Company Quick10K Filing
Quick10K
Home Bancshares
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$18.97 168 $3,190
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-04-18 Officers, Shareholder Vote, Exhibits
8-K 2019-04-18 Earnings, Regulation FD, Exhibits
8-K 2019-02-15 Other Events, Exhibits
8-K 2019-02-08 Officers, Regulation FD, Exhibits
8-K 2019-01-17 Earnings, Regulation FD, Exhibits
8-K 2018-10-18 Earnings, Regulation FD, Exhibits
8-K 2018-07-19 Earnings, Regulation FD, Exhibits
8-K 2018-06-29 Regulation FD, Other Events, Exhibits
8-K 2018-04-19 Shareholder Vote, Exhibits
8-K 2018-02-22 Regulation FD, Exhibits
8-K 2018-01-18 Earnings, Regulation FD, Exhibits
8-K 2018-01-08 Earnings, Regulation FD, Exhibits
SYMC Symantec 14,170
HHC Howard Hughes 4,650
HTZ Hertz Global Holdings 1,500
GBX Greenbrier Companies 1,130
CPAC Cementos Pacasmayo Saa 783
SVA Sinovac Biotech 460
DGII Digi 342
CRWS Crown Crafts 53
SNMP Sanchez Midstream Partners 43
DTRM Determine 0
HOMB 2019-03-31
Part I: Financial Information
Item 1: Financial Statements
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Item 4: Controls and Procedures
Part Ii: Other Information
Item 1: Legal Proceedings
Item 1A: Risk Factors
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Item 3: Defaults Upon Senior Securities
Item 4: Mine Safety Disclosures
Item 5: Other Information
Item 6: Exhibits
EX-15 d729250dex15.htm
EX-31.1 d729250dex311.htm
EX-31.2 d729250dex312.htm
EX-32.1 d729250dex321.htm
EX-32.2 d729250dex322.htm

Home Bancshares Earnings 2019-03-31

HOMB 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 d729250d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2019

or

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition period from                      to                     

Commission File Number: 000-51904

 

 

HOME BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Arkansas   71-0682831
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
719 Harkrider, Suite 100, Conway, Arkansas   72032
(Address of principal executive offices)   (Zip Code)

(501) 339-2929

(Registrant’s telephone number, including area code)

Not Applicable

Former name, former address and former fiscal year, if changed since last report

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☑    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     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.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☑

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange

on which registered

Common stock, par value $0.01 per share   HOMB   NASDAQ Global Select Market

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practical date.

Common Stock Issued and Outstanding: 167,999,154 shares as of May 2, 2019.

 

 

 


Table of Contents

HOME BANCSHARES, INC.

FORM 10-Q

March  31, 2019

INDEX

 

         Page No.  

Part I:

  Financial Information   
Item 1:  

Financial Statements

  
 

Consolidated Balance Sheets –
March  31, 2019 (Unaudited) and December 31, 2018

     4  
 

Consolidated Statements of Income (Unaudited) –
Three months ended March 31, 2019 and 2018

     5  
 

Consolidated Statements of Comprehensive Income (Unaudited) –
Three months ended March 31, 2019 and 2018

     6  
 

Consolidated Statements of Stockholders’ Equity (Unaudited) –
Three months ended March 31, 2019 and 2018

     6  
 

Consolidated Statements of Cash Flows (Unaudited) –
Three months ended March 31, 2019 and 2018

     7  
 

Condensed Notes to Consolidated Financial Statements (Unaudited)

     8-46  
 

Report of Independent Registered Public Accounting Firm

     47  
Item 2:  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     48-78  
Item 3:  

Quantitative and Qualitative Disclosures About Market Risk

     79-81  
Item 4:  

Controls and Procedures

     81  

Part II:

  Other Information   
Item 1:  

Legal Proceedings

     82  
Item 1A:  

Risk Factors

     82  
Item 2:  

Unregistered Sales of Equity Securities and Use of Proceeds

     82  
Item 3:  

Defaults Upon Senior Securities

     82  
Item 4:  

Mine Safety Disclosures

     82  
Item 5:  

Other Information

     82  
Item 6:  

Exhibits

     83-84  

Signatures

     85  


Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of our statements contained in this document, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to future events or our future financial performance and include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, including through potential acquisitions, our other business strategies and other statements that are not historical facts. Forward-looking statements are not guarantees of performance or results. When we use words like “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,” “could,” “should,” “would,” and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared. These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, but not limited to, the following:

 

   

the effects of future local, regional, national and international economic conditions, including inflation or a decrease in commercial real estate and residential housing values;

 

   

changes in the level of nonperforming assets and charge-offs, and credit risk generally;

 

   

the risks of changes in interest rates or the level and composition of deposits, loan demand and the values of loan collateral, securities and interest-sensitive assets and liabilities;

 

   

the effect of any mergers, acquisitions or other transactions to which we or our bank subsidiary may from time to time be a party, including our ability to successfully integrate any businesses that we acquire;

 

   

the risk that expected cost savings and other benefits from acquisitions may not be fully realized or may take longer to realize than expected;

 

   

the possibility that an acquisition does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all;

 

   

the reaction to a proposed acquisition transaction of the respective companies’ customers, employees and counterparties;

 

   

diversion of management time on acquisition-related issues;

 

   

the ability to enter into and/or close additional acquisitions;

 

   

the availability of and access to capital on terms acceptable to us;

 

   

increased regulatory requirements and supervision that applies as a result of our exceeding $10 billion in total assets;

 

   

legislation and regulation affecting the financial services industry as a whole, and the Company and its subsidiaries in particular, including the effects resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), recent reforms to the Dodd-Frank Act and other future legislative and regulatory changes;

 

   

governmental monetary and fiscal policies;

 

   

the effects of terrorism and efforts to combat it;

 

   

political instability;

 

   

risks associated with our customer relationship with the Cuban government and our correspondent banking relationship with Banco Internacional de Comercio, S.A. (BICSA), a Cuban commercial bank, through our recently completed acquisition of Stonegate Bank;

 

   

adverse weather events, including hurricanes, and other natural disasters;


Table of Contents
   

the ability to keep pace with technological changes, including changes regarding cybersecurity;

 

   

an increase in the incidence or severity of fraud, illegal payments, cybersecurity breaches or other illegal acts impacting our bank subsidiary, our vendors or our customers;

 

   

the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with competitors offering banking products and services by mail, telephone and the Internet;

 

   

the effect of changes in accounting policies and practices and auditing requirements, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters;

 

   

higher defaults on our loan portfolio than we expect; and

 

   

the failure of assumptions underlying the establishment of our allowance for loan losses or changes in our estimate of the adequacy of the allowance for loan losses.

All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this Cautionary Note. Our actual results may differ significantly from those we discuss in these forward-looking statements. For other factors, risks and uncertainties that could cause our actual results to differ materially from estimates and projections contained in these forward-looking statements, see the “Risk Factors” sections of our Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2019.


Table of Contents

PART I: FINANCIAL INFORMATION

Item 1:

Financial Statements

Home BancShares, Inc.

Consolidated Balance Sheets

 

(In thousands, except share data)

   March 31, 2019     December 31, 2018  
     (Unaudited)        

Assets

    

Cash and due from banks

   $ 141,027     $ 175,024  

Interest-bearing deposits with other banks

     421,443       482,915  
  

 

 

   

 

 

 

Cash and cash equivalents

     562,470       657,939  

Federal funds sold

     1,700       325  

Investment securities – available-for-sale

     2,013,123       1,785,862  

Investment securities – held-to-maturity

     —         192,776  

Loans receivable

     10,978,935       11,071,879  

Allowance for loan losses

     (106,357     (108,791
  

 

 

   

 

 

 

Loans receivable, net

     10,872,578       10,963,088  

Bank premises and equipment, net

     279,012       233,261  

Foreclosed assets held for sale

     14,466       13,236  

Cash value of life insurance

     149,353       148,621  

Accrued interest receivable

     50,288       48,945  

Deferred tax asset, net

     64,061       73,275  

Goodwill

     958,408       958,408  

Core deposit and other intangibles

     41,310       42,896  

Other assets

     172,732       183,806  
  

 

 

   

 

 

 

Total assets

   $ 15,179,501     $ 15,302,438  
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Deposits:

    

Demand and non-interest-bearing

   $ 2,519,175     $ 2,401,232  

Savings and interest-bearing transaction accounts

     6,650,181       6,624,407  

Time deposits

     1,898,096       1,874,139  
  

 

 

   

 

 

 

Total deposits

     11,067,452       10,899,778  

Securities sold under agreements to repurchase

     152,239       143,679  

FHLB and other borrowed funds

     1,105,175       1,472,393  

Accrued interest payable and other liabilities

     124,172       67,912  

Subordinated debentures

     368,979       368,790  
  

 

 

   

 

 

 

Total liabilities

     12,818,017       12,952,552  
  

 

 

   

 

 

 

Stockholders’ equity:

    

Common stock, par value $0.01; shares authorized 200,000,000 in 2019 and 2018; shares issued and outstanding 168,172,838 in 2019 and 170,720,072 in 2018

     1,682       1,707  

Capital surplus

     1,560,994       1,609,810  

Retained earnings

     803,629       752,184  

Accumulated other comprehensive loss

     (4,821     (13,815
  

 

 

   

 

 

 

Total stockholders’ equity

     2,361,484       2,349,886  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 15,179,501     $ 15,302,438  
  

 

 

   

 

 

 

See Condensed Notes to Consolidated Financial Statements.

 

4


Table of Contents

Home BancShares, Inc.

Consolidated Statements of Income

 

     Three Months Ended
March 31,
 

(In thousands, except per share data)

   2019      2018  
     (Unaudited)  

Interest income:

     

Loans

   $ 163,848      $ 148,065  

Investment securities

     

Taxable

     10,706        8,970  

Tax-exempt

     3,379        3,006  

Deposits – other banks

     1,543        929  

Federal funds sold

     11        6  
  

 

 

    

 

 

 

Total interest income

     179,487        160,976  
  

 

 

    

 

 

 

Interest expense:

     

Interest on deposits

     28,006        14,806  

Federal funds purchased

     —          1  

FHLB and other borrowed funds

     6,118        4,580  

Securities sold under agreements to repurchase

     634        376  

Subordinated debentures

     5,259        5,004  
  

 

 

    

 

 

 

Total interest expense

     40,017        24,767  
  

 

 

    

 

 

 

Net interest income

     139,470        136,209  

Provision for loan losses

     —          1,600  
  

 

 

    

 

 

 

Net interest income after provision for loan losses

     139,470        134,609  
  

 

 

    

 

 

 

Non-interest income:

     

Service charges on deposit accounts

     6,401        6,075  

Other service charges and fees

     6,563        10,155  

Trust fees

     403        446  

Mortgage lending income

     2,435        2,657  

Insurance commissions

     609        679  

Increase in cash value of life insurance

     736        654  

Dividends from FHLB, FRB, First National Bankers’ Bank & other

     3,505        877  

Gain on sale of SBA loans

     241        182  

Gain (loss) on sale of branches, equipment and other assets, net

     79        7  

Gain (loss) on OREO, net

     206        405  

Other income

     2,494        3,668  
  

 

 

    

 

 

 

Total non-interest income

     23,672        25,805  
  

 

 

    

 

 

 

Non-interest expense:

     

Salaries and employee benefits

     37,836        35,014  

Occupancy and equipment

     8,823        8,983  

Data processing expense

     3,970        3,986  

Other operating expenses

     18,428        15,397  
  

 

 

    

 

 

 

Total non-interest expense

     69,057        63,380  
  

 

 

    

 

 

 

Income before income taxes

     94,085        97,034  

Income tax expense

     22,735        23,970  
  

 

 

    

 

 

 

Net income

   $ 71,350      $ 73,064  
  

 

 

    

 

 

 

Basic earnings per share

   $ 0.42      $ 0.42  
  

 

 

    

 

 

 

Diluted earnings per share

   $ 0.42      $ 0.42  
  

 

 

    

 

 

 

See Condensed Notes to Consolidated Financial Statements.

