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EX-32.(B) - EX-32.(B) - INTERNATIONAL BANCSHARES CORPc709-20170930xex32b.htm
EX-32.(A) - EX-32.(A) - INTERNATIONAL BANCSHARES CORPc709-20170930xex32a.htm
EX-31.(B) - EX-31.(B) - INTERNATIONAL BANCSHARES CORPc709-20170930xex31b.htm
EX-31.(A) - EX-31.(A) - INTERNATIONAL BANCSHARES CORPc709-20170930xex31a.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 September 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

 

66,074,545 shares outstanding at November 3, 2017

 

 

 

 


 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Condition (Unaudited)

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2017

    

2016

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

290,575

 

$

269,198

 

Investment securities:

 

 

 

 

 

 

 

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

 

 

2,400

 

 

2,400

 

Available-for-sale (Amortized cost of $4,290,577 on September 30, 2017 and $4,218,841 on December 31, 2016)

 

 

4,280,188

 

 

4,177,349

 

Total investment securities

 

 

4,282,588

 

 

4,179,749

 

Loans

 

 

6,202,264

 

 

5,964,688

 

Less allowance for probable loan losses

 

 

(67,852)

 

 

(64,661)

 

Net loans

 

 

6,134,412

 

 

5,900,027

 

Bank premises and equipment, net

 

 

516,786

 

 

527,583

 

Accrued interest receivable

 

 

32,278

 

 

32,172

 

Other investments

 

 

555,067

 

 

517,162

 

Identified intangible assets, net

 

 

 —

 

 

25

 

Goodwill

 

 

282,532

 

 

282,532

 

Other assets

 

 

79,413

 

 

95,593

 

Total assets

 

$

12,173,651

 

$

11,804,041

 

 

1


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Condition, continued (Unaudited)

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2017

    

2016

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Demand—non-interest bearing

 

$

3,244,829

 

$

3,158,051

 

Savings and interest bearing demand

 

 

3,253,382

 

 

3,203,728

 

Time

 

 

2,115,330

 

 

2,248,310

 

Total deposits

 

 

8,613,541

 

 

8,610,089

 

Securities sold under repurchase agreements

 

 

378,033

 

 

504,985

 

Other borrowed funds

 

 

1,067,500

 

 

733,375

 

Junior subordinated deferrable interest debentures

 

 

160,416

 

 

160,416

 

Other liabilities

 

 

138,977

 

 

70,509

 

Total liabilities

 

 

10,358,467

 

 

10,079,374

 

Shareholders’ equity:

 

 

 

 

 

 

 

Common shares of $1.00 par value. Authorized 275,000,000 shares; issued 96,003,077 shares on September 30, 2017 and 95,910,143 shares on December 31, 2016

 

 

96,003

 

 

95,910

 

Surplus

 

 

171,358

 

 

169,567

 

Retained earnings

 

 

1,846,570

 

 

1,777,963

 

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

 

 

(6,539)

 

 

(26,697)

 

 

 

 

2,107,392

 

 

2,016,743

 

Less cost of shares in treasury, 29,938,170 shares on September 30, 2017 and 29,934,675 on December 31, 2016

 

 

(292,208)

 

 

(292,076)

 

Total shareholders’ equity

 

 

1,815,184

 

 

1,724,667

 

Total liabilities and shareholders’ equity

 

$

12,173,651

 

$

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

 

Nine Months Ended

 

 

    

September 30,

 

September 30,

 

 

 

2017

    

2016

    

2017

    

2016

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

83,394

 

$

74,388

 

$

238,261

 

$

223,245

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

21,003

 

 

19,630

 

 

60,998

 

 

60,346

 

Tax-exempt

 

 

2,409

 

 

2,561

 

 

7,357

 

 

7,835

 

Other interest income

 

 

139

 

 

45

 

 

484

 

 

151

 

Total interest income

 

 

106,945

 

 

96,624

 

 

307,100

 

 

291,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings deposits

 

 

1,599

 

 

1,173

 

 

4,241

 

 

3,333

 

Time deposits

 

 

2,426

 

 

2,551

 

 

7,203

 

 

7,519

 

Securities sold under repurchase agreements

 

 

1,177

 

 

5,480

 

 

5,391

 

 

16,591

 

Other borrowings

 

 

3,396

 

 

812

 

