Notes to Unaudited Consolidated Financial Statements
NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION
First Citizens BancShares, Inc. (BancShares) is a financial holding company organized under the laws of Delaware and conducts operations through its banking subsidiary, First-Citizens Bank & Trust Company (FCB), which is headquartered in Raleigh, North Carolina.
General
These consolidated financial statements and notes thereto are presented in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States of America (GAAP). In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and consolidated results of operations have been made. The unaudited interim consolidated financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements included in BancShares' Annual Report on Form 10-K for the year ended December 31, 2018.
Reclassifications
In certain instances, amounts reported in prior years' consolidated financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported cash flows, shareholders' equity or net income.
During the third quarter of 2019, the Company identified items in the prior period related to unsettled investment activity that had been reported as cash flows from operating activities and should have been presented as investing activities. The Company corrected the previously presented cash flows for this activity and in doing so, decreased net cash flows from operating activities with an offsetting increase in net cash flows from investing activities. The Company has evaluated the effect of the incorrect presentation, both qualitatively and quantitatively, and concluded that it was immaterial.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates. The estimates that BancShares considers significant are the allowance for loan and lease losses, fair value measurements, Federal Deposit Insurance Corporation (FDIC) shared-loss payable, pension plan assumptions, goodwill and other intangible assets, and income taxes.
Share Repurchases
During the third quarter of 2019, BancShares repurchased 295,900 shares of Class A common stock for $135.4 million at an average cost per share of $457.50. During the first nine months of 2019, BancShares repurchased a total of 744,400 shares of Class A common stock for $325.9 million at an average cost per share of $437.84. During the three and nine months ended September 30, 2018, BancShares repurchased a total of 125,000 shares of Class A common stock for $58.1 million at an average cost per share of $464.68. All Class A common stock repurchases completed in 2019 and 2018 were consummated under previously approved authorizations.
The shares repurchases in the third quarter of 2019 included 50,000 shares of Class A common stock purchased from Ella Ann Holding, as trustee of her revocable trust. Mrs. Holding is the widow of BancShares’ former Executive Vice Chairman, Frank B. Holding, and the mother of Frank B. Holding, Jr. and Hope H. Bryant, BancShares’ Chairman and Chief Executive Officer and Vice Chairman, respectively. Pursuant to the existing share purchase authorization, the board’s independent Audit Committee reviewed and approved the repurchase of up to 250,000 shares held by Mrs. Holding on or before April 30, 2020, pursuant to BancShares’ related person transaction policy.
Subsequent to quarter-end through October 31, 2019, BancShares repurchased an additional 146,100 shares of Class A common stock for $69.1 million at an average cost per share of $472.94, which included 50,000 shares repurchased from Mrs. Holding.
On October 29, 2019, the Board authorized share repurchases of up to 500,000 of BancShares' Class A common stock for the period November 1, 2019 through January 31, 2020. This authority will supersede all previously approved authorities.
Recently Adopted Accounting Pronouncements
Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-02, Leases (Topic 842)
This ASU increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The key difference between prior standards and this ASU is the requirement for lessees to recognize all lease contracts on their balance sheet. This ASU requires lessees to classify leases as either operating or finance leases, which are substantially similar to the previous operating and capital leases classifications. The distinction between these two classifications under the new standard does not relate to balance sheet treatment, but relates to treatment in the statements of income and cash flows. Lessor guidance remains largely unchanged with the exception of how a lessor determines the appropriate lease classification for each lease to better align the lessor guidance with revised lessee classification guidance.
We adopted this standard, as of January 1, 2019, using the effective date method that allows for entities to initially apply the new leases standard at the adoption date. In addition, we made several policy elections permitted under the transition guidance, which among other things, allowed us to carry forward the historical lease classification. We determined that most renewal options would not be reasonably determinable in estimating the expected lease term.
We made the policy election available under Topic 842 to combine lease and non-lease components and applied this practical expedient to leases in effect prior to the date of adoption. We will continue to apply the practical expedient to all leases entered into going forward.
The adoption of the new standard had an impact on our Consolidated Balance Sheet as of January 1, 2019, with the recording of operating Right-of-Use (ROU) assets and operating lease liabilities of $70.7 million and $71.8 million, respectively. The operating lease liability included a $1.1 million fair value adjustment for leases assumed in the acquisition of HomeBancorp, Inc. (HomeBancorp). In addition, at the adoption date we had finance lease ROU assets and finance lease liabilities, previously classified as capital leases, of $9.1 million and $8.3 million, respectively. The Company did not have a cumulative-effect adjustment to the opening balance of retained earnings at commencement. The Company has no related party lease agreements. This ASU did not have a material impact on our Consolidated Statements of Income. See Note N in the Consolidated Financial Statements for additional disclosures.
FASB ASU 2018-15 - Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include internal-use software license). This ASU requires entities to use the guidance in FASB ASC 350-40, Intangibles - Goodwill and Other - Internal Use Software, to determine whether to capitalize or expense implementation costs related to the service contract. This ASU also requires entities to (1) expense capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement (2) present the expense related to the capitalized implementation costs in the same line item on the income statement as fees associated with the hosting element of the arrangement (3) classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element (4) present the capitalized implementation costs in the same balance sheet line item that a prepayment for the fees associated with the hosting arrangement would be presented.
The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. BancShares adopted this standard effective July 1, 2019 on a prospective basis. As of September 30, 2019, $3.7 million of deferred implementation costs related to cloud computing arrangements were recorded in other assets. These costs are expensed over the fixed, noncancellable term of the arrangement and are recorded to processing fees paid to third parties, consistent with the line item of the income statement where fees paid for the associated hosted service are recorded.
Recently Issued Accounting Pronouncements
FASB ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by eliminating the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and adding a requirement to disclose an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.
The amendments in this ASU are effective for public entities for fiscal years ending after December 15, 2020. Early adoption is permitted for all entities. BancShares will adopt all applicable amendments and update the disclosures as appropriate during the first quarter of 2020.
FASB ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
This ASU modifies the disclosure requirements on fair value measurements by eliminating the requirements to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value measurements. This ASU also added specific disclosure requirements for fair value measurements for public business entities including the requirement to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.
The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2019, and all interim periods within those fiscal years. Early adoption is permitted upon issuance of the ASU. Entities are permitted to early adopt amendments that remove or modify disclosures and delay the adoption of the additional disclosures until their effective date. BancShares will adopt all applicable amendments and update the disclosures as appropriate during the first quarter of 2020.
FASB ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
This ASU eliminates Step 2 from the goodwill impairment test. Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative test.
This ASU will be effective for BancShares' annual or interim goodwill impairment tests for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We expect to adopt the guidance for our annual impairment test in fiscal year 2020. BancShares does not anticipate any impact to our consolidated financial position or consolidated results of operations as a result of the adoption.
FASB ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This ASU introduces a new credit loss methodology which requires earlier recognition of credit losses, replacing multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized. The amendments in this ASU require loss estimates be determined over the lifetime of the asset and broaden the information that an entity must consider in developing its expected credit losses. The ASU does not specify a method for measuring expected credit losses and allows an entity to apply methods that reasonably reflect its expectations of the credit loss estimate based on the entity's size, complexity and risk profile.
For BancShares, the standard will apply to loans, unfunded loan commitments and debt securities. A cross-functional team co-led by Corporate Finance and Risk Management is in place to implement the new standard. We have completed initial current expected credit losses (CECL) models and accounting interpretations. We continue to refine and test our models, estimation techniques, operational processes and controls to be used in preparing CECL loss estimates and related financial statement disclosures. We have also begun evaluating our debt securities portfolio to determine the impact of adoption of CECL. We expect a significant portion of our securities portfolio to have an expectation of zero losses and therefore have no initial impact at adoption.
The CECL calculated losses on the loan portfolio are derived using estimated probability of default and loss given default models based on historical loss experience, borrower characteristics, forecasts of relevant economic conditions and other factors. Bancshares intends to use a two-year reasonable and supportable forecast period that incorporates one economic forecast, with a 12-month straight-line reversion period to historical averages. The outstanding loans are bifurcated between commercial and non-commercial portfolios and then further segmented into pools with similar risk characteristics. The commercial portfolio, comprising the majority of Bancshares’ total loans, primarily consists of loans with short contractual maturities that are expected to result in a reduction to the allowance for credit losses. This reduction is expected to be partially offset by an increase in the allowance for credit losses in the non-commercial portfolio given its longer contractual maturities. The Company is still evaluating the credit loss models for purchase credit impaired loans (PCI) to determine the appropriate amount required to be added to the allowance for credit losses.
BancShares continues to evaluate the impact of this standard on its consolidated financial statements but the total magnitude of this impact is still being finalized. The final impact will be dependent on, among other items, loan and debt security portfolio composition and credit quality at the adoption date, as well as economic conditions, financial models used and forecasts in place at that time. Based on current factors, the overall allowance for credit losses is expected to decrease in aggregate, but the magnitude of the change is not anticipated to be material in relation to total assets, retained earnings or regulatory capital.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. BancShares will adopt the guidance in the first quarter of 2020 using a modified retrospective approach with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.
NOTE B - BUSINESS COMBINATIONS
Community Financial Holding Co. Inc.
On September 24, 2019, FCB and Community Financial Holding Co. Inc. (Community Financial) entered into a definitive merger agreement for the acquisition by FCB of Duluth, Georgia-based Community Financial and its bank subsidiary, Gwinnett Community Bank. Under the terms of the agreement, total cash consideration of $2.3 million will paid to the shareholders of Community Financial. The transaction is anticipated to close during the first quarter of 2020, subject to the receipt of regulatory approvals and the satisfaction of other customary closing conditions. As of September 30, 2019, Community Financial reported $223.5 million in consolidated assets, $211.3 million in deposits and $147.0 million in loans.
Entegra Financial Corp.
On April 23, 2019, FCB and Entegra Financial Corp. (Entegra) entered into a definitive merger agreement for the acquisition by FCB of Franklin, North Carolina-based Entegra and its bank subsidiary, Entegra Bank. Under the terms of the agreement, cash consideration of $30.18 per share will be paid to the shareholders of Entegra for each share of common stock and for each restricted stock unit after conversion to common stock, and each option to purchase Entegra common stock will be canceled and each option holder will receive a cash payment. The total transaction value is estimated to be approximately $219.8 million. The transaction is anticipated to close during the fourth quarter of 2019 or first quarter of 2020, subject to the receipt of regulatory approvals and the satisfaction of other customary closing conditions. FCB will be required to divest certain branches or other assets and liabilities in order to obtain regulatory approval for the transactions contemplated by the merger agreement. Any divestiture plan is subject to approval by the Federal Reserve Board in conjunction with the Department of Justice and has not been finalized as of the date of this filing. As of September 30, 2019, Entegra Bank reported $1.70 billion in total assets, $1.28 billion in deposits and $1.09 billion in loans.
First South Bancorp, Inc.
On May 1, 2019, FCB completed the merger of Spartanburg, South Carolina-based First South Bancorp, Inc. (First South Bancorp) and its bank subsidiary, First South Bank. Under the terms of the agreement, cash consideration of $1.15 per share was paid to the shareholders of First South Bancorp for each share of common stock, totaling approximately $37.5 million. The merger allows FCB to expand its presence in South Carolina.
The First South Bancorp transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding closing date fair values becomes available.
The fair value of the assets acquired was $239.2 million, including $162.8 million in non-purchased credit impaired (non-PCI) loans, $16.4 million in purchased credit impaired (PCI) loans and $2.3 million in a core deposit intangible. Liabilities assumed were $215.6 million, of which $207.6 million were deposits. As a result of the transaction, FCB recorded $13.9 million of goodwill. The amount of goodwill represents the excess purchase price over the estimated fair value of the net assets acquired. The premium paid reflects the increased market share and related synergies that are expected to result from the acquisition. None of the goodwill was deductible for income tax purposes as the merger was accounted for as a qualified stock purchase.
Based on such credit factors as past due status, nonaccrual status, loan-to-value, credit scores, and other quantitative and qualitative considerations, the acquired loans were separated into loans with evidence of credit deterioration, which are accounted for under ASC 310-30 (PCI loans), and loans that do not meet this criteria, which are accounted for under ASC 310-20 (non-PCI loans).
The following table provides the purchase price as of the acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair values:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
As recorded by FCB
|
Purchase price
|
|
|
$
|
37,486
|
|
Assets
|
|
|
|
Cash and due from banks
|
$
|
4,633
|
|
|
|
Overnight investments
|
3,188
|
|
|
|
Investment securities
|
23,512
|
|
|
|
Loans
|
179,243
|
|
|
|
Premises and equipment
|
4,944
|
|
|
|
Other real estate owned
|
1,567
|
|
|
|
Income earned not collected
|
604
|
|
|
|
Intangible assets
|
2,268
|
|
|
|
Other assets
|
19,192
|
|
|
|
Total assets acquired
|
239,151
|
|
|
|
Liabilities
|
|
|
|
Deposits
|
207,556
|
|
|
|
Borrowings
|
5,155
|
|
|
|
Other liabilities
|
2,850
|
|
|
|
Total liabilities assumed
|
$
|
215,561
|
|
|
|
Fair value of net assets acquired
|
|
|
23,590
|
|
Goodwill recorded for First South Bancorp
|
|
|
$
|
13,896
|
|
Merger-related expenses of $2.5 million and $3.9 million were recorded in the Consolidated Statements of Income for the three and nine months ended September 30, 2019, respectively. Loan-related interest income generated from First South Bancorp was approximately $4.0 million since the acquisition date. The ongoing contributions of this transaction to BancShares' financial statements is not considered material, and therefore pro forma financial data is not included.
Biscayne Bancshares, Inc.
On April 2, 2019, FCB completed the merger of Coconut Grove, Florida-based Biscayne Bancshares, Inc. (Biscayne Bancshares) and its bank subsidiary, Biscayne Bank. Under the terms of the agreement, cash consideration of $25.05 per share was paid to the shareholders of Biscayne Bancshares for each share of common stock, totaling approximately $118.9 million. The merger will allow FCB to expand its presence in Florida and enhance banking efforts in South Florida.
The Biscayne Bancshares transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding closing date fair values becomes available.
The fair value of the assets acquired was $1.03 billion, including $850.4 million in non-purchased credit impaired (non-PCI) loans, $13.0 million in purchased credit impaired (PCI) loans and $4.7 million in a core deposit intangible. Liabilities assumed were $956.8 million, of which $786.5 million were deposits. As a result of the transaction, FCB recorded $46.5 million of goodwill. The amount of goodwill represents the excess purchase price over the estimated fair value of the net assets acquired. The premium paid reflects the increased market share and related synergies that are expected to result from the acquisition. None of the goodwill was deductible for income tax purposes as the merger was accounted for as a qualified stock purchase.
