This section highlights the material risks that the Company currently faces. Any of the risks described below could materially adversely affect the Company's business, financial condition, or results of operations.
Any deterioration in national, regional and local economic conditions, particularly unemployment levels and home prices, could materially affect the Company's business, financial condition or results of operations.
The Company's business is subject to periodic fluctuations based on national, regional and local economic conditions. These fluctuations are not predictable, cannot be controlled, and may have a material adverse impact on its financial condition and operations even if other favorable events occur. The Company's banking operations are locally-oriented and community-based. Accordingly, the Company expects to continue to be dependent upon local business conditions as well as conditions in the local residential and commercial real estate markets it serves, including Alabama, Arizona, California, Colorado, Florida, New Mexico and Texas. These economic conditions could require the Company to charge-off a higher percentage of loans or increase provisions for credit losses, which would reduce its net income.
The Company is part of the financial system and a systemic lack of available credit, a lack of confidence in the financial sector, continued volatility in the financial markets and/or reduced business activity could materially adversely affect its business, financial condition or results of operations.
A return of the volatile economic conditions experienced in the U.S. during 2008-2009, including the adverse conditions in the fixed income debt markets, for an extended period of time, particularly if left unmitigated by policy measures, may materially and adversely affect the Company.
Volatile or declining oil prices could adversely affect the Company's performance.
Furthermore, energy production and related industries represent a significant part of the economies in some of the Bank’s primary markets. A prolonged period of low or volatile oil prices could have a negative impact on the economies and real estate markets of states such as Texas, which could adversely affect the Company's business, financial condition or results of operations.
The failure of the European Union to stabilize the fiscal condition of member countries, especially in Spain, could have an adverse impact on global financial markets, the current U.S. economic recovery and the Company.
Certain European Union member countries have fiscal obligations greater than their fiscal revenue, which has caused investor concern over such countries' ability to continue to service their debt and foster economic growth. Fiscal austerity measures such as raising taxes and reducing entitlements have improved the ability of some member countries to service their debt, but have challenged economic growth and efforts to lower unemployment rates in the region. Although the fiscal health and economic outlook of Spain and the European Union, more generally, have improved, there is no guarantee that these trends will continue.
The Company is a wholly owned subsidiary of BBVA, which is based in Spain and serves as a source of strength and capital to the Company. Accordingly, European Union weakness, particularly in Spain, could directly impact BBVA and could have an adverse impact on the Company's business or financial condition.
A weaker European economy may transcend Europe, cause investors to lose confidence in the safety and soundness of European financial institutions and the stability of European member economies, and likewise affect U.S.-based financial institutions, the stability of the global financial markets and the economic recovery underway in the U.S.
Should the U.S. economic recovery be adversely impacted by these factors, loan and asset growth at U.S. financial institutions, like the Company, could be affected.
The Company is subject to credit risk.
When the Company loans money, commits to loan money or enters into a letter of credit or other contract with a counterparty, it incurs credit risk, which is the risk of losses if its borrowers do not repay their loans or its counterparties fail to perform according to the terms of their contracts. Many of the Company's products expose it to credit risk, including loans, leases and lending commitments.
A reduction in the Company's own credit rating could have a material adverse effect on the Company's liquidity and increase the cost of its capital markets funding.
Adequate liquidity is essential to the Company's businesses. A reduction to the Company's credit rating could have a material adverse effect on the Company's business, financial condition and results of operations.
The rating agencies regularly evaluate the Company and their ratings are based on a number of factors, including the Company's financial strength as well as factors not entirely within its control, such as conditions affecting the financial services industry generally. Adverse changes in the credit ratings of the Kingdom of Spain, which subsequently could impact BBVA, could also adversely impact the Company's credit rating. There can be no assurance that the Company will maintain its current ratings. The Company's failure to maintain those ratings could increase its borrowing costs, require the Company to replace funding lost due to the downgrade, which may include the loss of customer deposits, and may also limit the Company's access to capital and money markets and trigger additional collateral requirements in derivatives contracts and other secured funding arrangements.
The Company's ability to access the capital markets is important to its overall funding profile. This access is affected by its credit rating. The interest rates that the Company pays on its securities are also influenced by, among other things, the credit ratings that it receives from recognized rating agencies. A downgrade to the Company's credit rating could affect its ability to access the capital markets, increase its borrowing costs and negatively impact its profitability. A ratings downgrade to the Company's credit rating could also create obligations or liabilities for it under the terms of its outstanding securities that could increase its costs or otherwise have a negative effect on the Company's results of operations or financial condition. Additionally, a downgrade of the credit rating of any
particular security issued by the Company could negatively affect the ability of the holders of that security to sell the securities and the prices at which any such securities may be sold.
Additionally, fraud risk may increase as the Company offers more products online or through mobile channels.
The Company’s operational or security systems or infrastructure, or those of third parties, could fail or be breached, which could disrupt its business and adversely impact its results of operations, liquidity and financial condition, as well as cause legal or reputational harm.
The potential for operational risk exposure exists throughout the Company’s business and, as a result of its interactions with, and reliance on, third parties, is not limited to the Company’s own internal operational functions. The Company’s operational and security systems and infrastructure, including its computer systems, data management, and internal processes, as well as those of third parties, are integral to its performance. The Company relies on employees and third parties in its day-to-day and ongoing operations, who may, as a result of human error, misconduct, malfeasance or failure, or breach of the Company’s or of third-party systems or infrastructure, expose the Company to risk. For example, the Company’s ability to conduct business may be adversely affected by any significant disruptions to the Company or to third parties with whom it interacts or upon whom it relies. In addition, the Company’s ability to implement backup systems and other safeguards with respect to third-party systems is more limited than with respect to its own systems. The Company’s financial, accounting, data processing, backup or other operating or security systems and infrastructure may fail to operate properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond its control, which could adversely affect its ability to process transactions or provide services. Such events may include sudden increases in customer transaction volume; electrical, telecommunications or other major physical infrastructure outages; natural disasters such as earthquakes, tornadoes, hurricanes and floods; disease pandemics; and events arising from local or larger scale political or social matters, including wars and terrorist acts. In addition, the Company may need to take its systems offline if they become infected with malware or a computer virus or as a result of another form of cyber-attack. The Company's business may be susceptible to infrastructure outages because its data centers are located outside the U.S. In the event that backup systems are utilized, they may not process data as quickly as the Company’s primary systems and some data might not have been saved to backup systems, potentially resulting in a temporary or permanent loss of such data. The Company frequently updates its systems to support its operations and growth and to remain compliant with all applicable laws, rules and regulations. This updating entails significant costs and creates risks associated with implementing new systems and integrating them with existing ones, including business interruptions. Implementation and testing of controls related to the Company’s computer systems, security monitoring and retaining and training personnel required to operate its systems also entail significant costs. Operational risk exposures could adversely impact the Company’s results of operations, liquidity and financial condition, as well as cause reputational harm. In addition, the Company may not have adequate insurance coverage to compensate for losses from a major interruption.
The Company faces security risks, including denial of service attacks, hacking, social engineering attacks targeting its colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect its business or reputation, and create significant legal and financial exposure.
The Company’s computer systems and network infrastructure and those of third parties, on which it is highly dependent, are subject to security risks and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities or identity theft. The Company’s business relies on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in its computer and data management systems and networks, and in the computer and data management systems and networks of third parties. In addition, to access the Company’s network, products and services, its customers and other third parties may use personal mobile devices or computing devices that are outside of its network environment and are subject to their own cybersecurity risks.
The Company, its customers, regulators and other third parties, including other financial services institutions and companies engaged in data processing, have been subject to, and are likely to continue to be the target of, cyber-attacks. These cyber-attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information, ransomware, improper access by employees or vendors, attacks on personal email of employees, ransom demands to not expose security vulnerabilities in the Company’s systems or the systems of third parties or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of the Company, its employees, its customers or of third parties, damage its systems or otherwise materially disrupt the Company’s or its customers’ or other third parties’ network access or business operations. As cyber threats continue to evolve, the Company may be required to
expend significant additional resources to continue to modify or enhance its protective measures or to investigate and remediate any information security vulnerabilities or incidents. Despite efforts to ensure the integrity of the Company’s systems and implement controls, processes, policies and other protective measures, the Company may not be able to anticipate all security breaches, nor may it be able to implement guaranteed preventive measures against such security breaches. Cyber threats are rapidly evolving and the Company may not be able to anticipate or prevent all such attacks and could be held liable for any security breach or loss.
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as the Company continues to increase its mobile-payment and other internet-based product offerings and expand its internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime affiliates, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control environment may be vulnerable to compromise. Targeted social engineering attacks and "spear phishing" attacks are becoming more sophisticated and are extremely difficult to prevent. In such an attack, an attacker will attempt to fraudulently induce colleagues, customers or other users of the Company’s systems to disclose sensitive information in order to gain access to its data or that of its clients. Persistent attackers may succeed in penetrating defenses given enough resources, time, and motive. The techniques used by cyber criminals change frequently, may not be recognized until launched and may not be recognized until well after a breach has occurred. The risk of a security breach caused by a cyber-attack at a vendor or by unauthorized vendor access has also increased in recent years. Additionally, the existence of cyber-attacks or security breaches at third-party vendors with access to the Company’s data may not be disclosed to it in a timely manner.
The Company also faces indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties with whom it does business or upon whom it relies to facilitate or enable its business activities, including, for example, financial counterparties, regulators and providers of critical infrastructure such as internet access and electrical power. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyber-attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including the Company. This consolidation, interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis. Any third-party technology failure, cyber-attack or other information
or security breach, termination or constraint could, among other things, adversely affect the Company’s ability to effect transactions, service its clients, manage its exposure to risk or expand its business.
Cyber-attacks or other information or security breaches, whether directed at the Company or third parties, may result in a material loss or have material consequences. Furthermore, the public perception that a cyber-attack on its systems has been successful, whether or not this perception is correct, may damage the Company’s reputation with customers and third parties with whom it does business. Hacking of personal information and identity theft risks, in particular, could cause serious reputational harm. A successful penetration or circumvention of system security could cause the Company serious negative consequences, including loss of customers and business opportunities, significant business disruption to its operations and business, misappropriation or destruction of its confidential information and/or that of its customers, or damage to the Company’s or its customers’ and/or third parties’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in the Company’s security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact its results of operations, liquidity and financial condition.
CybersecurityThe Company relies on other companies to provide key components of our business infrastructure.
Third parties provide key components of the Company’s business operations such as data processing, recording and data privacy are areas of heightened legislativemonitoring transactions, online banking interfaces and regulatory focus.
As cybersecurityservices, Internet connections and data privacy risks for banking organizations and the broader financial system have significantly increased in recent years, cybersecurity and data privacy issues have become the subject of increasing legislative and regulatory focus. The federal bank regulatory agencies have proposed enhanced cyber risk management standards, which would apply to a wide range of large financial institutions and their third-party service providers, includingnetwork access. While the Company has selected these third-party vendors carefully, performing upfront due diligence and ongoing
monitoring activities, even with a strong oversight in place, the Bank, and would focus on cyber risk governance and management, managementCompany does not entirely control their actions. Any problems caused by these third parties, including those resulting from disruptions in services provided by a vendor (including as a result of internal and external dependencies, and incident response, cyber resilience and situational awareness. Several states have also proposeda cyber-attack, other information security event or adopted cybersecurity legislationa natural disaster), financial or operational difficulties for the vendor, or resulting from issues at third-party vendors to the vendors, failure of a vendor to handle current or higher volumes, failure of a vendor to provide services for any reason, poor performance of services, failure to comply with applicable laws and regulations, which require, among other things, notification to affected individuals when there has been a security breachor fraud or misconduct on the part of their personal data.
The Company receives, maintains and stores non-public personal information of its customers and counterparties, including, but not limited to, personally identifiable information and personal financial information. The sharing, use, disclosure and protection of this information are governed by federal and state law. Both personally identifiable information and personal financial information is increasingly subject to legislation and regulation, the intent of which is to protect the privacy of personal information that is collected and handled.
The Company may become subject to new legislation or regulation concerning cybersecurity or the privacy of personally identifiable information and personal financial information oremployees of any other information it may store or maintain. The Companyof our vendors, could be adversely affected if new legislation or regulations are adopted or if existing legislation or regulations are modified such that it is required to alter its systems or require changes to its business practices or privacy policies. If cybersecurity, data privacy, data protection, data transfer or data retention laws are implemented, interpreted or applied in a manner inconsistent withaffect the Company’s current practices,ability to deliver products and services to the Company may be subject to fines, litigation or regulatory enforcement actions or ordered to change its business practices, policies or systems in a manner that adversely impacts its operating results.
Negative publicity could damageCompany’s customers, the Company’s reputation and could significantly harm its business.
Thethe Company’s ability to attractconduct its business. In certain situation, replacing these third-party vendors could also create significant delay and retain customers, clients, investors, and highly-skilled management and employees is affected by its reputation. Public perceptionexpense. Accordingly, use of the financial services industry in general was damaged as a result of the credit crisis that started in 2008. The Company faces increased public and regulatory scrutiny resulting from the credit crisis and economic downturn. Significant harmsuch third parties creates an unavoidable, inherent risk to its reputation can also arise from other sources, including employee misconduct, actual or perceived unethical behavior, conflicts of interest, litigation, GSE or regulatory actions, failing to deliver minimum or required standards of service and quality, failing to address customer and agency complaints, compliance failures, unauthorized release of confidential information due to cyber-attacks or otherwise, and the activities of the Company’s clients, customers and counterparties, including vendors. Actions by the financial service industry generally or by institutions or individuals in the industry can adversely affect the Company’s reputation, indirectly by association. All of these could adversely affect its growth, results of operation and financial condition.
business operations.
The Company depends on the expertiseaccuracy and completeness of key personnel,information about clients and its operations may suffer if it failscounterparties.
In deciding whether to attractextend credit or enter into other transactions with clients and retain skilled personnel.
The Company's success depends, in large part, on its ability to attract and retain key individuals. Competition for qualified candidates in the activities and markets thatcounterparties, the Company serves is greatmay rely on information furnished by or on behalf of clients and itcounterparties, including financial statements and other financial information. The Company also may not be ablerely on representations of clients and counterparties as to hire these candidatesthe accuracy and retain them. If the Company is not ablecompleteness of that information and, with respect to hire or retain these key individuals, it may be unable to execute its business strategies and may suffer adverse consequences to its business, operations and financial condition.
In June 2010, the federal banking regulators issued joint guidancestatements, on executive compensation designed to help ensure that a banking organization's incentive compensation policies do not encourage imprudent risk taking and are consistent with the safety and soundnessreports of the organization. In addition, the Dodd-Frank Act requires those agencies, along with the SEC, to adopt rules affecting the structure and reporting of incentive compensation. The federal banking regulators and SEC proposed such rules in 2011 and issued revised proposed rules in 2016.
As a wholly owned subsidiary of BBVA, the Company is also required to comply with the European Union’s CRD-IV, which, among other things, impacts the variable compensation of certain risk-takers and highly compensated individuals in the Company or its subsidiaries. In accordance with CRD-IV, the Bank pays variable compensation of certain employees half in stock and half in cash. Additionally, in accordance with CRD-IV, from 40% to 50% (depending on the classification of the employee), of such payment is deferred for three years. The deferred amounts are subject to performance indicators and a malus clause, which could result in the reduction or forfeiture of the deferred amounts. The equity awards are subject to an additional one-year holding period after delivery. Most of the Company’s competitors are not subject to CRD-IV.
If the Company is unable to attract and retain qualified employees, or do so at rates necessary to maintain its competitive position, or if compensation costs required to attract and retain employees become more expensive, the Company's performance, including its competitive position, could be materially adversely affected.independent auditors.
The Company's framework for managing risks may not be effective in mitigating risk and loss to the company.Company.
The Company's risk management framework is made up of various processes and strategies to manage its risk exposure. The framework to manage risk, including the framework's underlying assumptions, may not be effective under all conditions and circumstances. If the risk management framework proves ineffective, the Company could suffer unexpected losses and could be materially adversely affected.
The Company's financial reporting controls and procedures may not prevent or detect all errors or fraud.
Financial reporting disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Any disclosure controls and procedures over financial reporting or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in the control system, misstatements due to error or fraud may occur and not be detected.
The value of the Company’s goodwill may decline in the future.
A significant decline in the Company’s expected future cash flows, a significant adverse change in the business climate, or slower growth rates, any or all of which could be materially impacted by many of the risk factors discussed herein, may require that the Company take charges in the future related to the impairment of goodwill. Future regulatory actions could also have a material impact on assessments of goodwill for impairment. If the Company were to conclude that a future write-down of its goodwill and other intangible assets is necessary, the Company would record the appropriate charge which could have a material adverse effect on its results of operations.
The Company depends on the expertise of key personnel, and its operations may suffer if it fails to attract and retain skilled personnel.
The Company's success depends, in large part, on its ability to attract and retain key individuals. Competition for qualified candidates in the activities and markets that the Company serves is great and it may not be able to hire these candidates and retain them. If the Company is not able to hire or retain these key individuals, it may be unable
to execute its business strategies and may suffer adverse consequences to its business, operations and financial condition.
The federal banking regulators have issued joint guidance on executive compensation designed to help ensure that a banking organization's incentive compensation policies do not encourage imprudent risk taking and are consistent with the safety and soundness of the organization. In addition, the Dodd-Frank Act requires those agencies, along with the SEC, to adopt rules affecting the structure and reporting of incentive compensation. The federal banking regulators and SEC proposed such rules in 2011 and issued revised proposed rules in 2016. The Company cannot predict if or when these rules will be adopted.
As a wholly owned subsidiary of BBVA, the Company is also required to comply with the European Union’s CRD-IV, which, among other things, impacts the variable compensation of certain risk-takers and highly compensated individuals in the Company or its subsidiaries. In accordance with CRD-IV, the Bank pays variable compensation of certain employees half in stock and half in cash. Additionally, in accordance with CRD-IV, from 40% to 50% (depending on the classification of the employee), of such payment is deferred for three years. The deferred amounts are subject to performance indicators and a malus clause, which could result in the reduction or forfeiture of the deferred amounts. The equity awards are subject to an additional one-year holding period after delivery. Most of the Company’s competitors are not subject to CRD-IV.
If the Company is unable to attract and retain qualified employees, or do so at rates necessary to maintain its competitive position, or if compensation costs required to attract and retain employees become more expensive, the Company's performance, including its competitive position, could be materially adversely affected.
Unpredictable catastrophic events could have a material adverse effect on the Company.
The occurrence of catastrophic events such as hurricanes, tropical storms, tornadoes, terrorist attacks, disease pandemics and other large scale catastrophes could adversely affect the Company's consolidated financial condition or results of operations. The Company has operations and customers in the southern United States, which could be adversely impacted by hurricanes and other severe weather in those regions. Unpredictable natural and other disasters could have an adverse effect on the Company in that such events could materially disrupt its operations or the ability or willingness of its customers to access the financial services it offers. The incidence and severity of catastrophes are inherently unpredictable. Although the Company carries insurance to mitigate its exposure to certain catastrophic events, these events could nevertheless reduce its earnings and cause volatility in its financial results for any fiscal quarter or year and have a material adverse effect on its financial condition and/or results of operations.
REGULATORY AND COMPLIANCE RISKS:
Cybersecurity and data privacy are areas of heightened legislative and regulatory focus.
As cybersecurity and data privacy risks for banking organizations and the broader financial system have significantly increased in recent years, cybersecurity and data privacy issues have become the subject of increasing legislative and regulatory focus. The federal bank regulatory agencies have proposed enhanced cyber risk management standards, which would apply to a wide range of large financial institutions and their third-party service providers, including the Company and the Bank, and would focus on cyber risk governance and management, management of internal and external dependencies, and incident response, cyber resilience and situational awareness. Several states have also proposed or adopted cybersecurity and data privacy legislation and regulations, which require, among other things, notification to affected individuals when there has been a security breach of their personal data.
The Company receives, maintains and stores non-public personal information of its customers and counterparties, including, but not limited to, personally identifiable information and personal financial information. The sharing, use, disclosure and protection of this information are governed by federal and state law. Both personally identifiable information and personal financial information is increasingly subject to legislation and regulation, the intent of which is to protect the privacy of personal information that is collected and handled.
The Company may become subject to new legislation or regulation concerning cybersecurity or the privacy of personally identifiable information and personal financial information or of any other information it may store or
maintain. The Company could be adversely affected if new legislation or regulations are adopted or if existing legislation or regulations are modified such that it is required to alter its systems or require changes to its business practices or privacy policies. If cybersecurity, data privacy, data protection, data transfer or data retention laws are implemented, interpreted or applied in a manner inconsistent with the Company’s current practices, the Company may be subject to fines, litigation or regulatory enforcement actions or ordered to change its business practices, policies or systems in a manner that adversely impacts its operating results.
The Company is subject to certain risks relatedlegislation and regulation, and future legislation or regulation or changes to originatingexisting legislation or regulation could affect its business.
Government regulation and selling mortgages. Itlegislation subject the Company and other financial institutions to restrictions, oversight and/or costs that may have an impact on the Company’s business, financial condition or results of operations.
The Company is subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of its operations and limit the businesses in which the Company may engage. These laws and regulations may change from time to time and are primarily intended for the protection of consumers and depositors and are not designed to protect security-holders. The impact of any changes to laws and regulations or other actions by regulatory agencies may negatively impact the Company or its ability to increase the value of its business. In addition, actions by regulatory agencies or significant litigation against the Company could cause it to devote significant time and resources to defending itself and may lead to penalties that materially affect the Company and its shareholders. Future changes in the laws or regulations or their interpretations or enforcement may also be requiredmaterially adverse to repurchase mortgage loansthe Company and its shareholder or indemnify mortgage loan purchasersmay require the Company to expend significant time and resources to comply with such requirements.
The Company cannot predict whether any pending or future legislation will be adopted or the substance and impact of any such new legislation on the Company. Changes in regulation could affect the Company in a substantial way and could have an adverse effect on its business, financial condition and results of operations. In addition, legislation or regulatory reform could affect the behaviors of third parties that the Company deals with in the course of business, such as rating agencies, insurance companies and investors. The extent to which the Company can adjust its strategies to offset such adverse impacts also is not known at this time.
In addition, as a result of breachesthe Tailoring Rules, the Company and the Bank are now subject to less restrictive capital and liquidity requirements and enhanced prudential standards than in past years. However, the Company became a Category IV U.S. IHC under the Tailoring Rules as of representationsDecember 31, 2020, it will again be subject to certain additional capital and warranties, borrower fraudliquidity requirements and enhanced prudential standards applied to the Company in past years following applicable transition periods.
The Company and the Bank are also regulated and supervised by the CFPB. The CFPB has promulgated many mortgage-related rules since it was established under the Dodd-Frank Act, including rules related to the ability to repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-cost mortgage requirements, Home Mortgage Disclosure Act requirements and appraisal and escrow standards for higher-priced mortgages. The mortgage-related rules issued by the CFPB have materially restructured the origination, servicing and securitization of residential mortgages in the United States. These rules have impacted, and will continue to impact, the business practices of mortgage lenders, including the Company and the Bank.
In addition, with the change of administration, it is possible that the focus of legislative, regulatory and supervisory efforts, as well as the intensity of such efforts, may change. The new administration's agenda could include a heightened focus on the regulation of loan portfolios and credit concentrations to borrowers impacted by climate change, heightened scrutiny on Bank Secrecy Act and anti-money laundering requirements, topics related to social equity, executive compensation, and increased capital and liquidity, limits on share buybacks and dividends. The Company also expect reform proposals for the short-term wholesale markets. It is too early for us to assess which, if any, of these policies would be implemented and what their impact on the Company's business, financial condition or certain breachesresults of operations would be.
Please refer to Item 1. Business - Supervision, Regulation and Other Factors for more information.
Compliance with anti-money laundering and anti-terrorism financing rules involves significant cost and effort.
The Company is subject to rules and regulations regarding money laundering and the financing of terrorism. Monitoring compliance with anti-money laundering and anti-terrorism financing rules and regulations can put a significant financial burden on banks and other financial institutions and poses significant technical problems. Although the Company has internal policies and procedures designed to ensure compliance with applicable anti-money laundering and anti-terrorism financing rules and regulations, it cannot guarantee that its servicing agreements,policies and thisprocedures completely prevent violations of such rules and regulations. Any such violations may have severe consequences, including sanctions, fines and reputational consequences, which could have a material adverse effect on the Company's business, financial condition or results of operations.
The costs and effects of litigation, regulatory investigations, examinations or similar matters, or adverse facts and developments relating thereto, could materially affect the Company's business, operating results and financial condition.
The Company faces legal risks in its business, and the volume of claims and amount of damages and penalties claimed in litigation and regulatory proceedings against financial institutions remain high and are escalating. Substantial legal liability or significant regulatory action against the Company may have material adverse financial effects or cause significant reputational harm, which in turn could seriously harm its business prospects.
The Company and its operations are subject to increased regulatory oversight and scrutiny, which may lead to additional regulatory investigations or enforcement actions, thereby increasing the Company’s costs associated with responding to or defending such actions. In particular, inquiries could develop into administrative, civil or criminal proceedings or enforcement actions and may increase the Company's compliance costs, require changes in the Company's business practices, affect the Company's competitiveness, impair the Company's profitability, harm the Company's liquidity,reputation or otherwise adversely affect the Company's business.
The Company's insurance may not cover all claims that may be asserted against it and indemnification rights to which it is entitled may not be honored. Any claims asserted against the Company, regardless of merit or eventual outcome, may harm its reputation. Should the ultimate judgments or settlements in any litigation or investigation significantly exceed the Company's insurance coverage, they could have a material adverse effect on its business, financial condition and results of operations. In addition, premiums for insurance covering the financial and banking sectors are rising. The Company may not be able to obtain appropriate types or levels of insurance in the future, nor may it be able to obtain adequate replacement policies with acceptable terms or at historic rates, if at all.
The Company is exposed to risks in relation to compliance with anti-corruption laws and regulations and economic sanctions programs.
The Company is required to comply with various anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, and economic sanctions programs, including those administered by the United Nations Security Council and the United States, including OFAC. The anti-corruption laws generally prohibit providing anything of value to government officials for the purposes of obtaining or retaining business or securing any improper business advantage. As part of its business, the Company may deal with entities, the employees of which are considered government officials. In addition, as noted above in Part I, Item 1 (“Anti-Money Laundering; USA PATRIOT Act; Office of Foreign Assets Control”), economic sanctions programs restrict the Company from conducting certain transactions or dealings involving certain sanctioned countries or persons.
Although the Company has internal policies and procedures designed to ensure compliance with applicable anti-corruption laws and sanctions regulations, there can be no assurance that such policies and procedures will be sufficient or that the Company’s employees, directors, officers, partners, agents and service providers will not take actions in violation of the Company’s policies and procedures (or otherwise in violation of the relevant anti-corruption laws and sanctions regulations) for which they or the Company may ultimately be held responsible. Violations of anti-corruption laws and sanctions regulations could lead to financial penalties being imposed on the Company, limits being placed on the Company’s activities, authorizations or licenses being revoked, damage to the Company’s reputation and other consequences that could have a material adverse effect on the Company’s business, results of operations and financial condition. Further, litigation or investigations relating to alleged or suspected violations of anti-corruption laws or sanctions regulations could be costly.
The Company originatesis subject to capital adequacy and often sells mortgage loans. Whenliquidity standards, and if it sells mortgage loans, whetherfails to meet these standards its financial condition and operations would be adversely affected.
The U.S. Basel III final rule and provisions in the Dodd-Frank Act increased capital requirements for banking organizations such as whole loans or pursuant to a securitization, the Company isand the Bank. Consistent with the Basel Committee's Basel III capital framework, the U.S. Basel III final rule includes a minimum ratio of CET1 capital to risk weighted assets of 4.5 percent and a CET1 capital conservation buffer of greater than 2.5 percent of risk-weighted assets that applies to all U.S. banking organizations, including the Bank and the Company. Failure to maintain the capital conservation buffer would result in increasingly stringent restrictions on a banking organization's ability to make dividend payments and other capital distributions and pay discretionary bonuses to executive officers.
The Company has also been required to make customary representations and warrantiessubmit a periodic capital plan to the purchaser aboutFederal Reserve Board under the mortgage loansCCAR process, subject to Dodd-Frank Act stress testing requirements and additional liquidity requirements. As a result of the Tailoring Rules, however, the Company and the manner in which they were originated. The Company's whole loan sale agreements requireBank are no longer subject to CCAR, Dodd-Frank Act stress testing and the LCR. If, however, the Company becomes a Category IV U.S. IHC under the Tailoring Rules, it will again be subject to repurchase or substitute mortgage loans in the event that it breaches certain modified forms of these representations or warranties. requirements that applied to the Company in past years.
In addition, BBVA designated the Parent as its IHC to comply with the Federal Reserve Board's final rule to enhance its supervision and regulation of the U.S. operations of Large FBOs. The Company is subject to U.S. risk-based and leverage capital, liquidity, risk management, and other enhanced prudential standards on a consolidated basis under this rule, as amended by the Tailoring Rules. BBVA's combined U.S. operations (including its U.S. branches, agencies and subsidiaries) are also subject to certain enhanced prudential standards. These enhanced prudential standards could affect the Company’s operations.
Please refer to Item 1. Business - Supervision, Regulation and Other Factors for more information.
STRATEGIC AND REPUTATIONAL RISKS:
The financial services market is undergoing rapid technological changes, and the Company may be requiredunable to repurchase mortgage loanseffectively compete or may experience heightened cyber-security and/or fraud risks as a result of borrower fraud orthese changes.
The financial services market, including banking services, is undergoing rapid changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and may enable the Company to reduce costs. The Company's future success may depend, in the event of early payment defaultpart, on its ability to use technology to provide products and services that provide convenience to customers and to create additional efficiencies in its operations. Some of the borrower on a mortgage loan. Likewise, theCompany's competitors have substantially greater resources to invest in technological improvements. The Company is required to repurchase or substitute mortgage loans if it breaches a representation or warranty in connection with its securitizations, whether or not it was the originator of the loan. While in many cases it may have a remedy available against certain parties, often these may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers. As a result, the Company's ability to effectively compete to retain or acquire new business may be impaired, and its business, financial condition or results of operations may be adversely affected.
The Company is under continuous threat of loss due to cyber-attacks, especially as broadit continues to expand customer capabilities to utilize internet and other remote channels to transact business. Two of the most significant cyber-attack risks that it faces are e-fraud and breach of sensitive customer data. Loss from e-fraud occurs when cybercriminals breach and extract funds directly from customers' or the Company's accounts. A breach of sensitive customer data, such as account numbers and social security numbers could present significant reputational, legal and/or regulatory costs to the remedies availableCompany.
Over the past few years, there have been a series of distributed denial of service attacks on financial services companies. Distributed denial of service attacks are designed to saturate the targeted online network with excessive amounts of network traffic, resulting in slow response times, or in some cases, causing the site to be temporarily unavailable. Generally, these attacks have not been conducted to steal financial data, but meant to interrupt or suspend a purchaser of mortgage loans against it, and the Company faces the further risk that such partiescompany's internet service. While these events may not result in a breach of client data and account information, the attacks can adversely affect the performance of a company’s website and in some instances have the financial capacity to satisfy remedies that may be available to it. Therefore, ifprevented customers from accessing a purchaser enforces its remedies against it,company’s website. Distributed denial of service attacks, hacking and identity theft risks could cause serious reputational harm. Cyber threats are rapidly evolving and the Company may not be able to recoveranticipate or prevent all such attacks. The Company's risk and exposure to these matters remains heightened
because of the evolving nature and complexity of these threats from cybercriminals and hackers, its losses from third parties.plans to continue to provide internet banking and mobile banking channels, and its plans to develop additional remote connectivity solutions to serve its customers. The Company has received repurchase and indemnity demands from purchasers. These have resultedmay incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss.
Additionally, fraud risk may increase in the amount of losses for repurchases. Whileas the Company has taken steps to enhance its underwriting policies and procedures, these steps will not reduce risk associated with loans sold in the past. If repurchase and indemnity demands increase materially, the Company's results of operations may be adversely affected.offers more products online or through mobile channels.
The Company is subject to intense competition in the financial services industry, particularly in its market area, which could result in losing business or margin declines.
The Company operates in a highly competitive industry that could become even more competitive as a result of reform of the financial services industry resulting from the Dodd-Frank Act and other legislative, regulatory and technological changes, as well as continued consolidation. The Company faces aggressive competition from other domestic and foreign lending institutions and from numerous other providers of financial services. The ability of non-banking financial institutions to provide services previously limited to commercial banks has intensified competition. Because non-banking financial institutions are not subject to the same regulatory restrictions as banks and bank holding companies, they can often operate with greater flexibility and lower cost structures. Securities firms and insurance companies that elect to become financial holding companies can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking, and may acquire banks and other financial institutions. This may significantly change the competitive environment in which the Company conducts business. Some of the Company's competitors have greater financial resources and/or face fewer regulatory constraints. As a result of these various sources of competition, the Company could lose business to competitors or be forced to price products and services on less advantageous terms to retain or attract clients, either of which would adversely affect its profitability.
Some of the Company's larger competitors, including certain national banks that have a significant presence in its market area, may have greater capital and resources than the Company, may have higher lending limits and may offer products and services not offered by the Company. Although the Company remains strong, stable and well capitalized, management cannot predict the reaction of customers and other third parties with which it conducts business with respect to the strength of the Company relative to its competitors, including its larger competitors. Any potential adverse reactions to the Company's financial condition or status in the marketplace, as compared to its competitors, could limit its ability to attract and retain customers and to compete for new business opportunities. The inability to attract and retain customers or to effectively compete for new business may have a material and adverse effect on the Company's financial condition and results of operations.
The Company also experiences competition from a variety of institutions outside of its market area. Some of these institutions conduct business primarily over the internet and may thus be able to realize certain cost savings and offer products and services at more favorable rates and with greater convenience to the customer who can obtain loans, pay bills and transfer funds directly without going through a bank. This “disintermediation” could result in the loss of fee income, as well as the loss of customer deposits and income generated from those deposits. In addition, changes in consumer spending and saving habits could adversely affect the Company's operations, and the Company may be unable to timely develop competitive new products and services in response to these changes.
Unpredictable catastrophic events could have a material adverse effect on the Company.
The occurrence of catastrophic events such as hurricanes, tropical storms, tornados, terrorist attacks and other large scale catastrophes could adversely affect the Company's consolidated financial condition or results of operations. The Company has operations and customers in the southern United States, which could be adversely impacted by hurricanes and other severe weather in those regions. Unpredictable natural and other disasters could have an adverse effect on the Company in that such events could materially disrupt its operations or the ability or willingness of its customers to access the financial services it offers. The incidence and severity of catastrophes are inherently unpredictable. Although the Company carries insurance to mitigate its exposure to certain catastrophic events, these events could nevertheless
reduce its earnings and cause volatility in its financial results for any fiscal quarter or year and have a material adverse effect on its financial condition and/or results of operations.
Customers could pursue alternatives to bank deposits, causing the Company to lose a relatively inexpensive source of funding.
Checking and savings account balances and other forms of client deposits could decrease if customers perceive alternative investments, such as the stock market, provide superior expected returns. When clients move money out of bank deposits in favor of alternative investments, the Company can lose a relatively inexpensive source of funds, thus increasing its funding costs.
Negative public opinion could damage the Company's reputation and adversely impact business and revenues.
As a financial institution, the Company's earnings and capital are subject to risks associated with negative public opinion. The reputation of the financial services industry in general has been damaged as a result of the financial crisis and other matters affecting the financial services industry, including mortgage foreclosure issues. Negative public opinion regarding the Company could result from its actual or alleged conduct in any number of activities, including lending practices, the failure of any product or service sold by it to meet its clients' expectations or
applicable regulatory requirements, breach of sensitive customer information, a cybersecurity incident, corporate governance and acquisitions, or from actions taken by government regulators and community organizations in response to those activities. The Company could also be adversely affected by negative public opinion involving BBVA. Negative public opinion can adversely affect the Company's ability to keep, attract and/or retain clients and personnel, and can expose it to litigation and regulatory action. Actual or alleged conduct by one of the Company's businesses can result in negative public opinion about its other businesses. Negative public opinion could also affect the Company's credit ratings, which are important to accessing unsecured wholesale borrowings. Significant changes in these ratings could change the cost and availability of these sources of funding.
The Company depends onCompany’s ability to attract and retain customers, clients, investors, and highly-skilled management and employees is affected by its reputation. Public perception of the accuracyfinancial services industry in general was damaged as a result of the credit crisis that started in 2008. Significant harm to its reputation can also arise from other sources, including employee misconduct, actual or perceived unethical behavior, conflicts of interest, litigation, GSE or regulatory actions, failing to deliver minimum or required standards of service and completenessquality, failing to address customer and agency complaints, compliance failures, unauthorized release of confidential information aboutdue to cyber-attacks or otherwise, and the activities of the Company’s clients, and counterparties.
In deciding whether to extend credit or enter into other transactions with clients and counterparties, the Company may rely on information furnished by or on behalf of clientscustomers and counterparties, including vendors. Actions by the financial statementsservice industry generally or by institutions or individuals in the industry can adversely affect the Company’s reputation, indirectly by association. All of these could adversely affect its growth, results of operation and other financial information.condition.
The Company's rebranding strategy may not produce the benefits expected, may involve substantial costs and may not be favorably received by Customers.
Since 2008, the Company has marketed the Company's products and services using the “BBVA Compass” brand name and logo. Effective June 10, 2019, the Parent amended its Certificate of Formation to change its legal name from BBVA Compass Bancshares, Inc. to BBVA USA Bancshares, Inc. During 2019, the Bank began the process of transitioning away from the use of the “BBVA Compass” name and rebranding as “BBVA.”
Developing and maintaining awareness and integrity of the Company and the Company's brand are important to achieving widespread acceptance of our existing and future offerings and are important elements in attracting new customers. The importance of brand recognition will increase as competition in the Company's market further intensifies. Successful promotion of the Company's brand will depend on the effectiveness of the Company's marketing efforts and on the Company's ability to provide reliable and useful banking solutions. The Company also may rely on representations of clients and counterparties asplans to continue investing substantial resources to promote the Company's brand, but there is no guarantee that the Company will be able to achieve or maintain brand name recognition or status under the new brand, “BBVA,” that is comparable to the accuracyrecognition and completenessstatus previously enjoyed by the “BBVA Compass” brand. Even if the Company's brand recognition and loyalty increases, this may not result in increased use of that informationthe Company's products and with respectservices or higher revenue.
For these reasons, the Company's rebranding initiative may not produce the benefits expected, could adversely affect the Company's ability to retain and attract customers, and may have a negative impact on the Company's operations, business, financial statements, on reports of independent auditors.results and financial condition.
Compliance with anti-money laundering and anti-terrorism financing rules involves significant cost and effort.RISKS RELATING TO THE COMPANY'S SECURITIES:
The Company is subject to rulesa subsidiary of BBVA Group, and regulations regarding money launderingactivities across BBVA Group could adversely affect the Company’s business and the financing of terrorism. Monitoring compliance with anti-money laundering and anti-terrorism financing rules and regulations can put a significant financial burden on banks and other financial institutions and poses significant technical problems. Although the Company has internal policies and procedures designed to ensure compliance with applicable anti-money laundering and anti-terrorism financing rules and regulations, it cannot guarantee that its policies and procedures completely prevent violations of such rules and regulations. Any such violations may have severe consequences, including sanctions, fines and reputational consequences, which could have a material adverse effect on the Company's business, financial condition or results of operations.
The Company is exposeda part of a highly diversified international financial group which offers a wide variety of financial and related products and services including retail banking, asset management, private banking and wholesale banking. The BBVA Group strives to risksfoster a culture in relationwhich its employees act with integrity and feel comfortable reporting instances of misconduct. The BBVA Group employees are essential to compliance with anti-corruption lawsthis culture, and regulationsacts of misconduct by any employee, and economic sanctions programs.
The Company is required to comply with various anti-corruption laws, includingparticularly by senior management, could erode trust and confidence and damage the U.S. Foreign Corrupt Practices Act of 1977,BBVA Group and economic sanctions programs, including those administeredthe Company’s reputation among existing and potential clients and other stakeholders. Negative public opinion could result from actual or alleged conduct by the United Nations Security CouncilBBVA Group entities in any number of activities or circumstances, including operations, employment-related offenses such as sexual harassment and
discrimination, regulatory compliance, the use and protection of data and systems, and the United States,satisfaction of client expectations, and from actions taken by regulators or others in response to such conduct.
Spanish judicial authorities are investigating the activities of Centro Exclusivo de Negocios y Transacciones, S.L. (Cenyt). Such investigation includes the provision of services by Cenyt to BBVA. On 29th July, 2019, BBVA was named as an official suspect (investigado) in a criminal judicial investigation (Preliminary Proceeding No. 96/2017 – Piece No. 9, Central Investigating Court No. 6 of the National High Court) for alleged facts which could be constitutive of bribery, revelation of secrets and corruption. On February 3, 2020, BBVA was notified by the Central Investigating Court No. 6 of the National High Court of the order lifting the secrecy of the proceedings. Certain current and former officers and employees of the BBVA Group, as well as former directors have also been named as investigated parties in connection with this investigation. BBVA has been and continues to be proactively collaborating with the Spanish judicial authorities, including OFAC. The anti-corruption laws generally prohibit providing anythingsharing with the courts the relevant information obtained in the internal investigation hired by the entity in 2019 to contribute to the clarification of valuethe facts. As of the date of this Annual Report on Form 10-K, no formal accusation against BBVA has been made. This criminal judicial proceeding is in the pre-trial phase. Therefore, it is not possible at this time to government officialspredict the scope or duration of such proceeding or any related proceeding or its or their possible outcomes or implications for the purposes of obtainingBBVA Group, including any fines, damages or retaining businessharm to the BBVA´s Group reputation caused thereby.
This matter or securing any improper business advantage. As part of its business,similar matters arising across the Company may deal with entities, the employees of which are considered government officials. In addition, as noted above in Part I, Item 1 (“Anti-Money Laundering; USA PATRIOT Act; Office of Foreign Assets Control”) above, economic sanctions programs restrict the Company from conducting certain transactions or dealings involving certain sanctioned countries or persons.
Although the Company has internal policies and procedures designed to ensure compliance with applicable anti-corruption laws and sanctions regulations, there can be no assurance that such policies and procedures will be sufficient or that the Company’s employees, directors, officers, partners, agents and service providers will not take actions in violation of the Company’s policies and procedures (or otherwise in violation of the relevant anti-corruption laws and sanctions regulations) for which they or the Company may ultimately be held responsible. Violations of anti-corruption laws and sanctions regulationsBBVA Group could lead to financial penalties being imposed on the Company, limits being placed on the Company’s activities, authorizations or licenses being revoked, damage to the Company’s reputation and adversely affect the confidence of the Company’s clients, rating agencies, regulators, bondholders and other consequences thatparties and could have an adverse effect on the Company’s business, financial condition and operating results.
The Parent is a holding company and depends on its subsidiaries for liquidity in the form of dividends, distributions and other payments.
The Parent is a legal entity separate and distinct from its subsidiaries, including the Bank. The principal source of cash flow for the Parent is dividends from the Bank. There are statutory and regulatory limitations on the payment of dividends by the Bank. Regulations of both the Federal Reserve Board and the State of Alabama affect the ability of the Bank to pay dividends and other distributions to the Company and to make loans to the Company. Also, the Company’s right to participate in a distribution of assets upon a subsidiary's liquidation or reorganization is subject to the prior claims of the subsidiary's creditors. Limitations on the Parent’s ability to receive dividends and distributions from its subsidiaries could have a material adverse effect on the Company’s business, resultsliquidity and on its ability to pay dividends on common stock. For additional information regarding these limitations see Item 1. Business - Supervision, Regulation and Other Factors - Dividends.
RISKS RELATING TO THE MERGER:
The Company's ability to complete the Merger with PNC is subject to the receipt of operationsconsents and financial condition. Further, litigationapprovals from regulatory agencies which may impose conditions that could adversely affect the Company or investigations relatingcause the Merger to allegedbe abandoned.
On November 15, 2020, PNC entered into a Stock Purchase Agreement with BBVA for the purchase by PNC of 100% of the issued and outstanding shares of the Company. PNC is not acquiring BSI, Propel Venture Partners Fund I, L.P. and BBVA Processing Services, Inc. Immediately following the closing of the Stock Purchase, PNC intends to merge the Parent with and into PNC, with PNC continuing as the surviving entity. Post-closing, PNC intends to merge BBVA USA with and into PNC Bank, National Association, an indirect wholly owned subsidiary of PNC, with PNC Bank continuing as the surviving entity (the foregoing transactions, collectively, the “Merger”).
Before the Merger may be completed, various governmental approvals or suspected violations of anti-corruption laws or sanctions regulations couldconsents must be costly.
Changes in accounting standards could impact reported earnings.
The entities that set accounting standardsobtained, including from the Federal Reserve Board and other bank regulatory bodies periodicallyagencies. These regulators may impose conditions on the completion of the Merger. Although the Company does not currently expect that any significant conditions would be imposed, there can be no assurance that there will not be, and such conditions could have the effect of delaying completion of the Merger or imposing additional costs on the completion of the Merger. There can be no assurance as to whether the regulatory approvals will be received, the timing of those approvals, or whether any conditions will be imposed.
The Company will be subject to business uncertainties and contractual restrictions while the Merger is pending.
Uncertainty about the effect of the Merger on associates and customers may have an adverse effect on the Company. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers and others that deal with the Company to seek to change existing business relationships with the Company. In addition, subject to certain exceptions, the Company has agreed to operate its business in the ordinary course prior to the closing, and the Company is restricted from making certain acquisitions and taking other specified actions without the consent of PNC until the Merger is completed. These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the Merger.
Failure to complete the Merger could negatively impact the Company.
If the Merger is not completed for any reason, there may be various adverse consequences and the Company may experience negative reactions from the financial accountingmarkets and reporting standards that governfrom its customers and associates. For example, the preparationCompany’s business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the Company’s consolidated financial statements. These changes can materially impact how management records and reportsanticipated benefits of completing the Company’s financial condition and results of operations. In some cases,Merger.
Additionally, the Company could behas incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions required to apply a new or revised accounting standard retroactively, resulting in a possible restatementeffect the Merger. If the Merger is not completed, the Company would have to pay these expenses without realizing the expected benefits of prior period financial statements.the Merger.
Item 1B. Unresolved Staff Comments
| |
Item 1B. | Unresolved Staff Comments
|
Not Applicable.
The Company occupies various facilities principally located in Alabama, Arizona, California, Colorado, Florida, New Mexico and Texas and in states where it operates loan production offices that are used in the normal course of the financial services business. The properties consist of both owned and leased properties and include land for future banking center sites. The leased properties include both land and buildings that are generally under long-term leases. The Company leases office space used as the Company's principal executive offices in Houston, Texas. The Bank has significant operations in Birmingham, Alabama. The Company owns the land and building where the Bank is headquartered. See Note 6,5, Premises and Equipment, in the Notes to the Consolidated Financial Statements, for additional disclosures related to the Company’s properties.
| |
Item 3. | Item 3. Legal Proceedings Legal Proceedings
|
See under “Legal and Regulatory Proceedings” in Note 16, 15, Commitments, Contingencies and Guarantees,, in the Notes to the Consolidated Financial Statements.Statements.
| |
Item 4. | Mine Safety Disclosures |
Item 4. Mine Safety Disclosures
Not Applicable.
Part II
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Item 5. | Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information
The Parent's common stock is not traded on any exchange or other interdealer electronic trading facility and there is no established public trading market for the Parent's common stock.
Holders
As of the date of this filing, BBVA was the sole holder of the Parent's common stock.
Dividends
The payment of dividends on the Parent's common stock is subject to determination and declaration by the Board of Directors of the Parent and regulatory limitations on the payment of dividends. There is no assurance that dividends will be declared or, if declared, what the amount of dividends will be, or whether such dividends will continue. The following table sets forth the common dividends the Parent paid to its sole shareholder, BBVA, for each of the last eight quarters.
| | | | | | | | | | | |
| 2020 | | 2019 |
| (In Thousands) |
| Quarter Ended: | | | |
| March 31 | $ | — | | | $ | — | |
| June 30 | — | | | 170,000 | |
| September 30 | — | | | — | |
| December 31 | — | | | 312,000 | |
| Year | $ | — | | | $ | 482,000 | |
|
| | | | | | | |
| | 2017 | | 2016 |
| | (In Thousands) |
| Quarter Ended: | | | |
| March 31 | $ | — |
| | $ | — |
|
| June 30 | 60,000 |
| | 60,000 |
|
| September 30 | — |
| | — |
|
| December 31 | 90,000 |
| | 32,864 |
|
| Year | $ | 150,000 |
| | $ | 92,864 |
|
Any future dividends paid from the Parent must be set forth as capital actions in the Company's capital plans and not objected to by the Federal Reserve Board before any dividends can be paid. A discussion of dividend restrictions is provided in Item 1. Business - Overview - Supervision, Regulation, and Other Factors - Dividends and in Note 17,16, Regulatory Capital Requirements and Dividends from Subsidiaries, in the Notes to the Consolidated Financial Statements.
Recent Sales of Unregistered Securities
On December 3, 2015, BBVA contributed $230 million to the Parent, and the Parent issued 1,150 sharesNot Applicable.
Item 6. Selected Financial Data
| |
Item 6. | Selected Financial Data
|
The following table sets forth summarized historical consolidated financial information for each of the periods indicated. This information should be read together with Management's Discussion and Analysis of Financial Condition and Results of Operations below and with the accompanying Consolidated Financial Statements included in this Annual Report on Form 10-K. The historical information indicated as of and for the years ended December 31, 20172020 through 2013,2016, has been derived from the Company's audited Consolidated Financial Statements for the years ended December 31, 20172020 through 2013.2016. Historical results set forth below and elsewhere in this Annual Report on Form 10-K are not necessarily indicative of future performance.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| (Dollars in Thousands) |
| Summary of Operations: | | | | | | | | | |
| Interest income | $ | 2,981,028 | | | $ | 3,558,656 | | | $ | 3,265,274 | | | $ | 2,766,648 | | | $ | 2,530,459 | |
| Interest expense | 470,504 | | | 951,623 | | | 658,696 | | | 436,481 | | | 462,778 | |
| Net interest income | 2,510,524 | | | 2,607,033 | | | 2,606,578 | | | 2,330,167 | | | 2,067,681 | |
| Provision for credit losses | 966,129 | | | 597,444 | | | 365,420 | | | 287,693 | | | 302,589 | |
| Net interest income after provision for credit losses | 1,544,395 | | | 2,009,589 | | | 2,241,158 | | | 2,042,474 | | | 1,765,092 | |
| Noninterest income | 1,192,672 | | | 1,135,944 | | | 1,056,909 | | | 1,045,975 | | | 1,055,974 | |
| Noninterest expense, including goodwill impairment (1) | 4,561,718 | | | 2,866,080 | | | 2,349,960 | | | 2,311,587 | | | 2,303,522 | |
| Net (loss) income before income tax expense | (1,824,651) | | | 279,453 | | | 948,107 | | | 776,862 | | | 517,544 | |
| Income tax expense | 37,013 | | | 126,046 | | | 184,678 | | | 316,076 | | | 146,021 | |
| Net (loss) income | (1,861,664) | | | 153,407 | | | 763,429 | | | 460,786 | | | 371,523 | |
| Noncontrolling interest | 2,047 | | | 2,332 | | | 1,981 | | | 2,005 | | | 2,010 | |
| Net (loss) income attributable to BBVA USA Bancshares, Inc. | $ | (1,863,711) | | | $ | 151,075 | | | $ | 761,448 | | | $ | 458,781 | | | $ | 369,513 | |
| | | | | | | | | |
| Summary of Balance Sheet: | | | | | | | | | |
| As of the Period-End: | | | | | | | | | |
| Debt securities | $ | 16,297,042 | | | $ | 14,032,351 | | | $ | 13,866,829 | | | $ | 13,265,725 | | | $ | 12,448,455 | |
| Loans and loans held for sale | 65,796,353 | | | 64,058,915 | | | 65,255,320 | | | 61,690,878 | | | 60,223,112 | |
| Allowance for loan losses | (1,679,474) | | | (920,993) | | | (885,242) | | | (842,760) | | | (838,293) | |
| Total assets | 102,756,203 | | | 93,603,347 | | | 90,947,174 | | | 87,320,579 | | | 87,079,953 | |
| Deposits | 85,858,381 | | | 74,985,283 | | | 72,167,987 | | | 69,256,313 | | | 67,279,533 | |
| FHLB and other borrowings | 3,548,492 | | | 3,690,044 | | | 3,987,590 | | | 3,959,930 | | | 3,001,551 | |
| Shareholder's equity | 11,691,362 | | | 13,386,589 | | | 13,512,529 | | | 13,013,310 | | | 12,750,707 | |
| Average Balances: | | | | | | | | | |
| Loans and loans held for sale | $ | 67,045,078 | | | $ | 64,275,473 | | | $ | 63,761,869 | | | $ | 60,419,711 | | | $ | 61,505,935 | |
| Total assets | 102,008,134 | | | 94,293,422 | | | 89,576,037 | | | 87,358,298 | | | 91,064,360 | |
| Deposits | 82,426,860 | | | 73,007,106 | | | 70,149,887 | | | 66,627,368 | | | 67,904,564 | |
| FHLB and other borrowings | 3,605,422 | | | 3,968,094 | | | 4,095,054 | | | 3,973,465 | | | 4,226,225 | |
| Shareholder's equity | 12,003,167 | | | 13,894,163 | | | 13,266,930 | | | 13,035,797 | | | 12,818,572 | |
| Selected Ratios: | | | | | | | | | |
| Return on average total assets | (1.83) | % | | 0.16 | % | | 0.85 | % | | 0.53 | % | | 0.41 | % |
| Return on average total equity | (15.51) | | | 1.10 | | | 5.75 | | | 3.53 | | | 2.90 | |
| Average equity to average assets | 11.77 | | | 14.74 | | | 14.81 | | | 14.92 | | | 14.08 | |
(1)Noninterest expense for the years ended December 31, 2020, 2019, and 2016 includes goodwill impairment of $2.2 billion, $470.0 million, and $59.9 million, respectively.
|
| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (Dollars in Thousands) |
| Summary of Operations: | | | | | | | | | |
| Interest income | $ | 2,766,648 |
| | $ | 2,530,459 |
| | $ | 2,438,275 |
| | $ | 2,313,996 |
| | $ | 2,323,279 |
|
| Interest expense | 436,481 |
| | 462,778 |
| | 425,298 |
| | 328,491 |
| | 280,575 |
|
| Net interest income | 2,330,167 |
| | 2,067,681 |
| | 2,012,977 |
| | 1,985,505 |
| | 2,042,704 |
|
| Provision for loan losses | 287,693 |
| | 302,589 |
| | 193,638 |
| | 106,301 |
| | 107,546 |
|
| Net interest income after provision for loan losses | 2,042,474 |
| | 1,765,092 |
| | 1,819,339 |
| | 1,879,204 |
| | 1,935,158 |
|
| Noninterest income | 1,045,975 |
| | 1,055,974 |
| | 1,079,374 |
| | 1,007,812 |
| | 940,129 |
|
| Noninterest expense, including goodwill impairment (1) | 2,311,587 |
| | 2,303,522 |
| | 2,214,853 |
| | 2,246,877 |
| | 2,260,906 |
|
| Net income before income tax expense | 776,862 |
| | 517,544 |
| | 683,860 |
| | 640,139 |
| | 614,381 |
|
| Income tax expense | 316,076 |
| | 146,021 |
| | 176,502 |
| | 155,763 |
| | 179,242 |
|
| Net income | 460,786 |
| | 371,523 |
| | 507,358 |
| | 484,376 |
| | 435,139 |
|
| Noncontrolling interest | 2,005 |
| | 2,010 |
| | 2,228 |
| | 1,976 |
| | 2,094 |
|
| Net income attributable to BBVA Compass Bancshares, Inc. | $ | 458,781 |
| | $ | 369,513 |
| | $ | 505,130 |
| | $ | 482,400 |
| | $ | 433,045 |
|
| | | | | | | | | | |
| Summary of Balance Sheet: | | | | | | | | | |
| Period-End Balances: | | | | | | | | | |
| Investment securities | $ | 13,729,880 |
| | $ | 12,868,272 |
| | $ | 12,373,196 |
| | $ | 11,585,629 |
| | $ | 9,832,281 |
|
| Loans and loans held for sale | 61,690,878 |
| | 60,223,112 |
| | 61,394,666 |
| | 57,526,600 |
| | 50,814,125 |
|
| Allowance for loan losses | (842,760 | ) | | (838,293 | ) | | (762,673 | ) | | (685,041 | ) | | (700,719 | ) |
| Total assets | 87,320,579 |
| | 87,079,953 |
| | 90,068,538 |
| | 83,244,726 |
| | 72,090,642 |
|
| Deposits | 69,256,313 |
| | 67,279,533 |
| | 65,981,766 |
| | 61,189,810 |
| | 54,437,454 |
|
| FHLB and other borrowings | 3,959,930 |
| | 3,001,551 |
| | 5,438,620 |
| | 4,809,843 |
| | 4,298,707 |
|
| Shareholder's equity | 13,013,310 |
| | 12,750,707 |
| | 12,624,709 |
| | 12,054,922 |
| | 11,545,813 |
|
| Average Balances: | | | | | | | | | |
| Loans and loans held for sale | $ | 60,419,711 |
| | $ | 61,505,935 |
| | $ | 60,176,687 |
| | $ | 54,423,885 |
| | $ | 47,959,849 |
|
| Total assets | 87,358,298 |
| | 91,064,360 |
| | 88,389,179 |
| | 77,610,420 |
| | 70,320,268 |
|
| Deposits | 66,627,368 |
| | 67,904,564 |
| | 63,538,900 |
| | 58,407,270 |
| | 52,553,741 |
|
| FHLB and other borrowings | 3,973,465 |
| | 4,226,225 |
| | 5,701,974 |
| | 4,254,352 |
| | 4,269,521 |
|
| Shareholder's equity | 13,035,797 |
| | 12,818,572 |
| | 12,368,866 |
| | 11,889,993 |
| | 11,342,319 |
|
| Selected Ratios: | | | | | | | | | |
| Return on average total assets | 0.53 | % | | 0.41 | % | | 0.57 | % | | 0.62 | % | | 0.62 | % |
| Return on average total equity | 3.53 |
| | 2.90 |
| | 4.10 |
| | 4.07 |
| | 3.84 |
|
| Average equity to average assets | 14.92 |
| | 14.08 |
| | 13.99 |
| | 15.32 |
| | 16.13 |
|
| |
(1) | Noninterest expense for the years ended December 31, 2016, 2015 and 2014 includes goodwill impairment of $59.9 million, $17.0 million and $12.5 million, respectively. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
| |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The purpose of this discussion is to focus on significant changes in the financial condition and results of operations of the Company during the years ended December 31, 2017, 20162020, 2019 and 2015.2018. The Executive Overview summarizes information management believes is important for an understanding of the financial condition and results of operations of the Company. Topics presented in the Executive Overview are discussed in more detail within, and should be read in conjunction with, this Management’s Discussion and Analysis of Financial Condition and Results of Operations and the accompanying Consolidated Financial Statements included in this Annual Report on Form 10-K. The discussion of the critical accounting policies and analysis set forth below is intended to supplement and highlight information contained in the accompanying Consolidated Financial Statements and the selected financial data presented elsewhere in this Annual Report on Form 10-K.
Executive Overview
Financial Performance
Consolidated net (loss) income attributable to the Company for 20172020 was $458.8 million$(1.9) billion compared to $369.5$151.1 million earned during 2016.2019. The increase inCompany's 2020 results reflected lower net interest income, attributable to the Company reflected higher net income before income taxprovision for loan losses, higher noninterest expense, primarily as a resultwhich includes $2.2 billion of goodwill impairment, offset by higher net interestnoninterest income.
Net interest income increased $262.5 million to $2.3totaled $2.5 billion in 2017 compared to 2016 due2020 and $2.6 billion in part to an increase in interest and fees on loans as well as a decrease in interest on deposits.2019. The net interest margin for 20172020 was 3.10%2.73% compared to 2.64%3.17% for 2016.2019. Net interest incomemargin in 2020 was positivelyprimarily impacted by higher interestthe timing of the Federal Reserve Board's decrease of benchmark rates in October of 2019 and in March of 2020.
Provision for credit losses was $966.1 million for 2020 compared to $597.4 million for 2019. For 2020, provision for credit losses was comprised of $965.8 million of provision for loan losses and $331 thousand of provision for HTM security losses. The increase in provision for loan losses in 2020 reflected an increase in expected losses over the life of the portfolio. The primary drivers of this increase was the impact of the COVID-19 pandemic on economic conditions which impacted the Company's economic forecast. During 2020, economic conditions deteriorated due to the impact of the Federal Reserve Board benchmark interest rate increases.
TheCOVID-19 health crisis. As a result, economic projections for gross domestic product declined dramatically and unemployment levels increased significantly with information related to the evolving impact of the COVID-19 health crisis. Additionally, provision for loan losses was $287.7impacted by the higher reserves in the energy portfolio due to the decrease in oil prices.
The Company recorded net charge-offs of $392.2 million for 2017during 2020 compared to $302.6$561.7 million for 2016.during 2019. The decrease in provision for loan losses for 2017 was due to an $54.5 million decrease in part tocommercial, financial, and agricultural net charge-offs as well as a reduction$86.4 million decrease in provision expense stemming from improvementsconsumer direct net charge-offs and a $39.8 million decrease in the overall level of energy loans rated special mention or lower, including loans classified as nonaccrual, during 2017 offset by the impact of additional allowance for loan losses related to the impact of Hurricanes Harvey and Irma on the loan portfolio during 2017. Net charge-offs for 2017 totaled $283.2 million compared to $227.0 million for 2016.consumer indirect net charge-offs.
Noninterest income was $1.0$1.2 billion for 2017,2020 and $1.1 billion for 2019, a decreaseslight increase of $10.0 million compared to 2016.$56.7 million. The decreaseincrease in total noninterest income was largely attributable todriven by a decrease of $27.0$54.4 million increase in investment securities gains as well asbanking and advisory fees, a $7.1$7.4 million decreaseincrease in money transfer income, a $46.8 million increase mortgage banking income. These decreases were offset byincome, and a $13.4$10.8 million increase in corporate and correspondent investment sales partially offset by a $7.8$30.6 million increasedecrease in service charges on deposit accounts and a $6.2$21.3 million increase on retail investment sales.decrease in other noninterest income.
Noninterest expense increased $8.1 million$1.7 billion to $2.3$4.6 billion for 20172020 compared to 2016.2019. The higher level ofincrease in noninterest expense was primarily attributable to a $48.9$2.2 billion goodwill impairment. Also, contributing to the increase was a $13.9 million increase in other noninterest expense related to anprofessional services, a $6.5 million increase in legal reservesmoney transfer expense, and ana $7.3 million increase in provision for unfunded commitments. Additionally, professional services increased $21.3 million and salaries, benefits and commissions increased $12.3 million. These increases were offset byFDIC insurance. Partially offsetting the increase was a $59.9$15.0 million decrease in goodwill impairment charges related to the write-off of goodwill associated with the Simple reporting unitmarketing, and a $17.0 million decrease in 2016.other noninterest expense.
Income tax expense was $316.1$37.0 million for 20172020 compared to $146.0$126.0 million for 2016.2019. This resulted in an effective tax rate of 40.7%(2.0)% for 20172020 and a 28.2%45.1% effective tax rate for 2016.2019. The increase in the effective tax rate for 20172020 was primarily driven by the $121.2 million impact of the remeasurement of deferred tax assets and liabilities dueunfavorable permanent difference related to the impact of the Tax Cuts and Jobs Act signed into legislation on December 22, 2017.goodwill impairment.
The Company's total assets at December 31, 20172020 were $87.3$102.8 billion, an increase of $241 million$9.2 billion from December 31, 20162019 levels. Total loans excluding loans held for sale were $61.6$65.6 billion at December 31, 2017,2020, an
increase of $1.6 billion or 2.6%2.5% from December 31, 20162019 levels. The increase in total loans was primarily driven by growth in both$3.1 billion of SBA PPP loans that the Company has facilitated to assist its commercial and consumer portfolios. customers during the COVID-19 pandemic.
Deposits increased $2.0$10.9 billion or 2.9%14.5% compared to December 31, 2016,2019, driven by an increase in transaction accounts which increased 2.8% fueled by savings and money market growth. Noninterest bearing demand deposits increased 6.4%29.0%. Trading account assets and other short-term borrowings decreased $2.9 billion and $2.8 billion, respectively due to a decrease in U.S. Treasury long and short position securities held by BSI.
Total shareholder's equity at December 31, 20172020 was $13.0$11.7 billion, an increasea decrease of $263 million$1.7 billion compared to December 31, 2016.2019.
The COVID-19 pandemic has caused and continues to cause significant, unprecedented disruption around the world that has affected daily living and negatively impacted the global economy. The pandemic has resulted in temporary closures of many businesses and the institution of social distancing and shelter in place requirements in many states and communities, which has increased unemployment levels and caused extreme volatility in the financial markets. As further discussed in “Analysis of Results of Operations,” during the fiscal year, the Company observed the impact of the pandemic on its business. The reduction in interest rates and economic forecast uncertainty that negatively impacted the provision for credit losses had the most immediate, negative impacts on the Company’s performance. Though the Company is unable to estimate the extent of the impact, the continuing pandemic and related global economic crisis will adversely impact the Company’s future operating results.
COVID-19 Pandemic Government Responses and Regulatory Developments
Government Response to COVID-19
Congress, the Federal Reserve Board and the other U.S. state and federal financial regulatory agencies have taken actions to mitigate disruptions to economic activity and financial stability resulting from COVID-19. The descriptions below summarize certain significant government actions taken in response to the COVID-19 pandemic. The descriptions are qualified in their entirety by reference to the particular statutory or regulatory provisions or government programs summarized.
The CARES Act
The CARES Act was signed into law on March 27, 2020, and has subsequently been amended several times. Among other provisions, the CARES Act includes funding for the SBA to expand lending, relief from certain U.S. GAAP requirements to allow COVID-19-related loan modifications to not be categorized as troubled debt restructurings and a range of incentives to encourage deferment, forbearance or modification of consumer credit and mortgage contracts. One of the key CARES Act programs is the Paycheck Protection Program, which temporarily expands the Small Business Administration’s business loan guarantee program. Paycheck Protection Program loans are available to a broader range of entities than ordinary Small Business Administration loans, require deferral of principal and interest repayment, and may be forgiven in an amount equal to payroll costs and certain other expenses during either an eight-week or twenty-four-week covered period.
The CARES Act contains additional protections for homeowners and renters of properties with federally backed mortgages, including a 60-day moratorium on the initiation of foreclosure proceedings beginning on March 18, 2020 and a 120-day moratorium on initiating eviction proceedings effective March 27, 2020. Borrowers of federally backed mortgages have the right under the CARES Act to request up to 360 days of forbearance on their mortgage payments if they experience financial hardship directly or indirectly due to the coronavirus-related public health emergency. Fannie Mae and Freddie Mac have extended their moratorium on foreclosures and evictions for single family federally backed mortgages until at least February 28, 2021.
Also pursuant to the CARES Act, the U.S. Treasury has the authority to provide loans, guarantees and other investments in support of eligible businesses, states and municipalities affected by the economic effects of COVID-19 pandemic. Some of these funds have been used to support the several Federal Reserve Board programs and facilities described below or additional programs or facilities that are established by the Federal Reserve Board under its Section 13(3) authority and meeting certain criteria.
The CARES Act also includes several measures that temporarily adjust existing laws or regulations. These include providing the FDIC with additional authority to guarantee the deposits of solvent insured depository
institutions held in noninterest-bearing business transaction accounts to a maximum amount specified by the FDIC, reinstating the FDIC’s Temporary Liquidity Guarantee Authority to guarantee debt obligations of solvent insured depository institutions or depository institution holding companies and temporarily allowing the Treasury to fully guarantee money market mutual funds. The CARES Act provides financial institutions with the option to suspend GAAP requirements for COVID-19-related loan modifications that would otherwise constitute troubled debt restructurings and further requires the federal banking agencies to defer to financial institutions’ determinations in making such suspensions.
Federal Reserve Board Actions
The Federal Reserve Board has taken a range of actions to support the flow of credit to households and businesses. For example, on March 15, 2020, the Federal Reserve Board reduced the target range for the federal funds rate to 0 to 0.25% and announced that it would increase its holdings of U.S. Treasury securities and agency mortgage-backed securities and begin purchasing agency commercial mortgage-backed securities. The Federal Reserve Board has stated that it expects to hold interest rates near zero for several years. The Federal Reserve Board has also encouraged depository institutions to borrow from the discount window and has lowered the primary credit rate for such borrowing by 150 basis points while extending the term of such loans up to 90 days. Reserve requirements have been reduced to zero as of March 26, 2020.
In addition, the Federal Reserve Board established a range of facilities and programs to support the U.S. economy and U.S. marketplace participants in response to economic disruptions associated with COVID-19 pandemic. Through these facilities and programs, the Federal Reserve Board, relying on its authority under Section 13(3) of the Federal Reserve Act, has taken steps to directly or indirectly purchase assets from, or make loans to, U.S. companies, financial institutions, municipalities and other market participants.Some of these facilities stopped purchasing assets or making loans as of December 31, 2020.
Federal Reserve Board facilities and programs that expired as of December 31, 2020 included:
•three Main Street Loan Facilities to purchase loan participations, under specified conditions, from banks lending to small and medium U.S. businesses;
•a Primary Market Corporate Credit Facility to purchase corporate bonds directly from, or make loans directly, to eligible participants;
•a Secondary Market Corporate Credit Facility to purchase corporate bonds trading in secondary markets, including from exchange-traded funds, that were issued by eligible participants;
•a Term Asset-Backed Securities Loan Facility to make loans secured by asset-backed securities; and
•a Municipal Liquidity Facility to purchased bonds directly from U.S. state, city and county issuers.
The Federal Reserve Board facilities and programs that will expire on March 31, 2021 include:
•a Paycheck Protection Program Liquidity Facility to provide financing to related to Paycheck Protection Program loans made by banks;
•a Primary Dealer Credit Facility to provide liquidity to primary dealers through a secured lending facility;
•a Commercial Paper Funding Facility to purchase the commercial paper of certain U.S. issuers; and
•a Money Market Mutual Fund Liquidity Facility to purchase certain assets from, or make loans to, financial institutions providing financing to eligible money market mutual funds.
Capital
The Company's Tier 1 and CET1 ratios were 12.15%13.61% and 11.80%13.28%, respectively at December 31, 2017,2020, compared to 11.85%12.83% and 11.49%12.49%, respectively at December 31, 2016,2019, under the U.S. Basel III transitional provisions.
On June 28, 2017, the Company was informed that the Federal Reserve Board had no objection to the Company's capital plan and capital actions proposed in the capital plan. The Company submitted its capital plan, which was approved by its board of directors, to the Federal Reserve in April 2017 as part of the Comprehensive Capital Analysis and Review of the 34 largest U.S. bank holding companies. The capital plan includes proposed potential capital actions covering the period from July 1, 2017 through June 30, 2018. On June 22, 2017, the Federal Reserve Board disclosed the results of its 2017 Dodd-Frank Act Stress Test for the same 34 bank holding companies. Each of the Company's projected regulatory capital ratios exceeded the applicable regulatory minimums as defined by the Federal Reserve under the hypothetical supervisory severely adverse scenario. While the Company can give no assurances as to the outcome of the CCAR process in subsequent years or specific interactions with the regulators, it believes it has a strong capital position.final rule.
For more information, see “Capital” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 1. Business - Supervision, Regulation and Other Factors - Capital, and Note 17,16, Regulatory Capital Requirements and Dividends from Subsidiaries, in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Liquidity
The Company’s sources of liquidity include customers’ interest-bearing and noninterest-bearing deposit accounts, loan principal and interest payments, investment securities, and borrowings. As a holding company, the Parent’s primary source of liquidity is the Bank. Due to the net earnings restrictions on dividend distributions, the Bank was not permitted to pay any dividends at December 31, 20172020 and 20162019 without regulatory approval.
The Parent paid no common dividends totaling $150.0 million to its sole shareholder, BBVA, during 2017. Any future dividends paid from2020.
As noted in Item 1. Business - Supervision, Regulation and Other Factors, as a result of the Parent mustTailoring Rules, the Company was not subject to the LCR requirements as of December 31, 2020 but as the Company became a Category IV U.S. IHC under the Tailoring Rules as of December 31, 2020, it will be set forth as capital actionssubject to the LCR requirements again in the Company's capital plans and not objected to by the Federal Reserve Board before any dividends can be paid.
future. At December 31, 2017,2020, the CompanyCompany's LCR was 144% and was fully compliant with the LCR requirements in effect. However, should the Company's cash position or investment mix change in the future, the Company's ability to meet the LCR requirement may be impacted.requirements.
