Fidelity Southern Earnings 2019-03-31

LION 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 lion0331201910q.htm 10-Q Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

__________________________________________________________________

FORM 10-Q

__________________________________________________________________

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the quarterly period ended March 31, 2019

Commission file number 001-34981

_________________________________________________________________

Fidelity Southern Corporation

(Exact name of registrant as specified in its charter)

__________________________________________________________________



Georgia		58-1416811
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



3490 Piedmont Road, Suite 1550 Atlanta, Georgia		30305
(Address of principal executive offices)		(Zip Code)

(404) 639-6500

(Registrant’s telephone number, including area code)

__________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act: None

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, without stated par value	LION	NASDAQ Global Select Market System

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 ý 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 ý 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 ý

As of April 30, 2019 (the most recent practicable date), the Registrant had outstanding 27,657,411 shares of Common Stock.

FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES

Quarterly Report on Form 10-Q

For the Three Months Ended March 31, 2019

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			Page
Part I.		Financial Information

	Item l.	Financial Statements:
		Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018	1
		Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2019 and 2018	2
		Consolidated Statements of Shareholders’ Equity (unaudited) for the Three Months Ended March 31, 2019 and 2018	3
		Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2019 and 2018	4
		Notes to Consolidated Financial Statements (unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	51
	Item 4.	Controls and Procedures	51

Part II.		Other Information

	Item 1.	Legal Proceedings	52
	Item 1A.	Risk Factors	52
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
	Item 3.	Defaults Upon Senior Securities	53
	Item 4.	Mine Safety Disclosures	53
	Item 5.	Other Information	53
	Item 6.	Exhibits	54
		Signatures	55

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



	(Unaudited)
($ in thousands)	March 31, 2019			December 31, 2018
Assets
Cash and due from banks	$	41,334		$	36,615
Interest-bearing deposits with banks	157,034			171,151
Federal funds sold	4,553			4,527
Cash and cash equivalents	202,921			212,293
Investment securities available-for-sale	285,518			251,602
Investment securities held-to-maturity (fair value of $19,701 and $19,410, respectively)	19,925			20,126
Loans held-for-sale (includes loans at fair value of $252,238 and $225,342, respectively)	263,723			239,302

Loans	3,676,805			3,685,478
Allowance for loan losses	(31,155		)	(31,151		)
Loans, net of allowance for loan losses	3,645,650			3,654,327

Premises and equipment, net	94,393			93,699
Other real estate, net	8,504			8,290
Bank owned life insurance	71,894			71,510
Servicing rights, net	116,736			120,390
Other assets	80,681			62,257
Total assets	$	4,789,945		$	4,733,796
Liabilities
Deposits
Noninterest-bearing demand deposits	$	1,203,173		$	1,214,534
Interest-bearing deposits	2,779,360			2,767,044
Total deposits	3,982,533			3,981,578
Short-term borrowings	162,453			139,760
Subordinated debt, net	120,733			120,707
Other liabilities	65,212			45,510
Total liabilities	4,330,931			4,287,555
Shareholders’ equity
Preferred stock, no par value. Authorized 10,000,000; zero issued and outstanding	—			—
Common stock, no par value. Authorized 50,000,000; issued and outstanding 27,629,860 and 27,279,729, respectively	238,330			230,841
Accumulated other comprehensive income, net of tax	4,637			985
Retained earnings	216,047			214,415
Total shareholders’ equity	459,014			446,241
Total liabilities and shareholders’ equity	$	4,789,945		$	4,733,796

See accompanying notes to unaudited consolidated financial statements.

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FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



	Three Months Ended March 31,
($ in thousands, except per share data)	2019		2018
Interest income:
Loans, including fees	$	43,865	$	39,849
Investment securities:
Taxable interest income	2,363		1,098
Nontaxable interest income	81		77
Other	732		538
Total interest income	47,041		41,562
Interest expense:
Deposits	6,266		4,313
Short-term borrowings	935		910
Subordinated debt	1,698		1,571
Total interest expense	8,899		6,794
Net interest income	38,142		34,768
Provision for loan losses	936		2,130
Net interest income after provision for loan losses	37,206		32,638
Noninterest income:
Service charges on deposit accounts	1,785		1,472
Other fees and charges	2,309		2,235
Mortgage banking activities	16,735		28,562
Indirect lending activities	706		2,148
SBA lending activities	1,324		1,157
Trust and wealth management fees	655		532
Other	432		1,027
Total noninterest income	23,946		37,133
Noninterest expense:
Salaries and employee benefits	27,812		27,561
Commissions	6,972		7,506
Occupancy and equipment	5,095		4,932
Professional and other services	4,366		4,798
Other	9,230		9,945
Total noninterest expense	53,475		54,742
Income before income tax expense	7,677		15,029
Income tax expense	1,564		3,262
Net income	$	6,113	$	11,767

Earnings per common share:
Basic	$	0.22	$	0.44
Diluted	$	0.22	$	0.43

Net income	$	6,113	$	11,767
Other comprehensive income/(loss), net of tax:
Change in net unrealized gains/(losses) on available-for-sale debt securities, net of tax effect of $1,217 and ($365), respectively	3,652		(1,094		)
Total other comprehensive income/(loss), net of tax	3,652		(1,094		)
Comprehensive income	$	9,765	$	10,673

See accompanying notes to unaudited consolidated financial statements.