 

5


Table of Contents

Home BancShares, Inc.

Consolidated Statements of Comprehensive Income

 

     Three Months Ended
March 31,
 

(In thousands)

   2019     2018  
     (Unaudited)  

Net income available to all stockholders

   $ 71,350     $ 73,064  

Net unrealized gain (loss) on available-for-sale securities

     12,797       (21,633
  

 

 

   

 

 

 

Other comprehensive income gain (loss), before tax effect

     12,797       (21,633

Tax effect on other comprehensive income (loss)

     (3,344     5,762  
  

 

 

   

 

 

 

Other comprehensive income (loss)

     9,453       (15,871
  

 

 

   

 

 

 

Comprehensive income

   $ 80,803     $ 57,193  
  

 

 

   

 

 

 
              

Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2019 and 2018

For the three months ended March 31, 2019

 

(In thousands, except share data)

   Common
Stock
    Capital
Surplus
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Total  

Balances at January 1, 2019

   $ 1,707     $ 1,609,810     $ 752,184     $ (13,815 )    $ 2,349,886  

Comprehensive income:

          

Net income

     —         —         71,350       —         71,350  

Other comprehensive income (loss)

     —         —         —         9,453       9,453  

Impact of adoption of new accounting standards (1)

     —         —         459       (459     —    

Repurchase of 2,716,359 shares of common stock

     (27     (51,658     —         —         (51,685

Share-based compensation net issuance of 169,125 shares of restricted common stock

     2       2,842       —         —         2,844  

Cash dividends – Common Stock, $0.12 per share

     —         —         (20,364     —         (20,364
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at March 31, 2019 (unaudited)

   $ 1,682     $ 1,560,994     $ 803,629     $ (4,821 )    $ 2,361,484  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Represents the impact of adopting Accounting Standard Update (“ASU”) 2018-02. See Note 1 to the consolidated financial statements for more information.

For the three months ended March 31, 2018

 

(In thousands, except share data)

   Common
Stock
    Capital
Surplus
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Total  

Balances at January 1, 2018

   $ 1,736     $ 1,675,318     $ 530,658     $ (3,421 )    $ 2,204,291  

Comprehensive income:

          

Net income

     —         —         73,064       —         73,064  

Other comprehensive income (loss)

     —         —         —         (15,871     (15,871

Net issuance of 142,116 shares of common stock from exercise of stock options

     1       899       —         —         900  

Impact of adoption of new accounting standards(2)

     —         —         990       (990     —    

Repurchase of 303,637 shares of common stock

     (3     (7,111     —         —         (7,114

Share-based compensation net issuance of 147,000 shares of restricted common stock

     2       2,035       —         —         2,037  

Cash dividends – Common Stock, $0.11 per share

     —         —         (19,126     —         (19,126
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at March 31, 2018 (unaudited)

   $ 1,736     $ 1,671,141     $ 585,586     $ (20,282 )    $ 2,238,181  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(2)

Represents the impact of adopting Accounting Standard Update (“ASU”) 2016-01.

See Condensed Notes to Consolidated Financial Statements.

 

6


Table of Contents

Home BancShares, Inc.

Consolidated Statements of Cash Flows

 

     Three Months Ended
March 31,
 

(In thousands)

   2019     2018  
     (Unaudited)  

Operating Activities

    

Net income

   $ 71,350     $ 73,064  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

    

Depreciation & amortization

     4,939       5,123  

Amortization of securities, net

     3,355       3,321  

Accretion of purchased loans

     (9,055     (10,608

Share-based compensation

     2,844       2,037  

(Gain) loss on assets

     (526     1,962  

Provision for loan losses

     —         1,600  

Deferred income tax effect

     9,214       3,998  

Increase in cash value of life insurance

     (736     (654

Originations of mortgage loans held for sale

     (82,654     (72,636

Proceeds from sales of mortgage loans held for sale

     64,345       80,250  

Changes in assets and liabilities:

    

Accrued interest receivable

     (1,343     347  

Other assets

     7,738       (8,219

Accrued interest payable and other liabilities

     10,275       12,886  
  

 

 

   

 

 

 

Net cash provided by operating activities

     79,746       92,471  
  

 

 

   

 

 

 

Investing Activities

    

Net (increase) decrease in federal funds sold

     (1,375     22,284  

Net decrease (increase) in loans

     108,733       (116

Purchases of investment securities – available-for-sale

     (107,453     (141,812

Proceeds from maturities of investment securities – available-for-sale

     82,410       86,674  

Proceeds from sale of investment securities – available-for-sale

     —         809  

Proceeds from maturities of investment securities – held-to-maturity

     —         10,899  

Proceeds from foreclosed assets held for sale

     3,713       3,391  

Proceeds from sale of SBA loans

     4,645       2,837  

Purchases of premises and equipment, net

     (2,855     (3,941
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     87,818       (18,975
  

 

 

   

 

 

 

Financing Activities

    

Net increase in deposits

     167,674       8,113  

Net increase in securities sold under agreements to repurchase

     8,560       2,526  

Net decrease in FHLB and other borrowed funds

     (367,218     (184,127

Proceeds from exercise of stock options

     —         900  

Repurchase of common stock

     (51,685     (7,114

Dividends paid on common stock

     (20,364     (19,126
  

 

 

   

 

 

 

Net cash used in financing activities

     (263,033     (198,828
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     (95,469 )      (125,332 ) 

Cash and cash equivalents – beginning of year

     657,939       635,933  
  

 

 

   

 

 

 

Cash and cash equivalents – end of period

   $ 562,470     $ 510,601  
  

 

 

   

 

 

 

See Condensed Notes to Consolidated Financial Statements.

 

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Home BancShares, Inc.

Condensed Notes to Consolidated Financial Statements

(Unaudited)

1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Home BancShares, Inc. (the “Company” or “HBI”) is a bank holding company headquartered in Conway, Arkansas. The Company is primarily engaged in providing a full range of banking services to individual and corporate customers through its wholly-owned community bank subsidiary – Centennial Bank (sometimes referred to as “Centennial” or the “Bank”). The Bank has branch locations in Arkansas, Florida, South Alabama and New York City. The Company is subject to competition from other financial institutions. The Company also is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

A summary of the significant accounting policies of the Company follows:

Operating Segments

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Bank is the only significant subsidiary upon which management makes decisions regarding how to allocate resources and assess performance. Each of the branches of the Bank provide a group of similar banking services, including such products and services as commercial, real estate and consumer loans, time deposits, checking and savings accounts. The individual bank branches have similar operating and economic characteristics. While the chief decision maker monitors the revenue streams of the various products, services and branch locations, operations are managed, and financial performance is evaluated on a Company-wide basis. Accordingly, all of the banking services and branch locations are considered by management to be aggregated into one reportable operating segment.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, the valuation of investment securities, the valuation of foreclosed assets and the valuations of assets acquired and liabilities assumed in business combinations. In connection with the determination of the allowance for loan losses and the valuation of foreclosed assets, management obtains independent appraisals for significant properties.

Principles of Consolidation

The consolidated financial statements include the accounts of HBI and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Various items within the accompanying consolidated financial statements for previous years have been reclassified to provide more comparative information. These reclassifications had no effect on net earnings or stockholders’ equity.

Interim financial information

The accompanying unaudited consolidated financial statements as of March 31, 2019 and 2018 have been prepared in condensed format, and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

 

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Table of Contents

The information furnished in these interim statements reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2018 Form 10-K, filed with the Securities and Exchange Commission.

New Accounting Pronouncements

The Company adopted ASU 2016-02, Leases (Topic 842), ASU 2018-11, Leases (Topic 842) Targeted Improvements and ASU 2018-20 Narrow Scope Improvements for Lessors effective January 1, 2019. In accordance with the lease standards, the Company determines if an arrangement is a lease at inception. Operating leases are included in the right-of-use (“ROU”) lease asset and lease liability within bank premises and equipment, net and other liabilities, respectively, on the Company’s balance sheets. The ROU lease assets represent the Company’s right to use an underlying asset for the lease term, and the lease liability represents the Company’s obligation to make lease payments arising from the lease. The operating ROU lease asset and lease liability are recognized at the commencement date are based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. See Note 15 for additional disclosures.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815)—Targeted Improvements to Accounting for Hedging Activities, which amends the hedge accounting model to provide better insight to risk management activities in the financial statements, reduces the complexity in cash flow hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness, requires the entire change in the fair value of a hedging instrument included in the assessment of the hedge effectiveness to be recorded in other comprehensive income, with amounts reclassified to earnings to be presented in the same line item used to present the earnings effect of the hedged item when the hedged item affects earnings and allows the initial prospective quantitative assessment of hedge effectiveness to be performed at any time after hedge designation, but no later than the first quarterly effectiveness testing date. This ASU is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The amendments in this standard must be applied using the modified retrospective approach for cash flow and net investment hedge relationships existing on the date of adoption. The Company adopted the guidance effective January 1, 2019, and as permitted by the ASU, the Company reclassified the prepayable held-to-maturity investment securities, with a fair value of $193.6 million and $834,000 in net unrealized gains as of December 31, 2018, to available-for-sale investment securities.

The Company adopted ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income effective January 1, 2019. In accordance with the standard, the Company made an election to reclassify the income tax effects of the Tax Cuts and Jobs Act (“TCJA”) from accumulated other comprehensive income (“AOCI”) to retained earnings. The stranded tax effects were a result of the decrease in the corporate tax rate from 35% to 21% on deferred tax liabilities and assets for available-for-sale and equity securities which had been recognized as an adjustment to income tax expense and included in income from continuing operations, with the tax effects initially recognized directly in other comprehensive income which caused the stranded tax effects to remain in AOCI. The Company adopted the guidance effective January 1, 2019, and its adoption resulted in a $459,000 reclassification between retained earnings and accumulated other comprehensive income. The Company’s policy for future tax rate changes is to release the future disproportionate income tax effects from AOCI using the aggregate portfolio approach.

Revenue Recognition

Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans, letters of credit, investment securities and mortgage lending income, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our significant revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our income statements as components of non-interest income are as follows:

 

   

Service charges on deposit accounts – These represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.

 

   

Other service charges and fees – These represent credit card interchange fees and Centennial CFG loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally the cash basis based on agreed upon contracts. The Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310.

 

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Table of Contents

Earnings per Share

Basic earnings per share is computed based on the weighted-average number of shares outstanding during each year. Diluted earnings per share is computed using the weighted-average shares and all potential dilutive shares outstanding during the period. The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the following periods:

 

     Three Months Ended
March 31,
 
     2019      2018  
     (In thousands, except per
share data)
 

Net income

   $ 71,350      $ 73,064  

Average shares outstanding

     169,592        173,761  

Effect of common stock-based compensation

     —          622  
  

 

 

    

 

 

 

Average diluted shares outstanding

     169,592        174,383  
  

 

 

    

 

 

 

Basic earnings per share

   $ 0.42      $ 0.42  

Diluted earnings per share

     0.42        0.42  

As of March 31, 2019, options to purchase 3.6 million shares of common stock, with a weighted average exercise price of $19.61, were excluded from the computation of diluted net income per share as the majority of the options had an exercise price which was greater than the average market price of the common stock.

2. Business Combinations

Acquisition of Shore Premier Finance

On June 30, 2018, the Company, completed the acquisition of Shore Premier Finance (“SPF”), a division of Union Bank & Trust of Richmond, Virginia, the bank subsidiary of Union Bankshares Corporation. The Company paid a purchase price of approximately $377.4 million in cash, subject to certain post-closing adjustments, and 1,250,000 shares of HBI common stock valued at approximately $28.2 million at the time of closing. SPF provides direct consumer financing for United States Coast Guard (“USCG”) registered high-end sail and power boats. Additionally, SPF provides inventory floor plan lines of credit to marine dealers, primarily those selling USCG documented vessels.