Based on such credit factors as past due status, nonaccrual status, loan-to-value, credit scores, and other quantitative and qualitative considerations, the acquired loans were separated into loans with evidence of credit deterioration, which are accounted for under ASC 310-30 (PCI loans), and loans that do not meet this criteria, which are accounted for under ASC 310-20 (non-PCI loans).
The following table provides the purchase price as of the acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair values:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
As recorded by FCB
|
Purchase price
|
|
|
$
|
118,949
|
|
Assets
|
|
|
|
Cash and due from banks
|
$
|
78,010
|
|
|
|
Overnight investments
|
306
|
|
|
|
Investment securities held to maturity
|
34,539
|
|
|
|
Loans
|
863,384
|
|
|
|
Premises and equipment
|
1,533
|
|
|
|
Other real estate owned
|
2,046
|
|
|
|
Income earned not collected
|
3,049
|
|
|
|
Intangible assets
|
4,745
|
|
|
|
Other assets
|
41,572
|
|
|
|
Total assets acquired
|
1,029,184
|
|
|
|
Liabilities
|
|
|
|
Deposits
|
786,512
|
|
|
|
Borrowings
|
157,415
|
|
|
|
Other liabilities
|
12,829
|
|
|
|
Total liabilities assumed
|
$
|
956,756
|
|
|
|
Fair value of net assets acquired
|
|
|
72,428
|
|
Goodwill recorded for Biscayne Bancshares
|
|
|
$
|
46,521
|
|
Merger-related expenses of $0.6 million and $3.5 million were recorded in the Consolidated Statements of Income for the three and nine months ended September 30, 2019, respectively. Loan-related interest income generated from Biscayne Bancshares was approximately $22.6 million since the acquisition date. The ongoing contributions of this transaction to BancShares' financial statements is not considered material, and therefore pro forma financial data is not included.
NOTE C - INVESTMENTS
The amortized cost and fair value of investment securities at September 30, 2019 and December 31, 2018, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
(Dollars in thousands)
|
Cost
|
|
Gross
unrealized
gains
|
|
Gross unrealized
losses
|
|
Fair
value
|
Investment securities available for sale
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
748,206
|
|
|
$
|
1,114
|
|
|
$
|
2
|
|
|
$
|
749,318
|
|
Government agency
|
666,029
|
|
|
1,404
|
|
|
1,812
|
|
|
665,621
|
|
Mortgage-backed securities
|
3,329,593
|
|
|
10,369
|
|
|
7,343
|
|
|
3,332,619
|
|
Corporate bonds
|
154,943
|
|
|
2,707
|
|
|
325
|
|
|
157,325
|
|
Total investment securities available for sale
|
4,898,771
|
|
|
15,594
|
|
|
9,482
|
|
|
4,904,883
|
|
Investment in marketable equity securities
|
87,588
|
|
|
29,605
|
|
|
339
|
|
|
116,854
|
|
Investment securities held to maturity
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
2,115,141
|
|
|
71,857
|
|
|
—
|
|
|
2,186,998
|
|
Other
|
30,802
|
|
|
—
|
|
|
—
|
|
|
30,802
|
|
Total investment securities held to maturity
|
2,145,943
|
|
|
71,857
|
|
|
—
|
|
|
2,217,800
|
|
Total investment securities
|
$
|
7,132,302
|
|
|
$
|
117,056
|
|
|
$
|
9,821
|
|
|
$
|
7,239,537
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(Dollars in thousands)
|
Cost
|
|
Gross
unrealized
gains
|
|
Gross unrealized
losses
|
|
Fair
value
|
Investment securities available for sale
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
1,249,243
|
|
|
$
|
633
|
|
|
$
|
2,166
|
|
|
$
|
1,247,710
|
|
Government agency
|
257,252
|
|
|
222
|
|
|
639
|
|
|
256,835
|
|
Mortgage-backed securities
|
2,956,793
|
|
|
5,309
|
|
|
52,763
|
|
|
2,909,339
|
|
Corporate bonds
|
143,829
|
|
|
261
|
|
|
864
|
|
|
143,226
|
|
Total investment securities available for sale
|
4,607,117
|
|
|
6,425
|
|
|
56,432
|
|
|
4,557,110
|
|
Investment in marketable equity securities
|
73,809
|
|
|
19,010
|
|
|
220
|
|
|
92,599
|
|
Investment securities held to maturity
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
2,184,653
|
|
|
17,339
|
|
|
490
|
|
|
2,201,502
|
|
Total investment securities
|
$
|
6,865,579
|
|
|
$
|
42,774
|
|
|
$
|
57,142
|
|
|
$
|
6,851,211
|
|
Investments in mortgage-backed securities represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. Investments in government agency securities represent securities issued by the United States Small Business Administration. Investments in corporate bonds and marketable equity securities represent positions in securities of other financial institutions. Other held to maturity investments include certificates of deposit with other financial institutions. BancShares also holds approximately 298,000 shares of Visa Class B common stock. BancShares' Visa Class B shares are not considered to have a readily determinable fair value and are included in the Consolidated Balance Sheet with no fair value.
The following table provides the amortized cost and fair value by contractual maturity for investment securities available for sale and held to maturity. Expected maturities will differ from contractual maturities on certain securities because borrowers and issuers may have the right to call or prepay obligations with or without prepayment penalties. Repayments of mortgage-backed securities and government agency securities are dependent on the repayments of the underlying loan balances. Repayments of certain corporate bonds are subject to call provisions that can be exercised by the issuer at their discretion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
(Dollars in thousands)
|
Cost
|
|
Fair value
|
|
Cost
|
|
Fair value
|
Investment securities available for sale
|
|
|
|
|
|
|
|
Non-amortizing securities maturing in:
|
|
|
|
|
|
|
|
One year or less
|
$
|
748,206
|
|
|
$
|
749,318
|
|
|
$
|
1,049,253
|
|
|
$
|
1,047,380
|
|
One through five years
|
13,364
|
|
|
13,795
|
|
|
205,526
|
|
|
205,805
|
|
Five through 10 years
|
137,638
|
|
|
139,430
|
|
|
134,370
|
|
|
133,626
|
|
Over 10 years
|
3,941
|
|
|
4,100
|
|
|
3,923
|
|
|
4,125
|
|
Government agency
|
666,029
|
|
|
665,621
|
|
|
257,252
|
|
|
256,835
|
|
Mortgage-backed securities
|
3,329,593
|
|
|
3,332,619
|
|
|
2,956,793
|
|
|
2,909,339
|
|
Total investment securities available for sale
|
$
|
4,898,771
|
|
|
$
|
4,904,883
|
|
|
$
|
4,607,117
|
|
|
$
|
4,557,110
|
|
Investment securities held to maturity
|
|
|
|
|
|
|
|
Non-amortizing securities maturing in:
|
|
|
|
|
|
|
|
One year or less
|
30,552
|
|
|
30,552
|
|
|
—
|
|
|
—
|
|
One through five years
|
250
|
|
|
250
|
|
|
—
|
|
|
—
|
|
Mortgage-backed securities
|
2,115,141
|
|
|
2,186,998
|
|
|
2,184,653
|
|
|
2,201,502
|
|
Total investment securities held to maturity
|
$
|
2,145,943
|
|
|
$
|
2,217,800
|
|
|
$
|
2,184,653
|
|
|
$
|
2,201,502
|
|
There were gross gains of $1.3 million and $7.0 million on sales of investment securities available for sale for the three and nine months ended September 30, 2019, respectively. There were gross losses of $190.0 thousand on sales of investment securities available for sale during the three and nine month periods ended September 30, 2019. There were no gross gains or losses on sales of investment securities available for sale for the three and nine months ended September 30, 2018.
The following table provides the realized and unrealized gains and losses on marketable equity securities for the three and nine months ended September 30, 2019 and September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
(Dollars in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Marketable equity securities (losses) gains, net
|
$
|
(967
|
)
|
|
$
|
3,854
|
|
|
$
|
13,505
|
|
|
$
|
9,265
|
|
Less net gains recognized on marketable equity securities sold
|
714
|
|
|
946
|
|
|
3,029
|
|
|
1,181
|
|
Unrealized (losses) gains recognized on marketable equity securities held
|
$
|
(1,681
|
)
|
|
$
|
2,908
|
|
|
$
|
10,476
|
|
|
$
|
8,084
|
|
The following table provides information regarding securities with unrealized losses as of September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
(Dollars in thousands)
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
49,867
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
49,867
|
|
|
$
|
2
|
|
Government agency
|
323,470
|
|
|
1,471
|
|
|
66,278
|
|
|
341
|
|
|
389,748
|
|
|
1,812
|
|
Mortgage-backed securities
|
1,413,342
|
|
|
4,165
|
|
|
477,249
|
|
|
3,178
|
|
|
1,890,591
|
|
|
7,343
|
|
Corporate bonds
|
31,168
|
|
|
203
|
|
|
6,563
|
|
|
122
|
|
|
37,731
|
|
|
325
|
|
Total
|
$
|
1,817,847
|
|
|
$
|
5,841
|
|
|
$
|
550,090
|
|
|
$
|
3,641
|
|
|
$
|
2,367,937
|
|
|
$
|
9,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
(Dollars in thousands)
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
248,983
|
|
|
$
|
113
|
|
|
$
|
848,622
|
|
|
$
|
2,053
|
|
|
$
|
1,097,605
|
|
|
$
|
2,166
|
|
Government agency
|
115,273
|
|
|
601
|
|
|
2,310
|
|
|
38
|
|
|
117,583
|
|
|
639
|
|
Mortgage-backed securities
|
262,204
|
|
|
2,387
|
|
|
1,940,695
|
|
|
50,376
|
|
|
2,202,899
|
|
|
52,763
|
|
Corporate bonds
|
79,066
|
|
|
842
|
|
|
5,000
|
|
|
22
|
|
|
84,066
|
|
|
864
|
|
Total
|
$
|
705,526
|
|
|
$
|
3,943
|
|
|
$
|
2,796,627
|
|
|
$
|
52,489
|
|
|
$
|
3,502,153
|
|
|
$
|
56,432
|
|
Investment securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
$
|
5,111
|
|
|
$
|
181
|
|
|
$
|
10,131
|
|
|
$
|
309
|
|
|
$
|
15,242
|
|
|
$
|
490
|
|
As of September 30, 2019, there were 108 investment securities available for sale that had continuous losses for more than 12 months of which 107 were government sponsored enterprise-issued mortgage-backed securities or government agency securities and one was a corporate bond.
None of the unrealized losses identified as of September 30, 2019 or December 31, 2018 relate to the marketability of the securities or the issuers' ability to honor redemption obligations. Rather, the unrealized losses relate to changes in interest rates relative to when the debt securities were purchased. BancShares has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Therefore, none of the securities were deemed to be other than temporarily impaired.
Debt securities having an aggregate carrying value of $3.40 billion at September 30, 2019 and $4.03 billion at December 31, 2018 were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.
NOTE D - LOANS AND LEASES
BancShares' accounting methods for loans and leases differ depending on whether they are non-purchased credit impaired (Non-PCI) or purchased credit impaired (PCI). Loans that were originated by FCB, as well as loans that are performing under their contractual obligations at acquisition, are classified as Non-PCI. Loans that reflect credit deterioration since origination, such that it is probable at acquisition that FCB will be unable to collect all contractually required payments, are classified as PCI. Additionally, at the date of acquisition, all acquired loans are recorded at fair value with no corresponding allowance for loan and lease losses.
Loans and leases outstanding included the following at September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
September 30, 2019
|
|
December 31, 2018
|
Non-PCI loans and leases:
|
|
|
|
Commercial:
|
|
|
|
Construction and land development
|
$
|
943,747
|
|
|
$
|
757,854
|
|
Commercial mortgage
|
11,453,353
|
|
|
10,717,234
|
|
Other commercial real estate
|
491,063
|
|
|
426,985
|
|
Commercial and industrial and leases
|
4,129,384
|
|
|
3,938,730
|
|
Other
|
301,791
|
|
|
296,424
|
|
Total commercial loans
|
17,319,338
|
|
|
16,137,227
|
|
Noncommercial:
|
|
|
|
Residential mortgage
|
4,869,562
|
|
|
4,265,687
|
|
Revolving mortgage
|
2,414,884
|
|
|
2,542,975
|
|
Construction and land development
|
321,903
|
|
|
257,030
|
|
Consumer
|
1,757,235
|
|
|
1,713,781
|
|
Total noncommercial loans
|
9,363,584
|
|
|
8,779,473
|
|
Total non-PCI loans and leases
|
26,682,922
|
|
|
24,916,700
|
|
PCI loans:
|
|
|
|
Total PCI loans
|
513,589
|
|
|
606,576
|
|
Total loans and leases
|
$
|
27,196,511
|
|
|
$
|
25,523,276
|
|
At September 30, 2019, $9.33 billion in non-PCI loans with a lendable collateral value of $6.54 billion were used to secure $181.7 million in Federal Home Loan Bank (FHLB) of Atlanta advances, resulting in additional borrowing capacity of $6.35 billion. At December 31, 2018, $9.12 billion in non-PCI loans with a lendable collateral value of $6.36 billion were used to secure $175.2 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $6.18 billion.
At September 30, 2019, $3.47 billion in non-PCI loans with a lendable collateral value of $2.78 billion were used to secure additional borrowing capacity at the Federal Reserve Bank (FRB). At December 31, 2018, $2.94 billion in non-PCI loans with a lendable collateral value of $2.19 billion were used to secure additional borrowing capacity at the FRB.
Certain residential real estate loans are originated to be sold to investors and are recorded in loans held for sale at fair value. In addition, we may change our strategy for certain portfolio loans and decide to sell them in the secondary market. At that time, portfolio loans are transferred to loans held for sale at fair value. Since December 31, 2018, $23.9 million in portfolio loans were transferred to held for sale and subsequently sold. Loans held for sale totaled $83.3 million and $45.5 million at September 30, 2019 and December 31, 2018, respectively.
Net deferred fees on non-PCI loans and leases, including unearned income as well as unamortized costs and fees, were $0.2 million and $0.1 million at September 30, 2019 and December 31, 2018, respectively. The net unamortized discount related to purchased non-PCI loans and leases was $32.2 million at September 30, 2019 and $33.3 million at December 31, 2018. During the three months ended September 30, 2019 and September 30, 2018, accretion income on purchased non-PCI loans and leases was $3.5 million and $2.9 million, respectively. During the nine months ended September 30, 2019 and September 30, 2018, accretion income on purchased non-PCI loans and leases was $10.0 million and $9.9 million, respectively.