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FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)



	Preferred Stock			Common Stock			Accumulated Other Comprehensive Income/(Loss), Net of Tax			Retained Earnings			Total
(in thousands)	Shares	Amount		Shares	Amount		Accumulated Other Comprehensive Income/(Loss), Net of Tax			Retained Earnings			Total
Balance at December 31, 2017	—	$	—	27,019	$	217,555	$	383		$	183,694		$	401,632
Net income										11,767			11,767
Impact of adoption of new accounting standard ⁽¹⁾							80			(80		)	—
Other comprehensive income, net of tax							(1,094		)				(1,094		)
Comprehensive income													10,673
Common stock issued under various employee plans, net				15	1,679								1,679
Common stock declared cash dividends, $0.12 per share										(3,240		)	(3,240		)
Balance at March 31, 2018	—	$	—	27,034	$	219,234	$	(631	)	$	192,141		$	410,744

Balance at December 31, 2018	—	$	—	27,280	$	230,841	$	985		$	214,415		$	446,241
Net income										6,113			6,113
Other comprehensive income, net of tax							3,652						3,652
Comprehensive income													9,765
Impact of adoption of new accounting standard ⁽²⁾										(1,239		)	(1,239		)
Common stock issued under various employee plans, net				350	7,489								7,489
Common stock declared cash dividends, $0.12 per share										(3,242		)	(3,242		)
Balance at March 31, 2019	—	$	—	27,630	$	238,330	$	4,637		$	216,047		$	459,014

⁽¹⁾Represents the impact of the adoption of Accounting Standards Update ("ASU") No. 2018-02, Reporting Comprehensive Income.

⁽²⁾Represents the impact of the adoption of Accounting Standards Update ("ASU") No. 2016-02, Leases.

See accompanying notes to unaudited consolidated financial statements.

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FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Three Months Ended March 31,
(in thousands)	2019			2018
Cash flows from operating activities:
Net income	$	6,113		$	11,767
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses	936			2,130
Depreciation and amortization of premises and equipment	1,067			1,091
Amortization of FDIC indemnification asset, net	—			4
Accretion of purchase discounts or premiums, net	(388		)	(291		)
Other amortization	46			236
Impairment of other real estate	288			85
Amortization and impairment of servicing rights, net	9,368			48
Amortization of operating lease right-of-use assets	1,577			—
Share-based compensation expense	581			1,478
Postretirement benefits, net	547			618
Gains on loan sales, including origination/sale of servicing rights	(13,191		)	(17,723		)
Net loss on sales of other real estate	2			—
Income on bank owned life insurance	(384		)	(401		)
Net change in deferred income tax	971			(365		)
Net change in fair value of loans held-for-sale	(3,606		)	(2,109		)
Originations of loans held-for-sale	(552,073		)	(659,011		)
Proceeds from sales of loans held-for-sale	539,779			605,996
Net payments paid to FDIC under loss-share agreements	—			(256		)
Decrease in other assets	(1,707		)	(592		)
(Decrease) increase in other liabilities	(1,096		)	5,346
Net cash used in operating activities	(11,170		)	(51,949		)
Cash flows from investing activities:
Purchases of investment securities available-for-sale	(35,211		)	(9,923		)
Maturities, calls, and repayment of investment securities available-for-sale	5,904			3,826
Maturities, calls and repayment of investment securities held-to-maturity	191			330
Purchases of FHLB stock	(2,269		)	(8,671		)
Redemption of FHLB stock	1,063			—
Net decrease (increase) in loans	6,322			(135,550		)
Proceeds from sales of other real estate	245			—
Purchases of premises and equipment	(1,761		)	(1,252		)
Net cash used in investing activities	(25,516		)	(151,240		)

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FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

(UNAUDITED)



	Three Months Ended March 31,
(in thousands)	2019			2018
Cash flows from financing activities:
Net (decrease) increase in noninterest-bearing deposits	$	(11,361	)	$	26,717
Net increase in interest-bearing deposits	12,316			6,490
Net decrease in other short-term borrowings	(2,307		)	(12,785		)
Proceeds from FHLB advances	375,000			725,000
Repayments on FHLB advances	(350,000		)	(525,000		)
Proceeds from the issuance of common stock, net	6,908			201
Cash dividends paid on common stock	(3,242		)	(3,240		)
Net cash provided by financing activities	27,314			217,383
Net (decrease) increase in cash and cash equivalents	(9,372		)	14,194
Cash and cash equivalents, beginning of period	212,293			186,302
Cash and cash equivalents, end of period	$	202,921		$	200,496

Supplemental cash flow information and non-cash disclosures:
Cash paid during the period for:
Interest on deposits and borrowings	$	7,555		$	5,701
Income taxes	—			—
Transfers of loans from held-for-sale to held for investment	1,044			1,684
Transfers of loans to other real estate	749			132
Initial recognition of operating lease right-of-use assets	17,070			—
Initial recognition of operating lease liabilities	18,309			—

See accompanying notes to unaudited consolidated financial statements.

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FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(UNAUDITED)

1. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements include the accounts of Fidelity Southern Corporation (“FSC” or “Fidelity”) and its wholly-owned subsidiaries. FSC owns 100% of Fidelity Bank (the “Bank”) and LionMark Insurance Company, an insurance agency offering consumer credit related insurance products. FSC also owns three subsidiaries established to issue trust preferred securities, which are not consolidated for financial reporting purposes in accordance with current accounting guidance, as FSC is not the primary beneficiary. The “Company” or “our,” as used herein, includes FSC and its consolidated subsidiaries, unless the context otherwise requires.

These unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) followed within the financial services industry for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information or notes required for complete financial statements.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the periods presented. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan losses; the calculations of, amortization of, and the potential impairment of capitalized servicing rights; the valuation of loans held-for-sale and certain derivatives; the valuation of real estate or other assets acquired in connection with foreclosures or in satisfaction of loans; estimates used for fair value acquisition accounting, goodwill impairment testing and valuation of deferred income taxes. In addition, the actual lives of certain amortizable assets and income items are estimates subject to change. The Company principally operates in one business segment, which is community banking.

In the opinion of management, all adjustments, consisting of normal and recurring items, considered necessary for a fair presentation of the consolidated financial statements for the interim periods have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts reported in prior periods have been reclassified to conform to current year presentation. These reclassifications did not have a material effect on previously reported net income, shareholders’ equity or cash flows.

Operating results for the three-month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (“SEC”).

The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in the 2018 Annual Report on Form 10-K filed with the SEC. There were no new accounting policies or changes to existing policies adopted during the first three months of 2019 which had a significant effect on the Company’s results of operations or statement of financial condition. For interim reporting purposes, the Company follows the same basic accounting policies and considers each interim period as an integral part of an annual period.