 

7,234

 

 

2,196

 

Junior subordinated deferrable interest debentures

 

 

1,395

 

 

1,159

 

 

3,967

 

 

3,377

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest expense

 

 

9,993

 

 

11,175

 

 

28,036

 

 

33,016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

96,952

 

 

85,449

 

 

279,064

 

 

258,561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for probable loan losses

 

 

6,591

 

 

(1,347)

 

 

9,096

 

 

14,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for probable loan losses

 

 

90,361

 

 

86,796

 

 

269,968

 

 

243,677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

18,706

 

 

19,035

 

 

54,494

 

 

54,999

 

Other service charges, commissions and fees

 

 

 

 

 

 

 

 

 

 

 

 

 

Banking

 

 

13,095

 

 

13,722

 

 

34,505

 

 

35,056

 

Non-banking

 

 

1,853

 

 

1,803

 

 

5,052

 

 

4,794

 

Investment securities transactions, net

 

 

 —

 

 

(1,345)

 

 

(1,612)

 

 

(1,705)

 

Other investments, net

 

 

4,938

 

 

4,082

 

 

12,036

 

 

14,699

 

Other income

 

 

2,774

 

 

3,233

 

 

8,569

 

 

10,229

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-interest income

 

$

41,366

 

$

40,530

 

$

113,044

 

$

118,072

 

 

3


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Income, continued (Unaudited)

 

(Dollars in Thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

    

September 30,

 

September 30,

 

 

 

2017

    

2016

    

2017

    

2016

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

$

33,787

 

$

33,908

 

$

99,256

 

$

95,846

 

Occupancy

 

 

6,416

 

 

6,153

 

 

18,824

 

 

18,225

 

Depreciation of bank premises and equipment

 

 

6,407

 

 

6,175

 

 

18,936

 

 

18,563

 

Professional fees

 

 

3,577

 

 

3,661

 

 

11,143

 

 

10,400

 

Deposit insurance assessments

 

 

1,007

 

 

1,332

 

 

2,310

 

 

4,333

 

Net expense, other real estate owned

 

 

(407)

 

 

2,320

 

 

989

 

 

4,575

 

Amortization of identified intangible assets

 

 

 —

 

 

32

 

 

25

 

 

96

 

Advertising

 

 

2,064

 

 

1,921

 

 

6,448

 

 

6,345

 

Early termination fee—securities sold under repurchase agreements

 

 

 —

 

 

1,799

 

 

5,765

 

 

1,799

 

Software and software maintenance

 

 

4,302

 

 

3,687

 

 

12,155

 

 

10,721

 

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)

 

 

 —

 

 

90

 

 

 —

 

 

281

 

Other

 

 

14,558

 

 

15,589

 

 

45,199

 

 

45,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-interest expense

 

 

71,711

 

 

76,667

 

 

221,050

 

 

216,569

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

60,016

 

 

50,659

 

 

161,962

 

 

145,180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

20,388

 

 

14,872

 

 

49,761

 

 

46,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

39,628

 

$

35,787

 

$

112,201

 

$

98,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

66,060,829

 

 

65,948,815

 

 

66,036,501

 

 

65,968,975

 

Net income

 

$

0.60

 

$

0.54

 

$

1.70

 

$

1.49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fully diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

66,745,350

 

 

66,291,556

 

 

66,736,250

 

 

66,189,507

 

Net income

 

$

0.59

 

$

0.54

 

$

1.68

 

$

1.49

 

 

 

 

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

 

Nine Months Ended

 

 

    

September 30,

 

September 30,

 

 

 

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

39,628

 

$

35,787

 

$

112,201

 

$

98,459

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized holding gains (losses) on securities available-for-sale arising during period (net of tax effects of $198, $(5,371), $10,290, and $15,334)

 

 

368

 

 

(9,975)

 

 

19,110

 

 

28,477

 

Reclassification adjustment for losses on securities available-for-sale included in net income (net of tax effects of $0, $471, $564, and $597)

 

 

 —

 

 

874

 

 

1,048

 

 

1,108

 

Reclassification adjustment for impairment charges on available-for-sale securities included in net income (net of tax effects of $0, $31, $0, and $98)

 

 

 —

 

 

59

 

 

 —

 

 

183

 

 

 

 

368

 

 

(9,042)

 

 

20,158

 

 

29,768

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

39,996

 

$

26,745

 

$

132,359

 

$

128,227

 

 

See accompanying notes to consolidated financial statements.

