, Inc. (year 2018);
• HCBF Holding Company, Inc. (year 2018);
• Charter Financial Corporation (year 2018); and
• National Commerce Corporation (year 2019)
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Credit quality and allowance for credit losses
Effective
The allowance consists of three components. The first component consists of amounts reserved for impaired loans, as defined by ASC 326. Impaired loans are those loans that management has estimated will not repay as agreed pursuant to the loan contract. Each of these loans is required to have an analysis supporting the amount of specific reserve allocated to the particular loan, if any. That is to say, a loan may be impaired (i.e. not expected to repay as agreed), but may be sufficiently collateralized such that we expect to recover all principal and interest eventually, and therefore no specific reserve is warranted.
Commercial, commercial real estate, land, land development and construction
loans in excess of
On at least a quarterly basis, management reviews each impaired loan to
determine whether it should have a specific reserve or partial charge-off.
Management relies on appraisals to help make this determination. Updated
appraisals are obtained for collateral dependent loans when a loan is scheduled
for renewal or refinance. In addition, if the classification of the loan is
downgraded to substandard, identified as impaired, or placed on nonaccrual
status (collectively "Problem Loans"), an updated appraisal is obtained if the
loan amount is greater than
After an updated appraisal is obtained for a Problem Loan, as described above,
an additional updated appraisal will be obtained on at least an annual basis.
Thus, current appraisals for Problem Loans in excess of
After the initial updated appraisal is obtained for a Problem Loan and before its next annual appraisal update is due, management considers the need for a downward adjustment to the current appraisal amount to reflect current market conditions, based on management's analysis, judgment and experience. In an extremely volatile market, we may update the appraisal prior to the one-year anniversary date. When management determines that foreclosure is probable expected credit losses are based on the fair value of the collateral at the reporting date and adjusted for selling costs as appropriate.
The second component is a general reserve on all of our loans other than those identified as impaired and is based on relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Peer credit loss experience provides the basis for the estimation of expected credit losses. Given the Company's size, complexity, and acquisitive history, loan-level loss data is not readily available to develop reasonable and supportable loss estimates. Rather, the Company is relying on peer data from call reports to develop models that forecast a periodic default rate for each of the portfolio segments. Adjustments to historical loss information and reversion periods are made for differences in current loan specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, the national home price index, and other factors. Adjustments to the models may be made based on changes in lending policy, underwriting standards, portfolio mix, delinquency levels, credit concentrations, external factors and other economic and regulatory factors that may not be captured in the models. The Company generally utilizes a four-quarter forecast with a four-quarter reversion period.
The allowance for credit losses is measured on a collective pool basis when similar risk characteristics exist. The company has identified the following portfolio segments: residential loans, commercial real estate loans, construction and land development loans, commercial and industrial and consumer and other.
Loans that do not share risk characteristics are evaluated on an individual basis as described above. Loans evaluated individually are not also included in the collective evaluation.
