0001564590-18-005575.txt : 20180314 0001564590-18-005575.hdr.sgml : 20180314 20180314133052 ACCESSION NUMBER: 0001564590-18-005575 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20180101 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20180314 DATE AS OF CHANGE: 20180314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CenterState Bank Corp CENTRAL INDEX KEY: 0001102266 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 593606741 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-32017 FILM NUMBER: 18689040 BUSINESS ADDRESS: STREET 1: 1101 FIRST ST. S. STREET 2: SUITE 202 CITY: WINTER HAVEN STATE: FL ZIP: 33880 BUSINESS PHONE: 863-293-2600 MAIL ADDRESS: STREET 1: 1101 FIRST ST. S. STREET 2: SUITE 202 CITY: WINTER HAVEN STATE: FL ZIP: 33880 FORMER COMPANY: FORMER CONFORMED NAME: CenterState Banks, Inc. DATE OF NAME CHANGE: 20170508 FORMER COMPANY: FORMER CONFORMED NAME: CenterState Corp DATE OF NAME CHANGE: 20170505 FORMER COMPANY: FORMER CONFORMED NAME: CenterState Banks, Inc. DATE OF NAME CHANGE: 20090724 8-K/A 1 csfl-8ka_20180101.htm 8-K/A csfl-8ka_20180101.htm

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 8-K/A

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): March 14, 2018 (January 1, 2018)

 

CENTERSTATE BANK CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Florida

 

000-32017

 

59-3606741

(State or other jurisdiction
of incorporation)

 

(Commission
file number)

 

(IRS employer
identification no.)

 

1101 First Street South, Suite 202, Winter Haven, FL

 

33880

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code:   (863) 293-4710

Not Applicable

(Former name or former address, if changed since last report)

___________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

 

 



Explanatory Note

 

On January 2, 2018, CenterState Bank Corporation (the “Company”, “CSFL” or “CenterState”) furnished a Current Report on Form 8-K to report the January 1, 2018 completion of its previously-announced merger (the “HCBF Merger”) with HCBF Holding Company, Inc. (“HCBF”), pursuant to the Agreement and Plan of Merger by and between the Company (f/k/a CenterState Banks, Inc.) and HCBF, dated as of August 12, 2017 (the “HCBF Merger Agreement”). At the closing, HCBF merged with and into CenterState, with CenterState surviving the HCBF Merger.  Immediately following the HCBF Merger, HCBF’s wholly-owned subsidiary bank, Harbor Community Bank, merged with and into CenterState Bank, N.A., a national banking association and wholly-owned subsidiary of the Company (“CenterState Bank”), with CenterState Bank as the surviving national bank subsidiary of the Company.

 

The Company announced in the same Form 8-K filed on January 2, 2018 that it completed its previously-announced merger (the “Sunshine Merger”) with Sunshine Bancorp, Inc. (“Sunshine”), pursuant to the Agreement and Plan of Merger by and between CenterState and Sunshine, dated as of August 12, 2017 (the “Sunshine Merger Agreement”). At the closing, Sunshine merged with and into CenterState, with CenterState surviving the Sunshine Merger.  Immediately following the Sunshine Merger, Sunshine’s wholly-owned subsidiary bank, Sunshine Bank, merged with and into CenterState Bank with CenterState Bank as the surviving national bank subsidiary of the Company.

 

This Current Report on Form 8-K/A amends and supplements the disclosures provided in Items 2.01 and 9.01 of the Current Report on Form 8-K furnished on January 2, 2018. The Company’s acquisition of HCBF constitutes a business acquisition at the significance level that requires the filing of financial statements as contemplated by Rule 3.05 of Regulation S-X.  The Company’s acquisition of Sunshine does not constitute a business acquisition at the significance level that requires the filing of financial statements as contemplated by Rule 3.05 of Regulation S-X.  Except as otherwise provided herein, the other disclosures made in the Current Report furnished on January 2, 2018 remain unchanged. The Company does not anticipate that it will further amend this Current Report.

 

Item 2.01

 

Completion of Acquisition or Disposition of Assets.

 

Closing of Acquisition of HCBF Holding Company, Inc.

 

On January 1, 2018, the Company completed its previously announced merger transaction as set forth in the Agreement and Plan of Merger with HCBF, whereby HCBF merged with and into the Company (the “HCBF Merger”). Pursuant to and simultaneously with the HCBF Merger, HCBF’s wholly owned subsidiary bank, Harbor Community Bank, merged with and into the CenterState Bank.

 

In the HCBF Merger, the Company acquired 100% of the outstanding common stock of HCBF. As consideration for the transaction, each share of HCBF common stock was exchanged for $1.925 in cash and 0.675 shares of the Company’s common stock.   In addition, the Company assumed HCBF’s stock options which converted to the Company’s stock options.  Based on the closing price of the Company’s common stock on December 29, 2017, the resulting purchase price for HCBF was $448,236,000.  For further information, please see Note 2 to the Unaudited Pro Forma Condensed Combined Financial Statements attached as Exhibit 99.2 to this Form 8-K/A and incorporated by reference.  

 

The foregoing description of the HCBF Merger Agreement and the HCBF Merger does not purport to be complete and is qualified in its entirety by reference to the HCBF Merger Agreement, which is incorporated by reference as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on August 14, 2017.

 

Closing of Acquisition of Sunshine Bancorp, Inc.

 

On January 1, 2018, the Company completed its previously announced merger transaction as set forth in the Agreement and Plan of Merger with Sunshine, whereby Sunshine merged with and into the Company (the “Sunshine Merger”). Pursuant to and simultaneously with the Sunshine Merger, Sunshine’s wholly owned subsidiary bank, Sunshine Bank, merged with and into the CenterState Bank.

 

In the Sunshine Merger, the Company acquired 100% of the outstanding common stock of Sunshine. As consideration for the transaction, each share of Sunshine common stock was exchanged for 0.89 shares of the Company’s

 


common stock, plus cash in lieu of fractional shares.   In addition, the Company assumed Sunshine’s stock options which converted to the Company’s stock options.  Based on the closing price of the Company’s common stock on December 29, 2017, the resulting purchase price for Sunshine was $187,853,000.  For further information, please see Note 2 to the Unaudited Pro Forma Condensed Combined Financial Statements attached as Exhibit 99.2 to this Form 8-K/A and incorporated by reference.  

 

The foregoing description of the Sunshine Merger Agreement and the Sunshine Merger does not purport to be complete and is qualified in its entirety by reference to the Sunshine Merger Agreement, which is incorporated by reference as Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on August 14, 2017.

 

Item 9.01

 

Financial Statements and Exhibits

 

 

 

 

 

 

(a)

Financial statements of business acquired.

The audited consolidated balance sheets of HCBF Holding Company as of December 31, 2017 and 2016, and the related audited consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years ended December 31, 2017, and the related notes and report of independent auditors thereto, required by this item are included as Exhibit 99.1 and incorporated by reference herein.

 

 

 

(b)

Pro forma financial information.

The unaudited pro forma combined consolidated balance sheet as of December 31, 2017, and the unaudited pro forma combined consolidated statements of income for the year ended December 31, 2017 are incorporated herein by reference to Exhibit 99.2.

 

 

 

(d)

Exhibits:

 

 

 

 

 

 

2.1

Agreement and Plan of Merger, dated as of August 12, 2017, by and between CenterState Bank Corporation and HCBF Holding Company, Inc. (incorporated by reference to Exhibit 2.1 to CenterState Bank Corporation’s Form 8-K filed on August 14, 2017).

 

 

 

 

 

 

2.2

Agreement and Plan of Merger, dated as of August 12, 2017, by and between CenterState Bank Corporation and Sunshine Bancorp, Inc. (incorporated by reference to Exhibit 2.2 to CenterState Bank Corporation’s Form 8-K filed on August 14, 2017).

 

 

 

 

 

 

23.1

Consent of Crowe Horwath LLP

 

 

 

 

 

 

99.1

Audited Consolidated Financial Statements of HCBF Holding Company as of December 31, 2017 and 2016 and for each of the three years ended December 31, 2017

 

 

 

 

 

 

99.2

Unaudited Pro Forma Combined Consolidated Financial Statements of CenterState Bank Corporation

 

 

 

 

 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Current Report on Form 8-K/A to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

CENTERSTATE BANK CORPORATION

 

 

 

 

By:

/s/ Jennifer L.  Idell

 

Name:

Jennifer L. Idell

 

Title:

Executive Vice President and

 

 

Chief Financial Officer

 

Date:  March 14, 2018

 

 

 

EX-23.1 2 csfl-ex231_7.htm EX-23.1 csfl-ex231_7.htm

Exhibit 23.1

 

 

CONSENT OF INDEPENDENT AUDITOR

 

We consent to the use in this Current Report on Form 8-K/A which is incorporated by reference in Registration Statement Nos. 333-222382, 333-222381, 333-217572, 333-193625, 333-188725,  333-159416, 333-135259, 333-135258, 333-135257, 333-117591, 333-62704, and 333-62706 on Forms S-8, and 333-215481 on Form S-3, of CenterState Bank Corporation (formerly known as CenterState Banks, Inc.) of our report dated February 28, 2018 on the consolidated financial statements of HCBF Holding Company, Inc.

 

 

 

 

 

Crowe Horwath LLP

 

Fort Lauderdale, Florida

March 14, 2018

 

EX-99.1 3 csfl-ex991_6.htm EX-99.1 csfl-ex991_6.htm

Exhibit 99.1

 

.

 

Crowe Horwath LLP

Independent Member Crowe Horwath International

 

 

 

 

INDEPENDENT AUDITOR’S REPORT

 

 

HCBF Holding Company, Inc. Fort Pierce, Florida

 

 

Report on the Financial Statements

 

We have audited the accompanying consolidated financial statements of HCBF Holding Company, Inc. which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes to the financial statements.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well  as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

1.

 


 

Opinion

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HCBF Holding Company, Inc. as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017 in accordance with accounting principles generally accepted in the United States of America.

 

 

Crowe Horwath LLP

 

Fort Lauderdale, Florida

February 28, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.


 

HCBF HOLDING COMPANY, INC.

Consolidated Balance Sheets

December 31, 2017 and 2016

(Dollar amounts in thousands, except share data)

 

Assets

2017

 

2016

 

 

 

 

Cash and due from financial institutions

$      39,058

 

$      33,957

Interest-earning deposits in other financial institutions

38,118

 

10,601

Cash and cash equivalents

      77,176

 

      44,558

 

 

 

 

Securities available for sale, at fair value

426,427

 

346,634

Securities held to maturity (fair value of $159,734 and $176,286

 

 

 

    at December 31, 2017 and December 31, 2016, respectively)

162,169

 

178,232

Loans held for sale

5,694

 

8,384

Loans (net of allowance of $8,513 and $7,260

 

 

 

    at December 31, 2017 and December 31, 2016, respectively)

1,342,247

 

1,027,211

Covered loans (net of allowance for loan losses of $0 and $378

 

 

 

    at December 31, 2017 and December 31, 2016, respectively)

-

 

31,089

Federal Home Loan Bank Stock, at cost

8,582

 

4,584

Premises and equipment, net

53,200

 

51,442

Real estate owned, net

7,462

 

9,018

Goodwill

24,839

 

12,286

Other intangible assets

13,783

 

12,548

Bank owned life insurance

39,089

 

38,054

Deferred tax asset

10,012

 

15,022

FDIC indemnification asset

-

 

526

Accrued interest receivable and other assets

11,785

 

10,302

 

 

 

 

Total assets

$ 2,182,465

 

$ 1,789,890

(continued)


3.


 

HCBF HOLDING COMPANY, INC.

Consolidated Balance Sheets

December 31, 2017 and 2016

(Dollar amounts in thousands, except share data)

Liabilities and Stockholders’ Equity

2017

 

2016

 

 

 

 

Deposits

 

 

 

Non-interest bearing

$     568,980

 

$     444,745

Interest bearing

1,175,312

 

1,034,063

Total deposits

1,744,292

 

1,478,808

Federal Home Loan Bank advances

157,936

 

71,622

Junior subordinated debenture

6,038

 

5,943

Capital lease obligation

717

 

769

Official Checks

6,333

 

5,248

Accrued interest payable and other liabilities

13,087

 

9,807

Total liabilities

1,928,403

 

1,572,197

 

 

 

 

Commitments and contingencies (Notes 5, 6 and 17)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

Preferred stock, noncumulative, $.001 par value,

 

 

 

5,000,000 shares authorized, none issued or outstanding

                -

 

                -

Common stock voting, $.001 par value, 40,000,000 shares authorized

 

 

 

   21,074,085 and 18,827,833 shares issued and outstanding

21

 

19

Common stock nonvoting, $.001 par value, 10,000,000 shares

 

 

 

authorized, 1,224,997 and 1,224,997 shares issued and                  outstanding

 

1

 

 

1

Additional paid-in capital

234,841

 

202,369

Retained earnings

24,102

 

18,772

Accumulated other comprehensive (loss)

(4,903)

 

(3,468)

Total stockholders’ equity

254,062

 

217,693

 

 

 

 

Total liabilities and stockholders’ equity

$  2,182,465

 

$  1,789,890

 

 

 

 

 

 

See accompanying notes


4.


 

 

HCBF HOLDING COMPANY, INC.

Consolidated Statements of Income

Years ended December 31,

(Dollar amounts in thousands, except share data)

 

 

 

 

2017

 

 

2016

 

 

2015

Interest and dividend income:

 

 

 

 

 

 

 

Loans, including fees

 

 

$   61,565

 

$   54,718

 

$   43,956

Securities

 

 

12,308

 

9,542

 

7,868

Interest-earning deposits and other

 

 

670

 

436

 

304

Total interest income

 

 

74,543

 

64,696

 

52,128

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

Deposits

 

 

5,445

 

4,441

 

2,945

Federal Home Loan Bank advances

 

 

1,262

 

815

 

636

Subordinated debentures and other

 

 

375

 

344

 

267

Total interest expense

 

 

7,082

 

5,600

 

3,848

Net interest income

 

 

67,461

 

59,096

 

48,280

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

3,321

 

4,801

 

1,519

Net interest income after provision for loan losses

 

 

64,140

 

54,295

 

46,761

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

3,334

 

2,602

 

1,982

ATM and interchange income

 

 

3,085

 

2,891

 

2,306

Net gain on sale of loans

 

 

3,151

 

3,982

 

3,356

Net gains on sale of securities available for sale

 

 

18

 

287

 

2

Bank owned life insurance income

 

 

1,035

 

981

 

661

FDIC indemnification asset amortization, net

 

 

(381)

 

(190)

 

(980)

Purchased credit impaired loan recoveries

 

 

945

 

1,027

 

677

Other

 

 

1,371

 

937

 

816

Total noninterest income

 

 

12,558

 

12,517

 

8,820

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

30,372

 

28,002

 

23,908

Occupancy and equipment

 

 

8,342

 

8,348

 

6,963

Data processing

 

 

6,931

 

5,696

 

5,386

Regulatory assessments

 

 

923

 

1,186

 

1,221

Professional Fees

 

 

1,918

 

1,473

 

1,398

Office expenses and supplies

 

 

1,327

 

1,508

 

1,387

Foreclosed assets, net

 

 

1,470

 

2,861

 

558

Advertising

 

 

576

 

735

 

744

Amortization of intangibles

 

 

2,501

 

2,524

 

1,842

Acquisition and conversion costs

 

 

2,581

 

298

 

2,908

Other

 

 

4,567

 

3,817

 

2,921

Total non-interest expense

 

 

61,508

 

56,448

 

49,236

 

 

 

 

 

 

 

 

Income before taxes

 

 

15,190

 

10,364

 

6,345

Income tax expense

 

 

10,667

 

4,109

 

2,429

Net income

 

 

$    4,523

 

$    6,255

 

$    3,916

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

Basic

 

 

$      0.22

 

$      0.31

 

$      0.23

Diluted

 

 

$      0.21

 

$      0.30

 

$      0.23

See accompanying notes

 

5.


 



HCBF HOLDING COMPANY, INC.

Consolidated Statements of Comprehensive Income

Years ended December 31,

(Dollar amounts in thousands, except share data)

 

 

 

 

2017

 

2016

 

2015

 

 

 

 

 

 

 

 

Net Income

 

 

$       4,523

 

$       6,255

 

$       3,916

 

 

 

 

 

 

 

 

Other comprehensive income (loss) :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss arising during the period

 

 

(1,214)

 

(3,055)

 

(728)

Deferred tax benefit

 

 

456

 

1,152

 

274

Unrealized loss arising during the period - net    

 

 

(758)

 

(1,903)

 

(454)

 

 

 

 

 

 

 

 

Amortization of unrealized loss on securities transferred to held-to-maturity

 

 

208

 

560

 

344

Deferred tax provision

 

 

(78)

 

(211)

 

(129)

Amortization of unrealized loss on securities transferred to held-to-maturity - net

 

130

 

349

 

215

 

 

 

 

 

 

 

 

Re-classification of stranded tax effects from tax rate re-measurement on AFS

 

 

 

 

 

 

 

     securities (Note 1)

 

 

(807)

 

-

 

-

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

(1,435)

 

(1,554)

 

(239)

 

 

 

 

 

 

 

 

Comprehensive income

 

 

$       3,088

 

$       4,701

 

$       3,677

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes

 


6.


 

HCBF HOLDING COMPANY, INC.

 

 

 

This page intentionally left blank

 

 

 


7.


 

 

 

HCBF HOLDING COMPANY, INC.

Consolidated Statements of Changes in Stockholders’ Equity

Years ended December 31, 2017, 2016, and 2015

(Dollar amounts in thousands, except share data)

 

Common Stock

Voting

 

Common Stock

Nonvoting

 

Additional

Paid-in

Capital

 

 

Retained Earnings

Accumulated Other Comprehensive Income

(Loss)

Total

 

 

Shares

 

Amt

Shares

 

Amt

Balance at January 1, 2015

13,831,914

 

$ 14

 

670,886

 

$   1

 

$  145,773

 

$ 8,601

 

$ (1,675)

 

$152,714

Net income

-

 

-

 

-

 

-

 

-

 

3,916

 

-

 

3,916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized holding losses on available for sale securities, net of deferred income tax benefit of $145

-

 

-

 

-

 

-

 

-

 

-

 

(239)

 

(239)

Common stock issued - voting

4,990,889

 

5

 

-

 

-

 

49,904

 

-

 

-

 

49,909

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued – non-voting

-

 

-

 

554,111

 

-

 

5,541

 

-

 

-

 

5,541

Exercise of stock options

4,500

 

-

 

-

 

-

 

45

 

-

 

-

 

45

Stock-based compensation

-

 

   -

 

-

 

-

 

554

 

-

 

-

 

554

Balance at December 31, 2015

18,827,303

 

$19

 

1,224,997

 

  $ 1

 

$  201,817

 

$ 12,517

 

$ (1,914)

 

$212,440

Net Income

-

 

-

 

-

 

-

 

-

 

6,255

 

-

 

6,255

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized holding losses on available for sale securities, net of deferred income tax benefit of $941

-

 

-

 

-

 

-

 

-

 

-

 

(1,554)

 

(1,554)

Exercise of stock options

530

 

-

 

-

 

-

 

5

 

-

 

-

 

5

Stock-based compensation

-

 

   -

 

-

 

-

 

           547

 

-

 

-

 

547

Balance at December 31, 2016

18,827,833

 

$19

 

1,224,997

 

  $ 1

 

$  202,369

 

$ 18,772

 

$ (3,468)

 

$217,693

Net Income

-

 

-

 

-

 

-

 

-

 

4,523

 

-

 

4,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding losses on available for sale securities, net of deferred income tax benefit of $378

-

 

-

 

-

 

-

 

-

 

-

 

(628)

 

(628)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued pursuant to Jefferson Bank acquisition - voting

2,119,020

 

2

 

-

 

-

 

30,724

 

-

 

-

 

30,726

Exercise of stock options

127,232

 

-

 

-

 

-

 

1,276

 

-

 

-

 

1,276

Stock-based compensation

-

 

   -

 

-

 

-

 

           472

 

-

 

-

 

472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of stranded tax effects of tax rate re-measurement on AFS investment securities (Note 1)

-

 

-

 

-

 

-

 

-

 

807

 

(807)

 

-

Balance at December 31, 2017

21,074,085

 

$21

 

1,224,997

 

  $ 1

 

$  234,841

 

$ 24,102

 

$ (4,903)

 

$254,062

 

See accompanying notes

8.


