gnbc-Current_Folio_10Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2015

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: 001-36580


Green Bancorp, Inc.

(Exact name of registrant as specified in its charter)


 

 

TEXAS

(State or other jurisdiction of incorporation or organization)

42-1631980

(I.R.S. Employer Identification No.)

 

4000 Greenbriar

Houston, Texas 77098

(Address of principal executive offices, including zip code)

(713) 275 - 8220

(Registrant’s telephone number, including area code)


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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer      

 

Accelerated filer                        

 

 

 

Non-accelerated filer        

(Do not check if a smaller reporting company)

Smaller reporting company       

 

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

 

As of May 12, 2015, there were 26,176,118 outstanding shares of the registrant’s Common Stock, par value $0.01 per share.

 

 

 


 

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GREEN BANCORP, INC. AND SUBSIDIARY

INDEX TO FORM 10-Q

 

 

 

 

Special Cautionary Notice Regarding Forward-Looking Statements 

3

PART I—FINANCIAL INFORMATION 

 

Item 1. 

Interim Condensed Consolidated Financial Statements

5

 

Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 (Unaudited)

5

 

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014 (Unaudited)

6

 

Condensed Consolidated Statements of Comprehensive Income for the Three Ended March 31, 2015 and 2014 (Unaudited)

7

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2015 and 2014 (Unaudited)

8

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014 (Unaudited)

9

 

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

10

Item 2. 

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

40

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

54

Item 4. 

Controls and Procedures

54

PART II—OTHER INFORMATION 

 

Item 1. 

Legal Proceedings

54

Item 1A. 

Risk Factors

55

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

55

Item 3. 

Defaults upon Senior Securities

55

Item 4. 

Mine Safety Disclosures

55

Item 5. 

Other Information

55

Item 6. 

Exhibits

55

Signatures 

56

 

 

 

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Special Cautionary Notice Regarding Forward-Looking Statements

Statements and financial discussion and analysis contained in this quarterly report on Form 10-Q that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on various facts and derived utilizing numerous important assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  You should understand that the following important factors could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements:

·

risks related to the concentration of our business within our geographic areas of operation in Texas, including risks associated with downturns in the energy, technology and real estate sectors within these areas;

·

risks related to our energy reserve exposure and energy related service industry exposure of our total funded loans and the decline in oil prices;

·

our ability to execute on our growth strategy, including through the identification of acquisition candidates that will be accretive to our financial condition and results of operation;

·

risks related to the integration of any acquired businesses, including exposure to potential asset quality and credit quality risks and unknown or contingent liabilities, the time and costs associated with integrating systems, technology platforms, procedures and personnel, the need for additional capital to finance such transactions, and possible failures in realizing the anticipated benefits from acquisitions;

·

our ability to comply with various governmental and regulatory requirements applicable to financial institutions;

·

market conditions and economic trends nationally, regionally and in our target markets, particularly in Texas and the geographic areas in which we operate;

·

our ability to attract and retain successful bankers that meet our expectations in terms of customer relationships and profitability;

·

risks related to our strategic focus on lending to small to medium-sized businesses;

·

risks associated with our commercial and industrial loan portfolio, including the risk for deterioration in value of the general business assets that generally secure such loans;

·

potential changes in the prices, values and sales volumes of commercial and residential real estate securing our real estate loans;

·

the sufficiency of the assumptions and estimates we make in establishing reserves for probable loan losses and other estimates;

·

risks associated with the relatively unseasoned nature of a significant portion of our loan portfolio;

·

risks related to our concentration of loans to a limited number of borrowers and in a limited geographic area;

·

our ability to maintain adequate liquidity and to raise necessary capital to fund our acquisition strategy, operations or to meet increased minimum regulatory capital levels;

·

changes in market interest rates that affect the pricing of our loans and deposits and our net interest income;

·

our ability to maintain an effective system of disclosure controls and procedures and internal controls over financial reporting;

·

the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services;

·

potential fluctuations in the market value and liquidity of the securities we hold for sale;

·

potential impairment on the goodwill we may record in connection with business acquisitions;

·

risks associated with system failures or failures to prevent breaches of our network security;

·

a failure in or breach of operational or security systems of the Company’s infrastructure, or those of its third-party vendors and other service providers, including as a result of cyber attacks;

