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EX-32.(B) - EX-32.(B) - INTERNATIONAL BANCSHARES CORPiboc-20170630xex32b.htm
EX-32.(A) - EX-32.(A) - INTERNATIONAL BANCSHARES CORPiboc-20170630xex32a.htm
EX-31.(B) - EX-31.(B) - INTERNATIONAL BANCSHARES CORPiboc-20170630xex31b.htm
EX-31.(A) - EX-31.(A) - INTERNATIONAL BANCSHARES CORPiboc-20170630xex31a.htm

 

 

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 June 30, 2017

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to           

 

Commission file number 000-09439

 

INTERNATIONAL BANCSHARES CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

Texas

 

74-2157138

(State or other jurisdiction of

 

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

incorporation or organization)

 

 

 

1200 San Bernardo Avenue, Laredo, Texas 78042-1359

(Address of principal executive offices)

(Zip Code)

 

(956) 722-7611

 

(Registrant’s telephone number, including area code)

 

None

 

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the 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 ☐ (Do not check if a smaller reporting company)

 

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 ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date

 

 

 

 

Class

 

Shares Issued and Outstanding

Common Stock, $1.00 par value

 

66,059,579 shares outstanding at August 2, 2017

 

 

 

 


 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Condition (Unaudited)

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

    

2017

    

2016

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

316,921

 

$

269,198

 

Investment securities:

 

 

 

 

 

 

 

Held to maturity (Market value of $2,400 on June 30, 2017 and $2,400 on December 31, 2016)

 

 

2,400

 

 

2,400

 

Available for sale (Amortized cost of $4,132,694 on June 30, 2017 and $4,218,841 on December 31, 2016)

 

 

4,121,703

 

 

4,177,349

 

Total investment securities

 

 

4,124,103

 

 

4,179,749

 

Loans

 

 

6,205,846

 

 

5,964,688

 

Less allowance for probable loan losses

 

 

(64,919)

 

 

(64,661)

 

Net loans

 

 

6,140,927

 

 

5,900,027

 

Bank premises and equipment, net

 

 

522,003

 

 

527,583

 

Accrued interest receivable

 

 

31,581

 

 

32,172

 

Other investments

 

 

529,358

 

 

517,162

 

Identified intangible assets, net

 

 

 —

 

 

25

 

Goodwill

 

 

282,532

 

 

282,532

 

Other assets

 

 

87,797

 

 

95,593

 

Total assets

 

$

12,035,222

 

$

11,804,041

 

 

1


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Condition, continued (Unaudited)

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

    

2017

    

2016

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Demand—non-interest bearing

 

$

3,282,441

 

$

3,158,051

 

Savings and interest bearing demand

 

 

3,234,739

 

 

3,203,728

 

Time

 

 

2,188,754

 

 

2,248,310

 

Total deposits

 

 

8,705,934

 

 

8,610,089

 

Securities sold under repurchase agreements

 

 

360,411

 

 

504,985

 

Other borrowed funds

 

 

886,500

 

 

733,375

 

Junior subordinated deferrable interest debentures

 

 

160,416

 

 

160,416

 

Other liabilities

 

 

125,269

 

 

70,509

 

Total liabilities

 

 

10,238,530

 

 

10,079,374

 

Shareholders’ equity:

 

 

 

 

 

 

 

Common shares of $1.00 par value. Authorized 275,000,000 shares; issued 95,997,465 shares on June 30, 2017 and 95,910,143 shares on December 31, 2016

 

 

95,997

 

 

95,910

 

Surplus

 

 

171,056

 

 

169,567

 

Retained earnings

 

 

1,828,743

 

 

1,777,963

 

Accumulated other comprehensive loss (including $0 on June 30, 2017 and $(3,287) on December 31, 2016 of comprehensive loss related to other-than-temporary impairment for non-credit related issues)

 

 

(6,907)

 

 

(26,697)

 

 

 

 

2,088,889

 

 

2,016,743

 

Less cost of shares in treasury, 29,937,886 shares on June 30, 2017 and 29,934,675 on December 31, 2016

 

 

(292,197)

 

 

(292,076)

 

Total shareholders’ equity

 

 

1,796,692

 

 

1,724,667

 

Total liabilities and shareholders’ equity

 

$

12,035,222

 

$

11,804,041

 

 

See accompanying notes to consolidated financial statements.