 

 


HCBF HOLDING COMPANY, INC.

Consolidated Statements of Cash Flows

Years ended December 31,

(Dollar amounts in thousands, except share data)

 

2017

 

2016

 

2015

Cash flows from operating activities:

 

 

 

 

 

Net income

$    4,523

 

$    6,255

 

$    3,916

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Provision for loan losses

3,321

 

4,801

 

1,519

Depreciation and amortization of premises and equipment

2,801

 

2,803

 

2,025

Net accretion of purchase accounting adjustments

(1,531)

 

(2,872)

 

(4,991)

Net amortization of investment securities

4,862

 

5,646

 

5,317

Net deferred loan origination fees

(144)

 

84

 

101

Gain on sale of securities available for sale

(18)

 

(287)

 

(2)

Origination of loans held for sale

(79,491)

 

(88,110)

 

(84,790)

Proceeds from sales of loans held for sale

82,680

 

87,971

 

81,141

Gain on loans held for sale

(3,151)

 

(3,982)

 

(3,356)

(Gain) loss on disposal of real estate owned

(130)

 

263

 

(585)

Provision for real estate owned

1,125

 

2,129

 

872

FDIC indemnification expense, net

381

 

190

 

980

Stock based compensation expense

472

 

547

 

554

Increase in cash surrender value of bank owned life insurance

(1,036)

 

(981)

 

(661)

Deferred income tax expense

5,910

 

(687)

 

1,312

Net change in:

 

 

 

 

 

   Accrued interest receivable and other assets

(67)

 

(2,430)

 

(604)

   Accrued interest payable and other liabilities

2,547

 

(2,303)

 

(1,557)

        Net cash from operating activities

23,054

 

9,037

 

1,191

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

Purchases

(119,784)

 

(124,611)

 

(122,732)

Maturities, prepayments, and calls

75,257

 

84,714

 

63,551

Sales

9,142

 

51,163

 

23,596

Held to maturity securities:

 

 

 

 

 

Purchases

(10,280)

 

(59,543)

 

(5,255)

Maturities, prepayments, and calls

20,228

 

31,000

 

20,743

Loan origination and repayments, net

(40,401)

 

(39,599)

 

(44,208)

Loan purchases, net

-

 

(38,315)

 

-

Purchases of premises and equipment, net

(239)

 

(895)

 

(1,392)

Changes in Federal Home Loan Bank stock, net

(1,734)

 

573

 

(1,300)

Proceeds from sale of real estate owned

3,989

 

3,535

 

7,798

Purchases of bank owned life insurance

-

 

(10,000)

 

(15,000)

Cash received from FDIC loss sharing agreement

-

 

765

 

1,480

Cash received from Bank acquisitions, net

7,209

 

-

 

37,210

       Net cash used in investing activities

(56,613)

 

(101,213)

 

(35,509)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9.


 


HCBF HOLDING COMPANY, INC.

Consolidated Statements of Cash Flows

Years ended December 31,

(Dollar amounts in thousands, except share data)

 

 

 

 

 

 

 

 

2017

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net change in deposits

34,271

 

69,160

 

(13,946)

Net change in repurchase agreements

(5,847)

 

-

 

-

Proceeds from Federal Home Loan Bank advances and other debt

421,100

 

560,300

 

426,400

Repayments on Federal Home Loan Bank advances and other debt

(381,593)

 

(573,468)

 

(399,449)

Extinguishment of Senior Debt acquired from bank acquisition

(3,030)

 

-

 

-

Proceeds from the issuance of common stock voting

-

 

-

 

49,909

Proceeds from the issuance of common stock non-voting

-

 

-

 

5,541

Proceeds from exercised stock options

1,276

 

5

 

45

       Net proceeds from financing activities

66,177

 

55,997

 

68,500

 

 

 

 

 

 

Net change in cash and cash equivalents

32,618

 

(36,179)

 

34,182

Beginning cash and cash equivalents

44,558

 

80,737

 

46,555

 

 

 

 

 

 

Ending cash and cash equivalents

$  77,176

 

$  44,558

 

$  80,737

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Interest Paid

$    7,259

 

$    6,324

 

$    4,552

Income taxes paid

    5,300

 

    3,378

 

    1,664

 

 

 

 

 

 

Supplemental noncash disclosures:

 

 

 

 

 

Transfers from loans held for sale to loans held for investment

   $ 2,651

 

   $ 1,934

 

$   4,348

Transfers from loans to real estate owned

    3,429

 

  1,578

 

    1,681

Transfer from premises and equipment to real estate owned

-

 

1,355

 

      570

Loans provided for sales of real estate owned

180

 

1,079

 

   1,519

 

 

 

 

 

 

 

 

See accompanying notes

 


 

10.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations and Principles of Consolidation

The consolidated financial statements include HCBF Holding Company, Inc. (the “Holding Company”) and its wholly owned subsidiary, Harbor Community Bank together referred to as "the Company.”  Intercompany transactions and balances are eliminated in consolidation.

 

The Company provides financial services through its offices in Florida. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, the customers' ability to repay their loans is dependent on the real estate and general economic conditions in the area. The Company engages in mortgage banking activities and, as such, acquires and sells one-to-four family residential mortgage loans and small business administration loans (SBA).  These loans are generally sold without servicing rights retained.   The Company originates and services residential mortgage loans in Florida.

 

Subsequent Events

The Company has evaluated subsequent events for recognition and disclosure through February 28, 2018, which is the date the financial statements were available to be issued.

 

Use of Estimates

To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

 

Cash Flow Reporting

Cash and cash equivalents include cash, deposits with other financial institutions with maturities fewer than 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, and federal funds purchased and repurchase agreements.

 

Interest-Bearing Deposits in Other Financial Institutions

Interest-bearing deposits in other financial institutions mature within one year and are carried at cost.

 

Trading Assets

The Company does not engage in trading activities for its own account.

 

Securities

Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

 

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities and SBA securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

 

Management evaluates securities for other-than-temporary impairment ("OTTI") on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through


11.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 1 – Continued

 

earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

 

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

 

Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

 

Mortgage loans held for sale are generally sold with servicing rights released. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

 

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of purchase premiums and discounts, deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income under ASC 310-20 without anticipating prepayments.

 

Interest income on mortgage and commercial loans is discontinued and placed on non-accrual status at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Loans are charged off to the extent principal or interest is deemed uncollectible. Consumer and credit card loans continue to accrue interest until they are charged off no later than 90 days past due unless the loan is in the process of collection. Past-due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Non-accrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

 

All interest accrued but not received for loans placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

 

Covered Loans

Certain loans acquired through the Federal Deposit Insurance Corporation (“FDIC”) assisted transaction from Putnam State Bank (“Putnam”) on June 15, 2012 were covered by a loss share agreement (“covered loans”).  The agreement provided that the FDIC would reimburse the Company for certain losses and expenses on covered loans up to 80% for a period of five years ended June 30, 2017.  The agreement also provided that the Company reimburse the FDIC 80% of loss recoveries, less costs, on qualifying assets where a loss share claim was previously submitted to the FDIC.   The reimburse period extended from June 15, 2012 to June 30, 2020.  In addition, the Company was obligated to pay the FDIC, at the end of the contract, a “claw back” amount provided that cumulative overall losses were a specified amount under original FDIC loss estimates.  The loss share agreement covered approximately $92.3 million of the gross loans acquired by the Company at the acquisition date.

 

On October 11, 2017, the Company and the FDIC mutually agreed to terminate the FDIC loss share agreement. Under the terms of the termination agreement, the Company paid $1.3 million to the FDIC to cancel the loss share contract and to forgive the claw back amount of approximately $900 thousand.  The Company will no longer be required to reimburse the FDIC for loss recoveries on qualifying assets.  The Company recorded a pre-tax loss of approximately $340 thousand on termination of

12.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 1 – Continued

 

the FDIC loss share contract in the fourth quarter of 2017.

 

At December 31, 2016, the recorded investment of covered loans was $31.5 million.  At December 31, 2016, the accrued claw back liability amount was $899 thousand.  

 

Purchased Credit Impaired Loans

As part of business acquisitions, the Company purchases or acquires individual loans and groups of loans, some of which have shown evidence of credit deterioration since origination. These purchased credit impaired loans (“PCI loans”) are recorded at the amount paid or fair value, such that there is no carryover of the seller's allowance for loan losses. After acquisition, losses are recognized by an increase in the allowance for loan losses.

 

Such purchased credit impaired loans are accounted for individually or aggregated into pools of loans based on common risk characteristics such as credit score, loan type, and date of origination. The Company estimates the amount and timing of expected cash flows for each loan or pool, and the expected cash flows in excess of the amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loans or pool's contractual principal and interest, over expected cash flows, is not recorded (non-accretable difference).

 

Subsequent to acquisition, on a quarterly basis, the Company updates estimates of the amount and timing of expected cash flows, incorporating assumptions such as defaults rates, loss severities, delinquency status, current loan collateral values, and other business and economic factors.  Probable decreases in expected loan cash flows result in an impairment, which is recorded as an expense through provision for loan losses.  The amount of the impairment is calculated as the present value of expected cash flows discounted at the loan or pool’s effective yield, less the carrying value of the loan or pool. Probable increases in expected cash flows would first reverse any previously recognized impairment and then be recorded prospectively as interest income over the remaining life of the loan or pool.  When the recorded investment of a PCI loan or pool is fully recovered, additional cash flows are recognized as recoveries in non-interest income.

 

Concentration of Credit Risk

Most of the Company's business activity is with customers located within Florida. Therefore, the Company's exposure to credit risk is significantly affected by changes in the Florida economy. The Company monitors its concentration of credit risk on a quarterly basis. The credit concentration is monitored by geographical distribution within the State, by loan classification type, by the type of collateral within a loan class, and by size of the borrower relationship.  Based on the credit concentration analysis, the Company believes its loan portfolio is well diversified.  

 

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off.

 

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. 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 (TDRs) and classified as impaired.

 

Factors considered by management in determining impairment include payment status, borrower cash flow and corresponding debt service, 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 and payment shortfalls on 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

13.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 1 – Continued

 

borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

 

Impairment is primarily measured on a loan-by-loan basis for commercial real estate, residential real estate, land and construction loans and commercial loans by either the present value of expected future cash flows at the loan’s effective interest rate, or the fair value of the collateral less estimated selling costs for collateral dependent loans.  Consumer loans are not specifically evaluated for impairment, but are pooled for general impairment analysis.

 

Troubled debt restructurings are individually evaluated for impairment and included in the separately identified impairment disclosures. TDRs are measured at the present value of estimated future cash flows using the loan's effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired.

 

The general component covers loans that are collectively evaluated for impairment. Large groups of smaller balance homogeneous loans, such as consumer loans, are collectively evaluated for impairment, and accordingly, they are not
included in the separately identified impairment disclosures. The general component is based on historical loss experience adjusted for current environmental factors. The Company has identified commercial real estate, residential real estate, land and construction, commercial, consumer and other loans as loan segments. The historical loss experience is determined by portfolio segment and is subdivided between acquired portfolios and Company originated portfolios. Actual loss history relating to acquired loans for the prior three years is used to determine the appropriate loss reserves for that portfolio.  Peer loss history for the prior three years is used for Company originated loans and is supplemented or adjusted by current environmental factors. These environmental factors include changes in: lending policies and procedures, economic conditions, loan terms and requirements, experience of lending management, severity and volume of past due loans and classified loans, quality of the Bank’s review system, value of underlying collateral, concentration of credit, and external factors.

 

During the first quarter of 2017, the Company modified its accounting policy for allowance for loan losses.  In determining impairment for specifically identified impaired loans, the Company began to segregate small, homogeneous loans with relationship balances under $250 thousand.  The rationale for the accounting policy change was to streamline and improve the timeliness of the loan impairment valuation process for small loans that the Company deems to be insignificant to its operations.  These small balance loans are now evaluated for impairment on a pooled basis and are not included in impairment disclosures. The change in accounting policy did not have a material effect on the allowance for loan losses during 2017.

 

The Company subdivides its loan portfolio into five segments.  These segments include commercial real estate, residential real estate, land and construction, commercial, and consumer/other. The characteristics of each portfolio are discussed below.

 

Commercial real estate loans are secured by business properties including office buildings, warehouses, restaurants, hotels, and other commercial properties located within the Company’s markets.  These loans are underwritten and originated based on the borrowers underlying cash flow and ability to service the debt. Secondarily, the Company assesses the fair value of the real estate collateral and other sources of debt repayment.  From time to time the Company may originate commercial real estate loans that may be sold to the Small Business Administration (SBA).

 

Residential real estate loans represent a lien on the borrower’s primary or secondary residence.  The loans may include first mortgages, second/junior mortgages or home equity lines of credit. Residential real estate loans may amortize over various terms such as 30-year, 15-year, 10-year and may have fixed or adjustable interest rates. The Company typically sells 30-year fixed rate loans into the secondary market with servicing rights released at time of sale.

 

Land and Construction loans include loans to acquire land, including undeveloped residential lots, undeveloped commercial lots and may also include construction and development loans. Loan terms in this segment vary depending on the purpose of the loan but typically involve temporary construction financing.  All of the loans in this segment are secured by real estate.   

 

Commercial loans are loans to businesses.  These loans are typically secured by business assets including inventory, accounts receivable, trucks, heavy and light equipment, office equipment or other business assets.  Commercial loans are underwritten based on business cash flow and ability of the business to service the debt. Secondarily, the Company may consider the

14.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 1 – Continued

 

business owner’s credit worthiness and fair value of the collateral.  Typically, commercial loans have
amortization terms of 10-years and under.  From time to time the Company may originate commercial loans that may be sold to the Small Business Administration (SBA).

 

Consumer/other loans are smaller loans to individuals and include automobile loans, boat loans, and other loans such as personal loans.  Most consumer loans are secured but some may be unsecured based on a personal guarantee.  These loans typically have loan repayments terms of five years or less. Consumer loans are underwritten primarily based on credit scores, debt-to-income ratios and other indicators of creditworthiness.       

 

Servicing Rights

The Company sells residential loans in the secondary market servicing released. However, in certain cases commercial and commercial real estate loans are sold servicing retained.  At December 31, 2017 and 2016 the Company had loans serviced for others totaling $21 million and $24 million, respectively and the servicing fee income was not material.       

 

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains

the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

 

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives ranging from 10 to 39.5 years. Furniture, fixtures and equipment are depreciated using the straight-line (or accelerated) method with useful lives ranging from 3 to 10 years.

 

Foreclosed Assets

Foreclosed assets are initially recorded at the lower of cost or estimated fair value, less estimated selling costs. Write-downs occurring at foreclosure are charged to allowance for loan losses. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs, net of operating income, after acquisition are expensed.

 

The FDIC will reimburse the Company for certain losses and expenses on covered real estate owned up to 80% (“covered real estate owned”) relating to the Putnam State Bank acquisition.  The loss share agreement covered approximately $14.7 million of real estate owned acquired by the Company at the acquisition date.  As of December 31, 2017 and 2016, the covered real estate owned balance was approximately $0 and $579 thousand, respectively

 

Federal Home Loan Bank (FHLB) Stock

The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

 

Bank Owned Life Insurance (BOLI)

The Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

 

Goodwill and Other Intangible Assets

Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling

15.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 1 – Continued

 

interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed. The Company has selected December 31st as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values not to exceed 10 years. Goodwill is the only intangible asset with an indefinite life on the balance sheet.

 

Other intangible assets consist of core deposits and acquired customer relationship intangible assets arising from whole bank

and branch acquisitions. These intangible assets are amortized on an accelerated method over their estimated useful lives, which range from 7 to 10 years.

 

The Company has tested goodwill and core deposit intangible assets for impairment at December 31, 2017 and 2016.  No

impairment charges were needed at December 31, 2017 and 2016.

 

FDIC Indemnification Asset

The FDIC will reimburse the Company for covered loans and covered real estate owned (“covered assets”) under the FDIC loss share agreement at 80% of losses and certain expenses.  An indemnification asset was recorded at fair value at the acquisition date.  The indemnification asset is recognized at the same time as the covered assets, and measured on the same basis, subject to collectability or contractual limitations. FDIC indemnification asset on the acquisition date reflects the reimbursements expected to be received from the FDIC, using an appropriate discount, which reflects counterparty credit risk and other uncertainties.  The indemnification asset continues to be measured on the same basis as the related covered asset.  The indemnification asset is impacted by changes in estimated cash flows associated with covered assets.  Deterioration in the credit quality on expected cash flows of the covered loans (immediately recorded as an adjustment to the allowance for loan losses), and deterioration in the fair value less selling costs of the covered real estate owned (immediately recorded as an adjustment to the respective valuation allowance), would immediately increase the indemnification asset, with the offset recorded as income.  Increases in the credit quality of cash flows of loans (reflected as an adjustment to yield and accreted into earnings over the remaining life of the loans) decreases the basis of the indemnification asset, with such decrease being amortized as a charge to earnings over the shorter of the life of the loan or remaining life of the loss share agreement.  Fair value accounting incorporates into fair value of the covered loans, an element of time value of money which is accreted back to earnings over the life of the loss share agreement.

 

The FDIC’s reimbursement obligation to the Company expired on June 30, 2017 and the FDIC indemnification asset was fully amortized as of that date.

 

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

 

Derivatives

At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company's intentions and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value hedge"), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"), or (3) an instrument with no hedging designation ("stand-alone derivative"). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair value changes. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. For both types of hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income.

16.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 1 – Continued

 

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.

 

The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.

 

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value

and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings.

 

At December 31, 2017 the Company had two interest rate swap contracts acquired from a bank acquisition with a combined notional amount of $2.3 million and a fair value of $19 thousand and $(19) thousand, respectively.  Management does not consider these derivative contracts to be material to the Company’s financial position or operations.

 

Stock-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company's common stock at the date of grant is used for restricted stock awards.

 

Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

 

Income Taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

 

A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

 

The Company recognizes interest and/or penalties related to income tax matters in other expense.

 

Retirement Plans

Employee 401(k) expense represents the amount of matching contributions by the Company.

 

Earnings per Common Share

Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during

17.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 1 – Continued

 

the period. All outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation.  Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options. Earnings and dividends per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements.

 

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale.

 

On December 22, 2017, President Trump signed the 2017 Tax Legislation, which included a reduction in the corporate tax rate from 35% to 21%.  FASB accounting standards in-place at December 31, 2017 required the Company to revalue its deferred tax asset and deferred tax liability amounts, including those related to balances in AOCI, to reflect the new lower tax rates. However, accounting standards also required the deferred tax impact of unrealized gains and losses on AFS securities to be valued at the tax rate in effect at time of asset purchase.  This valuation difference is commonly referred to as the “stranded tax effect”.  In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 permitted entities the election to reclassify the difference between the new and old corporate tax rates resulting from the 2017 Tax Legislation between retained earnings and AOCI for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company retrospectively adopted ASU 2018-02 and elected a one-time reclassification of the “stranded tax effect” of $807 thousand between retained earnings and AOCI at December 31, 2017.  This reclassification is shown on the consolidated statements of changes in stockholder’s equity.        

 

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities

when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

 

Restrictions on Cash

Cash on hand or on deposit with the Federal Reserve Bank could be required to meet regulatory reserve and clearing requirements. At December 31, 2017 and 2016, the Company’s reserve requirement was $0 and $0, respectively.

 

Dividend Restriction

Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Holding Company or by the Holding Company to shareholders. During 2017 and 2016, the Bank paid dividends of $15 million and $13 million, respectively to the Holding Company from retained earnings. No dividends were paid by the Bank to the Holding Company during 2015.  During 2017, 2016 and 2015, the Holding Company did not pay any dividends to its shareholders.