Credit quality indicators
Loans and leases are monitored for credit quality on a recurring basis. Commercial and noncommercial loans and leases have different credit quality indicators as a result of the unique characteristics of the loan segments being evaluated. The credit quality indicators for non-PCI and PCI commercial loans and leases are developed through a review of individual borrowers on an ongoing basis. Commercial loans are evaluated periodically with more frequent evaluations done on criticized loans. Commercial credit cards are included in the Commercial and industrial and leases segment, but are not specifically graded as with other commercial loans. The indicators as of the date presented are based on the most recent assessment performed and are defined below:
Pass – A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification.
Special mention – A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.
Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected.
Doubtful – An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values.
Loss – Assets classified as loss are considered uncollectible and of such little value that it is inappropriate to be carried as an asset. This classification is not necessarily equivalent to any potential for recovery or salvage value, but rather that it is not appropriate to defer a full charge-off even though partial recovery may be affected in the future.
Ungraded – Ungraded loans represent loans that are not included in the individual credit grading process due to their relatively small balances or borrower type. The majority of ungraded loans at September 30, 2019 and December 31, 2018 relate to business credit cards. Business credit card loans are subject to automatic charge-off when they become 120 days past due in the same manner as unsecured consumer lines of credit. The remaining balance is comprised of a small amount of commercial mortgage, lease financing and other commercial real estate loans.
The credit quality indicators for non-PCI and PCI noncommercial loans are based on delinquency status of the borrower as of the date presented. As the borrower becomes more delinquent, the likelihood of loss increases.
Non-PCI loans and leases outstanding at September 30, 2019 and December 31, 2018 by credit quality indicator are provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
(Dollars in thousands)
|
Non-PCI commercial loans and leases
|
Grade:
|
Construction and
land
development
|
|
Commercial mortgage
|
|
Other commercial real estate
|
|
Commercial and industrial and leases
|
|
Other
|
|
Total non-PCI commercial loans and leases
|
Pass
|
$
|
935,478
|
|
|
$
|
11,217,849
|
|
|
$
|
486,331
|
|
|
$
|
3,974,806
|
|
|
$
|
300,492
|
|
|
$
|
16,914,956
|
|
Special mention
|
2,295
|
|
|
111,617
|
|
|
3,191
|
|
|
51,355
|
|
|
599
|
|
|
169,057
|
|
Substandard
|
5,974
|
|
|
123,887
|
|
|
1,541
|
|
|
33,584
|
|
|
700
|
|
|
165,686
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
115
|
|
|
—
|
|
|
115
|
|
Ungraded
|
—
|
|
|
—
|
|
|
—
|
|
|
69,524
|
|
|
—
|
|
|
69,524
|
|
Total
|
$
|
943,747
|
|
|
$
|
11,453,353
|
|
|
$
|
491,063
|
|
|
$
|
4,129,384
|
|
|
$
|
301,791
|
|
|
$
|
17,319,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(Dollars in thousands)
|
Non-PCI commercial loans and leases
|
Grade:
|
Construction and
land
development
|
|
Commercial mortgage
|
|
Other commercial real estate
|
|
Commercial and industrial and leases
|
|
Other
|
|
Total non-PCI commercial loans and leases
|
Pass
|
$
|
753,985
|
|
|
$
|
10,507,687
|
|
|
$
|
422,500
|
|
|
$
|
3,778,797
|
|
|
$
|
294,700
|
|
|
$
|
15,757,669
|
|
Special mention
|
1,369
|
|
|
114,219
|
|
|
3,193
|
|
|
54,814
|
|
|
1,105
|
|
|
174,700
|
|
Substandard
|
2,500
|
|
|
92,743
|
|
|
1,292
|
|
|
30,688
|
|
|
619
|
|
|
127,842
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
354
|
|
|
—
|
|
|
354
|
|
Ungraded
|
—
|
|
|
2,585
|
|
|
—
|
|
|
74,077
|
|
|
—
|
|
|
76,662
|
|
Total
|
$
|
757,854
|
|
|
$
|
10,717,234
|
|
|
$
|
426,985
|
|
|
$
|
3,938,730
|
|
|
$
|
296,424
|
|
|
$
|
16,137,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
Non-PCI noncommercial loans and leases
|
(Dollars in thousands)
|
Residential mortgage
|
|
Revolving mortgage
|
|
Construction and land development
|
|
Consumer
|
|
Total non-PCI noncommercial loans and leases
|
Current
|
$
|
4,810,600
|
|
|
$
|
2,391,778
|
|
|
$
|
318,589
|
|
|
$
|
1,741,622
|
|
|
$
|
9,262,589
|
|
30-59 days past due
|
29,551
|
|
|
10,581
|
|
|
701
|
|
|
8,901
|
|
|
49,734
|
|
60-89 days past due
|
9,087
|
|
|
4,219
|
|
|
1,013
|
|
|
3,482
|
|
|
17,801
|
|
90 days or greater past due
|
20,324
|
|
|
8,306
|
|
|
1,600
|
|
|
3,230
|
|
|
33,460
|
|
Total
|
$
|
4,869,562
|
|
|
$
|
2,414,884
|
|
|
$
|
321,903
|
|
|
$
|
1,757,235
|
|
|
$
|
9,363,584
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Non-PCI noncommercial loans and leases
|
(Dollars in thousands)
|
Residential mortgage
|
|
Revolving mortgage
|
|
Construction and land development
|
|
Consumer
|
|
Total non-PCI noncommercial loans and leases
|
Current
|
$
|
4,214,783
|
|
|
$
|
2,514,269
|
|
|
$
|
254,837
|
|
|
$
|
1,696,321
|
|
|
$
|
8,680,210
|
|
30-59 days past due
|
28,239
|
|
|
12,585
|
|
|
581
|
|
|
10,035
|
|
|
51,440
|
|
60-89 days past due
|
7,357
|
|
|
4,490
|
|
|
21
|
|
|
3,904
|
|
|
15,772
|
|
90 days or greater past due
|
15,308
|
|
|
11,631
|
|
|
1,591
|
|
|
3,521
|
|
|
32,051
|
|
Total
|
$
|
4,265,687
|
|
|
$
|
2,542,975
|
|
|
$
|
257,030
|
|
|
$
|
1,713,781
|
|
|
$
|
8,779,473
|
|
PCI loans outstanding at September 30, 2019 and December 31, 2018 by credit quality indicator are provided below:
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
(Dollars in thousands)
|
PCI commercial Loans
|
Grade:
|
|
|
|
Pass
|
$
|
132,338
|
|
|
$
|
141,922
|
|
Special mention
|
43,535
|
|
|
48,475
|
|
Substandard
|
72,647
|
|
|
101,447
|
|
Doubtful
|
4,308
|
|
|
4,828
|
|
Total
|
$
|
252,828
|
|
|
$
|
296,672
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
(Dollars in thousands)
|
PCI noncommercial Loans
|
Current
|
$
|
234,494
|
|
|
$
|
268,280
|
|
30-59 days past due
|
8,613
|
|
|
11,155
|
|
60-89 days past due
|
5,573
|
|
|
7,708
|
|
90 days or greater past due
|
12,081
|
|
|
22,761
|
|
Total
|
$
|
260,761
|
|
|
$
|
309,904
|
|
The aging of the outstanding non-PCI loans and leases, by class, at September 30, 2019 and December 31, 2018 are provided in the tables below. Loans and leases past due 30 days or less are considered current as various grace periods allow borrowers to make payments within a stated period after the due date and still remain in compliance with the loan agreement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
(Dollars in thousands)
|
30-59 days
past due
|
|
60-89 days
past due
|
|
90 days or greater
|
|
Total past
due
|
|
Current
|
|
Total loans
and leases
|
Non-PCI loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
$
|
902
|
|
|
$
|
86
|
|
|
$
|
3,760
|
|
|
$
|
4,748
|
|
|
$
|
938,999
|
|
|
$
|
943,747
|
|
Commercial mortgage
|
22,270
|
|
|
2,386
|
|
|
10,737
|
|
|
35,393
|
|
|
11,417,960
|
|
|
11,453,353
|
|
Other commercial real estate
|
80
|
|
|
130
|
|
|
698
|
|
|
908
|
|
|
490,155
|
|
|
491,063
|
|
Commercial and industrial and leases
|
10,015
|
|
|
4,373
|
|
|
4,257
|
|
|
18,645
|
|
|
4,110,739
|
|
|
4,129,384
|
|
Other
|
61
|
|
|
211
|
|
|
13
|
|
|
285
|
|
|
301,506
|
|
|
301,791
|
|
Total commercial loans
|
33,328
|
|
|
7,186
|
|
|
19,465
|
|
|
59,979
|
|
|
17,259,359
|
|
|
17,319,338
|
|
Noncommercial:
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
29,551
|
|
|
9,087
|
|
|
20,324
|
|
|
58,962
|
|
|
4,810,600
|
|
|
4,869,562
|
|
Revolving mortgage
|
10,581
|
|
|
4,219
|
|
|
8,306
|
|
|
23,106
|
|
|
2,391,778
|
|
|
2,414,884
|
|
Construction and land development
|
701
|
|
|
1,013
|
|
|
1,600
|
|
|
3,314
|
|
|
318,589
|
|
|
321,903
|
|
Consumer
|
8,901
|
|
|
3,482
|
|
|
3,230
|
|
|
15,613
|
|
|
1,741,622
|
|
|
1,757,235
|
|
Total noncommercial loans
|
49,734
|
|
|
17,801
|
|
|
33,460
|
|
|
100,995
|
|
|
9,262,589
|
|
|
9,363,584
|
|
Total non-PCI loans and leases
|
$
|
83,062
|
|
|
$
|
24,987
|
|
|
$
|
52,925
|
|
|
$
|
160,974
|
|
|
$
|
26,521,948
|
|
|
$
|
26,682,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(Dollars in thousands)
|
30-59 days
past due
|
|
60-89 days
past due
|
|
90 days or greater
|
|
Total past
due
|
|
Current
|
|
Total loans
and leases
|
Non-PCI loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
$
|
516
|
|
|
$
|
9
|
|
|
$
|
444
|
|
|
$
|
969
|
|
|
$
|
756,885
|
|
|
$
|
757,854
|
|
Commercial mortgage
|
14,200
|
|
|
2,066
|
|
|
3,237
|
|
|
19,503
|
|
|
10,697,731
|
|
|
10,717,234
|
|
Other commercial real estate
|
91
|
|
|
76
|
|
|
300
|
|
|
467
|
|
|
426,518
|
|
|
426,985
|
|
Commercial and industrial and leases
|
9,655
|
|
|
1,759
|
|
|
2,892
|
|
|
14,306
|
|
|
3,924,424
|
|
|
3,938,730
|
|
Other
|
285
|
|
|
—
|
|
|
89
|
|
|
374
|
|
|
296,050
|
|
|
296,424
|
|
Total commercial loans
|
24,747
|
|
|
3,910
|
|
|
6,962
|
|
|
35,619
|
|
|
16,101,608
|
|
|
16,137,227
|
|
Noncommercial:
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
28,239
|
|
|
7,357
|
|
|
15,308
|
|
|
50,904
|
|
|
4,214,783
|
|
|
4,265,687
|
|
Revolving mortgage
|
12,585
|
|
|
4,490
|
|
|
11,631
|
|
|
28,706
|
|
|
2,514,269
|
|
|
2,542,975
|
|
Construction and land development
|
581
|
|
|
21
|
|
|
1,591
|
|
|
2,193
|
|
|
254,837
|
|
|
257,030
|
|
Consumer
|
10,035
|
|
|
3,904
|
|
|
3,521
|
|
|
17,460
|
|
|
1,696,321
|
|
|
1,713,781
|
|
Total noncommercial loans
|
51,440
|
|
|
15,772
|
|
|
32,051
|
|
|
99,263
|
|
|
8,680,210
|
|
|
8,779,473
|
|
Total non-PCI loans and leases
|
$
|
76,187
|
|
|
$
|
19,682
|
|
|
$
|
39,013
|
|
|
$
|
134,882
|
|
|
$
|
24,781,818
|
|
|
$
|
24,916,700
|
|
The recorded investment, by class, in non-PCI loans and leases on nonaccrual status, and loans and leases greater than 90 days past due and still accruing at September 30, 2019 and December 31, 2018, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
(Dollars in thousands)
|
Nonaccrual
loans and
leases
|
|
Loans and
leases > 90
days and
accruing
|
|
Nonaccrual
loans and
leases
|
|
Loans and
leases > 90
days and
accruing
|
Commercial:
|
|
|
|
|
|
|
|
Construction and land development
|
$
|
5,372
|
|
|
$
|
—
|
|
|
$
|
666
|
|
|
$
|
—
|
|
Commercial mortgage
|
24,993
|
|
|
796
|
|
|
12,594
|
|
|
—
|
|
Commercial and industrial and leases
|
6,630
|
|
|
1,099
|
|
|
4,624
|
|
|
808
|
|
Other commercial real estate
|
709
|
|
|
—
|
|
|
366
|
|
|
—
|
|
Other
|
121
|
|
|
—
|
|
|
279
|
|
|
—
|
|
Total commercial loans
|
37,825
|
|
|
1,895
|
|
|
18,529
|
|
|
808
|
|
Noncommercial:
|
|
|
|
|
|
|
|
|
Construction and land development
|
1,716
|
|
|
—
|
|
|
1,823
|
|
|
—
|
|
Residential mortgage
|
43,677
|
|
|
439
|
|
|
35,662
|
|
|
—
|
|
Revolving mortgage
|
22,748
|
|
|
—
|
|
|
25,563
|
|
|
—
|
|
Consumer
|
2,850
|
|
|
1,913
|
|
|
2,969
|
|
|
2,080
|
|
Total noncommercial loans
|
70,991
|
|
|
2,352
|
|
|
66,017
|
|
|
2,080
|
|
Total non-PCI loans and leases
|
$
|
108,816
|
|
|
$
|
4,247
|
|
|
$
|
84,546
|
|
|
$
|
2,888
|
|
Purchased non-PCI loans and leases
The following table relates to purchased non-PCI loans acquired in the Biscayne Bancshares and First South Bancorp transactions and provides the contractually required payments, estimate of contractual cash flows not expected to be collected and fair value of the acquired loans at the acquisition date:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Biscayne Bancshares
|
|
First South Bancorp
|
Contractually required payments
|
$
|
1,078,854
|
|
|
$
|
175,465
|
|
Fair value at acquisition date
|
850,352
|
|
|
162,845
|
|
The recorded fair values of purchased non-PCI loans acquired in the Biscayne Bancshares and First South Bancorp transactions as of the acquisition date are as follows:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Biscayne Bancshares
|
|
First South Bancorp
|
Commercial:
|
|
|
|
Construction and land development
|
$
|
15,647
|
|
|
$
|
8,663
|
|
Commercial mortgage
|
203,605
|
|
|
74,713
|
|
Other commercial real estate
|
98,107
|
|
|
7,509
|
|
Commercial and industrial and leases
|
28,135
|
|
|
40,208
|
|
Total commercial loans
|
345,494
|
|
|
131,093
|
|
Noncommercial:
|
|
|
|
Residential mortgage
|
405,419
|
|
|
24,641
|
|
Revolving mortgage
|
54,081
|
|
|
2,162
|
|
Construction and land development
|
31,668
|
|
|
3,552
|
|
Consumer
|
13,690
|
|
|
1,397
|
|
Total noncommercial loans
|
504,858
|
|
|
31,752
|
|
Total non-PCI loans
|
$
|
850,352
|
|
|
$
|
162,845
|
|
Purchased credit-impaired loans
The following table relates to PCI loans acquired in the Biscayne Bancshares and First South Bancorp transactions and summarizes the contractually required payments, which include principal and interest, expected cash flows to be collected and the fair value of PCI loans at the acquisition date:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Biscayne Bancshares
|
|
First South Bancorp
|
Contractually required payments
|
$
|
19,720
|
|
|
$
|
23,389
|
|
Contractual cash flows expected to be collected
|
16,815
|
|
|
21,392
|
|
Fair value at acquisition date
|
13,032
|
|
|
16,398
|
|
The recorded fair values of PCI loans acquired in the Biscayne Bancshares and First South Bancorp transactions as of the acquisition date are as follows:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Biscayne Bancshares
|
|
First South Bancorp
|
Commercial:
|
|
|
|
Construction and land development
|
$
|
—
|
|
|
$
|
1,233
|
|
Commercial mortgage
|
7,589
|
|
|
9,355
|
|
Commercial and industrial and leases
|
1,660
|
|
|
1,202
|
|
Total commercial loans
|
9,249
|
|
|
11,790
|
|
Noncommercial:
|
|
|
|
Residential mortgage
|
3,783
|
|
|
4,591
|
|
Construction and land development
|
—
|
|
|
17
|
|
Total noncommercial loans
|
3,783
|
|
|
4,608
|
|
Total PCI loans
|
$
|
13,032
|
|
|
$
|
16,398
|
|
The following table provides changes in the carrying value of all PCI loans during the nine months ended September 30, 2019 and September 30, 2018:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
2019
|
|
2018
|
Balance at January 1
|
$
|
606,576
|
|
|
$
|
762,998
|
|
Fair value of acquired loans
|
29,430
|
|
|
15,555
|
|
Accretion
|
45,891
|
|
|
45,699
|
|
Payments received and other changes, net
|
(168,308
|
)
|
|
(186,234
|
)
|
Balance at September 30
|
$
|
513,589
|
|
|
$
|
638,018
|
|
Unpaid principal balance at September 30
|
$
|
724,745
|
|
|
$
|
999,926
|
|
The carrying value of PCI loans on the cost recovery method was $3.1 million and $3.3 million at September 30, 2019 and December 31, 2018, respectively. The cost recovery method is applied to loans when the timing of future cash flows cannot be reasonably estimated due to borrower nonperformance or uncertainty in the ultimate disposition of the asset. The recorded investment of PCI loans on nonaccrual status was $0.8 million and $1.3 million at September 30, 2019 and December 31, 2018, respectively. The remaining discount on PCI loans was $85.0 million and $95.5 million at September 30, 2019 and December 31, 2018, respectively.