The third component consists of amounts reserved for purchased credit
deteriorated loans. The third component consists of amounts reserved for
purchased credit deteriorated loans. Upon adoption of ASC Topic 326, the ACL for
PCD loans, except for PCD loans individually evaluated for impairment, is
measured on a collective pool basis when similar risk characteristics exist. On
adoption date, the credit discount on PCD loans was reclassified from loan
discount to ACL, thereby establishing a new amortized cost basis. The difference
between the unpaid principal balance of the pool and the new amortized cost
basis on adoption date was non-credit discount and was subsequently allocated to
each individual loan. This non-credit discount will be amortized into interest
income using the effective yield method over the remaining life of the
individual loans. Changes to the allowance for credit losses after adoption are
recorded through provision for credit losses. Like with our other impaired
loans, PCD loans in excess of
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In the table below, we have shown the components, as discussed above, of our allowance for credit losses for the three-month endedMarch 31, 2020 andDecember 31, 2019 . March 31, 2020 December increase 31, 2019 (decrease) Non-PCD loans: Allowance at beginning of period$40,429 $41,758 $(1,329) Impact of adopting CECL 57,604 - 57,604 Net charge-offs (1,149) (4,384) 3,235 Provision for credit losses 43,919 3,055 40,864 Allowance at end of period for non-PCD loans$140,803 $40,429 $100,374 Ending allowance attributable to non-impaired$138,883 $38,551 $100,332 non-PCD loans Ending allowance attributable to impaired non-PCD 42 loans 1,920 1,878 Allowance at end of period for non-PCD loans$140,803 $40,429 $100,374 Performing non-PCD loans$11,845,914 $11,822,335 $23,579 Impaired non-PCD loans 30,995 26,140 4,855 Total non-PCD loans$11,876,909 $11,848,475 $28,434 Allowance attributable to non-impaired loans over 0.85% non-impaired loan balance, non-PCD 1.17% 0.33% Allowance attributable to impaired loans over (0.99)% impaired loan balance, non-PCD 6.19% 7.18% Total Allowance over total loans, non-PCD 1.19% 0.34% 0.85% PCD loans: Allowance at beginning of period$226 $233 $(7) Reclassified PCD discount to ACL under CECL 17,004 - 17,004 Net charge-offs (295) - (295) Provision (recovery) for credit losses 995 (7) 1,002 Allowance at end of period for PCD loans$17,930 $226 $17,704
Ending allowance attributable to non-impaired PCD
12,315 - 12,315
Allowance at end of period for PCD loans $17,930 $226 $17,704
Performing PCD loans $127,546 $135,468 $(7,922)
Impaired PCD loans 22,776 - 22,776
Total PCD loans $150,322 $135,468 $14,854
Allowance attributable to non-impaired loans over
non-impaired loan balance, PCD 4.40% 0.17% 4.24%
Allowance attributable to impaired loans over
impaired loan balance, PCD 54.07% 0.00% 54.07%
Total Allowance over total loans, PCD 11.93% 0.17% 11.76%
The general allowance for credit losses relating to non-PCD loans increased by
The specific credit loss allowance (impaired loans) for non-PCD loans is the
aggregate of the results of individual analyses prepared for each one of the
impaired loans, excluding PCD loans. Total impaired loans at
The Company recorded partial charge offs in lieu of specific allowance for a
number of the impaired loans. The Company's non-PCD impaired loans have been
written down by
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PCD loans are now accounted for pursuant to ASC Topic 326. PCD loans in excess
of
The allowance is increased by the provision for credit losses, which is a charge
to current period earnings and decreased by loan charge-offs net of recoveries
of prior period loan charge-offs. Loans are charged against the allowance when
management believes collection of the principal is unlikely. We believe our
allowance for credit losses was adequate at
The tables below summarize the changes in allowance for credit losses during the
periods presented.
Allowance
for credit
losses for Allowance
loans that for credit
are not PCD losses on
loans PCD loans Total
Three-month ended March 31, 2020
Beginning balance, prior to $40,429 $226 $40,655
adoption of ASC 326
Effect of adopting ASC 326 (CECL) 57,604 17,004 74,608
Loans charged-off (2,350) (1,257) (3,607)
Recoveries of loans previously 1,201 962 2,163
charged-off
Net charge-offs (1,149) (295) (1,444)
Provision for credit losses 43,919 995 44,914
Balance at end of period $140,803 $17,930 $158,733
Three-month ended March 31, 2019
Balance at beginning of period $39,579 $191 $39,770
Loans charged-off (1,447) - (1,447)
Recoveries of loans previously 676 - 676
charged-off
Net charge-offs (771) - (771)
Provision for credit losses 1,053 - 1,053
Balance at end of period $39,861 $191 $40,052 The increase in allowance for credit losses during the current quarter compared
to the comparable period prior year is due to the adoption of CECL effective
Nonperforming loans and nonperforming assets
Non-performing loans are defined as non-accrual loans plus loans past due 90
days or more and still accruing interest. Generally, we place loans on
non-accrual status when they are past due 90 days and management believes the
borrower's financial condition, after giving consideration to economic
conditions and collection efforts, is such that collection of interest is
doubtful. For CBI's factored receivables, which are commercial trade credits
rather than promissory notes, the Company's practice, in most cases, is to
charge-off unpaid recourse receivables when they become 90 days past due from
the invoice due date and the non-recourse receivables when they become 120 days
past due from the statement billing date. When we place a loan on non-accrual
status, interest accruals cease and uncollected interest is reversed and charged
against current income. Interest received on such loans is accounted for on the
cash-basis or cost-recovery method, until qualifying for return to accrual.
