UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
| |
| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 20172019
or
|
| |
| ¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 000-55106
BBVA CompassUSA Bancshares, Inc.
(Exact name of registrant as specified in its charter)
|
| | | |
| Texas | | 20-8948381 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
| |
| 2200 Post Oak Blvd. Houston, Texas | | 77056 |
| (Address of principal executive offices) | | (Zip Code) |
| | (205) 297-3000 | |
| (Registrant’s telephone number, including area code) |
| Not Applicable | |
| (Former name or former address, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| | | | | |
Large accelerated filer o | | Accelerated filer o | | Non-accelerated filer þ (Do not check if a smaller reporting company) | |
Smaller reporting company o | | Emerging growth company o | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. |
| | |
| Class | | Outstanding as of October 31, 201725, 2019 |
| Common Stock (par value $0.01 per share) | | 222,950,751222,963,891 shares |
Explanatory Note
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this report with certain reduced disclosures as permitted by those instructions.
TABLE OF CONTENTS
Glossary of Acronyms and Terms
The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:
|
| |
| AFS | Available For Sale |
| ASC | Accounting Standards Codification |
| ASU | Accounting Standards Update |
| Basel III | Global regulatory framework developed by the Basel Committee on Banking Supervision |
| Bank | Compass BankBBVA USA |
| BBVA | Banco Bilbao Vizcaya Argentaria, S.A. |
BBVA Compass | Registered trade name of Compass Bank |
| BBVA Group | BBVA and its consolidated subsidiaries |
| BOLI | Bank Owned Life Insurance |
| BSI | BBVA Securities Inc. |
Capital Securities | Debentures issued by the Parent |
| Cash Flow Hedge | A hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability |
| CD | Certificate of Deposit and/or time deposits |
| CET1 | Common Equity Tier 1 |
| CET1 Risk-Based Capital Ratio | Ratio of Common Equity Tier 1 capital to risk-weighted assets |
| CFPB | Consumer Financial Protection Bureau |
| Company | BBVA CompassUSA Bancshares, Inc. and its subsidiaries |
Covered Assets | Loans and other real estate owned acquired from the FDIC subject to loss sharing agreements |
Covered Loans | Loans acquired from the FDIC subject to loss sharing agreements |
| CRA | Community Reinvestment Act |
| EGRRCPA | Economic Growth Regulatory Relief and Consumer Protection Act |
| ERM | Enterprise Risk Management |
| EVE | Economic Value of Equity |
| Exchange Act | Securities and Exchange Act of 1934, as amended |
| Fair Value Hedge | A hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment |
| FASB | Financial Accounting Standards Board |
| FBO Tailoring Proposals | Federal banking agencies proposed rules that would adjust the thresholds at which certain enhanced prudential standards and Basel III capital and liquidity requirements apply to FBOs and the U.S. IHCs of FBOs pursuant to the EGRRCPA |
| FDIC | Federal Deposit Insurance Corporation |
| Federal Reserve Board | Board of Governors of the Federal Reserve System |
| FHC | Financial holding company |
| FHLB | Federal Home Loan Bank |
| FICO | Fair Isaac Corporation |
| Fitch | Fitch Ratings |
| FNMA | Federal National Mortgage Association |
Guaranty Bank | Collectively, certain assets and liabilities of Guaranty Bank, acquired by the Company in 2009 |
| HTM | Held To Maturity |
| IHC | Top-tier U.S. intermediate holding company |
| Large FBO | Foreign Banking Organization with $100 billion or more in global total consolidated assets |
| LCR | Liquidity Coverage Ratio |
| Leverage Ratio | Ratio of Tier 1 capital to quarterly average on-balance sheet assets |
| Moody's | Moody's Investor Services, Inc. |
| MRA | Master Repurchase Agreement |
| MSR | Mortgage Servicing Rights |
OCC | Office of the Comptroller of the Currency |
| OREO | Other Real Estate Owned |
| OTTI | Other-Than-Temporary Impairment |
| OIS | Overnight Index Swap |
|
| |
| Parent | BBVA CompassUSA Bancshares, Inc. |
| Potential Problem Loans | Commercial loans rated substandard or below, which do not meet the definition of nonaccrual, TDR, or 90 days past due and still accruing |
| Resolution Plan Proposal | Federal Reserve Board and FDIC proposed rule that would reduce or eliminate resolution planning requirements for institutions that fall into certain risk-based categories |
| SBA | Small Business Administration |
| SBIC | Small Business Investment Company |
| SEC | Securities and Exchange Commission |
S&P | Standard and Poor's Rating Services |
| Series A Preferred Stock | Floating Non-Cumulative Perpetual Preferred Stock, Series A |
| SOFR | Secured Overnight Financing Rate |
| S&P | Standard and Poor's Rating Services |
| Tax Cuts and Jobs Act | H.R. 1, formerly known as the Tax Cuts and Jobs Act of 2017 |
| TBA | To be announced |
| TDR | Troubled Debt Restructuring |
| Tier 1 Risk-Based Capital Ratio | Ratio of Tier 1 capital to risk-weighted assets |
| Total Risk-Based Capital Ratio | Ratio of Total capital (the sum of Tier 1 capital and Tier 2 capital) to risk-weighted assets |
| U.S. | United States of America |
| U.S. Treasury | United States Department of the Treasury |
| U.S. GAAP | Accounting principles generally accepted in the U.S. |
Unless otherwise specified, the terms “we,” “us,” “our,” and the “Company” are used to refer to BBVA CompassUSA Bancshares, Inc. and its subsidiaries, or any one or more of them, as the context may require. The term “Parent” refers to BBVA CompassUSA Bancshares, Inc. The term “BBVA” refers to Banco Bilbao Vizcaya Argentaria, S.A., the parent company of BBVA CompassUSA Bancshares, Inc.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements about the Company and its industry that involve substantial risks and uncertainties. Statements other than statements of current or historical fact, including statements regarding the Company's future financial condition, results of operations, business plans, liquidity, cash flows, projected costs, and the impact of any laws or regulations applicable to the Company, are forward-looking statements. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “projects,” “may,” “will,” “should,” and other similar expressions are intended to identify these forward-looking statements. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. Such factors include, but are not limited to, the following:
national, regional and local economic conditions may be less favorable than expected, resulting in, among other things, increased charge-offs of loans, higher provisions for credit losses and/or reduced demand for the Company's services;
disruptions to the credit and financial markets, either nationally or globally;
weaknessdecline in the real estate market, including the secondary residential mortgage market, which can affect, among other things,values or overall economic weakness could also have an adverse impact upon the value of collateral securing mortgage loans, mortgagereal estate or other assets which the Company owns as a result of foreclosing a loan originations and delinquencies, and profitsits ability to realize value on sales of mortgage loans;such assets;
legislative, regulatory or accounting changes, which may adversely affect our business and/or competitive position, impose additional costs on the Company or cause us to change our business practices;
the fiscal and monetary policies of the federal government and its agencies;
the impact of consumer protection regulations, including the CFPB's residential mortgage and other retail lending regulations, which could adversely affect the Company's business, financial condition or results of operations;
the failure to satisfy capital adequacy and liquidity guidelines applicable to the Company;
volatile or declining oil prices, which could have a negative impact on the economies and real estate markets of states such as Texas, resulting in, among other things, higher delinquencies and increased charge-offs in the energy lending portfolio as well as other commercial and consumer loan portfolios indirectly impacted by declining oil prices;
ifa failure by the Bank's CRA rating wereCompany to decline, that could resulteffectively manage the risks the Company faces, including credit, operational and cyber security risks;
failure to control concentration risk such as loan type, industry segment, borrower type or location of the borrower or collateral;
changes in certain restrictions onthe creditworthiness of customers;
downgrades to the Company's activities;credit ratings;
changes in interest rates which could affect interest rate spreads and net interest income;
costs and effects of litigation, regulatory investigations, examinations or similar matters;
disruptions in the Company's ability to access capital markets, which may adversely affect its capital resources and liquidity;
increased loan losses or impairment of goodwill;
the Company's heavy reliance on communications and information systems to conduct its business and reliance on third parties and affiliates to provide key components of its business infrastructure, any disruptions of which could interrupt the Company's operations or increase the costs of doing business;
that negative public opinion, which could damage the Company's reputation and adversely impact business and revenues;
the Company depends on the expertise of key personnel, and if these individuals leave or change their roles without effective replacements, operations may suffer;
the Company's financial reporting controls and procedures may not prevent or detect all errors or fraud;
the Company is subject to certain risks related to originating and selling mortgages. It may be required to repurchase mortgage loans or indemnify mortgage loan purchases as a result of breaches of representations and warranties, borrower fraud or certain breaches of its servicing agreements, and this could harm the Company's liquidity, results of operations and financial condition;
the Company's dependence on the accuracy and completeness of information about clients and counterparties;
the fiscal and monetary policies of the federal government and its agencies;
the failure to satisfy capital adequacy and liquidity guidelines applicable to the Company;
downgrades to the Company's credit ratings;
changes in interest rates which could affect interest rate spreads and net interest income;
costs and effects of litigation, regulatory investigations or similar matters;
a failure by the Company to effectively manage the risks the Company faces, including credit, operational and cyber security risks;
increased pressures from competitors (both banks and non-banks) and/or an inability by the Company to remain competitive in the financial services industry, particularly in the markets which the Company serves, and keep pace with technological changes;
unpredictable natural or other disasters, which could impact the Company's customers or operations;
a loss of customer deposits, which could increase the Company's funding costs;
the impact that can result from having loans concentrated by loan type, industry segment, borrower type or locationCompany's dependence on the accuracy and completeness of the borrower or collateral;information about clients and counterparties;
changes in the creditworthiness of customers;
increased loan lossesCompany's accounting policies or impairment of goodwill and other intangibles;
potential changes in interchange fees;
negative public opinion,accounting standards which could damagematerially affect how the Company's reputationCompany reports financial results and adversely impact business and revenues;condition;
the Company has in the past and may in the future pursue acquisitions, which could affect costs and from which the Company may not be able to realize anticipated benefits;
the Company depends on the expertise of key personnel, and if these individuals leave or change their roles without effective replacements, operations may suffer;
the Company may not be able to hire or retain additional qualified personnel and recruiting and compensation costs may increase as a result of turnover, both of which may increase costs and reduce profitability and may adversely impact the Company's ability to implement the Company's business strategies; and
changes in the Company's accounting policies or in accounting standards which could materially affect how the Company reports financial results and condition.strategies.
The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the time they are made and do not necessarily reflect the Company’s outlook at any other point in time. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or for any other reason. However, readers should carefully review the risk factors set forth in other reports or documents the Company files periodically with the SEC.
PART I FINANCIAL INFORMATION
| |
| Item 1. | Financial Statements (Unaudited) |
BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | |
BBVA USA BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | | BBVA USA BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) |
| | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| | (In Thousands) | (In Thousands) |
| Assets: | | | | | | |
| Cash and due from banks | $ | 1,145,745 |
| | $ | 1,284,261 |
| $ | 1,117,458 |
| | $ | 1,217,319 |
|
| Interest bearing funds with the Federal Reserve | 2,400,533 |
| | 1,830,078 |
| |
| Federal funds sold, securities purchased under agreements to resell and interest bearing deposits | 188,380 |
| | 137,447 |
| 5,356,141 |
| | 2,115,307 |
|
| Cash and cash equivalents | 3,734,658 |
| | 3,251,786 |
| 6,473,599 |
| | 3,332,626 |
|
| Trading account assets | 572,104 |
| | 3,144,600 |
| 564,000 |
| | 237,656 |
|
| Investment securities available for sale | 12,268,309 |
| | 11,665,055 |
| |
| Investment securities held to maturity (fair value of $1,067,919 and $1,182,009 at September 30, 2017 and December 31, 2016, respectively) | 1,077,372 |
| | 1,203,217 |
| |
| Loans held for sale, (includes $77,783 and $105,257 measured at fair value for September 30, 2017 and December 31, 2016, respectively) | 77,783 |
| | 161,849 |
| |
| Debt securities available for sale | | 7,612,590 |
| | 10,981,216 |
|
| Debt securities held to maturity (fair value of $6,514,496 and $2,925,420 at September 30, 2019 and December 31, 2018, respectively) | | 6,334,634 |
| | 2,885,613 |
|
| Loans held for sale, at fair value | | 134,314 |
| | 68,766 |
|
| Loans | 60,315,204 |
| | 60,061,263 |
| 63,320,571 |
| | 65,186,554 |
|
| Allowance for loan losses | (849,119 | ) | | (838,293 | ) | (942,191 | ) | | (885,242 | ) |
| Net loans | 59,466,085 |
| | 59,222,970 |
| 62,378,380 |
| | 64,301,312 |
|
| Premises and equipment, net | 1,226,747 |
| | 1,300,054 |
| 1,085,635 |
| | 1,152,958 |
|
| Bank owned life insurance | 720,693 |
| | 711,939 |
| 746,819 |
| | 736,171 |
|
| Goodwill | 4,983,296 |
| | 4,983,296 |
| 4,983,296 |
| | 4,983,296 |
|
| Other assets | 1,556,613 |
| | 1,435,187 |
| 2,600,820 |
| | 2,267,560 |
|
| Total assets | $ | 85,683,660 |
| | $ | 87,079,953 |
| $ | 92,914,087 |
| | $ | 90,947,174 |
|
| Liabilities: | | | | | | |
| Deposits: | | | | | | |
| Noninterest bearing | $ | 21,094,235 |
| | $ | 20,332,792 |
| $ | 21,019,303 |
| | $ | 20,183,876 |
|
| Interest bearing | 46,119,332 |
| | 46,946,741 |
| 52,550,139 |
| | 51,984,111 |
|
| Total deposits | 67,213,567 |
| | 67,279,533 |
| 73,569,442 |
| | 72,167,987 |
|
| FHLB and other borrowings | 3,956,041 |
| | 3,001,551 |
| 3,709,949 |
| | 3,987,590 |
|
| Federal funds purchased and securities sold under agreements to repurchase | 44,761 |
| | 39,052 |
| 117,421 |
| | 102,275 |
|
| Other short-term borrowings | 327,539 |
| | 2,802,977 |
| 45 |
| | — |
|
| Accrued expenses and other liabilities | 1,025,849 |
| | 1,206,133 |
| 1,415,612 |
| | 1,176,793 |
|
| Total liabilities | 72,567,757 |
| | 74,329,246 |
| 78,812,469 |
| | 77,434,645 |
|
| Shareholder’s Equity: | | | | | | |
| Series A Preferred stock — $0.01 par value, liquidation preference $200,000 per share | | | | | | |
| Authorized — 30,000,000 shares | | | | | | |
| Issued — 1,150 shares at both September 30, 2017 and December 31, 2016 | 229,475 |
| | 229,475 |
| |
| Issued — 1,150 shares at both September 30, 2019 and December 31, 2018 | | 229,475 |
| | 229,475 |
|
| Common stock — $0.01 par value: | | | | | | |
| Authorized — 300,000,000 shares | | | | | | |
| Issued — 222,950,751 shares at both September 30, 2017 and December 31, 2016 | 2,230 |
| | 2,230 |
| |
| Issued — 222,963,891 and 222,950,751 shares at September 30, 2019 and December 31, 2018, respectively | | 2,230 |
| | 2,230 |
|
| Surplus | 14,912,412 |
| | 14,985,673 |
| 14,359,966 |
| | 14,545,849 |
|
| Accumulated deficit | (1,920,184 | ) | | (2,327,440 | ) | (585,859 | ) | | (1,107,198 | ) |
| Accumulated other comprehensive loss | (137,583 | ) | | (168,252 | ) | |
| Total BBVA Compass Bancshares, Inc. shareholder’s equity | 13,086,350 |
| | 12,721,686 |
| |
| Accumulated other comprehensive income (loss) | | 66,009 |
| | (186,848 | ) |
| Total BBVA USA Bancshares, Inc. shareholder’s equity | | 14,071,821 |
| | 13,483,508 |
|
| Noncontrolling interests | 29,553 |
| | 29,021 |
| 29,797 |
| | 29,021 |
|
| Total shareholder’s equity | 13,115,903 |
| | 12,750,707 |
| 14,101,618 |
| | 13,512,529 |
|
| Total liabilities and shareholder’s equity | $ | 85,683,660 |
| | $ | 87,079,953 |
| $ | 92,914,087 |
| | $ | 90,947,174 |
|
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| |
BBVA USA BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| | BBVA USA BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Interest income: | | | | | | | | | | | | | | |
| Interest and fees on loans | $ | 623,884 |
| | $ | 557,996 |
| | $ | 1,805,971 |
| | $ | 1,678,249 |
| $ | 771,245 |
| | $ | 751,470 |
| | $ | 2,359,500 |
| | $ | 2,126,411 |
|
| Interest on investment securities available for sale | 53,930 |
| | 48,382 |
| | 164,398 |
| | 131,021 |
| |
| Interest on investment securities held to maturity | 6,994 |
| | 6,675 |
| | 20,454 |
| | 20,229 |
| |
| Interest on federal funds sold, securities purchased under agreements to resell and interest bearing deposits | 11,557 |
| | 4,563 |
| | 32,868 |
| | 13,275 |
| |
| Interest on debt securities available for sale | | 36,051 |
| | 53,201 |
| | 134,698 |
| | 163,595 |
|
| Interest on debt securities held to maturity | | 38,893 |
| | 16,110 |
| | 101,701 |
| | 41,598 |
|
| Interest on trading account assets | 6,247 |
| | 12,926 |
| | 26,349 |
| | 40,659 |
| 487 |
| | 833 |
| | 1,627 |
| | 2,507 |
|
| Interest and dividends on other earning assets | | 46,528 |
| | 17,449 |
| | 105,319 |
| | 44,240 |
|
| Total interest income | 702,612 |
| | 630,542 |
| | 2,050,040 |
| | 1,883,433 |
| 893,204 |
| | 839,063 |
| | 2,702,845 |
| | 2,378,351 |
|
| Interest expense: | | | | | | | | | | | | | | |
| Interest on deposits | 75,083 |
| | 76,031 |
| | 211,301 |
| | 230,779 |
| 203,979 |
| | 139,898 |
| | 588,811 |
| | 353,568 |
|
| Interest on FHLB and other borrowings | 29,904 |
| | 21,315 |
| | 71,422 |
| | 58,919 |
| 32,975 |
| | 37,131 |
| | 104,901 |
| | 93,799 |
|
| Interest on federal funds purchased and securities sold under agreements to repurchase | 4,623 |
| | 4,934 |
| | 16,462 |
| | 16,525 |
| 15,137 |
| | 3,169 |
| | 24,886 |
| | 5,104 |
|
| Interest on other short-term borrowings | 3,641 |
| | 13,453 |
| | 24,233 |
| | 41,281 |
| 72 |
| | 579 |
| | 368 |
| | 1,490 |
|
| Total interest expense | 113,251 |
| | 115,733 |
| | 323,418 |
| | 347,504 |
| 252,163 |
| | 180,777 |
| | 718,966 |
| | 453,961 |
|
| Net interest income | 589,361 |
| | 514,809 |
| | 1,726,622 |
| | 1,535,929 |
| 641,041 |
| | 658,286 |
| | 1,983,879 |
| | 1,924,390 |
|
| Provision for loan losses | 103,434 |
| | 65,107 |
| | 228,858 |
| | 265,025 |
| 140,629 |
| | 94,964 |
| | 477,939 |
| | 243,273 |
|
| Net interest income after provision for loan losses | 485,927 |
| | 449,702 |
| | 1,497,764 |
| | 1,270,904 |
| 500,412 |
| | 563,322 |
| | 1,505,940 |
| | 1,681,117 |
|
| Noninterest income: | | | | | | | | | | | | | | |
| Service charges on deposit accounts | 55,953 |
| | 55,047 |
| | 166,040 |
| | 158,393 |
| 65,143 |
| | 60,325 |
| | 185,782 |
| | 175,067 |
|
| Card and merchant processing fees | 32,297 |
| | 31,256 |
| | 94,749 |
| | 92,507 |
| 50,385 |
| | 44,219 |
| | 146,742 |
| | 127,945 |
|
| Retail investment sales | 26,817 |
| | 30,137 |
| | 82,876 |
| | 79,689 |
| |
| Investment services sales fees | | 29,287 |
| | 28,286 |
| | 87,316 |
| | 88,176 |
|
| Money transfer income | | 26,020 |
| | 23,441 |
| | 73,273 |
| | 68,049 |
|
| Investment banking and advisory fees | 30,500 |
| | 34,385 |
| | 78,744 |
| | 86,324 |
| 28,324 |
| | 13,956 |
| | 67,939 |
| | 62,398 |
|
| Money transfer income | 24,881 |
| | 25,058 |
| | 77,408 |
| | 75,960 |
| |
| Asset management fees | 10,336 |
| | 8,778 |
| | 30,162 |
| | 25,969 |
| 11,405 |
| | 11,143 |
| | 34,039 |
| | 32,902 |
|
| Corporate and correspondent investment sales | 5,145 |
| | 6,974 |
| | 26,249 |
| | 21,490 |
| 11,799 |
| | 12,490 |
| | 24,298 |
| | 40,901 |
|
| Mortgage banking | 3,450 |
| | 8,242 |
| | 9,636 |
| | 5,410 |
| 8,204 |
| | 6,717 |
| | 19,011 |
| | 23,078 |
|
| Bank owned life insurance | 4,322 |
| | 4,170 |
| | 12,711 |
| | 13,041 |
| 3,508 |
| | 4,597 |
| | 12,895 |
| | 13,187 |
|
| Investment securities gains, net | 3,033 |
| | — |
| | 3,033 |
| | 30,037 |
| 21,003 |
| | — |
| | 29,961 |
| | — |
|
| Other | 61,060 |
| | 59,718 |
| | 167,198 |
| | 206,396 |
| 66,241 |
| | 53,285 |
| | 182,104 |
| | 154,600 |
|
| Total noninterest income | 257,794 |
| | 263,765 |
| | 748,806 |
| | 795,216 |
| 321,319 |
| | 258,459 |
| | 863,360 |
| | 786,303 |
|
| Noninterest expense: | | | | | | | | | | | | | | |
| Salaries, benefits and commissions | 279,384 |
| | 279,132 |
| | 835,825 |
| | 836,067 |
| 295,092 |
| | 292,679 |
| | 884,111 |
| | 868,971 |
|
| Professional services | | 72,903 |
| | 68,403 |
| | 210,583 |
| | 197,625 |
|
| Equipment | 60,656 |
| | 59,697 |
| | 184,691 |
| | 179,646 |
| 63,908 |
| | 63,739 |
| | 191,940 |
| | 190,759 |
|
| Professional services | 64,775 |
| | 63,628 |
| | 187,422 |
| | 178,396 |
| |
| Net occupancy | 42,227 |
| | 41,610 |
| | 125,568 |
| | 120,881 |
| 42,241 |
| | 42,514 |
| | 123,298 |
| | 125,607 |
|
| Money transfer expense | 15,938 |
| | 16,680 |
| | 50,069 |
| | 50,048 |
| 18,005 |
| | 16,120 |
| | 50,273 |
| | 46,143 |
|
| Amortization of intangibles | 2,525 |
| | 4,093 |
| | 7,575 |
| | 12,280 |
| |
| Securities impairment: | | | | | | | | | | | | | | |
| Other-than-temporary impairment | — |
| | — |
| | 242 |
| | 281 |
| — |
| | 418 |
| | 221 |
| | 989 |
|
| Less: non-credit portion recognized in other comprehensive income | — |
| | — |
| | — |
| | 151 |
| — |
| | 135 |
| | 108 |
| | 397 |
|
| Total securities impairment | — |
| | — |
| | 242 |
| | 130 |
| — |
| | 283 |
| | 113 |
| | 592 |
|
| Other | 108,457 |
| | 91,431 |
| | 304,367 |
| | 312,004 |
| 106,738 |
| | 121,772 |
| | 318,856 |
| | 318,271 |
|
| Total noninterest expense | 573,962 |
| | 556,271 |
| | 1,695,759 |
| | 1,689,452 |
| 598,887 |
| | 605,510 |
| | 1,779,174 |
| | 1,747,968 |
|
| Net income before income tax expense | 169,759 |
| | 157,196 |
| | 550,811 |
| | 376,668 |
| 222,844 |
| | 216,271 |
| | 590,126 |
| | 719,452 |
|
| Income tax expense | 39,308 |
| | 36,845 |
| | 142,097 |
| | 94,548 |
| 39,899 |
| | 41,756 |
| | 106,014 |
| | 151,849 |
|
| Net income | 130,451 |
| | 120,351 |
| | 408,714 |
| | 282,120 |
| 182,945 |
| | 174,515 |
| | 484,112 |
| | 567,603 |
|
| Less: net income attributable to noncontrolling interests | 584 |
| | 523 |
| | 1,458 |
| | 1,569 |
| 514 |
| | 426 |
| | 1,669 |
| | 1,482 |
|
| Net income attributable to BBVA Compass Bancshares, Inc. | 129,867 |
| | 119,828 |
| | 407,256 |
| | 280,551 |
| |
| Net income attributable to BBVA USA Bancshares, Inc. | | 182,431 |
| | 174,089 |
| | 482,443 |
| | 566,121 |
|
| Less: preferred stock dividends | 3,786 |
| | 3,476 |
| | 11,034 |
| | 10,148 |
| 4,561 |
| | 4,576 |
| | 13,771 |
| | 12,699 |
|
| Net income attributable to common shareholder | $ | 126,081 |
| | $ | 116,352 |
| | $ | 396,222 |
| | $ | 270,403 |
| $ | 177,870 |
| | $ | 169,513 |
| | $ | 468,672 |
| | $ | 553,422 |
|
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In Thousands) |
| Net income | $ | 130,451 |
| | $ | 120,351 |
| | $ | 408,714 |
| | $ | 282,120 |
|
| Other comprehensive income, net of tax: | | | | | | | |
| Net unrealized holding (losses) gains arising during period from securities available for sale | (646 | ) | | (26,076 | ) | | 38,919 |
| | 65,592 |
|
| Less: reclassification adjustment for net gains on sale of securities available for sale in net income | 1,911 |
| | — |
| | 1,911 |
| | 19,035 |
|
| Net change in net unrealized holding (losses) gains on securities available for sale | (2,557 | ) | | (26,076 | ) | | 37,008 |
| | 46,557 |
|
| Change in unamortized net holding losses on investment securities held to maturity | 999 |
| | 1,168 |
| | 2,540 |
| | 2,924 |
|
| Less: non-credit related impairment on investment securities held to maturity | — |
| | — |
| | — |
| | 96 |
|
| Change in unamortized non-credit related impairment on investment securities held to maturity | 251 |
| | 225 |
| | 778 |
| | 648 |
|
| Net change in unamortized holding losses on securities held to maturity | 1,250 |
| | 1,393 |
| | 3,318 |
| | 3,476 |
|
| Unrealized holding gains (losses) arising during period from cash flow hedge instruments | 855 |
| | (1,461 | ) | | (9,172 | ) | | 1,728 |
|
| Change in defined benefit plans | — |
| | — |
| | (485 | ) | | 931 |
|
| Other comprehensive (loss) income, net of tax | (452 | ) | | (26,144 | ) | | 30,669 |
| | 52,692 |
|
| Comprehensive income | 129,999 |
| | 94,207 |
| | 439,383 |
| | 334,812 |
|
| Less: comprehensive income attributable to noncontrolling interests | 584 |
| | 523 |
| | 1,458 |
| | 1,569 |
|
| Comprehensive income attributable to BBVA Compass Bancshares, Inc. | $ | 129,415 |
| | $ | 93,684 |
| | $ | 437,925 |
| | $ | 333,243 |
|
BBVA USA BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (In Thousands) |
| Net income | $ | 182,945 |
| | $ | 174,515 |
| | $ | 484,112 |
| | $ | 567,603 |
|
| Other comprehensive income, net of tax: | | | | | | | |
| Net unrealized gains (losses) arising during period from debt securities available for sale | 32,464 |
| | (31,189 | ) | | 169,868 |
| | (106,320 | ) |
| Less: reclassification adjustment for net gains on sale of debt securities available for sale in net income | 16,023 |
| | — |
| | 22,857 |
| | — |
|
| Net change in net unrealized holding gains (losses) on debt securities available for sale | 16,441 |
| | (31,189 | ) | | 147,011 |
| | (106,320 | ) |
| Change in unamortized net holding losses on debt securities held to maturity | 2,223 |
| | 1,989 |
| | 5,905 |
| | 6,522 |
|
| Unamortized unrealized net holding losses on debt securities available for sale transferred to debt securities held to maturity | — |
| | — |
| | — |
| | (30,487 | ) |
| Less: non-credit related impairment on debt securities held to maturity | — |
| | 103 |
| | 82 |
| | 303 |
|
| Change in unamortized non-credit related impairment on debt securities held to maturity | 175 |
| | 208 |
| | 675 |
| | 623 |
|
| Net change in unamortized holding gains (losses) on debt securities held to maturity | 2,398 |
| | 2,094 |
| | 6,498 |
| | (23,645 | ) |
| Unrealized holding gains arising during period from cash flow hedge instruments | 33,662 |
| | 10,996 |
| | 131,665 |
| | 19,340 |
|
| Change in defined benefit plans | — |
| | — |
| | 3,119 |
| | (3,379 | ) |
| Other comprehensive income (loss), net of tax | 52,501 |
| | (18,099 | ) | | 288,293 |
| | (114,004 | ) |
| Comprehensive income | 235,446 |
| | 156,416 |
| | 772,405 |
| | 453,599 |
|
| Less: comprehensive income attributable to noncontrolling interests | 514 |
| | 426 |
| | 1,669 |
| | 1,482 |
|
| Comprehensive income attributable to BBVA USA Bancshares, Inc. | $ | 234,932 |
| | $ | 155,990 |
| | $ | 770,736 |
| | $ | 452,117 |
|
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
BBVA USA BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (Unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Surplus | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | | Non-Controlling Interests | | Total Shareholder’s Equity |
| | (In Thousands) |
| Three Months Ended September 30, | | | | | | | | | | | | | |
| Balance, June 30, 2018 | $ | 229,475 |
| | $ | 2,230 |
| | $ | 14,699,773 |
| | $ | (1,476,614 | ) | | $ | (293,323 | ) | | $ | 29,103 |
| | $ | 13,190,644 |
|
| Net income | — |
| | — |
| | — |
| | 174,089 |
| | — |
| | 426 |
| | 174,515 |
|
| Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | (18,099 | ) | | — |
| | (18,099 | ) |
| Preferred stock dividends | — |
| | — |
| | (4,576 | ) | | — |
| | — |
| | — |
| | (4,576 | ) |
| Capital contribution | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
|
| Balance, September 30, 2018 | $ | 229,475 |
| | $ | 2,230 |
| | $ | 14,695,197 |
| | $ | (1,302,525 | ) | | $ | (311,422 | ) | | $ | 29,532 |
| | $ | 13,342,487 |
|
| | | | | | | | | | | | | | |
| Balance, June 30, 2019 | $ | 229,475 |
| | $ | 2,230 |
| | $ | 14,364,527 |
| | $ | (768,290 | ) | | $ | 13,508 |
| | $ | 29,273 |
| | $ | 13,870,723 |
|
| Net income | — |
| | — |
| | — |
| | 182,431 |
| | — |
| | 514 |
| | 182,945 |
|
| Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | 52,501 |
| | — |
| | 52,501 |
|
| Preferred stock dividends | — |
| | — |
| | (4,561 | ) | | — |
| | — |
| | — |
| | (4,561 | ) |
| Capital contribution | — |
| | — |
| | — |
| | — |
| | — |
| | 10 |
| | 10 |
|
| Balance, September 30, 2019 | $ | 229,475 |
| | $ | 2,230 |
| | $ | 14,359,966 |
| | $ | (585,859 | ) | | $ | 66,009 |
| | $ | 29,797 |
| | $ | 14,101,618 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Surplus | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | | Non-Controlling Interests | | Total Shareholder’s Equity |
| | (In Thousands) |
| Nine Months Ended September 30, | | | | | | | | | | | | | |
| 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 | — |
| | — |
| | — |
| | 566,121 |
| | — |
| | 1,482 |
| | 567,603 |
|
| Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | (114,004 | ) | | — |
| | (114,004 | ) |
| Preferred stock dividends | — |
| | — |
| | (12,699 | ) | | — |
| | — |
| | (1,036 | ) | | (13,735 | ) |
| Common stock dividends | — |
| | — |
| | (110,000 | ) | | — |
| | — |
| | — |
| | (110,000 | ) |
| Capital contribution | — |
| | — |
| | — |
| | — |
| | — |
| | 25 |
| | 25 |
|
| Vesting of restricted stock | — |
| | — |
| | (712 | ) | | — |
| | — |
| | — |
| | (712 | ) |
| Balance, September 30, 2018 | $ | 229,475 |
| | $ | 2,230 |
| | $ | 14,695,197 |
| | $ | (1,302,525 | ) | | $ | (311,422 | ) | | $ | 29,532 |
| | $ | 13,342,487 |
|
| | | | | | | | | | | | | | |
| 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 | — |
| | — |
| | — |
| | 482,443 |
| | — |
| | 1,669 |
| | 484,112 |
|
| Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | 288,293 |
| | — |
| | 288,293 |
|
| Issuance of common stock | — |
| | — |
| | 802 |
| | — |
| | — |
| | — |
| | 802 |
|
| Preferred stock dividends | — |
| | — |
| | (13,771 | ) | | — |
| | — |
| | (1,037 | ) | | (14,808 | ) |
| Common stock dividends | — |
| | — |
| | (170,000 | ) | | — |
| | — |
| | — |
| | (170,000 | ) |
| Capital contribution | — |
| | — |
| | — |
| | — |
| | — |
| | 144 |
| | 144 |
|
| Vesting of restricted stock | — |
| | — |
| | (2,914 | ) | | — |
| | — |
| | — |
| | (2,914 | ) |
| Balance, September 30, 2019 | $ | 229,475 |
| | $ | 2,230 |
| | $ | 14,359,966 |
| | $ | (585,859 | ) | | $ | 66,009 |
| | $ | 29,797 |
| | $ | 14,101,618 |
|
| |
| (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, Basis of Presentation, for additional information. |
BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Surplus | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Non-Controlling Interests | | Total Shareholder’s Equity |
| | (In Thousands) |
| Balance, December 31, 2015 | $ | 229,475 |
| | $ | 2,230 |
| | $ | 15,160,267 |
| | $ | (2,696,953 | ) | | $ | (99,336 | ) | | $ | 29,026 |
| | $ | 12,624,709 |
|
| Net income | — |
| | — |
| | — |
| | 280,551 |
| | — |
| | 1,569 |
| | 282,120 |
|
| Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | 52,692 |
| | — |
| | 52,692 |
|
| Preferred stock dividends | — |
| | — |
| | (10,148 | ) | | — |
| | — |
| | (1,037 | ) | | (11,185 | ) |
| Common stock dividends | — |
| | — |
| | (60,000 | ) | | — |
| | — |
| | — |
| | (60,000 | ) |
| Dividend to BBVA Bancomer USA, Inc. | — |
| | — |
| | (69,151 | ) | | — |
| | — |
| | — |
| | (69,151 | ) |
| Capital contribution | — |
| | — |
| | — |
| | — |
| | — |
| | 36 |
| | 36 |
|
| Vesting of restricted stock | — |
| | — |
| | (1,527 | ) | | — |
| | — |
| | — |
| | (1,527 | ) |
| Restricted stock retained to cover taxes | — |
| | — |
| | (545 | ) | | — |
| | — |
| | — |
| | (545 | ) |
| Restricted stock tax deficiency | — |
| | — |
| | (468 | ) | | — |
| | — |
| | — |
| | (468 | ) |
| Amortization of stock-based deferred compensation | — |
| | — |
| | 2,509 |
| | — |
| | — |
| | — |
| | 2,509 |
|
| Balance, September 30, 2016 | $ | 229,475 |
| | $ | 2,230 |
| | $ | 15,020,937 |
| | $ | (2,416,402 | ) | | $ | (46,644 | ) | | $ | 29,594 |
| | $ | 12,819,190 |
|
| | | | | | | | | | | | | | |
| Balance, December 31, 2016 | $ | 229,475 |
| | $ | 2,230 |
| | $ | 14,985,673 |
| | $ | (2,327,440 | ) | | $ | (168,252 | ) | | $ | 29,021 |
| | $ | 12,750,707 |
|
| Net income | — |
| | — |
| | — |
| | 407,256 |
| | — |
| | 1,458 |
| | 408,714 |
|
| Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | 30,669 |
| | — |
| | 30,669 |
|
| Preferred stock dividends | — |
| | — |
| | (11,034 | ) | | — |
| | — |
| | (1,037 | ) | | (12,071 | ) |
| Common stock dividends | — |
| | — |
| | (60,000 | ) | | — |
| | — |
| | — |
| | (60,000 | ) |
| Capital contribution | — |
| | — |
| | — |
| | — |
| | — |
| | 111 |
| | 111 |
|
| Vesting of restricted stock | — |
| | — |
| | (1,538 | ) | | — |
| | — |
| | — |
| | (1,538 | ) |
| Restricted stock retained to cover taxes | — |
| | — |
| | (689 | ) | | — |
| | — |
| | — |
| | (689 | ) |
| Balance, September 30, 2017 | $ | 229,475 |
| | $ | 2,230 |
| | $ | 14,912,412 |
| | $ | (1,920,184 | ) | | $ | (137,583 | ) | | $ | 29,553 |
| | $ | 13,115,903 |
|
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
| | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| | (In Thousands) |
| Operating Activities: | | | |
| Net income | $ | 408,714 |
| | $ | 282,120 |
|
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
| Depreciation and amortization | 222,467 |
| | 221,975 |
|
| Securities impairment | 242 |
| | 130 |
|
| Amortization of intangibles | 7,575 |
| | 12,280 |
|
| Accretion of discount, loan fees and purchase market adjustments, net | (11,346 | ) | | (17,191 | ) |
| Net change in FDIC indemnification liability | 22 |
| | 4,180 |
|
| Gain on termination of FDIC shared loss agreement | (1,779 | ) | | — |
|
| Provision for loan losses | 228,858 |
| | 265,025 |
|
| Amortization of stock based compensation | — |
| | 2,509 |
|
| Net change in trading account assets | 119,641 |
| | (369,690 | ) |
| Net change in trading account liabilities | (66,800 | ) | | 210,554 |
|
| Net change in loans held for sale | 27,645 |
| | (27,468 | ) |
| Deferred tax expense (benefit) | 31,200 |
| | (22,596 | ) |
| Investment securities gains, net | (3,033 | ) | | (30,037 | ) |
| Loss on sale of premises and equipment | 2,468 |
| | 5,019 |
|
| Gain on sale of loans | — |
| | (15,551 | ) |
| Net loss (gain) on sale of other real estate and other assets | 1,606 |
| | (406 | ) |
| Increase in other assets | (195,868 | ) | | (260,823 | ) |
| Increase in other liabilities | 7,059 |
| | 68,043 |
|
| Net cash provided by operating activities | 778,671 |
| | 328,073 |
|
| Investing Activities: | | | |
| Proceeds from sales of investment securities available for sale | 210,906 |
| | 1,785,313 |
|
| Proceeds from prepayments, maturities and calls of investment securities available for sale | 2,082,636 |
| | 1,629,841 |
|
| Purchases of investment securities available for sale | (2,902,214 | ) | | (3,848,779 | ) |
| Proceeds from prepayments, maturities and calls of investment securities held to maturity | 137,480 |
| | 114,689 |
|
| Purchases of investment securities held to maturity | (6,233 | ) | | (27,104 | ) |
| Proceeds from sales of trading securities | 2,762,293 |
| | 729,218 |
|
| Purchases of trading securities | (309,438 | ) | | (272,857 | ) |
| Net change in loan portfolio | (604,297 | ) | | (66,962 | ) |
| Proceeds from sales of loans | 175,088 |
| | 1,022,579 |
|
| Purchase of premises and equipment | (81,590 | ) | | (112,419 | ) |
| Proceeds from sale of premises and equipment | 2,064 |
| | 6,311 |
|
| (Payments to) reimbursements from FDIC for covered assets | (2,832 | ) | | 878 |
|
| Net cash paid to the FDIC for termination of shared loss agreement | (131,603 | ) | | — |
|
| Proceeds from sales of other real estate owned | 22,650 |
| | 21,145 |
|
| Net cash provided by investing activities | 1,354,910 |
| | 981,853 |
|
| Financing Activities: | | | |
| Net (decrease) increase in demand deposits, NOW accounts and savings accounts | (119,583 | ) | | 1,380,456 |
|
| Net increase in time deposits | 44,704 |
| | 215,262 |
|
| Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase | 5,709 |
| | (584,581 | ) |
| Net decrease in other short-term borrowings | (2,475,438 | ) | | (441,421 | ) |
| Proceeds from FHLB and other borrowings | 9,245,563 |
| | 1,250,000 |
|
| Repayment of FHLB and other borrowings | (8,277,477 | ) | | (3,057,407 | ) |
| Capital contribution for non-controlling interest | 111 |
| | 36 |
|
| Vesting of restricted stock | (1,538 | ) | | (1,527 | ) |
| Restricted stock grants retained to cover taxes | (689 | ) | | (545 | ) |
| Dividend paid to BBVA Bancomer USA, Inc. | — |
| | (69,151 | ) |
| Common dividends paid | (60,000 | ) | | (60,000 | ) |
| Preferred dividends paid | (12,071 | ) | | (11,185 | ) |
| Net cash used in financing activities | (1,650,709 | ) | | (1,380,063 | ) |
| Net increase (decrease) in cash and cash equivalents | 482,872 |
| | (70,137 | ) |
| Cash and cash equivalents at beginning of year | 3,251,786 |
| | 4,496,828 |
|
| Cash and cash equivalents at end of period | $ | 3,734,658 |
| | $ | 4,426,691 |
|
BBVA USA BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
| | | | | | | |
| | Nine Months Ended September 30, |
| | 2019 | | 2018 |
| | (In Thousands) |
| Operating Activities: | | | |
| Net income | $ | 484,112 |
| | $ | 567,603 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 194,040 |
| | 183,839 |
|
| Securities impairment | 113 |
| | 592 |
|
| Amortization of intangibles | — |
| | 3,933 |
|
| Accretion of discount, loan fees and purchase market adjustments, net | (26,732 | ) | | (48,771 | ) |
| Provision for loan losses | 477,939 |
| | 243,273 |
|
| Net change in trading account assets | (326,344 | ) | | 3,747 |
|
| Net change in trading account liabilities | (5,891 | ) | | 61,599 |
|
| Originations and purchases of mortgage loans held for sale | (554,488 | ) | | (486,143 | ) |
| Sale of mortgage loans held for sale | 509,685 |
| | 494,542 |
|
| Deferred tax benefit | (11,611 | ) | | (949 | ) |
| Investment securities gains, net | (29,961 | ) | | — |
|
| Net gain on sale of premises and equipment | (7,077 | ) | | (194 | ) |
| Gain on sale of loans | (925 | ) | | — |
|
| Gain on sale of mortgage loans held for sale | (20,745 | ) | | (14,858 | ) |
| Net loss (gain) on sale of other real estate and other assets | 1,436 |
| | (122 | ) |
| Decrease (increase) in other assets | 95,117 |
| | (171,203 | ) |
| (Decrease) increase in other liabilities | (14,147 | ) | | 23,883 |
|
| Net cash provided by operating activities | 764,521 |
| | 860,771 |
|
| Investing Activities: | | | |
| Proceeds from sales of debt securities available for sale | 2,442,176 |
| | — |
|
| Proceeds from prepayments, maturities and calls of debt securities available for sale | 3,556,157 |
| | 2,749,439 |
|
| Purchases of debt securities available for sale | (2,454,096 | ) | | (2,947,622 | ) |
| Proceeds from prepayments, maturities and calls of debt securities held to maturity | 234,157 |
| | 267,913 |
|
| Purchases of debt securities held to maturity | (3,688,706 | ) | | (709,510 | ) |
| Proceeds from sales of equity securities | 180,375 |
| | 640,662 |
|
| Purchases of equity securities | (182,504 | ) | | (648,083 | ) |
| Net change in loan portfolio | 93,914 |
| | (3,058,583 | ) |
| Proceeds from sales of loans | 1,353,379 |
| | 46,055 |
|
| Purchases of premises and equipment | (88,647 | ) | | (90,163 | ) |
| Proceeds from sales of premises and equipment | 12,812 |
| | 3,604 |
|
| Proceeds from settlement of BOLI policies | 3,331 |
| | 4,321 |
|
| Cash payments for premiums of BOLI policies | (26 | ) | | (26 | ) |
| Proceeds from sales of other real estate owned | 21,569 |
| | 15,943 |
|
| Net cash provided by (used in) investing activities | 1,483,891 |
| | (3,726,050 | ) |
| Financing Activities: | | | |
| Net increase in total deposits | 1,414,158 |
| | 1,135,463 |
|
| Net increase in federal funds purchased and securities sold under agreements to repurchase | 15,146 |
| | 58,413 |
|
| Net increase in other short-term borrowings | 45 |
| | 50,718 |
|
| Proceeds from FHLB and other borrowings | 4,436,995 |
| | 17,273,916 |
|
| Repayment of FHLB and other borrowings | (4,790,177 | ) | | (16,130,158 | ) |
| Capital contribution for non-controlling interest | 144 |
| | 25 |
|
| Vesting of restricted stock | (2,914 | ) | | (712 | ) |
| Issuance of common stock | 802 |
| | — |
|
| Common dividends paid | (170,000 | ) | | (110,000 | ) |
| Preferred dividends paid | (14,808 | ) | | (13,735 | ) |
| Net cash provided by financing activities | 889,391 |
| | 2,263,930 |
|
| Net increase (decrease) in cash, cash equivalents and restricted cash | 3,137,803 |
| | (601,349 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 3,501,380 |
| | 4,270,950 |
|
| Cash, cash equivalents and restricted cash at end of period | $ | 6,639,183 |
| | $ | 3,669,601 |
|
BBVA COMPASSUSA BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
General
Effective June 10, 2019, the Company amended its Certificate of Formation to change its legal name from BBVA Compass Bancshares, Inc. to BBVA USA Bancshares, Inc.
The accounting and reporting policies of the Company and the methods of applying those policies that materially affect the consolidated financial statements conform with U.S. GAAP and with general financial services industry practices. The accompanying unaudited consolidated financial statements include the accounts of BBVA CompassUSA Bancshares, Inc. and its subsidiaries and have been prepared in conformity with U.S. GAAP for interim financial information and in accordance with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the condensed consolidated financial statements have been included. Operating results for the three and nine months ended September 30, 2017,2019, are not necessarily indicative of the results that may be expected for the year ended December 31, 2017.2019. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2018.
The Company has evaluated subsequent events for potential recognition and disclosure through the filing date of this Quarterly Report on Form 10-Q to determine if either recognition or disclosure of significant events or transactions is required.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in accordance with U.S. GAAP 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, goodwill impairment, fair value measurements and income taxes. Actual results could differ from those estimates.
Recently Adopted Accounting Standards
Stock Compensation
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The FASB issued this ASU to improve the accounting for share-based payment transactions as part of its simplification initiative. The areas for simplification in this ASU involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this ASU were effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. The adoption of this standard did not have an impact on the financial condition or results of operations of the Company.
Recently Issued Accounting Standards Not Yet Adopted
Revenue from Contracts with Customers
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 Company does not expect the new revenue recognition guidance to 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 plans to 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 yet identified any material changes in the timing of revenue recognition, the Company's review is ongoing and continues to evaluate the presentation of certain contract costs (whether presented gross or offset against noninterest income).
Recognition and Measurement of Financial Assets and Liabilities
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities. 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 is not expected to 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)which supersedes ASC Topic 840, Leases. 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,Subsequently, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses,2018-01 in January 2018 which introducesprovides a practical expedient for land easements and issued ASU 2018-11 in July 2018 which includes an option to recognize a cumulative effect adjustment to retained earnings in the period of adoption instead of applying the guidance to prior comparative periods. This ASU, as amended, requires lessees to recognize right-of-use assets and associated liabilities that arise from leases, with the exception of short-term leases. Subsequent accounting for leases varies depending on whether the lease is classified as an operating lease or a finance lease. This ASU, as amended, does not make significant changes to lessor accounting. There are several new guidancequalitative and quantitative disclosures required. Upon transition, lessees and lessors have the option to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective transition approach or to apply the modified retrospective approach with an additional, optional transition method that initially applies this ASU as of the adoption date and recognizes a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption.
The Company adopted this ASU, as amended, on January 1, 2019 using the optional transition method, which allowed for a modified retrospective method of adoption with a cumulative effect adjustment to retained earnings without restating comparable periods. The Company also elected the transition relief package of practical expedients for which there is no requirement to reassess existence of leases, their classification, and initial direct costs as well as an exemption for short term leases with a term of less than one year. The Company did not elect the practical expedient to use hindsight in determining the lease term and in assessing impairment of right-of-use assets.