Management believes that the current sources of liquidity are adequate to meet the Company’s requirements and plans for continued growth. For more information, see below under “Liquidity Management” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 11,10, FHLB and Other Borrowings, Note 12,11, Shareholder's Equity, and Note 16,15, Commitments, Contingencies and Guarantees, in the Notes to the Consolidated Financial Statements.
Impact of Hurricanes Harvey and Irma
During 2017, the Company's geographic footprint was impacted by Hurricanes Harvey and Irma. Hurricane Harvey struck the coast of Texas in August 2017 and caused significant flood and wind damage to the cities close to the Gulf Coast. In September 2017, Hurricane Irma struck south Florida and then continued inland impacting parts of Georgia and South Carolina and causing significant flood and wind damage.
At December 31, 2017, as part of its ongoing evaluation of its impacted loan portfolio which began in the third quarter of 2017 and continued to be refined during the fourth quarter of 2017, the Company has identified approximately $5.2 billion of outstanding loans, which primarily consists of consumer loans, in the most significantly impacted areas. As part of its evaluation process, the Company has identified loans where the mailing address or collateral were located within FEMA designated disaster zip codes, surveyed borrowers in the impacted areas, and evaluated applicable insurance coverage. Based on this evaluation, the Company has recorded approximately $45 million in additional
allowance for loan losses related to its best estimate of hurricane-related losses in this portion of its loan portfolio at December 31, 2017.
The amount of the allowance for loan losses related to the Hurricanes Harvey and Irma impacted loan portfolio may change in the future as additional or different information affecting customers in these areas is obtained. Additionally, the impacted loan portfolio may be subject to additional pressure on credit quality metrics including past due, criticized, and nonperforming loans, as well as net charge-offs.
The Company had nine branches that sustained significant damage due to hurricanes. At December 31, 2017, the Company has recognized approximately $2.2 million in expenses related to property damage not covered by insurance. Additionally, as a result of the hurricanes and their impact on communities, the Company has recognized approximately $1.3 million of expense during 2017 associated with relief efforts and commitments made to employees and other charitable organizations.
Critical Accounting Policies and Estimates
The accounting principles followed by the Company and the methods of applying these principles conform with accounting principles generally accepted in the United States of America and with general practices within the banking industry. The Company’s critical accounting policies relate to (1) the allowance for loan losses (2) fair value measurements, and (3) goodwill impairment. These critical accounting policies require the use of estimates, assumptions and judgments which are based on information available as of the date of the financial statements. Accordingly, as this information changes, future financial statements could reflect the use of different estimates, assumptions and judgments. Certain determinations inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.
Allowance for Loan Losses: Management’s policy is to maintain the allowance for loan losses at a sufficient level sufficient to absorb estimated probable incurredreflecting management's estimate of expected losses inover the loanlife of the portfolio. Management performs periodic and systematic detailed reviews of its loan portfolio to identify trends and to assess the overall collectability of the loan portfolio. Accounting
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, require that loan losses be recorded when management determines it is probable thatportfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, gross domestic product, or other relevant factors. The Company has internally developed a loss has been incurredmacroeconomic forecast which projects over a four-year reasonable and supportable forecast period. Management may change the amounthorizon of the loss can be reasonably estimated.
Estimates for the allowance for loan losses are determined by analyzing historical losses, historical migration to charge-off experience, current trends in delinquencies and charge-offs, the results of regulatory examinations andforecast based on changes in sources of forecast information or management's ability to develop a reasonable and supportable forecast. After the size, compositionreasonable and risk assessment of the loan portfolio. Also included in management’s estimate for the allowance for loan losses are considerations with respect to the impact of current economic events. These events may include, but are not limited to, fluctuations in overall interest rates, political conditions, legislation that may directly or indirectly affect the banking industry and economic conditions affecting specific geographical areas and industries in whichsupportable forecast period, the Company conducts business.reverts to long run historical average default probabilities and loss severities using a linear function, with a variable speed determined on a portfolio basis.
While management uses the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses and methodology may be necessary if economic or other conditions differ substantially from the assumptions used in making the estimates. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels vary from previous estimates.
A detailed discussion of the methodology used in determining the allowance for loan losses is included in Note 1, Summary of Significant Accounting Policies,, in the Notes to the Consolidated Financial Statements.
Fair Value Measurements: A portion of the Company’s assets and liabilities is carried at fair value, with changes in fair value recorded either in earnings or accumulated other comprehensive income (loss). These include investment securities available for sale, trading account assets and liabilities, loans held for sale, mortgage servicing assets, and derivative assets and liabilities. Periodically, the estimation of fair value also affects investment securities held to maturity when it is determined that an impairment write-down is other than temporary. Fair value determination is also relevant for certain other assets such as other real estate owned, which are recorded at the lower of the recorded balance or fair value, less estimated costs to sell. The determination of fair value also impacts certain other assets that are periodically evaluated for impairment using fair value estimates, including goodwill and impaired loans.
Fair value is generally based upon quoted market prices, when available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use observable market based parameters as inputs. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s own creditworthiness, among other things, as well as potentially unobservable parameters. Any such valuation adjustments are applied consistently over time. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
See Note 20, Fair Value Measurements, in the Notes to the Consolidated Financial Statements for a detailed discussion of determining fair value, including pricing validation processes.
Goodwill Impairment: It is the Company’s policy to assess goodwill for impairment at the reporting unit level on an annual basis or between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value.
Accounting standards require management to estimate the fair value of each reporting unit in assessing impairment at least annually. As such, the Company engages an independent valuation expert to assist in the computation of the fair value estimates of each reporting unit as part of its annual assessment. This assessment utilizes a blend of income and market based valuation methodologies.
The impairment testing process conducted by the Company begins by assigning net assets and goodwill to each reporting unit. The Company then completes Step One of the impairment test by comparing the fair value of each reporting unit with the recorded book value of its net assets, with goodwill included in the computation of the carrying amount. If the fair value of a reporting unit exceeds its carrying amount, goodwill of that reporting unit is not considered impaired, and Step Two of the impairment test is not necessary.impaired. If the carrying amount of a reporting unit exceeds its fair value, step two of the impairment test is performed to determine the amount of impairment. Step Two of the impairment test compares the implied fair value of goodwill attributable to each reporting unit to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination; an entity allocates the fair value determined in Step One for the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
The computation of the fair value estimate is based upon management’s estimates and assumptions. Although management has used the estimates and assumptions it believes to be most appropriate in the circumstances, it should be noted that even relatively minor changes in certain valuation assumptions used in management’s calculation could result in differences in the results of the impairment test. None of the Company's reporting units were at risk of failing the goodwill impairment test as of December 31, 2020. See “Goodwill” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and see Note 8, 7, Goodwill,, in the Notes to the Consolidated Financial Statements for a detailed discussion of the impairment testing process.
Recently Issued Accounting Standards Not Yet Adopted
Revenue from Contracts with CustomersIncome Taxes
In May 2014, the FASB released ASU 2014-09, Revenue from Contracts with Customers. The core principle of this codified guidance requires an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this ASU were originally effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Subsequently, the FASB issued a one-year deferral for implementation, which results in the new guidance being effective for annual and interim reporting periods beginning after December 15, 2017. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities accounted for under other U.S. GAAP, the new revenue recognition guidance will not have a material impact on the elements of its statement of income most closely associated with financial instruments, including securities gains, interest income and interest expense. The Company will adopt this standard utilizing a modified retrospective transition method in the first quarter of 2018 and will be subject to expanded disclosure
requirements upon adoption. The Company's implementation efforts include the identification of revenue within the scope of the guidance, as well as the evaluation of revenue contracts. While the Company has not identified any material changes in the timing of revenue recognition, the Company has identified changes in presentation of certain types of revenue and expenses, such as underwriting revenue and expenses, which will be shown gross pursuant to the new requirements.
Recognition and Measurement of Financial Assets and Liabilities
In January 2016,2019, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities2019-12, Simplifying the Accounting for Income Taxes. The amendments in this ASU revise an entity's accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted for the presentation of certain fair value changes for financial liabilities measured at fair value. The adoption of this standard will not have a material impact on the financial condition or results of operations of the Company.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early application of this ASU is permitted for all entities. The Company is currently assessing the impact that the adoption of this standard will have on the financial condition and results of operations of the Company.
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which introduces new guidance forsimplify the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for AFS debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. Early application of this ASU is permitted. The Company is currently assessing the impact that the adoption of this standard will have on the financial condition and results of operations of the Company.
Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which provides guidance on eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early application of this ASU is permitted. While changes in the Company's presentation of certain cash payments and receipts between the operating, financing, and investing sections of the Consolidated Statements of Cash Flows are expected, the quantitative impact of these changes will not have a material impact.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows - Restricted Cash. The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early application of this ASU is permitted. While changes in the Company's presentation of restricted cash in the Consolidated Statements of Cash Flows are expected, the quantitative impact of these changes will not have a material impact.
Goodwill
In January 2017, the FASB issued ASU 2017-04, Intangibles -Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Under the amendments in this ASU, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, ASU No. 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test.income taxes. This ASU is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The ASU should be applied using a prospective method. The Company is currently assessing this pronouncement and the impact of adoption.
Retirement Benefits
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this ASU require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. This ASU is effective for fiscal years beginning after December 15, 2017,2020, and for interim periods within those fiscal years. Early adoption is permitted. The ASU should be applied retrospectively for the presentation of the service cost component and the other components of net benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net benefit cost. The adoption of this standard will not have a materialan immaterial impact on the financial condition orand results of operations of the Company.
Premium Amortization on Purchased Callable Debt SecuritiesReference Rate Reform
In March 2017,2020, the FASB issued ASU 2017-08, Receivables2020-04, Reference Rate Reform - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium AmortizationFacilitation of the Effects of Reference Rate Reform on Purchased Callable Debt Securities. Financial Reporting. The amendments in this ASU reduceprovide optional guidance for a limited period of time to ease the amortization periodpotential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments in this ASU provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain callable debt securities carried at a premiumcriteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and require the premiumother transactions that reference LIBOR or another reference rate expected to be amortized over a period not to exceeddiscontinued because of reference rate reform. The expedients and exceptions provided by the earliest call date. These amendments do not apply to securities carried at a discount. contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.
This ASU is effective for fiscal years beginning afteras of March 12, 2020 through December 15, 2018, and for interim periods within those fiscal years. Early adoption is permitted. The ASU should be applied using a modified retrospective method. The adoption of this standard is not expected to have a material impact on the financial condition or results of operations of the Company.
Derivatives and Hedging
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. The amendments in this ASU better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. This ASU is effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. Early adoption is permitted.31, 2022. The Company is currently assessing this pronouncement and the impact of adoption.
Comprehensive Income
In February 2018,applying the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendmentselections in this ASU allow a reclassification from accumulatedbut has not modified any contracts, hedging relationships, or other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This ASU is effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing this pronouncement and the impact of adoption.transactions.
See Note 1, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements for the recently adopted accounting standards by the Company.
Analysis of Results of Operations
Consolidated net (loss) income attributable to the Company totaled $458.8 million, $369.5$(1.9) billion, $151.1 million, and $505.1$761.4 million for 2017, 20162020, 2019 and 2015,2018, respectively. The Company's 20172020 results reflected higher net income before income tax expense primarily as a result of higherlower net interest income, higher provision for loan losses, higher noninterest expense, which includes $2.2 billion of goodwill impairment, offset by higher noninterest income.
Net Interest Income and Net Interest Margin
Net interest income is the principal component of the Company’s income stream and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates as well as changes in the volume and mix of earning assets and interest bearing liabilities can impact net interest income. The following discussion of net interest income is presented on a fully taxable equivalent basis, unless otherwise noted, to facilitate performance comparisons among various taxable and tax-exempt assets.
20172020 compared to 20162019
Net interest income totaled $2.3 billion and $2.1$2.5 billion in 20172020 and 2016, respectively.$2.6 billion in 2019. Net interest income on a fully taxable equivalent basis totaled $2.4 billion and $2.1$2.6 billion in 20172020 and 2016, respectively. The increase$2.7 billion in net interest income was primarily the result of an increase in interest income on loans and investment securities as well as a decrease in interest expense on deposits and other-short term borrowings.2019.
Net interest margin was 3.10%2.73% in 20172020 compared to 2.64%3.17% in 2016.2019. The 4644 basis point increasedecrease in net interest margin was primarily driven by the impacttiming of higher interest rates.the Federal Reserve Board's decrease of benchmark rates in October of 2019 and in March of 2020.
The fully taxable equivalent yield for 20172020 for the loan portfolio was 4.17%4.02% compared to 3.74%4.89% for the prior year. The 4387 basis point increasedecrease was primarily driven by the impact of higher interest rates.rates during the first half of 2019 as the Federal Reserve Board did not lower benchmark rates until the second half of 2019 and in March 2020.
The fully taxable equivalent yield on the total investment securities portfolio was 1.98%1.76% for 2017,2020, compared to 1.83%2.30% for the prior year. The 1554 basis point increasedecrease was a result of increases in interest rates. Additionally, aslower interest rates have increased the amountfor 2020 compared to 2019 as well as higher levels of premium amortization required has decreased as actual and expected prepayments have decreased.
The yield on trading account securities increased to 1.59% in 2017 compared to 1.45% in 2016 primarily due to the impact of higher interest rates.
The yield on other earning assets for 2017 was 1.70% compared to 0.60% for the prior year. The 110 basis point increase between years was primarily due to the impact of higher interest rates.increased.
The average rate paid on interest bearing deposits remained relatively flat at 0.66%was 0.62% for 20172020 compared to 0.64%1.49% for 2016.2019 and reflects the impact of lower funding costs on interest bearing deposit offerings including savings, money market and CD products.
The average rate on FHLB and other borrowings during 20172020 was 2.36%1.99% compared to 1.96%3.43% for the prior year. The 40144 basis point increasedecrease was primarily driven by changes in the impact of lower rate FHLB advances as well as the impact of fair value of the interest rate contracts hedging the value of the FHLB andhedges on other borrowings.
The average rate on other short-term borrowings was 1.55% for 20172019 compared to 1.44% for 2016 due to the impact due to the impact of higher interest rates.
2016 compared to 20152018
Net interest income totaled $2.1 billion and $2.0$2.6 billion in 2016both 2019 and 2015, respectively.2018. Net interest income on a fully taxable equivalent basis totaled $2.1$2.7 billion in both 20162019 and 2015. 2018.
Net interest margin was 2.64%3.17% in both 2016 and 2015.
2019 compared to 3.30% in 2018. The 13 basis point decrease in net interest margin was primarily driven by higher funding costs.
The fully taxable equivalent yield for 20162019 for the loan portfolio was 3.74%4.89% compared to 3.69%4.64% for the prior year. The 525 basis point increase was primarily driven by the originationimpact of higher yielding loans as wellinterest rates during the first half of 2019 as the impactFederal Reserve Board did not begin lowering benchmark rates until July 2019.
The fully taxable equivalent yield on the total investment securities portfolio was 1.83%2.30% for 2016,2019, compared to 2.01%2.12% for the prior year. The 18 basis point decreaseincrease was primarily driven by proceeds from the salea result of higher yielding investment securitiesinterest rates partially offset by higher levels of premium amortization as actual and fromexpected prepayments maturities and calls of investment securities that have been reinvested into investment securities with lower market rates.
The yield on trading account securities increased to 1.45% in 2016 compared to 1.35% in 2015 due primarily to the impact of the FRB raising the federal funds rate by 25 basis points in December 2015 and 2016.
The yield on other earning assets for 2016 was 0.60% compared to 0.17% for the prior year. The 43 basis point increase between years was primarily due to the impact of the FRB raising the federal funds rate by 25 basis points in December 2015 and 2016.increased.
The average rate paid on interest bearing deposits remained relatively flat at 0.64%was 1.49% for 20162019 compared to 0.62%1.06% for 2015.2018 and reflects the impact of higher funding costs on interest bearing deposit offerings including savings and money market products.
The average rate on FHLB and other borrowings during 20162019 was 1.96%3.43% compared to 1.58%3.18% for the prior year. The 3825 basis point increase was primarily driven by changes in the valueimpact of the interest rate contracts hedging the value$600 million issuance of the FHLB and other borrowingsunsecured senior notes in August 2019 as well as the impact of the $700 million$1.2 billion issuance of subordinatedunsecured senior notes in April 2015 under the Global Bank Note program.June 2018.
The average rate on other short-term borrowings was 1.44% for 2016 compared to 1.31% for 2015 due to the impact
The following tables set forth the major components of net interest income and the related annualized yields and rates, as well as the variances between the periods caused by changes in interest rates versus changes in volumes.
Table 3
Consolidated Average Balance and Yield/ Rate Analysis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 | | December 31, 2018 |
| Average Balance | | Income/Expense | | Yield/ Rate | | Average Balance | | Income/ Expense | | Yield/Rate | | Average Balance | | Income/ Expense | | Yield/Rate |
| (Dollars in Thousands) |
| Assets: | | | | | | | | | | | | | | | | | |
| Interest earning assets: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Loans (1) (2) (3) | $ | 67,045,078 | | | $ | 2,698,114 | | | 4.02 | % | | $ | 64,275,473 | | | $ | 3,144,471 | | | 4.89 | % | | $ | 63,761,869 | | | $ | 2,960,170 | | | 4.64 | % |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Total debt securities – AFS | 5,825,301 | | | 58,876 | | | 1.01 | | | 8,520,287 | | | 168,031 | | | 1.97 | | | 11,390,313 | | | 222,627 | | | 1.95 | |
| Debt securities – HTM (tax exempt) (3) | 500,695 | | | 15,953 | | | 3.19 | | | 624,907 | | | 22,594 | | | 3.62 | | | 787,453 | | | 27,550 | | | 3.50 | |
| Debt securities – HTM (taxable) | 8,093,187 | | | 179,079 | | | 2.21 | | | 4,656,678 | | | 126,911 | | | 2.73 | | | 1,511,284 | | | 39,797 | | | 2.63 | |
| Total debt securities - HTM | 8,593,882 | | | 195,032 | | | 2.27 | | | 5,281,585 | | | 149,505 | | | 2.83 | | | 2,298,737 | | | 67,347 | | | 2.93 | |
| Trading account securities (3) | 203,913 | | | 3,964 | | | 1.94 | | | 110,995 | | | 2,953 | | | 2.66 | | | 122,132 | | | 3,212 | | | 2.63 | |
| Securities purchased under agreements to resell (4) | 1,207,097 | | | 37,896 | | | 3.14 | | | 857,171 | | | 38,089 | | | 4.44 | | | 129,000 | | | 9,375 | | | 7.27 | |
| Other (5) | 10,719,257 | | | 31,811 | | | 0.30 | | | 4,869,724 | | | 107,145 | | | 2.20 | | | 2,818,283 | | | 54,205 | | | 1.92 | |
| Total earning assets | 93,594,528 | | | 3,025,693 | | | 3.23 | | | 83,915,235 | | | 3,610,194 | | | 4.30 | | | 80,520,334 | | | 3,316,936 | | | 4.12 | |
| Noninterest earning assets: | | | | | | | | | | | | | | | | | |
| Cash and due from banks | 888,146 | | | | | | | 973,779 | | | | | | | 691,166 | | | | | |
| Allowance for credit losses | (1,497,922) | | | | | | | (950,306) | | | | | | | (859,475) | | | | | |
| Net unrealized gain (loss) on investment securities available for sale | 99,960 | | | | | | | (76,200) | | | | | | | (282,517) | | | | | |
| Other noninterest earning assets | 8,923,422 | | | | | | | 10,430,914 | | | | | | | 9,506,529 | | | | | |
| Total assets | $ | 102,008,134 | | | | | | | $ | 94,293,422 | | | | | | | $ | 89,576,037 | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | |
| Interest bearing liabilities: | | | | | | | | | | | | | | | | | |
| Interest bearing demand deposits | $ | 13,649,238 | | | 54,570 | | | 0.40 | | | $ | 9,048,948 | | | 95,709 | | | 1.06 | | | $ | 7,950,561 | | | 48,599 | | | 0.61 | |
| Savings and money market accounts | 36,073,927 | | | 168,737 | | | 0.47 | | | 28,546,260 | | | 354,286 | | | 1.24 | | | 26,247,253 | | | 224,009 | | | 0.85 | |
| Certificates and other time deposits | 8,196,738 | | | 133,806 | | | 1.63 | | | 14,780,464 | | | 328,161 | | | 2.22 | | | 14,784,632 | | | 244,682 | | | 1.65 | |
| | | | | | | | | | | | | | | | | |
| Total interest bearing deposits | 57,919,903 | | | 357,113 | | | 0.62 | | | 52,375,672 | | | 778,156 | | | 1.49 | | | 48,982,446 | | | 517,290 | | | 1.06 | |
| FHLB and other borrowings | 3,605,422 | | | 71,848 | | | 1.99 | | | 3,968,094 | | | 136,164 | | | 3.43 | | | 4,095,054 | | | 130,372 | | | 3.18 | |
| Federal funds purchased and securities sold under agreements to repurchase (4) | 1,249,629 | | | 41,018 | | | 3.28 | | | 857,922 | | | 36,736 | | | 4.28 | | | 109,852 | | | 8,953 | | | 8.15 | |
| Other short-term borrowings | 12,158 | | | 525 | | | 4.32 | | | 14,963 | | | 567 | | | 3.79 | | | 68,423 | | | 2,081 | | | 3.04 | |
| Total interest bearing liabilities | 62,787,112 | | | 470,504 | | | 0.75 | | | 57,216,651 | | | 951,623 | | | 1.66 | | | 53,255,775 | | | 658,696 | | | 1.24 | |
| | | | | | | | | | | | | | | | | |
| Noninterest bearing deposits | 24,506,957 | | | | | | | 20,631,434 | | | | | | | 21,167,441 | | | | | |
| Other noninterest bearing liabilities | 2,710,898 | | | | | | | 2,551,174 | | | | | | | 1,885,891 | | | | | |
| Total liabilities | 90,004,967 | | | | | | | 80,399,259 | | | | | | | 76,309,107 | | | | | |
| Shareholder’s equity | 12,003,167 | | | | | | | 13,894,163 | | | | | | | 13,266,930 | | | | | |
| Total liabilities and shareholder’s equity | $ | 102,008,134 | | | | | | | $ | 94,293,422 | | | | | | | $ | 89,576,037 | | | | | |
| Net interest income/net interest spread | | | $ | 2,555,189 | | | 2.48 | % | | | | $ | 2,658,571 | | | 2.64 | % | | | | $ | 2,658,240 | | | 2.88 | % |
| Net interest margin | | | | | 2.73 | % | | | | | | 3.17 | % | | | | | | 3.30 | % |
| Taxable equivalent adjustment | | | 44,665 | | | | | | | 51,538 | | | | | | | 51,662 | | | |
| Net interest income | | | $ | 2,510,524 | | | | | | | $ | 2,607,033 | | | | | | | $ | 2,606,578 | | | |
(1)Loans include loans held for sale and nonaccrual loans.
(2)Interest income includes loan fees for rate calculation purposes.
(3)Yields are stated on a fully taxable equivalent basis assuming the tax rate in effect for each period presented.
(4)Yield/rate reflects impact of balance sheet offsetting. See Note 14, Securities Financing Activities.
(5)Includes federal funds sold, interest bearing deposits, interest bearing deposits with the Federal Reserve and other earning assets.
Table 3 Consolidated Average Balance and Yield/ Rate Analysis |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 | | December 31, 2015 |
| | Average Balance | | Income/Expense | | Yield/ Rate | | Average Balance | | Income/ Expense | | Yield/Rate | | Average Balance | | Income/ Expense | | Yield/Rate |
| | (Dollars in Thousands) |
| Assets: | | | | | | | | | | | | | | | | | |
| Interest earning assets: | | | | | | | | | | | | | | | | | |
| Loans (1) (2) (3) | $ | 60,419,711 |
| | $ | 2,521,613 |
| | 4.17 | % | | $ | 61,505,935 |
| | $ | 2,303,017 |
| | 3.74 | % | | $ | 60,176,687 |
| | $ | 2,221,093 |
| | 3.69 | % |
| Investment securities – AFS (tax exempt) (3) | 3,324 |
| | 264 |
| | 7.94 |
| | 10,728 |
| | 846 |
| | 7.89 |
| | 253,547 |
| | 10,446 |
| | 4.12 |
|
| Investment securities – AFS (taxable) | 12,221,081 |
| | 224,543 |
| | 1.84 |
| | 11,345,365 |
| | 191,337 |
| | 1.69 |
| | 10,105,217 |
| | 185,323 |
| | 1.83 |
|
| Total investment securities – AFS | 12,224,405 |
| | 224,807 |
| | 1.84 |
| | 11,356,093 |
| | 192,183 |
| | 1.69 |
| | 10,358,764 |
| | 195,769 |
| | 1.89 |
|
| Investment securities – HTM (tax exempt) (3) | 957,310 |
| | 34,726 |
| | 3.63 |
| | 1,062,391 |
| | 34,535 |
| | 3.25 |
| | 1,128,080 |
| | 35,352 |
| | 3.13 |
|
| Investment securities – HTM (taxable) | 163,162 |
| | 4,402 |
| | 2.70 |
| | 194,296 |
| | 4,408 |
| | 2.27 |
| | 230,933 |
| | 4,433 |
| | 1.92 |
|
| Total investment securities - HTM | 1,120,472 |
| | 39,128 |
| | 3.49 |
| | 1,256,687 |
| | 38,943 |
| | 3.10 |
| | 1,359,013 |
| | 39,785 |
| | 2.93 |
|
| Trading account securities (3) | 1,718,014 |
| | 27,358 |
| | 1.59 |
| | 3,714,155 |
| | 53,816 |
| | 1.45 |
| | 3,784,410 |
| | 50,936 |
| | 1.35 |
|
| Other (4) (5) | 2,375,691 |
| | 40,277 |
| | 1.70 |
| | 3,508,368 |
| | 20,939 |
| | 0.60 |
| | 3,330,793 |
| | 5,622 |
| | 0.17 |
|
| Total earning assets | 77,858,293 |
| | 2,853,183 |
| | 3.66 |
| | 81,341,238 |
| | 2,608,898 |
| | 3.21 |
| | 79,009,667 |
| | 2,513,205 |
| | 3.18 |
|
| Noninterest earning assets: | | | | | | | | | | | | | | | | | |
| Cash and due from banks | 918,995 |
| | | | | | 964,281 |
| | | | | | 974,956 |
| | | | |
| Allowance for loan losses | (840,359 | ) | | | | | | (834,310 | ) | | | | | | (714,157 | ) | | | | |
| Net unrealized gain (loss) on investment securities available for sale | (113,230 | ) | | | | | | (5,749 | ) | | | | | | 33,207 |
| | | | |
| Other noninterest earning assets | 9,534,599 |
| | | | | | 9,598,900 |
| | | | | | 9,085,506 |
| | | | |
| Total assets | $ | 87,358,298 |
| | | | | | $ | 91,064,360 |
| | | | | | $ | 88,389,179 |
| | | | |
| Liabilities: | | | | | | | | | | | | | | | | | |
| Interest bearing liabilities: | | | | | | | | | | | | | | | | | |
| Interest bearing demand deposits | $ | 7,858,504 |
| | 27,206 |
| | 0.35 |
| | $ | 7,042,165 |
| | 16,639 |
| | 0.24 |
| | $ | 7,218,956 |
| | 12,011 |
| | 0.17 |
|
| Savings and money market accounts | 24,924,647 |
| | 107,106 |
| | 0.43 |
| | 25,747,220 |
| | 99,567 |
| | 0.39 |
| | 24,155,771 |
| | 94,336 |
| | 0.39 |
|
| Certificates and other time deposits | 12,804,395 |
| | 165,005 |
| | 1.29 |
| | 14,454,532 |
| | 188,209 |
| | 1.30 |
| | 12,989,759 |
| | 167,809 |
| | 1.29 |
|
| Foreign office deposits | — |
| | — |
| | — |
| | 104,039 |
| | 210 |
| | 0.20 |
| | 158,202 |
| | 322 |
| | 0.20 |
|
| Total interest bearing deposits | 45,587,546 |
| | 299,317 |
| | 0.66 |
| | 47,347,956 |
| | 304,625 |
| | 0.64 |
| | 44,522,688 |
| | 274,478 |
| | 0.62 |
|
| FHLB and other borrowings | 3,973,465 |
| | 93,814 |
| | 2.36 |
| | 4,226,225 |
| | 82,744 |
| | 1.96 |
| | 5,701,974 |
| | 89,988 |
| | 1.58 |
|
| Federal funds purchased and securities sold under agreements to repurchase (5) | 58,624 |
| | 16,926 |
| | 28.87 |
| | 451,980 |
| | 21,165 |
| | 4.68 |
| | 807,677 |
| | 8,390 |
| | 1.04 |
|
| Other short-term borrowings | 1,703,738 |
| | 26,424 |
| | 1.55 |
| | 3,778,752 |
| | 54,244 |
| | 1.44 |
| | 4,006,716 |
| | 52,442 |
| | 1.31 |
|
| Total interest bearing liabilities | 51,323,373 |
| | 436,481 |
| | 0.85 |
| | 55,804,913 |
| | 462,778 |
| | 0.83 |
| | 55,039,055 |
| | 425,298 |
| | 0.77 |
|
| Noninterest bearing deposits | 21,039,822 |
| | | | | | 20,556,608 |
| | | | | | 19,016,212 |
| | | | |
| Other noninterest bearing liabilities | 1,959,306 |
| | | | | | 1,884,267 |
| | | | | | 1,965,046 |
| | | | |
| Total liabilities | 74,322,501 |
| | | | | | 78,245,788 |
| | | | | | 76,020,313 |
| | | | |
| Shareholder’s equity | 13,035,797 |
| | | | | | 12,818,572 |
| | | | | | 12,368,866 |
| | | | |
| Total liabilities and shareholder’s equity | $ | 87,358,298 |
| | | | | | $ | 91,064,360 |
| | | | | | $ | 88,389,179 |
| | | | |
| Net interest income/net interest spread | | | $ | 2,416,702 |
| | 2.81 | % | | | | $ | 2,146,120 |
| | 2.38 | % | | | | $ | 2,087,907 |
| | 2.41 | % |
| Net interest margin | | | | | 3.10 | % | | | | | | 2.64 | % | | | | | | 2.64 | % |
| Taxable equivalent adjustment | | | 86,535 |
| | | | | | 78,439 |
| | | | | | 74,930 |
| | |
| Net interest income | | | $ | 2,330,167 |
| | | | | | $ | 2,067,681 |
| | | | | | $ | 2,012,977 |
| | |
| |
(1)
| Loans include loans held for sale and nonaccrual loans. |
| |
(2)
| Interest income includes loan fees for rate calculation purposes. |
| |
(3)
| Yields are stated on a fully taxable equivalent basis assuming the tax rate in effect for each period presented. |
| |
(4)
| Includes federal funds sold, securities purchased under agreements to resell, interest bearing deposits, interest bearing deposits with the Federal Reserve and other earning assets. |
| |
(5) | Yield/rate reflects impact of balance sheet offsetting. See Note 15, Securities Financing Activities. |
Table 4
Volume and Yield/ Rate Variances (1)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 compared to 2019 | | 2019 compared to 2018 |
| Change due to | | Change due to |
| Volume | | Yield/Rate | | Total | | Volume | | Yield/Rate | | Total |
| (Dollars in Thousands, yields on a fully taxable equivalent basis) |
| Interest income on: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total loans | $ | 130,797 | | | $ | (577,154) | | | $ | (446,357) | | | $ | 24,011 | | | $ | 160,290 | | | $ | 184,301 | |
| Total debt securities available for sale | (42,953) | | | (66,202) | | | (109,155) | | | (56,584) | | | 1,988 | | | (54,596) | |
| Total debt securities held to maturity | 79,636 | | | (34,109) | | | 45,527 | | | 84,510 | | | (2,352) | | | 82,158 | |
| Trading account securities | 1,968 | | | (957) | | | 1,011 | | | (296) | | | 37 | | | (259) | |
| Securities purchased under agreements to resell | 12,894 | | | (13,087) | | | (193) | | | 33,681 | | | (4,967) | | | 28,714 | |
| Other (2) | 63,976 | | | (139,310) | | | (75,334) | | | 44,198 | | | 8,742 | | | 52,940 | |
| Total earning assets | $ | 246,318 | | | $ | (830,819) | | | $ | (584,501) | | | $ | 129,520 | | | $ | 163,738 | | | $ | 293,258 | |
| | | | | | | | | | | |
| Interest expense on: | | | | | | | | | | | |
| Interest bearing demand deposits | $ | 35,045 | | | $ | (76,184) | | | $ | (41,139) | | | $ | 7,494 | | | $ | 39,616 | | | $ | 47,110 | |
| Savings and money market accounts | 76,115 | | | (261,664) | | | (185,549) | | | 21,062 | | | 109,215 | | | 130,277 | |
| Certificates and other time deposits | (121,902) | | | (72,453) | | | (194,355) | | | (69) | | | 83,548 | | | 83,479 | |
| | | | | | | | | | | |
| Total interest bearing deposits | (10,742) | | | (410,301) | | | (421,043) | | | 28,487 | | | 232,379 | | | 260,866 | |
| FHLB and other borrowings | (11,511) | | | (52,805) | | | (64,316) | | | (4,132) | | | 9,924 | | | 5,792 | |
| Federal funds purchased and securities sold under agreements to repurchase | 14,182 | | | (9,900) | | | 4,282 | | | 33,917 | | | (6,134) | | | 27,783 | |
| Other short-term borrowings | (115) | | | 73 | | | (42) | | | (1,930) | | | 416 | | | (1,514) | |
| Total interest bearing liabilities | (8,186) | | | (472,933) | | | (481,119) | | | 56,342 | | | 236,585 | | | 292,927 | |
| Increase (decrease) in net interest income | $ | 254,504 | | | $ | (357,886) | | | $ | (103,382) | | | $ | 73,178 | | | $ | (72,847) | | | $ | 331 | |
(1)The change in interest not solely due to volume or yield/rate is allocated to the volume column and yield/rate column in proportion to their relationship of the absolute dollar amounts of the change in each.
(2)Includes federal funds sold, interest bearing deposits, interest bearing deposits with the Federal Reserve and other earning assets.
Table 4 Volume and Yield/ Rate Variances (1)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 compared to 2016 | | 2016 compared to 2015 |
| | Change due to | | Change due to |
| | Volume | | Yield/Rate | | Total | | Volume | | Yield/Rate | | Total |
| | (Dollars in Thousands, yields on a fully taxable equivalent basis) |
| Interest income on: | | | | | | | | | | | |
| Total loans | $ | (41,294 | ) | | $ | 259,890 |
| | $ | 218,596 |
| | $ | 49,491 |
| | $ | 32,433 |
| | $ | 81,924 |
|
| Total investment securities available for sale | 15,292 |
| | 17,332 |
| | 32,624 |
| | 17,903 |
| | (21,489 | ) | | (3,586 | ) |
| Total investment securities held to maturity | (4,468 | ) | | 4,653 |
| | 185 |
| | (3,094 | ) | | 2,252 |
| | (842 | ) |
| Trading account securities | (31,341 | ) | | 4,883 |
| | (26,458 | ) | | (960 | ) | | 3,840 |
| | 2,880 |
|
| Other (2) | (8,617 | ) | | 27,955 |
| | 19,338 |
| | 316 |
| | 15,001 |
| | 15,317 |
|
| Total earning assets | $ | (70,428 | ) | | $ | 314,713 |
| | $ | 244,285 |
| | $ | 63,656 |
| | $ | 32,037 |
| | $ | 95,693 |
|
| | | | | | | | | | | | |
| Interest expense on: | | | | | | | | | | | |
| Interest bearing demand deposits | $ | 2,108 |
| | $ | 8,459 |
| | $ | 10,567 |
| | $ | (301 | ) | | $ | 4,929 |
| | $ | 4,628 |
|
| Savings and money market accounts | (3,260 | ) | | 10,799 |
| | 7,539 |
| | 6,162 |
| | (931 | ) | | 5,231 |
|
| Certificates and other time deposits | (21,283 | ) | | (1,921 | ) | | (23,204 | ) | | 19,062 |
| | 1,338 |
| | 20,400 |
|
| Foreign office deposits | (210 | ) | | — |
| | (210 | ) | | (109 | ) | | (3 | ) | | (112 | ) |
| Total interest bearing deposits | (22,645 | ) | | 17,337 |
| | (5,308 | ) | | 24,814 |
| | 5,333 |
| | 30,147 |
|
| FHLB and other borrowings | (5,178 | ) | | 16,248 |
| | 11,070 |
| | (26,194 | ) | | 18,950 |
| | (7,244 | ) |
| Federal funds purchased and securities sold under agreements to repurchase | (32,139 | ) | | 27,900 |
| | (4,239 | ) | | (5,141 | ) | | 17,916 |
| | 12,775 |
|
| Other short-term borrowings | (31,876 | ) | | 4,056 |
| | (27,820 | ) | | (3,091 | ) | | 4,893 |
| | 1,802 |
|
| Total interest bearing liabilities | (91,838 | ) | | 65,541 |
| | (26,297 | ) | | (9,612 | ) | | 47,092 |
| | 37,480 |
|
| Increase (decrease) in net interest income | $ | 21,410 |
| | $ | 249,172 |
| | $ | 270,582 |
| | $ | 73,268 |
| | $ | (15,055 | ) | | $ | 58,213 |
|
| |
(1) | The change in interest not solely due to volume or yield/rate is allocated to the volume column and yield/rate column in proportion to their relationship of the absolute dollar amounts of the change in each. |
| |
(2) | Includes federal funds sold, securities purchased under agreement to resell, interest bearing deposits, interest bearing deposits with the Federal Reserve and other earning assets. |
Provision for LoanCredit Losses
The provision for loancredit losses is the charge to earnings that management determines to be necessary to maintain the allowance for loancredit losses at a sufficient level reflecting management's estimate of probable incurredexpected losses over the life of the portfolio. The Company adopted ASC 326 effective January 1, 2020, and recorded a net of tax increase to accumulated deficit of $150.2 million as of January 1, 2020 for the cumulative effect of adoption ASC 326.
2020 compared to 2019
Provision for credit losses was $966.1 million for 2020 compared to $597.4 million for 2019. For 2020, provision for credit losses was comprised of $965.8 million of provision for loan losses and $331 thousand of provision for HTM security losses. The increase in provision for loan losses in 2020 reflected an increase in expected losses over the life of the portfolio. The primary drivers of this increase was the impact of the COVID-19 pandemic on economic conditions which impacted the Company's economic forecast. During 2020, economic conditions deteriorated due to the impact of the COVID-19 health crisis. As a result, economic projections for gross domestic product declined dramatically and unemployment levels increased significantly with information related to the evolving impacts of the COVID-19 health crisis. Additionally, provision for loan losses was impacted by the higher reserves in the commercial portfolio due to downgrades in this portfolio.
2017The Company recorded net charge-offs of $392.2 million during 2020 compared to 2016$561.7 million during 2019. The decrease was due to a $54.5 million decrease in commercial, financial, and agricultural net charge-offs as well as an $86.4 million decrease in consumer direct net charge-offs and a $39.8 million decrease in consumer indirect net charge-offs.
Net charge-offs were 0.59% of average loans for 2020 compared to 0.88% of average loans for 2019.
2019 compared to 2018
Provision for loan losses was $287.7$597.4 million for 20172019 compared to $302.6$365.4 million of provision for loan losses for 2016.2018. The decreaseincrease in provision for loan losses for 20172019 was due in partprimarily attributable to a reduction in provision expense associated with improvementshigher losses within the consumer direct loan portfolio as well as an increase in the overall level of energyallowance on individually evaluated nonperforming loans rated special mention or lower, including loans classified as nonaccrual, during 2017, when compared to the negative credit quality indicators stemming from downgrades in the energy portfolio that occurred during 2016. Offsetting this decrease was the impact of $45 million in additional allowance forcommercial, financial and agricultural loan losses related to the impact of Hurricanes Harvey and Irma on the loan portfolio during 2017.portfolio.
The Company recorded net charge-offs of $283.2$561.7 million during 20172019 compared to $227.0$322.9 million during 2016. 2018. The increase was due to an $86.7 million increase in commercial, financial, and agricultural net charge-offs as well as a $110.6 million increase in consumer direct net charge-offs, a $22.7 million increase in credit card net charge-offs, and a $14.5 million increase in consumer indirect net charge-offs.
Net charge-offs were 0.47% (or 0.39% excluding net charge-offs on energy loans)0.88% of average loans for 20172019 compared to 0.37% (or 0.31% excluding net charge-offs on energy loans)0.51% of average loans for 2016.2018.
2016 compared to 2015
Provision for loan losses was $302.6 million for 2016 compared to $193.6 million of provision for loan losses for 2015. Provision for loan losses for 2016 was impacted by a decline in credit quality indicators driven by downgrades during 2016 in the commercial loan portfolio, primarily related to energy loans as well as an increase in charge-offs related to energy loans and consumer direct and indirect loans during 2016. The Company recorded net charge-offs of $227.0 million during 2016 compared to $116.0 million during 2015. Net charge-offs were 0.37% (or 0.31% excluding
net charge-offs on energy loans) of average loans for 2016 compared to 0.19% (or 0.20% excluding net charge-offs on energy loans) of average loans for 2015.
For further discussion and analysis of the allowance for loan losses, refer to the discussion of lending activities found later in this section. Also, refer to Note 4, 3, Loans and Allowance for Loan Losses,, in the Notes to the Consolidated Financial Statements for additional disclosures.
Noninterest Income
The following table presents the components of noninterest income.
Table 5 Noninterest Income |
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Service charges on deposit accounts | $ | 222,110 |
| | $ | 214,294 |
| | $ | 216,248 |
|
| Card and merchant processing fees | 128,129 |
| | 123,668 |
| | 112,818 |
|
| Retail investment sales | 109,214 |
| | 102,982 |
| | 101,614 |
|
| Investment banking and advisory fees | 103,701 |
| | 107,116 |
| | 105,235 |
|
| Money transfer income | 101,509 |
| | 104,592 |
| | 93,437 |
|
| Asset management fees | 40,465 |
| | 34,875 |
| | 33,194 |
|
| Corporate and correspondent investment sales | 38,052 |
| | 24,689 |
| | 30,000 |
|
| Mortgage banking income | 14,356 |
| | 21,496 |
| | 27,258 |
|
| Bank owned life insurance | 17,108 |
| | 17,243 |
| | 18,662 |
|
| Investment securities gains, net | 3,033 |
| | 30,037 |
| | 81,656 |
|
| Other | 268,298 |
| | 274,982 |
| | 259,252 |
|
| Total noninterest income | $ | 1,045,975 |
| | $ | 1,055,974 |
| | $ | 1,079,374 |
|
2017Noninterest Income
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In Thousands) |
| Service charges on deposit accounts | $ | 219,783 | | | $ | 250,367 | | | $ | 236,673 | |
| Card and merchant processing fees | 192,096 | | | 197,547 | | | 174,927 | |
| Investment banking and advisory fees | 138,096 | | | 83,659 | | | 77,684 | |
| Investment services sales fees | 112,243 | | | 115,446 | | | 112,652 | |
| Money transfer income | 106,564 | | | 99,144 | | | 91,681 | |
| Mortgage banking income | 74,813 | | | 28,059 | | | 26,833 | |
| Corporate and correspondent investment sales | 49,318 | | | 38,561 | | | 51,675 | |
| Asset management fees | 48,101 | | | 45,571 | | | 43,811 | |
| Bank owned life insurance | 20,149 | | | 17,479 | | | 17,822 | |
| Investment securities gains, net | 22,616 | | | 29,961 | | | — | |
| | | | | |
| Other | 208,893 | | | 230,150 | | | 223,151 | |
| Total noninterest income | $ | 1,192,672 | | | $ | 1,135,944 | | | $ | 1,056,909 | |
2020 compared to 20162019
Noninterest income was $1.0$1.2 billion for 2017,2020 and $1.1 billion for 2019, a slight decreaseincrease of $10.0 million compared to $1.1 billion reported in 2016.$56.7 million. The decreaseincrease in total noninterest income was driven by decreasesincreases in investment banking and advisory fees, money transfer income, mortgage banking income, investment securities gains and other noninterest income which were partially offset by increases in retail investment sales, asset management fees, and corporate and correspondent investment sales.sales partially offset by decreases in service charges on deposit accounts and other noninterest income.
Service charges on deposit accounts represent the Company's largest category of noninterest revenue. Service charges on deposit accounts were $222.1decreased to $219.8 million in 2017,2020, compared to $214.3$250.4 million in 2016.2019 driven by a general decline in consumer spending activity associated with the COVID-19 pandemic as well as the Bank implementing fee waivers to offer relief for those customers impacted by the COVID-19 pandemic.
Card and merchant processing fees represent income related to customers’ utilization of their debit and credit cards, as well as interchange income and merchants’ discounts. Card and merchant processing fees were $128.1$192.1 million in 2017, an increase2020, a decrease of $4.5$5.5 million compared to 2016.
Retail investment sales income is comprised of mutual fund and annuity sales income and insurance sales fees. Income from retail investment sales increased to $109.2 million in 2017, compared to $103.0 million in 2016 due to an increase of $12.6 million in income associated with securities products offset by a decrease of $7.2 million in fixed annuity income. Improved market conditions caused a shift in demand from insurance products such as fixed annuities towards securities products, such as variable annuities and mutual funds resulting in the overall increase.2019.
Investment banking and advisory fees primarily represent income from BSI. Income from investment banking and advisory fees decreasedincreased to $103.7$138.1 million in 20172020 compared to $107.1$83.7 million in 2016. The decrease was driven2019 primarily by a $10.0 million decrease in structuring fees and a $5.8 million decrease in fixed income brokerage commission, partially offset by an increase of $12.8 million in fees attributabledue to an increase in the volume of underwritingdebt capital markets activity in 20172020 compared to 2016.2019.
Investment services sales fees is comprised of mutual fund and annuity sales income and insurance sales fees. Income from investment services sales fees was $112.2 million in 2020, compared to $115.4 million in 2019.
Money transfer income represents income from the Parent's wholly owned subsidiary, BBVA Compass Payments,Transfer Holdings, Inc., which engages in money transfer services, including money transmission and foreign exchange services. Income from money transfer services decreasedincreased to $101.5$106.6 million in 20172020 compared to $104.6$99.1 million in 2016.
Asset management fees are fees generated from money management transactions executed with the Company through trusts, higher net worth customers and other long-term clients. Asset management fees increased to $40.5 million in 2017, compared to $34.9 million in 2016 due primarily to2019, driven by an increase in assets under managementtransaction volumes during the year.
Mortgage banking income for 2020 was $74.8 million compared to the same period$28.1 million in 2016.2019. Mortgage banking income is comprised of servicing income, guarantee fees and gains on sales of mortgage loans as well as fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. The increase in mortgage banking income was driven by an increase of $17.6 million in fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs as well as $30.5 million increase in gains on sale of mortgage loans driven by increased production and sales income as lower market interest rates drove increased applications.
Corporate and correspondent investment sales represents income generated through the sales of interest rate protection contracts to corporate customers and the sale of bonds and other services to the Company's correspondent banking clients. Income from corporate and correspondent investment sales increased to $38.1$49.3 million in 20172020 from $24.7$38.6 million in 2016. The primary drivers of the increase include a $6.5 million2019 primarily driven by an increase in foreign exchangecustomer interest rate income a $4.5 milliondue to an increase in interest rate contract incomesales as well as valuation adjustments on interest rate contracts.
Asset management fees are generated from money management transactions executed with the Company through trusts, higher net worth customers and a $2.3other long-term clients. Asset management fees increased to $48.1 million increase in bond trading.
Mortgage banking income for 2017 was $14.4 million2020, compared to $21.5$45.6 million in 2016. Mortgage banking income in 2017 included $25.0 million of origination fees and gains on sales of mortgage loans partially offset by losses of $10.2 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. Mortgage banking income in 2016 included $25.3 million of origination fees and gains on sales of mortgage loans and losses of $3.8 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. The decrease in mortgage banking income in 2017 compared to 2016 was primarily driven by relatively flat rates during 2017 as compared to 2016 which negatively impacted the valuation of mortgage loans held for sale, mortgage related derivatives and MSRs. In addition, mortgage production volume decreased slightly during 2017 compared to 2016.
2019.
BOLI represents income generated by the underlying investments maintained within each of the Company’s life insurance policies on certain key executives and employees. BOLI was $17.1$20.1 million in 20172020 compared to $17.2$17.5 million in 2016.2019.
Investment securities gains, net decreased to $3.0$22.6 million in 20172020 compared to $30.0 million in 2016.2019. See “—Investment Securities” for more information related to the investment securities sales.
Other income is comprised of income recognized that does not typically fit into one of the other noninterest income categories and includes primarily various fees associated with letters of credit, syndication, ATMs, investment services and foreign exchange fees. The gain (loss) associated with the sale of fixed assets is also included in other income. For 2017,2020, other income decreased by $6.7$21.3 million due in part to a $17.7$10.0 million residual value write down related to a commercial leasedecrease in syndication fees and a $16.1by an $11.2 million gain recognized during 2016 from the sale of loans not initially originated for saledecrease in the secondary market. Partially offsetting the decreases were a $9.3 million gain on the sale of merchant relationships, $10.9 million in fair value adjustments related to the SBIC investments,service and a $1.8 million gain on the termination of the FDIC loss share agreement.referral income with BBVA and its affiliates.
20162019 compared to 20152018
Noninterest income was $1.1 billion for both 20162019 and 2015,2018, a slight decreaseincrease of $23.4$79.0 million. The decreaseincrease in total noninterest income was driven by decreasesincreases in corporate and correspondent investment sales, mortgage banking income and investment securities gains which were partially offset by increases inservice charges on deposit accounts, card and merchant processing fees, money transfer income, investment banking and advisory fees, investment securities gains, and other noninterest income which were partially offset by a decrease in corporate and correspondent investment sales.
Service charges on deposit accounts were $214.3$250.4 million in 2016,2019, compared to $216.2$236.7 million in 2015.2018 due to continued customer account growth in 2019 when compared to 2018.
Card and merchant processing fees were $123.7$197.5 million in 2016,2019, an increase of $10.9$22.6 million compared to 20152018. Growth in the number of accounts as well as an increase in current customers' spending volumes contributed to the increase in interchange income.
Income from investment services sales fees was $115.4 million in 2019, compared to $112.7 million in 2018.
Income from money transfer services increased to $99.1 million in 2019 compared to $91.7 million in 2018 driven by a $4.1 million increase related to Simple and a $5.9 millionan increase in debit card interchange and merchant services.transaction volumes during the year.
Income from investment banking and advisory fees increased to $107.1$83.7 million in 20162019 compared to $105.2$77.7 million in 2015.
Income from money transfer services increased to $104.6 million2018 primarily driven by an increase in 2016 compared to $93.4 million in 2015 due to higher transaction volume.
Income from retail investment sales increased to $103.0 million in 2016, compared to $101.6 million in 2015. the volume of underwriting activity.
Asset management fees increased to $34.9$45.6 million in 2016,2019, compared to $33.2$43.8 million in 2015.2018.
Income from corporate and correspondent investment sales decreased to $24.7$38.6 million in 20162019 from $30.0$51.7 million in 2015.2018. The primary drivers of the decrease includewere a $4.0 million decrease in income related to a decline in the sales of interest rate contracts due to the economic environment during the year and a $2.8 million decrease related to thecontract sales driven by less demand as interest rates have declined in 2019 as well as valuation changes in U.S. Treasury securities held to hedge market movements in the MSR asset.adjustments on interest rate contracts.
Mortgage banking income for the year ended December 31, 20162019 was $21.5$28.1 million compared to $27.3$26.8 million in 2015. Mortgage banking income in 2016 included $25.3 million of origination fees and gains on sales of mortgage loans partially offset by losses of $3.8 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. Mortgage banking income in 2015 included $35.5 million of origination fees and gains on sales of mortgage loans and losses of $7.0 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. The decrease in mortgage banking income in 2016 compared to 2015 was primarily driven by decreased mortgage production volume during 2016 compared to 2015.2018.
BOLI was $17.2$17.5 million in 20162019 compared to $18.7$17.8 million in 2015.2018.
Investment securities gains, net decreasedincreased to $30.0 million in 20162019 compared to $81.7 millionnone in 2015.2018. See “—Investment Securities” for more information related to the investment securities sales.
For 2016,2019, other income increased by $15.7$7.0 million due in part to ana $17.9 million increase in the value of approximately $11.2the SBIC investments, and a $7.9 million increase in syndication fees. The increase was also attributable tofees partially offset by a $7.7$21.0 million increase related to the prepayment of FHLB advancesdecrease in service and other borrowings. During 2016, the Company terminated approximately $605 million FHLB advances resulting in a $295 thousand net loss compared to an $8.0 million net loss in 2015 related to the prepayment of approximately $1.1 billion FHLB advances.referral income with BBVA and its affiliates.
Noninterest Expense
The following table presents the components of noninterest expense.
Table 6 Noninterest Expense |
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Salaries, benefits and commissions | $ | 1,131,971 |
| | $ | 1,119,676 |
| | $ | 1,081,475 |
|
| Professional services | 263,490 |
| | 242,206 |
| | 218,584 |
|
| Equipment | 247,891 |
| | 242,273 |
| | 232,050 |
|
| Net occupancy | 166,693 |
| | 160,997 |
| | 161,035 |
|
| Money transfer expense | 65,790 |
| | 67,474 |
| | 60,350 |
|
| FDIC insurance | 64,890 |
| | 80,070 |
| | 64,072 |
|
| Marketing | 52,220 |
| | 50,549 |
| | 41,778 |
|
| Communications | 20,554 |
| | 21,046 |
| | 22,527 |
|
| Amortization of intangibles | 10,099 |
| | 16,373 |
| | 39,208 |
|
| FDIC indemnification expense | 22 |
| | 3,984 |
| | 55,129 |
|
| Goodwill impairment | — |
| | 59,901 |
| | 17,000 |
|
| Total securities impairment | 242 |
| | 130 |
| | 1,660 |
|
| Other | 287,725 |
| | 238,843 |
| | 219,985 |
|
| Total noninterest expense | $ | 2,311,587 |
| | $ | 2,303,522 |
| | $ | 2,214,853 |
|
Noninterest Expense
2017 | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In Thousands) |
| Salaries, benefits and commissions | $ | 1,159,561 | | | $ | 1,181,934 | | | $ | 1,154,791 | |
| Professional services | 306,873 | | | 292,926 | | | 277,154 | |
| Equipment | 267,547 | | | 256,766 | | | 257,565 | |
| Net occupancy | 163,125 | | | 166,600 | | | 166,768 | |
| Money transfer expense | 74,755 | | | 68,224 | | | 62,138 | |
| Marketing | 40,130 | | | 55,164 | | | 48,866 | |
| FDIC insurance | 34,954 | | | 27,703 | | | 67,550 | |
| Communications | 21,759 | | | 21,782 | | | 30,582 | |
| | | | | |
| | | | | |
| | | | | |
| Goodwill impairment | 2,185,000 | | | 470,000 | | | — | |
| | | | | |
| Other | 308,014 | | | 324,981 | | | 284,546 | |
| Total noninterest expense | $ | 4,561,718 | | | $ | 2,866,080 | | | $ | 2,349,960 | |
2020 compared to 20162019
Noninterest expense was $2.3$4.6 billion for both 2017 and 2016, a slight2020, an increase of $8.1 million$1.7 billion compared to 2016. The increase$2.9 billion reported in noninterest2019. Noninterest expense wasincreased primarily attributabledue to goodwill impairment along with increases in professional services, money transfer expense, and FDIC insurance offset in part by decreases in marketing and other noninterest expense which were partially offset by decreases in FDIC insurance, amortization of intangibles, FDIC indemnification expense, and goodwill impairment.expense.
Salaries, benefits and commissions expense is comprised of salaries and wages in addition to other employee benefit costs and represents the largest components of noninterest expense. Salaries, benefits and commissions expense was $1.1$1.2 billion in 2017, an increase of $12.3 million when compared to 2016.both 2020 and 2019.
Professional services expense represents fees incurred for the various support functions, which includes legal, consulting, outsourcing and other professional related fees. Professional services expense increased by $21.3$13.9 million in 20172020 to $263.5$306.9 million compared to 2016 due to2019 primarily driven by an increase of approximately $11.6 million of contractor services, approximately $8.6$8.9 million increase related toin outsourcing and consulting,professional services paid to BBVA and ana $3.7 million increase of approximately $5.0 million related to debit card fees which is driven by transaction volume. Partially offsetting the increases was credit card processing which decreased by approximately $11.7 million, primarily due to the completed migration of Simple's customer platform which occurred during 2016.in other professional services.
Money transfer expense represents expense from the Parent's wholly owned subsidiary, BBVA Compass Payments,Transfer Holdings, Inc., which engages in money transfer services, including money transmission and foreign exchange services. Money transfer expense decreasedincreased to $65.8$74.8 million in 20172020 compared to $67.5$68.2 million in 2016.2019 driven by an increase in transaction volumes during the year.
Marketing decreased $15.0 million to $40.1 million in 2020 compared to $55.2 million in 2019. Approximately $2.1 million of the decrease was related to rebranding costs incurred as a result of the global rebranding strategy in 2019. The decrease was also driven by lower costs associated with direct mail investments and broadcast media and production costs.
FDIC insurance was $64.9$35.0 million in 20172020 compared to $80.1$27.7 million in 2016.2019. The decrease in FDIC insuranceprimary driver of the increase was due to reductions in higher risk concentrations, improvementsa decline in credit quality and improvementsmetrics as well as a shift in the balance sheet liquidity ratio.maturity dates of certain long term debt.
Amortization of intangibles decreased by $6.3 million to $10.1Communications was $21.8 million in 2017 due to the lower levelboth 2020 and 2019.
Goodwill impairment was $2.2 billion in 20172020 compared to 2016.
FDIC indemnification expense, which represents the amortization of changes in the FDIC indemnification asset stemming from changes in credit expectations of covered loans, was $22 thousand in 2017 compared to $4.0$470 million in 2016. On July, 12, 2017, the Company terminated the loss share agreement with the FDIC ahead of the contractual maturity. Under the terms of the agreement, the Company made a net payment of $132 million to the FDIC in July as consideration for early termination of the shared-loss agreement and settlement of the FDIC indemnification liability. Refer to Note 16, Commitments, Contingencies and Guarantees, in the Notes to the Consolidated Financial Statements for additional discussion.
There was no goodwill impairment in 2017 compared to $59.9 million of goodwill impairment related to the Simple reporting unit in 2016.2019. Refer to "—Goodwill" and Note 8, 7, Goodwill in the Notes to the Consolidated Financial Statements for further details.
Other noninterest expense represents postage, supplies, subscriptions, provision for unfunded commitments and gains and losses on the sales and write-downs of OREO as well as other OREO associated expenses. Other noninterest expense increaseddecreased in 20172020 to $287.7$308.0 million compared to $238.8$325.0 million in 2016.2019. The increasedecrease was due in partprimarily attributable to a $15.2$15.0 million decreased in item processing fees, $14.6 million decrease in travel expenses, $20.6 million decrease in business development and a $17.6 million decrease in legal reserves offset by a $72.0 million increase in provision for unfunded commitments and letters of credit and a $6.6 million increase in legal reserves. See Note 16, Commitments, Contingencies and Guarantees, in the Notes to the Consolidated Financial Statements for additional discussion.commitments.
20162019 compared to 20152018
Noninterest expense was $2.3$2.9 billion for 2016,2019, an increase of $88.7$516.1 million compared to 2015.$2.3 billion reported in 2018. The increase in noninterest expense was primarily attributable to increases in salaries, benefits and commissions, professional services, FDIC insurance, money transfer expense, marketing, goodwill impairment, and other noninterest expense which were partially offset in part by decreases in amortization of intangiblesFDIC insurance and FDIC indemnification expense.communications.
Salaries, benefits and commissions expense was $1.1$1.2 billion in 2016,2019, an increase of $38.2$27.1 million when compared to 2015.2018. The increase was largely attributable to increases in full time salaries due in part to a $19.7 million increase in incentive expense during 2016 related to the
acceleration of incentive and restricted stock expense following the removal of future service conditionannual merit increases as well as an increase of approximately $24.8 million related to additional headcount within full time salaried employees.in incentive expenses.
Professional services expense increased by $23.6$15.8 million in 20162019 to $242.2$292.9 million compared to 20152018 due to an $8.0 million increase of approximately $10.8 million ofin outsourcing and other professional services approximately $7.7paid to BBVA, a $3.4 million increase in bankcard fees, and a $3.3 million increase in services related to credit card processing and debit card fees and an increase of approximately $3.9 million of contractor services.reporting.
Money transfer expense increased to $67.5$68.2 million in 20162019 compared to $60.4$62.1 million in 2015 due to higher2018 driven by an increase in transaction volumes during 2016.the year.
Marketing increased $6.3 million to $55.2 million in 2019 compared to $48.9 million in 2018. Approximately $2.1 million of the increase was related to rebranding costs incurred as a result of the global rebranding strategy. The increase was also driven by higher costs associated with digital sales initiatives and performance media channels.
FDIC insurance was $80.1$27.7 million in 20162019 compared to $64.1$67.6 million in 2015.2018. The increaseprimary driver of the decrease was the elimination of the Large Bank FDIC surcharge which resulted in FDIC insuranceapproximately $31.3 million less expense in 2019.
Communications decreased to $21.8 million in 2019 compared to $30.6 million in 2018. The primary driver of the decrease was driven bydue to a change in the factors used to calculate the assessment, including a new FDIC assessment rate in 2016.telecommunication services providers.
Marketing expense increased by $8.8 million to $50.5 million in 2016 due primarily to BBVA's sponsorship of the NBA and an increase in Internet-based marketing related to Simple.
Amortization of intangibles decreased by $22.8 million to $16.4 million in 2016 due to the lower level of intangible assets in 2016 compared to 2015.
FDIC indemnification expense was $4.0 million in 2016 compared to $55.1 million in 2015. The decrease in 2016 was driven by the continued runoff of the covered loan portfolio.
Goodwill impairment related to the SimpleCorporate and Investment Banking reporting unit was $59.9$470.0 million in 20162019 compared to $17.0 millionno goodwill impairment in 2015.2018. Refer to "—Goodwill" and Note 8, 7, Goodwill in the Notes to the Consolidated Financial Statements for further details.
Other noninterest expense increased in 20162019 to $238.8$325.0 million compared to $220.0$284.5 million in 2015.2018. The increase was primarily attributable to an $18.6 million increase in provision for unfunded commitments as well as a $16.3 million increase in fraud related to the civil money penalty imposed by the FRB on BSI in December 2016. See Note 16, Commitments, Contingencies and Guarantees, in the Notes to the Consolidated Financial Statements for additional discussion.charges.
Income Tax Expense
The Company’s income tax expense totaled $316.1$37.0 million, $146.0$126.0 million and $176.5$184.7 million for 2017, 2016,2020, 2019, and 2015,2018, respectively. The effective tax rate was 40.7%(2.0)%, 28.2%45.1%, and 25.8%19.5% for 2017, 20162020, 2019 and 2015,2018, respectively.
The increase in the effective tax rate for 20172020 compared to 20162019 was primarily drivenimpacted by a $121.2 million charge associated with the revaluation of the Company's net deferred income tax assets dueunfavorable permanent difference related to the enactment of the Tax Cuts and Jobs Act in December 2017.goodwill impairment.
The increase in the effective tax rate in 20162019 compared to 20152018 was primarily driven by thelower net income combined with an unfavorable permanent difference related to goodwill impairment recognized in 2016.impairment.
Refer to Note 19,18, Income Taxes, in the Notes to the Consolidated Financial Statements for a reconciliation of the effective tax rate to the statutory tax rate and a discussion of uncertain tax positions and other tax matters.
Business Segment Results
The Company reports on four business segments: Commercial Banking and Wealth, Retail Banking, Corporate and Investment Banking, and Treasury. Additional detailed financial information on each business segment is included in Note 22, Segment Information, in the Notes to the Consolidated Financial Statements. Results of the Company’s business segments are based on the Company’s lines of business and internal management accounting policies that have been developed to reflect the underlying economics of the business. The structure and accounting practices are specific to the Company; therefore, the financial results of the Company’s business segments are not necessarily comparable with similar information for other financial institutions.
The Company employs an FTP methodology at the business segment level in the determination of net interest income earned primarily on loans and deposits. This methodology is a matching fund concept whereby the lines of business
that are fund providers are credited and those that are fund users are charged based on maturity, prepayment and/or repricing characteristics applied on an instrument level. The intent of the FTP methodology is to transfer interest rate risk from the business segments by providing matched duration funding of assets and liabilities. Matching duration allocates interest income and expense to each segment so its resulting net interest income is insulated from interest rate risk.
Revenue is recorded in the business segment responsible for the related product or service. Fee sharing is recorded to allocate portions of such revenue to other business segments involved in selling to, or providing services to, customers. Results of operations for the business segments reflect these fee sharing allocations. In addition, the financial results of the business segments include allocations for shared services and operations expenses.
The development and application of these methodologies is a dynamic process. Accordingly, prior period financial results have been revised to reflect management accounting enhancements and changes in the Company's organizational structure. The 2016 and 2015 segment information has been revised to conform to the 2017 presentation.
Net income by business segment is summarized in the following table:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Commercial Banking and Wealth | $ | 403,200 |
| | $ | 384,176 |
| | $ | 355,304 |
|
| Retail Banking | 44,218 |
| | 76,823 |
| | 69,997 |
|
| Corporate and Investment Banking | 128,553 |
| | 69,895 |
| | 79,063 |
|
| Treasury | 9,039 |
| | 12,269 |
| | 62,102 |
|
| Corporate Support and Other | (124,224 | ) | | (171,640 | ) | | (59,108 | ) |
| Net income | $ | 460,786 |
| | $ | 371,523 |
| | $ | 507,358 |
|
Commercial Banking and Wealth
The following table contains selected financial data for the Commercial Banking and Wealth segment:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Net interest income | $ | 1,114,619 |
| | $ | 1,140,639 |
| | $ | 1,025,130 |
|
| Allocated provision for loan losses | 70,748 |
| | 124,054 |
| | 88,882 |
|
| Noninterest income | 209,261 |
| | 204,387 |
| | 204,956 |
|
| Noninterest expense | 632,824 |
| | 629,931 |
| | 594,582 |
|
| Net income before income tax expense | 620,308 |
| | 591,041 |
| | 546,622 |
|
| Income tax expense | 217,108 |
| | 206,865 |
| | 191,318 |
|
| Net income | $ | 403,200 |
| | $ | 384,176 |
| | $ | 355,304 |
|
Comparison of 2017 with 2016
Net income was $403.2 million for 2017, an increase of $19.0 million compared to net income of $384.2 million for 2016 primarily driven by a decrease in allocated provision for loan losses offset in part by a decrease in net interest income.
Net interest income in 2017 decreased $26.0 million compared to the prior year as a result of decreases in spreads on earnings assets as well as deposits and borrowed funds.
Allocated provision for loan losses decreased $53.3 million from 2016 to 2017 primarily driven by improvements in credit quality within this business segment.
Comparison of 2016 with 2015
Net income was $384.2 million for 2016, an increase of $28.9 million compared to net income of $355.3 for 2015 primarily driven by an increase in net interest income offset by increases in the allocated provision for loan losses and noninterest expense.
Net interest income in 2016 increased $115.5 million compared to the prior year as a result of an increase in the spread on earning assets due to higher yields on loans driven primarily by the origination of higher yielding loans as well as the impact of the higher benchmark interest rates, as well as lower funding spreads on deposits.
Allocated provision for loan losses increased $35.2 million from 2015 to 2016 primarily driven by an increase in charge-offs.
Noninterest income for 2016 of $204.4 million in 2016 remained flat compared to the prior year.
Noninterest expense increased to $629.9 million in 2016 compared to $594.6 million in 2015 driven primarily by increases in allocated expenses and FDIC insurance.
Retail Banking
The following table contains selected financial data for the Retail Banking segment:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Net interest income | $ | 947,687 |
| | $ | 905,460 |
| | $ | 828,335 |
|
| Allocated provision for loan losses | 171,949 |
| | 96,428 |
| | 46,636 |
|
| Noninterest income | 457,216 |
| | 457,975 |
| | 469,430 |
|
| Noninterest expense | 1,164,927 |
| | 1,148,818 |
| | 1,143,441 |
|
| Net income before income tax expense | 68,027 |
| | 118,189 |
| | 107,688 |
|
| Income tax expense | 23,809 |
| | 41,366 |
| | 37,691 |
|
| Net income | $ | 44,218 |
| | $ | 76,823 |
| | $ | 69,997 |
|
Comparison of 2017 with 2016
Net income was $44.2 million for 2017, a decrease of $32.6 million compared to net income of $76.8 million for 2016 primarily due to higher levels of allocated provision for loan losses and noninterest expense offset in part by an increase in net interest income.
Net interest income in 2017 increased $42.2 million compared to the prior year as a result of an increase in funding incentive credits allocated to the segments offset by a decrease in the spread on deposits and borrowed funds.
Allocated provision for loan losses increased $75.5 million from 2016 to 2017 primarily driven by an increase in loans as well as an increase in consumer charge-offs. Allocated provision for loan losses was also impacted by the additional allowance for loan losses related to Hurricanes Harvey and Irma.
Noninterest expense increased $16.1 million to $1.2 billion in 2017 compared to $1.1 billion in 2016 driven primarily by an increase in allocated expenses of $13.7 million.
Comparison of 2016 with 2015
Net income was $76.8 million for 2016, an increase of $6.8 million compared to net income of $70.0 million for 2015 primarily driven by an increase in net interest income offset by an increase in the allocated provision for loan losses and a decrease in noninterest income.
Net interest income in 2016 increased $77.1 million compared to the prior year as a result of an increase in the spread on deposits and borrowed funds.
Allocated provision for loan losses increased $49.8 million from 2015 to 2016 primarily driven by an increase in charge-offs.
Noninterest income decreased $11.5 million to $458.0 million in 2016 compared to $469.4 million in 2015 due primarily to an $11.7 million decrease in fee income.
Corporate and Investment Banking
The following table contains selected financial data for the Corporate and Investment Banking segment:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Net interest income | $ | 158,000 |
| | $ | 158,347 |
| | $ | 173,840 |
|
| Allocated provision for loan losses | 6,906 |
| | 56,963 |
| | 58,337 |
|
| Noninterest income | 195,434 |
| | 187,782 |
| | 165,656 |
|
| Noninterest expense | 148,754 |
| | 181,635 |
| | 159,524 |
|
| Net income before income tax expense | 197,774 |
| | 107,531 |
| | 121,635 |
|
| Income tax expense | 69,221 |
| | 37,636 |
| | 42,572 |
|
| Net income | $ | 128,553 |
| | $ | 69,895 |
| | $ | 79,063 |
|
Comparison of 2017 with 2016
Net income was $128.6 million for 2017, compared to net income of $69.9 million for 2016. The increase in net income of $58.7 million was primarily driven by decreases in allocated provision for loan losses and noninterest expense as well as an increase in noninterest income.
Allocated provision for loan losses decreased $50.1 million from 2016 due in part to improvements in credit quality primarily related to energy loans.
Noninterest income increased $7.7 million from 2016 to 2017 due to a $3.1 million increase in shared revenue and incentive credits as well as a $4.5 million increase in fee income.
Noninterest expense decreased $32.9 million from the prior year primarily related to the civil money penalty imposed by the FRB on BSI that was reflected in the 2016 financial data.
Comparison of 2016 with 2015
Net income was $69.9 million for 2016, compared to net income of $79.1 million for 2015. The decrease in net income of $9.2 million was primarily driven by a decrease in net interest income and an increase in noninterest expense partially offset by an increase in noninterest income.
Net interest income of $158.3 million in 2016 decreased from $173.8 million in 2015 as a result of a decrease in net spread income driven by a decrease in average earning assets, due in part to lower average loan balances.
Noninterest income increased $22.1 million from 2015 to 2016 primarily due to a $10.4 million increase in shared revenue and incentive credits as well as an $11.7 million increase in fee income.
Noninterest expense increased $22.1 million from the prior year primarily related to the civil money penalty imposed by the FRB on BSI in December 2016.
Treasury
The following table contains selected financial data for the Treasury segment:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Net interest income (expense) | $ | 26,753 |
| | $ | (14,257 | ) | | $ | 24,221 |
|
| Allocated provision for loan losses | — |
| | — |
| | — |
|
| Noninterest income | 12,074 |
| | 54,228 |
| | 91,439 |
|
| Noninterest expense | 24,921 |
| | 21,096 |
| | 20,119 |
|
| Net income before income tax expense | 13,906 |
| | 18,875 |
| | 95,541 |
|
| Income tax expense | 4,867 |
| | 6,606 |
| | 33,439 |
|
| Net income | $ | 9,039 |
| | $ | 12,269 |
| | $ | 62,102 |
|
Comparison of 2017 with 2016
Net income was $9.0 million for 2017, compared to net income of $12.3 million for 2016. The decrease in net income of $3.2 million was primarily driven by a decrease in noninterest income offset by an increase in net interest income.