 

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

 

Operating Segments

The Company’s only reportable segment is community banking.  The Company’s sole operating subsidiary is the Bank.  The Bank offers traditional banking products and services through its network of retail branch facilities.  Management makes operating decisions and assesses profitability based on the community banking unit as a whole.    

 

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders' equity.

 

 

18.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 2 - SECURITIES

 

The following table summarizes the amortized cost and fair value of securities available for sale and securities held to maturity at December 31, 2017 and 2016 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses:

 

 

Amortized

Cost

 

Gross

Unrealized

Gains

 

Gross

Unrealized

Losses

 

Fair Value

2017

 

 

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

Agency notes and bonds

$       2,929

 

$              -

 

$          (21)

 

$     2,908

Asset backed securities

16,214

 

-

 

(119)

 

16,095

Small business administration securities

39,157

 

175

 

(132)

 

39,200

Collateralized mortgage obligations

97,302

 

111

 

(1,523)

 

95,890

Mortgage-backed securities

276,670

 

42

 

(4,378)

 

272,334

Total available for sale

$    432,272

 

$          328

 

$    (6,173)

 

$ 426,427

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

Agency notes and bonds

$       1,913

 

$           34

 

$               -

 

$     1,947

Municipal securities

4,373

 

57

 

(6)

 

4,424

Collateralized mortgage obligations

65,797

 

33

 

(1,320)

 

64,510

Mortgage-backed securities

90,086

 

69

 

(1,302)

 

88,853

Total held to maturity

$   162,169

 

$         193

 

$    (2,628)

 

$ 159,734

 

 

 

Amortized

Cost

 

Gross

Unrealized

Gains

 

Gross

Unrealized

Losses

 

Fair Value

2016

 

 

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

Agency notes and bonds

$       1,594

 

$            20

 

$               -

 

$      1,614

Asset backed securities

17,579

 

-

 

(699)

 

16,880

Small business administration securities

48,724

 

175

 

(103)

 

48,796

Collateralized mortgage obligations

44,817

 

25

 

(480)

 

44,362

Mortgage-backed securities

238,550

 

74

 

(3,642)

 

234,982

Total available for sale

$    351,264

 

$          294

 

$     (4,924)

 

$   346,634

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

Agency notes and bonds

$       1,900

 

$           39

 

$               -

 

$     1,939

Municipal securities

4,397

 

80

 

(2)

 

4,475

Collateralized mortgage obligations

78,465

 

90

 

(1,037)

 

77,518

Mortgage-backed securities

93,470

 

108

 

(1,224)

 

92,354

Total held to maturity

$   178,232

 

$         317

 

$    (2,263)

 

$   176,286

 

 

 

 

19.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 2 - Continued

 

The following table segregates MBS and CMOs secured by residential or commercial properties:

 

 

 

2017

 

2016

 

Amortized

Cost

 

Fair Value

 

Amortized

Cost

 

Fair Value

Available for sale:

 

 

 

 

 

 

 

CMOs secured by residential properties

$      97,302

 

$        95,890

 

$       44,817

 

$       44,362

MBS secured by residential properties

271,637

 

267,374

 

233,500

 

230,049

MBS secured by commercial properties

5,033

 

4,960

 

5,050

 

4,933

Total available for sale

$   373,972

 

$      368,224

 

$     283,367

 

$    279,344

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

CMOs secured by residential properties

$       62,821

 

$        61,547

 

$       75,494

 

$       74,531

CMOs secured by commercial properties

2,976

 

2,963

 

2,971

 

2,987

MBS secured by residential properties

72,772

 

71,647

 

73,911

 

72,978

MBS secured by commercial properties

17,314

 

17,206

 

19,559

 

19,376

Total held to maturity

$    155,883

 

$      153,363

 

$     171,935

 

$ 169,872

 

During 2014 the Company transferred $58.8 million of securities from available for sale classification to held to maturity classification.  At time of transfer, the securities had unrealized losses of $1.2 million, net of deferred taxes.  The losses are amortized on the Company’s books over the remaining life of the securities using the level yield method. The unamortized losses net of deferred taxes are recorded in equity as a reduction of accumulated other comprehensive income. The unamortized losses on transferred securities net of deferred taxes was $540 thousand, $581 thousand, and $931 thousand at December 31, 2017, 2016 and 2015, respectively. The amount of pre-tax loss amortization was $208 thousand, $560 thousand, and $344 thousand for 2017, 2016, and 2015, respectively.  The amortization of unrealized holding losses reported in equity will offset the effect of the amortization of the discount.

 

The proceeds from sales and calls of securities and the associated gains and losses are listed below:

 

 

 

2017

 

2016

 

2015

Proceeds

$    7,185

 

$  56,227

 

$  23,596

Gross gains

$          18

 

$      351

 

$         40

Gross losses

$           -

 

$     (64)

 

$      (38)

 

 

The tax provision related to these net realized gains and losses were $5 thousand, $108 thousand and $1 thousand in 2017, 2016 and 2015, respectively.

 

The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

 

 

 

20.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 2 - Continued

 

 

Available for Sale

 

Held to Maturity

December 31, 2017

Amortized

Cost

 

Fair

Value

 

Amortized

Cost

 

Fair

Value

Within one year

$              -

 

$             -

 

$             -

 

$               -

One to five years

977

 

971

 

3,911

 

3,939

Five to ten years

1,952

 

1,937

 

1,587

 

1,626

Beyond ten years

-

 

-

 

788

 

806

Asset-backed securities

16,214

 

16,095

 

-

 

-

Small business administration securities

39,157

 

39,200

 

-

 

-

Collateralized mortgage obligations

97,302

 

95,890

 

65,797

 

64,510

Mortgage-backed securities

276,670

 

272,334

 

90,086

 

88,853

 

$   432,272

 

$ 426,427

 

$ 162,169

 

$     159,734

 

 

Securities pledged at year-end 2017, 2016 and 2015 had a carrying amount of $210 million, $208 million and $197 million, respectively. The securities were pledged to secure public deposits, Federal Home Loan Bank advances, Federal Reserve discount window borrowings and other purposes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 2 - Continued

 

The following table summarizes securities with unrealized losses at December 31, 2017 and 2016, aggregated by major security type and length of time in a continuous unrealized loss position:

 

 

Less than 12 Months

 

12 Months or Longer

 

Total

 

Fair Value

 

Unrealized Losses

 

Fair Value

 

Unrealized Losses

 

Fair Value

 

Unrealized Losses

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

Agency notes and bonds

$      2,908

 

$         (21)

 

$         -

 

$                -

 

$    2,908

 

$          (21)

 

 

 

 

 

 

 

 

 

 

 

 

Asset backed securities

-

 

-

 

    14,237

 

           (119)

 

14,237

 

        (119)

 

 

 

 

 

 

 

 

 

 

 

 

Small Business Administration securities

                7,512

 

                  (58)

 

           5,289

 

                   (74)

 

             12,801

 

                (132)

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations

             63,200

 

                (939)

 

           21,969

 

                (584)

 

             85,169

 

                (1,523)

Mortgage-backed securities

           124,737

 

            (1,258)

 

             142,628

 

                   (3,120)

 

           267,365

 

            (4,378)

Total available for sale

$ 198,357

 

   $   (2,276)

 

$184,123

 

$     (3,897)

 

$382,480

 

$    (6,173)

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

Agency notes and bonds

$           -

 

$              -

 

$           -

 

$               -

 

$           -

 

$              -

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

  1,992

 

     (6)

 

-

 

-

 

      1,992

 

            (6)

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage

obligations                                                                        

             28,411

 

            (272)

 

33,737

 

(1,048)

 

             62,148

 

            (1,320)

Mortgage-backed securities

             34,486

 

            (231)

 

40,354

 

(1,071)

 

             74,840

 

            (1,302)

    Total held to maturity

$ 64,889

 

$     (509)

 

$  74,091

 

$     (2,119)

 

$138,980

 

$    (2,628)

 

 

 

 

 

 

 

 

 

 

 

 

 

22.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 2 - Continued

 

 

Less than 12 Months

 

12 Months or Longer

 

Total

 

Fair Value

 

Unrealized Losses

 

Fair Value

 

Unrealized Losses

 

Fair Value

 

Unrealized Losses

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

Agency notes and bonds

$             -

 

$             -

 

$         -

 

$             -

 

$             -

 

$             -

 

 

 

 

 

 

 

 

 

 

 

 

Asset backed securities

-

 

-

 

16,879

 

(699)

 

16,879

 

(699)

 

 

 

 

 

 

 

 

 

 

 

 

Small Business Administration securities

5,480

 

(13)

 

21,430

 

(90)

 

26,910

 

(103)

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations

32,390

 

(324)

 

9,486

 

(156)

 

41,876

 

(480)

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

216,756

 

(3,442)

 

8,540

 

(200)

 

225,296

 

(3,642)

Total available for sale

$ 254,626

 

$    (3,779)

 

$56,335

 

$   (1,145)

 

$ 310,961

 

$ (4,924)

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

Agency notes and bonds

$             -

 

$               -

 

$         -

 

$             -

 

$             -

 

   $            -

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

611

 

(2)

 

-

 

-

 

611

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations

62,878

 

(999)

 

4,462

 

(38)

 

67,340

 

(1,037)

Mortgage-backed securities

77,179

 

(1,224)

 

-

 

-

 

77,179

 

(1,224)

Total held to maturity

$ 140,668

 

$    (2,225)

 

$  4,462

 

$      (38)

 

$ 145,130

 

  $    (2,263)

 

 

At December 31, 2017, the Company's security portfolio consisted of 224 securities, 170 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company's collateralized mortgage obligations and mortgage backed securities and asset backed securities, as discussed below:

 

Collateralized Mortgage Obligations

 

At December 31, 2017, the Company’s collateralized mortgage obligations were issued by U.S. government sponsored entities and agencies, Fannie Mae, Freddie Mac, and Ginnie Mae. Fannie Mae and Freddie Mac are institutions which the government has affirmed its commitment to support. The underlying collateral of these mortgage instruments are 30-year, 20-year and15-year fixed rate mortgage-backed securities.  Because the decline in fair value is attributable to changes in interest rates, spreads and liquidity, and not credit quality, and because the Company does not have the intent to sell these collateralized mortgage obligations and it is unlikely that the Company will be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at December 31, 2017.

 

 

 

23.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 2 - Continued

 

Mortgage-Backed Securities

 

At December 31, 2017, all of the mortgage-backed securities held by the Company were issued by U.S. government-sponsored entities and agencies, Fannie Mae, Freddie Mac, and Ginnie Mae. Fannie Mae and Freddie Mac are institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates, spreads and liquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is unlikely that the Company will be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at December 31, 2017.

 

Asset Backed Securities

 

At December 31, 2017 the Company’s asset backed securities consisted of four pools of U.S. government guaranteed student loans.  The U. S. government guarantee secures up to 97% of the principal balance.  The student loans are pooled and held in trusts.  Three of the four trusts are rated AAA and one trust is rated BBB by the national rating agencies.

 

The decline in fair value is attributable to changes in interest rates, spreads and liquidity, and not credit quality.  It is unlikely that the Company will be required to sell these securities before their anticipated recovery.  Likewise, the Company does not intend to sell these securities for the foreseeable future.  The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2017.

 

NOTE 3 - LOANS

 

Loans at year-end were as follows:

 

 

2017

 

2016

 

Non covered Loans

 

Covered

Loans

 

Total

 

Non covered Loans

 

Covered

Loans

 

Total

Commercial real estate

$   646,665

 

$           -

 

$  646,665

 

$   435,188

 

$ 27,483

 

$  462,671

Residential real estate

389,640

 

-

 

389,640

 

362,729

 

246

 

362,975

Land and construction

151,327

 

-

 

151,327

 

95,202

 

1,178

 

96,380

Total real estate

1,187,632

 

-

 

1,187,632

 

893,119

 

28,907

 

922,026

Commercial

120,943

 

-

 

120,943

 

97,188

 

2,568

 

99,756

Consumer and other

42,779

 

-  

 

42,779

 

44,894

 

-  

 

44,894

Total non-real estate

163,722

 

-

 

163,722

 

142,082

 

2,568

 

144,650

Subtotal

1,351,354

 

-

 

1,351,354

 

1,035,201

 

31,475

 

1,066,676

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

Net deferred fees

594

 

-

 

594

 

730

 

8

 

738

Allowance for loan losses

8,513

 

-

 

8,513

 

7,260

 

378

 

7,638

Loans, net

$ 1,342,247

 

$           -

 

$1,342,247

 

$ 1,027,211

 

$ 31,089

 

$1,058,300

 


24.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 3 - Continued

 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for each of the years ending December 31, 2017, 2016 and 2015:

 

 

 

Real E Real Estate Mortgage Loans age Loa

 

 

Commercial Real

Estate

 

Residential Real

Estate

 

Land

and Construction

 

Commercial

 

Consumer and

other

Loans

 

Total

December 31, 2017

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses - loans:

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

$       3,106

 

$     1,990

 

$        318

 

$     1,648

 

$       198

 

$ 7,260

Provision for loan losses

2,277

 

(365)

 

267

 

986

 

416

 

3,581

Loans charged-off

(1,355)

 

(499)

 

(106)

 

(676)

 

(447)

 

(3,083)

Recoveries

75

 

231

 

93

 

251

 

105

 

755

Ending allowance balance – loans

$       4,103

 

$     1,357

 

$        572

 

$     2,209

 

$       272

 

$ 8,513

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses – covered loans:

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

$          210

 

$            -

 

$          26

 

$        142

 

$           -

 

$   378

Provision (credit)

(210)

 

-

 

(26)

 

(24)

 

-

 

(260)

Charge-offs

-  

 

-

 

-

 

(132)

 

-

 

(132)

Recoveries

-

 

-

 

-

 

14

 

-

 

14

Ending allowance balance – covered loans

$              -

 

$            -

 

$             -

 

$            -

 

$           -

 

$         -

Total ending allowance balance

$     4,103

 

$      1,357

 

$         572

 

$     2,209

 

$   272

 

$ 8,513

 

 

 

 

 

 

 

 

 

 

 

 


25.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 3 Continued

 

 

 

            Real Estate Mortgage Loans

 

 

Commercial Real

Estate

 

Residential Real

Estate

 

Land

and Construction

 

Commercial

 

Consumer and

other

Loans

 

Total

December 31, 2016

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses - loans:

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

$        595

 

$       802

 

$        201

 

$        212

 

$       641

 

$ 2,451

Provision for loan losses

2,948

 

947

 

235

 

1,569

 

(12)

 

5,687

Loans charged-off

(568)

 

(104)

 

(176)

 

(192)

 

(550)

 

(1,590)

Recoveries

131

 

345

 

58

 

59

 

119

 

712

Ending allowance balance – loans

$     3,106

 

$    1,990

 

$        318

 

$     1,648

 

$       198

 

$ 7,260

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses – covered loans:

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

$        890

 

$            -

 

$        251

 

$        136

 

$            -

 

$ 1,277

Provision (credit)

(681)

 

-

 

(225)

 

20

 

-

 

(886)

Charge-offs

-  

 

-

 

-

 

(45)

 

-

 

(45)

Recoveries

1

 

-

 

-

 

31

 

-

 

32

Ending allowance balance – covered loans

$        210

 

$            -

 

$          26

 

$        142

 

$            -

 

$    378

Total ending allowance balance

$     3,316

 

$    1,990

 

$        344

 

$     1,790

 

$       198

 

$ 7,638

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 3 Continued

 

 

 

Real E Real Estate Mortgage Loans Loans

 

 

Commercial Real

Estate

 

Residential Real

Estate

 

Land

and Construction

 

Commercial

 

Consumer and

other

Loans

 

Total

December 31, 2015

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses - loans:

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

$           638

 

$         839

 

$            153

 

$           128

 

$        573

 

$  2,331

Provision for loan losses

167

 

214

 

184

 

54

 

552

 

1,171

Loans charged-off

(296)

 

(418)

 

(204)

 

(347)

 

(574)

 

  (1,839)

Recoveries

86

 

167

 

68

 

377

 

90

 

788

Ending allowance balance – loans

$           595

 

$         802

 

$            201

 

$           212

 

$        641

 

$  2,451

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses – covered loans:

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

$        1,057

 

$             -

 

$            238

 

$           181

 

$            -

 

$  1,476

Provision (credit)

396

 

-

 

13

 

(61)

 

-

 

348

Charge-offs

(628)

 

-

 

-

 

(51)

 

-

 

(679)

Recoveries

65

 

-

 

-

 

67

 

-

 

132

Ending allowance balance – covered loans

$           890

 

$             -

 

$            251

 

$           136

 

$            -

 

$  1,277

Total ending allowance balance

$        1,485

 

$         802

 

$            452

 

$           348

 

$        641

 

$  3,728


27.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 3 - Continued

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2017 and 2016:

 

 

 

Real Estate Mortgage Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

 

 

Commercial

 

Residential

 

Land

 

 

 

and

 

 

 

 

Real

 

Real

 

and

 

 

 

Other

 

 

 

 

Estate

 

Estate

 

Construction

 

Commercial

 

Loans

 

Total

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan  losses:

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

$          886

 

$        126

 

$               7

 

$      1,583

  

   $        -  

 

$    2,602

 

Collectively evaluated for impairment

2,627

 

969

 

500

 

531

 

272

 

4,899

 

Acquired with deteriorated credit quality

590

 

262

 

65

 

95

 

-  

 

1,012

Total ending allowance balance

$       4,103

 

$     1,357

 

$           572

 

$      2,209

 

$      272

 

$    8,513

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans – recorded  investment:

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

$     12,174

 

$     5,785

 

$        1,351

 

$      2,792

 

   $         -

 

$  22,102

 

Loans  collectively evaluated for impairment

619,147

 

378,864

 

148,526

 

118,007

 

42,779

 

1,307,323

 

Loans  acquired with deteriorated credit quality

15,344

 

4,991

 

1,450

 

144

 

-  

 

21,929

Total ending loans recorded  investment

$   646,665

 

$ 389,640

 

$    151,327

 

$  120,943

 

$ 42,779

 

$1,351,354

 

 

 

Real Estate Mortgage Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

 

 

Commercial

 

Residential

 

Land

 

 

 

and

 

 

 

 

Real

 

Real

 

and

 

 

 

Other

 

 

 

 

Estate

 

Estate

 

Construction

 

Commercial

 

Loans

 

Total

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan  losses:

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

$         1,509

 

$         615

 

$              52

 

$        1,268

 

$           3

  

$    3,447

 

Collectively evaluated for impairment

1,322

 

874

 

265

 

425

 

195

 

3,081

 

Acquired with deteriorated credit quality

485

 

501

 

27

 

97

 

-  

 

1,110

Total ending allowance balance

$         3,316

 

$     1,990

 

$           344

 

$       1,790

 

$       198

 

$    7,638

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans – recorded  investment:

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

$       19,109

 

$    10,542

 

$         1,519

 

$        4,582

 

$           4

 

$  35,756

 

Loans  collectively evaluated for impairment

427,369

 

346,554

 

93,401

 

94,958

 

44,890

 

1,007,172

 

Loans  acquired with deteriorated credit quality

16,193

 

5,879

 

1,460

 

216

 

-  

 

23,748

Total ending loans recorded investment

$     462,671

 

$ 362,975

 

$      96,380

 

$     99,756

 

$  44,894

 

$1,066,676

28.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 3 - Continued

 

The following tables present information related to impaired loans by class of loans as of and for the years ended December 31, 2017, 2016 and 2015:

 

 

Unpaid Principal Balance

 

Recorded Investment

 

Allowance for Loan Losses Allocated

December 31, 2017

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

Commercial real estate

$ 12,432

 

$      8,350

 

$                  -

Residential real estate

6,325

 

5,102

 

-

Land and construction

1,700

 

1,294

 

-

Commercial

142

 

117

 

-

           Subtotal – excluding PCI

20,599

 

14,863

 

-

PCI loans

15,363

 

8,239

 

-

           Subtotal – including PCI

35,962

 

23,102

 