Loans are returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably
assured. With the adoption of ASC 326 and the new accounting treatment for PCD
loans, the Company began to include non-accrual PCD loans in its non-performing
loans and assets and related credit metrics starting with the current
quarter. Previous periods do not include PCD loans as these loans were not
considered non-performing under ASC 310-30. Non-performing loans, as defined
above, as a percentage of total loans including PCD loans, was 0.66% at
Non-performing assets (which we define as non-performing loans, as defined
above, plus (a) OREO (i.e., real estate acquired through foreclosure, in
substance foreclosure, or deed in lieu of foreclosure); and (b) other
repossessed assets that are not real estate), were
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The table below summarizes selected credit quality data at the dates indicated.
March 31, 2020 December 31, 2019
Non-accrual loans (note 1) $79,198 $36,916
Accruing loans 90 days or more past due (note 1) 535 1,692
Total non-performing loans ("NPLs") (note 1) 79,733 38,608
Other real estate owned ("OREO") 9,942 5,092
Repossessed assets other than real estate 87 170
("ORAs") (note 1)
Total NPAs $89,762 $43,870
NPLs as percentage of total loans (note 1) 0.66% 0.33%
NPAs as percentage of total assets 0.48% 0.26%
NPAs as percentage of loans and OREO and ORAs 0.75% 0.37%
(note 1)
30-89 days past due accruing loans as percentage 0.53% 0.48%
of total loans (note 1)
Allowance for credit losses as percentage of 199% 105%
NPLs (note 1)
note 1: Includes PCD loans at March 31, 2020 and excludes PCI loans at
December 31, 2019 .
As shown in the table above, the largest component of non-performing loans is
non-accrual loans. As of
The second largest component of non-performing assets after non-accrual loans is
OREO. At
Impaired loans are defined as loans that management has determined will not
repay as agreed pursuant to the terms of the related loan agreement. Small
balance homogeneous loans are not considered for impairment purposes. Once
management has determined a loan is impaired, we perform a specific reserve
analysis to determine if it is probable that we will eventually collect all
contractual cash flows. If management determines that a shortfall is probable,
then a specific valuation allowance is placed against the loan. This loan is
then placed on non-accrual, even if the borrower is current with his/her
contractual payments, and will remain on non-accrual until payments collected
reduce the loan balance such that it eliminates the specific valuation allowance
or equivalent partial charge-down or other economic conditions change. At
The table below summarizes impaired loan data for the periods presented.
March 31, 2020 December 31, 2019
Non-PCD loans
Impaired loans with a specific valuation $9,065 $7,598 allowance
Impaired loans without a specific valuation 21,930 18,542
allowance
Total impaired non-PCD loans$30,995 $26,140 PCD loans Impaired loans with a specific valuation$22,776 $ -
allowance
Impaired loans without a specific valuation - -
allowance
Total impaired PCD loans$22,776 $ - Performing TDRs (these are not included in$7,215 $8,012
NPLs)
Non performing TDRs (these are included in 4,648 4,512
NPLs)
Total TDRs 11,863 12,524 Impaired loans that are not TDRs 19,132 13,616 Total impaired loans, excluding PCD loans$30,995 $26,140 Impaired PCD loans$22,776 $ - Total Impaired loans$53,771 $26,140 56
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Bank premises and equipment
Bank premises and equipment was
A summary of our bank premises and equipment for the period end indicated is presented in the table below.