5


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows (Unaudited)

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

    

September 30,

 

 

 

2017

    

2016

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

112,201

 

$

98,459

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Provision for probable loan losses

 

 

9,096

 

 

14,884

 

Specific reserve, other real estate owned

 

 

330

 

 

2,116

 

Depreciation of bank premises and equipment

 

 

18,936

 

 

18,563

 

Gain on sale of bank premises and equipment

 

 

(30)

 

 

(226)

 

(Gain) loss on sale of other real estate owned

 

 

(267)

 

 

42

 

Accretion of investment securities discounts

 

 

(307)

 

 

(406)

 

Amortization of investment securities premiums

 

 

18,068

 

 

19,142

 

Investment securities transactions, net

 

 

1,612

 

 

1,705

 

Impairment charges on available for sale securities

 

 

 —

 

 

281

 

Amortization of identified intangible assets

 

 

25

 

 

96

 

Stock based compensation expense

 

 

699

 

 

822

 

Earnings from affiliates and other investments

 

 

(9,538)

 

 

(9,134)

 

Deferred tax (benefit) expense

 

 

(26)

 

 

6,752

 

(Increase) decrease in accrued interest receivable

 

 

(106)

 

 

2,616

 

Decrease in other assets

 

 

6,516

 

 

2,023

 

Net increase (decrease)in other liabilities

 

 

17,314

 

 

(1,028)

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

174,523

 

 

156,707

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from sales and calls of available for sale securities

 

 

279,419

 

 

326,037

 

Purchases of available for sale securities

 

 

(944,241)

 

 

(1,190,066)

 

Principal collected on mortgage backed securities

 

 

573,713

 

 

661,261

 

Net (increase) decrease in loans

 

 

(245,019)

 

 

43,857

 

Purchases of other investments

 

 

(10,282)

 

 

(45,622)

 

Distributions from other investments

 

 

349

 

 

18,368

 

Purchases of bank premises and equipment

 

 

(10,303)

 

 

(12,580)

 

Proceeds from sales of bank premises and equipment

 

 

2,194

 

 

310

 

Proceeds from sales of other real estate owned

 

 

11,139

 

 

7,956

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

$

(343,031)

 

$

(190,479)

 

 

6


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows, continued (Unaudited)

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

    

September 30,

 

 

 

2017

    

2016

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in non-interest bearing demand deposits

 

$

86,778

 

$

59,525

 

Net increase  in savings and interest bearing demand deposits

 

 

49,654

 

 

62,415

 

Net decrease in time deposits

 

 

(132,980)

 

 

(111,878)

 

Net decrease in securities sold under repurchase agreements

 

 

(126,952)

 

 

(94,873)

 

Net increase in other borrowed funds

 

 

334,125

 

 

121,250

 

Purchase of treasury stock

 

 

(132)

 

 

(7,959)

 

Proceeds from stock transactions

 

 

1,185

 

 

259

 

Payments of cash dividends - common

 

 

(21,793)

 

 

(19,123)

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

189,885

 

 

9,616

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

21,377

 

 

(24,156)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

269,198

 

 

273,053

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

290,575

 

$

248,897

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Interest paid

 

$

9,735

 

$

33,345

 

Income taxes paid

 

 

54,442

 

 

41,489

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Net transfers from loans to other real estate owned

 

 

1,538

 

 

1,983

 

Dividends declared, not yet paid on common stock

 

$

21,801

 

$

20,446

 

 

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 nine months ended September 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 September 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

 

 

 

September 30, 2017

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Measured on a recurring basis:

    

 

    

    

 

    

    

 

    

    

 

    

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities

 

$

4,011,566

 

$

 —

 

$

4,011,566

 

$

 —

 

States and political subdivisions

 

 

240,546

 

 

 —

 

 

240,546

 

 

 —

 

Equity Securities

 

 

28,076

 

 

28,076

 

 

 —

 

 

 —

 

 

 

$

4,280,188

 

$

28,076

 

$

4,252,112

 

$

 —

 

 

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 September 30, 2017

 

$

 —

 

 

Certain financial assets and financial liabilities are measured at fair value on a non-recurring 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 September 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