Net interest income increased $41.0 million compared to the prior year related to an increase in the spread on deposits and borrowed funds of $38.1 million.
Noninterest income in 2017 decreased $42.2 million compared to the prior year due primarily to a decrease in investment securities gains.
Comparison of 2016 with 2015
Net income was $12.3 million for 2016, compared to net income of $62.1 million for 2015. The decrease in net income of $49.8 million was primarily driven by decreases in net interest income and noninterest income.
Net interest income decreased $38.5 million compared to the prior year related to a decrease in the spread on earning assets.
Noninterest income in 2016 decreased $37.2 million compared to the prior year due primarily to a decrease in investment securities gains.
Analysis of Financial Condition
A review of the Company’s major balance sheet categories is presented below.
Federal Funds Sold, Securities Purchased Under Agreements to Resell and Interest Bearing Deposits
Federal funds sold, securities purchased under agreements to resell and interest bearing deposits totaled $13.4 billion at December 31, 2020, compared to $5.8 billion at December 31, 2019. The increase was primarily driven by a $7.4 billion increase in interest bearing deposits with the Federal Reserve.
Trading Account Assets
The following table details the composition of the Company’s trading account assets.
Table 7 Trading Account Assets |
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| Trading account assets: | | | |
| U.S. Treasury and other U.S. government agencies securities | $ | 74,195 |
| | $ | 2,820,797 |
|
| State and political subdivisions securities | 557 |
| | 219 |
|
| Other debt securities | 79 |
| | 4,120 |
|
| Interest rate contracts | 133,516 |
| | 290,238 |
|
| Foreign exchange contracts | 12,149 |
| | 28,367 |
|
| Other trading assets | — |
| | 859 |
|
| Total trading account assets | $ | 220,496 |
| | $ | 3,144,600 |
|
Trading Account Assets
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| (In Thousands) |
| Trading account assets: | | | |
| U.S. Treasury and other U.S. government agencies securities | $ | 109,142 | | | $ | 137,637 | |
| | | |
| | | |
| | | |
| | | |
| Interest rate contracts | 616,566 | | | 313,573 | |
| | | |
| Foreign exchange contracts | 36,741 | | | 22,766 | |
| | | |
| Total trading account assets | $ | 762,449 | | | $ | 473,976 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Trading account assets decreased $2.9 billionincreased $288 million to $220$762 million at December 31, 2017.2020. The decreaseincrease in trading account assets primarily related to a decreaseincreases in U.S. Treasury securities held by BSI.interest rate derivative contracts.
InvestmentDebt Securities
The composition of the Company’s investmentdebt securities portfolio reflects the Company’s investment strategy of maximizing portfolio yields commensurate with risk and liquidity considerations. The primary objectives of the Company’s investment strategy are to maintain an appropriate level of liquidity and provide a tool to assist in controlling the Company’s interest rate sensitivity position while at the same time producing adequate levels of interest income. The Company’s investmentdebt securities are classified into one of three categories based upon management’s intent to hold the investmentdebt securities: (i) investmentdebt securities available for sale, (ii) investmentdebt securities held to maturity or (iii) trading account assets and liabilities.
For additional financial information regarding the Company’s investmentdebt securities, see Note 3, Investment2, Debt Securities Available for Sale and InvestmentDebt Securities Held to Maturity, in the Notes to the Consolidated Financial Statements.
The following table reflects the carrying amount of the investmentdebt securities portfolio at the end of each of the last three years.
Table 8 Composition of Investment Securities Portfolio |
| | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Investment securities available for sale (at fair value): | | | | | |
| Debt securities: | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 4,204,438 |
| | $ | 2,374,331 |
| | $ | 3,211,492 |
|
| Agency mortgage-backed securities | 2,812,800 |
| | 3,763,338 |
| | 4,590,262 |
|
| Agency collateralized mortgage obligations | 5,200,011 |
| | 5,098,928 |
| | 2,705,256 |
|
| States and political subdivisions | 2,383 |
| | 8,641 |
| | 15,887 |
|
Equity securities (1) | 464,155 |
| | 419,817 |
| | 527,623 |
|
| Total securities available for sale | $ | 12,683,787 |
| | $ | 11,665,055 |
| | $ | 11,050,520 |
|
| Investment securities held to maturity (at amortized cost): | | | | | |
| Non-agency collateralized mortgage obligations | $ | 64,140 |
| | $ | 83,087 |
| | $ | 103,947 |
|
| Asset-backed securities | 9,308 |
| | 15,118 |
| | 24,011 |
|
| States and political subdivisions (2) | 911,393 |
| | 1,040,716 |
| | 1,128,240 |
|
| Other | 61,252 |
| | 64,296 |
| | 66,478 |
|
| Total securities held to maturity | $ | 1,046,093 |
| | $ | 1,203,217 |
| | $ | 1,322,676 |
|
| Total investment securities | $ | 13,729,880 |
| | $ | 12,868,272 |
| | $ | 12,373,196 |
|
| |
(1) | Includes $450 million, $403 million and $503 million at December 31, 2017, 2016 and 2015, respectively, of FHLB and Federal Reserve stock carried at par. | | | | | | | | | | | | | | | | | | | December 31, | | 2020 | | 2019 | | 2018 | | (In Thousands) | | Debt securities available for sale (at fair value): | | | | | | | U.S. Treasury and other U.S. government agencies | $ | 2,146,904 | | | $ | 3,127,525 | | | $ | 5,431,467 | | | Agency mortgage-backed securities | 865,648 | | | 1,325,857 | | | 2,129,821 | | | Agency collateralized mortgage obligations | 2,731,731 | | | 2,781,125 | | | 3,418,979 | | | States and political subdivisions | 636 | | | 798 | | | 949 | | | | | | | | | Total debt securities available for sale | $ | 5,744,919 | | | $ | 7,235,305 | | | $ | 10,981,216 | | | Debt securities held to maturity (at amortized cost): | | | | | | | U.S. Treasury and other U.S. government agencies | $ | 1,291,900 | | | $ | 1,287,049 | | | $ | — | | | Agency mortgage-backed securities | 570,115 | | | — | | | — | | | Collateralized mortgage obligations: | | | | | | | Agency | 8,144,522 | | | 4,846,862 | | | 2,089,860 | | | Non-agency | 29,186 | | | 37,705 | | | 46,834 | | | Asset-backed securities and other | 48,790 | | | 52,355 | | | 61,304 | | | States and political subdivisions (1) | 467,610 | | | 573,075 | | | 687,615 | | | Total debt securities held to maturity | $ | 10,552,123 | | | $ | 6,797,046 | | | $ | 2,885,613 | | | Total debt securities | $ | 16,297,042 | | | $ | 14,032,351 | | | $ | 13,866,829 | |
(1)Represents private placement transactions underwritten as loans but meeting the definition of a security within ASC Topic 320, Investments – Debt Securities, at origination. Additionally, the Company recorded an allowance of $2 million, at December 31, 2020, which is not included in the table above. |
| |
(2) | Represents private placement transactions underwritten as loans but meeting the definition of a security within ASC Topic 320, Investments – Debt and Equity Securities at origination. |
As of December 31, 2017,2020, the securities portfolio included $12.7$5.7 billion in available for sale debt securities and $1.0$10.6 billion in held to maturity debt securities. Approximately 92%97% of the total debt securities portfolio was backed by government agencies or government-sponsored entities.
During 20172020 and 2016,2019, the Company received proceeds of $210.9$863.7 million and $1.8$2.4 billion, respectively, related to the sale of U.S. Treasury securities, agency collateralized mortgage obligations, and other U.S. government agency mortgage-backed securities classified as available for sale which resulted in net gains of $3.0$22.6 million and $30.0 million, respectively. There were no sales of debt securities during 2018.
During 2015, theThe Company received proceeds of $3.4also purchased approximately $5.0 billion, related to the sale$4.4 billion and $1.2 billion of U.S. Treasury securities, and other U.S. government agency securities, mortgage-backed securities, agency collateralized mortgage obligations and states and political subdivisionssubdivision securities classified as available for sale which resulted in net gains of $81.7 million. Included in these proceeds received were approximately $263 million of state and political subdivisions and $287 million of mortgage-backed securities and collateralized mortgage obligations that the Company sold as part of its liquidity management strategy and due to LCR requirements.
The Company recognized $242 thousand in OTTI charges in 2017 compared to $130 thousand and $1.7 million in 2016 and 2015, respectively. While all securities are reviewed by the Company for OTTI, the securities primarily impacted by credit impairment are held to maturity non-agency collateralized mortgage obligations. Refer to Note 3, Investment Securities Available for Saleduring 2020, 2019 and Investment Securities Held to Maturity, in the Notes to the Consolidated Financial Statements for further details.2018, respectively.
The maturities and weighted average yields of the investmentdebt securities available for sale and the investmentdebt securities held to maturity portfolios at December 31, 20172020 are presented in the following table. Maturity data is calculated based on the next re-pricing date for debt securities with variable rates and remaining contractual maturity for securities with fixed rates. For other mortgage-backed securities excluding pass-through securities, the maturity was calculated using weighted average life. Taxable equivalent adjustments, using a 3521 percent tax rate, have been made in calculating yields on tax-exempt obligations.
Table 9 Investment Securities Maturity Schedule |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Maturing |
| | Within One Year | | After One But Within Five Years | | After Five But Within Ten Years | | After Ten Years |
| | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
| | (Dollars in Thousands) |
| Investment securities available for sale (at fair value): | | | | | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 209,458 |
| | 0.59 | % | | $ | 1,565,281 |
| | 1.15 | % | | $ | 1,574,081 |
| | 1.34 | % | | $ | 855,618 |
| | 1.24 | % |
| Agency mortgage-backed securities | 5,504 |
| | 1.24 |
| | 102,316 |
| | 1.74 |
| | 64,319 |
| | 1.88 |
| | 2,640,661 |
| | 1.36 |
|
| Agency collateralized mortgage obligations | 43 |
| | 3.67 |
| | 3,551 |
| | 2.24 |
| | 64,862 |
| | 1.70 |
| | 5,131,555 |
| | 1.34 |
|
| States and political subdivisions | 1,278 |
| | 6.96 |
| | — |
| | — |
| | 1,105 |
| | 3.87 |
| | — |
| | — |
|
| Equity securities (1) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 464,155 |
| | 1.71 |
|
| Total | $ | 216,283 |
| |
|
| | $ | 1,671,148 |
| |
|
| | $ | 1,704,367 |
| |
|
| | $ | 9,091,989 |
| |
|
|
| | | | | | | | | | | | | | | | |
| Investment securities held to maturity (at amortized cost): | | | | | | | | | | |
| Non-agency collateralized mortgage obligations | $ | 90 |
| | 3.61 | % | | $ | 1,758 |
| | 7.40 | % | | $ | — |
| | — | % | | $ | 62,292 |
| | 3.07 | % |
| Asset-backed securities | — |
| | — |
| | — |
| | — |
| | 17 |
| | 2.14 |
| | 9,291 |
| | 1.79 |
|
| States and political subdivisions | 102,858 |
| | 1.59 |
| | 190,487 |
| | 2.54 |
| | 214,188 |
| | 2.50 |
| | 403,860 |
| | 2.69 |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 61,252 |
| | 1.42 |
|
| Total | $ | 102,948 |
| |
|
| | $ | 192,245 |
| |
|
| | $ | 214,205 |
| |
|
| | $ | 536,695 |
| |
|
|
| Total securities | $ | 319,231 |
| | | | $ | 1,863,393 |
| | | | $ | 1,918,572 |
| | | | $ | 9,628,684 |
| | |
| |
(1) | Equity securities are included in the maturing after ten years category. |
Debt Securities Maturity Schedule | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Maturing |
| Within One Year | | After One But Within Five Years | | After Five But Within Ten Years | | After Ten Years |
| Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
| (Dollars in Thousands) |
| Debt securities available for sale (at fair value): | | | | | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 300,073 | | | 0.28 | % | | $ | 1,443,242 | | | 1.57 | % | | $ | 5,783 | | | 2.55 | % | | $ | 397,806 | | | 1.10 | % |
| Agency mortgage-backed securities | 7,038 | | | 1.86 | | | 49,488 | | | 2.18 | | | 107,145 | | | 2.32 | | | 701,977 | | | 1.28 | |
| Agency collateralized mortgage obligations | 15 | | | 3.71 | | | 11,346 | | | 1.94 | | | 38,097 | | | 2.08 | | | 2,682,273 | | | 1.08 | |
| States and political subdivisions | — | | | — | | | 636 | | | 4.74 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
| Total | $ | 307,126 | | | | | $ | 1,504,712 | | | | | $ | 151,025 | | | | | $ | 3,782,056 | | | |
| | | | | | | | | | | | | | | |
| Debt securities held to maturity (at amortized cost): | | | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | — | | | — | % | | $ | 1,291,900 | | | 2.11 | % | | $ | — | | | — | % | | $ | — | | | — | % |
| Agency mortgage-backed securities | — | | | — | | | — | | | — | | | — | | | — | | | 570,115 | | | 0.77 | |
| Collateralized mortgage obligations: | | | | | | | | | | | | | | |
| Agency | — | | | — | | | — | | | — | | | — | | | — | | | 8,144,522 | | | 1.60 | |
| Non-agency | 702 | | | 4.52 | | | — | | | — | | | 3,843 | | | 0.62 | | | 24,641 | | | 1.21 | |
| Asset-backed and other securities | — | | | — | | | — | | | — | | | 75 | | | 0.31 | | | 48,715 | | | 1.19 | |
| States and political subdivisions | 20,224 | | | 1.77 | | | 109,864 | | | 2.60 | | | 272,898 | | | 2.69 | | | 64,624 | | | 4.16 | |
| | | | | | | | | | | | | | | |
| Total | $ | 20,926 | | | | | $ | 1,401,764 | | | | | $ | 276,816 | | | | | $ | 8,852,617 | | | |
| Total securities | $ | 328,052 | | | | | $ | 2,906,476 | | | | | $ | 427,841 | | | | | $ | 12,634,673 | | | |
Lending Activities
The Company groups its loans into portfolio segments based on internal classifications reflecting the manner in which the allowance for loan losses is established and how credit risk is measured, monitored and reported. Commercial loans are comprised of commercial, financial and agricultural, real estate-construction, and commercial real estate–mortgage loans. Consumer loans are comprised of residential real-estate mortgage, equity lines of credit, equity loans, credit cards, consumer direct and consumer indirect loans.
The Company also had a portfolio
The Loan Portfolio table presents the classifications by major category at December 31, 2017,2020, and for each of the preceding four years.
Table 10 Loan Portfolio |
| | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (In Thousands) |
| Commercial loans: | | | | | | | | | |
| Commercial, financial and agricultural | $ | 25,749,949 |
| | $ | 25,122,002 |
| | $ | 26,022,374 |
| | $ | 23,828,537 |
| | $ | 20,209,209 |
|
| Real estate – construction | 2,273,539 |
| | 2,125,316 |
| | 2,354,253 |
| | 2,154,652 |
| | 1,736,348 |
|
| Commercial real estate – mortgage | 11,724,158 |
| | 11,210,660 |
| | 10,453,280 |
| | 9,877,206 |
| | 9,106,329 |
|
| Total commercial loans | $ | 39,747,646 |
| | $ | 38,457,978 |
| | $ | 38,829,907 |
| | $ | 35,860,395 |
| | $ | 31,051,886 |
|
| Consumer loans: | | | | | | | | | |
| Residential real estate – mortgage | $ | 13,365,747 |
| | $ | 13,259,994 |
| | $ | 13,993,285 |
| | $ | 13,922,656 |
| | $ | 12,706,879 |
|
| Equity lines of credit | 2,653,105 |
| | 2,543,778 |
| | 2,419,815 |
| | 2,304,784 |
| | 2,236,367 |
|
| Equity loans | 363,264 |
| | 445,709 |
| | 580,804 |
| | 634,968 |
| | 644,068 |
|
| Credit card | 639,517 |
| | 604,881 |
| | 627,359 |
| | 630,456 |
| | 660,073 |
|
| Consumer direct | 1,690,383 |
| | 1,254,641 |
| | 936,871 |
| | 652,927 |
| | 516,572 |
|
| Consumer indirect | 3,164,106 |
| | 3,134,948 |
| | 3,495,082 |
| | 2,870,408 |
| | 2,116,981 |
|
| Total consumer loans | $ | 21,876,122 |
| | $ | 21,243,951 |
| | $ | 22,053,216 |
| | $ | 21,016,199 |
| | $ | 18,880,940 |
|
| Covered loans | — |
| | 359,334 |
| | 440,961 |
| | 495,190 |
| | 734,190 |
|
| Total loans | $ | 61,623,768 |
| | $ | 60,061,263 |
| | $ | 61,324,084 |
| | $ | 57,371,784 |
| | $ | 50,667,016 |
|
| Loans held for sale | 67,110 |
| | 161,849 |
| | 70,582 |
| | 154,816 |
| | 147,109 |
|
| Total loans and loans held for sale | $ | 61,690,878 |
| | $ | 60,223,112 |
| | $ | 61,394,666 |
| | $ | 57,526,600 |
| | $ | 50,814,125 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| (In Thousands) |
| Commercial loans: | | | | | | | | | |
| Commercial, financial and agricultural | $ | 26,605,142 | | | $ | 24,432,238 | | | $ | 26,562,319 | | | $ | 25,749,949 | | | $ | 25,122,002 | |
| Real estate – construction | 2,498,331 | | | 2,028,682 | | | 1,997,537 | | | 2,273,539 | | | 2,125,316 | |
| Commercial real estate – mortgage | 13,565,314 | | | 13,861,478 | | | 13,016,796 | | | 11,724,158 | | | 11,210,660 | |
| Total commercial loans | $ | 42,668,787 | | | $ | 40,322,398 | | | $ | 41,576,652 | | | $ | 39,747,646 | | | $ | 38,457,978 | |
| Consumer loans: | | | | | | | | | |
| Residential real estate – mortgage | $ | 13,327,774 | | | $ | 13,533,954 | | | $ | 13,422,156 | | | $ | 13,365,747 | | | $ | 13,259,994 | |
| Equity lines of credit | 2,394,894 | | | 2,592,680 | | | 2,747,217 | | | 2,653,105 | | | 2,543,778 | |
| Equity loans | 179,762 | | | 244,968 | | | 298,614 | | | 363,264 | | | 445,709 | |
| Credit card | 881,702 | | | 1,002,365 | | | 818,308 | | | 639,517 | | | 604,881 | |
| Consumer direct | 1,929,723 | | | 2,338,142 | | | 2,553,588 | | | 1,690,383 | | | 1,254,641 | |
| Consumer indirect | 4,177,125 | | | 3,912,350 | | | 3,770,019 | | | 3,164,106 | | | 3,134,948 | |
| Total consumer loans | $ | 22,890,980 | | | $ | 23,624,459 | | | $ | 23,609,902 | | | $ | 21,876,122 | | | $ | 21,243,951 | |
| Covered loans | — | | | — | | | — | | | — | | | 359,334 | |
| Total loans | $ | 65,559,767 | | | $ | 63,946,857 | | | $ | 65,186,554 | | | $ | 61,623,768 | | | $ | 60,061,263 | |
| Loans held for sale | 236,586 | | | 112,058 | | | 68,766 | | | 67,110 | | | 161,849 | |
| Total loans and loans held for sale | $ | 65,796,353 | | | $ | 64,058,915 | | | $ | 65,255,320 | | | $ | 61,690,878 | | | $ | 60,223,112 | |
Loans and loans held for sale, net of unearned income, totaled $61.7$65.8 billion at December 31, 2017,2020, an increase of $1.5$1.7 billion from December 31, 2016.2019. The increase in total loans was primarily driven by $1.3due to the impact of $3.1 billion of SBA Paycheck Protection Program loans, which are primarily categorized in the commercial, financial and agricultural category in the table above, that the Company has facilitated to assist its commercial customers during the COVID-19 pandemic as well as reflecting an increase in commercial loans.line of credit draws as companies responded to liquidity needs during the COVID-19 pandemic.
See Note 4,3, Loans and Allowance for Loan Losses, and Note 4, Loan Sales and Servicing, in the Notes to the Consolidated Financial Statements for additional discussion.
The Selected Loan Maturity and Interest Rate Sensitivity table presents maturities of certain loan classifications at December 31, 2017,2020, and an analysis of the rate structure for such loans with maturities greater than one year.
Table 11 Selected Loan Maturity and Interest Rate Sensitivity |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Maturity | | Rate Structure For Loans Maturing Over One Year |
| | One Year or Less | | Over One Year Through Five Years | | Over Five Years | | Total | | Fixed Interest Rate | | Floating or Adjustable Rate |
| | (In Thousands) |
| Commercial, financial and agricultural | $ | 5,692,235 |
| | $ | 17,140,165 |
| | $ | 2,917,549 |
| | $ | 25,749,949 |
| | $ | 4,749,958 |
| | $ | 15,307,756 |
|
| Real estate - construction | 1,018,192 |
| | 1,049,014 |
| | 206,333 |
| | 2,273,539 |
| | 47,106 |
| | 1,208,241 |
|
| | $ | 6,710,427 |
| | $ | 18,189,179 |
| | $ | 3,123,882 |
| | $ | 28,023,488 |
| | $ | 4,797,064 |
| | $ | 16,515,997 |
|
Selected Loan Maturity and Interest Rate Sensitivity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Maturity | | Rate Structure For Loans Maturing Over One Year |
| One Year or Less | | Over One Year Through Five Years | | Over Five Years Through 15 Years | | Over 15 Years | | Total | | Fixed Interest Rate | | Floating or Adjustable Rate |
| (In Thousands) |
| Commercial, financial and agricultural | $ | 8,152,161 | | | $ | 15,191,994 | | | $ | 3,015,175 | | | $ | 245,812 | | | $ | 26,605,142 | | | $ | 5,245,533 | | | $ | 13,207,448 | |
| Real estate - construction | 1,225,279 | | | 1,054,997 | | | 114,543 | | | 103,512 | | | 2,498,331 | | | 81,808 | | | 1,191,244 | |
| Commercial real estate - mortgage | 2,875,297 | | | 7,412,114 | | | 2,669,118 | | | 608,785 | | | 13,565,314 | | | 1,868,710 | | | 8,821,307 | |
| Residential real estate - mortgage | 3,830,449 | | | 6,043,107 | | | 2,884,443 | | | 569,775 | | | 13,327,774 | | | 7,172,586 | | | 2,324,739 | |
| Equity lines of credit | 19,868 | | | 17,464 | | | 2,357,507 | | | 55 | | | 2,394,894 | | | 110,470 | | | 2,264,556 | |
| Equity loans | 12,993 | | | 46,837 | | | 72,163 | | | 47,769 | | | 179,762 | | | 164,496 | | | 2,273 | |
| Credit card | 157,094 | | | 693,559 | | | 31,049 | | | — | | | 881,702 | | | — | | | 724,608 | |
| Consumer direct | 499,672 | | | 940,926 | | | 489,042 | | | 83 | | | 1,929,723 | | | 991,190 | | | 438,861 | |
| Consumer indirect | 905,846 | | | 2,881,556 | | | 389,723 | | | — | | | 4,177,125 | | | 3,271,279 | | | — | |
| Total loans | $ | 17,678,659 | | | $ | 34,282,554 | | | $ | 12,022,763 | | | $ | 1,575,791 | | | $ | 65,559,767 | | | $ | 18,906,072 | | | $ | 28,975,036 | |
Scheduled repayments in the preceding table are reported in the maturity category in which the payment is due. Determinations of maturities are based upon contract terms.
Asset Quality
Nonperforming assets, which includes nonaccrual loans nonaccrualand loans held for sale, accruing loans 90 days past due, accruing TDRs 90 days past due, otherforeclosed real estate owned and other repossessed assets totaled $749$1.5 billion at December 31, 2020 compared to $710 million at December 31, 2017 compared to $1.0 billion at December 31, 2016.2019. The decreaseincrease in nonperforming assets was primarily due to a $262$724 million decreaseincrease in nonaccrual loans driven by a $236$272 million decreaseincrease in energy nonaccrual loans. At December 31, 2017, energycommercial, financial and agricultural nonaccrual loans, were $150primarily in the energy, financial services, and leisure and consumer services sectors, as well as a $344 million compared to $387increase in commercial real estate - mortgage and an $88 million at December 31, 2016. Excluding energy nonperforming loans, nonperforming assets totaled $598 million at December 31, 2017 compared to $625 million at December 31, 2016.increase in residential real estate - mortgage. As a percentage of total loans and loans held for sale and otherforeclosed real estate, owned, nonperforming assets were 1.21% (or 1.02% excluding energy nonperforming loans)2.23% at December 31, 20172020 compared with 1.68% (or 1.10% excluding energy nonperforming loans)1.11% at December 31, 2016.2019.
The Company defines potential problem loans as commercial loans rated substandard or doubtful that do not meet the definition of nonaccrual, TDR or 90 days past due and still accruing. See Note 4,3, Loans and Allowance for Loan Losses, in the Notes to the Consolidated Financial Statements for further information on the Company’s credit grade categories, which are derived from standard regulatory rating definitions. The following table provides a summary of potential problem loans.
Table 12
Potential Problem Loans
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| (In Thousands) |
| Commercial, financial and agricultural | $ | 566,800 | | | $ | 312,125 | |
| Real estate – construction | 7,298 | | | 13,099 | |
| Commercial real estate – mortgage | 179,316 | | | 78,428 | |
| $ | 753,414 | | | $ | 403,652 | |
Table 12 Potential Problem Loans |
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| Commercial, financial and agricultural | $ | 456,953 |
| | $ | 630,760 |
|
| Real estate – construction | 232 |
| | 5,578 |
|
| Commercial real estate – mortgage | 90,313 |
| | 57,108 |
|
| | $ | 547,498 |
| | $ | 693,446 |
|
The following table summarizes asset quality information for the past five years.
Table 13
Asset Quality
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| (In Thousands) |
| Nonaccrual loans: | | | | | | | | | |
| Commercial, financial and agricultural | $ | 540,741 | | | $ | 268,288 | | | $ | 400,389 | | | $ | 310,059 | | | $ | 596,454 | |
| Real estate – construction | 25,316 | | | 8,041 | | | 2,851 | | | 5,381 | | | 1,239 | |
| Commercial real estate – mortgage | 442,137 | | | 98,077 | | | 110,144 | | | 111,982 | | | 71,921 | |
| Residential real estate – mortgage | 235,463 | | | 147,337 | | | 167,099 | | | 173,843 | | | 140,303 | |
| Equity lines of credit | 42,606 | | | 38,113 | | | 37,702 | | | 34,021 | | | 33,453 | |
| Equity loans | 10,167 | | | 8,651 | | | 10,939 | | | 11,559 | | | 13,635 | |
| Credit card | — | | | — | | | — | | | — | | | — | |
| Consumer direct | 10,087 | | | 6,555 | | | 4,528 | | | 2,425 | | | 789 | |
| Consumer indirect | 24,713 | | | 31,781 | | | 17,834 | | | 9,595 | | | 5,926 | |
| | | | | | | | | |
| Covered | — | | | — | | | — | | | — | | | 730 | |
| Total nonaccrual loans | 1,331,230 | | | 606,843 | | | 751,486 | | | 658,865 | | | 864,450 | |
| Nonaccrual loans held for sale | — | | | — | | | — | | | — | | | 56,592 | |
| Total nonaccrual loans and loans held for sale | $ | 1,331,230 | | | $ | 606,843 | | | $ | 751,486 | | | $ | 658,865 | | | $ | 921,042 | |
| Accruing TDRs: (1) | | | | | | | | | |
| Commercial, financial and agricultural | $ | 17,686 | | | $ | 1,456 | | | $ | 18,926 | | | $ | 1,213 | | | $ | 8,726 | |
| Real estate – construction | 145 | | | 72 | | | 116 | | | 101 | | | 2,393 | |
| Commercial real estate – mortgage | 910 | | | 3,414 | | | 3,661 | | | 4,155 | | | 4,860 | |
| Residential real estate – mortgage | 53,380 | | | 57,165 | | | 57,446 | | | 64,898 | | | 59,893 | |
| Equity lines of credit | — | | | — | | | — | | | 237 | | | — | |
| Equity loans | 19,606 | | | 23,770 | | | 26,768 | | | 30,105 | | | 34,746 | |
| Credit card | — | | | — | | | — | | | — | | | — | |
| Consumer direct | 23,163 | | | 12,438 | | | 2,684 | | | 534 | | | 704 | |
| Consumer indirect | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | |
| Covered | — | | | — | | | — | | | — | | | — | |
| Total TDRs | 114,890 | | | 98,315 | | | 109,601 | | | 101,243 | | | 111,322 | |
| TDRs classified as loans held for sale | — | | | — | | | — | | | — | | | — | |
| Total TDRs (loans and loans held for sale) | $ | 114,890 | | | $ | 98,315 | | | $ | 109,601 | | | $ | 101,243 | | | $ | 111,322 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Loans 90 days past due and accruing: | | | | | | | | | |
| Commercial, financial and agricultural | $ | 35,472 | | | $ | 6,692 | | | $ | 8,114 | | | $ | 18,136 | | | $ | 2,891 | |
| Real estate – construction | 532 | | | 571 | | | 544 | | | 1,560 | | | 2,007 | |
| Commercial real estate – mortgage | 1,104 | | | 6,576 | | | 2,420 | | | 927 | | | — | |
| Residential real estate – mortgage | 45,761 | | | 4,641 | | | 5,927 | | | 8,572 | | | 3,356 | |
| Equity lines of credit | 2,624 | | | 1,567 | | | 2,226 | | | 2,259 | | | 2,950 | |
| Equity loans | 317 | | | 195 | | | 180 | | | 995 | | | 467 | |
| Credit card | 21,953 | | | 22,796 | | | 17,011 | | | 11,929 | | | 10,954 | |
| Consumer direct | 8,741 | | | 18,358 | | | 13,336 | | | 6,712 | | | 4,482 | |
| Consumer indirect | 5,066 | | | 9,730 | | | 9,791 | | | 7,288 | | | 7,197 | |
| | | | | | | | | |
| Covered | — | | | — | | | — | | | — | | | 27,238 | |
| Total loans 90 days past due and accruing | 121,570 | | | 71,126 | | | 59,549 | | | 58,378 | | | 61,542 | |
| Loans held for sale 90 days past due and accruing | — | | | — | | | — | | | — | | | — | |
| Total loans and loans held for sale 90 days past due and accruing | $ | 121,570 | | | $ | 71,126 | | | $ | 59,549 | | | $ | 58,378 | | | $ | 61,542 | |
| Foreclosed real estate | $ | 11,448 | | | $ | 20,833 | | | $ | 16,869 | | | $ | 17,278 | | | $ | 21,112 | |
| Other repossessed assets | $ | 5,846 | | | $ | 10,930 | | | $ | 12,031 | | | $ | 13,473 | | | $ | 7,587 | |
(1)TDR totals include accruing loans 90 days past due classified as TDR.
Table 13 Asset Quality |
| | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| (In Thousands) |
| Nonaccrual loans: | | | | | | | | | |
| Commercial, financial and agricultural | $ | 310,059 |
| | $ | 596,454 |
| | $ | 161,591 |
| | $ | 61,157 |
| | $ | 128,231 |
|
| Real estate – construction | 5,381 |
| | 1,239 |
| | 5,908 |
| | 7,964 |
| | 14,183 |
|
| Commercial real estate – mortgage | 111,982 |
| | 71,921 |
| | 69,953 |
| | 89,736 |
| | 129,672 |
|
| Residential real estate – mortgage | 173,843 |
| | 140,303 |
| | 113,234 |
| | 108,357 |
| | 102,904 |
|
| Equity lines of credit | 34,021 |
| | 33,453 |
| | 35,023 |
| | 32,874 |
| | 31,431 |
|
| Equity loans | 11,559 |
| | 13,635 |
| | 15,614 |
| | 19,029 |
| | 20,447 |
|
| Credit card | — |
| | — |
| | — |
| | — |
| | — |
|
| Consumer direct | 2,425 |
| | 789 |
| | 561 |
| | 799 |
| | 540 |
|
| Consumer indirect | 9,595 |
| | 5,926 |
| | 5,027 |
| | 2,624 |
| | 1,523 |
|
| Covered | — |
| | 730 |
| | 134 |
| | 114 |
| | 5,428 |
|
| Total nonaccrual loans | 658,865 |
| | 864,450 |
| | 407,045 |
| | 322,654 |
| | 434,359 |
|
| Nonaccrual loans held for sale | — |
| | 56,592 |
| | — |
| | — |
| | 7,359 |
|
| Total nonaccrual loans and loans held for sale | $ | 658,865 |
| | $ | 921,042 |
| | $ | 407,045 |
| | $ | 322,654 |
| | $ | 441,718 |
|
| Accruing TDRs: (1) | | | | | | | | | |
| Commercial, financial and agricultural | $ | 1,213 |
| | $ | 8,726 |
| | $ | 9,402 |
| | $ | 10,127 |
| | $ | 25,548 |
|
| Real estate – construction | 101 |
| | 2,393 |
| | 2,247 |
| | 2,112 |
| | 3,801 |
|
| Commercial real estate – mortgage | 4,155 |
| | 4,860 |
| | 33,904 |
| | 39,841 |
| | 59,727 |
|
| Residential real estate – mortgage | 64,898 |
| | 59,893 |
| | 67,343 |
| | 69,408 |
| | 74,236 |
|
| Equity lines of credit | 237 |
| | — |
| | — |
| | — |
| | — |
|
| Equity loans | 30,105 |
| | 34,746 |
| | 37,108 |
| | 41,197 |
| | 42,850 |
|
| Credit card | — |
| | — |
| | — |
| | — |
| | — |
|
| Consumer direct | 534 |
| | 704 |
| | 908 |
| | 298 |
| | 91 |
|
| Consumer indirect | — |
| | — |
| | — |
| | — |
| | — |
|
| Covered | — |
| | — |
| | — |
| | — |
| | 3,455 |
|
| Total TDRs | 101,243 |
| | 111,322 |
| | 150,912 |
| | 162,983 |
| | 209,708 |
|
| TDRs classified as loans held for sale | — |
| | — |
| | — |
| | — |
| | — |
|
| Total TDRs (loans and loans held for sale) | $ | 101,243 |
| | $ | 111,322 |
| | $ | 150,912 |
| | $ | 162,983 |
| | $ | 209,708 |
|
| Loans 90 days past due and accruing: | | | | | | | | | |
| Commercial, financial and agricultural | $ | 18,136 |
| | $ | 2,891 |
| | $ | 3,567 |
| | $ | 1,610 |
| | $ | 2,212 |
|
| Real estate – construction | 1,560 |
| | 2,007 |
| | 421 |
| | 477 |
| | 240 |
|
| Commercial real estate – mortgage | 927 |
| | — |
| | 2,237 |
| | 628 |
| | 797 |
|
| Residential real estate – mortgage | 8,572 |
| | 3,356 |
| | 1,961 |
| | 2,598 |
| | 2,460 |
|
| Equity lines of credit | 2,259 |
| | 2,950 |
| | 2,883 |
| | 2,679 |
| | 5,109 |
|
| Equity loans | 995 |
| | 467 |
| | 704 |
| | 997 |
| | 1,167 |
|
| Credit card | 11,929 |
| | 10,954 |
| | 9,718 |
| | 9,441 |
| | 10,277 |
|
| Consumer direct | 6,712 |
| | 4,482 |
| | 3,537 |
| | 2,296 |
| | 2,402 |
|
| Consumer indirect | 7,288 |
| | 7,197 |
| | 5,629 |
| | 2,771 |
| | 1,540 |
|
| Covered | — |
| | 27,238 |
| | 37,972 |
| | 47,957 |
| | 56,610 |
|
| Total loans 90 days past due and accruing | 58,378 |
| | 61,542 |
| | 68,629 |
| | 71,454 |
| | 82,814 |
|
| Loans held for sale 90 days past due and accruing | — |
| | — |
| | — |
| | — |
| | — |
|
| Total loans and loans held for sale 90 days past due and accruing | $ | 58,378 |
| | $ | 61,542 |
| | $ | 68,629 |
| | $ | 71,454 |
| | $ | 82,814 |
|
| Other real estate owned | $ | 17,278 |
| | $ | 21,112 |
| | $ | 20,862 |
| | $ | 20,600 |
| | $ | 23,228 |
|
| Other repossessed assets | $ | 13,473 |
| | $ | 7,587 |
| | $ | 8,774 |
| | $ | 3,920 |
| | $ | 3,360 |
|
| |
(1)
| TDR totals include accruing loans 90 days past due classified as TDR. |
Nonperforming assets, which include loans held for sale, are detailed in the following table.
Table 14
Nonperforming Assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| (In Thousands) |
| Nonaccrual loans | $ | 1,331,230 | | | $ | 606,843 | | | $ | 751,486 | | | $ | 658,865 | | | $ | 921,042 | |
| Loans 90 days or more past due and accruing (1) | 121,570 | | | 71,126 | | | 59,549 | | | 58,378 | | | 61,542 | |
| TDRs 90 days or more past due and accruing | 556 | | | 414 | | | 411 | | | 751 | | | 589 | |
| Nonperforming loans | 1,453,356 | | | 678,383 | | | 811,446 | | | 717,994 | | | 983,173 | |
| Foreclosed real estate | 11,448 | | | 20,833 | | | 16,869 | | | 17,278 | | | 21,112 | |
| Other repossessed assets | 5,846 | | | 10,930 | | | 12,031 | | | 13,473 | | | 7,587 | |
| Total nonperforming assets | $ | 1,470,650 | | | $ | 710,146 | | | $ | 840,346 | | | $ | 748,745 | | | $ | 1,011,872 | |
(1)Excludes loans classified as TDRs
Table 15
Asset Quality Ratios
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 | | 2018 |
| (Dollars in Thousands) |
| Nonperforming loans and loans held for sale to total loans and loans held for sale (1) | 2.21 | % | | 1.06 | % | | 1.24 | % |
| | | | | |
| | | | | |
| Nonperforming assets to total loans and loans held for sale, foreclosed real estate, and other repossessed assets (2) | 2.23 | | | 1.11 | | | 1.29 | |
| | | | | |
| | | | | |
| Allowance for loan losses to nonperforming loans (3) | 115.56 | | | 135.76 | | | 109.09 | |
| | | | | |
| | | | | |
| Allowance for loan losses to total loans | 2.56 | | | 1.44 | | | 1.36 | |
| | | | | |
| | | | | |
| Nonaccrual loans to total loans and loans held for sale (4) | 2.02 | | | 0.95 | | | 1.15 | |
| | | | | |
| | | | | |
| Allowance for loan losses to nonaccrual loans (5) | 126.16 | | | 151.77 | | | 117.80 | |
| | | | | |
| | | | | |
| | | | | |
(1)Nonperforming loans include nonaccrual loans and loans held for sale (including nonaccrual loans classified as TDR), accruing loans 90 days past due and accruing TDRs 90 days past due.
(2)Nonperforming assets include nonperforming loans, foreclosed real estate and other repossessed assets.
(3)Nonperforming loans include nonaccrual loans (including nonaccrual loans classified as TDR), accruing loans 90 days past due and accruing TDRs 90 days past due.
(4)Nonaccrual loans include nonaccrual loans and loans held for sale (including nonaccrual loans classified as TDR).
(5)Nonaccrual loans include nonaccrual loans classified as TDR.
Table 14 Nonperforming Assets |
| | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (In Thousands) |
| Nonaccrual loans | $ | 658,865 |
| | $ | 921,042 |
| | $ | 407,045 |
| | $ | 322,654 |
| | $ | 441,718 |
|
| Loans 90 days or more past due and accruing (1) | 58,378 |
| | 61,542 |
| | 68,629 |
| | 71,454 |
| | 82,814 |
|
| TDRs 90 days or more past due and accruing | 751 |
| | 589 |
| | 874 |
| | 1,722 |
| | 1,317 |
|
| Nonperforming loans | 717,994 |
| | 983,173 |
| | 476,548 |
| | 395,830 |
| | 525,849 |
|
| OREO | 17,278 |
| | 21,112 |
| | 20,862 |
| | 20,600 |
| | 23,228 |
|
| Other repossessed assets | 13,473 |
| | 7,587 |
| | 8,774 |
| | 3,920 |
| | 3,360 |
|
| Total nonperforming assets | $ | 748,745 |
| | $ | 1,011,872 |
| | $ | 506,184 |
| | $ | 420,350 |
| | $ | 552,437 |
|
| |
(1) | Excludes loans classified as TDRs |
Table 15 Asset Quality Ratios |
| | | | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Asset Quality Ratios: | | | | | | | | | |
| Nonperforming loans and loans held for sale as a percentage of total loans and loans held for sale (1) | 1.16 | % | | 1.63 | % | | 0.78 | % | | 0.69 | % | | 1.03 | % |
| Nonperforming assets as a percentage of total loans and loans held for sale, other real estate owned, and other repossessed assets (2) | 1.21 | % | | 1.68 | % | | 0.82 | % | | 0.73 | % | | 1.09 | % |
| Allowance for loan losses as a percentage of loans | 1.37 | % | | 1.40 | % | | 1.24 | % | | 1.19 | % | | 1.38 | % |
| Allowance for loan losses as a percentage of nonperforming loans (3) | 117.38 | % | | 90.47 | % | | 160.04 | % | | 173.06 | % | | 135.15 | % |
| |
(1) | Nonperforming loans include nonaccrual loans and loans held for sale (including nonaccrual loans classified as TDR), accruing loans 90 days past due and accruing TDRs 90 days past due. |
| |
(2) | Nonperforming assets include nonperforming loans, other real estate owned and other repossessed assets. |
| |
(3) | Nonperforming loans include nonaccrual loans (including nonaccrual loans classified as TDR), accruing loans 90 days past due and accruing TDRs 90 days past due.
|
The following table provides a rollforward of nonaccrual loans and loans held for sale, excluding covered loans.sale.
Table 17 Rollforward of Nonaccrual Loans |
| | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| Balance at beginning of year | $ | 920,312 |
| | $ | 406,911 |
|
| Additions | 664,005 |
| | 1,447,176 |
|
| Returns to accrual | (82,691 | ) | | (183,974 | ) |
| Loan sales | (103,997 | ) | | (150,412 | ) |
| Payments and paydowns | (395,941 | ) | | (289,891 | ) |
| Transfers to other real estate owned | (27,844 | ) | | (19,895 | ) |
| Charge-offs | (314,979 | ) | | (289,603 | ) |
| Balance at end of year | $ | 658,865 |
| | $ | 920,312 |
|
Rollforward of Nonaccrual Loans
| | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 |
| (In Thousands) |
| Balance at beginning of year | $ | 606,843 | | | $ | 751,486 | |
| Additions | 1,511,747 | | | 762,180 | |
| | | |
| Returns to accrual | (143,481) | | | (133,484) | |
| | | |
| Payments and paydowns | (502,841) | | | (158,874) | |
| Transfers to other real estate owned | (7,713) | | | (30,431) | |
| Charge-offs | (133,325) | | | (584,034) | |
| Balance at end of year | $ | 1,331,230 | | | $ | 606,843 | |
Generally, when a loan is placed on nonaccrual status, the Company applies the entire amount of any subsequent payments (including interest) to the outstanding principal balance. Consequently, a substantial portion of the interest received related to nonaccrual loans has been applied to principal. At December 31, 2017,2020, nonaccrual loans and loans held for sale excluding covered loans, totaled $659 million. During the year ended December 31, 2017, $8.4 million of interest income was recognized on loans and loans held for sale classified as nonaccrual as of December 31, 2017. Under the original terms of the loans, interest income would have been approximately $35.2 million for loans and loans held for sale classified as nonaccrual as of December 31, 2017.$1.3 billion.
When borrowers are experiencing financial difficulties, the Company may, in order to assist the borrowers in repaying the principal and interest owed to the Company, make certain modifications to the loan agreement. To facilitate this process, a concessionary modification that would not otherwise be considered may be granted resulting in a classification of the loan as a TDR. Within each of the Company’s loan classes, TDRs typically involve modification of the loan interest rate to a below market rate or an extension or deferment of the loan. The financial effects of TDRs are reflected in the components that comprise the allowance for loan losses in either the amount of charge-offs or loan loss provision and period-end allowance levels. All TDRs are considered to be impaired loans. Refer to Note 1, Summary of Significant Accounting Policies, and Note 4,3, Loans and Allowance for Loan Losses, in the Notes to the Consolidated Financial Statements for additional information.
The following table provides a rollforward of TDR activity excluding covered loans and loans held for sale.
Table 18 Rollforward of TDR Activity |
| | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| Balance at beginning of year | $ | 213,868 |
| | $ | 227,817 |
|
| New TDRs | 252,761 |
| | 70,136 |
|
| Payments/Payoffs | (167,431 | ) | | (80,712 | ) |
| Charge-offs | (5,305 | ) | | (2,319 | ) |
| Loan sales | (7,381 | ) | | — |
|
| Transfer to OREO | (906 | ) | | (1,054 | ) |
| Balance at end of year | $ | 285,606 |
| | $ | 213,868 |
|
Rollforward of TDR Activity
| | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 |
| (In Thousands) |
| Balance at beginning of year | $ | 215,481 | | | $ | 311,442 | |
| New TDRs | 243,713 | | | 98,179 | |
| | | |
| Payments/Payoffs | (135,357) | | | (146,984) | |
| Charge-offs | (22,227) | | | (45,003) | |
| | | |
| Transfers to foreclosed real estate | — | | | (2,153) | |
| Balance at end of year | $ | 301,610 | | | $ | 215,481 | |
The Company’s aggregate recorded investment in impaired loans modified through TDRs excluding covered loans increased to $286$302 million at December 31, 20172020 from $214$215 million at December 31, 2016. The increase in TDRs was primarily attributable to an increase in commercial, financial and agricultural TDRs.2019. Included in these amounts are $101$115 million at December 31, 20172020 and $111$98 million at December 31, 20162019 of accruing TDRs, excluding covered
loans.TDRs. Accruing TDRs are not considered nonperforming because they are performing in accordance with the restructured terms.
In response to the COVID-19 pandemic, beginning in March 2020 the Company began providing financial hardship relief in the form of payment deferrals and forbearances to consumer and commercial customers across a wide array of lending products, as well as the suspension of vehicle repossessions and home foreclosures. The payment deferrals and forbearances are currently expected to cover periods of three to six months. In most cases, if
the loans have been restructured for COVID-19 related hardships and meet certain criteria under the CARES Act they are not classified as TDRs and do not result in loans being placed on nonaccrual status. At December 31, 2020, the Company had outstanding deferrals on approximately seven thousand loans with an amortized cost of $448 million. Since March, the Company has granted deferrals on approximately 77 thousand loans with an amortized cost of $6.8 billion.
Allowance for Loan Losses
Management’s policy is to maintain the allowance for loan losses at a level sufficient to absorb estimated probable incurredexpected losses inover the life of the loan portfolio. The Company adopted ASC 326 effective January 1, 2020. Refer to Note 1, Summary of Significant Accounting Policies, and Note 4,3, Loans and Allowance for Loan Losses, in the Notes to the Consolidated Financial Statements for additional disclosures regarding the allowance for loan losses.
The total allowance for loan losses increased to $843$1.7 billion at December 31, 2020, from $921 million at December 31, 2017, from $8382019. The Company adopted ASC 326 effective January 1, 2020, and recorded a $184.9 million increase to its allowance for loan losses that was reflected as an adjustment to shareholder's equity, net of taxes. The increase was largely attributable to the residential real estate and consumer loan portfolios, given the longer asset duration associated with these portfolios.
The increase in the allowance for loan losses during 2020, reflected an increase in expected losses over the life of the loan portfolio. The most significant driver of this increase is attributable to the recognition of the COVID-19 pandemic through an update to the reasonable and supportable macroeconomic forecast included in the baseline calculation, which most significantly impacted the commercial loan portfolios, but also drove increases in the consumer loan portfolio. The macroeconomic forecast utilized as of December 31, 2020, represented the best information available at the end of the reporting period, and included the following considerations:
•Steep economic contraction in the second quarter of 2020, with a recovery starting in the third quarter of 2020.
•Substantial increase in unemployment with a peak during the second quarter of 2020 and along with a substantially slower unemployment recovery.
•Stable GDP outlook.
Although management’s overall economic outlook improved somewhat at December 31, 2016. 2020 from the prior quarters, risks to the downside increased, driven by accelerating COVID-19 cases in the Company's footprint and increased political unrest. This increased uncertainty drove the consideration of the downside scenario adjustment included in the December 31, 2020 calculation.
An additional driver of the increase in the allowance for loan losses is the recognition of the decline in oil prices on the energy portfolio. Management recognized a qualitative factor adjustment, separately from the baseline scenario considerations as oil prices are not a significant driver of the econometric models used in the baseline allowance calculation. This qualitative factor adjustment remained in place as of December 31, 2020, due to concerns around continued volatility in oil prices.
The ratio of the allowance for loan losses to total loans was 1.37%2.56% at December 31, 20172020 compared 1.40%1.44% at December 31, 2016.2019. Nonperforming loans decreasedincreased to $718$1.5 billion at December 31, 2020 from $678 million at December 31, 2017 from $983 million at December 31, 2016. The allowance attributable to individually impaired loans was $104 million at December 31, 2017 compared to $138 million at December 31, 2016. Loans individually evaluated for impairment may have no allowance recorded if the fair value of the collateral less costs to sell or the present value of the loan's expected future cash flows exceeds the recorded investment of the loans.2019.
Net charge-offs were 0.47%0.59% of average loans for 20172020 compared to 0.37%0.88% of average loans for 2016.2019. The increase in net charge-offs during 2017 as compareddecrease was due to the corresponding period in 2016 was driven in part by a $14.3an $54.5 million increasedecrease in commercial, financial, and agricultural net charge-offs as well as a $24.7$86.4 million increasedecrease in consumer direct net charge-offs and a $7.5$39.8 million increasedecrease in consumer indirect net charge-offs. Commercial, financial and agricultural net charge-offs included $57.2 million of net charge-offs related to energy loans for 2017 compared to $50.7 million of net charge-offs related to energy loans for 2016.
When determining the adequacy of the allowance for loan losses, management considers changes in the size and character of the loan portfolio, changes in nonperforming and past due loans, historical loan loss experience, the existing risk of individual loans, concentrations of loans to specific borrowers or industries and current economic
conditions. The portion of the allowance that has not been identified by the Company as related to specific loan categories has been allocated to the individual loan categories on a pro rata basis for purposes of the table below.
The following table presents an estimated allocation of the allowance for loan losses. This allocation of the allowance for loan losses is calculated on an approximate basis and is not necessarily indicative of future losses or allocations. The entire amount of the allowance is available to absorb losses occurring in any category of loans.
Table 18
Allocation of Allowance for Loan Losses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Amount | | Percent of Loans to Total Loans | | Amount | | Percent of Loans to Total Loans | | Amount | | Percent of Loans to Total Loans | | Amount | | Percent of Loans to Total Loans | | Amount | | Percent of Loans to Total Loans |
| (Dollars in Thousands) |
| Commercial, financial and agricultural | $ | 658,228 | | | 40.6 | % | | $ | 408,197 | | | 38.2 | % | | $ | 393,315 | | | 40.7 | % | | $ | 420,635 | | | 41.8 | % | | $ | 458,580 | | | 41.8 | % |
| Real estate – construction | 60,768 | | | 3.8 | | | 32,108 | | | 3.2 | | | 33,260 | | | 3.0 | | | 38,126 | | | 3.7 | | | 38,990 | | | 3.5 | |
| Commercial real estate – mortgage | 250,324 | | | 20.7 | | | 86,525 | | | 21.7 | | | 79,177 | | | 20.0 | | | 80,007 | | | 19.0 | | | 77,947 | | | 18.7 | |
| Residential real estate – mortgage | 138,419 | | | 20.3 | | | 52,084 | | | 21.1 | | | 50,591 | | | 20.6 | | | 56,151 | | | 21.7 | | | 60,021 | | | 22.1 | |
| Equity lines of credit | 66,602 | | | 3.7 | | | 40,697 | | | 4.0 | | | 42,566 | | | 4.2 | | | 43,827 | | | 4.3 | | | 48,389 | | | 4.3 | |
| Equity loans | 9,448 | | | 0.3 | | | 6,308 | | | 0.4 | | | 8,772 | | | 0.5 | | | 9,878 | | | 0.6 | | | 11,074 | | | 0.7 | |
| Credit card | 124,840 | | | 1.3 | | | 61,331 | | | 1.6 | | | 50,453 | | | 1.3 | | | 40,765 | | | 1.0 | | | 39,361 | | | 1.0 | |
| Consumer direct | 201,095 | | | 2.9 | | | 146,281 | | | 3.7 | | | 140,308 | | | 3.9 | | | 82,222 | | | 2.8 | | | 44,745 | | | 2.1 | |
| Consumer indirect | 169,750 | | | 6.4 | | | 87,462 | | | 6.1 | | | 86,800 | | | 5.8 | | | 71,149 | | | 5.1 | | | 59,186 | | | 5.2 | |
| Total, excluding covered loans | 1,679,474 | | | 100.0 | | | 920,993 | | | 100.0 | | | 885,242 | | | 100.0 | | | 842,760 | | | 100.0 | | | 838,293 | | | 99.4 | |
| Covered loans | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0.6 | |
| Total | $ | 1,679,474 | | | 100.0 | % | | $ | 920,993 | | | 100.0 | % | | $ | 885,242 | | | 100.0 | % | | $ | 842,760 | | | 100.0 | % | | $ | 838,293 | | | 100.0 | % |
Table 19 Allocation of Allowance for Loan Losses |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | Amount | | Percent of Loans to Total Loans | | Amount | | Percent of Loans to Total Loans | | Amount | | Percent of Loans to Total Loans | | Amount | | Percent of Loans to Total Loans | | Amount | | Percent of Loans to Total Loans |
| | (Dollars in Thousands) |
| Commercial, financial and agricultural | $ | 420,635 |
| | 41.8 | % | | $ | 458,580 |
| | 41.8 | % | | $ | 402,113 |
| | 42.4 | % | | $ | 299,482 |
| | 41.5 | % | | $ | 292,327 |
| | 39.9 | % |
| Real estate – construction | 38,126 |
| | 3.7 |
| | 38,990 |
| | 3.5 |
| | 46,709 |
| | 3.9 |
| | 48,648 |
| | 3.8 |
| | 33,218 |
| | 3.4 |
|
| Commercial real estate – mortgage | 80,007 |
| | 19.0 |
| | 77,947 |
| | 18.7 |
| | 75,359 |
| | 17.0 |
| | 89,585 |
| | 17.2 |
| | 125,742 |
| | 18.0 |
|
| Residential real estate – mortgage | 56,151 |
| | 21.7 |
| | 60,021 |
| | 22.1 |
| | 64,029 |
| | 22.8 |
| | 69,716 |
| | 24.3 |
| | 71,321 |
| | 25.1 |
|
| Equity lines of credit | 43,827 |
| | 4.3 |
| | 48,389 |
| | 4.3 |
| | 53,027 |
| | 4.0 |
| | 66,151 |
| | 4.0 |
| | 62,258 |
| | 4.4 |
|
| Equity loans | 9,878 |
| | 0.6 |
| | 11,074 |
| | 0.7 |
| | 15,048 |
| | 1.0 |
| | 18,760 |
| | 1.1 |
| | 21,996 |
| | 1.3 |
|
| Credit card | 40,765 |
| | 1.0 |
| | 39,361 |
| | 1.0 |
| | 39,682 |
| | 1.0 |
| | 42,523 |
| | 1.1 |
| | 46,395 |
| | 1.3 |
|
| Consumer direct | 82,222 |
| | 2.8 |
| | 44,745 |
| | 2.1 |
| | 21,599 |
| | 1.5 |
| | 16,139 |
| | 1.1 |
| | 14,250 |
| | 1.0 |
|
| Consumer indirect | 71,149 |
| | 5.1 |
| | 59,186 |
| | 5.2 |
| | 43,667 |
| | 5.7 |
| | 31,229 |
| | 5.0 |
| | 30,258 |
| | 4.2 |
|
| Total, excluding covered loans | 842,760 |
| | 100.0 |
| | 838,293 |
| | 99.4 |
| | 761,233 |
| | 99.3 |
| | 682,233 |
| | 99.1 |
| | 697,765 |
| | 98.6 |
|
| Covered loans | — |
| | — |
| | — |
| | 0.6 |
| | 1,440 |
| | 0.7 |
| | 2,808 |
| | 0.9 |
| | 2,954 |
| | 1.4 |
|
| Total | $ | 842,760 |
| | 100.0 | % | | $ | 838,293 |
| | 100.0 | % | | $ | 762,673 |
| | 100.0 | % | | $ | 685,041 |
| | 100.0 | % | | $ | 700,719 |
| | 100.0 | % |
The following tabletables sets forth information with respect to the Company’s loans, excluding loans held for sale, and the allowance for loan losses.
Table 19
Summary of Loan Loss Experience
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| (Dollars in Thousands) |
| Average loans outstanding during the year | $ | 66,886,403 | | | $ | 64,080,469 | | | $ | 63,700,464 | | | $ | 60,365,691 | | | $ | 61,425,876 | |
| | | | | | | | | |
| Allowance for loan losses, beginning of year, prior to adoption of ASC 326 | $ | 920,993 | | | $ | 885,242 | | | $ | 842,760 | | | $ | 838,293 | | | $ | 762,673 | |
| Impact of adopting ASC 326 | 184,931 | | | — | | | — | | | — | | | — | |
| Allowance for loan losses, beginning of year, after adoption of ASC 326 | 1,105,924 | | | 885,242 | | | 842,760 | | | 838,293 | | | 762,673 | |
| Charge-offs: | | | | | | | | | |
| Commercial, financial and agricultural | 117,318 | | | 171,507 | | | 83,017 | | | 106,570 | | | 84,218 | |
| Real estate – construction | 250 | | | 19 | | | 436 | | | 82 | | | 505 | |
| Commercial real estate – mortgage | 9,669 | | | 2,578 | | | 3,431 | | | 9,901 | | | 4,361 | |
| Residential real estate – mortgage | 2,613 | | | 7,512 | | | 9,073 | | | 10,433 | | | 8,787 | |
| Equity lines of credit | 2,384 | | | 9,374 | | | 6,083 | | | 7,305 | | | 8,625 | |
| Equity loans | 696 | | | 2,714 | | | 2,665 | | | 3,549 | | | 2,534 | |
| Credit card | 80,034 | | | 72,410 | | | 47,509 | | | 44,073 | | | 37,349 | |
| Consumer direct | 165,091 | | | 258,561 | | | 132,609 | | | 78,846 | | | 52,026 | |
| Consumer indirect | 100,125 | | | 135,975 | | | 115,881 | | | 98,293 | | | 91,198 | |
| | | | | | | | | |
| Covered | — | | | — | | | — | | | — | | | 1,484 | |
| Total charge-offs | 478,180 | | | 660,650 | | | 400,704 | | | 359,052 | | | 291,087 | |
| Recoveries: | | | | | | | | | |
| Commercial, financial and agricultural | 13,458 | | | 13,118 | | | 11,294 | | | 19,097 | | | 11,039 | |
| Real estate – construction | 148 | | | 2,091 | | | 285 | | | 1,080 | | | 2,490 | |
| Commercial real estate – mortgage | 771 | | | 579 | | | 6,317 | | | 3,904 | | | 2,747 | |
| Residential real estate – mortgage | 1,691 | | | 3,673 | | | 3,798 | | | 5,827 | | | 5,751 | |
| Equity lines of credit | 2,886 | | | 7,140 | | | 6,145 | | | 4,294 | | | 4,314 | |
| Equity loans | 664 | | | 2,523 | | | 3,167 | | | 2,412 | | | 1,417 | |
| Credit card | 7,169 | | | 7,573 | | | 5,419 | | | 3,938 | | | 2,892 | |
| Consumer direct | 18,329 | | | 25,363 | | | 10,048 | | | 7,297 | | | 5,164 | |
| Consumer indirect | 40,816 | | | 36,897 | | | 31,293 | | | 27,946 | | | 28,303 | |
| | | | | | | | | |
| Covered | — | | | — | | | — | | | 31 | | | 1 | |
| Total recoveries | 85,932 | | | 98,957 | | | 77,766 | | | 75,826 | | | 64,118 | |
| Net charge-offs | 392,248 | | | 561,693 | | | 322,938 | | | 283,226 | | | 226,969 | |
| | | | | | | | | |
| | | | | | | | | |
| Total provision for loan losses | 965,798 | | | 597,444 | | | 365,420 | | | 287,693 | | | 302,589 | |
| Allowance for loan losses, end of year | $ | 1,679,474 | | | $ | 920,993 | | | $ | 885,242 | | | $ | 842,760 | | | $ | 838,293 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Net charge-offs to average loans | 0.59 | % | | 0.88 | % | | 0.51 | % | | 0.47 | % | | 0.37 | % |
| | | | | | | | | |
Table 20 Summary of Loan Loss Experience |
| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (Dollars in Thousands) |
| Average loans outstanding during the year | $ | 60,365,691 |
| | $ | 61,425,876 |
| | $ | 60,070,527 |
| | $ | 54,308,414 |
| | $ | 47,810,838 |
|
| Allowance for loan losses, beginning of year | $ | 838,293 |
| | $ | 762,673 |
| | $ | 685,041 |
| | $ | 700,719 |
| | $ | 802,853 |
|
| Charge-offs: | | | | | | | | | |
| Commercial, financial and agricultural | 106,570 |
| | 84,218 |
| | 25,831 |
| | 31,627 |
| | 47,751 |
|
| Real estate – construction | 82 |
| | 505 |
| | 204 |
| | 2,882 |
| | 8,403 |
|
| Commercial real estate – mortgage | 9,901 |
| | 4,361 |
| | 3,678 |
| | 12,088 |
| | 35,011 |
|
| Residential real estate – mortgage | 10,433 |
| | 8,787 |
| | 10,648 |
| | 21,161 |
| | 73,551 |
|
| Equity lines of credit | 7,305 |
| | 8,625 |
| | 12,231 |
| | 20,101 |
| | 31,705 |
|
| Equity loans | 3,549 |
| | 2,534 |
| | 3,751 |
| | 7,487 |
| | 13,167 |
|
| Credit card | 44,073 |
| | 37,349 |
| | 32,230 |
| | 36,129 |
| | 32,534 |
|
| Consumer direct | 78,846 |
| | 52,026 |
| | 28,286 |
| | 22,960 |
| | 21,844 |
|
| Consumer indirect | 98,293 |
| | 91,198 |
| | 54,597 |
| | 29,363 |
| | 18,198 |
|
| Covered | — |
| | 1,484 |
| | 2,228 |
| | 2,466 |
| | 6,708 |
|
| Total charge-offs | 359,052 |
| | 291,087 |
| | 173,684 |
| | 186,264 |
| | 288,872 |
|
| Recoveries: | | | | | | | | | |
| Commercial, financial and agricultural | 19,097 |
| | 11,039 |
| | 12,190 |
| | 19,796 |
| | 20,050 |
|
| Real estate – construction | 1,080 |
| | 2,490 |
| | 4,585 |
| | 5,243 |
| | 11,442 |
|
| Commercial real estate – mortgage | 3,904 |
| | 2,747 |
| | 1,107 |
| | 2,576 |
| | 7,333 |
|
| Residential real estate – mortgage | 5,827 |
| | 5,751 |
| | 7,264 |
| | 6,003 |
| | 6,750 |
|
| Equity lines of credit | 4,294 |
| | 4,314 |
| | 3,211 |
| | 4,710 |
| | 4,205 |
|
| Equity loans | 2,412 |
| | 1,417 |
| | 3,343 |
| | 2,126 |
| | 2,092 |
|
| Credit card | 3,938 |
| | 2,892 |
| | 2,880 |
| | 2,814 |
| | 2,650 |
|
| Consumer direct | 7,297 |
| | 5,164 |
| | 6,177 |
| | 5,709 |
| | 6,137 |
|
| Consumer indirect | 27,946 |
| | 28,303 |
| | 16,918 |
| | 10,075 |
| | 10,045 |
|
| Covered | 31 |
| | 1 |
| | 3 |
| | 5,233 |
| | 8,488 |
|
| Total recoveries | 75,826 |
| | 64,118 |
| | 57,678 |
| | 64,285 |
| | 79,192 |
|
| Net charge-offs | 283,226 |
| | 226,969 |
| | 116,006 |
| | 121,979 |
| | 209,680 |
|
| Total provision for loan losses | 287,693 |
| | 302,589 |
| | 193,638 |
| | 106,301 |
| | 107,546 |
|
| Allowance for loan losses, end of year | $ | 842,760 |
| | $ | 838,293 |
| | $ | 762,673 |
| | $ | 685,041 |
| | $ | 700,719 |
|
| Net charge-offs to average loans | 0.47 | % | | 0.37 | % | | 0.19 | % | | 0.22 | % | | 0.44 | % |
| | | | | | | | | | | | | | | | | |
| As of and for the year ended |
| December 31, |
| 2020 | | 2019 | | 2018 |
| (Dollars in Thousands) |
| Commercial, financial and agricultural | 0.38 | % | | 0.62 | % | | 0.27 | % |
| Net charge-offs | $ | 103,860 | | | $ | 158,389 | | | $ | 71,723 | |
| Average total loans | 27,395,911 | | | 25,417,911 | | | 26,875,616 | |
| Real estate - construction | — | % | | (0.10) | % | | 0.01 | % |
| Net charge-offs | $ | 102 | | | $ | (2,072) | | | $ | 151 | |
| Average total loans | 2,296,160 | | | 2,018,362 | | | 2,164,904 | |
| Commercial real estate - mortgage | 0.06 | % | | 0.02 | % | | (0.02) | % |
| Net charge-offs | $ | 8,898 | | | $ | 1,999 | | | $ | (2,886) | |
| Average total loans | 13,780,127 | | | 13,088,044 | | | 11,948,850 | |
| Residential real estate - mortgage | 0.01 | % | | 0.03 | % | | 0.04 | % |
| Net charge-offs | $ | 922 | | | $ | 3,839 | | | $ | 5,275 | |
| Average total loans | 13,512,284 | | | 13,422,279 | | | 13,347,558 | |
| Equity lines of credit | (0.02) | % | | 0.08 | % | | — | % |
| Net charge-offs | $ | (502) | | | $ | 2,234 | | | $ | (62) | |
| Average total loans | 2,512,609 | | | 2,668,536 | | | 2,684,098 | |
| Equity loans | 0.02 | % | | 0.07 | % | | (0.15) | % |
| Net charge-offs | $ | 32 | | | $ | 191 | | | $ | (502) | |
| Average total loans | 211,691 | | | 274,836 | | | 326,964 | |
| Credit Card | 7.62 | % | | 7.32 | % | | 5.93 | % |
| Net charge-offs | $ | 72,865 | | | $ | 64,837 | | | $ | 42,090 | |
| Average total loans | 955,666 | | | 886,060 | | | 709,309 | |
| Consumer direct | 6.87 | % | | 9.43 | % | | 5.73 | % |
| Net charge-offs | $ | 146,762 | | | $ | 233,198 | | | $ | 122,561 | |
| Average total loans | 2,137,000 | | | 2,471,802 | | | 2,138,629 | |
| Consumer indirect | 1.45 | % | | 2.59 | % | | 2.41 | % |
| Net charge-offs | $ | 59,309 | | | $ | 99,078 | | | $ | 84,588 | |
| Average total loans | 4,084,955 | | | 3,832,639 | | | 3,504,536 | |
| Total loans | 0.59 | % | | 0.88 | % | | 0.51 | % |
| Net charge-offs | $ | 392,248 | | | $ | 561,693 | | | $ | 322,938 | |
| Average total loans | 66,886,403 | | | 64,080,469 | | | 63,700,464 | |
Concentrations
The following tables provide further details regarding the Company’s commercial, financial and agricultural, commercial real estate, residential real estate and consumer segments as of December 31, 20172020 and 2016.2019.
Commercial, Financial and Agricultural
In accordance with the Company's lending policy, each commercial loan undergoes a detailed underwriting process, which incorporates the Company's risk tolerance, credit policy and procedures. In addition, the Company has a graduated approval process which accounts for the quality, loan type and total exposure of the borrower. The Company has also adopted an internal exposure based limit which is based on a variety of risk factors, including but not limited to the borrower's industry.
The commercial, financial and agricultural portfolio segment totaled $25.7$26.6 billion at December 31, 2017,2020, compared to $25.1$24.4 billion at December 31, 2016.2019. This segment consists primarily of large national and international companies
and small to mid-sized companies. This segment also contains owner occupied commercial real estate loans. Loans in this portfolio are generally underwritten individually and are secured with the assets of the
company, and/or the personal guarantees of the business owners. The Company minimizes the risk associated with this segment by various means, including maintaining prudent advance rates, financial covenants, and obtaining personal guarantees from the principals of the company.
The following table provides details related to the commercial, financial, and agricultural segment.
Table 21 Commercial, Financial and Agricultural |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 (1) |
| Industry | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | | (In Thousands) |
| Autos, Components and Durable Goods | | $ | 543,917 |
| | $ | 512 |
| | $ | — |
| | $ | — |
| | $ | 579,864 |
| | $ | 40 |
| | $ | — |
| | $ | 57 |
|
| Basic Materials | | 622,869 |
| | 53 |
| | — |
| | — |
| | 740,247 |
| | 12,388 |
| | — |
| | — |
|
| Capital Goods & Industrial Services | | 2,833,429 |
| | 12,889 |
| | 143 |
| | 2,626 |
| | 2,580,976 |
| | 645 |
| | 174 |
| | — |
|
| Construction & Infrastructure | | 618,795 |
| | 16,145 |
| | 6 |
| | — |
| | 550,282 |
| | 33,992 |
| | 29 |
| | — |
|
| Consumer & Healthcare | | 3,512,885 |
| | 41,594 |
| | 886 |
| | — |
| | 3,169,897 |
| | 3,363 |
| | 374 |
| | 56 |
|
| Energy | | 2,791,942 |
| | 150,448 |
| | — |
| | — |
| | 3,246,189 |
| | 386,544 |
| | — |
| | — |
|
| Financial Services | | 1,110,420 |
| | 29 |
| | — |
| | — |
| | 1,234,469 |
| | 115 |
| | — |
| | — |
|
| General Corporates | | 1,558,631 |
| | 3,260 |
| | 23 |
| | 14,975 |
| | 2,145,350 |
| | 80,606 |
| | 54 |
| | 2,684 |
|
| Institutions | | 3,187,330 |
| | 1,913 |
| | — |
| | — |
| | 2,368,603 |
| | 1,650 |
| | 7,868 |
| | 74 |
|
| Leisure | | 2,440,319 |
| | 3,030 |
| | 107 |
| | — |
| | 2,013,522 |
| | 8,458 |
| | 170 |
| | — |
|
| Real Estate | | 944,538 |
| | — |
| | — |
| | — |
| | 1,045,810 |
| | — |
| | — |
| | — |
|
| Retailers | | 2,623,670 |
| | 6,424 |
| | — |
| | 535 |
| | 2,407,291 |
| | 30,460 |
| | — |
| | — |
|
| Telecoms, Technology & Media | | 1,499,897 |
| | 3,317 |
| | 48 |
| | — |
| | 1,521,981 |
| | 2,234 |
| | 53 |
| | 20 |
|
| Transportation | | 856,438 |
| | 50,587 |
| | — |
| | — |
| | 792,672 |
| | 11,384 |
| | — |
| | — |
|
| Utilities | | 604,869 |
| | 19,858 |
| | — |
| | — |
| | 724,849 |
| | 24,575 |
| | 4 |
| | — |
|
| Total Commercial, Financial and Agricultural | | $ | 25,749,949 |
| | $ | 310,059 |
| | $ | 1,213 |
| | $ | 18,136 |
| | $ | 25,122,002 |
| | $ | 596,454 |
| | $ | 8,726 |
| | $ | 2,891 |
|
(1) December 31, 2016 data has been revised to conform to current period industry classifications, as the Company redefined industry classifications during the second quarter of 2017.Commercial, Financial and Agricultural
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| Industry | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | (In Thousands) |
| Autos, Components and Durable Goods | | $ | 1,856,157 | | | $ | 34,560 | | | $ | 16,464 | | | $ | 3,233 | | | $ | 2,139,178 | | | $ | 47,261 | | | $ | — | | | $ | 8 | |
| Basic Materials | | 496,824 | | | 903 | | | — | | | 4 | | | 526,485 | | | 1,342 | | | — | | | — | |
| Capital Goods & Industrial Services | | 2,215,646 | | | 4,643 | | | 451 | | | — | | | 1,987,046 | | | 23,736 | | | 96 | | | 4 | |
| Construction & Construction Materials | | 706,978 | | | 30,837 | | | — | | | — | | | 653,157 | | | 45,243 | | | — | | | — | |
| Consumer | | 646,965 | | | 25,627 | | | — | | | — | | | 641,289 | | | 1,540 | | | — | | | — | |
| Healthcare | | 3,064,991 | | | 7,966 | | | 285 | | | — | | | 2,747,248 | | | 24,989 | | | 314 | | | — | |
| Energy | | 2,388,611 | | | 244,001 | | | — | | | — | | | 2,905,791 | | | 69,042 | | | — | | | — | |
| Financial Services | | 958,893 | | | 44,824 | | | — | | | 5,345 | | | 1,009,533 | | | 23,427 | | | — | | | 1,615 | |
| General Corporates | | 2,214,504 | | | 24,315 | | | — | | | 24,591 | | | 1,726,318 | | | 16,883 | | | 475 | | | 5,065 | |
| Institutions | | 3,442,650 | | | 12,755 | | | — | | | — | | | 3,166,048 | | | 400 | | | — | | | — | |
| Leisure and Consumer Services | | 3,709,817 | | | 105,688 | | | 296 | | | — | | | 2,777,440 | | | 6,957 | | | 335 | | | — | |
| Real Estate | | 1,525,687 | | | — | | | — | | | — | | | 1,490,985 | | | — | | | — | | | — | |
| Retail | | 475,655 | | | 2,521 | | | 190 | | | — | | | 483,988 | | | 1,869 | | | 236 | | | — | |
| Telecoms, Technology & Media | | 1,454,105 | | | 2,045 | | | — | | | — | | | 909,476 | | | 2,558 | | | — | | | — | |
| Transportation | | 983,699 | | | 56 | | | — | | | 2,299 | | | 903,034 | | | 3,041 | | | — | | | — | |
| Utilities | | 463,960 | | | — | | | — | | | — | | | 365,222 | | | — | | | — | | | — | |
| Total Commercial, Financial and Agricultural | | $ | 26,605,142 | | | $ | 540,741 | | | $ | 17,686 | | | $ | 35,472 | | | $ | 24,432,238 | | | $ | 268,288 | | | $ | 1,456 | | | $ | 6,692 | |
The Company has been closely monitoring its energy sector lending portfolio which was negatively impacted by the lower levels of oil prices which began in mid-2014. Total energy exposure was $7.6 billion and $8.1 billion at December 31, 2017 and 2016. As shown in Table 22, the Company's energy sector loan balances at December 31, 2017 were approximately $2.8 billion and represented 4.5% of the Company's total loan portfolio compared to $3.2 billion and 5.4% of the Company's total loans as of December 31, 2016. This amount is comprised of loans directly related to energy, including exploration and production, pipeline transportation of natural gas, crude oil and other refined petroleum products, oil field services, and refining and support as detailed in the following table.