Proposed Merger with Ameris Bancorp

On December 17, 2018, Fidelity entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ameris Bancorp ("Ameris"). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, FSC will merge with and into Ameris (the “Merger”), in an all-stock transaction, with Ameris surviving the Merger. Immediately following the Merger, the Bank will merge (the “Bank Merger”) with and into Ameris’s wholly owned bank subsidiary, Ameris Bank. Ameris Bank will be the surviving entity in the Bank Merger. The Merger Agreement was unanimously approved by the board of directors of each of Fidelity and Ameris. The transaction is expected to close in the second quarter 2019. The closing of the transactions contemplated by the Merger Agreement is subject to the approval of FSC's shareholders, regulators, and certain other customary closing conditions.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, Fidelity’s shareholders will have the right to receive 0.80 shares (the “Exchange Ratio”) of common stock, par value $1.00 per share, of Ameris for each share of common stock, no par value per share, of Fidelity that they hold, together with cash in lieu of fractional shares.

The Merger Agreement provides certain termination rights for both Fidelity and Ameris and further provides that a termination fee of $29.0 million will be payable by Fidelity upon termination of the Merger Agreement under certain circumstances.

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Contingencies

Due to the nature of their activities, the Company and its subsidiaries are at times engaged in various legal proceedings that arise in the course of normal business, some of which were outstanding as of March 31, 2019. Although the ultimate outcome of all claims and lawsuits outstanding as of March 31, 2019 cannot be ascertained at this time, it is the opinion of management that these matters, when resolved, will not have a material adverse effect on the Company’s results of operations or financial condition.

However, on March 8, 2019, an action captioned Paul Parshall v. Fidelity Southern Corporation et al., Case 1:19-cv-01098-MHC (the “Parshall Action”), was filed in the U.S. District Court for the Northern District of Georgia on behalf of a purported class of Fidelity shareholders against Fidelity, its current directors and Ameris. This complaint contends, among other things, that the registration statement on Form S-4 (as amended, the “Registration Statement”) filed by Ameris on February 12, 2019 in connection with the Merger is false and misleading because it omits certain allegedly material information in violation of Sections 14(a) and 20(a) of the Exchange Act, and Rule 14a-9 promulgated under the Exchange Act. The complaint filed in connection with the Parshall Action seeks, among other things, injunctive relief enjoining the defendants from consummating the Merger, a supplement to the Registration Statement (or, in the event the Merger is consummated, rescinding the Merger or awarding rescissory damages). The complaint also seeks to recover costs, including attorneys’ fees and experts’ fees.

On April 24, 2019, an action captioned Morten Oftedal v. Fidelity Southern Corporation et al., Case 1:19-cv-03656 (the “Oftedal Action” and together with the Parshall Action, the “Actions”), was filed in the U.S. District Court for the Southern District of New York on behalf of a purported class of Fidelity shareholders against Fidelity and its current directors. This complaint contends, among other things, that the definitive joint proxy statement/prospectus contained in the Registration Statement (the “Definitive Proxy Statement”) is false and misleading because it omits certain allegedly material information in violation of Sections 14(a) and 20(a) of the Exchange Act, and Rule 14a-9 promulgated under the Exchange Act. The complaint filed in connection with the Oftedal Action seeks, among other things, injunctive relief enjoining the defendants from consummating the Merger, a supplement to the Registration Statement (or, in the event the Merger is consummated, rescinding the Merger or awarding rescissory damages). The complaint also seeks to recover costs, including attorneys’ fees and experts’ fees.

Management believes that the Actions are without merit, and denies that any further disclosure beyond that already contained in the Registration Statement and the Definitive Proxy Statement included therein is required under applicable law to supplement the Registration Statement and the Definitive Proxy Statement included therein which has been disseminated to Fidelity and Ameris stockholders. Nonetheless, to avoid the risk that the Actions may delay or otherwise adversely affect the consummation of the Merger and to minimize the expense of defending such Actions, FSC made certain supplemental disclosures to the Registration Statement in a Current Report on Form 8-K filed with the SEC on April 26, 2019, as amended on April 30, 2019 (the “Form 8-K”). Nothing in this Quarterly Report on Form 10-Q or the Form 8-K shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the supplemental disclosures set forth herein or therein. At this time, FSC is unable to state whether the likelihood of an unfavorable outcome of either action is probable or remote. FSC is also unable to provide an estimate of the range or amount of potential loss if the outcome for either action should be unfavorable.

Tax Cuts and Jobs Act

Public Law No. 115-97, known as the Tax Cuts and Jobs Act (the "Tax Act"), was enacted on December 22, 2017 and reduced the U.S. Federal corporate tax rate from 35% to 21% effective January 1, 2018. Additionally, on December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for provisions of the Tax Act. SAB 118 provides a measurement period of up to one year from the enactment date to complete the accounting. Any adjustments during this measurement period were to be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined. Based on the information available and current interpretation of the provisions of the Tax Act, the Company completed the remeasurement of its net deferred tax liability at December 31, 2017 which reduced income tax expense by $4.9 million for the fourth quarter of 2017. No further material adjustments have been recorded related to the remeasurement of the Company's net deferred tax liability balance as a result of the Tax Act. The Company completed its accounting under SAB 118 during 2018.

Accounting Changes

Accounting Standards Update ("ASU") No. 2016-02 "Leases (Topic 842)", as amended, requires that lessees and lessors recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The Company elected the modified retrospective approach which we applied on January 1, 2019 (as opposed to January 1, 2017), and therefore have not restated comparative periods. The Company elected certain relief options offered in ASU 2016-02 including the package of practical expedients, and the option not to recognize right-of-use assets and lease liabilities that arise from short-term leases (i.e., leases with terms of twelve months or less). In addition, the Company elected the hindsight practical expedient to determine the lease term for existing leases.