·

our ability to keep pace with technological change or difficulties when implementing new technologies;

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·

risks associated with data processing system failures and errors;

·

risks associated with fraudulent and negligent acts by our customers, employees or vendors;

·

the institution and outcome of litigation and other legal proceeding against us or to which we become subject;

·

the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators, such as the Dodd-Frank Act;

·

governmental monetary and fiscal policies, including the policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”);

·

the failure of the Company’s enterprise risk management framework to identify or address risks adequately;

·

our ability to comply with supervisory actions by federal banking agencies;

·

changes in the scope and cost of Federal Deposit Insurance Corporation (the “FDIC”) insurance and other coverages;

·

systemic risks associated with the soundness of other financial institutions;

·

acts of terrorism, an outbreak of hostilities or other international or domestic calamities, weather or other acts of God and other matters beyond the Company’s control; and

·

other risks and uncertainties listed from time to time in the Company’s reports and documents filed with the Securities and Exchange Commission.

 Other factors not identified above, including those described in our Annual Report on Form 10-K for year ended December 31, 2014 under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may also cause actual results to differ materially from those described in our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. You should consider these factors in connection with considering any forward-looking statements that may be made by us. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

 

 

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

 

GREEN BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2015

 

2014

 

 

 

 

 

 

 

ASSETS

 

 

   

 

 

   

Cash and due from banks

    

$

15,826 

    

$

13,963 

Interest bearing deposits in financial institutions

 

 

113,282 

 

 

54,960 

Total cash and cash equivalents

 

 

129,108 

 

 

68,923 

 

 

 

 

 

 

 

Available-for-sale securities, at fair value

 

 

180,038 

 

 

187,565 

Held-to-maturity securities, at amortized cost (fair value of $48,362 and $50,725, respectively)

 

 

47,997 

 

 

50,713 

Federal Reserve Bank stock

 

 

7,186 

 

 

7,173 

Federal Home Loan Bank of Dallas stock

 

 

2,814 

 

 

4,192 

Total securities and other investments

 

 

238,035 

 

 

249,643 

 

 

 

 

 

 

 

Loans held-for-sale

 

 

939 

 

 

573 

Loans held for investment

 

 

1,810,842 

 

 

1,799,155 

Allowance for loan losses

 

 

(17,542)

 

 

(15,605)

Loans, net

 

 

1,794,239 

 

 

1,784,123 

 

 

 

 

 

 

 

Premises and equipment, net

 

 

24,817 

 

 

25,200 

Goodwill

 

 

30,129 

 

 

30,129 

Core deposit intangibles, net of accumulated amortization

 

 

4,000 

 

 

4,148 

Accrued interest receivable

 

 

5,506 

 

 

4,916 

Deferred tax asset, net

 

 

8,109 

 

 

8,468 

Real estate acquired by foreclosure

 

 

4,863 

 

 

4,863 

Bank owned life insurance

 

 

7,957 

 

 

7,903 

Other assets

 

 

5,902 

 

 

7,819 

TOTAL ASSETS

 

$

2,252,665 

 

$

2,196,135 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

 

$

459,100 

 

$

431,942 

Interest-bearing transaction and savings

 

 

809,300 

 

 

777,431 

Certificates and other time deposits

 

 

663,451 

 

 

636,340 

Total deposits

 

 

1,931,851 

 

 

1,845,713 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

 

13,012 

 

 

4,605 

Other borrowed funds

 

 

7,323 

 

 

47,586 

Accrued interest payable

 

 

731 

 

 

767 

Other liabilities

 

 

5,978 

 

 

9,059 

Total liabilities

 

 

1,958,895 

 

 

1,907,730 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding

 

 

 -

 

 

 -

Common stock, $0.01 par value, 90,000,000 shares authorized, 26,176,118 and 26,175,949 shares issued and outstanding at March 31, 2015 and December 31, 2014

 

 

262 

 

 

262 

Capital surplus

 

 

252,652 

 

 

252,421 

Retained earnings

 

 

39,309 

 

 

34,660 

Accumulated other comprehensive income (loss), net

 

 

1,547 

 

 

1,062 

Total shareholders’ equity

 

 

293,770 

 

 

288,405 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

2,252,665 

 

$

2,196,135 

 

See notes to interim condensed consolidated financial statements.