At January 1, 2019, the Company recognized right-of-use assets of $290 million and lease liabilities of $332 million. The right-of-use assets and corresponding lease liabilities, recorded upon adoption, were primarily based on the present value of unpaid future minimum lease payments as of January 1, 2019. Those amounts were impacted by assumptions related to renewals and/or extensions of existing lease contracts and the interest rate used to discount those future lease obligations. Additionally, the Company recognized a cumulative effect adjustment of approximately $3.5 million at adoption to increase the beginning balance of retained earnings as of January 1, 2019 for the accounting for credit lossesremaining deferred gains on instruments within its scope. The new guidance introduces an approach based on expected lossessale-leaseback transactions which occurred prior 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. The Company is currently assessing the impact that the adoption of this standard will have on the Statements of Cash Flows of the Company.
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. The Company is currently assessing the impact that the adoption of this standard will have on the Statement of Cash Flows of the Company.
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.adoption. 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, 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 iswill not expected to have a material impact on the financial condition ortiming of expense recognition on the Company's results of operations ofoperations.
See Note 7, Leases, for the Company.required disclosures in accordance with this ASU.
Premium Amortization on Purchased Callable Debt Securities
In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU reduce the amortization period for certain callable debt securities carried at a premium and require the premium to be amortized over a period not to exceed the earliest call date. These amendments do not apply to securities carried at a discount. ThisThe Company adopted 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 ASU should be applied using a modified retrospective method.on January 1, 2019. The adoption of this standard is not expected to have a materialhad no 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.
In October 2018, the FASB issued ASU 2018-16, Inclusion of the SOFR OIS Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this ASU permit the OIS rate based on SOFR as a US benchmark interest rate for hedge accounting purposes under Topic 815.
The Company adopted these ASUs on January 1, 2019. The adoption of these standards did not have a material impact on the financial condition or results of operations of the Company. The adoption resulted in an immaterial cumulative effect adjustment to the opening balance of retained earnings. For additional information on the Company’s derivative and hedging activities, see Note 5, Derivatives and Hedging.
Comprehensive Income
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The Company adopted this ASU on January 1, 2019 and reclassified approximately $35.4 million from accumulated other comprehensive income to retained earnings.
Recently Issued Accounting Standards Not Yet Adopted
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which introduces new guidance for the accounting for credit 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, 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 will also apply 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 a 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 as a contra account to the amortized cost basis, instead of a direct reduction of the amortized cost basis of the investment, as under current guidance. As a result, entities will 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. 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 intends to adopt this standard on January 1, 2020. Adoption will be applied on a modified retrospective basis with the cumulative effect of initially applying the amendments recognized in retained earnings at the date of initial application. However, certain provisions of the guidance are only required to be applied on a prospective basis.
The Company’s implementation process includes data sourcing and validation, loss model development, 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, and overall operational readiness for adoption of the amended guidance, which will continue throughout 2019, including parallel runs alongside the Company’s current allowance process. Parallel runs that have been more focused on the operational process have been performed in the second and third quarters of 2019. Parallel runs will be enhanced throughout the remainder of 2019 to include the qualitative framework, supporting analytics, end-to-end governance, internal controls and disclosures.
The Company provides updates to senior management and the Audit Committee. These communications provide an update on the status of the implementation project plan and any identified risks.
The Company is currently in the process of evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements. It currently expects the allowance for loan losses to increase upon adoption given that the allowance will be required to cover the expected life of the loan portfolio upon adoption. The extent of this impact is still being evaluated and will depend on economic conditions, economic forecasts and the composition and credit quality of the Company's loan portfolio at the time of adoption.
The amended guidance in this ASU eliminates the current accounting model for purchased-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 will have no impact from purchased-credit-deteriorated assets upon adoption. Upon adoption, the Company does not expect to record a material allowance with respect to HTM and AFS securities as the portfolios consist primarily of agency-backed securities that inherently have minimal nonpayment risk.
In November 2018, the FASB issued ASU 2018-19 and in April and May 2019, the FASB issued ASU 2019-04 and ASU 2019-05, respectively, which made minor clarifications to the guidance in ASU 2016-13. The FASB has also established a Transition Resource Group for Credit Losses to evaluate implementation issues arising from the amended guidance and make recommendations to the FASB on which issues may warrant the issuance of additional clarifying guidance. The Company continues to monitor the issues discussed by the Transition Resource Group and the recommended amendments proposed to the FASB as part of its implementation analysis.
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. 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. Based on the Company’s most recent qualitative goodwill impairment assessment performed as of October 31, 2018, there were no reporting units for which it was more-likely-than-not that
the carrying amount of a reporting unit exceeded its respective fair value; therefore, this ASU would not currently have an impact on the Company’s Consolidated Financial Statements or related disclosures. However, if upon adoption, which is expected to occur on January 1, 2020, the carrying amount of a reporting unit exceeds its respective fair value, the Company would be required to recognize an impairment charge for the amount that the carrying value exceeds the fair value.
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 modify the disclosure requirements for fair value measurements in Topic 820, Fair Value Measurements. This ASU is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing this pronouncement and the impact that the adoption of adoption.this standard will have on its fair value disclosures.
Internal-Use Software
In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. This ASU is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. Early adoption 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.
(2) InvestmentDebt Securities Available for Sale and InvestmentDebt Securities Held to Maturity
The following tables present the adjusted cost and approximate fair value of investmentdebt securities available for sale and investmentdebt securities held to maturity.
|
| | | | | | | | | | | | | | | |
| | September 30, 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 | $ | 3,704,848 |
| | $ | 5,243 |
| | $ | 30,401 |
| | $ | 3,679,690 |
|
| Mortgage-backed securities | 3,051,728 |
| | 18,256 |
| | 31,667 |
| | 3,038,317 |
|
| Collateralized mortgage obligations | 5,171,868 |
| | 4,663 |
| | 76,490 |
| | 5,100,041 |
|
| States and political subdivisions | 2,276 |
| | 118 |
| | — |
| | 2,394 |
|
| Other | 17,739 |
| | 96 |
| | 87 |
| | 17,748 |
|
| Equity securities | 430,032 |
| | 87 |
| | — |
| | 430,119 |
|
| Total | $ | 12,378,491 |
| | $ | 28,463 |
| | $ | 138,645 |
| | $ | 12,268,309 |
|
| Investment securities held to maturity: | | | | | | | |
| Collateralized mortgage obligations | $ | 69,098 |
| | $ | 4,232 |
| | $ | 3,634 |
| | $ | 69,696 |
|
| Asset-backed securities | 10,409 |
| | 2,011 |
| | 768 |
| | 11,652 |
|
| States and political subdivisions | 936,353 |
| | 5,103 |
| | 15,054 |
| | 926,402 |
|
| Other | 61,512 |
| | 306 |
| | 1,649 |
| | 60,169 |
|
| Total | $ | 1,077,372 |
| | $ | 11,652 |
| | $ | 21,105 |
| | $ | 1,067,919 |
|
|
| | | | | | | | | | | | | | | |
| | September 30, 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 | $ | 3,186,688 |
| | $ | 20,413 |
| | $ | 38,600 |
| | $ | 3,168,501 |
|
| Agency mortgage-backed securities | 1,477,410 |
| | 18,125 |
| | 9,710 |
| | 1,485,825 |
|
| Agency collateralized mortgage obligations | 2,950,019 |
| | 13,760 |
| | 6,318 |
| | 2,957,461 |
|
| States and political subdivisions | 756 |
| | 47 |
| | — |
| | 803 |
|
| Total | $ | 7,614,873 |
| | $ | 52,345 |
| | $ | 54,628 |
| | $ | 7,612,590 |
|
| Debt securities held to maturity: | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 1,285,850 |
| | $ | 62,972 |
| | $ | — |
| | $ | 1,348,822 |
|
| Collateralized mortgage obligations: |
|
| |
|
| |
|
| |
|
|
| Agency | 4,318,121 |
| | 114,366 |
| | 11,071 |
| | 4,421,416 |
|
| Non-agency | 39,657 |
| | 8,132 |
| | 196 |
| | 47,593 |
|
| Asset-backed securities and other | 55,222 |
| | 1,350 |
| | 1,336 |
| | 55,236 |
|
| States and political subdivisions | 635,784 |
| | 12,384 |
| | 6,739 |
| | 641,429 |
|
| Total | $ | 6,334,634 |
| | $ | 199,204 |
| | $ | 19,342 |
| | $ | 6,514,496 |
|
|
| | | | | | | | | | | | | | | |
| | 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 |
|
| Mortgage-backed securities | 3,796,270 |
| | 12,869 |
| | 45,801 |
| | 3,763,338 |
|
| Collateralized mortgage obligations | 5,200,241 |
| | 5,292 |
| | 106,605 |
| | 5,098,928 |
|
| States and political subdivisions | 8,457 |
| | 184 |
| | — |
| | 8,641 |
|
| Other | 16,321 |
| | 6 |
| | 142 |
| | 16,185 |
|
| Equity securities | 403,548 |
| | 84 |
| | — |
| | 403,632 |
|
| Total | $ | 11,833,978 |
| | $ | 20,825 |
| | $ | 189,748 |
| | $ | 11,665,055 |
|
| Investment securities held to maturity: | | | | | | | |
| 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 tables, equity securities include $430 million and $403 million at September 30, 2017 and December 31, 2016, respectively, of FHLB and Federal Reserve stock carried at par.
|
| | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | | | Gross Unrealized | | |
| | Amortized Cost | | Gains | | Losses | | Fair Value |
| | (In Thousands) |
| Debt securities available for sale: | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 5,525,902 |
| | $ | 13,000 |
| | $ | 107,435 |
| | $ | 5,431,467 |
|
| Agency mortgage-backed securities | 2,156,872 |
| | 9,402 |
| | 36,453 |
| | 2,129,821 |
|
| Agency collateralized mortgage obligations | 3,492,538 |
| | 4,021 |
| | 77,580 |
| | 3,418,979 |
|
| States and political subdivisions | 886 |
| | 63 |
| | — |
| | 949 |
|
| Total | $ | 11,176,198 |
| | $ | 26,486 |
| | $ | 221,468 |
| | $ | 10,981,216 |
|
| Debt securities held to maturity: | | | | | | | |
| Collateralized mortgage obligations: |
|
| |
|
| |
|
| |
|
|
| Agency | $ | 2,089,860 |
| | $ | 26,988 |
| | $ | 10,338 |
| | $ | 2,106,510 |
|
| Non-agency | 46,834 |
| | 7,198 |
| | 1,129 |
| | 52,903 |
|
| Asset-backed securities and other | 61,304 |
| | 2,346 |
| | 471 |
| | 63,179 |
|
| States and political subdivisions | 687,615 |
| | 18,545 |
| | 3,332 |
| | 702,828 |
|
| Total | $ | 2,885,613 |
| | $ | 55,077 |
| | $ | 15,270 |
| | $ | 2,925,420 |
|
The investments held within the states and political subdivision caption of investmentdebt securities held to maturity relate to private placement transactions underwritten as loans by the Company but that meet the definition of a security within ASC Topic 320, Investments – Debt and Equity Securities.
The following tables disclose the fair value and the gross unrealized losses of the Company’s available for sale debt securities and held to maturity debt securities that were in a loss position at September 30, 20172019 and December 31, 20162018. This information is aggregated by investment category and the length of time the individual securities have been in an unrealized loss position.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 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 | $ | 1,754,139 |
| | $ | 10,074 |
| | $ | 1,048,956 |
| | $ | 20,327 |
| | $ | 2,803,095 |
| | $ | 30,401 |
|
| Mortgage-backed securities | 833,667 |
| | 7,391 |
| | 1,200,390 |
| | 24,276 |
| | 2,034,057 |
| | 31,667 |
|
| Collateralized mortgage obligations | 1,364,631 |
| | 7,317 |
| | 3,068,922 |
| | 69,173 |
| | 4,433,553 |
| | 76,490 |
|
| Other | 3,897 |
| | 29 |
| | 1,064 |
| | 58 |
| | 4,961 |
| | 87 |
|
| Total | $ | 3,956,334 |
| | $ | 24,811 |
| | $ | 5,319,332 |
| | $ | 113,834 |
| | $ | 9,275,666 |
| | $ | 138,645 |
|
| | | | | | | | | | | | |
| Investment securities held to maturity: | | | | | | | | | | | |
| Collateralized mortgage obligations | $ | 11,479 |
| | $ | 860 |
| | $ | 36,588 |
| | $ | 2,774 |
| | $ | 48,067 |
| | $ | 3,634 |
|
| Asset-backed securities | — |
| | — |
| | 6,767 |
| | 768 |
| | 6,767 |
| | 768 |
|
| States and political subdivisions | 427,317 |
| | 10,710 |
| | 156,604 |
| | 4,344 |
| | 583,921 |
| | 15,054 |
|
| Other | 14,847 |
| | 61 |
| | 21,089 |
| | 1,588 |
| | 35,936 |
| | 1,649 |
|
| Total | $ | 453,643 |
| | $ | 11,631 |
| | $ | 221,048 |
| | $ | 9,474 |
| | $ | 674,691 |
| | $ | 21,105 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 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 | $ | 83,020 |
| | $ | 86 |
| | $ | 854,321 |
| | $ | 38,514 |
| | $ | 937,341 |
| | $ | 38,600 |
|
| Agency mortgage-backed securities | 33,955 |
| | 64 |
| | 881,426 |
| | 9,646 |
| | 915,381 |
| | 9,710 |
|
| Agency collateralized mortgage obligations | 483,488 |
| | 723 |
| | 752,903 |
| | 5,595 |
| | 1,236,391 |
| | 6,318 |
|
| Total | $ | 600,463 |
| | $ | 873 |
| | $ | 2,488,650 |
| | $ | 53,755 |
| | $ | 3,089,113 |
| | $ | 54,628 |
|
| | | | | | | | | | | | |
| Debt securities held to maturity: | | | | | | | | | | | |
| Collateralized mortgage obligations: |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| Agency | $ | 752,834 |
| | $ | 11,071 |
| | $ | — |
| | $ | — |
| | $ | 752,834 |
| | $ | 11,071 |
|
| Non-agency | 8,109 |
| | 99 |
| | 5,320 |
| | 97 |
| | 13,429 |
| | 196 |
|
| Asset-backed securities and other | 43,549 |
| | 879 |
| | 9,278 |
| | 457 |
| | 52,827 |
| | 1,336 |
|
| States and political subdivisions | 171,340 |
| | 6,595 |
| | 30,926 |
| | 144 |
| | 202,266 |
| | 6,739 |
|
| Total | $ | 975,832 |
| | $ | 18,644 |
| | $ | 45,524 |
| | $ | 698 |
| | $ | 1,021,356 |
| | $ | 19,342 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
| Mortgage-backed securities | 1,425,743 |
| | 15,235 |
| | 1,368,957 |
| | 30,566 |
| | 2,794,700 |
| | 45,801 |
|
| Collateralized mortgage obligations | 3,527,757 |
| | 99,477 |
| | 782,849 |
| | 7,128 |
| | 4,310,606 |
| | 106,605 |
|
| Other | 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: | | | | | | | | | | | |
| 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 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | 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 | $ | 338 |
| | $ | 1 |
| | $ | 3,879,564 |
| | $ | 107,434 |
| | $ | 3,879,902 |
| | $ | 107,435 |
|
| Agency mortgage-backed securities | 68,404 |
| | 279 |
| | 1,533,156 |
| | 36,174 |
| | 1,601,560 |
| | 36,453 |
|
| Agency collateralized mortgage obligations | 116,052 |
| | 132 |
| | 2,710,008 |
| | 77,448 |
| | 2,826,060 |
| | 77,580 |
|
| Total | $ | 184,794 |
| | $ | 412 |
| | $ | 8,122,728 |
| | $ | 221,056 |
| | $ | 8,307,522 |
| | $ | 221,468 |
|
| | | | | | | | | | | | |
| Debt securities held to maturity: | | | | | | | | | | | |
| Collateralized mortgage obligations: |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| Agency | $ | — |
| | $ | — |
| | $ | 845,512 |
| | $ | 10,338 |
| | $ | 845,512 |
| | $ | 10,338 |
|
| Non-agency | 3,715 |
| | 71 |
| | 13,195 |
| | 1,058 |
| | 16,910 |
| | 1,129 |
|
| Asset-backed securities and other | 6,911 |
| | 87 |
| | 5,994 |
| | 384 |
| | 12,905 |
| | 471 |
|
| States and political subdivisions | 116,925 |
| | 2,148 |
| | 118,834 |
| | 1,184 |
| | 235,759 |
| | 3,332 |
|
| Total | $ | 127,551 |
| | $ | 2,306 |
| | $ | 983,535 |
| | $ | 12,964 |
| | $ | 1,111,086 |
| | $ | 15,270 |
|
As indicated in the previous tables, at September 30, 2017,2019, the Company held certain investmentdebt securities in unrealized loss positions. The Company does not intend to sell these securities nor is it more-likely-than-not-that it will be required to sell these securities before their anticipated recovery.
The Company regularly evaluates each available for sale and held to maturity debt security in a loss position for OTTI. In its evaluation, the Company considers such factors as the length of time and the extent to which the fair value has been below cost, the financial condition of the issuer, the Company’s intent to hold the security to an expected recovery in market value and whether it is more likely than not thatmore-likely-than-not-that the Company will have to sell the security before its fair value recovers. Activity related to the credit loss component of the OTTI is recognized in earnings. The portion of OTTI related to all other factors is recognized in other comprehensive income.
Management does not believe that any individual unrealized loss in the Company’s investmentdebt securities available for sale or held to maturity portfolios, presented in the preceding tables, represents an OTTI at either September 30, 20172019 or December 31, 20162018, other than those noted below.
The following table discloses activity related to credit losses for debt securities where a portion of the OTTI was recognized in other comprehensive income.
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 |
| 2016 | | 2017 | | 2016 | 2019 |
| 2018 | | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Balance at beginning of period | $ | 22,824 |
| | $ | 22,582 |
| | $ | 22,582 |
| | $ | 22,452 |
| $ | 23,529 |
| | $ | 23,133 |
| | $ | 23,416 |
| | $ | 22,824 |
|
| Reductions for securities paid off during the period (realized) | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
|
| Additions for the credit component on debt securities in which OTTI was not previously recognized | — |
| | — |
| | 242 |
| | — |
| — |
| | — |
| | — |
| | — |
|
| Additions for the credit component on debt securities in which OTTI was previously recognized | — |
| | — |
| | — |
| | 130 |
| — |
| | 283 |
| | 113 |
| | 592 |
|
| Balance at end of period | $ | 22,824 |
| | $ | 22,582 |
| | $ | 22,824 |
| | $ | 22,582 |
| $ | 23,529 |
| | $ | 23,416 |
| | $ | 23,529 |
| | $ | 23,416 |
|
For both the three months ended September 30, 2017 and 2016,2019, there was no OTTI recognized and for the three months ended September 30, 2018, there was $283 thousand of OTTI recognized on held to maturity securities. For the nine months ended September 30, 20172019 and 2016,2018, there was $242$113 thousand and $130$592 thousand, respectively, of OTTI recognized
on held to maturity securities. The investmentdebt securities primarily impacted by credit impairment are held to maturity non-agency collateralized mortgage obligations.
The contractual maturities of the securities portfolios are presented in the following table.
| | | September 30, 2017 | | Amortized Cost | | Fair Value | |
| September 30, 2019 | | | Amortized Cost | | Fair Value |
| | | (In Thousands) | | (In Thousands) |
| Investment securities available for sale: | | | |
| Debt securities available for sale: | | | |
| Maturing within one year | | $ | 150,384 |
| | $ | 150,356 |
| | $ | 399,828 |
| | $ | 399,391 |
|
| Maturing after one but within five years | | 1,283,937 |
| | 1,279,279 |
| | 2,185,935 |
| | 2,202,123 |
|
| Maturing after five but within ten years | | 1,347,306 |
| | 1,342,532 |
| | 66,633 |
| | 67,896 |
|
| Maturing after ten years | | 943,236 |
| | 927,665 |
| | 535,048 |
| | 499,894 |
|
| | | 3,724,863 |
| | 3,699,832 |
| | 3,187,444 |
| | 3,169,304 |
|
| Mortgage-backed securities and collateralized mortgage obligations | | 8,223,596 |
| | 8,138,358 |
| | 4,427,429 |
| | 4,443,286 |
|
| Equity securities | | 430,032 |
| | 430,119 |
| |
| Total | | $ | 12,378,491 |
| | $ | 12,268,309 |
| | $ | 7,614,873 |
| | $ | 7,612,590 |
|
| | | | | | | | | |
| Investment securities held to maturity: | | | | | |
| Debt securities held to maturity: | | | | | |
| Maturing within one year | | $ | 101,445 |
| | $ | 101,473 |
| | $ | 834 |
| | $ | 835 |
|
| Maturing after one but within five years | | 192,870 |
| | 192,122 |
| | 825,404 |
| | 858,940 |
|
| Maturing after five but within ten years | | 225,282 |
| | 222,099 |
| | 937,617 |
| | 971,268 |
|
| Maturing after ten years | | 488,677 |
| | 482,529 |
| | 213,001 |
| | 214,444 |
|
| | | 1,008,274 |
| | 998,223 |
| | 1,976,856 |
| | 2,045,487 |
|
| Collateralized mortgage obligations | | 69,098 |
| | 69,696 |
| | 4,357,778 |
| | 4,469,009 |
|
| Total | | $ | 1,077,372 |
| | $ | 1,067,919 |
| | $ | 6,334,634 |
| | $ | 6,514,496 |
|
The gross realized gains and losses recognized on sales of investmentdebt securities available for sale are shown in the table below.
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Gross gains | $ | 3,033 |
| | $ | — |
| | $ | 3,033 |
| | $ | 30,037 |
| $ | 21,003 |
| | $ | — |
| | $ | 29,961 |
| | $ | — |
|
| Gross losses | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
|
| Net realized gains | $ | 3,033 |
| | $ | — |
| | $ | 3,033 |
| | $ | 30,037 |
| $ | 21,003 |
| | $ | — |
| | $ | 29,961 |
| | $ | — |
|
(3) Loans and Allowance for Loan Losses
The following table presents the composition of the loan portfolio.
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (In Thousands) |
| Commercial loans: | | | |
| Commercial, financial and agricultural | $ | 25,091,942 |
| | $ | 25,122,002 |
|
| Real estate – construction | 2,247,144 |
| | 2,125,316 |
|
| Commercial real estate – mortgage | 11,342,378 |
| | 11,210,660 |
|
| Total commercial loans | 38,681,464 |
| | 38,457,978 |
|
| Consumer loans: | | | |
| Residential real estate – mortgage | 13,398,503 |
| | 13,259,994 |
|
| Equity lines of credit | 2,617,312 |
| | 2,543,778 |
|
| Equity loans | 383,376 |
| | 445,709 |
|
| Credit card | 590,975 |
| | 604,881 |
|
| Consumer direct | 1,604,396 |
| | 1,254,641 |
|
| Consumer indirect | 3,039,178 |
| | 3,134,948 |
|
| Total consumer loans | 21,633,740 |
| | 21,243,951 |
|
| Covered loans (1) | — |
| | 359,334 |
|
| Total loans | $ | 60,315,204 |
| | $ | 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 entered into an agreement with the FDIC to terminate the Company's single family residential loss share agreement ahead of the contractual maturity. Loans no longer covered under a loss share agreement were reclassified to their appropriate loan type. |
|
| | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| | (In Thousands) |
| Commercial loans: | | | |
| Commercial, financial and agricultural | $ | 24,683,130 |
| | $ | 26,562,319 |
|
| Real estate – construction | 2,005,347 |
| | 1,997,537 |
|
| Commercial real estate – mortgage | 13,074,173 |
| | 13,016,796 |
|
| Total commercial loans | 39,762,650 |
| | 41,576,652 |
|
| Consumer loans: | | | |
| Residential real estate – mortgage | 13,503,327 |
| | 13,422,156 |
|
| Equity lines of credit | 2,618,112 |
| | 2,747,217 |
|
| Equity loans | 263,444 |
| | 298,614 |
|
| Credit card | 936,147 |
| | 818,308 |
|
| Consumer direct | 2,388,358 |
| | 2,553,588 |
|
| Consumer indirect | 3,848,533 |
| | 3,770,019 |
|
| Total consumer loans | 23,557,921 |
| | 23,609,902 |
|
| Total loans | $ | 63,320,571 |
| | $ | 65,186,554 |
|
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 categories 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) | | Covered | | Total | Commercial, Financial and Agricultural | | Commercial Real Estate (1) | | Residential Real Estate (2) | | Consumer (3) | | Total |
| | (In Thousands) | (In Thousands) |
| Three months ended September 30, 2017 | | | | | | | | | | | |
| Three months ended September 30, 2019 | | Three months ended September 30, 2019 | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | |
| Beginning balance | | $ | 456,054 |
| | $ | 117,786 |
| | $ | 100,351 |
| | $ | 303,469 |
| | $ | 977,660 |
|
| Provision for loan losses | | 28,787 |
| | 6,410 |
| | 3,214 |
| | 102,218 |
| | 140,629 |
|
| Loans charged-off | | (73,178 | ) | | (2,270 | ) | | (4,835 | ) | | (121,400 | ) | | (201,683 | ) |
| Loan recoveries | | 3,236 |
| | 79 |
| | 3,183 |
| | 19,087 |
| | 25,585 |
|
| Net charge-offs | | (69,942 | ) | | (2,191 | ) | | (1,652 | ) | | (102,313 | ) | | (176,098 | ) |
| Ending balance | | $ | 414,899 |
| | $ | 122,005 |
| | $ | 101,913 |
| | $ | 303,374 |
| | $ | 942,191 |
|
| Three months ended September 30, 2018 | | Three months ended September 30, 2018 | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | |
| Beginning balance | | $ | 431,510 |
| | $ | 113,246 |
| | $ | 98,032 |
| | $ | 217,212 |
| | $ | 860,000 |
|
| Provision for loan losses | | 9,560 |
| | 896 |
| | 1,446 |
| | 83,062 |
| | 94,964 |
|
| Loans charged-off | | (20,142 | ) | | (2,328 | ) | | (5,570 | ) | | (73,599 | ) | | (101,639 | ) |
| Loan recoveries | | 6,167 |
| | 316 |
| | 3,454 |
| | 12,131 |
| | 22,068 |
|
| Net charge-offs | | (13,975 | ) | | (2,012 | ) | | (2,116 | ) | | (61,468 | ) | | (79,571 | ) |
| Ending balance | | $ | 427,095 |
| | $ | 112,130 |
| | $ | 97,362 |
| | $ | 238,806 |
| | $ | 875,393 |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | |
| Beginning balance | $ | 427,654 |
| | $ | 116,819 |
| | $ | 108,095 |
| | $ | 164,384 |
| | $ | — |
| | $ | 816,952 |
| $ | 393,315 |
| | $ | 112,437 |
| | $ | 101,929 |
| | $ | 277,561 |
| | $ | 885,242 |
|
| Provision for loan losses | 20,513 |
| | 10,633 |
| | 8,411 |
| | 63,877 |
| | — |
| | 103,434 |
| 142,185 |
| | 9,906 |
| | 5,147 |
| | 320,701 |
| | 477,939 |
|
| Loan charge-offs | (21,320 | ) | | (7,913 | ) | | (4,290 | ) | | (55,102 | ) | | — |
| | (88,625 | ) | (132,006 | ) | | (2,407 | ) | | (14,526 | ) | | (345,028 | ) | | (493,967 | ) |
| Loan recoveries | 6,625 |
| | 235 |
| | 2,401 |
| | 8,097 |
| | — |
| | 17,358 |
| 11,405 |
| | 2,069 |
| | 9,363 |
| | 50,140 |
| | 72,977 |
|
| Net (charge-offs) recoveries | (14,695 | ) | | (7,678 | ) | | (1,889 | ) | | (47,005 | ) | | — |
| | (71,267 | ) | |
| Net charge-offs | | (120,601 | ) | | (338 | ) | | (5,163 | ) | | (294,888 | ) | | (420,990 | ) |
| Ending balance | $ | 433,472 |
| | $ | 119,774 |
| | $ | 114,617 |
| | $ | 181,256 |
| | $ | — |
| | $ | 849,119 |
| $ | 414,899 |
| | $ | 122,005 |
| | $ | 101,913 |
| | $ | 303,374 |
| | $ | 942,191 |
|
| Three months ended September 30, 2016 | | | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | | | |
| Beginning balance | $ | 499,398 |
| | $ | 114,311 |
| | $ | 119,076 |
| | $ | 110,266 |
| | $ | — |
| | $ | 843,051 |
| |
| Provision for loan losses | 20,533 |
| | 54 |
| | 528 |
| | 43,992 |
| | — |
| | 65,107 |
| |
| Loan charge-offs | (13,702 | ) | | (104 | ) | | (4,608 | ) | | (46,472 | ) | | — |
| | (64,886 | ) | |
| Loan recoveries | 4,766 |
| | 682 |
| | 3,429 |
| | 9,931 |
| | — |
| | 18,808 |
| |
| Net (charge-offs) recoveries | (8,936 | ) | | 578 |
| | (1,179 | ) | | (36,541 | ) | | — |
| | (46,078 | ) | |
| Ending balance | $ | 510,995 |
| | $ | 114,943 |
| | $ | 118,425 |
| | $ | 117,717 |
| | $ | — |
| | $ | 862,080 |
| |
| | | | | | | | | | | | | |
| Nine Months Ended September 30, 2017 | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 | | Nine Months Ended September 30, 2018 | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | |
| Beginning balance | $ | 458,580 |
| | $ | 116,937 |
| | $ | 119,484 |
| | $ | 143,292 |
| | $ | — |
| | $ | 838,293 |
| $ | 420,635 |
| | $ | 118,133 |
| | $ | 109,856 |
| | $ | 194,136 |
| | $ | 842,760 |
|
| Provision (credit) for loan losses | 49,045 |
| | 7,534 |
| | 2,639 |
| | 169,671 |
| | (31 | ) | | 228,858 |
| 39,397 |
| | (9,184 | ) | | (7,339 | ) | | 220,399 |
| | 243,273 |
|
| Loan charge-offs | (91,943 | ) | | (8,927 | ) | | (16,242 | ) | | (160,261 | ) | | — |
| | (277,373 | ) | (42,968 | ) | | (3,217 | ) | | (15,123 | ) | | (210,195 | ) | | (271,503 | ) |
| Loan recoveries | 17,790 |
| | 4,230 |
| | 8,736 |
| | 28,554 |
| | 31 |
| | 59,341 |
| 10,031 |
| | 6,398 |
| | 9,968 |
| | 34,466 |
| | 60,863 |
|
| Net (charge-offs) recoveries | (74,153 | ) | | (4,697 | ) | | (7,506 | ) | | (131,707 | ) | | 31 |
| | (218,032 | ) | (32,937 | ) | | 3,181 |
| | (5,155 | ) | | (175,729 | ) | | (210,640 | ) |
| Ending balance | $ | 433,472 |
| | $ | 119,774 |
| | $ | 114,617 |
| | $ | 181,256 |
| | $ | — |
| | $ | 849,119 |
| $ | 427,095 |
| | $ | 112,130 |
| | $ | 97,362 |
| | $ | 238,806 |
| | $ | 875,393 |
|
| Nine Months Ended September 30, 2016 | | | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | | | |
| Beginning balance | $ | 402,113 |
| | $ | 122,068 |
| | $ | 132,104 |
| | $ | 104,948 |
| | $ | 1,440 |
| | $ | 762,673 |
| |
| Provision (credit) for loan losses | 167,648 |
| | (7,393 | ) | | (7,412 | ) | | 112,058 |
| | 124 |
| | 265,025 |
| |
| Loan charge-offs | (66,541 | ) | | (3,555 | ) | | (15,072 | ) | | (125,607 | ) | | (1,565 | ) | | (212,340 | ) | |
| Loan recoveries | 7,775 |
| | 3,823 |
| | 8,805 |
| | 26,318 |
| | 1 |
| | 46,722 |
| |
| Net (charge-offs) recoveries | (58,766 | ) | | 268 |
| | (6,267 | ) | | (99,289 | ) | | (1,564 | ) | | (165,618 | ) | |
| Ending balance | $ | 510,995 |
| | $ | 114,943 |
| | $ | 118,425 |
| | $ | 117,717 |
| | $ | — |
| | $ | 862,080 |
| |
| |
(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.
| | | | Commercial, Financial and Agricultural | | Commercial Real Estate (1) | | Residential Real Estate (2) | | Consumer (3) | | Covered | | Total | Commercial, Financial and Agricultural | | Commercial Real Estate (1) | | Residential Real Estate (2) | | Consumer (3) | | Total |
| | (In Thousands) | (In Thousands) |
| September 30, 2017 | | | | | | | | | | | | |
| September 30, 2019 | | | | | | | | | | |
| Ending balance of allowance attributable to loans: | Ending balance of allowance attributable to loans: | | | | | | | | | | | Ending balance of allowance attributable to loans: | | | | | | | | |
| Individually evaluated for impairment | $ | 67,280 |
| | $ | 9,723 |
| | $ | 28,989 |
| | $ | 2,260 |
| | $ | — |
| | $ | 108,252 |
| $ | 92,309 |
| | $ | 11,645 |
| | $ | 23,629 |
| | $ | 1,083 |
| | $ | 128,666 |
|
| Collectively evaluated for impairment | 366,192 |
| | 110,051 |
| | 85,628 |
| | 178,996 |
| | — |
| | 740,867 |
| 322,590 |
| | 110,360 |
| | 78,284 |
| | 302,291 |
| | 813,525 |
|
| Total allowance for loan losses | $ | 433,472 |
| | $ | 119,774 |
| | $ | 114,617 |
| | $ | 181,256 |
| | $ | — |
| | $ | 849,119 |
| $ | 414,899 |
| | $ | 122,005 |
| | $ | 101,913 |
| | $ | 303,374 |
| | $ | 942,191 |
|
| Ending balance of loans: | Ending balance of loans: | | | | | | | | | | | Ending balance of loans: | | | | | | | | |
| Individually evaluated for impairment | $ | 302,285 |
| | $ | 82,905 |
| | $ | 170,608 |
| | $ | 3,862 |
| | $ | — |
| | $ | 559,660 |
| $ | 269,636 |
| | $ | 83,201 |
| | $ | 156,814 |
| | $ | 7,498 |
| | $ | 517,149 |
|
| Collectively evaluated for impairment | 24,789,657 |
| | 13,506,617 |
| | 16,228,583 |
| | 5,230,687 |
| | — |
| | 59,755,544 |
| 24,413,494 |
| | 14,996,319 |
| | 16,228,069 |
| | 7,165,540 |
| | 62,803,422 |
|
| Total loans | $ | 25,091,942 |
| | $ | 13,589,522 |
| | $ | 16,399,191 |
| | $ | 5,234,549 |
| | $ | — |
| | $ | 60,315,204 |
| $ | 24,683,130 |
| | $ | 15,079,520 |
| | $ | 16,384,883 |
| | $ | 7,173,038 |
| | $ | 63,320,571 |
|
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 | | | | | | | | | | | | |
| December 31, 2018 | | | | | | | | | | |
| Ending balance of allowance attributable to loans: | Ending balance of allowance attributable to loans: | | | | | | | | | | | Ending balance of allowance attributable to loans: | | | | | | | | |
| Individually evaluated for impairment | $ | 99,932 |
| | $ | 4,037 |
| | $ | 32,016 |
| | $ | 2,223 |
| | $ | — |
| | $ | 138,208 |
| $ | 73,072 |
| | $ | 6,283 |
| | $ | 26,008 |
| | $ | 1,880 |
| | $ | 107,243 |
|
| Collectively evaluated for impairment | 358,648 |
| | 112,900 |
| | 87,468 |
| | 141,069 |
| | — |
| | 700,085 |
| 320,243 |
| | 106,154 |
| | 75,921 |
| | 275,681 |
| | 777,999 |
|
| Total allowance for loan losses | $ | 458,580 |
| | $ | 116,937 |
| | $ | 119,484 |
| | $ | 143,292 |
| | $ | — |
| | $ | 838,293 |
| $ | 393,315 |
| | $ | 112,437 |
| | $ | 101,929 |
| | $ | 277,561 |
| | $ | 885,242 |
|
| Ending balance of loans: | Ending balance of loans: | | | | | | | | | | | Ending balance of loans: | | | | | | | | |
| Individually evaluated for impairment | $ | 719,468 |
| | $ | 44,258 |
| | $ | 186,338 |
| | $ | 3,042 |
| | $ | — |
| | $ | 953,106 |
| $ | 386,282 |
| | $ | 85,250 |
| | $ | 153,342 |
| | $ | 5,135 |
| | $ | 630,009 |
|
| Collectively evaluated for impairment | 24,402,534 |
| | 13,291,718 |
| | 16,063,143 |
| | 4,991,428 |
| | 359,334 |
| | 59,108,157 |
| 26,176,037 |
| | 14,929,083 |
| | 16,314,645 |
| | 7,136,780 |
| | 64,556,545 |
|
| Total loans | $ | 25,122,002 |
| | $ | 13,335,976 |
| | $ | 16,249,481 |
| | $ | 4,994,470 |
| | $ | 359,334 |
| | $ | 60,061,263 |
| $ | 26,562,319 |
| | $ | 15,014,333 |
| | $ | 16,467,987 |
| | $ | 7,141,915 |
| | $ | 65,186,554 |
|
| |
(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 following tables present information on individually evaluated impaired loans, by loan class.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 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 | $ | 106,174 |
| | $ | 109,976 |
| | $ | — |
| | $ | 163,462 |
| | $ | 211,790 |
| | $ | 92,309 |
|
| Real estate – construction | — |
| | — |
| | — |
| | 120 |
| | 120 |
| | 11 |
|
| Commercial real estate – mortgage | 52,645 |
| | 57,164 |
| | — |
| | 30,436 |
| | 32,695 |
| | 11,634 |
|
| Residential real estate – mortgage | — |
| | — |
| | — |
| | 111,609 |
| | 111,609 |
| | 8,616 |
|
| Equity lines of credit | — |
| | — |
| | — |
| | 15,968 |
| | 15,973 |
| | 12,155 |
|
| Equity loans | — |
| | — |
| | — |
| | 29,237 |
| | 30,086 |
| | 2,858 |
|
| Credit card | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Consumer direct | — |
| | — |
| | — |
| | 7,311 |
| | 9,307 |
| | 899 |
|
| Consumer indirect | — |
| | — |
| | — |
| | 187 |
| | 187 |
| | 184 |
|
| Total loans | $ | 158,819 |
| | $ | 167,140 |
| | $ | — |
| | $ | 358,330 |
| | $ | 411,767 |
| | $ | 128,666 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | 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 | $ | 162,011 |
| | $ | 196,316 |
| | $ | — |
| | $ | 224,271 |
| | $ | 262,947 |
| | $ | 73,072 |
|
| Real estate – construction | — |
| | — |
| | — |
| | 138 |
| | 138 |
| | 6 |
|
| Commercial real estate – mortgage | 45,628 |
| | 48,404 |
| | — |
| | 39,484 |
| | 44,463 |
| | 6,277 |
|
| Residential real estate – mortgage | — |
| | — |
| | — |
| | 104,787 |
| | 104,787 |
| | 8,711 |
|
| Equity lines of credit | — |
| | — |
| | — |
| | 16,012 |
| | 16,016 |
| | 13,334 |
|
| Equity loans | — |
| | — |
| | — |
| | 32,543 |
| | 33,258 |
| | 3,963 |
|
| Credit card | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Consumer direct | — |
| | — |
| | — |
| | 4,715 |
| | 4,715 |
| | 1,473 |
|
| Consumer indirect | — |
| | — |
| | — |
| | 420 |
| | 420 |
| | 407 |
|
| Total loans | $ | 207,639 |
| | $ | 244,720 |
| | $ | — |
| | $ | 422,370 |
| | $ | 466,744 |
| | $ | 107,243 |
|
The following tables present information on individually evaluated impaired loans, by loan class.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 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 | $ | 124,830 |
| | $ | 134,543 |
| | $ | — |
| | $ | 177,455 |
| | $ | 218,610 |
| | $ | 67,280 |
|
| Real estate – construction | 4,593 |
| | 4,593 |
| | — |
| | 215 |
| | 262 |
| | 196 |
|
| Commercial real estate – mortgage | 33,979 |
| | 35,189 |
| | — |
| | 44,118 |
| | 51,622 |
| | 9,527 |
|
| Residential real estate – mortgage | — |
| | — |
| | — |
| | 113,464 |
| | 113,464 |
| | 9,743 |
|
| Equity lines of credit | — |
| | — |
| | — |
| | 20,385 |
| | 20,389 |
| | 14,919 |
|
| Equity loans | — |
| | — |
| | — |
| | 36,759 |
| | 37,451 |
| | 4,327 |
|
| Credit card | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Consumer direct | — |
| | — |
| | — |
| | 2,591 |
| | 2,591 |
| | 1,074 |
|
| Consumer indirect | — |
| | — |
| | — |
| | 1,271 |
| | 1,271 |
| | 1,186 |
|
| Total loans | $ | 163,402 |
| | $ | 174,325 |
| | $ | — |
| | $ | 396,258 |
| | $ | 445,660 |
| | $ | 108,252 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 tables present information on individually evaluated impaired loans, by loan class.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
| | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
| | (In Thousands) |
| Commercial, financial and agricultural | $ | 348,075 |
| | $ | 191 |
| | $ | 769,719 |
| | $ | 401 |
|
| Real estate – construction | 4,230 |
| | 2 |
| | 634 |
| | 2 |
|
| Commercial real estate – mortgage | 83,568 |
| | 232 |
| | 36,874 |
| | 255 |
|
| Residential real estate – mortgage | 115,267 |
| | 671 |
| | 110,262 |
| | 666 |
|
| Equity lines of credit | 20,845 |
| | 219 |
| | 26,231 |
| | 246 |
|
| Equity loans | 37,085 |
| | 323 |
| | 43,292 |
| | 375 |
|
| Credit card | — |
| | — |
| | — |
| | — |
|
| Consumer direct | 2,599 |
| | 11 |
| | 803 |
| | 7 |
|
| Consumer indirect | 1,355 |
| | 2 |
| | 2,505 |
| | 3 |
|
| Total loans | $ | 613,024 |
| | $ | 1,651 |
| | $ | 990,320 |
| | $ | 1,955 |
|
| | | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 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 |
| | (In Thousands) | (In Thousands) |
| Commercial, financial and agricultural | $ | 472,639 |
| | $ | 743 |
| | $ | 575,038 |
| | $ | 1,033 |
| $ | 318,790 |
| | $ | 496 |
| | $ | 286,815 |
| | $ | 29 |
|
| Real estate – construction | 1,811 |
| | 6 |
| | 2,118 |
| | 6 |
| 584 |
| | 2 |
| | 12,182 |
| | 1 |
|
| Commercial real estate – mortgage | 69,304 |
| | 852 |
| | 46,073 |
| | 932 |
| 77,165 |
| | 221 |
| | 80,779 |
| | 238 |
|
| Residential real estate – mortgage | 115,622 |
| | 1,986 |
| | 109,020 |
| | 1,953 |
| 109,450 |
| | 691 |
| | 105,743 |
| | 660 |
|
| Equity lines of credit | 22,151 |
| | 671 |
| | 27,170 |
| | 790 |
| 16,553 |
| | 164 |
| | 16,885 |
| | 184 |
|
| Equity loans | 38,711 |
| | 997 |
| | 44,629 |
| | 1,123 |
| 29,455 |
| | 268 |
| | 33,836 |
| | 295 |
|
| Credit card | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
|
| Consumer direct | 1,320 |
| | 22 |
| | 854 |
| | 22 |
| 7,360 |
| | 102 |
| | 923 |
| | 9 |
|
| Consumer indirect | 1,706 |
| | 8 |
| | 2,152 |
| | 9 |
| 203 |
| | — |
| | 550 |
| | 1 |
|
| Total loans | $ | 723,264 |
| | $ | 5,285 |
| | $ | 807,054 |
| | $ | 5,868 |
| $ | 559,560 |
| | $ | 1,944 |
| | $ | 537,713 |
| | $ | 1,417 |
|
| | | | | | | | | |
| | | Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2018 |
| | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
| | | (In Thousands) |
| Commercial, financial and agricultural | | $ | 377,390 |
| | $ | 2,033 |
| | $ | 268,037 |
| | $ | 622 |
|
| Real estate – construction | | 436 |
| | 6 |
| | 10,060 |
| | 5 |
|
| Commercial real estate – mortgage | | 79,910 |
| | 687 |
| | 82,350 |
| | 648 |
|
| Residential real estate – mortgage | | 107,456 |
| | 2,021 |
| | 109,262 |
| | 2,029 |
|
| Equity lines of credit | | 15,617 |
| | 514 |
| | 17,833 |
| | 571 |
|
| Equity loans | | 30,568 |
| | 816 |
| | 34,814 |
| | 897 |
|
| Credit card | | — |
| | — |
| | — |
| | — |
|
| Consumer direct | | 6,459 |
| | 233 |
| | 2,197 |
| | 24 |
|
| Consumer indirect | | 280 |
| | — |
| | 707 |
| | 4 |
|
| Total loans | | $ | 618,116 |
| | $ | 6,310 |
| | $ | 525,260 |
| | $ | 4,800 |
|
Detailed information on the Company's allowance for loan losses methodology and the Company's impaired loan policy are included in the Notes to the Company's Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2016.2018.