-

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

Commercial real estate

$  4,232

 

$     3,824

 

$             886

Residential real estate

686

 

683

 

126

Land and construction

57

 

57

 

7

Commercial

2,896

 

2,675

 

1,583

            Subtotal – excluding PCI

7,871

 

7,239

 

2,602

PCI loans

17,566

 

13,690

 

1,012

           Subtotal – including PCI

25,437

 

20,929

 

3,614

 

 

 

 

 

 

               Total – excluding PCI

$  28,470

 

$     22,102

 

$           2,602

               Total – including PCI

$  61,399

 

$     44,031

 

$          3,614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 3 - Continued

 

 

Unpaid Principal Balance

 

Recorded Investment

 

Allowance for Loan Losses Allocated

December 31, 2016

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

Commercial real estate

$  7,864

 

$      4,106

 

$                  -

Residential real estate

7,101

 

5,758

 

-

Land and construction

1,307

 

770

 

-

Commercial

967

 

934

 

-

           Subtotal – excluding PCI

17,239

 

11,568

 

-

PCI loans

21,622

 

9,271

 

-

           Subtotal – including PCI

38,861

 

20,839

 

-

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

Commercial real estate

$  15,542

 

$     15,003

 

$          1,509

Residential real estate

5,392

 

4,784

 

615

Land and construction

756

 

749

 

52

Commercial

3,766

 

3,649

 

1,268

Consumer and other loans

3

 

3

 

3

            Subtotal – excluding PCI

25,459

 

24,188

 

3,447

PCI loans

26,807

 

14,477

 

1,110

           Subtotal – including PCI

52,266

 

38,665

 

4,557

 

 

 

 

 

 

               Total – excluding PCI

$  42,698

 

$     35,756

 

$          3,447

               Total – including PCI

$  91,127

 

$     59,504

 

$          4,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 3 - Continued

 

 

 

Unpaid Principal Balance

 

Recorded Investment

 

Allowance for Loan Losses Allocated

December 31, 2015

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

Commercial real estate

$  14,519

 

$      10,628

 

$                  -

Residential real estate

6,127

 

4,918

 

-

Land and construction

1,274

 

661

 

-

Commercial

1,781

 

1,531

 

-

           Subtotal – excluding PCI

23,701

 

17,738

 

-

PCI loans

21,934

 

12,764

 

-

           Subtotal – including PCI

45,635

 

30,502

 

-

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

Commercial real estate

$    1,858

 

$        1,733

 

$                80

Residential real estate

2,448

 

2,417

 

277

Land and construction

601

 

573

 

22

Commercial

469

 

462

 

20

           Subtotal – excluding PCI

5,376

 

5,185

 

399

PCI loans

28,721

 

15,088

 

1,181

           Subtotal – including PCI

34,097

 

20,273

 

1,580

 

 

 

 

 

 

               Total – excluding PCI

$  29,077

 

$     22,923

 

$             399

               Total – including PCI

$  79,732

 

$     50,775

 

$          1,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 3 - Continued

 

 

 

Average Recorded Investment

 

Interest Income Recognized

December 31, 2017

 

 

 

Commercial real estate

$      15,076

 

$          211

Residential real estate

5,602

 

64

Land and construction

1,222

 

33

Commercial

3,297

 

35

Total

$     25,197

 

$          343

 

 

 

 

Average Recorded Investment

 

Interest Income Recognized

December 31, 2016

 

 

 

Commercial real estate

$      14,235

 

$          317

Residential real estate

8,788

 

94

Land and construction

1,450

 

26

Commercial

2,116

 

55

Consumer and other loans

25

 

-

Total

$     26,614

 

$          492

 

 

 

Average Recorded Investment

 

Interest Income Recognized

December 31, 2015

 

 

 

Commercial real estate

$      10,987

 

$          303

Residential real estate

6,067

 

114

Land and construction

1,196

 

22

Commercial

2,191

 

54

Consumer and other loans

12

 

1

Total

$     20,453

 

$          494

 

These tables exclude PCI loans.  Also, the average recorded investment in loans excludes accrued interest receivable and loan origination fees, net.

 

Non-accrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. Impaired loans include commercial loans that are individually evaluated for impairment and deemed impaired (i.e., individually classified impaired loans) as well as TDRs for all loan portfolio segments. The sum of non-accrual loans and loans past due 90 days still on accrual will differ from the total impaired loan amount.

 

 

32.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

 

NOTE 3 - Continued

 

The following tables present the recorded investment in non-accrual and loans past due over 90 days still on accrual by class of loans, as of December 31, 2017 and 2016:

 

 

Non- Accrual

 

Loans past due over 90 days still accruing

 

2017

 

2016

 

2017

 

2016

Commercial real estate

$ 10,570

 

$ 13,000

 

$      73

 

$    330

Residential real estate

9,728

 

9,742

 

-

 

488

Land and construction

961

 

1,111

 

86

 

3,423

Commercial

3,319

 

1,874

 

247

 

49

Consumer and other loans

240

 

338

 

-

 

12

        Total – excluding PCI

$ 24,818

 

$ 26,065

 

$    406

 

$ 4,302

PCI loans

96

 

1,187

 

3,111

 

1,773

       Total – including PCI

$ 24,914

 

$ 27,252

 

$ 3,517

 

$ 6,075

 

 

The following table presents the aging of the recorded investment in past due loans as of December 31, 2017 and 2016 by class of loans:

 

 

30-59

Days

Past Due

 

60-89 Days Past Due

 

Greater

Than

89 Days

Past Due

 

Total Past Due

 

Loans Not Past Due

 

Total

December 31, 2017

 

 

 

 

 

 

 

 

 

 

Commercial real estate

$     2,045

 

$        736

 

$     7,352

 

$  10,133

 

$   621,187

 

$   631,320

Residential real estate

6,493

 

2,095

 

5,576

 

14,164

 

370,485

 

384,649

Land and construction

2,210

 

           53

 

880

 

3,143

 

146,734

 

149,877

Commercial

1,196

 

142

 

3,421

 

4,759

 

116,040

 

120,799

Consumer and other loans

115

 

79

 

173

 

367

 

42,413

 

42,780

      Total – excluding PCI

$   12,059

 

$     3,105

 

$   17,402

 

$   32,566

 

$1,296,859

 

$1,329,425

PCI loans

975

 

-

 

3,207

 

4,182

 

17,747

 

       21,929

      Total – including PCI

$   13,034

 

$     3,105

 

$   20,609

 

$   36,748

 

$1,314,606

 

$1,351,354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 3 - Continued

 

 

30-59

Days

Past Due

 

60-89 Days Past Due

 

Greater

Than

89 Days

Past Due

 

Total Past Due

 

Loans Not Past Due

 

Total

December 31, 2016

 

 

 

 

 

 

 

 

 

 

Commercial real estate

$     4,745

 

$       409

 

$     7,576

 

$  12,730

 

$   433,748

 

$   446,478

Residential real estate

6,448

 

2,148

 

4,967

 

13,563

 

343,533

 

357,096

Land and construction

215

 

           -

 

4,329

 

4,544

 

90,376

 

94,920

Commercial

2,827

 

328

 

873

 

4,028

 

95,512

 

99,540

Consumer and other loans

189

 

191

 

280

 

660

 

44,234

 

44,894

      Total – excluding PCI

$   14,424

 

$     3,076

 

$   18,025

 

$   35,525

 

$1,007,403

 

$1,042,928

PCI loans

353

 

2,319

 

1,773

 

4,445

 

19,303

 

       23,748

      Total – including PCI

$   14,777

 

$     5,395

 

$   19,798

 

$   39,970

 

$1,026,706

 

$1,066,676

 

 

Troubled Debt Restructurings:

 

Under certain circumstances, it may be beneficial to modify or restructure the terms of a loan for the mutual benefit of the Company and the borrower.  In cases where the borrower is experiencing financial difficulties, the Company may grant concessions to the borrower to avoid the cost of foreclosure of property or bankruptcy by the borrower.  In these circumstances, the modification of loan terms where a concession is granted to the borrower is known as a troubled debt restructuring (TDR).  Concessions granted to financially troubled borrowers could include forgiveness of interest, forgiveness of principal, below market interest rate concessions, and a change in loan amortization or repayment terms. In general, the Company does not forgive principal in loan modifications.  Typically, the Company will lower borrower payment amounts through a temporary interest rate concession and/or extension of amortization or maturity terms.    

 

At December 31, 2017 and 2016, the Company has a recorded investment in troubled debt restructurings of $11 million and $13 million, respectively. The Company has allocated $477 thousand and $592 thousand of specific allowance for those loans at December 31, 2017 and 2016, respectively.  The Company granted temporary TDR rate concessions with a range of .36% to 17.24% during 2017, .75% to 3% during 2016, and a range of .5% to 5% during 2015.  During 2017, 2016 and 2015, payment extensions from troubled debt restructurings ranged from 36 months to 144 months, 7 months to 111 months and 11 months to 64 months, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 


34.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 3 - Continued

 

The following table presents loans by class modified as troubled debt restructurings that occurred during the years ending December 31, 2017, 2016 and 2015:

 

 

Number of Loans

 

Pre- Modification Outstanding Recorded Investment

 

Post- Modification Outstanding Recorded Investment

December 31, 2017

 

 

 

 

Troubled Debt Restructurings:

 

 

 

 

 

Commercial real estate

4

 

$           1,605

 

$            1,605

Residential real estate

2

 

177

 

177

Land and construction

2

 

154

 

154

Consumer and other loans

2

 

21

 

21

Total

10

 

$           1,957

 

$            1,957

 

 

 

 

 

 

 

Number of Loans

 

Pre- Modification Outstanding Recorded Investment

 

Post- Modification Outstanding Recorded Investment

December 31, 2016

 

 

 

 

Troubled Debt Restructurings:

 

 

 

 

 

Commercial real estate

5

 

$           2,820

 

$            2,777

Residential real estate

7

 

2,560

 

2,560

Commercial

2

 

213

 

213

Total

14

 

$           5,593

 

$            5,550

 

 

 

 

 

 

 

Number of Loans

 

Pre- Modification Outstanding Recorded Investment

 

Post- Modification Outstanding Recorded Investment

December 31, 2015

 

 

 

 

Troubled Debt Restructurings:

 

 

 

 

 

Commercial real estate

6

 

$           3,803

 

$            3,750

Residential real estate

8

 

1,112

 

1,121

Land and construction

3

 

618

 

620

Commercial

2

 

162

 

43

Consumer and other loans

2

 

28

 

28

Total

21

 

$           5,723

 

$            5,562

 

35.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

 

NOTE 3 - Continued

 

The troubled debt restructurings described above decreased the allowance for loan losses by $ 134 thousand and $153 thousand at December 31, 2017 and 2016, respectively.  These restructurings resulted in charge-offs of $0, $0 and $112 thousand during the years ending December 31, 2017, 2016 and 2015 respectively.

 

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the years ending December 31, 2017, 2016, and 2015:

 

 

 

 

2017

 

2016

 

2015

 

 

 

Number of Loans

 

Recorded Investment

 

Number of Loans

 

 

Recorded Investment

 

Number of Loans

 

Recorded Investment

Commercial real estate

1

 

$        606

 

2

 

$       874  

 

-

 

$           -  

Residential real estate

 

1

 

             129

 

1

 

              82  

 

1

 

            106

Land and construction

 

-

 

             -

 

2

 

             550  

 

-

 

-

Commercial

 

1

 

165

 

2

 

-

 

-

 

-

Commercial

 

1

 

9

 

-

 

               -  

 

-

 

-

     Total

 

 

4

 

$       909

 

7

 

$     1,506

 

1

 

$       106

 

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $74 thousand, $54 thousand and $0 during the years ending December 31, 2017, 2016, and 2015, respectively.

 

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company's internal underwriting policy.

 

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. This analysis is performed on an ongoing basis. The Company uses the following definitions for risk ratings:

 

Pass.  Loans classified as pass have satisfactory primary sources of repayment, with adequate secondary sources of repayment if necessary.

 

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 paying 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.

 

 

36.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 3 - Continued

 

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

 

 

Pass

 

Special

Mention

 

Substandard

 

Doubtful

 

Total

December 31, 2017

 

 

 

 

 

 

 

 

 

Commercial real estate

$ 620,011

 

$ 13,781

 

$     12,873

 

$          -

 

$  646,665

Residential real estate

374,554

 

3,896

 

11,190

 

-

 

389,640

Land and construction

148,387

 

1,467

 

1,473

 

-

 

151,327

Commercial

113,011

 

4,394

 

3,538

 

-

 

120,943

Consumer and other loans

42,469

 

29

 

281

 

-

 

42,779

Total

$1,298,432

 

$ 23,567

 

$     29,355

 

$          -

 

$1,351,354

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

Commercial real estate

$  425,773

 

$ 16,545

 

$     15,439

 

$   4,914

 

$  462,671

Residential real estate

348,182

 

2,574

 

12,219

 

-

 

362,975

Land and construction

91,213

 

3,590

 

1,577

 

-

 

96,380

Commercial

91,293

 

3,670

 

3,614

 

1,179

 

99,756

Consumer and other loans

44,523

 

51

 

320

 

-

 

44,894

Total

$1,000,984

 

$ 26,430

 

$     33,169

 

$   6,093

 

$1,066,676

 

 

 

Purchased Credit Impaired Loans

 

The Company has purchased 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. At December 31, 2017 and 2016, the carrying amount of those loans is as follows:

 

 

2017

 

2016

Commercial real estate

$ 15,344

 

$ 16,193

Residential real estate

4,991

 

5,879

Land and construction

1,450

 

1,460

Commercial

144

 

216

   Recorded Investment

$ 21,929

 

$ 23,748

Allowance for loan losses

1,012

 

1,110

Carrying amount

$ 20,917

 

$ 22,638

 

 

 

 

 

37.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 3 - Continued

 

Accretable yield, or income expected to be collected, is as follows:

 

 

2017

 

2016

 

2015

Balance at January 1

$  14,164

 

$  15,874

 

$  14,744

New loan purchases

-

 

-

 

1,468

Accretion of income

(3,018)

 

(3,683)

 

(4,084)

Reclassifications from nonaccretable difference

3,769

 

5,775

 

5,627

Disposals

(790)

 

(3,802)

 

(1,881)

Balance at December 31

$  14,125

 

$  14,164

 

$  15,874

 

 

For those purchased credit impaired loans disclosed above, the Company decreased the allowance for loan losses by $ 97 thousand, $71 thousand and $228 thousand during 2017, 2016 and 2015, respectively.

 

There were no purchased credit impaired loans purchased during the year ending December 31, 2017 or 2016. Purchased credit impaired loans purchased during the year ending December 31, 2015, for which it was probable at acquisition that all contractually required payments would not be collected, are as follows:

 

 

2017

 

2016

 

2015

Contractually required payments receivable of  

  impaired loans acquired during the year:

 

 

 

 

 

Commercial real estate

$          -

 

$          -

 

$   4,320

Residential real estate

-

 

-

 

7,304

Land and construction

-

 

-

 

479

Total

$        -

 

$         -

 

$ 12,103

 

 

 

 

 

 

Cash flows expected to be collected at acquisition

$          -

 

$          -

 

$   8,326

Fair value of acquired impaired loans at acquisition

$          -

 

$          -

 

$   6,858

 

 

Income is not recognized on purchased credit impaired loans if the Company cannot reasonably estimate cash flows expected to be collected. During 2017, 2016, and 2015 there were no material purchased credit impaired loans where cash flows could not be reasonably estimated.

 

 

 

 

 

 

 

 

 

 

 

 

38.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 4 - REAL ESTATE OWNED

 

Real estate owned activity was as follows:

 

 

2017

 

2016

 

2015

Beginning balance

$  9,018

 

$ 13,095

 

$ 14,619

Loans transferred to real estate owned

3,429

 

1,578

 

1,681

Property transferred from premises and equipment

-

 

1,355

 

570

Property acquired through bank acquisitions

-

 

-

 

5,833

Net change in valuation allowance

417

 

(1,197)

 

(128)

Sales of real estate owned

(5,402)

 

(5,813)

 

(9,480)

End of year

$  7,462

 

$ 9,018

 

$ 13,095

 

At December 31, 2017 and 2016, the recorded investment of real estate owned includes $794 thousand and $770 thousand, respectively of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At December 31, 2017 and 2016 the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process are $1.6 million and $2.1 million, respectively.

 

Activity in the valuation allowance was as follows:

          

 

2017

 

2016

 

2015

Beginning balance

$  2,385

 

$  1,188

 

$  1,060

Additions charged to expense

1,125

 

2,129

 

872

Reduction from sales of real estate owned

(1,542)

 

(932)

 

(744)

End of year

$  1,968

 

$  2,385

 

$  1,188

 

 

 

 

 

 

 

Expenses related to foreclosed real estate include:

 

 

2017

 

2016

 

2015

Net (gain) loss on sales

$   (130)

 

$     263

 

$  (585)

Provision for unrealized losses

1,125

 

2,129

 

872

Operating expenses, net of rental income

475

 

469

 

271

Total

$  1,470

 

$  2,861

 

$   558

 

NOTE 5 - FAIR VALUE

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

 

Level 1:  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 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar

39.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 5 Continued

 

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 3: Significant unobservable inputs that reflect a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

The Company used the following methods and significant assumptions to estimate fair value:

 

Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values 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 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). See below for additional discussion of Level 3 valuation methodologies and significant inputs. Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model.

 

Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third­ party pricing services.

 

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. A significant unobservable input in the income approach is the capitalization rate. At December 31, 2017 and 2016, the range of capitalization rates utilized to determine fair value of the underlying collateral ranged from 8.5 to 9.0% and 7.0 to 11.25% respectively. Non-real estate collateral may be valued using an appraisal, net book value per the borrower's financial statements, or aging reports, adjusted or discounted based on management's historical knowledge, changes in market conditions from the time of the valuation, and management's expertise and knowledge of the client and client's business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy.  

 

Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at the lower of charged down loan balance or fair value less costs to sell. This process may establish a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals, which are periodically updated, as management deems necessary. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. A significant unobservable input in the income approach is the capitalization rate. At December 31, 2017 and 2016, the range of capitalization rates utilized to determine fair value of the underlying collateral ranged from 8.5 to 9.0% and 9.2 to 13.0% respectively.

 

Appraisals for both collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Special Assets

40.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 5 – Continued

 

Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.  In rare cases, when significant valuation differences exist, management may choose a valuation that lies within a range of two recent independent appraisals.

 

Loans Held For Sale: Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a pool-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).

 

Assets and liabilities measured at fair value on a recurring basis, are summarized below:

 

 

 

Fair Value Measurement Using:

 

Quoted Prices in Active Markets for Identical Assess

(Level 1)

 

Significant Other Observable Inputs

(Level 2)

 

Significant Unobservable Inputs

(Level 3)

 

Total

December 31, 2017

 

 

 

 

 

 

Financial Assets

 

 

 

 

 

 

 

Investment Securities available for sale

 

 

 

 

 

 

 

Agency notes and bonds

$                       -

 

$       2,908

 

$                   -

 

$     2,908

Asset backed securities

-

 

16,095

 

-

 

16,095

Small Business administration securities

-

 

39,200

 

-

 

39,200

Collateralized mortgage obligations

-

 

95,890

 

-

 

95,890

Mortgage-backed securities

-

 

272,334

 

-

 

272,334

Total investment securities available for sale

$                       -

 

$   426,427

 

$                   -

 

$ 426,427

 

 

 

 

 

 

 

      

 

Fair Value Measurement Using:

 

Quoted Prices in Active Markets for Identical Assess

(Level 1)

 

Significant Other Observable Inputs

(Level 2)

 

Significant Unobservable Inputs

(Level 3)

 

Total

December 31, 2016

 

 

 

 

 

 

Financial Assets

 

 

 

 

 

 

 

Investment Securities available for sale

 

 

 

 

 

 

 

Agency notes and bonds

$                     -

 

$       1,614

 

$                   -

 

$     1,614

Asset backed securities

-

 

16,880

 

-

 

16,880

Small Business administration securities

-

 

48,796

 

-

 

48,796

Collateralized mortgage obligations

-

 

44,362

 

-

 

44,362

Mortgage-backed securities

-

 

234,982

 

-

 

234,982

Total investment securities available for sale

$                     -

 

$   346,634

 

$                   -

 

$ 346,634

 

There were no transfers between Level 1 and Level 2 during 2017 and 2016.

