Item 3:
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Liquidity and Market Risk Management
Liquidity Management.
Liquidity refers to the ability or the financial flexibility to manage future cash flows to meet the needs of
depositors and borrowers and fund operations. Maintaining appropriate levels of liquidity allows us to have sufficient funds available for reserve requirements, customer demand for loans, withdrawal of deposit balances and maturities of deposits and
other liabilities. Our primary source of liquidity at our holding company is dividends paid by our bank subsidiary. Applicable statutes and regulations impose restrictions on the amount of dividends that may be declared by our bank subsidiary.
Further, any dividend payments are subject to the continuing ability of the bank subsidiary to maintain compliance with minimum federal regulatory capital requirements and to retain its characterization under federal regulations as a
well-capitalized institution.
Our bank subsidiary has potential obligations resulting from the issuance of standby letters of
credit and commitments to fund future borrowings to our loan customers. Many of these obligations and commitments to fund future borrowings to our loan customers are expected to expire without being drawn upon; therefore, the total commitment
amounts do not necessarily represent future cash requirements affecting our liquidity position.
Liquidity needs can be met from either
assets or liabilities. On the asset side, our primary sources of liquidity include cash and due from banks, federal funds sold,
available-for-sale
investment securities
and scheduled repayments and maturities of loans. We maintain adequate levels of cash and cash equivalents to meet our
day-to-day
needs. As of March 31, 2019, our
cash and cash equivalents were $562.5 million, or 3.7% of total assets, compared to $657.9 million, or 4.3% of total assets, as of December 31, 2018. Our
available-for-sale
investment securities and federal funds sold were $2.01 billion and $1.79 billion as of March 31, 2019 and December 31, 2018,
respectively.
As of March 31, 2019, our investment portfolio was comprised of approximately 72.2% or $1.45 billion of
securities which mature in less than five years. As of March 31, 2019 and December 31, 2018, $1.26 billion and $1.32 billion, respectively, of securities were pledged as collateral for various public fund deposits and securities
sold under agreements to repurchase.
On the liability side, our principal sources of liquidity are deposits, borrowed funds, and access
to capital markets. Customer deposits are our largest sources of funds. As of March 31, 2019, our total deposits were $11.07 billion, or 72.9% of total assets, compared to $10.90 billion, or 71.2% of total assets, as of
December 31, 2018. We attract our deposits primarily from individuals, business, and municipalities located in our market areas.
In
the event that additional short-term liquidity is needed to temporarily satisfy our liquidity needs, we have established and currently maintain lines of credit with the Federal Reserve Bank (Federal Reserve) and First National
Bankers Bank to provide short-term borrowings in the form of federal funds purchases. In addition, we maintain lines of credit with two other financial institutions.
As of March 31, 2019 and December 31, 2018, we could have borrowed up to $310.0 million and $288.0 million, respectively,
on a secured basis from the Federal Reserve, up to $25.0 million from First National Bankers Bank on an unsecured basis, up to $25.0 million from First National Bankers Bank on a secured basis and up to $45.0 million in
the aggregate from other financial institutions on an unsecured basis. The unsecured lines may be terminated by the respective institutions at any time.
The lines of credit we maintain with the FHLB can provide us with both short-term and long-term forms of liquidity on a secured basis. FHLB
borrowed funds were $1.10 billion and $1.47 billion at March 31, 2019 and December 31, 2018, respectively. Other borrowed funds were $360,000 and $2.5 million and are classified as short-term advances as of March 31,
2019 and December 31, 2018, respectively. At March 31, 2019, $415.4 million and $689.8 million of the outstanding balance were issued as short-term and long-term advances, respectively. At December 31, 2018,
$782.6 million and $698.8 million of the outstanding balance were issued as short-term and long-term advances, respectively. Our FHLB borrowing capacity was $3.07 billion and $2.62 billion as of March 31, 2019 and
December 31, 2018, respectively.
We believe that we have sufficient liquidity to satisfy our current operations.
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