2


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Income (Unaudited)

 

(Dollars in Thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

    

June 30,

 

June 30,

 

 

 

2017

    

2016

    

2017

    

2016

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

79,466

 

$

74,606

 

$

154,867

 

$

148,857

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

20,989

 

 

20,596

 

 

39,995

 

 

40,716

 

Tax-exempt

 

 

2,457

 

 

2,627

 

 

4,948

 

 

5,274

 

Other interest income

 

 

262

 

 

67

 

 

345

 

 

106

 

Total interest income

 

 

103,174

 

 

97,896

 

 

200,155

 

 

194,953

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings deposits

 

 

1,353

 

 

1,199

 

 

2,642

 

 

2,160

 

Time deposits

 

 

2,401

 

 

2,394

 

 

4,777

 

 

4,968

 

Securities sold under repurchase agreements

 

 

1,146

 

 

5,552

 

 

4,214

 

 

11,111

 

Other borrowings

 

 

2,575

 

 

757

 

 

3,838

 

 

1,384

 

Junior subordinated deferrable interest debentures

 

 

1,322

 

 

1,122

 

 

2,572

 

 

2,218

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest expense

 

 

8,797

 

 

11,024

 

 

18,043

 

 

21,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

94,377

 

 

86,872

 

 

182,112

 

 

173,112

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for probable loan losses

 

 

805

 

 

7,097

 

 

2,505

 

 

16,231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for probable loan losses

 

 

93,572

 

 

79,775

 

 

179,607

 

 

156,881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

17,882

 

 

17,854

 

 

35,788

 

 

35,964

 

Other service charges, commissions and fees

 

 

 

 

 

 

 

 

 

 

 

 

 

Banking

 

 

11,025

 

 

10,957

 

 

21,410

 

 

21,334

 

Non-banking

 

 

1,864

 

 

1,694

 

 

3,199

 

 

2,991

 

Investment securities transactions, net

 

 

(2,539)

 

 

(227)

 

 

(1,612)

 

 

(360)

 

Other investments, net

 

 

2,830

 

 

2,766

 

 

7,098

 

 

10,617

 

Other income

 

 

2,901

 

 

3,567

 

 

5,795

 

 

6,996

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-interest income

 

$

33,963

 

$

36,611

 

$

71,678

 

$

77,542

 

 

3


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Income, continued (Unaudited)

 

(Dollars in Thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

    

June 30,

 

June 30,

 

 

 

2017

    

2016

    

2017

    

2016

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

$

32,739

 

$

31,155

 

$

65,469

 

$

61,938

 

Occupancy

 

 

6,417

 

 

5,906

 

 

12,408

 

 

12,072

 

Depreciation of bank premises and equipment

 

 

6,302

 

 

6,208

 

 

12,529

 

 

12,388

 

Professional fees

 

 

3,850

 

 

3,446

 

 

7,566

 

 

6,739

 

Deposit insurance assessments

 

 

913

 

 

1,508

 

 

1,303

 

 

3,001

 

Net expense, other real estate owned

 

 

482

 

 

1,377

 

 

1,396

 

 

2,255

 

Amortization of identified intangible assets

 

 

 —

 

 

32

 

 

25

 

 

64

 

Advertising

 

 

2,116

 

 

2,319

 

 

4,384

 

 

4,424

 

Early termination fee—securities sold under repurchase agreements

 

 

 —

 

 

 —

 

 

5,765

 

 

 —

 

Software and software maintenance

 

 

4,062

 

 

3,723

 

 

7,853

 

 

7,034

 

Impairment charges (Total other-than-temporary impairment charges, $0 net of $0, $(300) net of $(367), $0 net of $0, and $(332) net of $(523) included in other comprehensive loss)