Including the purchase accounting adjustments, as of the acquisition date, SPF had approximately $377.0 million in total assets, including $376.2 million in total loans, which resulted in goodwill of $30.5 million being recorded.

 

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Table of Contents

This portfolio of loans is now housed in a division of Centennial known as Shore Premier Finance. The SPF division of Centennial is responsible for servicing the acquired loan portfolio and originating new loan production. In connection with this acquisition, Centennial opened a new loan production office in Chesapeake, Virginia to house the SPF division. Through the SPF division, Centennial is working to build out a lending platform focusing on commercial and consumer marine loans.

The Company has determined that the acquisition of the net assets of SPF constitutes a business combination as defined by the ASC Topic 805. Accordingly, the assets acquired are presented at their fair values as required. Fair values were determined based on the requirements of ASC Topic 820. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change.

3. Investment Securities

Effective January 1, 2019, as permitted by ASU 2017-12, Derivatives and Hedging (Topic 815)—Targeted Improvements to Accounting for Hedging Activities, the Company reclassified the prepayable held-to-maturity (“HTM”) investment securities, with a fair value of $193.6 million and $834,000 in net unrealized gains as of December 31, 2018, to available-for-sale investment securities. The amortized cost and estimated fair value of investment securities that are classified as available-for-sale and held-to-maturity are as follows:

 

     March 31, 2019  
     Available-for-Sale  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
(Losses)
     Estimated
Fair Value
 
     (In thousands)  

U.S. government-sponsored enterprises

   $ 419,558      $ 694      $ (3,369    $ 416,883  

Residential mortgage-backed securities

     656,219        1,486        (7,241      650,464  

Commercial mortgage-backed securities

     478,843        1,256        (5,403      474,696  

State and political subdivisions

     431,160        6,989        (836      437,313  

Other securities

     33,870        195        (298      33,767  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,019,650      $ 10,620      $ (17,147    $ 2,013,123  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2018  
     Available-for-Sale  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
(Losses)
     Estimated
Fair Value
 
     (In thousands)  

U.S. government-sponsored enterprises

   $ 418,605      $ 504      $ (4,976    $ 414,133  

Residential mortgage-backed securities

     580,183        1,230        (8,512      572,901  

Commercial mortgage-backed securities

     463,084        539        (7,745      455,878  

State and political subdivisions

     308,835        2,311        (2,589      308,557  

Other securities

     34,336        304        (247      34,393  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,805,043      $ 4,888      $ (24,069    $ 1,785,862  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Held-to-Maturity  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
(Losses)
     Estimated
Fair Value
 
     (In thousands)  

U.S. government-sponsored enterprises

   $ 3,261      $ 14      $ (71    $ 3,204  

Residential mortgage-backed securities

     39,707        20        (689      39,038  

Commercial mortgage-backed securities

     17,587        58        (267      17,378  

State and political subdivisions

     132,221        1,815        (46      133,990  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 192,776      $ 1,907      $ (1,073    $ 193,610  
  

 

 

    

 

 

    

 

 

    

 

 

 

Assets, principally investment securities, having a carrying value of approximately $1.26 billion and $1.32 billion at March 31, 2019 and December 31, 2018, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. Also, investment securities pledged as collateral for repurchase agreements totaled approximately $152.2 million and $143.7 million at March 31, 2019 and December 31, 2018, respectively.

The amortized cost and estimated fair value of securities classified as available-for-sale at March 31, 2019, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

     Available-for-Sale  
     Amortized
Cost
     Estimated
Fair Value
 
     (In thousands)  

Due in one year or less

   $ 429,945      $ 428,899  

Due after one year through five years

     1,030,952        1,024,795  

Due after five years through ten years

     396,169        397,294  

Due after ten years

     162,584        162,135  
  

 

 

    

 

 

 

Total

   $ 2,019,650      $ 2,013,123  
  

 

 

    

 

 

 

For purposes of the maturity tables, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on anticipated maturities. The mortgage-backed securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

During the three-month period ended March 31, 2019, no available-for-sale securities were sold. No realized gains or losses were recorded on the sales for the three-month period ended March 31, 2019.

During the three-month period ended March 31, 2018, no available-for-sale securities were sold. However, approximately $809,000 equity securities carried at fair value were sold. No realized gains or losses were recorded on the sales for the three-month period ended March 31, 2018. The income tax expense/benefit to net security gains and losses was 26.135% of the gross amounts. During 2018, no held-to-maturity securities were sold.

The Company evaluates all securities quarterly to determine if any unrealized losses are deemed to be other than temporary. In completing these evaluations, the Company follows the requirements of FASB ASC 320, Investments—Debt and Equity Securities. Certain investment securities are valued less than their historical cost. These declines are primarily the result of the rate for these investments yielding less than current market rates. Based on evaluation of available evidence, management believes the declines in fair value for these securities are temporary. The Company does not intend to sell or believe it will be required to sell these investments before recovery of their amortized cost basis, which may be maturity. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced, and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

During the three-month period ended March 31, 2019, no securities were deemed to have other-than-temporary impairment.

 

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For the three months ended March 31, 2019, the Company had investment securities with approximately $16.0 million in unrealized losses, which have been in continuous loss positions for more than twelve months. Excluding impairment write downs taken in prior periods, the Company’s assessments indicated that the cause of the market depreciation was primarily the change in interest rates and not the issuer’s financial condition, or downgrades by rating agencies. In addition, approximately 72.2% of the Company’s investment portfolio matures in five years or less. As a result, the Company has the ability and intent to hold such securities until maturity.

The following shows gross unrealized losses and estimated fair value of investment securities classified as available-for-sale and held-to-maturity with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position as of March 31, 2019 and December 31, 2018:

 

     March 31, 2019  
     Less Than 12 Months     12 Months or More     Total  
     Fair
Value
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
 
     (In thousands)  

U.S. government-sponsored enterprises

   $ 69,092      $ (336   $ 248,732      $ (3,033   $ 317,824      $ (3,369

Residential mortgage-backed securities

     84,446        (527     402,496        (6,714     486,942        (7,241

Commercial mortgage-backed securities

     6,128        (39     366,462        (5,364     372,590        (5,403

State and political subdivisions

     3,114        (31     62,929        (805     66,043        (836

Other securities

     7,314        (206     8,243        (92     15,557        (298
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 170,094      $ (1,139   $ 1,088,862      $ (16,008   $ 1,258,956      $ (17,147
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

     December 31, 2018  
     Less Than 12 Months     12 Months or More     Total  
     Fair
Value
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
 
     (In thousands)  

U.S. government-sponsored enterprises

   $ 148,392      $ (1,398   $ 192,456      $ (3,649   $ 340,848      $ (5,047

Residential mortgage-backed securities

     95,001        (713     386,279        (8,488     481,280        (9,201

Commercial mortgage-backed securities

     33,917        (337     368,705        (7,675     402,622        (8,012

State and political subdivisions

     64,376        (763     77,602        (1,872     141,978        (2,635

Other securities

     3,364        (154     8,307        (93     11,671        (247
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 345,050      $ (3,365   $ 1,033,349      $ (21,777   $ 1,378,399      $ (25,142
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

As of March 31, 2019, the Company’s securities portfolio consisted of 1,315 investment securities, 598 of which were in an unrealized loss position. As noted in the table above, the total amount of the unrealized loss was $17.1 million. The U.S government-sponsored enterprises portfolio contained unrealized losses of $3.4 million on 92 securities. The residential mortgage-backed securities portfolio contained $7.2 million of unrealized losses on 291 securities, and the commercial mortgage-backed securities portfolio contained $5.4 million of unrealized losses on 116 securities. The state and political subdivisions portfolio contained $836,000 of unrealized losses on 93 securities. In addition, the other securities portfolio contained $298,000 of unrealized losses on 6 securities. The unrealized losses on the Company’s investments were a result of interest rate changes. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value was attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2019.

 

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Income earned on securities for the three months ended March 31, 2019 and 2018, is as follows:

 

     Three Months Ended
March 31,
 
     2019      2018  
     (In thousands)  

Taxable:

     

Available-for-sale

   $ 10,706      $ 8,465  

Held-to-maturity

     —          505  

Non-taxable:

     

Available-for-sale

     3,379        1,349  

Held-to-maturity

     —          1,657  
  

 

 

    

 

 

 

Total

   $ 14,085      $ 11,976  
  

 

 

    

 

 

 

4. Loans Receivable

The various categories of loans receivable are summarized as follows:

 

     March 31,
2019
     December 31,
2018
 
     (In thousands)  

Real estate:

     

Commercial real estate loans

     

Non-farm/non-residential

   $ 4,623,174      $ 4,806,684  

Construction/land development

     1,649,303        1,546,035  

Agricultural

     76,092        76,433  

Residential real estate loans

     

Residential 1-4 family

     1,947,119        1,975,586  

Multifamily residential

     538,098        560,475  
  

 

 

    

 

 

 

Total real estate

     8,833,786        8,965,213  

Consumer

     448,093        443,105  

Commercial and industrial

     1,505,773        1,476,331  

Agricultural

     58,966        48,562  

Other

     132,317        138,668  
  

 

 

    

 

 

 

Total loans receivable

   $ 10,978,935      $ 11,071,879  
  

 

 

    

 

 

 

During the three-month period ended March 31, 2019, the Company sold $4.4 million of the guaranteed portion of certain Small Business Administration (“SBA”) loans, which resulted in a gain of approximately $241,000. During the three-month period ended March 31, 2018, the Company sold $2.7 million of the guaranteed portion of certain SBA loans, which resulted in a gain of approximately $182,000.

Mortgage loans held for sale of approximately $56.5 million and $64.2 million at March 31, 2019 and December 31, 2018, respectively, are included in residential 1-4 family loans. Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid. The Company obtains forward commitments to sell mortgage loans to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. The forward commitments acquired by the Company for mortgage loans in process of origination are considered mandatory forward commitments. Because these commitments are structured on a mandatory basis, the Company is required to substitute another loan or to buy back the commitment if the original loan does not fund. These commitments are derivative instruments and their fair values at March 31, 2019 and December 31, 2018 were not material.

A description of our accounting policies for loans, impaired loans, non-accrual loans and allowance for loan losses are set forth in our 2018 Form 10-K filed with the SEC on February 26, 2019. There have been no significant changes to these policies since December 31, 2018.

 

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Table of Contents

The Company had $2.71 billion of purchased loans, which includes $106.6 million of discount for credit losses on purchased loans, at March 31, 2019. The Company had $35.7 million and $70.9 million remaining of non-accretable discount for credit losses on purchased loans and accretable discount for credit losses on purchased loans, respectively, as of March 31, 2019. The Company had $2.90 billion of purchased loans, which includes $113.6 million of discount for credit losses on purchased loans, at December 31, 2018. The Company had $39.3 million and $74.3 million remaining of non-accretable discount for credit losses on purchased loans and accretable discount for credit losses on purchased loans, respectively, as of December 31, 2018.