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 through 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 best 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 | Commercial |
| | September 30, 2017 | September 30, 2019 |
| | Commercial, Financial and Agricultural | | Real Estate - Construction | | Commercial Real Estate - Mortgage | Commercial, Financial and Agricultural | | Real Estate - Construction | | Commercial Real Estate - Mortgage |
| | (In Thousands) | (In Thousands) |
| Pass | $ | 23,705,231 |
| | $ | 2,208,525 |
| | $ | 11,054,754 |
| $ | 23,417,187 |
| | $ | 1,921,410 |
| | $ | 12,718,589 |
|
| Special Mention | 514,233 |
| | 35,017 |
| | 111,720 |
| 661,147 |
| | 10,430 |
| | 170,527 |
|
| Substandard | 746,719 |
| | 3,602 |
| | 158,623 |
| 502,442 |
| | 73,507 |
| | 171,154 |
|
| Doubtful | 125,759 |
| | — |
| | 17,281 |
| 102,354 |
| | — |
| | 13,903 |
|
| | $ | 25,091,942 |
| | $ | 2,247,144 |
| | $ | 11,342,378 |
| $ | 24,683,130 |
| | $ | 2,005,347 |
| | $ | 13,074,173 |
|
| | | | December 31, 2016 | December 31, 2018 |
| | Commercial, Financial and Agricultural | | Real Estate - Construction | | Commercial Real Estate - Mortgage | Commercial, Financial and Agricultural | | Real Estate - Construction | | Commercial Real Estate - Mortgage |
| | (In Thousands) | (In Thousands) |
| Pass | $ | 23,142,975 |
| | $ | 2,055,483 |
| | $ | 10,898,877 |
| $ | 25,395,640 |
| | $ | 1,971,852 |
| | $ | 12,620,421 |
|
| Special Mention | 758,417 |
| | 60,826 |
| | 187,182 |
| 412,129 |
| | 12,372 |
| | 215,322 |
|
| Substandard | 1,081,439 |
| | 9,007 |
| | 106,183 |
| 631,706 |
| | 13,313 |
| | 170,303 |
|
| Doubtful | 139,171 |
| | — |
| | 18,418 |
| 122,844 |
| | — |
| | 10,750 |
|
| | $ | 25,122,002 |
| | $ | 2,125,316 |
| | $ | 11,210,660 |
| $ | 26,562,319 |
| | $ | 1,997,537 |
| | $ | 13,016,796 |
|
| | | | Consumer | Consumer |
| | September 30, 2017 | September 30, 2019 |
| | Residential Real Estate – Mortgage | | Equity Lines of Credit | | Equity Loans | | Credit Card | | Consumer Direct | | Consumer Indirect | Residential Real Estate – Mortgage | | Equity Lines of Credit | | Equity Loans | | Credit Card | | Consumer Direct | | Consumer Indirect |
| | (In Thousands) | (In Thousands) |
| Performing | $ | 13,219,631 |
| | $ | 2,580,717 |
| | $ | 371,092 |
| | $ | 580,283 |
| | $ | 1,596,441 |
| | $ | 3,021,453 |
| $ | 13,345,060 |
| | $ | 2,579,161 |
| | $ | 254,015 |
| | $ | 916,110 |
| | $ | 2,363,237 |
| | $ | 3,805,994 |
|
| Nonperforming | 178,872 |
| | 36,595 |
| | 12,284 |
| | 10,692 |
| | 7,955 |
| | 17,725 |
| 158,267 |
| | 38,951 |
| | 9,429 |
| | 20,037 |
| | 25,121 |
| | 42,539 |
|
| | $ | 13,398,503 |
| | $ | 2,617,312 |
| | $ | 383,376 |
| | $ | 590,975 |
| | $ | 1,604,396 |
| | $ | 3,039,178 |
| $ | 13,503,327 |
| | $ | 2,618,112 |
| | $ | 263,444 |
| | $ | 936,147 |
| | $ | 2,388,358 |
| | $ | 3,848,533 |
|
| | | | December 31, 2016 | December 31, 2018 |
| | Residential Real Estate -Mortgage | | Equity Lines of Credit | | Equity Loans | | Credit Card | | Consumer Direct | | Consumer Indirect | Residential Real Estate -Mortgage | | Equity Lines of Credit | | Equity Loans | | Credit Card | | Consumer Direct | | Consumer Indirect |
| | (In Thousands) | (In Thousands) |
| Performing | $ | 13,115,936 |
| | $ | 2,507,375 |
| | $ | 431,417 |
| | $ | 593,927 |
| | $ | 1,249,370 |
| | $ | 3,121,825 |
| $ | 13,248,822 |
| | $ | 2,707,289 |
| | $ | 287,392 |
| | $ | 801,297 |
| | $ | 2,535,724 |
| | $ | 3,742,394 |
|
| Nonperforming | 144,058 |
| | 36,403 |
| | 14,292 |
| | 10,954 |
| | 5,271 |
| | 13,123 |
| 173,334 |
| | 39,928 |
| | 11,222 |
| | 17,011 |
| | 17,864 |
| | 27,625 |
|
| | $ | 13,259,994 |
| | $ | 2,543,778 |
| | $ | 445,709 |
| | $ | 604,881 |
| | $ | 1,254,641 |
| | $ | 3,134,948 |
| $ | 13,422,156 |
| | $ | 2,747,217 |
| | $ | 298,614 |
| | $ | 818,308 |
| | $ | 2,553,588 |
| | $ | 3,770,019 |
|
The following tables present an aging analysis of the Company’s past due loans, excluding loans classified as held for sale.
| | | | September 30, 2017 | September 30, 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 | $ | 51,581 |
| | $ | 6,351 |
| | $ | 6,072 |
| | $ | 324,071 |
| | $ | 1,259 |
| | $ | 389,334 |
| | $ | 24,702,608 |
| | $ | 25,091,942 |
| $ | 30,779 |
| | $ | 24,036 |
| | $ | 11,179 |
| | $ | 301,021 |
| | $ | 1,552 |
| | $ | 368,567 |
| | $ | 24,314,563 |
| | $ | 24,683,130 |
|
| Real estate – construction | 661 |
| | 94 |
| | 2,955 |
| | 1,877 |
| | 106 |
| | 5,693 |
| | 2,241,451 |
| | 2,247,144 |
| 3,831 |
| | 185 |
| | 532 |
| | 1,616 |
| | 76 |
| | 6,240 |
| | 1,999,107 |
| | 2,005,347 |
|
| Commercial real estate – mortgage | 21,324 |
| | 1,089 |
| | 3,686 |
| | 108,040 |
| | 4,645 |
| | 138,784 |
| | 11,203,594 |
| | 11,342,378 |
| 13,939 |
| | 41 |
| | 2,375 |
| | 110,632 |
| | 3,492 |
| | 130,479 |
| | 12,943,694 |
| | 13,074,173 |
|
| Residential real estate – mortgage | 57,582 |
| | 32,606 |
| | 2,558 |
| | 175,490 |
| | 59,086 |
| | 327,322 |
| | 13,071,181 |
| | 13,398,503 |
| 74,796 |
| | 22,329 |
| | 4,778 |
| | 153,078 |
| | 60,537 |
| | 315,518 |
| | 13,187,809 |
| | 13,503,327 |
|
| Equity lines of credit | 11,118 |
| | 4,824 |
| | 2,179 |
| | 34,416 |
| | 237 |
| | 52,774 |
| | 2,564,538 |
| | 2,617,312 |
| 11,088 |
| | 4,616 |
| | 2,072 |
| | 36,879 |
| | — |
| | 54,655 |
| | 2,563,457 |
| | 2,618,112 |
|
| Equity loans | 3,470 |
| | 1,798 |
| | 840 |
| | 11,305 |
| | 30,574 |
| | 47,987 |
| | 335,389 |
| | 383,376 |
| 2,452 |
| | 978 |
| | 524 |
| | 8,728 |
| | 24,789 |
| | 37,471 |
| | 225,973 |
| | 263,444 |
|
| Credit card | 6,832 |
| | 4,777 |
| | 10,692 |
| | — |
| | — |
| | 22,301 |
| | 568,674 |
| | 590,975 |
| 10,372 |
| | 8,092 |
| | 20,037 |
| | — |
| | — |
| | 38,501 |
| | 897,646 |
| | 936,147 |
|
| Consumer direct | 17,563 |
| | 6,796 |
| | 5,209 |
| | 2,746 |
| | 577 |
| | 32,891 |
| | 1,571,505 |
| | 1,604,396 |
| 35,762 |
| | 23,075 |
| | 17,773 |
| | 7,348 |
| | 7,360 |
| | 91,318 |
| | 2,297,040 |
| | 2,388,358 |
|
| Consumer indirect | 81,534 |
| | 23,070 |
| | 8,858 |
| | 8,867 |
| | — |
| | 122,329 |
| | 2,916,849 |
| | 3,039,178 |
| 81,075 |
| | 26,294 |
| | 8,599 |
| | 33,940 |
| | — |
| | 149,908 |
| | 3,698,625 |
| | 3,848,533 |
|
| Total loans | $ | 251,665 |
| | $ | 81,405 |
| | $ | 43,049 |
| | $ | 666,812 |
| | $ | 96,484 |
| | $ | 1,139,415 |
| | $ | 59,175,789 |
| | $ | 60,315,204 |
| $ | 264,094 |
| | $ | 109,646 |
| | $ | 67,869 |
| | $ | 653,242 |
| | $ | 97,806 |
| | $ | 1,192,657 |
| | $ | 62,127,914 |
| | $ | 63,320,571 |
|
| | | | December 31, 2016 | December 31, 2018 |
| | 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 |
| $ | 17,257 |
| | $ | 11,784 |
| | $ | 8,114 |
| | $ | 400,389 |
| | $ | 18,926 |
| | $ | 456,470 |
| | $ | 26,105,849 |
| | $ | 26,562,319 |
|
| Real estate – construction | 918 |
| | 50 |
| | 2,007 |
| | 1,239 |
| | 2,393 |
| | 6,607 |
| | 2,118,709 |
| | 2,125,316 |
| 218 |
| | 8,849 |
| | 544 |
| | 2,851 |
| | 116 |
| | 12,578 |
| | 1,984,959 |
| | 1,997,537 |
|
| Commercial real estate – mortgage | 3,791 |
| | 3,474 |
| | — |
| | 71,921 |
| | 4,860 |
| | 84,046 |
| | 11,126,614 |
| | 11,210,660 |
| 11,678 |
| | 3,375 |
| | 2,420 |
| | 110,144 |
| | 3,661 |
| | 131,278 |
| | 12,885,518 |
| | 13,016,796 |
|
| Residential real estate – mortgage | 57,359 |
| | 28,450 |
| | 3,356 |
| | 140,303 |
| | 59,893 |
| | 289,361 |
| | 12,970,633 |
| | 13,259,994 |
| 80,366 |
| | 29,852 |
| | 5,927 |
| | 167,099 |
| | 57,446 |
| | 340,690 |
| | 13,081,466 |
| | 13,422,156 |
|
| Equity lines of credit | 7,922 |
| | 4,583 |
| | 2,950 |
| | 33,453 |
| | — |
| | 48,908 |
| | 2,494,870 |
| | 2,543,778 |
| 14,007 |
| | 5,109 |
| | 2,226 |
| | 37,702 |
| | — |
| | 59,044 |
| | 2,688,173 |
| | 2,747,217 |
|
| Equity loans | 5,615 |
| | 1,843 |
| | 467 |
| | 13,635 |
| | 34,746 |
| | 56,306 |
| | 389,403 |
| | 445,709 |
| 3,471 |
| | 843 |
| | 180 |
| | 10,939 |
| | 26,768 |
| | 42,201 |
| | 256,413 |
| | 298,614 |
|
| Credit card | 6,411 |
| | 5,042 |
| | 10,954 |
| | — |
| | — |
| | 22,407 |
| | 582,474 |
| | 604,881 |
| 9,516 |
| | 7,323 |
| | 17,011 |
| | — |
| | — |
| | 33,850 |
| | 784,458 |
| | 818,308 |
|
| Consumer direct | 13,338 |
| | 4,563 |
| | 4,482 |
| | 789 |
| | 704 |
| | 23,876 |
| | 1,230,765 |
| | 1,254,641 |
| 37,336 |
| | 19,543 |
| | 13,336 |
| | 4,528 |
| | 2,684 |
| | 77,427 |
| | 2,476,161 |
| | 2,553,588 |
|
| Consumer indirect | 85,198 |
| | 22,833 |
| | 7,197 |
| | 5,926 |
| | — |
| | 121,154 |
| | 3,013,794 |
| | 3,134,948 |
| 100,434 |
| | 32,172 |
| | 9,791 |
| | 17,834 |
| | — |
| | 160,231 |
| | 3,609,788 |
| | 3,770,019 |
|
| 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 |
| $ | 274,283 |
| | $ | 118,850 |
| | $ | 59,549 |
| | $ | 751,486 |
| | $ | 109,601 |
| | $ | 1,313,769 |
| | $ | 63,872,785 |
| | $ | 65,186,554 |
|
Policies related to the Company's nonaccrual and past due loans are included in the Company's Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2016.2018.
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.
Modifications to borrowers' loan agreements are considered TDRs if a concession is granted for economic or legal reasons related to a borrower’s financial difficulties that otherwise would not be considered. 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 three months ended September 30, 2017, $3.32019, $7.8 million of TDR
modifications included an interest rate concession and $102.3$25.0 million of TDR modifications resulted from modifications
to the loan’s structure. During the three months ended September 30, 2016, $1.22018, $1.9 million of TDR modifications included an interest rate concession and $36.5$106.5 million of TDR modifications resulted from modifications to the loan’s structure. During the nine months ended September 30, 2017, $5.22019, $17.3 million of TDR modifications included an interest rate concession and $212.5$57.8 million of TDR modifications resulted from modifications to the loan’s structure. During the nine months ended September 30, 2016, $4.22018, $25.3 million of TDR modifications included an interest rate concession and $49.8$113.0 million of TDR modifications resulted from modifications to the loan’s structure.
The following tables present an analysis of the types of loans that were restructured and classified as TDRs, excluding loans classified as held for sale.
| | | | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 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 | | Number of Contracts | | Post-Modification Outstanding Recorded Investment |
| | (Dollars in Thousands) | (Dollars in Thousands) |
| Commercial, financial and agricultural | 11 |
| | $ | 103,223 |
| | 4 |
| | $ | 31,676 |
| 4 |
| | $ | 1,411 |
| | 1 |
| | $ | 104,065 |
|
| Real estate – construction | — |
| | — |
| | 1 |
| | 112 |
| — |
| | — |
| | — |
| | — |
|
| Commercial real estate – mortgage | — |
| | — |
| | — |
| | — |
| 2 |
| | 18,115 |
| | 1 |
| | 679 |
|
| Residential real estate – mortgage | 9 |
| | 1,665 |
| | 21 |
| | 2,868 |
| 29 |
| | 8,523 |
| | 17 |
| | 2,025 |
|
| Equity lines of credit | 7 |
| | 368 |
| | 30 |
| | 1,468 |
| 3 |
| | 259 |
| | 3 |
| | 80 |
|
| Equity loans | 10 |
| | 342 |
| | 6 |
| | 635 |
| 1 |
| | 49 |
| | 7 |
| | 464 |
|
| Credit card | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
|
| Consumer direct | — |
| | — |
| | 2 |
| | 15 |
| 110 |
| | 4,401 |
| | 2 |
| | 1,098 |
|
| Consumer indirect | 1 |
| | 5 |
| | 56 |
| | 917 |
| 1 |
| | 2 |
| | — |
| | — |
|
| Covered loans | — |
| | — |
| | — |
| | — |
| |
| | | | | | | | | |
| | | Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2018 |
| | | Number of Contracts | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Post-Modification Outstanding Recorded Investment |
| | | (Dollars in Thousands) |
| Commercial, financial and agricultural | | 10 |
| | $ | 28,330 |
| | 5 |
| | $ | 121,263 |
|
| Real estate – construction | | — |
| | — |
| | 2 |
| | 307 |
|
| Commercial real estate – mortgage | | 6 |
| | 20,638 |
| | 3 |
| | 2,313 |
|
| Residential real estate – mortgage | | 65 |
| | 15,574 |
| | 50 |
| | 10,862 |
|
| Equity lines of credit | | 5 |
| | 353 |
| | 7 |
| | 197 |
|
| Equity loans | | 8 |
| | 456 |
| | 19 |
| | 2,235 |
|
| Credit card | | — |
| | — |
| | — |
| | — |
|
| Consumer direct | | 178 |
| | 9,176 |
| | 3 |
| | 1,104 |
|
| Consumer indirect | | 1 |
| | 2 |
| | — |
| | — |
|
|
| | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| | Number of Contracts | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Post-Modification Outstanding Recorded Investment |
| | (Dollars in Thousands) |
| Commercial, financial and agricultural | 24 |
| | $ | 205,387 |
| | 9 |
| | $ | 32,026 |
|
| Real estate – construction | — |
| | — |
| | 2 |
| | 3,504 |
|
| Commercial real estate – mortgage | 2 |
| | 502 |
| | 5 |
| | 1,431 |
|
| Residential real estate – mortgage | 44 |
| | 8,763 |
| | 59 |
| | 10,654 |
|
| Equity lines of credit | 34 |
| | 1,708 |
| | 66 |
| | 3,237 |
|
| Equity loans | 26 |
| | 1,031 |
| | 15 |
| | 1,129 |
|
| Credit card | — |
| | — |
| | — |
| | — |
|
| Consumer direct | — |
| | — |
| | 3 |
| | 24 |
|
| Consumer indirect | 14 |
| | 209 |
| | 119 |
| | 1,999 |
|
| Covered loans | 2 |
| | 103 |
| | — |
| | — |
|
Charge-offs and changesThe impact to the allowance for loan losses related to modifications classified as TDRs were approximately $20.3$6.7 million and $26.1$18.3 million for the three and nine months ended September 30, 2017,2019, respectively. ForThe impact to the allowance for loan losses related to modifications classified as TDRs were $(100) thousand and $11.2 million for the three and nine months ended September 30, 2016, 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 excludestables exclude loans classified as held for sale as of period-end and includes loans no longer in default as of period-end.
| | | | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2018 |
| | Number of Contracts | | Recorded Investment at Default | | Number of Contracts | | Recorded Investment at Default | Number of Contracts | | Recorded Investment at Default | | Number of Contracts | | Recorded Investment at Default |
| | (Dollars in Thousands) | (Dollars in Thousands) |
| Commercial, financial and agricultural | — |
| | $ | — |
| | — |
| | $ | — |
| — |
| | $ | — |
| | — |
| | $ | — |
|
| Real estate – construction | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
|
| Commercial real estate – mortgage | — |
| | — |
| | — |
| | — |
| 1 |
| | 599 |
| | — |
| �� | — |
|
| Residential real estate – mortgage | — |
| | — |
| | — |
| | — |
| 1 |
| | 234 |
| | 2 |
| | 327 |
|
| Equity lines of credit | — |
| | — |
| | 8 |
| | 204 |
| — |
| | — |
| | — |
| | — |
|
| Equity loans | — |
| | — |
| | 1 |
| | 42 |
| — |
| | — |
| | — |
| | — |
|
| Credit card | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
|
| Consumer direct | — |
| | — |
| | — |
| | — |
| 1 |
| | 600 |
| | — |
| | — |
|
| Consumer indirect | — |
| | — |
| | 1 |
| | 13 |
| — |
| | — |
| | — |
| | — |
|
| Covered loans | — |
| | — |
| | — |
| | — |
| |
| | | | | | | | | |
| | | Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2018 |
| | | Number of Contracts | | Recorded Investment at Default | | Number of Contracts | | Recorded Investment at Default |
| | | (Dollars in Thousands) |
| Commercial, financial and agricultural | | — |
| | $ | — |
| | — |
| | $ | — |
|
| Real estate – construction | | — |
| | — |
| | — |
| | — |
|
| Commercial real estate – mortgage | | 1 |
| | 599 |
| | — |
| | — |
|
| Residential real estate – mortgage | | 2 |
| | 455 |
| | 4 |
| | 474 |
|
| Equity lines of credit | | — |
| | — |
| | — |
| | — |
|
| Equity loans | | 2 |
| | 151 |
| | 3 |
| | 167 |
|
| Credit card | | — |
| | — |
| | — |
| | — |
|
| Consumer direct | | 4 |
| | 2,610 |
| | — |
| | — |
|
| Consumer indirect | | — |
| | — |
| | — |
| | — |
|
|
| | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| | Number of Contracts | | Recorded Investment at Default | | Number of Contracts | | Recorded Investment at Default |
| | (Dollars in Thousands) |
| Commercial, financial and agricultural | — |
| | $ | — |
| | — |
| | $ | — |
|
| Real estate – construction | — |
| | — |
| | — |
| | — |
|
| Commercial real estate – mortgage | — |
| | — |
| | — |
| | — |
|
| Residential real estate – mortgage | 1 |
| | 505 |
| | — |
| | — |
|
| Equity lines of credit | — |
| | — |
| | 8 |
| | 204 |
|
| Equity loans | 2 |
| | 51 |
| | 1 |
| | 42 |
|
| Credit card | — |
| | — |
| | — |
| | — |
|
| Consumer direct | — |
| | — |
| | — |
| | — |
|
| Consumer indirect | 1 |
| | 22 |
| | 2 |
| | 32 |
|
| Covered loans | — |
| | — |
| | — |
| | — |
|
The Company’s allowance for loan losses is largely driven by updated risk ratings assigned to commercial loans, updated borrower credit scores on consumer loans, and borrower delinquency history in both commercial and consumer portfolios. As such, the provision for loan losses is impacted primarily by changes in borrower payment performance rather than TDR classification. In addition, allAll commercial and consumer loans modified in a TDR are considered to be impaired, even if they maintain their accrual status.
At September 30, 20172019 and December 31, 2016,2018, there were $8.0$60.4 million and $12.6$54.2 million,, respectively, of commitments to lend additional funds to borrowers whose terms have been modified in a TDR.
Foreclosure Proceedings
OREO totaled $22$19 million and $21$17 million at September 30, 20172019 and December 31, 2016,2018, respectively. OREO included $16 million and $18$14 million of foreclosed residential real estate properties at September 30, 20172019 and December 31, 2016,2018, respectively. As of September 30, 20172019 and December 31, 2016,2018, there were $59$53 million and $48$62 million, respectively, of residential real estate loans secured by residential real estate properties for which formal foreclosure proceedings were in process.
(4) Loan Sales and Servicing
Loans held for sale were $78$134 million and $162$69 million at September 30, 20172019 and December 31, 2016, respectively.
Loans held for sale at September 30, 2017,2018, respectively, and were comprised entirely of residential real estate —- mortgage loans. Loans held for sale at December 31, 2016, 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, excluding activity related to loans originated for sale in the secondary market.
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Loans transferred from held for investment to held for sale | $ | — |
| | $ | — |
| | $ | — |
| | $ | 764,022 |
| $ | — |
| | $ | — |
| | $ | 1,196,883 |
| | $ | — |
|
| Charge-offs on loans recognized at transfer from held for investment to held for sale | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
|
| Loans and loans held for sale sold | — |
| | 121,745 |
| | 175,088 |
| | 1,007,096 |
| 10,897 |
| | 37,580 |
| | 1,092,195 |
| | 46,055 |
|
The following table summarizes the Company's sales of loans originated for sale in the secondary market.
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Residential real estate loans originated for sale in the secondary market sold (1) | $ | 164,075 |
| | $ | 199,073 |
| | $ | 496,891 |
| | $ | 482,860 |
| $ | 188,550 |
| | $ | 148,967 |
| | $ | 488,940 |
| | $ | 479,684 |
|
| Net gains recognized on sales of residential real estate loans originated for sale in the secondary market (2) | 7,322 |
| | 9,024 |
| | 19,178 |
| | 21,705 |
| 8,101 |
| | 5,409 |
| | 20,745 |
| | 14,858 |
|
| Servicing fees recognized (2) | | 2,703 |
| | 2,544 |
| | 8,007 |
| | 8,181 |
|
| |
| (1) | IncludesThe Company has retained servicing responsibilities for all loans sold that were originated for sale wherein the Company retained servicing responsibilities.secondary market. |
| |
| (2) | Net gains were recorded inRecorded as a component of mortgage banking income in the Company's Unaudited Condensed 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.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In Thousands) |
| Residential real estate mortgage loans sold with retained servicing | $ | 164,075 |
| | $ | 199,073 |
| | $ | 496,891 |
| | $ | 798,756 |
|
| Servicing fees recognized (1) | 6,173 |
| | 6,710 |
| | 19,083 |
| | 19,376 |
|
| |
(1) | Recorded as a component of other noninterest income in the Company's Unaudited Condensed Consolidated Statements of Income. |
The following table provides the recorded balance of loans sold with retained servicing and the related MSRs.
| | | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| | (In Thousands) | (In Thousands) |
| Recorded balance of residential real estate mortgage loans sold with retained servicing (1) | $ | 4,652,024 |
| | $ | 4,684,899 |
| $ | 4,514,658 |
| | $ | 4,588,273 |
|
| MSRs (2) | 48,550 |
| | 51,428 |
| 37,265 |
| | 51,539 |
|
| |
| (1) | These loans are not included in loans on the Company's Unaudited Condensed Consolidated Balance Sheets. |
| |
| (2) | Recorded under the fair value method and included in other assets on the Company's Unaudited Condensed 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.
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Carrying value, at beginning of period | $ | 49,398 |
| | $ | 36,496 |
| | $ | 51,428 |
| | $ | 44,541 |
| $ | 41,966 |
| | $ | 54,276 |
| | $ | 51,539 |
| | $ | 49,597 |
|
| Additions | 1,729 |
| | 1,933 |
| | 5,328 |
| | 7,583 |
| 1,600 |
| | 1,594 |
| | 4,305 |
| | 5,266 |
|
| Increase (decrease) in fair value: | | | | | | | | | | | | | | |
| Due to changes in valuation inputs or assumptions | 721 |
| | 3,250 |
| | (100 | ) | | (5,391 | ) | (4,269 | ) | | 2,533 |
| | (11,303 | ) | | 9,403 |
|
| Due to other changes in fair value (1) | (3,298 | ) | | (2,652 | ) | | (8,106 | ) | | (7,706 | ) | (2,032 | ) | | (3,091 | ) | | (7,276 | ) | | (8,954 | ) |
| Carrying value, at end of period | $ | 48,550 |
| | $ | 39,027 |
| | $ | 48,550 |
| | $ | 39,027 |
| $ | 37,265 |
| | $ | 55,312 |
| | $ | 37,265 |
| | $ | 55,312 |
|
| |
| (1) | Represents the realization of expected net servicing cash flows, expected borrower repayments and the passage of time. |
See Note 8,9, Fair Value of Financial Instruments,Measurements, for additional disclosures related to the assumptions and estimates used in determining fair value of MSRs.
At September 30, 20172019 and December 31, 2016,2018, 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:
| | | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| | (Dollars in Thousands) | (Dollars in Thousands) |
| Fair value of MSRs | $ | 48,550 |
| | $ | 51,428 |
| $ | 37,265 |
| | $ | 51,539 |
|
| Composition of residential loans serviced for others: | | | | | | |
| Fixed rate mortgage loans | 97.4 | % | | 97.3 | % | 98.0 | % | | 97.7 | % |
| Adjustable rate mortgage loans | 2.6 |
| | 2.7 |
| 2.0 |
| | 2.3 |
|
| Total | 100.0 | % | | 100.0 | % | 100.0 | % | | 100.0 | % |
| Weighted average life (in years) | 6.1 |
| | 6.5 |
| 4.1 |
| | 6.6 |
|
| Prepayment speed: | 11.3 | % | | 15.7 | % | 18.1 | % | | 7.4 | % |
| Effect on fair value of a 10% increase | $ | (1,531 | ) | | $ | (1,646 | ) | $ | (2,939 | ) | | $ | (1,432 | ) |
| Effect on fair value of a 20% increase | (2,970 | ) | | (3,184 | ) | (5,007 | ) | | (2,778 | ) |
| Weighted average option adjusted spread: | 8.2 | % | | 8.1 | % | 6.4 | % | | 6.5 | % |
| Effect on fair value of a 10% increase | $ | (1,720 | ) | | $ | (1,758 | ) | $ | (1,055 | ) | | $ | (1,627 | ) |
| Effect on fair value of a 20% increase | (3,315 | ) | | (3,402 | ) | (1,568 | ) | | (3,116 | ) |
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 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 assumption may result in changes to another, which may magnify or counteract the effect of the change.
(5) Derivatives and Hedging
The Company is a party to derivative instruments in the normal course of business 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 not to offset derivative fair value amounts under master netting agreements. See Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2016,2018, 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 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 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 Unaudited Condensed Consolidated Balance Sheets on a gross basis.
| | | | September 30, 2017 (4) | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| | | | Fair Value | | | | Fair Value | | | Fair Value | | | | Fair Value |
| | Notional Amount | | Derivative Assets (1) | | Derivative Liabilities (2) | | Notional Amount | | Derivative Assets (1) | | Derivative Liabilities (2) | Notional Amount | | Derivative Assets (1) | | Derivative Liabilities (2) | | Notional Amount | | Derivative Assets (1) | | Derivative Liabilities (2) |
| | (In Thousands) | (In Thousands) |
| Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | |
| Fair value hedges: | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate swaps related to long-term debt | $ | 2,473,950 |
| | $ | 24,296 |
| | $ | 14,323 |
| | $ | 2,123,950 |
| | $ | 38,890 |
| | $ | 14,226 |
| $ | 2,923,950 |
| | $ | 30,240 |
| | $ | — |
| | $ | 2,923,950 |
| | $ | 13,479 |
| | $ | 28,479 |
|
| Total fair value hedges | | | 24,296 |
| | 14,323 |
| | | | 38,890 |
| | 14,226 |
| | | 30,240 |
| | — |
| | | | 13,479 |
| | 28,479 |
|
| Cash flow hedges: | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | | | | | | | | | | | | |
| Swaps related to commercial loans | 9,175,000 |
| | 45 |
| | 24,178 |
| | 7,625,000 |
| | 2,340 |
| | 11,570 |
| 7,000,000 |
| | — |
| | — |
| | 1,500,000 |
| | 2,367 |
| | — |
|
| Swaps related to FHLB advances | 120,000 |
| | — |
| | 5,950 |
| | 120,000 |
| | — |
| | 7,093 |
| 120,000 |
| | — |
| | 3,419 |
| | 120,000 |
| | — |
| | 1,938 |
|
| Foreign currency contracts: | | | | | | | | | | | | | | | | | | | | | | |
| Forwards related to currency fluctuations | 1,543 |
| | 340 |
| | — |
| | 3,618 |
| | — |
| | 380 |
| 1,380 |
| | 51 |
| | — |
| | 5,272 |
| | 174 |
| | — |
|
| Total cash flow hedges | | | 385 |
| | 30,128 |
| | | | 2,340 |
| | 19,043 |
| | | 51 |
| | 3,419 |
| | | | 2,541 |
| | 1,938 |
|
| Total derivatives designated as hedging instruments | | | $ | 24,681 |
| | $ | 44,451 |
| | | | $ | 41,230 |
| | $ | 33,269 |
| | | $ | 30,291 |
| | $ | 3,419 |
| | | | $ | 16,020 |
| | $ | 30,417 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Free-standing derivatives not designated as hedging instruments: | Free-standing derivatives not designated as hedging instruments: | | | | | | | | | | | Free-standing derivatives not designated as hedging instruments: | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | | | | | | | | | | | | |
| Forward contracts related to held for sale mortgages | $ | 173,500 |
| | $ | 180 |
| | $ | 199 |
| | $ | 251,500 |
| | $ | 2,479 |
| | $ | 493 |
| $ | 307,980 |
| | $ | 252 |
| | $ | 605 |
| | $ | 166,641 |
| | $ | 187 |
| | $ | 1,021 |
|
| Option contracts related to mortgage servicing rights | 45,000 |
| | 77 |
| | — |
| | — |
| | — |
| | — |
| 75,000 |
| | 234 |
| | — |
| | — |
| | — |
| | — |
|
| Interest rate lock commitments | 144,240 |
| | 2,924 |
| | 1 |
| | 150,616 |
| | 2,424 |
| | 32 |
| 180,127 |
| | 4,038 |
| | — |
| | 91,395 |
| | 2,012 |
| | — |
|
| Equity contracts: | | | | | | | | | | | | | | | | | | | | | | |
| Purchased equity option related to equity-linked CDs | 815,307 |
| | 42,415 |
| | — |
| | 833,763 |
| | 57,198 |
| | — |
| 209,724 |
| | 6,989 |
| | — |
| | 450,660 |
| | 14,185 |
| | — |
|
| Written equity option related to equity-linked CDs | 730,504 |
| | — |
| | 38,351 |
| | 770,632 |
| | — |
| | 53,044 |
| 179,156 |
| | — |
| | 5,966 |
| | 389,030 |
| | — |
| | 12,434 |
|
| Foreign exchange contracts: | | | | | | | | | | | | | | | | | | | | | | |
| Forwards and swaps related to commercial loans | 404,986 |
| | 2,215 |
| | 1,874 |
| | 424,155 |
| | 3,741 |
| | 1,723 |
| 525,441 |
| | 3,532 |
| | 1,128 |
| | 413,127 |
| | 1,565 |
| | 1,109 |
|
| Spots related to commercial loans | 31,680 |
| | 62 |
| | — |
| | 54,599 |
| | 134 |
| | — |
| 15,343 |
| | 4 |
| | 28 |
| | 19,911 |
| | 24 |
| | 2 |
|
| Swap associated with sale of Visa, Inc. Class B shares | 92,139 |
| | — |
| | 2,303 |
| | 68,308 |
| | — |
| | 1,708 |
| 148,907 |
| | — |
| | 5,494 |
| | 111,466 |
| | — |
| | 3,706 |
|
| Futures contracts (3) | 795,000 |
| | — |
| | — |
| | 104,000 |
| | — |
| | — |
| 4,470,000 |
| | — |
| | — |
| | 3,223,000 |
| | — |
| | — |
|
| Trading account assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate contracts for customers | 30,771,530 |
| | 224,561 |
| | 174,414 |
| | 28,000,014 |
| | 290,238 |
| | 228,748 |
| 35,268,019 |
| | 415,139 |
| | 114,662 |
| | 34,436,223 |
| | 149,269 |
| | 130,704 |
|
| Foreign exchange contracts for customers | 1,039,862 |
| | 15,696 |
| | 13,851 |
| | 870,084 |
| | 28,367 |
| | 26,317 |
| 1,094,649 |
| | 29,693 |
| | 27,447 |
| | 1,140,665 |
| | 19,465 |
| | 17,341 |
|
| Total trading account assets and liabilities | | | 240,257 |
| | 188,265 |
| | | | 318,605 |
| | 255,065 |
| | | 444,832 |
| | 142,109 |
| | | | 168,734 |
| | 148,045 |
|
| Total free-standing derivative instruments not designated as hedging instruments | | | $ | 288,130 |
| | $ | 230,993 |
| | | | $ | 384,581 |
| | $ | 312,065 |
| | | $ | 459,881 |
| | $ | 155,330 |
| | | | $ | 186,707 |
| | $ | 166,317 |
|
| |
| (1) | Derivative assets, except for trading account assets that are recorded as a component of trading account assets on the Company's Unaudited Condensed Consolidated Balance Sheets, are recorded in other assets on the Company’s Unaudited Condensed Consolidated Balance Sheets. |
| |
| (2) | Derivative liabilities are recorded in accrued expenses and other liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets. Sheets. |
| |
| (3) | Changes in fair value are cash settled daily; therefore, there is no ending balance at any given reporting period. |
| |
(4) | In January 2017, a clearing organization adopted a rule change that requires transactions to be considered settled-to-market each day. Beginning in the first quarter of 2017, to the extent the Company determined transactions with this clearing organization to be settled-to-market, the impact was a reduction to the derivative assets and liabilities as well as a corresponding decrease in cash collateral. |
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 change in fair value of the derivative instrument.
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 no gains or losses for the three and nine months ended September 30, 20172019 and 2016,2018, related to hedged firm commitments no longer qualifying as a fair value hedge. At September 30, 2017,2019, the fair value hedges had a weighted average expected remaining term of 4.23.6 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 |
| | Condensed Consolidated | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | Statements of Income Caption | | 2017 | | 2016 | | 2017 | | 2016 |
| | | | (In Thousands) |
| Change in fair value of interest rate contracts: | | | | | | | | |
| Interest rate swaps hedging long term debt | Interest on FHLB and other borrowings | | $ | (6,637 | ) | | $ | (20,209 | ) | | $ | (14,691 | ) | | $ | 45,101 |
|
| Hedged long term debt | Interest on FHLB and other borrowings | | 6,614 |
| | 19,246 |
| | 14,532 |
| | (39,978 | ) |
| 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 | | 7,690 |
| | 10,489 |
| | 24,239 |
| | 31,834 |
|
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 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 was $202 thousand and $229 thousand of cash flow hedging losses recognized because of hedge ineffectiveness for the three and nine months ended September 30, 2017, respectively, and there waswere no material cash flow hedging gains or losses recognized because of hedge ineffectiveness for the three and nine months ended September 30, 2016. There were no gains or losses reclassified from other comprehensive income because of the discontinuance of cash flow hedges related to certain forecasted transactions that are probable of not occurring for the three and nine months ended September 30, 20172019 and 2016.2018.
At September 30, 2017,2019, cash flow hedges not terminated had a net fair value of $(29.7)$(3) million and a weighted average life of 1.23.6 years. Net losses of $42.0$1.3 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 3.84.3 years.
The following table presents the effect of hedging derivative instruments designated and qualifying as cash flow hedges on the Company’s Unaudited Condensed Consolidated Balance Sheets and the Company’s Unaudited Condensed Consolidated Statements of Income.
|
| | | | | | | | | | | | | | | |
| | Gain (Loss) for the |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In Thousands) |
| Interest rate and foreign currency exchange contracts: | | | | | | | |
| Net change in amount recognized in other comprehensive income | $ | 855 |
| | $ | (1,461 | ) | | $ | (9,172 | ) | | $ | 1,728 |
|
| Amount reclassified from accumulated other comprehensive income (loss) into net income | (2,835 | ) | | 702 |
| | 5,043 |
| | 1,678 |
|
| Amount of ineffectiveness recognized in net income | 202 |
| | — |
| | 229 |
| | — |
|
|
| | | | | | | | |
| | | Interest Income | | Interest Expense |
| | | Interest and fees on loans | | Interest on FHLB and other borrowings |
| | | (In Thousands) |
| Three Months Ended September 30, 2019 | | | | |
| Total amounts presented in the unaudited condensed consolidated statements of income | | $ | 771,245 |
| | $ | 32,975 |
|
| | | | | |
| Gains (losses) on fair value hedging relationships: | | | | |
| Interest rate contracts: | | | | |
| Amounts related to interest settlements and amortization on derivatives | | $ | — |
| | $ | (136 | ) |
| Recognized on derivatives | | — |
| | 9,369 |
|
| Recognized on hedged items | | — |
| | (8,999 | ) |
| Net income (expense) recognized on fair value hedges | | $ | — |
| | $ | 234 |
|
| | | | | |
| Gain (losses) on cash flow hedging relationships: (1) | | | | |
| Interest rate contracts: | | | | |
| Realized losses reclassified from AOCI into net income (2) | | $ | (295 | ) | | $ | (254 | ) |
| Net income (expense) recognized on cash flow hedges | | $ | (295 | ) | | $ | (254 | ) |
| | | | | |
| Three Months Ended September 30, 2018 | | | | |
| Total amounts presented in the unaudited condensed consolidated statements of income | | $ | 751,470 |
| | $ | 37,131 |
|
| | | | | |
| Gains (losses) on fair value hedging relationships: | | | | |
| Interest rate contracts: | | | | |
| Amounts related to interest settlements and amortization on derivatives | | $ | — |
| | $ | 243 |
|
| Recognized on derivatives | | — |
| | (13,181 | ) |
| Recognized on hedged items | | — |
| | 12,920 |
|
| Net income (expense) recognized on fair value hedges | | $ | — |
| | $ | (18 | ) |
| | | | | |
| Gain (losses) on cash flow hedging relationships: (1) | | | | |
| Interest rate contracts: | | | | |
| Realized losses reclassified from AOCI into net income (2) | | $ | (13,782 | ) | | $ | (251 | ) |
| Net income (expense) recognized on cash flow hedges | | $ | (13,782 | ) | | $ | (251 | ) |
| |
| (1) | See Note 10, Comprehensive Income, for gain or loss recognized for cash flow hedges in accumulated other comprehensive income. |
|
| | | | | | | | |
| | | Interest Income | | Interest Expense |
| | | Interest and fees on loans | | Interest on FHLB and other borrowings |
| | | (In Thousands) |
| Nine Months Ended September 30, 2019 | | | | |
| Total amounts presented in the unaudited condensed consolidated statements of income | | $ | 2,359,500 |
| | $ | 104,901 |
|
| | | | | |
| Gains (losses) on fair value hedging relationships: | | | | |
| Interest rate contracts: | | | | |
| Amounts related to interest settlements and amortization on derivatives | | $ | — |
| | $ | (4,192 | ) |
| Recognized on derivatives | | — |
| | 76,315 |
|
| Recognized on hedged items | | — |
| | (72,510 | ) |
| Net income (expense) recognized on fair value hedges | | $ | — |
| | $ | (387 | ) |
| | | | | |
| Gain (losses) on cash flow hedging relationships: (1) | | | | |
| Interest rate contracts: | | | | |
| Realized losses reclassified from AOCI into net income (2) | | $ | (2,765 | ) | | $ | (584 | ) |
| Net income (expense) recognized on cash flow hedges | | $ | (2,765 | ) | | $ | (584 | ) |
| | | | | |
| Nine Months Ended September 30, 2018 | | | | |
| Total amounts presented in the unaudited condensed consolidated statements of income | | $ | 2,126,411 |
| | $ | 93,799 |
|
| | | | | |
| Gains (losses) on fair value hedging relationships: | | | | |
| Interest rate contracts: | | | | |
| Amounts related to interest settlements and amortization on derivatives | | $ | — |
| | $ | 3,529 |
|
| Recognized on derivatives | | — |
| | (63,679 | ) |
| Recognized on hedged items | | — |
| | 60,472 |
|
| Net income (expense) recognized on fair value hedges | | $ | — |
| | $ | 322 |
|
| | | | | |
| Gain (losses) on cash flow hedging relationships: (1) | | | | |
| Interest rate contracts: | | | | |
| Realized losses reclassified from AOCI into net income (2) | | $ | (35,839 | ) | | $ | (1,048 | ) |
| Net income (expense) recognized on cash flow hedges | | $ | (35,839 | ) | | $ | (1,048 | ) |
| |
| (1) | See Note 10, Comprehensive Income, for gain or loss recognized for cash flow hedges in accumulated other comprehensive income. |
The following table presents the carrying amount and associated cumulative basis adjustment related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities on the Company's Unaudited Condensed Consolidated Balance Sheets in fair value hedging relationships.
|
| | | | | | | | | | | | |
| | | September 30, 2019 |
| | | | | 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) |
| FHLB and other borrowings | | $ | 3,481,608 |
| | $ | 45,962 |
| | $ | 2,430 |
|
Derivatives Not Designated As Hedges
Derivatives not designated as hedges include those that are entered into as either economic hedges to facilitate client needs or as part of the Company’s overall risk management strategy. Economic hedges are those that do not qualify to be treated 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 holds a portfolio of futures, forwards and interest rate lock commitments as well as options related to its equity-linked
CDs to mitigate its economic risk exposure. The Company also enters into a variety of interest rate contracts commodity contracts and foreign exchange contracts in its trading activities. The primary purpose for using these derivative instrumentsSee Note 13, Derivatives and Hedging, in the trading account isNotes to facilitate customer transactions. The interest rate contract portfolio classified as trading is actively managed and hedged with similar products to limit market value riskthe December 31, 2018, Consolidated Financial Statements for a description 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 incomeCompany's derivatives not designated as corporate and correspondent investment sales in the Company's Unaudited Condensed Consolidated Statements of Income.
The Company enters into forward 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 Unaudited Condensed Consolidated Statements of Income.
Interest rate lock commitments issued on residential mortgage loan commitments to 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 Unaudited Condensed 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 that are recorded at fair value with offsetting gains and
losses recognized within noninterest expense in the Company's Unaudited Condensed Consolidated Statements of Income.
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.hedges.
The net gains and losses recorded in the Company's Unaudited Condensed Consolidated Statements of Income from free-standing derivative instruments not designated as hedging instruments are summarized in the following table.
| | | | | Gain (Loss) for the | | Gain (Loss) for the |
| | Condensed Consolidated | | Three Months Ended September 30, | | Nine Months Ended September 30, | Condensed Consolidated | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | Statements of Income Caption | | 2017 | | 2016 | | 2017 | | 2016 | Statements of Income Caption | | 2019 | | 2018 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| Futures contracts | Mortgage banking income and corporate and correspondent investment sales | | $ | (18 | ) | | $ | 86 |
| | $ | (1 | ) | | $ | (229 | ) | Mortgage banking income and corporate and correspondent investment sales | | $ | 14 |
| | $ | 195 |
| | $ | (1,365 | ) | | $ | 400 |
|
| Interest rate contracts: | | | | | | | | | | | | | | | | |
| Interest rate lock commitments | | Mortgage banking income | | 191 |
| | (475 | ) | | 2,026 |
| | (281 | ) |
| Option contracts related to mortgage servicing rights | | Mortgage banking income | | 285 |
| | — |
| | 1,313 |
| | (38 | ) |
| Forward contracts related to residential mortgage loans held for sale | Mortgage banking income | | (46 | ) | | 1,094 |
| | (2,005 | ) | | (2,027 | ) | Mortgage banking income | | 530 |
| | 708 |
| | 481 |
| | 553 |
|
| Option contracts related to mortgage servicing rights | Mortgage banking income | | (253 | ) | | — |
| | (391 | ) | | (264 | ) | |
| Interest rate lock commitments | Mortgage banking income | | (262 | ) | | (162 | ) | | 531 |
| | 1,655 |
| |
| Interest rate contracts for customers | Corporate and correspondent investment sales | | 5,979 |
| | 5,371 |
| | 21,318 |
| | 14,780 |
| Corporate and correspondent investment sales | | 7,398 |
| | 8,639 |
| | 13,490 |
| | 28,559 |
|
| Commodity contracts: | | | | | | | | | |
| Commodity contracts for customers | Corporate and correspondent investment sales | | — |
| | (1 | ) | | — |
| | (6 | ) | |
| Equity contracts: | | | | | | | | | | | | | | | | |
| Purchased equity option related to equity-linked CDs | Other expense | | (8,921 | ) | | (3,716 | ) | | (14,783 | ) | | 1,782 |
| Other expense | | (2,187 | ) | | (4,945 | ) | | (7,196 | ) | | (20,550 | ) |
| Written equity option related to equity-linked CDs | Other expense | | 8,643 |
| | 3,625 |
| | 14,692 |
| | (672 | ) | Other expense | | 1,942 |
| | 4,539 |
| | 6,469 |
| | 18,641 |
|
| Foreign currency contracts: | | | | | | | | | | | | | | | | |
| Forward and swap contracts related to commercial loans | Other income | | (13,107 | ) | | (1,517 | ) | | (36,373 | ) | | (5,173 | ) | Other income | | 13,787 |
| | 5,333 |
| | 15,484 |
| | 23,717 |
|
| Spot contracts related to commercial loans | Other income | | 1,620 |
| | 1,471 |
| | 4,175 |
| | 91 |
| Other income | | (1,263 | ) | | (2,649 | ) | | (1,065 | ) | | (3,768 | ) |
| Foreign currency exchange contracts for customers | Corporate and correspondent investment sales | | 2,709 |
| | 1,305 |
| | 7,770 |
| | 2,954 |
| Corporate and correspondent investment sales | | 4,085 |
| | 3,514 |
| | 11,547 |
| | 11,811 |
|
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 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 or implied volatility rates has on the value of a financial instrument. The Company manages the market risk associated with interest rate 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 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 September 30, 2017,2019, interest rate swap agreements and options classified as trading were substantially matched. The Company had credit risk of $240$445 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 credit losses associated with derivative instruments classified as trading for the three and nine months ended September 30, 2017. There were $2.6 million2019 and $2.5 million of net credit losses associated with derivative instruments classified as trading for the three and nine months ended September 30, 2016, respectively.2018. At September 30, 20172019 and December 31, 2016,2018, there were no material nonperforming derivative positions classified as trading.
The Company’s derivative positions designated as hedging instruments are primarily executed in the over-the-counter market. These positions at September 30, 2017,2019, have credit risk of $25$30 million,, which does not take into consideration master netting arrangements or the value of the collateral.
There were no credit losses associated with derivative instruments classified as nontrading for the three and nine months ended September 30, 20172019 and 2016.2018. At September 30, 20172019 and December 31, 2016,2018, there were no nonperforming derivative positions classified as nontrading.
As of September 30, 20172019 and December 31, 2016,2018, the Company had recorded the right to reclaim cash collateral of $108$110 million and $103$97 million,, respectively, within other assets on the Company’s Unaudited Condensed Consolidated Balance Sheets and had recorded the obligation to return cash collateral of $55$40 million and $37$22 million,, respectively, within deposits on the Company’s Unaudited Condensed Consolidated Balance Sheets.
Contingent Features
Certain of the Company’s derivative instruments contain provisions that require the Company’s debt 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 September 30, 2017,2019, was $30$54 million for which the Company has collateral requirements of $29$52 million in the normal course of business. If the credit risk-related contingent features underlying these agreements had been triggered on September 30, 2017,2019, the Company’s collateral requirements to its counterparties would require an additional increase of $1 million.by $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, 2016,2018, was $30$24 million for which the Company had collateral requirements of $29$23 million in the normal course of business. If the credit risk-related contingent features underlying these agreements had been triggered on December 31, 2016,2018, the Company’s collateral requirements to its counterparties would have increased by $1 million.$1 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 table 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 Condensed Consolidated Balance Sheets | | Net Amount Presented in the Condensed Consolidated Balance Sheets | | Financial Instruments Collateral Received/Pledged (1) | | Cash Collateral Received/ Pledged (1) | | Net Amount | Gross Amounts Recognized | | Gross Amounts Offset in the Condensed Consolidated Balance Sheets | | Net Amount Presented in the Condensed Consolidated Balance Sheets | | Financial Instruments Collateral Received/Pledged (1) | | Cash Collateral Received/ Pledged (1) | | Net Amount |
| | (In Thousands) | (In Thousands) |
| September 30, 2017 | | | | | | | | | | | | |
| September 30, 2019 | | | | | | | | | | | | |
| Derivative financial assets: | | | | | | | | | | | | |
| Subject to a master netting arrangement | | $ | 75,652 |
| | $ | — |
| | $ | 75,652 |
| | $ | — |
| | $ | 32,770 |
| | $ | 42,882 |
|
| Not subject to a master netting arrangement | | 414,520 |
| | — |
| | 414,520 |
| | — |
| | — |
| | 414,520 |
|
| Total derivative financial assets | | $ | 490,172 |
| | $ | — |
| | $ | 490,172 |
| | $ | — |
| | $ | 32,770 |
| | $ | 457,402 |
|
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Derivative financial liabilities: | | | | | | | | | | | | |
| Subject to a master netting arrangement | | $ | 111,107 |
| | $ | — |
| | $ | 111,107 |
| | $ | — |
| | $ | 109,616 |
| | $ | 1,491 |
|
| Not subject to a master netting arrangement | | 47,642 |
| | — |
| | 47,642 |
| | — |
| | — |
| | 47,642 |
|
| Total derivative financial liabilities | | $ | 158,749 |
| | $ | — |
| | $ | 158,749 |
| | $ | — |
| | $ | 109,616 |
| | $ | 49,133 |
|
| | | | | | | | | | | | | |
| December 31, 2018 | | | | | | | | | | | | |
| Derivative financial assets: | | | | | | | | | | | | | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 160,210 |
| | $ | — |
| | $ | 160,210 |
| | $ | — |
| | $ | 29,699 |
| | $ | 130,511 |
| $ | 82,168 |
| | $ | — |
| | $ | 82,168 |
| | $ | — |
| | $ | 18,932 |
| | $ | 63,236 |
|
| Not subject to a master netting arrangement | 152,601 |
| | — |
| | 152,601 |
| | — |
| | — |
| | 152,601 |
| 120,559 |
| | — |
| | 120,559 |
| | — |
| | — |
| | 120,559 |
|
| Total derivative financial assets | $ | 312,811 |
| | $ | — |
| | $ | 312,811 |
| | $ | — |
| | $ | 29,699 |
| | $ | 283,112 |
| $ | 202,727 |
| | $ | — |
| | $ | 202,727 |
| | $ | — |
| | $ | 18,932 |
| | $ | 183,795 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Derivative financial liabilities: | | | | | | | | | | | | | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 196,021 |
| | $ | — |
| | $ | 196,021 |
| | $ | 3,264 |
| | $ | 107,463 |
| | $ | 85,294 |
| $ | 99,579 |
| | $ | — |
| | $ | 99,579 |
| | $ | — |
| | $ | 96,917 |
| | $ | 2,662 |
|
| Not subject to a master netting arrangement | 79,423 |
| | — |
| | 79,423 |
| | — |
| | — |
| | 79,423 |
| 97,155 |
| | — |
| | 97,155 |
| | — |
| | — |
| | 97,155 |
|
| Total derivative financial liabilities | $ | 275,444 |
| | $ | — |
| | $ | 275,444 |
| | $ | 3,264 |
| | $ | 107,463 |
| | $ | 164,717 |
| $ | 196,734 |
| | $ | — |
| | $ | 196,734 |
| | $ | — |
| | $ | 96,917 |
| | $ | 99,817 |
|
| | | | | | | | | | | | | |
| 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. |
(6) Securities Financing Activities
Netting of Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
The Company has various financial assetassets 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 5, 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 agency securities and mortgage-backed securities.