During the three months ended September 30, 2019 and September 30, 2018, accretion income on PCI loans was $16.2 million and $13.5 million, respectively. During the nine months ended September 30, 2019 and September 30, 2018, accretion income on PCI loans was $45.9 million and $45.7 million, respectively.
For PCI loans, improved credit loss expectations generally result in the reclassification of nonaccretable difference to accretable yield. Changes in expected cash flow not related to credit improvements or deterioration do not affect the nonaccretable difference.
The following table documents changes to the amount of accretable yield for the first nine months of 2019 and 2018:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
2019
|
|
2018
|
Balance at January 1
|
$
|
312,894
|
|
|
$
|
316,679
|
|
Additions from Biscayne Bancshares and First South Bancorp acquisitions
|
8,777
|
|
|
—
|
|
Additions from HomeBancorp acquisition
|
—
|
|
|
4,142
|
|
Accretion
|
(45,891
|
)
|
|
(45,699
|
)
|
Reclassifications from nonaccretable difference
|
6,156
|
|
|
5,866
|
|
Changes in expected cash flows that do not affect nonaccretable difference
|
(21,757
|
)
|
|
42,214
|
|
Balance at September 30
|
$
|
260,179
|
|
|
$
|
323,202
|
|
NOTE E - ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)
Activity in the allowance for non-PCI loan and lease losses by class of loans is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2019
|
(Dollars in thousands)
|
Construction
and land
development
- commercial
|
|
Commercial
mortgage
|
|
Other
commercial
real estate
|
|
Commercial
and industrial and leases
|
|
Other
|
|
Residential
mortgage
|
|
Revolving
mortgage
|
|
Construction
and land
development
- non - commercial
|
|
Consumer
|
|
Total
|
Non-PCI Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1
|
$
|
31,944
|
|
|
$
|
48,962
|
|
|
$
|
2,342
|
|
|
$
|
56,901
|
|
|
$
|
2,183
|
|
|
$
|
16,932
|
|
|
$
|
21,121
|
|
|
$
|
2,750
|
|
|
$
|
35,105
|
|
|
$
|
218,240
|
|
Provision (credits)
|
208
|
|
|
(1,337
|
)
|
|
(90
|
)
|
|
4,714
|
|
|
54
|
|
|
1,024
|
|
|
(153
|
)
|
|
148
|
|
|
3,674
|
|
|
8,242
|
|
Charge-offs
|
(116
|
)
|
|
(1
|
)
|
|
—
|
|
|
(3,047
|
)
|
|
(42
|
)
|
|
(313
|
)
|
|
(534
|
)
|
|
—
|
|
|
(5,594
|
)
|
|
(9,647
|
)
|
Recoveries
|
52
|
|
|
226
|
|
|
—
|
|
|
611
|
|
|
20
|
|
|
68
|
|
|
201
|
|
|
—
|
|
|
1,945
|
|
|
3,123
|
|
Balance at September 30
|
$
|
32,088
|
|
|
$
|
47,850
|
|
|
$
|
2,252
|
|
|
$
|
59,179
|
|
|
$
|
2,215
|
|
|
$
|
17,711
|
|
|
$
|
20,635
|
|
|
$
|
2,898
|
|
|
$
|
35,130
|
|
|
$
|
219,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2018
|
(Dollars in thousands)
|
Construction
and land
development
- commercial
|
|
Commercial
mortgage
|
|
Other
commercial
real estate
|
|
Commercial
and industrial and leases
|
|
Other
|
|
Residential
mortgage
|
|
Revolving
mortgage
|
|
Construction
and land
development
- non - commercial
|
|
Consumer
|
|
Total
|
Balance at July 1
|
$
|
23,664
|
|
|
$
|
44,465
|
|
|
$
|
3,823
|
|
|
$
|
61,311
|
|
|
$
|
4,691
|
|
|
$
|
17,802
|
|
|
$
|
21,886
|
|
|
$
|
4,027
|
|
|
$
|
30,773
|
|
|
$
|
212,442
|
|
Provision (credits)
|
8,702
|
|
|
(2,870
|
)
|
|
(1,219
|
)
|
|
(5,260
|
)
|
|
(2,404
|
)
|
|
(1,828
|
)
|
|
465
|
|
|
(1,203
|
)
|
|
7,971
|
|
|
2,354
|
|
Charge-offs
|
(35
|
)
|
|
(606
|
)
|
|
—
|
|
|
(2,106
|
)
|
|
(56
|
)
|
|
(360
|
)
|
|
(759
|
)
|
|
—
|
|
|
(5,525
|
)
|
|
(9,447
|
)
|
Recoveries
|
136
|
|
|
99
|
|
|
1
|
|
|
497
|
|
|
117
|
|
|
128
|
|
|
712
|
|
|
—
|
|
|
1,249
|
|
|
2,939
|
|
Balance at September 30
|
$
|
32,467
|
|
|
$
|
41,088
|
|
|
$
|
2,605
|
|
|
$
|
54,442
|
|
|
$
|
2,348
|
|
|
$
|
15,742
|
|
|
$
|
22,304
|
|
|
$
|
2,824
|
|
|
$
|
34,468
|
|
|
$
|
208,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2019
|
(Dollars in thousands)
|
Construction
and land
development
- commercial
|
|
Commercial
mortgage
|
|
Other
commercial
real estate
|
|
Commercial
and industrial and leases
|
|
Other
|
|
Residential
mortgage
|
|
Revolving
mortgage
|
|
Construction
and land
development
- non - commercial
|
|
Consumer
|
|
Total
|
Balance at January 1
|
$
|
35,270
|
|
|
$
|
43,451
|
|
|
$
|
2,481
|
|
|
$
|
55,620
|
|
|
$
|
2,221
|
|
|
$
|
15,472
|
|
|
$
|
21,862
|
|
|
$
|
2,350
|
|
|
$
|
35,841
|
|
|
$
|
214,568
|
|
Provision (credits)
|
(3,217
|
)
|
|
4,748
|
|
|
(230
|
)
|
|
10,138
|
|
|
(618
|
)
|
|
2,903
|
|
|
(272
|
)
|
|
548
|
|
|
11,991
|
|
|
25,991
|
|
Charge-offs
|
(188
|
)
|
|
(851
|
)
|
|
—
|
|
|
(8,327
|
)
|
|
(73
|
)
|
|
(957
|
)
|
|
(1,990
|
)
|
|
—
|
|
|
(18,017
|
)
|
|
(30,403
|
)
|
Recoveries
|
223
|
|
|
502
|
|
|
1
|
|
|
1,748
|
|
|
685
|
|
|
293
|
|
|
1,035
|
|
|
—
|
|
|
5,315
|
|
|
9,802
|
|
Balance at September 30
|
$
|
32,088
|
|
|
$
|
47,850
|
|
|
$
|
2,252
|
|
|
$
|
59,179
|
|
|
$
|
2,215
|
|
|
$
|
17,711
|
|
|
$
|
20,635
|
|
|
$
|
2,898
|
|
|
$
|
35,130
|
|
|
$
|
219,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2018
|
(Dollars in thousands)
|
Construction
and land
development
- commercial
|
|
Commercial
mortgage
|
|
Other
commercial
real estate
|
|
Commercial
and industrial and leases
|
|
Other
|
|
Residential
mortgage
|
|
Revolving
mortgage
|
|
Construction
and land
development
- non - commercial
|
|
Consumer
|
|
Total
|
Balance at January 1
|
$
|
24,470
|
|
|
$
|
45,005
|
|
|
$
|
4,571
|
|
|
$
|
59,824
|
|
|
$
|
4,689
|
|
|
$
|
15,706
|
|
|
$
|
22,436
|
|
|
$
|
3,962
|
|
|
$
|
31,204
|
|
|
$
|
211,867
|
|
Provision (credits)
|
7,788
|
|
|
(3,369
|
)
|
|
(2,044
|
)
|
|
(907
|
)
|
|
(2,403
|
)
|
|
1,176
|
|
|
1,220
|
|
|
(1,046
|
)
|
|
15,468
|
|
|
15,883
|
|
Charge-offs
|
(43
|
)
|
|
(1,111
|
)
|
|
(69
|
)
|
|
(6,874
|
)
|
|
(98
|
)
|
|
(1,455
|
)
|
|
(2,778
|
)
|
|
(219
|
)
|
|
(16,092
|
)
|
|
(28,739
|
)
|
Recoveries
|
252
|
|
|
563
|
|
|
147
|
|
|
2,399
|
|
|
160
|
|
|
315
|
|
|
1,426
|
|
|
127
|
|
|
3,888
|
|
|
9,277
|
|
Balance at September 30
|
$
|
32,467
|
|
|
$
|
41,088
|
|
|
$
|
2,605
|
|
|
$
|
54,442
|
|
|
$
|
2,348
|
|
|
$
|
15,742
|
|
|
$
|
22,304
|
|
|
$
|
2,824
|
|
|
$
|
34,468
|
|
|
$
|
208,288
|
|
The following tables present the allowance and recorded investment in loans and leases by class of loans, as well as the associated impairment method at September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
(Dollars in thousands)
|
Construction
and land
development
- commercial
|
|
Commercial
mortgage
|
|
Other
commercial
real estate
|
|
Commercial
and industrial
and leases
|
|
Other
|
|
Residential
mortgage
|
|
Revolving
mortgage
|
|
Construction
and land
development
- non-
commercial
|
|
Consumer
|
|
Total
|
Non-PCI Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLL for loans and leases individually evaluated for impairment
|
$
|
311
|
|
|
$
|
2,850
|
|
|
$
|
12
|
|
|
$
|
1,191
|
|
|
$
|
59
|
|
|
$
|
2,761
|
|
|
$
|
2,559
|
|
|
$
|
88
|
|
|
$
|
1,064
|
|
|
$
|
10,895
|
|
ALLL for loans and leases collectively evaluated for impairment
|
31,777
|
|
|
45,000
|
|
|
2,240
|
|
|
57,988
|
|
|
2,156
|
|
|
14,950
|
|
|
18,076
|
|
|
2,810
|
|
|
34,066
|
|
|
209,063
|
|
Total allowance for loan and lease losses
|
$
|
32,088
|
|
|
$
|
47,850
|
|
|
$
|
2,252
|
|
|
$
|
59,179
|
|
|
$
|
2,215
|
|
|
$
|
17,711
|
|
|
$
|
20,635
|
|
|
$
|
2,898
|
|
|
$
|
35,130
|
|
|
$
|
219,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases individually evaluated for impairment
|
$
|
5,713
|
|
|
$
|
64,380
|
|
|
$
|
1,171
|
|
|
$
|
12,262
|
|
|
$
|
261
|
|
|
$
|
54,311
|
|
|
$
|
28,730
|
|
|
$
|
3,088
|
|
|
$
|
3,208
|
|
|
$
|
173,124
|
|
Loans and leases collectively evaluated for impairment
|
938,034
|
|
|
11,388,973
|
|
|
489,892
|
|
|
4,117,122
|
|
|
301,530
|
|
|
4,815,251
|
|
|
2,386,154
|
|
|
318,815
|
|
|
1,754,027
|
|
|
26,509,798
|
|
Total loan and leases
|
$
|
943,747
|
|
|
$
|
11,453,353
|
|
|
$
|
491,063
|
|
|
$
|
4,129,384
|
|
|
$
|
301,791
|
|
|
$
|
4,869,562
|
|
|
$
|
2,414,884
|
|
|
$
|
321,903
|
|
|
$
|
1,757,235
|
|
|
$
|
26,682,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(Dollars in thousands)
|
Construction
and land
development
- commercial
|
|
Commercial
mortgage
|
|
Other
commercial
real estate
|
|
Commercial
and industrial
and leases
|
|
Other
|
|
Residential
mortgage
|
|
Revolving
mortgage
|
|
Construction
and land
development
- non-
commercial
|
|
Consumer
|
|
Total
|
Non-PCI Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLL for loans and leases individually evaluated for impairment
|
$
|
490
|
|
|
$
|
2,671
|
|
|
$
|
42
|
|
|
$
|
1,137
|
|
|
$
|
105
|
|
|
$
|
1,901
|
|
|
$
|
2,515
|
|
|
$
|
81
|
|
|
$
|
885
|
|
|
$
|
9,827
|
|
ALLL for loans and leases collectively evaluated for impairment
|
34,780
|
|
|
40,780
|
|
|
2,439
|
|
|
54,483
|
|
|
2,116
|
|
|
13,571
|
|
|
19,347
|
|
|
2,269
|
|
|
34,956
|
|
|
204,741
|
|
Total allowance for loan and lease losses
|
$
|
35,270
|
|
|
$
|
43,451
|
|
|
$
|
2,481
|
|
|
$
|
55,620
|
|
|
$
|
2,221
|
|
|
$
|
15,472
|
|
|
$
|
21,862
|
|
|
$
|
2,350
|
|
|
$
|
35,841
|
|
|
$
|
214,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases individually evaluated for impairment
|
$
|
2,175
|
|
|
$
|
55,447
|
|
|
$
|
860
|
|
|
$
|
9,868
|
|
|
$
|
291
|
|
|
$
|
42,168
|
|
|
$
|
28,852
|
|
|
$
|
3,749
|
|
|
$
|
3,020
|
|
|
$
|
146,430
|
|
Loans and leases collectively evaluated for impairment
|
755,679
|
|
|
10,661,787
|
|
|
426,125
|
|
|
3,928,862
|
|
|
296,133
|
|
|
4,223,519
|
|
|
2,514,123
|
|
|
253,281
|
|
|
1,710,761
|
|
|
24,770,270
|
|
Total loan and leases
|
$
|
757,854
|
|
|
$
|
10,717,234
|
|
|
$
|
426,985
|
|
|
$
|
3,938,730
|
|
|
$
|
296,424
|
|
|
$
|
4,265,687
|
|
|
$
|
2,542,975
|
|
|
$
|
257,030
|
|
|
$
|
1,713,781
|
|
|
$
|
24,916,700
|
|
PCI allowance activity and balances for the three and nine months ended September 30, 2019 and September 30, 2018 is summarized as follows:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Three months ended September 30, 2019
|
|
Three months ended September 30, 2018
|
PCI Loans
|
|
|
|
Allowance for loan losses:
|
|
|
|
Balance at July 1
|
$
|
8,343
|
|
|
$
|
12,423
|
|
(Credit) provision
|
(1,476
|
)
|
|
(1,514
|
)
|
Charge-offs
|
—
|
|
|
—
|
|
Recoveries
|
—
|
|
|
—
|
|
Balance at September 30
|
$
|
6,867
|
|
|
$
|
10,909
|
|
|
|
|
|
|
Nine months ended September 30, 2019
|
|
Nine months ended September 30, 2018
|
Balance at January 1
|
$
|
9,144
|
|
|
$
|
10,026
|
|
(Credit) provision
|
(2,277
|
)
|
|
1,000
|
|
Charge-offs
|
—
|
|
|
(117
|
)
|
Recoveries
|
—
|
|
|
—
|
|
Balance at September 30
|
$
|
6,867
|
|
|
$
|
10,909
|
|
Recoveries related to PCI loans that have been previously charged-off and are not covered under loss share agreements are recorded as noninterest income rather than as an adjustment to the allowance for loan and lease losses.