March 31, 2020 December 31, 2019
Land $89,973 $89,973
Land improvements 1,659 1,560
Buildings 175,288 174,344
Leasehold improvements 19,630 19,076
Furniture, fixtures and equipment 69,637 68,148
Construction in progress 11,429 10,821
Subtotal 367,616 363,922
Less: accumulated depreciation 71,145 67,216
Total $296,471 $296,706 We transfer branch real estate that is no longer in use to held for sale at
estimated fair value less estimated cost to sell. We did not transfer any branch
real estate to held for sale during the three-month period ending
Interest Rate Swap Derivatives
The Company enters into interest rate swaps in order to provide commercial loan
clients the ability to swap from variable to fixed interest rates. Under these
agreements, the Company enters into a variable rate loan with a client in
addition to a swap agreement. This swap agreement effectively converts the
client's variable rate loan into a fixed rate. The Company then enters into a
matching swap agreement with a third party dealer in order to offset its
exposure on the customer swap. The fair value of interest rate swap derivatives
(asset component) was
During the second quarter of 2019, the Company entered into an interest rate
swap contract on a variable rate borrowing to manage interest rate risk
associated with the borrowing. Under the agreement, the Company borrowed a
variable rate note from the
Deposits
Total deposits were
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The table below summarizes the Company's deposit mix for the periods presented.
% of % of
March 31, 2020 total December 31, 2019 total
Demand - non-interest bearing $4,164,091 29% $3,929,183 30%
Demand - interest bearing 2,650,252 19% 2,613,933 20%
Money market accounts 3,519,441 25% 3,525,571 27%
Savings deposits 894,332 6% 811,150 6%
Time deposits 2,893,383 21% 2,256,555 17%
Total deposits $14,121,499 100% $13,136,392 100%
Securities sold under agreement to repurchase
Our Bank enters into borrowing arrangements with our retail business customers
by agreements to repurchase ("securities sold under agreements to repurchase")
under which the Bank pledges investment securities owned and under their control
as collateral against these one-day borrowing arrangement. These short-term
borrowings totaled
Federal funds purchased
Federal funds purchased are overnight deposits including deposits from
correspondent banks. At
From time to time, we borrow either through
Corporate and subordinated debentures
Below is a schedule of statutory trust entities and the related corporate debentures formed and assumed through various acquisitions.
Amount Interest Rate Maturity
CenterState Banks of Florida Statutory Trust I
$2,500 LIBOR + 2.70% Sep. 2034 Federal Trust Statutory Trust I$5,000 LIBOR + 2.95% Sep. 2033 Gulfstream Bancshares Capital Trust II$3,000 LIBOR + 1.70% Mar. 2037 Homestead Statutory Trust I$10,000 LIBOR + 1.65% Jul. 2036 BSA Financial Statutory Trust I$5,000 LIBOR + 1.55% Dec. 2035 MRCB Statutory Trust II$3,000 LIBOR + 1.60% Sep. 2036
On
Amount Interest Rate Maturity
National Commerce Corporation $25,000 6.00% Jun. 2026
Landmark Bancshares $13,000 6.50% Jun. 2027
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Total equity
The total equity at
Total stockholders' equity atDecember 31, 2019 $2,896,718 Net income 35,432 Cumulative adjustment pursuant to adoption of ASU 326 (47,751) Dividends paid on common shares ($0.14 per share) (17,377) Net increase in market value of securities available for sale, net 39,729 of deferred taxes Net decrease in market value of interest rate swap, net of deferred (5,740) taxes Stock options exercised 1,359 Equity based compensation 1,796