Securities purchased under agreements to resell and securities sold under agreements to repurchase are governed by a 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 Condensed Consolidated Balance Sheets | | Net Amount Presented in the Condensed Consolidated Balance Sheets | | Financial Instruments Collateral Received/Pledged (1) | | Cash Collateral Received/ Pledged (1) | | Net Amount | Gross Amounts Recognized | | Gross Amounts Offset in the Condensed Consolidated Balance Sheets | | Net Amount Presented in the Condensed Consolidated Balance Sheets | | Financial Instruments Collateral Received/Pledged (1) | | Cash Collateral Received/ Pledged (1) | | Net Amount |
| | (In Thousands) | (In Thousands) |
| September 30, 2017 (2) | | | | | | | | | | | | |
| September 30, 2019 | | | | | | | | | | | | |
| Securities purchased under agreements to resell: | Securities purchased under agreements to resell: | | | | | | | | | | | Securities purchased under agreements to resell: | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 484,445 |
| | $ | 343,325 |
| | $ | 141,120 |
| | $ | 141,120 |
| | $ | — |
| | $ | — |
| $ | 2,576,433 |
| | $ | 2,446,653 |
| | $ | 129,780 |
| | $ | 129,780 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Securities sold under agreements to repurchase: | Securities sold under agreements to repurchase: | | | | | | | | | | | Securities sold under agreements to repurchase: | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 388,086 |
| | $ | 343,325 |
| | $ | 44,761 |
| | $ | 44,761 |
| | $ | — |
| | $ | — |
| $ | 2,564,074 |
| | $ | 2,446,653 |
| | $ | 117,421 |
| | $ | 117,421 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 (2) | | | | | | | | | | | | |
| December 31, 2018 | | | | | | | | | | | | |
| Securities purchased under agreements to resell: | Securities purchased under agreements to resell: | | | | | | | | | | | Securities purchased under agreements to resell: | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 3,164,039 |
| | $ | 3,069,489 |
| | $ | 94,550 |
| | $ | 94,550 |
| | $ | — |
| | $ | — |
| $ | 246,844 |
| | $ | 136,897 |
| | $ | 109,947 |
| | $ | 109,947 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Securities sold under agreements to repurchase: | Securities sold under agreements to repurchase: | | | | | | | | | | | Securities sold under agreements to repurchase: | | | | | | | | | | |
| Subject to a master netting arrangement | $ | 3,095,655 |
| | $ | 3,069,488 |
| | $ | 26,167 |
| | $ | 26,167 |
| | $ | — |
| | $ | — |
| $ | 239,172 |
| | $ | 136,897 |
| | $ | 102,275 |
| | $ | 102,275 |
| | $ | — |
| | $ | — |
|
| |
| (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 September 30, 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 | | Remaining Contractual Maturity of the Agreements |
| | | Overnight and Continuous | | Up to 30 days | | 30 - 90 days | | Greater Than 90 days | | Total | | Overnight and Continuous | | Up to 30 days | | 30 - 90 days | | Greater Than 90 days | | Total |
| | | (In Thousands) | | (In Thousands) |
| September 30, 2017 | | | | | | | | | | | |
| September 30, 2019 | | | | | | | | | | | |
| Securities sold under agreements to repurchase: | Securities sold under agreements to repurchase: | | | | | | | | | Securities sold under agreements to repurchase: | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | | $ | 275,860 |
| | $ | — |
| | $ | 44,761 |
| | $ | — |
| | $ | 320,621 |
| | $ | 776,238 |
| | $ | 978,287 |
| | $ | 110,048 |
| | $ | 664,750 |
| | $ | 2,529,323 |
|
| Mortgage-backed securities | | — |
| | — |
| | 67,465 |
| | — |
| | 67,465 |
| | — |
| | — |
| | 34,751 |
| | — |
| | 34,751 |
|
| Total | | $ | 275,860 |
| | $ | — |
| | $ | 112,226 |
| | $ | — |
| | $ | 388,086 |
| | $ | 776,238 |
| | $ | 978,287 |
| | $ | 144,799 |
| | $ | 664,750 |
| | $ | 2,564,074 |
|
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 | | | | | | | | | | | |
| December 31, 2018 | | | | | | | | | | | |
| Securities sold under agreements to repurchase: | Securities sold under agreements to repurchase: | | | | | | | | | Securities sold under agreements to repurchase: | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | | $ | 1,408,736 |
| | $ | 806,526 |
| | $ | 798,089 |
| | $ | — |
| | $ | 3,013,351 |
| | $ | 190,650 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 190,650 |
|
| Mortgage-backed securities | | — |
| | — |
| | 82,304 |
| | — |
| | 82,304 |
| | — |
| | — |
| | 48,522 |
| | — |
| | 48,522 |
|
| Total | | $ | 1,408,736 |
| | $ | 806,526 |
| | $ | 880,393 |
| | $ | — |
| | $ | 3,095,655 |
| | $ | 190,650 |
| | $ | — |
| | $ | 48,522 |
| | $ | — |
| | $ | 239,172 |
|
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 minimizes the risk by monitoring the liquidity and credit quality of the collateral, as well as the maturity profile of the transactions.
At September 30, 2017,2019, the fair value of collateral received related to securities purchased under agreements to resell was $552$2.7 billion and the fair value of collateral pledged for securities sold under agreements to repurchase was
$2.6 billion. At December 31, 2018, the fair value of collateral received related to securities purchased under agreements to resell was $251 million and the fair value of collateral pledged for securities sold under agreements to repurchase was $392$247 million. At December 31, 2016, the fair value of collateral received related to securities purchased under agreements to resell was $3.1 billion and the fair value of collateral pledged for securities sold under agreements to repurchase was $3.1 billion.
(7) 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 Topic 842. 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 842 to all short-term leases. Instead, the short-term lease payments will be recognized in profit or loss 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.
The following table summarizes the Company’s lease portfolio classification and respective right-of-use asset balances and lease liability balances which are included in other assets and accrued expenses and other liabilities, respectively, on the Company’s Unaudited Condensed Consolidated Balance Sheets.
|
| | | | | | | | | | | | |
| | | September 30, 2019 |
| | | Finance | | Operating | | Total |
| | | (In Thousands) |
| Right-of-use asset | | $ | 8,897 |
| | $ | 276,169 |
| | $ | 285,066 |
|
| Lease liability balance | | 12,747 |
| | 317,929 |
| | 330,676 |
|
The table below presents information about the Company's total lease costs which include amounts recognized on the Company’s Unaudited Condensed Consolidated Statements of Income during the period.
|
| | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2019 | | 2019 |
| | | (In Thousands) |
| Interest on lease liabilities | | $ | 150 |
| | $ | 463 |
|
| Amortization of right-of-use assets | | 331 |
| | 992 |
|
| Finance lease cost | | 481 |
| | 1,455 |
|
| Operating lease cost | | 12,949 |
| | 38,753 |
|
| Variable lease cost | | 5,372 |
| | 13,817 |
|
| Sublease income | | (2,137 | ) | | (5,689 | ) |
| Total lease cost | | $ | 16,665 |
| | $ | 48,336 |
|
The table below presents supplemental cash flow information arising from lease transactions and noncash information on lease liabilities arising from obtaining right-of-use assets.
|
| | | | |
| | | Nine Months Ended September 30, |
| | | 2019 |
| | | (In Thousands) |
| Cash paid for amounts included in measurement of liabilities | | |
| Operating cash flows from operating leases | | $ | 40,751 |
|
| Operating cash flows from finance leases | | 463 |
|
| Financing cash flows from finance leases | | 1,181 |
|
| Right-of-use assets obtained in exchange for lease obligations | | |
| Operating leases | | 29,901 |
|
| Finance leases | | — |
|
The weighted-average remaining lease term and discount rates at September 30, 2019 were as follows:
|
| | | | | | | | | |
| | | Finance | | Operating | | Total |
| Weighted-average remaining lease term | | 8.6 years |
| | 9.9 years |
| | 9.9 years |
|
| Weighted-average discount rate | | 4.7 | % | | 3.3 | % | | 3.4 | % |
The following table provides the annual undiscounted future minimum payments under finance and noncanceable operating leases at September 30, 2019:
|
| | | | | | | | | | | | |
| | | Finance | | Operating | | Total |
| | | (In Thousands) |
| Remainder of 2019 | | $ | 553 |
| | $ | 13,857 |
| | $ | 14,410 |
|
| 2020 | | 2,233 |
| | 54,540 |
| | 56,773 |
|
| 2021 | | 2,143 |
| | 50,448 |
| | 52,591 |
|
| 2022 | | 1,923 |
| | 45,444 |
| | 47,367 |
|
| 2023 | | 1,501 |
| | 39,568 |
| | 41,069 |
|
| 2024 | | 1,410 |
| | 30,732 |
| | 32,142 |
|
| Thereafter | | 5,696 |
| | 137,660 |
| | 143,356 |
|
| Total | | $ | 15,459 |
| | $ | 372,249 |
| | $ | 387,708 |
|
At September 30, 2019 the Company had no 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.
|
| | | | | | | | | | | | |
| | | September 30, 2019 |
| | | Finance | | Operating | | Total |
| | | (In Thousands) |
| Total undiscounted lease liability | | $ | 15,459 |
| | $ | 372,249 |
| | $ | 387,708 |
|
| Less: imputed interest | | 2,712 |
| | 54,320 |
| | 57,032 |
|
| Total discounted lease liability | | $ | 12,747 |
| | $ | 317,929 |
| | $ | 330,676 |
|
(8) Commitments, Contingencies and Guarantees
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:
| | | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| | (In Thousands) | (In Thousands) |
| Commitments to extend credit | $ | 27,548,488 |
| | $ | 27,070,935 |
| $ | 27,374,025 |
| | $ | 28,827,897 |
|
| Standby and commercial letters of credit | 1,383,185 |
| | 1,474,405 |
| 988,247 |
| | 1,249,205 |
|
Commitments to extend credit are agreements to lend to customers as long as 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 September 30, 20172019 and December 31, 2016,2018, the recorded amount of these deferred fees was $7 million and $8 million, respectively. The Company holds various assets as collateral supporting those commitments for which collateral is deemed necessary. At September 30, 2017,2019, 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.$988 million. At September 30, 20172019 and December 31, 2016,2018, the Company had reserves related to letters of credit and unfunded commitments recorded in accrued expenses and other liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheet of $81$64 million and $77$66 million, respectively.
Loan Sale Recourse
The Company has potential recourse related to specific FNMA securitizations. At both September 30, 20172019 and December 31, 2016,2018, the amount of potential recourse was $19 million of which the Company had reserved $766$793 thousand and $681 thousand, respectively, which is recorded in accrued expenses and other liabilities on the Company's Unaudited Condensed Consolidated Balance Sheets for the respective periods.
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 representations and warranties would materially change the financial condition or results of operations of the Company. At both September 30, 20172019 and December 31, 2016,2018, the Company had $1$1.3 million and $1.2 million, respectively, of reserves in accrued expenses and other liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets related to potential losses from loans sold.
Loss Sharing Agreement
In connection with the Guaranty Bank 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 entered into an agreement with the FDIC to terminate the Company's loss share agreement 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 three and nine months ended September 30, 2017 which was recorded in other noninterest income in the Company's Unaudited Condensed Consolidated Statements of Income.
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 significant 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 plaintiff allegesplaintiffs (who are the borrowers and guarantors of the underlying loans) allege that BBVA CompassUSA wrongfully sold his loantheir loans to a third party after representing that it would not do so. The plaintiff seeksplaintiffs seek unspecified monetary relief. Following trial in December 2017, the jury rendered a verdict in favor of the plaintiffs totaling $98 million. On June 27, 2018, the court entered a judgment in favor of the plaintiffs in the amount of $96 million, which includes prejudgment interest. The Bank has appealed and will vigorously contest the judgment on appeal. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In March 2015, the Bank was named as a defendant in a lawsuit filed in the United States District Court for the Southern District of Texas, Lomix Limited Partnership, et al. v. BBVA USA, wherein the plaintiffs (who are the borrower and guarantors of the underlying loan) allege that the Bank 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. On February 28, 2019, the Court granted partial summary judgment in favor of BBVA USA, leaving only a nominal claim for damages. The plaintiffs disclaimed nominal damages and the Court entered a final judgment in favor of BBVA USA. Plaintiffs filed a notice of appeal with the Fifth Circuit Court of Appeals on April 5, 2019, but later withdrew the appeal on or about August 26, 2019, prompting the appellate court to dismiss the matter on that same date.
In January 2016, 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 CommissionSEC 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. On April 2, 2018, the court granted the defendants' motion to dismiss with prejudice. The Company believes there are substantial defensesplaintiffs appealed 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 Appeals for the Southern DistrictFifth Circuit. After briefing and oral argument, on July 16, 2019, the appellate court issued an opinion affirming the trial court’s dismissal of Texas, Lomix Limited Partnership, et al. v. BBVA Compass, wherein the plaintiffs (who are the borrower and guarantorsBSI. Additional review and/or appeal of the underlying loan) allege that BBVA Compass wrongfully disclosed the guarantors’ personal financial information in connection with the sale of the loan to a third party. The plaintiffs seek unspecified monetary relief.Fifth Circuit’s opinion is possible. 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.
In December 2016, BBVA Compass was named as a defendant in an adversary proceeding filed in the United States Bankruptcy Court for the Southern District of New York, In re: SunEdison, Inc., et al. // Official Committee of Unsecured Creditors v. BBVA Compass, et al., wherein 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 on July 25, 2017. The settlement will be fully consummated on or before November 15, 2017.
In December 2016, BBVA CompassBank 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 situated v. BBVA Compass Bancshares, Inc. and MSR Group, LLCUSA, alleging violations 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. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claimsparties reached a settlement on November 6, 2018, and intends to defend them vigorously.the Court entered a Preliminary Approval of Settlement Order on February 19, 2019. The Court entered its Order and Final Judgment approving the settlement on September 12, 2019.
In AugustThe Company and the Bank have been named in two proceedings involving David L. Powell: one that was filed in January 2017 BSIwith the Federal Conciliation and Arbitration Labor Board of Mexico City, Mexico, David Lannon Powell Finneran v. BBVA USA Bancshares, Inc., et al., and one that was named as a defendantfiled in a putative class action lawsuit filedApril 2018 in the United States District Court for the Northern District of Connecticut,Texas, Ontario Teachers’ Pension Plan Board, individuallyDavid L. Powell, et al. v. BBVA USA. Powell alleges discrimination 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 officerswrongful termination in both proceedings, 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 seekseeks unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In AugustNovember 2017, BBVA Compassthe Bank was named as a defendant in a lawsuit filed in the United States District Court for the Southern District of New York and subsequently transferred to the United States District Court for the Northern District of Texas, United States of America ex rel. Edward HendricksonStabilis Fund II, LLC v. BBVA Compass, et al.USA, alleging that the defendant banks, including BBVA Compass, violatedBank fraudulently induced the federal False Claims Act by accepting federal agency benefit payments intoplaintiff to purchase a loan that subsequently became the accountssubject of deceased customers. Hendricksonlitigation. The plaintiff seeks unspecified monetary relief on behalf of the United States government.relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In September 2017, BBVA Compass wasMarch 2018, the Company and BSI were named as defendants in a putative class action lawsuit filed in the United States District Court for the Southern District of New York, In re Mexican Government Bonds Antitrust Litigation, alleging that the defendant financial institutions engaged in collusion with respect to the purchase and sale of Mexican government bonds. Five substantially similar lawsuits were filed and consolidated with the original lawsuit. The plaintiffs seek injunctive and unspecified monetary relief. On September 30, 2019, the Court issued an Opinion and Order dismissing plaintiffs’ claims for failure to state a claim, while granting plaintiffs an opportunity to explain why the Court should grant leave to amend plaintiff's complaint. On October 21, 2019 plaintiffs filed a letter stating they intend to move for leave to amend. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.
In March 2019, the Company and its subsidiary, Simple Finance Technology Corp., were named as defendants in a putative class action lawsuit filed in the United States District Court for the Northern District of Illinois,California, Lara Bellissimo, individually and on behalf of similarly situated individualsAmitahbo Chattopadhyay v. BBVA CompassUSA Bancshares, Inc., et al. Plaintiff claims that Simple and the Company only permit United States citizens to open Simple accounts (which are exclusively originated through online channels). Plaintiff alleges that this constitutes alienage discrimination and violations of California's Unruh Act. The Company believes that there are substantial defenses to these claims and intends to defend them vigorously.
In July 2019, 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, Ferguson v. BBVA USA 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 calls to the cell phones of individuals who were not the individuals that provided the phone numbers to BBVA Compass.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 (including its subsidiaries) 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 September 30, 2017,2019, the Company had accrued legal reserves in the amount of $2$24 million. 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. 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.” At September 30, 2017, there were no suchFor a limited number of legal matters wherein which the Company is involved, the Company is able to estimate a loss was reasonably possible and reasonably estimable, creatingrange of reasonably possible losses beyondin excess of related reserves, if any. Management currently estimates these losses to range from $0 to approximately $87 million. This estimated range of reasonably possible losses is based on information available at September 30, 2019. The matters underlying the accrued legal reserves.estimated range 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; therefore, this estimated range 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 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.
(8)(9) Fair Value of Financial InstrumentsMeasurements
The Company applies the fair value accounting guidance required under ASC Topic 820 which establishes a framework for measuring fair value. This guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liabilitySee Note 19, Fair Value Measurements, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within this fair value hierarchy is based upon the lowest level of input that is significantNotes to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows.
Level 1 – Fair value is based on quoted prices in an active marketDecember 31, 2018, Consolidated Financial Statements for identical assets or liabilities.
Level 2 – Fair value is based on quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 – Fair value is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities would include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar pricing techniques based on the Company’s own assumptions about what market participants would use to price the asset or liability.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments under the fair value hierarchy, is set forth below. These valuation methodologies were applied to the Company’s financial assets and financial liabilities carried at fair value. In general, fair value is based upon quoted market prices, where 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 creditworthiness, among other things, as well as other 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. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and, therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein.
Financial Instruments Measured at Fair Value on a Recurring Basis
Trading account assets and liabilities, securities available for sale, certain mortgage loans held for sale, derivative assets and liabilities, and mortgage servicing rights are recorded at fair value on a recurring basis. The following is a description of the valuation methodologies for these assets and liabilities.
Trading account assets and liabilities and investment securities available for sale – Trading account assets and liabilities and investment securities available for sale consist of U.S. Treasury securities and other U.S. government agency securities, mortgage-backed securities, collateralized mortgage obligations, debt obligations of state and political subdivisions, other debt and equity securities, and derivative contracts.
U.S. Treasury securities and other U.S. government agency securities are valued based on quoted market prices of identical assets on active exchanges (Level 1 measurements) or are valued based on a market approach
using observable inputs such as benchmark yields, reported trades, broker/dealer quotes, benchmark securities, and bids/offers of government-sponsored enterprise securities (Level 2 measurements).
Mortgage-backed securities are primarily valued using market-based pricing matrices that are based on observable inputs including benchmark To Be Announced security prices, U.S. Treasury yields, U.S. dollar swap yields, and benchmark floating-rate indices. Mortgage-backed securities pricing may also give consideration to pool-specific data such as prepayment history and collateral characteristics. Valuations for mortgage-backed securities are therefore classified as Level 2 measurements.
Collateralized mortgage obligations are valued using market-based pricing matrices that are based on observable inputs including reported trades, bids, offers, dealer quotes, U.S. Treasury yields, U.S. dollar swap yields, market convention prepayment speeds, tranche-specific characteristics, prepayment history, and collateral characteristics. Fair value measurements for collateralized mortgage obligations are classified as Level 2.
Debt obligations of states and political subdivisions are primarily valued using market-based pricing matrices that are based on observable inputs including Municipal Securities Rulemaking Board reported trades, issuer spreads, material event notices, and benchmark yield curves. These valuations are Level 2 measurements.
Other debt and equity securities consist of mutual funds, foreign and corporate debt, and U.S. government agency equity securities. Mutual funds are valued based on quoted market prices of identical assets trading on active exchanges. These valuations are Level 1 measurements. Foreign and corporate debt valuations are based on information and assumptions that are observable in the market place. The valuations for these securities are therefore classified as Level 2. U.S. government agency equity securities are valued based on quoted market prices of identical assets trading on active exchanges. These valuations thus qualify as Level 1 measurements.
Other derivative assets and liabilities consist primarily of interest rate and commodity contracts. The Company’s interest rate contracts are valued utilizing Level 2 observable inputs (yield curves and volatilities) to determine a current market price for each interest rate contract. Commodity contracts are priced using raw market data, primarily in the form of quotes for fixed and basis swaps with monthly, quarterly, seasonal or calendar-year terms. Proprietary models provided by a third party are used to generate forward curves and volatility surfaces. As a result of the valuation process and observable inputs used, commodity contracts are classified as Level 2 measurements.
Other trading assets primarily consist of interest-only strips which are valued by an independent third-party. The independent third-party values the assets on a loan-by-loan basis using a discounted cash flow analysis that employs prepayment assumptions, discount rate assumptions, and default curves. The prepayment assumptions are created from actual SBA pool prepayment history. The discount rates are derived from actual SBA loan secondary market transactions. The default curves are created using historical observable and unobservable inputs. As such, interest-only strips are classified as Level 3 measurements. The Company’s SBA department is responsible for ensuring the appropriate application of the valuation, capitalization, and amortization policies of the Company’s interest-only strips. The department performs independent, internal valuations of the interest-only strips on a quarterly basis, which are then reconciled to the third-party valuations to ensure their validity.
Loans held for sale – The Company has elected to apply the fair value option for single family real estate mortgage loans originated for resale in the secondary market. The election allows for a more effective offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting. The Company has not elected the fair value option for other loans held for sale primarily because they are not economically hedged using derivative instruments.
The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. The changes in fair value of these assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage loan held for sale. Both the mortgage loans held for sale and the related forward contracts are classified as Level 2.
At both September 30, 2017 and December 31, 2016, no loans held for sale for which the fair value option was elected were 90 days or more past due or were in nonaccrual. Interest income on mortgage loans held for sale is recognized based on contractual rates and is reflected in interest and fees on loans in the Company's Unaudited Condensed Consolidated Statements of Income. Net gains or (losses) of $98 thousand and $(478) thousand resulting from changes in fair value of these loans were recorded in noninterest income during the three months ended September 30, 2017 and 2016, respectively. Net gains of $1.2 million and $2.1 million resulting from changes in fair value of these loans were recorded in noninterest income during the nine months ended September 30, 2017 and 2016, respectively.
The Company also had fair value changes on forward contracts related to residential mortgage loans held for sale of approximately $(46) thousand and $1.1 million for the three months ended September 30, 2017 and 2016, respectively. The Company also had fair value changes on forward contracts related to residential mortgage loans held for sale of approximately $(2.0) million for both the nine months ended September 30, 2017 and 2016. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.
The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for residential mortgage loans measured at fair value.
|
| | | | | | | | | | | |
| | Aggregate Fair Value | | Aggregate Unpaid Principal Balance | | Difference |
| | (In Thousands) |
| September 30, 2017 | | | | | |
| Residential mortgage loans held for sale | $ | 77,783 |
| | $ | 75,192 |
| | $ | 2,591 |
|
| December 31, 2016 | | | | | |
| Residential mortgage loans held for sale | $ | 105,257 |
| | $ | 103,886 |
| | $ | 1,371 |
|
Derivative assets and liabilities – Derivative assets and liabilities are measured using models that primarily use market observable inputs, such as quoted security prices, and are accordingly classified as Level 2. The derivative assets and liabilities classified within Level 3 of the fair value hierarchy were comprised of interest rate lock commitments that are valued using third-party software that calculates fair market value considering current quoted TBA and other market based prices and then applies closing ratio assumptions based on software-produced pull through ratios that are generated using the Company’s historical fallout activity. Based upon this process, the fair value measurement obtained for these financial instruments is deemed a Level 3 classification. The Company's Secondary Marketing Committee is responsible for the appropriate application of the valuation policies and procedures surrounding the Company’s interest rate lock commitments. Policies established to govern mortgage pipeline risk management activities must be approved by the Company’s Asset Liability Committee on an annual basis.
Other assets - MSR – A component of other assets measured at fair value on a recurring basis and classified within Level 3 of the fair value hierarchy are MSRs that are valued through a discounted cash flow analysis using a third-party commercial valuation system. The MSR valuation takes into consideration the objective characteristics of the MSR portfolio, such as loan amount, note rate, service fee, loan term, and common industry assumptions, such as servicing costs, ancillary income, prepayment estimates, earning rates, cost of fund rates, option-adjusted spreads, etc. The Company’s portfolio-specific factors are also considered in calculating the fair value of MSRs to the extent one can reasonably assume a buyer would also incorporate these factors. Examples of such factors are geographical concentrations of the portfolio, liquidity consideration, or additional views of risk not inherently accounted for in prepayment assumptions. Product liquidity and these other risks are generally incorporated through adjustment of discount factors applied to forecasted cash flows. Based on this method of pricing MSRs, the fair value measurement obtained for these financial instruments is deemed a Level 3 classification. The value of the MSR is calculated by a third-party firm that specializes in the MSR market and valuation services. Additionally, the Company obtains a valuation from an independent party to compare for reasonableness. The Company’s Secondary Marketing Committee is responsible for ensuring the appropriate application of valuation, capitalization, and fair value decay policies for the MSR portfolio. The Committee meets at least monthly to review the MSR portfolio.
Other assets - SBIC – A component of other assets measured at fair value on a recurring basis and classified within Level 3 of the fair value hierarchy are SBIC investments initially valued based on transaction price. The SBIC investments are valued initially based upon transaction price. Valuation factors such as recent or proposed purchase or sale of debt or equity of the issuer, pricing by other dealers in similar securities, size of position held, liquidity of the
market, and changes in economic conditions affecting the issuer, are used in the determination of estimated fair value. These SBIC investments are classified as Level 3 within the valuation hierarchy.
non-recurring basis.
The following tables summarize the financial assets and liabilities measured at fair value on a recurring basis.
| | | | | | Fair Value Measurements at the End of the Reporting Period Using | | | Fair Value Measurements at the End of the Reporting Period Using |
| | Fair Value | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs | Fair Value | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| | September 30, 2017 | | (Level 1) | | (Level 2) | | (Level 3) | September 30, 2019 | | (Level 1) | | (Level 2) | | (Level 3) |
| | (In Thousands) | (In Thousands) |
| Recurring fair value measurements | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | |
| Trading account assets: | | | | | | | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 330,919 |
| | $ | 330,919 |
| | $ | — |
| | $ | — |
| $ | 118,767 |
| | $ | 118,767 |
| | $ | — |
| | $ | — |
|
| State and political subdivisions | 297 |
| | — |
| | 297 |
| | — |
| 401 |
| | — |
| | 401 |
| | — |
|
| Other debt securities | 68 |
| | — |
| | 68 |
| | — |
| |
| Interest rate contracts | 224,561 |
| | — |
| | 224,561 |
| | — |
| 415,139 |
| | — |
| | 415,139 |
| | — |
|
| Foreign exchange contracts | 15,696 |
| | — |
| | 15,696 |
| | — |
| 29,693 |
| | — |
| | 29,693 |
| | — |
|
| Other trading assets | 563 |
| | — |
| | — |
| | 563 |
| |
| Total trading account assets | 572,104 |
| | 330,919 |
| | 240,622 |
| | 563 |
| 564,000 |
| | 118,767 |
| | 445,233 |
| | — |
|
| Investment securities available for sale: | | | | | | | | |
| Debt securities available for sale: | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | 3,679,690 |
| | 2,669,033 |
| | 1,010,657 |
| | — |
| 3,168,501 |
| | 2,600,606 |
| | 567,895 |
| | — |
|
| Mortgage-backed securities | 3,038,317 |
| | — |
| | 3,038,317 |
| | — |
| 1,485,825 |
| | — |
| | 1,485,825 |
| | — |
|
| Collateralized mortgage obligations | 5,100,041 |
| | — |
| | 5,100,041 |
| | — |
| 2,957,461 |
| | — |
| | 2,957,461 |
| | — |
|
| States and political subdivisions | 2,394 |
| | — |
| | 2,394 |
| | — |
| 803 |
| | — |
| | 803 |
| | — |
|
| Other debt securities | 17,748 |
| | 17,748 |
| | — |
| | — |
| |
| Equity securities (1) | 440 |
| | 89 |
| | — |
| | 351 |
| |
| Total investment securities available for sale | 11,838,630 |
| | 2,686,870 |
| | 9,151,409 |
| | 351 |
| |
| Total debt securities available for sale | | 7,612,590 |
| | 2,600,606 |
| | 5,011,984 |
| | — |
|
| Loans held for sale | 77,783 |
| | — |
| | 77,783 |
| | — |
| 134,314 |
| | — |
| | 134,314 |
| | — |
|
| Derivative assets: | | | | | | | | | | | | | | |
| Interest rate contracts | 27,522 |
| | 77 |
| | 24,521 |
| | 2,924 |
| 34,764 |
| | 234 |
| | 30,492 |
| | 4,038 |
|
| Equity contracts | 42,415 |
| | — |
| | 42,415 |
| | — |
| 6,989 |
| | — |
| | 6,989 |
| | — |
|
| Foreign exchange contracts | 2,617 |
| | — |
| | 2,617 |
| | — |
| 3,587 |
| | — |
| | 3,587 |
| | — |
|
| Total derivative assets | 72,554 |
| | 77 |
| | 69,553 |
| | 2,924 |
| 45,340 |
| | 234 |
| | 41,068 |
| | 4,038 |
|
| Other assets - MSR | 48,550 |
| | — |
| | — |
| | 48,550 |
| |
| Other assets - SBIC | 32,745 |
| | — |
| | — |
| | 32,745 |
| |
| Other assets: | | | | | | | | |
| Equity securities | | 23,522 |
| | 23,522 |
| | — |
| | — |
|
| MSR | | 37,265 |
| | — |
| | — |
| | 37,265 |
|
| SBIC | | 120,248 |
| | — |
| | — |
| | 120,248 |
|
| Liabilities: | | | | | | | | | | | | | | |
| Trading account liabilities: | | | | | | | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 327,539 |
| | $ | 327,539 |
| | $ | — |
| | $ | — |
| $ | 45 |
| | $ | 45 |
| | $ | — |
| | $ | — |
|
| Interest rate contracts | 174,414 |
| | — |
| | 174,414 |
| | — |
| 114,662 |
| | — |
| | 114,662 |
| | — |
|
| Foreign exchange contracts | 13,851 |
| | — |
| | 13,851 |
| | — |
| 27,447 |
| | — |
| | 27,447 |
| | — |
|
| Total trading account liabilities | 515,804 |
| | 327,539 |
| | 188,265 |
| | — |
| 142,154 |
| | 45 |
| | 142,109 |
| | — |
|
| Derivative liabilities: | | | | | | | | | | | | | | |
| Interest rate contracts | 44,651 |
| | — |
| | 44,650 |
| | 1 |
| 4,024 |
| | — |
| | 4,024 |
| | — |
|
| Equity contracts | 38,351 |
| | — |
| | 38,351 |
| | — |
| 5,966 |
| | — |
| | 5,966 |
| | — |
|
| Foreign exchange contracts | 1,874 |
| | — |
| | 1,874 |
| | — |
| 1,156 |
| | — |
| | 1,156 |
| | — |
|
| Total derivative liabilities | 84,876 |
| | — |
| | 84,875 |
| | 1 |
| 11,146 |
| | — |
| | 11,146 |
| | — |
|
| |
(1) | Excludes $430 million of FHLB and Federal Reserve stock required to be owned by the Company at September 30, 2017. These securities are carried at par. |
| | | | | | Fair Value Measurements at the End of the Reporting Period Using | | | Fair Value Measurements at the End of the Reporting Period Using |
| | Fair Value | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs | Fair Value | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| | December 31, 2016 | | (Level 1) | | (Level 2) | | (Level 3) | December 31, 2018 | | (Level 1) | | (Level 2) | | (Level 3) |
| | (In Thousands) | (In Thousands) |
| Recurring fair value measurements | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | |
| Trading account assets: | | | | | | | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 2,820,797 |
| | $ | 2,820,797 |
| | $ | — |
| | $ | — |
| $ | 68,922 |
| | $ | 68,922 |
| | $ | — |
| | $ | — |
|
| State and political subdivisions | 219 |
| | — |
| | 219 |
| | — |
| |
| Other debt securities | 4,120 |
| | — |
| | 4,120 |
| | — |
| |
| Interest rate contracts | 290,238 |
| | — |
| | 290,238 |
| | — |
| 149,269 |
| | — |
| | 149,269 |
| | — |
|
| Foreign exchange contracts | 28,367 |
| | — |
| | 28,367 |
| | — |
| 19,465 |
| | — |
| | 19,465 |
| | — |
|
| Other trading assets | 859 |
| | — |
| | — |
| | 859 |
| |
| Total trading account assets | 3,144,600 |
| | 2,820,797 |
| | 322,944 |
| | 859 |
| 237,656 |
| | 68,922 |
| | 168,734 |
| | — |
|
| Investment securities available for sale: | | | | | | | | |
| Debt securities available for sale: | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | 2,374,331 |
| | 1,266,564 |
| | 1,107,767 |
| | — |
| 5,431,467 |
| | 4,746,335 |
| | 685,132 |
| | — |
|
| Mortgage-backed securities | 3,763,338 |
| | — |
| | 3,763,338 |
| | — |
| 2,129,821 |
| | — |
| | 2,129,821 |
| | — |
|
| Collateralized mortgage obligations | 5,098,928 |
| | — |
| | 5,098,928 |
| | — |
| 3,418,979 |
| | — |
| | 3,418,979 |
| | — |
|
| States and political subdivisions | 8,641 |
| | — |
| | 8,641 |
| | — |
| 949 |
| | — |
| | 949 |
| | — |
|
| Other debt securities | 16,185 |
| | 16,185 |
| | — |
| | — |
| |
| Equity securities (1) | 380 |
| | 87 |
| | — |
| | 293 |
| |
| Total investment securities available for sale | 11,261,803 |
| | 1,282,836 |
| | 9,978,674 |
| | 293 |
| |
| Total debt securities available for sale | | 10,981,216 |
| | 4,746,335 |
| | 6,234,881 |
| | — |
|
| Loans held for sale | 105,257 |
| | — |
| | 105,257 |
| | — |
| 68,766 |
| | — |
| | 68,766 |
| | — |
|
| Derivative assets: | | | | | | | | | | | | | | |
| Interest rate contracts | 46,133 |
| | — |
| | 43,709 |
| | 2,424 |
| 18,045 |
| | — |
| | 16,033 |
| | 2,012 |
|
| Equity contracts | 57,198 |
| | — |
| | 57,198 |
| | — |
| 14,185 |
| | — |
| | 14,185 |
| | — |
|
| Foreign exchange contracts | 3,875 |
| | — |
| | 3,875 |
| | — |
| 1,763 |
| | — |
| | 1,763 |
| | — |
|
| Total derivative assets | 107,206 |
| | — |
| | 104,782 |
| | 2,424 |
| 33,993 |
| | — |
| | 31,981 |
| | 2,012 |
|
| Other assets - MSR | 51,428 |
| | — |
| | — |
| | 51,428 |
| |
| Other assets - SBIC | 15,639 |
| | — |
| | — |
| | 15,639 |
| |
| Other assets: | | | | | | | | |
| Equity securities | | 17,839 |
| | 17,839 |
| | — |
| | — |
|
| MSR | | 51,539 |
| | — |
| | — |
| | 51,539 |
|
| SBIC | | 80,074 |
| | — |
| | — |
| | 80,074 |
|
| Liabilities: | | | | | | | | | | | | | | |
| Trading account liabilities: | | | | | | | | | | | | | | |
| U.S. Treasury and other U.S. government agencies | $ | 2,750,085 |
| | $ | 2,750,085 |
| | $ | — |
| | $ | — |
| |
| Other debt securities | 2,892 |
| | — |
| | 2,892 |
| | — |
| |
| Interest rate contracts | 228,748 |
| | — |
| | 228,748 |
| | — |
| $ | 130,704 |
| | $ | — |
| | $ | 130,704 |
| | $ | — |
|
| Foreign exchange contracts | 26,317 |
| | — |
| | 26,317 |
| | — |
| 17,341 |
| | — |
| | 17,341 |
| | — |
|
| Total trading account liabilities | 3,008,042 |
| | 2,750,085 |
| | 257,957 |
| | — |
| 148,045 |
| | — |
| | 148,045 |
| | — |
|
| Derivative liabilities: | | | | | | | | | | | | | | |
| Interest rate contracts | 33,414 |
| | — |
| | 33,382 |
| | 32 |
| 31,438 |
| | — |
| | 31,438 |
| | — |
|
| Equity contracts | 53,044 |
| | — |
| | 53,044 |
| | — |
| 12,434 |
| | — |
| | 12,434 |
| | — |
|
| Foreign exchange contracts | 2,103 |
| | — |
| | 2,103 |
| | — |
| 1,111 |
| | — |
| | 1,111 |
| | — |
|
| Total derivative liabilities | 88,561 |
| | — |
| | 88,529 |
| | 32 |
| 44,983 |
| | — |
| | 44,983 |
| | — |
|
| |
(1) | Excludes $403 million of FHLB and Federal Reserve stock required to be owned by the Company at December 31, 2016. These securities are carried at par. |
There were no transfers between Levels 1 or 2 of the fair value hierarchy for the three and nine months ended September 30, 20172019 and 2016.2018. It is the Company’s policy to value any transfers between levels of the fair value hierarchy based on end of period fair values.
The following table reconcilestables reconcile the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
| | | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| Three Months Ended September 30, | Other Trading Assets | | Equity Securities | | Interest Rate Contracts, net | | Other Assets - MSR | | Other Assets - SBIC | Interest Rate Contracts, net | | Other Assets - MSR | | Other Assets - SBIC |
| | (In Thousands) | | | (In Thousands) |
| Balance, June 30, 2016 | $ | 1,031 |
| | $ | 294 |
| | $ | 4,691 |
| | $ | 36,496 |
| | $ | — |
| |
| Balance, June 30, 2018 | | $ | 2,610 |
| | $ | 54,276 |
| | $ | 41,513 |
|
| Transfers into Level 3 | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Transfers out of Level 3 | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Total gains or losses (realized/unrealized): | | | | | | | | | | | | | | |
| Included in earnings (1) | (47 | ) | | — |
| | (162 | ) | | 598 |
| | — |
| (475 | ) | | (558 | ) | | — |
|
| Included in other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Purchases, issuances, sales and settlements: | | | | | | | | | | | | | | |
| Purchases | — |
| |
| | — |
| | — |
| | — |
| — |
| | — |
| | 1,209 |
|
| Issuances | — |
| | — |
| | — |
| | 1,933 |
| | — |
| — |
| | 1,594 |
| | — |
|
| Sales | — |
| | (1 | ) | | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Settlements | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Balance, September 30, 2016 | $ | 984 |
| | $ | 293 |
| | $ | 4,529 |
| | $ | 39,027 |
| | $ | — |
| |
| Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2016 | $ | (47 | ) | | $ | — |
| | $ | (162 | ) | | $ | 598 |
| | $ | — |
| |
| Balance, September 30, 2018 | | $ | 2,135 |
| | $ | 55,312 |
| | $ | 42,722 |
|
| Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2018 | | $ | (475 | ) | | $ | (558 | ) | | $ | — |
|
| | | | | | | | | | | | | | | |
| Balance, June 30, 2017 | $ | 778 |
| | $ | 353 |
| | $ | 3,185 |
| | $ | 49,398 |
| | $ | 22,572 |
| |
| Balance, June 30, 2019 | | $ | 3,847 |
| | $ | 41,966 |
| | $ | 102,065 |
|
| Transfers into Level 3 | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Transfers out of Level 3 | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Total gains or losses (realized/unrealized): | | | | | | | | | | | | | | |
| Included in earnings (1) | (215 | ) | | — |
| | (262 | ) | | (2,577 | ) | | — |
| 191 |
| | (6,301 | ) | | 10,239 |
|
| Included in other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Purchases, issuances, sales and settlements: | | | | | | | | | | | | | | |
| Purchases | — |
| | — |
| | — |
| | — |
| | 10,173 |
| — |
| | — |
| | 7,944 |
|
| Issuances | — |
| | — |
| | — |
| | 1,729 |
| | — |
| — |
| | 1,600 |
| | — |
|
| Sales | — |
| | (2 | ) | | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Settlements | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Balance, September 30, 2017 | $ | 563 |
| | $ | 351 |
| | $ | 2,923 |
| | $ | 48,550 |
| | $ | 32,745 |
| |
| Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2017 | $ | (215 | ) | | $ | — |
| | $ | (262 | ) | | $ | (2,577 | ) | | $ | — |
| |
| Balance, September 30, 2019 | | $ | 4,038 |
| | $ | 37,265 |
| | $ | 120,248 |
|
| Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2019 | | $ | 191 |
| | $ | (6,301 | ) | | $ | 10,239 |
|
| |
| (1) | Included in noninterest income in the Unaudited Condensed Consolidated Statements of Income. |
| | | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| Nine Months Ended September 30, | Other Trading Assets | | Equity Securities | | Interest Rate Contracts, net | | Other Assets - MSR | | Other Assets - SBIC | Interest Rate Contracts, net | | Other Assets - MSR | | Other Assets - SBIC |
| | (In Thousands) | | | (In Thousands) |
| Balance, December 31, 2015 | $ | 1,117 |
| | $ | 253 |
| | $ | 2,874 |
| | $ | 44,541 |
| | $ | — |
| |
| Balance, December 31, 2017 | | $ | 2,416 |
| | $ | 49,597 |
| | $ | 45,042 |
|
| Transfers into Level 3 | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Transfers out of Level 3 | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Total gains or losses (realized/unrealized): | | | | | | | | | | | | | | |
| Included in earnings (1) | (133 | ) | | — |
| | 1,655 |
| | (13,097 | ) | | — |
| (281 | ) | | 449 |
| | (6,673 | ) |
| Included in other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Purchases, issuances, sales and settlements: | | | | | | | | | | | | | | |
| Purchases | — |
| | 41 |
| | — |
| | — |
| | — |
| — |
| | — |
| | 4,353 |
|
| Issuances | — |
| | — |
| | — |
| | 7,583 |
| | — |
| — |
| | 5,266 |
| | — |
|
| Sales | — |
| | (1 | ) | | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Settlements | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Balance, September 30, 2016 | $ | 984 |
| | $ | 293 |
| | $ | 4,529 |
| | $ | 39,027 |
| | $ | — |
| |
| Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2016 | $ | (133 | ) | | $ | — |
| | $ | 1,655 |
| | $ | (13,097 | ) | | $ | — |
| |
| Balance, September 30, 2018 | | $ | 2,135 |
| | $ | 55,312 |
| | $ | 42,722 |
|
| Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2018 | | $ | (281 | ) | | $ | 449 |
| | $ | (6,673 | ) |
| | | | | | | | | | | | | | | |
| Balance, December 31, 2016 | $ | 859 |
| | $ | 293 |
| | $ | 2,392 |
| | $ | 51,428 |
| | $ | 15,639 |
| |
| Balance, December 31, 2018 | | $ | 2,012 |
| | $ | 51,539 |
| | $ | 80,074 |
|
| Transfers into Level 3 | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Transfers out of Level 3 | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Total gains or losses (realized/unrealized): | | | | | | | | | | | | | | |
| Included in earnings (1) | (296 | ) | | — |
| | 531 |
| | (8,206 | ) | | 550 |
| 2,026 |
| | (18,579 | ) | | 24,310 |
|
| Included in other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Purchases, issuances, sales and settlements: | | | | | | | | | | | | | | |
| Purchases | — |
| | 60 |
| | — |
| | — |
| | 16,556 |
| — |
| | — |
| | 15,864 |
|
| Issuances | — |
| | — |
| | — |
| | 5,328 |
| | — |
| — |
| | 4,305 |
| | — |
|
| Sales | — |
| | (2 | ) | | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Settlements | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Balance, September 30, 2017 | $ | 563 |
| | $ | 351 |
| | $ | 2,923 |
| | $ | 48,550 |
| | $ | 32,745 |
| |
| Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2017 | $ | (296 | ) | | $ | — |
| | $ | 531 |
| | $ | (8,206 | ) | | $ | 550 |
| |
| Balance, September 30, 2019 | | $ | 4,038 |
| | $ | 37,265 |
| | $ | 120,248 |
|
| Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2019 | | $ | 2,026 |
| | $ | (18,579 | ) | | $ | 24,310 |
|
| |
| (1) | Included in noninterest income in the Unaudited Condensed Consolidated Statements of Income. |
Assets Measured at Fair Value on a Nonrecurring Basis
Periodically, certain assets may be recorded at fair value on a non-recurring basis. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets due to impairment. The following tables represent those assets that were subject to fair value adjustments during the three and nine months ended September 30, 20172019 and 2016,2018, and still held as of the end of the period, and the related gains and losses from fair value adjustments on assets sold during the period as well as assets still held as of the end of the period.
| | | | | | Fair Value Measurements at the End of the Reporting Period Using | | | | | | | Fair Value Measurements at the End of the Reporting Period Using | | | | |
| | Fair Value | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | Total Gains (Losses) | Fair Value | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | Total Gains (Losses) |
| | September 30, 2017 | | (Level 1) | | (Level 2) | | (Level 3) | | Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 | September 30, 2019 | | (Level 1) | | (Level 2) | | (Level 3) | | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
| | (In Thousands) | (In Thousands) |
| Nonrecurring fair value measurements | Nonrecurring fair value measurements | | | | | | | | | Nonrecurring fair value measurements | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | |
| Investment securities held to maturity | $ | 1,863 |
| | $ | — |
| | $ | — |
| | $ | 1,863 |
| | $ | — |
| | $ | (242 | ) | |
| Debt securities held to maturity | | $ | 1,036 |
| | $ | — |
| | $ | — |
| | $ | 1,036 |
| | $ | — |
| | $ | (113 | ) |
| Impaired loans (1) | 44,434 |
| | — |
| | — |
| | 44,434 |
| | (12,389 | ) | | (49,894 | ) | 6,270 |
| | — |
| | — |
| | 6,270 |
| | (69,615 | ) | | (113,140 | ) |
| OREO | 22,012 |
| | — |
| | — |
| | 22,012 |
| | (1,845 | ) | | (4,640 | ) | 18,931 |
| | — |
| | — |
| | 18,931 |
| | (1,169 | ) | | (3,928 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at the End of the Reporting Period Using | | | | | | | Fair Value Measurements at the End of the Reporting Period Using | | | | |
| | Fair Value | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | Total Gains (Losses) | Fair Value | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | Total Gains (Losses) |
| | September 30, 2016 | | (Level 1) | | (Level 2) | | (Level 3) | | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2016 | September 30, 2018 | | (Level 1) | | (Level 2) | | (Level 3) | | Three Months Ended September 30, 2018 | | Nine Months Ended September 30, 2018 |
| | (In Thousands) | (In Thousands) |
| Nonrecurring fair value measurements | Nonrecurring fair value measurements | | | | | | | | | Nonrecurring fair value measurements | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | |
| Investment securities held to maturity | $ | 2,595 |
| | $ | — |
| | $ | — |
| | $ | 2,595 |
| | $ | — |
| | $ | (130 | ) | |
| Debt securities held to maturity | | $ | 3,955 |
| | $ | — |
| | $ | — |
| | $ | 3,955 |
| | $ | (283 | ) | | $ | (592 | ) |
| Impaired loans (1) | 71,806 |
| | — |
| | — |
| | 71,806 |
| | (9,202 | ) | | (55,922 | ) | 11,875 |
| | — |
| | — |
| | 11,875 |
| | (17,225 | ) | | (28,666 | ) |
| OREO | 21,670 |
| | — |
| | — |
| | 21,670 |
| | (458 | ) | | (2,777 | ) | 18,706 |
| | — |
| | — |
| | 18,706 |
| | (1,322 | ) | | (2,407 | ) |
| |
(1) | Total gains (losses) represent charge-offs on impaired loans for which adjustments are based on the appraised value of the collateral. |
The following is a description of the methodologies applied for valuing these assets:
InvestmentDebt securities held to maturity – Nonrecurring fair value adjustments on investmentdebt securities held to maturity reflect impairment write-downs which the Company believes are other than temporary. For analyzing these securities, the Company has retained a third-party valuation firm. Impairment is determined through the use of cash flow models that estimate cash flows on the underlying mortgages using security-specific collateral and the transaction structure. The cash flow models incorporate the remaining cash flows which are adjusted for future expected credit losses. Future expected credit losses are determined by using various assumptions such as current default rates, prepayment rates, and loss severities. The Company develops these assumptions through the use of market data published by third-party sources in addition to historical analysis which includes actual delinquency and default information through the current period. The expected cash flows are then discounted at the interest rate used to recognize interest income on the security to arrive at a present value amount. As the fair value assessments are derived using a discounted cash flow modeling
approach and include at least one significant unobservable input, the nonrecurring fair value adjustments are classified as Level 3.