The following table presents the PCI allowance and recorded investment in loans at September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
September 30, 2019
|
|
December 31, 2018
|
ALLL for loans acquired with deteriorated credit quality
|
$
|
6,867
|
|
|
$
|
9,144
|
|
Loans acquired with deteriorated credit quality
|
513,589
|
|
|
606,576
|
|
At September 30, 2019 and December 31, 2018, $99.0 million and $186.6 million, respectively, of PCI loans experienced an adverse change in expected cash flows since the date of acquisition.
The following tables provide information on non-PCI impaired loans and leases, exclusive of loans and leases evaluated collectively as a homogeneous group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
(Dollars in thousands)
|
With a
recorded
allowance
|
|
With no
recorded
allowance
|
|
Total
|
|
Unpaid
principal
balance
|
|
Related
allowance
recorded
|
Non-PCI impaired loans and leases:
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
$
|
2,018
|
|
|
$
|
3,695
|
|
|
$
|
5,713
|
|
|
$
|
6,146
|
|
|
$
|
311
|
|
Commercial mortgage
|
35,222
|
|
|
29,158
|
|
|
64,380
|
|
|
69,172
|
|
|
2,850
|
|
Other commercial real estate
|
195
|
|
|
976
|
|
|
1,171
|
|
|
1,265
|
|
|
12
|
|
Commercial and industrial and leases
|
7,238
|
|
|
5,024
|
|
|
12,262
|
|
|
14,456
|
|
|
1,191
|
|
Other
|
198
|
|
|
63
|
|
|
261
|
|
|
280
|
|
|
59
|
|
Total commercial loans
|
44,871
|
|
|
38,916
|
|
|
83,787
|
|
|
91,319
|
|
|
4,423
|
|
Noncommercial:
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
44,009
|
|
|
10,302
|
|
|
54,311
|
|
|
58,515
|
|
|
2,761
|
|
Revolving mortgage
|
25,070
|
|
|
3,660
|
|
|
28,730
|
|
|
31,772
|
|
|
2,559
|
|
Construction and land development
|
1,676
|
|
|
1,412
|
|
|
3,088
|
|
|
3,381
|
|
|
88
|
|
Consumer
|
3,155
|
|
|
53
|
|
|
3,208
|
|
|
3,594
|
|
|
1,064
|
|
Total noncommercial loans
|
73,910
|
|
|
15,427
|
|
|
89,337
|
|
|
97,262
|
|
|
6,472
|
|
Total non-PCI impaired loans and leases
|
$
|
118,781
|
|
|
$
|
54,343
|
|
|
$
|
173,124
|
|
|
$
|
188,581
|
|
|
$
|
10,895
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(Dollars in thousands)
|
With a
recorded
allowance
|
|
With no
recorded
allowance
|
|
Total
|
|
Unpaid
principal
balance
|
|
Related
allowance
recorded
|
Non-PCI impaired loans and leases:
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
$
|
1,897
|
|
|
$
|
278
|
|
|
$
|
2,175
|
|
|
$
|
2,606
|
|
|
$
|
490
|
|
Commercial mortgage
|
34,177
|
|
|
21,270
|
|
|
55,447
|
|
|
61,317
|
|
|
2,671
|
|
Other commercial real estate
|
243
|
|
|
617
|
|
|
860
|
|
|
946
|
|
|
42
|
|
Commercial and industrial and leases
|
7,153
|
|
|
2,715
|
|
|
9,868
|
|
|
14,695
|
|
|
1,137
|
|
Other
|
216
|
|
|
75
|
|
|
291
|
|
|
301
|
|
|
105
|
|
Total commercial loans
|
43,686
|
|
|
24,955
|
|
|
68,641
|
|
|
79,865
|
|
|
4,445
|
|
Noncommercial:
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
40,359
|
|
|
1,809
|
|
|
42,168
|
|
|
45,226
|
|
|
1,901
|
|
Revolving mortgage
|
25,751
|
|
|
3,101
|
|
|
28,852
|
|
|
31,371
|
|
|
2,515
|
|
Construction and land development
|
2,337
|
|
|
1,412
|
|
|
3,749
|
|
|
4,035
|
|
|
81
|
|
Consumer
|
2,940
|
|
|
80
|
|
|
3,020
|
|
|
3,405
|
|
|
885
|
|
Total noncommercial loans
|
71,387
|
|
|
6,402
|
|
|
77,789
|
|
|
84,037
|
|
|
5,382
|
|
Total non-PCI impaired loans and leases
|
$
|
115,073
|
|
|
$
|
31,357
|
|
|
$
|
146,430
|
|
|
$
|
163,902
|
|
|
$
|
9,827
|
|
Non-PCI impaired loans less than $500,000 that were collectively evaluated for impairment totaled $42.8 million and $47.1 million at September 30, 2019 and December 31, 2018, respectively.
The following tables show the average non-PCI impaired loan balance and the interest income recognized by loan class for the three and nine months ended September 30, 2019 and September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2019
|
|
Three months ended September 30, 2018
|
(Dollars in thousands)
|
Average
balance
|
|
Interest income recognized
|
|
Average
balance
|
|
Interest income recognized
|
Non-PCI impaired loans and leases:
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
Construction and land development
|
$
|
6,130
|
|
|
$
|
6
|
|
|
$
|
2,101
|
|
|
$
|
27
|
|
Commercial mortgage
|
70,351
|
|
|
551
|
|
|
63,752
|
|
|
583
|
|
Other commercial real estate
|
1,186
|
|
|
6
|
|
|
950
|
|
|
10
|
|
Commercial and industrial and leases
|
13,085
|
|
|
140
|
|
|
9,310
|
|
|
92
|
|
Other
|
298
|
|
|
2
|
|
|
205
|
|
|
1
|
|
Total commercial
|
91,050
|
|
|
705
|
|
|
76,318
|
|
|
713
|
|
Noncommercial:
|
|
|
|
|
|
|
|
Residential mortgage
|
56,029
|
|
|
346
|
|
|
42,601
|
|
|
330
|
|
Revolving mortgage
|
30,067
|
|
|
260
|
|
|
27,503
|
|
|
234
|
|
Construction and land development
|
3,124
|
|
|
25
|
|
|
3,190
|
|
|
42
|
|
Consumer
|
3,443
|
|
|
37
|
|
|
2,769
|
|
|
31
|
|
Total noncommercial
|
92,663
|
|
|
668
|
|
|
76,063
|
|
|
637
|
|
Total non-PCI impaired loans and leases
|
$
|
183,713
|
|
|
$
|
1,373
|
|
|
$
|
152,381
|
|
|
$
|
1,350
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2019
|
|
Nine months ended September 30, 2018
|
(Dollars in thousands)
|
Average
balance
|
|
Interest income recognized
|
|
Average
balance
|
|
Interest income recognized
|
Non-PCI impaired loans and leases:
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
Construction and land development
|
$
|
3,460
|
|
|
$
|
40
|
|
|
$
|
1,580
|
|
|
$
|
55
|
|
Commercial mortgage
|
61,962
|
|
|
1,653
|
|
|
68,043
|
|
|
1,953
|
|
Other commercial real estate
|
797
|
|
|
20
|
|
|
1,336
|
|
|
33
|
|
Commercial and industrial and leases
|
11,478
|
|
|
353
|
|
|
9,500
|
|
|
269
|
|
Other
|
314
|
|
|
6
|
|
|
90
|
|
|
1
|
|
Total commercial
|
78,011
|
|
|
2,072
|
|
|
80,549
|
|
|
2,311
|
|
Noncommercial:
|
|
|
|
|
|
|
|
Residential mortgage
|
49,048
|
|
|
988
|
|
|
41,124
|
|
|
903
|
|
Revolving mortgage
|
29,477
|
|
|
763
|
|
|
26,228
|
|
|
657
|
|
Construction and land development
|
3,473
|
|
|
93
|
|
|
3,607
|
|
|
134
|
|
Consumer
|
3,152
|
|
|
97
|
|
|
2,644
|
|
|
87
|
|
Total noncommercial
|
85,150
|
|
|
1,941
|
|
|
73,603
|
|
|
1,781
|
|
Total non-PCI impaired loans and leases
|
$
|
163,161
|
|
|
$
|
4,013
|
|
|
$
|
154,152
|
|
|
$
|
4,092
|
|
Troubled Debt Restructurings
BancShares accounts for certain loan modifications or restructurings as troubled debt restructurings (TDRs). In general, the modification or restructuring of a loan is considered a TDR if, for economic reasons or legal reasons related to a borrower's financial difficulties, a concession is granted to the borrower that creditors would not otherwise consider. Concessions may relate to the contractual interest rate, maturity date, payment structure or other actions. The majority of TDRs are included in the special mention, substandard or doubtful credit quality indicators, which results in more elevated loss expectations when projecting the expected cash flows that are used to determine the allowance for loan losses associated with these loans. The lower the credit quality indicator, the lower the estimated expected cash flows and the greater the allowance recorded. All TDRs are individually evaluated for impairment through review of collateral values or analysis of cash flows at least annually.