 

 

 —

 

 

67

 

 

 —

 

 

191

 

Other

 

 

16,832

 

 

16,243

 

 

30,641

 

 

29,796

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-interest expense

 

 

73,713

 

 

71,984

 

 

149,339

 

 

139,902

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

53,822

 

 

44,402

 

 

101,946

 

 

94,521

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

13,253

 

 

14,714

 

 

29,373

 

 

31,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

40,569

 

$

29,688

 

$

72,573

 

$

62,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

66,053,741

 

 

66,944,220

 

 

66,024,135

 

 

65,979,167

 

Net income

 

$

0.61

 

$

0.45

 

$

1.10

 

$

.95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fully diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

66,715,171

 

 

66,159,105

 

 

66,731,499

 

 

66,138,593

 

Net income

 

$

0.61

 

$

0.45

 

$

1.09

 

$

.95

 

 

 

 

See accompanying notes to consolidated financial statements

4


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Comprehensive Income (Unaudited)

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

    

June 30,

 

June 30,

 

 

 

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

40,569

 

$

29,688

 

$

72,573

 

$

62,672

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized holding gains (losses) on securities available for sale arising during period (net of tax effects of $2,894, $5,451, $10,092, and $20,705)

 

 

5,374

 

 

10,124

 

 

18,742

 

 

38,452

 

Reclassification adjustment for losses on securities available for sale included in net income (net of tax effects of $889, $79, $564, and $126)

 

 

1,650

 

 

148

 

 

1,048

 

 

234

 

Reclassification adjustment for impairment charges on available for sale securities included in net income (net of tax effects of $0, $23, $0, and $67)

 

 

 —

 

 

44

 

 

 —

 

 

124

 

 

 

 

7,024

 

 

10,316

 

 

19,790

 

 

38,810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

47,593

 

$

40,004

 

$

92,363

 

$

101,482

 

 

See accompanying notes to consolidated financial statements.

5


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows (Unaudited)

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

    

June 30,

 

 

 

2017

    

2016

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

72,573

 

$

62,672

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Provision for probable loan losses

 

 

2,505

 

 

16,231

 

Specific reserve, other real estate owned

 

 

317

 

 

570

 

Depreciation of bank premises and equipment

 

 

12,529

 

 

12,388

 

Gain on sale of bank premises and equipment

 

 

(16)

 

 

(40)

 

Loss (gain) on sale of other real estate owned

 

 

 3

 

 

(55)

 

Accretion of investment securities discounts

 

 

(219)

 

 

(259)

 

Amortization of investment securities premiums

 

 

12,577

 

 

12,311

 

Investment securities transactions, net

 

 

1,612

 

 

360

 

Impairment charges on available for sale securities

 

 

 —

 

 

191

 

Amortization of identified intangible assets

 

 

25

 

 

64

 

Stock based compensation expense

 

 

484

 

 

554

 

Earnings from affiliates and other investments

 

 

(5,590)

 

 

(5,555)

 

Deferred tax expense

 

 

212

 

 

386

 

Decrease in accrued interest receivable

 

 

591

 

 

225

 

Decrease in other assets

 

 

720

 

 

(1,894)

 

Net increase in other liabilities

 

 

5,691

 

 

5,006

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

104,014

 

 

103,155

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from sales and calls of available for sale securities

 

 

272,184

 

 

195,538

 

Purchases of available for sale securities

 

 

(542,112)

 

 

(582,117)

 

Principal collected on mortgage backed securities

 

 

372,717

 

 

407,011

 

Net increase in loans

 

 

(244,855)

 

 

(23,852)

 

Purchases of other investments

 

 

(4,540)

 

 

(1,509)

 

Distributions from other investments

 

 

5,467

 

 

3,942

 

Purchases of bank premises and equipment

 

 

(7,615)

 

 

(7,160)

 

Proceeds from sales of bank premises and equipment

 

 

682

 

 

43

 

Proceeds from sales of other real estate owned

 