Table 22 Energy Portfolio |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| | | Recorded Investment | | Total Commitment | | Nonaccrual | | Recorded Investment | | Total Commitment | | Nonaccrual |
| | | (In Thousands) |
| Exploration and production | | $ | 1,409,376 |
|
| 3,836,638 |
|
| $ | 147,960 |
| | $ | 1,654,565 |
| | $ | 4,182,861 |
| | $ | 308,096 |
|
| Midstream | | 973,087 |
|
| 3,005,131 |
|
| — |
| | 1,199,844 |
| | 3,230,513 |
| | 11,298 |
|
| Drilling oil and support services | | 178,338 |
|
| 370,153 |
|
| 2,328 |
| | 263,770 |
| | 467,908 |
| | 66,811 |
|
| Refineries and terminals | | 231,141 |
|
| 363,577 |
|
| 160 |
| | 128,010 |
| | 262,618 |
| | 339 |
|
| Total energy portfolio | | $ | 2,791,942 |
|
| $ | 7,575,499 |
|
| $ | 150,448 |
| | $ | 3,246,189 |
| | $ | 8,143,900 |
| | $ | 386,544 |
|
|
| | | | | | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| | | As a % of Energy Loans | | As a % of Total Loans | | As a % of Energy Loans | | As a % of Total Loans |
| Exploration and production | | 50.5 | % | | 2.3 | % | | 51.1 | % | | 2.9 | % |
| Midstream | | 34.8 |
| | 1.6 |
| | 37.0 |
| | 2.0 |
|
| Drilling oil and support services | | 6.4 |
| | 0.3 |
| | 8.1 |
| | 0.4 |
|
| Refineries and terminals | | 8.3 |
| | 0.4 |
| | 3.9 |
| | 0.2 |
|
| Total energy portfolio | | 100.0 | % | | 4.5 | % | | 100.0 | % | | 5.4 | % |
The Company employs a variety of risk management strategies, including the use of concentration limits, underwriting standards and continuous monitoring. As of December 31, 2017, the Company has observed a decrease in total energy loans outstanding as well as a decrease in nonaccrual loans, as indicated in Table 22. The decrease in total exposure in the energy portfolio primarily reflects reduced borrowing bases resulting in a reduction in total commitments, while the decrease in recorded investment largely reflects energy customers taking actions to adjust their cash flows and reduce their levels of debt.
The overall level of loans rated special mention or lower, including loans classified as nonaccrual, in the energy portfolio at December 31, 2017 was 19.9%, comprised of 5.1% rated special mention and 14.7% rated substandard or lower. At December 31, 2016 the overall level of loans rated special mention or lower in the energy portfolio was 32.7%, comprised of 8.7% rated special mention and 24.0% rated substandard or lower.
For 2017, charge-offs on energy loans were approximately $57.2 million compared to $50.7 million for 2016. If oil prices resume their decline, this energy-related portfolio may be subject to additional pressure on credit quality metrics including past due, criticized, and nonperforming loans, as well as net charge-offs. Through its ongoing portfolio credit quality assessment, the Company has and will continue to assess the impact to the allowance for loan losses and make adjustments as appropriate. As of December 31, 2017, the Company's allowance for loan losses attributable to the energy portfolio totaled approximately 2.4% of outstanding energy loans.
Commercial Real Estate
The commercial real estate portfolio segment includes the commercial real estate and real estate - construction loan portfolios. Commercial real estate loans totaled $11.7$13.6 billion at December 31, 2017,2020, compared to $11.2$13.9 billion at December 31, 2016,2019, and real estate - construction loans totaled $2.3$2.5 billion at December 31, 2017, compared to $2.12020 and $2.0 billion at December 31, 2016.2019.
This segment consists primarily of extensions of credit to real estate developers and investors for the financing of land and buildings, whereby the repayment is generated from the sale of the real estate or the income generated by the real estate property. The Company attempts to minimize risk on commercial real estate properties by various means including requiring collateral values that exceed the loan amount, adequate cash flow to service the debt, and the personal guarantees of principals of the borrowers. In order to minimize risk on the construction portfolio, the
Company has established an operations group outside of the lending staff which is responsible for loan disbursements during the construction process.
The following tables present the geographic distribution for the commercial real estate and real estate - construction portfolios.
Table 23 Commercial Real Estate |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| State | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | | (In Thousands) |
| Alabama | | $ | 390,134 |
| | $ | 9,727 |
| | $ | 2,370 |
| | $ | 261 |
| | $ | 493,199 |
| | $ | 1,853 |
| | $ | 2,513 |
| | $ | — |
|
| Arizona | | 874,975 |
| | 10,144 |
| | — |
| | — |
| | 847,908 |
| | 5,252 |
| | — |
| | — |
|
| California | | 1,456,273 |
| | — |
| | — |
| | — |
| | 1,139,785 |
| | 4,645 |
| | — |
| | — |
|
| Colorado | | 454,649 |
| | 6,371 |
| | — |
| | — |
| | 436,640 |
| | 6,902 |
| | — |
| | — |
|
| Florida | | 1,067,876 |
| | 6,907 |
| | 101 |
| | — |
| | 912,874 |
| | 7,262 |
| | 134 |
| | — |
|
| New Mexico | | 197,515 |
| | 8,153 |
| | 127 |
| | — |
| | 174,911 |
| | 6,354 |
| | 132 |
| | — |
|
| Texas | | 3,546,972 |
| | 38,990 |
| | 656 |
| | 666 |
| | 3,576,090 |
| | 33,043 |
| | 1,152 |
| | — |
|
| Other | | 3,735,764 |
| | 31,690 |
| | 901 |
| | — |
| | 3,629,253 |
| | 6,610 |
| | 929 |
| | — |
|
| | | $ | 11,724,158 |
| | $ | 111,982 |
| | $ | 4,155 |
| | $ | 927 |
| | $ | 11,210,660 |
| | $ | 71,921 |
| | $ | 4,860 |
| | $ | — |
|
Commercial Real Estate
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| State | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | (In Thousands) |
| Alabama | | $ | 416,431 | | | $ | 19,215 | | | $ | 11 | | | $ | 192 | | | $ | 419,063 | | | $ | 4,377 | | | $ | 2,048 | | | $ | — | |
| Arizona | | 1,030,026 | | | 77,739 | | | — | | | — | | | 1,074,395 | | | 22,549 | | | — | | | — | |
| California | | 1,958,178 | | | 52,730 | | | — | | | 28 | | | 1,992,085 | | | — | | | — | | | 28 | |
| Colorado | | 751,921 | | | 9,579 | | | — | | | — | | | 694,691 | | | 6,463 | | | — | | | — | |
| Florida | | 1,189,742 | | | 6,972 | | | — | | | — | | | 1,299,336 | | | 11,047 | | | 27 | | | — | |
| New Mexico | | 98,356 | | | 3,104 | | | — | | | 580 | | | 100,845 | | | 3,952 | | | — | | | — | |
| Texas | | 3,783,877 | | | 101,907 | | | 899 | | | 304 | | | 3,802,306 | | | 36,278 | | | 495 | | | 4,168 | |
| Other | | 4,336,783 | | | 170,891 | | | — | | | — | | | 4,478,757 | | | 13,411 | | | 844 | | | 2,380 | |
| | $ | 13,565,314 | | | $ | 442,137 | | | $ | 910 | | | $ | 1,104 | | | $ | 13,861,478 | | | $ | 98,077 | | | $ | 3,414 | | | $ | 6,576 | |
Table 24 Real Estate – Construction |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| State | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | | (In Thousands) |
| Alabama | | $ | 52,315 |
| | $ | 97 |
| | $ | — |
| | $ | 115 |
| | $ | 17,517 |
| | $ | 43 |
| | $ | — |
| | $ | — |
|
| Arizona | | 163,077 |
| | — |
| | — |
| | — |
| | 94,191 |
| | — |
| | — |
| | — |
|
| California | | 260,652 |
| | — |
| | — |
| | 715 |
| | 246,094 |
| | — |
| | — |
| | — |
|
| Colorado | | 71,736 |
| | — |
| | — |
| | — |
| | 91,434 |
| | — |
| | — |
| | — |
|
| Florida | | 272,460 |
| | 62 |
| | — |
| | — |
| | 228,530 |
| | 2 |
| | — |
| | — |
|
| New Mexico | | 7,165 |
| | — |
| | 52 |
| | — |
| | 16,487 |
| | — |
| | 1,163 |
| | — |
|
| Texas | | 1,038,219 |
| | 4,796 |
| | 49 |
| | 730 |
| | 1,024,830 |
| | 1,066 |
| | 1,230 |
| | 2,007 |
|
| Other | | 407,915 |
| | 426 |
| | — |
| | — |
| | 406,233 |
| | 128 |
| | — |
| | — |
|
| | | $ | 2,273,539 |
| | $ | 5,381 |
| | $ | 101 |
| | $ | 1,560 |
| | $ | 2,125,316 |
| | $ | 1,239 |
| | $ | 2,393 |
| | $ | 2,007 |
|
Real Estate – Construction
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| State | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | (In Thousands) |
| Alabama | | $ | 86,622 | | | $ | — | | | $ | — | | | $ | 115 | | | $ | 70,800 | | | $ | 90 | | | $ | — | | | $ | 115 | |
| Arizona | | 205,242 | | | — | | | — | | | — | | | 158,027 | | | — | | | — | | | — | |
| California | | 519,201 | | | 6,761 | | | — | | | — | | | 281,690 | | | — | | | — | | | — | |
| Colorado | | 110,098 | | | — | | | — | | | — | | | 94,260 | | | 473 | | | — | | | — | |
| Florida | | 162,215 | | | — | | | — | | | — | | | 167,346 | | | 905 | | | — | | | — | |
| New Mexico | | 27,734 | | | — | | | 128 | | | — | | | 18,000 | | | 242 | | | 15 | | | — | |
| Texas | | 752,453 | | | — | | | 17 | | | 417 | | | 747,651 | | | 5,926 | | | 57 | | | 456 | |
| Other | | 634,766 | | | 18,555 | | | — | | | — | | | 490,908 | | | 405 | | | — | | | — | |
| | $ | 2,498,331 | | | $ | 25,316 | | | $ | 145 | | | $ | 532 | | | $ | 2,028,682 | | | $ | 8,041 | | | $ | 72 | | | $ | 571 | |
Residential Real Estate
The residential real estate portfolio includes residential real estate - mortgage loans, equity lines of credit and equity loans. The residential real estate portfolio primarily contains loans to individuals, which are secured by single-family residences. Loans of this type are generally smaller in size than commercial real estate loans and are geographically dispersed throughout the Company's market areas, with some guaranteed by government agencies or
private mortgage insurers. Losses on residential real estate loans depend, to a large degree, on the level of interest rates, the unemployment rate, economic conditions and collateral values.
Residential real estate - mortgage loans totaled $13.4 billion at December 31, 2017 compared to $13.3 billion at December 31, 2016.2020 and $13.5 billion at December 31, 2019. Risks associated with residential real estate - mortgage loans are mitigated through rigorous underwriting procedures, collateral values established by independent appraisers and mortgage insurance. In addition, the collateral for this segment is concentrated in the Company's footprint as indicated in the table below.
Table 25 Residential Real Estate - Mortgage |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| State | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | | (In Thousands) |
| Alabama | | $ | 972,764 |
| | $ | 17,766 |
| | $ | 12,526 |
| | $ | 560 |
| | $ | 1,005,975 |
| | $ | 16,607 |
| | $ | 11,390 |
| | $ | 512 |
|
| Arizona | | 1,290,388 |
| | 14,649 |
| | 9,526 |
| | 387 |
| | 1,270,521 |
| | 11,831 |
| | 9,901 |
| | 412 |
|
| California | | 3,028,148 |
| | 13,607 |
| | 3,574 |
| | 1,018 |
| | 2,929,393 |
| | 16,258 |
| | 2,164 |
| | 429 |
|
| Colorado | | 1,128,379 |
| | 18,772 |
| | 3,216 |
| | — |
| | 1,111,097 |
| | 14,165 |
| | 2,552 |
| | — |
|
| Florida | | 1,670,169 |
| | 38,272 |
| | 9,636 |
| | 2,109 |
| | 1,697,555 |
| | 28,266 |
| | 10,636 |
| | 120 |
|
| New Mexico | | 221,425 |
| | 2,598 |
| | 1,735 |
| | 143 |
| | 216,865 |
| | 1,955 |
| | 1,630 |
| | — |
|
| Texas | | 4,588,299 |
| | 51,316 |
| | 20,037 |
| | 3,479 |
| | 4,539,469 |
| | 34,232 |
| | 18,850 |
| | 1,752 |
|
| Other | | 466,175 |
| | 16,863 |
| | 4,648 |
| | 876 |
| | 489,119 |
| | 16,989 |
| | 2,770 |
| | 131 |
|
| | | $ | 13,365,747 |
| | $ | 173,843 |
| | $ | 64,898 |
| | $ | 8,572 |
| | $ | 13,259,994 |
| | $ | 140,303 |
| | $ | 59,893 |
| | $ | 3,356 |
|
Residential Real Estate - Mortgage
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| State | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | (In Thousands) |
| Alabama | | $ | 806,396 | | | $ | 24,893 | | | $ | 8,670 | | | $ | 8,944 | | | $ | 913,683 | | | $ | 21,891 | | | $ | 11,208 | | | $ | 1,557 | |
| Arizona | | 1,360,360 | | | 14,661 | | | 7,555 | | | 2,798 | | | 1,380,589 | | | 12,111 | | | 7,645 | | | 609 | |
| California | | 3,759,590 | | | 40,062 | | | 5,627 | | | 2,748 | | | 3,441,689 | | | 17,941 | | | 3,383 | | | — | |
| Colorado | | 1,041,255 | | | 6,144 | | | 1,948 | | | 1,374 | | | 1,144,260 | | | 4,141 | | | 2,327 | | | 144 | |
| Florida | | 1,460,075 | | | 62,467 | | | 8,809 | | | 2,749 | | | 1,511,146 | | | 32,740 | | | 10,051 | | | 247 | |
| New Mexico | | 189,293 | | | 4,246 | | | 1,166 | | | 1,256 | | | 215,835 | | | 3,802 | | | 1,249 | | | 424 | |
| Texas | | 4,347,169 | | | 67,827 | | | 17,975 | | | 23,644 | | | 4,534,481 | | | 43,048 | | | 19,394 | | | 1,660 | |
| Other | | 363,636 | | | 15,163 | | | 1,630 | | | 2,248 | | | 392,271 | | | 11,663 | | | 1,908 | | | — | |
| | $ | 13,327,774 | | | $ | 235,463 | | | $ | 53,380 | | | $ | 45,761 | | | $ | 13,533,954 | | | $ | 147,337 | | | $ | 57,165 | | | $ | 4,641 | |
The following table provides information related to refreshed FICO scores for the Company's residential real estate portfolio.
Table 25
Residential Real Estate - Mortgage
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| FICO Score | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | (In Thousands) |
| Below 621 | | $ | 661,152 | | | $ | 140,306 | | | $ | 18,409 | | | $ | 24,774 | | | $ | 707,778 | | | $ | 96,107 | | | $ | 22,804 | | | $ | 3,736 | |
| 621-680 | | 994,304 | | | 34,633 | | | 11,063 | | | 10,195 | | | 1,074,497 | | | 23,950 | | | 10,570 | | | 114 | |
| 681 – 720 | | 1,575,523 | | | 18,564 | | | 7,701 | | | 5,591 | | | 1,704,801 | | | 9,197 | | | 7,305 | | | 144 | |
| Above 720 | | 9,582,346 | | | 22,940 | | | 15,499 | | | 2,364 | | | 9,490,067 | | | 11,000 | | | 15,922 | | | 290 | |
| Unknown | | 514,449 | | | 19,020 | | | 708 | | | 2,837 | | | 556,811 | | | 7,083 | | | 564 | | | 357 | |
| | $ | 13,327,774 | | | $ | 235,463 | | | $ | 53,380 | | | $ | 45,761 | | | $ | 13,533,954 | | | $ | 147,337 | | | $ | 57,165 | | | $ | 4,641 | |
Table 26 Residential Real Estate - Mortgage |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| FICO Score | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | | (In Thousands) |
| Below 621 | | $ | 709,239 |
| | $ | 112,391 |
| | $ | 22,201 |
| | $ | 4,979 |
| | $ | 664,660 |
| | $ | 91,262 |
| | $ | 14,831 |
| | $ | 2,111 |
|
| 621-680 | | 1,225,385 |
| | 22,815 |
| | 14,549 |
| | 2,130 |
| | 1,279,658 |
| | 21,507 |
| | 16,854 |
| | 825 |
|
| 681 – 720 | | 1,863,614 |
| | 9,372 |
| | 14,439 |
| | 80 |
| | 1,980,276 |
| | 6,288 |
| | 13,921 |
| | 37 |
|
| Above 720 | | 8,801,004 |
| | 5,081 |
| | 13,385 |
| | 713 |
| | 8,548,993 |
| | 4,327 |
| | 13,957 |
| | 193 |
|
| Unknown | | 766,505 |
| | 24,184 |
| | 324 |
| | 670 |
| | 786,407 |
| | 16,919 |
| | 330 |
| | 190 |
|
| | | $ | 13,365,747 |
| | $ | 173,843 |
| | $ | 64,898 |
| | $ | 8,572 |
| | $ | 13,259,994 |
| | $ | 140,303 |
| | $ | 59,893 |
| | $ | 3,356 |
|
Equity lines of credit and equity loans totaled $3.0$2.6 billion at both December 31, 20172020 and 2016, respectively.$2.8 billion at December 31, 2019. Losses in these portfolios generally track overall economic conditions. These loans are underwritten in accordance with the underwriting standards set forth in the Company's policy and procedures. The collateral for this segment is concentrated within the Company's footprint as indicated in the table below.
Table 27 Equity Loans and Lines |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| State | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | | (In Thousands) |
| Alabama | | $ | 539,208 |
| | $ | 9,967 |
| | $ | 8,878 |
| | $ | 1,121 |
| | $ | 566,990 |
| | $ | 8,380 |
| | $ | 11,338 |
| | $ | 932 |
|
| Arizona | | 375,807 |
| | 8,005 |
| | 3,593 |
| | 191 |
| | 399,225 |
| | 8,562 |
| | 4,396 |
| | 989 |
|
| California | | 359,209 |
| | 731 |
| | 378 |
| | — |
| | 314,929 |
| | 1,216 |
| | 285 |
| | — |
|
| Colorado | | 193,297 |
| | 3,307 |
| | 1,464 |
| | 175 |
| | 192,517 |
| | 3,802 |
| | 1,388 |
| | 86 |
|
| Florida | | 368,033 |
| | 8,768 |
| | 6,553 |
| | 692 |
| | 382,853 |
| | 9,195 |
| | 7,375 |
| | 583 |
|
| New Mexico | | 53,165 |
| | 1,647 |
| | 610 |
| | — |
| | 53,491 |
| | 2,087 |
| | 600 |
| | — |
|
| Texas | | 1,093,651 |
| | 12,077 |
| | 8,456 |
| | 1,032 |
| | 1,040,395 |
| | 12,309 |
| | 8,997 |
| | 704 |
|
| Other | | 33,999 |
| | 1,078 |
| | 410 |
| | 43 |
| | 39,087 |
| | 1,537 |
| | 367 |
| | 123 |
|
| | | $ | 3,016,369 |
| | $ | 45,580 |
| | $ | 30,342 |
| | $ | 3,254 |
| | $ | 2,989,487 |
| | $ | 47,088 |
| | $ | 34,746 |
| | $ | 3,417 |
|
Equity Loans and Lines
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| State | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | (In Thousands) |
| Alabama | | $ | 402,504 | | | $ | 11,756 | | | $ | 6,120 | | | $ | 556 | | | $ | 452,102 | | | $ | 10,096 | | | $ | 7,437 | | | $ | 341 | |
| Arizona | | 255,581 | | | 5,822 | | | 2,787 | | | 217 | | | 311,875 | | | 5,475 | | | 3,674 | | | 22 | |
| California | | 359,947 | | | 3,615 | | | 87 | | | 110 | | | 399,494 | | | 2,528 | | | 187 | | | 165 | |
| Colorado | | 142,059 | | | 2,361 | | | 419 | | | 216 | | | 167,594 | | | 2,729 | | | 738 | | | 176 | |
| Florida | | 263,193 | | | 6,588 | | | 4,025 | | | 239 | | | 295,552 | | | 7,298 | | | 4,827 | | | 121 | |
| New Mexico | | 37,045 | | | 2,025 | | | 459 | | | 204 | | | 45,440 | | | 1,704 | | | 505 | | | 11 | |
| Texas | | 1,092,234 | | | 19,065 | | | 5,369 | | | 1,399 | | | 1,138,289 | | | 15,104 | | | 6,050 | | | 914 | |
| Other | | 22,093 | | | 1,541 | | | 340 | | | — | | | 27,302 | | | 1,830 | | | 352 | | | 12 | |
| | $ | 2,574,656 | | | $ | 52,773 | | | $ | 19,606 | | | $ | 2,941 | | | $ | 2,837,648 | | | $ | 46,764 | | | $ | 23,770 | | | $ | 1,762 | |
The following table provides information related to refreshed FICO scores for the Company's equity loans and lines.
Table 28 Equity Loans and Lines |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| FICO Score | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | | (In Thousands) |
| Below 621 | | $ | 204,128 |
| | $ | 22,828 |
| | $ | 7,894 |
| | $ | 2,303 |
| | $ | 207,659 |
| | $ | 24,532 |
| | $ | 8,723 |
| | $ | 1,940 |
|
| 621-680 | | 387,870 |
| | 11,518 |
| | 10,781 |
| | 245 |
| | 412,752 |
| | 12,930 |
| | 13,326 |
| | 542 |
|
| 681 – 720 | | 551,072 |
| | 7,348 |
| | 4,791 |
| | 41 |
| | 557,850 |
| | 6,980 |
| | 6,081 |
| | 713 |
|
| Above 720 | | 1,863,106 |
| | 3,816 |
| | 6,643 |
| | 227 |
| | 1,798,151 |
| | 2,466 |
| | 6,430 |
| | 222 |
|
| Unknown | | 10,193 |
| | 70 |
| | 233 |
| | 438 |
| | 13,075 |
| | 180 |
| | 186 |
| | — |
|
| | | $ | 3,016,369 |
| | $ | 45,580 |
| | $ | 30,342 |
| | $ | 3,254 |
| | $ | 2,989,487 |
| | $ | 47,088 |
| | $ | 34,746 |
| | $ | 3,417 |
|
Equity Loans and Lines
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| FICO Score | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | (In Thousands) |
| Below 621 | | $ | 167,038 | | | $ | 28,793 | | | $ | 4,984 | | | $ | 2,161 | | | $ | 200,509 | | | $ | 27,098 | | | $ | 6,262 | | | $ | 1,232 | |
| 621-680 | | 322,064 | | | 11,815 | | | 6,377 | | | 589 | | | 355,324 | | | 9,207 | | | 7,314 | | | 290 | |
| 681 – 720 | | 427,230 | | | 6,086 | | | 2,857 | | | 191 | | | 484,077 | | | 6,324 | | | 3,683 | | | 139 | |
| Above 720 | | 1,651,714 | | | 5,874 | | | 5,388 | | | — | | | 1,790,879 | | | 4,095 | | | 6,511 | | | 101 | |
| Unknown | | 6,610 | | | 205 | | | — | | | — | | | 6,859 | | | 40 | | | — | | | — | |
| | $ | 2,574,656 | | | $ | 52,773 | | | $ | 19,606 | | | $ | 2,941 | | | $ | 2,837,648 | | | $ | 46,764 | | | $ | 23,770 | | | $ | 1,762 | |
Other Consumer
The Company centrally underwrites and sources from the Company's branches or online, credit card loans and other consumer direct loans. Total consumer direct loans at December 31, 20172020 were $1.7$1.9 billion and $1.3$2.3 billion at December 31, 2016.2019. Total credit cards at December 31, 20172020 were $640$882 million and at December 31, 20162019 were $605 million.$1.0 billion.
The Company also operates a consumer finance unit which purchases loan contracts for indirect automobile and other consumer financing. These loans are centrally underwritten using underwriting guidelines and industry accepted tools. Total consumer indirect loans were $3.2$4.2 billion at December 31, 20172020 and $3.1$3.9 billion at December 31, 2016.2019.
The following tables provide information related to refreshed FICO scores for the Company's consumer direct and consumer indirect loans.
Table 29 Consumer Direct |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| FICO Score | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | | (In Thousands) |
| Below 621 | | $ | 95,221 |
| | $ | 376 |
| | $ | — |
| | $ | 3,680 |
| | $ | 84,772 |
| | $ | 763 |
| | $ | 10 |
| | $ | 3,705 |
|
| 621-680 | | 275,816 |
| | 30 |
| | 178 |
| | 1,543 |
| | 210,612 |
| | 21 |
| | 18 |
| | 103 |
|
| 681 – 720 | | 380,645 |
| | 2,005 |
| | 351 |
| | 392 |
| | 285,874 |
| | — |
| | 661 |
| | 21 |
|
| Above 720 | | 873,764 |
| | 6 |
| | 5 |
| | 455 |
| | 608,551 |
| | 5 |
| | 15 |
| | 28 |
|
| Unknown | | 64,937 |
| | 8 |
| | — |
| | 642 |
| | 64,832 |
| | — |
| | — |
| | 625 |
|
| | | $ | 1,690,383 |
| | $ | 2,425 |
| | $ | 534 |
| | $ | 6,712 |
| | $ | 1,254,641 |
| | $ | 789 |
| | $ | 704 |
| | $ | 4,482 |
|
Consumer Direct
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| FICO Score | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | (In Thousands) |
| Below 621 | | $ | 169,268 | | | $ | 6,246 | | | $ | 862 | | | $ | 7,884 | | | $ | 225,736 | | | $ | 4,258 | | | $ | 1,433 | | | $ | 17,228 | |
| 621-680 | | 346,342 | | | 1,929 | | | 2,723 | | | 214 | | | 450,532 | | | 1,259 | | | 2,858 | | | 359 | |
| 681 – 720 | | 402,906 | | | 996 | | | 4,574 | | | 117 | | | 516,706 | | | 693 | | | 5,150 | | | 123 | |
| Above 720 | | 940,380 | | | 379 | | | 14,704 | | | 121 | | | 1,076,436 | | | 345 | | | 2,997 | | | 84 | |
| Unknown | | 70,827 | | | 537 | | | 300 | | | 405 | | | 68,732 | | | — | | | — | | | 564 | |
| | $ | 1,929,723 | | | $ | 10,087 | | | $ | 23,163 | | | $ | 8,741 | | | $ | 2,338,142 | | | $ | 6,555 | | | $ | 12,438 | | | $ | 18,358 | |
Table 30 Consumer Indirect |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| FICO Score | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | | (In Thousands) |
| Below 621 | | $ | 683,543 |
| | $ | 6,648 |
| | $ | — |
| | $ | 5,850 |
| | $ | 731,916 |
| | $ | 4,297 |
| | $ | — |
| | $ | 7,015 |
|
| 621-680 | | 986,894 |
| | 2,282 |
| | — |
| | 1,020 |
| | 951,158 |
| | 1,363 |
| | — |
| | 94 |
|
| 681 – 720 | | 679,363 |
| | 439 |
| | — |
| | 208 |
| | 643,708 |
| | 224 |
| | — |
| | 26 |
|
| Above 720 | | 812,966 |
| | 226 |
| | — |
| | 208 |
| | 790,598 |
| | 42 |
| | — |
| | 16 |
|
| Unknown | | 1,340 |
| | — |
| | — |
| | 2 |
| | 17,568 |
| | — |
| | — |
| | 46 |
|
| | | $ | 3,164,106 |
| | $ | 9,595 |
| | $ | — |
| | $ | 7,288 |
| | $ | 3,134,948 |
| | $ | 5,926 |
| | $ | — |
| | $ | 7,197 |
|
Table 29
Consumer Indirect
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| FICO Score | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due | | Recorded Investment | | Nonaccrual | | Accruing TDRs | | Accruing Greater Than 90 Days Past Due |
| | (In Thousands) |
| Below 621 | | $ | 620,343 | | | $ | 21,202 | | | $ | — | | | $ | 4,541 | | | $ | 817,071 | | | $ | 27,600 | | | $ | — | | | $ | 9,100 | |
| 621-680 | | 967,892 | | | 2,111 | | | — | | | 382 | | | 1,006,409 | | | 2,969 | | | — | | | 408 | |
| 681 – 720 | | 798,345 | | | 759 | | | — | | | 56 | | | 728,580 | | | 621 | | | — | | | 157 | |
| Above 720 | | 1,787,736 | | | 641 | | | — | | | 87 | | | 1,358,098 | | | 591 | | | — | | | 65 | |
| Unknown | | 2,809 | | | — | | | — | | | — | | | 2,192 | | | — | | | — | | | — | |
| | $ | 4,177,125 | | | $ | 24,713 | | | $ | — | | | $ | 5,066 | | | $ | 3,912,350 | | | $ | 31,781 | | | $ | — | | | $ | 9,730 | |
Foreign Exposure
As of December 31, 2017,2020, foreign exposure risk did not represent a significant concentration of the Company's total portfolio of loans and was substantially represented by borrowers domiciled in Mexico and foreign borrowers currently residing in the United States.
Goodwill
Goodwill totaled $5.0$2.3 billion and $4.5 billion at both December 31, 20172020 and 20162019, respectively, and is allocated to each of the Company’s reporting units, the level at which goodwill is tested for impairment on an annual basis or more often if events and circumstances indicate impairment may exist. Refer to Note 22, Segment Information, in the Notes to the Consolidated Financial Statements for a discussion of the reorganization of the Company's lines of business that divided the Consumer and Commercial Banking segment in to a retail line of business and a commercial line of business. In connection with the reorganization, the Company reallocated goodwill using a relative fair value approach. At December 31, 2017,2020 the goodwill, net of
accumulated impairment losses, attributable to each of the Company’s three identified reporting units is as follows: Commercial Banking and Wealth - $2.7$1.9 billion, Retail Banking - $1.4 billion,$136 million, and Corporate and Investment Banking - $896$262 million.
A test of goodwill for impairment consists of two steps. In Step One of the impairment test, the Company comparescomparing the fair value of each reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, Step Two of the impairment test is required to be performed to measure the amount of impairment loss, if any. Step Two compares the implied fair value of goodwill attributable to each reporting unit to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination; an entity allocates the fair value determined in Step One for the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination. The carrying value of equity for each reporting unit is determined from an allocation based upon risk weighted assets. If the carrying amount of thea reporting unit's goodwillunit exceeds the impliedits fair value, of that goodwill, an impairment loss is recognized in an amount equal to that excess.
The Company evaluates each reporting unit's goodwill for impairment on an annual basis as of October 31, or more often if events or circumstances indicate that there may be impairment. Adverse changes in the economic environment, declining operations, of the reporting unit, or other factors could result in a decline in the estimated implied fair value of goodwill.
The estimated fair value At March 31, 2020, the Company assessed the indicators of goodwill impairment as it related to the impact of COVID-19 on the Company including: recent operating performance, market conditions, regulatory actions and assessment, change in the business climate, company-specific factors, and trends in the banking industry. Based on the assessment of these indicators, interim quantitative testing of goodwill was required for all of the Company's reporting unit is determined using a blend of both income and market approaches. For the income approach, estimated future cash flows and terminal values are discounted. The Company utilizes a CAPM in order to derive the base discount rate. The inputs to the CAPM include the 20-year risk free rate, 5-year beta for a select peer set, and a market risk premium based on published data. Once the output of the CAPM is determined, a size premium is added (also based on a published source) for each reporting unit.
In estimating future cash flows, a balance sheetunits as of the test date and a statement of income for the last 12 months of activity for each reporting unit is compiled. From that point, future balance sheets and statements of income are
projected based on the inputs. Cash flows are based on future capitalization requirements due to balance sheet growth and anticipated changes in regulatory capital requirements.
The Company uses the guideline public company method and the guideline transaction method as the market approaches. The public company method applies valuation multiples derived from each reporting unit's peer group to tangible book value or earnings and an implied control premium to the respective reporting unit. The control premium is evaluated and compared to similar financial services transactions considering the absolute and relative potential revenue synergies and cost savings. The guideline transaction method applies valuation multiples to a financial metric of the reporting unit based on comparable observed purchase transactions in the financial services industry for the reporting unit, where available.
The Company tested its three identified reporting units with goodwill for impairment as of OctoberMarch 31, 2017.2020. The results of this test indicated that no$2.2 billion of goodwill impairment existed at that time.
related to the following reporting units: Corporate and Investment Banking - $164 million, Commercial Banking and Wealth - $729 million, and Retail Banking - $1.3 billion. The following table includes the carrying value and fair value of each reporting unit as of October 31, 2017, the date of the most recent annual goodwill impairment test.
Table 31 Fair Value of Reporting Units |
| | | | | | | |
| | Fair Value | | Carrying Value |
| | (In Thousands) |
| Reporting Unit: | | | |
| Commercial Banking and Wealth | $ | 9,130,000 |
| | $ | 7,282,000 |
|
| Retail Banking | 4,820,000 |
| | 3,841,000 |
|
| Corporate and Investment Banking | 2,360,000 |
| | 1,954,000 |
|
The fair value of each of the Company's reporting units exceeded the carrying value, and therefore, Step Twoprimary causes of the goodwill impairment test was not required.
The Step One fair values ofwere the reporting units are based upon management’s estimates and assumptions. Although management has used the estimates and assumptions it believes to be most appropriatevolatility in the circumstances, it should be noted that even relatively minor changesmarket capitalization of U.S. banks along with revised management projections based on the current economic and industry conditions. These factors resulted in certain valuation assumptions used in management’s calculations would result in significant differences in the results of the impairment tests. As an example, the discount rates used in the Step One valuations are a key valuation assumption. In the Company’s Step One test at October 31, 2017, the combined fair value of the reporting units exceededbeing less than the combinedreporting unit's carrying value by approximately $3.2 billion. If the discount rates used in the Step One test were increased by 50 basis points, the excess fair value would exceed the combined carrying value by $2.7 billion. If the discount rates used in the Step One test were increased by 100 basis points, the excess fair value would exceed the combined carrying value by $2.3 billion.value.
The sensitivity analysis abovegoodwill impairment charge is hypotheticala non-cash item which does not have an adverse impact on regulatory capital or liquidity. Refer to "Critical Accounting Policies" in this Management’s Discussion and should not be consideredAnalysis of Financial Condition and Results of Operations for further details.
The Company completed its annual goodwill impairment test as of October 31, 2020 by performing a qualitative assessment of goodwill at the reporting unit level to be predictivedetermine whether any indicators of future performance. Changes in implied fair value based on adverse changes in assumptions generally cannot be extrapolated becauseimpairment existed. In performing this qualitative assessment, the Company evaluated events and circumstances since the last quantitative impairment test performed as of March 31, 2020, macroeconomic conditions, banking industry and market conditions, and key financial metrics of the relationshipCompany as well as reporting unit and overall Company performance. After assessing the totality of the change in assumption toevents and circumstances, the change inCompany determined it was not more likely than not that the fair value may not be linear. Also, the effect of an adverse variation in a particular assumption on the implied fair value of goodwill is calculated without changing any other assumption, while in reality changes in one factor may result in changes in another which may magnify or counteract the effectvalues of the change.Company's three reporting units with goodwill were greater than their respective carrying amounts, and therefore, a quantitative goodwill impairment test was not deemed necessary.
Specific factors as of the date of filing of the financial statements that could negatively impact the assumptions used in assessing goodwill for impairment include: disparities in the level of fair value changes in net assets; increases in book values of equity of a reporting unit in excess of the increase in fair value of equity; adverse business trends resulting from litigation and/or regulatory actions; higher loan losses; future increased minimum regulatory capital requirements above current thresholds; and/or future federal rules and actions of regulators.
Funding Activities
Deposits are the primary source of funds for lending and investing activities and their cost is the largest category of interest expense. The Company also utilizes brokered deposits as a funding source in addition to customer deposits. Scheduled payments, as well as prepayments, and maturities from portfolios of loans and investment securities also
provide a stable source of funds. FHLB advances, other secured borrowings, federal funds purchased, securities sold under agreements to repurchase and other short-term borrowed funds, as well as longer-term debt issued through the capital markets, all provide supplemental liquidity sources. The Company’s funding activities are monitored and governed through the Company’s asset/liability management process, which is further discussed in the Market Risk Management section in Management’s Discussion and Analysis of Financial Condition and Results of Operations herein.
At December 31, 2017,2020, the Company's and the Bank's credit ratings were as follows:
Table 30
Credit Ratings
Table 32
Credit Ratings
|
| | | | | | | | | | | | | | | | |
| As of December 31, 20172020 |
| Standard & Poor’s | | Moody’s | | Fitch |
BBVA CompassUSA Bancshares, Inc. | | | | | |
| Long-term debt rating | BBB+ | | Baa3Baa2 | | BBB+BBB |
| Short-term debt rating | A-2 | | -– | | F2 |
Compass BankBBVA USA | | | | | |
| Long-term debt rating | BBB+ | | Baa3Baa2 | | BBB+BBB |
| Long-term bank deposits (1) | N/A | | A3A2 | | A-BBB+ |
| Subordinated debt | BBB | | Baa3Baa2 | | BBBBBB- |
| Short-term debt rating | A-2 | | P-3P-2 | | F2 |
Short-term deposit rating (2)(1) | N/A | | P-2P-1 | | F2 |
| Outlook | StablePositive | | StablePositive | | StablePositive |
| |
(1) | S&P does not provide a rating for long-term bank deposits; therefore, the rating is N/A. |
| |
(2) | S&P does not provide a short-term deposit rating; therefore, the rating is N/A. |
(1)S&P does not provide a rating; therefore, the rating is N/A.
The cost and availability of financing to the Company and the Bank are impacted by theirits credit ratings. A downgrade to the Company’s or Bank’s credit ratings could affect its ability to access the credit markets and increase its borrowing costs, thereby adversely impacting the Company’s financial condition and liquidity. Key factors in maintaining high credit ratings include a stable and diverse earnings stream, strong credit quality, strong capital ratios and diverse funding sources, in addition to disciplined liquidity monitoring procedures.
A securitycredit rating is not a recommendation to buy, sell or hold securities, and the ratings are subject to revision or withdrawal by the assigning rating agency. Each rating should be evaluated independently of any other rating.
Following is a brief description of the various sources of funds used by the Company.
Deposits
Total deposits increased by $2.0$10.9 billion from $67.3$75.0 billion at December 31, 20162019 to $69.3$85.9 billion at December 31, 20172020 due primarily to growth in noninterest bearing demand deposits,money market accounts, as well as growth in interest-bearingnoninterest and interest bearing demand deposits, savings and money market accounts and time deposits. Marketing efforts were the primary driver of this growth. At December 31, 20172020 and 2016,2019, total deposits included $8.4$3.1 billion and $5.8$4.7 billion, respectively, of brokered deposits.
The following table presents the Company’s average deposits segregated by major category:
Table 33 Composition of Average Deposits |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
| | Balance | | % of Total | | Balance | | % of Total | | Balance | | % of Total |
| | (Dollars in Thousands) |
| Noninterest-bearing demand deposits | $ | 21,039,822 |
| | 31.6 | % | | $ | 20,556,608 |
| | 30.3 | % | | $ | 19,016,212 |
| | 30.0 | % |
| Interest-bearing demand deposits | 7,858,504 |
| | 11.8 |
| | 7,042,165 |
| | 10.3 |
| | 7,218,956 |
| | 11.4 |
|
| Savings and money market | 24,924,647 |
| | 37.4 |
| | 25,747,220 |
| | 37.9 |
| | 24,155,771 |
| | 38.0 |
|
| Time deposits | 12,804,395 |
| | 19.2 |
| | 14,454,532 |
| | 21.3 |
| | 12,989,759 |
| | 20.4 |
|
| Foreign office deposits-interest-bearing | — |
| | — |
| | 104,039 |
| | 0.2 |
| | 158,202 |
| | 0.2 |
|
| Total average deposits | $ | 66,627,368 |
| | 100.0 | % | | $ | 67,904,564 |
| | 100.0 | % | | $ | 63,538,900 |
| | 100.0 | % |
Composition of Average Deposits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 | | 2018 |
| Balance | | % of Total | | Balance | | % of Total | | Balance | | % of Total |
| (Dollars in Thousands) |
| Noninterest-bearing demand deposits | $ | 24,506,957 | | | 29.7 | % | | $ | 20,631,434 | | | 28.3 | % | | $ | 21,167,441 | | | 30.2 | % |
| Interest-bearing demand deposits | 13,649,238 | | | 16.6 | | | 9,048,948 | | | 12.4 | | | 7,950,561 | | | 11.3 | |
| Savings and money market | 36,073,927 | | | 43.8 | | | 28,546,260 | | | 39.1 | | | 26,247,253 | | | 37.4 | |
| Time deposits | 8,196,738 | | | 9.9 | | | 14,780,464 | | | 20.2 | | | 14,784,632 | | | 21.1 | |
| | | | | | | | | | | |
| Total average deposits | $ | 82,426,860 | | | 100.0 | % | | $ | 73,007,106 | | | 100.0 | % | | $ | 70,149,887 | | | 100.0 | % |
For additional information about deposits, see Note 9,8, Deposits, in the Notes to the Consolidated Financial Statements.
The following table summarizes the remaining maturities of time deposits of $100,000$250,000 or more outstanding at December 31, 2017.2020.
Table 34 Maturities of Time Deposits of $100,000 or More |
| | | |
| | Time Deposits of $100,000 or More |
| | (In Thousands) |
| Three months or less | $ | 967,784 |
|
| Over three through six months | 842,159 |
|
| Over six through twelve months | 2,899,001 |
|
| Over twelve months | 1,640,875 |
|
| | $ | 6,349,819 |
|
Maturities of Time Deposits of $250,000 or More | | | | | |
| Time Deposits of $250,000 or More |
| (In Thousands) |
| Three months or less | $ | 631,832 | |
| Over three through six months | 402,696 | |
| Over six through twelve months | 430,879 | |
| Over twelve months | 159,139 | |
| $ | 1,624,546 | |
Borrowed Funds
In addition to internal deposit generation, the Company also relies on borrowed funds as a supplemental source of funding. Borrowed funds consist of short-term borrowings, FHLB advances, subordinated debentures and other long-term borrowings.
Short-term borrowings are primarily in the form of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings. The short-term borrowings table presents the distribution of the Company’s short-term borrowed funds and the corresponding weighted average interest rates for each of the last three years. Also provided are the maximum outstanding amounts of borrowings, the average amounts of borrowings and the average
interest rates at year-end for the last three years. For additional information regarding the Company’s short-term borrowings, see Note 10,9, Short-Term Borrowings, in the Notes to the Consolidated Financial Statements.
Table 35 Short-Term Borrowings |
| | | | | | | | | | | | | | | | | |
| | Maximum Outstanding at Any Month End | | Average Balance | | Average Interest Rate | | Ending Balance | | Average Interest Rate at Year-End |
| | (Dollars in Thousands) |
| December 31, 2017 | | | | | | | | | |
| Federal funds purchased | $ | 1,710 |
| | $ | 402 |
| | 1.24 | % | | $ | 1,710 |
| | 1.50 | % |
| Securities sold under agreements to repurchase (1) | 114,361 |
| | 58,222 |
| | 0.92 |
| | 17,881 |
| | 1.23 |
|
| Other short-term borrowings | 2,771,539 |
| | 1,703,738 |
| | 1.55 |
| | 17,996 |
| | 1.48 |
|
| | $ | 2,887,610 |
| | $ | 1,762,362 |
| | | | $ | 37,587 |
| | |
| December 31, 2016 | | | | | | | | | |
| Federal funds purchased | $ | 766,095 |
| | $ | 372,355 |
| | 0.49 | % | | $ | 12,885 |
| | 0.39 | % |
| Securities sold under agreements to repurchase (1) | 148,291 |
| | 79,625 |
| | 0.49 |
| | 26,167 |
| | 0.55 |
|
| Other short-term borrowings | 4,497,354 |
| | 3,778,752 |
| | 1.44 |
| | 2,802,977 |
| | 1.68 |
|
| | $ | 5,411,740 |
| | $ | 4,230,732 |
| | | | $ | 2,842,029 |
| | |
| December 31, 2015 | | | | | | | | | |
| Federal funds purchased | $ | 975,785 |
| | $ | 692,737 |
| | 0.26 | % | | $ | 673,545 |
| | 0.37 | % |
| Securities sold under agreements to repurchase (1) | 232,605 |
| | 114,940 |
| | 0.22 |
| | 76,609 |
| | 0.44 |
|
| Other short-term borrowings | 4,982,154 |
| | 4,006,716 |
| | 1.31 |
| | 4,032,644 |
| | 1.34 |
|
| | $ | 6,190,544 |
| | $ | 4,814,393 |
| | | | $ | 4,782,798 |
| | |
| |
(1) | Average interest rate does not reflect the impact of balance sheet offsetting. See Note 15 Securities Financing Activities, in the Notes to the Consolidated Financial Statements. |
At December 31, 2017, total short-term2020 FHLB and other borrowings totaled $38 million,were $3.5 billion, a decrease of $2.8 billion,$142 million compared to the ending balance at December 31, 2016. The decrease in total short-term borrowings was driven by a $2.8 billion decrease in other short-term borrowings related to a decrease in U.S. Treasury short positions held by BSI.
At December 31, 2017 and 2016, FHLB and other borrowings were $4.0 billion and $3.0 billion, respectively. During 2017, the Bank issued under its Global Bank Note Program $750 million aggregate principal amount of its 2.875% unsecured senior notes due 2022.
During 2017, the Company's 1.85% senior notes with an aggregate principal amount of $400 million and its 6.40% subordinated debentures with an aggregate principal amount of $350 million matured. Also during 2017, the Company redeemed all of its outstanding Trust Preferred Securities. The aggregate principal amount of these notes was approximately $104 million.2019.
For the year ended December 31, 2017,2020, proceeds received from the FHLB and other borrowings were approximately $13.1 billion$2 million and repayments were approximately $12.1 billion.$230 million.
For a discussion of interest rates and maturities of FHLB and other borrowings, refer to Note 11,10, FHLB and Other Borrowings, in the Notes to the Consolidated Financial Statements.
Shareholder’s Equity
Total shareholder's equity at December 31, 20172020 was $13.0$11.7 billion compared to $12.8$13.4 billion at December 31, 2016. 2019. Shareholder's equity increased $461 milliondecreased $1.7 billion due to earningslosses attributable to shareholderthe Company during the periodyear offset, in part, by increases of $330 million in accumulated other comprehensive income largely attributable to a decrease in unrealized losses on available for sale securities and cash flow hedging instruments. Additionally, the paymentimpact of preferred and common dividends totaling $165the adoption of ASC 326 decreased shareholder's equity by $150 million.
Risk Management
In the normal course of business, the Company encounters inherent risk in its business activities. The Company’s risk management approach includes processes for identifying, assessing, managing, monitoring and reporting risks. Management has grouped the risks facing its operations into the following categories: credit risk, structural interest
rate, market and liquidity risk, operational risk, strategic and business risk, and reputational risk. Each of these risks is managed through the Company’s ERM program. The ERM program provides the structure and framework to identify, measure, control and manage risk across the organization. ERM is the cornerstone for defining risk tolerance, identifying key risk indicators, managing capital and integrating the Company’s capital planning process with on-going risk assessments and related stress testing for major risks.
The ERM program follows fundamental principles in establishing, executing and maintaining a program to manage overall risks. The Company's Board of Directors is responsible for overseeing the strategic and business plans, the ERM program and framework and the risk tolerance of the Company, approving key risk management policies, overseeing their implementation, and holding executive management accountable for the execution of the
ERM program. Under the oversight of the Company's Board of Directors, management is charged with implementing an effective, integrated risk management structure. This incorporates a defined organizational structure, with defined roles and responsibilities for all aspects of risk management and appropriate tools that support the identification, assessment, control and reporting of key risks. Management is also responsible for defining categories of risk pertaining to the operations of the Company and is responsible for defining that the risk management framework adequately covers both measurable as well as non-measurable risk. Management prepares risk policies and procedures that delineate the approach to all aspects of risk management through proper documentation and communication through appropriate channels. These risk management policies and procedures are aligned with the Company’s overall business strategies and support the ongoing improvement of its risk management. Management and employees within each line of business and support units are the first line of defense in the identification, assessment, mitigation, monitoring and reporting of risks taken by the lines of business, consistent with the Company’s risk tolerance, the current regulatory model for these risks and any material failures that may occur. The lines of business and support units also will have additional infrastructure for certain types of risk embedded in the lines. The risk management organization and other control units serve as the second line of defense and the credit quality review and internal audit functions provide the third line of defense.
Some of the more significant processes used to manage and control these and other risks are described in the remainder of this Annual Report on Form 10-K.
Credit Risk
Credit risk is the most significant risk affecting the organization. Credit risk refers to the potential that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. It can arise from items carried on the balance sheet or in off-balance sheet instruments, customers in the Company’s normal lending activities, and other counterparties. The general definition of credit risk also includes transfer risk. That is, the risk that a particular counterparty cannot honor an obligation because it cannot obtain the currency in which the debt is denominated.
The Company has established the following general practices to manage credit risk:
•limiting the amount of credit that may be extended to individual borrowers, or on an aggregate basis to certain industries, products or collateral types;
•providing tools and policies to promote prudent lending practices;
•developing credit risk underwriting standards, metrics and the continuous monitoring of portfolio performance;
•assessing, monitoring, and reporting credit risks; and
•periodically reevaluating the Company’s strategy and overall exposure as economic, market and other relevant conditions change.
The following discussion presents the principal types of lending conducted by the Company and describes the underwriting procedures and overall risk management of the Company’s lending function.
Management Process
The Company assesses and manages credit risk through a series of policies, processes, measurement systems and controls. The lines of business are responsible for credit risk at the operational day-to-day level. Oversight of the lines of business is provided by the Credit Risk Management department and the appropriate credit committees established within the Company.
Credit Risk Management evaluates all loan requests and approves those that meet the Company’s risk tolerance and are in compliance with Company policies and regulatory guidance. Credit Risk Management also provides policy, portfolio, and approval data to management so that there is a common understanding of loan portfolio risk. This is accomplished by developing credit risk underwriting standards, metrics and the ongoing monitoring of portfolio performance and assessing whether risk management practices have been carried out in accordance with
the Company’s credit risk strategy and policies. Key metrics, trends and issues related to credit risk are presented to the Risk Committee of the Board of Directors.
The CQR function provides an independent review of the Company’s credit quality. The CQR function reports to the Risk Committee of the Board of Directors. The CQR function is charged with providing the Company's Board of Directors and executive management with independent, objective, and timely assessments of the Company’s portfolio quality, credit policies, and credit risk management process.
Underwriting Approach
The Company’s underwriting approach is designed to define acceptable combinations of specific risk-mitigating features so that the credit relationships are expected to conform to the Company’s risk tolerances. Provided below is a summary of the most significant underwriting criteria used to evaluate new loans and loan renewals.
•Cashflow and debt service coverage – cash flow adequacy is a condition of creditworthiness, meaning that loans not clearly supported by a borrower’s cash flow should be justified by secondary repayment sources.
•Secondary sources of repayment – alternative repayment sources are a significant risk-mitigating factor as long as they are liquid, can be easily accessed, and provide adequate resources to supplement the primary cash flow source.
•Value of any underlying collateral – loans are often secured by the asset being financed. Because an analysis of the primary and secondary sources of repayment is the most important factor, collateral, unless it is liquid, generally does not justify loans that cannot be serviced by the borrower’s normal cash flows.
•Overall creditworthiness of the customer, taking into account the customer’s relationships, both past and current, with other lenders – the Company’s success depends on building lasting and mutually beneficial relationships with clients, which involves assessing their financial position and background.
Consumer underwriting relies heavily on credit bureau scores and other bureau attributes, as well as on other factors such as ability to pay, guarantors or collateral in the case of secured lending. •Level of equity invested in the transactions – in general, borrowers are required to contribute or invest a portion of their own funds prior to any loan advances.
Structural Interest Rate, Market, and Liquidity Risks
Structural interest rate risk arises from the impact on the Company’s banking assets and liabilities due to changes in the interest rate curves in the market, impacting both economic value and net interest income generation. Market risk arises from the movement of market variables that impact the trading book. These variables can include interest rates, foreign exchange rates, and commodity prices, among others. Liquidity risk refers to the possibilityrisk that a counterpartyan institution's financial condition or borrower cannotoverall safety and soundness is adversely affected by an inability to meet its payment commitments without having to resort to borrowing funds under onerous conditions or damaging its image or reputation.obligations. See the Market Risk Management and Liquidity sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations herein.
Operational Risk
Operational risk refers to the potential loss resulting from inadequate or failed internal processes, people or systems, or from external events. It includes the current and prospective risk to earnings and capital arising from fraud, error, and the inability to deliver products or services, maintain a competitive position or manage information. Included in operational risk are compliance and legal risk. This refers to the possibility of legal or regulatory sanctions and liabilities, financial loss or damage to reputation the Company may suffer as a result of its failure to comply with all applicable laws, regulations, codes of conduct and good practice standards.
Operational risk is managed by the lines of business and supporting units with oversight by the Operational Risk Committees at the line of business and supporting unit level. The Operational Risk Committees are the key element
to monitor operational risk events and the implementation of action plans and controls. Summary reports of these committees’ activities and decisions are provided to executive management.
Strategic and Business Risk
Strategic and business risk refers to the potential of lower earnings generation due to reduced operating income that cannot be offset quickly through expense management. The origin can be either company specific or systemic. Management of these risks is a shared responsibility throughout the organization using the following management processes. An annual business planning process occurs where market, competitive and economic factors that could have a negative impact on earnings are addressed with action plans developed to deal with these factors. Additionally, monthly reporting and analysis at a line of business and support unit level is performed and reviewed.
Reputational Risk
Reputational risk normally results as a consequence of events related to other risks previously discussed. Therefore, an adequate management of all the different financial and non-financial risk is critical to mitigate and control reputational risk. Management of this risk also involves brand management, community involvement and internal and external communication.
Market Risk Management
The effective management of market risk is essential to achieving the Company’s strategic financial objectives. As a financial institution, the Company’s most significant market risk exposure is interest rate risk in its balance sheet; however, market risk also includes product liquidity risk, price risk and volatility risk in the Company’s lines of business. The primary objectives of market risk management are to limitminimize any adverse effectseffect that changes in market risk factors may have on net interest income, and to offset the risk of price changes for certain assets recorded at fair value.
Interest Rate Market Risk
The Company’s net interest income and the fair value of its financial instruments are influenced by changes in the level of interest rates. The Company manages its exposure to fluctuations in interest rates through policies established by its Asset/Liability Committee. The Asset/Liability Committee meets regularly and has responsibility for approving asset/liability management policies, formulating strategies to improve balance sheet positioning and/or earnings and reviewing the interest rate sensitivity of the Company.
Management utilizes an interest rate simulation model to estimate the sensitivity of the Company’s net interest income to changes in interest rates. Such estimates are based upon a number of assumptions for each scenario, including the level of balance sheet growth, deposit repricing characteristics and the rate of prepayments.
The estimated impact on the Company’s net interest income sensitivity over a one-year time horizon at December 31, 2017,2020, is shown in the table below. Such analysis assumes a gradual and sustained parallel shift in interest rates, expectations of balance sheet growth and composition and the Company’s estimate of how interest-bearing transaction accounts would reprice in each scenario using current yield curves at December 31, 2017.2020.
Table 33
Net Interest Income Sensitivity
Table 36
Net Interest Income Sensitivity
|
| | | | | | |
| Estimated % Change in Net Interest Income |
| December 31, 20172020 | | |
| Rate Change | | | |
| + 200 basis points | 9.345.73 | % | | |
| + 100 basis points | 4.803.04 |
| | |
-100 | | | |
| - 25 basis points | (4.81(1.38) | ) | | |
| | | |
Management modeled only a 25 basis point decline because larger declines would have resulted in a federal funds rate of less than zero.
The following table shows the effect that the indicated changes in interest rates would have on EVE. Inherent in this calculation are many assumptions used to project lifetime cash flows for every item on the balance sheet that may or may not be realized, such as deposit decay rates, prepayment speeds and spread assumptions. This measurement only values existing business without consideration for new business or potential management actions.
Table 34
Economic Value of Equity
Table 37
Economic Value of Equity
|
| | | | | | |
| Estimated % Change in Economic Value of Equity |
| December 31, 20172020 | | |
| Rate Change | | | |
| + 300 basis points | (6.85)(7.41) | % | | |
| + 200 basis points | (4.34(3.20) | ) | | |
| + 100 basis points | (1.91(0.18) | ) | | |
-100 | | | |
| - 25 basis points | (0.19(0.62) | ) | | |
| | | |
The Company is also subject to trading risk. The Company utilizes various tools to measure and manage price risk in its trading portfolios. In addition, the Board of Directors of the Company has established certain limits relative to positions and activities. The level of price risk exposure at any given point in time depends on the market environment and expectation of future price and market movements, and will vary from period to period.
Derivatives
The Company uses derivatives primarily to manage economic risks related to commercial loans, mortgage banking operations, long-term debt and other funding sources. The Company also uses derivatives to facilitate transactions on behalf of its clients. As of December 31, 2017,2020, the Company had derivative financial instruments outstanding with notional amounts of $46.2$55.8 billion, including $31.0$39.8 billion related to derivatives to facilitate transactions on behalf of its clients. The estimated net fair value of open contracts was in a net asset position of $162 thousand$500 million at December 31, 2017.2020. For additional information about derivatives, refer to Note 14,13, Derivatives and Hedging, in the Notes to the Consolidated Financial Statements.
Liquidity Management
Liquidity is the ability of the Company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining the Company’s ability to meet the day-to-day cash flow requirements of its customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs. Without proper liquidity management, the Company would not be able to perform the primary function of a financial intermediary and would, therefore, not be able to meet the needs of the customers it serves.
The Company regularly assesses liquidity needs under various scenarios of market conditions, asset growth and changes in credit ratings. The assessment includes liquidity stress testing which measures various sources and uses of
funds under the different scenarios. The assessment provides regular monitoring of unused borrowing capacity and available sources of contingent liquidity to prepare for unexpected liquidity needs and to cover unanticipated events that could affect liquidity.
The asset portion of the balance sheet provides liquidity primarily through unencumbered securities available for sale, loan principal and interest payments, maturities and prepayments of investment securities held to maturity and, to a lesser extent, sales of investment securities available for sale and trading account assets. Other short-term investments such as federal funds sold, securities purchased under agreements to resell are additional sources of liquidity due to their short-term maturities.
The liability portion of the balance sheet provides liquidity through various customers’ interest-bearing and noninterest-bearing deposit accounts and through FHLB and other borrowings. Brokered deposits, federal funds
purchased, securities sold under agreements to repurchase and other short-term borrowings as well as excess borrowing capacity with the FHLB and access to debt capital markets are additional sources of liquidity and, basically, represent the Company’s incremental borrowing capacity. These sources of liquidity are used as necessary to fund asset growth and meet short-term liquidity needs.
The Company's financing arrangement with the FHLB adds additional flexibility in managing the Company's liquidity position. At December 31, 2020, the Company had unused FHLB borrowing capacity of $7.6 billion. Additionally, the Company had Federal Reserve discount window availability of $13.6 billion at December 31, 2020.
In addition to the Company’s financial performance and condition, liquidity may be impacted by the Parent’s structure as a holding company that is a separate legal entity from the Bank. The Parent requires cash for various operating needs including payment of dividends to its shareholder, the servicing of debt, and the payment of general corporate expenses. The primary source of liquidity for the Parent is dividends paid by the Bank. Applicable federal and state statutes and regulations impose restrictions on the amount of dividends that may be paid by the Bank. In addition to the formal statutes and regulations, regulatory authorities also consider the adequacy of the Bank’s total capital in relation to its assets, deposits and other such items. Due to the net earnings restrictions on dividend distributions, the Bank was not permitted to pay dividends at December 31, 20172020 or December 31, 20162019 without regulatory approval. Appropriate limits and guidelines are in place so that the Parent has sufficient cash to meet operating expenses and other commitments for at least the next 18 months without relying on subsidiaries or capital markets for funding.
During 2017,2020, the Parent paid no common dividends of $150 million to its sole shareholder, BBVA. Any future dividends paid from the Parent must be set forth as capital actions in the Company's capital plans and not objected to by the Federal Reserve Board before any dividends can be paid.
On June 29, 2017, the Bank issued under its Global Bank Note Program $750 million aggregate principal amount of its 2.875% unsecured senior notes due 2022.
The Company’s ability to raise funding at competitive prices is affected by the rating agencies’ views of the Company’s credit quality, liquidity, capital and earnings. Management meets with the rating agencies on a routine basis to discuss the current outlook for the Company.
At December 31, 2017,2020, the CompanyCompany's LCR was 144% and was fully compliant with the applicable LCR requirements in effect for 2017.requirements. However, should the Company's cash position or investment mix changeCompany is no longer subject to the LCR going forward as a result of the Tailoring Rules. It may become subject to the LCR again in the future as a result of the Company's ability to meetCompany becoming a Category IV U.S. IHC under the LCR requirement may be impacted.Tailoring Rules. Please refer to Item 1. Business - Supervision, Regulation and Other Factors - U.S. Liquidity Standards for more information concerning the LCR requirements applicable to the Company.
Management believes that the current sources of liquidity are adequate to meet the Company’s requirements and plans for continued growth. See Note11,10, FHLB and Other Borrowings, Note 12,11, Shareholder's Equity, and Note 16,15, Commitments, Contingencies and Guarantees, in the Notes to the Consolidated Financial Statements for additional information regarding outstanding balances of sources of liquidity and contractual commitments and obligations.
The following table presents information about the Company’s contractual obligations.
Table 38 Contractual Obligations (1) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Payments Due by Period |
| | Total | | Less than 1 year | | 1-3 Years | | 3-5 Years | | More than 5 Years | | Indeterminable Maturity |
| | (In Thousands) |
| FHLB and other borrowings | $ | 3,959,930 |
| | $ | 300,000 |
| | $ | 1,973,405 |
| | $ | 866,012 |
| | $ | 820,513 |
| | $ | — |
|
| Short-term borrowings (2) | 37,587 |
| | 37,587 |
| | — |
| | — |
| | — |
| | — |
|
| Capital lease obligations | 19,137 |
| | 2,155 |
| | 4,418 |
| | 4,040 |
| | 8,524 |
| | — |
|
| Operating leases | 435,184 |
| | 66,172 |
| | 119,732 |
| | 92,824 |
| | 156,456 |
| | — |
|
| Deposits (3) | 69,256,313 |
| | 11,243,000 |
| | 2,432,187 |
| | 142,848 |
| | 63,697 |
| | 55,374,581 |
|
| Unrecognized income tax benefits | 14,916 |
| | 7,146 |
| | 3,227 |
| | 4,543 |
| | — |
| | — |
|
| Total | $ | 73,723,067 |
| | $ | 11,656,060 |
| | $ | 4,532,969 |
| | $ | 1,110,267 |
| | $ | 1,049,190 |
| | $ | 55,374,581 |
|
| |
(1) | Amounts do not include associated interest payments. |
| |
(2) | For more information, see Note 10, Short-Term Borrowings, in the Notes to the Consolidated Financial Statements.Contractual Obligations (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2020 | | Payments Due by Period | | Total | | Less than 1 year | | 1-3 Years | | 3-5 Years | | More than 5 Years | | Indeterminable Maturity | | (In Thousands) | | FHLB and other borrowings | $ | 3,548,492 | | | $ | 1,277,419 | | | $ | 766,723 | | | $ | 1,421,940 | | | $ | 82,410 | | | $ | — | | | Short-term borrowings (2) | 184,478 | | | 184,478 | | | — | | | — | | | — | | | — | | | Finance lease obligations | 12,673 | | | 2,143 | | | 3,424 | | | 2,614 | | | 4,492 | | | — | | | Operating leases | 351,969 | | | 56,251 | | | 100,244 | | | 68,102 | | | 127,372 | | | — | | | Deposits (3) | 85,858,381 | | | 4,193,411 | | | 431,479 | | | 55,439 | | | 4,700 | | | 81,173,352 | | | Unrecognized income tax benefits | 7,094 | | | 1,039 | | | 2,337 | | | 3,718 | | | — | | | — | | | Total | $ | 89,963,087 | | | $ | 5,714,741 | | | $ | 1,304,207 | | | $ | 1,551,813 | | | $ | 218,974 | | | $ | 81,173,352 | |
(1)Amounts do not include associated interest payments. (2)For more information, see Note 9, Short-Term Borrowings, in the Notes to the Consolidated Financial Statements. (3)Deposits with indeterminable maturity include noninterest bearing demand, savings, interest-bearing demand accounts and money market accounts. |
| |
(3) | Deposits with indeterminable maturity include noninterest bearing demand, savings, interest-bearing transaction accounts and money market accounts. |
Off Balance Sheet Arrangements
The Company's off balance sheet credit risk includes obligations for loans sold with recourse, unfunded commitments, and letters of credit. Additionally, the Company periodically invests in various limited partnerships that sponsor affordable housing projects. See Note 16, 15, Commitments, Contingencies and Guarantees,, in the Notes to the Consolidated Financial Statements for further discussion.
Capital
The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking regulators. Failure to meet minimum risk-based and leverage capital requirements can subject the Company and the Bank to a series of increasingly restrictive regulatory actions.
The following table sets forth the Company's U.S. Basel III regulatory capital ratios subject to transitional provisions at December 31, 20172020 and 2016.2019.
Table 39 Capital Ratios |
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (Dollars in Thousands) |
| Capital: | | | |
| CET1 Capital | $ | 7,964,877 |
| | $ | 7,669,118 |
|
| Tier 1 Capital | 8,199,077 |
| | 7,907,518 |
|
| Total Qualifying Capital | 9,689,834 |
| | 9,550,482 |
|
| Assets: | | | |
| Total risk-adjusted assets (regulatory) | $ | 67,489,425 |
| | $ | 66,719,395 |
|
| Ratios: | | | |
| CET1 Risk-Based Capital Ratio | 11.80 | % | | 11.49 | % |
| Tier 1 Risk-Based Capital Ratio | 12.15 |
| | 11.85 |
|
| Total Risk-Based Capital Ratio | 14.36 |
| | 14.31 |
|
| Leverage Ratio | 9.98 |
| | 9.46 |
|
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| (Dollars in Thousands) |
| Capital: | | | |
| CET1 Capital | $ | 9,086,853 | | | $ | 8,615,357 | |
| Tier 1 Capital | 9,316,853 | | | 8,849,557 | |
| Total Qualifying Capital | 10,804,264 | | | 10,332,023 | |
| Assets: | | | |
| Total risk-adjusted assets (regulatory) | $ | 68,439,633 | | | $ | 68,968,967 | |
| Ratios: | | | |
| CET1 Risk-Based Capital Ratio | 13.28 | % | | 12.49 | % |
| Tier 1 Risk-Based Capital Ratio | 13.61 | | | 12.83 | |
| Total Risk-Based Capital Ratio | 15.79 | | | 14.98 | |
| Leverage Ratio | 9.07 | | | 9.70 | |
At December 31, 2017,2020, the regulatory capital ratios of the Bank also remain well above current regulatory requirements for banks based on applicable U.S. regulatory capital requirements. The Company continually monitors these ratios to ensure that the Bank exceeds this standard.
The Company also regularly performs stress testing on its capital levels and is required annuallyhas elected the ‘five-year transition’ for the ASC 326 accounting standard from the banking agencies’ final rule that allows banking organizations to submit the Company’s capital plan to the Federal Reserve Board as partdefer certain effects of the CCAR process. In June 2017,ASC 326 accounting standard on their regulatory capital. Specifically, this final rule allows for 25% of the Company was informed that the Federal Reserve Board had no objection to the Company's capital plan and the capital actions proposedcumulative increase in the capital plan. The Company's capital plan included common dividendsallowance for credit losses since the adoption of $200 million, subject to approval by the Company's board of directors. The Company submitted its capital plan, which was approved by its board of directors, to the Federal Reserve in April 2017 as partASC 326 and 100% of the Comprehensive Capital Analysis and Reviewday-one impact of ASC 326 adoption to be deferred for a two-year period. This two-year period will be followed by a three-year transition period to phase-in the impact of the 34 largest U.S. bank holding companies. The capital plan includes proposed potential capital actions covering the period from July 1, 2017 through June 30, 2018.
On June 22, 2017, the Federal Reserve Board disclosed the results of its 2017 Dodd-Frank Act Stress Test for the same 34 bank holding companies. Each of the Company's projecteddeferred amounts on regulatory capital ratios exceeded the applicable regulatory minimums as defined by the Federal Reserve under the hypothetical supervisory severely adverse scenario.capital.
Please refer to Item 1. Business - Supervision, Regulation and Other Factors - Capital Requirements and Item 1A. - Risk Factors for more information regarding regulatory capital requirements. Also, see Note 17,16, Regulatory Capital Requirements and Dividends from Subsidiaries, in the Notes to the Consolidated Financial Statements for further details.
Effects of Inflation
The majority of assets and liabilities of a financial institution are monetary in nature; therefore, a financial institution differs greatly from most commercial and industrial companies, which have significant investments in fixed assets or inventories that are greatly impacted by inflation. However, inflation does have an important impact on the growth of total assets in the banking industry and the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity-to-assets ratio. Inflation also affects other expenses that tend to rise during periods of general inflation.
Management believes the most significant potential impact of inflation on financial results is a direct result of the Company’s ability to manage the impact of changes in interest rates. Management attempts to minimize the impact of interest rate fluctuations on net interest income. However, this goal can be difficult to completely achieve in times of rapidly changing interest rates and is one of many factors considered in determining the Company’s interest rate
positioning. The Company is asset sensitive as of December 31, 2017.2020. Refer to Table 36,33, Net Interest Income Sensitivity, for additional details on the Company’s interest rate sensitivity.
Effects of Deflation
A period of deflation would affect all industries, including financial institutions. Potentially, deflation could lead to lower profits, higher unemployment, lower production and deterioration in overall economic conditions. In addition, deflation could depress economic activity and impair earnings through increasing the value of debt while decreasing the value of collateral for loans. If the economy experienced a severe period of deflation, then it could depress loan demand, impair the ability of borrowers to repay loans and sharply reduce earnings.