Stock repurchase (1,479,986 shares, average price of
$2,870,252
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. A banking organization needs to maintain a Common Equity Tier 1 ("CET1") capital ratio of at least 7%, a total Tier 1 capital ratio of at least 8.5% and a total risk-based capital ratio of at least 10.5%. The net unrealized gain or loss on available for sale debt securities is not included in computing regulatory capital.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total capital, Tier I capital and CET1 (as defined
in the regulations) to risk-weighted assets. Management believes, as of
In
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Selected consolidated capital ratios at
CenterState Bank Corporation (the Company) Actual Capital adequacy Excess Amount Ratio Amount Ratio amountMarch 31, 2020 Total capital (to risk weighted assets)$1,706,892 11.6%$1,172,354 >8.0%$534,538 Tier 1 capital (to risk weighted assets) 1,557,403 10.6% 879,266 >6.0% 678,137 Common equity Tier 1 capital (to risk weighted assets) 1,557,403 10.6% 659,449 >4.5% 897,954
Tier 1 capital (to average assets) 1,557,403 9.7% 645,507 >4.0% 911,896
December 31, 2019 Total capital (to risk weighted assets)$1,672,911 12.2%$1,097,448 >8.0%$575,463 Tier 1 capital (to risk weighted assets) 1,555,756 11.3% 823,086 >6.0% 732,670 Common equity Tier 1 capital (to risk weighted assets) 1,555,756 11.3% 617,315 >4.5% 938,441
Tier 1 capital (to average assets) 1,555,756 9.7% 638,866 >4.0% 916,890
CenterState Bank, N.A. Actual Capital adequacy Excess
Amount Ratio Amount Ratio amount
March 31, 2020
Total capital (to risk weighted
assets) $1,724,919 11.8% $1,467,074 >10.0% $257,845
Tier 1 capital (to risk weighted
assets) 1,651,933 11.3% 1,173,659 >8.0% 478,274
Common equity Tier 1 capital (to
risk weighted assets) 1,651,933 11.3% 953,598 >6.5% 698,335
Tier 1 capital (to average assets) 1,651,933 10.2% 806,772 >5.0% 845,161
December 31, 2019 Total capital (to risk weighted assets)$1,670,678 12.2%$1,097,258 >8.0%$299,106 Tier 1 capital (to risk weighted assets) 1,630,026 11.9% 822,943 >6.0% 532,768 Common equity Tier 1 capital (to risk weighted assets) 1,630,026 11.9% 617,207 >4.5% 738,504
Tier 1 capital (to average assets) 1,630,026 10.2% 638,628 >4.0% 831,741
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COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED
Overview
We recognized net income of
Mar. 31, Mar. 31, increase
Three-month periods ending: 2020 2019 (decrease)
Net interest income $153,353 $114,175 $39,178
Provision for credit losses 44,914 1,053 43,861Net interest income after loan loss provision 108,439 113,122 (4,683)
Total non-interest income 55,790 29,300 26,490 Merger related expenses 3,051 6,365 (3,314) All other non-interest expense 119,721 78,108 41,613 Total non-interest expense 122,772 84,473 38,299 Net income before provision for income taxes 41,457 57,949 (16,492) Provision for income taxes 6,025 13,306 (7,281) Net income$35,432 $44,643 $(9,211)
The increase in our net interest income relates primarily to the increase in our
average interest earning assets as a result of the acquisition of NCOM in
Our strategy is to grow organically and by acquisition in the southeastern region. In pursuing this strategy, we seek lending teams and companies that are culturally similar to us, that are experienced and are located in our markets or in markets close to us so we can achieve economies of scale.