5. Allowance for Loan Losses, Credit Quality and Other

The Company’s allowance for loan loss as of March 31, 2019 and December 31, 2018 was significantly impacted by Hurricane Michael, which made landfall in the Florida Panhandle as a Category 4 hurricane during the fourth quarter of 2018, and somewhat impacted by Hurricane Irma, which made initial landfall in the Florida Keys and a second landfall just south of Naples, Florida, as a Category 4 hurricane during the third quarter of 2017. As of December 31, 2018, management reevaluated the storm-related allowance for Hurricane Irma. Based on this analysis, management determined a $2.9 million storm-related allowance was still necessary. The Company’s management also performed an analysis on the loans with collateral in counties in the Florida Panhandle which were impacted by Hurricane Michael. Based on this analysis, management determined a $20.4 million storm-related provision was necessary. After establishing the storm-related provision for Hurricane Michael and adjusting the allowance for Hurricane Irma, the storm-related allowance was $23.2 million and $23.3 million as of March 31, 2019 and December 31, 2018, respectively. As of March 31, 2019, charge-offs of $2.6 million have been taken against the storm-related allowance for loan losses.

The following table presents a summary of changes in the allowance for loan losses:

 

     Three Months Ended
March 31, 2019
 
     (In thousands)  

Allowance for loan losses:

  

Beginning balance

   $ 108,791  

Loans charged off

     (3,391

Recoveries of loans previously charged off

     957  
  

 

 

 

Net loans recovered (charged off)

     (2,434
  

 

 

 

Provision for loan losses

     —    
  

 

 

 

Balance, March 31, 2019

   $ 106,357  
  

 

 

 

 

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Table of Contents

The following tables present the balance in the allowance for loan losses for the three-month period ended March 31, 2019, and the allowance for loan losses and recorded investment in loans based on portfolio segment by impairment method as of March 31, 2019. Allocation of a portion of the allowance to one type of loans does not preclude its availability to absorb losses in other categories.

 

     Three Months Ended March 31, 2019  
     Construction/
Land
Development
    Other
Commercial
Real Estate
    Residential
Real Estate
    Commercial
& Industrial
    Consumer
& Other
    Unallocated      Total  
     (In thousands)  

Allowance for loan losses:

               

Beginning balance

   $ 21,302     $ 42,336     $ 26,734     $ 14,981     $ 3,438     $ —        $ 108,791  

Loans charged off

     (1,286     (339     (536     (704     (526     —          (3,391

Recoveries of loans previously charged off

     23       191       352       182       209       —          957  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net loans recovered (charged off)

     (1,263     (148     (184     (522     (317     —          (2,434

Provision for loan losses

     1,848       (1,523     (1,105     231       549       —          —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, March 31

   $ 21,887     $ 40,665     $ 25,445     $ 14,690     $ 3,670     $ —        $ 106,357  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     As of March 31, 2019  
     Construction/
Land
Development
    Other
Commercial
Real Estate
    Residential
Real Estate
    Commercial
& Industrial
    Consumer
& Other
    Unallocated      Total  
     (In thousands)  

Allowance for loan losses:

               

Period end amount allocated to:

               

Loans individually evaluated for impairment

   $ 103     $ 386     $ 87     $ 19     $ —      

$

—  

 

   $ 595  

Loans collectively evaluated for impairment

     21,553       39,969       24,711       14,531       3,670       —          104,434  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Loans evaluated for impairment balance, March 31

     21,656       40,355       24,798       14,550       3,670       —          105,029  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Purchased credit impaired loans

     231       310       647       140       —         —          1,328  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, March 31

   $ 21,887     $ 40,665     $ 25,445     $ 14,690     $ 3,670     $ —        $ 106,357  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Loans receivable:

               

Period end amount allocated to:

               

Loans individually evaluated for impairment

   $ 11,635     $ 60,160     $ 37,682     $ 33,802     $ 3,667     $ —        $ 146,946  

Loans collectively evaluated for impairment

     1,628,973       4,567,658       2,416,635       1,457,839       633,716       —          10,704,821  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Loans evaluated for impairment balance, March 31

     1,640,608       4,627,818       2,454,317       1,491,641       637,383       —          10,851,767  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Purchased credit impaired loans

     8,695       71,448       30,900       14,132       1,993       —          127,168  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, March 31

   $ 1,649,303     $ 4,699,266     $ 2,485,217     $ 1,505,773     $ 639,376     $ —        $ 10,978,935  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

16


Table of Contents

The following tables present the balances in the allowance for loan losses for the three-month period ended March 31, 2018 and the year ended December 31, 2018, and the allowance for loan losses and recorded investment in loans receivable based on portfolio segment by impairment method as of December 31, 2018. Allocation of a portion of the allowance to one type of loans does not preclude its availability to absorb losses in other categories.

 

     Year Ended December 31, 2018  
     Construction/
Land
Development
    Other
Commercial
Real Estate
    Residential
Real Estate
    Commercial
& Industrial
    Consumer
& Other
    Unallocated     Total  
     (In thousands)  

Allowance for loan losses:

              

Beginning balance

   $ 20,343     $ 43,939     $ 24,506     $ 15,292     $ 3,334     $ 2,852     $ 110,266  

Loans charged off

     (8     (447     (779     (814     (492     —         (2,540

Recoveries of loans previously charged off

     30       101       361       98       296       —         886  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loans recovered (charged off)

     22       (346     (418     (716     (196     —         (1,654

Provision for loan losses

     (261     1,238       (474     1,617       109       (629     1,600  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31

     20,104       44,831       23,614       16,193       3,247       2,223       110,212  

Loans charged off

     (391     (764     (1,965     (1,407     (1,921     —         (6,448

Recoveries of loans previously charged off

     150       426       563       526       640       —         2,305  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loans recovered (charged off)

     (241     (338     (1,402     (881     (1,281     —         (4,143

Provision for loan losses

     1,439       (2,157     4,522       (331     1,472       (2,223     2,722  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31

   $ 21,302     $ 42,336     $ 26,734     $ 14,981     $ 3,438     $ —       $ 108,791  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     As of December 31, 2018  
     Construction/
Land
Development
    Other
Commercial
Real Estate
    Residential
Real Estate
    Commercial
& Industrial
    Consumer
& Other
    Unallocated     Total  
     (In thousands)  

Allowance for loan losses:

              

Period end amount allocated to:

              

Loans individually evaluated for impairment

   $ 732     $ 468     $ 100     $ 21     $ —       $ —       $ 1,321  

Loans collectively evaluated for impairment

     20,336       41,512       25,970       14,789       3,438       —         106,045  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans evaluated for impairment balance, December 31

     21,068       41,980       26,070       14,810       3,438       —         107,366  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Purchased credit impaired loans

     234       356       664       171       —         —         1,425  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31

   $ 21,302     $ 42,336     $ 26,734     $ 14,981     $ 3,438     $ —       $ 108,791  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans receivable:

              

Period end amount allocated to:

              

Loans individually evaluated for impairment

   $ 14,519     $ 58,706     $ 29,535     $ 30,251     $ 3,688     $ —       $ 136,699  

Loans collectively evaluated for impairment

     1,522,520       4,741,484       2,473,467       1,431,608       624,561       —         10,793,640  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans evaluated for impairment balance, December 31

     1,537,039       4,800,190       2,503,002       1,461,859       628,249       —         10,930,339  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Purchased credit impaired loans

     8,996       82,927       33,059       14,472       2,086       —         141,540  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31

   $ 1,546,035     $ 4,883,117     $ 2,536,061     $ 1,476,331     $ 630,335     $ —       $ 11,071,879  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

17


Table of Contents

The following is an aging analysis for loans receivable as of March 31, 2019 and December 31, 2018:

 

     March 31, 2019  
     Loans
Past Due
30-59 Days
     Loans
Past Due
60-89 Days
     Loans
Past Due
90 Days
or More
     Total
Past Due
     Current
Loans
     Total Loans
Receivable
     Accruing
Loans
Past Due
90 Days
or More
 
     (In thousands)  

Real estate:

                    

Commercial real estate loans

                    

Non-farm/non-residential

   $ 5,146      $ 1,752      $ 26,179      $ 33,077      $ 4,590,097      $ 4,623,174      $ 7,180  

Construction/land development

     259        113        5,878        6,250        1,643,053        1,649,303        3,369  

Agricultural

     1,141        —          145        1,286        74,806        76,092        —    

Residential real estate loans

                    

Residential 1-4 family

     8,288        1,062        22,127        31,477        1,915,642        1,947,119        2,797  

Multifamily residential

     134        —          1,166        1,300        536,798        538,098        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     14,968        2,927        55,495        73,390        8,760,396        8,833,786        13,346  

Consumer

     1,320        22        3,613        4,955        443,138        448,093        574  

Commercial and industrial

     3,017        3,003        5,053        11,073        1,494,700        1,505,773        657  

Agricultural and other

     658        36        32        726        190,557        191,283        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 19,963      $ 5,988      $ 64,193      $ 90,144      $ 10,888,791      $ 10,978,935      $ 14,577  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2018  
     Loans
Past Due
30-59 Days
     Loans
Past Due
60-89 Days
     Loans
Past Due
90 Days
or More
     Total
Past Due
     Current
Loans
     Total Loans
Receivable
     Accruing
Loans
Past Due
90 Days
or More
 
     (In thousands)  

Real estate:

                    

Commercial real estate loans

                    

Non-farm/non-residential

   $ 3,598      $ 927      $ 24,710      $ 29,235      $ 4,777,449      $ 4,806,684      $ 9,679  

Construction/land development

     2,057        261        8,761        11,079        1,534,956        1,546,035        3,481  

Agricultural

     98        —          20        118        76,315        76,433        —    

Residential real estate loans

                    

Residential 1-4 family

     5,890        3,745        19,137        28,772        1,946,814        1,975,586        1,753  

Multifamily residential

     —          200        972        1,172        559,303        560,475        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     11,643        5,133        53,600        70,376        8,894,837        8,965,213        14,913  

Consumer

     5,712        168        3,632        9,512        433,593        443,105        720  

Commercial and industrial

     1,237        87        6,977        8,301        1,468,030        1,476,331        1,526  

Agricultural and other

     1,121        —          33        1,154        186,076        187,230        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 19,713      $ 5,388      $ 64,242      $ 89,343      $ 10,982,536      $ 11,071,879      $ 17,159  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-accruing loans at March 31, 2019 and December 31, 2018 were $49.6 million and $47.1 million, respectively.

 

18


Table of Contents

The following is a summary of the impaired loans as of March 31, 2019 and December 31, 2018:

 

     March 31, 2019  
                          Three Months Ended  
     Unpaid
Contractual
Principal
Balance
     Total
Recorded
Investment
     Allocation
of Allowance
for Loan
Losses
     Average
Recorded
Investment
     Interest
Recognized
 
     (In thousands)  

Loans without a specific valuation allowance

  

Real estate:

  

Commercial real estate loans

              

Non-farm/non-residential

   $ 41      $ 41      $ —        $ 42      $ 1  

Construction/land development

     15        15        —          16        —    

Agricultural

     10        10        —          11        —    

Residential real estate loans

              

Residential 1-4 family

     303        303        —          209        5  

Multifamily residential

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     369        369        —          278        6  

Consumer

     23        23        —          21        1  

Commercial and industrial

     207        207        —          156        3  

Agricultural and other

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans without a specific valuation allowance

     599        599        —          455        10  

Loans with a specific valuation allowance

              

Real estate:

              

Commercial real estate loans

              

Non-farm/non-residential

     43,984        39,921        377        39,257        484  

Construction/land development

     10,135        9,208        103        10,649        87  

Agricultural

     523        526        9        410        5  

Residential real estate loans

              

Residential 1-4 family

     25,780        23,463        50        22,048        70  

Multifamily residential

     2,549        2,549        37        2,459        16  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     82,971        75,667        576        74,823        662  

Consumer

     3,811        3,612        —          3,624        7  

Commercial and industrial

     9,098        5,641        19        6,661        21  

Agricultural and other

     32        32        —          32        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans with a specific valuation allowance

     95,912        84,952        595        85,140        690  

Total impaired loans

              

Real estate:

              

Commercial real estate loans

              

Non-farm/non-residential

     44,025        39,962        377        39,299        485  

Construction/land development

     10,150        9,223        103        10,665        87  

Agricultural

     533        536        9        421        5  

Residential real estate loans

              

Residential 1-4 family

     26,083        23,766        50        22,257        75  

Multifamily residential

     2,549        2,549        37        2,459        16  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     83,340        76,036        576        75,101        668  

Consumer

     3,834        3,635        —          3,645        8  

Commercial and industrial

     9,305        5,848        19        6,817        24  

Agricultural and other

     32        32        —          32        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 96,511      $ 85,551      $ 595      $ 85,595      $ 700  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Note: Purchased credit impaired loans are accounted for on a pooled basis under ASC 310-30. All of these pools are currently considered to be performing resulting in none of the purchased credit impaired loans being classified as impaired loans as of March 31, 2019.