Impaired Loans – Impaired loans measured at fair value on a non-recurring basis represent the carrying value of impaired loans for which adjustments are based on the appraised value of the collateral. Nonrecurring fair value adjustments to impaired loans reflect full or partial write-downs that are generally based on the fair value of the underlying collateral supporting the loan. Loans subjected to nonrecurring fair value adjustments based on the current estimated fair value of the collateral are classified as Level 3.
OREO – OREO is recorded on the Company’s Consolidated Balance Sheets at the lower of recorded balance or fair value, which is based on appraisals and third-party price opinions, less estimated costs to sell. The fair value is classified as Level 3.
The tabletables below presents quantitativepresent information about the significant unobservable inputs for material assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring and nonrecurring basis. | | | | | | Quantitative Information about Level 3 Fair Value Measurements | | | Quantitative Information about Level 3 Fair Value Measurements |
| | Fair Value at | | Range of Unobservable Inputs | Fair Value at | | Range of Unobservable Inputs |
| | September 30, 2017 | | Valuation Technique | | Unobservable Input(s) | | (Weighted Average) | September 30, 2019 | | Valuation Technique | | Unobservable Input(s) | | (Weighted Average) |
| | (In Thousands) | | (In Thousands) | |
| Recurring fair value measurements: | Recurring fair value measurements: | | Recurring fair value measurements: | |
| Other trading assets | $ | 563 |
| | Discounted cash flow | | Default rate | | 10.2% | |
| | | | Prepayment rate | | 5.8% - 11.0% (8.0%) | |
| Interest rate contracts, net | 2,923 |
| | Discounted cash flow | | Closing ratios (pull-through) | | 20.5% - 99.5% (70.7%) | $ | 4,038 |
| | Discounted cash flow | | Closing ratios (pull-through) | | 8.8% - 99.9% (64.6%) |
| | | | Cap grids | | 0.5% - 2.2% (0.9%) | | | Cap grids | | 0.2% - 2.3% (0.9%) |
| Other assets - MSRs | 48,550 |
| | Discounted cash flow | | Option adjusted spread | | 4.6% - 17.2% (8.2%) | 37,265 |
| | Discounted cash flow | | Option adjusted spread | | 6.0% - 9.0% (6.4%) |
| | | | Constant prepayment rate or life speed | | 1.2% - 51.9% (9.4%) | | | Constant prepayment rate or life speed | | 0.0% - 89.7% (17.4%) |
| | | | Cost to service | | $65 - $4,000 ($80) | | | Cost to service | | $65 - $4,000 ($90) |
| Other assets - SBIC investments | 32,745 |
| | Transaction price | | Transaction price | | N/A | 120,248 |
| | Transaction price | | Transaction price | | N/A |
| Nonrecurring fair value measurements: | Nonrecurring fair value measurements: | | Nonrecurring fair value measurements: | |
| Investment securities held to maturity | $ | 1,863 |
| | Discounted cash flow | | Prepayment rate | | 5.1% | |
| Debt securities held to maturity | | $ | 1,036 |
| | Discounted cash flow | | Prepayment rate | | 9.9% |
| | | | Default rate | | 4.8% | | | Default rate | | 6.0% |
| | | | Loss severity | | 70.6% | | | Loss severity | | 61.9% |
| Impaired loans | 44,434 |
| | Appraised value | | Appraised value | | 0.0% - 100.0% (29.0%) | 6,270 |
| | Appraised value | | Appraised value | | 0.0% - 70.0% (11.8%) |
| OREO | 22,012 |
| | Appraised value | | Appraised value | | 8.0% (1) | 18,931 |
| | Appraised value | | Appraised value | | 8.0% (1) |
| |
| (1) | Represents discount to appraised value for estimated costs to sell. |
| | | | | | Quantitative Information about Level 3 Fair Value Measurements | | | Quantitative Information about Level 3 Fair Value Measurements |
| | Fair Value at | | Range of Unobservable Inputs | Fair Value at | | Range of Unobservable Inputs |
| | December 31, 2016 | | Valuation Technique | | Unobservable Input(s) | | (Weighted Average) | December 31, 2018 | | Valuation Technique | | Unobservable Input(s) | | (Weighted Average) |
| | (In Thousands) | | (In Thousands) | |
| Recurring fair value measurements: | Recurring fair value measurements: | | Recurring fair value measurements: | |
| Other trading assets | $ | 859 |
| | Discounted cash flow | | Default rate | | 10.1% | |
| | | | Prepayment rate | | 6.2% - 11.1% (8.2%) | |
| Interest rate contracts, net | 2,392 |
| | Discounted cash flow | | Closing ratios (pull-through) | | 18.6% - 99.1% (68.5%) | $ | 2,012 |
| | Discounted cash flow | | Closing ratios (pull-through) | | 15.0% - 99.6% (61.5%) |
| | | | Cap grids | | 0.1% - 2.3% (1.1%) | | | Cap grids | | 0.5% - 3.1% (1.0%) |
| Other assets - MSRs | 51,428 |
| | Discounted cash flow | | Option adjusted spread | | 6.1% - 18.6% (8.1%) | 51,539 |
| | Discounted cash flow | | Option adjusted spread | | 6.3% - 8.5% (6.5%) |
| | | | Constant prepayment rate or life speed | | 1.3% - 62.0% (15.7%) | | | Constant prepayment rate or life speed | | 0.0% - 43.6% (9.6%) |
| | | | Cost to service | | $65 - $4,000 ($79) | | | Cost to service | | $65 - $4,000 ($84) |
| Other assets - SBIC investments | 15,639 |
| | Transaction price | | Transaction price | | N/A | 80,074 |
| | Transaction price | | Transaction price | | N/A |
| Nonrecurring fair value measurements: | Nonrecurring fair value measurements: | | Nonrecurring fair value measurements: | |
| Investment securities held to maturity | $ | 2,550 |
| | Discounted cash flow | | Prepayment rate | | 10.9% | |
| Debt securities held to maturity | | $ | 4,380 |
| | Discounted cash flow | | Prepayment rate | | 8.4% |
| | | | Default rate | | 9.2% | | | Default rate | | 9.4% |
| | | | Loss severity | | 63.7% | | | Loss severity | | 83.5% |
| Impaired loans | 59,807 |
| | Appraised value | | Appraised value | | 0.0% - 80.0% (31.9%) | 57,968 |
| | Appraised value | | Appraised value | | 0.0% - 70.0% (14.6%) |
| OREO | 21,112 |
| | Appraised value | | Appraised value | | 8.0% (1) | 16,869 |
| | Appraised value | | Appraised value | | 8.0% (1) |
| |
| (1) | Represents discount to appraised value for estimated costs to sell. |
The following provides a description of the sensitivity of the valuation technique to changes in unobservable inputs for recurring fair value measurements.
Recurring Fair Value Measurements Using Significant Unobservable Inputs
Trading Account Assets – Interest-Only Strips
Significant unobservable inputs used in the valuation of the Company’s interest-only strips include default rates and prepayment assumptions. Significant increases in either of these inputs in isolation would result in significantly lower fair value measurements. Generally, a change in the assumption used for the probability of default is accompanied by a directionally opposite change in the assumption used for prepayment rates.
Interest Rate Contracts - Interest Rate Lock Commitments
Significant unobservable inputs used in the valuation of interest rate contracts are pull-through and cap grids. Increases or decreases in the pull-through or cap grids will have a corresponding impact in the value of interest rate contracts.
Other Assets - MSRs
The significant unobservable inputs used in the fair value measurement of MSRs are option-adjusted spreads, constant prepayment rate or life speed, and cost to service assumptions. The impact of prepayments and changes in the option-adjusted spread are based on a variety of underlying inputs. Increases or decreases to the underlying cash flow inputs will have a corresponding impact on the value of the MSR asset. The impact of the costs to service assumption will have a directionally opposite change in the fair value of the MSR asset.
Other Assets - SBIC Investments
The significant unobservable inputs used in the fair value measurement of SBIC Investments are initially based upon transaction price. Increases or decreases in valuation factors such as recent or proposed purchase or sale of debt or equity of the issuer, pricing by other dealers in similar securities, size of position held, liquidity of the market will have a corresponding impact in the value of SBIC investments.
Fair Value of Financial Instruments
The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company’s financial instruments, excluding financial instruments measured at fair value on a recurring basis, are as follows:
| | | | September 30, 2017 | September 30, 2019 |
| | Carrying Amount | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 | Carrying Amount | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 |
| | (In Thousands) | (In Thousands) |
| Financial Instruments: | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 3,734,658 |
| | $ | 3,734,658 |
| | $ | 3,734,658 |
| | $ | — |
| | $ | — |
| $ | 6,473,599 |
| | $ | 6,473,599 |
| | $ | 6,473,599 |
| | $ | — |
| | $ | — |
|
| Investment securities held to maturity | 1,077,372 |
| | 1,067,919 |
| | — |
| | — |
| | 1,067,919 |
| |
| Debt securities held to maturity | | 6,334,634 |
| | 6,514,496 |
| | 1,348,822 |
| | 4,421,416 |
| | 744,258 |
|
| Loans, net | 59,466,085 |
| | 56,701,917 |
| | — |
| | — |
| | 56,701,917 |
| 62,378,380 |
| | 60,545,039 |
| | — |
| | — |
| | 60,545,039 |
|
| Liabilities: | | | | | | | | | | | | | | | | | | |
| Deposits | $ | 67,213,567 |
| | $ | 67,260,405 |
| | $ | — |
| | $ | 67,260,405 |
| | $ | — |
| $ | 73,569,442 |
| | $ | 73,602,165 |
| | $ | — |
| | $ | 73,602,165 |
| | $ | — |
|
| FHLB and other borrowings | 3,956,041 |
| | 4,005,971 |
| | — |
| | 4,005,971 |
| | — |
| 3,709,949 |
| | 3,732,704 |
| | — |
| | 3,732,704 |
| | — |
|
| Federal funds purchased and securities sold under agreements to repurchase | 44,761 |
| | 44,761 |
| | — |
| | 44,761 |
| | — |
| 117,421 |
| | 117,421 |
| | — |
| | 117,421 |
| | — |
|
| | | | December 31, 2016 | December 31, 2018 |
| | Carrying Amount | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 | Carrying Amount | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 |
| | (In Thousands) | (In Thousands) |
| Financial Instruments: | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 3,251,786 |
| | $ | 3,251,786 |
| | $ | 3,251,786 |
| | $ | — |
| | $ | — |
| $ | 3,332,626 |
| | $ | 3,332,626 |
| | $ | 3,332,626 |
| | $ | — |
| | $ | — |
|
| Investment securities held to maturity | 1,203,217 |
| | 1,182,009 |
| | — |
| | — |
| | 1,182,009 |
| |
| Debt securities held to maturity | | 2,885,613 |
| | 2,925,420 |
| | — |
| | 2,106,510 |
| | 818,910 |
|
| Loans, net | 59,222,970 |
| | 56,283,761 |
| | — |
| | — |
| | 56,283,761 |
| 64,301,312 |
| | 61,186,996 |
| | — |
| | — |
| | 61,186,996 |
|
| Liabilities: | | | | | | | | | | | | | | | | | | |
| Deposits | $ | 67,279,533 |
| | $ | 67,359,299 |
| | $ | — |
| | $ | 67,359,299 |
| | $ | — |
| $ | 72,167,987 |
| | $ | 72,175,418 |
| | $ | — |
| | $ | 72,175,418 |
| | $ | — |
|
| FHLB and other borrowings | 3,001,551 |
| | 3,001,836 |
| | — |
| | 3,001,836 |
| | — |
| 3,987,590 |
| | 3,935,945 |
| | — |
| | 3,935,945 |
| | — |
|
| Federal funds purchased and securities sold under agreements to repurchase | 39,052 |
| | 39,052 |
| | — |
| | 39,052 |
| | — |
| 102,275 |
| | 102,275 |
| | — |
| | 102,275 |
| | — |
|
| Other short-term borrowings | 50,000 |
| | 50,000 |
| | — |
| | 50,000 |
| | — |
| |
Fair Value Option
The following methods and assumptions were used by the Company in estimatinghas elected to apply the fair value option for single family real estate mortgage loans originated for resale in the secondary market. The election allows for a more effective offset of its financial instruments not carried at fair value:
Cash and cash equivalents: Cash and cash equivalents have maturities of three months or less. Accordingly, the carrying amount approximates fair value. Because these amounts generally relate to either currency or highly liquid assets, these are considered a Level 1 measurement.
Investment securities held to maturity: Thechanges in fair values of securitiesthe loans and the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting. The Company has not elected the fair value option for other loans held to maturityfor sale primarily because they are estimatednot economically hedged using a discounted cash flow approach. The discounted cash flow model uses inputs such as estimated prepayment speed, lossderivative instruments.
At both September 30, 2019 and December 31, 2018, no loans held for sale for which the fair value option was elected were 90 days or more past due or were in nonaccrual. Interest income on mortgage loans held for sale is recognized based on contractual rates and default rates. They are considered a Level 3 measurement asis reflected in interest and fees on loans in the valuation employs significant unobservable inputs.
Loans: Loans are presented netCompany's Unaudited Condensed Consolidated Statements of the allowance for loan lossesIncome. Net gains (losses) of $887 thousand and are valued using discounted cash flows. The discount rates used to determine the present$(47) thousand resulting from changes in fair value of these loans are based on current market interest rates for loans with similar credit riskwere recorded in noninterest income during the three months ended September 30, 2019 and term. They are considered a Level 3 measurement as the valuation employs significant unobservable inputs.
Deposits: The fair values2018, respectively. Net gains (losses) of demand deposits are equal to the carrying amounts. Demand deposits include noninterest bearing demand deposits, savings accounts, NOW accounts$1.6 million and money market demand accounts. Discounted cash flows have been used to value fixed rate term deposits. The discount rate used is based on interest rates currently being offered by the Company on comparable deposits as to amount and term. They are considered a Level 2 measurement as the valuation primarily employs observable inputs for similar instruments.
FHLB and other borrowings: The$(420) thousand resulting from changes in fair value of these loans were recorded in noninterest income during the Company’s fixed rate borrowings, which includesnine months ended September 30, 2019 and 2018, respectively.
The Company also had fair value changes on forward contracts related to residential mortgage loans held for sale of approximately $530 thousand and $708 thousand for the Company’s Capital Securities, are estimated using discounted cash flows, based onthree months ended September 30, 2019 and 2018,
respectively, and $481 thousand and $553 thousand for the Company’s current incremental borrowing ratesnine months ended September 30, 2019 and 2018, respectively. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.
The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for similar types of borrowing arrangements. The carrying amount of the Company’s variable rate borrowings approximatesresidential mortgage loans measured at fair value. As such, these borrowings are considered a Level 2 measurement as the valuation primarily employs observable inputs for similar instruments.
Federal fund purchased, securities sold under agreements to repurchase and short-term borrowings: The carrying amounts of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings approximates fair value. They are therefore considered a Level 2 measurement. |
| | | | | | | | | | | |
| | Aggregate Fair Value | | Aggregate Unpaid Principal Balance | | Difference |
| | (In Thousands) |
| September 30, 2019 | | | | | |
| Residential mortgage loans held for sale | $ | 134,314 |
| | $ | 130,043 |
| | $ | 4,271 |
|
| December 31, 2018 | | | | | |
| Residential mortgage loans held for sale | $ | 68,766 |
| | $ | 66,052 |
| | $ | 2,714 |
|
(9)(10) 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.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2017 | | 2016 |
| | Pretax | | Tax Expense/ (Benefit) | | After-tax | | Pretax | | Tax Expense/ (Benefit) | | After-tax |
| | (In Thousands) |
| Other comprehensive income: | | | | | | | | | | | |
| Unrealized holding losses arising during period from securities available for sale | $ | (1,025 | ) | | $ | (379 | ) | | $ | (646 | ) | | $ | (41,149 | ) | | $ | (15,073 | ) | | $ | (26,076 | ) |
| Less: reclassification adjustment for net gains on sale of securities in net income | 3,033 |
| | 1,122 |
| | 1,911 |
| | — |
| | — |
| | — |
|
| Net change in unrealized losses on securities available for sale | (4,058 | ) | | (1,501 | ) | | (2,557 | ) | | (41,149 | ) | | (15,073 | ) | | (26,076 | ) |
| Change in unamortized net holding losses on investment securities held to maturity | 1,586 |
| | 587 |
| | 999 |
| | 1,844 |
| | 676 |
| | 1,168 |
|
| Change in unamortized non-credit related impairment on investment securities held to maturity | 399 |
| | 148 |
| | 251 |
| | 354 |
| | 129 |
| | 225 |
|
| Net change in unamortized holding losses on securities held to maturity | 1,985 |
| | 735 |
| | 1,250 |
| | 2,198 |
| | 805 |
| | 1,393 |
|
| Unrealized holding gains (losses) arising during period from cash flow hedge instruments | 1,367 |
| | 512 |
| | 855 |
| | (2,303 | ) | | (842 | ) | | (1,461 | ) |
| Change in defined benefit plans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other comprehensive loss | $ | (706 | ) | | $ | (254 | ) | | $ | (452 | ) | | $ | (41,254 | ) | | $ | (15,110 | ) | | $ | (26,144 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| | Pretax | | Tax Expense/ (Benefit) | | After-tax | | Pretax | | Tax Expense/ (Benefit) | | After-tax |
| | (In Thousands) |
| Other comprehensive income: | | | | | | | | | | | |
| Unrealized holding gains arising during period from securities available for sale | $ | 61,774 |
| | $ | 22,855 |
| | $ | 38,919 |
| | $ | 103,507 |
| | $ | 37,915 |
| | $ | 65,592 |
|
| Less: reclassification adjustment for net gains on sale of securities in net income | 3,033 |
| | 1,122 |
| | 1,911 |
| | 30,037 |
| | 11,002 |
| | 19,035 |
|
| Net change in unrealized gains on securities available for sale | 58,741 |
| | 21,733 |
| | 37,008 |
| | 73,470 |
| | 26,913 |
| | 46,557 |
|
| Change in unamortized net holding losses on investment securities held to maturity | 4,032 |
| | 1,492 |
| | 2,540 |
| | 4,615 |
| | 1,691 |
| | 2,924 |
|
| 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 | 1,236 |
| | 458 |
| | 778 |
| | 1,021 |
| | 373 |
| | 648 |
|
| Net change in unamortized holding losses on securities held to maturity | 5,268 |
| | 1,950 |
| | 3,318 |
| | 5,485 |
| | 2,009 |
| | 3,476 |
|
| Unrealized holding (losses) gains arising during period from cash flow hedge instruments | (14,581 | ) | | (5,409 | ) | | (9,172 | ) | | 2,734 |
| | 1,006 |
| | 1,728 |
|
| Change in defined benefit plans | (773 | ) | | (288 | ) | | (485 | ) | | 1,300 |
| | 369 |
| | 931 |
|
| Other comprehensive income | $ | 48,655 |
| | $ | 17,986 |
| | $ | 30,669 |
| | $ | 82,989 |
| | $ | 30,297 |
| | $ | 52,692 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2019 | | 2018 |
| | Pretax | | Tax Expense/ (Benefit) | | After-tax | | Pretax | | Tax Expense/ (Benefit) | | After-tax |
| | (In Thousands) |
| Other comprehensive income (loss): | | | | | | | | | | | |
| Unrealized holding gains (losses) arising during period from debt securities available for sale | $ | 42,553 |
| | $ | 10,089 |
| | $ | 32,464 |
| | $ | (40,831 | ) | | $ | (9,642 | ) | | $ | (31,189 | ) |
| Less: reclassification adjustment for net gains on sale of debt securities in net income | 21,003 |
| | 4,980 |
| | 16,023 |
| | — |
| | — |
| | — |
|
| Net change in unrealized gains (losses) on debt securities available for sale | 21,550 |
| | 5,109 |
| | 16,441 |
| | (40,831 | ) | | (9,642 | ) | | (31,189 | ) |
| Change in unamortized net holding losses on debt securities held to maturity | 2,915 |
| | 692 |
| | 2,223 |
| | 2,604 |
| | 615 |
| | 1,989 |
|
| Unamortized unrealized net holding losses on debt securities available for sale transferred to debt securities held to maturity | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Less: non-credit related impairment on debt securities held to maturity | — |
| | — |
| | — |
| | 135 |
| | 32 |
| | 103 |
|
| Change in unamortized non-credit related impairment on debt securities held to maturity | 229 |
| | 54 |
| | 175 |
| | 271 |
| | 63 |
| | 208 |
|
| Net change in unamortized holding gains on debt securities held to maturity | 3,144 |
| | 746 |
| | 2,398 |
| | 2,740 |
| | 646 |
| | 2,094 |
|
| Unrealized holding gains arising during period from cash flow hedge instruments | 44,121 |
| | 10,459 |
| | 33,662 |
| | 15,187 |
| | 4,191 |
| | 10,996 |
|
| Change in defined benefit plans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other comprehensive income (loss) | $ | 68,815 |
| | $ | 16,314 |
| | $ | 52,501 |
| | $ | (22,904 | ) | | $ | (4,805 | ) | | $ | (18,099 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2019 | | 2018 |
| | Pretax | | Tax Expense/ (Benefit) | | After-tax | | Pretax | | Tax Expense/ (Benefit) | | After-tax |
| | (In Thousands) |
| Other comprehensive income (loss): | | | | | | | | | | | |
| Unrealized holding gains (losses) arising during period from debt securities available for sale | $ | 222,660 |
| | $ | 52,792 |
| | $ | 169,868 |
| | $ | (139,236 | ) | | $ | (32,916 | ) | | $ | (106,320 | ) |
| 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 (losses) on debt securities available for sale | 192,699 |
| | 45,688 |
| | 147,011 |
| | (139,236 | ) | | (32,916 | ) | | (106,320 | ) |
| Change in unamortized net holding losses on debt securities held to maturity | 7,741 |
| | 1,836 |
| | 5,905 |
| | 8,538 |
| | 2,016 |
| | 6,522 |
|
| 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 | 108 |
| | 26 |
| | 82 |
| | 397 |
| | 94 |
| | 303 |
|
| Change in unamortized non-credit related impairment on debt securities held to maturity | 885 |
| | 210 |
| | 675 |
| | 815 |
| | 192 |
| | 623 |
|
| Net change in unamortized holding gains (losses) on debt securities held to maturity | 8,518 |
| | 2,020 |
| | 6,498 |
| | (30,948 | ) | | (7,303 | ) | | (23,645 | ) |
| Unrealized holding gains arising during period from cash flow hedge instruments | 172,571 |
| | 40,906 |
| | 131,665 |
| | 26,894 |
| | 7,554 |
| | 19,340 |
|
| Change in defined benefit plans | 4,089 |
| | 970 |
| | 3,119 |
| | (4,425 | ) | | (1,046 | ) | | (3,379 | ) |
| Other comprehensive income (loss) | $ | 377,877 |
| | $ | 89,584 |
| | $ | 288,293 |
| | $ | (147,715 | ) | | $ | (33,711 | ) | | $ | (114,004 | ) |
Activity in accumulated other comprehensive income (loss), net of tax was as follows:
| | | | 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 | 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) | (In Thousands) |
| Balance, December 31, 2015 | $ | (56,326 | ) | | $ | (6,407 | ) | | $ | (29,166 | ) | | $ | (7,437 | ) | | $ | (99,336 | ) | |
| Balance, December 31, 2017 | | $ | (132,821 | ) | | $ | (24,765 | ) | | $ | (34,228 | ) | | $ | (5,591 | ) | | $ | (197,405 | ) |
| Cumulative effect of adoption of ASU 2016-01 | | (13 | ) | | — |
| | — |
| | — |
| | (13 | ) |
| | | $ | (132,834 | ) | | $ | (24,765 | ) | | $ | (34,228 | ) | | $ | (5,591 | ) | | $ | (197,418 | ) |
| Other comprehensive loss before reclassifications | | (136,807 | ) | | (8,838 | ) | | — |
| | (303 | ) | | (145,948 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) | | 6,522 |
| | 28,178 |
| | (3,379 | ) | | 623 |
| | 31,944 |
|
| Net current period other comprehensive (loss) income | | (130,285 | ) | | 19,340 |
| | (3,379 | ) | | 320 |
| | (114,004 | ) |
| Balance, September 30, 2018 | | $ | (263,119 | ) | | $ | (5,425 | ) | | $ | (37,607 | ) | | $ | (5,271 | ) | | $ | (311,422 | ) |
| | | | | | | | | | | |
| 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 | 65,592 |
| | 2,787 |
| | — |
| | (96 | ) | | 68,283 |
| 169,868 |
| | 129,110 |
| | — |
| | (82 | ) | | 298,896 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | (16,111 | ) | | (1,059 | ) | | 931 |
| | 648 |
| | (15,591 | ) | (16,952 | ) | | 2,555 |
| | 3,119 |
| | 675 |
| | (10,603 | ) |
| Net current period other comprehensive income | 49,481 |
| | 1,728 |
| | 931 |
| | 552 |
| | 52,692 |
| 152,916 |
| | 131,665 |
| | 3,119 |
| | 593 |
| | 288,293 |
|
| Balance, September 30, 2016 | $ | (6,845 | ) | | $ | (4,679 | ) | | $ | (28,235 | ) | | $ | (6,885 | ) | | $ | (46,644 | ) | |
| | | | | | | | | | | |
| Balance, December 31, 2016 | $ | (119,562 | ) | | $ | (10,080 | ) | | $ | (32,028 | ) | | $ | (6,582 | ) | | $ | (168,252 | ) | |
| Other comprehensive income (loss) before reclassifications | 38,919 |
| | (6,000 | ) | | — |
| | — |
| | 32,919 |
| |
| Amounts reclassified from accumulated other comprehensive income (loss) | 629 |
| | (3,172 | ) | | (485 | ) | | 778 |
| | (2,250 | ) | |
| Net current period other comprehensive income (loss) | 39,548 |
| | (9,172 | ) | | (485 | ) | | 778 |
| | 30,669 |
| |
| Balance, September 30, 2017 | $ | (80,014 | ) | | $ | (19,252 | ) | | $ | (32,513 | ) | | $ | (5,804 | ) | | $ | (137,583 | ) | |
| Balance, September 30, 2019 | | $ | (31,361 | ) | | $ | 136,800 |
| | $ | (33,727 | ) | | $ | (5,703 | ) | | $ | 66,009 |
|
| |
| (1) | Related to the Company's adoption of ASU 2017-12 and ASU 2018-02 on January 1, 2019. See Note 1, Basis of Presentation, for additional information. |
The following table presents information on reclassifications out of accumulated other comprehensive income (loss).
| | | Details About Accumulated Other Comprehensive Income (Loss) Components | | Amounts Reclassified From Accumulated Other Comprehensive Income (Loss) (1) | | Condensed Consolidated Statement of Income Caption | | Amounts Reclassified From Accumulated Other Comprehensive Income (Loss) (1) | | Condensed Consolidated Statements of Income Caption |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | 2017 | | 2016 | | 2017 | | 2016 | | | 2019 | | 2018 | | 2019 | | 2018 | |
| | | (In Thousands) | | | (In Thousands) | |
| Unrealized Gains (Losses) on Securities Available for Sale and Transferred to Held to Maturity | | $ | 3,033 |
| | $ | — |
| | $ | 3,033 |
| | $ | 30,037 |
| | Investment securities gains, net | |
| Unrealized Gains (Losses) on Debt Securities Available for Sale and Transferred to Held to Maturity | | | $ | 21,003 |
| | $ | — |
| | $ | 29,961 |
| | $ | — |
| | Investment securities gains, net |
| | | (1,586 | ) | | (1,844 | ) | | (4,032 | ) | | (4,615 | ) | | Interest on investment securities held to maturity | | (2,915 | ) | | (2,604 | ) | | (7,741 | ) | | (8,538 | ) | | Interest on debt securities held to maturity |
| | | 1,447 |
| | (1,844 | ) | | (999 | ) | | 25,422 |
| | | 18,088 |
| | (2,604 | ) | | 22,220 |
| | (8,538 | ) | |
| | | (535 | ) | | 676 |
| | 370 |
| | (9,311 | ) | | Income tax (expense) benefit | | (4,288 | ) | | 615 |
| | (5,268 | ) | | 2,016 |
| | Income tax (expense) benefit |
| | | $ | 912 |
| | $ | (1,168 | ) | | $ | (629 | ) | | $ | 16,111 |
| | Net of tax | | $ | 13,800 |
| | $ | (1,989 | ) | | $ | 16,952 |
| | $ | (6,522 | ) | | Net of tax |
| | | | | | | | | | | | | | | | | | | |
| Accumulated Gains (Losses) on Cash Flow Hedging Instruments | | $ | (2,258 | ) | | $ | 1,654 |
| | $ | 6,920 |
| | $ | 5,587 |
| | Interest and fees on loans | | $ | (295 | ) | | $ | (13,782 | ) | | $ | (2,765 | ) | | $ | (35,839 | ) | | Interest and fees on loans |
| | | (577 | ) | | (952 | ) | | (1,877 | ) | | (3,909 | ) | | Interest and fees on FHLB advances | | (254 | ) | | (251 | ) | | (584 | ) | | (1,048 | ) | | Interest on FHLB and other borrowings |
| | | (2,835 | ) | | 702 |
| | 5,043 |
| | 1,678 |
| | | (549 | ) | | (14,033 | ) | | (3,349 | ) | | (36,887 | ) | |
| | | 1,054 |
| | (260 | ) | | (1,871 | ) | | (619 | ) | | Income tax (expense) benefit | | 130 |
| | 3,314 |
| | 794 |
| | 8,709 |
| | Income tax benefit |
| | | $ | (1,781 | ) | | $ | 442 |
| | $ | 3,172 |
| | $ | 1,059 |
| | Net of tax | | $ | (419 | ) | | $ | (10,719 | ) | | $ | (2,555 | ) | | $ | (28,178 | ) | | Net of tax |
| | | | | | | | | | | | | | | | | | | |
| Defined Benefit Plan Adjustment | | $ | — |
| | $ | — |
| | $ | 773 |
| | $ | (1,300 | ) | | (2) | | $ | — |
| | $ | — |
| | $ | (4,089 | ) | | $ | 4,425 |
| | (2) |
| | | — |
| | — |
| | (288 | ) | | 369 |
| | Income tax (expense) benefit | | — |
| | — |
| | 970 |
| | (1,046 | ) | | Income tax benefit (expense) |
| | | $ | — |
| | $ | — |
| | $ | 485 |
| | $ | (931 | ) | | Net of tax | | $ | — |
| | $ | — |
| | $ | (3,119 | ) | | $ | 3,379 |
| | Net of tax |
| | | | | | | | | | | | | | | | | | | |
| Unamortized Impairment Losses on Investment Securities Held to Maturity | | $ | (399 | ) | | $ | (354 | ) | | $ | (1,236 | ) | | $ | (1,021 | ) | | Interest on investment securities held to maturity | |
| Unamortized Impairment Losses on Debt Securities Held to Maturity | | | $ | (229 | ) | | $ | (271 | ) | | $ | (885 | ) | | $ | (815 | ) | | Interest on debt securities held to maturity |
| | | 148 |
| | 129 |
| | 458 |
| | 373 |
| | Income tax benefit | | 54 |
| | 63 |
| | 210 |
| | 192 |
| | Income tax benefit |
| | | $ | (251 | ) | | $ | (225 | ) | | $ | (778 | ) | | $ | (648 | ) | | Net of tax | | $ | (175 | ) | | $ | (208 | ) | | $ | (675 | ) | | $ | (623 | ) | | Net of tax |
| |
(1) | Amounts in parentheses indicate debits to the Unaudited Condensed Consolidated StatementStatements of Income. |
| |
(2) | These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 19,17, Benefit Plans, in the Notes to the December 31, 2016,2018, Consolidated Financial Statements for additional details). |
(10)(11) Supplemental Disclosure for Statement of Cash Flows
The following table presents the Company’s supplemental disclosures for statement of cash flows.
| | | | Nine Months Ended September 30, | Nine Months Ended September 30, |
| | 2017 | | 2016 | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Supplemental disclosures of cash flow information: | | | | | | |
| Interest paid | $ | 331,062 |
| | $ | 339,345 |
| $ | 686,126 |
| | $ | 387,311 |
|
| Net income taxes paid | 109,460 |
| | 94,808 |
| 94,033 |
| | 121,156 |
|
| Supplemental schedule of noncash investing and financing activities: | | | | | | |
| Transfer of loans and loans held for sale to OREO | $ | 25,156 |
| | $ | 21,547 |
| $ | 25,067 |
| | $ | 17,249 |
|
| Transfer of available for sale debt securities to held to maturity debt securities | | — |
| | 1,017,275 |
|
| Transfer of loans to loans held for sale | — |
| | 764,022 |
| 1,196,883 |
| | — |
|
| Issuance of restricted stock, net of cancellations | — |
| | 1,083 |
| |
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company’s Unaudited Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Company's Unaudited Condensed Consolidated Statements of Cash Flows.
|
| | | | | | | |
| | Nine Months Ended September 30, |
| | 2019 | | 2018 |
| | (In Thousands) |
| Cash and cash equivalents | $ | 6,473,599 |
| | $ | 3,526,911 |
|
| Restricted cash in other assets | 165,584 |
| | 142,690 |
|
| Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | 6,639,183 |
| | $ | 3,669,601 |
|
Restricted cash primarily represents cash collateral related to the Company's derivatives as well as amounts restricted for regulatory purposes related to BSI and BBVA Transfer Holdings, Inc. Restricted cash is included in other assets on the Company’s Unaudited Condensed Consolidated Balance Sheets.
(1112) Segment Information
The Company’s operating segments are based on the Company’s organizational structure. Each segment reflects the manner in which financial information is evaluated by management. The operating segment results include certain overhead allocations and intercompany transactions. All intercompany transactions have been eliminated to determine the consolidated balances. The Company operates primarily in the United States, and, accordingly, revenue and assets outside the United States are not material. There are no individual customers whose attributable revenues exceeded exceed 10% of consolidated revenue.
In August 2017, the Company announced a reorganization of its line of business structure that will divide the existing Consumer and Commercial Banking segment into a retail line of business and a commercial line of business. This will change the Company's segment reporting structure during the fourth quarter of 2017.
The following tables present the segment information for the Company’s existing segments.
|
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 |
| | Consumer and Commercial Banking | | Corporate and Investment Banking | | Treasury | | Corporate Support and Other | | Consolidated |
| | (In Thousands) |
| Net interest income | $ | 526,201 |
| | $ | 43,645 |
| | $ | 648 |
| | $ | 18,867 |
| | $ | 589,361 |
|
| Allocated provision for loan losses | 110,642 |
| | (11,708 | ) | | — |
| | 4,500 |
| | 103,434 |
|
| Noninterest income | 199,589 |
| | 56,231 |
| | 4,745 |
| | (2,771 | ) | | 257,794 |
|
| Noninterest expense | 480,684 |
| | 43,496 |
| | 6,340 |
| | 43,442 |
| | 573,962 |
|
| Net income (loss) before income tax expense (benefit) | 134,464 |
| | 68,088 |
| | (947 | ) | | (31,846 | ) | | 169,759 |
|
| Income tax expense (benefit) | 47,063 |
| | 23,831 |
| | (331 | ) | | (31,255 | ) | | 39,308 |
|
| Net income | 87,401 |
| | 44,257 |
| | (616 | ) | | (591 | ) | | 130,451 |
|
| Less: net income (loss) attributable to noncontrolling interests | 176 |
| | — |
| | 414 |
| | (6 | ) | | 584 |
|
| Net income (loss) attributable to BBVA Compass Bancshares, Inc. | $ | 87,225 |
| | $ | 44,257 |
| | $ | (1,030 | ) | | $ | (585 | ) | | $ | 129,867 |
|
| Average assets | $ | 54,661,908 |
| | $ | 9,869,664 |
| | $ | 15,686,910 |
| | $ | 7,081,497 |
| | $ | 87,299,979 |
|
| | | | Three Months Ended September 30, 2016 | Three Months Ended September 30, 2019 |
| | Consumer and Commercial Banking | | Corporate and Investment Banking | | Treasury | | Corporate Support and Other | | Consolidated | Commercial Banking and Wealth | | Retail Banking | | Corporate and Investment Banking | | Treasury | | Corporate Support and Other | | Consolidated |
| | (In Thousands) | (In Thousands) |
| Net interest income (expense) | $ | 519,774 |
| | $ | 33,785 |
| | $ | (4,250 | ) | | $ | (34,500 | ) | | $ | 514,809 |
| $ | 280,377 |
| | $ | 316,978 |
| | $ | 26,647 |
| | $ | (40,912 | ) | | $ | 57,951 |
| | $ | 641,041 |
|
| Allocated provision for loan losses | 52,358 |
| | 18,208 |
| | — |
| | (5,459 | ) | | 65,107 |
| 33,653 |
| | 69,885 |
| | 13,955 |
| | 491 |
| | 22,645 |
| | 140,629 |
|
| Noninterest income | 198,967 |
| | 54,168 |
| | 7,960 |
| | 2,670 |
| | 263,765 |
| 67,001 |
| | 127,109 |
| | 58,961 |
| | 24,882 |
| | 43,366 |
| | 321,319 |
|
| Noninterest expense | 476,569 |
| | 34,939 |
| | 5,101 |
| | 39,662 |
| | 556,271 |
| 172,879 |
| | 309,074 |
| | 39,311 |
| | 5,009 |
| | 72,614 |
| | 598,887 |
|
| Net income (loss) before income tax expense (benefit) | 189,814 |
| | 34,806 |
| | (1,391 | ) | | (66,033 | ) | | 157,196 |
| 140,846 |
| | 65,128 |
| | 32,342 |
| | (21,530 | ) | | 6,058 |
| | 222,844 |
|
| Income tax expense (benefit) | 66,435 |
| | 12,182 |
| | (487 | ) | | (41,285 | ) | | 36,845 |
| 29,578 |
| | 13,677 |
| | 6,792 |
| | (4,521 | ) | | (5,627 | ) | | 39,899 |
|
| Net income (loss) | 123,379 |
| | 22,624 |
| | (904 | ) | | (24,748 | ) | | 120,351 |
| 111,268 |
| | 51,451 |
| | 25,550 |
| | (17,009 | ) | | 11,685 |
| | 182,945 |
|
| Less: net income (loss) attributable to noncontrolling interests | 107 |
| | — |
| | 420 |
| | (4 | ) | | 523 |
| |
| Net income (loss) attributable to BBVA Compass Bancshares, Inc. | $ | 123,272 |
| | $ | 22,624 |
| | $ | (1,324 | ) | | $ | (24,744 | ) | | $ | 119,828 |
| |
| Less: net income attributable to noncontrolling interests | | 87 |
| | — |
| | — |
| | 400 |
| | 27 |
| | 514 |
|
| Net income (loss) attributable to BBVA USA Bancshares, Inc. | | $ | 111,181 |
| | $ | 51,451 |
| | $ | 25,550 |
| | $ | (17,409 | ) | | $ | 11,658 |
| | $ | 182,431 |
|
| Average assets | $ | 54,398,207 |
| | $ | 13,006,089 |
| | $ | 16,462,880 |
| | $ | 7,033,163 |
| | $ | 90,900,339 |
| $ | 39,756,495 |
| | $ | 19,110,008 |
| | $ | 7,855,727 |
| | $ | 19,898,446 |
| | $ | 8,321,780 |
| | $ | 94,942,456 |
|
| | | | Nine Months Ended September 30, 2017 | Three Months Ended September 30, 2018 |
| | Consumer and Commercial Banking | | Corporate and Investment Banking | | Treasury | | Corporate Support and Other | | Consolidated | Commercial Banking and Wealth | | Retail Banking | | Corporate and Investment Banking | | Treasury | | Corporate Support and Other | | Consolidated |
| | (In Thousands) | (In Thousands) |
| Net interest income | $ | 1,561,941 |
| | $ | 117,401 |
| | $ | 22,791 |
| | $ | 24,489 |
| | $ | 1,726,622 |
| |
| Allocated provision for loan losses | 205,484 |
| | 16,311 |
| | — |
| | 7,063 |
| | 228,858 |
| |
| Net interest income (expense) | | $ | 342,790 |
| | $ | 378,064 |
| | $ | 48,591 |
| | $ | (24,882 | ) | | $ | (86,277 | ) | | $ | 658,286 |
|
| Allocated provision (credit) for loan losses | | 37,897 |
| | 61,060 |
| | (15,807 | ) | | (553 | ) | | 12,367 |
| | 94,964 |
|
| Noninterest income | 584,516 |
| | 151,166 |
| | 8,380 |
| | 4,744 |
| | 748,806 |
| 63,874 |
| | 115,821 |
| | 32,223 |
| | 5,235 |
| | 41,306 |
| | 258,459 |
|
| Noninterest expense | 1,443,457 |
| | 111,675 |
| | 18,983 |
| | 121,644 |
| | 1,695,759 |
| 173,121 |
| | 293,720 |
| | 43,379 |
| | 7,109 |
| | 88,181 |
| | 605,510 |
|
| Net income (loss) before income tax expense (benefit) | 497,516 |
| | 140,581 |
| | 12,188 |
| | (99,474 | ) | | 550,811 |
| 195,646 |
| | 139,105 |
| | 53,242 |
| | (26,203 | ) | | (145,519 | ) | | 216,271 |
|
| Income tax expense (benefit) | 174,131 |
| | 49,203 |
| | 4,266 |
| | (85,503 | ) | | 142,097 |
| 41,086 |
| | 29,212 |
| | 11,181 |
| | (5,503 | ) | | (34,220 | ) | | 41,756 |
|
| Net income (loss) | 323,385 |
| | 91,378 |
| | 7,922 |
| | (13,971 | ) | | 408,714 |
| 154,560 |
| | 109,893 |
| | 42,061 |
| | (20,700 | ) | | (111,299 | ) | | 174,515 |
|
| Less: net income (loss) attributable to noncontrolling interests | 216 |
| | — |
| | 1,250 |
| | (8 | ) | | 1,458 |
| |
| Net income (loss) attributable to BBVA Compass Bancshares, Inc. | $ | 323,169 |
| | $ | 91,378 |
| | $ | 6,672 |
| | $ | (13,963 | ) | | $ | 407,256 |
| |
| Less: net income attributable to noncontrolling interests | | 24 |
| | — |
| | — |
| | 405 |
| | (3 | ) | | 426 |
|
| Net income (loss) attributable to BBVA USA Bancshares, Inc. | | $ | 154,536 |
| | $ | 109,893 |
| | $ | 42,061 |
| | $ | (21,105 | ) | | $ | (111,296 | ) | | $ | 174,089 |
|
| Average assets | $ | 54,446,725 |
| | $ | 10,555,362 |
| | $ | 15,375,036 |
| | $ | 7,105,233 |
| | $ | 87,482,356 |
| $ | 39,016,626 |
| | $ | 18,839,497 |
| | $ | 8,311,665 |
| | $ | 16,257,647 |
| | $ | 7,693,233 |
| | $ | 90,118,668 |
|
| | | | Nine Months Ended September 30, 2016 | Nine Months Ended September 30, 2019 |
| | Consumer and Commercial Banking | | Corporate and Investment Banking | | Treasury | | Corporate Support and Other | | Consolidated | Commercial Banking and Wealth | | Retail Banking | | Corporate and Investment Banking | | Treasury | | Corporate Support and Other | | Consolidated |
| | (In Thousands) | (In Thousands) |
| Net interest income (expense) | $ | 1,536,010 |
| | $ | 122,946 |
| | $ | (26,176 | ) | | $ | (96,851 | ) | | $ | 1,535,929 |
| $ | 878,854 |
| | $ | 1,000,057 |
| | $ | 92,895 |
| | $ | (79,718 | ) | | $ | 91,791 |
| | $ | 1,983,879 |
|
| Allocated provision for loan losses | 167,559 |
| | 87,729 |
| | — |
| | 9,737 |
| | 265,025 |
| |
| Allocated provision (credit) for loan losses | | 169,770 |
| | 229,561 |
| | 39,210 |
| | (147 | ) | | 39,545 |
| | 477,939 |
|
| Noninterest income | 592,323 |
| | 146,492 |
| | 47,407 |
| | 8,994 |
| | 795,216 |
| 195,224 |
| | 363,187 |
| | 147,865 |
| | 40,027 |
| | 117,057 |
| | 863,360 |
|
| Noninterest expense | 1,423,397 |
| | 144,993 |
| | 15,289 |
| | 105,773 |
| | 1,689,452 |
| 525,797 |
| | 914,767 |
| | 118,373 |
| | 15,013 |
| | 205,224 |
| | 1,779,174 |
|
| Net income (loss) before income tax expense (benefit) | 537,377 |
| | 36,716 |
| | 5,942 |
| | (203,367 | ) | | 376,668 |
| 378,511 |
| | 218,916 |
| | 83,177 |
| | (54,557 | ) | | (35,921 | ) | | 590,126 |
|
| Income tax expense (benefit) | 188,082 |
| | 12,851 |
| | 2,079 |
| | (108,464 | ) | | 94,548 |
| 79,487 |
| | 45,972 |
| | 17,467 |
| | (11,457 | ) | | (25,455 | ) | | 106,014 |
|
| Net income (loss) | 349,295 |
| | 23,865 |
| | 3,863 |
| | (94,903 | ) | | 282,120 |
| 299,024 |
| | 172,944 |
| | 65,710 |
| | (43,100 | ) | | (10,466 | ) | | 484,112 |
|
| Less: net income (loss) attributable to noncontrolling interests | 306 |
| | — |
| | 1,271 |
| | (8 | ) | | 1,569 |
| |
| Net income (loss) attributable to BBVA Compass Bancshares, Inc. | $ | 348,989 |
| | $ | 23,865 |
| | $ | 2,592 |
| | $ | (94,895 | ) | | $ | 280,551 |
| |
| Less: net income attributable to noncontrolling interests | | 349 |
| | — |
| | — |
| | 1,207 |
| | 113 |
| | 1,669 |
|
| Net income (loss) attributable to BBVA USA Bancshares, Inc. | | $ | 298,675 |
| | $ | 172,944 |
| | $ | 65,710 |
| | $ | (44,307 | ) | | $ | (10,579 | ) | | $ | 482,443 |
|
| Average assets | $ | 54,603,369 |
| | $ | 13,879,094 |
| | $ | 16,395,875 |
| | $ | 7,000,089 |
| | $ | 91,878,427 |
| $ | 39,886,487 |
| | $ | 19,145,739 |
| | $ | 7,770,444 |
| | $ | 18,713,337 |
| | $ | 8,284,884 |
| | $ | 93,800,891 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2018 |
| | Commercial Banking and Wealth | | Retail Banking | | Corporate and Investment Banking | | Treasury | | Corporate Support and Other | | Consolidated |
| | (In Thousands) |
| Net interest income (expense) | $ | 1,003,541 |
| | $ | 1,085,582 |
| | $ | 144,509 |
| | $ | (56,237 | ) | | $ | (253,005 | ) | | $ | 1,924,390 |
|
| Allocated provision (credit) for loan losses | 75,166 |
| | 120,594 |
| | (45,630 | ) | | (1,063 | ) | | 94,206 |
| | 243,273 |
|
| Noninterest income | 188,012 |
| | 340,317 |
| | 122,204 |
| | 17,133 |
| | 118,637 |
| | 786,303 |
|
| Noninterest expense | 506,149 |
| | 871,560 |
| | 119,763 |
| | 17,912 |
| | 232,584 |
| | 1,747,968 |
|
| Net income (loss) before income tax expense (benefit) | 610,238 |
| | 433,745 |
| | 192,580 |
| | (55,953 | ) | | (461,158 | ) | | 719,452 |
|
| Income tax expense (benefit) | 128,150 |
| | 91,086 |
| | 40,442 |
| | (11,750 | ) | | (96,079 | ) | | 151,849 |
|
| Net income (loss) | 482,088 |
| | 342,659 |
| | 152,138 |
| | (44,203 | ) | | (365,079 | ) | | 567,603 |
|
| Less: net income attributable to noncontrolling interests | 282 |
| | — |
| | — |
| | 1,227 |
| | (27 | ) | | 1,482 |
|
| Net income (loss) attributable to BBVA USA Bancshares, Inc. | $ | 481,806 |
| | $ | 342,659 |
| | $ | 152,138 |
| | $ | (45,430 | ) | | $ | (365,052 | ) | | $ | 566,121 |
|
| Average assets | $ | 38,332,544 |
| | $ | 18,538,673 |
| | $ | 8,346,850 |
| | $ | 16,096,911 |
| | $ | 7,667,498 |
| | $ | 88,982,476 |
|
The financial information presented was derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Company. This information is based on internal management accounting policies that have been developed to reflect the underlying economics of the businesses. These policies address the methodologies applied and include policies related to funds transfer pricing, cost allocations and capital allocations.