Our operating leases relate primarily to office space and bank branches, as well as ATM locations. As a result of the adoption of ASU 2016-02, the Company recognized an operating lease right-of-use ("ROU") asset of $15.5 million and an operating lease liability of $17.1 million as of March 31, 2019, with no impact on our Consolidated Statements of Comprehensive Income or

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Consolidated Statements of Cash Flows compared to the prior lease accounting model. The ROU asset and operating lease liability are recorded in other assets and other liabilities, respectively, in the Consolidated Balance Sheets.

The weighted-average remaining lease term and the weighted-average discount rate for our operating leases were 3.4 years and 3.41%, respectively, at March 31, 2019.

Recently Adopted Accounting Pronouncements

In March 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SAB 118). This ASU was effective upon issuance. The adoption of this ASU did not have a significant impact on the Company's Consolidated Financial Statements.

In March 2018, the FASB issued ASU No. 2018-04, “Investments-Debt Securities (Topic 320) and Regulated Operations (Topic 980): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273. For public business entities, the Update was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this ASU effective January 1, 2018 did not have a significant impact on the Company's Consolidated Financial Statements.

In February 2018, the FASB issued ASU No. 2018-03, “Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2018-03"). This guidance amended ASU No. 2016-01, “Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”) on recognizing and measuring financial instruments to clarify certain aspects of the guidance originally issued in January 2016. The adoption of this Update effective January 1, 2018 did not have a significant impact on the Company's Consolidated Financial Statements.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” ("ASU 2018-02"), that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act that passed U.S. Congress in December 2017. The Company elected to early adopt this guidance effective January 1, 2018. The adoption of ASU 2018-02 resulted in a reclassification of stranded tax effects of $80,000 from accumulated other comprehensive income (loss) to retained earnings.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” (“ASU 2017-12”) that is intended to improve and simplify rules relevant to hedge accounting by refining and expanding hedge accounting for both financial (e.g., interest rate) and commodity risks. The adoption of this ASU effective January 1, 2019 did not have a significant impact on the Company’s Consolidated Financial Statements.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting,” (“ASU 2017-09”) that provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The adoption of this ASU effective January 1, 2018 did not have a significant impact on the Company’s Consolidated Financial Statements.

In March 2017, the FASB issued ASU No. 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities,” (“ASU 2017-08”) that amended the amortization period for certain purchased callable debt securities held at a premium. The adoption of this ASU effective January 1, 2019 did not have a significant impact on the Company’s Consolidated Financial Statements.

In March 2017, the FASB issued ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” (“ASU 2017-07”) that will change how employers who sponsor defined benefit pension and/or other postretirement benefit plans present the net periodic benefit cost in the income statement. The adoption of this ASU effective January 1, 2018 did not have a significant impact on the Company’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” (“ASU 2017-04”) which simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. The new guidance is effective for public business entities for fiscal years beginning after December 15, 2019 and is required to be applied prospectively, with early adoption permitted for any impairment tests performed on testing dates after January 1, 2017. The early adoption of this ASU in the fourth quarter of 2017 did not have a significant impact on the Company’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805) - Clarifying the Definition of a Business,” (“ASU 2017-01”) which provides clarification on the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The adoption of this ASU effective January 1, 2018 did not have a significant impact on the Company’s Consolidated Financial Statements.

In December 2016, the FASB issued ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606: Revenue from Contracts with Customers.” ASU 2016-20 updates the new revenue standard by clarifying issues that had arisen from ASU

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No. 2014-09 but does not change the core principle of the new standard. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” which deferred the effective date of ASU No. 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”) by one year to annual reporting periods beginning after December 15, 2017, and interim reporting periods therein. The FASB had previously issued ASU 2014-09 in May 2014. The Company adopted the guidance on January 1, 2018 utilizing the modified retrospective approach. The Company did not record a cumulative effect adjustment to opening retained earnings as the adoption of ASU 2014-09 did not have a significant impact on the Company's Consolidated Financial Statements. The Company also completed its evaluation of the expanded disclosure requirements for disaggregation of revenue and other information regarding material contracts and began presenting the required disclosures in its Consolidated Financial Statements for the quarter ended March 31, 2018. See Note 11. Revenue Recognition for more information.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230) - Restricted Cash,” (“ASU 2016-18”). The ASU was to be applied retrospectively beginning in fiscal year 2018, including interim periods therein with early adoption permitted, including adoption in an interim period, with retrospective application. The adoption of this ASU effective January 1, 2018 did not have a significant impact on the Company’s Consolidated Financial Statements.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)", as amended, that requires lessees to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, and 2) a right-of-use asset. The adoption of this ASU effective January 1, 2019 did not have a significant impact on the Company’s Consolidated Financial Statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU No. 2018-15, “Goodwill and Other Internal-Use Software (Subtopic 350-400): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract requiring for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The adoption of this ASU is not expected to have a significant impact on the Company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820), which changes the fair value measurement disclosure requirements of ASC 820. The amendments in this ASU were the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements, which the Board finalized on August 28, 2018. The ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein with early adoption permitted for any eliminated or modified disclosures upon issuance of this ASU. The adoption of this ASU is not expected to have a significant impact on the Company's Consolidated Financial Statements.

In June 2016, the FASB issued ASU No. 2016-13 which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) securities. For AFS securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. All other things being equal, higher credit losses will result in lower regulatory capital ratios for the Company. The ASU also simplifies the accounting model for purchased credit-impaired securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. The standard will take effect for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company has established a working group which includes representatives from various internal departments with the expertise needed to implement the guidance. The working group has assigned key tasks to complete and established a timeline to be followed. The team is meeting regularly to review progress on the assigned tasks and to share current information on industry practices. Members of the working group are also attending conferences and meetings with peer banks to keep current on evolving interpretations of the guidance. As part of its implementation plan, the Company has allocated staff and put resources in place to evaluate the appropriate model options and is collecting, reviewing, and validating historical loan data for use in these models. The Company is implementing a software package supported by a third-party vendor. Management is continuing to evaluate the impact that the guidance will have on the Company’s Consolidated Financial Statements and its regulatory capital ratios through its effective date.