 

41.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 5 Continued

 

Assets measured at fair value with a related valuation allowance on a non-recurring basis are summarized below:

 

 

 

 

Fair Value Measurements Using:

 

Carrying Value

 

Quoted Prices in Active Markets for Identical Assess

(Level 1)

 

Significant Other Observable Inputs

(Level 2)

 

Significant Unobservable Inputs

(Level 3)

 

Total

2017

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

 

Commercial real estate

$     5,751

 

$                   -

 

$                -

 

$       5,751

 

$  5,751

Residential real estate

179

 

-

 

-

 

179

 

179

Land and construction

50

 

-

 

-

 

50

 

50

Commercial

2,598

 

-

 

-

 

2,598

 

2,598

 

 

 

 

 

 

 

 

 

 

Commercial real estate owned, net

$     2,658

 

$                   -

 

$                -

 

$        2,658

 

$  2,658

Land and construction real estate owned, net

$     2,406

 

$                   -

 

$                -

 

$        2,406

 

$ 2,406

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using:

 

Carrying Value

 

Quoted Prices in Active Markets for Identical Assess

(Level 1)

 

Significant Other Observable Inputs

(Level 2)

 

Significant Unobservable Inputs

(Level 3)

 

Total

2016

 

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

 

Commercial real estate

$     8,318

 

$                   -

 

$                -

 

$        8,318

 

$  8,318

Residential real estate

2,087

 

-

 

-

 

2,087

 

2,087

 

730

 

-

 

-

 

730

 

730

Commercial

21

 

-

 

-

 

21

 

21

 

 

 

 

 

 

 

 

 

 

Commercial real estate owned, net

$     2,933

 

$                   -

 

$                -

 

$        2,933

 

$  2,933

Residential real estate owned, net

$     2,583

 

$                   -

 

$                -

 

$        2,583

 

$  2,583

 

 

 

 

42.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 5 Continued

 

Fair Value of Financial Instruments

 

The carrying amounts and estimated fair values of financial instruments, at December 31, 2017 and 2016 are as follows:

 

 

Carrying Value

 

Fair Value Measurements Using:

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

December 31, 2017

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$     77,176

 

$      77,176

 

$             -

 

$             -

 

$        77,176

Securities available for sale

426,427

 

-

 

426,427

 

-

 

426,427

Securities held to maturity

162,169

 

-

 

159,734

 

-

 

159,734

Federal Home Loan Bank stock

8,582

 

-

 

-

 

-

 

n/a

Loans held for sale

5,694

 

-

 

5,795

 

-

 

5,795

Loans, net

1,342,247

 

-

 

-

 

1,344,631

 

1,344,631

FDIC indemnification asset

-

 

-

 

-

 

-

 

n/a

Accrued interest receivable

5,914

 

-

 

               -

 

5,914

 

5,914

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

Deposits – without stated maturities

$1,416,308

 

$ 1,416,308

 

$             -

 

$             -

 

$    1,416,308

Deposits – with stated maturities

327,984

 

-

 

329,122

 

-

 

329,122

Federal Home Loan Bank advances

157,936

 

-

 

-

 

157,063

 

157,063

Junior subordinated debentures

6,038

 

-

 

-

 

6,392

 

6,392

Accrued interest payable

478

 

-

 

478

 

 

 

478

 

 

 

 

 

 

 

 

 

 

 

Carrying Value

 

Fair Value Measurements Using:

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

December 31, 2016

 

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$     44,558

 

$      44,558

 

$           -

 

$             -

 

$        44,558

Securities available for sale

346,634

 

-

 

346,634

 

-

 

346,634

Securities held to maturity

178,232

 

-

 

176,286

 

-

 

176,286

Federal Home Loan Bank stock

4,584

 

-

 

-

 

-

 

n/a

Loans held for sale

8,384

 

-

 

8,633

 

-

 

8,633

Loans, net

1,058,300

 

-

 

-

 

1,037,142

 

1,037,142

FDIC indemnification asset

526

 

-

 

-

 

-

 

n/a

Accrued interest receivable

4,543

 

-

 

               -

 

4,543

 

4,543

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

Deposits – without stated maturities

$1,126,649

 

$ 1,126,649

 

$           -

 

$             -

 

$   1,126,649

Deposits – with stated maturities

352,159

 

-

 

353,375

 

-

 

353,375

Federal Home Loan Bank advances

71,622

 

-

 

-

 

71,569

 

71,569

Junior subordinated debentures

5,943

 

-

 

-

 

4,874

 

4,874

Accrued interest payable

424

 

-

 

424

 

 

 

424

 

43.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 5 Continued

 

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

 

 

(a)

Cash and Cash Equivalent

 

The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

 

 

(b)

Securities available for sale and Securities held to maturity

 

The fair value of securities available for sale are determined by obtaining quoted prices on national recognized securities exchanges (Level 1) or matrix pricing, which is a mathematical pricing technique used in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2).  

 

 

(c)

FHLB Stock

 

It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

 

 

(d)

Loans held-for-sale

 

The fair value of loans held for sale is estimated based upon binding contracts from third party investors resulting in a level 2 classification.

 

 

(e)

Loans

 

Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

 

 

(f)

FDIC indemnification asset

 

It is not practical to determine the fair value of the FDIC indemnification asset due to the lack of its transferability.

 

 

(g)

Accrued interest receivable

 

The carrying value of accrued interest receivable approximates fair value and is classified as Level 3.

 

 

(h)

Deposits

 

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date  i.e., their carrying amount)  resulting  in  a Level  1 classification. The carrying amounts of variable rate, fixed­ term money market accounts and certificates of deposit approximate their fair values at the reporting date resulting in a Level 1 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow 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 2 classification.

 

 

(i)

Federal Home Loan Bank advances

 

The fair values of Federal Home Loan Bank advances are determined by using a discounted cash flow calculation that applies interest rates currently offered on Federal Home loan Bank advances with similar averages lives and

44.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 5 Continued


characteristics resulting in a level 3 classification.

 

 

(j)

Junior subordinated debentures

 

The fair values of the Company's Junior Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

 

 

(k)

Accrued Interest Payable

 

The carrying amounts of accrued interest payable approximate fair value and is classified as Level 2.

 

 

(l)

Off-balance Sheet Instruments

 

Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The fair value of commitments is not material.

 

 

NOTE 6 - PREMISES AND EQUIPMENT

 

Year-end premises and equipment were as follows:

 

 

 

2017

 

2016

Land

$   19,143

 

$   17,001

Buildings

33,215

 

32,079

Furniture, fixtures and equipment

8,670

 

8,173

Leasehold improvements

3,174

 

2,404

Automobiles

148

 

158

 

64,350

 

59,815

Less accumulated depreciation and amortization

11,150

 

8,373

 

$   53,200

 

$   51,442

 

 

Depreciation expense was $2.8 million, $2.8 million and $2.1 million for 2017, 2016 and 2015, respectively.

 

Operating Leases: The Company leases certain branch properties and equipment under operating leases. Rent expense was $1.6 million, $1.7 million and $1.6 million for 2017, 2016 and 2015, respectively. Rent commitments, before considering renewal options that generally are present, were as follows:

 

 

 

 

 

 

 

 

45.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

 

NOTE 6 – Continued

 

2018

 

$  1,648

2019

 

1,252

2020

 

1,096

2021

 

1,054

2022

 

959

Thereafter

 

2,998

 

 

$  9,007

 

Capital Leases:  The Company leases certain land and buildings under capital leases. The lease arrangements require monthly payments through 2027.

 

The Company has included these leases in premises and equipment as follows:

 

 

2017

 

2016

Land and buildings

$   842

 

$   842

Accumulated depreciation

(245)

 

(188)

 

$   597

 

$   654

 

 

The following is a schedule by year of future minimum lease payments under the capitalized lease, together with the present value of net minimum lease payments at year-end 2017. The present value of net minimum lease payments is shown as capital lease obligation liability on the balance sheet.

 

 

2018

 

$     94

2019

 

94

2020

 

94

2021

 

94

2022

 

94

Thereafter

 

467

Total minimum lease payment

 

937

Add unamortized premium

 

5

Less amount representing interest

 

(225)

Present value of net minimum lease payments

 

$   717

 

 

 

 

 

 

46.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

 

NOTE 7 - GOODWILL AND INTANGIBLE ASSETS

 

Goodwill: The change in goodwill during the year is as follows:

 

 

 

2017

 

2016

 

2015

Beginning of year

$12,286

 

$12,153

 

$   2,023

Acquired goodwill

13,464

 

-

 

10,130

Measurement period adjustment

(911)

 

133

 

-

Impairment

-

 

-

 

-

End of year

$24,839

 

$12,286

 

$12,153

 

During the 4th quarter of 2017, the Company recorded a goodwill measurement period adjustment of $(911) thousand related to filing of the final tax return for Jefferson Bankshares, Inc.  The measurement period for the Jefferson Bank acquisition extends through July 28, 2018. However, the Company believes that acquisition valuation and accounting for the Jefferson acquisition is complete.

 

At December 31, 2017, 2016 and 2015, the Company's reporting unit had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.

 

Acquired Intangible Assets: Acquired intangible assets were as follows at year-end:

 

 

2017

 

2016

 

Carrying Amount

 

Accumulated Amortization

 

Carrying Amount

 

Accumulated Amortization

Amortized intangible assets

 

 

 

 

 

 

 

Core Deposit intangibles

$   13,783

 

$        8,719

 

$  12,548

 

$        6,218

 

 

 

 

 

 

 

 

 

 

 

2017

 

2016

 

2015

 

Aggregate amortization expense

during the year

$       2,501

 

$        2,524

 

$      1,842

 

 

 

 

 

 

 

 

 

Next five years:

 

Estimated Amortization Expense:

 

2018

 

$        2,511

 

2019

 

2,269

 

2020

 

2,065

 

2021

 

1,882

 

2022

 

1,712

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


47.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 8 – FDIC INDEMNIFICATION ASSET

 

The FDIC indemnification asset represents the estimated amounts due from the FDIC pursuant to the loss share agreement relating to the Putnam State Bank acquisition on June 15, 2012.  The activity in the FDIC Indemnification asset is as follows:

 

 

 

2017

 

2016

 

2015

Beginning balance

$      526

 

$    1,559

 

$    3,844

Valuation adjustment for impaired covered loans

(122)

 

414

 

479

Amortization expense

(259)

 

(604)

 

(1,459)

Reimbursement proceeds from the FDIC

-

 

(797)

 

(1,255)

Other

(145)

 

(46)

 

(50)

Ending Balance

$         -

 

$      526

 

$    1,559

 

 

Included in other assets at December 31, 2017 and 2016 are reimbursable losses of $0 and $493 thousand, respectively, which have been submitted to the FDIC.

 

 

NOTE 9 - DEPOSITS

 

A detail of deposits at December 31, 2017 and 2016 is as follows:

 

 

2017

 

Weighted Average Interest Rate

 

2016

 

Weighted Average Interest Rate

Non-interest bearing deposits

$       568,980

 

-%

 

$       444,745

 

-%

Interest bearing deposits:

 

 

 

 

 

 

 

    Interest bearing demand deposits

          253,960

 

0.28%

 

          204,951

 

0.20%

    Savings deposits

          182,791

 

0.24%

 

          164,734

 

0.23%

    Money market accounts

          410,577

 

0.36%

 

          312,219

 

0.25%

    Time deposits less than $100,000

          133,549

 

1.05%

 

          139,349

 

0.90%

    Time deposits of $100,00 or greater

          194,435

 

1.08%

 

          212,810

 

1.07%

 

$    1,744,292

 

0.35%

 

$    1,478,808

 

0.34%

 

Time deposits that meet or exceed the FDIC Insurance limit of $250 thousand at year-end 2017 and 2016 were $76.2 million and $87.9 million, respectively.

 

 

 

 

 

 

 

 

 

48.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 9 Continued

 

Scheduled maturities of time deposits for the next five years were as follows:

 

2018

 

$  197,340

2019

 

93,814

2020

 

16,571

2021

 

13,600

2022

 

6,406

 

 

NOTE 10 - FEDERAL HOME LOAN BANK ADVANCES

 

At year-end, advances from the Federal Home Loan Bank were as follows:

 

Maturing in the Year

 

Interest Rate

 

December 31, 2017

 

2018

 

1.26 – 2.63%

 

$   152,100

 

2019

 

1.23 – 3.36%

 

5,000

 

Thereafter

 

4.88%

 

693

 

Subtotal

 

 

 

157,793

 

Unamortized premium

 

 

 

143

 

Total

 

 

 

$   157,936

 

 

FHLB advances are generally payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances were collateralized by $93 million and $52 million of first mortgage loans under a blanket lien arrangement at year-end 2017 and 2016. In addition, the Company has pledged investment securities with a carrying value of $111 million and $133 million at year-end 2017 and 2016 respectively to secure these advances. Based on this collateral and the Company's holdings of FHLB stock, the Company is eligible to borrow up to an additional $42 million at year-end 2017.

 

Payments, including principal and interest, over the next five years are as follows:

 

 

 

At December 31, 2017, required principal and interest payments

2018

$           153,255

2019

5,179

2020

85

2021

87

2022

88

 

 

 

 

 

49.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 11 - SUBORDINATED DEBENTURES

 

In October 2005, BSA Financial Services, Inc. formed BSA Financial Statutory Trust 1 (Issuer Trust) with an equity investment of $155 thousand in common securities of the trust. The Issuer Trust was formed for the purpose of issuing trust preferred securities. On October 31, 2005, BSA Financial Services, Inc. issued a floating rate junior subordinated

debenture (Debenture) in the amount of $5.2 million. The Issuer Trust used the proceeds from the issuance of the trust preferred securities sold to third parties to purchase the Debenture from BSA Financial Services, Inc.  The Debenture is the only asset of the Issuer Trust. Interest payments from the Debenture to the Issuer Trust finance the distributions paid on the trust preferred securities. On August 28, 2013, the Company acquired BSA Financial Investments, Inc. and recorded, at fair value, the Debenture in “Junior Subordinated Debentures” and its equity interest in the Issuer Trust in other assets on the consolidated balance sheets. The Debenture has a remaining term of nineteen
years and matures on December 15, 2035.  The interest rate floats quarterly at 3-month LIBOR rate plus 1.55% (3.14% at December 31, 2017).  The Debenture is redeemable on a quarterly basis at 100% of the principal amount plus accrued interest.  The Debenture is also redeemable in whole or part based on specific events outlined in the trust indenture. Such redemption may be subject to regulatory approval. The Company has entered into agreements which, taken collectively, fully and unconditionally guarantee the preferred securities of the Issuer Trust subject to the terms of the guarantee. The Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. The subordinated debentures may be included in Tier I capital (with certain limitations applicable) under current regulatory guidelines and interpretations.

 

In June 2006, MRCB Holdings, Inc. (acquired by First America Holdings Corp.) formed MRCB Holdings Statutory Trust 1 (Issuer Trust) with an equity investment of $93 thousand in common securities of the trust. The Issuer Trust was formed for the purpose of issuing trust preferred securities.  On June 28, 2006, MRCB Holdings, Inc. issued a floating rate junior subordinated debenture (Debenture) in the amount of $3.1 million. The Issuer Trust used the proceeds from the issuance of the trust preferred securities sold to third parties to purchase the Debenture from MRCB Holdings, Inc.  The Debenture is the only asset of the Issuer Trust. Interest payments from the Debenture to the Issuer Trust finance the distributions paid on the trust preferred securities. On May 8, 2015, the Company acquired First America Holdings Corp. and recorded, at fair value, the Debenture in “Junior Subordinated Debentures” and its equity interest in the Issuer Trust in other assets on the consolidated balance sheets. The Debenture has a remaining term of twenty-one years and matures on September 15, 2036.  The interest rate floats quarterly at 3-month LIBOR rate plus 1.60% (3.19% at December 31, 2017).  The Debenture is redeemable on a quarterly basis at 100% of the principal amount plus accrued interest.  The Debenture is also redeemable in whole or part based on specific events outlined in the trust indenture. Such redemption may be subject to regulatory approval. The Company has entered into agreements which, taken collectively, fully and unconditionally guarantee the preferred securities of the Issuer Trust subject to the terms of the guarantee. The Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. The subordinated debentures may be included in Tier I capital (with certain limitations applicable) under current regulatory guidelines and interpretations.

 

 

NOTE 12 - OTHER BENEFIT PLANS

 

401(k) Plan: A 401(k) benefit plan allows employee contributions up to $18 thousand of their compensation, which are matched equal to 100% of the first 3% and 50% of the next 2% of the compensation contributed. Expense for 2017, 2016 and 2015 was $618 thousand, $531 thousand and $419 thousand, respectively.

 

 

 

 

 

 

 

 

 

 

 

50.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 13 - INCOME TAXES

 

Income tax expense (benefit) was as follows:

 

 

2017

 

2016

 

2015

Current expense:

 

 

 

 

 

Federal

$          4,090

 

$      4,149

 

$      912

State

667

 

647

 

205

       Total current expense

4,757

 

4,796

 

1,117

 

 

 

 

 

 

Deferred expense:

 

 

 

 

 

Federal before revaluation

916

 

(594)

 

1,157

Revaluation due to change in federal income tax rate

4,807

 

-

 

-

Federal after revaluation

5,723

 

(594)

 

1,157

State

187

 

(93)

 

155

Total deferred expense

5,910

 

(687)

 

1,312

 

 

 

 

 

 

Total  

$        10,667   

 

$     4,109

 

$   2,429

 

 

Effective tax rates differ from federal statutory rate of 34% applied to income before income taxes due to the following:

 

 

2017

 

2016

 

Amount

 

% of

Earnings

 

Amount

 

% of

Earnings

Federal statutory rate times financial statement income effect of:

$   5,164

 

34.0%

 

$   3,524

 

34.0%

     State income taxes, net of federal tax benefit

564

 

3.7%

 

366

 

3.5%

Bank owned life insurance

(352)

 

(2.3)%

 

(333)

 

(3.2)%

Stock based Compensation

81

 

0.5%

 

95

 

0.9%

Acquisition expenses

447

 

2.9%

 

5

 

0.1%

 

 

 

 

 

 

 

 

Revaluation of net deferred tax asset due to                               change in federal income tax rate

4,807

 

31.7%

 

-

 

-%

Other, net

(44)

 

(0.3)%

 

452

 

4.4%

Total

$ 10,667

 

70.2 %

 

$   4,109

 

39.7%

 

 

 

 

 

 

 

 

51.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 13 Continued

 

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2017 and 2016 are presented below:

 

 

2017

 

2016

Deferred tax assets:

 

 

 

Allowance for loan losses

$       2,211

 

$    2,501

Net operating loss carryforwards

3,024

 

4,793

Deferred loan fees

151

 

278

Foreclosed property expenses

1,003

 

1,722

Organizational costs

342

 

439

Net unrealized loss on available for sale securities

1,482

 

1,742

Net losses on securities transferred to held to maturity

183

 

350

Nonaccrual interest

840

 

1,138

Purchase accounting adjustments

1,664

 

3,879

Stock based compensation

274

 

345

Other

166

 

74

Total deferred tax asset

11,340

 

17,261

Deferred tax liabilities:

 

 

 

Depreciation

(1,133)

 

(1,952)

Prepaid expenses

(195)

 

(287)

Total deferred tax liability

(1,328)

 

(2,239)

Net deferred tax asset

$     10,012

 

$  15,022

 

 

As a result of the Tax Cuts and Jobs Act of 2017 signed into law on December 22, 2017, the Company evaluated its deferred tax assets and deferred tax liabilities to account for the future impact of lower corporate tax rates on its net deferred tax asset.  The reduction in the maximum statutory federal corporate rate to 21% resulted in a one-time charge to the Company’s earnings and reduction in its deferred tax asset of approximately $4.8 million.  