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GREEN BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

2014

 

 

 

 

 

 

 

INTEREST INCOME:

 

 

   

 

 

   

Loans, including fees

    

$

21,659 

    

$

16,976 

Securities

 

 

878 

 

 

1,029 

Other investments

 

 

110 

 

 

78 

Deposits in financial institutions

 

 

55 

 

 

24 

Total interest income

 

 

22,702 

 

 

18,107 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

Transaction and savings deposits

 

 

682 

 

 

577 

Certificates and other time deposits

 

 

1,474 

 

 

1,810 

Other borrowed funds

 

 

30 

 

 

44 

Total interest expense

 

 

2,186 

 

 

2,431 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

 

20,516 

 

 

15,676 

PROVISION FOR LOAN LOSSES

 

 

1,505 

 

 

1,223 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

 

19,011 

 

 

14,453 

 

 

 

 

 

 

 

NONINTEREST INCOME:

 

 

 

 

 

 

Customer service fees

 

 

863 

 

 

531 

Loan fees

 

 

371 

 

 

550 

Gain on sale of guaranteed portion of loans, net

 

 

645 

 

 

430 

Gain on sale of loans held-for-sale, net

 

 

75 

 

 

 -

Other

 

 

131 

 

 

96 

Total noninterest income

 

 

2,085 

 

 

1,607 

 

 

 

 

 

 

 

NONINTEREST EXPENSE:

 

 

 

 

 

 

Salaries and employee benefits

 

 

8,757 

 

 

6,931 

Occupancy

 

 

1,460 

 

 

1,133 

Professional and regulatory fees

 

 

1,467 

 

 

780 

Data processing

 

 

644 

 

 

388 

Software license and maintenance

 

 

362 

 

 

315 

Marketing

 

 

148 

 

 

172 

Loan related

 

 

109 

 

 

117 

Real estate acquired by foreclosure, net

 

 

13 

 

 

169 

Other

 

 

796 

 

 

592 

Total noninterest expense

 

 

13,756 

 

 

10,597 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

7,340 

 

 

5,463 

PROVISION FOR INCOME TAXES

 

 

2,691 

 

 

1,975 

NET INCOME

 

$

4,649 

 

$

3,488 

 

 

 

 

 

 

 

EARNINGS PER SHARE:

 

 

 

 

 

 

 Basic

 

$

0.18 

 

$

0.17 

 Diluted

 

$

0.18 

 

$

0.17 

 

See notes to interim condensed consolidated financial statements.

 

 

 

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GREEN BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

2014

 

 

 

 

 

 

 

NET INCOME

    

$

4,649 

    

$

3,488 

OTHER COMPREHENSIVE INCOME, BEFORE TAX:

 

 

 

 

 

 

Change in unrealized gain on securities available-for-sale

 

 

746 

 

 

1,183 

Total other comprehensive income before tax

 

 

746 

 

 

1,183 

 

 

 

 

 

 

 

DEFERRED TAX EXPENSE RELATED TO OTHER COMPREHENSIVE INCOME

 

 

261 

 

 

414 

OTHER COMPREHENSIVE INCOME, NET OF TAX

 

 

485 

 

 

769 

COMPREHENSIVE INCOME

 

$

5,134 

 

$

4,257 

 

See notes to interim condensed consolidated financial statements.

 

 

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GREEN BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Shares

    

Amount

    

Capital
Surplus

    

Retained
Earnings

    

Accumulated
Other
Comprehensive
Income (Loss)

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE — January 1, 2014

   

20,771 

 

$

208 

 

$

179,219 

 

$

19,918 

 

$

(127)

 

$

199,218 

Net income

 

 -

 

 

 -

 

 

 -

 

 

3,488 

 

 

 -

 

 

3,488 

Net change in unrealized gains and losses on available-for-sale securities, net of taxes of $414 and reclassification adjustment

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

769 

 

 

769 

Issuance of common stock in connection with exercise of stock options

 

 

 

 -

 

 

76 

 

 

 -

 

 

 -

 

 

76 

Stock-based compensation expense

 

 -

 

 

 -

 

 

49 

 

 

 -

 

 

 -

 

 

49 

BALANCE — March 31, 2014

 

20,780 

 

$

208 

 

$

179,344 

 

$

23,406 

 

$

642 

 

$

203,600 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE — January 1, 2015

 