 

19


Table of Contents
     December 31, 2018  
                          Year Ended  
     Unpaid
Contractual
Principal
Balance
     Total
Recorded
Investment
     Allocation
of Allowance
for Loan
Losses
     Average
Recorded
Investment
     Interest
Recognized
 
     (In thousands)  

Loans without a specific valuation allowance

              

Real estate:

  

Commercial real estate loans

              

Non-farm/non-residential

   $ 42      $ 42      $ —        $ 34      $ 3  

Construction/land development

     16        16        —          27        1  

Agricultural

     11        11        —          15        1  

Residential real estate loans

              

Residential 1-4 family

     223        223        —          193        16  

Multifamily residential

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     292        292        —          269        21  

Consumer

     27        27        —          24        2  

Commercial and industrial

     236        236        —          199        13  

Agricultural and other

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans without a specific valuation allowance

     555        555        —          492        36  

Loans with a specific valuation allowance

              

Real estate:

              

Commercial real estate loans

              

Non-farm/non-residential

     42,474        38,594        460        34,891        1,632  

Construction/land development

     13,178        12,091        732        12,337        307  

Agricultural

     291        294        8        388        18  

Residential real estate loans

              

Residential 1-4 family

     22,570        20,526        58        19,017        485  

Multifamily residential

     2,369        2,369        42        2,166        83  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     80,882        73,874        1,300        68,799        2,525  

Consumer

     3,830        3,629        —          1,236        52  

Commercial and industrial

     11,176        7,550        21        10,599        257  

Agricultural and other

     33        32        —          146        3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans with a specific valuation allowance

     95,921        85,085        1,321        80,780        2,837  

Total impaired loans

              

Real estate:

              

Commercial real estate loans

              

Non-farm/non-residential

     42,516        38,636        460        34,925        1,635  

Construction/land development

     13,194        12,107        732        12,364        308  

Agricultural

     302        305        8        403        19  

Residential real estate loans

              

Residential 1-4 family

     22,793        20,749        58        19,210        501  

Multifamily residential

     2,369        2,369        42        2,166        83  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     81,174        74,166        1,300        69,068        2,546  

Consumer

     3,857        3,656        —          1,260        54  

Commercial and industrial

     11,412        7,786        21        10,798        270  

Agricultural and other

     33        32        —          146        3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 96,476      $ 85,640      $ 1,321      $ 81,272      $ 2,873  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Note: Purchased credit impaired loans are accounted for on a pooled basis under ASC 310-30. All of these pools are currently considered to be performing resulting in none of the purchased credit impaired loans being classified as impaired loans as of December 31, 2018.

Interest recognized on impaired loans during the three months ended March 31, 2019 and 2018 was approximately $700,000 and $983,000, respectively. The amount of interest recognized on impaired loans on the cash basis is not materially different than the accrual basis.

 

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Table of Contents

Credit Quality Indicators. As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk rating of loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) non-performing loans and (v) the general economic conditions in Arkansas, Florida, Alabama and New York.

The Company utilizes a risk rating matrix to assign a risk rating to each of its loans. Loans are rated on a scale from 1 to 8. Descriptions of the general characteristics of the 8 risk ratings are as follows:

 

   

Risk rating 1 – Excellent. Loans in this category are to persons or entities of unquestionable financial strength, a highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the Bank expects their performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin. Loans secured by bank certificates of deposit and savings accounts, with appropriate holds placed on the accounts, are to be rated in this category.

 

   

Risk rating 2 – Good. These are loans to persons or entities with strong financial condition and above-average liquidity that have previously satisfactorily handled their obligations with the Bank. Collateral securing the Bank’s debt is margined in accordance with policy guidelines. Internally generated cash flow covers current maturities of long-term debt more than adequately. Unsecured loans to individuals supported by strong financial statements and on which repayment is satisfactory may be included in this classification.

 

   

Risk rating 3 – Satisfactory. Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt, and net worth comprised mainly of fixed assets are included in this category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future. Closely held corporations or businesses where a majority of the profits are withdrawn by the owners or paid in dividends are included in this rating category. Overall, these loans are basically sound.

 

   

Risk rating 4 – Watch. Borrowers who have marginal cash flow, marginal profitability or have experienced an unprofitable year and a declining financial condition characterize these loans. The borrower has in the past satisfactorily handled debts with the Bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that appears to limit exposure. Included in this category are loans to borrowers in industries that are experiencing elevated risk.

 

   

Risk rating 5 – Other Loans Especially Mentioned (“OLEM”). A loan criticized as OLEM has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. OLEM assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.

 

   

Risk rating 6 – Substandard. A loan classified as substandard is inadequately protected by the sound worth and paying capacity of the borrower or the collateral pledged. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual assets.

 

   

Risk rating 7 – Doubtful. A loan classified as doubtful has all the weaknesses inherent in a loan 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. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the loan.

 

   

Risk rating 8 – Loss. Assets classified as loss are considered uncollectible and of such little value that the continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may occur in the future. This classification is based upon current facts, not probabilities. Assets classified as loss should be charged-off in the period in which they became uncollectible.

 

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Table of Contents

The Company’s classified loans include loans in risk ratings 6, 7 and 8. The following is a presentation of classified loans (excluding loans accounted for under ASC Topic 310-30) by class as of March 31, 2019 and December 31, 2018:

 

     March 31, 2019  
     Risk Rated 6      Risk Rated 7      Risk Rated 8      Classified Total  
     (In thousands)  

Real estate:

           

Commercial real estate loans

           

Non-farm/non-residential

   $ 44,248      $ 1,834      $ —        $ 46,082  

Construction/land development

     12,233        546        —          12,779  

Agricultural

     773        —          —          773  

Residential real estate loans

           

Residential 1-4 family

     35,823        339        —          36,162  

Multifamily residential

     1,166        —          —          1,166  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     94,243        2,719        —          96,962  

Consumer

     3,329        1        —          3,330  

Commercial and industrial

     20,423        603        —          21,026  

Agricultural and other

     49        —          —          49  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total risk rated loans

   $ 118,044      $ 3,323      $ —        $ 121,367  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2018  
     Risk Rated 6      Risk Rated 7      Risk Rated 8      Classified Total  
     (In thousands)  

Real estate:

           

Commercial real estate loans

           

Non-farm/non-residential

   $ 44,089      $ 484      $ —        $ 44,573  

Construction/land development

     15,236        —          —          15,236  

Agricultural

     301        3        —          304  

Residential real estate loans

           

Residential 1-4 family

     34,731        253        —          34,984  

Multifamily residential

     972        —          —          972  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     95,329        740        —          96,069  

Consumer

     3,226        3        —          3,229  

Commercial and industrial

     16,362        585        —          16,947  

Agricultural and other

     48        —          —          48  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total risk rated loans

   $ 114,965      $ 1,328      $ —        $ 116,293  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans may be classified, but not considered impaired, due to one of the following reasons: (1) The Company has established minimum dollar amount thresholds for loan impairment testing. All loans over $2.0 million that are rated 5 – 8 are individually assessed for impairment on a quarterly basis. Loans rated 5 – 8 that fall under the threshold amount are not individually tested for impairment and therefore are not included in impaired loans; (2) of the loans that are above the threshold amount and tested for impairment, after testing, some are considered to not be impaired and are not included in impaired loans.

 

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Table of Contents

The following is a presentation of loans receivable by class and risk rating as of March 31, 2019 and December 31, 2018:

 

     March 31, 2019  
     Risk
Rated 1
     Risk
Rated 2
     Risk
Rated 3
     Risk
Rated 4
     Risk
Rated 5
     Classified
Total
     Total  
     (In thousands)  

Real estate:

                    

Commercial real estate loans

                    

Non-farm/non-residential

   $ —        $ 293      $ 2,613,119      $ 1,862,510      $ 29,902      $ 46,082      $ 4,551,906  

Construction/land development

     14        680        336,883        1,289,460        792        12,779        1,640,608  

Agricultural

     —          —          37,477        36,759        903        773        75,912  

Residential real estate loans

                    

Residential 1-4 family

     628        724        1,438,140        430,562        11,162        36,162        1,917,378  

Multifamily residential

     —          —          381,301        154,472        —          1,166        536,939  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     642        1,697        4,806,920        3,773,763        42,759        96,962        8,722,743  

Consumer

     14,189        4,074        403,101        20,973        433        3,330        446,100  

Commercial and industrial

     22,188        11,281        737,213        675,278        24,655        21,026        1,491,641  

Agricultural and other

     378        3,312        135,407        51,022        1,115        49        191,283  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total risk rated loans

   $ 37,397      $ 20,364      $ 6,082,641      $ 4,521,036      $ 68,962      $ 121,367        10,851,767  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Purchased credit impaired loans

 

                    127,168  
                 

 

 

 

Total loans receivable

                     $ 10,978,935  
                    

 

 

 

 

     December 31, 2018  
     Risk
Rated 1
     Risk
Rated 2
     Risk
Rated 3
     Risk
Rated 4
     Risk
Rated 5
     Classified
Total
     Total  
     (In thousands)  

Real estate:

                    

Commercial real estate loans

                    

Non-farm/non-residential

   $ 443      $ 296      $ 2,740,068      $ 1,912,191      $ 26,361      $ 44,573      $ 4,723,932  

Construction/land development

     17        645        264,507        1,255,258        1,377        15,236        1,537,040  

Agricultural

     —          —          37,377        38,295        282        304        76,258  

Residential real estate loans

                    

Residential 1-4 family

     715        738        1,453,859        446,557        7,078        34,984        1,943,931  

Multifamily residential

     —          —          388,572        169,526        —          972        559,070  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     1,175        1,679        4,884,383        3,821,827        35,098        96,069        8,840,231  

Consumer

     13,432        4,298        401,209        18,409        442        3,229        441,019  

Commercial and industrial

     21,673        13,310        737,218        649,390        23,321        16,947        1,461,859  

Agricultural and other

     737        3,423        133,901        48,567        554        48        187,230  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total risk rated loans

   $ 37,017      $ 22,710      $ 6,156,711      $ 4,538,193      $ 59,415      $ 116,293        10,930,339  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Purchased credit impaired loans

                       141,540  
                    

 

 

 

Total loans receivable

                     $ 11,071,879  
                    

 

 

 

 

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Table of Contents

The following is a presentation of troubled debt restructurings (“TDRs”) by class as of March 31, 2019 and December 31, 2018:

 

     March 31, 2019  
     Number
of Loans
     Pre-Modification
Outstanding
Balance
     Rate
Modification
     Term
Modification
     Rate
& Term
Modification
     Post-
Modification
Outstanding
Balance
 
     (Dollars in thousands)  

Real estate:

  

Commercial real estate loans

                 

Non-farm/non-residential

     17      $ 15,227      $ 8,397      $ 980      $ 4,457      $ 13,834  

Construction/land development

     2        584        547        15        —          562  

Agricultural

     3        451        388        13        —          401  

Residential real estate loans

                 

Residential 1-4 family

     22        3,231        1,091        274        1,002        2,367  

Multifamily residential

     3        1,701        1,230        —          290        1,520  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     47        21,194        11,653        1,282        5,749        18,684  