The following table provides a summary of total TDRs by accrual status. Total TDRs included $17.4 million and $18.2 million of PCI TDRs at September 30, 2019 and December 31, 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
(Dollars in thousands)
|
Accruing
|
|
Nonaccruing
|
|
Total
|
|
Accruing
|
|
Nonaccruing
|
|
Total
|
Commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
$
|
518
|
|
|
$
|
1,109
|
|
|
$
|
1,627
|
|
|
$
|
1,946
|
|
|
$
|
352
|
|
|
$
|
2,298
|
|
Commercial mortgage
|
50,206
|
|
|
7,064
|
|
|
57,270
|
|
|
53,270
|
|
|
7,795
|
|
|
61,065
|
|
Other commercial real estate
|
474
|
|
|
—
|
|
|
474
|
|
|
851
|
|
|
9
|
|
|
860
|
|
Commercial and industrial and leases
|
10,161
|
|
|
2,180
|
|
|
12,341
|
|
|
7,986
|
|
|
2,060
|
|
|
10,046
|
|
Other
|
153
|
|
|
107
|
|
|
260
|
|
|
118
|
|
|
173
|
|
|
291
|
|
Total commercial loans
|
61,512
|
|
|
10,460
|
|
|
71,972
|
|
|
64,171
|
|
|
10,389
|
|
|
74,560
|
|
Noncommercial:
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
37,798
|
|
|
16,439
|
|
|
54,237
|
|
|
37,903
|
|
|
9,621
|
|
|
47,524
|
|
Revolving mortgage
|
20,968
|
|
|
7,839
|
|
|
28,807
|
|
|
20,492
|
|
|
8,196
|
|
|
28,688
|
|
Construction and land development
|
1,570
|
|
|
1,518
|
|
|
3,088
|
|
|
2,227
|
|
|
110
|
|
|
2,337
|
|
Consumer
|
2,566
|
|
|
642
|
|
|
3,208
|
|
|
2,300
|
|
|
721
|
|
|
3,021
|
|
Total noncommercial loans
|
62,902
|
|
|
26,438
|
|
|
89,340
|
|
|
62,922
|
|
|
18,648
|
|
|
81,570
|
|
Total loans
|
$
|
124,414
|
|
|
$
|
36,898
|
|
|
$
|
161,312
|
|
|
$
|
127,093
|
|
|
$
|
29,037
|
|
|
$
|
156,130
|
|
The following table provides the types of modifications designated as TDRs during the three and nine months ended September 30, 2019 and September 30, 2018, as well as a summary of loans that were modified as a TDR during the twelve month periods ended September 30, 2019 and September 30, 2018 that subsequently defaulted during the three and nine months ended September 30, 2019 and September 30, 2018. BancShares defines payment default as movement of the TDR to nonaccrual status, which is generally 90 days past due for TDRs, foreclosure or charge-off, whichever occurs first.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2019
|
|
Three months ended September 30, 2018
|
|
All restructurings
|
|
Restructurings with payment default
|
|
All restructurings
|
|
Restructurings with payment default
|
(Dollars in thousands)
|
Number of Loans
|
Recorded investment at period end
|
|
Number of Loans
|
Recorded investment at period end
|
|
Number of Loans
|
Recorded investment at period end
|
|
Number of Loans
|
Recorded investment at period end
|
Loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
Interest only
|
2
|
|
$
|
1,221
|
|
|
—
|
|
$
|
—
|
|
|
1
|
|
$
|
300
|
|
|
—
|
|
$
|
—
|
|
Loan term extension
|
5
|
|
2,473
|
|
|
—
|
|
—
|
|
|
9
|
|
2,565
|
|
|
2
|
|
327
|
|
Below market interest rate
|
80
|
|
4,460
|
|
|
34
|
|
2,034
|
|
|
56
|
|
7,109
|
|
|
32
|
|
2,832
|
|
Discharged from bankruptcy
|
55
|
|
6,097
|
|
|
25
|
|
2,002
|
|
|
38
|
|
1,833
|
|
|
16
|
|
607
|
|
Total restructurings
|
142
|
|
$
|
14,251
|
|
|
59
|
|
$
|
4,036
|
|
|
104
|
|
$
|
11,807
|
|
|
50
|
|
$
|
3,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2019
|
|
Nine months ended September 30, 2018
|
|
All restructurings
|
|
Restructurings with payment default
|
|
All restructurings
|
|
Restructurings with payment default
|
(Dollars in thousands)
|
Number of Loans
|
Recorded investment at period end
|
|
Number of Loans
|
Recorded investment at period end
|
|
Number of Loans
|
Recorded investment at period end
|
|
Number of Loans
|
Recorded investment at period end
|
Loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
Interest only
|
6
|
|
$
|
3,209
|
|
|
2
|
|
$
|
2,064
|
|
|
3
|
|
$
|
1,136
|
|
|
2
|
|
$
|
836
|
|
Loan term extension
|
13
|
|
3,870
|
|
|
4
|
|
514
|
|
|
32
|
|
4,414
|
|
|
9
|
|
943
|
|
Below market interest rate
|
205
|
|
14,968
|
|
|
86
|
|
5,977
|
|
|
211
|
|
24,245
|
|
|
82
|
|
6,098
|
|
Discharged from bankruptcy
|
157
|
|
13,499
|
|
|
72
|
|
5,421
|
|
|
139
|
|
7,360
|
|
|
69
|
|
3,595
|
|
Total restructurings
|
381
|
|
$
|
35,546
|
|
|
164
|
|
$
|
13,976
|
|
|
385
|
|
$
|
37,155
|
|
|
162
|
|
$
|
11,472
|
|
For the three and nine months ended September 30, 2019 and September 30, 2018, the pre-modification and post-modification outstanding recorded investments of loans modified as TDRs were not materially different.
NOTE F - OTHER REAL ESTATE OWNED (OREO)
The following table explains changes in OREO during the nine months ended September 30, 2019 and September 30, 2018:
|
|
|
|
|
(Dollars in thousands)
|
Total
|
Balance at December 31, 2018
|
$
|
48,030
|
|
Additions
|
15,426
|
|
Acquired in business combination
|
3,613
|
|
Sales
|
(17,595
|
)
|
Write-downs/losses
|
(3,221
|
)
|
Balance at September 30, 2019
|
$
|
46,253
|
|
|
|
Balance at December 31, 2017
|
$
|
51,097
|
|
Additions
|
17,013
|
|
Acquired in business combination
|
2,135
|
|
Sales
|
(23,488
|
)
|
Write-downs/losses
|
(3,156
|
)
|
Balance at September 30, 2018
|
$
|
43,601
|
|
At September 30, 2019 and December 31, 2018, BancShares had $16.4 million and $17.2 million, respectively, of foreclosed residential real estate property in OREO. The recorded investment in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure was $21.1 million and $22.0 million at September 30, 2019 and December 31, 2018, respectively.
NOTE G - FDIC SHARED-LOSS PAYABLE
As of September 30, 2019, Bancshares has outstanding shared-loss agreements related to two FDIC-assisted transactions. These agreements include provisions related to payments that may be owed to the FDIC at the termination of the agreements (clawback liability). The clawback liability represents a payment by BancShares to the FDIC if actual cumulative losses on acquired covered assets are lower than the cumulative losses originally estimated by the FDIC at the time of acquisition and is recorded in the Consolidated Balance Sheets FDIC shared-loss payable. The clawback liability payment dates are March 2020 and March 2021.
As of September 30, 2019 shared-loss protection remains from FDIC transactions for single family residential loans acquired in the amount of $47.3 million.
The following table provides changes in the FDIC shared-loss payable since December 31, 2018:
|
|
|
|
|
(Dollars in thousands)
|
Total
|
Balance at December 31, 2018
|
$
|
105,618
|
|
Accretion
|
4,968
|
|
Balance at September 30, 2019
|
$
|
110,586
|
|
NOTE H - SERVICING RIGHTS
Mortgage Servicing Rights
Our portfolio of residential mortgage loans serviced for third parties was $3.06 billion and $2.95 billion as of September 30, 2019 and December 31, 2018, respectively. These loans are originated by BancShares and sold to third parties on a non-recourse basis with servicing rights retained. The retained servicing rights were recorded as a servicing asset and are reported in other intangible assets on the Consolidated Balance Sheets, and the associated amortization expense and any valuation allowance recognized was included as a reduction of mortgage income in the Consolidated Statements of Income. Mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair value.
Contractually specified mortgage servicing fees, late fees and ancillary fees earned for the three months ended September 30, 2019 and 2018 were $1.9 million and are reported in mortgage income in the Consolidated Statements of Income. For the nine months ended September 30, 2019 and 2018, contractually specified mortgage servicing fees, late fees, and ancillary fees earned were $5.8 million and $5.6 million, respectively.
The following table explains changes in the servicing asset during the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
(Dollars in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Beginning balance
|
$
|
20,665
|
|
|
$
|
21,657
|
|
|
$
|
21,396
|
|
|
$
|
21,945
|
|
Servicing rights originated
|
1,532
|
|
|
1,396
|
|
|
3,943
|
|
|
4,026
|
|
Amortization
|
(1,581
|
)
|
|
(1,420
|
)
|
|
(4,595
|
)
|
|
(4,338
|
)
|
Valuation allowance (increase) decrease
|
(45
|
)
|
|
—
|
|
|
(173
|
)
|
|
—
|
|
Ending balance
|
$
|
20,571
|
|
|
$
|
21,633
|
|
|
$
|
20,571
|
|
|
$
|
21,633
|
|
BancShares recorded valuation allowance provision expense of $45.0 thousand and $173.0 thousand for the three and nine months ended September 30, 2019, respectively. There was no provision expense or release recorded for the the three and nine months ended September 30, 2018. Mortgage servicing rights valuations are performed using a pooling methodology where loans with similar risk characteristics are grouped together and evaluated using discounted cash flows to estimate the present value of future earnings. Key economic assumptions used to value mortgage servicing rights were as follows:
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
Discount rate - conventional fixed loans
|
8.67
|
%
|
|
9.69
|
%
|
Discount rate - all loans excluding conventional fixed loans
|
9.67
|
%
|
|
10.69
|
%
|
Weighted average constant prepayment rate
|
14.15
|
%
|
|
9.26
|
%
|
Weighted average cost to service a loan
|
$
|
87.09
|
|
|
$
|
87.52
|
|
The fair value of mortgage servicing rights is sensitive to changes in assumptions and is determined by estimating the present value of the asset's future cash flows by utilizing discount rates, prepayment rates, and other inputs. The discount rate is based on the 10-year U.S. Treasury rate plus a risk premium of 700 basis points for conventional fixed loans and 800 basis points for all other loans. The prepayment rate is derived from the Public Securities Association Standard Prepayment model. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity. This results in a decrease in fair value. The average cost to service a loan is based on the number of loans serviced and the total cost to service the loans.
Other Servicing Rights
Other servicing rights were acquired as part of a business combination and relate to the sale of the guaranteed portion of government guaranteed loans with servicing retained. The amount of the other servicing rights were $1.9 million and $2.7 million at September 30, 2019 and December 31, 2018, respectively.
NOTE I - REPURCHASE AGREEMENTS
BancShares utilizes securities sold under customer repurchase agreements to facilitate the needs of customers and secure wholesale funding needs. Repurchase agreements are transactions whereby BancShares offers to sell to a counterparty an undivided interest in an eligible security, and which obligates BancShares to repurchase the security, with interest, at an agreed upon date, repurchase price, and interest rate. These agreements are recorded at the amount of cash received in connection with the transaction and are reflected as securities sold under customer repurchase agreements on the Consolidated Balance Sheets. The remaining contractual maturity of the $522.2 million and $543.9 million securities sold under repurchase agreements at September 30, 2019 and December 31, 2018, respectively, was overnight and continuous.
Repurchase agreements require BancShares to maintain collateral to support the outstanding obligations. BancShares monitors collateral levels on a continuous basis and maintains records of each transaction specifically describing the applicable security and the counterparty’s interest in that security, and segregates the security from general assets in accordance with regulations governing custodial holdings of securities. The primary risk with repurchase agreements is market risk associated with the investments securing the transactions, as additional collateral may be required based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with safekeeping agents and consist of U.S. Treasury and mortgage-backed securities.
At September 30, 2019, the carrying value of investment securities pledged as collateral under repurchase agreements was $541.6 million, including investment securities available for sale of $305.2 million and investment securities held to maturity of $236.4 million. At December 31, 2018, the carrying value of investment securities pledged as collateral under repurchase agreements was $598.6 million, all of which were investment securities available for sale.
NOTE J - ESTIMATED FAIR VALUES
Fair value estimates are intended to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Where there is no active market for a financial instrument, BancShares has made estimates using discounted cash flows or other valuation techniques. Inputs used in these valuation techniques are subjective in nature, involve uncertainties and require significant judgment and therefore can only be derived within a range of precision. Accordingly, the derived fair value estimates presented below are not necessarily indicative of the amounts BancShares would realize in a current market exchange.
ASC 820, Fair Value Measurements and Disclosures, indicates that assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. The levels are based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy for an asset or liability is based on the highest level of input that is significant to the fair value measurement (with Level 1 considered highest and Level 3 considered lowest). A brief description of each level follows:
|
|
•
|
Level 1 values are based on quoted prices for identical instruments in active markets.
|
|
|
•
|
Level 2 values are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
|
|
|
•
|
Level 3 values are derived from valuation techniques in which one or more significant inputs or assumptions are not observable in the market. These unobservable inputs and assumptions reflect estimates that market participants would use in pricing the asset or liability. Valuation techniques include the use of discounted cash flow models and similar techniques.
|
BancShares' management reviews any changes to its valuation methodologies to ensure they are appropriate and supportable, and refines valuation methodologies as more market-based data becomes available. Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period.
The methodologies used to estimate the fair value of financial assets and financial liabilities are discussed below:
Investment securities available for sale and held to maturity. The fair value of U.S. Treasury, government agency and mortgage-backed securities is generally estimated using a third party pricing service. The third party provider evaluates securities based on comparable investments with trades and market data and will utilize pricing models that use a variety of inputs, such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2. Corporate bonds held by BancShares are generally measured at fair value based on indicative bids from broker-dealers and are not directly observable. These securities are considered Level 3.
Investment in marketable equity securities. Equity securities are measured at fair value using observable closing prices and the valuation also considers the amount of market activity by examining the trade volume of each security. Equity securities are classified as Level 1 if they are traded in an active market and as Level 2 if the observable closing price is from a less than active market.
Loans held for sale. Management elects the fair value option on certain residential real estate loans that are originated to be sold to investors. The loans are carried at fair value based on quoted market prices for similar types of loans. Accordingly, the inputs used to calculate fair value of originated residential real estate loans held for sale are classified as Level 2 inputs. Portfolio loans that are subsequently transferred to held for sale to be sold in the secondary market are carried at fair value when a firm commitment from a counterparty exists. The fair value of the transferred portfolio loans is based on the quoted prices and is considered a Level 1 input.
Net loans and leases (PCI and Non-PCI). Fair value is estimated based on discounted future cash flows using the current interest rates at which loans with similar terms would be made to borrowers of similar credit quality. The inputs used in the fair value measurements for loans and leases are considered Level 3 inputs.
FHLB stock. The carrying amount of FHLB stock is a reasonable estimate of fair value as these securities are not readily marketable and are evaluated for impairment based on the ultimate recoverability of the par value. BancShares considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. BancShares believes its investment in FHLB stock is ultimately recoverable at par. The inputs used in the fair value measurement for the FHLB stock are considered Level 2 inputs.
Mortgage and other servicing rights. Mortgage and other servicing rights are carried at the lower of amortized cost or market value and are, therefore, carried at fair value only when fair value is less than the amortized cost. The fair value of mortgage and other servicing rights is performed using a pooling methodology. Similar loans are pooled together and a model that relies on discount rates, estimates of prepayment rates and the weighted average cost to service the loans is used to determine the fair value. The inputs used in the fair value measurement for mortgage and other servicing rights are considered Level 3 inputs.