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Other proposed accounting standards that have recently been issued by the FASB or other standard-setting bodies are not expected to have a material impact on the Company's financial position, results of operations or cash flows.

2. Investment Securities

Management’s primary objective in managing the investment securities portfolio includes maintaining a portfolio of high quality investments with competitive returns while providing for pledging and liquidity needs within overall asset and liability management parameters. The Company is required under federal regulations to maintain adequate liquidity to ensure safe and sound operations. As such, management regularly evaluates the investment portfolio for cash flows, the level of loan production and sales, current interest rate risk strategies and the potential future direction of market interest rate changes. Individual investment securities differ in terms of default, interest rate, liquidity and expected rate of return risk.

The following table summarizes the amortized cost and fair value of debt securities and the related gross unrealized gains and losses at March 31, 2019 and December 31, 2018:



	March 31, 2019
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Investment securities available-for-sale:
Obligations of U.S. Government sponsored enterprises	$	22,135	$	86	$	(110	)	$	22,111
Municipal securities	9,808		390		(14		)	10,184
SBA pool securities	10,150		—		(164		)	9,986
Residential mortgage-backed securities	215,760		5,990		(83		)	221,667
Commercial mortgage-backed securities	21,838		—		(268		)	21,570
Total available-for-sale	$	279,691	$	6,466	$	(639	)	$	285,518

Investment securities held-to-maturity:
Municipal securities	$	8,479	$	46	$	(135	)	$	8,390
Residential mortgage-backed securities	7,568		53		(188		)	7,433
Commercial mortgage-backed securities	3,878		—		—			3,878
Total held-to-maturity	$	19,925	$	99	$	(323	)	$	19,701



	December 31, 2018
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Investment securities available-for-sale:
Obligations of U.S. Government sponsored enterprises	$	22,145	$	53	$	(240	)	$	21,958
Municipal securities	9,824		278		(39		)	10,063
SBA pool securities	11,036		—		(298		)	10,738
Residential mortgage-backed securities	185,464		2,270		(256		)	187,478
Commercial mortgage-backed securities	21,929		—		(564		)	21,365
Total available-for-sale	$	250,398	$	2,601	$	(1,397	)	$	251,602

Investment securities held-to-maturity:
Municipal securities	$	8,504	$	8	$	(486	)	$	8,026
Residential mortgage-backed securities	7,719		48		(286		)	7,481
Commercial mortgage-backed securities	3,903		—		—			3,903
Total held-to-maturity	$	20,126	$	56	$	(772	)	$	19,410

The Company held 22 and 32 investment securities available-for-sale that were in an unrealized loss position at March 31, 2019 and December 31, 2018, respectively. There were seven investment securities held-to-maturity that were in an unrealized loss position at March 31, 2019 and December 31, 2018.

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The following table reflects the gross unrealized losses and fair values of the investment securities with unrealized losses, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position:



	March 31, 2019
	Less Than 12 Months					12 Months or Longer
(in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Investment securities available-for-sale:
Obligations of U.S. Government sponsored enterprises	$	—	$	—		$	14,943	$	(110	)
Municipal securities	—		—			1,036		(14		)
SBA pool securities	—		—			9,987		(164		)
Residential mortgage-backed securities	706		(2		)	8,847		(81		)
Commercial mortgage-backed securities	—		—			21,569		(268		)
Total available-for-sale	$	706	$	(2	)	$	56,382	$	(637	)

Investment securities held-to-maturity:
Municipal securities	$	—	$	—		$	6,757	$	(135	)
Residential mortgage-backed securities	—		—			6,514		(188		)
Total held-to-maturity	$	—	$	—		$	13,271	$	(323	)

	December 31, 2018
	Less Than 12 Months					12 Months or Longer
(in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Investment securities available-for-sale:
Obligations of U.S. Government sponsored enterprises	$	4,978	$	(24	)	$	14,841	$	(216	)
Municipal securities	532		(5		)	1,021		(34		)
SBA pool securities	—		—			10,738		(298		)
Residential mortgage-backed securities	32,556		(101		)	8,228		(155		)
Commercial mortgage-backed securities	—		—			21,365		(564		)
Total available-for-sale	$	38,066	$	(130	)	$	56,193	$	(1,267	)

Investment securities held-to-maturity:
Municipal securities	$	6,431	$	(486	)	$	—	$	—
Residential mortgage-backed securities	$	—	$	—		$	6,492	$	(286	)
Total held-to-maturity	$	6,431	$	(486	)	$	6,492	$	(286	)

At March 31, 2019 and December 31, 2018, the unrealized losses on investment securities were related to market interest rate fluctuations since purchase and not credit losses. Management does not intend to sell the temporarily impaired securities and it is not more likely than not that the Company will be required to sell the investments before recovery of the amortized cost, which may be maturity.

As part of the Company’s evaluation of its intent and ability to hold investments for a period of time sufficient to allow for any anticipated recovery in the market, the Company considers its investment strategy, cash flow needs, liquidity position, capital adequacy and interest rate risk position.

Accordingly, as of March 31, 2019, management has reviewed its portfolio for other-than-temporary-impairment and believes the impairment detailed in the table above is temporary, and no other-than-temporary impairment loss has been recognized in the Company’s Consolidated Statements of Comprehensive Income. Management continues to monitor all of its securities with a high degree of scrutiny. There can be no assurance that the Company will not conclude in future periods that conditions existing at that time indicate some or all of these securities may be sold or are other than temporarily impaired, which would require a charge to earnings in such periods.