 

8,207

 

 

2,010

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

$

(139,865)

 

$

(6,094)

 

 

6


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows, continued (Unaudited)

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

    

June 30,

 

 

 

2017

    

2016

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in non-interest bearing demand deposits

 

$

124,390

 

$

(50,151)

 

Net increase  in savings and interest bearing demand deposits

 

 

31,011

 

 

29,183

 

Net decrease in time deposits

 

 

(59,556)

 

 

(90,423)

 

Net decrease in securities sold under repurchase agreements

 

 

(144,574)

 

 

(32,833)

 

Net increase in other borrowed funds

 

 

153,125

 

 

46,375

 

Purchase of treasury stock

 

 

(121)

 

 

(7,959)

 

Proceeds from stock transactions

 

 

1,092

 

 

168

 

Payments of cash dividends - common

 

 

(21,793)

 

 

(19,123)

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

 

83,574

 

 

(124,763)

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

47,723

 

 

(27,702)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

269,198

 

 

273,053

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

316,921

 

$

245,351

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Interest paid

 

$

10,242

 

$

23,207

 

Income taxes paid

 

 

34,941

 

 

26,175

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Purchases of available-for-sale securities not yet settled

 

$

30,612

 

$

6,804

 

Net transfers from loans to other real estate owned

 

 

1,450

 

 

1,983

 

 

See accompanying notes to consolidated financial statements.

7


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(Unaudited)

 

Note 1 — Basis of Presentation

 

The accounting and reporting policies of International Bancshares Corporation (the “Corporation”) and Subsidiaries (the Corporation and Subsidiaries collectively referred to herein as the “Company”) conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.  The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries, International Bank of Commerce, Laredo (“IBC”), Commerce Bank, International Bank of Commerce, Zapata, International Bank of Commerce, Brownsville, International Bank of Commerce, Oklahoma and the Corporation’s wholly-owned non-bank subsidiaries, IBC Subsidiary Corporation, IBC Trading Company, Premier Tierra Holdings, Inc., IBC Charitable and Community Development Corporation, and IBC Capital Corporation.  All significant inter-company balances and transactions have been eliminated in consolidation.  The consolidated financial statements are unaudited, but include all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of the periods presented.  All such adjustments were of a normal and recurring nature.  These financial statements should be read in conjunction with the financial statements and the notes thereto in the Company’s latest Annual Report on Form 10-K.  The consolidated statement of condition at December 31, 2016 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  Certain reclassifications have been made to make prior periods comparable. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results for the year ending December 31, 2017 or any future period.

 

The Company operates as one segment.  The operating information used by the Company’s chief executive officer for purposes of assessing performance and making operating decisions about the Company is the consolidated statements presented in this report.  The Company has five active operating subsidiaries, namely, the bank subsidiaries, known as International Bank of Commerce, Laredo, Commerce Bank, International Bank of Commerce, Zapata,  International Bank of Commerce, Brownsville and International Bank of Commerce, Oklahoma. The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), FASB ASC 280, “Segment Reporting,” in determining its reportable segments and related disclosures.

 

The Company has evaluated all events or transactions that occurred through the date the Company issued these financial statements. During this period, the Company did not have any material recognizable or non-recognizable subsequent events.

 

 

Note 2 — Fair Value Measurements

 

ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  ASC 820 applies to all financial instruments that are being measured and reported on a fair value basis.  ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; it also establishes a fair value hierarchy that prioritizes the inputs used in valuation methodologies into the following three levels:

 

·

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities.

·

Level 2 Inputs - Observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

·

Level 3 Inputs - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  Level 3 assets and liabilities include financial

8


 

instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

 

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy is set forth below.