Deposits. For non-time deposits, carrying value is a reasonable estimate of fair value. The fair value of time deposits is estimated by discounting future cash flows using the interest rates currently offered for deposits of similar remaining maturities. The inputs used in the fair value measurement for deposits are considered Level 2 inputs.
Borrowings. For borrowings, the fair values are determined based on recent trades or sales of the actual security if available. Otherwise, fair values are estimated by discounting future cash flows using current interest rates for similar financial instruments. The inputs used in the fair value measurement for FHLB borrowings, subordinated debentures, and other borrowings are considered Level 2 inputs.
Payable to the FDIC for shared-loss agreements. The fair value of the payable to the FDIC for shared-loss agreements is determined based on expected payments to the FDIC in accordance with the shared-loss agreements. Cash flows are discounted using current discount rates to reflect the timing of the estimated amounts due to the FDIC. The inputs used in the fair value measurement for the payable to the FDIC are considered Level 3 inputs.
Off-balance-sheet commitments and contingencies. Carrying amounts are reasonable estimates of the fair values for such financial instruments. Carrying amounts include unamortized fee income and, in some cases, reserves for any credit losses from those financial instruments. These amounts are not material to BancShares' financial position.
For all other financial assets and financial liabilities, the carrying value is a reasonable estimate of the fair value as of September 30, 2019 and December 31, 2018. The carrying value and fair value for these assets and liabilities are equivalent because they are relatively short term in nature and there is no interest rate or credit risk that would cause the fair value to differ from the carrying value. Cash and due from banks is classified on the fair value hierarchy as Level 1. Overnight investments, income earned not collected, securities sold under customer repurchase agreements, and accrued interest payable are considered Level 2.
The table presents the carrying values and estimated fair values for financial instruments as of September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
September 30, 2019
|
|
December 31, 2018
|
Carrying value
|
|
Fair value
|
|
Carrying value
|
|
Fair value
|
Cash and due from banks
|
$
|
288,933
|
|
|
$
|
288,933
|
|
|
$
|
327,440
|
|
|
$
|
327,440
|
|
Overnight investments
|
949,899
|
|
|
949,899
|
|
|
797,406
|
|
|
797,406
|
|
Investment in marketable equity securities
|
116,854
|
|
|
116,854
|
|
|
92,599
|
|
|
92,599
|
|
Investment securities available for sale
|
4,904,883
|
|
|
4,904,883
|
|
|
4,557,110
|
|
|
4,557,110
|
|
Investment securities held to maturity
|
2,145,943
|
|
|
2,217,800
|
|
|
2,184,653
|
|
|
2,201,502
|
|
Loans held for sale
|
83,256
|
|
|
83,256
|
|
|
45,505
|
|
|
45,505
|
|
Net loans and leases
|
26,969,686
|
|
|
27,301,164
|
|
|
25,299,564
|
|
|
24,845,060
|
|
Income earned not collected
|
117,123
|
|
|
117,123
|
|
|
109,903
|
|
|
109,903
|
|
Federal Home Loan Bank stock
|
25,355
|
|
|
25,355
|
|
|
25,304
|
|
|
25,304
|
|
Mortgage and other servicing rights
|
22,431
|
|
|
24,823
|
|
|
24,066
|
|
|
27,435
|
|
Deposits
|
32,743,277
|
|
|
32,739,923
|
|
|
30,672,460
|
|
|
30,623,214
|
|
Securities sold under customer repurchase agreements
|
522,195
|
|
|
522,195
|
|
|
543,936
|
|
|
543,936
|
|
Federal Home Loan Bank borrowings
|
192,672
|
|
|
199,098
|
|
|
193,556
|
|
|
195,374
|
|
Subordinated debentures
|
149,051
|
|
|
156,566
|
|
|
140,741
|
|
|
151,670
|
|
Other borrowings
|
112,153
|
|
|
117,630
|
|
|
13,921
|
|
|
13,985
|
|
FDIC shared-loss payable
|
110,586
|
|
|
113,309
|
|
|
105,618
|
|
|
105,846
|
|
Accrued interest payable
|
17,859
|
|
|
17,859
|
|
|
3,712
|
|
|
3,712
|
|
Among BancShares' assets and liabilities, investment securities available for sale, marketable equity securities and loans held for sale are reported at their fair values on a recurring basis. For assets and liabilities carried at fair value on a recurring basis, the following table provides fair value information as of September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
Fair value measurements using:
|
(Dollars in thousands)
|
Fair value
|
|
Level 1 inputs
|
|
Level 2 inputs
|
|
Level 3 inputs
|
Assets measured at fair value
|
|
|
|
|
|
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
749,318
|
|
|
$
|
—
|
|
|
$
|
749,318
|
|
|
$
|
—
|
|
Government agency
|
665,621
|
|
|
—
|
|
|
665,621
|
|
|
—
|
|
Mortgage-backed securities
|
3,332,619
|
|
|
—
|
|
|
3,332,619
|
|
|
—
|
|
Corporate bonds
|
157,325
|
|
|
—
|
|
|
—
|
|
|
157,325
|
|
Total investment securities available for sale
|
$
|
4,904,883
|
|
|
$
|
—
|
|
|
$
|
4,747,558
|
|
|
$
|
157,325
|
|
Marketable equity securities
|
$
|
116,854
|
|
|
$
|
29,241
|
|
|
$
|
87,613
|
|
|
$
|
—
|
|
Loans held for sale
|
$
|
83,256
|
|
|
$
|
—
|
|
|
$
|
83,256
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
Fair value measurements using:
|
|
Fair value
|
|
Level 1 inputs
|
|
Level 2 inputs
|
|
Level 3 inputs
|
Assets measured at fair value
|
|
|
|
|
|
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
1,247,710
|
|
|
$
|
—
|
|
|
$
|
1,247,710
|
|
|
$
|
—
|
|
Government agency
|
256,835
|
|
|
—
|
|
|
256,835
|
|
|
—
|
|
Mortgage-backed securities
|
2,909,339
|
|
|
—
|
|
|
2,909,339
|
|
|
—
|
|
Corporate bonds
|
143,226
|
|
|
—
|
|
|
—
|
|
|
143,226
|
|
Total investment securities available for sale
|
$
|
4,557,110
|
|
|
$
|
—
|
|
|
$
|
4,413,884
|
|
|
$
|
143,226
|
|
Marketable equity securities
|
$
|
92,599
|
|
|
$
|
17,887
|
|
|
$
|
74,712
|
|
|
$
|
—
|
|
Loans held for sale
|
$
|
45,505
|
|
|
$
|
—
|
|
|
$
|
45,505
|
|
|
$
|
—
|
|
During the three and nine months ended September 30, 2019, there were no transfers between levels. For the three months ended September 30, 2018, there were no transfers between levels and for the nine ended September 30, 2018, there were transfers from Level 2 to Level 3 of $65.3 million for corporate bonds available for sale. The transfers were due to a lack of observable inputs and trade activity for those securities.
The following tables summarize activity for Level 3 assets:
|
|
|
|
|
|
Nine months ended September 30, 2019
|
(Dollars in thousands)
|
Corporate bonds
|
Balance at January 1, 2019
|
$
|
143,226
|
|
Amounts included in net income
|
123
|
|
Unrealized net gains included in other comprehensive income
|
2,985
|
|
Purchases
|
11,991
|
|
Balance at September 30, 2019
|
$
|
157,325
|
|
The following table presents quantitative information about Level 3 fair value measurements for fair value on a recurring basis at September 30, 2019:
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
September 30, 2019
|
Level 3 assets
|
|
Valuation technique
|
|
Significant unobservable input
|
|
Fair Value
|
Corporate bonds
|
|
Indicative bid provided by broker
|
|
Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer
|
|
$
|
157,325
|
|
Fair Value Option
BancShares has elected the fair value option for residential real estate loans originated to be sold. This election reduces certain timing differences in the Consolidated Statement of Income and better aligns with the management of the portfolio from a business perspective. The changes in fair value were recorded as a component of mortgage income and included a gain of $583 thousand and a loss of $773 thousand for the three months ended September 30, 2019 and September 30, 2018, respectively. The changes in fair value included a gain of $750 thousand and a loss of $528 thousand for nine months ended September 30, 2019 and September 30, 2018, respectively.
The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for residential real estate originated for sale measured at fair value as of September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
(Dollars in thousands)
|
Fair value
|
|
Aggregate unpaid principal balance
|
|
Difference
|
Originated loans held for sale
|
$
|
83,256
|
|
|
$
|
81,073
|
|
|
$
|
2,183
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Fair value
|
|
Aggregate unpaid principal balance
|
|
Difference
|
Originated loans held for sale
|
$
|
45,505
|
|
|
$
|
44,073
|
|
|
$
|
1,432
|
|
No originated loans held for sale were 90 or more days past due or on nonaccrual status as of September 30, 2019 or December 31, 2018.
We may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment.
Impaired loans are deemed to be at fair value if an associated allowance or current period charge-off has been recorded. The value of impaired loans is determined by either collateral valuations or discounted present value of the expected cash flow calculations. Collateral values are determined using appraisals or other third-party value estimates of the subject property with discounts generally between 6% and 11% applied for estimated selling costs and other external factors that may impact the marketability of the property. Expected cash flows are determined using expected payment information at the individual loan level, discounted using the effective interest rate. The effective interest rate for the majority of impaired loans generally ranges between 3% and 7%.
OREO acquired or written down within the previous 12 months is deemed to be at fair value. Asset valuations are determined by using appraisals or other third-party value estimates of the subject property with discounts generally between 6% and 11% applied for estimated selling costs and other external factors that may impact the marketability of the property. Changes to the value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager assigned to each asset. If there are any significant changes in the market or the subject property, valuations are adjusted or new appraisals ordered to ensure the reported values reflect the most current information.
For financial assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
Fair value measurements using:
|
(Dollars in thousands)
|
Fair value
|
|
Level 1 inputs
|
|
Level 2 inputs
|
|
Level 3 inputs
|
Impaired loans
|
$
|
118,658
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
118,658
|
|
Other real estate remeasured during the previous 12 months
|
36,670
|
|
|
—
|
|
|
—
|
|
|
36,670
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
Fair value measurements using:
|
|
Fair value
|
|
Level 1 inputs
|
|
Level 2 inputs
|
|
Level 3 inputs
|
Impaired loans
|
$
|
105,994
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
105,994
|
|
Other real estate remeasured during the previous 12 months
|
35,344
|
|
|
—
|
|
|
—
|
|
|
35,344
|
|
No financial liabilities were carried at fair value on a nonrecurring basis as of September 30, 2019 and December 31, 2018.
NOTE K - EMPLOYEE BENEFIT PLANS
BancShares sponsors noncontributory defined benefit pension plans for its qualifying employees (BancShares Plan) and former First Citizens Bancorporation, Inc. employees (Bancorporation Plan). The service cost component of net periodic benefit cost is included in salaries and wages while all other non-service cost components are included in other noninterest expense.
BancShares Plan
For the three and nine months ended September 30, 2019 and 2018, the components of net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
(Dollars in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service cost
|
$
|
2,628
|
|
|
$
|
3,396
|
|
|
$
|
7,886
|
|
|
$
|
10,187
|
|
Interest cost
|
7,557
|
|
|
7,093
|
|
|
22,669
|
|
|
21,281
|
|
Expected return on assets
|
(12,876
|
)
|
|
(11,966
|
)
|
|
(38,629
|
)
|
|
(35,899
|
)
|
Amortization of prior service cost
|
15
|
|
|
19
|
|
|
43
|
|
|
59
|
|
Amortization of net actuarial loss
|
2,099
|
|
|
3,398
|
|
|
6,297
|
|
|
10,192
|
|
Net periodic (benefit) cost
|
$
|
(577
|
)
|
|
$
|
1,940
|
|
|
$
|
(1,734
|
)
|
|
$
|
5,820
|
|
Bancorporation Plan
For the three and nine months ended September 30, 2019 and 2018, the components of net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
(Dollars in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service cost
|
$
|
563
|
|
|
$
|
643
|
|
|
$
|
1,689
|
|
|
$
|
1,929
|
|
Interest cost
|
1,759
|
|
|
1,588
|
|
|
5,276
|
|
|
4,767
|
|
Expected return on assets
|
(2,771
|
)
|
|
(3,106
|
)
|
|
(8,314
|
)
|
|
(9,322
|
)
|
Amortization of net actuarial loss
|
631
|
|
|
78
|
|
|
1,895
|
|
|
235
|
|
Net periodic cost (benefit)
|
$
|
182
|
|
|
$
|
(797
|
)
|
|
$
|
546
|
|
|
$
|
(2,391
|
)
|
No discretionary contributions were made during the three or nine months ended September 30, 2019 to the BancShares pension plan. Discretionary contributions of $3.5 million were made during the three and nine months ended September 30, 2019 to the Bancorporation pension plan. Management evaluates the need for its pension plan contributions on a periodic basis based upon numerous factors including, but not limited to, the funded status of the plans, returns on plan assets, discount rates and the current economic environment.
NOTE L - COMMITMENTS AND CONTINGENCIES
To meet the financing needs of its customers, BancShares and its subsidiaries have financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve elements of credit, interest rate or liquidity risk.
Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. Established credit standards control the credit risk exposure associated with these commitments. In some cases, BancShares requires that collateral be pledged to secure the commitment, including cash deposits, securities and other assets.
Standby letters of credit are commitments guaranteeing performance of a customer to a third party. Those commitments are primarily issued to support public and private borrowing arrangements. To mitigate its risk, BancShares’ credit policies govern the issuance of standby letters of credit. The credit risk related to the issuance of these letters of credit is essentially the same as that involved in extending loans to clients and, therefore, these letters of credit are collateralized when necessary.
The following table presents the commitments to extend credit and standby letters of credit as of September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
September 30, 2019
|
|
December 31, 2018
|
Unused commitments to extend credit
|
$
|
10,509,643
|
|
|
$
|
10,054,712
|
|
Standby letters of credit
|
92,585
|
|
|
96,467
|
|
BancShares and FCB have investments in qualified affordable housing projects primarily for the purposes of fulfilling Community Reinvestment Act requirements and obtaining tax credits. Affordable housing project investments were $165.7 million and $147.3 million as of September 30, 2019 and December 31, 2018, respectively, and were recorded in other assets on the Consolidated Balance Sheets. Unfunded commitments to fund future investments in affordable housing projects totaled $75.7 million and $68.0 million as of September 30, 2019 and December 31, 2018, respectively and were recorded within other liabilities.
BancShares and various subsidiaries have been named as defendants in legal actions arising from their normal business activities in which damages in various amounts were claimed. BancShares has also been exposed to litigation risk relating to the prior business activities of banks from which assets were acquired and liabilities assumed in the various merger transactions. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, any such liability will not have a material effect on BancShares’ consolidated financial statements.