Funds transfer pricing was used in the determination of net interest income earned primarily on loans and deposits. The method employed for funds transfer pricing is a matched funding concept whereby operating segmentslines of business which 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. Provision for loan losses is allocated to each segment based on internal management accounting policies for the allowance for loan losses and the related provision which differs from the policies for consolidated purposes. The difference between the consolidated provision for loan losses and the segments' provision for loan losses is reflected in Corporate Support and Other and reflects a current year revision in policy. Costs for centrally managed operations are generally allocated to the operating segmentlines of business based on the utilization of services provided or other appropriate indicators. 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. Capital is allocated to the operating segmentslines of business based upon the underlying risks in each business taking into accountconsidering economic and regulatory capital standards.
The development and application of these methodologies is a dynamic process. Accordingly, prior period financialsfinancial results have been revised to reflect management accounting enhancements and changes in the Company's organizational structure due to the transfer of certain customer relationships within its large middle market customer group from the Consumer and Commercial Banking segment to the Corporate and Investment Banking segment that occurred during the fourth quarter of 2016.structure. The 20162018 segment information has been revised to conform to the 20172019 presentation. In addition, unlike financial accounting, there is no authoritative literature for management accounting similar to U.S. GAAP. Consequently, reported results are not necessarily comparable towith those presented by other financial institutions.
(13) Revenue from Contracts with Customers
The following tables depict the disaggregation of revenue according to revenue type and segment.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Commercial Banking and Wealth | | Retail Banking | | Corporate and Investment Banking | | Treasury and Corporate Support and Other | | Total |
| | | (In Thousands) |
| Three Months Ended September 30, 2019 | | | | | | | | |
| Service charges on deposit accounts | | $ | 12,750 |
| | $ | 50,700 |
| | $ | 1,693 |
| | $ | — |
| | $ | 65,143 |
|
| Card and merchant processing fees | | 9,698 |
| | 36,806 |
| | — |
| | 3,881 |
| | 50,385 |
|
| Investment services sales fees | | 29,287 |
| | — |
| | — |
| | — |
| | 29,287 |
|
| Money transfer income | | — |
| | — |
| | — |
| | 26,020 |
| | 26,020 |
|
| Investment banking and advisory fees | | — |
| | — |
| | 28,324 |
| | — |
| | 28,324 |
|
| Asset management fees | | 11,405 |
| | — |
| | — |
| | — |
| | 11,405 |
|
| | | 63,140 |
| | 87,506 |
| | 30,017 |
| | 29,901 |
| | 210,564 |
|
| Other revenues (1) | | 3,861 |
| | 39,603 |
| | 28,944 |
| | 38,347 |
| | 110,755 |
|
| Total noninterest income | | $ | 67,001 |
| | $ | 127,109 |
| | $ | 58,961 |
| | $ | 68,248 |
| | $ | 321,319 |
|
| | | | | | | | | | | |
| Three Months Ended September 30, 2018 | | | | | | | | | | |
| Service charges on deposit accounts | | $ | 11,911 |
| | $ | 46,653 |
| | $ | 1,761 |
| | $ | — |
| | $ | 60,325 |
|
| Card and merchant processing fees | | 7,113 |
| | 33,786 |
| | — |
| | 3,320 |
| | 44,219 |
|
| Investment services sales fees | | 28,286 |
| | — |
| | — |
| | — |
| | 28,286 |
|
| Money transfer income | | — |
| | — |
| | — |
| | 23,441 |
| | 23,441 |
|
| Investment banking and advisory fees | | — |
| | — |
| | 13,956 |
| | — |
| | 13,956 |
|
| Asset management fees | | 11,143 |
| | — |
| | — |
| | — |
| | 11,143 |
|
| | | 58,453 |
| | 80,439 |
| | 15,717 |
| | 26,761 |
| | 181,370 |
|
| Other revenues (1) | | 5,421 |
| | 35,382 |
| | 16,506 |
| | 19,780 |
| | 77,089 |
|
| Total noninterest income | | $ | 63,874 |
| | $ | 115,821 |
| | $ | 32,223 |
| | $ | 46,541 |
| | $ | 258,459 |
|
| |
| (1) | Other revenues primarily relate to revenues not derived from contracts with customers. |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Commercial Banking and Wealth | | Retail Banking | | Corporate and Investment Banking | | Treasury and Corporate Support and Other | | Total |
| | | (In Thousands) |
| Nine Months Ended September 30, 2019 | | | | | | | | |
| Service charges on deposit accounts | | $ | 37,784 |
| | $ | 143,002 |
| | $ | 4,996 |
| | $ | — |
| | $ | 185,782 |
|
| Card and merchant processing fees | | 27,158 |
| | 108,302 |
| | — |
| | 11,282 |
| | 146,742 |
|
| Investment services sales fees | | 87,316 |
| | — |
| | — |
| | — |
| | 87,316 |
|
| Money transfer income | | — |
| | — |
| | — |
| | 73,273 |
| | 73,273 |
|
| Investment banking and advisory fees | | — |
| | — |
| | 67,939 |
| | — |
| | 67,939 |
|
| Asset management fees | | 34,039 |
| | — |
| | — |
| | — |
| | 34,039 |
|
| | | 186,297 |
| | 251,304 |
| | 72,935 |
| | 84,555 |
| | 595,091 |
|
| Other revenues (1) | | 8,927 |
| | 111,883 |
| | 74,930 |
| | 72,529 |
| | 268,269 |
|
| Total noninterest income | | $ | 195,224 |
| | $ | 363,187 |
| | $ | 147,865 |
| | $ | 157,084 |
| | $ | 863,360 |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2018 | | | | | | | | | | |
| Service charges on deposit accounts | | $ | 34,681 |
| | $ | 135,277 |
| | $ | 5,109 |
| | $ | — |
| | $ | 175,067 |
|
| Card and merchant processing fees | | 21,220 |
| | 97,090 |
| | — |
| | 9,635 |
| | 127,945 |
|
| Investment services sales fees | | 88,176 |
| | — |
| | — |
| | — |
| | 88,176 |
|
| Money transfer income | | — |
| | — |
| | — |
| | 68,049 |
| | 68,049 |
|
| Investment banking and advisory fees | | — |
| | — |
| | 62,398 |
| | — |
| | 62,398 |
|
| Asset management fees | | 32,902 |
| | — |
| | — |
| | — |
| | 32,902 |
|
| | | 176,979 |
| | 232,367 |
| | 67,507 |
| | 77,684 |
| | 554,537 |
|
| Other revenues (1) | | 11,033 |
| | 107,950 |
| | 54,697 |
| | 58,086 |
| | 231,766 |
|
| Total noninterest income | | $ | 188,012 |
| | $ | 340,317 |
| | $ | 122,204 |
| | $ | 135,770 |
| | $ | 786,303 |
|
| |
| (1) | Other revenues primarily relate to revenues not derived from contracts with customers. |
(12)(14) Related Party Transactions
The Company enters into various transactions with BBVA that affect the Company’s business and operations. The following discloses the significant transactions between the Company and BBVA during 20172019 and 20162018.
The Company believes all of the transactions entered into between the Company and BBVA were transacted on terms that were no more or less beneficial to the Company than similar transactions entered into with unrelated market participants, including interest rates and transaction costs. The Company foresees executing similar transactions with BBVA in the future.
Derivatives
The Company has entered into various derivative contracts as noted below with BBVA as the upstream counterparty. The total notional amount of outstanding derivative contracts between the Company and BBVA are $5.6$3.6 billion and $5.2$4.1 billion as of September 30, 20172019 and December 31, 2016,2018, respectively. The net fair value of outstanding derivative contracts between the Company and BBVA are detailed below.
| | | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| | (In Thousands) | (In Thousands) |
| Derivative contracts: | | |
| Fair value hedges | $ | (8,898 | ) | | $ | (14,225 | ) | $ | 17,447 |
| | $ | (24,839 | ) |
| Cash flow hedges | 340 |
| | (380 | ) | 51 |
| | 174 |
|
| Free-standing derivatives not designated as hedging instruments | (1,379 | ) | | (14,326 | ) | (3,968 | ) | | 23,378 |
|
Securities Purchased Under Agreements to Resell/ Securities Sold Under Agreements to Repurchase
The Company enters into agreements with BBVA as the counterparty under which it purchases/sells securities subject to an obligation to resell/repurchase the same or similar securities. The following represents the amount of securities purchased under agreement to resell and securities sold under agreement to repurchase where BBVA is the counterparty.
| | | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| | (In Thousands) | (In Thousands) |
| Securities purchased under agreements to resell | $ | — |
| | $ | 8,330 |
| $ | 77,280 |
| | $ | 109,947 |
|
| Securities sold under agreements to repurchase | 44,761 |
| | 23,397 |
| 83,967 |
| | — |
|
Borrowings
BSI, a wholly owned subsidiary of the Company, had a $420 million revolving note and cash subordination agreement with BBVA that was executed on March 16, 2012, with an original maturity date of March 16, 2018. On March 16, 2017, the agreement was amended to increase the available amount to $450 million and the maturity date was extended to March 16, 2023. On March 16, 2017, BSI also has a $150 million line of creditentered into an uncommitted demand facility agreement with BBVA that was initiated on August 1, 2014.for a revolving loan facility up to $1 billion to be used for trade settlement purposes. BSI has not drawn against this facility in 2019. At both September 30, 20172019 and December 31, 2018 there was no amount outstanding under the line of credit agreementrevolving note and $50 million outstanding at December 31, 2016. At both September 30, 2017 and December 31, 2016 there was no amount outstanding under the cash subordination agreement. InterestThere was $24 thousand in interest expense related to these agreements was $25 thousand and $1.1 million for the three months ended September 30, 20172019 and 2016, respectively,no interest expense for the three months ended September 30, 2018 and are included in interest on other short-term borrowings within the Company's Unaudited Condensed Consolidated Statements of Income. Interest expense related to these agreements was $917$50 thousand and $2.7 million$232 thousand for the nine months ended September 30, 20172019 and 2016,
2018, respectively, and are included in interest on other short-term borrowings within the Company's Unaudited Condensed Consolidated Statements of Income.
Service and Referral Agreements
The Company and its affiliates entered into or were subject to various service and referral agreements with BBVA and its affiliates. Each of the agreements was done in the ordinary course of business and on market terms. Income associated with these agreements was $13.2$10.2 million and $6.5$8.6 million for the three months ended September 30, 20172019 and 2016,2018, respectively, and is recorded as a component of noninterest income within the Company's Unaudited Condensed Consolidated Statements of Income. Expenses associated with these agreements was $8.7$9.4 million and $6.6$7.0 million for the three months ended September 30, 20172019 and 2016,2018, respectively, and is recorded as a component of noninterest expense within the Company's Unaudited Condensed Consolidated Statements of Income. Income associated with these agreements was $27.1$21.8 million and $9.3$33.9 million for the nine months ended September 30, 20172019 and 2016,2018, respectively, and is recorded as a component of noninterest income within the Company's Unaudited Condensed Consolidated Statements of Income. Expenses associated with these agreements was $21.3$26.0 million and $19.2$22.5 million for the nine months ended September 30, 20172019 and 2016,2018, respectively, and is recorded as a component of noninterest expense within the Company's Unaudited Condensed Consolidated Statements of Income.
Series A Preferred Stock
BBVA is the sole holder of the Series A Preferred Stock that the Company issued in December 2015. At both September 30, 2017,2019 and December 31, 2018, the carrying amount of the Series A Preferred Stock was approximately $229 million.$229 million. During the nine months ended September 30, 20172019 and 2016,2018, the Company paid $11.0$13.8 million and $10.1$12.7 million, respectively, of preferred stock dividends to BBVA.
Loan Sales to Related Parties
During the nine months ended September 30, 2019, the Company transferred to loans held for sale and subsequently sold $1.2 billion of commercial loans to BBVA, S.A. New York Branch. The Company recognized a gain on the sale of these loans of $778 thousand.
| |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Critical Accounting Policies
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 relatepolicy relates to (1) the allowance for loan losses, (2) fair value of financial instruments, and (3) goodwill impairment. Theselosses. This critical accounting policies requirepolicy requires 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. The Company’s significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in detail in Note 1 in the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2018. Additional disclosures regarding the effects of new accounting pronouncements are included in Note 1, Basis of Presentation, in the Notes to the Unaudited Condensed Consolidated Financial Statements, included herein.
Executive Overview
Financial Performance
Consolidated net income attributable to the Company for the three months ended September 30, 20172019 was $129.9$182.4 million compared to $119.8$174.1 million earned during the three months ended September 30, 2016.2018. The Company’s results of operations for the three months ended September 30, 2017,2019, reflected higher netnoninterest income beforeand lower noninterest expense and income tax expense primarily as a result of higher net interest incomepartially offset by lower noninterest income and the impact of higher provision for loan losses and noninterest expense.lower net interest income.
Net interest income totaled $589.4$641.0 million for the three months ended September 30, 20172019 compared to $514.8$658.3 million for the three months ended September 30, 2016.2018. Net interest income for the three months ended September 30, 2019 was impacted by higher funding costs. The net interest margin for the three months ended September 30, 20172019 was 3.13%3.07%, compared to 2.62%3.27% for the three months ended September 30, 2016. Net interest income was positively impacted by higher interest rates due to the impact of the Federal Reserve Board benchmark interest rate increases.2018.
The provision for loan losses was $103.4$140.6 million for the three months ended September 30, 20172019 compared to $65.1$95.0 million offor the three months ended September 30, 2018. The increase in provision for loan losses for the three months ended September 30, 2016. The2019 was driven by higher losses within the consumer direct loan portfolio as well as well as an increase in provision for loan losses was primarily due to $60 million of additional allowance for loan losses related to the estimated impact of Hurricanes Harvey and Irma on the loan portfolio during the three months ended September 30, 2017 offset in part by a reduction in provision expense associated with improvements in credit quality indicators in the energy portfolio during the three months ended September 30, 2017.commercial, financial and agricultural loan portfolio.
Net charge-offs for the three months ended September 30, 20172019 totaled $71.3$176.1 million which represented a $25.2 million increase compared to $46.1$79.6 million for the three months ended September 30, 2016.2018. The increase in net charge-offs for the three months ended September 30, 20172019 as compared to the corresponding period in 20162018 was primarily driven by a $5.8$56.0 million increase in commercial, financial and agricultural net charge-offs, an $8.1which includes a $40.0 million increase in commercial real estate - mortgage net charge-offs,charge-off of one health care loan, and a $5.4$35.2 million increase in consumer direct net charge-offs.
Noninterest income was $257.8 million, a decrease of $6.0 million comparedincreased to the three months ended September 30, 2016. The decrease in noninterest income was largely attributable to a $4.8 million decrease in mortgage banking, as well as a $3.9 million decrease in investment banking and advisory fees, and a $3.3 million decrease in retail investment sales offset by a $3.0 million increase in investment securities gains
Noninterest expense increased $17.7 million to $574.0$321.3 million for the three months ended September 30, 20172019 compared to $556.3$258.5 million for the three months ended September 30, 2016.2018. The primary drivers of the increase was driven byin noninterest income were a $17.0$6.2 million increase in card and merchant processing, a $2.6 million increase in money transfer income, a $14.4 million increase in investment banking and advisory fees, a $21.0 million increase in investment securities gains, and a $13.0 million increase in other noninterest income due to a $10.2 million increase in the value of the SBIC investments and a $2.7 million increase in gain on sale of fixed assets.
Noninterest expense due, in part,decreased $6.6 million to higher levels of provisions for unfunded commitments and higher levels of business development expense.
Income tax expense was $39.3$598.9 million for the three months ended September 30, 20172019 compared to $36.8$605.5 million for the three months ended September 30, 2016.2018. The decrease was driven by a $15.0 million decrease in other noninterest expense primarily attributable to a decrease in FDIC insurance expense offset by a $2.4 million increase in salaries, benefits and commissions, a $4.5 million increase in professional services, and a $1.9 million increase in money transfer expense.
Income tax expense was $39.9 million for the three months ended September 30, 2019 compared to $41.8 million for the three months ended September 30, 2018. This resulted in an effective tax rate of 23.2%17.9% for 2017the three months ended September 30, 2019 and 23.4%19.3% for 2016.three months ended September 30, 2018. The decrease in the tax rate was
primarily driven by lower net income before taxes relative to permanent income tax differences for the three months ended September 30, 2019.
The Company's total assets at September 30, 20172019 were $85.7$92.9 billion, a decreasean increase of $1.4$2.0 billion from December 31, 20162018 levels. The primary driver of the change in total assets was the $2.6 billion decrease in trading account assets due to a decrease in U.S. Treasury securities held by BSI. Total loans, excluding loans held for sale, were $60.3$63.3 billion at September 30, 2017, an increase2019, a decrease of $254 million$1.9 billion or 0.4%2.9% from year-end December 31, 20162018 levels. The increasedecrease in loans was primarily driven by increasesdue to the sale of approximately $1.2 billion in both commercial and consumer loans.loans to BBVA, S.A. New York Branch. Deposits decreased $66 millionincreased $1.4 billion or 0.1%1.9% compared to December 31, 2016.2018.
Total shareholder's equity at September 30, 20172019 was $13.1$14.1 billion, an increase of $365$589 million compared to December 31, 2016.2018.
Capital and Regulatory
Under the Basel III transitional provisions, the Company's Tier1 and CET1 ratios were 12.42%13.24% and 12.07%12.89%, respectively, at September 30, 20172019 compared to 11.85%12.33% and 11.49%12.00%, respectively, at December 31, 2016.2018.
On August 1, 2017,In October 2019, the federal banking agencies issued final rules that adjust the thresholds at which certain enhanced prudential standards and BASEL III capital and liquidity requirements apply to FBOs, including BBVA, received notificationand the U.S. IHCs of FBOs, including the Parent, pursuant to EGRRCPA. These rules establish risk-based categories for FBOs and their U.S. IHCs that determine whether and to what extent enhanced prudential standards and certain capital and liquidity requirements apply to FBOs and their U.S. IHCs. Once these rules are effective, BBVA and the Parent will be subject to less restrictive enhanced prudential standards and capital and liquidity requirements than under current regulations. In addition, in October 2019 the Federal Reserve Board determinedand the FDIC issued a final rule that reduces or eliminates resolution planning requirements for institutions that fall into certain risk-based categories. Once this rule is effective, BBVA, the Company and the Bank will be subject to reduced resolution planning requirements. The Company is currently evaluating what effect these final rules will have on the Company, its subsidiaries, or these entities' activities, reporting of financial condition and/or results of operations.
In August and September 2019, the five regulatory agencies charged with implementing the Volcker Rule released final amendments to the Volcker Rule regulations that tailor the Volcker Rule's compliance requirements to the amount of a firm's trading activity, revise the definition of a trading account, clarify certain key provisions in the Volcker Rule, and simplify the information that covered entities are required to provide to regulatory agencies. The Company is of the view that the election by BBVAimpact of the Volcker Rule and the amendments to become an FHC was effective as of August 1, 2017.the Volcker Rule is not material to its business operations.
Liquidity
The Company’s sources of liquidity include customers’ interest-bearing and noninterest-bearing deposit accounts, loan principal and interest payments, investment securities, short-term investments and borrowings. As a holding company, the Parent’s primary source of liquidity is dividends from the Bank. Due to the net earnings restrictions on dividend distributions under Alabama law, the Bank must obtain regulatory approval prior to paying any dividends.
During 2017, the Parent paid common dividends of $60.0 million to its sole shareholder, BBVA. Any dividends paid by the Parent must be set forth as capital actions in the Company's capital plan and not objected to by the Federal Reserve Board.
The Federal Reserve Board will no longer take action to require the Company to comply with the Federal Reserve Board’s LCR rule until it formally amends its regulations to implement the EGRRCPA. In October 2019, the Federal Reserve Board finalized a rule formally amending its regulations to no longer require the Company to comply with the LCR rule once the amendment becomes effective. At September 30, 2017,2019, the CompanyCompany's LCR was 144% and was fully compliant with the liquidity coverage ratio rule. LCR requirements.
Management believes that the current sources of liquidity are adequate to meet the Company’s requirements and plans for continued growth.
Impact of Hurricanes Harvey and Irma
During the third quarter of 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 September 30, 2017, the Company has identified approximately $11.9 billion of outstanding loans, consisting of approximately $5.9 billion of consumer loans and $6.0 billion of commercial loans, in the most significantly impacted areas. As part of its ongoing 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. At September 30, 2017 based on this initial evaluation, the Company has recorded approximately $60 million in additional allowance for loan losses related to its best estimate of hurricane-related losses in this portion of its loan portfolio.
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 September 30, 2017, the Company has recognized approximately $2.2 million in expenses related to property damage not covered by insurance.
Additionally, for the three months ended September 30, 2017, the Company has recognized approximately $1.5 million of expense associated with relief efforts and commitments made to employees and other charitable organizations.
Analysis of Results of Operations
Consolidated net income attributable to the Company totaled $129.9$182.4 million and $119.8$174.1 million for the three months ended September 30, 20172019 and 2016,2018, respectively. The Company’s results of operations for the three months ended September 30, 2017,2019, reflected higher netnoninterest income beforeand lower noninterest expense and income tax expense primarily as a result of higher net interest income offset by lower noninterest income and the impact of higher provision for loan losses and noninterest expense.lower net interest income.
Consolidated net income attributable to the Company totaled $407.3$482.4 million and $280.6$566.1 million for the nine months ended September 30, 20172019 and 2016,2018, respectively. The Company’s results of operations for the nine months ended September 30, 2017,2019, reflected higher net income before income tax expense primarily as a result of higher net interest income and noninterest income and lower income tax expense offset by higher provision for loan losses and noninterest expense.
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.
Three Months Ended September 30, 20172019 and 20162018
Net interest income totaled $589.4$641.0 million for the three months ended September 30, 20172019 compared to $514.8$658.3 million for the three months ended September 30, 2016.2018.
Net interest income on a fully taxable equivalent basis totaled $611.3$653.9 million for the three months ended September 30, 2017, an increase2019, a decrease of $76.6$17.5 million compared with $534.7$671.4 million for the three months ended September 30, 2016.2018. The increasedecrease in net interest income was primarily the result of an increase in interest expense on interest bearing deposits offset by increases in interest income on loans and investment securities as well as a decrease in interest expense on other short-term borrowings.securities.
Net interest margin was 3.13%3.07% for the three months ended September 30, 20172019 compared to 2.62%3.27% for the three months ended September 30, 2016.2018. The 5120 basis point increasedecrease in net interest margin was primarily driven by the impact of higher interest rates.funding costs.
The fully taxable equivalent yield for the three months ended September 30, 2017, for2019, on the loan portfolio was 4.23%4.88% compared to 3.74%4.71% for the same period in 2016.2018. The 4917 basis point increase was primarily driven by the impacttiming of higher interest rates.the Federal Reserve Board's increase of benchmark rates in September and December of 2018 compared to the lowering of the benchmark rates in July and September of 2019.
The fully taxable equivalent yield on the investment securities portfolio was 1.89%2.20% for the three months ended September 30, 20172019 compared to 1.83%2.04% for the three months ended September 30, 2016.2018. The 6 basis point increase was a result of increases in interest rates. Additionally, ashigher interest rates have increasedduring the amountthree months ended September 30, 2019 as compared to rates during the three months ended September 30, 2018 partially offset by higher levels of premium amortization required has decreased as actual and expected prepayments have decreased.
The yield on trading account securities increased to 1.77% for the three months ended September 30, 2017 compared to 1.41% for the three months ended September 30, 2016, primarily due to the impact of higher interest rates.
The average rate paid on interest bearing deposits was 0.67%1.55% for the three months ended September 30, 20172019 compared to 0.64%1.12% for the three months ended September 30, 2016.2018 and reflects the impact of higher funding costs on interest bearing deposit offerings including savings, money market and CD products.
The average rate paid on FHLB and other borrowings for the three months ended September 30, 20172019 was 2.35%3.39% compared to 3.34% for the corresponding period in 2018.
Nine Months Ended September 30, 2019 and 2018
Net interest income totaled $2.0 billion for the nine months ended September 30, 2019 compared to $1.9 billion for the nine months ended September 30, 2018.
Net interest income on a fully taxable equivalent basis totaled $2.0 billion for both the nine months ended September 30, 2019 and the nine months ended September 30, 2018.
Net interest margin was 3.24% for the nine months ended September 30, 2019 compared to 3.28% for the nine months ended September 30, 2018. The 4 basis point decrease in net interest margin was primarily driven by the impact of higher funding costs.
The fully taxable equivalent yield for the nine months ended September 30, 2019, for the loan portfolio was 4.97% compared to 4.57% for the same period in 2018. The 40 basis point increase was primarily driven by the impact of higher interest rates during the first half of 2019 as the Federal Reserve Board did not lower benchmark rates until July and September of 2019.
The fully taxable equivalent yield on the investment securities portfolio was 2.32% for the nine months ended September 30, 2019 compared to 2.06% for the nine months ended September 30, 2018. The 26 basis point increase was a result of higher interest rates for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.
The average rate paid on interest bearing deposits was 1.51% for the nine months ended September 30, 2019 compared to 0.97% for the nine months ended September 30, 2018 and reflects the impact of higher interest rates offered on savings and money market products.
The average rate paid on FHLB and other borrowings for the nine months ended September 30, 2019 was 3.46% compared to 3.21% for the corresponding period in 2016.2018. The 2925 basis point increase was primarily driven by the impact of higher rate FHLB advances as well as the impact of the $750$600 million issuance of unsecured senior notes in June 2017.
The average rate paid on other short-term borrowings for the three months ended September 30, 2017 decreased to 1.04% compared to 1.43% for the three months ended September 30, 2016, due primarily to the impact of the decrease in the average balance of other short-term borrowings.
Nine Months Ended September 30, 2017 and 2016
Net interest income totaled $1.7 billion for the nine months ended September 30, 2017 compared to $1.5 billion for the nine months ended September 30, 2016.
Net interest income on a fully taxable equivalent basis totaled $1.8 billion for the nine months ended September 30, 2017 compared with $1.6 billion for the nine months ended September 30, 2016. The increase 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.
Net interest margin was 3.07% for the nine months ended September 30, 2017 compared to 2.60% for the nine months ended September 30, 2016. The 47 basis point increase in net interest margin was primarily driven by the impact of higher interest rates.
The fully taxable equivalent yield for the nine months ended September 30, 2017, for the loan portfolio was 4.13% compared to 3.73% for the same period in 2016. The 40 basis point increase was primarily driven by the impact of higher interest rates.
The fully taxable equivalent yield on the investment securities portfolio was 1.96% for the nine months ended September 30, 2017 compared to 1.71% for the nine months ended September 30, 2016. The 25 basis point increase was a result of increases in interest rates. Additionally, as interest rates have increased the amount of premium amortization required has decreased as actual and expected prepayments have decreased.
The yield on trading account securities increased to 1.58% for the nine months ended September 30, 2017 compared to 1.43% for the nine months ended September 30, 2016 primarily due to the impact of higher interest rates.
The average rate paid on interest bearing deposits was 0.62% for the nine months ended September 30, 2017 compared to 0.65% for the nine months ended September 30, 2016.
The average rate paid on FHLB and other borrowings for the nine months ended September 30, 2017, was 2.32% compared to 1.73% for the corresponding period in 2016. The 59 basis point increase was primarily driven by the impact of interest rate contracts hedging FHLB and other borrowings.
The average rate paid on other short-term borrowings for the nine months ended September 30, 2017 increased to 1.45% compared to 1.41% for the nine months ended September 30, 2016.August 2019.
The following table sets forth the major components of net interest income and the related annualized yields and rates.
Table 1 Consolidated Average Balance and Yield/ Rate Analysis | Table 1 Consolidated Average Balance and Yield/ Rate Analysis | Table 1 Consolidated Average Balance and Yield/ Rate Analysis |
| | | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2018 |
| | Average Balance | | Income/Expense | | Yield/ Rate | | Average Balance | | Income/ Expense | | Yield/Rate | Average Balance | | Income/Expense | | Yield/ Rate | | Average Balance | | Income/ Expense | | Yield/Rate |
| | (Dollars in Thousands) | (Dollars in Thousands) |
| Assets: | | | | | | | | | | | | | | | | | | | | | | |
| Interest earning assets: | | | | | | | | | | | | | | | | | | | | | | |
| Loans (1) (2) (3) | $ | 60,271,504 |
| | $ | 642,670 |
| | 4.23 | % | | $ | 61,060,433 |
| | $ | 574,748 |
| | 3.74 | % | $ | 63,629,992 |
| | $ | 782,948 |
| | 4.88 | % | | $ | 64,316,342 |
| | $ | 763,165 |
| | 4.71 | % |
Investment securities – AFS (tax exempt) (3) | 1,399 |
| | 24 |
| | 6.81 |
| | 9,569 |
| | 195 |
| | 8.11 |
| |
| Investment securities – AFS (taxable) | 12,315,872 |
| | 53,915 |
| | 1.74 |
| | 11,363,752 |
| | 48,255 |
| | 1.69 |
| |
| Total investment securities – AFS | 12,317,271 |
| | 53,939 |
| | 1.74 |
| | 11,373,321 |
| | 48,450 |
| | 1.69 |
| |
| Investment securities – HTM (tax exempt) (3) | 963,089 |
| | 8,867 |
| | 3.65 |
| | 1,059,610 |
| | 8,672 |
| | 3.26 |
| |
| Investment securities – HTM (taxable) | 159,804 |
| | 1,221 |
| | 3.03 |
| | 189,672 |
| | 1,029 |
| | 2.16 |
| |
| Total investment securities - HTM | 1,122,893 |
| | 10,088 |
| | 3.56 |
| | 1,249,282 |
| | 9,701 |
| | 3.09 |
| |
| Debt securities – AFS | | 7,987,642 |
| | 36,051 |
| | 1.79 |
| | 11,416,609 |
| | 53,201 |
| | 1.85 |
|
| Debt securities – HTM (tax exempt) (3) | | 620,542 |
| | 5,674 |
| | 3.63 |
| | 755,150 |
| | 6,885 |
| | 3.62 |
|
| Debt securities – HTM (taxable) | | 5,117,184 |
| | 34,401 |
| | 2.67 |
| | 1,605,504 |
| | 10,663 |
| | 2.63 |
|
| Total debt securities - HTM | | 5,737,726 |
| | 40,075 |
| | 2.77 |
| | 2,360,654 |
| | 17,548 |
| | 2.95 |
|
| Trading account securities (3) | 1,396,429 |
| | 6,247 |
| | 1.77 |
| | 3,637,782 |
| | 12,927 |
| | 1.41 |
| 125,468 |
| | 487 |
| | 1.54 |
| | 122,919 |
| | 833 |
| | 2.69 |
|
| Other (4) (5) (6) | 2,313,287 |
| | 11,557 |
| | 1.98 |
| | 3,718,225 |
| | 4,563 |
| | 0.49 |
| |
| Other (4) (5) | | 7,057,288 |
| | 46,528 |
| | 2.62 |
| | 3,175,714 |
| | 17,449 |
| | 2.18 |
|
| Total earning assets | 77,421,384 |
| | 724,501 |
| | 3.71 |
| | 81,039,043 |
| | 650,389 |
| | 3.19 |
| 84,538,116 |
| | 906,089 |
| | 4.25 |
| | 81,392,238 |
| | 852,196 |
| | 4.15 |
|
| Noninterest earning assets: | | | | | | | | | | | | | | | | | | | | | | |
| Cash and due from banks (6) | 1,038,203 |
| | | | | | 1,301,649 |
| | | | | |
| Cash and due from banks | | 822,866 |
| | | | | | 510,217 |
| | | | |
| Allowance for loan losses | (821,227 | ) | | | | | | (848,067 | ) | | | | | (971,396 | ) | | | | | | (866,131 | ) | | | | |
| Net unrealized (loss) gain on investment securities available for sale | (76,457 | ) | | | | | | 25,595 |
| | | | | (9,389 | ) | | | | | | (296,537 | ) | | | | |
| Other noninterest earning assets | 9,738,076 |
| | | | | | 9,382,119 |
| | | | | 10,562,259 |
| | | | | | 9,378,881 |
| | | | |
| Total assets | $ | 87,299,979 |
| | | | | | $ | 90,900,339 |
| | | | | $ | 94,942,456 |
| | | | | | $ | 90,118,668 |
| | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | |
| Interest bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | |
| Interest bearing demand deposits | $ | 7,557,010 |
| | 6,819 |
| | 0.36 |
| | $ | 6,824,519 |
| | 4,077 |
| | 0.24 |
| $ | 8,870,753 |
| | 25,179 |
| | 1.13 |
| | $ | 7,703,562 |
| | 12,644 |
| | 0.65 |
|
| Savings and money market accounts | 24,551,131 |
| | 27,962 |
| | 0.45 |
| | 25,663,079 |
| | 24,395 |
| | 0.38 |
| 28,840,389 |
| | 96,060 |
| | 1.32 |
| | 26,759,661 |
| | 63,796 |
| | 0.95 |
|
| Certificates and other time deposits | 12,408,794 |
| | 40,302 |
| | 1.29 |
| | 14,670,360 |
| | 47,507 |
| | 1.29 |
| 14,529,036 |
| | 82,740 |
| | 2.26 |
| | 14,909,612 |
| | 63,458 |
| | 1.69 |
|
| Foreign office deposits | — |
| | — |
| | — |
| | 106,219 |
| | 52 |
| | 0.19 |
| |
| Total interest bearing deposits | 44,516,935 |
| | 75,083 |
| | 0.67 |
| | 47,264,177 |
| | 76,031 |
| | 0.64 |
| 52,240,178 |
| | 203,979 |
| | 1.55 |
| | 49,372,835 |
| | 139,898 |
| | 1.12 |
|
| FHLB and other borrowings | 5,053,340 |
| | 29,904 |
| | 2.35 |
| | 4,121,742 |
| | 21,315 |
| | 2.06 |
| 3,860,727 |
| | 32,975 |
| | 3.39 |
| | 4,412,717 |
| | 37,131 |
| | 3.34 |
|
| Federal funds purchased and securities sold under agreements to repurchase (5) | 52,034 |
| | 4,623 |
| | 35.25 |
| | 232,451 |
| | 4,934 |
| | 8.44 |
| 1,401,320 |
| | 15,137 |
| | 4.29 |
| | 172,277 |
| | 3,169 |
| | 7.30 |
|
| Other short-term borrowings | 1,386,329 |
| | 3,641 |
| | 1.04 |
| | 3,737,212 |
| | 13,453 |
| | 1.43 |
| 13,348 |
| | 72 |
| | 2.14 |
| | 77,413 |
| | 579 |
| | 2.97 |
|
| Total interest bearing liabilities | 51,008,638 |
| | 113,251 |
| | 0.88 |
| | 55,355,582 |
| | 115,733 |
| | 0.83 |
| 57,515,573 |
| | 252,163 |
| | 1.74 |
| | 54,035,242 |
| | 180,777 |
| | 1.33 |
|
| Noninterest bearing deposits | 21,072,789 |
| | | | | | 20,715,562 |
| | | | | 20,754,143 |
| | | | | | 20,990,763 |
| | | | |
| Other noninterest bearing liabilities | 2,087,637 |
| | | | | | 2,018,455 |
| | | | | 2,615,801 |
| | | | | | 1,758,494 |
| | | | |
| Total liabilities | 74,169,064 |
| | | | | | 78,089,599 |
| | | | | 80,885,517 |
| | | | | | 76,784,499 |
| | | | |
| Shareholder’s equity | 13,130,915 |
| | | | | | 12,810,740 |
| | | | | 14,056,939 |
| | | | | | 13,334,169 |
| | | | |
| Total liabilities and shareholder’s equity | $ | 87,299,979 |
| | | | | | $ | 90,900,339 |
| | | | | $ | 94,942,456 |
| | | | | | $ | 90,118,668 |
| | | | |
| Net interest income/net interest spread | | | $ | 611,250 |
| | 2.83 | % | | | | $ | 534,656 |
| | 2.36 | % | | | $ | 653,926 |
| | 2.51 | % | | | | $ | 671,419 |
| | 2.82 | % |
| Net interest margin | | | | | 3.13 | % | | | | | | 2.62 | % | | | | | 3.07 | % | | | | | | 3.27 | % |
| Taxable equivalent adjustment | | | 21,889 |
| | | | | | 19,847 |
| | | | | 12,885 |
| | | | | | 13,133 |
| | |
| Net interest income | | | $ | 589,361 |
| | | | | | $ | 514,809 |
| | | | | $ | 641,041 |
| | | | | | $ | 658,286 |
| | |
| |
(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, and other earning assets. |
| |
| (5) | Yield/rate reflects impact of balance sheet offsetting. See Note 6, Securities Financing Activities, in the notes to the financial statements. |
| |
(6) | Beginning in the fourth quarter of 2016, interest bearing deposits with the Federal Reserve are included in earning assets. Previous to this change, these balances were included as noninterest earning assets within cash and due from banks. Prior periods have been reclassified to conform to current period presentation. |
Table 1 Consolidated Average Balance and Yield/ Rate Analysis | Table 1 Consolidated Average Balance and Yield/ Rate Analysis | Table 1 Consolidated Average Balance and Yield/ Rate Analysis |
| | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 | Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2018 |
| | Average Balance | | Income/Expense | | Yield/ Rate | | Average Balance | | Income/ Expense | | Yield/Rate | Average Balance | | Income/Expense | | Yield/ Rate | | Average Balance | | Income/ Expense | | Yield/Rate |
| | (Dollars in Thousands) | (Dollars in Thousands) |
| Assets: | | | | | | | | | | | | | | | | | | | | | | |
| Interest earning assets: | | | | | | | | | | | | | | | | | | | | | | |
| Loans (1) (2) (3) | $ | 60,166,823 |
| | $ | 1,859,740 |
| | 4.13 | % | | $ | 61,867,590 |
| | $ | 1,727,822 |
| | 3.73 | % | $ | 64,382,982 |
| | $ | 2,395,043 |
| | 4.97 | % | | $ | 63,247,623 |
| | $ | 2,160,341 |
| | 4.57 | % |
Investment securities – AFS (tax exempt) (3) | 4,014 |
| | 243 |
| | 8.09 |
| | 11,483 |
| | 668 |
| | 7.77 |
| |
| Investment securities – AFS (taxable) | 12,078,924 |
| | 164,240 |
| | 1.82 |
| | 11,246,517 |
| | 130,585 |
| | 1.55 |
| |
| Total investment securities – AFS | 12,082,938 |
| | 164,483 |
| | 1.82 |
| | 11,258,000 |
| | 131,253 |
| | 1.56 |
| |
| Investment securities – HTM (tax exempt) (3) | 974,886 |
| | 26,264 |
| | 3.60 |
| | 1,070,547 |
| | 25,977 |
| | 3.24 |
| |
| Investment securities – HTM (taxable) | 167,008 |
| | 3,356 |
| | 2.69 |
| | 198,614 |
| | 3,316 |
| | 2.23 |
| |
| Total investment securities - HTM | 1,141,894 |
| | 29,620 |
| | 3.47 |
| | 1,269,161 |
| | 29,293 |
| | 3.08 |
| |
| Debt securities – AFS | | 8,957,354 |
| | 134,698 |
| | 2.01 |
| | 11,458,832 |
| | 163,598 |
| | 1.91 |
|
| Debt securities – HTM (tax exempt) (3) | | 636,007 |
| | 17,268 |
| | 3.63 |
| | 814,394 |
| | 20,921 |
| | 3.43 |
|
| Debt securities – HTM (taxable) | | 4,209,100 |
| | 88,030 |
| | 2.80 |
| | 1,335,534 |
| | 25,050 |
| | 2.51 |
|
| Total debt securities - HTM | | 4,845,107 |
| | 105,298 |
| | 2.91 |
| | 2,149,928 |
| | 45,971 |
| | 2.86 |
|
| Trading account securities (3) | 2,235,621 |
| | 26,352 |
| | 1.58 |
| | 3,786,156 |
| | 40,661 |
| | 1.43 |
| 96,936 |
| | 1,627 |
| | 2.24 |
| | 131,618 |
| | 2,508 |
| | 2.55 |
|
| Other (4) (5) (6) | 2,402,511 |
| | 32,868 |
| | 1.83 |
| | 3,849,093 |
| | 13,275 |
| | 0.46 |
| |
| Other (4) (5) | | 5,219,171 |
| | 105,319 |
| | 2.70 |
| | 3,042,505 |
| | 44,240 |
| | 1.94 |
|
| Total earning assets | 78,029,787 |
| | 2,113,063 |
| | 3.62 |
| | 82,030,000 |
| | 1,942,304 |
| | 3.16 |
| 83,501,550 |
| | 2,741,985 |
| | 4.39 |
| | 80,030,506 |
| | 2,416,658 |
| | 4.04 |
|
| Noninterest earning assets: | | | | | | | | | | | | | | | | | | | | | | |
| Cash and due from banks (6) | 918,124 |
| | | | | | 1,274,687 |
| | | | | |
| Cash and due from banks | | 979,764 |
| | | | | | 605,800 |
| | | | |
| Allowance for loan losses | (835,915 | ) | | | | | | (823,372 | ) | | | | | (952,170 | ) | | | | | | (850,392 | ) | | | | |
| Net unrealized (loss) gain on investment securities available for sale | (102,461 | ) | | | | | | 15,061 |
| | | | | (99,388 | ) | | | | | | (272,312 | ) | | | | |
| Other noninterest earning assets | 9,472,821 |
| | | | | | 9,382,051 |
| | | | | 10,371,135 |
| | | | | | 9,468,874 |
| | | | |
| Total assets | $ | 87,482,356 |
| | | | | | $ | 91,878,427 |
| | | | | $ | 93,800,891 |
| | | | | | $ | 88,982,476 |
| | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | |
| Interest bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | |
| Interest bearing demand deposits | $ | 7,863,401 |
| | 19,211 |
| | 0.33 |
| | $ | 6,912,147 |
| | 11,867 |
| | 0.23 |
| $ | 8,954,456 |
| | 72,061 |
| | 1.08 |
| | $ | 7,946,242 |
| | 33,250 |
| | 0.56 |
|
| Savings and money market accounts | 24,826,554 |
| | 72,643 |
| | 0.39 |
| | 25,861,764 |
| | 75,896 |
| | 0.39 |
| 27,906,692 |
| | 261,172 |
| | 1.25 |
| | 26,054,348 |
| | 151,479 |
| | 0.78 |
|
| Certificates and other time deposits | 12,554,506 |
| | 119,447 |
| | 1.27 |
| | 14,652,400 |
| | 142,856 |
| | 1.30 |
| 15,360,243 |
| | 255,578 |
| | 2.22 |
| | 14,560,787 |
| | 168,839 |
| | 1.55 |
|
| Foreign office deposits | — |
| | — |
| | — |
| | 108,444 |
| | 160 |
| | 0.20 |
| |
| Total interest bearing deposits | 45,244,461 |
| | 211,301 |
| | 0.62 |
| | 47,534,755 |
| | 230,779 |
| | 0.65 |
| 52,221,391 |
| | 588,811 |
| | 1.51 |
| | 48,561,377 |
| | 353,568 |
| | 0.97 |
|
| FHLB and other borrowings | 4,115,511 |
| | 71,422 |
| | 2.32 |
| | 4,543,350 |
| | 58,919 |
| | 1.73 |
| 4,057,769 |
| | 104,901 |
| | 3.46 |
| | 3,903,295 |
| | 93,799 |
| | 3.21 |
|
| Federal funds purchased and securities sold under agreements to repurchase (5) | 64,676 |
| | 16,462 |
| | 34.03 |
| | 569,772 |
| | 16,525 |
| | 3.87 |
| 763,681 |
| | 24,886 |
| | 4.36 |
| | 100,045 |
| | 5,104 |
| | 6.82 |
|
| Other short-term borrowings | 2,239,427 |
| | 24,233 |
| | 1.45 |
| | 3,912,069 |
| | 41,281 |
| | 1.41 |
| 16,235 |
| | 368 |
| | 3.03 |
| | 69,242 |
| | 1,490 |
| | 2.88 |
|
| Total interest bearing liabilities | 51,664,075 |
| | 323,418 |
| | 0.84 |
| | 56,559,946 |
| | 347,504 |
| | 0.82 |
| 57,059,076 |
| | 718,966 |
| | 1.68 |
| | 52,633,959 |
| | 453,961 |
| | 1.15 |
|
| Noninterest bearing deposits | 20,922,150 |
| | | | | | 20,432,380 |
| | | | | 20,409,910 |
| | | | | | 21,282,629 |
| | | | |
| Other noninterest bearing liabilities | 1,899,015 |
| | | | | | 2,122,640 |
| | | | | 2,503,845 |
| | | | | | 1,850,856 |
| | | | |
| Total liabilities | 74,485,240 |
| | | | | | 79,114,966 |
| | | | | 79,972,831 |
| | | | | | 75,767,444 |
| | | | |
| Shareholder’s equity | 12,997,116 |
| | | | | | 12,763,461 |
| | | | | 13,828,060 |
| | | | | | 13,215,032 |
| | | | |
| Total liabilities and shareholder’s equity | $ | 87,482,356 |
| | | | | | $ | 91,878,427 |
| | | | | $ | 93,800,891 |
| | | | | | $ | 88,982,476 |
| | | | |
| Net interest income/net interest spread | | | $ | 1,789,645 |
| | 2.78 | % | | | | $ | 1,594,800 |
| | 2.34 | % | | | $ | 2,023,019 |
| | 2.71 | % | | | | $ | 1,962,697 |
| | 2.89 | % |
| Net interest margin | | | | | 3.07 | % | | | | | | 2.60 | % | | | | | 3.24 | % | | | | | | 3.28 | % |
| Taxable equivalent adjustment | | | 63,023 |
| | | | | | 58,871 |
| | | | | 39,140 |
| | | | | | 38,307 |
| | |
| Net interest income | | | $ | 1,726,622 |
| | | | | | $ | 1,535,929 |
| | | | | $ | 1,983,879 |
| | | | | | $ | 1,924,390 |
| | |
| |
| (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, and other earning assets. |
| |
| (5) | Yield/rate reflects impact of balance sheet offsetting. See Note 6, Securities Financing Activities, in the notes to the financial statements. |
| |
(6) | Beginning in the fourth quarter of 2016, interest bearing deposits with the Federal Reserve are included in earning assets. Previous to this change, these balances were included as noninterest earning assets within cash and due from banks. Prior periods have been reclassified to conform to current period presentation. |
Provision for Loan Losses
The provision for loan losses is the charge to earnings that management determines to be necessary to maintain the allowance for loan losses at a sufficient level reflecting management's estimate of probable incurred losses in the loan portfolio.