Net interest income/margin
Net interest income increased
Interest earning assets averaged
Interest bearing liabilities averaged
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The table below summarizes the analysis of changes in interest income and interest expense for the three-month periods endedMarch 31, 2020 and 2019 on a tax equivalent basis. Three months ended March 31, 2020 2019 Average Interest Average Average Interest Average Balance inc / exp rate balance inc / exp rate Originated loans, excluding$6,196,409 $72,890 4.73%$4,243,258 $50,907 4.87% PCD (notes 1, 2 and 8) Acquired loans, excluding PCD 5,733,217 76,683 5.38% 3,964,231 55,561 5.68% (notes 8 and 9) PCD loans (note 10) 153,738 11,544 30.20% 155,584 10,140 26.43% Securities - taxable 1,895,781 12,534 2.66% 1,707,002 12,286 2.92% Securities - tax exempt (note 220,310 1,980 3.61% 220,244 1,940 3.57% 8) Fed funds sold and other 673,552 1,813 1.08% 289,347 1,995 2.80% (note 3) Total interest earning assets 14,873,007 177,444 4.80% 10,579,666 132,829 5.09% Allowance for credit losses (115,230) (39,376) All other assets 2,669,789 1,787,262 Total assets$17,427,566 $12,327,552 Interest bearing deposits$9,224,690 $19,836 $6,430,085 $13,323 (note 4) 0.86% 0.84% Fed funds purchased 300,539 1,133 1.52% 259,590 1,618 2.53% Other borrowings (notes 5) 310,298 1,440 1.87% 402,624 2,596 2.61% Corporate and subordinated 71,348 997 5.62% 32,459 570 7.12% debenture (note 11 and 12) Total interest bearing 9,906,875 23,406 0.95% 7,124,758 18,107 1.03% liabilities Demand deposits 4,035,991 3,032,471 Other liabilities 602,056 169,912 Total equity 2,882,644 2,000,411 Total liabilities and$17,427,566 $12,327,552 stockholders' equity Net interest spread (tax 3.85% 4.06% equivalent basis) (note 6) Net interest income (tax$154,038 $114,722 equivalent basis) Net interest margin (tax 4.17% 4.40%
equivalent basis) (note 7)
note 1: Loan balances are net of deferred origination fees and costs.
note 2: Interest income on average loans includes amortization of loan fee
recognition of $517 and $603 for the three-month periods ended March
31, 2020 and 2019, respectively.
note 3: Includes federal funds sold, interest earned on deposits at the Federal
Reserve Bank and earnings on Federal Reserve Bank stock, Federal Home
Loan Bank stock and other equity stocks.
note 4: Includes interest-bearing deposits only. Non-interest bearing checking
accounts are included in the demand deposits listed below. Also,
includes net amortization of fair market value adjustments related to
various acquisitions of time deposits of ($495 ) and ($266 ) for the
three-month periods ended March 31, 2020 and 2019.
note 5: Includes securities sold under agreements to repurchase, Federal Home
Loan Bank advances and subordinated notes.
note 6: Represents the average rate earned on interest earning assets minus the
average rate paid on interest bearing liabilities (Non-GAAP).
note 7: Represents net interest income divided by total interest earning assets
(Non-GAAP).
note 8: Interest income and rates include the effects of a tax equivalent
adjustment using applicable statutory tax rates to adjust tax-exempt
interest income on tax-exempt investment securities and loans to a
fully taxable basis (Non-GAAP).
note 9: Interest income on acquired loans, excluding PCD, includes amortization
of loan discounts of
note 10: PCD loans are accounted for pursuant to ASC 326. Interest income on
PCD loans includes amortization of loan discounts of $9,157 and
$7,904 .
note 11: Includes amortization of fair value adjustments related to various
assumptions of corporate debentures of $88 and $88 for the three-month
periods ended March 31, 2020 and 2019.
note 12: Includes accretion of fair value adjustments related to an assumption
of subordinated debt of
The primary reason for the decrease in our Net Interest Margin ("NIM") during the current period was due to an overall primarily as a result of a decline in loan yields due to a reduction in the federal funds rate and in LIBOR rates.