NOTE M - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) included the following as of September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
(Dollars in thousands)
|
Accumulated
other
comprehensive
income (loss)
|
|
Deferred
tax
expense
(benefit)
|
|
Accumulated
other
comprehensive
income (loss),
net of tax
|
|
Accumulated
other
comprehensive
income (loss)
|
|
Deferred
tax
expense
(benefit)
|
|
Accumulated
other
comprehensive
income (loss),
net of tax
|
Unrealized gains (losses) on securities available for sale
|
$
|
6,112
|
|
|
$
|
1,406
|
|
|
$
|
4,706
|
|
|
$
|
(50,007
|
)
|
|
$
|
(11,502
|
)
|
|
$
|
(38,505
|
)
|
Unrealized losses on securities available for sale transferred to held to maturity
|
(74,397
|
)
|
|
(17,111
|
)
|
|
(57,286
|
)
|
|
(92,401
|
)
|
|
(21,252
|
)
|
|
(71,149
|
)
|
Defined benefit pension items
|
(154,795
|
)
|
|
(35,603
|
)
|
|
(119,192
|
)
|
|
(163,030
|
)
|
|
(37,497
|
)
|
|
(125,533
|
)
|
Total
|
$
|
(223,080
|
)
|
|
$
|
(51,308
|
)
|
|
$
|
(171,772
|
)
|
|
$
|
(305,438
|
)
|
|
$
|
(70,251
|
)
|
|
$
|
(235,187
|
)
|
The following table highlights changes in accumulated other comprehensive income (loss) by component for the three and nine months ended September 30, 2019 and September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2019
|
(Dollars in thousands)
|
Unrealized gains (losses) on securities available for sale(1)
|
|
Unrealized losses on securities available for sale transferred to held to maturity(1)
|
|
Defined benefit pension items(1)
|
|
Total
|
Beginning balance
|
$
|
2,554
|
|
|
$
|
(61,979
|
)
|
|
$
|
(121,306
|
)
|
|
$
|
(180,731
|
)
|
Net unrealized gains arising during period
|
3,026
|
|
|
—
|
|
|
—
|
|
|
3,026
|
|
Amounts reclassified from accumulated other comprehensive loss
|
(874
|
)
|
|
4,693
|
|
|
2,114
|
|
|
5,933
|
|
Net current period other comprehensive income
|
2,152
|
|
|
4,693
|
|
|
2,114
|
|
|
8,959
|
|
Ending balance
|
$
|
4,706
|
|
|
$
|
(57,286
|
)
|
|
$
|
(119,192
|
)
|
|
$
|
(171,772
|
)
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2018
|
(Dollars in thousands)
|
Unrealized gains (losses) on securities available for sale(1)
|
|
Unrealized losses on securities available for sale transferred to held to maturity(1)
|
|
Defined benefit pension items(1)
|
|
Total
|
Beginning balance
|
$
|
(57,496
|
)
|
|
$
|
(80,876
|
)
|
|
$
|
(106,266
|
)
|
|
$
|
(244,638
|
)
|
Net unrealized losses arising during period
|
(10,635
|
)
|
|
—
|
|
|
—
|
|
|
(10,635
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
5,007
|
|
|
2,691
|
|
|
7,698
|
|
Net current period other comprehensive (loss) income
|
(10,635
|
)
|
|
5,007
|
|
|
2,691
|
|
|
(2,937
|
)
|
Ending balance
|
$
|
(68,131
|
)
|
|
$
|
(75,869
|
)
|
|
$
|
(103,575
|
)
|
|
$
|
(247,575
|
)
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2019
|
(Dollars in thousands)
|
Unrealized gains (losses) on securities available for sale(1)
|
|
Unrealized losses on securities available for sale transferred to held to maturity(1)
|
|
Defined benefit pension items(1)
|
|
Total
|
Beginning balance
|
$
|
(38,505
|
)
|
|
$
|
(71,149
|
)
|
|
$
|
(125,533
|
)
|
|
$
|
(235,187
|
)
|
Net unrealized gains arising during period
|
48,489
|
|
|
—
|
|
|
—
|
|
|
48,489
|
|
Amounts reclassified from accumulated other comprehensive loss
|
(5,278
|
)
|
|
13,863
|
|
|
6,341
|
|
|
14,926
|
|
Net current period other comprehensive income
|
43,211
|
|
|
13,863
|
|
|
6,341
|
|
|
63,415
|
|
Ending balance
|
$
|
4,706
|
|
|
$
|
(57,286
|
)
|
|
$
|
(119,192
|
)
|
|
$
|
(171,772
|
)
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2018
|
(Dollars in thousands)
|
Unrealized gains (losses) on securities available for sale(1)
|
|
Unrealized losses on securities available for sale transferred to held to maturity(1)
|
|
Defined benefit pension items(1)
|
|
Total
|
Beginning balance
|
$
|
(30,945
|
)
|
|
$
|
—
|
|
|
$
|
(91,349
|
)
|
|
$
|
(122,294
|
)
|
Cumulative effect adjustments(2)
|
(29,751
|
)
|
|
—
|
|
|
(20,300
|
)
|
|
(50,051
|
)
|
Adjusted beginning balance
|
(60,696
|
)
|
|
—
|
|
|
(111,649
|
)
|
|
(172,345
|
)
|
Net unrealized losses arising during period
|
(7,435
|
)
|
|
(84,321
|
)
|
|
—
|
|
|
(91,756
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
8,452
|
|
|
8,074
|
|
|
16,526
|
|
Net current period other comprehensive (loss) income
|
(7,435
|
)
|
|
(75,869
|
)
|
|
8,074
|
|
|
(75,230
|
)
|
Ending balance
|
$
|
(68,131
|
)
|
|
$
|
(75,869
|
)
|
|
$
|
(103,575
|
)
|
|
$
|
(247,575
|
)
|
(1) All amounts are net of tax. Amounts in parentheses indicate debits.
(2) Cumulative adjustments for adoption of ASU 2018-02 of $31.3 million and ASU 2016-01 of $18.7 million.
The following table presents the amounts reclassified from accumulated other comprehensive income (loss) and the line item affected in the statement where net income is presented for the three and nine months ended September 30, 2019 and September 30, 2018:
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2019
|
(Dollars in thousands)
Details about accumulated other comprehensive income (loss)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)(1)
|
|
Affected line item in the statement where net income is presented
|
Unrealized gains on securities available for sale
|
|
$
|
1,136
|
|
|
Realized gains on investment securities available for sale, net
|
|
|
(262
|
)
|
|
Income taxes
|
|
|
$
|
874
|
|
|
|
|
|
|
|
|
Amortization of unrealized losses on securities available for sale transferred to held to maturity
|
|
$
|
(6,095
|
)
|
|
Net interest income
|
|
|
1,402
|
|
|
Income taxes
|
|
|
$
|
(4,693
|
)
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
Prior service costs
|
|
$
|
(15
|
)
|
|
Salaries and wages
|
Actuarial losses
|
|
(2,730
|
)
|
|
Other
|
|
|
(2,745
|
)
|
|
Income before income taxes
|
|
|
631
|
|
|
Income taxes
|
|
|
$
|
(2,114
|
)
|
|
|
Total reclassifications for the period
|
|
$
|
(5,933
|
)
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2018
|
Details about accumulated other comprehensive income (loss)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)(1)
|
|
Affected line item in the statement where net income is presented
|
Amortization of unrealized losses on securities available for sale transferred to held to maturity
|
|
$
|
(6,502
|
)
|
|
Net interest income
|
|
|
1,495
|
|
|
Income taxes
|
|
|
$
|
(5,007
|
)
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
Prior service costs
|
|
$
|
(19
|
)
|
|
Salaries and wages
|
Actuarial losses
|
|
(3,476
|
)
|
|
Other
|
|
|
(3,495
|
)
|
|
Income before income taxes
|
|
|
804
|
|
|
Income taxes
|
|
|
$
|
(2,691
|
)
|
|
|
Total reclassifications for the period
|
|
$
|
(7,698
|
)
|
|
|
(1) Amounts in parentheses indicate debits to income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2019
|
Details about accumulated other comprehensive income (loss)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)(1)
|
|
Affected line item in the statement where net income is presented
|
Unrealized gains on securities available for sale
|
|
$
|
6,855
|
|
|
Realized gains on investment securities available for sale, net
|
|
|
(1,577
|
)
|
|
Income taxes
|
|
|
$
|
5,278
|
|
|
|
|
|
|
|
|
Amortization of unrealized losses on securities available for sale transferred to held to maturity
|
|
$
|
(18,004
|
)
|
|
Net interest income
|
|
|
4,141
|
|
|
Income taxes
|
|
|
$
|
(13,863
|
)
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
Prior service costs
|
|
$
|
(43
|
)
|
|
Salaries and wages
|
Actuarial losses
|
|
(8,192
|
)
|
|
Other
|
|
|
(8,235
|
)
|
|
Income before income taxes
|
|
|
1,894
|
|
|
Income taxes
|
|
|
$
|
(6,341
|
)
|
|
|
Total reclassifications for the period
|
|
$
|
(14,926
|
)
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2018
|
Details about accumulated other comprehensive income (loss)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)(1)
|
|
Affected line item in the statement where net income is presented
|
Amortization of unrealized losses on securities available for sale transferred to held to maturity
|
|
$
|
(10,975
|
)
|
|
Net interest income
|
|
|
2,523
|
|
|
Income taxes
|
|
|
$
|
(8,452
|
)
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
Prior service costs
|
|
$
|
(59
|
)
|
|
Salaries and wages
|
Actuarial losses
|
|
(10,427
|
)
|
|
Other
|
|
|
(10,486
|
)
|
|
Income before income taxes
|
|
|
2,412
|
|
|
Income taxes
|
|
|
$
|
(8,074
|
)
|
|
|
Total reclassifications for the period
|
|
$
|
(16,526
|
)
|
|
|
(1) Amounts in parentheses indicate debits to income.
NOTE N - LEASES
BancShares leases certain branch locations, administrative offices and equipment. Operating lease ROU assets are included in other assets and the associated lease obligations are included in other liabilities on the Consolidated Balance Sheets. Finance leases are included in premises and equipment and other borrowings on the Consolidated Balance Sheets. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets; we instead recognize lease expense for these leases on a straight-line basis over the lease term.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our corresponding obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating and finance lease ROU asset also includes initial direct costs and pre-paid lease payments made, excluding lease incentives. As most of our leases do not provide an implicit rate, BancShares uses its incremental borrowing rate, based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is determined using secured rates for new FHLB advances under similar terms as the lease at inception. We utilize the implicit or incremental borrowing rate at the effective date of a modification not accounted for as a separate contract or a change in the lease terms to determine the present value of lease payments. BancShares used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.
Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 25 years. The exercise of lease renewal options is at our sole discretion. When it is reasonably certain that we will exercise our option to renew or extend the lease term, that option is included in calculating the value of the ROU and lease liability. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
We determine if an arrangement is a lease at inception and our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have no related party lease agreements. As of September 30, 2019, there were no leases that have not yet commenced that would have a material impact on our Consolidated Financial Statements.
The following table presents lease assets and liabilities as of September 30, 2019:
|
|
|
|
|
|
(Dollars in thousands)
|
Classification
|
September 30, 2019
|
Assets:
|
|
|
Operating
|
Other assets
|
$
|
79,857
|
|
Finance
|
Premises and equipment
|
9,402
|
|
Total leased assets
|
|
$
|
89,259
|
|
Liabilities:
|
|
|
Operating
|
Other liabilities
|
$
|
79,234
|
|
Finance
|
Other borrowings
|
8,610
|
|
Total lease liabilities
|
|
$
|
87,844
|
|
The following table presents lease costs for the three and nine months ended September 30, 2019. Variable lease cost primarily represents variable payments such as common area maintenance and utilities that are recognized in the period in which the expense was incurred. Certain of our lease agreements also include rental payments that are adjusted periodically for inflation. While lease liabilities are not remeasured as a result of these changes, these adjustments are treated as variable lease costs and recognized in the period in which the expense is incurred.
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Classification
|
Three months ended September 30, 2019
|
|
Nine months ended September 30, 2019
|
Lease cost:
|
|
|
|
|
Operating lease cost (1)
|
Occupancy expense
|
$
|
5,273
|
|
|
$
|
12,059
|
|
Finance lease cost:
|
|
|
|
|
Amortization of leased assets
|
Equipment expense
|
541
|
|
|
1,434
|
|
Interest on lease liabilities
|
Interest expense - Other borrowings
|
93
|
|
|
220
|
|
Variable lease cost
|
Occupancy expense
|
527
|
|
|
1,779
|
|
Sublease income
|
Occupancy expense
|
(86
|
)
|
|
(303
|
)
|
Net lease cost
|
|
$
|
6,348
|
|
|
$
|
15,189
|
|
(1) Operating lease cost includes short-term lease cost, which is immaterial.
|
|
|
The following table presents lease liability maturities in the next five years and thereafter:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Operating Leases
|
|
Finance Leases
|
|
Total
|
2019 (1)
|
$
|
3,617
|
|
|
$
|
435
|
|
|
$
|
4,052
|
|
2020
|
14,052
|
|
|
2,142
|
|
|
16,194
|
|
2021
|
12,546
|
|
|
2,159
|
|
|
14,705
|
|
2022
|
11,142
|
|
|
1,876
|
|
|
13,018
|
|
2023
|
9,258
|
|
|
993
|
|
|
10,251
|
|
Thereafter
|
43,841
|
|
|
1,683
|
|
|
45,524
|
|
Total lease payments
|
$
|
94,456
|
|
|
$
|
9,288
|
|
|
$
|
103,744
|
|
Less: Interest
|
15,222
|
|
|
678
|
|
|
15,900
|
|
Present value of lease liabilities
|
$
|
79,234
|
|
|
$
|
8,610
|
|
|
$
|
87,844
|
|
(1) Represents the lease liability payments that will be made for the period October 1, 2019 through December 31, 2019.
|
The following table presents the remaining weighted average lease terms and discount rates as of September 30, 2019:
|
|
|
|
Weighted average remaining lease term (years):
|
September 30, 2019
|
Operating
|
10.3
|
|
Finance
|
4.9
|
|
Weighted average discount rate:
|
|
Operating
|
3.22
|
%
|
Finance
|
3.07
|
|
The following table presents supplemental cash flow information related to leases for the nine months ended September 30, 2019:
|
|
|
|
|
(Dollars in thousands)
|
September 30, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
9,579
|
|
Operating cash flows from finance leases
|
220
|
|
Financing cash flows from finance leases
|
1,111
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
17,762
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
1,886
|
|