 

Net operating loss carryforwards:

 

The Company obtained gross net operating loss carryforwards of approximately $22.4 million and $9.5 million from the acquisitions of Highlands Independent Bancshares, Inc. on October 24, 2014 and FAHC Holding Corp. on May 8, 2015, respectively.  These net operating loss carryforwards are subject to Internal Revenue Code Section 382 annual limitations of approximately $274 thousand and $826 thousand, respectively.  

 

At December 31, 2017, the Company had federal net operating loss carryforwards of $28.8 million, of which, the Company only expects to realize $11.6 million due to the IRC Section 382 limitations.

 

 

 

 

 

52.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 13 Continued

 

The federal net operating loss carryforwards will expire as follows:

 

     

Expires

 

Amount

 

Amount Available

2028

 

$     3,519

 

$    3,519

2029

 

3,582

 

1,510

2030

 

8,941

 

4,212

2031

 

6,906

 

1,097

2032

 

4,399

 

274

2033

 

738

 

274

2034

 

750

 

750

Total

 

$  28,835

 

$  11,636

  

The Company assesses the realizability of deferred tax assets based on whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The Company considers evidence such as historical profitability, the current operating environment, projected future profitability, and other factors in assessing the likelihood of deferred tax asset realization.  At December 31, 2017 and December 31, 2016, based on the analysis,  the Company determined that it is more likely than not that the deferred tax assets will be fully realized.    

 

The Company has no unrecognized income tax benefits or provisions due to uncertain tax positions.  

 

The Company is subject U.S. federal income tax and Florida state income tax jurisdictions. The Internal Revenue Service is currently in the process of examining the 2013 consolidated tax return and has not informed the Company of any material findings. The Company is no longer subject to examination by taxing authorities for the years prior to 2013.  

 

 

NOTE 14 - RELATED-PARTY TRANSACTIONS

 

Loans to principal officers, directors, and their affiliates during the years ended December 31, 2017, 2016 and 2015 were as follows:

 

 

2017

 

2016

 

2015

Loans:

 

 

 

 

 

Balance at January 1

$    828

 

$ 1,303

 

$ 1,184

New Loans

1,584

 

34

 

608

Repayments

(500)

 

(509)

 

(489)

Balance at December 31

$  1,912

 

$     828

 

$  1,303

Deposits from related parties at year end

$  8,135

 

$  6,392

 

$  5,385

 

 

 

 

53.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 15 - STOCK-BASED COMPENSATION

 

Stock Option Plan

 

The Company's 2010 Employee Share Option Plan (stock option plan or the Plan), which is shareholder­ approved, permits the grant of share options to its employees for up to 2,005,000 shares of common stock. Option awards are generally granted with an exercise price equal to the market price of the Company's common stock at the date of grant. Option awards have a vesting period of 4 years and have 10-year contractual terms.

 

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company's common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

 

The fair value of options granted was determined using the following weighted-average assumptions as of grant date.

 

 

2017

 

2016

 

2015

Risk free rate

1.81%

 

1.33%

 

1.78%

Expected term in years

6.25

 

6.25

 

6.25

Expected stock price volatility

11.01%

 

10.90%

 

11.06%

Dividend yield

-

 

-

 

-

 

A summary of the activity in the stock option plan for years ended December 31, 2017, 2016 and 2015 follows:

 

 

 

Shares

 

Weighted-Average

Exercise Price

 

Weighted-Average

Remaining

Contractual

Term

 

Aggregate Intrinsic Value

2017

 

 

 

 

 

 

 

 

Outstanding at beginning of year

 

1,875,856

 

$     10.27

 

 

 

$2,706

Granted

 

15,000

 

   14.50

 

 

 

36

Exercised

 

(127,232)

 

     10.03

 

 

 

(193)

Forfeited

 

(2,500)

 

     10.00

 

 

 

(3)

Outstanding at end of year

 

1,761,124

 

$     10.32

 

6.49 years

 

$2,546

Fully vested and expected to vest

 

1,761,124

 

$     10.32

 

6.49 years

 

$2,546

Exercisable at end of year

 

1,175,102

 

$     10.17

 

5.92 years

 

$1,514

 

 

 

 

 

 


54.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 15 - Continued

 

 

 

Shares

 

Weighted-Average

Exercise Price

 

Weighted-Average

Remaining

Contractual

Term

 

Aggregate Intrinsic Value

2016

 

 

 

 

 

 

 

 

Outstanding at beginning of year

 

1,585,200

 

$     10.19

 

 

 

$2,371

Granted

 

320,686

 

   10.66

 

 

 

375

Exercised

 

(530)

 

       10.00

 

 

 

(1)

Forfeited

 

(29,500)

 

     10.41

 

 

 

(39)

Outstanding at end of year

 

1,875,856

 

$     10.27

 

7.33 years

 

$2,706

Fully vested and expected to vest

 

1,875,856

 

$     10.27

 

7.33 years

 

$2,706

Exercisable at end of year

 

973,904

 

$     10.08

 

6.27 years

 

$1,461

 

 

 

Shares

 

Weighted-Average

Exercise Price

 

Weighted-Average

Remaining

Contractual

Term

 

Aggregate Intrinsic Value

2015

 

 

 

 

 

 

 

 

Outstanding at beginning of year

 

1,172,200

 

$     10.02

 

 

 

$1,827

Granted

 

464,500

 

   10.61

 

 

 

622

Exercised

 

(4,500)

 

      10.00

 

 

 

(6)

Forfeited

 

(47,000)

 

     10.01

 

 

 

(72)

Outstanding at end of year

 

1,585,200

 

$     10.19

 

8.00 years

 

$2,371

Fully vested and expected to vest

 

1,580,200

 

$     10.19

 

8.00 years

 

$2,354

Exercisable at end of year

 

673,827

 

$     10.01

 

6.62 years

 

$1,011

 

Information related to the stock option plan during each year follows:

 

 

 

2017

 

2016

 

2015

Intrinsic value of options exercised

$   193

 

$      1

 

$      6

Cash received from options exercises

1,276

 

5

 

45

Tax benefit realized from option exercises

82

 

-

 

-

Weighted average value of options granted

$ 2.39

 

$ 1.17

 

$ 1.34

 

As of December 31, 2017, there was $576 thousand of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of about 42 months. The total stock option expense recognized for 2017, 2016 and 2015 was $472 thousand, $547 thousand, and $554 thousand, respectively.

55.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 16 - REGULATORY CAPITAL MATTERS

 

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for  banks, 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 final rules implementing Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel Ill rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. These rules require a capital conservation buffer of up to 2.5% above each of CET1, tier 1, and total risk-based capital which must be met for a bank to be able to pay dividends, engage in share buybacks or make discretionary bonus payments to executive management without restriction.  This capital conservation buffer requirement is being phased in over a four-year period starting on January 1, 2016 and was 0.625% in 2016 and 1.25% as of January 1, 2017, and 1.875% as of January 1, 2018. When fully implemented, a banking organization would need to maintain a 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 securities is not included in computing regulatory capital. Management believes as of December 31, 2017, the Company and Bank meet all capital adequacy requirements to which they are

subject.

 

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2017 and 2016, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category.

 

Actual and required capital amounts (in millions) and ratios are presented below at year-end.

 

 

Actual

 

Required for Capital Adequacy Purposes

 

To Be Well

Capitalized Under Prompt Corrective Action Regulations

 

Amount

 

Ratio

 

Amount

 

Percent

 

Amount

 

Percent

2017

 

 

 

 

 

 

 

 

 

 

 

Total Capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

Consolidated

$236,555

 

15.81%

 

$119,710

 

8.00%

 

N/A

 

N/A

Bank

217,278

 

14.54

 

119,528

 

8.00

 

$ 149,410

 

10.00%

Tier 1 (Core) Capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

Consolidated

227,831

 

15.23

 

89,783

 

6.00

 

N/A

 

N/A

Bank

208,554

 

13.96

 

89,646

 

6.00

 

119,528

 

8.00

Common Tier 1 (CET 1)

 

 

 

 

 

 

 

 

 

 

 

Consolidated

221,199

 

14.85

 

67,337

 

4.50

 

N/A

 

N/A

Bank

208,554

 

13.96

 

67,235

 

4.50

 

97,117

 

6.50

Tier 1 (Core) Capital to average assets

 

 

 

 

 

 

 

 

 

 

 

Consolidated

227,831

 

10.64

 

85,689

 

4.00

 

N/A

 

N/A

Bank

208,554

 

9.75

 

85,603

 

4.00

 

107,003

 

5.00

 

56.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

 

NOTE 16 - Continued

 

 

Actual

 

Required for Capital Adequacy Purposes

 

To Be Well

Capitalized Under Prompt Corrective Action Regulations

 

Amount

 

Ratio

 

Amount

 

Percent

 

Amount

 

Percent

2016

 

 

 

 

 

 

 

 

 

 

 

Total Capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

Consolidated

$212,007

 

17.83%

 

$ 95,109

 

8.00%

 

N/A

 

N/A

Bank

194,788

 

16.41

 

94,986

 

8.00

 

$ 118,733

 

10.00%

Tier 1 (Core) Capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

Consolidated

204,272

 

17.18

 

71,332

 

6.00

 

N/A

 

N/A

Bank

187,054

 

15.75

 

71,240

 

6.00

 

94,986

 

8.00

Common Tier 1 (CET 1)

 

 

 

 

 

 

 

 

 

 

 

Consolidated

199,643

 

16.79

 

53,499

 

4.50

 

N/A

 

N/A

Bank

187,054

 

15.75

 

53,430

 

4.50

 

77,176

 

6.50

Tier 1 (Core) Capital to average assets

 

 

 

 

 

 

 

 

 

 

 

Consolidated

204,272

 

11.52

 

70,929

 

4.00

 

N/A

 

N/A

Bank

187,054

 

10.57

 

70,811

 

4.00

 

88,514

 

5.00

 

 

Dividend Restrictions - The Company's principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the
current year's net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. During 2017, the Bank paid a dividend to the Holding Company of $15 million, which approximately represented the Bank’s 2016 and 2017 net income. At year-end 2017, the Bank would not have been able to declare additional dividends, without prior regulatory approval.

 

 

NOTE 17 - LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

 

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies that are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

 

 

 

 

 

 

 

 

 

57.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

NOTE 17 - Continued

 

The contractual amounts of financial instruments with off-balance-sheet risk at year-end were as follows:

 

 

2017

 

2016

Commitments to make loans

$   40,480

 

$   25,698

Unused lines of credit

$ 258,929

 

$ 150,553

Standby letters of credit

$    9,365

 

$     5,003

 

The following instruments are considered financial guarantees and are carried at fair value which approximates $0 at years ended 2017 and 2016, respectively.

 

 

 

2017

 

2016

 

Contract Amount

 

Fair Value

 

Contract Amount

 

Fair Value

Standby letters of credit

$    9,365

 

$         -

 

$   5,003

 

$         -

Loans sold with recourse

$  60,294

 

$         -

 

$  67,425

 

$         -

 

 

NOTE 18 - BUSINESS COMBINATIONS

 

Acquisition of Jefferson Bankshares, Inc. – Jefferson Bank

On July 28, 2017, the Company acquired 100% of the outstanding common shares of Jefferson Bankshares, Inc., the parent company of Jefferson Bank, for $9.4 million cash and $30.7 million stock consideration, through an Agreement and Plan of Merger.  The total consideration paid to Jefferson stockholders and option holders was $40.2 million. The Company acquired $316.7 million in assets and assumed liabilities of $289.1 million in liabilities resulting in goodwill of $12.6 million.  Goodwill reflects the excess consideration paid over the net fair values of the assets and liabilities acquired.  Goodwill is not tax deductible for this transaction.  Seven branch facilities were acquired in the transaction located in the greater Tampa Bay market area in west central Florida. The Company incurred approximately $2.6 million in acquisition expenses, which are included in non-interest expense on the consolidated statements of income.  The Company recorded a true-up entry in the fourth quarter of 2017 to reflect adjustments to the final tax return for Jefferson Bankshares, Inc. The Company believes the accounting for this transaction is complete and is not aware of any material true-up adjustments that could be necessary.

 

The Company’s primary reasons for the transaction were to gain a new market share in the Tampa Bay area as well as to create a geographical infill with the Company’s other Central Florida operations in the Bradenton/Sarasota region.

 

Acquisition of OGS investments, Inc. - Florida Citizens Bank

On December 4, 2015, the Company acquired 100% of the outstanding common shares of OGS Investments, Inc., the parent company of Florida Citizens Bank, for $23.5 million cash consideration, through an Agreement and Plan of Merger.  The Company acquired $240.1 million in assets and assumed liabilities of $219.7 million in liabilities

resulting in goodwill of $3.1 million.  Goodwill reflects the excess consideration paid over the net fair values of the assets and liabilities acquired.  Goodwill is not tax deductible for this transaction.  Seven branch facilities were acquired in the transaction located in the Gainesville and Ocala market area in north central Florida. The Company incurred approximately $1.2 million in acquisition expenses which are included in non-interest expense on the consolidated statements of income.  The Company believes the accounting for this transaction is complete and is not aware of any material true-up adjustments that could be necessary.

 

58.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

 

NOTE 18 Continued

 

The Company’s primary reasons for the transaction were to gain a new market share in the Gainesville/Ocala area as well as to create a geographical infill between the Company’s Northeast Florida and Central Florida operations.

 

During 2016, the Company discovered that certain real estate collateral of an acquired loan was sold prior to acquisition without knowledge or permission of OGS Investments, Inc.  Had the Company known this fact on December 4, 2016, the loan would have been classified as a purchased credit impaired loan.  As a result, the Company recorded a measurement period adjustment to reclassify the loan as a purchased credit impaired loan.

 

Acquisition of First America Holdings Corp. – First America Bank

On May 8, 2015, the Company acquired 100% of the outstanding common shares of First America Holdings Corp., the parent company of First America Bank, for $33.5 million cash consideration, through an Agreement and Plan of Merger.  The Company acquired $270.3 million in assets and assumed liabilities of $243.7 million in liabilities resulting in goodwill of $7 million.  The goodwill reflects the excess consideration paid over the net fair values of the assets and liabilities acquired. Goodwill is not tax deductible for this transaction. Five branch facilities were acquired in the transaction located in the Bradenton and Sarasota market area on the west coast of Florida. The Company incurred approximately $1.3 million in

 

acquisition expenses which are included in non-interest expense on the consolidated statements of income.  The Company believes the accounting for this transaction is complete and is not aware of any material true-up adjustments that could be necessary.     

 

The Company’s primary reasons for acquiring First America Holdings Corp. were to gain new market share and expand the Company’s products and services to the West Coast of Florida.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

59.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

 

NOTE 18 Continued

 

The following table summarizes the fair values of the assets acquired and the liabilities assumed on the date of acquisitions:

 

 

 

Jefferson Bankshares, Inc.

July 28, 2017

 

Jefferson Bankshares, Inc. Measurement Period Adjustment

 

Jefferson Bankshares, Inc.               As Adjusted

 

OGS Investments, Inc.

December 4, 2015

 

FAHC Holding Corporation

May 8,

2015

Cash and cash equivalents

 

$    16,654

 

$           -

 

$     16,654  

 

$   34,467

 

$   59,649

Securities available for sale

 

44,420

 

-

 

44,420

 

20,936

 

1,000

Loans

 

243,803

 

-

 

243,803

 

162,553

 

182,771

Premises and equipment

 

4,320

 

-

 

4,320

 

10,249

 

13,078

Real estate owned

 

 

 

-

 

 

 

4,939

 

894

Core deposit intangible

 

3,735

 

-

 

3,735

 

4,039

 

2,992

Bank owned life insurance

 

-

 

-

 

-

 

-

 

4,750

Deferred tax asset

 

-

 

77

 

77

 

1,573

 

3,561

Other assets

 

3,724

 

-

 

3,724

 

1,316

 

1,497

Total assets acquired

 

316,656

 

77

 

316,733

 

240,072

 

270,192

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

231,375

 

-

 

231,375

 

217,985

 

227,125

Repurchase agreements

 

5,847

 

-

 

5,847

 

-

 

-

Federal Home Loan Bank

 

46,963

 

-

 

46,963

 

988

 

13,433

Senior debt

 

3,030

 

-

 

3,030

 

-

 

-

Junior subordinated debenture

 

-

 

-

 

-

 

-

 

2,029

Deferred tax liability

 

156

 

(156)

 

-

 

-

 

-

Other liabilities

 

2,577

 

(678)

 

1,899

 

763

 

1,165

Total liabilities assumed

 

289,948

 

(834)

 

289,114

 

219,736

 

243,752

 

 

 

 

 

 

 

 

 

 

 

Total identifiable net assets

 

26,708

 

911

 

27,619

 

20,336

 

26,440

Goodwill

 

13,464

 

(911)

 

12,553

 

3,115

 

7,015

          Consideration paid

 

$    40,172

 

$            -

 

$     40,172

 

$   23,451

 

$  33,455

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

 

NOTE 18 Continued

 

The table below summarizes the credit impaired and non-impaired loans acquired in each acquisition:

 

 

 

Jefferson Bankshares, Inc.

July 29, 2017

 

OGS Investments, Inc.