26,176 

 

$

262 

 

$

252,421 

 

$

34,660 

 

$

1,062 

 

$

288,405 

Net income

 

 -

 

 

 -

 

 

 -

 

 

4,649 

 

 

 -

 

 

4,649 

Net change in unrealized gains and losses on available-for-sale securities, net of taxes of $261 and reclassification adjustment

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

485 

 

 

485 

Issuance of common stock in connection with exercise of stock options

 

 -

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

Stock-based compensation expense

 

 -

 

 

 -

 

 

229 

 

 

 -

 

 

 -

 

 

229 

BALANCE — March 31, 2015

 

26,176 

 

$

262 

 

$

252,652 

 

$

39,309 

 

$

1,547 

 

$

293,770 

 

See notes to interim condensed consolidated financial statements.

 

 

 

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GREEN BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

   

 

 

 

Net income

    

$

4,649 

    

$

3,488 

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

 

 

 

 

 

 

Amortization and accretion of premiums and discounts on securities, net

 

 

270 

 

 

291 

Accretion of loan discounts, net

 

 

(713)

 

 

(141)

Amortization of deposit premiums

 

 

(241)

 

 

(93)

Amortization of core deposit intangibles

 

 

148 

 

 

61 

Accretion of borrowing valuation allowance

 

 

(6)

 

 

 -

Provision for loan losses

 

 

1,505 

 

 

1,223 

Depreciation

 

 

426 

 

 

336 

Net gain on sale of mortgage loans held-for-sale

 

 

(75)

 

 

 -

Net gain on sale of guaranteed portion of loans

 

 

(645)

 

 

(430)

Originations of loans held-for-sale

 

 

(3,251)

 

 

 -

Proceeds from sales of and principal collected on loans held-for-sale 

 

 

2,960 

 

 

 -

Stock-based compensation expense

 

 

121 

 

 

49 

Increase in accrued interest receivable and other assets, net

 

 

1,371 

 

 

1,601 

Increase in accrued interest payable and other liabilities, net

 

 

(3,009)

 

 

(802)

Net cash provided by operating activities

 

 

3,510 

 

 

5,583 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Proceeds from the maturities or calls and paydowns of available-for-sale securities

 

 

11,042 

 

 

15,328 

Purchases of available-for-sale securities

 

 

(2,976)

 

 

(10,015)

Proceeds from the maturities or calls and paydowns of held-to-maturity securities

 

 

2,653 

 

 

2,204 

Purchases of held-to-maturity securities

 

 

 -

 

 

(1,988)

Proceeds from sales of guaranteed portion of loans

 

 

7,099 

 

 

6,312 

Purchases of Federal Home Loan Bank of Dallas stock, net of redemptions

 

 

1,378 

 

 

(5)

Purchases of Federal Reserve Bank stock

 

 

(13)

 

 

(1,127)

Net increase in loans held for investment

 

 

(16,996)

 

 

(53,066)

Investment in construction of premises and purchases of other fixed assets

 

 

(43)

 

 

(447)

Net cash provided by (used in) investing activities

 

 

2,144 

 

 

(42,804)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Net increase in deposit accounts

 

 

86,379 

 

 

39,161 

Net increase in securities sold under agreements to repurchase

 

 

8,407 

 

 

5,800 

Net repayment of other short-term borrowed funds

 

 

(257)

 

 

(12)

Repayment of other long-term borrowed funds

 

 

(40,000)

 

 

 -

Proceeds from issuance of common stock due to exercise of stock options

 

 

 

 

76 

Net cash provided by financing activities

 

 

54,531 

 

 

45,025 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

$

60,185 

 

$

7,804 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

 

Beginning of year

 

 

68,923 

 

 

34,757 

End of year

 

$

129,108 

 

$

42,561 

 

 

 

 

 

 

 

SUPPLEMENTAL INFORMATION:

 

 

 

 

 

 

Interest paid

 

$

2,222 

 

$

2,496 

Income taxes paid

 

$

 -

 

$

100 

 

See notes to interim condensed consolidated financial statements.

 

 

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015

(Unaudited)

1. BASIS OF PRESENTATION

The interim condensed consolidated financial statements include the accounts of Green Bancorp, Inc. (“Green Bancorp”), together with Green Bank, N.A., its subsidiary bank, (the “Company”).  All intercompany transactions and balances have been eliminated. 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial information.  In the opinion of management, the interim statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis and all such adjustments are of a normal recurring nature.  These financial statements and the accompanying notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.  Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015 or any other period.