Consumer

     4        33        17        6        —          23  

Commercial and industrial

     14        1,679        884        90        —          974  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     65      $ 22,906      $ 12,554      $ 1,378      $ 5,749      $ 19,681  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2018  
     Number
of Loans
     Pre-Modification
Outstanding
Balance
     Rate
Modification
     Term
Modification
     Rate
& Term
Modification
     Post-
Modification
Outstanding
Balance
 
     (Dollars in thousands)  

Real estate:

                 

Commercial real estate loans

                 

Non-farm/non-residential

     17      $ 15,227      $ 8,482      $ 982      $ 4,475      $ 13,939  

Construction/land development

     2        584        546        17        —          563  

Agricultural

     2        345        283        14        —          297  

Residential real estate loans

                 

Residential 1-4 family

     22        3,204        1,059        281        1,022        2,362  

Multifamily residential

     3        1,701        1,253        —          286        1,539  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     46        21,061        11,623        1,294        5,783        18,700  

Consumer

     5        38        18        9        —          27  

Commercial and industrial

     14        1,679        897        105        —          1,002  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     65      $ 22,778      $ 12,538      $ 1,408      $ 5,783      $ 19,729  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The following is a presentation of TDRs on non-accrual status as of March 31, 2019 and December 31, 2018 because they are not in compliance with the modified terms:

 

     March 31, 2019      December 31, 2018  
     Number of Loans      Recorded Balance      Number of Loans      Recorded Balance  
     (Dollars in thousands)  

Real estate:

  

Commercial real estate loans

           

Non-farm/non-residential

     4      $ 2,950        4      $ 2,950  

Construction/land development

     1        546        1        546  

Agricultural

     1        13        1        14  

Residential real estate loans

           

Residential 1-4 family

     8        752        8        778  

Multifamily residential

     1        138        1        142  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     15        4,399        15        4,430  

Consumer

     1        1        1        2  

Commercial and industrial

     6        179        6        194  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     22      $ 4,579        22      $ 4,626  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following is a presentation of total foreclosed assets as of March 31, 2019 and December 31, 2018:

 

     March 31, 2019      December 31, 2018  
     (In thousands)  

Commercial real estate loans

     

Non-farm/non-residential

   $ 5,251      $ 5,555  

Construction/land development

     5,571        3,534  

Agricultural

     —          —    

Residential real estate loans

     

Residential 1-4 family

     3,644        4,142  

Multifamily residential

     —          5  
  

 

 

    

 

 

 

Total foreclosed assets held for sale

   $ 14,466      $ 13,236  
  

 

 

    

 

 

 

Changes in the carrying amount of the accretable yield for purchased credit impaired loans were as follows for the three-month period ended March 31, 2019 for the Company’s acquisitions:

 

     Accretable Yield      Carrying
Amount of
Loans
 
     (In thousands)  

Balance at beginning of period

   $ 33,759      $ 141,540  

Reforecasted future interest payments for loan pools

     972        —    

Accretion recorded to interest income

     (4,369      4,369  

Adjustment to yield

     3,520        —    

Transfers to foreclosed assets held for sale

     —          163  

Payments received, net

     —          (18,904
  

 

 

    

 

 

 

Balance at end of period

   $ 33,882      $ 127,168  
  

 

 

    

 

 

 

The loan pools were evaluated by the Company and are currently forecasted to have a slower run-off than originally expected. As a result, the Company has reforecast the total accretable yield expectations for those loan pools by $972,000. This updated forecast does not change the expected weighted average yields on the loan pools.

During the 2019 impairment tests on the estimated cash flows of loans, the Company established that several loan pools were determined to have a materially projected credit improvement. As a result of this improvement, the Company will recognize approximately $3.5 million as an additional adjustment to yield over the weighted average life of the loans.

 

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Table of Contents

6. Goodwill and Core Deposits and Other Intangibles

Changes in the carrying amount and accumulated amortization of the Company’s goodwill and core deposits and other intangibles at March 31, 2019 and December 31, 2018, were as follows:

 

     March 31, 2019      December 31, 2018  

Goodwill

   (In thousands)  

Balance, beginning of period

   $ 958,408      $ 927,949  

Acquisitions

     —          30,459  
  

 

 

    

 

 

 

Balance, end of period

   $ 958,408      $ 958,408  
  

 

 

    

 

 

 
     March 31, 2019      December 31, 2018  

Core Deposit and Other Intangibles

   (In thousands)  

Balance, beginning of period

   $ 42,896      $ 49,351  

Amortization expense

     (1,586      (1,625
  

 

 

    

 

 

 

Balance, March 31

   $ 41,310        47,726  
  

 

 

    

Amortization expense

        (4,830
     

 

 

 

Balance, end of year

      $ 42,896  
     

 

 

 

The carrying basis and accumulated amortization of core deposits and other intangibles at March 31, 2019 and December 31, 2018 were:

 

     March 31, 2019      December 31, 2018  
     (In thousands)  

Gross carrying basis

   $ 86,625      $ 86,625  

Accumulated amortization

     (45,315      (43,729
  

 

 

    

 

 

 

Net carrying amount

   $ 41,310      $ 42,896  
  

 

 

    

 

 

 

Core deposit and other intangible amortization expense was approximately $1.6 million for the three months ended March 31, 2019 and 2018. HBI’s estimated amortization expense of core deposits and other intangibles for each of the years 2019 through 2023 is approximately: 2019 – $6.5 million; 2020 – $5.9 million; 2021 – $5.7 million; 2022 – $5.7 million; 2023 – $5.5 million.

The carrying amount of the Company’s goodwill was $958.4 million at March 31, 2019 and December 31, 2018. Goodwill is tested annually for impairment during the fourth quarter. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements.

7. Other Assets

Other assets consist primarily of equity securities without a readily determinable fair value and other miscellaneous assets. As of March 31, 2019 and December 31, 2018 other assets were $172.7 million and $183.8 million, respectively.

The Company has equity securities without readily determinable fair values such as stock holdings in the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank (“Federal Reserve”) which are outside the scope of ASC Topic 321, Investments – Equity Securities (“ASC Topic 321”). These equity securities without a readily determinable fair value were $121.2 million and $134.6 million at March 31, 2019 and December 31, 2018, respectively, and are accounted for at cost.

The Company has equity securities such as stock holdings in First National Bankers’ Bank and other miscellaneous holdings which are accounted for under ASC Topic 321. These equity securities without a readily determinable fair value were $25.2 million and $25.1 million at March 31, 2019 and December 31, 2018, respectively. There were no transactions during the period that would indicate a material change in fair value. Therefore, these investments were accounted for at cost, less impairment.

 

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Table of Contents

8. Deposits

The aggregate amount of time deposits with a minimum denomination of $250,000 was $955.1 million and $922.0 million at March 31, 2019 and December 31, 2018, respectively. The aggregate amount of time deposits with a minimum denomination of $100,000 was $1.42 billion and $1.41 billion at March 31, 2019 and December 31, 2018, respectively.    Interest expense applicable to certificates in excess of $100,000 totaled $7.2 million and $2.8 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019 and December 31, 2018, brokered deposits were $636.3 million and $660.2 million, respectively.

Deposits totaling approximately $1.87 billion and $1.97 billion at March 31, 2019 and December 31, 2018, respectively, were public funds obtained primarily from state and political subdivisions in the United States.

9. Securities Sold Under Agreements to Repurchase

At March 31, 2019 and December 31, 2018, securities sold under agreements to repurchase totaled $152.2 million and $143.7 million, respectively. For the three-month periods ended March 31, 2019 and 2018, securities sold under agreements to repurchase daily weighted-average totaled $150.8 million and $152.7 million, respectively.

The remaining contractual maturity of securities sold under agreements to repurchase in the consolidated balance sheets as of March 31, 2019 and December 31, 2018 is presented in the following tables:

 

     March 31, 2019  
     Overnight and
Continuous
     Up to 30
Days
     30-90
Days
     Greater than
90 Days
     Total  
     (In thousands)  

Securities sold under agreements to repurchase:

              

U.S. government-sponsored enterprises

   $ 9,394      $ —        $ —        $ —        $ 9,394  

Mortgage-backed securities

     32,132        —          —          —          32,132  

State and political subdivisions

     97,702        —          —          —          97,702  

Other securities

     13,011        —          —          —          13,011  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total borrowings

   $ 152,239      $ —        $ —        $ —        $ 152,239  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2018  
     Overnight and
Continuous
     Up to 30
Days
     30-90
Days
     Greater than
90 Days
     Total  
     (In thousands)  

Securities sold under agreements to repurchase:

              

U.S. government-sponsored enterprises

   $ 19,124      $ —        $ —        $ —        $ 19,124  

Mortgage-backed securities

     9,184        —          —          —          9,184  

State and political subdivisions

     98,841        —          —          —          98,841  

Other securities

     16,530        —          —          —          16,530  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total borrowings

   $ 143,679      $ —        $ —        $ —        $ 143,679  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

10. FHLB and Other Borrowed Funds

The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $1.10 billion and $1.47 billion at March 31, 2019 and December 31, 2018, respectively. Other borrowed funds were $360,000 and $2.5 million and are classified as short-term advances as of March 31, 2019 and December 31, 2018, respectively. At March 31, 2019, $415.4 million and $689.8 million of the outstanding balance were issued as short-term and long-term advances, respectively. At December 31, 2018, $782.6 million and $689.8 million of the outstanding balance were issued as short-term and long-term advances, respectively. The FHLB advances mature from the current year to 2033 with fixed interest rates ranging from 1.00% to 4.80% and are secured by loans and investments securities. Maturities of borrowings as of March 31, 2019 include: 2019 – $558.4 million; 2020 – $146.4 million; 2021 – zero; 2022 – zero; after 2023 – $400.4 million. Expected maturities will differ from contractual maturities because FHLB may have the right to call or HBI the right to prepay certain obligations.

 

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Additionally, the Company had $822.7 and $821.3 million at March 31, 2019 and December 31, 2018, respectively, in letters of credit under a FHLB blanket borrowing line of credit, which are used to collateralize public deposits at March 31, 2019 and December 31, 2018, respectively.

Additionally, the parent company took out a $20.0 million line of credit for general corporate purposes during 2015. The balance on this line of credit at March 31, 2019 and December 31, 2018 was zero.

11. Subordinated Debentures

Subordinated debentures at March 31, 2019 and December 31, 2018 consisted of guaranteed payments on trust preferred securities with the following components:

 

     As of
March 31,
2019
     As of
December 31,
2018
 
     (In thousands)  

Trust preferred securities

     

Subordinated debentures, issued in 2006, due 2036, fixed rate of 6.75% during the first five years and at a floating rate of 1.85% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty

   $ 3,093      $ 3,093  

Subordinated debentures, issued in 2004, due 2034, fixed rate of 6.00% during the first five years and at a floating rate of 2.00% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty

     15,464        15,464  

Subordinated debentures, issued in 2005, due 2035, fixed rate of 5.84% during the first five years and at a floating rate of 1.45% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty

     25,774        25,774  

Subordinated debentures, issued in 2004, due 2034, fixed rate of 4.29% during the first five years and at a floating rate of 2.50% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty

     16,495        16,495  

Subordinated debentures, issued in 2005, due 2035, floating rate of 2.15% above the three-month LIBOR rate, reset quarterly, currently callable without penalty

     4,365        4,353  

Subordinated debentures, issued in 2006, due 2036, fixed rate of 7.38% during the first five years and at a floating rate of 1.62% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty

     5,685        5,662  

Subordinated debt securities

     

Subordinated notes, net of issuance costs, issued in 2017, due 2027, fixed rate of 5.625% during the first five years and at a floating rate of 3.575% above the then three-month LIBOR rate, reset quarterly, thereafter, callable in 2022 without penalty

     298,103        297,949  
  

 

 

    

 

 

 

Total

   $ 368,979      $ 368,790  
  

 

 

    

 

 

 

The Company holds trust preferred securities with a face amount of $73.3 million which are currently callable without penalty based on the terms of the specific agreements. The trust preferred securities are tax-advantaged issues that qualify for Tier 1 capital treatment subject to certain limitations. Distributions on these securities are included in interest expense. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in the Company’s subordinated debentures, the sole asset of each trust. The trust preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the subordinated debentures held by the trust. The Company wholly owns the common securities of each trust. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related subordinated debentures. The Company’s obligations under the subordinated securities and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of each respective trust’s obligations under the trust securities issued by each respective trust.