December 4, 2015

 

FAHC Holding Corporation

May 8, 2015

Acquired loans accounted for under ASC 310-30:

 

 

 

 

 

 

Contractually required principal and interest

 

$                   -

 

$           8,501

 

$          3,916

Non-accretable difference

 

-

 

2,509

 

1,474

Cash flows expected to be collected

 

-

 

5,992

 

2,442

Accretable yield

 

-

 

1,059

 

422

Fair value at acquisition

 

$                   -

 

$           4,933

 

$          2,020

 

 

 

 

 

 

 

Acquired loans not accounted for under ASC 310-30:

 

 

 

 

 

 

Unpaid principal balance

 

$       246,548

 

$       160,743

 

$      184,099

Fair value discount, net

 

2,745

 

3,336

 

3,348

Fair value at acquisition

 

243,803

 

157,407

 

180,751

Total fair value at acquisition

 

$       243,803

 

$       162,340

 

$      182,771

 

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. However, the Company believes that all contractual cash flows related to these financial instruments will be collected. As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

61.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

 

NOTE 19 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

 

Parent Company OnlyConsolidated Balance SheetsDecember 31,

 

     Assets:

2017

 

2016

Cash

$     17,191

 

$   16,163

Investment in wholly-owned subsidiary

240,749

 

206,300

Other assets

2,797

 

2,177

Total

$ 260,737

 

$ 224,640

 

 

 

 

Liabilities and Stockholder’s Equity:

 

 

 

Junior subordinated debentures

$     6,050

 

$     5,953

Other liabilities

625

 

994

Stockholders’ equity

254,062

 

217,693

Total

$ 260,737

 

$ 224,640

 

 

 

P

Parent Company Only

Consolidated Statements of Income and Comprehensive Income

For years ended December 31,

 

2017

 

2016

 

2015

Interest income

$         10

 

$         11

 

$        12

Interest expense

326

 

298

 

219

Dividends received from subsidiary

15,000

 

13,000

 

-

Non-interest expense

3,149

 

815

 

1,676

Income(loss) before income tax and undistributed subsidiary income

11,535

 

11,898

 

(1,883)

Income tax expense (benefit)

(955)

 

(297)

 

(588)

Equity in undistributed subsidiary income (losses)

(7,967)

 

(5,940)

 

5,211

 

$    4,523

 

$    6,255

 

$   3,916

Comprehensive income

$    3,088

 

$    4,701

 

$   3,677

 

 

 

 

 

 

 

 

62.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

 

NOTE 19 – Continued

 

Parent Company Only

Condensed Statement of Cash Flows

For years ended December 31,

 

2017

 

2016

 

2015

Cash flows from operating activities:

 

 

 

 

 

Net earnings

$   4,523

 

$   6,255

 

$   3,916

Adjustments:

 

 

 

 

 

Equity in undistributed subsidiary earnings

7,967

 

5,940

 

(5,211)

Change in other assets

(834)

 

580

 

(1,595)

Change in other liabilities

(121)

 

(1,203)

 

4,052

Stock-based compensation

121

 

131

 

118

Amortization of fair value adjustments

95

 

110

 

(981)

         Net cash from operating activities

11,751

 

11,813

 

299

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

(Increase) in investment in subsidiary

-

 

-

 

(58,553)

Net cash used in Jefferson acquisition

(8,967)

 

-

 

-

        Net cash provided/(used) from investing activities

(8,967)

 

-

 

(58,553)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Repayment of senior debt acquired from Jefferson acquisition

(3,032)

 

-

 

-

Proceeds from the issuance of common stock voting

-

 

-

 

49,954

Proceeds from the issuance of common stock nonvoting

-

 

-

 

5,541

Proceeds from exercised stock options

1,276

 

5

 

45

        Net cash provided/(used) from financing activities

(1,756)

 

5

 

55,540

 

 

 

 

 

 

Net change in cash and cash equivalents

1,028

 

11,818

 

(2,714)

Beginning cash and cash equivalents

16,163

 

4,345

 

7,059

Ending cash and cash equivalents

$   17,191

 

$   16,163

 

$   4,345

 

 

 

 

 

 

63.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

 

 

NOTE 20 – EARNINGS PER SHARE

 

 

2017

 

2016

 

2015

Basic

 

 

 

 

 

Net Income

$       4,523

 

$       6,255

 

$       3,916

Average shares

20,977,840

 

20,052,397

 

16,818,067

Basic earnings per share

$         0.22

 

$         0.31

 

$         0.23

Diluted

 

 

 

 

 

Net Income

$      4,523

 

$      6,255

 

$      3,916

Weighted average shares for basic earnings per share

20,977,840

 

20,052,397

 

16,818,067

Add: dilutive effects of assumed exercises of stock options

542,164

 

548,400

 

70,144

Average shares and dilutive potential shares

21,520,004

 

20,600,797

 

16,888,211

Diluted earnings per share

$         0.21

 

$         0.30

 

$         0.23

 

There were no anti-dilutive stock options for 2017, 2016 and 2015.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

 

 

NOTE 21 - QUARTERLY FINANCIAL DATA (UNAUDITED)

 

 

 

Interest Income

 

Net Interest Income

 

Net Income

 

Earnings Per Share

 

 

 

 

Basic

 

Diluted

2017

 

 

 

 

 

 

 

 

First quarter

$  16,541

 

$ 15,055

 

$   2,596

 

$    0.13

 

$    0.12

Second quarter

17,263

 

15,617

 

1,837

 

0.09

 

0.09

Third quarter

19,676

 

17,789

 

2,097

 

0.10

 

0.09

Fourth quarter

21,063

 

19,000

 

(2,007)

 

(0.10)

 

(0.10)

 

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

First quarter

$  16,370

 

$ 14,994

 

$   1,264

 

$    0.06

 

$    0.06

Second quarter

16,253

 

14,855

 

1,957

 

0.10

 

0.09

Third quarter

15,938

 

14,504

 

2,264

 

0.11

 

0.11

Fourth quarter

16,135

 

14,743

 

770

 

0.04

 

0.04

 

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

 

 

 

First quarter

$  10,879

 

$ 10,071

 

$     131

 

$    0.01

 

$    0.01

Second quarter

12,553

 

11,558

 

657

 

0.04

 

0.04

Third quarter

13,753

 

12,729

 

1,298

 

0.07

 

0.07

Fourth quarter

14,943

 

13,922

 

1,830

 

0.10

 

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65.


HCBF Holding Company, Inc.

Notes to Consolidated Financial Statements

(Dollar amounts shown in tables in thousands, except share data)

December 31, 2017, 2016 and 2015

 

 

NOTE 22 – SUBSEQUENT EVENTS

 

On January 1, 2018, CenterState Bank Corporation (“CenterState”) completed its acquisition of the Company whereby the Company merged with and into CenterState, with CenterState continuing as the surviving corporation in the merger.  Immediately after the merger, the Company’s subsidiary bank, Harbor Community Bank, merged with CenterState Bank as the surviving bank.  Under the terms of the agreement, each outstanding share of the Company’s common stock converted into the right to receive 0.675 shares of CenterState’s common stock and $1.925 in cash.  The purchase price was approximately $448.2 million.  During 2017, the Company incurred approximately $1.3 million of merger related costs relating to this transaction. These merger costs are reported in acquisition and conversion costs on the Company’s Consolidated Statements of Income.

 

66.

EX-99.2 4 csfl-ex992_8.htm EX-99.2 csfl-ex992_8.htm

Exhibit 99.2

UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION

 

The following unaudited pro forma combined consolidated financial information and accompanying notes show the impact on the historical financial conditions and results of operations of CenterState Bank Corporation (“CenterState” or the “Company”), HCBF Holding Company, Inc. (“HCBF”) and Sunshine Bancorp, Inc. (“Sunshine”) and have been prepared to illustrate the effects of the mergers under the acquisition method of accounting. See “The Merger — Accounting Treatment.” CenterState completed the acquisitions of HCBF and Sunshine on January 1, 2018, whereby HCBF and Sunshine merged with and into CenterState, with CenterState continuing as the surviving corporation in the merger.

 

The unaudited pro forma combined consolidated balance sheet as of December 31, 2017 is presented as if the HCBF and the Sunshine mergers had occurred on December 31, 2017. The unaudited pro forma combined consolidated statements of income for the year ended December 31, 2017 are presented as if both mergers had occurred on January 1, 2017. The historical consolidated financial information has been adjusted to reflect factually supportable items that are directly attributable to the mergers and, with respect to the income statement only, expected to have a continuing impact on consolidated results of operations, and, as such, CenterState’s one-time merger costs for both mergers are not included.  The financial results of HCBF also include the effect of the acquisition of Jefferson Bankshares, Inc. (“Jefferson”), which was completed on July 28, 2017.  The historical results of operations for Platinum Bank Holding Company (“Platinum”) for the period of January 1, 2017 through March 31, 2017 (the Platinum merger transaction closed on April 1, 2017) are included in the unaudited pro forma combined consolidated statement of income for the twelve months ended December 31, 2017.  The historical results of operations for Gateway Financial Holdings of Florida, Inc. (“Gateway”) for the period of January 1, 2017 through April 30, 2017 (the Gateway merger transaction closed on May 1, 2017) are included in the unaudited pro forma combined consolidated statement of income for the twelve months ended December 31, 2017.  The unaudited pro forma combined statements of income for the year ended December 31, 2017 assume the Platinum and Gateway mergers were completed on January 1, 2017.  No pro forma adjustments for Platinum and Gateway are presented for the unaudited pro forma combined consolidated balance sheet since both transactions are already reflected in CenterState’s historical financial condition at December 31, 2017.

 

The unaudited pro forma combined consolidated financial statements are provided for informational purposes only. The unaudited pro forma combined consolidated financial statements are not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the mergers been completed as of the dates indicated or that may be achieved in the future. The preparation of the unaudited pro forma combined consolidated financial statements and related adjustments required management to make certain assumptions and estimates. The unaudited pro forma combined consolidated financial statements should be read together with:

 

 

 

the accompanying notes to the unaudited pro forma combined consolidated financial statements;

 

 

 

CenterState’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2017, included in CenterState’s Annual Report on Form 10-K for the year ended December 31, 2017 filed on February 28, 2018, which is incorporated by reference into this Form 8-K/A;

 

 

 

HCBF’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2017 included as Exhibit 99.1 in this Form 8-K/A;

 

 

 

 


 


 

Unaudited Pro Forma Combined Consolidated Balance Sheet

As of December 31, 2017

(in thousands, except per share data)

 

 

 

  

 

 

 

 

 

 

CenterState

 

 

 

 

 

 

CenterState

 

CenterState

 

HCBF

 

Pro Forma

 

HCBF

 

Sunshine

 

Pro Forma

 

 

Pro Forma

 

as reported

 

as reported

 

adjustments

 

Pro Forma

 

as reported

 

adjustments

 

 

Total Combined

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$280,619

 

$77,176

 

($46,737)

a,c

$311,058

 

$47,098

 

($49)

a,c

 

$358,107

Investment securities

1,299,319

 

588,596

 

(3,368)

d,o

1,884,547

 

93,291

 

(285)

d,o

 

1,977,553

Loans held for sale

19,647

 

5,694

 

 

 

25,341

 

430

 

 

 

 

25,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for investment

4,773,221

 

1,350,760

 

(24,724)

e,o

6,099,257

 

705,559

 

(21,238)

e,o

 

6,783,578

Allowance for loan losses

(32,825)

 

(8,513)

 

8,513

f

(32,825)

 

(3,752)

 

3,752

f

 

(32,825)

Net loans

4,740,396

 

1,342,247

 

 

 

6,066,432

 

701,807

 

 

 

 

6,750,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Real Estate Owned ("OREO")

3,987

 

7,462

 

(1,255)

g

10,194

 

-

 

 

 

 

10,194

Bank premises and equipment, net

141,886

 

53,200

 

(2,517)

h

192,569

 

24,940

 

(4,774)

h

 

212,735

Goodwill

257,683

 

24,839

 

206,771

k,o

489,293

 

20,278

 

97,493

k,o

 

607,064

Other intangibles

24,614

 

13,783

 

9,842

i,o

48,239

 

1,684

 

6,841

i,o

 

56,764

Bank owned life insurance

146,739

 

39,089

 

 

 

185,828

 

23,101

 

 

 

 

208,929

Deferred income tax asset, net

37,725

 

10,012

 

3,641

c,j,o

51,378

 

4,509

 

8,363

c,j,o

 

64,250

Prepaid and other assets

171,360

 

20,367

 

(53)

g

191,674

 

28,373

 

(21,073)

c,g

 

198,974

Total Assets

$7,123,975

 

$2,182,465

 

 

 

$9,456,553

 

$945,511

 

 

 

 

$10,471,094

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

$5,560,523

 

$1,744,292

 

419

l,o

$7,305,234

 

$719,002

 

36

l,o

 

$8,024,272

Other borrowings

558,570

 

157,936

 

(17)

m,o

716,489

 

106,353

 

1

m

 

822,843

Corporate debentures

26,192

 

6,038

 

15

n,o

32,245

 

-

 

 

 

 

32,245

Payables and other liabilities

73,940

 

20,137

 

(1,546)

o

92,531

 

4,580

 

(3,277)

c,o

 

93,834

Total liabilities

6,219,225

 

1,928,403

 

 

 

8,146,499

 

829,935

 

 

 

 

8,973,194

Stockholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

602

 

22

 

129

b,p

753

 

80

 

(9)

b,p

 

824

Additional paid in capital

737,905

 

234,841

 

170,312

b,p

1,143,058

 

97,259

 

90,516

b,p

 

1,330,833

Retained earnings (deficit)

173,248

 

24,102

 

(24,102)

c,p

173,248

 

19,232

 

(19,232)

c,p

 

173,248

Unearned employee stock ownership plan ("ESOP") shares

 

 

 

 

 

 

-

 

-

 

-

 

 

-

Accumulated other comprehensive income (loss)

(7,005)

 

(4,903)

 

4,903

p

(7,005)

 

(995)

 

995

p

 

(7,005)

Total stockholders' equity

904,750

 

254,062

 

 

 

1,310,054

 

115,576

 

 

 

 

1,497,900

Total Liabilities and Stockholders' Equity

$7,123,975

 

$2,182,465

 

 

 

$9,456,553

 

$945,511

 

 

 

 

$10,471,094

 

 

See accompanying notes to Unaudited Pro Forma Combined Consolidated Financial Information


2

 


 

Unaudited Pro Forma Combined Consolidated Statement of Income

For the year ended December 31, 2017

(in thousands, except per share data)

 

 

 

 

 

 

Pro

 

 

 

 

Pro

 

 

 

 

 

 

 

 

Pro

 

 

CenterState

 

 

 

Pro

 

 

 

 

CenterState

 

Platinum

 

Forma

 

 

Gateway

 

Forma

 

 

CenterState

 

HCBF

 

Jefferson

 

Forma

 

 

HCBF

 

Sunshine

 

Forma

 

 

Pro Forma

 

as reported

 

Mar. 31

 

adjustment

 

 

Apr. 30

 

adjustment

 

 

Pro Forma

 

as reported

 

as reported

 

adjustment

 

 

Pro Forma

 

as reported

 

adjustment

 

 

Combined

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

$219,972

 

$5,658

 

($1,677)

q

 

$8,243

 

($586)

q

 

$231,610

 

$61,565

 

6,053

 

$7,682

q

 

$306,910

 

$33,420

 

$4,565

q

 

$344,895

Investment securities

27,922

 

150

 

 

 

 

1,782

 

 

 

 

29,854

 

12,308

 

403

 

1,684

r

 

44,249

 

1,751

 

$285

r

 

46,285

Federal funds sold and other

3,432

 

65

 

 

 

 

201

 

 

 

 

3,698

 

670

 

82

 

 

 

 

4,450

 

469

 

 

 

 

4,919

 

251,326

 

5,873

 

 

 

 

10,226

 

 

 

 

265,162

 

74,543

 

6,538

 

 

 

 

355,609

 

35,640

 

 

 

 

396,099

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

11,079

 

708

 

537

s

 

972

 

131

s

 

13,427

 

5,445

 

339

 

(445)

s

 

18,766

 

2,452

 

($84)

s

 

21,134

Other borrowings

4,704

 

180

 

 

 

 

193

 

 

 

 

5,077

 

1,637

 

203

 

229

u

 

7,146

 

1,049

 

 

 

 

8,195

 

15,783

 

888

 

 

 

 

1,165

 

 

 

 

18,504

 

7,082

 

542

 

 

 

 

25,912

 

3,501

 

 

 

 

29,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

235,543

 

4,985

 

 

 

 

9,061

 

 

 

 

246,658

 

67,461

 

5,996

 

 

 

 

329,697

 

32,139

 

 

 

 

366,770

Provision (credit) for loan losses

4,958

 

 

 

 

 

 

78

 

 

 

 

5,036

 

3,321

 

143

 

 

 

 

8,500

 

 

 

 

 

 

8,500

Net interest income after loan loss provision

230,585

 

4,985

 

 

 

 

8,983

 

 

 

 

241,622

 

64,140

 

5,853

 

 

 

 

321,197

 

32,139

 

 

 

 

358,270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Correspondent banking capital markets revenue

23,520

 

 

 

 

 

 

 

 

 

 

 

23,520

 

 

 

 

 

 

 

 

23,520

 

 

 

 

 

 

23,520

Other correspondent banking related  revenue

4,821

 

 

 

 

 

 

 

 

 

 

 

4,821

 

 

 

 

 

 

 

 

4,821

 

 

 

 

 

 

4,821

Service charges on deposit accounts

14,986

 

101

 

 

 

 

338

 

 

 

 

15,425

 

3,334

 

472

 

 

 

 

19,231

 

2,133

 

 

 

 

21,364

Debit, prepaid, ATM and merchant card related fees

9,035

 

 

 

 

 

 

 

 

 

 

 

9,035

 

3,085

 

 

 

 

 

 

12,120

 

 

 

 

 

 

12,120

Wealth management related revenue

3,554

 

 

 

 

 

 

 

 

 

 

 

3,554

 

 

 

 

 

 

 

 

3,554

 

214

 

 

 

 

3,768

Bank owned life insurance income

3,293

 

 

 

 

 

 

 

 

 

 

 

3,293

 

1,035

 

 

 

 

 

 

4,328

 

748

 

 

 

 

5,076

Other non interest income

5,973

 

3

 

 

 

 

 

 

 

 

 

5,976

 

5,086

 

 

 

 

 

 

11,062

 

1,080

 

 

 

 

12,142

Net gain on sale of securities available for sale

(7)

 

 

 

 

 

 

568

 

 

 

 

561

 

18

 

102

 

 

 

 

681

 

 

 

 

 

 

681

Total other income

65,175

 

104

 

 

 

 

906

 

 

 

 

66,185

 

12,558

 

574

 

 

 

 

79,317

 

4,175

 

 

 

 

83,492

 

 


3

 


 

Unaudited Pro Forma Combined Consolidated Statement of Income (continued)

For the year ended December 31, 2017

(in thousands, except per share data)

 

 

 

 

 

 

Pro

 

 

 

 

Pro

 

 

 

 

 

 

 

 

Pro

 

 

CenterState

 

 

 

Pro

 

 

 

 

CenterState

 

Platinum

 

Forma

 

 

Gateway

 

Forma

 

 

CenterState

 

HCBF

 

Jefferson

 

Forma

 

 

HCBF

 

Sunshine

 

Forma

 

 

Pro Forma

 

as reported

 

Mar. 31

 

adjustment

 

 

Apr. 30

 

adjustment

 

 

Pro Forma

 

as reported

 

as reported

 

adjustment

 

 

Pro Forma

 

as reported

 

adjustment

 

 

Combined

Non interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages and employee benefits

$109,412

 

$2,327

 

 

 

 

$4,354

 

 

 

 

$116,093

 

$30,372

 

$2,509

 

 

 

 

$148,974

 

$19,599

 

 

 

 

$168,573

Occupancy expense

20,024

 

224

 

 

 

 

895

 

 

 

 

21,143

 

8,342

 

665

 

 

 

 

30,150

 

2,784

 

 

 

 

32,934

Data processing expense

8,436

 

239

 

 

 

 

24

 

 

 

 

8,699

 

6,931

 

530

 

 

 

 

16,160

 

2,366

 

 

 

 

18,526

Professional fees

3,644

 

380

 

 

 

 

212

 

 

 

 

4,236

 

1,918

 

(75)

 

 

 

 

6,079

 

838

 

 

 

 

6,917

Bank regulatory expenses

3,051

 

215

 

 

 

 

 

 

 

 

 

3,266

 

923

 

 

 

 

 

 

4,189

 

316

 

 

 

 

4,505

Amortization of intangibles

4,066

 

 

 

(16)

t

 

 

 

71

t

 

4,121

 

2,501

 

 

 

1,043

t

 

7,665

 

397

 

882

t

 

8,944

Credit related expenses

2,035

 

40

 

 

 

 

71

 

 

 

 

2,146

 

1,470

 

 

 

 

 

 

3,616

 

 

 

 

 

 

3,616

Marketing expenses

3,929

 

72

 

 

 

 

1

 

 

 

 

4,002

 

576

 

52

 

 

 

 

4,630

 

32

 

 

 

 

4,662

Merger related expenses

13,046

 

5,456

 

($9,380)

v

 

4,674

 

($10,877)

v

 

2,919

 

2,581

 

2,560

 

($3,336)

v

 

4,724

 

6,755

 

($7,614)

v

 

3,865

Other expenses

18,842

 

900

 

 

 

 

3,185

 

 

 

 

22,927

 

5,894

 

$82

 

 

 

 

28,903

 

$3,708

 

 

 

 

32,611

Total other expenses

186,485

 

9,853

 

 

 

 

13,416

 

 

 

 

189,552

 

61,508

 

6,323

 

 

 

 

255,090

 

36,795

 

 

 

 

285,153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

109,275

 

(4,764)

 

 

 

 

(3,527)

 

 

 

 

118,255

 

15,190

 

104

 

 

 

 

145,424

 

(481)

 

 

 

 

156,609

Provision for income taxes

53,480

 

 

 

772

w,x

 

(1,544)

 

3,223

w

 

55,931

 

10,667

 

158

 

3,793

w

 

70,549

 

2,090

 

3,726

w

 

76,365

Net income

$55,795

 

($4,764)

 

 

 

 

($1,983)

 

 

 

 

$62,324

 

$4,523

 

($54)

 

 

 

 

$74,875

 

($2,571)

 

 

 

 

$80,244

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: earnings allocated to participating securities

120

 

 

 

 

 

 

 

 

 

 

 

120

 

 

 

 

 

 

 

 

120

 

 

 

 

 

 

120

Net income available to common shareholders

$55,675

 

($4,764)

 

 

 

 

($1,983)

 

 

 

 

$62,204

 

$4,523

 

($54)

 

 

 

 

$74,755

 

($2,571)

 

 

 

 

$80,124

Basic earnings (loss) per common share

$0.97

 

NA

 

 

 

 

NA

 

 

 

 

$1.04

 

$0.22

 

NA

 

 

 

 

$1.00

 

NA

 

 

 

 

$0.98

Diluted earnings (loss) per common share

$0.95

 

NA

 

 

 

 

NA

 

 

 

 

$1.02

 

$0.21

 

NA

 

 

 

 

$0.98

 

NA

 

 

 

 

$0.96

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Basic

57,245

 

NA

 

 

 

 

NA

 

 

 

 

59,695

 

20,978

 

NA

 

 

 

 

74,747

 

NA

 

 

 

 

81,798

   Diluted

58,341

 

NA

 

 

 

 

NA

 

 

 

 

60,791

 

21,520

 

NA

 

 

 

 

76,519

 

NA

 

 

 

 

83,815

 

 

See accompanying notes to Unaudited Pro Forma Combined Consolidated Financial Information

 


 

4

 


 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(all amounts are in thousands, except per share data, unless otherwise indicated)

 

Note 1 - Basis of Pro Forma Presentation

 

The unaudited pro forma combined balance sheet as of December 31, 2017 and the unaudited pro forma combined statements of income for the year ended December 31, 2017 are based on the historical financial statements of CenterState Bank Corporation (“CenterState” or the “Company”), HCBF Holding Company, Inc. (“HCBF”) and Sunshine Bancorp, Inc. (“Sunshine”) after giving effect to the completion of the mergers and the assumptions and adjustments described in the accompanying notes. Such financial statements do not reflect cost savings or operating synergies expected to result from the mergers, or the costs to achieve these cost savings or operating synergies, or any anticipated disposition of assets that may result from the integration of the operations of the three companies. The financial condition and results of operations of HCBF also include the effect of the acquisition of Jefferson, which was completed on July 28, 2017. The historical results of operations for Platinum Bank Holding Company (“Platinum”) for the period of January 1, 2017 through March 31, 2017 (the Platinum merger transaction closed on April 1, 2017) are included in the unaudited pro forma combined consolidated statement of income for the twelve months ended December 31, 2017.  The historical results of operations for Gateway Financial Holdings of Florida, Inc. (“Gateway”) for the period of January 1, 2017 through April 30, 2017 (the Gateway merger transaction closed on May 1, 2017) are included in the unaudited pro forma combined consolidated statement of income for the twelve months ended December 31, 2017.  The unaudited pro forma combined statements of income for the year ended December 31, 2017 assume the Platinum and Gateway mergers were completed on January 1, 2017.  No pro forma adjustments for Platinum and Gateway are presented for the unaudited pro forma combined consolidated balance sheet since both transactions are already reflected in CenterState’s historical financial condition at December 31, 2017.  Certain historical financial information has been reclassified to conform to the current presentation.