Management believes the most significant potential impact of deflation on financial results relates to the Company’s ability to maintain a high amount of capital to cushion against future losses. In addition, the Company can utilize certain risk management tools to help it maintain its balance sheet strength even if a deflationary scenario were to develop.
Quarterly Financial Results
The accompanying table presents condensed information relating to quarterly periods.
Table 37
Quarterly Financial Summary
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
| (In Thousands) |
| Summary of Operations: | | | | | | | | | | | | | | | |
| Interest income | $ | 717,674 | | | $ | 721,426 | | | $ | 743,545 | | | $ | 798,383 | | | $ | 855,811 | | | $ | 893,204 | | | $ | 902,629 | | | $ | 907,012 | |
| Interest expense | 50,472 | | | 79,576 | | | 131,528 | | | 208,928 | | | 232,657 | | | 252,163 | | | 242,880 | | | 223,923 | |
| Net interest income | 667,202 | | | 641,850 | | | 612,017 | | | 589,455 | | | 623,154 | | | 641,041 | | | 659,749 | | | 683,089 | |
| Provision for credit losses | (81,298) | | | 150,977 | | | 539,459 | | | 356,991 | | | 119,505 | | | 140,629 | | | 155,018 | | | 182,292 | |
| Net interest income after provision for credit losses | 748,500 | | | 490,873 | | | 72,558 | | | 232,464 | | | 503,649 | | | 500,412 | | | 504,731 | | | 500,797 | |
| Noninterest income | 301,416 | | | 284,660 | | | 272,354 | | | 334,242 | | | 272,584 | | | 321,319 | | | 284,281 | | | 257,760 | |
| Noninterest expense | 577,580 | | | 595,628 | | | 579,450 | | | 2,809,060 | | | 1,086,906 | | | 598,887 | | | 598,314 | | | 581,973 | |
| Income (loss) before income tax expense (benefit) | 472,336 | | | 179,905 | | | (234,538) | | | (2,242,354) | | | (310,673) | | | 222,844 | | | 190,698 | | | 176,584 | |
| Income tax expense (benefit) | 138,519 | | | 13,664 | | | (110,101) | | | (5,069) | | | 20,032 | | | 39,899 | | | 30,512 | | | 35,603 | |
| Net income (loss) | 333,817 | | | 166,241 | | | (124,437) | | | (2,237,285) | | | (330,705) | | | 182,945 | | | 160,186 | | | 140,981 | |
| Less: noncontrolling interest | 673 | | | 401 | | | 472 | | | 501 | | | 663 | | | 514 | | | 599 | | | 556 | |
| Net income (loss) attributable to BBVA USA Bancshares, Inc. | 333,144 | | | 165,840 | | | (124,909) | | | (2,237,786) | | | (331,368) | | | 182,431 | | | 159,587 | | | 140,425 | |
| Less: preferred stock dividends | 3,189 | | | 3,286 | | | 3,965 | | | 4,155 | | | 4,239 | | | 4,561 | | | 4,725 | | | 4,485 | |
| Net income (loss) attributable to common shareholder | $ | 329,955 | | | $ | 162,554 | | | $ | (128,874) | | | $ | (2,241,941) | | | $ | (335,607) | | | $ | 177,870 | | | $ | 154,862 | | | $ | 135,940 | |
| Selected Average Balances: | | | | | | | | | | | | | | | |
| Loans and loans held for sale | $ | 66,212,070 | | | $ | 67,837,185 | | | $ | 69,256,412 | | | $ | 64,875,095 | | | $ | 63,956,453 | | | $ | 63,629,992 | | | $ | 64,056,915 | | | $ | 65,482,395 | |
| Total assets | 104,835,589 | | | 104,282,898 | | | 104,204,062 | | | 96,356,113 | | | 95,754,954 | | | 94,942,456 | | | 93,452,839 | | | 92,985,876 | |
| Deposits | 85,906,838 | | | 85,301,231 | | | 83,547,718 | | | 74,881,825 | | | 74,122,266 | | | 72,994,321 | | | 72,687,054 | | | 72,203,842 | |
| FHLB and other borrowings | 3,552,199 | | | 3,567,285 | | | 3,567,010 | | | 3,736,201 | | | 3,701,993 | | | 3,860,727 | | | 4,026,581 | | | 4,290,724 | |
| Shareholder’s equity | 11,595,287 | | | 11,394,928 | | | 11,533,007 | | | 13,500,615 | | | 14,090,315 | | | 14,056,939 | | | 13,782,011 | | | 13,640,655 | |
Table 40 Quarterly Financial Summary (Unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
| | (In Thousands) |
| Summary of Operations: | | | | | | | | | | | | | | | |
| Interest income | $ | 716,608 |
| | $ | 702,612 |
| | $ | 691,640 |
| | $ | 655,788 |
| | $ | 647,026 |
| | $ | 630,542 |
| | $ | 620,129 |
| | $ | 632,762 |
|
| Interest expense | 113,063 |
| | 113,251 |
| | 105,812 |
| | 104,355 |
| | 115,274 |
| | 115,733 |
| | 115,891 |
| | 115,880 |
|
| Net interest income | 603,545 |
| | 589,361 |
| | 585,828 |
| | 551,433 |
| | 531,752 |
| | 514,809 |
| | 504,238 |
| | 516,882 |
|
| Provision for loan losses | 58,835 |
| | 103,434 |
| | 45,285 |
| | 80,139 |
| | 37,564 |
| | 65,107 |
| | 86,673 |
| | 113,245 |
|
| Net interest income after provision for loan losses | 544,710 |
| | 485,927 |
| | 540,543 |
| | 471,294 |
| | 494,188 |
| | 449,702 |
| | 417,565 |
| | 403,637 |
|
| Noninterest income | 297,169 |
| | 257,794 |
| | 246,325 |
| | 244,687 |
| | 260,758 |
| | 263,765 |
| | 278,246 |
| | 253,205 |
|
| Noninterest expense | 615,828 |
| | 573,962 |
| | 572,485 |
| | 549,312 |
| | 614,070 |
| | 556,271 |
| | 541,037 |
| | 592,144 |
|
| Income before income tax expense | 226,051 |
| | 169,759 |
| | 214,383 |
| | 166,669 |
| | 140,876 |
| | 157,196 |
| | 154,774 |
| | 64,698 |
|
| Income tax expense | 173,979 |
| | 39,308 |
| | 56,943 |
| | 45,846 |
| | 51,473 |
| | 36,845 |
| | 32,272 |
| | 25,431 |
|
| Net income | 52,072 |
| | 130,451 |
| | 157,440 |
| | 120,823 |
| | 89,403 |
| | 120,351 |
| | 122,502 |
| | 39,267 |
|
| Less: noncontrolling interest | 547 |
| | 584 |
| | 431 |
| | 443 |
| | 441 |
| | 523 |
| | 518 |
| | 528 |
|
| Net income attributable to BBVA Compass Bancshares, Inc. | 51,525 |
| | 129,867 |
| | 157,009 |
| | 120,380 |
| | 88,962 |
| | 119,828 |
| | 121,984 |
| | 38,739 |
|
| Less: preferred stock dividends | 3,812 |
| | 3,786 |
| | 3,700 |
| | 3,548 |
| | 3,536 |
| | 3,476 |
| | 3,453 |
| | 3,219 |
|
| Net income attributable to common shareholder | $ | 47,713 |
| | $ | 126,081 |
| | $ | 153,309 |
| | $ | 116,832 |
| | $ | 85,426 |
| | $ | 116,352 |
| | $ | 118,531 |
| | $ | 35,520 |
|
| Selected Average Balances: | | | | | | | | | | | | | | | |
| Loans and loans held for sale | $ | 61,170,130 |
| | $ | 60,271,504 |
| | $ | 59,902,725 |
| | $ | 60,326,849 |
| | $ | 60,428,830 |
| | $ | 61,060,433 |
| | $ | 62,355,245 |
| | $ | 62,195,963 |
|
| Total assets | 86,990,170 |
| | 87,299,979 |
| | 87,474,348 |
| | 87,676,882 |
| | 88,639,855 |
| | 90,900,339 |
| | 92,440,585 |
| | 92,305,106 |
|
| Deposits | 67,994,615 |
| | 65,589,724 |
| | 65,711,133 |
| | 67,216,855 |
| | 67,718,213 |
| | 67,979,739 |
| | 68,441,915 |
| | 67,479,613 |
|
| FHLB and other borrowings | 3,551,958 |
| | 5,053,340 |
| | 4,104,668 |
| | 3,167,805 |
| | 3,281,743 |
| | 4,121,742 |
| | 4,448,139 |
| | 5,064,803 |
|
| Shareholder’s equity | 13,150,577 |
| | 13,130,915 |
| | 13,004,717 |
| | 12,852,658 |
| | 12,982,707 |
| | 12,810,740 |
| | 12,751,155 |
| | 12,727,970 |
|
| |
Item 7A. | Quantitative and Qualitative Disclosures about Market Risk
|
See “Market Risk Management” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, which is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
| | | | | |
Item 8. | Financial Statements and Supplementary Data
|
|
| |
BBVA CompassUSA Bancshares, Inc. and Subsidiaries Financial Statements | |
| Audited Consolidated Financial Statements: | |
| |
| |
| |
| |
| |
| |
| |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholder and Board of Directors
BBVA CompassUSA Bancshares, Inc.:
Opinion on the ConsolidatedFinancial Statements
We have audited the accompanying consolidated balance sheetsheets of BBVA CompassUSA Bancshares, Inc. and subsidiaries (the “Company”)Company) as of December 31, 2017,2020 and 2019, the related consolidated statements of income, comprehensive income, shareholder’s equity, and cash flows for each of the years in the three‑year thenperiod ended December 31, 2020, and the related notes (collectively, the “consolidatedconsolidated financial statements”)statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017,2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year thenperiod ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 201825, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses (ASC 326).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our auditaudits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our auditaudits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of Goodwill
As discussed in Notes 1 and 7 to the consolidated financial statements, the goodwill balance as of December 31, 2020 was $2.3 billion, of which $1.9 billion related to the Commercial Banking and Wealth reporting unit, $136 million related to the Retail Banking reporting unit, and $262 million related to the Corporate and Investment Banking reporting unit. The Company performs goodwill impairment testing on an annual basis and more frequently if events or circumstances indicate a potential impairment may exist. During the three months ended March 31, 2020, the Company determined that a triggering event had occurred due to the impact of COVID‑19 pandemic and its impact on the economic environment and the Company’s financial performance. The Company elected to perform a quantitative impairment test which indicated a goodwill impairment of $164 million within the Corporate and Investment Banking reporting unit, $729 million within the Commercial Banking and Wealth reporting unit, and $1.3 billion within the Retail Banking reporting unit resulting in the Company recording a goodwill impairment charge of $2.2 billion. A test of goodwill for impairment consists of comparing the fair value of each reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimated fair value of the reporting unit is determined using a blend of the income approach and market approach, inclusive of both the guideline public company method and the guideline transaction method.
We identified the interim evaluation of the goodwill impairment measurement for the Commercial Banking and Wealth, Retail, and Corporate and Investment Banking reporting units as a critical audit matter. The degree of subjectivity associated with the assessment of certain assumptions to estimate the fair value of the reporting units required a high degree of auditor judgment. Specifically, subjective auditor judgment was required to assess the estimated future cash flow assumptions, discount rates, and long‑term growth rates used in the income approach and market multiples used in the market approach. Minor changes to those assumptions could have had a significant effect on the Company’s measurement of the fair value of the reporting units and goodwill impairment. Additionally, the audit effort associated with this estimate required specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the measurement of goodwill impairment for the reporting units, including controls over the:
•development of future cash flow assumptions by reporting unit
•development of the long term growth rates, discount rates, and market multiple assumptions by reporting unit.
We evaluated the Company’s analysis to assess potential goodwill impairment for compliance with U.S. generally accepted accounting principles. We evaluated the reasonableness of the Company’s future cash flows for the reporting units, by comparing the future cash flow assumptions to historic projections and internal analysis and external data. We compared the Company’s previous cash flow projections to actual results to assess the Company’s ability to accurately forecast. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
•evaluating the discount rates and long term growth rates by comparing the inputs to the development of the assumptions to publicly available data
•evaluating market multiples by comparing the market multiples to publicly available data for comparable entities and assessing the resulting market multiples
•assessing the results of management’s goodwill impairment measurement considering the income and market approach by reviewing and evaluating the work and documentation of the specialist engaged by the Company.
Allowance for Loan Losses Evaluated on a Collective Basis
As discussed in Note 1 to the consolidated financial statements, the Company adopted ASC 326 as of January 1, 2020. The total allowance for loan losses as of January 1, 2020 was $1.1 billion, which included the allowance for loan losses evaluated on a collective basis (the January 1, 2020 collective ALL). As discussed in Note 3 to the consolidated financial statements, the Company’s allowance for loan losses was $1.7 billion, which included the allowance for loan losses evaluated on a collective basis (the December 31, 2020 collective ALL) as of December 31, 2020. The January 1, 2020 collective ALL and the December 31, 2020 collective ALL (together, the collective ALL) includes the measure of expected credit losses on a collective basis for those loans that share similar risk
characteristics. The Company estimated the collective ALL using (1) discounted cash flows, and (2) default probabilities and loss severities, which are based on relevant internal and external available information that relates to past events, current conditions, and reasonable and supportable economic forecasts. The Company disaggregates the portfolio into segments; incorporating obligor risk ratings for commercial loans and credit scores for consumer loans. The Company estimates the present value of cash shortfalls resulting from the sum of the marginal losses occurring in each time period, over the remaining life of the loan. The marginal losses are derived from the projection of principal balance, inclusive of principal cash flow and prepayment estimates, and parameters reflecting the severity of losses (LGD) in the case of default that is given by the marginal probability of default (PD) for each period of the portfolio’s lifetime. The Company estimates a point in time PD and LGD utilizing recent historical data per portfolio, which are then transformed via macroeconomic models using correlated macroeconomic variables included in the forecasted scenarios. After the forecast period, the Company reverts to long run historical average default probabilities and loss severities using a linear function, with reversion speeds that differ by portfolio. A portion of the collective ALL is comprised of adjustments, based on qualitative factors, to the loss estimates described above when it is determined that expected credit losses may not have been captured in the loss estimates.
We identified the assessment of the January 1, 2020 collective ALL and the December 31, 2020 collective ALL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the collective ALL due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the collective ALL methodology, including the methods and models used to estimate (1) the PD and LGD, and their significant assumptions, including portfolio segmentation, the economic forecast scenario and macroeconomic variables, the reasonable and supportable forecast periods, and obligor risk ratings for commercial loans, and (2) the qualitative factors, principally the alternative economic forecast scenarios. The assessment also included an evaluation of the conceptual soundness and performance of the PD and LGD models. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the measurement of the collective ALL estimates, including controls over the:
•development of the collective ALL methodology
•development of the PD and LGD models and forecasts
• identification and determination of the significant assumptions used in the PD and LGD models
•development of obligor risk ratings for commercial loans
•development of the qualitative factors, including the alternative economic scenarios
• performance monitoring of the PD and LGD models for the December 31, 2020 collective ALL.
We evaluated the Company’s process to develop the collective ALL estimates by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. We involved credit risk professionals with specialized skills and knowledge who assisted in:
•evaluating the Company’s collective ALL methodology for compliance with U.S. generally accepted accounting principles
•assessing the conceptual soundness and performance of the PD and LGD models by inspecting the model documentation to determine whether the models are suitable for their intended use
•evaluating judgments made by the Company relative to the development and performance testing of the PD and LGD models by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices
•evaluating the methodology used to develop the economic forecast scenarios and underlying assumptions by comparing it to the Company’s business environment and relevant industry practices
•assessing the economic forecast scenario through comparison to publicly available forecasts
•testing the long run historical average default probabilities and loss severities and reasonable and supportable forecast periods to evaluate the length of each period by comparing them to specific portfolio risk characteristics and trends
•determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices
•testing individual obligor risk ratings for a selection of commercial loans by evaluating the financial performance of the borrower, sources of repayment, and any relevant guarantees or underlying collateral
•evaluating the methodology used to develop the qualitative factors and the effect of those factors on the collective ALL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying quantitative models.
We also assessed the sufficiency of the audit evidence obtained related to January 1, 2020 collective ALL and the December 31, 2020 collective ALL estimates by evaluating the:
•cumulative results of the audit procedures
•qualitative aspects of the Company’s accounting practices
•potential bias in the accounting estimates.
/s/ KPMG LLP
We have served as the Company’s auditor since 2016.
Birmingham, Alabama
February 28, 201825, 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholder and Board of Directors
BBVA CompassUSA Bancshares, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited BBVA CompassUSA Bancshares, Inc.’s, and subsidiaries’ (the “Company”)Company) internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the consolidated balance sheetsheets of the Company as of December 31, 2017,2020 and 2019, the related consolidated statements of income, comprehensive income, shareholder’s equity, and cash flows for each of the years in the three‑year thenperiod ended December 31, 2020, and the related notes (collectively, the “consolidatedconsolidated financial statements”)statements), and our report dated February 28, 201825, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report onof Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Birmingham, Alabama
February 28, 201825, 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
BBVA Compass Bancshares, Inc.USA BANCSHARES, INC. AND SUBSIDIARIES
Houston, TexasCONSOLIDATED BALANCE SHEETS
We have audited the accompanying consolidated balance sheet of BBVA Compass Bancshares, Inc. and subsidiaries (the "Company") as of December 31, 2016, and the related consolidated statements of income, comprehensive income, shareholder’s equity, and cash flows for each of the two years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statement presents fairly, in all material respects, the financial position of BBVA Compass Bancshares, Inc. and subsidiaries as of December 31, 2016, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Birmingham, AL
March 1, 2017 (February 28, 2018 as to the effects of the segment changes for each of the two years in the period ended December 31, 2016, as described in Note 22)
BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
| |
| | | December 31, | | December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | (In Thousands) | | (In Thousands) |
| Assets: | | | | Assets: | |
| Cash and due from banks | $ | 1,313,022 |
| | $ | 1,284,261 |
| Cash and due from banks | $ | 1,249,954 | | | $ | 1,149,734 | |
| Interest bearing deposits with the Federal Reserve | 2,683,769 |
| | 1,830,078 |
| |
| Federal funds sold, securities purchased under agreements to resell and interest bearing deposits | 86,035 |
| | 137,447 |
| Federal funds sold, securities purchased under agreements to resell and interest bearing deposits | 13,357,954 | | | 5,788,964 | |
| Cash and cash equivalents | 4,082,826 |
| | 3,251,786 |
| Cash and cash equivalents | 14,607,908 | | | 6,938,698 | |
| Trading account assets | 220,496 |
| | 3,144,600 |
| Trading account assets | 762,449 | | | 473,976 | |
| Investment securities available for sale | 12,683,787 |
| | 11,665,055 |
| |
| Investment securities held to maturity (fair value of $1,040,543 and $1,182,009 for 2017 and 2016, respectively) | 1,046,093 |
| | 1,203,217 |
| |
| Loans held for sale (includes $67,110 and $105,257 measured at fair value for 2017 and 2016, respectively) | 67,110 |
| | 161,849 |
| |
| Debt securities available for sale | | Debt securities available for sale | 5,744,919 | | | 7,235,305 | |
| Debt securities held to maturity, net of allowance for debt securities held to maturity losses of $2,178 at December 31, 2020 (fair value of $10,809,461 and $6,921,158 for 2020 and 2019, respectively) | | Debt securities held to maturity, net of allowance for debt securities held to maturity losses of $2,178 at December 31, 2020 (fair value of $10,809,461 and $6,921,158 for 2020 and 2019, respectively) | 10,549,945 | | | 6,797,046 | |
| Loans held for sale, at fair value | | Loans held for sale, at fair value | 236,586 | | | 112,058 | |
| Loans | 61,623,768 |
| | 60,061,263 |
| Loans | 65,559,767 | | | 63,946,857 | |
| Allowance for loan losses | (842,760 | ) | | (838,293 | ) | Allowance for loan losses | (1,679,474) | | | (920,993) | |
| Net loans | 60,781,008 |
| | 59,222,970 |
| Net loans | 63,880,293 | | | 63,025,864 | |
| Premises and equipment, net | 1,214,874 |
| | 1,300,054 |
| Premises and equipment, net | 1,055,525 | | | 1,087,698 | |
| Bank owned life insurance | 722,596 |
| | 711,939 |
| Bank owned life insurance | 757,943 | | | 750,224 | |
| Goodwill | 4,983,296 |
| | 4,983,296 |
| Goodwill | 2,328,296 | | | 4,513,296 | |
| | Other assets | 1,518,493 |
| | 1,435,187 |
| Other assets | 2,832,339 | | | 2,669,182 | |
| Total assets | $ | 87,320,579 |
| | $ | 87,079,953 |
| Total assets | $ | 102,756,203 | | | $ | 93,603,347 | |
| Liabilities: | | | | Liabilities: | | | |
| Deposits: | | | | Deposits: | |
| Noninterest bearing | $ | 21,630,694 |
| | $ | 20,332,792 |
| Noninterest bearing | $ | 27,791,421 | | | $ | 21,850,216 | |
| Interest bearing | 47,625,619 |
| | 46,946,741 |
| Interest bearing | 58,066,960 | | | 53,135,067 | |
| Total deposits | 69,256,313 |
| | 67,279,533 |
| Total deposits | 85,858,381 | | | 74,985,283 | |
| FHLB and other borrowings | 3,959,930 |
| | 3,001,551 |
| FHLB and other borrowings | 3,548,492 | | | 3,690,044 | |
| Federal funds purchased and securities sold under agreements to repurchase | 19,591 |
| | 39,052 |
| |
| Other short-term borrowings | 17,996 |
| | 2,802,977 |
| |
| Federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings | | Federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings | 184,478 | | | 173,028 | |
| | Accrued expenses and other liabilities | 1,053,439 |
| | 1,206,133 |
| Accrued expenses and other liabilities | 1,473,490 | | | 1,368,403 | |
| Total liabilities | 74,307,269 |
| | 74,329,246 |
| Total liabilities | 91,064,841 | | | 80,216,758 | |
| Shareholder’s Equity: | | | | Shareholder’s Equity: | |
| Series A Preferred stock — $0.01 par value, liquidation preference $200,000 per share | | | | Series A Preferred stock — $0.01 par value, liquidation preference $200,000 per share | |
| Authorized — 30,000,000 shares | | | | Authorized — 30,000,000 shares | |
| Issued — 1,150 shares | 229,475 |
| | 229,475 |
| Issued — 1,150 shares | 229,475 | | | 229,475 | |
| Common stock — $0.01 par value: | | | | Common stock — $0.01 par value: | |
| Authorized — 300,000,000 shares | | | | Authorized — 300,000,000 shares | |
| Issued — 222,950,751 shares | 2,230 |
| | 2,230 |
| |
| Issued — 222,963,891 shares at both December 31, 2020 and 2019, respectively | | Issued — 222,963,891 shares at both December 31, 2020 and 2019, respectively | 2,230 | | | 2,230 | |
| Surplus | 14,818,608 |
| | 14,985,673 |
| Surplus | 14,032,205 | | | 14,043,727 | |
| Accumulated deficit | (1,868,659 | ) | | (2,327,440 | ) | Accumulated deficit | (2,931,151) | | | (917,227) | |
| Accumulated other comprehensive loss | (197,405 | ) | | (168,252 | ) | |
| Total BBVA Compass Bancshares, Inc. shareholder’s equity | 12,984,249 |
| | 12,721,686 |
| |
| Accumulated other comprehensive income (loss) | | Accumulated other comprehensive income (loss) | 329,105 | | | (1,072) | |
| Total BBVA USA Bancshares, Inc. shareholder’s equity | | Total BBVA USA Bancshares, Inc. shareholder’s equity | 11,661,864 | | | 13,357,133 | |
| Noncontrolling interests | 29,061 |
| | 29,021 |
| Noncontrolling interests | 29,498 | | | 29,456 | |
| Total shareholder’s equity | 13,013,310 |
| | 12,750,707 |
| Total shareholder’s equity | 11,691,362 | | | 13,386,589 | |
| Total liabilities and shareholder’s equity | $ | 87,320,579 |
| | $ | 87,079,953 |
| Total liabilities and shareholder’s equity | $ | 102,756,203 | | | $ | 93,603,347 | |
See accompanying Notes to Consolidated Financial Statements.
BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Interest income: | | | | | |
| Interest and fees on loans | $ | 2,447,293 |
| | $ | 2,236,929 |
| | $ | 2,162,145 |
|
| Interest on investment securities available for sale | 224,715 |
| | 191,889 |
| | 192,124 |
|
| Interest on investment securities held to maturity | 27,009 |
| | 26,893 |
| | 27,449 |
|
| Interest on federal funds sold, securities purchased under agreements to resell and interest bearing deposits | 40,277 |
| | 20,939 |
| | 5,622 |
|
| Interest on trading account assets | 27,354 |
| | 53,809 |
| | 50,935 |
|
| Total interest income | 2,766,648 |
| | 2,530,459 |
| | 2,438,275 |
|
| Interest expense: | | | | | |
| Interest on deposits | 299,317 |
| | 304,625 |
| | 274,478 |
|
| Interest on FHLB and other borrowings | 93,814 |
| | 82,744 |
| | 89,988 |
|
| Interest on federal funds purchased and securities sold under agreements to repurchase | 16,926 |
| | 21,165 |
| | 8,390 |
|
| Interest on other short-term borrowings | 26,424 |
| | 54,244 |
| | 52,442 |
|
| Total interest expense | 436,481 |
| | 462,778 |
| | 425,298 |
|
| Net interest income | 2,330,167 |
| | 2,067,681 |
| | 2,012,977 |
|
| Provision for loan losses | 287,693 |
| | 302,589 |
| | 193,638 |
|
| Net interest income after provision for loan losses | 2,042,474 |
| | 1,765,092 |
| | 1,819,339 |
|
| Noninterest income: | | | | | |
| Service charges on deposit accounts | 222,110 |
| | 214,294 |
| | 216,248 |
|
| Card and merchant processing fees | 128,129 |
| | 123,668 |
| | 112,818 |
|
| Retail investment sales | 109,214 |
| | 102,982 |
| | 101,614 |
|
| Investment banking and advisory fees | 103,701 |
|
| 107,116 |
|
| 105,235 |
|
| Money transfer income | 101,509 |
| | 104,592 |
| | 93,437 |
|
| Asset management fees | 40,465 |
| | 34,875 |
| | 33,194 |
|
| Corporate and correspondent investment sales | 38,052 |
| | 24,689 |
| | 30,000 |
|
| Mortgage banking income | 14,356 |
| | 21,496 |
| | 27,258 |
|
| Bank owned life insurance | 17,108 |
| | 17,243 |
| | 18,662 |
|
| Investment securities gains, net | 3,033 |
| | 30,037 |
| | 81,656 |
|
| Other | 268,298 |
| | 274,982 |
| | 259,252 |
|
| Total noninterest income | 1,045,975 |
| | 1,055,974 |
| | 1,079,374 |
|
| Noninterest expense: | | | | | |
| Salaries, benefits and commissions | 1,131,971 |
| | 1,119,676 |
| | 1,081,475 |
|
| Professional services | 263,490 |
| | 242,206 |
| | 218,584 |
|
| Equipment | 247,891 |
| | 242,273 |
| | 232,050 |
|
| Net occupancy | 166,693 |
| | 160,997 |
| | 161,035 |
|
| Money transfer expense | 65,790 |
| | 67,474 |
| | 60,350 |
|
| FDIC insurance | 64,890 |
| | 80,070 |
| | 64,072 |
|
| Marketing | 52,220 |
| | 50,549 |
| | 41,778 |
|
| Communications | 20,554 |
| | 21,046 |
| | 22,527 |
|
| Amortization of intangibles | 10,099 |
| | 16,373 |
| | 39,208 |
|
| FDIC indemnification expense | 22 |
| | 3,984 |
| | 55,129 |
|
| Goodwill impairment | — |
| | 59,901 |
| | 17,000 |
|
| Securities impairment: | | | | | |
| Other-than-temporary impairment | 242 |
| | 281 |
| | 1,747 |
|
| Less: non-credit portion recognized in other comprehensive income | — |
| | 151 |
| | 87 |
|
| Total securities impairment | 242 |
| | 130 |
| | 1,660 |
|
| Other | 287,725 |
| | 238,843 |
| | 219,985 |
|
| Total noninterest expense | 2,311,587 |
| | 2,303,522 |
| | 2,214,853 |
|
| Net income before income tax expense | 776,862 |
| | 517,544 |
| | 683,860 |
|
| Income tax expense | 316,076 |
| | 146,021 |
| | 176,502 |
|
| Net income | 460,786 |
| | 371,523 |
| | 507,358 |
|
| Less: net income attributable to noncontrolling interests | 2,005 |
| | 2,010 |
| | 2,228 |
|
| Net income attributable to BBVA Compass Bancshares, Inc. | 458,781 |
| | 369,513 |
| | 505,130 |
|
| Less: preferred stock dividends | 14,846 |
| | 13,684 |
| | — |
|
| Net income attributable to common shareholder | $ | 443,935 |
| | $ | 355,829 |
| | $ | 505,130 |
|
See accompanying Notes to Consolidated Financial Statements.
BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Net income | $ | 460,786 |
| | $ | 371,523 |
| | $ | 507,358 |
|
| Other comprehensive loss, net of tax: | | | | | |
| Unrealized holding losses arising during period from securities available for sale | (14,946 | ) | | (48,038 | ) | | (16,635 | ) |
| Less: reclassification adjustment for net gains on sale of securities available for sale in net income | 2,257 |
| | 18,811 |
| | 52,065 |
|
| Net change in unrealized holding losses on securities available for sale | (17,203 | ) | | (66,849 | ) | | (68,700 | ) |
| Change in unamortized net holding losses on investment securities held to maturity | 3,944 |
| | 3,613 |
| | 7,905 |
|
| Less: non-credit related impairment on investment securities held to maturity | — |
| | 96 |
| | 55 |
|
| Change in unamortized non-credit related impairment on investment securities held to maturity | 991 |
| | 951 |
| | 134 |
|
| Net change in unamortized holding losses on securities held to maturity | 4,935 |
| | 4,468 |
| | 7,984 |
|
| Unrealized holding gains (losses) arising during period from cash flow hedge instruments | (14,685 | ) | | (3,673 | ) | | 1,287 |
|
| Change in defined benefit plans | (2,200 | ) | | (2,862 | ) | | 11,955 |
|
| Other comprehensive loss, net of tax | (29,153 | ) | | (68,916 | ) | | (47,474 | ) |
| Comprehensive income | 431,633 |
| | 302,607 |
| | 459,884 |
|
| Less: comprehensive income attributable to noncontrolling interests | 2,005 |
| | 2,010 |
| | 2,228 |
|
| Comprehensive income attributable to BBVA Compass Bancshares, Inc. | $ | 429,628 |
| | $ | 300,597 |
| | $ | 457,656 |
|
See accompanying Notes to Consolidated Financial Statements.
BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Surplus | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | | Non-controlling Interests | | Total Shareholder’s Equity |
| | (In Thousands) |
| Balance, December 31, 2014 | $ | — |
| | $ | 2,230 |
| | $ | 15,277,746 |
| | $ | (3,202,083 | ) | | $ | (51,862 | ) | | $ | 28,891 |
| | $ | 12,054,922 |
|
| Net income | — |
| | — |
| | — |
| | 505,130 |
| | — |
| | 2,228 |
| | 507,358 |
|
| Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | (47,474 | ) | | — |
| | (47,474 | ) |
| Issuance of preferred stock | 229,475 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 229,475 |
|
| Preferred stock dividends | — |
| | — |
| | — |
| | — |
| | — |
| | (2,093 | ) | | (2,093 | ) |
| Common stock dividends | — |
| | — |
| | (95,000 | ) | | — |
| | — |
| | — |
| | (95,000 | ) |
| Dividend to BBVA Bancomer USA, Inc. | — |
| | — |
| | (20,000 | ) | | — |
| | — |
| | — |
| | (20,000 | ) |
| Vesting of restricted stock | — |
| | — |
| | (3,603 | ) | | — |
| | — |
| | — |
| | (3,603 | ) |
| Restricted stock retained to cover taxes | — |
| | — |
| | (3,016 | ) | | — |
| | — |
| | — |
| | (3,016 | ) |
| Restricted stock tax benefit | — |
| | — |
| | 12 |
| | — |
| | — |
| | — |
| | 12 |
|
| Amortization of stock-based deferred compensation | — |
| | — |
| | 4,128 |
| | — |
| | — |
| | — |
| | 4,128 |
|
| Balance, December 31, 2015 | $ | 229,475 |
| | $ | 2,230 |
| | $ | 15,160,267 |
| | $ | (2,696,953 | ) | | $ | (99,336 | ) | | $ | 29,026 |
| | $ | 12,624,709 |
|
| Net income | — |
| | — |
| | — |
| | 369,513 |
| | — |
| | 2,010 |
| | 371,523 |
|
| Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | (68,916 | ) | | — |
| | (68,916 | ) |
| Preferred stock dividends | — |
| | — |
| | (13,684 | ) | | — |
| | — |
| | (2,093 | ) | | (15,777 | ) |
| Common stock dividends | — |
| | — |
| | (92,864 | ) | | — |
| | — |
| | — |
| | (92,864 | ) |
| Dividend to BBVA Bancomer USA, Inc. | — |
| | — |
| | (69,151 | ) | | — |
| | — |
| | — |
| | (69,151 | ) |
| Capital contribution | — |
| | — |
| | — |
| | — |
| | — |
| | 78 |
| | 78 |
|
| Vesting of restricted stock | — |
| | — |
| | (1,744 | ) | | — |
| | — |
| | — |
| | (1,744 | ) |
| Restricted stock retained to cover taxes | — |
| | — |
| | (630 | ) | | — |
| | — |
| | — |
| | (630 | ) |
| Restricted stock tax deficiency | — |
| | — |
| | (468 | ) | | — |
| | — |
| | — |
| | (468 | ) |
| Amortization of stock-based deferred compensation | — |
| | — |
| | 3,947 |
| | — |
| | — |
| | — |
| | 3,947 |
|
| Balance, December 31, 2016 | $ | 229,475 |
| | $ | 2,230 |
| | $ | 14,985,673 |
| | $ | (2,327,440 | ) | | $ | (168,252 | ) | | $ | 29,021 |
| | $ | 12,750,707 |
|
| Net income | — |
| | — |
| | — |
| | 458,781 |
| | — |
| | 2,005 |
| | 460,786 |
|
| Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | (29,153 | ) | | — |
| | (29,153 | ) |
| Preferred stock dividends | — |
| | — |
| | (14,846 | ) | | — |
| | — |
| | (2,093 | ) | | (16,939 | ) |
| Common stock dividends | — |
| | — |
| | (150,000 | ) | | — |
| | — |
| | — |
| | (150,000 | ) |
| Capital contribution | — |
| | — |
| | — |
| | — |
| | — |
| | 128 |
| | 128 |
|
| Vesting of restricted stock | — |
| | — |
| | (1,530 | ) | | — |
| | — |
| | — |
| | (1,530 | ) |
| Restricted stock retained to cover taxes | — |
| | — |
| | (689 | ) | | — |
| | — |
| | — |
| | (689 | ) |
| Balance, December 31, 2017 | $ | 229,475 |
| | $ | 2,230 |
| | $ | 14,818,608 |
| | $ | (1,868,659 | ) | | $ | (197,405 | ) | | $ | 29,061 |
| | $ | 13,013,310 |
|
BBVA USA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In Thousands) |
| Interest income: | | | | | |
| Interest and fees on loans | $ | 2,656,786 | | | $ | 3,097,640 | | | $ | 2,914,269 | |
| Interest on debt securities available for sale | 58,876 | | | 168,031 | | | 222,623 | |
| Interest on debt securities held to maturity | 191,695 | | | 144,798 | | | 61,591 | |
| Interest on trading account assets | 3,964 | | | 2,953 | | | 3,211 | |
| Interest and dividends on other earning assets | 69,707 | | | 145,234 | | | 63,580 | |
| Total interest income | 2,981,028 | | | 3,558,656 | | | 3,265,274 | |
| Interest expense: | | | | | |
| Interest on deposits | 357,113 | | | 778,156 | | | 517,290 | |
| Interest on FHLB and other borrowings | 71,848 | | | 136,164 | | | 130,372 | |
| Interest on federal funds purchased and securities sold under agreements to repurchase | 41,018 | | | 36,736 | | | 8,953 | |
| Interest on other short-term borrowings | 525 | | | 567 | | | 2,081 | |
| Total interest expense | 470,504 | | | 951,623 | | | 658,696 | |
| Net interest income | 2,510,524 | | | 2,607,033 | | | 2,606,578 | |
| Provision for credit losses | 966,129 | | | 597,444 | | | 365,420 | |
| Net interest income after provision for credit losses | 1,544,395 | | | 2,009,589 | | | 2,241,158 | |
| Noninterest income: | | | | | |
| Service charges on deposit accounts | 219,783 | | | 250,367 | | | 236,673 | |
| Card and merchant processing fees | 192,096 | | | 197,547 | | | 174,927 | |
| Investment banking and advisory fees | 138,096 | |
| 83,659 | |
| 77,684 | |
| Investment services sales fees | 112,243 | | | 115,446 | | | 112,652 | |
| Money transfer income | 106,564 | | | 99,144 | | | 91,681 | |
| Mortgage banking income | 74,813 | | | 28,059 | | | 26,833 | |
| Corporate and correspondent investment sales | 49,318 | | | 38,561 | | | 51,675 | |
| Asset management fees | 48,101 | | | 45,571 | | | 43,811 | |
| Bank owned life insurance | 20,149 | | | 17,479 | | | 17,822 | |
| Investment securities gains, net | 22,616 | | | 29,961 | | | 0 | |
| | | | | |
| Other | 208,893 | | | 230,150 | | | 223,151 | |
| Total noninterest income | 1,192,672 | | | 1,135,944 | | | 1,056,909 | |
| Noninterest expense: | | | | | |
| Salaries, benefits and commissions | 1,159,561 | | | 1,181,934 | | | 1,154,791 | |
| Professional services | 306,873 | | | 292,926 | | | 277,154 | |
| Equipment | 267,547 | | | 256,766 | | | 257,565 | |
| Net occupancy | 163,125 | | | 166,600 | | | 166,768 | |
| Money transfer expense | 74,755 | | | 68,224 | | | 62,138 | |
| Marketing | 40,130 | | | 55,164 | | | 48,866 | |
| FDIC insurance | 34,954 | | | 27,703 | | | 67,550 | |
| Communications | 21,759 | | | 21,782 | | | 30,582 | |
| | | | | |
| | | | | |
| | | | | |
| Goodwill impairment | 2,185,000 | | | 470,000 | | | 0 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other | 308,014 | | | 324,981 | | | 284,546 | |
| Total noninterest expense | 4,561,718 | | | 2,866,080 | | | 2,349,960 | |
| Net (loss) income before income tax expense | (1,824,651) | | | 279,453 | | | 948,107 | |
| Income tax expense | 37,013 | | | 126,046 | | | 184,678 | |
| Net (loss) income | (1,861,664) | | | 153,407 | | | 763,429 | |
| Less: net income attributable to noncontrolling interests | 2,047 | | | 2,332 | | | 1,981 | |
| Net (loss) income attributable to BBVA USA Bancshares, Inc. | (1,863,711) | | | 151,075 | | | 761,448 | |
| Less: preferred stock dividends | 14,595 | | | 18,010 | | | 17,047 | |
| Net (loss) income attributable to common shareholder | $ | (1,878,306) | | | $ | 133,065 | | | $ | 744,401 | |
See accompanying Notes to Consolidated Financial Statements.
BBVA USA BANCSHARES, INC. AND SUBSIDIARIES
BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Operating Activities: | | | | | |
| Net income | $ | 460,786 |
| | $ | 371,523 |
| | $ | 507,358 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 254,126 |
| | 286,159 |
| | 275,529 |
|
| Goodwill impairment | — |
| | 59,901 |
| | 17,000 |
|
| Securities impairment | 242 |
| | 130 |
| | 1,660 |
|
| Amortization of intangibles | 10,099 |
| | 16,373 |
| | 39,208 |
|
| Accretion of discount, loan fees and purchase market adjustments, net | (20,748 | ) | | (19,614 | ) | | (128,170 | ) |
| Net change in FDIC indemnification liability | 22 |
| | 3,984 |
| | 55,129 |
|
| Gain on termination of FDIC shared loss agreement | (1,779 | ) | | — |
| | — |
|
| Provision for loan losses | 287,693 |
| | 302,589 |
| | 193,638 |
|
| Amortization of stock based compensation | — |
| | 3,947 |
| | 4,128 |
|
| Net change in trading account assets | 210,903 |
| | (2,503 | ) | | (20,180 | ) |
| Net change in trading account liabilities | (110,468 | ) | | (6,234 | ) | | (8,440 | ) |
| Net change in loans held for sale | 38,318 |
| | (22,654 | ) | | 84,234 |
|
| Deferred tax expense (benefit) | 137,957 |
| | (21,873 | ) | | (111,042 | ) |
| Investment securities gains, net | (3,033 | ) | | (30,037 | ) | | (81,656 | ) |
| Loss on prepayment of FHLB and other borrowings | — |
| | 295 |
| | 8,016 |
|
| (Gain) loss on sale of premises and equipment | (1,210 | ) | | 2,220 |
| | 873 |
|
| Net loss (gain) on sale of loans | 527 |
| | (15,551 | ) | | (22,091 | ) |
| Net loss (gain) on sale of other real estate owned and other assets | 2,103 |
| | (501 | ) | | 508 |
|
| (Increase) decrease in other assets | (253,365 | ) | | (60,503 | ) | | 179,190 |
|
| Increase (decrease) in other liabilities | 96,147 |
| | (52,212 | ) | | (306,546 | ) |
| Net cash provided by operating activities | 1,108,320 |
| | 815,439 |
| | 688,346 |
|
| Investing Activities: | | | | | |
| Proceeds from sales of investment securities available for sale | 210,906 |
| | 1,849,517 |
| | 3,369,062 |
|
| Proceeds from prepayments, maturities and calls of investment securities available for sale | 3,110,923 |
| | 2,149,427 |
| | 1,564,910 |
|
| Purchases of investment securities available for sale | (4,444,939 | ) | | (4,773,027 | ) | | (5,856,808 | ) |
| Proceeds from prepayments, maturities and calls of investment securities held to maturity | 170,170 |
| | 155,037 |
| | 123,188 |
|
| Purchases of investment securities held to maturity | (6,233 | ) | | (28,071 | ) | | (85,929 | ) |
| Purchases of trading securities | (372,497 | ) | | (331,171 | ) | | (4,831,626 | ) |
| Proceeds from sales of trading securities | 3,085,698 |
| | 1,327,206 |
| | 3,548,071 |
|
| Net change in loan portfolio | (2,002,438 | ) | | (83,049 | ) | | (4,426,260 | ) |
| Purchase of premises and equipment | (126,953 | ) | | (177,084 | ) | | (161,499 | ) |
| Proceeds from sale of premises and equipment | 13,521 |
| | 12,701 |
| | 8,133 |
|
| Net cash paid in acquisition | — |
| | — |
| | (12,567 | ) |
| Proceeds from sales of loans | 204,585 |
| | 1,060,351 |
| | 488,550 |
|
| (Payments to) reimbursements from FDIC for covered assets | (2,832 | ) | | 978 |
| | (1,924 | ) |
| Net cash paid to the FDIC for termination of shared loss agreements | (131,603 | ) | | — |
| | — |
|
| Proceeds from sales of other real estate owned | 30,717 |
| | 26,486 |
| | 20,011 |
|
| Net cash (used in) provided by investing activities | (260,975 | ) | | 1,189,301 |
| | (6,254,688 | ) |
| Financing Activities: | | | | | |
| Net increase in demand deposits, NOW accounts and savings accounts | 1,522,918 |
| | 1,940,034 |
| | 3,565,248 |
|
| Net increase (decrease) in time deposits | 441,987 |
| | (656,122 | ) | | 1,216,581 |
|
| Net decrease in federal funds purchased and securities sold under agreements to repurchase | (19,461 | ) | | (711,102 | ) | | (379,349 | ) |
| Net (decrease) increase in other short-term borrowings | (2,784,981 | ) | | (1,229,667 | ) | | 1,486,920 |
|
| Proceeds from FHLB and other borrowings | 13,095,563 |
| | 2,630,000 |
| | 5,300,000 |
|
| Repayment of FHLB and other borrowings | (12,103,301 | ) | | (5,042,837 | ) | | (4,664,941 | ) |
| Vesting of restricted stock | (1,530 | ) | | (1,744 | ) | | (3,603 | ) |
| Restricted stock grants retained to cover taxes | (689 | ) | | (630 | ) | | (3,016 | ) |
| Capital contribution for non-controlling interest | 128 |
| | 78 |
| | — |
|
| Issuance of preferred stock | — |
| | — |
| | 229,475 |
|
| Preferred dividends paid | (16,939 | ) | | (15,777 | ) | | (2,093 | ) |
| Common dividends paid | (150,000 | ) | | (92,864 | ) | | (95,000 | ) |
| Dividend paid to BBVA Bancomer USA, Inc. | — |
| | (69,151 | ) | | (20,000 | ) |
| Net cash (used in) provided by financing activities | (16,305 | ) | | (3,249,782 | ) | | 6,630,222 |
|
| Net increase (decrease) in cash and cash equivalents | 831,040 |
| | (1,245,042 | ) | | 1,063,880 |
|
| Cash and cash equivalents at beginning of year | 3,251,786 |
| | 4,496,828 |
| | 3,432,948 |
|
| Cash and cash equivalents at end of year | $ | 4,082,826 |
| | $ | 3,251,786 |
| | $ | 4,496,828 |
|
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In Thousands) |
| Net (loss) income | $ | (1,861,664) | | | $ | 153,407 | | | $ | 763,429 | |
| Other comprehensive income (loss), net of tax: | | | | | |
| Unrealized holding gains (losses) arising during period from debt securities available for sale | 115,403 | | | 159,260 | | | (2,128) | |
| Less: reclassification adjustment for net gains on sale of debt securities available for sale in net income | 17,220 | | | 22,857 | | | 0 | |
| Net change in unrealized holding gains (losses) on debt securities available for sale | 98,183 | | | 136,403 | | | (2,128) | |
| Change in unamortized net holding gains on debt securities held to maturity | 6,439 | | | 7,794 | | | 7,016 | |
| Unamortized unrealized net holding losses on debt securities available for sale transferred to debt securities held to maturity | 0 | | | 0 | | | (30,487) | |
| Less: non-credit related impairment on debt securities held to maturity | 0 | | | 82 | | | 303 | |
| Change in unamortized non-credit related impairment on debt securities held to maturity | 474 | | | 607 | | | 799 | |
| Net change in unamortized holding gains (losses) on debt securities held to maturity | 6,913 | | | 8,319 | | | (22,975) | |
| Unrealized holding gains arising during period from cash flow hedge instruments | 214,865 | | | 86,310 | | | 30,940 | |
| | | | | |
| Change in defined benefit plans | 10,216 | | | (9,820) | | | 4,733 | |
| | | | | |
| Other comprehensive income, net of tax | 330,177 | | | 221,212 | | | 10,570 | |
| Comprehensive (loss) income | (1,531,487) | | | 374,619 | | | 773,999 | |
| Less: comprehensive income attributable to noncontrolling interests | 2,047 | | | 2,332 | | | 1,981 | |
| Comprehensive (loss) income attributable to BBVA USA Bancshares, Inc. | $ | (1,533,534) | | | $ | 372,287 | | | $ | 772,018 | |
See accompanying Notes to Consolidated Financial Statements.
BBVA COMPASSUSA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Surplus | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | | Non-Controlling Interests | | Total Shareholder’s Equity |
| (In Thousands) |
| Balance, December 31, 2017 | $ | 229,475 | | | $ | 2,230 | | | $ | 14,818,608 | | | $ | (1,868,659) | | | $ | (197,405) | | | $ | 29,061 | | | $ | 13,013,310 | |
| Cumulative effect from adoption of ASU 2016-01 | — | | | — | | | — | | | 13 | | | (13) | | | — | | | — | |
| Balance, January 1, 2018 | $ | 229,475 | | | $ | 2,230 | | | $ | 14,818,608 | | | $ | (1,868,646) | | | $ | (197,418) | | | $ | 29,061 | | | $ | 13,013,310 | |
| Net income | — | | | — | | | — | | | 761,448 | | | — | | | 1,981 | | | 763,429 | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | 10,570 | | | — | | | 10,570 | |
| | | | | | | | | | | | | |
| Preferred stock dividends | — | | | — | | | (17,047) | | | — | | | — | | | (2,093) | | | (19,140) | |
| | | | | | | | | | | | | |
| Common stock dividends | — | | | — | | | (255,000) | | | — | | | — | | | — | | | (255,000) | |
| | | | | | | | | | | | | |
| Capital contribution | — | | | — | | | — | | | — | | | — | | | 72 | | | 72 | |
| Vesting of restricted stock | — | | | — | | | (712) | | | — | | | — | | | — | | | (712) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, December 31, 2018 | $ | 229,475 | | | $ | 2,230 | | | $ | 14,545,849 | | | $ | (1,107,198) | | | $ | (186,848) | | | $ | 29,021 | | | $ | 13,512,529 | |
| Cumulative effect adjustment related to ASU adoptions (1) | — | | | — | | | — | | | 38,896 | | | (35,436) | | | — | | | 3,460 | |
| Balance, January 1, 2019 | $ | 229,475 | | | $ | 2,230 | | | $ | 14,545,849 | | | $ | (1,068,302) | | | $ | (222,284) | | | $ | 29,021 | | | $ | 13,515,989 | |
| Net income | — | | | — | | | — | | | 151,075 | | | — | | | 2,332 | | | 153,407 | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | 221,212 | | | — | | | 221,212 | |
| | | | | | | | | | | | | |
| Preferred stock dividends | — | | | — | | | (18,010) | | | — | | | — | | | (2,093) | | | (20,103) | |
| Issuance of common stock | — | | | — | | | 802 | | | — | | | — | | | — | | | 802 | |
| Common stock dividends | — | | | — | | | (482,000) | | | — | | | — | | | — | | | (482,000) | |
| | | | | | | | | | | | | |
| Capital contribution | — | | | — | | | — | | | — | | | — | | | 196 | | | 196 | |
| Vesting of restricted stock | — | | | — | | | (2,914) | | | — | | | — | | | — | | | (2,914) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, December 31, 2019 | $ | 229,475 | | | $ | 2,230 | | | $ | 14,043,727 | | | $ | (917,227) | | | $ | (1,072) | | | $ | 29,456 | | | $ | 13,386,589 | |
| Cumulative effect adjustment related to ASC 326 adoption | — | | | — | | | — | | | (150,213) | | | — | | | — | | | (150,213) | |
| Balance, January 1, 2020 | $ | 229,475 | | | $ | 2,230 | | | $ | 14,043,727 | | | $ | (1,067,440) | | | $ | (1,072) | | | $ | 29,456 | | | $ | 13,236,376 | |
| Net (loss) income | — | | | — | | | — | | | (1,863,711) | | | — | | | 2,047 | | | (1,861,664) | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | 330,177 | | | — | | | 330,177 | |
| | | | | | | | | | | | | |
| Preferred stock dividends | — | | | — | | | (14,595) | | | — | | | — | | | (2,092) | | | (16,687) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Capital contribution | — | | | — | | | 3,073 | | | — | | | — | | | 87 | | | 3,160 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, December 31, 2020 | $ | 229,475 | | | $ | 2,230 | | | $ | 14,032,205 | | | $ | (2,931,151) | | | $ | 329,105 | | | $ | 29,498 | | | $ | 11,691,362 | |
(1)Related to the Company's adoption of ASU 2016-02, ASU 2017-12 and ASU 2018-02 on January 1, 2019. See Note 1, Summary of Significant Accounting Policies, for additional information.
See accompanying Notes to Consolidated Financial Statements.
BBVA USA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In Thousands) |
| Operating Activities: | | | | | |
| Net (loss) income | $ | (1,861,664) | | | $ | 153,407 | | | $ | 763,429 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 330,584 | | | 262,491 | | | 267,640 | |
| Goodwill impairment | 2,185,000 | | | 470,000 | | | 0 | |
| Securities impairment | 0 | | | 215 | | | 592 | |
| Amortization of intangibles | 0 | | | 0 | | | 5,104 | |
| Amortization (accretion) of discount, loan fees and purchase market adjustments, net | 23,834 | | | (34,913) | | | (53,687) | |
| | | | | |
| | | | | |
| Provision for credit losses | 966,129 | | | 597,444 | | | 365,420 | |
| | | | | |
| Net change in trading account assets | (288,473) | | | (236,320) | | | (17,160) | |
| Net change in trading account liabilities | 44,870 | | | (29,486) | | | 3,448 | |
| Originations and purchases of mortgage loans held for sale | (1,447,176) | | | (767,998) | | | (626,747) | |
| Sale of mortgage loans held for sale | 1,398,282 | | | 754,245 | | | 643,954 | |
| | | | | |
| Deferred tax benefit | (150,459) | | | (27,197) | | | (5,418) | |
| Investment securities gains, net | (22,616) | | | (29,961) | | | 0 | |
| | | | | |
| Net (gain) loss on sale of premises and equipment | (134) | | | (5,218) | | | 1,103 | |
| Net gain on sale of loans | 0 | | | (1,179) | | | 0 | |
| Gain on sale of mortgage loans held for sale | (75,634) | | | (29,539) | | | (18,863) | |
| Net (gain) loss on sale of other real estate and other assets | (319) | | | 1,691 | | | (90) | |
| | | | | |
| Decrease (increase) in other assets | 256,709 | | | 64,289 | | | (320,369) | |
| Increase (decrease) in other liabilities | 107,101 | | | (84,020) | | | 122,538 | |
| Net cash provided by operating activities | 1,466,034 | | | 1,057,951 | | | 1,130,894 | |
| Investing Activities: | | | | | |
| Proceeds from sales of debt securities available for sale | 863,712 | | | 2,442,176 | | | 0 | |
| Proceeds from prepayments, maturities and calls of debt securities available for sale | 4,423,041 | | | 5,005,812 | | | 3,831,344 | |
| Purchases of debt securities available for sale | (3,728,723) | | | (3,555,480) | | | (3,752,847) | |
| Proceeds from sales of equity securities | 96,328 | | | 184,814 | | | 906,430 | |
| Purchases of equity securities | (13,169) | | | (189,039) | | | (869,469) | |
| Proceeds from prepayments, maturities and calls of debt securities held to maturity | 1,235,173 | | | 427,237 | | | 390,847 | |
| Purchases of debt securities held to maturity | (5,046,970) | | | (4,351,535) | | | (1,211,424) | |
| | | | | |
| | | | | |
| Net change in loan portfolio | (2,039,516) | | | (695,625) | | | (4,148,848) | |
| | | | | |
| Purchase of premises and equipment | (151,176) | | | (135,635) | | | (138,997) | |
| Proceeds from sale of premises and equipment | 2,190 | | | 10,466 | | | 5,732 | |
| | | | | |
| | | | | |
| Proceeds from sales of loans | 2,155 | | | 1,374,809 | | | 293,996 | |
| | | | | |
| | | | | |
| Proceeds from settlement of BOLI policies | 12,503 | | | 4,513 | | | 4,321 | |
| Cash payments for premiums of BOLI policies | 0 | | | (26) | | | (34) | |
| Proceeds from sales of other real estate owned | 17,828 | | | 27,922 | | | 23,407 | |
| Net cash (used in) provided by investing activities | (4,326,624) | | | 550,409 | | | (4,665,542) | |
| Financing Activities: | | | | | |
| Net increase in total deposits | 10,879,372 | | | 2,833,454 | | | 2,931,466 | |
| | | | | |
| Net increase in federal funds purchased and securities sold under agreements to repurchase | 11,450 | | | 70,753 | | | 82,684 | |
| Net decrease in other short-term borrowings | 0 | | | 0 | | | (17,996) | |
| Proceeds from FHLB and other borrowings | 2,000 | | | 4,436,995 | | | 23,323,916 | |
| Repayment of FHLB and other borrowings | (229,999) | | | (4,790,234) | | | (23,280,212) | |
| Vesting of restricted stock | 0 | | | (2,914) | | | (712) | |
| | | | | |
| | | | | |
| | | | | |
| Capital contribution | 3,160 | | | 196 | | | 72 | |
| | | | | |
| Preferred dividends paid | (16,687) | | | (20,103) | | | (19,140) | |
| Issuance of common stock | 0 | | | 802 | | | 0 | |
| Common dividends paid | 0 | | | (482,000) | | | (255,000) | |
| | | | | |
| Net cash provided by financing activities | 10,649,296 | | | 2,046,949 | | | 2,765,078 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 7,788,706 | | | 3,655,309 | | | (769,570) | |
| Cash, cash equivalents and restricted cash at beginning of year | 7,156,689 | | | 3,501,380 | | | 4,270,950 | |
| Cash, cash equivalents and restricted cash at end of year | $ | 14,945,395 | | | $ | 7,156,689 | | | $ | 3,501,380 | |
See accompanying Notes to Consolidated Financial Statements.
BBVA USA BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)(1) Summary of Significant Accounting Policies
Nature of Operations
BBVA CompassUSA Bancshares, Inc., headquartered in Houston, Texas, is a wholly owned subsidiary of BBVA.
The Bank, the Company's largest subsidiary, headquartered in Birmingham, Alabama, operates banking centers in Alabama, Arizona, California, Colorado, Florida, New Mexico and Texas. The Bank operates under the brand name BBVA Compass,USA, which is a trade name and trademark of BBVA CompassUSA Bancshares, Inc.
The Bank performs banking services customary for full service banks of similar size and character. Such services include receiving demand and time deposits, making personal and commercial loans and furnishing personal and commercial checking accounts. The Bank offers, either directly or through its subsidiaries and affiliates, a variety of services, including portfolio management and administration and investment services to estates and trusts; term life insurance, variable annuities, property and casualty insurance and other insurance products; investment advisory services; a variety of investment services and products to institutional and individual investors; discount brokerage services, mutual funds and fixed-rate annuities; and lease financing services.
Proposed Acquisition by PNC
On November 15, 2020, PNC entered into a Stock Purchase Agreement with BBVA for the purchase by PNC of 100% of the issued and outstanding shares of the Company for $11.6 billion in cash on hand in a fixed price structure. PNC is not acquiring BSI, Propel Venture Partners Fund I, L.P. and BBVA Processing Services, Inc. Immediately following the closing of the stock purchase, PNC intends to merge the Parent with and into PNC, with PNC continuing as the surviving entity. Post-closing, PNC intends to merge BBVA USA with and into PNC Bank, National Association, an indirect wholly owned subsidiary of PNC, with PNC Bank continuing as the surviving entity. The transaction is subject to regulatory approvals and certain other customary closing conditions.
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of the Company and its subsidiaries for the years ended December 31, 2017, 20162020, 2019 and 2015.2018. All intercompany accounts and transactions and balances have been eliminated in consolidation.
The Company has evaluated subsequent events through the filing date of this Annual Report on Form 10-K, to determine if either recognition or disclosure of significant events or transactions is required.
The accounting policies followed by the Company and its subsidiaries and the methods of applying these policies conform with U.S. GAAP and with practices generally accepted within the banking industry. Certain policies that significantly affect the determination of financial position, results of operations and cash flows are summarized below.
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, the most significant of which relate to the allowance for loan losses and goodwill impairment, and fair value measurements.impairment. Actual results could differ from those estimates.
Correction of Immaterial Accounting Error
During the year ended December 31, 2018, income tax expense included $11.4 million of income tax expense related to the correction of an error in prior periods that resulted from an incorrect calculation of the proportional amortization of the Company's Low Income Housing Tax Credit investments. This error primarily related to 2017 and was corrected in the second quarter of 2018.
The Company has evaluated the effect of this correction on prior interim and annual periods' consolidated financial statements in accordance with the guidance provided by SEC Staff Accounting Bulletin No. 108, codified as SAB Topic 1.N, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements, and concluded that no prior annual period is materially misstated. In addition, the Company has considered the effect of this correction on the Company's December 31, 2018 financial results, and concluded that the impact on these periods was not material.
Cash and cash equivalents
The Company classifies cash on hand, amounts due from banks, federal funds sold, securities purchased under agreements to resell and interest bearing deposits as cash and cash equivalents. These instruments have original maturities of three months or less.
Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
Securities purchased under agreements to resell and securities sold under agreements to repurchase are generally accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were acquired or sold plus accrued interest. The securities pledged or received as collateral are generally U.S. government and federal agency securities. The Company's policy is to take possession of securities purchased under agreements to resell. The fair value of collateral either received from or provided to a third party is continually monitored and adjusted as deemed appropriate.
Securities
The Company classifies its investmentdebt securities into one of three3 categories based upon management’s intent and
ability to hold the investmentdebt securities: (i) trading account assets and liabilities, (ii) investmentdebt securities held to maturity or (iii) investmentdebt securities available for sale. InvestmentDebt securities held in a trading account are required to be reported at fair value, with unrealized gains and losses included in earnings. The Company classifies purchases, sales, and maturities of trading securities held for investment purposes as cash flows from investing activities. Cash flows related to trading securities held for trading purposes are reported as cash flows from operating activities. InvestmentDebt securities held to maturity are stated at cost adjusted for amortization of premiums and accretion of discounts. The related amortization and accretion is determined by the interest method and is included as a noncash adjustment in the net cash provided by operating activities in the Company’s Consolidated Statements of Cash Flows. The Company has the ability, and it is management’s intention, to hold such securities to maturity. InvestmentDebt securities available for sale are recorded at fair value. Increases and decreases in the net unrealized gain or loss on the portfolio of investmentdebt securities available for sale are reflected as adjustments to the carrying value of the portfolio and as an adjustment, net of tax, to accumulated other comprehensive income. See Note 20,19, Fair Value Measurements, for information on the determination of fair value.
Interest earned on trading account assets, investmentdebt securities available for sale and investmentdebt securities held to maturity is included in interest income in the Company’s Consolidated Statements of Income. Net realized gains and losses on the sale of investmentdebt securities available for sale, computed principally on the specific identification method, are shown separately in noninterest income in the Company’s Consolidated Statements of Income. Net gains and losses on the sale of trading account assets and liabilities are recognized as a component of other noninterest income in the Company’s Consolidated Statements of Income.
The Company regularly evaluates eachrecords its HTM debt securities at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as AFS when they might be sold before they mature. The Company records its AFS debt securities at fair value with unrealized holding gains and losses reported in other comprehensive income.
The Company measures expected credit losses on held to maturity and available for sale security in an unrealized loss position for OTTI. The Company evaluates for OTTIdebt securities on a specific identification basis.collective basis by major security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The majority of the Company's HTM debt securities portfolio consists of U.S. government entities and agencies which are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies and inherently have minimal risk of nonpayment and therefore has applied a zero credit loss assumption for these securities.
Under the revised guidance of ASC 326, if the fair value of a security falls below the amortized cost basis, the security will be evaluated to determine if any of the decline in value is attributable to credit losses or other factors. In its evaluation,making this assessment, the Company considers such factors as the length of time and the extent to which fair value is less than amortized cost, any changes to the rating of the security, and adverse conditions specially related to the security, among other factors. If it is determined that a credit loss exists then an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value has been belowis less than the amortized cost basis. If the financial condition ofcredit subsequently improves, the issuer,allowance is reversed. When the Company’s intentCompany intends to hold thesell an impaired AFS debt security to an expected recovery in fair value and whetheror it is more likely than not that the Companysecurity will havebe required to sellbe sold prior to recovering the security before itsamortized cost basis, the security's amortized cost basis is written down to fair value recovers.through income.
A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent. The credit loss componentCompany has elected to not measure an allowance on its accrued interest receivable as a result of the OTTItimely reversal of interest receivable deemed uncollectible. Interest accrued but not received for a security placed on debt and equity securitiesnonaccrual is recognized in earnings. For debt securities, the portion of OTTI related to all other factors is recognized in other comprehensivereversed against interest income. See Note 3, Investment Securities Available for Sale and Investment Securities Held to Maturity, for details of OTTI.
Loans Held for Sale
Loans held for sale are recorded at either estimated fair value, if the fair value option is elected, or the lower of cost or estimated fair value. The Company applies the fair value option accounting guidance codified under the FASB's ASC Topic 825, Financial Instruments, for single family real estate mortgage loans originated for sale in the secondary market. Under the fair value option, all changes in the applicable loans’ fair value, which includes the value attributable to the servicing of the loan, are recorded in earnings. Loans classified as held for sale that were not originated for resale in the secondary market are accounted for under the lower of cost or fair value method and are evaluated on an individual basis.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are considered held for investment.held-for-investment. Loans are stated at amortized cost, net of the allowance for loan losses. Amortized cost, or the recorded investment, is the principal balance outstanding, adjusted for charge-offs, deferred loan fees and direct costs on originated loans and unamortized premiums or discounts on purchased loans. Accrued interest receivable is reported in other assets on the Company’s Consolidated Balance Sheets. Interest income is accrued on loansthe principal balance outstanding and is recognized on the interest method. Loan fees, net of direct costs and unamortized premiums and discounts are deferred and amortized as an adjustment to the yield of the related loan over the term of the loan and are included as a noncash adjustment in the net cash provided by operating activities in the Company’s Consolidated StatementsStatement of Cash Flows. For additional information related
The Company has elected to not measure an allowance on its accrued interest receivable as a result of the Company’s loan portfolio by type, refer to Note 4, Loans and Allowance for Loan Losses.
timely reversal of interest receivable deemed uncollectible. It is the general policy of the Company to stop accruing interest income and apply subsequent interest payments as principal reductions when any commercial, industrial, commercial real estate or construction loan is 90 days or more past due as to principal or interest and/or the ultimate collection of either is in doubt, unless collection of both principal and interest is assured by way of collateralization, guarantees or other security, or the loan is accounted for under ASC Subtopic 310-30.security. Accrual of interest income on consumer loans, including residential real estate loans, is generally suspended when any payment of principal or interest is more than 12090 days delinquent or when foreclosure proceedings have been initiated or repossession of the underlying collateral has occurred. When a loan is placed on a nonaccrual
status, any interest previously accrued but not collected is reversed against current interest income unless the fair value of the collateral for the loan is sufficient to cover the accrued interest.
In general, a loan is returned to accrual status when none of its principal and interest is due and unpaid and the Company expects repayments of the remaining contractual principal and interest or when it is determined to be well secured and in the process of collection. Charge-offs on commercial loans are recognized when available information confirms that some or all of the balance is uncollectible. Consumer loans are subject to mandatory charge-off at a specified delinquency date consistent with regulatory guidelines. In general, charge-offs on consumer loans are recognized at the earlier of the month of liquidation or the month the loan becomes 120 days past due; residential loan deficiencies are charged off in the month the loan becomes 180 days past due; and credit card loans are charged off before the end of the month when the loan becomes 180 days past due with the related interest
accrued but not collected reversed against current income. The Company determines past due or delinquency status of a loan based on contractual payment terms.
All nonaccrual loans and loans modified in a troubled debt restructuring are considered impaired. The Company’s policy for recognizing interest income on impaired loans classified as nonaccrual is consistent with its nonaccrual policy. The Company’s policy for recognizing interest income on accruing impaired loans is consistent with its interest recognition policy for accruing loans.
Troubled Debt Restructurings
A loan is accounted for as a TDR if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. A TDR typically involves a modification of terms such as establishment of a below market interest rate, a reduction in the principal amount of the loan, a reduction of accrued interest or an extension of the maturity date at a stated interest rate lower than the current market rate for a new loan with similar risk. The Company’s policy for measuring impairmentthe allowance for credit losses on TDRs, including TDRs that have defaulted, is consistent with its impairment measurement processpolicy for all impaired loans.other loans held for investment. The Company’s policy for returning nonaccrual TDRs to accrual status is consistent with its return to accrual policy for all other loans.
Allowance for Loan Losses
The amount of the provisionallowance for loan losses chargedis a valuation account that is deducted from the loans’ amortized cost basis to income is determinedpresent the net amount expected to be collected on the basisloans. Loans are charged off against the allowance when management believes the uncollectibility of numerous factors including actuala loan balance is confirmed. Management uses discounted cash flows, default probabilities and loss experience, identified loan impairment, current economic conditions and periodic examinations and appraisals of the loan portfolio. Such provisions, less net loan charge-offs, compriseseverities to calculate the allowance for loan losseslosses.
Management estimates the allowance balance over the estimated life of the loans using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, gross domestic product, or other relevant factors. The Company has internally developed a macroeconomic forecast which is deducted from loansprojects over a four-year reasonable and is maintained atsupportable forecast period. Management may change the horizon of the forecast based on changes in sources of forecast information or Management's ability to develop a level management considersreasonable and supportable economic forecast. After the reasonable and supportable forecast period, the Company reverts to long run historical average default probabilities and loss severities using a linear function, with a reversion speeds that differ by portfolio.
Economic Forecast: Management selects economic variables it believes to be adequatemost relevant based on the composition of the loan portfolio and customer base, including forecasted levels of employment, gross domestic product, real estate price indices, interest rates and corporate bond spreads. The Company uses an internally formulated and approved single baseline economic scenario for the collective estimation. However, management will assess the uncertainty associated with the baseline scenario in each period, and may make adjustments based on alternative scenarios applied through the qualitative framework.
Determining the period to absorbestimate expected credit losses: Expected credit losses inherentare estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower, or an extension or renewal option is included in the portfolio.contract at the reporting date that is not unconditionally cancellable by the Company. While the Company does have contracts with extension or renewal options included, the vast majority are considered unconditionally cancellable.
The Company monitors the entire loan portfolio in an effort to identify problem loans so that risks in the portfolio can be identified on a timely basis and an appropriate allowance maintained. Loan review procedures, including loan grading, periodic credit rescoring and trend analysis of portfolio performance, are utilized by the Company in order to ensure that potential problem loans are identified. Management’s involvement continues throughout the process and includes participation in the work-out process and recovery activity. These formalized procedures are monitored internally and by regulatory agencies. The allowance for credit losses is measured on a collective basis when similar risk characteristics exist. The Company has identified the following portfolio segments: commercial, financial and agricultural; commercial real estate; residential real estate; and consumer. Commercial loans utilize internal risk ratings aligned with regulatory classifications to assess risks. Consumer loans utilize credit scoring models as the basis for assessing risk
of consumer borrowers. The Company estimates the present value of cash shortfalls resulting from the sum of the marginal losses occurring in each time period, on an annual basis, over the estimated remaining life of the loan. The marginal losses are derived from the projection of principal balance, inclusive of principal cash flow and prepayment schedules, and parameters reflecting the severity of losses (LGD) in the case of default that is given by the marginal probability of default (Marginal PD) for each period of the portfolio’s lifetime. The Company estimates a point in time Marginal PD and LGD utilizing recent historical data per portfolio, which are then transformed via macroeconomic models using the aforementioned correlated macroeconomic variables included in the forecasted scenario.
The allowance for credit losses on loans that do not share similar risk characteristics are estimated on an individual basis. Individual evaluations are typically performed for nonaccrual loans and certain accruing loans, based on dollar thresholds. These loans receive specific reserves allocated based on the present value of the loan's expected future cash flows, discounted at the loan's original effective rate, except where foreclosure or liquidation is probable or when the cash flows are predominately dependent on the value of the collateral. In these circumstances, impairment is measured based upon the fair value less cost to sell of the collateral.
The Company adjusts the loss estimates described above when it is determined that expected credit losses may not have been captured in the loss estimates. To adjust the loss estimates, the Company considers qualitative factors such as changes in risk profile/composition; current economic and business conditions and uncertainty of outlook, potentially including alternative economic scenarios; limitations in the data or models used in the collective estimation; credit risk management practices; and other external/environmental factors.
In order to estimate an allowance for credit losses on letters of credit and unfunded commitments, the Company uses a process consistent with that used in developing the allowance for loan losses. The Company estimates future fundings of current, noncancellable, unfunded commitments based on historical funding experience of these commitments before default and adjusted based on historical cancellations. Allowance for loan loss factors, which are based on product and loan grade, and are consistent with the factors used for loans, are applied to these funding estimates and discounted to the present value to arrive at the reserve balance. The allowance for credit losses on letters of credit and unfunded commitments is recognized in accrued expenses and other liabilities on the Company’s Consolidated Balance Sheets with changes recognized within noninterest expense in the Company’s Consolidated Statements of Income. See Note 15, Commitments, Contingencies and Guarantees for additional information.
The allowance for loan losses for periods before 2020 is established as follows:
•Loans with outstanding balances greater than $1$1 million that are nonaccrual and all TDRs are evaluated individually consistent with ASC 310, and specific reserves are allocated based on the present value of the loan’s expected future cash flows, discounted at the loan’s original effective interest rate, except where foreclosure or liquidation is probable or when the primary source of repayment is provided by real estate collateral. In these circumstances, impairment is measured based upon the fair value less cost to sell of the collateral. In addition, in certain rare circumstances, impairment may be based on the loan’s observable fair value.