 

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12. Income Taxes

The following is a summary of the components of the provision (benefit) for income taxes for the three-month periods ended March 31, 2019 and 2018:

 

     Three Months Ended
March 31,
 
     2019      2018  
     (In thousands)  

Current:

     

Federal

   $ 10,158      $ 15,005  

State

     3,363        4,967  
  

 

 

    

 

 

 

Total current

     13,521        19,972  
  

 

 

    

 

 

 

Deferred:

     

Federal

     6,922        3,004  

State

     2,292        994  
  

 

 

    

 

 

 

Total deferred

     9,214        3,998  
  

 

 

    

 

 

 

Income tax expense

   $ 22,735      $ 23,970  
  

 

 

    

 

 

 

The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows for the three-month periods ended March 31, 2019 and 2018:

 

     Three Months Ended
March 31,
 
     2019     2018  

Statutory federal income tax rate

     21.00     21.00

Effect of non-taxable interest income

     (0.86     (0.74

Stock compensation

     (0.10     (0.83

State income taxes, net of federal benefit

     3.98       4.10  

Other

     0.14       1.17  
  

 

 

   

 

 

 

Effective income tax rate

     24.16     24.70
  

 

 

   

 

 

 

 

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The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their approximate tax effects, are as follows:

 

     March 31, 2019      December 31, 2018  
     (In thousands)  

Deferred tax assets:

     

Allowance for loan losses

   $ 29,374      $ 30,033  

Deferred compensation

     1,556        4,037  

Stock compensation

     4,784        4,259  

Non-accrual interest income

     132        —    

Real estate owned

     1,244        1,382  

Unrealized loss on securities available-for-sale

     1,706        5,050  

Loan discounts

     22,013        23,755  

Tax basis premium/discount on acquisitions

     6,889        7,378  

Investments

     946        866  

Other

     9,508        10,243  
  

 

 

    

 

 

 

Gross deferred tax assets

     78,152        87,003  
  

 

 

    

 

 

 

Deferred tax liabilities:

     

Accelerated depreciation on premises and equipment

     564        87  

Core deposit intangibles

     9,648        9,804  

FHLB dividends

     1,712        1,712  

Other

     2,167        2,125  
  

 

 

    

 

 

 

Gross deferred tax liabilities

     14,091        13,728  
  

 

 

    

 

 

 

Net deferred tax assets

   $ 64,061      $ 73,275  
  

 

 

    

 

 

 

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and the states of Alabama, Arkansas, California, Florida, Kansas, New Jersey, New York, Ohio, Texas and Virginia. The Company is no longer subject to U.S. federal and state tax examinations by tax authorities for years before 2015.

13. Common Stock, Compensation Plans and Other

Common Stock

As of March 31, 2019, the Company’s Restated Articles of Incorporation, as amended, authorize the issuance of up to 200,000,000 shares of common stock, par value $0.01 per share.

On April 18, 2019 at the Annual Meeting of Shareholders of the Company, the shareholders approved an amendment to the Company’s Restated Articles of Incorporation to increase the number of authorized shares of common stock from 200,000,000 to 300,000,000.

The Company also has the authority to issue up to 5,500,000 shares of preferred stock, par value $0.01 per share under the Company’s Restated Articles of Incorporation.

Stock Repurchases

On January 18, 2019, the Company’s Board of Directors authorized the repurchase of up to an additional 5,000,000 shares of its common stock under the previously approved stock repurchase program, which brought the remaining amount of authorized shares to repurchase to 9,919,447 shares. During the first three months of 2019, the Company utilized a portion of this stock repurchase program.

During the first three months of 2019, the Company repurchased a total of 2,716,359 shares with a weighted-average stock price of $19.00 per share. The first quarter 2019 earnings were used to fund the repurchases during the quarter. Shares repurchased under the program as of March 31, 2019 since its inception total 12,548,912 shares. The remaining balance available for repurchase is 7,203,088 shares at March 31, 2019.

 

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Stock Compensation Plans

The Company has a stock option and performance incentive plan known as the Amended and Restated 2006 Stock Option and Performance Incentive Plan (the “Plan”). The purpose of the Plan is to attract and retain highly qualified officers, directors, key employees, and other persons, and to motivate those persons to improve the Company’s business results. As of March 31, 2019, the maximum total number of shares of the Company’s common stock available for issuance under the Plan was 13,288,000. At March 31, 2019, the Company had approximately 1,683,000 shares of common stock remaining available for future grants and approximately 5,279,000 shares of common stock reserved for issuance pursuant to outstanding awards under the Plan.

During the third quarter of 2018, the Company granted 1,452,000 stock options and 843,500 shares of restricted stock to certain employees under the HOMB $2.00 performance incentive program (“HOMB $2.00”). The purpose of the performance-based incentive plan is to motivate employees to help the Company achieve $2.00 of diluted earnings per share, as adjusted (non-GAAP), over a consecutive four-quarter period.

The intrinsic value of the stock options outstanding and stock options vested at March 31, 2019 was $3.6 million and $3.5 million, respectively. Total unrecognized compensation cost, net of income tax benefit, related to non-vested stock option awards, which are expected to be recognized over the vesting periods, was approximately $11.4 million as of March 31, 2019.

The table below summarizes the stock option transactions under the Plan at March 31, 2019 and December 31, 2018 and changes during the three-month period and year then ended:

 

     For the Three Months
Ended March 31, 2019
     For the Year Ended
December 31, 2018
 
     Shares (000)      Weighted-
Average
Exercisable
Price
     Shares (000)      Weighted-
Average
Exercisable
Price
 

Outstanding, beginning of year

     3,617      $ 19.62        2,274      $ 16.23  

Granted

     5        18.50        1,581        23.24  

Forfeited/Expired

     (25      20.79        (37      22.30  

Exercised

     —             (201      9.25  
  

 

 

       

 

 

    

Outstanding, end of period

     3,597        19.61        3,617        19.62  
  

 

 

       

 

 

    

Exercisable, end of period

     1,186      $ 15.27        1,167      $ 15.31  
  

 

 

       

 

 

    

Stock-based compensation expense for stock-based compensation awards granted is based on the grant-date fair value. For stock option awards, the fair value is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Accordingly, while management believes that the Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Company’s employee stock options. The weighted-average fair value of options granted during the three months ended March 31, 2019 was $4.08 per share. The weighted-average fair value of options granted during the year ended December 31, 2018 was $5.58 per share. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model based on the weighted-average assumptions for expected dividend yield, expected stock price volatility, risk-free interest rate, and expected life of options granted.

 

     For the Three Months Ended
March 31, 2019
    For the Year Ended
December 31, 2018
 

Expected dividend yield

     2.59     2.05

Expected stock price volatility

     26.12     25.59

Risk-free interest rate

     2.61     2.82

Expected life of options

     6.5 years       6.5 years  

 

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The following is a summary of currently outstanding and exercisable options at March 31, 2019:

 

Options Outstanding

     Options Exercisable  

Exercise Prices

   Options
Outstanding
Shares

(000)
     Weighted-
Average
Remaining
Contractual
Life (in years)
     Weighted-
Average
Exercise
Price
     Options
Exercisable
Shares
(000)
     Weighted-
Average
Exercise
Price
 

$2.66 to $2.77    

     6        0.75        2.66        6        2.66  

$4.30 to $6.56    

     87        2.81        6.56        87        6.56  

$8.62 to $9.54    

     245        3.91        9.01        245        9.01  

$14.71 to $16.86    

     252        5.53        15.97        198        15.96  

$17.12 to $17.40    

     193        5.64        17.20        128        17.24  

$18.46 to $18.50    

     1,015        6.42        18.46        433        18.46  

$20.16 to $20.58    

     48        6.53        20.51        25        20.45  

$21.25 to $22.22    

     235        8.04        21.71        48        21.25  

$22.70 to $23.51    

     1,436        9.31        23.32        —          0.00  

$25.96    

     80        8.06        25.96        16        25.96  
  

 

 

          

 

 

    
     3,597              1,186     
  

 

 

          

 

 

    

The table below summarized the activity for the Company’s restricted stock issued and outstanding at March 31, 2019 and December 31, 2018 and changes during the period and year then ended:

 

     As of
March 31, 2019
     As of
December 31, 2018
 
     (In thousands)  

Beginning of year

     1,873        1,145  

Issued

     177        1,010  

Vested

     (162      (233

Forfeited

     (7      (49
  

 

 

    

 

 

 

End of period

     1,881        1,873  
  

 

 

    

 

 

 

Amount of expense for three months and twelve months ended, respectively

   $ 2,090      $ 7,232  
  

 

 

    

 

 

 

Total unrecognized compensation cost, net of income tax benefit, related to non-vested restricted stock awards, which are expected to be recognized over the vesting periods, was approximately $29.2 million as of March 31, 2019.

 

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14. Non-Interest Expense

The table below shows the components of non-interest expense for the three months ended March 31, 2019 and 2018:

 

     Three Months Ended
March 31,
 
     2019      2018  
     (In thousands)  

Salaries and employee benefits

   $ 37,836      $ 35,014  

Occupancy and equipment

     8,823        8,983  

Data processing expense

     3,970        3,986  

Other operating expenses:

     

Advertising

     1,051        962  

Amortization of intangibles

     1,586        1,625  

Electronic banking expense

     1,903        1,878  

Directors’ fees

     434        330  

Due from bank service charges

     238        219  

FDIC and state assessment

     1,710        1,608  

Hurricane expense

     897        —    

Insurance

     697        887  

Legal and accounting

     981        778  

Other professional fees

     2,812        1,639  

Operating supplies

     536        600  

Postage

     326        344  

Telephone

     303        373  

Other expense

     4,954        4,154  
  

 

 

    

 

 

 

Total other operating expenses

     18,428        15,397  
  

 

 

    

 

 

 

Total non-interest expense

   $ 69,057      $ 63,380  
  

 

 

    

 

 

 

15. Leases

The Company leases land and office facilities under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2042 and do not include renewal options based on economic factors that would have implied that continuation of the lease was reasonably certain. Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. The leases generally include real estate taxes and common area maintenance (“CAM”) charges in the rental payments. Upon adoption of ASU 2016-02, the Company recorded a $47.1 million right-of-use (“ROU”) asset and $49.0 million lease liability within bank premises and equipment, net, and other liabilities, respectively, within the Company’s balance sheets. No cumulative adjustment to the opening balance of retained earnings was considered necessary due to the nature of the Company’s leases. Short-term leases are leases having a term of twelve months or less. As part of the standard adoption, the Company elected the package of practical expedients whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. In accordance with ASU 2018-11, the Company also elected the practical expedient whereby we elected to not separate nonlease components from the associated lease component of our operating leases. As a result, we account for these components as a single component under Topic 842 since (i) the timing and pattern of transfer of the nonlease components and the associated lease component are the same and (ii) the lease component, if accounted for separately, would be classified as an operating lease. The Company recognizes short term leases on a straight-line basis and does not record a related ROU asset and liability for such leases. In addition, equipment leases were determined to be immaterial and a related ROU asset and liability for such leases is not recorded. As of March 31, 2019, the balances of the right-of-use asset and lease liability was $46.0 million and $48.0 million, respectively. The right-of-use asset is included in bank premises and equipment, net, and the lease liability is included in accrued interest payable and other liabilities.