Three Months Ended September 30, 20172019 and 20162018
For the three months ended September 30, 2017,2019, the Company recorded $103.4$140.6 million of provision for loan losses compared to $65.1$95.0 million offor the three months ended September 30, 2018. The increase in provision for loan losses for the three months ended September 30, 2016. The2019 was primarily attributable to higher losses within the consumer direct loan portfolio as well as an increase in provision for loan losses was primarily due to $60 million of additional allowance for loan losses related toin the estimated impact of Hurricanes Harveycommercial, financial and Irma on theagricultural loan portfolio during the three months ended September 30, 2017 offset in part by a reduction in provision expense associated with improvements in credit quality indicators in the energy portfolio during the three months ended September 30, 2017.2019.
The Company recorded net charge-offs of $71.3$176.1 million during the three months ended September 30, 20172019 compared to $46.1$79.6 million during the corresponding period in 2016.2018. The increase in net charge-offs for the three months ended September 30, 20172019, as compared to the corresponding period in 20162018, was primarily driven in part by an $8.1 million increase in commercial real estate-mortgage net charge-offs, a $5.8$56.0 million increase in commercial, financial and agricultural net charge-offs, which includes a $40.0 million charge-off of one health care loan, and a $5.4$35.2 million increase in consumer direct net charge-offs. Included in net-charge-offs for the three months ended September 30, 2017 was $127 thousand of net charge-offs related to energy loans compared to $8.5 million of charge-offs related to energy loans for the three months ended September 30, 2016.
Net charge-offs were 0.47% (or 0.49% excluding net charge-offs on energy loans)1.10% of average loans for the three months ended September 30, 20172019 compared to 0.30% (or 0.26% excluding net charge-offs on energy loans)0.49% of average loans for the three months ended September 30, 2016.
Nine Months Ended September 30, 2017 and 2016
For the nine months ended September 30, 2017, the Company recorded $228.9 million of provision for loan losses compared to $265.0 million of provision for loan losses for the nine months ended September 30, 2016. The decrease in provision for loan losses was primarily due to improvements in credit quality indicators in the energy portfolio during the nine months ended September 30, 2017, when compared to the negative credit quality indicators stemming from downgrades in the energy portfolio that occurred during the nine months ended September 30, 2016 offset by the impact of $60 million of additional allowance for loan losses related to the estimated impact of Hurricanes Harvey and Irma on the loan portfolio during the nine months ended September 30, 2017.
The Company recorded net charge-offs of $218.0 million during the nine months ended September 30, 2017 compared to $165.6 million during the corresponding period in 2016. The increase in net charge-offs for the nine months ended September 30, 2017 as compared to the corresponding period in 2016 was driven, in part, by a $15.4 million increase in commercial, financial and agricultural net charge-offs as well as a $20.5 million increase in consumer direct net charge-offs. Included in net-charge-offs for the nine months ended September 30, 2017 was $56.7 million of net charge-offs related to energy loans compared to $49.4 million of charge-offs related to energy loans for the nine months ended September 30, 2016. Net charge-offs were 0.48% (or 0.38% excluding net charge-offs on energy loans) of average loans for the nine months ended September 30, 2017 compared to 0.36% (or 0.27% excluding net charge-offs on energy loans) of average loans for the nine months ended September 30, 2016.2018.
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 3, Loans and Allowance for Loan Losses, in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional disclosures.
Nine Months Ended September 30, 2019 and 2018
For the nine months ended September 30, 2019, the Company recorded $477.9 million of provision for loan losses compared to $243.3 million for the nine months ended September 30, 2018. The increase in provision for loan losses was primarily attributable to higher losses within the consumer direct loan portfolio as well as an increase in the allowance on individually evaluated nonperforming loans in the commercial, financial and agricultural loan portfolio during the nine months ended September 30, 2019.
The Company recorded net charge-offs of $421.0 million during the nine months ended September 30, 2019 compared to $210.6 million during the corresponding period in 2018. The increase in net charge-offs for the nine months ended September 30, 2019 as compared to the corresponding period in 2018 was driven in part by an $87.7 million increase in commercial, financial and agricultural net charge-offs as well as a $91.0 million increase in consumer direct net charge-offs and an $11.0 million increase in consumer indirect net charge-offs.
Net charge-offs were 0.88% of average loans for the nine months ended September 30, 2019 compared to 0.45% of average loans for the nine months ended September 30, 2018.
Noninterest Income
The following table presents the components of noninterest income.
Table 2 Noninterest Income | Table 2 Noninterest Income | Table 2 Noninterest Income |
| | | Three Months Ended September 30, | | Nine Months Ended
September 30, | Three Months Ended September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Service charges on deposit accounts | $ | 55,953 |
| | $ | 55,047 |
| | $ | 166,040 |
| | $ | 158,393 |
| $ | 65,143 |
| | $ | 60,325 |
| | $ | 185,782 |
| | $ | 175,067 |
|
| Card and merchant processing fees | 32,297 |
| | 31,256 |
| | 94,749 |
| | 92,507 |
| 50,385 |
| | 44,219 |
| | 146,742 |
| | 127,945 |
|
| Retail investment sales | 26,817 |
| | 30,137 |
| | 82,876 |
| | 79,689 |
| |
| Investment services sales fees | | 29,287 |
| | 28,286 |
| | 87,316 |
| | 88,176 |
|
| Money transfer income | | 26,020 |
| | 23,441 |
| | 73,273 |
| | 68,049 |
|
| Investment banking and advisory fees | 30,500 |
| | 34,385 |
| | 78,744 |
| | 86,324 |
| 28,324 |
| | 13,956 |
| | 67,939 |
| | 62,398 |
|
| Money transfer income | 24,881 |
| | 25,058 |
| | 77,408 |
| | 75,960 |
| |
| Asset management fees | 10,336 |
| | 8,778 |
| | 30,162 |
| | 25,969 |
| 11,405 |
| | 11,143 |
| | 34,039 |
| | 32,902 |
|
| Corporate and correspondent investment sales | 5,145 |
| | 6,974 |
| | 26,249 |
| | 21,490 |
| 11,799 |
| | 12,490 |
| | 24,298 |
| | 40,901 |
|
| Mortgage banking | 3,450 |
| | 8,242 |
| | 9,636 |
| | 5,410 |
| 8,204 |
| | 6,717 |
| | 19,011 |
| | 23,078 |
|
| Bank owned life insurance | 4,322 |
| | 4,170 |
| | 12,711 |
| | 13,041 |
| 3,508 |
| | 4,597 |
| | 12,895 |
| | 13,187 |
|
| Investment securities gains, net | 3,033 |
| | — |
| | 3,033 |
| | 30,037 |
| 21,003 |
| | — |
| | 29,961 |
| | — |
|
| Other | 61,060 |
| | 59,718 |
| | 167,198 |
| | 206,396 |
| 66,241 |
| | 53,285 |
| | 182,104 |
| | 154,600 |
|
| Total noninterest income | $ | 257,794 |
| | $ | 263,765 |
| | $ | 748,806 |
| | $ | 795,216 |
| $ | 321,319 |
| | $ | 258,459 |
| | $ | 863,360 |
| | $ | 786,303 |
|
Three Months Ended September 30, 20172019 and 20162018
Noninterest income was $257.8$321.3 million for the three months ended September 30, 2017,2019, compared to $263.8$258.5 million for the three months ended September 30, 2016.2018. The decreaseincrease in noninterest income was primarily driven by decreasesincreases in retail investment sales,card and merchant processing fees, money transfer income, investment banking and advisory fees, and mortgage banking partially offset by an increase in investment securities gains.gains and other noninterest income.
Retail investment sales is comprisedCard and merchant processing fees represents income related to customers' utilization of mutual fundstheir debt and annuity salescredit cards, as well as interchange income and insurance sales fees.merchants' discounts. Income from retail investment sales decreasedcard and merchant processing fees increased to $26.8$50.4 million for the three months ended September 30, 2017,2019, compared to $30.1$44.2 million for the three months ended September 30, 2016, due2018. The primary contributor to this increase was a decrease$5.3 million increase in interchange income related to growth in the number of $4.5 million in fixed annuity income, partially offset byaccounts as well as an increase of $1.1 million in variable annuity income. The improved market conditions caused a shiftcurrent customers' spending volumes.
Money transfer income represents income from the Parent's wholly owned subsidiary, BBVA Transfer Holdings, Inc., which engages in demand from fixed annuities towards variable annuities.
money transfer services, including money transmission and foreign exchange services. Income from investment banking and advisory fees decreasedmoney transfer services increased to $30.5$26.0 million for the three months ended September 30, 2017,2019, compared to $34.4$23.4 million for the three months ended September 30, 2016, due to a decrease2018 driven by an increase in the volume of bond underwriting activity during the third quarter 2017transaction volumes when compared to the same period in 2016.2018.
Asset managementInvestment banking and advisory fees areprimarily represent income from BSI. Income from investment banking and advisory fees generated from money management transactions executed with the Company through trusts, higher net worth customers and other long-term clients. Asset management fees for the three months ended September 30, 2017, increased to $10.3 million, from $8.8$28.3 million for the three months ended September 30, 2016, due primarily to an increase in assets under management2019, compared to the same period in 2016.
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 decreased to $5.1$14.0 million for the three months ended September 30, 2017,2018. The primary driver of this increase was an increase in debt capital markets activity during the three months ended September 30, 2019 compared to $7.0the same period in 2018.
Investment securities gains, net were $21.0 million for the three months ended September 30, 2016, due to a decrease in bond trading during the three months ended September 30, 2017.
Mortgage banking for the three months ended September 30, 2017 was $3.5 million, a decrease of $4.8 million compared to the three months ended September 30, 2016. Mortgage banking for the three months ended September 30, 2017, included $6.5 million of origination fees and gains on sales of mortgage loans partially offset by net losses of $2.7 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. Mortgage banking for the three months ended September 30, 2016, included $7.2 million of origination fees
and gains on sales of mortgage loans and gains of $986 thousand related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. The decrease in mortgage banking for the three months ended September 30, 2017, compared to the corresponding period in 2016 was primarily driven by a slight decline in rates during the third quarter of 2017 which negatively impacted the valuations of mortgage loans held for sale, mortgage related derivatives, and MSRs. In addition, mortgage production volume decreased during the three months ended September 30, 2017, compared to the corresponding period in 2016.
Investment securities gains, net increased by $3.0 million for the three months ended September 30, 2017, due to the sale of AFS securities during the three months ended September 30, 2017.2019. See, "—Investment Securities"“—Debt Securities” for more information related to the investment securities sales.
Nine Months Ended September 30, 2017 and 2016
Noninterest income was $748.8 million for the nine months ended September 30, 2017, compared to $795.2 million for the nine months ended September 30, 2016. The decrease in noninterest income was primarily driven by decreases in investment securities gains, investment banking and advisory fees and other noninterest income partially offset by increases in asset management fees, corporate and correspondent investment sales and mortgage banking.
Asset management fees for the nine months ended September 30, 2017 was $30.2 million, compared to $26.0 million the nine months ended September 30, 2016, due primarily to an increase in assets under management compared to the same period in 2016.
Income from corporate and correspondent investment sales increased to $26.2 million for the nine months ended September 30, 2017, from $21.5 million for the corresponding period in 2016. The $4.8 million increase was due in part to income related to an increase in interest rate contracts and foreign currency exchange contracts.
Mortgage banking for the nine months ended September 30, 2017 was $9.6 million, an increase of $4.2 million compared to the nine months ended September 30, 2016. Mortgage banking for the nine months ended September 30, 2017, included $18.3 million of origination fees and gains on sales of mortgage loans partially offset by net losses of $8.5 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. Mortgage banking for the nine months ended September 30, 2016, included $17.2 million of origination fees and gains on sales of mortgage loans partially offset by net losses of $11.9 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. The increase in mortgage banking for the nine months ended September 30, 2017, compared to the corresponding period in 2016 was primarily driven by a decline in rates during 2016, which negatively impacted the valuations of mortgage loans held for sale, mortgage related derivatives, and MSRs.
Investment securities gains, net decreased to $3.0 million for the nine months ended September 30, 2017, compared to $30.0 million in the nine months ended September 30, 2017. See "—Investment Securities" for more information related to the investmentdebt securities sales.
Other income is comprised of income recognized that does not typically fit into one of the other noninterest income categories and includes various fees associated with letters of credit, syndications, ATMsATMS and foreign exchange. ForOther noninterest income increased to $66.2 million for the three months ended September 30, 2019, compared to $53.3 million for the three months ended September 30, 2018, due to a $10.2 million increase in the value of the SBIC investments and a $2.7 million increase in gain on sale of fixed assets.
Nine Months Ended September 30, 2019 and 2018
Noninterest income was $863.4 million for the nine months ended September 30, 2017,2019, compared to $786.3 million for the nine months ended September 30, 2018. The increase in noninterest income was primarily driven by increases in service charges on deposit accounts, card and merchant processing fees, money transfer income, investment banking and advisory fees, investment securities gains and other noninterest income partially offset by decreases in mortgage banking and corporate and correspondent investment sales.
Service charges on deposit accounts increased to $185.8 million for the nine months ended September 30, 2019, compared to $175.1 million for the nine months ended September 30, 2018 due primarily to continued customer account growth and increases in non-sufficient fund activity in 2019 when compared to 2018.
Income from card and merchant processing fees increased to $146.7 million for the nine months ended September 30, 2019, compared to $127.9 million for the nine months ended September 30, 2018, due to a $15.1 million increase in interchange income related to growth in the number of accounts. Additionally, merchant income and cash advance fees also increased $3.7 million in 2019 when compared to 2018.
Income from money transfer services increased to $73.3 million for the nine months ended September 30, 2019, compared to $68.0 million for the nine months ended September 30, 2018, driven by an increase in transaction volumes when compared to the same period in 2018.
Income from investment banking and advisory fees increased to $67.9 million for the nine months ended September 30, 2019, compared to $62.4 million for the nine months ended September 30, 2018. The increase was driven primarily by an increase in underwriting activity during the nine months ended September 30, 2019 compared to the same period in 2018.
Income from corporate and correspondent investment sales decreased to $24.3 million for the nine months ended September 30, 2019, compared to $40.9 million for the nine months ended September 30, 2018, primarily driven by $39.2a decline in customer interest rate and foreign exchange swap income due to a decrease in interest rate contract and foreign exchange sales as well as valuation adjustments on interest rate contracts for the nine months ended September 30, 2019 compared to the same period in 2018.
Mortgage banking for the nine months ended September 30, 2019 was $19.0 million, a decrease of $4.1 million compared to the nine months ended September 30, 2018. The decrease in mortgage banking income was driven by a decrease in the valuation related to MSRs due to a decline in interest rates during 2019 when compared to 2018.
Investment securities gains, net were $30.0 million for the nine months ended September 30, 2019. See, “—Debt Securities” for more information related to the debt securities sales.
Other noninterest income increased to $182.1 million for the nine months ended September 30, 2019, compared to $154.6 million for the nine months ended September 30, 2018, due in part to a $17.7$31.0 million residualincrease in the value write downof the SBIC investments and an $8.8 million increase related to a commercial lease and a $16.1 million gain recognized during 2016 fromgains on the sale of loans not initially originated for salefixed assets partially offset by a $10.3 million decrease in the secondary market.service and referral income with BBVA and its affiliates.
Noninterest Expense
The following table presents the components of noninterest expense.
Table 3 Noninterest Expense | Table 3 Noninterest Expense | Table 3 Noninterest Expense |
| | | Three Months Ended September 30, | | Nine Months Ended
September 30, | Three Months Ended September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Salaries, benefits and commissions | $ | 279,384 |
| | $ | 279,132 |
| | $ | 835,825 |
| | $ | 836,067 |
| $ | 295,092 |
| | $ | 292,679 |
| | $ | 884,111 |
| | $ | 868,971 |
|
| Professional services | | 72,903 |
| | 68,403 |
| | 210,583 |
| | 197,625 |
|
| Equipment | 60,656 |
| | 59,697 |
| | 184,691 |
| | 179,646 |
| 63,908 |
| | 63,739 |
| | 191,940 |
| | 190,759 |
|
| Professional services | 64,775 |
| | 63,628 |
| | 187,422 |
| | 178,396 |
| |
| Net occupancy | 42,227 |
| | 41,610 |
| | 125,568 |
| | 120,881 |
| 42,241 |
| | 42,514 |
| | 123,298 |
| | 125,607 |
|
| Money transfer expense | 15,938 |
| | 16,680 |
| | 50,069 |
| | 50,048 |
| 18,005 |
| | 16,120 |
| | 50,273 |
| | 46,143 |
|
| Amortization of intangibles | 2,525 |
| | 4,093 |
| | 7,575 |
| | 12,280 |
| |
| Total securities impairment | — |
| | — |
| | 242 |
| | 130 |
| — |
| | 283 |
| | 113 |
| | 592 |
|
| Other | 108,457 |
| | 91,431 |
| | 304,367 |
| | 312,004 |
| 106,738 |
| | 121,772 |
| | 318,856 |
| | 318,271 |
|
| Total noninterest expense | $ | 573,962 |
| | $ | 556,271 |
| | $ | 1,695,759 |
| | $ | 1,689,452 |
| $ | 598,887 |
| | $ | 605,510 |
| | $ | 1,779,174 |
| | $ | 1,747,968 |
|
Three Months Ended September 30, 20172019 and 20162018
Noninterest expense was $574.0$598.9 million for the three months ended September 30, 2017, an increase2019, a decrease of $17.7$6.6 million compared to $556.3$605.5 million for the three months ended September 30, 2016.2018. The increasedecrease in noninterest expense was primarily driven by higher levels ofa decrease in other noninterest expense offset by increases in part, by a decrease in amortization of intangibles.salaries, benefits and commissions, professional services, and money transfer expense.
AmortizationSalaries, benefits and commissions expense decreased by $1.6increased to $295.1 million during the three months ended September 30, 2019, compared to $292.7 million for the three months ended September 30, 2017,2018, related to increases in full time salaries due to annual merit increases and increases in deferred compensation plans as well as higher costs associated with benefits.
Professional services represents fees incurred for the lower level of intangible assets atvarious support functions, which includes legal, consulting, outsourcing and other professional related fees. Professional services increased $4.5 million during the three months ended September 30, 2017,2019, to $72.9 million compared to $68.4 million for the samecorresponding period in 2016.2018 due to a $1.7 million increase professional services paid to BBVA and a $1.6 million increase in bankcard fees.
Money transfer expense represents expense 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 expense increased to $18.0 million during the three months ended September 30, 2019, compared to $16.1 million for the corresponding period in 2018 due to an increase in transaction volumes.
Other noninterest expense includes FDIC insurance, marketing, communications, postage, supplies, subscriptions, FDIC indemnification expense, provision for unfunded commitments and gains and losses on the sales and write-downs of OREO. Other noninterest expense increased $17.0decreased $15.0 million during the three months ended September 30, 2017,2019, to $108.5$106.7 million compared to $91.4$121.8 million for the three months ended September 30, 2016. The increase was2018 primarily attributable to a $9.5$17.1 million increasedecrease in the provision for unfunded commitments and letters of credit in 2017 compared to the corresponding period in 2016 as well as a $3.3 million increase in business development expenses in 2017 compared to the corresponding period in 2016.FDIC insurance expense.
Nine Months Ended September 30, 20172019 and 20162018
Noninterest expense was $1.7increased $31.2 million to $1.8 billion for both the nine months ended September 30, 20172019 compared to the nine months ended September 30, 2018. Noninterest expense was impacted by increases in salaries, benefits and 2016.commissions, professional services and money transfer expense.
Professional servicesSalaries, benefits and commissions expense increased $9.0to $884.1 million during the nine months ended September 30, 2017, to $187.4 million2019, compared to $178.4$869.0 million for the corresponding periodnine months ended September 30, 2018, related to increases in 2016full time
salaries due to annual merit increases of $5.0 million, $4.5 million and $3.6 million related to contractorincreases in deferred compensation plans as well as higher costs associated with benefits.
Professional services consulting and bankcard fees, respectively, which were partially offset by a decrease of $6.4 million related to credit card processing.
Other noninterest expense decreased $7.6increased $13.0 million during the nine months ended September 30, 2017,2019, to $304.4$210.6 million compared to $312.0$197.6 million for the corresponding period in 2018 due to a $5.9 million increase in outsourcing and professional services paid to BBVA, a $3.1 million increase in services related to credit reporting, a $3.1 million increase in bankcard fees.
Money transfer expense increased to $50.3 million during the nine months ended September 30, 2016. The decrease was primarily attributable2019, compared to an $11.1$46.1 million decrease in the provision for unfunded commitments and letters of credit in 2017 compared to the corresponding period in 2016 offset in part by a $6.7 million2018 due to an increase in marketing expense in 2017 compared to the corresponding period in 2016.transaction volumes.
Income Tax Expense
Three Months Ended September 30, 20172019 and 20162018
The Company’s income tax expense totaled $39.3$39.9 million and $36.8$41.8 million for the three months ended September 30, 20172019 and 2016,2018, respectively. The effective tax rate was 23.2%17.9% for the three months ended September 30, 20172019 and 23.4%19.3% for the three months ended September 30, 2016.2018.The decrease in the tax rate was primarily driven by lower net income before taxes relative to permanent income tax differences for the three months ended September 30, 2019.
Nine Months Ended September 30, 20172019 and 20162018
The Company’s income tax expense totaled $142.1$106.0 million and $94.5$151.8 million for the nine months ended September 30, 20172019 and 2016,2018, respectively. The effective tax rate was 25.8%18.0% for the nine months ended September 30, 20172019 and 25.1%21.1% for the nine months ended September 30, 2016.2018.The decrease in the tax rate was primarily driven by lower net income before taxes relative to permanent income tax differences for the nine months ended September 30, 2019. Additionally, the tax rate for the nine months ended September 30, 2018 was also impacted by $11.4 million of additional 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.
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 $5.4 billion at September 30, 2019, compared to $2.1 billion December 31, 2018. The increase was primarily driven by a $3.0 billion increase in interest bearing deposits with the Federal Reserve.
Trading Account Assets
Trading account assets totaled $572$564 million at September 30, 2017,2019, compared to $3.1 billion$238 million December 31, 2016.2018. The $2.6 billion decreaseincrease in trading account assets was primarily attributablerelated to a $2.5 billion decreaseincreases in U.S. Treasury securities held by BSI.the fair value of interest rate derivative contracts for customers.
InvestmentDebt Securities
As ofAt September 30, 2017,2019, the securities portfolio included $12.3$7.6 billion in available for sale debt securities and $1.1$6.3 billion in held to maturity debt securities for a total investmentdebt securities portfolio of $13.3$13.9 billion, an increase of $477$80 million compared with December 31, 2016.2018.
During the nine months ended September 30, 2017,2019, the Company received proceeds of $210.9 million from$2.4 billion related to the sale of U.S. Treasury securities and other U.S. government agenciesagency mortgage-backed securities classified as available for sale which resulted in a net gainsgain of $3.0$30.0 million. DuringThe Company also purchased approximately $3.7 billion of U.S. Treasury securities, agency collateralized mortgage obligations and states and political subdivision securities that were classified as held to maturity.
The Company recognized $113 thousand and $592 thousand in OTTI charges during the nine months ended September 30, 2016,2019 and 2018, respectively. While all securities are reviewed by the Company received proceeds of $1.8 billion fromfor OTTI, the sale of U.S. Treasurysecurities
primarily impacted by credit impairment are held to maturity non-agency collateralized mortgage obligations. Refer to Note 2,Debt Securities Available for Sale and other U.S. government agencies securities classified as availableDebt Securities Held to Maturity, in the Notes to the Unaudited Condensed Consolidated Financial Statements for sale which resulted in net gains of $30.0 million.further details.
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 of covered loans that were acquired in the 2009 FDIC-assisted acquisition of certain assets and liabilities of Guaranty Bank. 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 entered into an agreement with the FDIC to terminate the Company's single family residential loss share agreement ahead of the contractual maturity.
The following table presents the composition of the loan portfolio.
Table 4 Loan Portfolio | Table 4 Loan Portfolio | Table 4 Loan Portfolio |
| | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| | (In Thousands) | (In Thousands) |
| Commercial loans: | | | | | | |
| Commercial, financial and agricultural | $ | 25,091,942 |
| | $ | 25,122,002 |
| $ | 24,683,130 |
| | $ | 26,562,319 |
|
| Real estate – construction | 2,247,144 |
| | 2,125,316 |
| 2,005,347 |
| | 1,997,537 |
|
| Commercial real estate – mortgage | 11,342,378 |
| | 11,210,660 |
| 13,074,173 |
| | 13,016,796 |
|
| Total commercial loans | $ | 38,681,464 |
| | $ | 38,457,978 |
| $ | 39,762,650 |
| | $ | 41,576,652 |
|
| Consumer loans: | | | | | | |
| Residential real estate – mortgage | $ | 13,398,503 |
| | $ | 13,259,994 |
| $ | 13,503,327 |
| | $ | 13,422,156 |
|
| Equity lines of credit | 2,617,312 |
| | 2,543,778 |
| 2,618,112 |
| | 2,747,217 |
|
| Equity loans | 383,376 |
| | 445,709 |
| 263,444 |
| | 298,614 |
|
| Credit card | 590,975 |
| | 604,881 |
| 936,147 |
| | 818,308 |
|
| Consumer direct | 1,604,396 |
| | 1,254,641 |
| 2,388,358 |
| | 2,553,588 |
|
| Consumer indirect | 3,039,178 |
| | 3,134,948 |
| 3,848,533 |
| | 3,770,019 |
|
| Total consumer loans | $ | 21,633,740 |
| | $ | 21,243,951 |
| $ | 23,557,921 |
| | $ | 23,609,902 |
|
| Covered loans | — |
| | 359,334 |
| |
| Total loans | $ | 60,315,204 |
| | $ | 60,061,263 |
| $ | 63,320,571 |
| | $ | 65,186,554 |
|
| Loans held for sale | 77,783 |
| | 161,849 |
| 134,314 |
| | 68,766 |
|
| Total loans and loans held for sale | $ | 60,392,987 |
| | $ | 60,223,112 |
| $ | 63,454,885 |
| | $ | 65,255,320 |
|
Loans and loans held for sale, net of unearned income, totaled $60.4$63.5 billion at September 30, 2017, an increase2019, a decrease of $170 million$1.8 billion from December 31, 2016.2018. During the nine months ended September 30, 2019, the Company sold to BBVA, S.A. New York Branch approximately $1.2 billion of commercial loans.
See Note 3, Loans and Allowance for Loan Losses, and Note 4, Loan Sales and Servicing, in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional discussion.
Asset Quality
Nonperforming assets, which includes nonaccrual loans, nonaccrual 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 $744$757 million at September 30, 2017,2019, a decrease of $268$84 million compared to $1.0 billion at December 31, 2016. The decrease in nonperforming assets was primarily due to a $254 million decrease in nonaccrual loans driven by a $206 million decrease in energy nonaccrual loans. At September 30, 2017, energy nonaccrual loans were $181 million compared to $387$840 million at December 31, 2016. The decrease in energy nonaccrual loans was due in part to sales of nonperforming energy loans during the nine months ended September 30, 2017. Excluding energy nonperforming loans, nonperforming assets totaled $563 million at September 30, 2017 compared to $625 million at December 31, 2016.2018. As a percentage of total loans and loans held for sale, otherforeclosed real estate owned and other repossessed assets, nonperforming assets were 1.23% (or 0.98% excluding energy nonperforming loans)1.19% at September 30, 20172019 compared with 1.68% (or 1.10% excluding energy nonperforming loans)1.29% at December 31, 2016.
2018.
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 3, Loans and Allowance for Loan Losses, in the Notes to the Unaudited Condensed 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 5 Potential Problem Loans | Table 5 Potential Problem Loans | Table 5 Potential Problem Loans |
| | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| | (In Thousands) | (In Thousands) |
| Commercial, financial and agricultural | $ | 558,549 |
| | $ | 630,760 |
| $ | 317,556 |
| | $ | 371,627 |
|
| Real estate – construction | 3,114 |
| | 5,578 |
| 44,350 |
| | 12,791 |
|
| Commercial real estate – mortgage | 68,964 |
| | 57,108 |
| 106,695 |
| | 74,737 |
|
| | $ | 630,627 |
| | $ | 693,446 |
| $ | 468,601 |
| | $ | 459,155 |
|
The following table summarizes asset quality information and includes loans held for sale.
Table 6 Asset Quality | Table 6 Asset Quality | Table 6 Asset Quality |
| | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| | (In Thousands) | (In Thousands) |
| Nonaccrual loans: | | | | | | |
| Commercial, financial and agricultural | $ | 324,071 |
| | $ | 596,454 |
| $ | 301,021 |
| | $ | 400,389 |
|
| Real estate – construction | 1,877 |
| | 1,239 |
| 1,616 |
| | 2,851 |
|
| Commercial real estate – mortgage | 108,040 |
| | 71,921 |
| 110,632 |
| | 110,144 |
|
| Residential real estate – mortgage | 175,490 |
| | 140,303 |
| 153,078 |
| | 167,099 |
|
| Equity lines of credit | 34,416 |
| | 33,453 |
| 36,879 |
| | 37,702 |
|
| Equity loans | 11,305 |
| | 13,635 |
| 8,728 |
| | 10,939 |
|
| Credit card | — |
| | — |
| — |
| | — |
|
| Consumer direct | 2,746 |
| | 789 |
| 7,348 |
| | 4,528 |
|
| Consumer indirect | 8,867 |
| | 5,926 |
| 33,940 |
| | 17,834 |
|
| Covered | — |
| | 730 |
| |
| Total nonaccrual loans | 666,812 |
| | 864,450 |
| 653,242 |
| | 751,486 |
|
| Nonaccrual loans held for sale | — |
| | 56,592 |
| — |
| | — |
|
| Total nonaccrual loans and loans held for sale | $ | 666,812 |
| | $ | 921,042 |
| $ | 653,242 |
| | $ | 751,486 |
|
| Accruing TDRs: (1) | | | | | | |
| Commercial, financial and agricultural | $ | 1,259 |
| | $ | 8,726 |
| $ | 1,552 |
| | $ | 18,926 |
|
| Real estate – construction | 106 |
| | 2,393 |
| 76 |
| | 116 |
|
| Commercial real estate – mortgage | 4,645 |
| | 4,860 |
| 3,492 |
| | 3,661 |
|
| Residential real estate – mortgage | 59,086 |
| | 59,893 |
| 60,537 |
| | 57,446 |
|
| Equity lines of credit | 237 |
| | — |
| — |
| | — |
|
| Equity loans | 30,574 |
| | 34,746 |
| 24,789 |
| | 26,768 |
|
| Credit card | — |
| | — |
| — |
| | — |
|
| Consumer direct | 577 |
| | 704 |
| 7,360 |
| | 2,684 |
|
| Consumer indirect | — |
| | — |
| — |
| | — |
|
| Covered | — |
| | — |
| |
| Total Accruing TDRs | 96,484 |
| | 111,322 |
| 97,806 |
| | 109,601 |
|
| Accruing TDRs classified as loans held for sale | — |
| | — |
| — |
| | — |
|
| Total Accruing TDRs (loans and loans held for sale) | $ | 96,484 |
| | $ | 111,322 |
| $ | 97,806 |
| | $ | 109,601 |
|
| Loans 90 days past due and accruing: | | | | | | |
| Commercial, financial and agricultural | $ | 6,072 |
| | $ | 2,891 |
| $ | 11,179 |
| | $ | 8,114 |
|
| Real estate – construction | 2,955 |
| | 2,007 |
| 532 |
| | 544 |
|
| Commercial real estate – mortgage | 3,686 |
| | — |
| 2,375 |
| | 2,420 |
|
| Residential real estate – mortgage | 2,558 |
| | 3,356 |
| 4,778 |
| | 5,927 |
|
| Equity lines of credit | 2,179 |
| | 2,950 |
| 2,072 |
| | 2,226 |
|
| Equity loans | 840 |
| | 467 |
| 524 |
| | 180 |
|
| Credit card | 10,692 |
| | 10,954 |
| 20,037 |
| | 17,011 |
|
| Consumer direct | 5,209 |
| | 4,482 |
| 17,773 |
| | 13,336 |
|
| Consumer indirect | 8,858 |
| | 7,197 |
| 8,599 |
| | 9,791 |
|
| Covered | — |
| | 27,238 |
| |
| Total loans 90 days past due and accruing | 43,049 |
| | 61,542 |
| 67,869 |
| | 59,549 |
|
| Loans held for sale 90 days past due and accruing | — |
| | — |
| — |
| | — |
|
| Total loans and loans held for sale 90 days past due and accruing | $ | 43,049 |
| | $ | 61,542 |
| $ | 67,869 |
| | $ | 59,549 |
|
| OREO | $ | 22,012 |
| | $ | 21,112 |
| |
| Foreclosed real estate | | $ | 17,381 |
| | $ | 16,869 |
|
| Other repossessed assets | $ | 11,443 |
| | $ | 7,587 |
| $ | 17,584 |
| | $ | 12,031 |
|
| |
(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.tables.
Table 7 Nonperforming Assets | Table 7 Nonperforming Assets | Table 7 Nonperforming Assets |
| | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| | (In Thousands) | (In Thousands) |
| Nonaccrual loans | $ | 666,812 |
| | $ | 921,042 |
| $ | 653,242 |
| | $ | 751,486 |
|
| Loans 90 days or more past due and accruing (1) | 43,049 |
| | 61,542 |
| 67,869 |
| | 59,549 |
|
| TDRs 90 days or more past due and accruing | 963 |
| | 589 |
| 588 |
| | 411 |
|
| Nonperforming loans | 710,824 |
| | 983,173 |
| 721,699 |
| | 811,446 |
|
| OREO | 22,012 |
| | 21,112 |
| |
| Foreclosed real estate | | 17,381 |
| | 16,869 |
|
| Other repossessed assets | 11,443 |
| | 7,587 |
| 17,584 |
| | 12,031 |
|
| Total nonperforming assets | $ | 744,279 |
| | $ | 1,011,872 |
| $ | 756,664 |
| | $ | 840,346 |
|
| |
| (1) | Excludes loans classified as TDR. |
Table 8 Asset Quality Ratios | Table 8 Asset Quality Ratios | Table 8 Asset Quality Ratios |
| | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| Asset Quality Ratios: | | | | | | |
| Nonperforming loans and loans held for sale as a percentage of loans and loans held for sale (1) | 1.18 | % | | 1.63 | % | 1.14 | % | | 1.24 | % |
| Nonperforming assets as a percentage of total loans and loans held for sale, other real estate owned, and other repossessed assets (2) | 1.23 |
| | 1.68 |
| |
| Nonperforming assets as a percentage of total loans and loans held for sale, foreclosed real estate, and other repossessed assets (2) | | 1.19 |
| | 1.29 |
|
| Allowance for loan losses as a percentage of loans | 1.41 |
| | 1.40 |
| 1.49 |
| | 1.36 |
|
| Allowance for loan losses as a percentage of nonperforming loans (3) | 119.46 |
| | 90.47 |
| 130.55 |
| | 109.09 |
|
| |
| (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, otherforeclosed 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 9 Rollforward of Nonaccrual Loans | Table 9 Rollforward of Nonaccrual Loans | Table 9 Rollforward of Nonaccrual Loans |
| | | Nine Months Ended September 30, | Nine Months Ended September 30, |
| | 2017 | | 2016 | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Balance at beginning of period, | $ | 920,312 |
| | $ | 406,911 |
| $ | 751,486 |
| | $ | 658,865 |
|
| Additions | 487,329 |
| | 1,270,646 |
| 584,569 |
| | 534,328 |
|
| Returns to accrual | (49,458 | ) | | (43,492 | ) | (102,455 | ) | | (148,261 | ) |
| Loan sales | (98,797 | ) | | (104,372 | ) | — |
| | (40,095 | ) |
| Payments and paydowns | (290,722 | ) | | (216,754 | ) | (120,898 | ) | | (124,435 | ) |
| Transfers to OREO | (24,480 | ) | | (16,415 | ) | |
| Transfers to foreclosed real estate | | (21,171 | ) | | (15,677 | ) |
| Charge-offs | (277,372 | ) | | (210,775 | ) | (438,289 | ) | | (236,566 | ) |
| Balance at end of period | $ | 666,812 |
| | $ | 1,085,749 |
| $ | 653,242 |
| | $ | 628,159 |
|
When borrowers are experiencing financial difficulties, the Company, in order to assist the borrowers in repaying the principal and interest owed to the Company, may 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 term. 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
3, Loans and Allowance for Loan Losses, in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.
The following table provides a rollforward of TDR activity, excluding covered loans and loans held for sale.
Table 10 Rollforward of TDR Activity | Table 10 Rollforward of TDR Activity | Table 10 Rollforward of TDR Activity |
| | | Nine Months Ended September 30, | Nine Months Ended September 30, |
| | 2017 | | 2016 | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Balance at beginning period | $ | 213,868 |
| | $ | 227,817 |
| $ | 311,442 |
| | $ | 285,606 |
|
| New TDRs | 217,600 |
| | 54,004 |
| 75,069 |
| | 138,281 |
|
| Payments/Payoffs | (123,460 | ) | | (58,990 | ) | (129,332 | ) | | (58,600 | ) |
| Charge-offs | (4,526 | ) | | (1,428 | ) | (41,749 | ) | | (5,821 | ) |
| Transfer to OREO | (448 | ) | | (615 | ) | |
| Transfers to foreclosed real estate | | (2,153 | ) | | — |
|
| Balance at end of period | $ | 303,034 |
| | $ | 220,788 |
| $ | 213,277 |
| | $ | 359,466 |
|
The Company’s aggregate recorded investment in impaired loans modified through TDRs excluding covered loans was $303$213 million at September 30, 20172019 compared to $214$311 million at December 31, 2016. The increase in TDRs was due to an increase in commercial, financial and agricultural TDRs, primarily associated with energy loans.2018. Included in these amounts are $96$98 million at September 30, 20172019 and $111$110 million at December 31, 20162018 of accruing TDRs, excluding covered loans.TDRs. Accruing TDRs are not considered nonperforming because they are performing in accordance with the restructured terms.
Allowance for Loan Losses
Management’s policy is to maintain the allowance for loan losses at a level sufficient to absorb estimated probable incurred losses in the loan portfolio. See Note 3, Loans and Allowance for Loan Losses, in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional disclosures regarding the allowance for loan losses. The total allowance for loan losses increased to $849$942 million at September 30, 2017,2019, from $838$885 million at December 31, 2016.2018. The ratio of the allowance for loan losses to total loans was 1.41%1.49% at September 30, 20172019 compared to 1.40%1.36% at December 31, 2016.2018. Nonperforming loans were $711$722 million at September 30, 20172019 compared to $983$811 million at December 31, 2016.2018. The allowance attributable to individually impaired loans was $108$129 million at September 30, 20172019 compared to $138$107 million at December 31, 2016.2018. The increase was driven primarily by updated impairment analyses. 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 loan.
Net charge-offs were 0.47%1.10% of average loans for the three months ended September 30, 20172019 compared to 0.30%0.49% of average loans for the three months ended September 30, 2016.2018. The increase in net charge-offs for the three months ended September 30, 20172019, as compared to the corresponding period in 20162018, was primarily driven in part by an $8.1 million increase in commercial real estate-mortgage net charge-offs, a $5.8$56.0 million increase in commercial, financial and agricultural net charge-offs, which includes a $40.0 million charge-off of one health care loan, and a $5.4$35.2 million increase in consumer direct net charge-offs. Commercial, financial and agricultural net charge-offs include $127 thousand of net charge-offs related to energy loans for the three months ended September 30, 2017 compared to $8.5 million of net charge-offs related to energy loans for the three months ended September 30, 2016.
Net charge-offs were 0.48%0.88% of average loans for the nine months ended September 30, 20172019 compared to 0.36%0.45% of average loans for the nine months ended September 30, 2016.2018. The increase in net charge-offs for the nine months ended September 30, 20172019 as compared to the corresponding period in 20162018 was driven in part by a $15.4$87.7 million increase in commercial, financial and agricultural net charge-offs as well as a $20.5$91.0 million increase in consumer direct net charge-offs. Commercial, financialcharge-offs and agriculturala $11.0 million increase in consumer indirect net charge-offs include $56.7 million of net charge-offs related to energy loans for the nine months ended September 30, 2017 compared to $49.4 million of net charge-offs related to energy loans for the nine months ended September 30, 2016.charge-offs.
The following table sets forth information with respect to the Company’s loans, excluding loans held for sale, and the allowance for loan losses.
Table 11 Summary of Loan Loss Experience | Table 11 Summary of Loan Loss Experience | Table 11 Summary of Loan Loss Experience |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| | (Dollars in Thousands) | (Dollars in Thousands) |
| Average loans outstanding during the period | $ | 60,215,551 |
| | $ | 60,977,920 |
| | $ | 60,111,031 |
| | $ | 61,786,243 |
| $ | 63,525,661 |
| | $ | 64,249,540 |
| | $ | 64,157,886 |
| | $ | 63,189,287 |
|
| Allowance for loan losses, beginning of period | $ | 816,952 |
| | $ | 843,051 |
| | $ | 838,293 |
| | $ | 762,673 |
| $ | 977,660 |
| | $ | 860,000 |
| | $ | 885,242 |
| | $ | 842,760 |
|
| Charge-offs: | | | | | | | | | | | | | | |
| Commercial, financial and agricultural | 21,320 |
| | 13,702 |
| | 91,943 |
| | 66,541 |
| 73,178 |
| | 20,142 |
| | 132,006 |
| | 42,968 |
|
| Real estate – construction | — |
| | 21 |
| | 82 |
| | 306 |
| — |
| | — |
| | 19 |
| | 436 |
|
| Commercial real estate – mortgage | 7,913 |
| | 83 |
| | 8,845 |
| | 3,249 |
| 2,270 |
| | 2,328 |
| | 2,388 |
| | 2,781 |
|
| Residential real estate – mortgage | 2,587 |
| | 2,043 |
| | 8,769 |
| | 6,148 |
| 2,692 |
| | 3,192 |
| | 6,337 |
| | 7,798 |
|
| Equity lines of credit | 1,314 |
| | 2,141 |
| | 5,054 |
| | 7,259 |
| 1,687 |
| | 1,324 |
| | 6,506 |
| | 4,909 |
|
| Equity loans | 389 |
| | 424 |
| | 2,419 |
| | 1,665 |
| 456 |
| | 1,054 |
| | 1,683 |
| | 2,416 |
|
| Credit card | 11,333 |
| | 9,171 |
| | 33,479 |
| | 27,000 |
| 18,317 |
| | 11,721 |
| | 53,425 |
| | 34,937 |
|
| Consumer direct | 19,940 |
| | 13,975 |
| | 57,030 |
| | 34,524 |
| 71,213 |
| | 32,245 |
| | 193,060 |
| | 90,908 |
|
| Consumer indirect | 23,829 |
| | 23,326 |
| | 69,752 |
| | 64,083 |
| 31,870 |
| | 29,633 |
| | 98,543 |
| | 84,350 |
|
| Covered | — |
| | — |
| | — |
| | 1,565 |
| |
| Total charge-offs | 88,625 |
| | 64,886 |
| | 277,373 |
| | 212,340 |
| 201,683 |
| | 101,639 |
| | 493,967 |
| | 271,503 |
|
| Recoveries: | | | | | | | | | | | | | | |
| Commercial, financial and agricultural | 6,625 |
| | 4,766 |
| | 17,790 |
| | 7,775 |
| 3,236 |
| | 6,167 |
| | 11,405 |
| | 10,031 |
|
| Real estate – construction | 29 |
| | 227 |
| | 965 |
| | 1,908 |
| 59 |
| | 23 |
| | 1,965 |
| | 261 |
|
| Commercial real estate – mortgage | 206 |
| | 455 |
| | 3,265 |
| | 1,915 |
| 20 |
| | 293 |
| | 104 |
| | 6,137 |
|
| Residential real estate – mortgage | 870 |
| | 1,483 |
| | 4,453 |
| | 4,156 |
| 1,412 |
| | 1,102 |
| | 2,605 |
| | 2,770 |
|
| Equity lines of credit | 1,135 |
| | 1,540 |
| | 2,914 |
| | 3,589 |
| 1,256 |
| | 1,343 |
| | 5,129 |
| | 4,315 |
|
| Equity loans | 396 |
| | 406 |
| | 1,369 |
| | 1,060 |
| 515 |
| | 1,009 |
| | 1,629 |
| | 2,883 |
|
| Credit card | 742 |
| | 711 |
| | 2,392 |
| | 2,223 |
| 1,919 |
| | 2,035 |
| | 5,348 |
| | 4,078 |
|
| Consumer direct | 1,659 |
| | 1,091 |
| | 5,032 |
| | 3,005 |
| 7,221 |
| | 3,480 |
| | 18,052 |
| | 6,855 |
|
| Consumer indirect | 5,696 |
| | 8,129 |
| | 21,130 |
| | 21,090 |
| 9,947 |
| | 6,616 |
| | 26,740 |
| | 23,533 |
|
| Covered | — |
| | — |
| | 31 |
| | 1 |
| |
| Total recoveries | 17,358 |
| | 18,808 |
| | 59,341 |
| | 46,722 |
| 25,585 |
| | 22,068 |
| | 72,977 |
| | 60,863 |
|
| Net charge-offs | 71,267 |
| | 46,078 |
| | 218,032 |
| | 165,618 |
| 176,098 |
| | 79,571 |
| | 420,990 |
| | 210,640 |
|
| Total provision for loan losses | 103,434 |
| | 65,107 |
| | 228,858 |
| | 265,025 |
| 140,629 |
| | 94,964 |
| | 477,939 |
| | 243,273 |
|
| Allowance for loan losses, end of period | $ | 849,119 |
| | $ | 862,080 |
| | $ | 849,119 |
| | $ | 862,080 |
| $ | 942,191 |
| | $ | 875,393 |
| | $ | 942,191 |
| | $ | 875,393 |
|
| Net charge-offs to average loans | 0.47 | % | | 0.30 | % | | 0.48 | % | | 0.36 | % | 1.10 | % | | 0.49 | % | | 0.88 | % | | 0.45 | % |
Concentrations
The following tables provide further details regarding the Company’s commercial, financial and agricultural, commercial real estate, residential real estate and consumer portfolio segments as of September 30, 20172019 and December 31, 2016.2018.
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 industry.
The commercial, financial and agricultural portfolio segment totaled $25.1$24.7 billion at both September 30, 2017 and2019 compared to $26.6 billion at December 31, 2016.2018. This segment consists primarily of large national and international companies and small to mid-sized companies. This portfolio 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 portfolio segment by various means, including maintaining prudent advance rates, financial covenants, and obtaining personal guarantees from the principals of the borrower.
The following table provides details related to the commercial, financial, and agricultural portfolio segment.