Provision for credit losses
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The provision for credit losses increased
Non-interest income
Non-interest income for the three-month ended
Mar. 31, Mar. 31, $ increase % increase
Three-month periods ending: 2020 2019 (decrease) (decrease)
Income from correspondent banking capital
1,384 1,028 356 34.6 %
revenue (note 2)
Mortgage banking revenue 10,973 4,193 6,780 161.7 %
SBA revenue 1,403 688 715 103.9 %
Service charges on deposit accounts 7,522 6,678 844 12.6 %
Debit, prepaid, ATM and merchant card 3,667 5,018 (1,351) (26.9) %
related fees
Bank owned life insurance income 1,927 1,626 301 18.5 %
Wealth management related revenue 831 607 224 36.9 %
Gain on sale of bank properties held for 236 618 (382) (61.8) %
sale
Other non-interest income 1,423 855 568 66.4 %
Gain on sale of securities - 17 (17) (100.0) %
Total non-interest income $55,790 $29,300 $26,490 90.4 %
note 1: Includes gross commissions earned on bond sales, fees from
hedging services, loan brokering fees and related consulting
fees. The fee income in this category is based on sales volume in
any particular period and is therefore volatile between
comparable periods.
note 2: Includes fees from safekeeping activities, bond accounting
services, asset/liability consulting services, international
wires, clearing and corporate checking account services and other
correspondent banking related revenue and fees. The fees included
in this category are less volatile than those described above in
note 1.
Income from correspondent banking capital markets division increased
Non-interest expense
Non-interest expense for the three-month ended
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Components of our non-interest expenses are listed in the table below.
Mar. 31, Mar. 31, $ increase % increase
Three-month periods ending: 2020 2019 (decrease) (decrease)
Salaries and wages $61,509 $37,935 $23,574 62.1 %
Incentive/bonus compensation 6,439 3,523 2,916 82.8 %
Stock based compensation 1,796 1,218 578 47.5 %Employer 401K matching contributions 1,696 1,104 592 53.6 % Deferred compensation expense
444 181 263 145.3 %
Health insurance and other employee 4,713 3,408 1,305 %
benefits 38.3
Payroll taxes 4,432 3,104 1,328 42.8 %
Other employee related expenses 1,011 753 258 34.3 %
Incremental direct cost of loan (4,963) (2,833) (2,130) %
origination 75.2
Total salaries, wages and employee 77,077 48,393 28,684 %
benefits 59.3
Loss on sale of OREO 1 47 (46) (97.9) %
Valuation write down of OREO 95 108 (13) (12.0) %
(Gain) loss on repossessed assets other (8) 13 (21) %
than real estate (161.5)
Foreclosure and repossession related 856 561 295 %
expenses 52.6
Total credit related expenses 944 729 215 29.5 %
Occupancy expense 7,346 5,602 1,744 31.1 %
Depreciation of premises and equipment 4,045 2,850 1,195 41.9 % Supplies, stationary and printing
861 748 113 15.1 %
Marketing expenses 2,158 2,020 138 6.8 %
Data processing expense 5,617 3,656 1,961 53.6 %
Legal, auditing and other professional 2,682 1,442 1,240 %
fees 86.0
Bank regulatory related expenses 1,807 1,616 191 11.8 %
Postage and delivery 1,160 925 235 25.4 %
Debit, prepaid, ATM and merchant card 1,598 1,453 145 %
related expenses 10.0
Amortization of intangibles 4,535 2,814 1,721 61.2 %
Internet and telephone banking 1,426 949 477 50.3 %
Operational write-offs and losses 1,757 827 930 112.5 %
Correspondent accounts and Federal 416 285 131 %
Reserve charges 46.0
Conferences/Seminars/Education/Training 750 495 255 51.5 % Director fees
541 342 199 58.2 %
Impairment of bank property held for 31 107 (76) %
sale (71.0)
Travel expenses 628 279 349 125.1 %
Credit loss expense for unfunded 1,027 - 1,027 %
commitments NM
Other expenses 3,315 2,576 739 28.7 %
Subtotal 119,721 78,108 41,613 53.3 %
Merger related expenses 3,051 6,365 (3,314) (52.1) %
Total non-interest expense $122,772 $84,473 $38,299 45.3 %
The overall primary reason for the increase between the periods presented above
largely relate to the acquisition of NCOM in
Provision for income taxes
We recognized income tax expense for the three-month period ended
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Liquidity
Liquidity is defined as the ability to meet anticipated customer demands for funds under credit commitments and deposit withdrawals at a reasonable cost and on a timely basis. We measure liquidity position by giving consideration to both on- and off-balance sheet sources of and demands for funds on a daily and weekly basis.