 

The following table represents assets and liabilities reported on the consolidated balance sheets at their fair value on a recurring basis as of June 30, 2017 by level within the fair value measurement hierarchy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

 

Reporting Date Using

 

 

 

 

 

 

(in Thousands)

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

Significant

 

 

 

 

 

 

Assets/Liabilities

 

Markets for

 

Other

 

Significant

 

 

 

Measured at

 

Identical

 

Observable

 

Unobservable

 

 

 

Fair Value

 

Assets

 

Inputs

 

Inputs

 

 

 

June 30, 2017

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Measured on a recurring basis:

    

 

    

    

 

    

    

 

    

    

 

    

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities

 

$

3,844,856

 

$

 —

 

$

3,844,856

 

$

 —

 

States and political subdivisions

 

 

248,920

 

 

 —

 

 

248,920

 

 

 —

 

Equity Securities

 

 

27,927

 

 

27,927

 

 

 —

 

 

 —

 

 

 

$

4,121,703

 

$

27,927

 

$

4,093,776

 

$

 —

 

 

The following table represents assets and liabilities reported on the consolidated balance sheets at their fair value on a recurring basis as of December 31, 2016 by level within the fair value measurement hierarchy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

 

Reporting Date Using

 

 

 

 

 

 

(in Thousands)

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

Significant

 

 

 

 

 

 

Assets/Liabilities

 

Markets for

 

Other

 

Significant

 

 

 

Measured at

 

Identical

 

Observable

 

Unobservable

 

 

 

Fair Value

 

Assets

 

Inputs

 

Inputs

 

 

 

December 31, 2016

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Measured on a recurring basis:

    

 

    

    

 

    

    

 

    

    

 

    

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage - backed securities

 

$

3,894,470

 

$

 —

 

$

3,876,865

 

$

17,605

 

States and political subdivisions

 

 

254,972

 

 

 —

 

 

254,972

 

 

 —

 

Equity Securities

 

 

27,907

 

 

27,907

 

 

 —

 

 

 —

 

 

 

$

4,177,349

 

$

27,907

 

$

4,131,837

 

$

17,605

 

 

Investment securities available-for-sale are classified within Level 2 and Level 3 of the valuation hierarchy, with the exception of certain equity investments that are classified within Level 1.  For investments classified as Level 2 in the fair value hierarchy, the Company obtains fair value measurements for investment securities from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.  For the year ended December 31, 2016, investment securities classified as Level 3 are non-agency mortgage-backed securities.  The non-agency mortgage-backed securities that were held by the Company are traded in inactive markets and markets that have experienced significant decreases in volume and level of activity, as evidenced by few recent transactions, a significant decline or

9


 

absence of new issuances, price quotations that are not based on comparable securities transactions and wide bid-ask spreads among other factors.  As a result of the inability to use quoted market prices to determine fair value for these securities, the Company determined that fair value, as determined by Level 3 inputs in the fair value hierarchy, was more appropriate for financial reporting and more consistent with the expected performance of the investments.  For the investments classified within Level 3 of the fair value hierarchy, the Company used a discounted cash flow model to determine fair value.  Inputs in the model included both historical performance and expected future performance based on information currently available.  The non-agency mortgage-backed securities were sold in the first quarter of 2017.

 

The following table presents a reconciliation of activity for such mortgage-backed securities on a net basis (Dollars in Thousands):

 

 

 

 

 

 

Balance at December 31, 2016

    

$

17,605

 

Principal paydowns

 

 

(798)

 

Sales of available for sale securities

 

 

(21,904)

 

Reclassification of unrealized gains (losses) included in other comprehensive loss due to sale

 

 

5,097

 

Balance at June 30, 2017

 

$

 —

 

 

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis.  The instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

 

The following table represents financial instruments measured at fair value on a non-recurring basis as of and for the period ended June 30, 2017 by level within the fair value measurement hierarchy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting

 

 

 

 

 

 

 

 

 

Date Using

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

Assets/Liabilities

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

Measured at

 

Active

 

Significant

 

 

 

 

 

 

 

 

 

Fair Value

 

Markets for

 

Other

 

Significant

 

Net Provision

 

 

 

Year ended

 

Identical

 

Observable

 

Unobservable

 

(Credit)

 

 

 

June 30,

 

Assets

 

Inputs