Organization—Green Bancorp is a Texas corporation that was incorporated on October 20, 2004. In 2006 Green Bancorp entered into an agreement and plan of merger with Redstone Bank, National Association (“Redstone Bank”), a national banking association located in Houston, Texas, for the purpose of acquiring all of the issued and outstanding stock of Redstone Bank. The acquisition was completed on December 31, 2006, and Green Bancorp became a bank holding company registered under the Bank Holding Company Act of 1956, as amended.

Green Bank, N.A. (the “Bank”) is a national banking association, which was chartered under the laws of the United States of America as a national bank on February 17, 1999, as Redstone Bank. On September 14, 2007, the name was changed to Green Bank, N.A. The Bank provides commercial and consumer banking services in the greater Houston, Dallas, Austin and Louisville metropolitan areas.

Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) 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 reported period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of available-for-sale securities, acquired assets and liabilities, goodwill, and fair value.

2. EARNINGS PER COMMON SHARE

Basic earnings per common share is computed as net income available to common shareholders divided by the weighted average number of common shares outstanding during the period.

Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock using the treasury stock method. Outstanding stock options issued by the Company represent the only dilutive effect reflected in diluted weighted average shares.

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015

(Unaudited)

The following table illustrates the computation of basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended  March 31,

 

 

2015

 

2014

 

 

Amount

 

Per
Share
Amount

 

Amount

 

Per
Share
Amount

 

 

(Amounts in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

   

$

4,649 

   

 

 

   

$

3,488 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

26,176 

 

$

0.18 

 

 

20,775 

 

$

0.17 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Add incremental shares for:

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities - options

 

 

183 

 

 

 

 

 

132 

 

 

 

Total

 

 

26,359 

 

$

0.18 

 

 

20,907 

 

$

0.17 

 

 

 

 

 

3. RECENT ACCOUNTING STANDARDS

Accounting Standards Updates (“ASU”)

FASB ASU No. 2014‑04—“Receivables—Troubled Debt Restructuring by Creditors (Subtopic 310‑40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure” clarifies when an in substance foreclosure occurs, that is, when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. This is the point when the consumer mortgage loan should be derecognized and the real property recognized.  ASU 2014-04 was effective for the Company on January 1, 2015 and did not have a significant impact on the Company’s financial statements.

FASB ASU No. 2014-09 — “Revenue from Contract with Customers (Topic 606)” supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), and most industry-specific guidance throughout the Industry Topics of the Codification.  Additionally ASU 2014-09 supersedes some cost guidance included in Revenue Recognition—Construction-Type and Production-Type Contracts (Subtopic 605-35).  In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer are amended to be consistent with the guidance on recognition and measurement.  The core principal of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The adoption of this ASU becomes effective for the Company beginning after January 1, 2017, with retrospective application to each prior reporting period presented, and is not expected to have a significant impact on the Company’s financial statements.

FASB ASU No. 2014-11 — “Transfers and Servicing (Topic 860) – Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosure” changes the accounting for repurchase-to-maturity transactions to secured borrowing accounting.  It also requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting and disclosure for the repurchase agreement.  The adoption of this ASU becomes effective for the Company beginning after January 1, 2016 and is not expected to have a significant impact on the Company’s financial statements.

FASB ASU No. 2014-12 — “Compensation-Stock Compensation (Topic 718) – Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  The performance target should not be reflected in estimating the grant-date fair value of the award.  Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.  If the performance target

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015

(Unaudited)

becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period.  The total amount of the compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest.  The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved.  The adoption of this ASU becomes effective for the Company beginning after January 1, 2016 and is not expected to have a significant impact on the Company’s financial statements.

FASB ASU No. 2014-14 — “Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure” requires creditors to reclassify mortgage loans as another receivable that is separate from loans and to measure the receivable at the fixed or determinable amount expected to be received under the government guarantee if upon foreclosure the mortgage loans meet certain conditions.  ASU 2014-04 was effective for the Company on January 1, 2015 and did not have a significant impact on the Company’s financial statements.