•Loans in the remainder of the portfolio including nonaccrual loans with balances of less than $1 million, are collectively evaluated for impairment consistent with the allowance based on historical loss experience which uses historical average net charge-off percentages. In the event the Company believes a specific portfolio's historical loss experience does not adequately capture current inherent losses, the historical loss experience is adjusted. This adjustment to the historical loss experience can be positive or negative and will take into consideration
relevant factors to the allowance such as changes in the portfolio composition, the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans. The assessment for whether to adjust takes place individually for each loan product.
The historical loss methodology uses historical annualized average net charge-off percentage to calculate the provision for loan and lease losses. The factor is calculated by taking the average of the net charge-offs over the credit life cycle available, currently 9 years.
For commercial loans, where management has determined to adjust the historical loss experience, the estimate of loss based on pools of loans with similar characteristics is made by applying a PD factor and a LGD factor to each individual loan based on loan grade, using a standardized loan grading system. The PD factor and LGD factor are determined for each loan gradeASC 450 using statistical models based on historical performance data. The PD factor considers on-going reviews of the financial performance of the specific borrower, including cash flow, debt-service coverage ratio, earnings power, debt level and equity position, in conjunction with an assessment of the borrower’s industry and future prospects. The PD factor considers current loan grade unless the account is delinquent over 60 days, in which case a higher PD factor is used. The LGD factor considers analysis of the type of collateral and the relative LTV ratio. These reserve factors are developed based on credit migration models that track historical movements of loans between loan grades over time and long-term average loss experience. The historical time frame currently useddata, adjusted for both PDs and LGDs is 9 years.
For consumer loans, where management has determined to adjust the historical loss experience, the estimate of loss based on pools of loans with similar characteristics is also made by applying a PD and a LGD factor. The PD factor considers current credit scores unless the account is delinquent over 60 days, in which case a higher PD factor is used. The credit score provides a basis for understanding the borrower’s past and current payment performance. The LGD factor considers analysis of the type of collateral and the relative LTV ratio. Credit scores, models, analyses, and other factors used to determine both the PD and LGD factors are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in loss mitigation or credit origination strategies, and adjustments to the reserve factors are made as required. The historical time frame currently used for both PDs and LGDs is 9 years.
Additionally, a portion of the allowance is for probable incurred losses which may not have been captured in the processes described above based on historical loss experience. This portion of the allowance is particularly subjective and requires judgment based upon qualitative factors. Some of the factors considered are changes in credit concentrations, loan mix, changes in underwriting practices, including the extent of portfolios of acquired institutions, historical loss experience and the general economic environment in the Company’s markets. While the total allowance is described as consisting of separate portions, these terms are primarily used to describe a process. All portions of the allowance are available to support probable incurred losses in the loan portfolio.
In order to estimate a reserve for unfunded commitments, the Company uses a process consistent with that used in developing the allowance for loan losses. The Company estimates the future funding of current unfunded commitments based on historical funding experience of these commitments before default. Allowance for loan loss factors, which are based on product and loan grade and are consistent with the factors used for portfolio loans, are applied to these funding estimates to arrive at the reserve balance. This reserve for unfunded commitments is recognized in accrued expenses and other liabilities on the Company’s Consolidated Balance Sheets with changes recognized in other noninterest expense in the Company’s Consolidated Statements of Income.
Premises and Equipment
Premises, furniture, fixtures, equipment, assets under capital leases and leasehold improvements are stated at cost less accumulated depreciation or amortization. Land is stated at cost. In addition, purchased software and costs of computer software developed for internal use are capitalized provided certain criteria are met. Depreciation is computed principally using the straight-line method over the estimated useful lives of the related assets, which ranges between 1 and 40 years. Leasehold improvements are amortized on a straight-line basis over the lesser of the lease terms or the estimated useful lives of the improvements.
Leases
The Company leases certain land, office space, and branches. These leases are generally for periods of 10 to 20 years with various renewal options. The Company, by policy, does not include renewal options for facility leases as part of its right-of-use assets and lease liabilities unless they are deemed reasonably certain to be exercised. Variable
lease payments that are dependent on an index or a rate are initially measured using the index or rate at the commencement date and are included in the measurement of lease liability. Variable lease payments that are not dependent on an index or a rate or changes in variable payments based on an index or rate after the commencement date are excluded from the measurement of the lease liability and recognized in profit and loss in accordance with ASC Topic 842, Leases. Variable lease payments are defined as payments made for the right to use an asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time.
The Company has made a policy election to not apply the recognition requirements of ASC Topic 842, Leases, to all short-term leases. Instead, the short-term lease payments will be recognized in the income statement on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred. As a practical expedient, the Company has also made a policy election to not separate nonlease components from lease components and instead account for each separate lease component and the nonlease components associated with that lease component as a single lease component.
The Company determines whether a contract contains a lease based on whether a contract, or a part of a contract, that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The discount rate is determined as the rate implicit in the lease or when a rate cannot be readily determined, the Company’s incremental borrowing rate. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
Bank Owned Life Insurance
The Company maintains life insurance policies on certain of its executives and employees and is the owner and beneficiary of the policies. The Company invests in these policies, known as BOLI, to provide an efficient form of funding for long-term retirement and other employee benefits costs. The Company records these BOLI policies within bank owned life insurance on the Company’s Consolidated Balance Sheets at each policy’s respective cash surrender value, with changes recorded in noninterest income in the Company’s Consolidated Statements of Income.
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets associated with acquisition transactions. Goodwill is assigned to each of the Company’s reporting units and tested for impairment annually as of October 31 or on an interim basis if events or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value.
If, after considering all relevant events and circumstances, the Company determines it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then performing an impairment test is not necessary. If the Company elects to bypass the qualitative analysis, or concludes via qualitative analysis that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, a goodwill impairment test is performed. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
The Company has defined its reporting unit structure to include: Commercial Banking and Wealth, Retail Banking, and Corporate and Investment Banking, and Simple. The fair value of each reporting unit is estimated using a combination of the present value of future expected cash flows and hypothetical market prices of similar entities and like transactions.
Banking. Each of the defined reporting units was tested for impairment as of October 31, 2017.2020. See Note 8,7, Goodwill, for a further discussion.
Other Real Estate Owned
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of recorded balance of the loan or fair value less costs to sell of the collateral assets at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, OREO is carried at the lower of carrying amount or fair value less costs to sell and is included in other assets on the Consolidated Balance Sheets. Gains and losses on the sales and write-downs on such properties and operating expenses from these OREO properties are included in other noninterest expense in the Company’s Consolidated Statements of Income.
Accounting for Transfers and Servicing of Financial Assets
The Company accounts for transfers of financial assets as sales when control over the transferred assets is surrendered. Control is generally considered to have been surrendered when (1) the transferred assets are legally isolated from the Company, even in bankruptcy or other receivership, (2) the transferee has the right to pledge or exchange the assets with no conditions that constrain the transferee and provide more than a trivial benefit to the Company, and (3) the Company does not maintain the obligation or unilateral ability to reclaim or repurchase the assets. If these sale criteria are met, the transferred assets are removed from the Company's balance sheet and a gain or loss on sale is recognized. If not met, the transfer is recorded as a secured borrowing, and the assets remain on the Company's balance sheet, the proceeds from the transaction are recognized as a liability, and gain or loss on sale is deferred until the sale criterion are achieved.
The Company has one primary class of MSR related to residential real estate mortgages. These mortgage servicing rights are recorded in other assets on the Consolidated Balance Sheets at fair value with changes in fair value recorded as a component of mortgage banking income in the Company’s Consolidated Statements of Income. See Note 5,4, Loan Sales and Servicing, for a further discussion.
Revenue from Contracts with Customers
The following is a discussion of key revenues within the scope of ASC 606, Revenue from Contracts with Customers:
•Service charges on deposit accounts - Revenue from service charges on deposit accounts is earned through cash management, wire transfer, and other deposit-related services; as well as overdraft, non-sufficient funds, account management and other deposit-related fees. Revenue is recognized for these services either over time, corresponding with deposit accounts’ monthly cycle, or at a point in time for transactional related services and fees.
•Card and merchant processing fees - Card and merchant processing fees consists of interchange fees from consumer credit and debit cards processed by card association networks, merchant services, and other card related services. Interchange rates are generally set by the credit card associations and based on purchase volumes and other factors. Interchange fees are recognized as transactions occur. Merchant services income represents account management fees and transaction fees charged to merchants for the processing of card association transactions. Merchant services revenue is recognized as transactions occur, or as services are performed.
•Investment banking and advisory fees - Investment banking and advisory fees primarily represent revenues earned by the Company for various corporate services including advisory, debt placement and underwriting. Revenues for these services are recorded at a point in time or upon completion of a contractually identified transaction. Underwriting costs are presented gross against underwriting revenues.
•Money transfer income - Money transfer income represents income from the Parent’s wholly owned subsidiary, BBVA Transfer Holdings, Inc., which engages in money transfer services, including money transmission and foreign exchange services. Money transfer income is recognized as transactions occur.
•Asset management, retail investment, and commissions fees - Asset management, retail investment, and commissions fees consists of fees generated from money management transactions and treasury management services, along with mutual fund and annuity sales fee income. Revenue from trade execution and brokerage services is earned through commissions from trade execution on behalf of clients. Revenue from these transactions is recognized at the trade date. Any ongoing service fees are recognized on a monthly basis as services are performed. Trust and asset management services include asset custody and investment management services provided to individual and institutional customers. Revenue is recognized monthly based on a minimum annual fee, and the market value of assets in custody. Additional fees are recognized for transactional activity. Insurance revenue is earned through commissions on insurance sales and earned at a point in time. These revenues are recorded in asset management fees and investment services sales fees within non-interest income in the Company's Consolidated Statements of Income.
Advertising Costs
Advertising costs are generally expensed as incurred and recorded as marketing expense, a component of noninterest expense in the Company’s Consolidated Statements of Income.
Income Taxes
The Company and its eligible subsidiaries file a consolidated federal income tax return. The Company files separate tax returns for subsidiaries that are not eligible to be included in the consolidated federal income tax return. Based on the laws of the respective states where it conducts business operations, the Company either files consolidated, combined or separate tax returns.
Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and are measured using the tax rates and laws that are expected to be in effect when the differences are anticipated to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period the change is incurred. In evaluating the Company's ability to recover its deferred tax assets within the jurisdiction from which they arise, the Company must consider all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and the results of recent operations. A valuation allowance is recognized for a deferred tax asset, if based on the available evidence, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law. The new legislation included a decrease in the corporate federal income tax rate from 35% to 21% effective January 1, 2018. Under ASC Topic 740, Income Taxes, the effects of the changes in tax rates and laws are recognized in the period in which the new legislation is enacted. In December 2017, the SEC issued SAB 118, which allows companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Since the Tax Cuts and Jobs Act was enacted late in 2017, the Company expects ongoing guidance, analysis, and accounting interpretations, including additional information about facts and circumstances that existed at the enactment date when the Company files its federal tax return for the tax year 2018, which could result in adjustments to the Tax Cuts and Jobs Act accounting effects recorded during 2017. The Company expects to complete its analysis within the measurement period in accordance with SAB 118.
The Company recognizes income tax benefits associated with uncertain tax positions, when, in its judgment, it is more likely than not of being sustained on the basis of the technical merits. For a tax position that meets the more-likely-than-not recognition threshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company judges to have a greater than 50% likelihood of being realized upon ultimate settlement with the taxing authority.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of other noninterest expense in the Company’s Consolidated Statements of Income. Accrued interest and penalties are included within accrued expenses and other liabilities on the Company’s Consolidated Balance Sheets.
The Company applies the proportional amortization method in accounting for its qualified Low Income Housing Tax Credit investments. This method recognizes the amortization of the investment as a component of income tax expense. At December 31, 2020 and 2019, net Low Income Housing Tax Credit investments were $585 million and $542 million, respectively, and are included in other assets on the Company's Consolidated Balance Sheets.
Noncontrolling Interests
The Company applies the accounting guidance codified in ASC Topic 810, Consolidation, related to the treatment of noncontrolling interests. This guidance requires the amount of consolidated net income attributable to the parent and to the noncontrolling interests be clearly identified and presented on the face of the consolidated financial statements.
The noncontrolling interests attributable to the Company's REIT preferred securities and mezzanine investment fund (see Note 12,11, Shareholder's Equity, for a discussion of the preferred securities) are reported within shareholder’s equity, separately from the equity attributable to the Company’s shareholder. The dividends paid to the REIT preferred shareholders and other mezzanine investment fund investors are reported as reductions in shareholder’s equity in the Consolidated Statements of Shareholder’s Equity, separately from changes in the equity attributable to the Company’s shareholder.
Accounting for Derivatives and Hedging Activities
A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. These instruments include interest rate swaps, caps, floors, financial forwards and futures contracts, foreign exchange contracts, options written and purchased. The Company mainly uses derivatives to manage economic risk related to commercial loans, long-term debt and other funding sources. The Company also uses derivatives to facilitate transactions on behalf of its customers.
All derivative instruments are recognized on the Company’s Consolidated Balance Sheets at their fair value. The Company does not offset fair value amounts under master netting agreements. Fair values are estimated using pricing models and current market data. On the date the derivative instrument contract is entered into, the Company designates the derivative as (1) a fair value hedge, (2) a cash flow hedge, or (3) a free-standing derivative. Changes in the fair value of a derivative instrument that is highly effective and that is designated and qualifies as a fair value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in earnings. Changes in the fair value of a derivative instrument that is highly effective
and that is designated and qualifies as a cash flow hedge are recorded in accumulated other comprehensive income, until earnings are affected by the variability of cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). Changes in the fair value of a free-standing derivative and settlements on the instruments are reported in earnings.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as fair value or cash flow hedges to specific assets and liabilities on the Company’s Consolidated Balance Sheets or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
The Company discontinues hedge accounting prospectively when: (1) it is determined that the derivative instrument is no longer highly effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted transactions); (2) the derivative instrument expires or is sold, terminated or exercised; (3) the derivative instrument is de-designated as a hedge instrument because it is unlikely that a forecasted transaction will occur; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designation of the derivative instrument as a hedge instrument is no longer appropriate.
When hedge accounting is discontinued because it is determined that the derivative instrument no longer qualifies as an effective fair value or cash flow hedge, the derivative instrument continues to be carried on the Company’s Consolidated Balance Sheets at its fair value, with changes in the fair value included in earnings. Additionally, for fair value hedges, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted as an adjustment to the yield over the remaining life of the asset or liability. For cash flow hedges, when hedge accounting is discontinued, but the hedged cash flows or forecasted transaction are still expected to occur, the unrealized gains and losses that were accumulated in other comprehensive income are recognized in earnings in the same period when the earnings are affected by the hedged cash flows or forecasted transaction. When a cash flow hedge is discontinued, because the hedged cash flows or forecasted transactions are not expected to occur, unrealized gains and losses that were accumulated in other comprehensive income are recognized in earnings immediately.
Recently Adopted Accounting Standards
Stock CompensationCredit Losses
In MarchJune 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The FASB issued this ASU to improve2016-13, Financial Instruments - Credit Losses, which introduces new guidance for the accounting for share-based payment transactionscredit losses on instruments within its scope. The new approach changes the impairment model for most financial assets, and will require the use of an “expected credit loss” model for financial instruments measured at amortized cost and certain other instruments. This model applies to receivables, loans, held-to-maturity debt securities, and off-balance sheet credit exposures. This model requires entities to estimate the lifetime expected credit loss on such instruments and record an allowance that represents the portion of the amortized cost basis that the entity does not expect to collect. This allowance is deducted from the financial asset’s amortized cost basis to present the net amount expected to be collected. The new expected credit loss model also applies to purchased financial assets with credit deterioration, superseding current accounting guidance for such assets.
The amended guidance also amends the impairment model for available-for-sale debt securities, requiring entities to determine whether all or a portion of the unrealized loss on such securities is a credit loss, and also eliminating the
option for management to consider the length of time a security has been in an unrealized loss position as parta factor in concluding whether or not a credit loss exists. The amended model states that an entity will recognize an allowance for credit losses on available-for-sale debt securities, instead of its simplification initiative. The areas for simplificationa direct reduction of the amortized cost basis of the investment, as required under current guidance. As a result, entities recognize improvements to estimated credit losses on available-for-sale debt securities immediately in earnings as opposed to in interest income over time. There are also additional disclosure requirements included in this guidance.
In November 2018, the FASB issued ASU involve several aspects2018-19 and in April, May and November 2019 and February 2020, the FASB issued ASU 2019-04, ASU 2019-05, ASU 2019-11, and ASU 2020-02 respectively, which made minor clarifications to the guidance in ASU 2016-13, collectively ASC 326.
The Company’s implementation process included loss model development, data sourcing and validation, development of governance processes, development of a qualitative framework, documentation and governance surrounding economic forecast for credit loss purposes, evaluation of technical accounting topics, updates to allowance policies and methodology documentation, development of reporting processes and related internal controls.
The Company adopted ASC 326, as amended on January 1, 2020 using a modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under this ASU, while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net of tax increase to accumulated deficit of $150.2 million as of January 1, 2020 for the cumulative effect of adopting ASC 326.
The Company adopted this ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment has been recognized prior to January 1, 2020. As a result, the amortized cost basis remained the same before and after the effective date of ASC 326. The effective interest rate on these debt securities was not changed. Amounts previously recognized in accumulated other comprehensive income as of January 1, 2020 related to improvements in cash flows expected to be collected will be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after January 1, 2020 will be recorded in earnings when received.
The amended guidance in ASC 326 eliminates the current accounting model for share-based payment transactions, includingpurchased-credit-impaired loans, but requires an allowance to be recognized for purchased-credit-deteriorated assets (those that have experienced more-than-insignificant deterioration in credit quality since origination). The Company had no impact from purchased-credit-deteriorated assets upon adoption.
The following table illustrates the income tax consequences, classificationimpact of awardsASC 326.
| | | | | | | | | | | | | | | | | |
| January 1, 2020 |
| As Reported Under ASC 326 | | Pre-ASC Adoption | | Impact of ASC 326 Adoption |
| (In Thousands) |
| Assets: | | | | | |
| Allowance for credit losses on debt securities held to maturity | $ | 1,847 | | | $ | 0 | | | $ | 1,847 | |
| Allowance for credit losses on loans | 1,105,924 | | | 920,993 | | | 184,931 | |
| | | | | |
| Liabilities: | | | | | |
| Allowance for credit losses on letters of credit and unfunded commitments | 76,946 | | | 66,955 | | | 9,991 | |
The Company did not record a material allowance with respect to HTM and AFS securities as either equity or liabilities,the portfolios consist primarily of U.S. Treasury and classification onagency-backed securities that inherently have minimal credit risk.
See Note 2, Debt Securities Available for Sale and Debt Securities Held to Maturity, and Note 3, Loans and Allowance for Loan Losses, for the statementrequired disclosures in accordance with ASC 326.
Fair Value Measurements
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements. The amendments in this ASU were effectivemodified the disclosure requirements for annual periods, and interim periods within those annual periods, beginning after December 15, 2016.fair value measurements in Topic 820, Fair Value Measurements. The Company adopted this ASU on January 1, 2020. The adoption of this standard did not have anmaterial impact on the financial condition or results of operationsoperation of the Company. See Note 19, Fair Value Measurements, for the modified disclosure in accordance with this ASU.
(2) Acquisition Activities
On June 6, 2016,In August 2018, the Parent completedFASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing ArrangementThat is a Service Contract. The amendments in this ASU align the purchaserequirements 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 an internal-use software license. The Company adopted this ASU on January 1, 2020. The adoption of four subsidiaries (Bancomer Transfer Services, Bancomer Payment Services, Bancomer Foreign Exchange, and Bancomer Financial Services) from BBVA Bancomer USA, Inc. BBVA Bancomer USA, Inc. was a wholly owned subsidiarythis standard did not have material impact on the financial condition or results of BBVA Bancomer, S.A., Mexico City, Mexico and ultimately a wholly owned subsidiary of BBVA. These four subsidiaries engage in money transfer and related services, including money transmission and foreign exchange services and are subsidiaries of BBVA Compass Payments, Inc., a wholly owned subsidiaryoperation of the Parent.Company.
The transaction was structured as a cash purchase totaling $69.2 million. At December 31, 2015, the four subsidiaries had total assets
Equity. The Company's consolidated financial statements and related footnotes are presented as if the transaction occurred at the beginning of the earliest date presented and the prior periods have been retrospectively adjusted.
(3)Investment(2) Debt Securities Available for Sale and InvestmentDebt Securities Held to Maturity
The following table presents the adjusted cost and approximate fair value of investmentdebt securities available for sale and investmentdebt securities held to maturity. As noted in Note 1, Summary of Significant Accounting Policies, the Company adopted ASC 326 on January 1, 2020, which had an immaterial impact on the Company's available for sale debt securities and held to maturity debt securities.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | Gross Unrealized | | |
| Amortized Cost | | Gains | | Losses | | Fair Value |
| (In Thousands) |
| Debt securities available for sale: | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 2,115,915 | | | $ | 45,168 | | | $ | 14,179 | | | $ | 2,146,904 | |
| Agency mortgage-backed securities | 834,640 | | | 32,103 | | | 1,095 | | | 865,648 | |
| Agency collateralized mortgage obligations | 2,681,210 | | | 50,811 | | | 290 | | | 2,731,731 | |
| States and political subdivisions | 617 | | | 19 | | | 0 | | | 636 | |
| Total | $ | 5,632,382 | | | $ | 128,101 | | | $ | 15,564 | | | $ | 5,744,919 | |
| Debt securities held to maturity: | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 1,291,900 | | | $ | 112,968 | | | $ | 0 | | | $ | 1,404,868 | |
| Agency mortgage-backed securities | 570,115 | | | 2,491 | | | 0 | | | 572,606 | |
| Collateralized mortgage obligations: | | | | | | | |
| Agency | 8,144,522 | | | 147,176 | | | 27,234 | | | 8,264,464 | |
| Non-agency | 29,186 | | | 5,972 | | | 209 | | | 34,949 | |
| Asset-backed securities and other | 48,790 | | | 1,217 | | | 2,681 | | | 47,326 | |
| States and political subdivisions (1) | 467,610 | | | 21,047 | | | 3,409 | | | 485,248 | |
| Total | $ | 10,552,123 | | | $ | 290,871 | | | $ | 33,533 | | | $ | 10,809,461 | |
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | | Gross Unrealized | | |
| | Amortized Cost | | Gains | | Losses | | Fair Value |
| | (In Thousands) |
| Investment securities available for sale: | | | | | | | |
| Debt securities: | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 4,265,296 |
| | $ | 996 |
| | $ | 61,854 |
| | $ | 4,204,438 |
|
| Agency mortgage-backed securities | 2,841,584 |
| | 14,312 |
| | 43,096 |
| | 2,812,800 |
|
| Agency collateralized mortgage obligations | 5,302,531 |
| | 4,203 |
| | 106,723 |
| | 5,200,011 |
|
| States and political subdivisions | 2,278 |
| | 105 |
| | — |
| | 2,383 |
|
| Equity securities | 464,143 |
| | 134 |
| | 122 |
| | 464,155 |
|
| Total | $ | 12,875,832 |
| | $ | 19,750 |
| | $ | 211,795 |
| | $ | 12,683,787 |
|
| Investment securities held to maturity: | | | | | | | |
| Non-agency collateralized mortgage obligations | $ | 64,140 |
| | $ | 5,262 |
| | $ | 1,605 |
| | $ | 67,797 |
|
| Asset-backed securities | 9,308 |
| | 1,747 |
| | 628 |
| | 10,427 |
|
| States and political subdivisions | 911,393 |
| | 3,951 |
| | 12,853 |
| | 902,491 |
|
| Other | 61,252 |
| | 243 |
| | 1,667 |
| | 59,828 |
|
| Total | $ | 1,046,093 |
| | $ | 11,203 |
| | $ | 16,753 |
| | $ | 1,040,543 |
|
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | | | Gross Unrealized | | |
| | Amortized Cost | | Gains | | Losses | | Fair Value |
| | (In Thousands) |
| Investment securities available for sale: | | | | | | | |
| Debt securities: | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 2,409,141 |
| | $ | 2,390 |
| | $ | 37,200 |
| | $ | 2,374,331 |
|
| Agency mortgage-backed securities | 3,796,270 |
| | 12,869 |
| | 45,801 |
| | 3,763,338 |
|
| Agency collateralized mortgage obligations | 5,200,241 |
| | 5,292 |
| | 106,605 |
| | 5,098,928 |
|
| States and political subdivisions | 8,457 |
| | 184 |
| | — |
| | 8,641 |
|
| Equity securities | 419,869 |
| | 90 |
| | 142 |
| | 419,817 |
|
| Total | $ | 11,833,978 |
| | $ | 20,825 |
| | $ | 189,748 |
| | $ | 11,665,055 |
|
| Investment securities held to maturity: | | | | | | | |
| Non-agency collateralized mortgage obligations | $ | 83,087 |
| | $ | 5,265 |
| | $ | 3,278 |
| | $ | 85,074 |
|
| Asset-backed securities | 15,118 |
| | 1,982 |
| | 1,081 |
| | 16,019 |
|
| States and political subdivisions | 1,040,716 |
| | 2,309 |
| | 25,518 |
| | 1,017,507 |
|
| Other | 64,296 |
| | 1,143 |
| | 2,030 |
| | 63,409 |
|
| Total | $ | 1,203,217 |
| | $ | 10,699 |
| | $ | 31,907 |
| | $ | 1,182,009 |
|
In the above table, equity securities include $450(1)The Company recorded an allowance of $2 million, and $403 million at December 31, 20172020, related to state and 2016, respectively,political subdivisions, which is not included in the table above.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| | | Gross Unrealized | | |
| Amortized Cost | | Gains | | Losses | | Fair Value |
| (In Thousands) |
| Debt securities available for sale: | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 3,145,331 | | | $ | 16,888 | | | $ | 34,694 | | | $ | 3,127,525 | |
| Agency mortgage-backed securities | 1,322,432 | | | 12,444 | | | 9,019 | | | 1,325,857 | |
| Agency collateralized mortgage obligations | 2,783,003 | | | 7,744 | | | 9,622 | | | 2,781,125 | |
| States and political subdivisions | 757 | | | 41 | | | 0 | | | 798 | |
| | | | | | | |
| Total | $ | 7,251,523 | | | $ | 37,117 | | | $ | 53,335 | | | $ | 7,235,305 | |
| Debt securities held to maturity: | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 1,287,049 | | | $ | 53,399 | | | $ | 0 | | | $ | 1,340,448 | |
| Collateralized mortgage obligations: | | | | | | | |
| Agency | 4,846,862 | | | 82,105 | | | 16,568 | | | 4,912,399 | |
| Non-agency | 37,705 | | | 5,923 | | | 1,154 | | | 42,474 | |
| Asset-backed securities and other | 52,355 | | | 1,266 | | | 2,017 | | | 51,604 | |
| States and political subdivisions | 573,075 | | | 8,652 | | | 7,494 | | | 574,233 | |
| Total | $ | 6,797,046 | | | $ | 151,345 | | | $ | 27,233 | | | $ | 6,921,158 | |
The investments held within the states and political subdivision caption of FHLB and Federal Reserve stock carried at par.debt securities held to maturity relate to private placement transactions underwritten as loans by the Company but meet the definition of a debt security within ASC Topic 320, Investments – Debt Securities.
At December 31, 2017,2020, approximately $553 million$5.4 billion of investmentdebt securities available for sale were pledged to secure public deposits, securities sold under agreements to repurchase and FHLB advances and for other purposes as required or permitted by law.
The investments held within the states and political subdivision caption of investment securities held to maturity relate to private placement transactions underwritten as loans by the Company but that meet the definition of a debt security within ASC Topic 320, Investments – Debt and Equity Securities.
At December 31, 2017,2020, approximately 99.9%99.99% of the debt securities classified within available for sale are rated “AAA,” the highest possible rating by nationally recognized rating agencies. The remainder of the investment securities classified within available for sale are either Federal Reserve stock, FHLB stock or money market funds.
The following table disclosestables disclose the fair value and the gross unrealized losses of the Company’s available for sale securities and held to maturitydebt securities that were in a loss position at December 31, 20172020 and 2016.2019, for which an allowance for credit losses has not been recorded at December 31, 2020. This information is aggregated by investment category and the length of time the individual securities have been in an unrealized loss position.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Securities in a loss position for less than 12 months | | Securities in a loss position for 12 months or longer | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| (In Thousands) |
| Debt securities available for sale: | | | | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 6,041 | | | $ | 60 | | | $ | 335,296 | | | $ | 14,119 | | | $ | 341,337 | | | $ | 14,179 | |
| Agency mortgage-backed securities | 25,710 | | | 299 | | | 35,326 | | | 796 | | | 61,036 | | | 1,095 | |
| Agency collateralized mortgage obligations | 96,498 | | | 114 | | | 162,028 | | | 176 | | | 258,526 | | | 290 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total | $ | 128,249 | | | $ | 473 | | | $ | 532,650 | | | $ | 15,091 | | | $ | 660,899 | | | $ | 15,564 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Securities in a loss position for less than 12 months | | Securities in a loss position for 12 months or longer | | Total |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | (In Thousands) |
| Investment securities available for sale: | | | | | | | | | | | |
| Debt securities: | | | | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 2,532,439 |
| | $ | 28,308 |
| | $ | 1,325,975 |
| | $ | 33,546 |
| | $ | 3,858,414 |
| | $ | 61,854 |
|
| Agency mortgage-backed securities | 390,106 |
| | 2,731 |
| | 1,666,045 |
| | 40,365 |
| | 2,056,151 |
| | 43,096 |
|
| Agency collateralized mortgage obligations | 1,244,416 |
| | 6,522 |
| | 3,297,278 |
| | 100,201 |
| | 4,541,694 |
| | 106,723 |
|
| Equity securities | 3,871 |
| | 55 |
| | 1,055 |
| | 67 |
| | 4,926 |
| | 122 |
|
| Total | $ | 4,170,832 |
| | $ | 37,616 |
| | $ | 6,290,353 |
| | $ | 174,179 |
| | $ | 10,461,185 |
| | $ | 211,795 |
|
| | | | | | | | | | | | |
| Investment securities held to maturity: | | | | | | | | | | | |
| Non-agency collateralized mortgage obligations | $ | 9,776 |
| | $ | 25 |
| | $ | 22,439 |
| | $ | 1,580 |
| | $ | 32,215 |
| | $ | 1,605 |
|
| Asset-backed securities | — |
| | — |
| | 6,243 |
| | 628 |
| | 6,243 |
| | 628 |
|
| States and political subdivisions | 236,207 |
| | 4,365 |
| | 341,090 |
| | 8,488 |
| | 577,297 |
| | 12,853 |
|
| Other | 19,048 |
| | 98 |
| | 20,736 |
| | 1,569 |
| | 39,784 |
| | 1,667 |
|
| Total | $ | 265,031 |
| | $ | 4,488 |
| | $ | 390,508 |
| | $ | 12,265 |
| | $ | 655,539 |
| | $ | 16,753 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Securities in a loss position for less than 12 months | | Securities in a loss position for 12 months or longer | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| (In Thousands) |
| Debt securities available for sale: | | | | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 59,496 | | | $ | 208 | | | $ | 819,360 | | | $ | 34,486 | | | $ | 878,856 | | | $ | 34,694 | |
| Agency mortgage-backed securities | 245,191 | | | 851 | | | 592,312 | | | 8,168 | | | 837,503 | | | 9,019 | |
| Agency collateralized mortgage obligations | 880,485 | | | 4,768 | | | 579,679 | | | 4,854 | | | 1,460,164 | | | 9,622 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total | $ | 1,185,172 | | | $ | 5,827 | | | $ | 1,991,351 | | | $ | 47,508 | | | $ | 3,176,523 | | | $ | 53,335 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Securities in a loss position for less than 12 months | | Securities in a loss position for 12 months or longer | | Total |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | (In Thousands) |
| Investment securities available for sale: | | | | | | | | | | | |
| Debt securities: | | | | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 1,277,341 |
| | $ | 23,862 |
| | $ | 609,078 |
| | $ | 13,338 |
| | $ | 1,886,419 |
| | $ | 37,200 |
|
| Agency mortgage-backed securities | 1,425,743 |
| | 15,235 |
| | 1,368,957 |
| | 30,566 |
| | 2,794,700 |
| | 45,801 |
|
| Agency collateralized mortgage obligations | 3,527,757 |
| | 99,477 |
| | 782,849 |
| | 7,128 |
| | 4,310,606 |
| | 106,605 |
|
| Equity securities | 3,849 |
| | 77 |
| | 1,057 |
| | 65 |
| | 4,906 |
| | 142 |
|
| Total | $ | 6,234,690 |
| | $ | 138,651 |
| | $ | 2,761,941 |
| | $ | 51,097 |
| | $ | 8,996,631 |
| | $ | 189,748 |
|
| | | | | | | | | | | | |
| Investment securities held to maturity: | | | | | | | | | | | |
| Non-agency collateralized mortgage obligations | $ | 3,847 |
| | $ | 527 |
| | $ | 40,083 |
| | $ | 2,751 |
| | $ | 43,930 |
| | $ | 3,278 |
|
| Asset-backed securities | 343 |
| | 1 |
| | 9,238 |
| | 1,080 |
| | 9,581 |
| | 1,081 |
|
| States and political subdivisions | 532,090 |
| | 13,043 |
| | 313,803 |
| | 12,475 |
| | 845,893 |
| | 25,518 |
|
| Other | 16,578 |
| | 174 |
| | 3,587 |
| | 1,856 |
| | 20,165 |
| | 2,030 |
|
| Total | $ | 552,858 |
| | $ | 13,745 |
| | $ | 366,711 |
| | $ | 18,162 |
| | $ | 919,569 |
| | $ | 31,907 |
|
As indicated in the previous table,tables, at December 31, 2017,2020, the Company held certain investmentdebt securities in unrealized loss positions. The Company has not recognized the unrealized losses into income for its securities because they are all backed by the U.S. government or government agencies and management does not have the intentintend to sell these securities and believes it is not more likely thanthat management will not that it will be required to sell these securities before their anticipated recovery.recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The fair value is expected to recover as the securities approach maturity.
Management does not believe that any individual unrealized loss
The following table presents the activity in the Company’s investmentallowance for debt securities available for sale or held to maturity portfolios, presented inlosses.
| | | | | |
| Held to Maturity Debt Securities |
| (In Thousands) |
| Year Ended December 31, 2020 | |
| Allowance for debt securities held to maturity losses: | |
| Balance at beginning of period, prior to adoption of ASC 326 | $ | 0 | |
| Impact of adopting ASC 326 | 1,847 | |
| Beginning balance, after adoption of ASC 326 | 1,847 | |
| Provision for credit loss expense | 331 | |
| Securities charged off | 0 | |
| Recoveries | 0 | |
| Ending balance | $ | 2,178 | |
The Company regularly evaluates each held to maturity debt security for credit losses on a quarterly basis. The Company has not recorded a provision for credit loss related to its agency securities because they are all backed by the preceding tables, represents an OTTI at either U.S. government or government agencies and have been deemed to have zero expected credit loss as of December 31, 2017 or 20162020. These securities are evaluated quarterly to determine if they still qualify as a zero credit loss security. The Company has non-agency securities that have unrealized losses at December 31, 2020. The Company considers such factors as the extent to which the fair value has been below cost and the financial condition of the issuer.
The Company monitors the credit quality of its HTM debt securities through credit ratings. The following table presents the amortized cost of HTM debt securities, as of December 31, 2020, other than those noted below.aggregated by credit quality indicator.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | | | Range of Ratings | | |
| | AAA | | AA+ / A - | | BBB+ / B- | | CCC+ / C | | D | | NR | | Total |
| | (In Thousands) |
| Debt securities held to maturity: | | | | | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | | $ | 1,291,900 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1,291,900 | |
| Agency mortgage-backed securities | | 570,115 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 570,115 | |
| Collateralized mortgage obligations: | | | | | | | | | | | | |
| Agency | | 8,144,522 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 8,144,522 | |
| Non-agency | | 278 | | | 6,840 | | | 10,517 | | | 5,462 | | | 2,533 | | | 3,556 | | | 29,186 | |
| Asset-backed securities and other | | 0 | | | 48,127 | | | 200 | | | 463 | | | 0 | | | 0 | | | 48,790 | |
| States and political subdivisions | | 0 | | | 246,210 | | | 221,400 | | | 0 | | | 0 | | | 0 | | | 467,610 | |
| | $ | 10,006,815 | | | $ | 301,177 | | | $ | 232,117 | | | $ | 5,925 | | | $ | 2,533 | | | $ | 3,556 | | | $ | 10,552,123 | |
The following table discloses activity related to credit losses for debt securities where a portion of the OTTI was recognized in other comprehensive income.
| | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| Balance, at beginning of year | | | $ | 23,416 | | | $ | 22,824 | |
| Reductions for securities paid off during the period (realized) | | | 0 | | | 0 | |
| Additions for the credit component on debt securities in which OTTI was not previously recognized | | | 0 | | | 0 | |
| Additions for the credit component on debt securities in which OTTI was previously recognized | | | 215 | | | 592 | |
| Balance, at end of year | | | $ | 23,631 | | | $ | 23,416 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Balance, at beginning of year | $ | 22,582 |
| | $ | 22,452 |
| | $ | 21,123 |
|
| Reductions for securities paid off during the period (realized) | — |
| | — |
| | (331 | ) |
| Additions for the credit component on debt securities in which OTTI was not previously recognized | 242 |
| | — |
| | 1,013 |
|
| Additions for the credit component on debt securities in which OTTI was previously recognized | — |
| | 130 |
| | 647 |
|
| Balance, at end of year | $ | 22,824 |
| | $ | 22,582 |
| | $ | 22,452 |
|
During the years ended December 31, 2017, 20162019 and 2015,2018, OTTI recognized on held to maturity debt securities totaled $242 thousand, $130$215 thousand and $1.7 million,$592 thousand, respectively. The investmentdebt securities impacted by credit impairment areconsisted of held to maturity non-agency collateralized mortgage obligations.
The contractual maturities of the securities portfolios are presented in the following table.
| | | | | | | | Amortized Cost | | Fair Value |
| | Amortized Cost | | Fair Value | |
| December 31, 2017 | (In Thousands) | |
| Investment securities available for sale: | | |
| December 31, 2020 | | December 31, 2020 | (In Thousands) |
| Debt securities available for sale: | | Debt securities available for sale: | |
| Maturing within one year | $ | 211,721 |
| | $ | 210,736 |
| Maturing within one year | $ | 300,014 | | | $ | 300,073 | |
| Maturing after one but within five years | 1,586,822 |
| | 1,565,281 |
| Maturing after one but within five years | 1,400,824 | | | 1,443,878 | |
| Maturing after five but within ten years | 1,591,646 |
| | 1,575,186 |
| Maturing after five but within ten years | 5,694 | | | 5,783 | |
| Maturing after ten years | 877,385 |
| | 855,618 |
| Maturing after ten years | 410,000 | | | 397,806 | |
| | 4,267,574 |
| | 4,206,821 |
| | 2,116,532 | | | 2,147,540 | |
| Agency mortgage-backed securities and agency collateralized mortgage obligations | 8,144,115 |
| | 8,012,811 |
| Agency mortgage-backed securities and agency collateralized mortgage obligations | 3,515,850 | | | 3,597,379 | |
| Equity securities | 464,143 |
| | 464,155 |
| |
| Total | $ | 12,875,832 |
| | $ | 12,683,787 |
| Total | $ | 5,632,382 | | | $ | 5,744,919 | |
| | | | | | | | |
| Investment securities held to maturity: | | | | |
| Debt securities held to maturity: | | Debt securities held to maturity: | |
| Maturing within one year | $ | 102,858 |
| | $ | 102,889 |
| Maturing within one year | $ | 20,224 | | | $ | 20,196 | |
| Maturing after one but within five years | 190,487 |
| | 190,294 |
| Maturing after one but within five years | 1,401,764 | | | 1,514,760 | |
| Maturing after five but within ten years | 214,204 |
| | 211,758 |
| Maturing after five but within ten years | 272,972 | | | 289,908 | |
| Maturing after ten years | 474,404 |
| | 467,805 |
| Maturing after ten years | 113,340 | | | 112,578 | |
| | 981,953 |
| | 972,746 |
| | 1,808,300 | | | 1,937,442 | |
| Non-agency collateralized mortgage obligations | 64,140 |
| | 67,797 |
| |
| Agency mortgage-backed securities and agency and non-agency collateralized mortgage obligations | | Agency mortgage-backed securities and agency and non-agency collateralized mortgage obligations | 8,743,823 | | | 8,872,019 | |
| Total | $ | 1,046,093 |
| | $ | 1,040,543 |
| Total | $ | 10,552,123 | | | $ | 10,809,461 | |
The gross realized gains and losses recognized on sales of investmentdebt securities available for sale are shown in the table below.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In Thousands) |
| Gross gains | $ | 22,616 | | | $ | 29,961 | | | $ | 0 | |
| Gross losses | 0 | | | 0 | | | 0 | |
| Net realized gains | $ | 22,616 | | | $ | 29,961 | | | $ | 0 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Gross gains | $ | 3,033 |
| | $ | 30,037 |
| | $ | 83,488 |
|
| Gross losses | — |
| | — |
| | 1,832 |
|
| Net realized gains | $ | 3,033 |
| | $ | 30,037 |
| | $ | 81,656 |
|
During 2008, the Company transferred securities with a carrying value and market value of $1.1 billion and $859 million, respectively, from investment securities available for sale to investment securities held to maturity. At December 31, 20172020 and 20162019 there were $10$21 million and $13$28 million, respectively, of unrealized losses, net of tax related to thesedebt securities transferred from available for sale to held to maturity in accumulated other comprehensive income, which are being amortized over the remaining life of those securities.
(4)
(3) Loans and Allowance for Loan Losses
The following table presents the composition of the loan portfolio.
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| (In Thousands) |
| Commercial loans: | | | |
| Commercial, financial and agricultural | $ | 26,605,142 | | | $ | 24,432,238 | |
| Real estate – construction | 2,498,331 | | | 2,028,682 | |
| Commercial real estate – mortgage | 13,565,314 | | | 13,861,478 | |
| Total commercial loans | 42,668,787 | | | 40,322,398 | |
| Consumer loans: | | | |
| Residential real estate – mortgage | 13,327,774 | | | 13,533,954 | |
| Equity lines of credit | 2,394,894 | | | 2,592,680 | |
| Equity loans | 179,762 | | | 244,968 | |
| Credit card | 881,702 | | | 1,002,365 | |
| Consumer direct | 1,929,723 | | | 2,338,142 | |
| Consumer indirect | 4,177,125 | | | 3,912,350 | |
| Total consumer loans | 22,890,980 | | | 23,624,459 | |
| Total loans | $ | 65,559,767 | | | $ | 63,946,857 | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| Commercial loans: | | | |
| Commercial, financial and agricultural | $ | 25,749,949 |
| | $ | 25,122,002 |
|
| Real estate – construction | 2,273,539 |
| | 2,125,316 |
|
| Commercial real estate – mortgage | 11,724,158 |
| | 11,210,660 |
|
| Total commercial loans | 39,747,646 |
| | 38,457,978 |
|
| Consumer loans: | | | |
| Residential real estate – mortgage | 13,365,747 |
| | 13,259,994 |
|
| Equity lines of credit | 2,653,105 |
| | 2,543,778 |
|
| Equity loans | 363,264 |
| | 445,709 |
|
| Credit card | 639,517 |
| | 604,881 |
|
| Consumer direct | 1,690,383 |
| | 1,254,641 |
|
| Consumer indirect | 3,164,106 |
| | 3,134,948 |
|
| Total consumer loans | 21,876,122 |
| | 21,243,951 |
|
| Covered loans (1) | — |
| | 359,334 |
|
| Total loans | $ | 61,623,768 |
| | $ | 60,061,263 |
|
| |
(1) | Covered loans represent loans acquired from the FDIC subject to loss sharing agreements. The loss sharing agreements provide for FDIC loss sharing for five years for commercial loans and 10 years for single family residential loans. The loss sharing agreement for commercial loans expired in the fourth quarter of 2014. In July 2017, the Company terminated the single family residential loss share agreement with the FDIC ahead of the contractual maturity. Loans no longer covered under a loss share agreement were reclassified to their appropriate loan type. |
Total loans includes unearned income totaling $257.9$252.1 million and $260.5$224.9 million at December 31, 20172020 and 2016,2019, respectively; and unamortized deferred costs totaling $343.9$377.7 million and $322.9$376.6 million at December 31, 20172020 and 2016,2019, respectively. Accrued interest receivable totaling $224.3 million and $204.6 million at December 31, 2020 and 2019, respectively, was reported in other assets on the Company's Consolidated Balance Sheets and is excluded from the related footnote disclosures.
The loan portfolio is diversified geographically, by product type and by industry exposure. Geographically, the portfolio is predominantly in the Sunbelt states, including Alabama, Arizona, Colorado, Florida, New Mexico and Texas, as well as growing but modest exposure in northern and southern California. The loan portfolio’s most significant geographic presence is within Texas. The Company monitors its exposure to various industries and adjusts loan production based on current and anticipated changes in the macro-economic environment as well as specific structural, legal and business conditions affecting each broad industry category.
At December 31, 2017,2020, approximately $14.1$14.2 billion of loans were pledged to secure deposits and FHLB advances and for other purposes as required or permitted by law.
Allowance for Loan Losses and Credit Quality
The following table, which excludes loans held for sale, presents a summary of the activity in the allowance for loan losses. The portion of the allowance that has not been identified by the Company as related to specific loan categories has been allocated to the individual loan categoriesportfolio segments on a pro rata basis for purposes of the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial, Financial and Agricultural | | Commercial Real Estate (1) | | Residential Real Estate (2) | | Consumer (3) | | Total Loans |
| (In Thousands) |
| Year Ended December 31, 2020 | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | |
| Beginning balance, prior to adoption of ASC 326 | $ | 408,197 | | | $ | 118,633 | | | $ | 99,089 | | | $ | 295,074 | | | $ | 920,993 | |
| Impact of adopting ASC 326 | 18,389 | | | (35,034) | | | 47,390 | | | 154,186 | | | 184,931 | |
| Beginning balance, after adoption of ASC 326 | 426,586 | | | 83,599 | | | 146,479 | | | 449,260 | | | 1,105,924 | |
| Provision for loan losses | 335,502 | | | 236,493 | | | 68,442 | | | 325,361 | | | 965,798 | |
| Loans charged-off | (117,318) | | | (9,919) | | | (5,693) | | | (345,250) | | | (478,180) | |
| Loan recoveries | 13,458 | | | 919 | | | 5,241 | | | 66,314 | | | 85,932 | |
| Net (charge-offs) recoveries | (103,860) | | | (9,000) | | | (452) | | | (278,936) | | | (392,248) | |
| Ending balance | $ | 658,228 | | | $ | 311,092 | | | $ | 214,469 | | | $ | 495,685 | | | $ | 1,679,474 | |
| Year Ended December 31, 2019 | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | |
| Beginning balance | $ | 393,315 | | | $ | 112,437 | | | $ | 101,929 | | | $ | 277,561 | | | $ | 885,242 | |
| | | | | | | | | |
| Provision for loan losses | 173,271 | | | 6,123 | | | 3,424 | | | 414,626 | | | 597,444 | |
| Loans charged off | (171,507) | | | (2,597) | | | (19,600) | | | (466,946) | | | (660,650) | |
| Loan recoveries | 13,118 | | | 2,670 | | | 13,336 | | | 69,833 | | | 98,957 | |
| Net (charge-offs) recoveries | (158,389) | | | 73 | | | (6,264) | | | (397,113) | | | (561,693) | |
| Ending balance | $ | 408,197 | | | $ | 118,633 | | | $ | 99,089 | | | $ | 295,074 | | | $ | 920,993 | |
| Year Ended December 31, 2018 | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | |
| Beginning balance | $ | 420,635 | | | $ | 118,133 | | | $ | 109,856 | | | $ | 194,136 | | | $ | 842,760 | |
| | | | | | | | | |
| Provision (credit) for loan losses | 44,403 | | | (8,431) | | | (3,216) | | | 332,664 | | | 365,420 | |
| Loans charged off | (83,017) | | | (3,867) | | | (17,821) | | | (295,999) | | | (400,704) | |
| Loan recoveries | 11,294 | | | 6,602 | | | 13,110 | | | 46,760 | | | 77,766 | |
| Net (charge-offs) recoveries | (71,723) | | | 2,735 | | | (4,711) | | | (249,239) | | | (322,938) | |
| Ending balance | $ | 393,315 | | | $ | 112,437 | | | $ | 101,929 | | | $ | 277,561 | | | $ | 885,242 | |
(1)Includes commercial real estate – mortgage and real estate – construction loans.
(2)Includes residential real estate – mortgage, equity lines of credit and equity loans.
(3)Includes credit card, consumer direct and consumer indirect loans.
For the year ended December 31, 2020, the increase in the allowance for loan losses was primarily driven by the impact of the COVID-19 pandemic on economic conditions which impacted the Company's economic forecast. During 2020, economic conditions continued to deteriorate due to the impact of the COVID-19 health crisis. As a result, economic projections for gross domestic product declined dramatically and unemployment levels increased significantly with information related to the evolving impacts of the COVID-19 health crisis. Additionally, the allowance for loan losses was impacted by the higher reserves in the commercial portfolio due to downgrades in this portfolio and the impact of declines in oil prices.
The Company has not recorded a provision for credit loss related to its SBA PPP loans because they are guaranteed by the SBA and have been deemed to have zero expected credit loss as of December 31, 2020.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial, Financial and Agricultural | | Commercial Real Estate (1) | | Residential Real Estate (2) | | Consumer (3) | | Covered | | Total Loans |
| | (In Thousands) |
| Year Ended December 31, 2017 | | | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | | |
| Beginning balance | $ | 458,580 |
| | $ | 116,937 |
| | $ | 119,484 |
| | $ | 143,292 |
| | $ | — |
| | $ | 838,293 |
|
| Provision (credit) for loan losses | 49,528 |
| | 6,195 |
| | (874 | ) | | 232,875 |
| | (31 | ) | | 287,693 |
|
| Loans charged off | (106,570 | ) | | (9,983 | ) | | (21,287 | ) | | (221,212 | ) | | — |
| | (359,052 | ) |
| Loan recoveries | 19,097 |
| | 4,984 |
| | 12,533 |
| | 39,181 |
| | 31 |
| | 75,826 |
|
| Net (charge-offs) recoveries | (87,473 | ) | | (4,999 | ) | | (8,754 | ) | | (182,031 | ) | | 31 |
| | (283,226 | ) |
| Ending balance | $ | 420,635 |
| | $ | 118,133 |
| | $ | 109,856 |
| | $ | 194,136 |
| | $ | — |
| | $ | 842,760 |
|
| Year Ended December 31, 2016 | | | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | | |
| Beginning balance | $ | 402,113 |
| | $ | 122,068 |
| | $ | 132,104 |
| | $ | 104,948 |
| | $ | 1,440 |
| | $ | 762,673 |
|
| Provision (credit) for loan losses | 129,646 |
| | (5,502 | ) | | (4,156 | ) | | 182,558 |
| | 43 |
| | 302,589 |
|
| Loans charged off | (84,218 | ) | | (4,866 | ) | | (19,946 | ) | | (180,573 | ) | | (1,484 | ) | | (291,087 | ) |
| Loan recoveries | 11,039 |
| | 5,237 |
| | 11,482 |
| | 36,359 |
| | 1 |
| | 64,118 |
|
| Net (charge-offs) recoveries | (73,179 | ) | | 371 |
| | (8,464 | ) | | (144,214 | ) | | (1,483 | ) | | (226,969 | ) |
| Ending balance | $ | 458,580 |
| | $ | 116,937 |
| | $ | 119,484 |
| | $ | 143,292 |
| | $ | — |
| | $ | 838,293 |
|
| Year Ended December 31, 2015 | | | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | | |
| Beginning balance | $ | 299,482 |
| | $ | 138,233 |
| | $ | 154,627 |
| | $ | 89,891 |
| | $ | 2,808 |
| | $ | 685,041 |
|
| Provision (credit) for loan losses | 116,272 |
| | (17,975 | ) | | (9,711 | ) | | 104,195 |
| | 857 |
| | 193,638 |
|
| Loans charged off | (25,831 | ) | | (3,882 | ) | | (26,630 | ) | | (115,113 | ) | | (2,228 | ) | | (173,684 | ) |
| Loan recoveries | 12,190 |
| | 5,692 |
| | 13,818 |
| | 25,975 |
| | 3 |
| | 57,678 |
|
| Net (charge-offs) recoveries | (13,641 | ) | | 1,810 |
| | (12,812 | ) | | (89,138 | ) | | (2,225 | ) | | (116,006 | ) |
| Ending balance | $ | 402,113 |
| | $ | 122,068 |
| | $ | 132,104 |
| | $ | 104,948 |
| | $ | 1,440 |
| | $ | 762,673 |
|
| |
(1)
| Includes commercial real estate – mortgage and real estate – construction loans. |
| |
(2)
| Includes residential real estate – mortgage, equity lines of credit and equity loans. |
| |
(3)
| Includes credit card, consumer direct and consumer indirect loans. |
The table below provides a summary of the allowance for loan losses and related loan balances by portfolio.portfolio at December 31, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial, Financial and Agricultural | | Commercial Real Estate (1) | | Residential Real Estate (2) | | Consumer (3) | | Total Loans |
| (In Thousands) |
| | | | | | | | | |
| | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| December 31, 2019 | | | | | | | | | |
| Ending balance of allowance attributable to loans: | | | | | | | | |
| Individually evaluated for impairment | $ | 88,164 | | | $ | 13,255 | | | $ | 22,775 | | | $ | 2,638 | | | $ | 126,832 | |
| Collectively evaluated for impairment | 320,033 | | | 105,378 | | | 76,314 | | | 292,436 | | | 794,161 | |
| | | | | | | | | |
| Total allowance for loan losses | $ | 408,197 | | | $ | 118,633 | | | $ | 99,089 | | | $ | 295,074 | | | $ | 920,993 | |
| Loans: | | | | | | | | | |
| Ending balance of loans: | | | | | | | | | |
| Individually evaluated for impairment | $ | 238,653 | | | $ | 78,301 | | | $ | 155,728 | | | $ | 13,362 | | | $ | 486,044 | |
| Collectively evaluated for impairment | 24,193,585 | | | 15,811,859 | | | 16,215,874 | | | 7,239,495 | | | 63,460,813 | |
| | | | | | | | | |
| Total loans | $ | 24,432,238 | | | $ | 15,890,160 | | | $ | 16,371,602 | | | $ | 7,252,857 | | | $ | 63,946,857 | |
(1)Includes commercial real estate – mortgage and real estate – construction loans.
(2)Includes residential real estate – mortgage, equity lines of credit and equity loans.
(3)Includes credit card, consumer direct and consumer indirect loans.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial, Financial and Agricultural | | Commercial Real Estate (1) | | Residential Real Estate (2) | | Consumer (3) | | Covered | | Total Loans |
| | (In Thousands) |
| December 31, 2017 | | | | | | | | | | | |
| Ending balance of allowance attributable to loans: | | | | | | | | | | |
| Individually evaluated for impairment | $ | 61,705 |
| | $ | 9,864 |
| | $ | 30,613 |
| | $ | 2,203 |
| | $ | — |
| | $ | 104,385 |
|
| Collectively evaluated for impairment | 358,930 |
| | 108,269 |
| | 79,243 |
| | 191,933 |
| | — |
| | 738,375 |
|
| Total allowance for loan losses | $ | 420,635 |
| | $ | 118,133 |
| | $ | 109,856 |
| | $ | 194,136 |
| | $ | — |
| | $ | 842,760 |
|
| Loans: | | | | | | | | | | | |
| Ending balance of loans: | | | | | | | | | | | |
| Individually evaluated for impairment | $ | 307,680 |
| | $ | 85,180 |
| | $ | 172,857 |
| | $ | 3,577 |
| | $ | — |
| | $ | 569,294 |
|
| Collectively evaluated for impairment | 25,442,269 |
| | 13,912,517 |
| | 16,209,259 |
| | 5,490,429 |
| | — |
| | 61,054,474 |
|
| Total loans | $ | 25,749,949 |
| | $ | 13,997,697 |
| | $ | 16,382,116 |
| | $ | 5,494,006 |
| | $ | — |
| | $ | 61,623,768 |
|
| | | | | | | | | | | | |
| December 31, 2016 | | | | | | | | | | | |
| Ending balance of allowance attributable to loans: | | | | | | | | | | |
| Individually evaluated for impairment | $ | 99,932 |
| | $ | 4,037 |
| | $ | 32,016 |
| | $ | 2,223 |
| | $ | — |
| | $ | 138,208 |
|
| Collectively evaluated for impairment | 358,648 |
| | 112,900 |
| | 87,468 |
| | 141,069 |
| | — |
| | 700,085 |
|
| Total allowance for loan losses | $ | 458,580 |
| | $ | 116,937 |
| | $ | 119,484 |
| | $ | 143,292 |
| | $ | — |
| | $ | 838,293 |
|
| Loans: | | | | | | | | | | | |
| Ending balance of loans: | | | | | | | | | | | |
| Individually evaluated for impairment | $ | 719,468 |
| | $ | 44,258 |
| | $ | 186,338 |
| | $ | 3,042 |
| | $ | — |
| | $ | 953,106 |
|
| Collectively evaluated for impairment | 24,402,534 |
| | 13,291,718 |
| | 16,063,143 |
| | 4,991,428 |
| | 359,334 |
| | 59,108,157 |
|
| Total loans | $ | 25,122,002 |
| | $ | 13,335,976 |
| | $ | 16,249,481 |
| | $ | 4,994,470 |
| | $ | 359,334 |
| | $ | 60,061,263 |
|
| |
(1)
| Includes commercial real estate – mortgage and real estate – construction loans. |
| |
(2)
| Includes residential real estate – mortgage, equity lines of credit and equity loans. |
| |
(3)
| Includes credit card, consumer direct and consumer indirect loans. |
| | | | | | | | | | | | | |
| | | December 31, 2020 |
| | | Nonaccrual | | Nonaccrual With No Recorded Allowance |
| | | (In Thousands) |
| Commercial, financial and agricultural | | | $ | 540,741 | | | $ | 93,614 | |
| Real estate – construction | | | 25,316 | | | 0 | |
| Commercial real estate – mortgage | | | 442,137 | | | 77,629 | |
| Residential real estate – mortgage | | | 235,463 | | | 0 | |
| Equity lines of credit | | | 42,606 | | | 0 | |
| Equity loans | | | 10,167 | | | 0 | |
| Credit card | | | 0 | | | 0 | |
| Consumer direct | | | 10,087 | | | 0 | |
| Consumer indirect | | | 24,713 | | | 0 | |
| Total loans | | | $ | 1,331,230 | | | $ | 171,243 | |
The following table presents information on individually evaluated impaired loans, by loan class.class at December 31, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Individually Evaluated Impaired Loans With No Recorded Allowance | | Individually Evaluated Impaired Loans With a Recorded Allowance |
| Recorded Investment | | Unpaid Principal Balance | | Allowance | | Recorded Investment | | Unpaid Principal Balance | | Allowance |
| (In Thousands) |
| Commercial, financial and agricultural | $ | 51,203 | | | $ | 52,991 | | | $ | — | | | $ | 187,450 | | | $ | 249,486 | | | $ | 88,164 | |
| Real estate – construction | 0 | | | 0 | | | — | | | 5,972 | | | 5,979 | | | 850 | |
| Commercial real estate – mortgage | 46,232 | | | 51,286 | | | — | | | 26,097 | | | 27,757 | | | 12,405 | |
| Residential real estate – mortgage | 0 | | | 0 | | | — | | | 111,623 | | | 111,623 | | | 8,974 | |
| Equity lines of credit | 0 | | | 0 | | | — | | | 15,466 | | | 15,472 | | | 10,896 | |
| Equity loans | 0 | | | 0 | | | — | | | 28,639 | | | 29,488 | | | 2,905 | |
| Credit card | 0 | | | 0 | | | — | | | 0 | | | 0 | | | 0 | |
| Consumer direct | 0 | | | 0 | | | — | | | 11,601 | | | 13,596 | | | 1,903 | |
| Consumer indirect | 0 | | | 0 | | | — | | | 1,761 | | | 1,761 | | | 735 | |
| Total loans | $ | 97,435 | | | $ | 104,277 | | | $ | — | | | $ | 388,609 | | | $ | 455,162 | | | $ | 126,832 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Individually Evaluated Impaired Loans With No Recorded Allowance | | Individually Evaluated Impaired Loans With a Recorded Allowance |
| | Recorded Investment | | Unpaid Principal Balance | | Allowance | | Recorded Investment | | Unpaid Principal Balance | | Allowance |
| | (In Thousands) |
| Commercial, financial and agricultural | $ | 142,908 |
| | $ | 175,743 |
| | $ | — |
| | $ | 164,772 |
| | $ | 175,512 |
| | $ | 61,705 |
|
| Real estate – construction | 2,849 |
| | 2,858 |
| | — |
| | 130 |
| | 130 |
| | 7 |
|
| Commercial real estate – mortgage | 35,140 |
| | 36,415 |
| | — |
| | 47,061 |
| | 55,122 |
| | 9,857 |
|
| Residential real estate – mortgage | — |
| | — |
| | — |
| | 117,751 |
| | 117,751 |
| | 10,214 |
|
| Equity lines of credit | — |
| | — |
| | — |
| | 19,183 |
| | 19,188 |
| | 16,021 |
|
| Equity loans | — |
| | — |
| | — |
| | 35,923 |
| | 36,765 |
| | 4,378 |
|
| Credit card | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Consumer direct | — |
| | — |
| | — |
| | 2,545 |
| | 2,545 |
| | 1,254 |
|
| Consumer indirect | — |
| | — |
| | — |
| | 1,032 |
| | 1,032 |
| | 949 |
|
| Total loans | $ | 180,897 |
| | $ | 215,016 |
| | $ | — |
| | $ | 388,397 |
| | $ | 408,045 |
| | $ | 104,385 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Individually Evaluated Impaired Loans With No Recorded Allowance | | Individually Evaluated Impaired Loans With a Recorded Allowance |
| | Recorded Investment | | Unpaid Principal Balance | | Allowance | | Recorded Investment | | Unpaid Principal Balance | | Allowance |
| | (In Thousands) |
| Commercial, financial and agricultural | $ | 375,957 |
| | $ | 396,294 |
| | $ | — |
| | $ | 343,511 |
| | $ | 371,085 |
| | $ | 99,932 |
|
| Real estate – construction | — |
| | — |
| | — |
| | 344 |
| | 459 |
| | 344 |
|
| Commercial real estate – mortgage | 19,235 |
| | 20,177 |
| | — |
| | 24,679 |
| | 24,865 |
| | 3,693 |
|
| Residential real estate – mortgage | — |
| | — |
| | — |
| | 119,986 |
| | 119,986 |
| | 7,529 |
|
| Equity lines of credit | — |
| | — |
| | — |
| | 24,591 |
| | 25,045 |
| | 19,083 |
|
| Equity loans | — |
| | — |
| | — |
| | 41,761 |
| | 42,561 |
| | 5,404 |
|
| Credit card | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Consumer direct | — |
| | — |
| | — |
| | 745 |
| | 745 |
| | 59 |
|
| Consumer indirect | — |
| | — |
| | — |
| | 2,297 |
| | 2,297 |
| | 2,164 |
|
| Total loans | $ | 395,192 |
| | $ | 416,471 |
| | $ | — |
| | $ | 557,914 |
| | $ | 587,043 |
| | $ | 138,208 |
|
The following table presents information on individually evaluated impaired loans, by loan class.class for the years ended December 31, 2019 and 2018.
| | | | Years Ended December 31, | | | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | | 2019 | | 2018 |
| | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized | | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
| | (In Thousands) | | | (In Thousands) |
| Commercial, financial and agricultural | $ | 426,809 |
| | $ | 947 |
| | $ | 632,319 |
| | $ | 1,221 |
| | $ | 113,844 |
| | $ | 1,118 |
| Commercial, financial and agricultural | | $ | 344,940 | | | $ | 2,160 | | | $ | 293,841 | | | $ | 1,379 | |
| Real estate – construction | 1,874 |
| | 11 |
| | 1,734 |
| | 8 |
| | 5,391 |
| | 100 |
| Real estate – construction | | 854 | | | 9 | | | 8,600 | | | 7 | |
| Commercial real estate – mortgage | 72,692 |
| | 1,071 |
| | 44,530 |
| | 1,195 |
| | 84,565 |
| | 2,200 |
| Commercial real estate – mortgage | | 78,889 | | | 807 | | | 81,989 | | | 870 | |
| Residential real estate – mortgage | 115,583 |
| | 2,676 |
| | 109,792 |
| | 2,672 |
| | 110,251 |
| | 2,786 |
| Residential real estate – mortgage | | 108,606 | | | 2,681 | | | 108,094 | | | 2,658 | |
| Equity lines of credit | 21,458 |
| | 871 |
| | 26,638 |
| | 1,025 |
| | 27,108 |
| | 1,124 |
| Equity lines of credit | | 15,641 | | | 649 | | | 17,413 | | | 748 | |
| Equity loans | 38,090 |
| | 1,312 |
| | 44,051 |
| | 1,490 |
| | 49,336 |
| | 1,638 |
| Equity loans | | 30,158 | | | 1,079 | | | 34,290 | | | 1,180 | |
| Credit card | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Credit card | | 0 | | | 0 | | | 0 | | | 0 | |
| Consumer direct | 1,629 |
| | 27 |
| | 833 |
| | 28 |
| | 657 |
| | 17 |
| Consumer direct | | 7,467 | | | 458 | | | 2,766 | | | 59 | |
| Consumer indirect | 1,553 |
| | 10 |
| | 2,221 |
| | 13 |
| | 1,694 |
| | 7 |
| Consumer indirect | | 683 | | | 1 | | | 641 | | | 5 | |
| Total loans | $ | 679,688 |
| | $ | 6,925 |
| | $ | 862,118 |
| | $ | 7,652 |
| | $ | 392,846 |
| | $ | 8,990 |
| Total loans | | $ | 587,238 | | | $ | 7,844 | | | $ | 547,634 | | | $ | 6,906 | |
The Company monitors the credit quality of its commercial portfolio using an internal dual risk rating, which considers both the obligor and the facility. The obligor risk ratings are defined by ranges of default probabilities of the borrowers, through internally assigned letter grades AAA(AAA through D2,D2), and the facility risk ratings are defined by ranges of the loss given default. The combination of those two approaches results in the assessment of the likelihood of loss and it is mapped to the regulatory classifications. The Company assigns internal risk ratings at loan origination and at regular intervals subsequent to origination. Loan review intervals are dependent on the size and risk grade of the loan, and are generally conducted at least annually. Additional reviews are conducted when information affecting the loan’s risk grade becomes available. The general characteristics of the risk grades are as follows:
•The Company’s internally assigned letter grades “AAA” through “B-” correspond to the regulatory classification “Pass.” These loans do not have any identified potential or well-defined weaknesses and have a high likelihood of orderly repayment. Exceptions exist when either the facility is fully secured by a CD and held at the Company or the facility is secured by properly margined and controlled marketable securities.
•Internally assigned letter grades “CCC+” through “CCC” correspond to the regulatory classification “Special Mention.” Loans within this classification have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.
•Internally assigned letter grades “CCC-” through “D1” correspond to the regulatory classification “Substandard.” A loan classified as substandard is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the loan. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
•The internally assigned letter grade “D2” corresponds to the regulatory classification “Doubtful.” Loans classified as doubtful have all the weaknesses inherent in a loan classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable or improbable.
The Company considers payment history as the besta strong indicator of credit quality for the consumer portfolio. Nonperforming loans in the tables below include loans classified as nonaccrual, loans 90 days or more past due and loans modified in a TDR 90 days or more past due.