Our Bank regularly assesses the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual client funding needs, and existing and planned business activities. The Bank's asset/liability committee (ALCO) provides oversight to the liquidity management process and recommends guidelines, subject to the approval of its board of directors, and courses of action to address actual and projected liquidity needs.
Short term sources of funding and liquidity include cash and cash equivalents,
net of federal requirements to maintain reserves against deposit liabilities;
investment securities eligible for pledging to secure borrowings from customers
pursuant to securities sold under repurchase agreements; loan repayments;
deposits and certain interest rate-sensitive deposits; and borrowings under
overnight federal fund lines available from correspondent banks, including the
Federal Reserve Discount Window, and borrowing from the
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements except for approved and unfunded loans and letters of credit to our customers in the ordinary course of business.
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Use of Non-GAAP Financial Measures and Ratios
The accounting and reporting policies of the Company conform to generally
accepted accounting principles ("GAAP") in
Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable equivalent basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures the comparability of net interest income arising from both taxable and tax-exempt sources.
These disclosures should not be considered in isolation or a substitute for results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP performance measures which may be presented by other financial holding companies. Management compensates for these limitations by providing detailed reconciliations between GAAP information and the non-GAAP financial measures.
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Three months ended March 31,
(Dollars in thousands) 2020 2019
Income Statement Non-GAAP measures and
ratios
Interest income (GAAP)
Originated loans, excluding PCD loans $72,489 $50,621
Acquired loans, excluding PCD loans 76,642 55,524
PCD loans 11,544 10,140
Securities - taxable 12,534 12,286
Securities - tax-exempt 1,737 1,716
Federal funds sold and other 1,813 1,995
Total Interest income (GAAP) 176,759 132,282
Tax equivalent adjustment
Non-PCD originated loans 401 286
Non-PCD acquired loans 41 37
Securities - tax-exempt 243 224
Total tax equivalent adjustment 685 547
Interest income - tax equivalent
Originated loans excluding PCD loans 72,890 50,907
Acquired loans, excluding PCD loans 76,683 55,561
PCD loans 11,544 10,140
Securities - taxable 12,534 12,286
Securities - tax-exempt 1,980 1,940
Federal funds sold and other 1,813 1,995
Total interest income - tax equivalent 177,444 132,829
Total Interest expense (GAAP) (23,406) (18,107)
Net interest income - tax equivalent $154,038 $114,722
Net interest income (GAAP) $153,353 $114,175
Yields and costs
Yield on originated loans excluding PCD - 4.73% 4.87%
tax equivalent
Yield on acquired loans excluding PCD - 5.38% 5.68%
tax equivalent
Yield on securities tax-exempt - tax 3.61% 3.57%
equivalent
Yield on interest earning assets (GAAP) 4.78% 5.07% Yield on interest earning assets - tax 4.80% 5.09%
equivalent
Cost of interest bearing liabilities 0.95% 1.03%
(GAAP)
Net interest spread (GAAP) 3.83% 4.04% Net interest spread - tax equivalent 3.85% 4.06% Net interest margin (GAAP) 4.15% 4.38% Net interest margin - tax equivalent 4.17% 4.40%
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