FASB ASU No. 2015-01— “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) – Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. ASU 2015-01 is effective for the Company beginning January 1, 2016, though early adoption is permitted. ASU 2015-01 is not expected to have a significant impact on the Company’s financial statements.

4. ACQUISITIONS

Acquisitions are an integral part of the Company’s growth strategy. All acquisitions were accounted for using the acquisition method of accounting. Accordingly, the assets and liabilities of the acquired entities were recorded at their fair values at the acquisition date. The excess of the purchase price over the estimated fair value of the net assets for tax-free acquisitions is recorded as goodwill, none of which is deductible for tax purposes. The excess of the purchase price over the estimated fair value of the net assets for taxable acquisitions was recorded as goodwill, and is deductible for tax purposes. The identified core deposit intangibles for each acquisition are being amortized using a non-pro rata basis over an estimated life of six to nineteen years. The results of operations for each acquisition have been included in the Company’s consolidated financial results beginning on the respective acquisition date.

The measurement period for the Company to determine the fair values of acquired identifiable assets and assumed liabilities will end at the earlier of (1) twelve months from the date of the acquisition or (2) as soon as the Company receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. The Company is currently in the process of obtaining fair values for certain acquired assets and assumed liabilities and therefore the following estimates for the SharePlus acquisition are preliminary.

On October 17, 2014, the Company completed the acquisition of SP Bancorp, Inc. and its wholly owned subsidiary SharePlus Bank (collectively “SharePlus”). SharePlus Bank was a Texas chartered state bank headquartered in Plano, Texas, with four branches, two in Plano, Texas, one in Dallas, Texas and one in Louisville, Kentucky.  The expansion complements the Company’s Dallas area growth.  As of September 30, 2014, SharePlus, on a consolidated basis, had $348.7 million in total assets, $248.2 million in loans, $280.5 million in deposits and $33.7 million in stockholders’ equity. The acquisition was not considered significant to the Company’s financial statements and therefore pro forma financial data and related disclosures are not included. 

Pursuant to the terms of the acquisition agreement, the Company paid $46.4 million in cash for all outstanding shares of SP Bancorp capital stock, which resulted in goodwill of $14.5 million as of December 31, 2014.  Additionally, the Company recognized $3.5 million of core deposit intangibles as of December 31, 2014.  These goodwill, deferred tax asset and core deposit intangible balances as of March 31, 2015 do not include potential subsequent fair value adjustments that are still being finalized.

5. CASH AND CASH EQUIVALENTS

The Bank, as a correspondent of the Federal Reserve Bank, is required to maintain average reserve balances.  Interest-bearing deposits include restricted amounts of $44.2 million and $42.0 million at March 31, 2015 and December 31, 2014, respectively, as a result of this requirement.

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015

(Unaudited)

6. SECURITIES

The amortized cost and fair value of securities as of the dates set forth were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of the U.S. Treasury and other U.S. government agencies or sponsored enterprises

    

$

55,049 

    

$

78 

    

$

(5)

    

$

55,122 

Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises

 

 

94,716 

 

 

2,445 

 

 

(28)

 

 

97,133 

Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises

 

 

27,893 

 

 

72 

 

 

(182)

 

 

27,783 

Total

 

$

177,658 

 

$

2,595 

 

$

(215)

 

$

180,038 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises

 

$

15,650 

 

$

493 

 

$

(83)

 

$

16,060 

Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises

 

 

32,347 

 

 

137 

 

 

(182)

 

 

32,302 

Total

 

$

47,997 

 

$

630 

 

$

(265)

 

$

48,362 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of the U.S. Treasury and other U.S. government agencies or sponsored enterprises

    

$

57,108 

    

$

21 

    

$

(85)

    

$

57,044 

Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises

 

 

100,002 

 

 

2,022 

 

 

(108)

 

 

101,916 

Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises

 

 

28,821 

 

 

74 

 

 

(290)

 

 

28,605 

Total

 

$

185,931 

 

$

2,117 

 

$

(483)

 

$

187,565 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises

 

$

16,823 

 

$

485 

 

$

(123)

 

$

17,185 

Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises

 

 

33,890 

 

 

87 

 

 

(437)

 

 

33,540 

Total

 

$

50,713 

 

$

572 

 

$

(560)

 

$

50,725 

 

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015

(Unaudited)