 

The transactions will be accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). In business combination transactions in which the consideration given is not in the form of cash (that is, in the form of non-cash assets, liabilities incurred, or equity interests issued), measurement of the acquisition consideration is based on the fair value of the consideration given or the fair value of the asset (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable.

 

Under ASC 805, all of the assets acquired and liabilities assumed in a business combination are recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combination are expensed as incurred. The excess of the purchase price over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense. CenterState completed the acquisitions of HCBF and Sunshine on January 1, 2018 and is currently working through an integration plan, which may affect how the assets acquired, including intangible assets, will be utilized by the combined company. For those assets in the combined company that will be phased out or will no longer be used, additional amortization, depreciation and possibly impairment charges will be recorded after management completes the integration plan.

 

The unaudited pro forma information is presented solely for informational purposes and is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods or dates indicated, nor is it necessarily indicative of the future results of the combined company.

 


5


 

Note 2 – Preliminary Estimated Acquisition Consideration

 

On January 1, 2018, CenterState completed its acquisition of HCBF and acquired 100% of the outstanding common stock of HCBF.  Each share of HCBF common stock was exchanged for 0.675 shares of CenterState common stock and $1.925 in cash.  Based on the number of shares of HCBF common stock outstanding as of December 31, 2017 and CenterState’s closing price on December 29, 2017, the last trading day prior to the effective time of the merger, the purchase price for HCBF was as follows.

 

(dollars are in thousands, except per share data)

 

Number of shares of HCBF common stock outstanding at December 31, 2017

22,299,082

Per share exchange ratio

0.675

Number of shares of CenterState common stock less 241 of fractional shares

15,051,639

CenterState common stock price per share on December 29, 2017

$25.73

Fair value of CenterState common stock issued

$387,279

 

 

Number of shares of HCBF common stock outstanding at December 31, 2017

22,299,082

Cash consideration each HCBF share is entitled to receive

$1.925

Total Cash Consideration plus $6 for 241 of fractional shares

$42,932

 

 

Total Stock Consideration

$387,279

Total Cash Consideration

42,932

Total consideration to be paid to HCBF common shareholders

$430,211

Fair value of HCBF stock options converted to CenterState stock options

18,025

Total Purchase Price for HCBF

$448,236

 

On January 1, 2018, CenterState completed its acquisition of Sunshine and acquired 100% of the outstanding common stock of Sunshine.  Each share of Sunshine common stock was exchanged for 0.89 shares of CenterState common stock plus cash in lieu of fractional shares.  Based on the number of shares of Sunshine common stock outstanding as of December 31, 2017 and CenterState’s closing price on December 29, 2017, the last trading day prior to the effective time of the merger, the purchase price for Sunshine was as follows.

 

(dollars are in thousands, except per share data)

 

Number of shares of Sunshine common stock outstanding at December 31, 2017

7,922,479

Per share exchange ratio

0.89

Number of shares of CenterState common stock less 361 of fractional shares

7,050,645

CenterState common stock price per share on December 29, 2017

$25.73

Fair value of CenterState common stock issued

$181,413

Cash consideration paid for 361 of fractional shares

$7

Total consideration to be paid to Sunshine common shareholders

$181,420

Fair value of Sunshine stock options converted to CenterState stock options

6,433

Total Purchase Price for Sunshine

$187,853

 

Note 3 – Preliminary Purchase Price Allocation

 

Under the acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of HCBF and Sunshine based on their estimated fair values as of the closing of the mergers. The excess of the purchase price over the fair value of assets acquired and liabilities assumed for each acquisition, if any, is allocated to goodwill.

 

The allocation of the purchase price with regard to HCBF and Sunshine is preliminary. The preliminary allocation is based on valuations, appraisals and other studies that have not been finalized as of the date of this filing. Accordingly, the purchase price allocation adjustments will remain preliminary until CenterState management determines the final fair values of the assets acquired and liabilities assumed. The final determination of the purchase price allocation is anticipated to be completed within the measurement period, which is one year from the

6

 


 

date of acquisition. The final amounts allocated to assets acquired and liabilities assumed could differ from the amounts presented in the unaudited pro forma combined consolidated financial statements.

 

The total purchase price as shown in the tables above is allocated to HCBF’s and Sunshine’s tangible and intangible assets and liabilities as of December 31, 2017 based on their preliminary estimated fair values as follows (dollars are in the thousands).

 

 

 

HCBF

 

Sunshine

Cash and cash equivalents

 

$73,371

 

$47,056

Investment securities

 

585,228

 

93,006

Loans held for sale

 

5,694

 

430

Loans held for investment

 

1,326,036

 

684,321

OREO (foreclosed assets)

 

6,207

 

-  

Bank premises and equipment

 

50,683

 

20,166

Bank owned life insurance

 

39,089

 

23,101

Deferred income tax asset, net

 

13,653

 

12,872

Other assets

 

20,314

 

7,300

Intangible assets

 

23,625

 

8,525

Goodwill

 

231,610

 

117,771

Deposits

 

(1,744,711)

 

(719,038)

Other borrowings

 

(157,919)

 

(106,354)

Corporate debentures

 

(6,053)

 

-  

Other liabilities

 

(18,591)

 

(1,303)

Total Purchase Price

 

$448,236

 

$187,853

 

Approximately $23,625 and $8,525 for HCBF and Sunshine, respectively, have been preliminarily allocated to amortizable intangible assets acquired. The amortization related to the preliminary fair value of net amortizable intangible assets is reflected as a pro forma adjustment to the unaudited pro forma condensed combined financial statements.

 

Identifiable intangible assets. The preliminary fair values of intangible assets were determined based on the provisions of ASC 805, which defines fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Intangible assets were identified that met either the separability criterion or the contractual-legal criterion described in ASC 805. The preliminary allocation to intangible assets is allocated to core deposit intangibles.

 

Goodwill. Goodwill represents the excess of the purchase price over the preliminary fair value of the underlying net tangible and intangible assets. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets are the experience and expertise of personnel, operations, customer base and organizational cultures that can be leveraged to enable the combined company to build an enterprise greater than the sum of its parts. In accordance with ASC Topic 350, Intangibles—Goodwill and Other, goodwill will not be amortized, but instead will be tested for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment. In the event management determines that the value of goodwill has become impaired, the combined company will incur an accounting charge for the amount of the impairment during the period in which the determination is made.

7

 


 

Note 4 - Preliminary Unaudited Pro Forma and Acquisition Accounting Adjustments

 

The unaudited pro forma financial information is not necessarily indicative of what the financial position actually would have been had the mergers been completed at the date indicated. Such information includes adjustments that are preliminary and may be revised. Such revisions may result in material changes. The financial position shown herein is not necessarily indicative of what the past financial position of the combined companies would have been, nor necessarily indicative of the financial position of the post-merger periods. The unaudited pro forma financial information does not give consideration to the impact of possible cost savings, expense efficiencies, synergies, strategy modifications, asset dispositions or other actions that may result from the mergers.

 

The following unaudited pro forma adjustments result from accounting for the mergers, including the determination of fair value of the assets, liabilities, and commitments that CenterState, as the acquirer, acquired from HCBF and Sunshine. The descriptions related to these preliminary adjustments are as follows (dollars are in thousands):

 

Balance Sheet – the explanations and descriptions below are referenced to the December 31, 2017 Unaudited Pro Forma Combined Consolidated Balance Sheet on page 2.

 

 

  

 

 

HCBF

 

Sunshine

Pro Forma Adjusting entries (Balance Sheet):

 

Debit

Credit

 

Debit

Credit

a

Cash

 

 

$42,932

 

 

$7

b

Common stock

 

 

151

 

 

$71

b

Additional paid in capital

 

 

405,153

 

 

187,775

c

Cash

 

 

3,805

 

 

42

c

Other assets

 

 

0

 

 

20,992

c

Other liabilities

 

 

0

 

2,720

 

c

Deferred tax asset

 

673

 

 

4,494

 

c

Retained earnings

 

3,132

 

 

13,820

 

d

Investment securities

 

 

9,213

 

 

1,881

e

Loans held for investment

 

 

40,438

 

 

22,657

f

Allowance for loan losses

 

8,513

 

 

3,752

 

g

Other real estate owned ("OREO")

 

 

1,255

 

 

0

g

Other assets

 

 

53

 

 

81

h

Property and equipment, net

 

 

2,517

 

 

4,774

i

Core deposit intangible ("CDI")

 

23,625

 

 

8,525

 

j

Deferred tax asset

 

4,633

 

 

4,273

 

k

Preliminary goodwill estimate

 

231,610

 

 

117,771

 

l

Deposits

 

 

589

 

 

32

m

Federal Home Loan Bank advances

 

 

126

 

 

1

n

Corporate debentures

 

2,128

 

 

 

 

o

Loans

 

15,714

 

 

1,419

 

o

Investment securities

 

5,845

 

 

1,596

 

o

Goodwill

 

 

24,839

 

 

20,278

o

CDI

 

 

13,783

 

 

1,684

o

Deferred tax asset

 

 

1,665

 

 

404

o

Deposits

 

170

 

 

 

4

o

Federal Home Loan Bank advances

 

143

 

 

 

 

o

Corporate debentures

 

 

2,143

 

 

 

o

Other liabilities

 

1,546

 

 

557

 

p

Common Stock

 

22

 

 

80

 

p

Additional paid in capital

 

234,841

 

 

97,259

 

p

Retained earnings

 

20,970

 

 

5,412

 

p

Accumulated other comprehensive loss

 

 

4,903

 

 

995

 

a.

Payment of the cash consideration component, including cash in lieu of fractional shares, of total merger consideration to shareholders.   

 

b.

CenterState common shares issued to HCBF’s and Sunshine’s shareholders representing the stock consideration component of the total respective merger consideration.  The pro forma adjustments to additional paid in capital for HCBF and Sunshine also include the fair value of HCBF’s and Sunshine’s stock options, which converted to

8

 


 

CenterState stock options.  The closing price of CenterState’s common stock on December 29, 2017, the last trading day before the effective time of the mergers, was $25.73, as reported by NASDAQ.  

 

c.

Represents HCBF’s and Sunshine’s merger expenses, which were paid immediately prior effective time of the merger, the related tax benefit and the net effect on HCBF’s and Sunshine’s retained earnings.

 

d.

Adjust investment securities to estimated fair value.

 

e.

Adjustment to loans held for investment to reflect the preliminary estimated fair value.

 

f.

Adjustment to allowance for loan losses to reflect the reversal of HCBF’s and Sunshine’s allowance for loan and lease losses.  

 

g.

Adjustment to OREO and other repossessed assets to reflect the preliminary estimated fair value associated with CenterState’s estimated marketability discounts and liquidation strategy.  

 

h.

Adjustment to branch real estate to reflect the preliminary estimated fair value.

 

i.

Adjustment to reflect the preliminary estimate of the core deposit intangible.  

 

j.

Adjustment to reflect the net deferred tax asset generated by the net fair value adjustments and existing pre-merger timing differences using an assumed effective tax rate equal to 25.345% for HCBF and Sunshine.

 

k.

Adjustment to reflect the preliminary goodwill generated as a result of consideration paid in excess of the fair value of the net assets acquired.  

 

l.

Adjustment to time deposits to reflect preliminary estimated fair value.

 

m.

Adjust Federal Home Loan Bank advances to estimated fair value.  

 

n.

Adjustment to corporate debentures to reflect preliminary estimated fair value.

 

o.

Adjustments to reflect the reversal of existing fair value adjustments to loans, CDI, investment securities, deposits, Federal Home Loan Bank advances, and the related deferred tax asset and goodwill at HCBF and Sunshine from previous acquisitions, as well as the write-off of certain liabilities at HCBF and Sunshine.

 

p.

Reflects the reversal of stockholders’ equity after adjustments in c above.    

 


9

 


 

Income Statements – the explanations and descriptions below are referenced to the Unaudited Pro Forma Combined Consolidated Statements of Income for the year ended December 31, 2017 starting on page 3.  

 

Income Statements – Pro Forma Adjustments

 

 

 

Twelve months ended December 31, 2017

Pro Forma Adjusting entries (Income Statements) (dollars are in thousands):

Platinum

Gateway

HCBF

Sunshine

q

Remove existing interest accretion

($2,288)

($1,062)

 

 

q

Preliminary estimate of loan interest accretion

$611

$476

$7,682

$4,565

r

Investment securities amortization of fair value adjustment at acquisition date

 

 

$1,684

$285

s

Remove existing time deposit amortization of fair value adjustment

$836

$235

$160

 

s

Time Deposits amortization of fair value adjustment at acquisition date

($299)

($104)

($605)

($84)

t

Remove amortization of existing CDI

($449)

($843)

($2,501)

($397)

t

Amortization of new CDI

$433

$914

$3,544

$1,279

u

Remove amortization of existing amortization for other borrowings

 

 

$113

 

u

Amortization of new fair value adjustment on other borrowings

 

 

$116

 

v

Remove merger related fees

($9,380)

($10,877)

($3,336)

($7,614)

w

Income tax expense of pro-forma adjustments

$2,294

$3,223

$3,793

$3,726

x

Income tax expense for Platinum's pre-tax loss using CenterState's effective tax rate

($1,522)

 

 

 

 

 

q.

Represents the reversal of existing interest accretion recorded by CenterState for loans acquired from the Platinum and Gateway mergers and the estimate of interest income accretion related to the preliminary estimate of the fair value adjustment of the loans acquired pursuant to the Platinum, Gateway, HCBF and Sunshine mergers.

 

r.

Represents the estimate of investment securities amortization related to preliminary estimates of the fair value adjustments on investment securities pursuant to the HBCF Merger.

 

s.

Represents the reversal of existing time deposits amortization recorded by CenterState for time deposits assumed from the Platinum and Gateway mergers and estimates of time deposit amortization related to preliminary estimates of the fair value adjustments on the time deposits acquired pursuant to the Platinum, Gateway, HCBF and Sunshine mergers. The time deposits assumed from HCBF and Sunshine will be adjusted to fair value at the acquisition date.  The preliminary estimates of the fair value adjustment at acquisition date from the HCBF and Sunshine mergers are $589 and $32, respectively.  This amount will be amortized as a decrease to interest expense on a pro rata basis based on the maturities of the underlying time deposits.  The amortization for HCBF and Sunshine is preliminarily estimated to approximate $605 and $84, respectively, during the first year of combined operations.    

 

t.

Represents the reversal of existing CDI amortization recorded by CenterState for deposits assumed from the Platinum and Gateway mergers, existing CDI amortization recorded by HCBF and Sunshine for their prior acquisitions, and estimates of CDI amortization related to preliminary estimates of the fair value adjustments on the time deposits acquired pursuant to the Platinum, Gateway, HCBF and Sunshine mergers. The preliminary estimates of CDI related to CenterState’s acquisition of HCBF and Sunshine are $23,625 and $8,525, respectively, and will be amortized over a ten-year period on an accelerated basis.  The CDI amortization expense for HCBF and Sunshine is expected to be approximately $3,544 and $1,279, respectively, during the first year of combined operations.  Below is the preliminary estimated amortization schedule.

 

Year

HCBF

Sunshine

 

Year

HCBF

Sunshine

1

$3,544

$1,279

 

6

$2,055

$742

2

3,012

1,087

 

7

2,056

743

3

2,560

924

 

8

2,056

743

4

2,176

785

 

9

2,055

743

5

2,055

742

 

10

2,055

742

 

u.

Represents the reversal of existing Federal Home Loan Bank advances and corporate debentures amortization recorded by HCBF for prior acquisitions and the estimate of amortization for corporate debentures related to preliminary estimates of the fair value adjustment on corporate debentures pursuant to the HBCF Merger.

10

 


 

 

v.

Adjustment to reflect the reversal of merger related expenses incurred by CenterState for the Platinum, Gateway, HCBF and Sunshine mergers.

 

w.

Adjustment to reflect the income tax provision of the pro forma adjustments using 31.9% as the incremental effective tax rate, which was CenterState’s effective tax rate during the year 2017 excluding the one-time charge for the revaluation of the deferred tax asset booked as additional income tax expense in 2017.

 

x.

Adjustment to reflect the income tax provision on Platinum’s pre-tax income loss assuming CenterState’s effective tax rate for the period presented.

 

Note 5 - Earnings per Common Share

 

Unaudited pro forma earnings per common share for the year ended December 31, 2017 have been calculated using CenterState’s historic weighted average common shares outstanding plus the common shares issued to Platinum, Gateway, HCBF and Sunshine shareholders in each.

 

The following table sets forth the calculation of basic and diluted unaudited pro forma earnings per common share for the year ended December 31, 2017 (dollars are in thousands, except for per share data).

 

 

Year ended

 

December 31, 2017

 

Basic

 

Diluted

Pro forma net income available to common shareholders

$80,124

 

$80,124

Weighted average common shares outstanding:

 

 

 

     CenterState

57,245

 

58,341

     Incremental effect of common shares issued to Platinum shareholders

1,055

 

1,055

     Incremental effect of common shares issued to Gateway shareholders

1,395

 

1,395

     Common shares issued to HCBF shareholders

15,052

 

15,728

     Common shares issued to Sunshine shareholders

7,051

 

7,296

     Pro forma weighted average common shares outstanding

81,798

 

83,815

Pro forma net income per common share

$0.98

 

$0.96

 

 

 

 

 

11

 

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