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The amortized cost and fair value of investment securities at March 31, 2019 and December 31, 2018, are categorized in the following table by remaining contractual maturity. The amortized cost and fair value of securities not due at a single maturity (i.e., mortgage-backed securities) are shown separately and the fair value is calculated based on estimated average remaining life:



	March 31, 2019				December 31, 2018
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investment securities available-for-sale:
Obligations of U.S. Government sponsored enterprises
Due after one year through five years	$	21,132	$	21,051	$	21,142	$	20,919
Due after five years through ten years	1,003		1,060		1,003		1,039
Municipal securities
Due after one year through five years	1,051		1,037		1,055		1,021
Due after five years through ten years	2,431		2,558		2,435		2,539
Due after ten years	6,326		6,589		6,334		6,503
SBA pool securities
Due after five years through ten years	6,066		6,029		6,730		6,569
Due after ten years	4,084		3,957		4,306		4,169
Residential mortgage-backed securities	215,760		221,667		185,464		187,478
Commercial mortgage-backed securities	21,838		21,570		21,929		21,365
Total available-for-sale	$	279,691	$	285,518	$	250,398	$	251,602

Investment securities held-to-maturity:
Municipal securities
Due after five years through ten years	$	1,588	$	1,634	$	1,588	$	1,595
Due after ten years	6,891		6,756		6,916		6,431
Residential mortgage-backed securities	7,568		7,433		7,719		7,481
Commercial mortgage-backed securities	3,878		3,878		3,903		3,903
Total held-to-maturity	$	19,925	$	19,701	$	20,126	$	19,410

There were no gross gains or losses for the investment securities that were called or sold during the three months ended March 31, 2019, or 2018.

There were no transfers from investment securities available-for-sale to investment securities held-to-maturity during the three months ended March 31, 2019, or 2018.

The following table summarizes the investment securities that were pledged as collateral at March 31, 2019 and December 31, 2018:



(in thousands)	March 31, 2019		December 31, 2018
Public deposits	$	93,763	$	121,790
Securities sold under repurchase agreements	21,432		20,600
Total pledged securities	$	115,195	$	142,390

3. Loans Held-for-Sale

Residential mortgage loans held-for-sale are carried at fair value and SBA held-for-sale are carried at the lower of cost or fair value. The following table summarizes loans held-for-sale at March 31, 2019 and December 31, 2018:



(in thousands)	March 31, 2019		December 31, 2018
Residential mortgage	$	252,238	$	225,342
SBA	11,485		13,960
Total loans held-for-sale	$	263,723	$	239,302

During the three months ended March 31, 2019 and 2018, the Company transferred loans with unpaid principal balances of $1.0 million and $1.7 million, respectively, to the held for investment residential mortgage portfolio.

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The Company had residential mortgage loans held-for-sale with unpaid principal balances of $148.9 million and $160.1 million pledged to the FHLB at March 31, 2019 and December 31, 2018, respectively.

4. Loans

Loans outstanding, by class, are summarized in the following table at carrying value and include net unamortized costs of $26.6 million and $29.7 million at March 31, 2019 and December 31, 2018, respectively. Acquired loans represent previously acquired loans. Legacy loans represent existing portfolio loans originated by the Bank prior to each acquisition, additional loans originated subsequent to each acquisition and Government National Mortgage Association ("GNMA") optional repurchase loans (collectively, “legacy loans”).



	March 31, 2019
	Loans
(in thousands)	Legacy		Acquired		Total
Commercial	$	857,098	$	100,982	$	958,080
SBA	161,381		5,460		166,841
Total commercial loans	1,018,479		106,442		1,124,921

Construction	290,055		1,467		291,522

Indirect automobile	1,454,748		—		1,454,748
Installment loans and personal lines of credit	24,558		688		25,246
Total consumer loans	1,479,306		688		1,479,994
Residential mortgage	610,967		14,464		625,431
Home equity lines of credit	145,014		9,923		154,937
Total mortgage loans	755,981		24,387		780,368
Total loans	$	3,543,821	$	132,984	$	3,676,805



	December 31, 2018
	Loans
(in thousands)	Legacy		Acquired		Total
Commercial	$	799,057	$	105,103	$	904,160
SBA	150,519		6,093		156,612
Total commercial loans	949,576		111,196		1,060,772

Construction	277,573		1,836		279,409

Indirect automobile	1,569,274		—		1,569,274
Installment loans and personal lines of credit	27,289		881		28,170
Total consumer loans	1,596,563		881		1,597,444
Residential mortgage	577,471		16,624		594,095
Home equity lines of credit	143,097		10,661		153,758
Total mortgage loans	720,568		27,285		747,853
Total loans	$	3,544,280	$	141,198	$	3,685,478

The Company has extended loans to certain officers and directors. The Company does not believe these loans involve more than the normal risk of collectability or present other unfavorable features when originated. None of the related party loans were classified as nonaccrual, past due, restructured, or potential problem loans at March 31, 2019 or December 31, 2018. The outstanding balances of related party loans totaled $28.1 million at March 31, 2019 and December 31, 2018.

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Nonaccrual Loans

The accrual of interest income is generally discontinued when a loan becomes 90 days past due. Past due status is based on the contractual terms of the loan agreement. A loan may be placed on nonaccrual status sooner if reasonable doubt exists as to the full, timely collection of principal or interest. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed against current period interest income. If a borrower on a residential mortgage loan previously sold makes no payment for three consecutive months, the Company, as servicer, may exercise its option to repurchase the delinquent loan from its securitized loan pool in an amount equal to 100% of the loan’s remaining principal balance less the principal payments advanced to the pool prior to the buyback, in which case no previously accrued interest would be reversed since the loan was previously sold. Interest advanced to the pool prior to the buyback is capitalized for future reimbursement as part of the government guarantee. Subsequent interest collected on nonaccrual loans is recorded as a principal reduction. Nonaccrual loans are returned to accrual status when all contractually due principal and interest amounts are brought current and the future payments are reasonably assured.

Loans in nonaccrual status are presented by class of loans in the following table. The Company has repurchased certain GNMA government-guaranteed loans, which are accounted for in nonaccrual status. The Company’s loss exposure on government-guaranteed loans is mitigated by the government guarantee in whole or in part. Purchased credit impaired (“PCI”) loans are considered to be performing due to the application of the accretion method and are excluded from the table.