The following tables, which exclude loans held for sale, and covered loans, illustrate the credit quality indicators associated with the Company’s loans, by loan class.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial |
| December 31, 2020 |
| Recorded Investment of Term Loans by Origination Year | | | | | | |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Recorded Investment of Revolving Loans | | Recorded Investment of Revolving Loans Converted to Term Loans | | Total |
| (In Thousands) |
| Commercial, financial and agricultural | | | | | | | | | | | | | | | | | |
| Pass | $ | 5,784,167 | | | $ | 2,691,532 | | | $ | 1,986,737 | | | $ | 3,003,653 | | | $ | 754,848 | | | $ | 3,030,800 | | | $ | 6,861,548 | | | $ | 0 | | | $ | 24,113,285 | |
| Special Mention | 78,988 | | | 166,896 | | | 193,552 | | | 107,194 | | | 26,025 | | | 102,208 | | | 685,822 | | | 0 | | | 1,360,685 | |
| Substandard | 38,516 | | | 66,725 | | | 69,752 | | | 96,059 | | | 82,947 | | | 179,285 | | | 499,317 | | | 0 | | | 1,032,601 | |
| Doubtful | 16,286 | | | 12,248 | | | 5,476 | | | 709 | | | 7,395 | | | 5,085 | | | 51,372 | | | 0 | | | 98,571 | |
| Total commercial, financial and agricultural | $ | 5,917,957 | | | $ | 2,937,401 | | | $ | 2,255,517 | | | $ | 3,207,615 | | | $ | 871,215 | | | $ | 3,317,378 | | | $ | 8,098,059 | | | $ | 0 | | | $ | 26,605,142 | |
| Real estate - construction | | | | | | | | | | | | | | | | | |
| Pass | $ | 429,483 | | | $ | 785,835 | | | $ | 710,403 | | | $ | 271,229 | | | $ | 44,565 | | | $ | 38,470 | | | $ | 125,184 | | | $ | 0 | | | $ | 2,405,169 | |
| Special Mention | 0 | | | 9,015 | | | 8,414 | | | 0 | | | 24,059 | | | 301 | | | 18,223 | | | 0 | | | 60,012 | |
| Substandard | 3,973 | | | 6,210 | | | 551 | | | 18,152 | | | 0 | | | 4,264 | | | 0 | | | 0 | | | 33,150 | |
| Doubtful | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total real estate - construction | $ | 433,456 | | | $ | 801,060 | | | $ | 719,368 | | | $ | 289,381 | | | $ | 68,624 | | | $ | 43,035 | | | $ | 143,407 | | | $ | 0 | | | $ | 2,498,331 | |
| Commercial real estate - mortgage | | | | | | | | | | | | | | | | | |
| Pass | $ | 1,571,217 | | | $ | 2,796,409 | | | $ | 3,430,264 | | | $ | 1,371,053 | | | $ | 777,906 | | | $ | 2,113,980 | | | $ | 222,864 | | | $ | 0 | | | $ | 12,283,693 | |
| Special Mention | 40,501 | | | 131,400 | | | 190,140 | | | 36,834 | | | 147,037 | | | 110,279 | | | 3,996 | | | 0 | | | 660,187 | |
| Substandard | 44,201 | | | 34,749 | | | 106,067 | | | 114,290 | | | 112,976 | | | 195,821 | | | 6,630 | | | 0 | | | 614,734 | |
| Doubtful | 0 | | | 0 | | | 0 | | | 0 | | | 2,758 | | | 3,942 | | | 0 | | | 0 | | | 6,700 | |
| Total commercial real estate - mortgage | $ | 1,655,919 | | | $ | 2,962,558 | | | $ | 3,726,471 | | | $ | 1,522,177 | | | $ | 1,040,677 | | | $ | 2,424,022 | | | $ | 233,490 | | | $ | 0 | | | $ | 13,565,314 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Commercial, Financial and Agricultural | | Real Estate - Construction | | Commercial Real Estate - Mortgage |
| (In Thousands) |
| Pass | $ | 23,319,645 | | | $ | 1,979,310 | | | $ | 13,547,273 | |
| Special Mention | 543,928 | | | 67 | | | 168,679 | |
| Substandard | 488,813 | | | 49,305 | | | 134,420 | |
| Doubtful | 79,852 | | | 0 | | | 11,106 | |
| $ | 24,432,238 | | | $ | 2,028,682 | | | $ | 13,861,478 | |
|
| | | | | | | | | | | |
| | Commercial |
| | December 31, 2017 |
| | Commercial, Financial and Agricultural | | Real Estate - Construction | | Commercial Real Estate - Mortgage |
| | (In Thousands) |
| Pass | $ | 24,387,737 |
| | $ | 2,257,659 |
| | $ | 11,309,484 |
|
| Special Mention | 614,006 |
| | 12,401 |
| | 215,076 |
|
| Substandard | 623,672 |
| | 3,479 |
| | 187,049 |
|
| Doubtful | 124,534 |
| | — |
| | 12,549 |
|
| | $ | 25,749,949 |
| | $ | 2,273,539 |
| | $ | 11,724,158 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consumer |
| December 31, 2020 |
| Recorded Investment of Term Loans by Origination Year | | | | | | |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Recorded Investment of Revolving Loans | | Recorded Investment of Revolving Loans Converted to Term Loans | | Total |
| (In Thousands) |
| Residential real estate - mortgage | | | | | | | | | | | | | | | | | |
| Performing | $ | 3,881,274 | | | $ | 2,013,356 | | | $ | 883,919 | | | $ | 956,310 | | | $ | 1,109,560 | | | $ | 4,201,849 | | | $ | 0 | | | $ | 0 | | | $ | 13,046,268 | |
| Nonperforming | 4,468 | | | 21,702 | | | 21,424 | | | 21,167 | | | 24,964 | | | 187,781 | | | 0 | | | 0 | | | 281,506 | |
| Total residential real estate - mortgage | $ | 3,885,742 | | | $ | 2,035,058 | | | $ | 905,343 | | | $ | 977,477 | | | $ | 1,134,524 | | | $ | 4,389,630 | | | $ | 0 | | | $ | 0 | | | $ | 13,327,774 | |
| Equity lines of credit | | | | | | | | | | | | | | | | | |
| Performing | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 2,338,907 | | | $ | 10,757 | | | $ | 2,349,664 | |
| Nonperforming | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 45,079 | | | 151 | | | 45,230 | |
| Total equity lines of credit | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 2,383,986 | | | $ | 10,908 | | | $ | 2,394,894 | |
| Equity loans | | | | | | | | | | | | | | | | | |
| Performing | $ | 11,894 | | | $ | 10,684 | | | $ | 8,624 | | | $ | 3,960 | | | $ | 3,242 | | | $ | 130,600 | | | $ | 0 | | | $ | 0 | | | $ | 169,004 | |
| Nonperforming | 789 | | | 375 | | | 484 | | | 134 | | | 0 | | | 8,976 | | | 0 | | | 0 | | | 10,758 | |
| Total equity loans | $ | 12,683 | | | $ | 11,059 | | | $ | 9,108 | | | $ | 4,094 | | | $ | 3,242 | | | $ | 139,576 | | | $ | 0 | | | $ | 0 | | | $ | 179,762 | |
| Credit card | | | | | | | | | | | | | | | | | |
| Performing | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 859,749 | | | $ | 0 | | | $ | 859,749 | |
| Nonperforming | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 21,953 | | | 0 | | | 21,953 | |
| Total credit card | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 881,702 | | | $ | 0 | | | $ | 881,702 | |
| Consumer direct | | | | | | | | | | | | | | | | | |
| Performing | $ | 547,417 | | | $ | 426,921 | | | $ | 349,518 | | | $ | 97,085 | | | $ | 43,170 | | | $ | 14,617 | | | $ | 432,167 | | | $ | 0 | | | $ | 1,910,895 | |
| Nonperforming | 1,220 | | | 3,878 | | | 7,995 | | | 2,325 | | | 642 | | | 189 | | | 2,579 | | | 0 | | | 18,828 | |
| Total consumer direct | $ | 548,637 | | | $ | 430,799 | | | $ | 357,513 | | | $ | 99,410 | | | $ | 43,812 | | | $ | 14,806 | | | $ | 434,746 | | | $ | 0 | | | $ | 1,929,723 | |
| Consumer indirect | | | | | | | | | | | | | | | | | |
| Performing | $ | 1,817,720 | | | $ | 1,112,510 | | | $ | 745,483 | | | $ | 305,658 | | | $ | 92,924 | | | $ | 73,051 | | | $ | 0 | | | $ | 0 | | | $ | 4,147,346 | |
| Nonperforming | 1,821 | | | 6,759 | | | 10,116 | | | 5,791 | | | 3,076 | | | 2,216 | | | 0 | | | 0 | | | 29,779 | |
| Total consumer indirect | $ | 1,819,541 | | | $ | 1,119,269 | | | $ | 755,599 | | | $ | 311,449 | | | $ | 96,000 | | | $ | 75,267 | | | $ | 0 | | | $ | 0 | | | $ | 4,177,125 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Residential Real Estate -Mortgage | | Equity Lines of Credit | | Equity Loans | | Credit Card | | Consumer Direct | | Consumer Indirect |
| (In Thousands) |
| Performing | $ | 13,381,709 | | | $ | 2,553,000 | | | $ | 236,122 | | | $ | 979,569 | | | $ | 2,313,082 | | | $ | 3,870,839 | |
| Nonperforming | 152,245 | | | 39,680 | | | 8,846 | | | 22,796 | | | 25,060 | | | 41,511 | |
| $ | 13,533,954 | | | $ | 2,592,680 | | | $ | 244,968 | | | $ | 1,002,365 | | | $ | 2,338,142 | | | $ | 3,912,350 | |
|
| | | | | | | | | | | |
| | December 31, 2016 |
| | Commercial, Financial and Agricultural | | Real Estate - Construction | | Commercial Real Estate - Mortgage |
| | (In Thousands) |
| Pass | $ | 23,142,975 |
| | $ | 2,055,483 |
| | $ | 10,898,877 |
|
| Special Mention | 758,417 |
| | 60,826 |
| | 187,182 |
|
| Substandard | 1,081,439 |
| | 9,007 |
| | 106,183 |
|
| Doubtful | 139,171 |
| | — |
| | 18,418 |
|
| | $ | 25,122,002 |
| | $ | 2,125,316 |
| | $ | 11,210,660 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Consumer |
| | December 31, 2017 |
| | Residential Real Estate -Mortgage | | Equity Lines of Credit | | Equity Loans | | Credit Card | | Consumer Direct | | Consumer Indirect |
| | (In Thousands) |
| Performing | $ | 13,182,760 |
| | $ | 2,616,825 |
| | $ | 350,531 |
| | $ | 627,588 |
| | $ | 1,681,246 |
| | $ | 3,147,223 |
|
| Nonperforming | 182,987 |
| | 36,280 |
| | 12,733 |
| | 11,929 |
| | 9,137 |
| | 16,883 |
|
| | $ | 13,365,747 |
| | $ | 2,653,105 |
| | $ | 363,264 |
| | $ | 639,517 |
| | $ | 1,690,383 |
| | $ | 3,164,106 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Residential Real Estate -Mortgage | | Equity Lines of Credit | | Equity Loans | | Credit Card | | Consumer Direct | | Consumer Indirect |
| | (In Thousands) |
| Performing | $ | 13,115,936 |
| | $ | 2,507,375 |
| | $ | 431,417 |
| | $ | 593,927 |
| | $ | 1,249,370 |
| | $ | 3,121,825 |
|
| Nonperforming | 144,058 |
| | 36,403 |
| | 14,292 |
| | 10,954 |
| | 5,271 |
| | 13,123 |
|
| | $ | 13,259,994 |
| | $ | 2,543,778 |
| | $ | 445,709 |
| | $ | 604,881 |
| | $ | 1,254,641 |
| | $ | 3,134,948 |
|
The following tables present an aging analysis of the Company’s past due loans, excluding loans classified as held for sale.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Nonaccrual | | Accruing TDRs | | Total Past Due and Impaired | | Not Past Due or Impaired | | Total |
| (In Thousands) |
| Commercial, financial and agricultural | $ | 15,862 | | | $ | 22,569 | | | $ | 35,472 | | | $ | 540,741 | | | $ | 17,686 | | | $ | 632,330 | | | $ | 25,972,812 | | | $ | 26,605,142 | |
| Real estate – construction | 3,595 | | | 174 | | | 532 | | | 25,316 | | | 145 | | | 29,762 | | | 2,468,569 | | | 2,498,331 | |
| Commercial real estate – mortgage | 2,113 | | | 2,004 | | | 1,104 | | | 442,137 | | | 910 | | | 448,268 | | | 13,117,046 | | | 13,565,314 | |
| Residential real estate – mortgage | 49,445 | | | 20,694 | | | 45,761 | | | 235,463 | | | 53,380 | | | 404,743 | | | 12,923,031 | | | 13,327,774 | |
| Equity lines of credit | 11,108 | | | 4,305 | | | 2,624 | | | 42,606 | | | 0 | | | 60,643 | | | 2,334,251 | | | 2,394,894 | |
| Equity loans | 1,417 | | | 243 | | | 317 | | | 10,167 | | | 19,606 | | | 31,750 | | | 148,012 | | | 179,762 | |
| Credit card | 12,147 | | | 10,191 | | | 21,953 | | | 0 | | | 0 | | | 44,291 | | | 837,411 | | | 881,702 | |
| Consumer direct | 24,076 | | | 17,550 | | | 8,741 | | | 10,087 | | | 23,163 | | | 83,617 | | | 1,846,106 | | | 1,929,723 | |
| Consumer indirect | 47,174 | | | 14,951 | | | 5,066 | | | 24,713 | | | 0 | | | 91,904 | | | 4,085,221 | | | 4,177,125 | |
| | | | | | | | | | | | | | | |
| Total loans | $ | 166,937 | | | $ | 92,681 | | | $ | 121,570 | | | $ | 1,331,230 | | | $ | 114,890 | | | $ | 1,827,308 | | | $ | 63,732,459 | | | $ | 65,559,767 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Nonaccrual | | Accruing TDRs | | Total Past Due and Impaired | | Not Past Due or Impaired | | Total |
| | (In Thousands) |
| Commercial, financial and agricultural | $ | 14,804 |
| | $ | 3,753 |
| | $ | 18,136 |
| | $ | 310,059 |
| | $ | 1,213 |
| | $ | 347,965 |
| | $ | 25,401,984 |
| | $ | 25,749,949 |
|
| Real estate – construction | 12,293 |
| | 70 |
| | 1,560 |
| | 5,381 |
| | 101 |
| | 19,405 |
| | 2,254,134 |
| | 2,273,539 |
|
| Commercial real estate – mortgage | 10,473 |
| | 3,270 |
| | 927 |
| | 111,982 |
| | 4,155 |
| | 130,807 |
| | 11,593,351 |
| | 11,724,158 |
|
| Residential real estate – mortgage | 69,474 |
| | 34,440 |
| | 8,572 |
| | 173,843 |
| | 64,898 |
| | 351,227 |
| | 13,014,520 |
| | 13,365,747 |
|
| Equity lines of credit | 10,956 |
| | 7,556 |
| | 2,259 |
| | 34,021 |
| | 237 |
| | 55,029 |
| | 2,598,076 |
| | 2,653,105 |
|
| Equity loans | 4,170 |
| | 657 |
| | 995 |
| | 11,559 |
| | 30,105 |
| | 47,486 |
| | 315,778 |
| | 363,264 |
|
| Credit card | 6,710 |
| | 4,804 |
| | 11,929 |
| | — |
| | — |
| | 23,443 |
| | 616,074 |
| | 639,517 |
|
| Consumer direct | 19,766 |
| | 7,020 |
| | 6,712 |
| | 2,425 |
| | 534 |
| | 36,457 |
| | 1,653,926 |
| | 1,690,383 |
|
| Consumer indirect | 92,017 |
| | 26,460 |
| | 7,288 |
| | 9,595 |
| | — |
| | 135,360 |
| | 3,028,746 |
| | 3,164,106 |
|
| Covered loans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total loans | $ | 240,663 |
| | $ | 88,030 |
| | $ | 58,378 |
| | $ | 658,865 |
| | $ | 101,243 |
| | $ | 1,147,179 |
| | $ | 60,476,589 |
| | $ | 61,623,768 |
|
| | | | December 31, 2016 | | December 31, 2019 |
| | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Nonaccrual | | Accruing TDRs | | Total Past Due and Impaired | | Not Past Due or Impaired | | Total | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Nonaccrual | | Accruing TDRs | | Total Past Due and Impaired | | Not Past Due or Impaired | | Total |
| | (In Thousands) | | (In Thousands) |
| Commercial, financial and agricultural | $ | 23,788 |
| | $ | 6,581 |
| | $ | 2,891 |
| | $ | 596,454 |
| | $ | 8,726 |
| | $ | 638,440 |
| | $ | 24,483,562 |
| | $ | 25,122,002 |
| Commercial, financial and agricultural | $ | 29,273 | | | $ | 16,462 | | | $ | 6,692 | | | $ | 268,288 | | | $ | 1,456 | | | $ | 322,171 | | | $ | 24,110,067 | | | $ | 24,432,238 | |
| Real estate – construction | 918 |
| | 50 |
| | 2,007 |
| | 1,239 |
| | 2,393 |
| | 6,607 |
| | 2,118,709 |
| | 2,125,316 |
| Real estate – construction | 7,603 | | | 2 | | | 571 | | | 8,041 | | | 72 | | | 16,289 | | | 2,012,393 | | | 2,028,682 | |
| Commercial real estate – mortgage | 3,791 |
| | 3,474 |
| | — |
| | 71,921 |
| | 4,860 |
| | 84,046 |
| | 11,126,614 |
| | 11,210,660 |
| Commercial real estate – mortgage | 5,325 | | | 5,458 | | | 6,576 | | | 98,077 | | | 3,414 | | | 118,850 | | | 13,742,628 | | | 13,861,478 | |
| Residential real estate – mortgage | 57,359 |
| | 28,450 |
| | 3,356 |
| | 140,303 |
| | 59,893 |
| | 289,361 |
| | 12,970,633 |
| | 13,259,994 |
| Residential real estate – mortgage | 72,571 | | | 21,909 | | | 4,641 | | | 147,337 | | | 57,165 | | | 303,623 | | | 13,230,331 | | | 13,533,954 | |
| Equity lines of credit | 7,922 |
| | 4,583 |
| | 2,950 |
| | 33,453 |
| | — |
| | 48,908 |
| | 2,494,870 |
| | 2,543,778 |
| Equity lines of credit | 15,766 | | | 6,581 | | | 1,567 | | | 38,113 | | | 0 | | | 62,027 | | | 2,530,653 | | | 2,592,680 | |
| Equity loans | 5,615 |
| | 1,843 |
| | 467 |
| | 13,635 |
| | 34,746 |
| | 56,306 |
| | 389,403 |
| | 445,709 |
| Equity loans | 2,856 | | | 1,028 | | | 195 | | | 8,651 | | | 23,770 | | | 36,500 | | | 208,468 | | | 244,968 | |
| Credit card | 6,411 |
| | 5,042 |
| | 10,954 |
| | — |
| | — |
| | 22,407 |
| | 582,474 |
| | 604,881 |
| Credit card | 11,275 | | | 9,214 | | | 22,796 | | | 0 | | | 0 | | | 43,285 | | | 959,080 | | | 1,002,365 | |
| Consumer direct | 13,338 |
| | 4,563 |
| | 4,482 |
| | 789 |
| | 704 |
| | 23,876 |
| | 1,230,765 |
| | 1,254,641 |
| Consumer direct | 33,658 | | | 20,703 | | | 18,358 | | | 6,555 | | | 12,438 | | | 91,712 | | | 2,246,430 | | | 2,338,142 | |
| Consumer indirect | 85,198 |
| | 22,833 |
| | 7,197 |
| | 5,926 |
| | — |
| | 121,154 |
| | 3,013,794 |
| | 3,134,948 |
| Consumer indirect | 83,966 | | | 28,430 | | | 9,730 | | | 31,781 | | | 0 | | | 153,907 | | | 3,758,443 | | | 3,912,350 | |
| Covered loans | 7,311 |
| | 1,351 |
| | 27,238 |
| | 730 |
| | — |
| | 36,630 |
| | 322,704 |
| | 359,334 |
| |
| | Total loans | $ | 211,651 |
| | $ | 78,770 |
| | $ | 61,542 |
| | $ | 864,450 |
| | $ | 111,322 |
| | $ | 1,327,735 |
| | $ | 58,733,528 |
| | $ | 60,061,263 |
| Total loans | $ | 262,293 | | | $ | 109,787 | | | $ | 71,126 | | | $ | 606,843 | | | $ | 98,315 | | | $ | 1,148,364 | | | $ | 62,798,493 | | | $ | 63,946,857 | |
It is the Company’s policy to classify TDRs that are not accruing interest as nonaccrual loans. It is also the Company’s policy to classify TDR past due loans that are accruing interest as TDRs and not according to their past due status. The tables above reflect this policy.
In response to the COVID-19 pandemic, beginning in March 2020, the Company began providing financial hardship relief in the form of payment deferrals and forbearances to consumer and commercial customers across a wide array of lending products, as well as the suspension of vehicle repossessions and home foreclosures. The payment deferrals and forbearances generally cover periods of three to six months. In most cases as allowed under the CARES Act, these offers are not classified as TDRs and do not result in loans being placed on nonaccrual
status. For loans that receive a payment deferral or forbearance under these hardship relief programs, the Company continues to accrue interest and recognize interest income during the period of the deferral. Depending on the terms of each program, all or a portion of this accrued interest may be paid directly by the borrower (either during the relief period, at the end of the relief period or at maturity of the loan). For certain programs, the maturity date of the loan may also be extended by the number of payments deferred. Interest income will continue to be recognized at the original contractual interest rate unless that rate is concurrently modified upon entering the relief program (in which case, the modified rate would be used to recognize interest). At December 31, 2020, the Company had deferrals on approximately 7 thousand loans with an amortized cost of $448 million.
Within each of the Company’s loan classes, TDRs typically involve modification of the loan interest rate to a below market rate or an extension or deferment of the loan. During the year ended December 31, 2017, $7 million of TDR modifications included an interest rate concession and $246 million of TDR modifications resulted from modifications to the loan’s structure. During the year ended December 31, 2016, $52020, $24 million of TDR modifications included an interest rate concession and $65$219 million of TDR modifications resulted from modifications to the loan’s structure. During the year ended December 31, 2015, $42019, $25 million of TDR modifications included an interest rate concession and $22$73 million of TDR modifications resulted from modifications to the loan’s structure. During the year ended December 31, 2018, $28 million of TDR modifications included an interest rate concession and $119 million of TDR modifications resulted from modifications to the loan’s structure.
The following table presents an analysis of the types of loans that were restructured and classified as TDRs, excluding loans classified as held for sale.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 | | December 31, 2018 |
| Number of Contracts | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Post-Modification Outstanding Recorded Investment |
| (Dollars in Thousands) |
| Commercial, financial and agricultural | 27 | | | $ | 197,671 | | | 15 | | | $ | 29,293 | | | 8 | | | $ | 122,182 | |
| Real estate – construction | 1 | | | 116 | | | 1 | | | 119 | | | 2 | | | 307 | |
| Commercial real estate – mortgage | 12 | | | 16,702 | | | 7 | | | 21,419 | | | 4 | | | 4,072 | |
| Residential real estate – mortgage | 40 | | | 9,817 | | | 118 | | | 28,269 | | | 73 | | | 14,851 | |
| Equity lines of credit | 14 | | | 595 | | | 9 | | | 478 | | | 11 | | | 289 | |
| Equity loans | 12 | | | 1,965 | | | 17 | | | 1,141 | | | 25 | | | 2,687 | |
| Credit card | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Consumer direct | 198 | | | 16,847 | | | 286 | | | 15,583 | | | 16 | | | 2,158 | |
| Consumer indirect | 0 | | | 0 | | | 154 | | | 1,878 | | | 0 | | | 0 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 | | December 31, 2015 |
| | Number of Contracts | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Post-Modification Outstanding Recorded Investment |
| | (Dollars in Thousands) |
| Commercial, financial and agricultural | 26 |
| | $ | 232,511 |
| | 10 |
| | $ | 44,569 |
| | 6 |
| | $ | 384 |
|
| Real estate – construction | — |
| | — |
| | 2 |
| | 3,504 |
| | — |
| | — |
|
| Commercial real estate – mortgage | 3 |
| | 1,223 |
| | 5 |
| | 1,431 |
| | 7 |
| | 4,478 |
|
| Residential real estate – mortgage | 66 |
| | 15,714 |
| | 70 |
| | 13,211 |
| | 46 |
| | 9,709 |
|
| Equity lines of credit | 41 |
| | 1,858 |
| | 82 |
| | 3,869 |
| | 115 |
| | 6,482 |
|
| Equity loans | 30 |
| | 1,246 |
| | 17 |
| | 1,369 |
| | 35 |
| | 2,586 |
|
| Credit card | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Consumer direct | — |
| | — |
| | 4 |
| | 35 |
| | 23 |
| | 1,210 |
|
| Consumer indirect | 14 |
| | 209 |
| | 128 |
| | 2,148 |
| | 74 |
| | 1,298 |
|
| Covered loans | 2 |
| | 103 |
| | — |
| | — |
| | 3 |
| | 29 |
|
Charge-offs and changesThe impact to the allowance for loan losses related to modifications classified as TDRs werewas approximately $27.1$(7.0) million, $21.0 million and $11.2 million for the year ended December 31, 2017. For the years ended December 31, 20162020, 2019 and 2015, charge-offs and changes to the allowance related to modifications classified as TDRs were not material.2018, respectively.
The Company considers TDRs aged 90 days or more past due, charged off or classified as nonaccrual subsequent to modification, where the loan was not classified as a nonperforming loan at the time of modification, as subsequently defaulted.
The following tables provide a summary of initial subsequent defaults that occurred within one year of the restructure date. The table excludes loans classified as held for sale as of period-end and includes loans no longer in default as of year-end.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Number of Contracts | | Recorded Investment at Default | | Number of Contracts | | Recorded Investment at Default | | Number of Contracts | | Recorded Investment at Default |
| (Dollars in Thousands) |
| Commercial, financial and agricultural | 2 | | | $ | 16,912 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | |
| Real estate – construction | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Commercial real estate – mortgage | 0 | | | 0 | | | 1 | | | 599 | | | 0 | | | 0 | |
| Residential real estate – mortgage | 4 | | | 893 | | | 2 | | | 455 | | | 7 | | | 834 | |
| Equity lines of credit | 1 | | | 65 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Equity loans | 1 | | | 270 | | | 2 | | | 151 | | | 6 | | | 358 | |
| Credit card | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Consumer direct | 5 | | | 235 | | | 6 | | | 2,757 | | | 1 | | | 5 | |
| Consumer indirect | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | Number of Contracts | | Recorded Investment at Default | | Number of Contracts | | Recorded Investment at Default | | Number of Contracts | | Recorded Investment at Default |
| | (Dollars in Thousands) |
| Commercial, financial and agricultural | 1 |
| | $ | 686 |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
| Real estate – construction | — |
| | — |
| | — |
| | — |
| | 1 |
| | 377 |
|
| Commercial real estate – mortgage | — |
| | — |
| | — |
| | — |
| | 1 |
| | 178 |
|
| Residential real estate – mortgage | 1 |
| | 505 |
| | — |
| | — |
| | 7 |
| | 987 |
|
| Equity lines of credit | — |
| | — |
| | 8 |
| | 204 |
| | 1 |
| | — |
|
| Equity loans | 2 |
| | 51 |
| | 3 |
| | 293 |
| | 3 |
| | 216 |
|
| Credit card | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Consumer direct | — |
| | — |
| | — |
| | — |
| | 1 |
| | 100 |
|
| Consumer indirect | 1 |
| | 22 |
| | 2 |
| | 32 |
| | 1 |
| | 18 |
|
| Covered loans | — |
| | — |
| | — |
| | — |
| | 2 |
| | 24 |
|
All commercial and consumer loans modified in a TDR are considered to be impaired, even if they maintain their accrual status.
At December 31, 20172020 and 2016,2019, there were $15.9$132.5 million and $12.6$43.8 million,, respectively, of commitments to lend additional funds to borrowers whose terms have been modified in a TDR.
Foreclosure Proceedings
Other real estate owned, a component of other assets in the Company's Consolidated Balance Sheets, totaled $17$11 million and $21$22 million at December 31, 20172020 and 2016,2019, respectively. Other real estate owned included $12$6 million and $18$14 million of foreclosed residential real estate properties at December 31, 20172020 and 2016,2019, respectively. As of December 31, 20172020 and 2016,2019, there were $57$29 million and $48$57 million,, respectively, of residential real estate loans secured by residential real estate properties for which formal foreclosure proceedings were in process.
(5)
(4) Loan Sales and Servicing
Loans held for sale were $67$237 million and $162$112 million at December 31, 20172020 and 2016,2019, respectively. AtLoans held for sale at December 31, 2017 loans held for sale2020 and 2019 were comprised entirely of residential real estate - mortgage loans. At December 31, 2016 loans held for sale were comprised of $57 million of commercial, financial and agricultural loans and $105 million of residential real estate - mortgage loans.
The following table summarizes the Company's activity in the loans held for sale portfolio and loan sales,sales, excluding activity related to loans originated for sale in the secondary market.
| | | | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
| | (In Thousands) | | (In Thousands) |
| Loans transferred from held for investment to held for sale | $ | — |
| | $ | 820,615 |
| | $ | 907,414 |
| Loans transferred from held for investment to held for sale | $ | 0 | | | $ | 1,196,883 | | | $ | 0 | |
| Charge-offs on loans recognized at transfer from held for investment to held for sale | — |
| | 8,295 |
| | — |
| Charge-offs on loans recognized at transfer from held for investment to held for sale | 0 | | | 0 | | | 0 | |
| Loans and loans held for sale sold | 204,058 |
| | 1,044,800 |
| | 466,459 |
| Loans and loans held for sale sold | 2,155 | | | 1,113,371 | | | 293,996 | |
The following table summarizes the Company's sales of loans originated for sale in the secondary market.
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| (In Thousands) |
| Residential real estate loans originated for sale in the secondary market sold (1) | $ | 1,322,648 | | | $ | 724,706 | | | $ | 625,091 | |
| Net gains recognized on sales of residential real estate loans originated for sale in the secondary market (2) | 75,634 | | | 29,539 | | | 18,863 | |
| Servicing fees recognized (2) | 10,634 | | | 10,896 | | | 11,213 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Residential real estate loans originated for sale in the secondary market sold (1) | $ | 660,484 |
| | $ | 682,115 |
| | $ | 1,521,424 |
|
| Net gains recognized on sales of residential real estate loans originated for sale in the secondary market (2) | 25,576 |
| | 28,207 |
| | 41,913 |
|
| |
(1) | Includes loans originated for sale where the Company retained servicing responsibilities. |
| |
(2) | Net gains were recorded(2)Recorded in mortgage banking income in the Company's Consolidated Statements of Income. |
Residential Real Estate Mortgage Loans Sold with Retained Servicing
The following table summarizes the Company's activity related to residential real estate mortgage loans sold with retained servicing.Consolidated Statements of Income.
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Residential real estate mortgage loans sold with retained servicing (1) | $ | 660,484 |
| | $ | 997,956 |
| | $ | 1,521,424 |
|
| Servicing fees recognized (2) | 25,521 |
| | 25,772 |
| | 22,087 |
|
| |
(1) | There is no recourse to the Company for the failures of borrowers to pay loans when due. |
| |
(2) | Recorded as a component of other noninterest income in the Company's Consolidated Statements of Income. |
The following table provides the recorded balance of loans sold with retained servicing and the related MSRs.
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| (In Thousands) |
| Recorded balance of residential real estate mortgage loans sold with retained servicing (1) | $ | 4,425,180 | | | $ | 4,534,202 | |
| MSRs (2) | 30,665 | | | 42,022 | |
|
| | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| | (In Thousands) |
| Recorded balance of residential real estate mortgage loans sold with retained servicing (1) | $ | 4,635,334 |
| | $ | 4,684,899 |
|
| MSRs (2) | 49,597 |
| | 51,428 |
|
| |
(1) | These loans are not included in loans on the Company's Consolidated Balance Sheets. |
| |
(2) | Recorded under the fair value method and included in other assets on the Company's Consolidated Balance Sheets. |
(2)Recorded under the fair value method and included in other assets on the Company's Consolidated Balance Sheets.
The fair value of MSRs is significantly affected by mortgage interest rates available in the marketplace, which influence mortgage loan prepayment speeds. In general, during periods of declining rates, the fair value of MSRs declines due to increasing prepayments attributable to increased mortgage-refinance activity. During periods of rising interest rates, the fair value of MSRs generally increases due to reduced refinance activity. The Company maintains a non-qualifying hedging strategy to manage a portion of the risk associated with changes in the fair value of the MSR portfolio. This strategy includes the purchase of various trading securities. The interest income, mark-to-market
adjustments and gain or loss from sale activities associated with these securities are expected to economically hedge a portion of the change in the fair value of the MSR portfolio.
The following table is an analysis of the activity in the Company’s MSRs.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In Thousands) |
| Carrying value, at beginning of year | $ | 42,022 | | | $ | 51,539 | | | $ | 49,597 | |
| Additions | 11,796 | | | 6,639 | | | 6,874 | |
| Increase (decrease) in fair value: | | | | | |
| Due to changes in valuation inputs or assumptions | (13,465) | | | (7,552) | | | 6,985 | |
| Due to other changes in fair value (1) | (9,688) | | | (8,604) | | | (11,917) | |
| Carrying value, at end of year | $ | 30,665 | | | $ | 42,022 | | | $ | 51,539 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Carrying value, at beginning of year | $ | 51,428 |
| | $ | 44,541 |
| | $ | 35,488 |
|
| Additions | 7,098 |
| | 10,118 |
| | 15,922 |
|
| Increase (decrease) in fair value: | | | | | |
| Due to changes in valuation inputs or assumptions | 2,233 |
| | 7,093 |
| | (2,193 | ) |
| Due to other changes in fair value (1) | (11,162 | ) | | (10,324 | ) | | (4,676 | ) |
| Carrying value, at end of year | $ | 49,597 |
| | $ | 51,428 |
| | $ | 44,541 |
|
| |
(1) | Represents the realization of expected net servicing cash flows, expected borrower repayments and the passage of time. |
See Note 20, 19, Fair Value Measurements,, for additional disclosures related to the assumptions and estimates used in determining fair value of residential MSRs.
At December 31, 20172020 and 2016,2019, the sensitivity of the current fair value of the residential MSRs to immediate 10% and 20% adverse changes in key economic assumptions are included in the following table:
| | | | December 31, | | December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | (Dollars in Thousands) | | (Dollars in Thousands) |
| Fair value of MSRs | $ | 49,597 |
| | $ | 51,428 |
| Fair value of MSRs | $ | 30,665 | | | $ | 42,022 | |
| Composition of residential loans serviced for others: | | | | Composition of residential loans serviced for others: | |
| Fixed rate mortgage loans | 97.4 | % | | 97.3 | % | Fixed rate mortgage loans | 98.5 | % | | 98.1 | % |
| Adjustable rate mortgage loans | 2.6 |
| | 2.7 |
| Adjustable rate mortgage loans | 1.5 | | | 1.9 | |
| Total | 100.0 | % | | 100.0 | % | Total | 100.0 | % | | 100.0 | % |
| Weighted average life (in years) | 6.6 |
| | 6.5 |
| Weighted average life (in years) | 3.6 | | 4.6 |
| Prepayment speed: | 9.7 | % | | 15.7 | % | Prepayment speed: | 30.4 | % | | 16.9 | % |
| Effect on fair value of a 10% increase | (1,582 | ) | | (1,646 | ) | Effect on fair value of a 10% increase | (1,620) | | | (2,906) | |
| Effect on fair value of a 20% increase | (3,068 | ) | | (3,184 | ) | Effect on fair value of a 20% increase | (3,585) | | | (5,043) | |
| Weighted average option adjusted spread | 8.2 | % | | 8.1 | % | Weighted average option adjusted spread | 6.2 | % | | 6.4 | % |
| Effect on fair value of a 10% increase | (1,568 | ) | | (1,758 | ) | Effect on fair value of a 10% increase | (656) | | | (1,159) | |
| Effect on fair value of a 20% increase | (3,031 | ) | | (3,402 | ) | Effect on fair value of a 20% increase | (1,285) | | | (1,812) | |
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be and should not be considered to be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another, which may magnify or counteract the effect of the change.
(6)
(5) Premises and Equipment
A summary of the Company’s premises and equipment is presented below.
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| (In Thousands) |
| Land | $ | 295,915 | | | $ | 297,039 | |
| Buildings | 588,031 | | | 580,911 | |
| Furniture, fixtures and equipment | 460,987 | | | 425,794 | |
| Software | 1,142,740 | | | 1,035,892 | |
| Leasehold improvements | 205,865 | | | 203,776 | |
| Construction / projects in progress | 117,154 | | | 128,816 | |
| 2,810,692 | | | 2,672,228 | |
| Less: Accumulated depreciation and amortization | 1,755,167 | | | 1,584,530 | |
| Total premises and equipment | $ | 1,055,525 | | | $ | 1,087,698 | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| Land | $ | 304,160 |
| | $ | 311,384 |
|
| Buildings | 595,865 |
| | 594,426 |
|
| Furniture, fixtures and equipment | 440,659 |
| | 428,326 |
|
| Software | 897,587 |
| | 800,297 |
|
| Leasehold improvements | 187,398 |
| | 170,523 |
|
| Construction / projects in progress | 91,839 |
| | 158,682 |
|
| | 2,517,508 |
| | 2,463,638 |
|
| Less: Accumulated depreciation and amortization | 1,302,634 |
| | 1,163,584 |
|
| Total premises and equipment | $ | 1,214,874 |
| | $ | 1,300,054 |
|
The Company recognized $194.3$184.2 million, $188.7$189.0 million and $181.4$198.4 million of depreciation expense related to the above premises and equipment for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
(7)Bank Owned Life Insurance(6) Leases
The Company maintains life insurance policies on certain of its executivesfollowing table summarizes the Company’s lease portfolio classification and employees. At December 31, 2017respective right-of-use asset balances and 2016, the cash surrender values on the underlying life insurance policies totaled $723 million and $712 million, respectively,lease liability balances which are recorded as bank owned life insuranceincluded in other assets and accrued expenses and other liabilities, respectively, on the Company’s Consolidated Balance Sheets. These cash surrender values are classified separately from related split dollar life insurance arrangements of $8 million and $7 million at December 31, 2017 and 2016, respectively,
| | | | | | | | | | | | | | | | | | | | |
| | |
| | Finance | | Operating | | Total |
| | (In Thousands) |
| December 31, 2020 | | | | | | |
| Right-of-use asset | | $ | 7,243 | | | $ | 264,111 | | | $ | 271,354 | |
| Lease liability balance | | 10,635 | | | 305,802 | | | 316,437 | |
| December 31, 2019 | | | | | | |
| Right-of-use asset | | $ | 8,566 | | | $ | 272,279 | | | $ | 280,845 | |
| Lease liability balance | | 12,339 | | | 313,398 | | | 325,737 | |
The table below presents information about the Company's total lease costs which are recordedinclude amounts recognized on the Company’s Consolidated Balance Sheets as accrued expenses and other liabilities. Changes to the underlying cash surrender value are recorded in noninterest income in the Company’s Consolidated Statements of Income andduring the period.
| | | | | | | | | | | | | | | | |
| | December 31, | | |
| | 2020 | | 2019 | | |
| | (In Thousands) |
| Interest on lease liabilities | | $ | 529 | | | $ | 608 | | | |
| Amortization of right-of-use assets | | 1,323 | | | 1,323 | | | |
| Finance lease cost | | 1,852 | | | 1,931 | | | |
| Operating lease cost | | 48,418 | | | 48,316 | | | |
| Variable lease cost | | 16,757 | | | 16,537 | | | |
| Sublease income | | (6,764) | | | (6,812) | | | |
| Total lease cost | | $ | 60,263 | | | 59,972 | | | |
The Company incurred lease expense of $86.8 million for the yearsyear ended December 31, 2017, 20162018. The Company received lease income of $7.7 million for the year December 31, 2018 related to space leased to third parties.
The table below presents supplemental cash flow information arising from lease transactions and 2015 totaled $17.1 million, $17.2 millionnoncash information on lease liabilities arising from obtaining right-of-use assets.
| | | | | | | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 | | |
| | (In Thousands) | | |
| Cash paid for amounts included in measurement of liabilities | | | | | | |
| Operating cash flows from operating leases | | $ | 56,796 | | | $ | 54,020 | | | |
| Operating cash flows from finance leases | | 529 | | | 608 | | | |
| Financing cash flows from finance leases | | 1,704 | | | 1,589 | | | |
| Right-of-use assets obtained in exchange for lease obligations | | | | | | |
| Operating leases | | 38,537 | | | 35,315 | | | |
| Finance leases | | 0 | | | 0 | | | |
The weighted-average remaining lease term and $18.7 million, respectively.discount rates at December 31, 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Finance | | Operating | | Total |
| Weighted-average remaining lease term | | 8.0 years | | 9.3 years | | 9.2 years |
| Weighted-average discount rate | | 4.6 | % | | 3.1 | % | | 3.1 | % |
(8)The following table provides the annual undiscounted future minimum payments under finance and noncancellable operating leases at December 31, 2020:
| | | | | | | | | | | | | | | | | | | | |
| | Finance | | Operating | | Total |
| | (In Thousands) |
| 2021 | | $ | 2,143 | | | $ | 56,251 | | | $ | 58,394 | |
| 2022 | | 1,923 | | | 53,147 | | | 55,070 | |
| 2023 | | 1,501 | | | 47,097 | | | 48,598 | |
| 2024 | | 1,410 | | | 38,116 | | | 39,526 | |
| 2025 | | 1,204 | | | 29,986 | | | 31,190 | |
| Thereafter | | 4,492 | | | 127,372 | | | 131,864 | |
| Total | | $ | 12,673 | | | $ | 351,969 | | | $ | 364,642 | |
At December 31, 2020 the Company had 0 additional operating or finance leases that had not yet commenced that would create significant rights and obligations for the Company as a lessee.
The table below presents a reconciliation of the undiscounted cash flows to the finance lease liabilities and operating lease liabilities.
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Finance | | Operating | | Total |
| | (In Thousands) |
| Total undiscounted lease liability | | $ | 12,673 | | | $ | 351,969 | | | $ | 364,642 | |
| Less: imputed interest | | 2,038 | | | 46,167 | | | 48,205 | |
| Total discounted lease liability | | $ | 10,635 | | | $ | 305,802 | | | $ | 316,437 | |
(7) Goodwill
A summary of the activity related to the Company’s goodwill follows.
|
| | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| Balance, at beginning of year | | | |
| Goodwill | $ | 9,835,400 |
| | $ | 9,835,400 |
|
| Accumulated impairment losses | (4,852,104 | ) | | (4,792,203 | ) |
| Goodwill, net at beginning of year | 4,983,296 |
| | 5,043,197 |
|
| Annual activity: | | | |
| Goodwill acquired during the year | — |
| | — |
|
| Disposition adjustments | — |
| | — |
|
| Impairment losses | — |
| | (59,901 | ) |
| Balance, at end of year | | | |
| Goodwill | 9,835,400 |
| | 9,835,400 |
|
| Accumulated impairment losses | (4,852,104 | ) | | (4,852,104 | ) |
| Goodwill, net at end of year | $ | 4,983,296 |
| | $ | 4,983,296 |
|
During the Company's 2016 annual goodwill impairment test $60 million of goodwill attributable to the Simple reporting unit was determined to be impaired.
| | | | | |
| (In Thousands) |
| Balance, at December 31, 2018 | |
| Goodwill | $ | 9,835,400 | |
| Accumulated impairment losses | (4,852,104) | |
| Goodwill, net at December 31, 2018 | 4,983,296 | |
| |
| |
| |
| Impairment losses | (470,000) | |
| Balance, at December 31, 2019 | |
| Goodwill | 9,835,400 | |
| Accumulated impairment losses | (5,322,104) | |
| Goodwill, net at December 31, 2019 | $ | 4,513,296 | |
| Impairment losses | (2,185,000) | |
| Balance, at December 31, 2020 | |
| Goodwill | 9,835,400 | |
| Accumulated impairment losses | (7,507,104) | |
| Goodwill, net at December 31, 2020 | $ | 2,328,296 | |
Goodwill is allocated to each of the Company's segments (each a reporting unit: Commercial Banking and Wealth, Retail Banking, and Corporate and Investment Banking,Banking).
At December 31, 2020 and Simple). Refer2019, the goodwill, net of accumulated impairment losses, attributable to Note 22, Segment Information, for a discussioneach of the reorganization of the Company'sCompany’s 3 identified reporting structuring during 2017 and, accordingly, its segment reporting structure and goodwill reporting units. In connection with the reorganization, the Company reallocated goodwill to the new reporting unit using a relative fair value approach.units is as follows:
| | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 |
| (In Thousands) |
| Commercial Banking and Wealth | $ | 1,930,830 | | | $ | 2,659,830 | |
| Retail Banking | 135,660 | | | 1,427,660 | |
| Corporate and Investment Banking | 261,806 | | | 425,806 | |
In accordance with the applicable accounting guidance, the Company performs annual tests to identify potential impairment of goodwill. The tests are required to be performed annually and more frequently if events or circumstances indicate a potential impairment may exist. In Step One of the impairment test, theThe Company compares the fair value of each reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, Step Two of the impairment test is required to be performed to measure the amount of impairment loss, if any. Step Two compares the implied fair value of goodwill attributable to each reporting unit to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination; an entity allocates the fair value determined in Step One for the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill in Step Two, an impairment loss is recognized in an amount equal to that excess.
The Company tests its identified reporting units with goodwill for impairment on anCompany's annual basis or more often if events and circumstances indicate impairment may exist. The most recent goodwill impairment test occurredis performed as of October 31 2017. Foreach year. The Company elected to perform a qualitative assessment to determine whether it is more likely than not that the fair value of the entity (or the reporting unit) is less than its carrying amount, including goodwill. In performing this qualitative assessment, the Company evaluated events and circumstances since the last quantitative impairment test performed as of March 31, 2020, macroeconomic conditions, banking industry and market conditions, and key financial metrics of the Company as well as reporting unit and overall Company performance. After assessing the totality of the events and circumstances, the Company determined it was not more likely than not that the fair values of the Company's three reporting units with goodwill the most recentwere greater than their respective carrying amounts, and therefore, a quantitative goodwill impairment test was not deemed necessary.
Additionally, on a quarterly basis, the Company evaluates whether a triggering event has occurred. During the three months ended March 31, 2020, the Company determined that a triggering event had occurred due to the COVID-19 pandemic and its impact on the economic environment and the Company's financial performance. The Company elected to perform a quantitative impairment test. The results of the interim impairment test indicated that noa goodwill impairment existed at that time.of $164 million within the Corporate and Investment Banking reporting unit, $729 million
within the goodwill, net of accumulated impairment losses, attributable to each of the Company’s three identified reporting units is as follows: Commercial Banking and Wealth - $2.7reporting unit, and $1.3 billion within the Retail Banking - $1.4reporting unit resulting in the Company recording a goodwill impairment charge of $2.2 billion for the three months ended March 31, 2020. The primary causes of the goodwill impairment were economic and industry conditions, volatility in the market capitalization of U.S. banks, and management's downward revisions to financial projections that resulted in the fair value of the reporting units being less than the carrying value of the reporting units.
The estimated fair value of the reporting units were determined using a blend of both income and market approaches.
For the income approach, estimated future cash flows and terminal values are discounted.In estimating future cash flows, a balance sheet as of the test date and a statement of income for the last 12 months of activity for each reporting unit is compiled. From that point, future balance sheets and statements of income are projected based on the inputs. Due to the economic uncertainty due to the COVID-19 pandemic, at March 31, 2020, the Company projected multiple scenarios and then probability weighted those scenarios.
The Company uses the guideline public company method and the guideline transaction method as the market approaches. The public company method applies valuation multiples derived from each reporting unit's peer group to tangible book value or earnings and an implied control premium to the respective reporting unit. The control premium is evaluated and compared to similar financial services transactions considering the absolute and relative potential revenue synergies and cost savings. The guideline transaction method applies valuation multiples to a financial metric of the reporting unit based on comparable observed purchase transactions in the financial services industry for the reporting unit, where available.
The Company recognized goodwill impairment of $470 million within the Corporate and Investment Banking - $896 million.reporting unit during the year ended December 31, 2019 and 0 impairment in the year ended December 31, 2018.
Through December 31, 2017,2020, the Company had recognized accumulated goodwill impairment losses of $2.5$3.2 billion, $1.4$2.7 billion, and $249$883 million within the Commercial Banking and Wealth, Retail Banking, and Corporate and Investment Banking reporting units, respectively. In addition, the Company has previously recognized $784 million of accumulated goodwill impairment losses from reporting units that no longer have a goodwill balance.
For the quarters ended June 30, 2020 and September 30, 2020, the Company concluded that a trigger event had not occurred as events or circumstances had not changed that indicated that the fair value of the entity (or the reporting unit) may be below its carrying amount since March 31, 2020 based on those contemplated when impairment was recorded. Consideration of events or circumstances are similar to those evaluated in the qualitative assessment described above.
The Step One fair values of the reporting units are based upon management’s estimates and assumptions. Although management has used the estimates and assumptions it believes to be most appropriate in the circumstances, it should be noted that even relatively minor changes in certain valuation assumptions used in management’s calculations could result in significant differences in the results of the impairment tests.
(9)(8) Deposits
Time deposits of $250,000 or less totaled $11.1$3.1 billion at December 31, 2017,2020, while time deposits of more than $250,000 totaled $2.8 billion.$1.6 billion. At December 31, 2017,2020, the scheduled maturities of time deposits were as follows.
| | | | | |
| (In Thousands) |
| 2021 | $ | 4,193,411 | |
| 2022 | 334,089 | |
| 2023 | 97,390 | |
| 2024 | 29,570 | |
| 2025 | 25,869 | |
| Thereafter | 4,700 | |
| Total | $ | 4,685,029 | |
|
| | | |
| | (In Thousands) |
| 2018 | $ | 11,243,000 |
|
| 2019 | 2,018,572 |
|
| 2020 | 413,615 |
|
| 2021 | 76,311 |
|
| 2022 | 66,537 |
|
| Thereafter | 63,697 |
|
| Total | $ | 13,881,732 |
|
At December 31, 20172020 and 2016,2019, demand deposit overdrafts reclassified to loans totaled $20$13 million and $15$17 million, respectively. In addition to the securities and loans the Company has pledged as collateral to secure public
deposits and FHLB advances at December 31, 2017,2020, the Company also had $6.6$6.3 billion of standby letters of credit issued by the FHLB to secure public deposits.
(10)(9) Short-Term Borrowings
The short-term borrowings table below shows the distribution of the Company’s short-term borrowed funds.
| | | | | | | | | | | | | | | | | | | | | | | |
| Ending Balance | | Ending Average Interest Rate | | Average Balance | | Maximum Outstanding Balance |
| (Dollars in Thousands) |
| As of and for the year ended | | | | | | | |
| December 31, 2020 | | | | | | | |
| | | | | | | |
| Securities sold under agreements to repurchase | $ | 184,478 | | | 0.24 | % | | $ | 1,249,629 | | | $ | 1,050,182 | |
| | | | | | | |
| Other short-term borrowings | 0 | | | 0 | | | 12,158 | | | 20,031 | |
| Total short-term borrowings | $ | 184,478 | | | | | $ | 1,261,787 | | | $ | 1,070,213 | |
| As of and for the year ended | | | | | | | |
| December 31, 2019 | | | | | | | |
| Federal funds purchased | $ | 0 | | | 0 | % | | $ | 746 | | | $ | 5,060 | |
| Securities sold under agreements to repurchase | 173,028 | | | 1.70 | | | 857,176 | | | 1,198,822 | |
| Total | 173,028 | | | | | 857,922 | | | 1,203,882 | |
| Other short-term borrowings | 0 | | | 0 | | | 14,963 | | | 69,446 | |
| Total short-term borrowings | $ | 173,028 | | | | | $ | 872,885 | | | $ | 1,273,328 | |
|
| | | | | | | | | | | | | | |
| | Ending Balance | | Ending Average Interest Rate | | Average Balance | | Maximum Outstanding Balance |
| | (Dollars in Thousands) |
| As of and for the year ended | | | | | | | |
| December 31, 2017 | | | | | | | |
| Federal funds purchased | $ | 1,710 |
| | 1.50 | % | | $ | 402 |
| | $ | 1,710 |
|
| Securities sold under agreements to repurchase | 17,881 |
| | 1.23 |
| | 58,222 |
| | 114,361 |
|
| Total | 19,591 |
| | | | 58,624 |
| | 116,071 |
|
| Other short-term borrowings | 17,996 |
| | 1.48 |
| | 1,703,738 |
| | 2,771,539 |
|
| Total short-term borrowings | $ | 37,587 |
| | | | $ | 1,762,362 |
| | $ | 2,887,610 |
|
| As of and for the year ended | | | | | | | |
| December 31, 2016 | | | | | | | |
| Federal funds purchased | $ | 12,885 |
| | 0.39 | % | | $ | 372,355 |
| | $ | 766,095 |
|
| Securities sold under agreements to repurchase | 26,167 |
| | 0.55 |
| | 79,625 |
| | 148,291 |
|
| Total | 39,052 |
| | | | 451,980 |
| | 914,386 |
|
| Other short-term borrowings | 2,802,977 |
| | 1.68 |
| | 3,778,752 |
| | 4,497,354 |
|
| Total short-term borrowings | $ | 2,842,029 |
| | | | $ | 4,230,732 |
| | $ | 5,411,740 |
|
(11) (10) FHLB and Other Borrowings
The following table details the Company’s FHLB advances and other borrowings including maturities and interest rates as of December 31, 2017.2020.
|
| | | | | | | | | |
| | | | December 31, |
| | Maturity Dates | | 2017 | | 2016 |
| | | | (In Thousands) |
| FHLB advances: | | | | | |
| LIBOR-based floating rate (weighted average rate of 1.58%) | 2021 | | $ | 120,000 |
| | $ | 120,000 |
|
| Fixed rate (weighted average rate of 2.00%) | 2018-2025 | | 1,510,328 |
| | 410,529 |
|
| Total FHLB advances | | | 1,630,328 |
| | 530,529 |
|
| Senior notes and subordinated debentures: | | | | | |
| 1.85% senior notes | 2017 | | — |
| | 400,000 |
|
| 2.75% senior notes | 2019 | | 600,000 |
| | 600,000 |
|
| 2.88% senior notes | 2022 | | 750,000 |
| | — |
|
| 6.40% subordinated debentures | 2017 | | — |
| | 350,000 |
|
| 5.50% subordinated debentures | 2020 | | 227,764 |
| | 227,764 |
|
| 3.88% subordinated debentures | 2025 | | 700,000 |
| | 700,000 |
|
| 5.90% subordinated debentures | 2026 | | 71,086 |
| | 71,086 |
|
| Fair value of hedged senior notes and subordinated debentures | | | (867 | ) | | 36,800 |
|
| Net unamortized discount | | | (18,381 | ) | | (18,298 | ) |
| Total senior notes and subordinated debentures | | | 2,329,602 |
| | 2,367,352 |
|
| Capital securities: | | | | | |
| LIBOR plus 3.05% floating rate debentures payable to State National Capital Trust I | 2033 | | — |
| | 15,470 |
|
| LIBOR plus 2.85% floating rate debentures payable to Texas Regional Statutory Trust I | 2034 | | — |
| | 51,547 |
|
| LIBOR plus 2.60% floating rate debentures payable to TexasBanc Capital Trust I | 2034 | | — |
| | 25,774 |
|
| LIBOR plus 2.79% floating rate debentures payable to State National Statutory Trust II | 2034 | | — |
| | 10,310 |
|
| Unamortized premium | | | — |
| | 569 |
|
| Total capital securities | | | — |
| | 103,670 |
|
| Total FHLB and other borrowings | | | $ | 3,959,930 |
| | $ | 3,001,551 |
|
During 2017, the Company's 1.85% senior notes with an aggregate principal amount of $400 million and its 6.40% subordinated debentures with an aggregate principal amount of $350 million matured. | | | | | | | | | | | | | | | | | |
| | | December 31, |
| Maturity Dates | | 2020 | | 2019 |
| | | (In Thousands) |
| FHLB advances: | | | | | |
| LIBOR-based floating rate (weighted average rate of 0.85%) | 2021 | | $ | 120,000 | | | $ | 120,000 | |
| Fixed rate (weighted average rate of 3.30%) | 2021-2025 | | 59,657 | | | 59,892 | |
| | | | | |
| Total FHLB advances | | | 179,657 | | | 179,892 | |
| Senior notes and subordinated debentures: | | | | | |
| 2.88% senior notes | 2022 | | 750,000 | | | 750,000 | |
| 3.50% senior notes | 2021 | | 700,000 | | | 700,000 | |
| | | | | |
| 2.50% senior notes | 2024 | | 600,000 | | | 600,000 | |
| 0.95% senior notes | 2021 | | 450,000 | | | 450,000 | |
| | | | | |
| 3.88% subordinated debentures | 2025 | | 700,000 | | | 700,000 | |
| 5.50% subordinated debentures | 2020 | | 0 | | | 227,764 | |
| 5.90% subordinated debentures | 2026 | | 71,086 | | | 71,086 | |
| Fair value of hedged senior notes and subordinated debentures | | | 108,191 | | | 26,975 | |
| Net unamortized discount | | | (10,442) | | | (15,673) | |
| Total senior notes and subordinated debentures | | | 3,368,835 | | | 3,510,152 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Total FHLB and other borrowings | | | $ | 3,548,492 | | | $ | 3,690,044 | |
In June 2017,August 2019, the Bank issued $750$600 million aggregate principal amount of its 2.50% unsecured senior notes due 2022 that pay a fixed annual coupon2024.
During 2017, the Company redeemed all of the Trust Preferred Securities issued by its four subsidiary business trusts (TexasBanc Capital Trust I, State National Capital Trust I, State National Statutory Trust II and Texas Regional Statutory Trust I). The aggregate principal amount of these notes was approximately $104 million.
The following table presents maturity information for the Company’s FHLB and other borrowings, including the fair value of hedged senior notes and subordinated debentures as well as unamortized discounts and premiums, as of December 31, 2017.2020.
| | | | | | | | | | | | | |
| FHLB Advances | | Senior Notes and Subordinated Debentures | | |
| (In Thousands) |
| Maturing: | | | | | |
| 2021 | $ | 120,000 | | | $ | 1,157,419 | | | |
| 2022 | 0 | | | 766,723 | | | |
| 2023 | 0 | | | 0 | | | |
| 2024 | 55,054 | | | 620,729 | | | |
| 2025 | 4,603 | | | 741,554 | | | |
| Thereafter | 0 | | | 82,410 | | | |
| Total | $ | 179,657 | | | $ | 3,368,835 | | | |
|
| | | | | | | |
| | FHLB Advances | | Senior Notes and Subordinated Debentures |
| | (In Thousands) |
| Maturing: | | | |
| 2018 | $ | 300,000 |
| | $ | — |
|
| 2019 | 1,150,000 |
| | 598,055 |
|
| 2020 | — |
| | 237,946 |
|
| 2021 | 120,000 |
| | — |
|
| 2022 | — |
| | 733,927 |
|
| Thereafter | 60,328 |
| | 759,674 |
|
| Total | $ | 1,630,328 |
| | $ | 2,329,602 |
|
(12)(11) Shareholder's Equity
Series A Preferred Stock
In December 2015, the Company completed the sale of 1,150 shares of its Floating Non-Cumulative Perpetual Preferred Stock, Series A at a per share pricesprice of $200,000 to BBVA. As the sole holder of the Series A Preferred Stock, BBVA will be entitled to receive dividend payments only when, as and if declared by the Company’s Board of Directors or a duly authorized committee thereof. Any such dividends will be payable from the date of original issue at a floating rate per annum equal to the three-month U.S. dollar LIBOR as determined on the relevant dividend determination date plus 5.24%. Any such dividends will be payable on a non-cumulative basis, quarterly in arrears on March 1, June 1, September 1 and December 1, commencing March 1, 2016. Payment of dividends on the Series A Preferred Stock is subject to certain legal, regulatory and other restrictions. Redemption is solely at the Company's option. The Company may, at its option, redeem the Series A Preferred Stock (i) in whole or in part, from time to time, on any dividend payment date on or after December 1, 2022 or (ii) in whole but not in part at any time within 90 days of certain changes to regulatory capital requirements.
At both December 31, 20172020 and 2016,2019, the carrying amount of the Series A Preferred Stock, including related surplus, net of issuance costs was approximately $229 million.
Class B Preferred Stock
In December 2000, a subsidiary of the Bank issued $21 million of Class B Preferred Stock. The Preferred Stock outstanding was approximately $23$21 million and $22 million at both December 31, 20172020 and 20162019, respectively, and is classified as noncontrolling interests on the Company’s Consolidated Balance Sheets. The Preferred Stock qualifies as Tier 1 capital under Federal Reserve guidelines. The Preferred Stock dividends are preferential, non-cumulative and payable semi-annually in arrears on June 15 and December 15 of each year, commencing June 15, 2001, at a rate per annum equal to 9.875% of the liquidation preference of $1,000 per share when and if declared by the board of directors of the subsidiary, in its sole discretion, out of funds legally available for such payment.
The Preferred Stock is redeemable for cash, at the option of the subsidiary, in whole or in part, at any time on or after June 15, 2021. Prior to June 15, 2021,. Prior to June 15, 2021, the Preferred Stock is not redeemable, except that prior to such date, the Preferred Stock may be redeemed for cash, at the option of the subsidiary, in whole but not in part, only upon the occurrence of certain tax or regulatory events. Any such redemption is subject to the prior approval of the Federal Reserve. The Preferred Stock is not redeemable at the option of the holders thereof at any time.
(13)Comprehensive
(12)Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances arising from nonowner sources. The following summarizes the change in the components of other comprehensive income (loss).
| | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Pretax | | Tax Expense/ (Benefit) | | After-tax |
| (In Thousands) |
| Other comprehensive income: | | | | | |
| Unrealized holding gains arising during period from debt securities available for sale | $ | 151,371 | | | $ | 35,968 | | | $ | 115,403 | |
| Less: reclassification adjustment for net gains on sale of debt securities in net income | 22,616 | | | 5,396 | | | 17,220 | |
| Net change in unrealized gains on debt securities available for sale | 128,755 | | | 30,572 | | | 98,183 | |
| Change in unamortized net holding gains on debt securities held to maturity | 8,505 | | | 2,066 | | | 6,439 | |
| | | | | |
| Less: non-credit related impairment on debt securities held to maturity | 0 | | | 0 | | | 0 | |
| Change in unamortized non-credit related impairment on debt securities held to maturity | 636 | | | 162 | | | 474 | |
| Net change in unamortized holding gains on debt securities held to maturity | 9,141 | | | 2,228 | | | 6,913 | |
| Unrealized holding gains arising during period from cash flow hedge instruments | 281,512 | | | 66,647 | | | 214,865 | |
| Change in defined benefit plans | 13,458 | | | 3,242 | | | 10,216 | |
| Other comprehensive income | $ | 432,866 | | | $ | 102,689 | | | $ | 330,177 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Pretax | | Tax Expense/ (Benefit) | | After-tax |
| (In Thousands) |
| Other comprehensive income: | | | | | |
| Unrealized holding gains arising during period from debt securities available for sale | $ | 208,725 | | | $ | 49,465 | | | $ | 159,260 | |
| Less: reclassification adjustment for net gains on sale of debt securities in net income | 29,961 | | | 7,104 | | | 22,857 | |
| Net change in unrealized gains on debt securities available for sale | 178,764 | | | 42,361 | | | 136,403 | |
| Change in unamortized net holding gains on debt securities held to maturity | 10,144 | | | 2,350 | | | 7,794 | |
| | | | | |
| Less: non-credit related impairment on debt securities held to maturity | 108 | | | 26 | | | 82 | |
| Change in unamortized non-credit related impairment on debt securities held to maturity | 781 | | | 174 | | | 607 | |
| Net change in unamortized holding gains on debt securities held to maturity | 10,817 | | | 2,498 | | | 8,319 | |
| Unrealized holding gains arising during period from cash flow hedge instruments | 113,359 | | | 27,049 | | | 86,310 | |
| Change in defined benefit plans | (12,932) | | | (3,112) | | | (9,820) | |
| Other comprehensive income | $ | 290,008 | | | $ | 68,796 | | | $ | 221,212 | |
|
| | | | | | | | | | | |
| | December 31, 2017 |
| | Pretax | | Tax Expense/ (Benefit) | | After-tax |
| | (In Thousands) |
| Other comprehensive loss: | | | | | |
| Unrealized holding losses arising during period from securities available for sale | $ | (20,089 | ) | | $ | (5,143 | ) | | $ | (14,946 | ) |
| Less: reclassification adjustment for net gains on sale of securities in net income | 3,033 |
| | 776 |
| | 2,257 |
|
| Net change in unrealized losses on securities available for sale | (23,122 | ) | | (5,919 | ) | | (17,203 | ) |
| Change in unamortized net holding losses on investment securities held to maturity | 5,076 |
| | 1,132 |
| | 3,944 |
|
| Change in unamortized non-credit related impairment on investment securities held to maturity | 1,556 |
| | 565 |
| | 991 |
|
| Net change in unamortized holding losses on securities held to maturity | 6,632 |
| | 1,697 |
| | 4,935 |
|
| Unrealized holding gains (losses) arising during period from cash flow hedge instruments | (35,768 | ) | | (21,083 | ) | | (14,685 | ) |
| Change in defined benefit plans | (3,501 | ) | | (1,301 | ) | | (2,200 | ) |
| Other comprehensive loss | $ | (55,759 | ) | | $ | (26,606 | ) | | $ | (29,153 | ) |
|
| | | | | | | | | | | |
| | December 31, 2016 |
| | Pretax | | Tax Expense/ (Benefit) | | After-tax |
| | (In Thousands) |
| Other comprehensive loss: | | | | | |
| Unrealized holding losses arising during period from securities available for sale | $ | (76,706 | ) | | $ | (28,668 | ) | | $ | (48,038 | ) |
| Less: reclassification adjustment for net gains on sale of securities in net income | 30,037 |
| | 11,226 |
| | 18,811 |
|
| Net change in unrealized losses on securities available for sale | (106,743 | ) | | (39,894 | ) | | (66,849 | ) |
| Change in unamortized net holding losses on investment securities held to maturity | 5,848 |
| | 2,235 |
| | 3,613 |
|
| Less: non-credit related impairment on investment securities held to maturity | 151 |
| | 55 |
| | 96 |
|
| Change in unamortized non-credit related impairment on investment securities held to maturity | 1,438 |
| | 487 |
| | 951 |
|
| Net change in unamortized holding losses on securities held to maturity | 7,135 |
| | 2,667 |
| | 4,468 |
|
| Unrealized holding losses arising during period from cash flow hedge instruments | (5,882 | ) | | (2,209 | ) | | (3,673 | ) |
| Change in defined benefit plans | (4,826 | ) | | (1,964 | ) | | (2,862 | ) |
| Other comprehensive loss | $ | (110,316 | ) | | $ | (41,400 | ) | | $ | (68,916 | ) |
|
| | | | | | | | | | | |
| | December 31, 2015 |
| | Pretax | | Tax Expense/ (Benefit) | | After-tax |
| | (In Thousands) |
| Other comprehensive loss: | | | | | |
| Unrealized holding losses arising during period from securities available for sale | $ | (26,090 | ) | | $ | (9,455 | ) | | $ | (16,635 | ) |
| Less: reclassification adjustment for net gains on sale of securities in net income | 81,656 |
| | 29,591 |
| | 52,065 |
|
| Net change in unrealized losses on securities available for sale | (107,746 | ) | | (39,046 | ) | | (68,700 | ) |
| Change in unamortized net holding losses on investment securities held to maturity | 10,948 |
| | 3,043 |
| | 7,905 |
|
| Less: non-credit related impairment on investment securities held to maturity | 87 |
| | 32 |
| | 55 |
|
| Change in unamortized non-credit related impairment on investment securities held to maturity | 1,661 |
| | 1,527 |
| | 134 |
|
| Net change in unamortized holding losses on securities held to maturity | 12,522 |
| | 4,538 |
| | 7,984 |
|
| Unrealized holding gains arising during period from cash flow hedge instruments | 3,141 |
| | 1,854 |
| | 1,287 |
|
| Change in defined benefit plans | 18,971 |
| | 7,016 |
| | 11,955 |
|
| Other comprehensive loss | $ | (73,112 | ) | | $ | (25,638 | ) | | $ | (47,474 | ) |
| | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Pretax | | Tax Expense/ (Benefit) | | After-tax |
| (In Thousands) |
| Other comprehensive income: | | | | | |
| Unrealized holding losses arising during period from debt securities available for sale | $ | (2,925) | | | $ | (797) | | | $ | (2,128) | |
| Less: reclassification adjustment for net gains on sale of debt securities in net income | 0 | | | 0 | | | 0 | |
| Net change in unrealized losses on debt securities available for sale | (2,925) | | | (797) | | | (2,128) | |
| Change in unamortized net holding gains on debt securities held to maturity | 9,120 | | | 2,104 | | | 7,016 | |
| Unamortized unrealized net holding losses on debt securities available for sale transferred to debt securities held to maturity | (39,904) | | | (9,417) | | | (30,487) | |
| Less: non-credit related impairment on debt securities held to maturity | 397 | | | 94 | | | 303 | |
| Change in unamortized non-credit related impairment on debt securities held to maturity | 1,036 | | | 237 | | | 799 | |
| Net change in unamortized holding losses on debt securities held to maturity | (30,145) | | | (7,170) | | | (22,975) | |
| Unrealized holding gains arising during period from cash flow hedge instruments | 46,406 | | | 15,466 | | | 30,940 | |
| Change in defined benefit plans | 6,142 | | | 1,409 | | | 4,733 | |
| Other comprehensive income | $ | 19,478 | | | $ | 8,908 | | | $ | 10,570 | |
Activity in accumulated other comprehensive income (loss), net of tax, was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unrealized Gains (Losses) on Debt Securities Available for Sale and Transferred to Held to Maturity | | Accumulated Gains (Losses) on Cash Flow Hedging Instruments | | Defined Benefit Plan Adjustment | | Unamortized Impairment Losses on Debt Securities Held to Maturity | | Total |
| (In Thousands) |
| Balance, December 31, 2018 | $ | (158,433) | | | $ | 6,175 | | | $ | (29,495) | | | $ | (5,095) | | | $ | (186,848) | |
| Cumulative effect of adoption of ASUs (1) | (25,844) | | | (1,040) | | | (7,351) | | | (1,201) | | | (35,436) | |
| $ | (184,277) | | | $ | 5,135 | | | $ | (36,846) | | | $ | (6,296) | | | $ | (222,284) | |
| Other comprehensive income (loss) before reclassifications | 159,260 | | | 83,903 | | | 0 | | | (82) | | | 243,081 | |
| Amounts reclassified from accumulated other comprehensive (loss) income | (15,063) | | | 2,407 | | | (9,820) | | | 607 | | | (21,869) | |
| Net current period other comprehensive income (loss) | 144,197 | | | 86,310 | | | (9,820) | | | 525 | | | 221,212 | |
| Balance, December 31, 2019 | $ | (40,080) | | | $ | 91,445 | | | $ | (46,666) | | | $ | (5,771) | | | $ | (1,072) | |
| | | | | | | | | |
| Balance, December 31, 2019 | $ | (40,080) | | | $ | 91,445 | | | $ | (46,666) | | | $ | (5,771) | | | $ | (1,072) | |
| | | | | | | | | |
| | | | | | | | | |
| Other comprehensive income before reclassifications | 115,403 | | | 310,170 | | | 0 | | | 0 | | | 425,573 | |
| Amounts reclassified from accumulated other comprehensive income (loss) | (10,781) | | | (95,305) | | | 10,216 | | | 474 | | | (95,396) | |
| Net current period other comprehensive income | 104,622 | | | 214,865 | | | 10,216 | | | 474 | | | 330,177 | |
| Balance, December 31, 2020 | $ | 64,542 | | | $ | 306,310 | | | $ | (36,450) | | | $ | (5,297) | | | $ | 329,105 | |
(1)Related to the Company's adoption of ASU 2017-12 and ASU 2018-02 on January 1, 2019. See Note 1, Summary of Significant Accounting Policies, for additional information.
|
| | | | | | | | | | | | | | | | | | | |
| | Unrealized Gains (Losses) on Securities Available for Sale and Transferred to Held to Maturity | | Accumulated Gains (Losses) on Cash Flow Hedging Instruments | | Defined Benefit Plan Adjustment | | Unamortized Impairment Losses on Investment Securities Held to Maturity | | Total |
| | (In Thousands) |
| Balance, December 31, 2015 | $ | (56,326 | ) | | $ | (6,407 | ) | | $ | (29,166 | ) | | $ | (7,437 | ) | | $ | (99,336 | ) |
| Other comprehensive loss before reclassifications | (48,038 | ) | | (1,337 | ) | | — |
| | (96 | ) | | (49,471 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) | (15,198 | ) | | (2,336 | ) | | (2,862 | ) | | 951 |
| | (19,445 | ) |
| Net current period other comprehensive income (loss) | (63,236 | ) | | (3,673 | ) | | (2,862 | ) | | 855 |
| | (68,916 | ) |
| Balance, December 31, 2016 | $ | (119,562 | ) | | $ | (10,080 | ) | | $ | (32,028 | ) | | $ | (6,582 | ) | | $ | (168,252 | ) |
| | | | | | | | | | |
| Balance, December 31, 2016 | $ | (119,562 | ) | | $ | (10,080 | ) | | $ | (32,028 | ) | | $ | (6,582 | ) | | $ | (168,252 | ) |
| Other comprehensive loss before reclassifications | (14,946 | ) | | (14,252 | ) | | — |
| | — |
| | (29,198 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) | 1,687 |
| | (433 | ) | | (2,200 | ) | | 991 |
| | 45 |
|
| Net current period other comprehensive income (loss) | (13,259 | ) | | (14,685 | ) | | (2,200 | ) | | 991 |
| | (29,153 | ) |
| Balance, December 31, 2017 | $ | (132,821 | ) | | $ | (24,765 | ) | | $ | (34,228 | ) | | $ | (5,591 | ) | | $ | (197,405 | ) |
The following table presents information on reclassifications out of accumulated other comprehensive income.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Details About Accumulated Other Comprehensive Income Components | | Amounts Reclassified From Accumulated Other Comprehensive Income (1) | | Consolidated Statement of Income Caption |
| | December 31, 2020 | | December 31, 2019 | | December 31, 2018 | | |
| | (In Thousands) | | |
| Unrealized Gains (Losses) on Debt Securities Available for Sale and Transferred to Held to Maturity | | $ | 22,616 | | | $ | 29,961 | | | $ | 0 | | | Investment securities gains, net |
| | (8,505) | | | (10,144) | | | (9,120) | | | Interest on debt securities held to maturity |
| | 14,111 | | | 19,817 | | | (9,120) | | | |
| | (3,330) | | | (4,754) | | | 2,104 | | | Income tax (expense) benefit |
| | $ | 10,781 | | | $ | 15,063 | | | $ | (7,016) | | | Net of tax |
| | | | | | | | |
| Accumulated Gains (Losses) on Cash Flow Hedging Instruments | | $ | 127,716 | | | $ | (2,214) | | | $ | (45,027) | | | Interest and fees on loans |
| | (2,758) | | | (948) | | | (1,288) | | | Interest on FHLB and other borrowings |
| | 124,958 | | | (3,162) | | | (46,315) | | | |
| | (29,653) | | | 755 | | | 10,981 | | | Income tax (expense) benefit |
| | $ | 95,305 | | | $ | (2,407) | | | $ | (35,334) | | | Net of tax |
| | | | | | | | |
| Defined Benefit Plan Adjustment | | $ | (13,458) | | | $ | 12,932 | | | $ | (6,142) | | | (2) |
| | 3,242 | | | (3,112) | | | 1,409 | | | Income tax benefit (expense) |
| | $ | (10,216) | | | $ | 9,820 | | | $ | (4,733) | | | Net of tax |
| | | | | | | | |
| Unamortized Impairment Losses on Debt Securities Held to Maturity | | $ | (636) | | | $ | (781) | | | $ | (1,036) | | | Interest on debt securities held to maturity |
| | 162 | | | 174 | | | 237 | | | Income tax benefit |
| | $ | (474) | | | $ | (607) | | | $ | (799) | | | Net of tax |
(1)Amounts in parentheses indicate debits to the Consolidated Statements of Income.