 

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At March 31, 2019, the maturity of the lease liabilities for the operating leases are as follows (in thousands):

 

2019

   $ 4,508  

2020-2021

     10,455  

2022-2023

     7,220  

Thereafter

     25,823  
  

 

 

 
   $ 48,006  
  

 

 

 

At March 31, 2019, the minimum rental commitments under these noncancelable operating leases are as follows (in thousands):

 

2019

   $ 5,788  

2020

     7,230  

2021

     6,157  

2022

     4,976  

2023

     4,341  

Thereafter

     30,414  
  

 

 

 
   $ 58,906  
  

 

 

 

Additional information (dollar amounts in thousands):

 

     Three Months
Ended March 31,
 
     2019  

Lease expense:

  

Operating lease expense

   $ 2,065  

Short-term lease expense

     24  

Variable lease expense

     239  
  

 

 

 

Total lease expense

   $ 2,328  
  

 

 

 

Other information:

  

Cash paid for amounts included in the measurement of lease liabilities

   $ 1,940  

Weighted-average remaining lease term

     10.81 years  

Weighted-average discount rate

     3.64

The Company currently leases three properties from three related parties. Total rent expense from the leases for the three months ended March 31, 2019 was $35,000 or 1.51% of total lease expense.

16. Significant Estimates and Concentrations of Credit Risks

Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses and certain concentrations of credit risk are reflected in Note 5, while deposit concentrations are reflected in Note 8.

The Company’s primary market areas are in Arkansas, Florida, South Alabama and New York. The Company primarily grants loans to customers located within these markets unless the borrower has an established relationship with the Company.

The diversity of the Company’s economic base tends to provide a stable lending environment. Although the Company has a loan portfolio that is diversified in both industry and geographic area, a substantial portion of its debtors’ ability to honor their contracts is dependent upon real estate values, tourism demand and the economic conditions prevailing in its market areas.

 

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Although the Company has a diversified loan portfolio, at March 31, 2019 and December 31, 2018, commercial real estate loans represented 57.8% and 58.1% of total loans receivable, respectively, and 268.8% and 273.6% of total stockholders’ equity at March 31, 2019 and December 31, 2018, respectively. Residential real estate loans represented 22.6% and 22.9% of total loans receivable and 105.2% and 107.9% of total stockholders’ equity at March 31, 2019 and December 31, 2018, respectively.

Approximately 79.3% of the Company’s total loans and 83.1% of the Company’s real estate loans as of March 31, 2019, are to borrowers whose collateral is located in Alabama, Arkansas, Florida and New York, the states in which the Company has its branch locations.

Although general economic conditions in the Company’s market areas have improved, both nationally and locally, over the past three years and have shown signs of continued improvement, financial institutions still face circumstances and challenges which, in some cases, have resulted and could potentially result, in large declines in the fair values of investments and other assets, constraints on liquidity and significant credit quality problems, including severe volatility in the valuation of real estate and other collateral supporting loans. The financial statements have been prepared using values and information currently available to the Company.

Any future volatility in the economy could cause the values of assets and liabilities recorded in the financial statements to change rapidly, resulting in material future adjustments in asset values, the allowance for loan losses and capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.

17. Commitments and Contingencies

In the ordinary course of business, the Company makes various commitments and incurs certain contingent liabilities to fulfill the financing needs of their customers. These commitments and contingent liabilities include lines of credit and commitments to extend credit and issue standby letters of credit. The Company applies the same credit policies and standards as they do in the lending process when making these commitments. The collateral obtained is based on the assessed creditworthiness of the borrower.

At March 31, 2019 and December 31, 2018, commitments to extend credit of $2.35 billion and $2.34 billion, respectively, were outstanding. A percentage of these balances are participated out to other banks; therefore, the Company can call on the participating banks to fund future draws. Since some of these commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

Outstanding standby letters of credit are contingent commitments issued by the Company, generally to guarantee the performance of a customer in third-party borrowing arrangements. The term of the guarantee is dependent upon the creditworthiness of the borrower, some of which are long-term. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments. The maximum amount of future payments the Company could be required to make under these guarantees at March 31, 2019 and December 31, 2018, is $58.2 million and $55.6 million, respectively.

The Company and/or its bank subsidiary have various unrelated legal proceedings, most of which involve loan foreclosure activity pending, which, in the aggregate, are not expected to have a material adverse effect on the financial position or results of operations or cash flows of the Company and its subsidiary.

 

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18. Regulatory Matters

The Bank is subject to a legal limitation on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. Arkansas bank regulators have specified that the maximum dividend limit state banks may pay to the parent company without prior approval is 75% of the current year earnings plus 75% of the retained net earnings of the preceding year. Since the Bank is also under supervision of the Federal Reserve, it is further limited if the total of all dividends declared in any calendar year by the Bank exceeds the Bank’s net profits to date for that year combined with its retained net profits for the preceding two years. During the first quarter of 2019, the Company requested approximately $59.8 million in regular dividends from its banking subsidiary. This dividend is equal to approximately 75.0% of the Company’s banking subsidiary’s first quarter 2019 earnings.

The Company’s banking subsidiary is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Company’s regulators could require adjustments to regulatory capital not reflected in the consolidated financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total, common Tier 1 equity and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of March 31, 2019, the Company meets all capital adequacy requirements to which it is subject.

In July 2013, the Federal Reserve Board and the other federal bank regulatory agencies issued a final rule to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” and certain provisions of the Dodd-Frank Act (“Basel III”). Basel III applies to all depository institutions, bank holding companies with total consolidated assets of $500 million or more, and savings and loan holding companies. Basel III became effective for the Company and its bank subsidiary on January 1, 2015. The capital conservation buffer requirement began being phased in beginning January 1, 2016 at the 0.625% level and increased by 0.625% on each subsequent January 1, until it reached 2.5% on January 1, 2019 when the phase-in period ended, and the full capital conservation buffer requirement became effective.

The rule phases out of Tier 1 capital these non-qualifying capital instruments issued before May 19, 2010 by all other bank holding companies. Because our total consolidated assets were less than $15 billion as of December 31, 2009, our outstanding trust preferred securities continue to be treated as Tier 1 capital. However, now that the Company has exceeded $15 billion in assets, if the Company acquires another financial institution in the future, then the Tier 1 treatment of the Company’s outstanding trust preferred securities will be phased out, but those securities will still be treated as Tier 2 capital.

Basel III amended the prompt corrective action rules to incorporate a “common equity Tier 1 capital” requirement and to raise the capital requirements for certain capital categories. In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization will be required to have at least a 4.5% “common equity Tier 1 risk-based capital” ratio, a 4% “Tier 1 leverage capital” ratio, a 6% “Tier 1 risk-based capital” ratio and an 8% “total risk-based capital” ratio.

The Federal Reserve Board’s risk-based capital guidelines include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution. Under Basel III, the criteria for a well-capitalized institution are now: a 6.5% “common equity Tier 1 risk-based capital” ratio, a 5% “Tier 1 leverage capital” ratio, an 8% “Tier 1 risk-based capital” ratio, and a 10% “total risk-based capital” ratio. As of March 31, 2019, the Bank met the capital standards for a well-capitalized institution. The Company’s “common equity Tier 1 risk-based capital” ratio, “Tier 1 leverage capital” ratio, “Tier 1 risk-based capital” ratio, and “total risk-based capital” ratio were 11.40%, 10.21%, 11.99%, and 15.36%, respectively, as of March 31, 2019.

 

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19. Additional Cash Flow Information

The following is a summary of the Company’s additional cash flow information during the three-month periods ended:

 

     March 31,  
     2019      2018  
     (In thousands)  

Interest paid

   $ 35,574      $ 19,296  

Income taxes paid

     1,036        865  

Assets acquired by foreclosure

     4,737        4,253  

20. Financial Instruments

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 is a hierarchy of three levels of inputs that may be used to measure fair values:

 

  Level 1

Quoted prices in active markets for identical assets or liabilities

 

  Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

 

  Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Transfers of financial instruments between levels within the fair value hierarchy are recognized on the date management determines that the underlying circumstances or assumptions have changed.

Financial Assets and Liabilities Measured on a Recurring Basis

Available-for-sale securities are the only material instruments valued on a recurring basis which are held by the Company at fair value. The Company does not have any Level 1 securities. Primarily all of the Company’s securities are considered to be Level 2 securities. These Level 2 securities consist primarily of U.S. government-sponsored enterprises, mortgage-backed securities plus state and political subdivisions. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. As of March 31, 2019 and December 31, 2018, Level 3 securities were immaterial. In addition, there were no material transfers between hierarchy levels during 2019 and 2018. See Note 3 for additional detail related to investment securities

The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment portfolio securities with complicated structures. Pricing for the Company’s investment securities is fairly generic and is easily obtained. The Company uses a third-party comparison pricing vendor in order to reflect consistency in the fair values of the investment securities sampled by the Company each quarter.

 

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Financial Assets and Liabilities Measured on a Nonrecurring Basis

Impaired loans that are collateral dependent are the only material financial assets valued on a non-recurring basis which are held by the Company at fair value. Loan impairment is reported when full payment under the loan terms is not expected. Impaired loans are carried at the net realizable value of the collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to require an increase, such increase is reported as a component of the provision for loan losses. The fair value of loans with specific allocated losses was $85.0 million and $84.3 million as of March 31, 2019 and December 31, 2018, respectively. This valuation is considered Level 3, consisting of appraisals of underlying collateral. The Company reversed approximately $188,000 and $195,000 of accrued interest receivable when impaired loans were put on non-accrual status during the three months ended March 31, 2019 and 2018, respectively.

Nonfinancial Assets and Liabilities Measured on a Nonrecurring Basis

Foreclosed assets held for sale are the only material non-financial assets valued on a non-recurring basis which are held by the Company at fair value, less estimated costs to sell. At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for loan losses. Additionally, valuations are periodically performed by management and any subsequent reduction in value is recognized by a charge to income. The fair value of foreclosed assets held for sale is estimated using Level 3 inputs based on appraisals of underlying collateral. As of March 31, 2019 and December 31, 2018, the fair value of foreclosed assets held for sale, less estimated costs to sell, was $14.5 million and $13.2 million, respectively.

Foreclosed assets held for sale with a carrying value of approximately $190,000 were remeasured during the three months ended March 31, 2019, resulting in a write-down of approximately $100,000. Regulatory guidelines require the Company to reevaluate the fair value of foreclosed assets held for sale on at least an annual basis. The Company’s policy is to comply with the regulatory guidelines.

The significant unobservable (Level 3) inputs used in the fair value measurement of collateral for collateral-dependent impaired loans and foreclosed assets primarily relate to customized discounting criteria applied to the customer’s reported amount of collateral. The amount of the collateral discount depends upon the condition and marketability of the underlying collateral. As the Company’s primary objective in the event of default would be to monetize the collateral to settle the outstanding balance of the loan, less marketable collateral would receive a larger discount. During the reported periods, collateral discounts ranged from 10% to 25% for commercial and residential real estate collateral.

 

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Fair Values of Financial Instruments

The following table presents the estimated fair values of the Company’s financial instruments. 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.

 

     March 31, 2019  
     Carrying
Amount
     Fair Value      Level  
     (In thousands)         

Financial assets:

        

Cash and cash equivalents

   $ 562,470      $ 562,470        1  

Federal funds sold

     1,700        1,700        1  

Investment securities – held-to-maturity

     —          —          2  

Loans receivable, net of impaired loans and allowance

     10,787,622        10,579,699        3  

Accrued interest receivable

     50,288