(in thousands)	March 31, 2019		December 31, 2018
Commercial	$	11,638	$	12,001
SBA	5,218		5,076
Total commercial loans	16,856		17,077

Construction	242		242

Indirect automobile	1,204		1,320
Installment loans and personal lines of credit	302		261
Total consumer loans	1,506		1,581
Residential mortgage	40,555		33,518
Home equity lines of credit	2,310		2,328
Total mortgage loans	42,865		35,846
Total nonaccrual loans	$	61,469	$	54,746

If such nonaccrual loans had been on a full accrual basis, interest income on these loans for the three months ended March 31, 2019 and 2018, would have been $516,000 and $648,000, respectively. Residential mortgage loans on nonaccrual status include $35.5 million and $29.1 million in repurchased GNMA government-guaranteed loans at March 31, 2019 and December 31, 2018, respectively.

Accruing loans delinquent 30-89 days, 90 days or more, and troubled debt restructured loans (“TDRs”) accruing interest, including PCI loans, presented by class of loans at March 31, 2019 and December 31, 2018, were as follows:



	March 31, 2019						December 31, 2018
(in thousands)	Accruing Delinquent 30-89 Days		Accruing Delinquent 90 Days or More		TDRs Accruing		Accruing Delinquent 30-89 Days		Accruing Delinquent 90 Days or More		TDRs Accruing
Commercial	$	1,421	$	5,894	$	7,135	$	1,788	$	6,022	$	8,005
SBA	2,936		—		1,385		4,335		—		1,408
Construction	5		50		—		2,595		44		—
Indirect automobile	2,478		2		2,749		3,197		4		2,585
Installment and personal lines of credit	52		—		21		4		—		27
Residential mortgage	9,443		505		2,629		12,611		663		3,803
Home equity lines of credit	765		13		343		208		13		400
Total	$	17,100	$	6,464	$	14,262	$	24,738	$	6,746	$	16,228

TDR Loans

During the three months ended March 31, 2019, loans in the amount of $2.2 million were restructured and modified for term and $534,000 of loans were modified for interest rate. The modified loans were mortgage and indirect auto loans. During the three months ended March 31, 2018, $1.1 million in indirect auto and mortgage loans were modified for term and a mortgage loan in

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the amount of $12,000 was modified for interest rate. Modified PCI loans are not removed from their accounting pool and accounted for as TDRs, even if those loans would otherwise be deemed TDRs.

During the three months ended March 31, 2019 and 2018, the amount of loans which were restructured in the past twelve months and subsequently redefaulted was $1.5 million and $267,000, respectively, all of which were mortgage and indirect auto loans.

The Company had total TDRs with a balance of $25.5 million and $24.6 million at March 31, 2019 and December 31, 2018, respectively. Net charge-offs for TDR loans for the three months ended March 31, 2019 and 2018 were insignificant. Net charge-offs/recoveries on such loans are factored into the rolling historical loss rate, which is used in the calculation of the allowance for loan losses.

The Company was not committed to lend additional amounts to customers with outstanding loans classified as TDRs as of March 31, 2019 or December 31, 2018.

Pledged Loans

Presented in the following table is the unpaid principal balance of loans held for investment that were pledged to the Federal Home Loan Bank of Atlanta (“FHLB of Atlanta”) as collateral for borrowings under a blanket lien arrangement at March 31, 2019 and December 31, 2018:



(in thousands)	March 31, 2019		December 31, 2018
Commercial	$	389,135	$	294,275
Home equity lines of credit	71,579		104,556
Residential mortgage	439,994		407,713
Total	$	900,708	$	806,544

Indirect automobile loans with an unpaid principal balance of approximately $330.0 million at March 31, 2019 and December 31, 2018, respectively, were pledged to the Federal Reserve Bank of Atlanta (“FRB”) as collateral for potential Discount Window borrowings under a blanket lien arrangement.

Impaired Loans

The following tables present by class the unpaid principal balance, recorded investment and related allowance for impaired legacy loans and acquired non PCI loans at March 31, 2019 and December 31, 2018. Legacy impaired loans include all TDRs and all other nonaccrual loans, excluding nonaccrual loans below the Company’s specific review threshold:



	March 31, 2019						December 31, 2018
(in thousands)	Unpaid Principal Balance		Recorded Investment⁽¹⁾		Related Allowance		Unpaid Principal Balance		Recorded Investment⁽¹⁾		Related Allowance
Impaired Loans with Allowance
Commercial	$	13,326	$	11,829	$	941	$	15,460	$	14,557	$	1,371
SBA	4,827		3,377		422		2,338		1,886		127
Construction	—		—		—		—		—		—
Installment and personal lines of credit	127		92		92		1,626		310		93
Residential mortgage	14,189		14,180		350		4,368		4,357		472
Home equity lines of credit	478		363		258		659		558		202
Loans	$	32,947	$	29,841	$	2,063	$	24,451	$	21,668	$	2,265

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	March 31, 2019				December 31, 2018
(in thousands)	Unpaid Principal Balance		Recorded Investment⁽¹⁾		Unpaid Principal Balance		Recorded Investment⁽¹⁾
Impaired Loans with No Allowance
Commercial	$	10,234	$	9,795	$	8,280	$	7,223
SBA	5,692		3,597		7,039		4,972
Construction	960		242		965		242
Installment and personal lines of credit	1,498		215		—		—
Residential mortgage	31,781		30,677		34,507		33,564
Home equity lines of credit	2,146		1,949		1,975		1,797
Loans	$	52,311	$	46,475	$	52,766	$	47,798

⁽¹⁾The primary difference between the unpaid principal balance and recorded investment represents charge-offs previously taken; it excludes accrued interest receivable due to materiality. Related allowance is calculated on the recorded investment, not the unpaid principal balance.

Included in impaired loans with no allowance are $35.5 million and $29.1 million in government-guaranteed residential mortgage loans at March 31, 2019 and December 31, 2018, respectively. These loans are collateralized by first mortgages on the underlying real estate collateral and are individually reviewed for a specific allowance.

The average recorded investment in impaired loans and interest income recognized for the three months ended March 31, 2019 and 2018, by class, are summarized in the table below. Impaired loans include legacy impaired loans, all TDRs and all other nonaccrual loans including GNMA optional repurchase loans.



	Three Months Ended March 31,
	2019				2018
(in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial	$	21,392	$	81	$	24,282	$	152
SBA	7,154		32		6,429		96
Construction	242		1		4,424		7
Indirect automobile	3,318		64		3,260		64
Installment and personal lines of credit	308		65		447		46
Residential mortgage	42,660		245		31,317		208
Home equity lines of credit	2,327		23		3,480		19
Total	$	77,401	$	511	$	73,639	$	592

Credit Quality Indicators

The Company uses an asset quality ratings system to assign a numeric indicator of the credit quality and level of existing credit risk inherent in a loan ranging from 1 to 8, where a higher rating represents higher risk. Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification and grading in accordance with the Company’s internal loan policy. These ratings are adjusted periodically as the Company becomes aware of changes in the credit quality of the underlying loans through its ongoing monitoring of the credit quality of the loan portfolio.

Indirect automobile loans typically receive a risk rating only when being downgraded to an adverse rating which typically occurs when payments of principal and interest are greater than 90 days past due. The Company uses a number of factors, including FICO scoring, to help evaluate the likelihood consumer borrowers will pay their credit obligations as agreed. The weighted-average FICO score for the indirect automobile portfolio was 764 and 762 at March 31, 2019 and December 31, 2018, respectively.

The following are definitions of the Company's loan rating categories:

•Pass – Pass loans include loans rated satisfactory with high, good, average or acceptable business and credit risk.

•Special Mention – A special mention loan has potential weaknesses that deserve management’s close attention.

•Substandard – A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. A substandard asset has a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt.

•Doubtful – Doubtful loans have all the weaknesses inherent in assets classified 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.

Table of Contents

•Loss – Loss loans are considered uncollectable and of such little value that their continuance as recorded assets is not warranted.

The following tables present the recorded investment in loans, by loan class and risk rating category, as of March 31, 2019 and December 31, 2018:



(in thousands)	March 31, 2019
Asset Rating	Commercial		SBA		Construction		Indirect Automobile		Installment and Personal Lines of Credit		Residential Mortgage		Home Equity Lines of Credit		Total
Pass	$	919,506	$	154,320	$	271,253	$	—	$	24,861	$	580,637	$	151,617	$	2,102,194
Special Mention	14,085		5,461		19,977		—		65		441		787		40,816
Substandard	24,489		7,060		292		5,335		320		44,353		2,533		84,382
	958,080		166,841		291,522		5,335		25,246		625,431		154,937		2,227,392
Ungraded Performing	—		—		—		1,449,413		—		—		—		1,449,413
Total	$	958,080	$	166,841	$	291,522	$	1,454,748	$	25,246	$	625,431	$	154,937	$	3,676,805



(in thousands)	December 31, 2018
Asset Rating	Commercial		SBA		Construction		Indirect Automobile		Installment and Personal Lines of Credit		Residential Mortgage		Home Equity Lines of Credit		Total
Pass	$	859,770	$	144,977	$	256,813	$	—	$	27,759	$	556,622	$	150,338	$	1,996,279
Special Mention	14,410		4,674		22,306		—		69		512		800		42,771
Substandard	29,980		6,961		290		5,632		342		36,961		2,620		82,786
	904,160		156,612		279,409		5,632		28,170		594,095		153,758		2,121,836
Ungraded Performing	—		—		—		1,563,642		—		—		—		1,563,642
Total	$	904,160	$	156,612	$	279,409	$	1,569,274	$	28,170	$	594,095	$	153,758	$	3,685,478

Acquired Loans

The carrying amount and outstanding balance at March 31, 2019 of the PCI loans from acquisitions prior to 2018 was $21.4 million and $27.1 million, respectively, and $21.5 million and $27.5 million, respectively, at December 31, 2018. There were no loans acquired during the three months ended March 31, 2019.

Changes in the accretable yield, or income expected to be collected on PCI loans, for the three months ended March 31, 2019 and 2018, were as follows:



		For the three Months Ended March 31,
(in thousands)		2019

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$29.04	28	$803

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	2019-06-28	M&A, Shareholder Rights, Control, Officers, Other Events, Exhibits
8-K	2019-06-17	Other Events, Exhibits
8-K	2019-06-10	Other Events
8-K	2019-05-06	Other Events, Exhibits
8-K	2019-05-06	Shareholder Vote
8-K	2019-04-26	Other Events
8-K	2019-04-19	Other Events, Exhibits
8-K	2019-04-19	Earnings, Exhibits
8-K	2019-01-18	Earnings, Exhibits
8-K	2019-01-18	Other Events, Exhibits
8-K	2018-12-17	Enter Agreement, Other Events, Exhibits
8-K	2018-11-26	Regulation FD, Exhibits
8-K	2018-10-19	Earnings, Exhibits
8-K	2018-10-19	Other Events, Exhibits
8-K	2018-08-31	Other Events
8-K	2018-07-27	Regulation FD, Exhibits
8-K	2018-07-20	Other Events, Exhibits
8-K	2018-07-20	Earnings, Exhibits
8-K	2018-05-08	Regulation FD, Exhibits
8-K	2018-04-27	Officers, Shareholder Vote
8-K	2018-04-20	Other Events, Exhibits
8-K	2018-03-14	Officers
8-K	2018-02-16	Officers, Exhibits
8-K	2018-01-19	Earnings, Exhibits

DHR	Danaher	94,030
CVA	Covanta Holding	2,320
CEO	CNOOC	1,750
DNR	Denbury Resources	870
TEUM	Pareteum	492
POPE	Pope Resources Partnership	292
ICD	Independence Contract Drilling	209
TGSL	TGS	0
BLPG	Blue Line Protection Group	0
NBIO	Nascent Biotech	0

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