Table 12 Commercial, Financial and Agricultural | Table 12 Commercial, Financial and Agricultural | Table 12 Commercial, Financial and Agricultural |
| | | | September 30, 2017 | | December 31, 2016 (1) | | September 30, 2019 | | December 31, 2018 (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 | | 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) | | (In Thousands) |
| Autos, Components and Durable Goods | | $ | 488,240 |
| | $ | 26 |
| | $ | — |
| | $ | — |
| | $ | 579,864 |
| | $ | 40 |
| | $ | — |
| | $ | 57 |
| | $ | 2,136,336 |
| | $ | 25,496 |
| | $ | — |
| | $ | — |
| | $ | 2,403,917 |
| | $ | 68,891 |
| | $ | — |
| | $ | 3,922 |
|
| Basic Materials | | 637,602 |
| | 56 |
| | — |
| | — |
| | 740,247 |
| | 12,388 |
| | — |
| | — |
| | 501,199 |
| | 1,582 |
| | — |
| | 165 |
| | 567,966 |
| | 2,426 |
| | — |
| | — |
|
| Capital Goods & Industrial Services | | 2,722,652 |
| | 9,054 |
| | 149 |
| | 188 |
| | 2,580,976 |
| | 645 |
| | 174 |
| | — |
| | 2,007,005 |
| | 30,769 |
| | 103 |
| | — |
| | 2,523,857 |
| | 74,769 |
| | 124 |
| | 39 |
|
| Construction & Infrastructure | | 605,639 |
| | 39,609 |
| | 11 |
| | — |
| | 550,282 |
| | 33,992 |
| | 29 |
| | — |
| |
| Consumer & Healthcare | | 3,348,282 |
| | 9,822 |
| | 902 |
| | 357 |
| | 3,169,897 |
| | 3,363 |
| | 374 |
| | 56 |
| |
| Construction & Construction Materials | | | 742,692 |
| | 49,537 |
| | — |
| | — |
| | 732,838 |
| | 19,971 |
| | — |
| | — |
|
| Consumer | | | 705,009 |
| | 1,853 |
| | — |
| | — |
| | 592,607 |
| | 600 |
| | — |
| | — |
|
| Healthcare | | | 2,796,881 |
| | 18,024 |
| | 317 |
| | 37 |
| | 2,914,464 |
| | 18,682 |
| | 333 |
| | 83 |
|
| Energy | | 2,952,237 |
| | 181,005 |
| | — |
| | — |
| | 3,246,189 |
| | 386,544 |
| | — |
| | — |
| | 3,062,547 |
| | 138,743 |
| | — |
| | — |
| | 2,863,529 |
| | 119,069 |
| | — |
| | — |
|
| Financial Services | | 1,107,967 |
| | 69 |
| | — |
| | — |
| | 1,234,469 |
| | 115 |
| | — |
| | — |
| | 927,225 |
| | 914 |
| | — |
| | 1,520 |
| | 1,061,922 |
| | 94 |
| | — |
| | — |
|
| General Corporates | | 1,568,970 |
| | 5,611 |
| | 28 |
| | 4,540 |
| | 2,145,350 |
| | 80,606 |
| | 54 |
| | 2,684 |
| | 1,717,090 |
| | 17,137 |
| | 499 |
| | 8,503 |
| | 1,757,121 |
| | 4,645 |
| | 3 |
| | 3,993 |
|
| Institutions | | 2,717,842 |
| | 1,897 |
| | — |
| | — |
| | 2,368,603 |
| | 1,650 |
| | 7,868 |
| | 74 |
| | 3,188,413 |
| | 425 |
| | — |
| | — |
| | 3,349,248 |
| | 474 |
| | — |
| | — |
|
| Leisure | | 2,354,338 |
| | 10,219 |
| | 120 |
| | — |
| | 2,013,522 |
| | 8,458 |
| | 170 |
| | — |
| |
| Leisure and Consumer Services | | | 2,706,091 |
| | 8,036 |
| | 344 |
| | — |
| | 2,597,598 |
| | 22,544 |
| | — |
| | 10 |
|
| Real Estate | | 951,810 |
| | 505 |
| | — |
| | — |
| | 1,045,810 |
| | — |
| | — |
| | — |
| | 1,450,000 |
| | 230 |
| | — |
| | — |
| | 1,533,206 |
| | 248 |
| | — |
| | — |
|
| Retail & Wholesale Trade | | 2,694,278 |
| | 6,706 |
| | 49 |
| | 681 |
| | 2,407,291 |
| | 30,460 |
| | — |
| | — |
| |
| Retail | | | 500,874 |
| | 1,513 |
| | 245 |
| | 954 |
| | 573,658 |
| | 29,751 |
| | — |
| | 67 |
|
| Telecoms, Technology & Media | | 1,493,008 |
| | 3,480 |
| | — |
| | 306 |
| | 1,521,981 |
| | 2,234 |
| | 53 |
| | 20 |
| | 956,084 |
| | 2,775 |
| | 44 |
| | — |
| | 1,525,730 |
| | 3,680 |
| | 46 |
| | — |
|
| Transportation | | 867,528 |
| | 36,846 |
| | — |
| | — |
| | 792,672 |
| | 11,384 |
| | — |
| | — |
| | 944,594 |
| | 3,987 |
| | — |
| | — |
| | 1,000,564 |
| | 34,545 |
| | — |
| | — |
|
| Utilities | | 581,549 |
| | 19,166 |
| | — |
| | — |
| | 724,849 |
| | 24,575 |
| | 4 |
| | — |
| | 341,090 |
| | — |
| | — |
| | — |
| | 564,094 |
| | — |
| | 18,420 |
| | — |
|
| Total Commercial, Financial and Agricultural | | $ | 25,091,942 |
| | $ | 324,071 |
| | $ | 1,259 |
| | $ | 6,072 |
| | $ | 25,122,002 |
| | $ | 596,454 |
| | $ | 8,726 |
| | $ | 2,891 |
| | $ | 24,683,130 |
| | $ | 301,021 |
| | $ | 1,552 |
| | $ | 11,179 |
| | $ | 26,562,319 |
| | $ | 400,389 |
| | $ | 18,926 |
| | $ | 8,114 |
|
| |
| (1) | December 31, 20162018 data has been revised to conform to current period industry classifications, as the Company redefined industry classifications during the secondfirst quarter of 2017.2019. |
The Company has been closely monitoring its energy sector lending portfolio which was negatively impacted by the lower level of oil prices which began in mid-2014. Total energy exposure, including unused commitments to extend credit and letters of credit was $7.7 billion and $8.1 billion at September 30, 2017 and December 31, 2016, respectively. As shown in Table 13, the Company's energy sector loan balances at September 30, 2017, were approximately $3.0 billion and represented 4.9% of the Company's total loans 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, such as 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 13 Energy Portfolio |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| | | Recorded Investment | | Total Commitment | | Nonaccrual | | Recorded Investment | | Total Commitment | | Nonaccrual |
| | | (In Thousands) |
| Exploration and production | | $ | 1,630,303 |
| | 4,080,635 |
| | $ | 178,449 |
| | $ | 1,654,565 |
| | $ | 4,182,861 |
| | $ | 308,096 |
|
| Midstream | | 976,845 |
| | 3,011,822 |
| | — |
| | 1,199,844 |
| | 3,230,513 |
| | 11,298 |
|
| Drilling oil and support services | | 179,636 |
| | 373,389 |
| | 2,350 |
| | 263,770 |
| | 467,908 |
| | 66,811 |
|
| Refineries and terminals | | 165,453 |
| | 266,081 |
| | 205 |
| | 128,010 |
| | 262,618 |
| | 339 |
|
| Other | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total energy portfolio | | $ | 2,952,237 |
| | $ | 7,731,927 |
| | $ | 181,004 |
| | $ | 3,246,189 |
| | $ | 8,143,900 |
| | $ | 386,544 |
|
|
| | | | | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| | | As a % of Energy Loans | | As a % of Total Loans | | As a % of Energy Loans | | As a % of Total Loans |
| Exploration and production | | 55.2 | % | | 2.7 | % | | 51.0 | % | | 2.8 | % |
| Midstream | | 33.1 |
| | 1.6 |
| | 37.0 |
| | 2.0 |
|
| Drilling oil and support services | | 6.1 |
| | 0.3 |
| | 8.1 |
| | 0.4 |
|
| Refineries and terminals | | 5.6 |
| | 0.3 |
| | 3.9 |
| | 0.2 |
|
| Other | | — |
| | — |
| | — |
| | — |
|
| Total energy portfolio | | 100.0 | % | | 4.9 | % | | 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 September 30, 2017, the Company has observed a decrease in total energy loans outstanding as well as a decrease in nonaccrual loans, as indicated in Table 13. 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 September 30, 2017 was 23.8%, comprised of 6.7% rated special mention and 17.1% 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.
Currently, the credit quality issues have mostly been isolated to the exploration and production subsector and the drilling oil and support services subsector, even though the latter represents a relatively small percentage of the portfolio. These subsectors are the subsectors most acutely impacted by pricing conditions. Within this subsector, many loans are secured and utilize borrowing base features linked to the physical commodity reserves and supported by engineering data. The borrowing bases are refreshed with updated information on a recurring basis. The Company generally continues to see adequate collateral support of secured energy borrowers, including secured reserve based lines of credit
for exploration and production borrowers. The Company's internal valuation methodologies involve independent engineering analysis of a borrower's reserve to calculate the present value of discounted cash flows that secure the loan. In doing so, the Company applies its oil and gas pricing policy, or when needed external market indices for oil and gas prices. Generally, the drilling oil and support services subsector also has a high risk for impact from the pricing environment since its operations are directly impacted by reduced spending by those in the exploration and production sector. However as noted in Table 13, the Company's exposure in this sector is limited.
For the three and nine months ended September 30, 2017, charge-offs on energy loans were approximately $127 thousand and $56.7 million, respectively, compared to $8.5 million and $49.4 million, respectively, for the three and nine months ended September 30, 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 September 30, 2017, the Company's allowance for loan losses attributable to the energy portfolio totaled approximately 2.7% 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 $11.3$13.1 billion and $11.2$13.0 billion at September 30, 20172019 and December 31, 2016,2018, respectively, and real estate — construction loans totaled $2.2$2.0 billion at both September 30, 20172019 and $2.1 billion at December 31, 2016.2018.
This portfolio segment consists primarily of extensions of credits 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 with 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 14 Commercial Real Estate | |
Table 13 Commercial Real Estate | | Table 13 Commercial Real Estate |
| | | | September 30, 2017 | | December 31, 2016 | | September 30, 2019 | | December 31, 2018 |
| 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 | | 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) | | (In Thousands) |
| Alabama | | $ | 406,441 |
| | $ | 7,849 |
| | $ | 2,411 |
| | $ | — |
| | $ | 493,199 |
| | $ | 1,853 |
| | $ | 2,513 |
| | $ | — |
| | $ | 378,421 |
| | $ | 5,459 |
| | $ | 2,093 |
| | $ | — |
| | $ | 375,442 |
| | $ | 5,507 |
| | $ | 2,221 |
| | $ | 237 |
|
| Arizona | | 795,651 |
| | 7,452 |
| | — |
| | — |
| | 847,908 |
| | 5,252 |
| | — |
| | — |
| | 890,045 |
| | 8,656 |
| | — |
| | — |
| | 855,007 |
| | 8,342 |
| | — |
| | — |
|
| California | | 1,376,528 |
| | 2,319 |
| | — |
| | — |
| | 1,139,785 |
| | 4,645 |
| | — |
| | — |
| | 1,940,729 |
| | — |
| | — |
| | 28 |
| | 2,196,360 |
| | — |
| | — |
| | 1,722 |
|
| Colorado | | 429,081 |
| | 6,311 |
| | — |
| | — |
| | 436,640 |
| | 6,902 |
| | — |
| | — |
| | 590,703 |
| | 5,970 |
| | — |
| | — |
| | 533,481 |
| | 6,036 |
| | — |
| | — |
|
| Florida | | 1,079,177 |
| | 6,783 |
| | 110 |
| | — |
| | 912,874 |
| | 7,262 |
| | 134 |
| | — |
| | 1,238,530 |
| | 11,207 |
| | 37 |
| | — |
| | 1,086,443 |
| | 18,030 |
| | 66 |
| | — |
|
| New Mexico | | 215,969 |
| | 8,415 |
| | 128 |
| | — |
| | 174,911 |
| | 6,354 |
| | 132 |
| | — |
| | 111,959 |
| | 4,084 |
| | — |
| | — |
| | 157,473 |
| | 3,769 |
| | 121 |
| | 14 |
|
| Texas | | 3,505,312 |
| | 41,642 |
| | 1,088 |
| | 3,686 |
| | 3,576,090 |
| | 33,043 |
| | 1,152 |
| | — |
| | 3,662,882 |
| | 59,774 |
| | 511 |
| | 2,347 |
| | 3,911,128 |
| | 41,707 |
| | 382 |
| | 447 |
|
| Other | | 3,534,219 |
| | 27,269 |
| | 908 |
| | — |
| | 3,629,253 |
| | 6,610 |
| | 929 |
| | — |
| | 4,260,904 |
| | 15,482 |
| | 851 |
| | — |
| | 3,901,462 |
| | 26,753 |
| | 871 |
| | — |
|
| | | $ | 11,342,378 |
| | $ | 108,040 |
| | $ | 4,645 |
| | $ | 3,686 |
| | $ | 11,210,660 |
| | $ | 71,921 |
| | $ | 4,860 |
| | $ | — |
| | $ | 13,074,173 |
| | $ | 110,632 |
| | $ | 3,492 |
| | $ | 2,375 |
| | $ | 13,016,796 |
| | $ | 110,144 |
| | $ | 3,661 |
| | $ | 2,420 |
|
Table 15 Real Estate – Construction | |
Table 14 Real Estate – Construction | | Table 14 Real Estate – Construction |
| | | | September 30, 2017 | | December 31, 2016 | | September 30, 2019 | | December 31, 2018 |
| 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 | | 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) | | (In Thousands) |
| Alabama | | $ | 37,745 |
| | $ | 84 |
| | $ | — |
| | $ | 133 |
| | $ | 17,517 |
| | $ | 43 |
| | $ | — |
| | $ | — |
| | $ | 67,027 |
| | $ | 92 |
| | $ | — |
| | $ | 115 |
| | $ | 64,758 |
| | $ | 96 |
| | $ | — |
| | $ | 69 |
|
| Arizona | | 135,506 |
| | — |
| | — |
| | 1,224 |
| | 94,191 |
| | — |
| | — |
| | — |
| | 198,756 |
| | — |
| | — |
| | — |
| | 181,143 |
| | — |
| | — |
| | — |
|
| California | | 265,854 |
| | — |
| | — |
| | 756 |
| | 246,094 |
| | — |
| | — |
| | — |
| | 245,712 |
| | — |
| | — |
| | — |
| | 253,416 |
| | — |
| | — |
| | — |
|
| Colorado | | 80,691 |
| | — |
| | — |
| | — |
| | 91,434 |
| | — |
| | — |
| | — |
| | 92,916 |
| | — |
| | — |
| | — |
| | 111,375 |
| | — |
| | — |
| | — |
|
| Florida | | 229,085 |
| | — |
| | — |
| | — |
| | 228,530 |
| | 2 |
| | — |
| | — |
| | 168,666 |
| | 906 |
| | — |
| | — |
| | 213,502 |
| | — |
| | — |
| | — |
|
| New Mexico | | 10,947 |
| | — |
| | 53 |
| | — |
| | 16,487 |
| | — |
| | 1,163 |
| | — |
| | 14,012 |
| | 26 |
| | 16 |
| | — |
| | 6,868 |
| | — |
| | 46 |
| | — |
|
| Texas | | 1,079,470 |
| | 1,468 |
| | 53 |
| | 842 |
| | 1,024,830 |
| | 1,066 |
| | 1,230 |
| | 2,007 |
| | 780,055 |
| | 186 |
| | 60 |
| | 417 |
| | 754,994 |
| | 2,331 |
| | 70 |
| | 475 |
|
| Other | | 407,846 |
| | 325 |
| | — |
| | — |
| | 406,233 |
| | 128 |
| | — |
| | — |
| | 438,203 |
| | 406 |
| | — |
| | — |
| | 411,481 |
| | 424 |
| | — |
| | — |
|
| | | $ | 2,247,144 |
| | $ | 1,877 |
| | $ | 106 |
| | $ | 2,955 |
| | $ | 2,125,316 |
| | $ | 1,239 |
| | $ | 2,393 |
| | $ | 2,007 |
| | $ | 2,005,347 |
| | $ | 1,616 |
| | $ | 76 |
| | $ | 532 |
| | $ | 1,997,537 |
| | $ | 2,851 |
| | $ | 116 |
| | $ | 544 |
|
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 and $13.3$13.5 billion at September 30, 20172019 and $13.4 billion at December 31, 2016, respectively.2018. 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 portfolio segment is concentrated in the Company's footprint as indicated in the table below.
Table 16 Residential Real Estate — Mortgage | |
Table 15 Residential Real Estate — Mortgage | | Table 15 Residential Real Estate — Mortgage |
| | | | September 30, 2017 | | December 31, 2016 | | September 30, 2019 | | December 31, 2018 |
| 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 | | 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) | | (In Thousands) |
| Alabama | | $ | 980,473 |
| | $ | 19,071 |
| | $ | 12,484 |
| | $ | 183 |
| | $ | 1,005,975 |
| | $ | 16,607 |
| | $ | 11,390 |
| | $ | 512 |
| | $ | 925,575 |
| | $ | 24,726 |
| | $ | 11,303 |
| | $ | 998 |
| | $ | 944,556 |
| | $ | 23,285 |
| | $ | 11,677 |
| | $ | 1,002 |
|
| Arizona | | 1,279,565 |
| | 12,644 |
| | 8,697 |
| | 227 |
| | 1,270,521 |
| | 11,831 |
| | 9,901 |
| | 412 |
| | 1,369,479 |
| | 12,217 |
| | 10,898 |
| | 530 |
| | 1,334,736 |
| | 12,572 |
| | 8,415 |
| | 217 |
|
| California | | 3,004,957 |
| | 16,369 |
| | 3,098 |
| | 63 |
| | 2,929,393 |
| | 16,258 |
| | 2,164 |
| | 429 |
| | 3,375,734 |
| | 19,088 |
| | 3,718 |
| | — |
| | 3,252,592 |
| | 15,898 |
| | 3,910 |
| | — |
|
| Colorado | | 1,139,609 |
| | 18,532 |
| | 2,710 |
| | — |
| | 1,111,097 |
| | 14,165 |
| | 2,552 |
| | — |
| | 1,146,398 |
| | 4,645 |
| | 2,100 |
| | — |
| | 1,132,517 |
| | 5,255 |
| | 784 |
| | — |
|
| Florida | | 1,701,821 |
| | 38,227 |
| | 9,493 |
| | 289 |
| | 1,697,555 |
| | 28,266 |
| | 10,636 |
| | 120 |
| | 1,535,070 |
| | 31,892 |
| | 10,256 |
| | 370 |
| | 1,590,912 |
| | 39,699 |
| | 9,908 |
| | 1,433 |
|
| New Mexico | | 222,332 |
| | 3,292 |
| | 1,616 |
| | 110 |
| | 216,865 |
| | 1,955 |
| | 1,630 |
| | — |
| | 213,805 |
| | 4,003 |
| | 1,258 |
| | 635 |
| | 219,434 |
| | 3,683 |
| | 1,287 |
| | — |
|
| Texas | | 4,586,976 |
| | 49,581 |
| | 17,488 |
| | 1,522 |
| | 4,539,469 |
| | 34,232 |
| | 18,850 |
| | 1,752 |
| | 4,529,746 |
| | 43,350 |
| | 19,074 |
| | 1,527 |
| | 4,536,383 |
| | 50,069 |
| | 19,293 |
| | 3,275 |
|
| Other | | 482,770 |
| | 17,774 |
| | 3,500 |
| | 164 |
| | 489,119 |
| | 16,989 |
| | 2,770 |
| | 131 |
| | 407,520 |
| | 13,157 |
| | 1,930 |
| | 718 |
| | 411,026 |
| | 16,638 |
| | 2,172 |
| | — |
|
| | | $ | 13,398,503 |
| | $ | 175,490 |
| | $ | 59,086 |
| | $ | 2,558 |
| | $ | 13,259,994 |
| | $ | 140,303 |
| | $ | 59,893 |
| | $ | 3,356 |
| | $ | 13,503,327 |
| | $ | 153,078 |
| | $ | 60,537 |
| | $ | 4,778 |
| | $ | 13,422,156 |
| | $ | 167,099 |
| | $ | 57,446 |
| | $ | 5,927 |
|
The following table provides information related to refreshed FICO scores for the Company's residential real estate portfolio.
Table 17 Residential Real Estate - Mortgage | |
Table 16 Residential Real Estate - Mortgage | | Table 16 Residential Real Estate - Mortgage |
| | | | September 30, 2017 | | December 31, 2016 | | September 30, 2019 | | December 31, 2018 |
| 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 | | 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) | | (In Thousands) |
| Below 621 | | $ | 698,415 |
| | $ | 110,588 |
| | $ | 14,386 |
| | $ | 1,110 |
| | $ | 664,660 |
| | $ | 91,262 |
| | $ | 14,831 |
| | $ | 2,111 |
| | $ | 709,444 |
| | $ | 101,475 |
| | $ | 20,717 |
| | $ | 3,135 |
| | $ | 730,294 |
| | $ | 113,560 |
| | $ | 19,131 |
| | $ | 4,803 |
|
| 621 – 680 | | 1,237,705 |
| | 26,086 |
| | 20,278 |
| | 244 |
| | 1,279,658 |
| | 21,507 |
| | 16,854 |
| | 825 |
| | 1,098,070 |
| | 22,450 |
| | 11,432 |
| | 106 |
| | 1,146,999 |
| | 20,877 |
| | 14,168 |
| | 301 |
|
| 681 – 720 | | 1,931,767 |
| | 9,274 |
| | 10,439 |
| | 98 |
| | 1,980,276 |
| | 6,288 |
| | 13,921 |
| | 37 |
| | 1,753,448 |
| | 11,175 |
| | 10,263 |
| | — |
| | 1,725,819 |
| | 11,471 |
| | 9,031 |
| | 451 |
|
| Above 720 | | 8,780,212 |
| | 4,411 |
| | 13,464 |
| | 831 |
| | 8,548,993 |
| | 4,327 |
| | 13,957 |
| | 193 |
| | 9,355,593 |
| | 10,834 |
| | 17,559 |
| | 346 |
| | 9,208,678 |
| | 11,156 |
| | 14,847 |
| | 107 |
|
| Unknown | | 750,404 |
| | 25,131 |
| | 519 |
| | 275 |
| | 786,407 |
| | 16,919 |
| | 330 |
| | 190 |
| | 586,772 |
| | 7,144 |
| | 566 |
| | 1,191 |
| | 610,366 |
| | 10,035 |
| | 269 |
| | 265 |
|
| | | $ | 13,398,503 |
| | $ | 175,490 |
| | $ | 59,086 |
| | $ | 2,558 |
| | $ | 13,259,994 |
| | $ | 140,303 |
| | $ | 59,893 |
| | $ | 3,356 |
| | $ | 13,503,327 |
| | $ | 153,078 |
| | $ | 60,537 |
| | $ | 4,778 |
| | $ | 13,422,156 |
| | $ | 167,099 |
| | $ | 57,446 |
| | $ | 5,927 |
|
Equity lines of credit and equity loans totaled $2.9 billion at September 30, 2019 and $3.0 billion at both September 30, 2017 and December 31, 2016.2018. 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 portfolio segment is concentrated within the Company's footprint as indicated in the table below.
Table 18 Equity Loans and Lines | |
Table 17 Equity Loans and Lines | | Table 17 Equity Loans and Lines |
| | | | September 30, 2017 | | December 31, 2016 | | September 30, 2019 | | December 31, 2018 |
| 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 | | 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) | | (In Thousands) |
| Alabama | | $ | 550,451 |
| | $ | 10,477 |
| | $ | 9,157 |
| | $ | 509 |
| | $ | 566,990 |
| | $ | 8,380 |
| | $ | 11,338 |
| | $ | 932 |
| | $ | 460,925 |
| | $ | 9,197 |
| | $ | 7,640 |
| | $ | 205 |
| | $ | 498,839 |
| | $ | 11,536 |
| | $ | 8,062 |
| | $ | 477 |
|
| Arizona | | 381,562 |
| | 7,929 |
| | 3,724 |
| | 665 |
| | 399,225 |
| | 8,562 |
| | 4,396 |
| | 989 |
| | 324,590 |
| | 6,368 |
| | 3,595 |
| | 29 |
| | 348,763 |
| | 6,409 |
| | 4,005 |
| | 221 |
|
| California | | 338,114 |
| | 823 |
| | 379 |
| | 70 |
| | 314,929 |
| | 1,216 |
| | 285 |
| | — |
| | 411,798 |
| | 2,148 |
| | 190 |
| | 49 |
| | 426,179 |
| | 3,358 |
| | 267 |
| | 402 |
|
| Colorado | | 191,161 |
| | 3,497 |
| | 1,477 |
| | 18 |
| | 192,517 |
| | 3,802 |
| | 1,388 |
| | 86 |
| | 173,564 |
| | 2,829 |
| | 747 |
| | 87 |
| | 193,122 |
| | 2,822 |
| | 841 |
| | 128 |
|
| Florida | | 371,592 |
| | 9,037 |
| | 6,516 |
| | 346 |
| | 382,853 |
| | 9,195 |
| | 7,375 |
| | 583 |
| | 299,109 |
| | 8,258 |
| | 5,295 |
| | 43 |
| | 332,367 |
| | 8,646 |
| | 5,704 |
| | 398 |
|
| New Mexico | | 53,128 |
| | 1,539 |
| | 652 |
| | — |
| | 53,491 |
| | 2,087 |
| | 600 |
| | — |
| | 46,824 |
| | 1,555 |
| | 577 |
| | 491 |
| | 50,873 |
| | 1,515 |
| | 593 |
| | 286 |
|
| Texas | | 1,078,023 |
| | 11,461 |
| | 8,492 |
| | 1,327 |
| | 1,040,395 |
| | 12,309 |
| | 8,997 |
| | 704 |
| | 1,136,239 |
| | 14,046 |
| | 6,389 |
| | 1,545 |
| | 1,166,304 |
| | 13,097 |
| | 6,901 |
| | 446 |
|
| Other | | 36,657 |
| | 958 |
| | 414 |
| | 84 |
| | 39,087 |
| | 1,537 |
| | 367 |
| | 123 |
| | 28,507 |
| | 1,206 |
| | 356 |
| | 147 |
| | 29,384 |
| | 1,258 |
| | 395 |
| | 48 |
|
| | | $ | 3,000,688 |
| | $ | 45,721 |
| | $ | 30,811 |
| | $ | 3,019 |
| | $ | 2,989,487 |
| | $ | 47,088 |
| | $ | 34,746 |
| | $ | 3,417 |
| | $ | 2,881,556 |
| | $ | 45,607 |
| | $ | 24,789 |
| | $ | 2,596 |
| | $ | 3,045,831 |
| | $ | 48,641 |
| | $ | 26,768 |
| | $ | 2,406 |
|
The following table provides information related to refreshed FICO scores for the Company's equity loans and lines.
Table 19 Equity Loans and Lines | |
Table 18 Equity Loans and Lines | | Table 18 Equity Loans and Lines |
| | | | September 30, 2017 | | December 31, 2016 | | September 30, 2019 | | December 31, 2018 |
| 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 | | 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) | | (In Thousands) |
| Below 621 | | $ | 218,316 |
| | $ | 21,825 |
| | $ | 7,654 |
| | $ | 2,543 |
| | $ | 207,659 |
| | $ | 24,532 |
| | $ | 8,723 |
| | $ | 1,940 |
| | $ | 199,277 |
| | $ | 24,867 |
| | $ | 6,669 |
| | $ | 2,228 |
| | $ | 204,527 |
| | $ | 26,747 |
| | $ | 5,905 |
| | $ | 1,923 |
|
| 621 – 680 | | 387,696 |
| | 12,003 |
| | 11,875 |
| | 221 |
| | 412,752 |
| | 12,930 |
| | 13,326 |
| | 542 |
| | 344,851 |
| | 10,498 |
| | 7,306 |
| | 173 |
| | 376,248 |
| | 9,548 |
| | 9,126 |
| | 254 |
|
| 681 – 720 | | 544,717 |
| | 7,971 |
| | 4,542 |
| | 85 |
| | 557,850 |
| | 6,980 |
| | 6,081 |
| | 713 |
| | 493,624 |
| | 6,448 |
| | 4,345 |
| | 195 |
| | 537,568 |
| | 8,014 |
| | 3,908 |
| | 106 |
|
| Above 720 | | 1,838,787 |
| | 3,762 |
| | 6,666 |
| | 170 |
| | 1,798,151 |
| | 2,466 |
| | 6,430 |
| | 222 |
| | 1,837,132 |
| | 3,657 |
| | 6,370 |
| | — |
| | 1,919,796 |
| | 3,950 |
| | 7,829 |
| | 106 |
|
| Unknown | | 11,172 |
| | 160 |
| | 74 |
| | — |
| | 13,075 |
| | 180 |
| | 186 |
| | — |
| | 6,672 |
| | 137 |
| | 99 |
| | — |
| | 7,692 |
| | 382 |
| | — |
| | 17 |
|
| | | $ | 3,000,688 |
| | $ | 45,721 |
| | $ | 30,811 |
| | $ | 3,019 |
| | $ | 2,989,487 |
| | $ | 47,088 |
| | $ | 34,746 |
| | $ | 3,417 |
| | $ | 2,881,556 |
| | $ | 45,607 |
| | $ | 24,789 |
| | $ | 2,596 |
| | $ | 3,045,831 |
| | $ | 48,641 |
| | $ | 26,768 |
| | $ | 2,406 |
|
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 September 30, 2019 were $2.4 billion and $2.6 billion at December 31, 2018. Total credit cards at September 30, 2019 were $936 million and $818 million at December 31, 2018.
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 $3.8 billion at both September 30, 2019 and December 31, 2018.
The Company also originates credit card loans and other consumer direct loans that are centrally underwritten and sourced fromfollowing tables provide information related to refreshed FICO scores for the Company's branches or online. Total credit card, consumer direct and consumer indirect loans at September 30, 2017 were $5.2 billion, or 8.7% of the total loan portfolio compared to $5.0 billion, or 8.3% of the total loan portfolio at December 31, 2016.loans.
Table 19 Consumer Direct |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2019 | | December 31, 2018 |
| 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 | | $ | 170,810 |
| | $ | 3,524 |
| | $ | 1,048 |
| | $ | 7,073 |
| | $ | 217,273 |
| | $ | 3,870 |
| | $ | 1,002 |
| | $ | 12,197 |
|
| 621 – 680 | | 467,052 |
| | 1,966 |
| | 981 |
| | 6,371 |
| | 531,466 |
| | 257 |
| | 387 |
| | 178 |
|
| 681 – 720 | | 557,928 |
| | 1,246 |
| | 3,626 |
| | 2,632 |
| | 596,889 |
| | 147 |
| | 1,295 |
| | 311 |
|
| Above 720 | | 1,118,644 |
| | 612 |
| | 1,705 |
| | 1,121 |
| | 1,149,606 |
| | 254 |
| | — |
| | 11 |
|
| Unknown | | 73,924 |
| | — |
| | — |
| | 576 |
| | 58,354 |
| | — |
| | — |
| | 639 |
|
| | | $ | 2,388,358 |
| | $ | 7,348 |
| | $ | 7,360 |
| | $ | 17,773 |
| | $ | 2,553,588 |
| | $ | 4,528 |
| | $ | 2,684 |
| | $ | 13,336 |
|
Table 20 Consumer Indirect |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2019 | | December 31, 2018 |
| 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 | | $ | 758,852 |
| | $ | 27,233 |
| | $ | — |
| | $ | 7,192 |
| | $ | 865,702 |
| | $ | 14,700 |
| | $ | — |
| | $ | 9,128 |
|
| 621 – 680 | | 1,054,395 |
| | 4,390 |
| | — |
| | 1,012 |
| | 1,083,116 |
| | 2,084 |
| | — |
| | 381 |
|
| 681 – 720 | | 738,007 |
| | 1,359 |
| | — |
| | 298 |
| | 719,093 |
| | 648 |
| | — |
| | 69 |
|
| Above 720 | | 1,295,021 |
| | 958 |
| | — |
| | 97 |
| | 1,099,289 |
| | 402 |
| | — |
| | 213 |
|
| Unknown | | 2,258 |
| | — |
| | — |
| | — |
| | 2,819 |
| | — |
| | — |
| | — |
|
| | | $ | 3,848,533 |
| | $ | 33,940 |
| | $ | — |
| | $ | 8,599 |
| | $ | 3,770,019 |
| | $ | 17,834 |
| | $ | — |
| | $ | 9,791 |
|
Foreign Exposure
As of September 30, 2017,2019, 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.
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.
At September 30, 2017,There were no changes in the Company's and the Bank's credit ratings during the three months ended September 30, 2019. The Company's and the Bank's credit ratings at September 30, 2019 were as follows:
Table 2021 Credit Ratings |
| | | | | |
| | As of September 30, 20172019 |
| | Standard & Poor’s | | Moody’s | | Fitch |
BBVA CompassUSA Bancshares, Inc. | | | | | |
| Long-term debt rating | BBB+ | | Baa3Baa2 | | BBB+ |
| Short-term debt rating | A-2 | | -— | | F2 |
Compass BankBBVA USA | | | | | |
| Long-term debt rating | BBB+ | | Baa3Baa2 | | BBB+ |
| Long-term bank deposits (1) | N/A | | A3A2 | | A- |
| Subordinated debt | BBB | | Baa3Baa2 | | BBB-BBB |
| Short-term debt rating | A-2 | | P-3P-2 | | F2 |
Short-term deposit rating (2)(1) | N/A | | P-2P-1 | | F2 |
| Outlook | Stable | | Stable | | StableNegative |
(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.
The cost and availability of financing to the Company and the Bank are impacted by its 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. See the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2016,2018, for additional information.
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.
Deposits
Total deposits decreasedincreased by $66 million$1.4 billion from December 31, 20162018 to September 30, 2017.2019. At September 30, 20172019 and December 31, 2016,2018, total deposits included $8.4$5.5 billion and $5.8$9.0 billion, respectively, of brokered deposits, respectively.deposits. The following table presents the Company’s deposits segregated by major category:
Table 21 Composition of Deposits | |
Table 22 Composition of Deposits | | Table 22 Composition of Deposits |
| | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| | Balance | | % of Total | | Balance | | % of Total | Balance | | % of Total | | Balance | | % of Total |
| | (Dollars in Thousands) | (Dollars in Thousands) |
| Noninterest-bearing demand deposits | $ | 21,094,235 |
| | 31.4 | % | | $ | 20,332,792 |
| | 30.2 | % | $ | 21,019,303 |
| | 28.6 | % | | $ | 20,183,876 |
| | 28.0 | % |
| Interest-bearing demand deposits | 7,945,902 |
| | 11.8 |
| | 8,188,868 |
| | 12.2 |
| 8,740,086 |
| | 11.9 |
| | 8,400,192 |
| | 11.6 |
|
| Savings and money market | 24,691,943 |
| | 36.7 |
| | 25,330,003 |
| | 37.6 |
| 29,873,962 |
| | 40.6 |
| | 27,877,124 |
| | 38.6 |
|
| Time deposits | 13,481,487 |
| | 20.1 |
| | 13,427,870 |
| | 20.0 |
| 13,936,091 |
| | 18.9 |
| | 15,706,795 |
| | 21.8 |
|
| Total deposits | $ | 67,213,567 |
| | 100.0 | % | | $ | 67,279,533 |
| | 100.0 | % | $ | 73,569,442 |
| | 100.0 | % | | $ | 72,167,987 |
| | 100.0 | % |
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. Also provided are the maximum outstanding amounts of borrowings, the average amounts of borrowings and the average interest rates at period-end.
Table 22 Short-Term Borrowings | |
Table 23 Short-Term Borrowings | | Table 23 Short-Term Borrowings |
| | | Maximum Outstanding at Any Month End | | Average Balance | | Average Interest Rate | | Ending Balance | | Average Interest Rate at Period End | Maximum Outstanding at Any Month End | | Average Balance | | Average Interest Rate | | Ending Balance | | Average Interest Rate at Period End |
| | (Dollars in Thousands) | (Dollars in Thousands) |
| Balance at September 30, 2017 | | | | | | | | | | |
| Balance at September 30, 2019 | | | | | | | | | | |
| Federal funds purchased | $ | — |
| | $ | 373 |
| | 0.36 | % | | $ | — |
| | 0.53 | % | $ | 5,060 |
| | $ | 998 |
| | 1.75 | % | | $ | — |
| | — | % |
| Securities sold under agreements to repurchase (1) | 114,361 |
| | 64,303 |
| | 0.93 |
| | 44,761 |
| | 0.84 |
| 1,052,762 |
| | 762,683 |
| | 0.30 |
| | 117,421 |
| | 2.22 |
|
| Other short-term borrowings | 2,721,539 |
| | 2,239,427 |
| | 1.45 |
| | 327,539 |
| | 0.68 |
| 69,446 |
| | 16,235 |
| | 3.03 |
| | 45 |
| | 3.03 |
|
| | $ | 2,835,900 |
| | $ | 2,304,103 |
| | | | $ | 372,300 |
| | | $ | 1,127,268 |
| | $ | 779,916 |
| | | | $ | 117,466 |
| | |
| Balance at December 31, 2016 | | | | | | | | | | |
| Balance at December 31, 2018 | | | | | | | | | | |
| Federal funds purchased | $ | 766,095 |
| | $ | 372,355 |
| | 0.49 | % | | $ | 12,885 |
| | 0.39 | % | $ | 2,000 |
| | $ | 82 |
| | 2.50 | % | | $ | — |
| | — | % |
| Securities sold under agreements to repurchase (1) | 148,291 |
| | 79,625 |
| | 0.49 |
| | 26,167 |
| | 0.55 |
| 183,511 |
| | 109,770 |
| | 1.78 |
| | 102,275 |
| | 3.73 |
|
| Other short-term borrowings | 4,497,354 |
| | 3,778,752 |
| | 1.44 |
| | 2,802,977 |
| | 1.68 |
| 159,004 |
| | 68,423 |
| | 3.04 |
| | — |
| | — |
|
| | $ | 5,411,740 |
| | $ | 4,230,732 |
| | | | $ | 2,842,029 |
| | | $ | 344,515 |
| | $ | 178,275 |
| | | | $ | 102,275 |
| | |
| |
| (1) | Average interest rate does not reflect impact of balance sheet offsetting. See Note 6, Securities Financing Activities, in the Notes to the Unaudited Condensed Consolidated Financial Statements. |
Total short-term borrowings decreased to $372 million at September 30, 2017 from $2.8 billion at December 31, 2016 due to a reduction in U.S. Treasury short positions held by BSI.
At September 30, 20172019 and December 31, 2016,2018, FHLB and other borrowings were $4.0$3.7 billion and $3.0$4.0 billion, respectively. In June 2017,August 2019, the Bank issued under its Global Bank Note Program $750$600 million aggregate principal amount of its 2.875%2.5% unsecured senior notes due 2022. 2024.
For the nine months ended September 30, 2017,2019, the Company had $9.2$4.4 billion of proceeds received from FHLB and other borrowings and repayments were approximately $8.3$4.8 billion.
Shareholder’s Equity
Total shareholder's equity was $13.1$14.1 billion at September 30, 2017,2019, compared to $12.8$13.5 billion at December 31, 2016,2018, an increase of $365$589 million. Shareholder's equity increased $407$482 million due to earnings attributable to the Company during the period, as well as a $288 million increase in accumulated other comprehensive income largely attributable to a decrease in unrealized losses on available for sale securities offset, in part, by the payment of preferred and common dividends totaling $71.0$184 million to its sole shareholder, BBVA.
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, interest rate risk, liquidity risk, operational risk, market risk, model risk, reputational risk, fiduciary risk, suitability risk, compliance risk, legal risk, and strategic and business risk. Each of these risks is managed through the Company’s ERM program. The ERM program provides the structure and framework necessary to identify, measure, control and manage risk across the organization. ERM is the cornerstone for defining risk tolerance, identifying and monitoring 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.
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 minimize any adverse effect 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 September 30, 2017,2019, 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 September 30, 2017.2019.
Table 2324 Net Interest Income Sensitivity |
| | |
| | Estimated % Change in Net Interest Income |
| | September 30, 20172019 |
| Rate Change | |
| + 200 basis points | 8.935.03 | % |
| + 100 basis points | 4.582.78 |
|
| - 100 basis points | (4.824.45 | ) |
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 of new business or potential management actions.
Table 2425 Economic Value of Equity |
| | |
| | Estimated % Change in Economic Value of Equity |
| | September 30, 20172019 |
| Rate Change | |
| + 300 basis points | (6.10)(11.76) | % |
| + 200 basis points | (3.807.16 | ) |
| + 100 basis points | (1.642.77 | ) |
| - 100 basis points | (0.720.07 | ) |
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 September 30, 2017,2019, the Company had derivative financial instruments outstanding with notional amounts of $46.8$52.5 billion. The estimated net fair value of open contracts was in an asset position of $37$331 million
at September 30, 2017.2019. For additional information about derivatives, refer to Note 5, Derivatives and Hedging, in the Notes to the Unaudited Condensed 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 communities 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, and securities purchased under agreements to resell, are additional sources of liquidity.
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 the 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.
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 under Alabama law, the Bank was not permitted to pay dividends at September 30, 20172019 or December 31, 20162018 without regulatory approval. Appropriate limits and guidelines are in place to ensure the Parent has sufficient cash to meet operating expenses and other commitments without relying on subsidiaries or capital markets for funding. 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.
On June 29, 2017,August 27, 2019, the Bank issued under its Global Bank Note Program $750$600 million aggregate principal amount of its 2.875%2.50% unsecured senior notes due 2022.2024.
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.
The Federal Reserve Board will no longer take action to require the Company to comply with the Federal Reserve Board’s LCR rule until it formally amends its regulations to implement the EGRRCPA. In 2014,October 2019, the Federal Reserve Board the OCC, and the FDIC approvedfinalized a final rule implementing a minimum liquidity coverage ratio requirement for certain large bank holding companies, savings and loan holding companies and depository institutions, and a less stringent LCR requirement for other banking organizations, such asformally amending its regulations to no longer require the Company to comply with $50 billion or more in total consolidated assets. The final rule imposes a monthly reporting requirement. As of January 2017, the LCR requirement was 100 percent.rule once the amendment becomes effective. At September 30, 2017,2019, the CompanyCompany's LCR was 144% and was fully compliant with the LCR requirements in effect for 2017.requirements. 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.
Management believes that the current sources of liquidity are adequate to meet the Company’s requirements and plans for continued growth.
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 September 30, 20172019 and December 31, 2016.2018.
Table 25 Capital Ratios | |
Table 26 Capital Ratios | | Table 26 Capital Ratios |
| | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| | (Dollars in Thousands) | (Dollars in Thousands) |
| Capital: | | | | | | |
| CET1 Capital | $ | 8,005,526 |
| | $ | 7,669,118 |
| $ | 8,792,958 |
| | $ | 8,457,585 |
|
| Tier 1 Capital | 8,239,726 |
| | 7,907,518 |
| 9,027,158 |
| | 8,691,785 |
|
| Total Capital | 9,706,431 |
| | 9,550,482 |
| 10,495,530 |
| | 10,216,625 |
|
| Ratios: | | | | | | |
| CET1 Risk-based Capital Ratio | 12.07 | % | | 11.49 | % | 12.89 | % | | 12.00 | % |
| Tier 1 Risk-based Capital Ratio | 12.42 |
| | 11.85 |
| 13.24 |
| | 12.33 |
|
| Total Risk-based Capital Ratio | 14.63 |
| | 14.31 |
| 15.39 |
| | 14.49 |
|
| Leverage Ratio | 10.00 |
| | 9.46 |
| 10.03 |
| | 10.03 |
|
At September 30, 2017,2019, the regulatory capital ratios of the Bank exceeded the “well-capitalized” standard for banks based on applicable U.S. regulatory capital requirements. The Company continually monitors these ratios to ensure that the Bank exceeds this standard.
| |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Refer to “Market Risk Management” in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, herein.
Item 4. Controls and Procedures
Disclosure Controls and Procedures.
Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on their evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
Changes In Internal Control Over Financial Reporting.
There have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II OTHER INFORMATION
See under “Legal and Regulatory Proceedings” in Note 78, Commitments, Contingencies and Guarantees, of the Notes to the Unaudited Condensed Consolidated Financial Statements.
Various risk and uncertainties could affect the Company's business. These risks are described elsewhere in this report and the Company's other filings with the SEC, including the Company's Annual Report on Form 10-K for the year-ended December 31, 2016.2018.
There have been no material changes toThe following discussion updates the risk factors disclosed in the Company's Annual Report on Form 10-K for the year-ended December 31, 2016.2018.
The Company is a subsidiary of BBVA Group, and activities across BBVA Group could adversely affect the Company’s business and results of operations.
The Company is a 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 foster a culture in which its employees act with integrity and feel comfortable reporting instances of misconduct. The BBVA Group employees are essential to this culture, and acts of misconduct by any employee, and particularly by senior management, could erode trust and confidence and damage the BBVA Group and the Company’s reputation among existing and potential clients and other stakeholders. Negative public opinion could result from actual or alleged conduct by the BBVA 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 satisfaction of client expectations, and from actions taken by regulators or others in response to such conduct.
The Spanish judicial authorities are investigating the activities of the company Centro Exclusivo de Negocios y Transacciones, S.L. (Cenyt). Such investigation includes the provision of services by Cenyt to BBVA. On July 29, 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 possible breaches of law related to bribery, revelation of secrets and corruption in connection with BBVA’s relationship with Cenyt. Certain current and former officers, directors and employees of the BBVA Group have also been named as official suspects in connection with this investigation. BBVA has been and continues to proactively collaborate with the Spanish judicial authorities, including sharing with the courts information from its on-going forensic investigation regarding its relationship with Cenyt. BBVA is currently not able to publicly disclose such information due to the legal requirement not to interfere with the judicial investigation. The criminal judicial proceeding is at a preliminary stage and is currently subject to a secrecy order. Therefore, it is not possible at this time to predict the scope or duration of such proceeding or any related proceeding or its or their possible outcomes or implications for the BBVA Group, including any fines, damages or harm to the BBVA Group’s reputation caused thereby. This matter or any similar matters arising across the BBVA Group could damage the Company’s reputation and adversely affect the confidence of the Company’s clients, rating agencies, regulators, bondholders and other parties and could have an adverse effect on the Company’s business, financial condition and operating results.
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Omitted pursuant to General Instruction H of Form 10-Q.
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| Item 3. | Defaults Upon Senior Securities |
Omitted pursuant to General Instruction H of Form 10-Q.
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| Item 4. | Mine Safety Disclosures |
Not Applicable.
Item 5. Other Information
Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act
The Company discloses the following information pursuant to Section 13(r) of the Exchange Act, which requires an issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with natural persons or entities designated by the U.S. government under specified executive orders, including activities not prohibited by U.S. law and conducted outside the United States by non-U.S. affiliates in compliance with local law. In order to comply with this requirement, the Company has requested relevant information from its affiliates globally.
The Company has not knowingly engaged in activities, transactions or dealings relating to Iran or with natural persons or entities designated by the U.S. government under the specified executive orders.
Because the Company is controlled by BBVA, a Spanish corporation, the Company's disclosure includes activities, transactions or dealings conducted outside the United States by non-U.S. affiliates of BBVA and its consolidated subsidiaries that are not controlled by the Company. The BBVA Group has the following activities, transactions and dealings with Iran requiring disclosure.
Legacy contractual obligations related to counter indemnities. Before 2007, the BBVA Group issued certain counter indemnities to its non-Iranian customers in Europe for various business activities relating to Iran in supportmade a payment of guarantees provided by Bank Melli, one of which remained outstanding during the three months ended September 30, 2017. For the three months ended September 30, 2017, no fees and/or commissions have been recorded in connection with these counter indemnities. In accordance with Council Regulation (EU) Nr. 267/2012 of March 23, 2012, any payments of amounts due$642 to Bank Melli under these counter indemnities were initially blockedon July 11, 2019, due to outstanding commissions on the counterindemnity executed on October 16, 2018. Such counterindemnity was issued in April 2000 and thereafter released upon authorization by the relevant Spanish authorities. The BBVA Group is committed to terminating the outstanding counter indemnity as soon as contractually possible and does not intend to enter into new business relationships involving Bank Melli.has been regularly reported until its execution in 2018.
Iranian embassy-related activity. The BBVA Group maintains bank accounts in Spain for one employee of the Iranian embassy in Spain. This employee is a Spanish citizen. Estimated gross revenues for the three months ended September 30, 2017,2019, from embassy-related activity, which include fees and/or commissions, did not exceed $56.$297. The
BBVA Group does not allocate direct costs to fees and commissions and therefore has not disclosed a separate profit measure. The BBVA Group is committed to terminating these business relationships as soon as legally possible.
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| Exhibit Number | Description of Documents |
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| Second Amended and Restated Certificate of Formation of the Company, reflecting name change to BBVA CompassUSA Bancshares, Inc., (incorporated herein by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K (file no. 000-55106), filed with the Commission on April 13, 2015 File No. 0-55106 and as amended by the Certificate of Preferences and Rights of the Floating Non-Cumulative Perpetual Preferred Stock, Series A incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on December 3, 2015, File No. 0-55106)June 10, 2019). |
| Bylaws of BBVA CompassUSA Bancshares, Inc. (incorporated herein by reference to Exhibit 3.2 of the Company’s Registration Statement on Form 10 filed with the Commission on November 22, 2013, File No. 0-55106). |
| Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.1 | Interactive Data File. |
Certain instruments defining rights of holders of long-term debt of the Company and its subsidiaries constituting less than 10% of the Company’s total assets are not filed herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. At the SEC’s request, the Company agrees to furnish the SEC a copy of any such agreement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Date: November 8, 20175, 2019 | BBVA CompassUSA Bancshares, Inc. |
| | By: | /s/ Kirk P. Pressley |
| | | Name: | Kirk P. Pressley |
| | | Title: | Senior Executive Vice President, Chief Financial Officer and Duly Authorized Officer |