Expected maturities of securities will differ from contractual maturities because the underlying borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The following table sets forth, as of the date indicated, contractual maturities of securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

Available-for-sale

 

Held-to-maturity

 

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

    

$

15,023 

    

$

15,037 

    

$

 -

    

$

 -

Due after one year through five years

 

 

40,026 

 

 

40,085 

 

 

 -

 

 

 -

Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises

 

 

94,716 

 

 

97,133 

 

 

15,650 

 

 

16,060 

Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises

 

 

27,893 

 

 

27,783 

 

 

32,347 

 

 

32,302 

Total

 

$

177,658 

 

$

180,038 

 

$

47,997 

 

$

48,362 

There were no sales of securities during the three months ended March 31, 2015 or 2014.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities classified as available-for-sale or held-to-maturity are evaluated for OTTI under ASC 320, Investments—Debt and Equity Securities.

In determining OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the other-than-temporary impairment recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss.

As of March 31, 2015, the Company does not intend to sell any debt securities classified as held-to-maturity and management believes that the Company more likely than not will not be required to sell any debt securities that are in a loss position before their anticipated recovery, at which time the Company will receive full value for the securities. Furthermore, as of March 31, 2015, management does not have the intent to sell any of its securities classified as available-for-sale that are in a loss position and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of March 31, 2015, management believes any impairment in the Company’s securities is temporary and no impairment loss has been realized in the Company’s consolidated statements of income.

Declines in the fair value of individual securities below their cost that are other-than-temporary would result in writedowns, as a realized loss, to their fair value. In evaluating other-than-temporary impairment losses, management considers several factors including the severity and the duration that the fair value has been less than cost, the credit quality of the issuer, and whether it is more likely than not that the Company will be required to sell the security before a recovery in value. The Company has not realized any losses due to other-than-temporary impairment of securities as of March 31, 2015.

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015

(Unaudited)

Securities with unrealized losses segregated by length of continuous unrealized loss position as of the dates set forth were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

Less than 12 Months

 

More than 12 Months

 

 

Amortized Cost

 

Gross Unrealized Losses

 

Fair Value

 

Amortized Cost

 

Gross Unrealized Losses

 

Fair Value

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of the U.S. Treasury and other U.S. government agencies or sponsored enterprises

    

$

7,003 

    

$

(5)

    

$

6,998 

    

$

 -

    

$

 -

    

$

 -

Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises

 

 

7,438 

 

 

(28)

 

 

7,410 

 

 

 -

 

 

 -

 

 

 -

Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises

 

 

3,396 

 

 

(7)

 

 

3,389 

 

 

7,642 

 

 

(175)

 

 

7,467 

Total

 

$

17,837 

 

$

(40)

 

$

17,797 

 

$

7,642 

 

$

(175)

 

$

7,467 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises

 

$

1,714 

 

$

(23)

 

$

1,691 

 

$

2,631 

 

$

(60)

 

$

2,571 

Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises

 

 

6,968 

 

 

(15)

 

 

6,953 

 

 

10,431 

 

 

(167)

 

 

10,264 

Total

 

$

8,682 

 

$

(38)

 

$

8,644 

 

$

13,062 

 

$

(227)

 

$

12,835 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

Less than 12 Months

 

More than 12 Months

 

 

Amortized Cost

 

Gross Unrealized Losses

 

Fair Value

 

Amortized Cost

 

Gross Unrealized Losses

 

Fair Value

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

            

 

 

 

 

 

            

Obligations of the U.S. Treasury and other U.S. government agencies or sponsored enterprises

    

$

37,049 

    

$

(85)

    

$

36,964 

    

$

 -

    

$

 -

    

$

 -

Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises

 

 

20,403 

 

 

(53)

 

 

20,350 

 

 

4,440 

 

 

(56)

 

 

4,384 

Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises

 

 

3,514 

 

 

 -

 

 

3,514 

 

 

12,559 

 

 

(289)

 

 

12,270 

Total

 

$

60,966 

 

$

(138)

 

$

60,828 

 

$

16,999 

 

$

(345)

 

$

16,654 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises

 

$

 -

 

$

 -

 

$

 -

 

$

4,564 

 

$

(122)

 

$

4,442 

Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises

 

 

12,414 

 

 

(92)

 

 

12,322 

 

 

13,988 

 

 

(346)

 

 

13,642