(2)These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 17, Benefit Plans, for additional details).
|
| | | | | | | | | | | | | | |
| Details About Accumulated Other Comprehensive Income Components | | Amounts Reclassified From Accumulated Other Comprehensive Income (1) | | Consolidated Statement of Income Caption |
| | | December 31, 2017 | | December 31, 2016 | | December 31, 2015 | | |
| | | (In Thousands) | | |
| Unrealized Gains (Losses) on Securities Available for Sale and Transferred to Held to Maturity | | $ | 3,033 |
| | $ | 30,037 |
| | $ | 81,656 |
| | Investment securities gains, net |
| | | (5,076 | ) | | (5,848 | ) | | (10,948 | ) | | Interest on investment securities held to maturity |
| | | (2,043 | ) | | 24,189 |
| | 70,708 |
| | |
| | | 356 |
| | (8,991 | ) | | (26,548 | ) | | Income tax (expense) benefit |
| | | $ | (1,687 | ) | | $ | 15,198 |
| | $ | 44,160 |
| | Net of tax |
| | | | | | | | | |
| Accumulated Gains (Losses) on Cash Flow Hedging Instruments | | $ | 3,496 |
| | $ | 8,370 |
| | $ | 13,056 |
| | Interest and fees on loans |
| | | (2,441 | ) | | (4,629 | ) | | (6,934 | ) | | Interest and fees on FHLB advances |
| | | 1,055 |
| | 3,741 |
| | 6,122 |
| | |
| | | (622 | ) | | (1,405 | ) | | (4,261 | ) | | Income tax expense |
| | | $ | 433 |
| | $ | 2,336 |
| | $ | 1,861 |
| | Net of tax |
| | | | | | | | | |
| Defined Benefit Plan Adjustment | | $ | 3,501 |
| | $ | 4,826 |
| | $ | (18,971 | ) | | (2) |
| | | (1,301 | ) | | (1,964 | ) | | 7,016 |
| | Income tax (expense) benefit |
| | | $ | 2,200 |
| | $ | 2,862 |
| | $ | (11,955 | ) | | Net of tax |
| | | | | | | | | |
| Unamortized Impairment Losses on Investment Securities Held to Maturity | | $ | (1,556 | ) | | $ | (1,438 | ) | | $ | (1,661 | ) | | Interest on investment securities held to maturity |
| | | 565 |
| | 487 |
| | 1,527 |
| | Income tax benefit |
| | | $ | (991 | ) | | $ | (951 | ) | | $ | (134 | ) | | Net of tax |
| |
| Amounts in parentheses indicate debits to the Consolidated Statements of Income. |
| |
(2)
| These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 18, Benefit Plans, for additional details).
|
(14)(13) Derivatives and Hedging
The Company is a party to derivative instruments in the normal course of business for trading purposes and for purposes other than trading to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates and foreign currency exchange rates. The Company has made an accounting policy decision to not offset derivative fair value amounts under master netting agreements. See Note 1,, Summary of Significant Accounting Policies,, for additional information on the Company’s accounting policies related to derivative instruments and hedging activities. For derivatives cleared through central clearing houses the variation margin payments made during 2017 are legally characterized as settlements of the derivatives. As a result, these variation margin payments are netted against the fair value of the respective derivative contracts in the balance sheet and related disclosures.disclosures and there is no fair value presented for these contracts. The following table reflects the notional amount and fair value of derivative instruments included on the Company’s Consolidated Balance Sheets on a gross basis.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| | | Fair Value | | | | Fair Value |
| Notional Amount | | Derivative Assets (1) | | Derivative Liabilities (2) | | Notional Amount | | Derivative Assets (1) | | Derivative Liabilities (2) |
| (In Thousands) |
| Derivatives designated as hedging instruments: | | | | | | | | | | | |
| Fair value hedges: | | | | | | | | | | | |
| Interest rate swaps related to long-term debt | $ | 3,496,086 | | | $ | 11,635 | | | $ | 748 | | | $ | 3,623,950 | | | $ | 10,633 | | | $ | 354 | |
| Total fair value hedges | | | 11,635 | | | 748 | | | | | 10,633 | | | 354 | |
| Cash flow hedges: | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | |
| Swaps related to commercial loans | 10,000,000 | | | 0 | | | 0 | | | 10,000,000 | | | 0 | | | 0 | |
| Swaps related to FHLB advances | 120,000 | | | 0 | | | 2,108 | | | 120,000 | | | 0 | | | 2,864 | |
| Foreign currency contracts: | | | | | | | | | | | |
| Forwards related to currency fluctuations | 4,102 | | | 0 | | | 19 | | | 2,597 | | | 102 | | | 0 | |
| Total cash flow hedges | | | 0 | | | 2,127 | | | | | 102 | | | 2,864 | |
| Total derivatives designated as hedging instruments | | | $ | 11,635 | | | $ | 2,875 | | | | | $ | 10,735 | | | $ | 3,218 | |
| | | | | | | | | | | |
| Free-standing derivatives not designated as hedging instruments: | | | | | | | | | | |
| | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | |
| Forward contracts related to held for sale mortgages | $ | 861,061 | | | $ | 1,184 | | | $ | 5,193 | | | $ | 289,990 | | | $ | 148 | | | $ | 514 | |
| Option contracts related to mortgage servicing rights | 0 | | | 0 | | | 0 | | | 60,000 | | | 38 | | | 0 | |
| Interest rate lock commitments | 520,481 | | | 17,897 | | | 0 | | | 146,941 | | | 3,088 | | | 0 | |
| Equity contracts: | | | | | | | | | | | |
| Purchased equity option related to equity-linked CDs | 40,253 | | | 574 | | | 0 | | | 152,130 | | | 4,460 | | | 0 | |
| Written equity option related to equity-linked CDs | 32,507 | | | 0 | | | 468 | | | 128,620 | | | 0 | | | 3,765 | |
| Foreign exchange contracts: | | | | | | | | | | | |
| Forwards related to commercial loans | 578,484 | | | 1,635 | | | 7,424 | | | 443,493 | | | 167 | | | 3,872 | |
| Spots related to commercial loans | 47,564 | | | 124 | | | 38 | | | 48,626 | | | 7 | | | 68 | |
| Swap associated with sale of Visa, Inc. Class B shares | 189,352 | | | 0 | | | 6,517 | | | 161,904 | | | 0 | | | 5,904 | |
| Futures contracts (3) | 200,000 | | | 0 | | | 0 | | | 2,110,000 | | | 0 | | | 0 | |
| Trading account assets and liabilities: | | | | | | | | | | | |
| Interest rate contracts for customers | 38,305,700 | | | 616,566 | | | 128,831 | | | 35,503,973 | | | 313,573 | | | 97,881 | |
| | | | | | | | | | | |
| Foreign exchange contracts for customers | 1,448,123 | | | 36,741 | | | 34,598 | | | 1,039,507 | | | 22,766 | | | 20,678 | |
| Total trading account assets and liabilities | | | 653,307 | | | 163,429 | | | | | 336,339 | | | 118,559 | |
| Total free-standing derivative instruments not designated as hedging instruments | | | $ | 674,721 | | | $ | 183,069 | | | | | $ | 344,247 | | | $ | 132,682 | |
(1)Derivative assets, except for trading account assets that are recorded as a component of trading account assets on the Consolidated Balance Sheets, are recorded in other assets on the Company’s Consolidated Balance Sheets.
(2)Derivative liabilities are recorded in accrued expenses and other liabilities on the Company’s Consolidated Balance Sheets.
(3)Changes in fair value are cash settled daily; therefore, there is no ending balance at any given reporting period.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| | | | Fair Value | | | | Fair Value |
| | Notional Amount | | Derivative Assets (1) | | Derivative Liabilities (2) | | Notional Amount | | Derivative Assets (1) | | Derivative Liabilities (2) |
| | (In Thousands) |
| Derivatives designated as hedging instruments: | | | | | | | | | | | |
| Fair value hedges: | | | | | | | | | | | |
| Interest rate swaps related to long-term debt | $ | 2,223,950 |
| | $ | 19,399 |
| | $ | 16,831 |
| | $ | 2,123,950 |
| | $ | 38,890 |
| | $ | 14,226 |
|
| Total fair value hedges | | | 19,399 |
| | 16,831 |
| | | | 38,890 |
| | 14,226 |
|
| Cash flow hedges: | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | |
| Swaps related to commercial loans | 9,075,000 |
| | 325 |
| | 2 |
| | 7,625,000 |
| | 2,340 |
| | 11,570 |
|
| Swaps related to FHLB advances | 120,000 |
| | — |
| | 4,424 |
| | 120,000 |
| | — |
| | 7,093 |
|
| Foreign currency contracts: | | | | | | | | | | | |
| Forwards related to currency fluctuations | 3,220 |
| | — |
| | 144 |
| | 3,618 |
| | — |
| | 380 |
|
| Total cash flow hedges | | | 325 |
| | 4,570 |
| | | | 2,340 |
| | 19,043 |
|
| Total derivatives designated as hedging instruments | | | $ | 19,724 |
| | $ | 21,401 |
| | | | $ | 41,230 |
| | $ | 33,269 |
|
| | | | | | | | | | | | |
| Free-standing derivatives not designated as hedging instruments: | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | |
| Forward contracts related to held for sale mortgages | $ | 141,000 |
| | $ | 85 |
| | $ | 130 |
| | $ | 251,500 |
| | $ | 2,479 |
| | $ | 493 |
|
| Option contracts related to mortgage servicing rights | 40,000 |
| | 38 |
| | — |
| | — |
| | — |
| | — |
|
| Interest rate lock commitments | 114,184 |
| | 2,416 |
| | — |
| | 150,616 |
| | 2,424 |
| | 32 |
|
| Equity contracts: | | | | | | | | | | | |
| Purchased equity option related to equity-linked CDs | 810,011 |
| | 39,791 |
| | — |
| | 833,763 |
| | 57,198 |
| | — |
|
| Written equity option related to equity-linked CDs | 718,428 |
| | — |
| | 35,562 |
| | 770,632 |
| | — |
| | 53,044 |
|
| Foreign exchange contracts: | | | | | | | | | | | |
| Forwards related to commercial loans | 358,729 |
| | 291 |
| | 3,501 |
| | 424,155 |
| | 3,741 |
| | 1,723 |
|
| Spots related to commercial loans | 83,338 |
| | 84 |
| | 245 |
| | 54,599 |
| | 134 |
| | — |
|
| Swap associated with sale of Visa, Inc. Class B shares | 99,826 |
| | — |
| | 2,496 |
| | 68,308 |
| | — |
| | 1,708 |
|
| Futures contracts (3) | 1,449,000 |
| | — |
| | — |
| | 104,000 |
| | — |
| | — |
|
| Trading account assets and liabilities: | | | | | | | | | | | |
| Interest rate contracts for customers | 30,472,359 |
| | 133,516 |
| | 134,073 |
| | 28,000,014 |
| | 290,238 |
| | 228,748 |
|
| Foreign exchange contracts for customers | 514,185 |
| | 12,149 |
| | 10,524 |
| | 870,084 |
| | 28,367 |
| | 26,317 |
|
| Total trading account assets and liabilities | | | 145,665 |
| | 144,597 |
| | | | 318,605 |
| | 255,065 |
|
| Total free-standing derivative instruments not designated as hedging instruments | | | $ | 188,370 |
| | $ | 186,531 |
| | | | $ | 384,581 |
| | $ | 312,065 |
|
| |
(1) | Derivative assets, except for trading account assets that are recorded as a component of trading account assets on the Consolidated Balance Sheets, are recorded in other assets on the Company’s Consolidated Balance Sheets. |
| |
(2) | Derivative liabilities are recorded in accrued expenses and other liabilities on the Company’s Consolidated Balance Sheets.
|
| |
(3) | Changes in fair value are cash settled daily; therefore, there is no ending balance at any given reporting period. |
Hedging Derivatives
The Company uses derivative instruments to manage the risk of earnings fluctuations caused by interest rate volatility. For those financial instruments that qualify and are designated as a hedging relationship, either a fair value hedge or cash flow hedge, the effect of interest rate movements on the hedged assets or liabilities will generally be offset by the change in fair value of the derivative instrument. See Note 1, Summary of Significant Accounting Policies,, for additional information on the Company’s accounting policies related to derivative instruments and hedging activities.
Fair Value Hedges
The Company enters into fair value hedging relationships using interest rate swaps to mitigate the Company’s exposure to losses in value as interest rates change. Derivative instruments that are used as part of the Company’s interest rate risk management strategy include interest rate swaps that relate to the pricing of specific balance sheet assets and liabilities. Interest rate swaps generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date.
Interest rate swaps are used to convert the Company’s fixed rate long-term debt to a variable rate. The critical terms of the interest rate swaps match the terms of the corresponding hedged items. All components of each derivative instrument’s gain or loss are included in the assessment of hedge effectiveness.
The Company recognized no0 gains or losses for the years ended December 31, 2017, 20162020, 2019 and 20152018 related to hedged firm commitments no longer qualifying as a fair value hedge. At December 31, 2017,2020, the fair value hedges had a weighted average expected remaining term of 4.62.5 years.
The following table reflects the change in fair value for interest rate contracts and the related hedged items as well as other gains and losses related to fair value hedges including gains and losses recognized because of hedge ineffectiveness.
|
| | | | | | | | | | | | | |
| | | | Gain (Loss) for the Years Ended |
| | | | December 31, |
| | Consolidated Statements of Income Caption | | 2017 | | 2016 | | 2015 |
| | | | (In Thousands) |
| Change in fair value of interest rate contracts: | | | | | | |
| Interest rate swaps hedging long term debt | Interest on FHLB and other borrowings | | $ | (33,092 | ) | | $ | (25,906 | ) | | $ | (19,130 | ) |
| Hedged long term debt | Interest on FHLB and other borrowings | | 34,839 |
| | 25,411 |
| | 15,395 |
|
| Other gains on interest rate contracts: | | | | | | | |
| Interest and amortization related to interest rate swaps on hedged long term debt | Interest on FHLB and other borrowings | | 29,483 |
| | 41,391 |
| | 46,559 |
|
Cash Flow Hedges
The Company enters into cash flow hedging relationships using interest rate swaps and options, such as caps and floors, to mitigate exposure to the variability in future cash flows or other forecasted transactions associated with its floating rate assets and liabilities. The Company uses interest rate swaps and options to hedge the repricing characteristics of its floating rate commercial loans and FHLB advances. The Company also uses foreign currency forward contracts to hedge its exposure to fluctuations in foreign currency exchange rates due to a portion of the money transfer expense being denominated in foreign currency. All components of each derivative instrument’s gain or loss are included in the assessment of hedge effectiveness. The initial assessment of expected hedge effectiveness is based on regression analysis. The ongoing periodic measures of hedge ineffectiveness are based on the expected change in cash flows of the hedged item caused by changes in the benchmark interest rate. There were no0 gains or losses reclassified from other comprehensive income (loss) because of the discontinuance of cash flow hedges related to certain forecasted transactions that are probable of not occurring for the years ended December 31, 2017, 20162020, 2019 and 2015.2018.
At December 31, 2017,2020, cash flow hedges not terminated had a net fair value of $(4.2)$(2) million and a weighted average life of 1.12.2 years. Net lossesgains of $37.5$174.5 million are expected to be reclassified to income over the next 12 months as net
settlements occur. The maximum length of time over which the entity is hedging its exposure to the variability in future cash flows for forecasted transactions is 3.64.4 years.
The following table presents the effect of hedging derivative instruments designated and qualifying as cash flow hedges on the Company’s Consolidated Balance Sheets and the Company’s Consolidated Statements of Income.
| | | | | | | | | | | | | | |
| | Interest Income | | Interest Expense |
| | Interest and fees on loans | | Interest on FHLB and other borrowings |
| | (In Thousands) |
| Year Ended December 31, 2020 | | | | |
| Total amounts presented in the consolidated statements of income | | $ | 2,656,786 | | | $ | 71,848 | |
| | | | |
| Gains (losses) on fair value hedging relationships: | | | | |
| Interest rate contracts: | | | | |
| Amounts related to interest settlements and amortization on derivatives | | $ | 0 | | | $ | 35,086 | |
| Recognized on derivatives | | 0 | | | 86,244 | |
| Recognized on hedged items | | 0 | | | (81,995) | |
| Net income (expense) recognized on fair value hedges | | $ | 0 | | | $ | 39,335 | |
| | | | |
| Gain (losses) on cash flow hedging relationships: (1) | | | | |
| Interest rate contracts: | | | | |
| Realized gain (losses) reclassified from AOCI into net income (2) | | $ | 127,716 | | | $ | (2,758) | |
| Net income (expense) recognized on cash flow hedges | | $ | 127,716 | | | $ | (2,758) | |
| | | | |
| Year Ended December 31, 2019 | | | | |
| Total amounts presented in the consolidated statements of income | | $ | 3,097,640 | | | $ | 136,164 | |
| | | | |
| Gains (losses) on fair value hedging relationships: | | | | |
| Interest rate contracts: | | | | |
| Amounts related to interest settlements and amortization on derivatives | | $ | 0 | | | $ | (2,659) | |
| Recognized on derivatives | | 0 | | | 54,504 | |
| Recognized on hedged items | | 0 | | | (51,682) | |
| Net income (expense) recognized on fair value hedges | | $ | 0 | | | $ | 163 | |
| | | | |
| Gain (losses) on cash flow hedging relationships: (1) | | | | |
| Interest rate contracts: | | | | |
| Realized losses reclassified from AOCI into net income (2) | | $ | (2,214) | | | $ | (948) | |
| Net income (expense) recognized on cash flow hedges | | $ | (2,214) | | | $ | (948) | |
| | | | |
| Year Ended December 31, 2018 | | | | |
| Total amounts presented in the consolidated statements of income | | $ | 2,914,269 | | | $ | 130,372 | |
| | | | |
| Gains (losses) on fair value hedging relationships: | | | | |
| Interest rate contracts: | | | | |
| Amounts related to interest settlements and amortization on derivatives | | $ | 0 | | | $ | 3,510 | |
| Recognized on derivatives | | 0 | | | (19,952) | |
| Recognized on hedged items | | 0 | | | 19,124 | |
| Net income (expense) recognized on fair value hedges | | 0 | | | 2,682 | |
| | | | |
| Gain (losses) on cash flow hedging relationships: (1) | | | | |
| Interest rate contracts: | | | | |
| Realized gains (losses) reclassified from AOCI into net income (2) | | $ | (45,027) | | | $ | (1,288) | |
| Net income (expense) recognized on cash flow hedges | | $ | (45,027) | | | $ | (1,288) | |
(1)See Note 12, Comprehensive Income, for gain or loss recognized for cash flow hedges in accumulated other comprehensive income.
(2)Pre-tax
|
| | | | | | | | | | | |
| | Gain (Loss) for the Years Ended |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Interest rate and foreign currency exchange contracts: | | | | | |
| Net change in amount recognized in other comprehensive income | $ | (14,685 | ) | | $ | (3,673 | ) | | $ | 1,287 |
|
| Amount reclassified from accumulated other comprehensive income (loss) into net income | 1,055 |
| | 3,741 |
| | 6,122 |
|
| Amount of ineffectiveness recognized in net income | 13 |
| | (714 | ) | | — |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Liabilities |
| | Carrying Amount of Hedged Liabilities | | Hedged Items Currently Designated | | Hedged Items No Longer Designated |
| | (In Thousands) |
| December 31, 2020 | | | | | | |
| FHLB and other borrowings | | $ | 3,260,644 | | | $ | 107,023 | | | $ | 1,168 | |
| | | | | | |
| December 31, 2019 | | | | | | |
| FHLB and other borrowings | | $ | 3,483,177 | | | $ | 25,092 | | | $ | 1,883 | |
Derivatives Not Designated As Hedges
Derivatives not designated as hedges include those that are entered into as either economic hedges as part of the Company’s overall risk management strategy or to facilitate client needs. Economic hedges are those that are not designated as a fair value hedge, cash flow hedge or foreign currency hedge for accounting purposes, but are necessary to economically manage the risk exposure associated with the assets and liabilities of the Company.
The Company also enters into a variety of interest rate contracts and foreign exchange contracts in its trading activities. The primary purpose for using these derivative instruments in the trading account is to facilitate customer transactions. The trading interest rate contract portfolio is actively managed and hedged with similar products to limit market value risk of the portfolio. Changes in the estimated fair value of contracts in the trading account along with the related interest settlements on the contracts are recorded in noninterest income as corporate and correspondent investment sales in the Company’s Consolidated Statements of Income.
The Company enters into forward and option contracts to economically hedge the change in fair value of certain residential mortgage loans held for sale due to changes in interest rates. Revaluation gains and losses from free-standing derivatives related to mortgage banking activity are recorded as a component of mortgage banking income in the Company’s Consolidated Statements of Income.
Interest rate lock commitments issued on residential mortgage loan commitments that will be held for resale are also considered free-standing derivative instruments, and the interest rate exposure on these commitments is economically hedged primarily with forward contracts. Revaluation gains and losses from free-standing derivatives related to mortgage banking activity are recorded as a component of mortgage banking income in the Company’s Consolidated Statements of Income.
In conjunction with the sale of its Visa, Inc. Class B shares in 2009,, the Company entered into a total return swap in which the Company will make or receive payments based on subsequent changes in the conversion rate of the Class B shares into Class A shares. This total return swap is accounted for as a free-standing derivative.
The Company offers its customers equity-linked CDs that have a return linked to individual equities and equity indices. Under appropriate accounting guidance, a CD that pays interest based on changes in an equity index is a hybrid instrument that requires separation into a host contract (the CD) and an embedded derivative contract (written equity call option). The Company has entered into an offsetting derivative contract in order to economically hedge the exposure related to the issuance of equity-linked CDs. Both the embedded derivative and derivative contract entered into by the Company are classified as free-standing derivative instruments.
The Company also enters into foreign currency contracts to hedge its exposure to fluctuations in foreign currency exchange rates due to its funding of commercial loans in foreign currencies.
The net gains and losses recorded in the Company’s Consolidated Statements of Income from free-standing derivative instruments not designated as hedging instruments are summarized in the following table.
| | | | | Gain (Loss) for the Years Ended | | Gain (Loss) for the Years Ended |
| | | December 31, | | December 31, |
| | Consolidated Statements of Income Caption | | 2017 | | 2016 | | 2015 | | Consolidated Statements of Income Caption | | 2020 | | 2019 | | 2018 |
| | | (In Thousands) | | | | (In Thousands) |
| Futures contracts | Mortgage banking income and corporate and correspondent investment sales | | $ | 123 |
| | $ | (138 | ) | | $ | (12 | ) | Futures contracts | Mortgage banking income and corporate and correspondent investment sales | | $ | (779) | | | $ | (1,288) | | | $ | (194) | |
| Interest rate contracts: | | | | | | | Interest rate contracts: | |
| Interest rate lock commitments | | Interest rate lock commitments | Mortgage banking income | | 14,809 | | | 1,076 | | | (404) | |
| Option contracts related to mortgage servicing rights | | Option contracts related to mortgage servicing rights | Mortgage banking income | | 1,528 | | | 929 | | | (38) | |
| Forward contracts related to residential mortgage loans held for sale | Mortgage banking income | | (2,030 | ) | | 857 |
| | 3,801 |
| Forward contracts related to residential mortgage loans held for sale | Mortgage banking income | | (3,643) | | | 469 | | | (790) | |
| Interest rate lock commitments | Mortgage banking income | | 24 |
| | (482 | ) | | 556 |
| |
| Interest rate contracts for customers | Corporate and correspondent investment sales | | 29,155 |
| | 24,507 |
| | 28,533 |
| Interest rate contracts for customers | Corporate and correspondent investment sales | | 30,347 | | | 24,128 | | | 35,326 | |
| Option contracts related to mortgage servicing rights | Corporate and correspondent investment sales | | (605 | ) | | (264 | ) | | (195 | ) | |
| Commodity contracts: | | | | | | | |
| Commodity contracts for customers | Corporate and correspondent investment sales | | — |
| | (6 | ) | | 6 |
| |
| | Equity contracts: | | | | | | | Equity contracts: | |
| Purchased equity option related to equity-linked CDs | Other expense | | (18,704 | ) | | (2,178 | ) | | (17,112 | ) | Purchased equity option related to equity-linked CDs | Other expense | | (3,886) | | | (9,725) | | | (27,144) | |
| Written equity option related to equity-linked CDs | Other expense | | 18,581 |
| | 3,515 |
| | 17,761 |
| Written equity option related to equity-linked CDs | Other expense | | 3,296 | | | 8,669 | | | 24,524 | |
| Foreign currency contracts: | | | | | | | Foreign currency contracts: | |
| Swap and forward contracts related to commercial loans | Other income | | (38,885 | ) | | 12,368 |
| | 54,441 |
| |
| Forward and swap contracts related to commercial loans | | Forward and swap contracts related to commercial loans | Other income | | (25,561) | | | (275) | | | 36,353 | |
| Spot contracts related to commercial loans | Other income | | 5,512 |
| | 451 |
| | (9,366 | ) | Spot contracts related to commercial loans | Other income | | 6,439 | | | 1,542 | | | (3,898) | |
| Foreign currency exchange contracts for customers | Corporate and correspondent investment sales | | 10,451 |
| | 3,971 |
| | 2,656 |
| Foreign currency exchange contracts for customers | Corporate and correspondent investment sales | | 16,642 | | | 15,404 | | | 16,232 | |
Derivatives Credit and Market Risks
By using derivative instruments, the Company is exposed to credit and market risk. If the counterparty fails to perform, credit risk is equal to the extent of the Company’s fair value gain in a derivative. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty owes the Company and, therefore, creates a credit risk for the Company. When the fair value of a derivative instrument contract is negative, the Company owes the counterparty and, therefore, it has no credit risk. The Company minimizes the credit risk in derivative instruments by entering into transactions with high-quality counterparties that are continually reviewed.reviewed periodically. Credit losses are also mitigated through collateral agreements and other contract provisions with derivative counterparties.
Market risk is the adverse effect that a change in interest rates and foreign currency rates or implied volatility rates has on the value of a financial instrument. The Company manages the market risk associated with interest rate and foreign currency contracts by establishing and monitoring limits as to the types and degree of risk that may be undertaken.
The Company’s derivatives activities are monitored by its Asset/Liability Committee as part of its risk-management oversight. The Company’s Asset/Liability Committee is responsible for mandating various hedging strategies that are developed through its analysis of data from financial simulation models and other internal and industry sources. The resulting hedging strategies are then incorporated into the Company’s overall interest rate risk management strategy.and trading strategies.
Entering into interest rate swap agreements and options involves not only the risk of dealing with counterparties and their ability to meet the terms of the contracts but also interest rate risk associated with unmatched positions. At December 31, 2017,2020, interest rate swap agreements and options classified as trading were substantially matched. The Company had credit risk of $146$653 million related to derivative instruments in the trading account portfolio, which does
not take into consideration master netting arrangements or the value of the collateral. There were no net credit losses associated with derivative instruments classified as trading at December 31, 2017. There were $2.5 million and $9 thousand in0 material net credit losses associated with derivative instruments classified as trading for the years ended December 31, 20162020,
2019 and 2015, respectively.2018. At December 31, 20172020 and 2016,2019, there were no material nonperforming derivative positions classified as trading.
The Company’s derivative positions held fordesignated as hedging purposesinstruments are primarily executed in the over-the-counter market. These positions have credit risk of $20$12 million,, which does not take into consideration master netting arrangements or the value of the collateral.
There were no0 credit losses associated with derivative instruments classified as nontrading for the years ended December 31, 2017, 20162020, 2019 and 2015.2018. At December 31, 20172020 and 2016,2019, there were no nonperforming derivative positions classified as nontrading.
As of December 31, 20172020 and 2016,2019, the Company had recorded the right to reclaim cash collateral of $92$199 million and $103$150 million,, respectively, within other assets on the Company’s Consolidated Balance Sheets and had recorded the obligation to return cash collateral of $24$14 million and $37$12 million,, respectively, within deposits on the Company’s Consolidated Balance Sheets.
Contingent Features
Certain of the Company’s derivative instruments contain provisions that require the Company’s debt to maintain a certain credit rating from each of the major credit rating agencies. If the Company’s debt were to fall below this rating, it would be in violation of these provisions, and the counterparties to the derivative instruments could demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on December 31, 20172020 was $31$66 million for which the Company has collateral requirements of $30$64 million in the normal course of business. If the credit-risk-related contingent features underlying these agreements werehad been triggered on December 31, 2017,2020, the Company’s collateral requirements to its counterparties would increase by $1 million.$2 million. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on December 31, 20162019 was $30$47 million for which the Company had collateral requirements of $29$45 million in the normal course of business. If the credit-risk-related contingent features underlying these agreements werehad been triggered on December 31, 2016,2019, the Company’s collateral requirements to its counterparties would have increased by $1 million.$2 million.
Netting of Derivative Instruments
The Company is party to master netting arrangements with its financial institution counterparties for some of its derivative and hedging activities. The Company does not offset assets and liabilities under these master netting arrangements for financial statement presentation purposes. The master netting arrangements provide for single net settlement of all derivative instrument arrangements, as well as collateral, in the event of default with respect to, or termination of, any one contract with the respective counterparties. Cash collateral is usually posted by the counterparty with a net liability position in accordance with contract thresholds.
The following represents the Company’s total gross derivative instrument assets and liabilities subject to an enforceable master netting arrangement. The derivative instruments the Company has with its customers are not subject to an enforceable master netting arrangement.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Amounts Recognized | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amount Presented in the Consolidated Balance Sheets | | Financial Instruments Collateral Received/ Pledged (1) | | Cash Collateral Received/ Pledged (1) | | Net Amount |
| (In Thousands) |
| December 31, 2020 | | | | | | | | | | | |
| Derivative financial assets: | | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 38,554 | | | $ | 0 | | | $ | 38,554 | | | $ | 0 | | | $ | 3,771 | | | $ | 34,783 | |
| Not subject to a master netting arrangement | 647,802 | | | — | | | 647,802 | | | — | | | — | | | 647,802 | |
| Total derivative financial assets | $ | 686,356 | | | $ | 0 | | | $ | 686,356 | | | $ | 0 | | | $ | 3,771 | | | $ | 682,585 | |
| | | | | | | | | | | |
| Derivative financial liabilities: | | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 153,524 | | | $ | 0 | | | $ | 153,524 | | | $ | 0 | | | $ | 153,524 | | | $ | 0 | |
| Not subject to a master netting arrangement | 32,420 | | | — | | | 32,420 | | | — | | | — | | | 32,420 | |
| Total derivative financial liabilities | $ | 185,944 | | | $ | 0 | | | $ | 185,944 | | | $ | 0 | | | $ | 153,524 | | | $ | 32,420 | |
| | | | | | | | | | | |
| December 31, 2019 | | | | | | | | | | | |
| Derivative financial assets: | | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 41,390 | | | $ | 0 | | | $ | 41,390 | | | $ | 0 | | | $ | 5,860 | | | $ | 35,530 | |
| Not subject to a master netting arrangement | 313,592 | | | — | | | 313,592 | | | — | | | — | | | 313,592 | |
| Total derivative financial assets | $ | 354,982 | | | $ | 0 | | | $ | 354,982 | | | $ | 0 | | | $ | 5,860 | | | $ | 349,122 | |
| | | | | | | | | | | |
| Derivative financial liabilities: | | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 94,979 | | | $ | 0 | | | $ | 94,979 | | | $ | 0 | | | $ | 94,979 | | | $ | 0 | |
| Not subject to a master netting arrangement | 40,921 | | | — | | | 40,921 | | | — | | | — | | | 40,921 | |
| Total derivative financial liabilities | $ | 135,900 | | | $ | 0 | | | $ | 135,900 | | | $ | 0 | | | $ | 94,979 | | | $ | 40,921 | |
(1)The actual amount of collateral received/pledged is limited to the asset/liability balance and does not include excess collateral received/pledged. When excess collateral exists, the collateral shown in the table above has been allocated based on the percentage of the actual amount of collateral posted.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Amounts Recognized | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amount Presented in the Consolidated Balance Sheets | | Financial Instruments Collateral Received/ Pledged (1) | | Cash Collateral Received/ Pledged (1) | | Net Amount |
| | (In Thousands) |
| December 31, 2017 | | | | | | | | | | | |
| Derivative financial assets: | | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 93,409 |
| | $ | — |
| | $ | 93,409 |
| | $ | — |
| | $ | 21,423 |
| | $ | 71,986 |
|
| Not subject to a master netting arrangement | 114,685 |
| | — |
| | 114,685 |
| | — |
| | — |
| | 114,685 |
|
| Total derivative financial assets | $ | 208,094 |
| | $ | — |
| | $ | 208,094 |
| | $ | — |
| | $ | 21,423 |
| | $ | 186,671 |
|
| | | | | | | | | | | | |
| Derivative financial liabilities: | | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 108,955 |
| | $ | — |
| | $ | 108,955 |
| | $ | 4,545 |
| | $ | 92,396 |
| | $ | 12,014 |
|
| Not subject to a master netting arrangement | 98,977 |
| | — |
| | 98,977 |
| | — |
| | — |
| | 98,977 |
|
| Total derivative financial liabilities | $ | 207,932 |
| | $ | — |
| | $ | 207,932 |
| | $ | 4,545 |
| | $ | 92,396 |
| | $ | 110,991 |
|
| | | | | | | | | | | | |
| December 31, 2016 | | | | | | | | | | | |
| Derivative financial assets: | | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 234,002 |
| | $ | — |
| | $ | 234,002 |
| | $ | — |
| | $ | 33,212 |
| | $ | 200,790 |
|
| Not subject to a master netting arrangement | 191,809 |
| | — |
| | 191,809 |
| | — |
| | — |
| | 191,809 |
|
| Total derivative financial assets | $ | 425,811 |
| | $ | — |
| | $ | 425,811 |
| | $ | — |
| | $ | 33,212 |
| | $ | 392,599 |
|
| | | | | | | | | | | | |
| Derivative financial liabilities: | | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 248,669 |
| | $ | — |
| | $ | 248,669 |
| | $ | 9,685 |
| | $ | 102,603 |
| | $ | 136,381 |
|
| Not subject to a master netting arrangement | 96,665 |
| | — |
| | 96,665 |
| | — |
| | — |
| | 96,665 |
|
| Total derivative financial liabilities | $ | 345,334 |
| | $ | — |
| | $ | 345,334 |
| | $ | 9,685 |
| | $ | 102,603 |
| | $ | 233,046 |
|
| |
(1) | The actual amount of collateral received/pledged is limited to the asset/liability balance and does not include excess collateral received/pledged. When excess collateral exists, the collateral shown in the table above has been allocated based on the percentage of the actual amount of collateral posted. |
(15)(14) Securities Financing Activities
Netting of Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
The Company has various financial asset and liabilities that are subject to enforceable master netting agreements or similar agreements. The Company's derivatives that are subject to enforceable master netting agreements or similar transactions are discussed in Note 14,13, Derivatives and Hedging. The Company enters into agreements under which it purchases or sells securities subject to an obligation to resell or repurchase the same or similar securities. Securities purchased under agreements to resell and securities sold under agreements to repurchase are generally accounted for as collateralized financing transactions and recorded at the amounts at which the securities were purchased or sold plus accrued interest. The securities pledged as collateral are generally U.S. Treasury securities and other U.S. government agenciesagency securities and mortgage-backed securities.
Securities purchased under agreements to resell and securities sold under agreements to repurchase are governed by ana MRA. Under the terms of the MRA, all transactions between the Company and the counterparty constitute a single business relationship such that in the event of default, the nondefaulting party is entitled to set off claims and apply property held by that party in respect of any transaction against obligations owed. Any payments, deliveries, or other transfers may be applied against each other and netted. These amounts are limited to the contract asset/liability balance, and accordingly, do not include excess collateral received or pledged. The Company offsets the assets and liabilities under netting arrangements for the balance sheet presentation of securities purchased under agreements to resell and securities sold under agreements to repurchase provided certain criteria are met that permit balance sheet netting.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Amounts Recognized | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amount Presented in the Consolidated Balance Sheets | | Financial Instruments Collateral Received/ Pledged (1) | | Cash Collateral Received/ Pledged (1) | | Net Amount |
| (In Thousands) |
| December 31, 2020 | | | | | | | | | | | |
| Securities purchased under agreement to resell: | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 986,290 | | | $ | 798,097 | | | $ | 188,193 | | | $ | 188,193 | | | $ | — | | | $ | — | |
| | | | | | | | | | | |
| Securities sold under agreements to repurchase: | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 982,575 | | | $ | 798,097 | | | $ | 184,478 | | | $ | 184,478 | | | $ | — | | | $ | 0 | |
| | | | | | | | | | | |
| December 31, 2019 | | | | | | | | | | | |
| Securities purchased under agreement to resell: | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 656,504 | | | $ | 477,590 | | | $ | 178,914 | | | $ | 178,914 | | | $ | — | | | $ | 0 | |
| | | | | | | | | | | |
| Securities sold under agreements to repurchase: | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 650,618 | | | $ | 477,590 | | | $ | 173,028 | | | $ | 173,028 | | | $ | — | | | $ | 0 | |
(1)The actual amount of collateral received/pledged is limited to the asset/liability balance and does not include excess collateral received/pledged. When excess collateral exists the collateral shown in the table above has been allocated based on the percentage of the actual amount of collateral posted.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Amounts Recognized | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amount Presented in the Consolidated Balance Sheets | | Financial Instruments Collateral Received/ Pledged (1) | | Cash Collateral Received/ Pledged (1) | | Net Amount |
| | (In Thousands) |
| December 31, 2017 (2) | | | | | | | | | | | |
| Securities purchased under agreement to resell: | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 93,664 |
| | $ | 67,751 |
| | $ | 25,913 |
| | $ | 25,913 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | |
| Securities sold under agreements to repurchase: | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 85,632 |
| | $ | 67,751 |
| | $ | 17,881 |
| | $ | 17,881 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | |
| December 31, 2016 (2) | | | | | | | | | | | |
| Securities purchased under agreement to resell: | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 3,164,039 |
| | $ | 3,069,489 |
| | $ | 94,550 |
| | $ | 94,550 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | |
| Securities sold under agreements to repurchase: | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 3,095,655 |
| | $ | 3,069,488 |
| | $ | 26,167 |
| | $ | 26,167 |
| | $ | — |
| | $ | — |
|
| |
(1) | The actual amount of collateral received/pledged is limited to the asset/liability balance and does not include excess collateral received/pledged. When excess collateral exists the collateral shown in the table above has been allocated based on the percentage of the actual amount of collateral posted. |
| |
(2) | The decrease in gross amounts recognized from December 31, 2016 to December 31, 2017, relates to a reduction in securities purchased under agreements to resell and securities sold under agreements to repurchase held by BSI. |
Collateral Associated with Securities Financing Activities
Securities sold under agreements to repurchase are accounted for as secured borrowings. The following table presents the Company's related activity, by collateral type and remaining contractual maturity.
| | | | | | | | | | | | | | Remaining Contractual Maturity of the Agreements |
| | | | | | | | | | | | | Overnight and Continuous | | Up to 30 Days | | 30 - 90 Days | | Greater Than 90 Days | | Total |
| | | Remaining Contractual Maturity of the Agreements | | (In Thousands) |
| | | Overnight and Continuous | | Up to 30 Days | | 30 - 90 Days | | Greater Than 90 Days | | Total | |
| | | (In Thousands) | |
| December 31, 2017 | | | | | | | | | | | |
| Securities sold under agreements repurchase: | | | | | | | | | |
| December 31, 2020 | | December 31, 2020 | |
| Securities sold under agreements to repurchase: | | Securities sold under agreements to repurchase: | |
| U.S. Treasury and other U.S. government agencies securities | | $ | 4,906 |
| | $ | — |
| | $ | 12,900 |
| | $ | 4,981 |
| | $ | 22,787 |
| U.S. Treasury and other U.S. government agencies securities | | $ | 880,200 | | | $ | 0 | | | $ | 102,375 | | | $ | 0 | | | $ | 982,575 | |
| Mortgage-backed securities | | — |
| | — |
| | 62,845 |
| | — |
| | 62,845 |
| Mortgage-backed securities | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| | Total | | $ | 4,906 |
| | $ | — |
| | $ | 75,745 |
| | $ | 4,981 |
| | $ | 85,632 |
| Total | | $ | 880,200 | | | $ | 0 | | | $ | 102,375 | | | $ | 0 | | | $ | 982,575 | |
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 | | | | | | | | | | | |
| Securities sold under agreements repurchase: | | | | | | | | | |
| December 31, 2019 | | December 31, 2019 | |
| Securities sold under agreements to repurchase: | | Securities sold under agreements to repurchase: | |
| U.S. Treasury and other U.S. government agencies securities | | $ | 1,408,736 |
| | $ | 806,526 |
| | $ | 798,089 |
| | $ | — |
| | $ | 3,013,351 |
| U.S. Treasury and other U.S. government agencies securities | | $ | 321,310 | | | $ | 0 | | | $ | 0 | | | $ | 305,750 | | | $ | 627,060 | |
| Mortgage-backed securities | | — |
| | — |
| | 82,304 |
| | — |
| | 82,304 |
| Mortgage-backed securities | | 0 | | | 0 | | | 23,558 | | | 0 | | | 23,558 | |
| | Total | | $ | 1,408,736 |
| | $ | 806,526 |
| | $ | 880,393 |
| | $ | — |
| | $ | 3,095,655 |
| Total | | $ | 321,310 | | | $ | 0 | | | $ | 23,558 | | | $ | 305,750 | | | $ | 650,618 | |
In the event of a significant decline in fair value of the collateral pledged for the securities sold under agreements to repurchase, the Company would be required to provide additional collateral. The Company mitigates the risk by monitoring the liquidity and credit quality of the collateral, as well as the maturity profile of the transactions.
At December 31, 2017,2020, the fair value of collateral received related to securities purchased under agreements to resell was $94$966 million and the fair value of collateral pledged for securities sold under agreements to repurchase was $91$960 million. At December 31, 2016,2019, the fair value of collateral received related to securities purchased under agreements to resell was $3.1 billion$648 million and the fair value of collateral pledged for securities sold under agreements to repurchase was $3.1 billion.$644 million.
(16)(15) Commitments, Contingencies and Guarantees
Lease Commitments
The Company leases certain facilities and equipment for use in its businesses. The leases for facilities are generally for periods of 10 to 20 years with various renewal options, while leases for equipment generally have terms not in excess of five years. The majority of the leases for facilities contain rental escalation clauses tied to changes in price indices. Certain real property leases contain purchase options. Management expects that most leases will be renewed or replaced with new leases in the normal course of business. At December 31, 2017, the Company had $25.3 million of assets recorded as capital leases for which $14.5 million of accumulated depreciation had been recognized.
The following table provides the annual future minimum payments under capital leases and noncancelable operating leases at December 31, 2017:
|
| | | | | | | |
| | Operating Lease | | Capital Lease |
| | (In Thousands) |
| 2018 | $ | 66,172 |
| | $ | 2,155 |
|
| 2019 | 63,864 |
| | 2,191 |
|
| 2020 | 55,868 |
| | 2,227 |
|
| 2021 | 49,831 |
| | 2,136 |
|
| 2022 | 42,993 |
| | 1,904 |
|
| Thereafter | 156,456 |
| | 8,524 |
|
| Total | $ | 435,184 |
| | $ | 19,137 |
|
The Company incurred lease expense of $84.3 million, $81.0 million and $75.0 million for the years ended December 31, 2017, 2016 and 2015, respectively. The Company received lease income of $6.8 million, $6.6 million and $5.4 million for the years ended December 31, 2017, 2016 and 2015, respectively, related to space leased to third parties.
Commitments to Extend Credit & Standby and Commercial Letters of Credit
The following represents the Company’s commitments to extend credit, standby letters of credit and commercial letters of credit.
| | | | December 31, | | December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | (In Thousands) | | (In Thousands) |
| Commitments to extend credit | $ | 27,743,387 |
| | $ | 27,070,935 |
| Commitments to extend credit | $ | 28,251,150 | | | $ | 27,725,965 | |
| Standby and commercial letters of credit | 1,446,903 |
| | 1,474,405 |
| Standby and commercial letters of credit | 853,450 | | | 996,830 | |
Commitments to extend credit are agreements to lend to customers on certain terms and conditions as long as all conditions are satisfied and there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Standby and commercial letters of credit are commitments issued by the Company to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar transactions, and expire in decreasing amounts with terms ranging from one to four years.
The credit risk involved in issuing letters of credit and commitments is essentially the same as that involved in extending loan facilities to customers. The fair value of the letters of credit and commitments typically approximates the fee received from the customer for issuing such commitments. These fees are deferred and are recognized over the commitment period. At both December 31, 20172020 and 2016,2019, the recorded amount of these deferred fees was $9 million and $8 million, respectively.$7 million. The Company holds various assets as collateral supporting those commitments for which collateral is deemed necessary. At December 31, 2017,2020, the maximum potential amount of future undiscounted payments the Company could be required to make under outstanding standby letters of credit was $1.4 billion.$853 million. At December 31, 20172020 and 2016,2019, the Company had reserves related to letters of credit and unfunded commitments recorded in accrued expenses and other liabilities on the Company’s Consolidated Balance Sheet of $83$150 million and $77$67 million, respectively. See Note 1, Summary of Significant Accounting Policies, for discussion of the impact of the adoption of ASC 326 on the allowance for credit losses related to letters of credit and unfunded commitments.
Loan Sale Recourse
The Company has potential recourse related to FNMA securitizations. At both December 31, 20172020 and 2016,2019, the amount of potential recourse was $19$18 million, of which the Company had reserved $793$693 thousand and $681 thousand,
respectively, which is recorded in accrued expenses and other liabilities on its Consolidated Balance Sheets for the respective years.
The Company also issues standard representations and warranties related to mortgage loan sales to government-sponsored agencies. Although these agreements often do not specify limitations, the Company does not believe that any payments related to these warranties would materially change the financial condition or results of operations of the Company. At both December 31, 20172020 and 2016,2019, the Company recorded $1$2.7 million and $1.2 million, respectively, of reserves in accrued expenses and other liabilities on the Company’s Consolidated Balance Sheets related to potential losses from loans sold.
Loss Sharing Agreement
In connection with the Guaranty acquisition, the Bank entered into loss sharing agreements with the FDIC. In accordance with the terms of the loss sharing agreements, the FDIC's obligation to reimburse the Bank for losses with respect to the acquired loans and acquired OREO begins with the first dollar of incurred losses, as defined in the loss sharing agreements. The loss sharing agreements provide for FDIC loss sharing for five years for commercial loans and 10 years for single family residential loans. The loss sharing agreement for commercial loans expired in the fourth quarter of 2014.
On July 12, 2017, the Company terminated the loss share agreement with the FDIC ahead of the contractual maturity. Under the terms of the agreement, the Company made a net payment of $132 million to the FDIC in July as consideration for early termination of the shared-loss agreement and settlement of the FDIC indemnification liability. The termination resulted in a $1.8 million gain for the year ended December 31, 2017 which was recorded in other noninterest income in the Company's Consolidated Statements of Income.
Low Income Housing Tax Credit Partnerships
The Company has committed to make certain equity investments in various limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments will be to facilitate the sale of additional affordable housing product offerings and to assist in achieving goals associated with the Community Reinvestment Act, and to achieve a satisfactory return on capital. The total unfunded commitment associated with these investments at December 31, 20172020 and 20162019 were $373$190 million and $289$171 million, respectively.respectively, and were recorded in accrued expenses and other liabilities on the Company’s Consolidated Balance Sheets.
Forward Starting Reverse Repurchase Agreements and Forward Starting Repurchase Agreements.
The Company enters into securities purchased under agreements to resell and securities sold under agreements to repurchase that settle at a future date, generally within three business days. At December 31, 2020 the Company had 0 forward starting reverse repurchase agreements or forward starting repurchase agreements. The Company had 0 forward starting reverse repurchase agreements and forwarding starting repurchase agreements of $450 million at December 31, 2019.
Legal and Regulatory Proceedings
In the ordinary course of business, the Company is subject to legal proceedings, including claims, litigation, investigations and administrative proceedings, all of which are considered incidental to the normal conduct of business. The Company believes it has substantial defenses to the claims asserted against it in its currently outstanding legal proceedings and, with respect to such legal proceedings, intends to defend itself vigorously. Set forth below are descriptions of certain of the Company’s legal proceedings.
In June 2013, Compass Bank (“BBVA Compass”) was named as a defendant in a lawsuit filed in the United States District Court of the Northern District of Alabama, Intellectual Ventures II, LLC v. BBVA Compass Bancshares, Inc. and BBVA Compass, wherein the plaintiff alleges that BBVA Compass is infringing five patents owned by the plaintiff and related to the security infrastructure for BBVA Compass’ online banking services. The plaintiff seeks unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In January 2014, BBVA Compassthe Bank was named as a defendant in a lawsuit filed in the District Court of Dallas County, Texas, David Bagwell, individually and as Trustee of the David S. Bagwell Trust, et al. v. BBVA Compass,USA, et al., wherein the plaintiffs (who are the borrowers and guarantors of the underlying loans) allege
that BBVA CompassUSA wrongfully sold their loans to a third party after representing that it would not do so. The plaintiffs seek unspecified monetary relief. The estimated exposure in this lawsuit was upgraded in July 2017 after the Company received the plaintiff’s revised damages allegations. Following trial in December 2017, the jury rendered a verdict in favor of the plaintiffs totaling $98$98 million. Plaintiffs have requestedOn June 27, 2018, the court entered a judgment in favor of the plaintiffs in the amount of $79$96 million, plus interest, butwhich includes prejudgment interest. The Bank appealed and on December 14, 2020, the appellate court has not yet entered a judgment. BBVA Compass will vigorously contestissued an opinion reversing the jury verdict and entering a plaintiffs take nothing judgment in post-trial motions andthe Company’s favor on appeal.all claims. Plaintiffs are seeking further review of the appellate court’s decision. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In January 2016, BBVA Securities Inc. (“BSI”) was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Southern District of Texas, In re Plains All American Pipeline, L.P. Securities Litigation, wherein the plaintiffs challenge statements made in registration materials and prospectuses filed with the Securities and Exchange Commission in connection with eight securities offerings of stock and notes issued by Plains GP Holdings and Plains All American Pipeline and underwritten by BSI, among others. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In March 2016, BBVA Compass was named as a defendant in a lawsuit filed in the United States District Court of the Southern District of Texas, Lomix Limited Partnership, et al. v. BBVA Compass, wherein the plaintiffs (who are the borrower and guarantors of the underlying loan) allege that BBVA Compass wrongfully sold their loan to a third party, and wrongfully disclosed the guarantors’ personal financial information in connection with the sale of the loan. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In October 2016, BSI was named as a defendant in a putative class action lawsuit filed in the District Court of Harris County, Texas, and subsequently removed to the United States District Court for the Southern District of Texas, St. Lucie County Fire District Firefighters' Pension Trust, individually and on behalf of all others similarly situated v. Southwestern Energy Company, et al., wherein the plaintiffs allege that Southwestern Energy Company, its officers and directors, and the underwriting defendants (including BSI) made inaccurate and misleading statements in the registration statement and prospectus related to a securities offering. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
The Company and the Bank have been named in 2 proceedings involving David L. Powell: 1 that was filed in January 2017 with the Federal Conciliation and Arbitration Labor Board of Mexico City, Mexico, David Lannon Powell Finneran v. BBVA USA Bancshares, Inc., et al., and 1 that was filed in April 2018 in the United States District Court for the Northern District of Texas, David L. Powell, et al. v. BBVA USA. Powell alleges discrimination and wrongful termination in both proceedings, and seeks unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In December 2016, BBVA Compass wasMarch 2019, the Company and its subsidiary, Simple Finance Technology Corp., were named as defendants in a defendant in an adversary proceedingputative class action lawsuit filed in the United States BankruptcyDistrict Court for the SouthernNorthern District of New York, In re: SunEdison,California, Amitahbo Chattopadhyay v. BBVA USA Bancshares, Inc., et al. // Official Committeeal. Plaintiff claims that Simple and the Company only permit United States citizens to open Simple accounts (which are exclusively originated through online channels). Plaintiff later amended the complaint to also take issue with BBVA USA’s practice of Unsecured Creditors v.directing non-citizen applicants to complete the online account origination processes in a physical branch location. Plaintiff alleges that these practices constitute alienage discrimination and violations of California's Unruh Act. BBVA Compass, et al., whereinUSA’s motion to dismiss was granted on November 2, 2020 and the plaintiffs allege that the first-lien lenders (including BBVA Compass) exercised undue influence and control over SunEdison’s bankruptcy, that SunEdison improperly incurred secured debt through second-lien secured notes to the detriment of SunEdison’s unsecured creditors shortly before SunEdison filed its bankruptcy petition, and that the second-lien notes constitute avoidable fraudulent transfers under the Bankruptcy Code. The plaintiffs seek unspecified monetary relief. The parties reached a settlement that was approved by the Bankruptcy Court as part ofare pursuing an overall plan that was implemented in December 2017. Under the termsappeal of that settlement,ruling. The Company believes that there is not a material adverse impactare substantial defenses to these claims and intends to defend them vigorously.
In July 2019, the Company.
In December 2016, BBVA CompassCompany was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Northern District of Alabama, Robert Hossfeld, individually and on behalf of all others similarly situatedFerguson v. BBVA Compass and MSR Group, LLCUSA Bancshares, Inc., alleging violationswherein the plaintiffs allege certain investment options within the Company’s employee retirement plan violate provisions of the Telephone Consumer Protection Act in the context of customer satisfaction survey calls to the cell phones of individuals who have not given, or who have withdrawn, consent to receive calls on their cell phones.ERISA. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In August 2017, BSIApril 2020, the Bank was named in a putative class action lawsuit filed in the District Court of Bexar County, Texas styled Zamora-Orduna Realty Group LLC v. BBVA USA, wherein plaintiffs allege the Bank tortiously failed to process certain loan requests submitted in connection with the federal Paycheck Protection Program. The plaintiffs seek an amount not less than $10 million along with other demands for unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In April 2020, BBVA USA was named as a defendant in a lawsuit filed in the United States District Court for the Eastern District of Texas, Marshall Division originally styled Estech Systems, Inc. v. BBVA USA Bancshares, Inc., alleging that BBVA USA has violated intellectual property rights owned by the plaintiff in connection with various patents regarding voice-over-internet protocols (VoIP). The plaintiff alleges that BBVA USA’s use of certain phone systems and technologies violate its claimed patent rights.
The plaintiff seeks unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In June 2020, BBVA USA was named as a defendant in a putative class action lawsuit filed in the United States District Court for the District of Connecticut, Ontario Teachers’ Pension Plan Board, individually and on behalf of all others similarly situated v. Teva Pharmaceutical Industries Ltd., et al., wherein the plaintiffs allege that Teva Pharmaceutical Industries Ltd. (“Teva”), its officers and directors, and the underwriting defendants (including BSI) made inaccurate and misleading statements in the offering materials related to Teva’s role in an alleged conspiracy to inflate the market prices of certain generic drug products. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In August 2017, BBVA Compass was named as a defendant in a lawsuit filed in the United States District Court for the Northern District of Texas, United States of America ex rel. Edward Hendrickson v. BBVA Compass, et al., alleging that the defendant banks, including BBVA Compass, violated the federal False Claims Act by accepting federal agency benefit payments into the accounts of deceased customers. Hendrickson seeks unspecified monetary relief on behalf of the United States government. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In September 2017, BBVA Compass was named as a defendant in putative class action lawsuit filed in the United States District Court for the Northern District of Illinois, Lara Bellissimo, individually and on behalf of similarly situated individuals v. BBVA Compass, alleging violations of the Telephone Consumer Protection Act in the context of collections calls to the cell phones of individuals who were not the individuals that provided the phone numbers to BBVA Compass. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In November 2017, BBVA Compass was named as a defendant in a lawsuit filed in the United States District Court for the Southern District of New York, Stabilis Fund II, LLCCalifornia styled Sarah Hill v. BBVA Compass, alleging that BBVA Compass fraudulently induced the plaintiff to purchase a loan that subsequently became the subject of litigation. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In January 2018, BBVA Compass was named as a defendant in putative class action lawsuit filed in the United States District Court for the Northern District of Illinois, Petra Lopez and Colea Wright, on behalf of themselves and all others similarly situated v. BBVA CompassUSA, challenging BBVA Compass’USA’s assessment of certain overdraft fees. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In January 2018, BBVA CompassJuly 2020, BSI was named as a defendant in a putative class action lawsuit filed in the United States DistrictSupreme Court forof the Western DistrictState of Texas, Daniel Andrade, Sr.New York, County of New York, City of Miami Fire Fighters’ and Elizabeth M. Andrade, Police Officers’ Retirement Trust, individually and as the representativeon behalf of a class ofall others similarly situated persons v. BBVA CompassOccidental Petroleum Corporation, et al., wherein the plaintiffs allege that Occidental Petroleum Corporation, its officers and Taherzadeh, PLLC, alleging that BBVA Compass improperly assesses default rate interest on HELOCs priordirectors, and the underwriting defendants (including BSI) made inaccurate and misleading statements in the registration statement and prospectus related to default and without prior notice.a securities offering. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In October 2020, BBVA USA was joined in a Delaware state court action styled Yatra Online v. Ebix, et al., alleging breach of contract and tortious interference with a prospective transaction between Yatra Online and Ebix. The plaintiff seeks unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In December 2020, BBVA USA was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Southern District of California styled Eisenberg v. BBVA USA, challenging BBVA USA’s assessment of certain overdraft fees. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In December 2020, the Company was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Northern District of Alabama, Drake v. BBVA USA Bancshares, Inc., et al., wherein the plaintiff alleges certain investment options within the Company’s employee retirement plan violate provisions of ERISA. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
The Company is or may become involved from time to time in information-gathering requests, reviews, investigations and proceedings (both formal and informal) by various governmental regulatory agencies, law enforcement authorities and self-regulatory bodies regarding the Company’s business. Such matters may result in material adverse consequences, including without limitation adverse judgments, settlements, fines, penalties, orders, injunctions, alterations in the Company’s business practices or other actions, and could result in additional expenses and collateral
costs, including reputational damage, which could have a material adverse impact on the Company’s business, consolidated financial position, results of operations or cash flows.
The Company assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably estimated, the Company records a liability in its consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments. Where a loss is not probable or the amount of a probable loss is not reasonably estimable, the Company does not accrue legal reserves. At December 31, 2017,2020 and 2019 , the Company had accrued legal reserves in the amount of $29 million.$5 million and $23 million, respectively. Additionally, for those matters where a loss is reasonably possible and the amount of loss is reasonably estimable, the Company estimates the amount of losses that it could incur beyond the accrued legal reserves.reserves, if any. Under U.S. GAAP, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote“remote" if “the chance of the future event or events occurring is slight.” For a limited number of legal matters in which the Company is involved, the Company is able to estimate a range ofBased on information available at December 31, 2020, management estimates 0 reasonably possible losses in excess of related reserves, if any. Management currently estimates these losses to range from $0 to approximately $76 million. This estimated range of reasonably possible losses is based on information available at December 31, 2017.reserves. The matters underlying the estimated rangethis estimate will change from time to time, and the actual results may vary significantly from this estimate. Those matters for which an estimate is not
possible are not included within this estimated range;estimate; therefore, this estimated rangeestimate does not represent the Company’s maximum loss exposure.
While the outcome of legal proceedings and the timing of the ultimate resolution are inherently difficult to predict, based on information currently available, advice of counsel and available insurance coverage, the Company believes that it has established adequate legal reserves. Further, based upon available information, the Company is of the opinion that these legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s financial condition or results of operations. However, in the event of unexpected future developments, it is possible that the ultimate resolution of those matters, if unfavorable, may be material to the Company’s results of operations for any particular period, depending, in part, upon the size of the loss or liability imposed and the operating results for the applicable period.
Income Tax Review
The Company is subject to review and examination from various tax authorities. The Company is currently under examination by the IRS for the tax year 2018 and a number of states, and has received notices of proposed adjustments related to state income taxes due for prior years. Management believes that adequate provisions for income taxes have been recorded. Refer to Note 19, 18, Income Taxes,, for additional information on various tax audits.
(17)(16) Regulatory Capital Requirements and Dividends from Subsidiaries
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s Consolidated Financial Statements. Under capital adequacy guidelines, the regulatory framework for prompt corrective action and the Gramm-Leach-Bliley Act, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of each entity's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the Company and the Bank are also subject to qualitative judgments by the regulators about capital components, risk weightings and other factors.
At December 31, 2017,2020, the Company and the Bank, remain above the applicable U.S. regulatory capital requirements. Under the U.S. Basel III capital rule, the current minimum required regulatory capital ratios under Transition Requirements to which the Company and the Bank were subject are as follows:
|
| | | | | |
| | 2017 (1) | | 2016 (2) |
| CET1 Risk-Based Capital Ratio | 5.750 | % | | 5.125 | % |
| Tier 1 Risk-Based Capital Ratio | 7.250 |
| | 6.625 |
|
| Total Risk-Based Capital Ratio | 9.250 |
| | 8.625 |
|
| Tier 1 Leverage Ratio | 4.000 |
| | 4.000 |
|
| | | | | | | |
(1) | At December 31, 2017, under transition requirements, the CET1, tier 1 and total capital minimum ratio requirements include a capital conservation buffer of 1.250%. |
| |
(2)CET1 Risk-Based Capital Ratio (1) | At December 31, 2016, under transition requirements, the CET1, tier7.000 | % | | |
Tier 1 and total capital minimum ratio requirements include a capital conservation buffer of 0.625%.Risk-Based Capital Ratio (1) | 8.500 | | | |
| Total Risk-Based Capital Ratio (1) | 10.500 | | | |
| Tier 1 Leverage Ratio | 4.000 | | | |
(1) The CET1, tier 1 and total capital minimum ratio requirements include a capital conservation buffer of 2.500%.
.
The following table presents the Transitional Basel III regulatory capital ratios at December 31, 20172020 and 20162019 for the Company and the Bank.
| | | | | | | | | | | | | | | | | | | | | | | |
| Amount | | Ratios |
| 2020 | | 2019 | | 2020 | | 2019 |
| (Dollars in Thousands) |
| Risk-based capital | | | | | | | |
| CET1: | | | | | | | |
| BBVA USA Bancshares, Inc. | $ | 9,086,853 | | | $ | 8,615,357 | | | 13.28 | % | | 12.49 | % |
| BBVA USA | 8,314,129 | | | 7,916,278 | | | 12.24 | | | 11.56 | |
| Tier 1: | | | | | | | |
| BBVA USA Bancshares, Inc. | 9,316,853 | | | 8,849,557 | | | 13.61 | | | 12.83 | |
| BBVA USA | 8,314,129 | | | 7,920,478 | | | 12.24 | | | 11.56 | |
| Total: | | | | | | | |
| BBVA USA Bancshares, Inc. | 10,804,264 | | | 10,332,023 | | | 15.79 | | | 14.98 | |
| BBVA USA | 9,796,153 | | | 9,549,373 | | | 14.42 | | | 13.94 | |
| Leverage: | | | | | | | |
| BBVA USA Bancshares, Inc. | 9,316,853 | | | 8,849,557 | | | 9.07 | | | 9.70 | |
| BBVA USA | 8,314,129 | | | 7,920,478 | | | 8.32 | | | 8.98 | |
|
| | | | | | | | | | | | | |
| | Amount | | Ratios |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (Dollars in Thousands) |
| Risk-based capital | | | | | | | |
| CET1: | | | | | | | |
| BBVA Compass Bancshares, Inc. | $ | 7,964,877 |
| | $ | 7,669,118 |
| | 11.80 | % | | 11.49 | % |
| Compass Bank | 7,301,630 |
| | 7,272,273 |
| | 10.88 |
| | 10.93 |
|
| Tier 1: | | | | | | | |
| BBVA Compass Bancshares, Inc. | 8,199,077 |
| | 7,907,518 |
| | 12.15 |
| | 11.85 |
|
| Compass Bank | 7,305,830 |
| | 7,280,673 |
| | 10.89 |
| | 10.95 |
|
| Total: | | | | | | | |
| BBVA Compass Bancshares, Inc. | 9,689,834 |
| | 9,550,482 |
| | 14.36 |
| | 14.31 |
|
| Compass Bank | 9,007,719 |
| | 9,020,099 |
| | 13.43 |
| | 13.56 |
|
| Leverage: | | | | | | | |
| BBVA Compass Bancshares, Inc. | 8,199,077 |
| | 7,907,518 |
| | 9.98 |
| | 9.46 |
|
| Compass Bank | 7,305,830 |
| | 7,280,673 |
| | 9.10 |
| | 9.14 |
|
Dividends paid by the Bank are the primary source of funds available to the Parent for payment of dividends to its shareholder and other needs. Applicable federal and state statutes and regulations impose restrictions on the amount of dividends that may be declared by the Bank. In addition to the formal statutes and regulations, regulatory authorities also consider the adequacy of each bank’s total capital in relation to its assets, deposits and other such items. Capital adequacy considerations could further limit the availability of dividends from the Bank. The Bank could have paid additional dividends to the Parent in the amount of $1.9$2.5 billion while continuing to meet the capital requirements for “well-capitalized” banks at December 31, 2017;2020; however, due to the net earnings restrictions on dividend distributions, the Bank did not have the ability to pay any dividends at December 31, 20172020 without regulatory approval.
The Bank is required to maintain cash balances with the Federal Reserve. The average amount of these balances approximated $2.8$10.2 billion and $1.9$4.5 billion for the years ended December 31, 20172020 and 2016,2019, respectively.
(18)(17) Benefit Plans
Defined Benefit Plan
The Company sponsors a defined benefit pension plan that is intended to qualify under the Internal Revenue Code. At the beginning of 2003, the pension plan was closed to new participants, with existing participants being offered the option to remain in the pension plan or move to an employer funded defined contribution plan. Benefits under the
pension plan are based on years of service and the employee's highest consecutive five years of compensation during employment.
During 2014, the Company announced to all active participants the sunsetting of the pension plan on December 31, 2017. Beginning on this date, active participants will no longer be credited with future service but rather will be transitioned into the employer funded portion of the Company's defined contribution plan.
The following tables summarize the Company’s defined benefit pension plan.
Obligations and Funded Status
| | | | Years Ended December 31, | | Years Ended December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | (In Thousands) | | (In Thousands) |
| Change in benefit obligation: | | | | Change in benefit obligation: | |
| Benefit obligation, at beginning of year | $ | 340,191 |
| | $ | 329,736 |
| Benefit obligation, at beginning of year | $ | 379,026 | | | $ | 334,290 | |
| Service cost | 3,542 |
| | 3,784 |
| Service cost | 600 | | | 550 | |
| Interest cost | 11,685 |
| | 11,668 |
| Interest cost | 10,497 | | | 12,862 | |
| Actuarial (gain) loss | 22,171 |
| | 8,374 |
| Actuarial (gain) loss | 36,477 | | | 46,375 | |
| Benefits paid | (13,737 | ) | | (13,371 | ) | Benefits paid | (16,261) | | | (15,051) | |
| | Benefit obligation, at end of year | 363,852 |
| | 340,191 |
| Benefit obligation, at end of year | 410,339 | | | 379,026 | |
| Change in plan assets: | | | | Change in plan assets: | | | |
| Fair value of plan assets, at beginning of year | 336,627 |
| | 338,266 |
| Fair value of plan assets, at beginning of year | 361,920 | | | 328,795 | |
| Actual return on plan assets | 26,035 |
| | 11,732 |
| Actual return on plan assets | 54,958 | | | 45,176 | |
| Employer contribution | | Employer contribution | 0 | | | 3,000 | |
| Benefits paid | (13,737 | ) | | (13,371 | ) | Benefits paid | (16,261) | | | (15,051) | |
| Fair value of plan assets, at end of year | 348,925 |
| | 336,627 |
| Fair value of plan assets, at end of year | 400,617 | | | 361,920 | |
| | | | | | | | |
| Funded status | (14,927 | ) | | (3,565 | ) | Funded status | (9,722) | | | (17,106) | |
| Net actuarial loss | 43,430 |
| | 37,445 |
| Net actuarial loss | 33,570 | | | 43,125 | |
| | Net amount recognized | $ | 28,503 |
| | $ | 33,880 |
| Net amount recognized | $ | 23,848 | | | $ | 26,019 | |
Amounts recognized on the Company’s Consolidated Balance Sheets consist of:
| | | | | | | | December 31, |
| | December 31, | | 2020 | | 2019 |
| | 2017 | | 2016 | | (In Thousands) |
| | (In Thousands) | |
| Accrued expenses and other liabilities | $ | (14,927 | ) | | $ | (3,565 | ) | Accrued expenses and other liabilities | $ | (9,722) | | | $ | (17,106) | |
| Deferred tax – other assets | 10,267 |
| | 13,907 |
| Deferred tax – other assets | 7,963 | | | 10,264 | |
| Accumulated other comprehensive loss | 33,163 |
| | 23,538 |
| Accumulated other comprehensive loss | 25,607 | | | 32,861 | |
| Net amount recognized | $ | 28,503 |
| | $ | 33,880 |
| Net amount recognized | $ | 23,848 | | | $ | 26,019 | |
The accumulated benefit obligation for the Company’s defined benefit pension plan was $364$410 million and $338$379 million at December 31, 20172020 and 2016,2019, respectively. The Company anticipates amortizing $546 thousandNaN of the actuarial loss from accumulated other comprehensive income over the next twelve months.
The components of net periodic benefit cost recognized in the Company’s Consolidated Statements of Income are as follows.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In Thousands) |
| Service cost | $ | 600 | | | $ | 550 | | | $ | 509 | |
| Interest cost | 10,497 | | | 12,862 | | | 11,565 | |
| Expected return on plan assets | (9,065) | | | (10,733) | | | (9,529) | |
| Recognized actuarial loss | 139 | | | 0 | | | 259 | |
| Net periodic benefit cost | $ | 2,171 | | | $ | 2,679 | | | $ | 2,804 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| Service cost | $ | 3,542 |
| | $ | 3,784 |
| | $ | 4,754 |
|
| Interest cost | 11,685 |
| | 11,668 |
| | 14,459 |
|
| Expected return on plan assets | (10,087 | ) | | (10,446 | ) | | (10,537 | ) |
| Recognized actuarial loss | — |
| | — |
| | 563 |
|
| Net periodic benefit cost | $ | 5,140 |
| | $ | 5,006 |
| | $ | 9,239 |
|
The following table provides additional information related to the Company’s defined benefit pension plan.
| | | | Years Ended December 31, | | Years Ended December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | (Dollars in Thousands) | | (Dollars in Thousands) |
| Change in defined benefit plan included in other comprehensive income | $ | 9,625 |
| | $ | 4,416 |
| Change in defined benefit plan included in other comprehensive income | $ | (7,254) | | | $9,070 |
| | | | | | | | |
| Weighted average assumptions used to determine benefit obligation at December 31: | | | | |
| Weighted average assumption used to determine benefit obligation at December 31: | | Weighted average assumption used to determine benefit obligation at December 31: | |
| Discount rate | 3.57 | % | | 4.04 | % | Discount rate | 2.45 | % | | 3.24 | % |
| Rate of compensation increase | N/A |
| | 3.00 | % | |
| | | | | | |
| Weighted average assumptions used to determine net pension income for year ended December 31: | | | | Weighted average assumptions used to determine net pension income for year ended December 31: | |
| Discount rate - benefit obligations | 4.04 | % | | 4.29 | % | Discount rate - benefit obligations | 3.24 | % | | 4.23 | % |
| Discount rate - service cost | 4.22 | % | | 4.52 | % | |
| | Discount rate - interest cost | 3.51 | % | | 3.62 | % | Discount rate - interest cost | 2.85 | % | | 3.94 | % |
| Expected return on plan assets | 3.06 | % | | 3.15 | % | Expected return on plan assets | 2.55 | % | | 3.33 | % |
| Rate of compensation increase | 3.00 | % | | 3.00 | % | |
|
To establish the discount rate utilized, the Company performs an analysis of matching anticipated cash flows for the duration of the plan liabilities to third party forward discount curves. To develop the expected return on plan assets, the Company considers the current level of expected returns on risk free investments (primarily government bonds), the historical level of risk premium associated with other asset classes in which plan assets are invested, and the expectations for future returns of each asset class. The expected return for each asset class is then weighted based on the target asset allocation, and a range of expected return on plan assets is developed. Based on this information, the plan’s Retirement Committee sets the discount rate and expected rate of return assumption.
The following table summarizes the estimated benefits to be paid in the following periods.
The Company’s Retirement Committee sets the investment policy for the defined benefit pension plan and reviews investment performance and asset allocation on a quarterly basis. The current asset allocation for the plan is entirely allocated to fixed income securities, including U.S. Treasury and other U.S. government securities, corporate debt securities and municipal debt securities, as well as cash and cash equivalent securities.
The following table presents the fair value of the Company’s defined benefit pension plan assets.
The Company sponsors a defined contribution plan comprised of a traditional employee defined contribution component with matching employer contributions and an employer funded defined contribution component. Under the traditional employee portion of the defined contribution plan, employees may contribute up to 75% of their compensation on a pretax basis subject to statutory limits. The Company makes matching contributions equal to 100% of the first 3% of compensation deferred plus 50% of the next 2% of compensation deferred. The Company may also make voluntary non-matching contributions to the plan.
Under the employer funded portion of the defined contribution plan, the Company makes contributions on behalf of certain employees based on pay and years of service. The Company's contributions range from 2% to 4% of the employee's base pay based on the employee's years of service. Participation in this portion of the defined contribution plan was limited to employees hired after January 1, 2002 and those participants in the defined benefit pension plan who, in 2002, chose to forgo future accumulation of benefit service.
Income tax expense differed from the amount computed by applying the federal statutory income tax rate to pretax (loss) earnings for the following reasons: