Notes to Unaudited Consolidated Financial Statements
NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION
First Citizens BancShares, Inc. (“BancShares”) is a financial holding company organized under the laws of Delaware and conducts operations through its banking subsidiary, First-Citizens Bank & Trust Company (“FCB”), which is headquartered in Raleigh, North Carolina.
General
These consolidated financial statements and notes thereto are presented in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and consolidated results of operations have been made. The unaudited interim consolidated financial statements included in this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in BancShares’ Annual Report on Form 10-K for the year ended December 31, 2019.
Reclassifications
In certain instances, amounts reported in prior years’ consolidated financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported cash flows, shareholders’ equity or net income.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions which affect the amounts reported. Actual results could differ from those estimates. The estimates BancShares considers significant are the allowance for credit losses, fair value measurements, and income taxes.
Issuance of Preferred Stock and Subordinated Debt
On March 4, 2020, BancShares completed its public offering of $350 million aggregate principal amount of its 3.375% Fixed-to-Floating Rate Subordinated Notes due 2030 and redeemable at the option of BancShares starting in 2025. On March 12, 2020, BancShares issued and sold an aggregate of 13,800,000 depositary shares, each representing a 1/40th interest in a share of 5.375% Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share, with a liquidation preference of $25 per Depositary Share (equivalent to $1,000 per share of Series A Preferred Stock) for a total of $345 million. The capital raise provides liquidity for general corporate purposes, which may include, but is not limited to, providing capital to support our growth organically or through strategic acquisitions, financing investments and capital expenditures, for funding investments in First Citizens Bank as regulatory capital, and redeeming or repurchasing our common stock.
Share Repurchases
During the first quarter of 2020, BancShares repurchased 349,390 shares of Class A common stock for $159.7 million at an average cost per share of $457.05. During the first quarter of 2019, BancShares repurchased a total of 243,000 shares of Class A common stock for $100.7 million at an average cost per share of $414.58. All Class A common stock repurchases were consummated under previously approved authorizations.
The share repurchases in the first quarter of 2020 included 45,000 shares of Class A common stock repurchased from Ella Ann
Holding, as trustee of her revocable trust. Pursuant to the existing share repurchase authorization and BancShares’ related person transaction policy, the Board of Director’s (the “Board”) independent Audit Committee reviewed and approved the repurchase of up to 250,000 shares held by Mrs. Holding on or before April 30, 2020.
Subsequent to quarter-end through April 30, 2020, BancShares repurchased an additional 111,700 shares of Class A common stock for $37.3 million at an average cost per share of $333.71.
On April 28, 2020, the Board authorized share repurchases of up to 500,000 of BancShares’ Class A common stock for the period May 1, 2020 through July 31, 2020. This authority supersedes all previously approved authorities.
Recently Adopted Accounting Pronouncements
Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
This ASU modifies the disclosure requirements on fair value measurements by eliminating the requirements to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value measurements. This ASU also added specific disclosure requirements for fair value measurements for public business entities including the requirement to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.
BancShares adopted this ASU during the first quarter of 2020 and have made all applicable updates to the disclosure within the Notes to the Unaudited Consolidated Financial Statements.
FASB ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
This ASU eliminates Step 2 from the goodwill impairment test. Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative test.
BancShares adopted this ASU during the first quarter 2020 with no impact to our consolidated financial position or consolidated results of operations as a result of the adoption.
FASB ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This ASU (and all subsequent ASUs on this topic) introduce the current expected credit loss (“CECL”) model, a new credit loss methodology, replacing multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized. The amendments in this ASU require loss estimates be determined over the lifetime of the asset and broaden the information that an entity must consider in developing its expected credit losses. The ASU does not specify a method for measuring expected credit losses and allows an entity to apply methods that reasonably reflect its expectations of the credit loss estimate based on the entity's size, complexity and risk profile. In addition, the disclosures of credit quality indicators in relation to the amortized cost of financing receivables, a current disclosure requirement, are further disaggregated by year of origination.
BancShares adopted this ASU (and all subsequent ASUs on this topic) as of January 1, 2020 using the modified retrospective approach for all loans, leases, debt securities designated as held to maturity, and unfunded loan commitments. BancShares adopted the ASU using the prospective approach for debt securities available for sale and purchased credit deteriorated (“PCD”) loans previously accounted for under Accounting Standard Codification (“ASC”) ASC 310-30. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. BancShares made changes to loan classifications and segmentation in order to align with ASC 326 requirements and facilitate CECL modeling. Using this updated segmentation, BancShares developed new loan level models to estimate the allowance for credit losses (“ACL”) and facilitate revised disclosures.
The information presented below represents changes from Note A, Accounting Policies and Basis of Presentation, included in BancShares’ Annual Report on Form 10-K for the year ended December 31, 2019, as well as information on the impact of adoption.
Accounting Policy - Debt Securities
BancShares classifies debt securities as held to maturity (“HTM”) or available for sale (“AFS”). Debt securities are classified as HTM when BancShares has the intent and ability to hold the securities to maturity and are reported at amortized cost. Other debt securities are classified as AFS and reported at estimated fair value, with unrealized gains and losses, net of income taxes, reported in Accumulated Other Comprehensive Income (“AOCI”). Amortization of premiums and accretion of discounts for debt securities are included in interest income. Realized gains and losses from the sale of debt securities are determined by specific identification on a trade date basis and are included in noninterest income.
BancShares performs pre-purchase due diligence and evaluates the credit risk of AFS and HTM securities purchased directly into our portfolio or via acquisition. If securities have evidence of more than insignificant credit deterioration since issuance, they are designated as PCD. PCD securities are recorded at fair value at the date of acquisition which includes an associated allowance that is added to the purchase price or fair value to arrive at the Day 1 amortized cost basis. The difference between the purchase price and the Day 1 amortized cost is amortized or accreted to interest income over the contractual life of the securities using the effective interest method.
For AFS securities, management performs a quarterly analysis of the investment portfolio to evaluate securities currently in an unrealized loss position for potential credit-related impairment. If BancShares intends to sell a security, or does not have the intent and ability to hold a security before recovering the amortized cost, the entirety of the unrealized loss is immediately recorded in earnings. For the remaining securities, an analysis is performed to determine if any portion of the unrealized loss recorded relates to credit impairment. If credit related impairment exists, the amount is recorded through the ACL and related provision. This review includes indicators such as changes in credit rating, delinquency, bankruptcy or other significant news event impacting the issuer.
Bancshares’ portfolio of HTM debt securities is made up of mortgage-backed securities issued by government agencies and government sponsored entities. Given the historically strong credit rating of the US Treasury and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, we determined zero expected credit losses on the HTM portfolio.
Accounting Policy - Loans and Leases
BancShares’ accounting methods for loans and leases depends on whether they are originated or purchased, and if purchased, whether or not the loans reflect more than insignificant credit deterioration since origination as of the date of acquisition.
Non-Purchased Credit Deteriorated (“Non-PCD”) Loans
Non-PCD loans consist of loans originated by BancShares and loans purchased from other institutions that do not reflect more than insignificant credit deterioration at acquisition.
Originated loans for which management has the intent and ability to hold for the foreseeable future are classified as held for investment and carried at the principal amount outstanding net of any unearned income, charge-offs and unamortized fees and costs. Nonrefundable fees collected and certain direct costs incurred related to loan originations are deferred and recorded as an adjustment to loans outstanding. The net amount of the nonrefundable fees and costs is amortized to interest income over the contractual lives using methods that approximate a constant yield.
Purchased loans which do not reflect more than insignificant credit deterioration at acquisition are classified as non-PCD loans. These loans are recorded at fair value at the date of acquisition and an initial allowance is recorded on these assets as provision expense at the date of acquisition. The difference between the fair value and the unpaid principal balance at the acquisition date is amortized or accreted to interest income over the contractual life of the loan using the effective interest method.
Purchased Credit Deteriorated Loans
Purchased loans which reflect a more than insignificant credit deterioration since origination as of the date of acquisition are classified as PCD and are recorded at acquisition date amortized cost, which is the purchase price or fair value in a business combination, plus our initial estimate of expected credit losses. The difference between the unpaid principal balance and the acquisition date amortized cost is amortized or accreted to interest income over the contractual life of the loan using the effective interest method.
The performance of all loans within the BancShares portfolio is subject to a number of external risks, including but not limited to changes in the overall health of the economy, declines in real estate or other collateral values, changes in the demand for products and services and personal events, such as death, disability or change in marital status. BancShares evaluates and reports its non-PCD and PCD loan portfolios separately, and each non-PCD portfolio is further divided into commercial and consumer segments based on the type of borrower, purpose, collateral and/or our underlying credit management processes. Additionally, non-PCD commercial and consumer loans are assigned to loan classes, which further disaggregate the loan portfolio. PCD loans are reported as a single loan segment and class.
The following represent our classes of loans as of January 1, 2020:
Commercial loans and leases
Construction and land development - Construction and land development consists of loans to finance land for development of commercial or residential real property and construction of multifamily apartments or other commercial properties. These loans are highly dependent on the supply and demand for commercial real estate as well as the demand for newly constructed residential homes and lots acquired for development. Deterioration in demand could result in decreased collateral values, which could make repayments of outstanding loans difficult for customers.
Owner occupied commercial mortgage - Owner occupied commercial mortgages consists of loans to purchase or re-finance owner occupied nonresidential properties. This includes office buildings, other commercial facilities, and farmland. Commercial mortgages secured by owner occupied properties are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan origination. While these loans and leases are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation.
Non-owner occupied commercial mortgage - Non-owner occupied commercial mortgage consists of loans to purchase or refinance investment nonresidential properties. This includes office buildings and other facilities rented or leased to unrelated parties, as well as farmland and multifamily properties. The primary risk associated with income producing commercial mortgage loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. While these loans and leases are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation.
Commercial and industrial and leases - Commercial and industrial loans consist of loans or lines of credit to finance accounts receivable, inventory or other general business needs, business credit cards, and lease financing agreements for equipment, vehicles, or other assets. The primary risk associated with commercial and industrial and lease financing loans is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan or lease.
Consumer loans
Residential mortgage - Residential mortgage consists of loans to purchase or refinance the borrower’s primary dwelling, second residence or vacation home and are often secured by 1-4 family residential property. Significant and rapid declines in real estate values can result in borrowers having debt levels in excess of the current market value of the collateral.
Revolving mortgage - Revolving mortgage consists of home equity lines of credit and other lines of credit secured by first or second liens on the borrower’s primary residence. These loans are secured by both senior and junior liens on the residential real estate and are particularly susceptible to declining collateral values. This risk is elevated for loans secured by junior lines as a substantial decline in value could render a the junior lien position effectively unsecured.
Construction and land development - Construction and land development consists of loans to construct a borrower’s primary or secondary residence or vacant land upon which the owner intends to construct a dwelling at a future date. These loans are typically secured by undeveloped or partially developed land in anticipation of completing construction of a 1-4 family residential property. There is risk these construction and development projects can experience delays and cost overruns exceeding the borrower’s financial ability to complete the project. Such cost overruns can result in foreclosure of partially completed and unmarketable collateral.
Consumer auto loans - Consumer auto loans consist of installment loans to finance purchases of vehicles. These loans include direct auto loans originated in bank branches, as well indirect auto loans originated through agreements with auto dealerships. The value of the underlying collateral within this class is at risk of potential rapid depreciation which could result in unpaid balances in excess of the collateral.
Other consumer - Consumer loans consist of loans to finance unsecured home improvements, student loans and revolving lines of credit that can be secured or unsecured, including personal credit cards. The value of the underlying collateral within this class is at risk of potential rapid depreciation which could result in unpaid balances in excess of the collateral.
Upon adoption of ASC 326, owner occupied and non-owner occupied commercial real estate were segregated into separate classes within the commercial segment. Similarly, consumer auto was segregated into its own class within the consumer segment. These enhancements were made to capture the unique credit characteristics used in our CECL models.
Accounting Policy - Nonperforming Assets and Troubled Debt Restructurings
Nonperforming Assets (“NPA”)
NPAs include nonaccrual loans, past due securities and foreclosed property. Foreclosed property consists of real estate and other assets acquired as a result of loan defaults and is discussed below.
All loans are classified as past due when the payment of principal and interest based upon contractual terms is greater than 30 days delinquent. Loans are generally placed on nonaccrual when principal or interest becomes 90 days past due or when it is probable the principal or interest is not fully collectible. When loans are placed on nonaccrual, all previously uncollected accrued interest is reversed from interest income and the ongoing accrual of interest is discontinued. All payments received thereafter are applied as a reduction of the remaining principal balance as long as doubt exists as to the ultimate collection of the principal. Loans and leases are generally removed from nonaccrual status when they become current for a sustained period of time and there is no longer concern as to the collectability of principal and interest.
Securities are also classified as past due when the payment of principal and interest based upon contractual terms is greater than 30 days delinquent. Missed interest payments on securities are rare. We review all securities with delinquent interest and immediately charge off any accrued interest determined to be uncollectible.
Troubled Debt Restructurings (“TDR”)
A loan is considered a TDR when both of the following occur: (1) a modification to a borrower’s debt agreement is made and (2) a concession is granted for economic or legal reasons related to a borrower’s financial difficulties that otherwise would not be granted. TDR concessions could include short-term deferrals of interest, modifications of payment terms, or (in certain limited instances) forgiveness of principal or interest. Loans restructured as a TDR are treated and reported as such for the remaining life of the loan. TDR loans can be nonaccrual or accrual, depending on the individual facts and circumstances of the borrower. In circumstances where a portion of the loan balance is charged-off, the remaining balance is typically classified as nonaccrual.
Accounting Policy - Allowance for Credit Losses (“ACL”)
Loans
Loans within the various reporting classes are segregated into pools with similar risk characteristics and models are built to estimate the ACL. These loan level ACL models estimate the probability of default and loss given default for individual loans within the risk pool based on historical loss experience, borrower characteristics, collateral type, forecasts of relevant economic conditions, expected future recoveries and other factors. Pools for estimating the ACL are aggregated into loan classes, as described above, which roll up into commercial and consumer loan segments. Non-PCD and PCD loans are modeled together within the loan level models using acquired and PCD indicator variables to provide differentiation of individual loan risk. BancShares uses a two-year reasonable and supportable forecast period which incorporates economic forecasts at the time of evaluation. For most pools, BancShares uses a 12-month straight-line reversion period to historical averages for model inputs; however for the consumer other, consumer card and commercial card pools, immediate reversion to historical net loss rates is utilized.
The ACL represents management’s best estimate of credit losses expected over the life of the loan, adjusted for expected contractual payments and the impact of pre-payment expectations. Pre-payment assumptions were developed through a review of BancShares historical pre-payment activity and began with a review of pre-payment assumptions utilized in other modeling activities. Estimates for loan losses are determined by analyzing quantitative and qualitative components present as of the evaluation date. Adjustments to the ACL are recorded with a corresponding entry to provision for credit losses. Loan balances considered uncollectible are charged-off against the ACL. Recoveries of amounts previously charged-off are credited to the ACL.
A primary component of determining the ACL on loans is the actual net loss history of the various loan pools. For commercial pools, key factors utilized in the models include delinquency trends as well as macroeconomic variables such as unemployment and commercial real estate price index. For consumer pools, key factors include delinquency trends and the borrower’s original credit score, as well as other macroeconomic variables such as unemployment, gross domestic product, home price index, and commercial real estate index. As the models project losses over the life of the loans, prepayment assumptions also serve as significant inputs. Model outputs may be adjusted through a qualitative assessment to reflect economic conditions and trends not captured within the models including credit quality, concentrations, and significant policy and underwriting changes.
Within our ACL model, TDRs meet the definition of default and are given a 100% probability of default rating. TDRs are not individually evaluated unless determined to be collateral-dependent. Therefore, loss given default is calculated based on the individual risk characteristics of the loan as defined in the model.
When loans do not share risk characteristics similar to others in the pool, the ACL is evaluated on an individual basis. Given that BancShares CECL models are loan level models, the population of loans evaluated individually is minimal and consists primarily of loans greater than $500 thousand and determined to be collateral-dependent. BancShares elected the practical expedient allowed under ASC 326 to assess the collectability of these loans, where repayment is expected to be provided substantially through operation or sale of collateral, based on the fair value of the underlying collateral. The fair value of the collateral is estimated using appraised and market values (appropriately adjusted for an assessment of the sales and marketing costs when applicable). A specific allowance is established, or partial charge-off is recorded, for the difference between the excess amortized cost of loan and the collateral’s estimated fair value.
Accrued Interest Receivable
BancShares has elected not to measure an ACL for accrued interest receivable and has excluded it from the amortized cost basis of loans and held to maturity debt securities as our accounting policies and credit monitoring provide that uncollectible accrued interest is reversed or written off against interest income in a timely manner.
Unfunded Commitments
A reserve for unfunded commitments is established for off-balance sheet exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well a both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot canceled at any time). These unfunded commitments are assessed to determine both the probability of funding as well the expectation of future losses. The expected funding balance is used in the probability of default and loss given default models to determine the reserve. The reserve for unfunded commitments was $10.5 million at March 31, 2020, and is recorded within other liabilities with changes recorded through other expense.
Adoption Impact
Upon adoption, BancShares recorded a net decrease of $37.9 million in the ACL which included a reduction of $56.9 million in the ACL on non-PCD loans, offset by an increase of $19.0 million in the ACL on PCD loans. The $56.9 million reduction in the ACL on non-PCD loans, as well as an $8.9 million increase in the reserve for unfunded commitments, net of deferred taxes, resulted in an increase in retained earnings of $36.9 million. The $19.0 million increase in the ACL on PCD loans resulted in a gross up of loan balances by this same amount and did not have any effect on retained earnings. Impact to total capital and capital ratios was not significant and we did not elect the capital phase-in option allowable for regulatory reporting purposes. There was no ACL recorded on debt securities held to maturity at adoption.
The largest changes in the ACL, affecting beginning retained earnings as a result of the adoption, were decreases in the ACL on commercial loan segments as these portfolios have exhibited strong historical credit performance and have relatively short average lives. The reduction in ACL on these segments was partially offset by increases in ACL on our consumer loan segments primarily due to their longer average lives. The increase in the reserve for unfunded commitments was primarily due to increases in the scope of off-balance sheet exposures considered in this estimate due to the provisions in ASU 2016-13.
BancShares adopted this ASU using the prospective transition approach for PCD loans previously accounted for under ASC 310-30. In accordance with the standard, we did not assess whether purchased credit impaired (“PCI”) loans met the criteria of PCD as of the date of adoption and all loans previously classified as PCI were updated to the PCD classification. Pools utilized for PCI accounting under ASC 310-10 were dissolved upon adoption. Loans from performing PCI pools, not previously considered nonaccrual of $47.0 million, were reclassified into nonaccrual status as a result of adoption. PCD loans were assessed using the loan level probability of default and loss given default models, as well as utilizing prior specific loan reviews to inform the initial PCD loan ACL. The ACL for PCD loans increased as a result of adoption and the amortized cost basis of these loans was adjusted to reflect the transfer of this amount from credit discount to ACL. The remaining noncredit discount will be accreted into interest income at the effective interest rate as of January 1, 2020. At the date of adoption, no securities were determined to be PCD.
BancShares also adopted this ASU under the prospective transition approach for debt securities available for sale. No previously recorded other than temporary impairment was reported on the portfolio of debt securities.
Recently Issued Accounting Pronouncements
FASB ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by eliminating the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and adding a requirement to disclose an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.
The amendments in this ASU are effective for public entities for fiscal years ending after December 15, 2020. Early adoption is permitted for all entities. BancShares will adopt all applicable amendments and update the disclosures as appropriate during the fourth quarter of 2020.
NOTE B - BUSINESS COMBINATIONS
BancShares evaluated the financial statement significance for all business combinations completed during 2020 and concluded the completed business combinations noted below are not material to its consolidated financial statements, individually or in aggregate, and therefore, pro forma financial data is not included.
Each transaction is accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed are recorded at their estimated fair values as of the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding closing date fair value becomes available.
As part of the accounting for each acquisition, we perform an analysis of the acquired bank’s loan portfolio and based on such credit factors as past due status, nonaccrual status, life-to-date charge-offs and other quantitative and qualitative considerations segregate the acquired loans into PCD loans and non-PCD loans. PCD loans are accounted for under ASC 326-20, and non-PCD loans which do not meet this criteria are accounted for under ASC 310-20. Additionally, we perform an analysis of the acquired bank’s portfolio of debt securities to determine if any debt securities should be designated PCD.
Community Financial Holding Co. Inc.
On February 1, 2020, FCB completed the merger of Duluth, Georgia-based Community Financial Holding Co. Inc. (“Community Financial”) and its bank subsidiary, Gwinnett Community Bank. Under the terms of the agreement, total cash consideration of $2.3 million was paid to the shareholders of Community Financial. The merger allows FCB to expand its presence and enhance banking efforts in Georgia.
The fair value of the assets acquired was $221.4 million, including $110.6 million in non-PCD loans, $23.4 million in PCD loans net of an allowance for credit losses of $1.2 million and $536 thousand in a core deposit intangible. No debt securities purchased in the transaction were designated PCD. Liabilities assumed were $219.8 million, of which $209.3 million were deposits. As a result of the transaction, FCB recorded $686 thousand of goodwill. The amount of goodwill represents the excess purchase price over the estimated fair value of the net assets acquired. The premium paid reflects the increased market share and related synergies expected to result from the acquisition. None of the goodwill was deductible for income tax purposes as the merger was accounted for as a qualified stock purchase.
The following table provides the purchase price as of the acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair values:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
As recorded by FCB
|
Purchase price
|
|
|
$
|
2,320
|
|
Assets
|
|
|
|
Cash and due from banks
|
$
|
1,085
|
|
|
|
Overnight investments
|
35,129
|
|
|
|
Investment securities
|
30,146
|
|
|
|
Loans
|
133,989
|
|
|
|
Premises and equipment
|
7,624
|
|
|
|
Other real estate owned
|
9,813
|
|
|
|
Income earned not collected
|
558
|
|
|
|
Intangible assets
|
536
|
|
|
|
Other assets
|
2,520
|
|
|
|
Total assets acquired
|
221,400
|
|
|
|
Liabilities
|
|
|
|
Deposits
|
209,340
|
|
|
|
Borrowings
|
9,925
|
|
|
|
Other liabilities
|
501
|
|
|
|
Total liabilities assumed
|
$
|
219,766
|
|
|
|
Fair value of net assets acquired
|
|
|
1,634
|
|
Goodwill recorded for Community Financial
|
|
|
$
|
686
|
|
Merger-related expenses of $1.2 million were recorded for the three months ended March 31, 2020. Loan-related interest income generated from Community Financial was approximately $1.2 million since the acquisition date. The ongoing contributions of this transaction to BancShares’ financial statements is not considered material, and therefore pro forma financial data is not included.
Entegra Financial Corp.
On December 31, 2019, FCB completed the merger of Franklin, North Carolina-based Entegra Financial Corp. (“Entegra”) and its bank subsidiary, Entegra Bank. In order to obtain regulatory approval, FCB entered into an agreement for Select Bank & Trust Company (“Select Bank”) to purchase three of our North Carolina branches, located in Highlands, Sylva and Franklin. The assets and liabilities of the branches to be divested are recorded on the Consolidated Balance Sheets and in the related Unaudited Notes to the Consolidated Financial Statements within loans and leases, premises and equipment and total deposits with a fair value of $108.8 million, $1.9 million and $185.3 million, respectively, as of March 31, 2020. The Select Bank purchase price for the divested branches included an 8% premium for deposits acquired that was applied against goodwill generated as part of the merger with Entegra Bank. FCB completed the transaction with Select Bank on April 17, 2020.
NOTE C - INVESTMENTS
Information for reporting periods beginning after January 1, 2020 are presented in accordance with ASC 326 and reflect changes required by the adoption of this standard which includes evaluating held to maturity and available for sale debt securities to determine the need to record a related allowance for credit losses. Prior period information continues to be reported in accordance with previously applicable GAAP. See Note A - Accounting Policies and Basis for Presentation for more detail on our policies and adoption.
The amortized cost and fair value of investment securities at March 31, 2020 and December 31, 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
(Dollars in thousands)
|
Cost
|
|
Gross
unrealized
gains
|
|
Gross unrealized
losses
|
|
Allowance for credit losses
|
|
Fair
value
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
204,971
|
|
|
$
|
811
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
205,782
|
|
Government agency
|
762,342
|
|
|
1,005
|
|
|
2,916
|
|
|
—
|
|
|
760,431
|
|
Residential mortgage-backed securities
|
5,832,518
|
|
|
123,114
|
|
|
2,791
|
|
|
—
|
|
|
5,952,841
|
|
Commercial mortgage-backed securities
|
635,565
|
|
|
15,603
|
|
|
603
|
|
|
—
|
|
|
650,565
|
|
Corporate bonds
|
221,068
|
|
|
3,520
|
|
|
5,173
|
|
|
—
|
|
|
219,415
|
|
Total investment securities available for sale
|
$
|
7,656,464
|
|
|
$
|
144,053
|
|
|
$
|
11,483
|
|
|
$
|
—
|
|
|
$
|
7,789,034
|
|
Investment in marketable equity securities
|
344,161
|
|
|
4,266
|
|
|
32,926
|
|
|
|
|
315,501
|
|
Investment securities held to maturity
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
720,441
|
|
|
12,538
|
|
|
22
|
|
|
—
|
|
|
732,957
|
|
Other
|
20,221
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,221
|
|
Total investment securities held to maturity
|
740,662
|
|
|
12,538
|
|
|
22
|
|
|
—
|
|
|
753,178
|
|
Total investment securities
|
$
|
8,741,287
|
|
|
$
|
160,857
|
|
|
$
|
44,431
|
|
|
$
|
—
|
|
|
$
|
8,857,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(Dollars in thousands)
|
|
|
Cost
|
|
Gross
unrealized
gains
|
|
Gross unrealized
losses
|
|
Fair
value
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
|
$
|
409,397
|
|
|
$
|
602
|
|
|
$
|
—
|
|
|
$
|
409,999
|
|
Government agency
|
|
|
684,085
|
|
|
928
|
|
|
2,241
|
|
|
682,772
|
|
Residential mortgage-backed securities
|
|
|
5,269,060
|
|
|
13,417
|
|
|
15,387
|
|
|
5,267,090
|
|
Commercial mortgage-backed securities
|
|
|
373,105
|
|
|
6,974
|
|
|
59
|
|
|
380,020
|
|
Corporate bonds
|
|
|
198,278
|
|
|
3,420
|
|
|
132
|
|
|
201,566
|
|
State, county and municipal
|
|
|
118,227
|
|
|
—
|
|
|
—
|
|
|
118,227
|
|
Total investment securities available for sale
|
|
|
$
|
7,052,152
|
|
|
$
|
25,341
|
|
|
$
|
17,819
|
|
|
$
|
7,059,674
|
|
Investment in marketable equity securities
|
|
|
59,262
|
|
|
23,304
|
|
|
233
|
|
|
82,333
|
|
Investment securities held to maturity
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
30,996
|
|
|
—
|
|
|
—
|
|
|
30,996
|
|
Total investment securities held to maturity
|
|
|
30,996
|
|
|
—
|
|
|
—
|
|
|
30,996
|
|
Total investment securities
|
|
|
$
|
7,142,410
|
|
|
$
|
48,645
|
|
|
$
|
18,052
|
|
|
$
|
7,173,003
|
|
Investments in residential and commercial mortgage-backed securities represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. Investments in government agency securities represent securities issued by the United States Small Business Administration. Investments in corporate bonds and marketable equity securities represent positions in securities of other financial institutions. Other held to maturity investments include certificates of deposit with other financial institutions.
BancShares also holds approximately 298,000 shares of Visa Class B common stock. BancShares’ Visa Class B shares are not considered to have a readily determinable fair value and are recorded with no fair value. BancShares held FHLB stock of $51.1 million and $43.0 million and other non-marketable equity securities of $12.9 million and $12.5 million at March 31, 2020 and December 31, 2019, respectively. Both are included in other assets.
As of March 31, 2020 and January 1, 2020, no allowance for credit losses was required for available for sale and held to maturity debt securities. Accrued interest receivable on debt securities at March 31, 2020 was $22.1 million and was excluded from the estimate of credit losses. During the three months ended March 31, 2020, no accrued interest was deemed uncollectible and written off against interest income.
The following table provides the amortized cost and fair value by contractual maturity for investment securities available for sale and held to maturity. Expected maturities will differ from contractual maturities on certain securities because borrowers and issuers may have the right to call or prepay obligations with or without prepayment penalties. Repayments of mortgage-backed securities and government agency securities are dependent on the repayments of the underlying loan balances. Repayments of certain corporate bonds are subject to call provisions which can be exercised by the issuer at their discretion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
(Dollars in thousands)
|
Cost
|
|
Fair value
|
|
Cost
|
|
Fair value
|
Investment securities available for sale
|
|
|
|
|
|
|
|
Non-amortizing securities maturing in:
|
|
|
|
|
|
|
|
One year or less
|
$
|
204,971
|
|
|
$
|
205,782
|
|
|
$
|
406,325
|
|
|
$
|
406,927
|
|
One through five years
|
32,639
|
|
|
32,446
|
|
|
24,496
|
|
|
24,971
|
|
Five through 10 years
|
184,476
|
|
|
183,469
|
|
|
185,209
|
|
|
187,868
|
|
Over 10 years
|
3,953
|
|
|
3,500
|
|
|
109,872
|
|
|
110,026
|
|
Government agency
|
762,342
|
|
|
760,431
|
|
|
684,085
|
|
|
682,772
|
|
Residential mortgage-backed securities
|
5,832,518
|
|
|
5,952,841
|
|
|
5,269,060
|
|
|
5,267,090
|
|
Commercial mortgage-backed securities
|
635,565
|
|
|
650,565
|
|
|
373,105
|
|
|
380,020
|
|
Total investment securities available for sale
|
$
|
7,656,464
|
|
|
$
|
7,789,034
|
|
|
$
|
7,052,152
|
|
|
$
|
7,059,674
|
|
Investment securities held to maturity
|
|
|
|
|
|
|
|
Non-amortizing securities maturing in:
|
|
|
|
|
|
|
|
One year or less
|
19,472
|
|
|
19,472
|
|
|
30,746
|
|
|
30,746
|
|
One through five years
|
749
|
|
|
749
|
|
|
250
|
|
|
250
|
|
Residential mortgage-backed securities
|
720,441
|
|
|
732,957
|
|
|
—
|
|
|
—
|
|
Total investment securities held to maturity
|
$
|
740,662
|
|
|
$
|
753,178
|
|
|
$
|
30,996
|
|
|
$
|
30,996
|
|
There were gross gains of $20.5 million and gross losses of $679 thousand on sales of investment securities available for sale during the three months ended March 31, 2020. There were no gross gains or losses on sales of investment securities available for sale for the three months ended March 31, 2019.
The following table provides the realized and unrealized gains and losses on marketable equity securities for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31
|
(Dollars in thousands)
|
2020
|
|
2019
|
Marketable equity securities (losses) gains, net
|
$
|
(51,408
|
)
|
|
$
|
11,328
|
|
Less net gains recognized on marketable equity securities sold
|
323
|
|
|
44
|
|
Unrealized (losses) gains recognized on marketable equity securities held
|
$
|
(51,731
|
)
|
|
$
|
11,284
|
|
The following table provides information regarding securities with unrealized losses as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
(Dollars in thousands)
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
Government agency
|
$
|
436,066
|
|
|
$
|
2,542
|
|
|
$
|
60,920
|
|
|
$
|
374
|
|
|
$
|
496,986
|
|
|
$
|
2,916
|
|
Residential mortgage-backed securities
|
366,901
|
|
|
625
|
|
|
177,167
|
|
|
2,166
|
|
|
544,068
|
|
|
2,791
|
|
Commercial mortgage-backed securities
|
75,480
|
|
|
603
|
|
|
—
|
|
|
—
|
|
|
75,480
|
|
|
603
|
|
Corporate bonds
|
106,822
|
|
|
4,480
|
|
|
8,856
|
|
|
693
|
|
|
115,678
|
|
|
5,173
|
|
Total
|
$
|
985,269
|
|
|
$
|
8,250
|
|
|
$
|
246,943
|
|
|
$
|
3,233
|
|
|
$
|
1,232,212
|
|
|
$
|
11,483
|
|
Investment securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
$
|
70,108
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
70,108
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
(Dollars in thousands)
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
Government agency
|
$
|
347,081
|
|
|
$
|
1,827
|
|
|
$
|
63,947
|
|
|
$
|
414
|
|
|
$
|
411,028
|
|
|
$
|
2,241
|
|
Residential mortgage-backed securities
|
2,387,293
|
|
|
14,016
|
|
|
264,257
|
|
|
1,371
|
|
|
2,651,550
|
|
|
15,387
|
|
Commercial mortgage-backed securities
|
35,926
|
|
|
59
|
|
|
—
|
|
|
—
|
|
|
35,926
|
|
|
59
|
|
Corporate bonds
|
7,714
|
|
|
123
|
|
|
4,749
|
|
|
9
|
|
|
12,463
|
|
|
132
|
|
Total
|
$
|
2,778,014
|
|
|
$
|
16,025
|
|
|
$
|
332,953
|
|
|
$
|
1,794
|
|
|
$
|
3,110,967
|
|
|
$
|
17,819
|
|
As of March 31, 2020, there were 53 investment securities available for sale that had continuous losses for more than 12 months of which 51 were government sponsored enterprise-issued mortgage-backed securities or government agency securities and two were corporate bonds.
None of the unrealized losses identified as of March 31, 2020 or December 31, 2019 relate to the marketability of the securities or the issuers’ ability to honor redemption obligations. Rather, the unrealized losses relate to changes in interest rates relative to when the investment securities were purchased, and do not indicate credit-related impairment. BancShares considered other factors including changes in credit ratings, delinquencies, and other macroeconomic factors in this determination. As a result, none of the securities were deemed to require an allowance for credit losses. BancShares has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses.
Investment securities having an aggregate carrying value of $4.02 billion at March 31, 2020 and $3.93 billion at December 31, 2019 were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.
Bancshares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities. Given the consistently strong credit rating of the U.S. Treasury and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, no further credit monitoring is performed over these portfolios. Should there be downgrades to the credit rating of the U.S. Treasury or losses reported on securities issued by government agencies and government sponsored entities, Bancshares will reevaluate its determination of zero expected credit losses on held to maturity debt securities.
There were no debt securities held to maturity on nonaccrual status as of March 31, 2020.
A security is considered past due once it is 30 days contractually past due under the terms of the agreement. There were no securities past due as of March 31, 2020.
NOTE D - LOANS AND LEASES
BancShares’ accounting methods for loans and leases depends on whether they are originated or purchased, and if purchased, whether or not the loans reflect more than insignificant credit deterioration since origination, as of the date of acquisition. Non-PCD loans consist of loans originated by BancShares and loans purchased from other institutions, that do not reflect more than insignificant credit deterioration at acquisition and are reported by loan segments and classes as defined in Note A - Accounting Polices and Basis of Presentation. Purchased loans which reflect more than insignificant credit deterioration are classified as PCD and reported as a single loan segment or class. At the date of acquisition, all acquired loans are recorded at fair value.
Upon adoption of ASC 326, there were changes to certain non-PCD loan classes to better differentiate credit characteristics and align with our ACL models. Within the commercial segment, owner occupied and non-owner occupied commercial real estate were segregated into separate classes. Similarly, consumer auto was segregated into its own class within the consumer segment. Information for reporting periods beginning after January 1, 2020 are presented in accordance with ASC 326 and reflect changes to the respective classes, while prior period amounts continue to be reported in accordance with previously applicable GAAP and have not been reclassified to conform to the current financial statement presentation.
Loans and leases outstanding included the following at March 31, 2020 and December 31, 2019:
|
|
|
|
|
(Dollars in thousands)
|
March 31, 2020
|
Commercial:
|
|
Construction and land development
|
$
|
1,014,017
|
|
Owner occupied commercial mortgage
|
10,076,132
|
|
Non-owner occupied commercial mortgage
|
3,058,235
|
|
Commercial and industrial and leases
|
4,738,098
|
|
Total commercial loans
|
18,886,482
|
|
Consumer:
|
|
Residential mortgage
|
5,299,412
|
|
Revolving mortgage
|
2,362,644
|
|
Construction and land development
|
363,190
|
|
Consumer auto
|
1,201,152
|
|
Consumer other
|
567,727
|
|
Total consumer loans
|
9,794,125
|
|
Total non-PCD loans and leases
|
28,680,607
|
|
PCD loans
|
560,352
|
|
Total loans and leases
|
$
|
29,240,959
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31, 2019
|
Commercial:
|
|
Construction and land development
|
$
|
1,013,454
|
|
Commercial mortgage
|
12,282,635
|
|
Other commercial real estate
|
542,028
|
|
Commercial and industrial and leases
|
4,403,792
|
|
Other
|
310,093
|
|
Total commercial loans
|
18,552,002
|
|
Noncommercial:
|
|
Residential mortgage
|
5,293,917
|
|
Revolving mortgage
|
2,339,072
|
|
Construction and land development
|
357,385
|
|
Consumer
|
1,780,404
|
|
Total noncommercial loans
|
9,770,778
|
|
Total non-PCI loans and leases
|
28,322,780
|
|
PCI loans
|
558,716
|
|
Total loans and leases
|
$
|
28,881,496
|
|
Accrued interest receivable on loans at March 31, 2020 was $90.0 million and was excluded from the estimate of credit losses.
At March 31, 2020, $10.31 billion in non-PCD loans with a lendable collateral value of $8.22 billion were used to secure $787.7 million in Federal Home Loan Bank (“FHLB”) of Atlanta advances, resulting in additional borrowing capacity of $7.43 billion. At December 31, 2019, $9.41 billion in non-PCD loans with a lendable collateral value of $6.57 billion were used to secure $563.7 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $6.01 billion.
At March 31, 2020, $3.88 billion in non-PCD loans with a lendable collateral value of $3.15 billion were used to secure additional borrowing capacity at the Federal Reserve Bank (“FRB”). At December 31, 2019, $3.68 billion in non-PCD loans with a lendable collateral value of $2.98 billion were used to secure additional borrowing capacity at the FRB.
Certain residential real estate loans are originated to be sold to investors and are recorded in loans held for sale at fair value. In addition, we may change our strategy for certain portfolio loans and decide to sell them in the secondary market. At that time, portfolio loans are transferred to loans held for sale at fair value. Loans held for sale totaled $76.3 million and $67.9 million at March 31, 2020 and December 31, 2019, respectively.
Net deferred fees on non-PCD loans and leases, including unearned and unamortized costs and fees, were $1.4 million and $0.9 million at March 31, 2020 and December 31, 2019, respectively. The net unamortized discount related to purchased non-PCD loans and leases was $28.3 million at March 31, 2020 and $30.9 million at December 31, 2019. The net unamortized discount related to PCD loans and leases was $61.6 million at March 31, 2020 and $88.2 million at December 31, 2019.
The aging of the outstanding loans and leases, by class, at March 31, 2020 and December 31, 2019 are provided in the tables below. Loans and leases past due 30 days or less are considered current as various grace periods allow borrowers to make payments within a stated period after the due date and still remain in compliance with the loan agreement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
(Dollars in thousands)
|
30-59 days
past due
|
|
60-89 days
past due
|
|
90 days or greater
|
|
Total past
due
|
|
Current
|
|
Total loans
and leases
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
$
|
3,297
|
|
|
$
|
342
|
|
|
$
|
2,098
|
|
|
$
|
5,737
|
|
|
$
|
1,008,280
|
|
|
$
|
1,014,017
|
|
Owner occupied commercial mortgage
|
22,793
|
|
|
3,083
|
|
|
14,499
|
|
|
40,375
|
|
|
10,035,757
|
|
|
10,076,132
|
|
Non-owner occupied commercial mortgage
|
9,173
|
|
|
308
|
|
|
4,895
|
|
|
14,376
|
|
|
3,043,859
|
|
|
3,058,235
|
|
Commercial and industrial and leases
|
18,076
|
|
|
6,924
|
|
|
4,250
|
|
|
29,250
|
|
|
4,708,848
|
|
|
4,738,098
|
|
Total commercial loans
|
53,339
|
|
|
10,657
|
|
|
25,742
|
|
|
89,738
|
|
|
18,796,744
|
|
|
18,886,482
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
40,149
|
|
|
8,015
|
|
|
29,908
|
|
|
78,072
|
|
|
5,221,340
|
|
|
5,299,412
|
|
Revolving mortgage
|
10,145
|
|
|
3,410
|
|
|
8,033
|
|
|
21,588
|
|
|
2,341,056
|
|
|
2,362,644
|
|
Construction and land development
|
6,089
|
|
|
—
|
|
|
1,556
|
|
|
7,645
|
|
|
355,545
|
|
|
363,190
|
|
Consumer auto
|
5,675
|
|
|
1,181
|
|
|
1,485
|
|
|
8,341
|
|
|
1,192,811
|
|
|
1,201,152
|
|
Consumer other
|
3,647
|
|
|
2,058
|
|
|
2,293
|
|
|
7,998
|
|
|
559,729
|
|
|
567,727
|
|
Total consumer loans
|
65,705
|
|
|
14,664
|
|
|
43,275
|
|
|
123,644
|
|
|
9,670,481
|
|
|
9,794,125
|
|
PCD loans
|
27,628
|
|
|
8,680
|
|
|
27,961
|
|
|
64,269
|
|
|
496,083
|
|
|
560,352
|
|
Total loans and leases
|
$
|
146,672
|
|
|
$
|
34,001
|
|
|
$
|
96,978
|
|
|
$
|
277,651
|
|
|
$
|
28,963,308
|
|
|
$
|
29,240,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(Dollars in thousands)
|
30-59 days
past due
|
|
60-89 days
past due
|
|
90 days or greater
|
|
Total past
due
|
|
Current
|
|
Total loans
and leases
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
$
|
3,146
|
|
|
$
|
195
|
|
|
$
|
2,702
|
|
|
$
|
6,043
|
|
|
$
|
1,007,411
|
|
|
$
|
1,013,454
|
|
Commercial mortgage
|
20,389
|
|
|
8,774
|
|
|
8,319
|
|
|
37,482
|
|
|
12,245,153
|
|
|
12,282,635
|
|
Other commercial real estate
|
861
|
|
|
331
|
|
|
698
|
|
|
1,890
|
|
|
540,138
|
|
|
542,028
|
|
Commercial and industrial and leases
|
18,269
|
|
|
4,842
|
|
|
5,032
|
|
|
28,143
|
|
|
4,375,649
|
|
|
4,403,792
|
|
Other
|
51
|
|
|
411
|
|
|
126
|
|
|
588
|
|
|
309,505
|
|
|
310,093
|
|
Total commercial loans
|
42,716
|
|
|
14,553
|
|
|
16,877
|
|
|
74,146
|
|
|
18,477,856
|
|
|
18,552,002
|
|
Noncommercial:
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
45,839
|
|
|
18,289
|
|
|
24,409
|
|
|
88,537
|
|
|
5,205,380
|
|
|
5,293,917
|
|
Revolving mortgage
|
9,729
|
|
|
3,468
|
|
|
9,865
|
|
|
23,062
|
|
|
2,316,010
|
|
|
2,339,072
|
|
Construction and land development
|
977
|
|
|
218
|
|
|
1,797
|
|
|
2,992
|
|
|
354,393
|
|
|
357,385
|
|
Consumer
|
10,481
|
|
|
3,746
|
|
|
3,571
|
|
|
17,798
|
|
|
1,762,606
|
|
|
1,780,404
|
|
Total noncommercial loans
|
67,026
|
|
|
25,721
|
|
|
39,642
|
|
|
132,389
|
|
|
9,638,389
|
|
|
9,770,778
|
|
Total non-PCI loans and leases
|
$
|
109,742
|
|
|
$
|
40,274
|
|
|
$
|
56,519
|
|
|
$
|
206,535
|
|
|
$
|
28,116,245
|
|
|
$
|
28,322,780
|
|
The amortized cost, by class, of loans and leases on nonaccrual status, and loans and leases greater than 90 days past due and still accruing at March 31, 2020 and December 31, 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2020(1)
|
|
March 31, 2020
|
(Dollars in thousands)
|
Nonaccrual
loans and
leases
|
|
Nonaccrual
loans and
leases
|
|
Loans and
leases > 90
days and
accruing
|
Commercial:
|
|
|
|
|
|
Construction and land development
|
$
|
4,281
|
|
|
$
|
3,603
|
|
|
$
|
—
|
|
Owner occupied commercial mortgage
|
24,476
|
|
|
26,438
|
|
|
536
|
|
Non-owner occupied commercial mortgage
|
5,965
|
|
|
5,679
|
|
|
—
|
|
Commercial and industrial and leases
|
7,685
|
|
|
7,858
|
|
|
488
|
|
Total commercial loans
|
42,407
|
|
|
43,578
|
|
|
1,024
|
|
Consumer:
|
|
|
|
|
|
Residential mortgage
|
44,357
|
|
|
49,220
|
|
|
—
|
|
Revolving mortgage
|
22,411
|
|
|
22,067
|
|
|
—
|
|
Construction and land development
|
2,828
|
|
|
2,881
|
|
|
—
|
|
Consumer auto
|
2,145
|
|
|
2,832
|
|
|
—
|
|
Consumer other
|
798
|
|
|
759
|
|
|
1,909
|
|
Total consumer loans
|
72,539
|
|
|
77,759
|
|
|
1,909
|
|
PCD loans
|
53,771
|
|
|
53,234
|
|
|
37
|
|
Total loans and leases
|
$
|
168,717
|
|
|
$
|
174,571
|
|
|
$
|
2,970
|
|
(1)Upon the adoption of ASC 326, BancShares eliminated the pooling of PCI loans and as a result $47.0 million in additional PCD loans were recognized as nonaccrual loans at January 1, 2020.
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(Dollars in thousands)
|
Nonaccrual
loans and
leases
|
|
Loans and
leases > 90
days and
accruing
|
Commercial:
|
|
|
|
Construction and land development
|
$
|
4,281
|
|
|
$
|
—
|
|
Commercial mortgage
|
29,733
|
|
|
—
|
|
Commercial and industrial and leases
|
7,365
|
|
|
1,094
|
|
Other commercial real estate
|
708
|
|
|
—
|
|
Other
|
320
|
|
|
—
|
|
Total commercial loans
|
42,407
|
|
|
1,094
|
|
Noncommercial:
|
|
|
|
Construction and land development
|
2,828
|
|
|
—
|
|
Residential mortgage
|
44,357
|
|
|
45
|
|
Revolving mortgage
|
22,411
|
|
|
—
|
|
Consumer
|
2,943
|
|
|
2,152
|
|
Total noncommercial loans
|
72,539
|
|
|
2,197
|
|
Total loans and leases
|
$
|
114,946
|
|
|
$
|
3,291
|
|
Credit Quality
Loans and leases are monitored for credit quality on a recurring basis. Commercial and consumer loans and leases have different credit quality indicators as a result of the unique characteristics of the loan segments being evaluated. The credit quality indicators for commercial loans and leases are borrower risk classifications developed through a review of individual borrowers on an ongoing basis. Commercial loans are evaluated at least annually, with more frequent evaluations done on criticized loans. Commercial loans are also updated if there is evidence of potential credit deterioration, such as delinquency. Commercial credit cards are included in the Commercial and industrial and leases segment, but are evaluated based primarily upon delinquency status. The risk classifications as of the date presented are based on the most recent assessment performed and are defined below:
Pass – A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification.
Special mention – A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.
Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected.
Doubtful – An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values.
Loss – Assets classified as loss are considered uncollectible and of such little value that it is inappropriate to be carried as an asset. This classification is not necessarily equivalent to any potential for recovery or salvage value, but rather that it is not appropriate to defer a full charge-off even though partial recovery may be affected in the future.
Ungraded – Ungraded loans represent loans that are not included in the individual credit grading process due to their relatively small balances or borrower type. The majority of ungraded loans at March 31, 2020 relate to business credit cards. Business credit card loans are subject to automatic charge-off when they become 120 days past due in the same manner as unsecured consumer lines of credit. The remaining balance is comprised of a small amount of commercial mortgage, lease financing and other commercial real estate loans.
The credit quality indicators for consumer and PCD loans are based on delinquency status of the borrower as of the date presented. As the borrower becomes more delinquent, the likelihood of loss increases.
The following tables represent current credit quality indicators by origination year as of March 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Term Loans Amortized Cost Basis by Origination Year
|
|
|
|
|
|
|
Classification:
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
Revolving
|
|
Revolving converted to term loans
|
|
Total
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
94,980
|
|
|
$
|
382,104
|
|
|
$
|
267,188
|
|
|
$
|
176,674
|
|
|
$
|
32,927
|
|
|
$
|
18,191
|
|
|
$
|
24,922
|
|
|
$
|
—
|
|
|
$
|
996,986
|
|
Special Mention
|
91
|
|
|
—
|
|
|
350
|
|
|
5,407
|
|
|
—
|
|
|
440
|
|
|
—
|
|
|
—
|
|
|
6,288
|
|
Substandard
|
1,638
|
|
|
1,239
|
|
|
7,161
|
|
|
—
|
|
|
8
|
|
|
697
|
|
|
—
|
|
|
—
|
|
|
10,743
|
|
Total
|
$
|
96,709
|
|
|
$
|
383,343
|
|
|
$
|
274,699
|
|
|
$
|
182,081
|
|
|
$
|
32,935
|
|
|
$
|
19,328
|
|
|
$
|
24,922
|
|
|
$
|
—
|
|
|
$
|
1,014,017
|
|
Owner occupied commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
647,821
|
|
|
$
|
2,230,133
|
|
|
$
|
1,860,144
|
|
|
$
|
1,537,841
|
|
|
$
|
1,261,880
|
|
|
$
|
2,195,573
|
|
|
$
|
126,108
|
|
|
$
|
139
|
|
|
$
|
9,859,639
|
|
Special Mention
|
—
|
|
|
8,201
|
|
|
26,827
|
|
|
14,694
|
|
|
18,763
|
|
|
35,475
|
|
|
4,129
|
|
|
—
|
|
|
108,089
|
|
Substandard
|
1,679
|
|
|
10,759
|
|
|
13,471
|
|
|
19,717
|
|
|
14,039
|
|
|
40,751
|
|
|
7,916
|
|
|
72
|
|
|
108,404
|
|
Total
|
$
|
649,500
|
|
|
$
|
2,249,093
|
|
|
$
|
1,900,442
|
|
|
$
|
1,572,252
|
|
|
$
|
1,294,682
|
|
|
$
|
2,271,799
|
|
|
$
|
138,153
|
|
|
$
|
211
|
|
|
$
|
10,076,132
|
|
Non-owner occupied commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
200,770
|
|
|
$
|
680,203
|
|
|
$
|
532,550
|
|
|
$
|
452,508
|
|
|
$
|
404,537
|
|
|
$
|
704,861
|
|
|
$
|
43,379
|
|
|
$
|
—
|
|
|
$
|
3,018,808
|
|
Special Mention
|
—
|
|
|
1,849
|
|
|
10,042
|
|
|
933
|
|
|
5,971
|
|
|
7,485
|
|
|
798
|
|
|
—
|
|
|
27,078
|
|
Substandard
|
499
|
|
|
1,821
|
|
|
1,939
|
|
|
823
|
|
|
4,445
|
|
|
1,343
|
|
|
1,479
|
|
|
—
|
|
|
12,349
|
|
Total
|
$
|
201,269
|
|
|
$
|
683,873
|
|
|
$
|
544,531
|
|
|
$
|
454,264
|
|
|
$
|
414,953
|
|
|
$
|
713,689
|
|
|
$
|
45,656
|
|
|
$
|
—
|
|
|
$
|
3,058,235
|
|
Commercial and industrial and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
348,311
|
|
|
$
|
1,299,423
|
|
|
$
|
698,386
|
|
|
$
|
450,781
|
|
|
$
|
336,295
|
|
|
$
|
436,325
|
|
|
$
|
1,013,228
|
|
|
$
|
5,616
|
|
|
$
|
4,588,365
|
|
Special Mention
|
1,389
|
|
|
1,501
|
|
|
4,647
|
|
|
6,052
|
|
|
3,081
|
|
|
3,238
|
|
|
9,913
|
|
|
73
|
|
|
29,894
|
|
Substandard
|
4,035
|
|
|
4,311
|
|
|
4,408
|
|
|
5,798
|
|
|
3,175
|
|
|
7,655
|
|
|
19,632
|
|
|
816
|
|
|
49,830
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Ungraded
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
70,006
|
|
|
—
|
|
|
70,006
|
|
Total
|
$
|
353,735
|
|
|
$
|
1,305,235
|
|
|
$
|
707,441
|
|
|
$
|
462,631
|
|
|
$
|
342,551
|
|
|
$
|
447,218
|
|
|
$
|
1,112,782
|
|
|
$
|
6,505
|
|
|
$
|
4,738,098
|
|
Total commercial
|
$
|
1,301,213
|
|
|
$
|
4,621,544
|
|
|
$
|
3,427,113
|
|
|
$
|
2,671,228
|
|
|
$
|
2,085,121
|
|
|
$
|
3,452,034
|
|
|
$
|
1,321,513
|
|
|
$
|
6,716
|
|
|
$
|
18,886,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and PCD Term Loans Amortized Cost Basis by Origination Year
|
|
|
|
|
|
|
Days Past Due:
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
Revolving
|
|
Revolving converted to term loans
|
|
Total
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
308,079
|
|
|
$
|
1,163,902
|
|
|
$
|
948,832
|
|
|
$
|
851,257
|
|
|
$
|
652,297
|
|
|
$
|
1,272,796
|
|
|
$
|
24,177
|
|
|
$
|
—
|
|
|
$
|
5,221,340
|
|
30-59 days
|
328
|
|
|
2,491
|
|
|
6,910
|
|
|
6,515
|
|
|
5,023
|
|
|
18,840
|
|
|
42
|
|
|
—
|
|
|
40,149
|
|
60-89 days
|
—
|
|
|
684
|
|
|
117
|
|
|
538
|
|
|
2,081
|
|
|
4,469
|
|
|
126
|
|
|
—
|
|
|
8,015
|
|
90 days or greater
|
—
|
|
|
647
|
|
|
3,388
|
|
|
5,810
|
|
|
5,547
|
|
|
11,544
|
|
|
2,972
|
|
|
—
|
|
|
29,908
|
|
Total
|
$
|
308,407
|
|
|
$
|
1,167,724
|
|
|
$
|
959,247
|
|
|
$
|
864,120
|
|
|
$
|
664,948
|
|
|
$
|
1,307,649
|
|
|
$
|
27,317
|
|
|
$
|
—
|
|
|
$
|
5,299,412
|
|
Revolving mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,184,215
|
|
|
$
|
156,841
|
|
|
$
|
2,341,056
|
|
30-59 days
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,155
|
|
|
3,990
|
|
|
10,145
|
|
60-89 days
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
476
|
|
|
2,934
|
|
|
3,410
|
|
90 days or greater
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,206
|
|
|
5,827
|
|
|
8,033
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,193,052
|
|
|
$
|
169,592
|
|
|
$
|
2,362,644
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
36,285
|
|
|
$
|
208,509
|
|
|
$
|
67,438
|
|
|
$
|
19,024
|
|
|
$
|
8,720
|
|
|
$
|
10,255
|
|
|
$
|
5,314
|
|
|
$
|
—
|
|
|
$
|
355,545
|
|
30-59 days
|
517
|
|
|
3,923
|
|
|
1,310
|
|
|
312
|
|
|
3
|
|
|
24
|
|
|
—
|
|
|
—
|
|
|
6,089
|
|
90 days or greater
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
87
|
|
|
1,469
|
|
|
—
|
|
|
—
|
|
|
1,556
|
|
Total
|
$
|
36,802
|
|
|
$
|
212,432
|
|
|
$
|
68,748
|
|
|
$
|
19,336
|
|
|
$
|
8,810
|
|
|
$
|
11,748
|
|
|
$
|
5,314
|
|
|
$
|
—
|
|
|
$
|
363,190
|
|
Consumer auto
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
132,008
|
|
|
$
|
461,232
|
|
|
$
|
316,446
|
|
|
$
|
163,033
|
|
|
$
|
89,287
|
|
|
$
|
30,805
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,192,811
|
|
30-59 days
|
43
|
|
|
1,739
|
|
|
1,703
|
|
|
1,346
|
|
|
472
|
|
|
372
|
|
|
—
|
|
|
—
|
|
|
5,675
|
|
60-89 days
|
—
|
|
|
261
|
|
|
376
|
|
|
252
|
|
|
184
|
|
|
108
|
|
|
—
|
|
|
—
|
|
|
1,181
|
|
90 days or greater
|
—
|
|
|
344
|
|
|
560
|
|
|
298
|
|
|
197
|
|
|
86
|
|
|
—
|
|
|
—
|
|
|
1,485
|
|
Total
|
$
|
132,051
|
|
|
$
|
463,576
|
|
|
$
|
319,085
|
|
|
$
|
164,929
|
|
|
$
|
90,140
|
|
|
$
|
31,371
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,201,152
|
|
Consumer other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
10,371
|
|
|
$
|
49,571
|
|
|
$
|
20,504
|
|
|
$
|
11,024
|
|
|
$
|
12,296
|
|
|
$
|
32,561
|
|
|
$
|
423,402
|
|
|
$
|
—
|
|
|
$
|
559,729
|
|
30-59 days
|
79
|
|
|
260
|
|
|
129
|
|
|
35
|
|
|
89
|
|
|
7
|
|
|
3,048
|
|
|
—
|
|
|
3,647
|
|
60-89 days
|
—
|
|
|
59
|
|
|
139
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
1,854
|
|
|
—
|
|
|
2,058
|
|
90 days or greater
|
—
|
|
|
41
|
|
|
31
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
2,216
|
|
|
—
|
|
|
2,293
|
|
Total
|
$
|
10,450
|
|
|
$
|
49,931
|
|
|
$
|
20,803
|
|
|
$
|
11,070
|
|
|
$
|
12,385
|
|
|
$
|
32,568
|
|
|
$
|
430,520
|
|
|
$
|
—
|
|
|
$
|
567,727
|
|
Total consumer
|
$
|
487,710
|
|
|
$
|
1,893,663
|
|
|
$
|
1,367,883
|
|
|
$
|
1,059,455
|
|
|
$
|
776,283
|
|
|
$
|
1,383,336
|
|
|
$
|
2,656,203
|
|
|
$
|
169,592
|
|
|
$
|
9,794,125
|
|
PCD loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
9,871
|
|
|
$
|
28,888
|
|
|
$
|
39,500
|
|
|
$
|
40,406
|
|
|
$
|
34,571
|
|
|
$
|
301,337
|
|
|
$
|
16,310
|
|
|
$
|
25,200
|
|
|
$
|
496,083
|
|
30-59 days
|
56
|
|
|
4,291
|
|
|
2,471
|
|
|
1,104
|
|
|
306
|
|
|
18,759
|
|
|
181
|
|
|
460
|
|
|
27,628
|
|
60-89 days
|
—
|
|
|
2,202
|
|
|
105
|
|
|
285
|
|
|
—
|
|
|
5,677
|
|
|
90
|
|
|
321
|
|
|
8,680
|
|
90 days or greater
|
454
|
|
|
1,071
|
|
|
5,004
|
|
|
1,684
|
|
|
3,383
|
|
|
14,308
|
|
|
300
|
|
|
1,757
|
|
|
27,961
|
|
Total
|
$
|
10,381
|
|
|
$
|
36,452
|
|
|
$
|
47,080
|
|
|
$
|
43,479
|
|
|
$
|
38,260
|
|
|
$
|
340,081
|
|
|
$
|
16,881
|
|
|
$
|
27,738
|
|
|
$
|
560,352
|
|
Total loans and leases
|
$
|
1,799,304
|
|
|
$
|
6,551,659
|
|
|
$
|
4,842,076
|
|
|
$
|
3,774,162
|
|
|
$
|
2,899,664
|
|
|
$
|
5,175,451
|
|
|
$
|
3,994,597
|
|
|
$
|
204,046
|
|
|
$
|
29,240,959
|
|
Loans and leases outstanding at December 31, 2019 by credit quality indicator are provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(Dollars in thousands)
|
Commercial loans and leases
|
Grade:
|
Construction and land
development
|
|
Commercial mortgage
|
|
Other commercial real estate
|
|
Commercial and industrial and leases
|
|
Other
|
|
PCI
|
|
Total commercial loans and leases
|
Pass
|
$
|
1,004,922
|
|
|
$
|
12,050,799
|
|
|
$
|
536,682
|
|
|
$
|
4,256,456
|
|
|
$
|
308,796
|
|
|
$
|
148,412
|
|
|
$
|
18,157,655
|
|
Special mention
|
2,577
|
|
|
115,164
|
|
|
3,899
|
|
|
44,604
|
|
|
622
|
|
|
44,290
|
|
|
166,866
|
|
Substandard
|
5,955
|
|
|
116,672
|
|
|
1,447
|
|
|
34,148
|
|
|
675
|
|
|
87,970
|
|
|
158,897
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3,657
|
|
|
3
|
|
Ungraded
|
—
|
|
|
—
|
|
|
—
|
|
|
68,581
|
|
|
—
|
|
|
—
|
|
|
68,581
|
|
Total
|
$
|
1,013,454
|
|
|
$
|
12,282,635
|
|
|
$
|
542,028
|
|
|
$
|
4,403,792
|
|
|
$
|
310,093
|
|
|
$
|
284,329
|
|
|
$
|
18,552,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Noncommercial loans and leases
|
(Dollars in thousands)
|
Residential mortgage
|
|
Revolving mortgage
|
|
Construction and land development
|
|
Consumer
|
|
PCI
|
|
Total noncommercial loans and leases
|
Days past due:
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
5,205,380
|
|
|
$
|
2,316,010
|
|
|
$
|
354,393
|
|
|
$
|
1,762,606
|
|
|
$
|
240,995
|
|
|
$
|
9,638,389
|
|
30-59 days past due
|
45,839
|
|
|
9,729
|
|
|
977
|
|
|
10,481
|
|
|
13,764
|
|
|
67,026
|
|
60-89 days past due
|
18,289
|
|
|
3,468
|
|
|
218
|
|
|
3,746
|
|
|
5,608
|
|
|
25,721
|
|
90 days or greater past due
|
24,409
|
|
|
9,865
|
|
|
1,797
|
|
|
3,571
|
|
|
14,020
|
|
|
39,642
|
|
Total
|
$
|
5,293,917
|
|
|
$
|
2,339,072
|
|
|
$
|
357,385
|
|
|
$
|
1,780,404
|
|
|
$
|
274,387
|
|
|
$
|
9,770,778
|
|
Purchased loans and leases
The following table summarizes PCD loans acquired in the Community Financial transaction and provides the contractually required payments, less the initial allowance for credit losses and discount to produce the fair value of acquired loans with evidence of more than insignificant credit quality deterioration since origination at the acquisition date:
|
|
|
|
|
(Dollars in thousands)
|
Community Financial
|
Contractually required payments
|
$
|
25,635
|
|
Initial PCD allowance
|
1,193
|
|
Discount
|
1,055
|
|
Fair value at acquisition date
|
$
|
23,387
|
|
The recorded fair values of purchased non-PCD loans acquired in the Community Financial transaction as of the acquisition date are as follows:
|
|
|
|
|
(Dollars in thousands)
|
Community Financial
|
Commercial:
|
|
Construction and land development
|
$
|
9,428
|
|
Owner occupied commercial mortgage
|
31,473
|
|
Non-owner occupied commercial mortgage
|
25,143
|
|
Commercial and industrial and leases
|
15,065
|
|
Total commercial loans
|
81,109
|
|
Consumer:
|
|
Residential mortgage
|
21,168
|
|
Revolving mortgage
|
2,084
|
|
Construction and land development
|
5,254
|
|
Consumer auto
|
294
|
|
Consumer other
|
693
|
|
Total consumer loans
|
29,493
|
|
Total non-PCD loans
|
$
|
110,602
|
|
NOTE E - ALLOWANCE FOR CREDIT LOSSES
Upon adoption of ASC 326, there were changes to certain non-PCD loan classes to better differentiate credit characteristics and align with our ACL models. Within the commercial segment, owner occupied and non-owner occupied commercial real estate were segregated into separate classes. Similarly, consumer auto was segregated into its own class within the consumer segment. Information for reporting periods beginning after January 1, 2020 are presented in accordance with ASC 326 and reflect changes to the respective classes, while prior period amounts continue to be reported in accordance with previously applicable GAAP and have not been reclassified to conform to the current financial statement presentation.
Activity in the allowance for credit losses by class of loans is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
(Dollars in thousands)
|
Construction
and land
development
- commercial
|
|
Owner occupied commercial mortgage
|
|
Non-owner occupied commercial mortgage
|
|
Commercial
and industrial and leases
|
|
Residential
mortgage
|
|
Revolving
mortgage
|
|
Construction
and land
development - consumer
|
|
Consumer auto
|
|
Consumer other
|
|
PCD
|
|
Total
|
Balance at December 31
|
$
|
33,213
|
|
|
$
|
36,444
|
|
|
$
|
11,102
|
|
|
$
|
61,610
|
|
|
$
|
18,232
|
|
|
$
|
19,702
|
|
|
$
|
2,709
|
|
|
$
|
4,292
|
|
|
$
|
30,301
|
|
|
$
|
7,536
|
|
|
$
|
225,141
|
|
Adoption of ASC 326
|
(31,061
|
)
|
|
(19,316
|
)
|
|
460
|
|
|
(37,637
|
)
|
|
17,118
|
|
|
3,665
|
|
|
(1,291
|
)
|
|
1,100
|
|
|
10,037
|
|
|
19,001
|
|
|
(37,924
|
)
|
Balance at January 1
|
$
|
2,152
|
|
|
$
|
17,128
|
|
|
$
|
11,562
|
|
|
$
|
23,973
|
|
|
$
|
35,350
|
|
|
$
|
23,367
|
|
|
$
|
1,418
|
|
|
$
|
5,392
|
|
|
$
|
40,338
|
|
|
$
|
26,537
|
|
|
$
|
187,217
|
|
Provision (credits)
|
51
|
|
|
6,107
|
|
|
4,956
|
|
|
10,423
|
|
|
3,593
|
|
|
1,304
|
|
|
(223
|
)
|
|
958
|
|
|
3,774
|
|
|
(2,588
|
)
|
|
28,355
|
|
Initial allowance on PCD loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,193
|
|
|
1,193
|
|
Charge-offs
|
—
|
|
|
(320
|
)
|
|
—
|
|
|
(5,049
|
)
|
|
(800
|
)
|
|
(585
|
)
|
|
(70
|
)
|
|
(944
|
)
|
|
(5,370
|
)
|
|
(1,123
|
)
|
|
(14,261
|
)
|
Recoveries
|
87
|
|
|
55
|
|
|
13
|
|
|
1,272
|
|
|
223
|
|
|
471
|
|
|
15
|
|
|
363
|
|
|
1,359
|
|
|
2,897
|
|
|
6,755
|
|
Balance at March 31
|
$
|
2,290
|
|
|
$
|
22,970
|
|
|
$
|
16,531
|
|
|
$
|
30,619
|
|
|
$
|
38,366
|
|
|
$
|
24,557
|
|
|
$
|
1,140
|
|
|
$
|
5,769
|
|
|
$
|
40,101
|
|
|
$
|
26,916
|
|
|
$
|
209,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
|
(Dollars in thousands)
|
Construction
and land
development
- commercial
|
|
Commercial
mortgage
|
|
Other
commercial
real estate
|
|
Commercial
and industrial and leases
|
|
Other
|
|
Residential
mortgage
|
|
Revolving
mortgage
|
|
Construction
and land
development
- non - commercial
|
|
Consumer
|
|
PCI
|
|
Total
|
Balance at January 1
|
$
|
35,270
|
|
|
$
|
43,451
|
|
|
$
|
2,481
|
|
|
$
|
55,620
|
|
|
$
|
2,221
|
|
|
$
|
15,472
|
|
|
$
|
21,862
|
|
|
$
|
2,350
|
|
|
$
|
35,841
|
|
|
$
|
9,144
|
|
|
$
|
223,712
|
|
Provision (credits)
|
2,119
|
|
|
2,371
|
|
|
(83
|
)
|
|
2,725
|
|
|
(498
|
)
|
|
1,508
|
|
|
209
|
|
|
123
|
|
|
3,440
|
|
|
(164
|
)
|
|
11,750
|
|
Charge-offs
|
(44
|
)
|
|
(761
|
)
|
|
—
|
|
|
(1,858
|
)
|
|
—
|
|
|
(166
|
)
|
|
(963
|
)
|
|
—
|
|
|
(6,362
|
)
|
|
—
|
|
|
(10,154
|
)
|
Recoveries
|
131
|
|
|
220
|
|
|
1
|
|
|
538
|
|
|
444
|
|
|
173
|
|
|
387
|
|
|
—
|
|
|
1,573
|
|
|
—
|
|
|
3,467
|
|
Balance at March 31
|
$
|
37,476
|
|
|
$
|
45,281
|
|
|
$
|
2,399
|
|
|
$
|
57,025
|
|
|
$
|
2,167
|
|
|
$
|
16,987
|
|
|
$
|
21,495
|
|
|
$
|
2,473
|
|
|
$
|
34,492
|
|
|
$
|
8,980
|
|
|
$
|
228,775
|
|
Upon adoption of ASC 326, BancShares recorded a net decrease of $37.9 million in the ACL which included a decrease of $56.9 million in the ACL on non-PCD loans, offset by an increase of $19.0 million in the ACL on PCD loans. The largest changes as a result of adoption were decreases in the ACL on commercial loan segments as these portfolios have exhibited strong historical credit performance and have relatively short average lives. The reduction in ACL on these segments was partially offset by increases in ACL on our consumer loan segments primarily due to their longer average lives. The increase in the ACL on PCD loans was primarily the result of reallocating credit discount from loan balances into ACL.
ACL is calculated using a variety of factors, including, but not limited to, charge-off and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality. For the quarter ended March 31, 2020 the primary reason for the ACL change since the adoption of ASC 326, was a $21.5 million increase due to the potential economic impact of the novel coronavirus (“COVID-19”) and its estimated impact on credit losses during the quarter. Within our forecast period of 24 months, forecasts varied widely for key macroeconomic variables (unemployment, gross domestic product, home price index, and commercial real estate index) used in the ACL models. Expected loss estimates considered the potential impact of slower economic activity with increasing unemployment, as well as potential mitigating impacts from the government stimulus and loan modification programs. These loss estimates were also influenced by BancShares strong credit quality, historically low net charge-offs and recent credit trends, which remained stable through the quarter ended March 31, 2020.
BancShares individually reviews loans greater than $500 thousand that are determined to be collateral-dependent. These collateral-dependent loans are evaluated based on the fair value of the underlying collateral as repayment of the loan is expected to be made through the operation or sale of the collateral. Commercial and industrial loans and leases are collateralized by business assets, while the remaining loan classes are collateralized by real property.
The following table presents information on collateral-dependent loans by class and includes the amortized cost of collateral-dependent loans and leases, the net realizable value of the collateral, the extent to which collateral secures collateral-dependent loans and the associated ACL as of March 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Collateral-Dependant Loans
|
|
Net Realizable Value of Collateral
|
|
Collateral Coverage
|
|
Allowance for Credit Losses
|
Commercial loans:
|
|
|
|
|
|
|
|
Construction and land development
|
$
|
3,522
|
|
|
$
|
8,928
|
|
|
253.5
|
%
|
|
$
|
215
|
|
Owner occupied commercial mortgage
|
9,139
|
|
|
21,686
|
|
|
237.3
|
|
|
—
|
|
Non-owner occupied commercial mortgage
|
4,617
|
|
|
10,255
|
|
|
222.1
|
|
|
—
|
|
Commercial and industrial and leases
|
439
|
|
|
439
|
|
|
100.0
|
|
|
—
|
|
Total commercial loans
|
17,717
|
|
|
41,308
|
|
|
233.2
|
|
|
215
|
|
Consumer:
|
|
|
|
|
|
|
|
Residential mortgage
|
16,952
|
|
|
24,599
|
|
|
145.1
|
|
|
117
|
|
Revolving mortgage
|
428
|
|
|
452
|
|
|
105.6
|
|
|
—
|
|
Construction and land development
|
1,412
|
|
|
1,558
|
|
|
110.3
|
|
|
—
|
|
Total consumer loans
|
18,792
|
|
|
26,609
|
|
|
141.6
|
|
|
117
|
|
Total non-PCD loans
|
36,509
|
|
|
67,917
|
|
|
186.0
|
|
|
332
|
|
PCD
|
11,457
|
|
|
19,554
|
|
|
170.7
|
|
|
697
|
|
Total collateral-dependent loans
|
$
|
47,966
|
|
|
$
|
87,471
|
|
|
182.4
|
%
|
|
$
|
1,029
|
|
Collateral-dependent nonaccrual loans with no recorded allowance totaled $43.6 million as of March 31, 2020. All other nonaccrual loans have a recorded allowance.
The following tables present the allowance and recorded investment in loans and leases by class of loans, as well as the associated impairment method at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(Dollars in thousands)
|
Construction
and land
development
- commercial
|
|
Commercial
mortgage
|
|
Other
commercial
real estate
|
|
Commercial
and industrial
and leases
|
|
Other
|
|
Residential
mortgage
|
|
Revolving
mortgage
|
|
Construction
and land
development
- non-
commercial
|
|
Consumer
|
|
Total
|
Non-PCI Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLL for loans and leases individually evaluated for impairment
|
$
|
463
|
|
|
$
|
3,650
|
|
|
$
|
39
|
|
|
$
|
1,379
|
|
|
$
|
103
|
|
|
$
|
3,278
|
|
|
$
|
2,722
|
|
|
$
|
174
|
|
|
$
|
1,107
|
|
|
$
|
12,915
|
|
ALLL for loans and leases collectively evaluated for impairment
|
32,750
|
|
|
41,685
|
|
|
2,172
|
|
|
57,995
|
|
|
2,133
|
|
|
14,954
|
|
|
16,980
|
|
|
2,535
|
|
|
33,486
|
|
|
204,690
|
|
Total allowance for loan and lease losses
|
$
|
33,213
|
|
|
$
|
45,335
|
|
|
$
|
2,211
|
|
|
$
|
59,374
|
|
|
$
|
2,236
|
|
|
$
|
18,232
|
|
|
$
|
19,702
|
|
|
$
|
2,709
|
|
|
$
|
34,593
|
|
|
$
|
217,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases individually evaluated for impairment
|
$
|
4,655
|
|
|
$
|
70,149
|
|
|
$
|
1,268
|
|
|
$
|
12,182
|
|
|
$
|
639
|
|
|
$
|
60,442
|
|
|
$
|
28,869
|
|
|
$
|
3,882
|
|
|
$
|
3,513
|
|
|
$
|
185,599
|
|
Loans and leases collectively evaluated for impairment
|
1,008,799
|
|
|
12,212,486
|
|
|
540,760
|
|
|
4,391,610
|
|
|
309,454
|
|
|
5,233,475
|
|
|
2,310,203
|
|
|
353,503
|
|
|
1,776,891
|
|
|
28,137,181
|
|
Total loan and leases
|
$
|
1,013,454
|
|
|
$
|
12,282,635
|
|
|
$
|
542,028
|
|
|
$
|
4,403,792
|
|
|
$
|
310,093
|
|
|
$
|
5,293,917
|
|
|
$
|
2,339,072
|
|
|
$
|
357,385
|
|
|
$
|
1,780,404
|
|
|
$
|
28,322,780
|
|
The following table presents the PCI allowance and recorded investment in loans at December 31, 2019:
|
|
|
|
|
(Dollars in thousands)
|
December 31, 2019
|
ALLL for loans acquired with deteriorated credit quality
|
$
|
7,536
|
|
Loans acquired with deteriorated credit quality
|
558,716
|
|
At December 31, 2019, $139.4 million of PCI loans experienced an adverse change in expected cash flows since the date of acquisition.
The following tables provide information on non-PCI impaired loans and leases, exclusive of loans and leases collectively evaluated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(Dollars in thousands)
|
With a
recorded
allowance
|
|
With no
recorded
allowance
|
|
Total
|
|
Unpaid
principal
balance
|
|
Related
allowance
recorded
|
Non-PCI impaired loans and leases:
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
$
|
1,851
|
|
|
$
|
2,804
|
|
|
$
|
4,655
|
|
|
$
|
5,109
|
|
|
$
|
463
|
|
Commercial mortgage
|
42,394
|
|
|
27,755
|
|
|
70,149
|
|
|
74,804
|
|
|
3,650
|
|
Other commercial real estate
|
318
|
|
|
950
|
|
|
1,268
|
|
|
1,360
|
|
|
39
|
|
Commercial and industrial and leases
|
7,547
|
|
|
4,635
|
|
|
12,182
|
|
|
13,993
|
|
|
1,379
|
|
Other
|
406
|
|
|
233
|
|
|
639
|
|
|
661
|
|
|
103
|
|
Total commercial loans
|
52,516
|
|
|
36,377
|
|
|
88,893
|
|
|
95,927
|
|
|
5,634
|
|
Noncommercial:
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
48,796
|
|
|
11,646
|
|
|
60,442
|
|
|
64,741
|
|
|
3,278
|
|
Revolving mortgage
|
26,104
|
|
|
2,765
|
|
|
28,869
|
|
|
31,960
|
|
|
2,722
|
|
Construction and land development
|
2,470
|
|
|
1,412
|
|
|
3,882
|
|
|
4,150
|
|
|
174
|
|
Consumer
|
3,472
|
|
|
41
|
|
|
3,513
|
|
|
3,821
|
|
|
1,107
|
|
Total noncommercial loans
|
80,842
|
|
|
15,864
|
|
|
96,706
|
|
|
104,672
|
|
|
7,281
|
|
Total non-PCI impaired loans and leases
|
$
|
133,358
|
|
|
$
|
52,241
|
|
|
$
|
185,599
|
|
|
$
|
200,599
|
|
|
$
|
12,915
|
|
Non-PCI impaired loans less than $500,000 that were collectively evaluated for impairment totaled $41.0 million at December 31, 2019.
The following tables show the average non-PCI impaired loan balance and the interest income recognized by loan class for the three months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
|
(Dollars in thousands)
|
Average
balance
|
|
Interest income recognized
|
Non-PCI impaired loans and leases:
|
|
|
|
Commercial:
|
|
|
|
Construction and land development
|
$
|
2,147
|
|
|
$
|
28
|
|
Commercial mortgage
|
56,629
|
|
|
564
|
|
Other commercial real estate
|
685
|
|
|
8
|
|
Commercial and industrial and leases
|
10,000
|
|
|
100
|
|
Other
|
315
|
|
|
2
|
|
Total commercial
|
69,776
|
|
|
702
|
|
Noncommercial:
|
|
|
|
Residential mortgage
|
42,626
|
|
|
325
|
|
Revolving mortgage
|
28,742
|
|
|
247
|
|
Construction and land development
|
3,747
|
|
|
36
|
|
Consumer
|
3,000
|
|
|
29
|
|
Total noncommercial
|
78,115
|
|
|
637
|
|
Total non-PCI impaired loans and leases
|
$
|
147,891
|
|
|
$
|
1,339
|
|
Troubled Debt Restructurings
BancShares accounts for certain loan modifications or restructurings as TDRs. In general, the modification or restructuring of a loan is considered a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, a concession is granted to the borrower that creditors would not otherwise consider. Concessions may relate to the contractual interest rate, maturity date, payment structure or other actions. Within our allowance for credit loss models, TDRs are not individually evaluated unless determined to be collateral-dependent and are included in the definition of default which provides for a 100% probability of default applied within the models. As a result, subsequent changes in default status do not impact the calculation of the allowance for credit losses on TDR loans.
Recent legislation and regulatory requirements have allowed for relief and provided guidance around the determination of TDRs for new loan modifications and forbearances for borrowers experiencing COVID-19-related financial difficulty. BancShares has utilized this guidance to identify new TDRs beginning in the first quarter of 2020 and did not identify new modifications as TDRs for those borrowers experiencing COVID-19-related financial difficulty.
The following tables provides a summary of total TDRs by accrual status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
(Dollars in thousands)
|
Accruing
|
|
Nonaccruing
|
|
Total
|
Commercial loans:
|
|
|
|
|
|
Construction and land development
|
$
|
1,086
|
|
|
$
|
1,537
|
|
|
$
|
2,623
|
|
Owner occupied commercial mortgage
|
33,704
|
|
|
10,153
|
|
|
43,857
|
|
Non-owner occupied commercial mortgage
|
11,438
|
|
|
319
|
|
|
11,757
|
|
Commercial and industrial and leases
|
9,914
|
|
|
2,607
|
|
|
12,521
|
|
Total commercial loans
|
56,142
|
|
|
14,616
|
|
|
70,758
|
|
Consumer:
|
|
|
|
|
|
Residential mortgage
|
35,288
|
|
|
15,820
|
|
|
51,108
|
|
Revolving mortgage
|
22,677
|
|
|
7,206
|
|
|
29,883
|
|
Construction and land development
|
2,376
|
|
|
2,701
|
|
|
5,077
|
|
Consumer auto
|
2,018
|
|
|
718
|
|
|
2,736
|
|
Consumer other
|
1,061
|
|
|
124
|
|
|
1,185
|
|
Total consumer loans
|
63,420
|
|
|
26,569
|
|
|
89,989
|
|
PCD Loans
|
14,061
|
|
|
4,997
|
|
|
19,058
|
|
Total loans
|
$
|
133,623
|
|
|
$
|
46,182
|
|
|
$
|
179,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(Dollars in thousands)
|
Accruing
|
|
Nonaccruing
|
|
Total
|
Commercial loans:
|
|
|
|
|
|
Construction and land development
|
$
|
487
|
|
|
$
|
2,279
|
|
|
$
|
2,766
|
|
Commercial mortgage
|
50,819
|
|
|
11,116
|
|
|
61,935
|
|
Other commercial real estate
|
571
|
|
|
—
|
|
|
571
|
|
Commercial and industrial and leases
|
9,430
|
|
|
2,409
|
|
|
11,839
|
|
Other
|
320
|
|
|
105
|
|
|
425
|
|
Total commercial loans
|
61,627
|
|
|
15,909
|
|
|
77,536
|
|
Noncommercial:
|
|
|
|
|
|
Residential mortgage
|
41,813
|
|
|
16,048
|
|
|
57,861
|
|
Revolving mortgage
|
21,032
|
|
|
7,367
|
|
|
28,399
|
|
Construction and land development
|
1,452
|
|
|
2,430
|
|
|
3,882
|
|
Consumer
|
2,826
|
|
|
688
|
|
|
3,514
|
|
Total noncommercial loans
|
67,123
|
|
|
26,533
|
|
|
93,656
|
|
Total loans
|
$
|
128,750
|
|
|
$
|
42,442
|
|
|
$
|
171,192
|
|
Total TDRs included $17.2 million of PCI TDRs at December 31, 2019.
The following table provides the types of modifications designated as TDRs during the three months ended March 31, 2020 and March 31, 2019, as well as a summary of loans modified as a TDR during the twelve month periods ended March 31, 2020 and March 31, 2019 that subsequently defaulted during the three months ended March 31, 2020 and March 31, 2019. BancShares defines payment default as movement of the TDR to nonaccrual status, which is generally 90 days past due for TDRs, foreclosure or charge-off, whichever occurs first.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
|
Three months ended March 31, 2019
|
|
All restructurings
|
|
Restructurings with payment default
|
|
All restructurings
|
|
Restructurings with payment default
|
(Dollars in thousands)
|
Number of Loans
|
Recorded investment at period end
|
|
Number of Loans
|
Recorded investment at period end
|
|
Number of Loans
|
Recorded investment at period end
|
|
Number of Loans
|
Recorded investment at period end
|
Loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
Interest only
|
10
|
|
$
|
3,986
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
Loan term extension
|
6
|
|
794
|
|
|
3
|
|
263
|
|
|
4
|
|
608
|
|
|
3
|
|
541
|
|
Below market interest rate
|
88
|
|
8,165
|
|
|
29
|
|
1,421
|
|
|
96
|
|
4,962
|
|
|
38
|
|
2,219
|
|
Discharged from bankruptcy
|
68
|
|
5,032
|
|
|
28
|
|
1,767
|
|
|
50
|
|
2,420
|
|
|
25
|
|
1,144
|
|
Total restructurings
|
172
|
|
$
|
17,977
|
|
|
60
|
|
$
|
3,451
|
|
|
150
|
|
$
|
7,990
|
|
|
66
|
|
$
|
3,904
|
|
For the three months ended March 31, 2020 and March 31, 2019, the pre-modification and post-modification outstanding amortized cost of loans modified as TDRs were not materially different.
NOTE F - OTHER REAL ESTATE OWNED
The following table explains changes in OREO during the three months ended March 31, 2020 and 2019:
|
|
|
|
|
(Dollars in thousands)
|
OREO
|
Balance at December 31, 2019
|
$
|
46,591
|
|
Additions
|
5,987
|
|
Acquired in business combinations
|
9,813
|
|
Sales
|
(5,321
|
)
|
Write-downs/losses
|
(1,363
|
)
|
Balance at March 31, 2020
|
$
|
55,707
|
|
|
|
Balance at December 31, 2018
|
$
|
48,030
|
|
Additions
|
3,133
|
|
Sales
|
(6,934
|
)
|
Write-downs/losses
|
(923
|
)
|
Balance at March 31, 2019
|
$
|
43,306
|
|
At March 31, 2020 and December 31, 2019, BancShares had $13.1 million and $14.5 million, respectively, of foreclosed residential real estate property in OREO. The recorded investment in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure was $22.0 million and $23.0 million at March 31, 2020 and December 31, 2019, respectively. Net losses recorded on the sale of OREO properties were $56 thousand for the three months ended March 31, 2020. Net gains recorded on the sale of OREO were $496 thousand for the three months ended March 31, 2019.
NOTE G - SERVICING RIGHTS
Mortgage Servicing Rights
Our portfolio of residential mortgage loans serviced for third parties was $3.41 billion and $3.38 billion as of March 31, 2020 and December 31, 2019, respectively. These loans are originated by BancShares and sold to third parties on a non-recourse basis with servicing rights retained. The retained servicing rights were recorded as a servicing asset and are reported in other intangible assets. The associated amortization expense and any valuation allowance recognized were included as a reduction of mortgage income. Mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair value.
Contractually specified mortgage servicing fees, late fees and ancillary fees earned for the three months ended March 31, 2020 and 2019 were $2.1 million and $1.9 million, respectively, and are reported in mortgage income.
The following table explains changes in the servicing asset during the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31
|
(Dollars in thousands)
|
2020
|
|
2019
|
Beginning balance
|
$
|
22,963
|
|
|
$
|
21,396
|
|
Servicing rights originated
|
1,583
|
|
|
859
|
|
Amortization
|
(1,823
|
)
|
|
(1,447
|
)
|
Valuation allowance increase
|
(2,967
|
)
|
|
(161
|
)
|
Ending balance
|
$
|
19,756
|
|
|
$
|
20,647
|
|
The following table presents the activity in the servicing asset valuation allowance for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31
|
(Dollars in thousands)
|
2020
|
|
2019
|
Beginning balance
|
$
|
222
|
|
|
$
|
—
|
|
Valuation allowance increase
|
2,967
|
|
|
161
|
|
Ending balance
|
$
|
3,189
|
|
|
$
|
161
|
|
Mortgage servicing rights valuations are performed using a pooling methodology where loans with similar risk characteristics are grouped together and evaluated using discounted cash flows to estimate the present value of future earnings. Key economic assumptions used to value mortgage servicing rights were as follows:
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Discount rate - conventional fixed loans
|
7.67
|
%
|
|
8.92
|
%
|
Discount rate - all loans excluding conventional fixed loans
|
8.67
|
%
|
|
9.92
|
%
|
Weighted average constant prepayment rate
|
19.38
|
%
|
|
13.72
|
%
|
Weighted average cost to service a loan
|
$
|
87.30
|
|
|
$
|
87.09
|
|
The fair value of mortgage servicing rights is sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows by utilizing discount rates, prepayment rates, and other inputs. The discount rate is based on the 10-year U.S. Treasury rate plus a risk premium of 700 basis points for conventional fixed loans and 800 basis points for all other loans. The prepayment rate is derived from the Public Securities Association Standard Prepayment model. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity. This results in a decrease in fair value, which occurred during first quarter 2020, resulting in an increase in the valuation allowance of $3.0 million. The average cost to service a loan is based on the number of loans serviced and the total cost to service the loans.
Other Servicing Rights
Other servicing rights were acquired as part of business combinations and relate to the sale of the guaranteed portion of government guaranteed loans with servicing retained. The amount of the other servicing rights were $1.7 million and $1.9 million at March 31, 2020 and December 31, 2019, respectively. The amortization related to other servicing rights is recorded in other noninterest income.
NOTE H - REPURCHASE AGREEMENTS
BancShares utilizes securities sold under agreements to repurchase to facilitate the needs of customers and secure wholesale funding needs. Repurchase agreements are transactions whereby BancShares offers to sell to a counterparty an undivided interest in an eligible security at an agreed upon price, and which obligates BancShares to repurchase the security at an agreed upon date, repurchase price, and interest rate. These agreements are recorded at the amount of cash received in connection with the transaction and are reflected as securities sold under customer repurchase agreements.
BancShares monitors collateral levels on a continuous basis and maintains records of each transaction specifically describing the applicable security and the counterparty’s interest in that security, and segregates the security from general assets in accordance with regulations governing custodial holdings of securities. The primary risk with repurchase agreements is market risk associated with the investments securing the transactions, as additional collateral may be required based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with safekeeping agents. The carrying value of investment securities available for sale pledged as collateral under repurchase agreements was $558.5 million and $477.6 million at March 31, 2020 and December 31, 2019, respectively.
BancShares held securities sold under agreements to repurchase of $540.4 million at March 31, 2020, with overnight and continuous remaining contractual maturities collateralized by government agency securities and $443.0 million at December 31, 2019, with overnight and continuous remaining contractual maturities collateralized by government agency securities.
NOTE I - FDIC SHARED-LOSS PAYABLE
At March 31, 2020, shared-loss protection remains for single family residential loans acquired in the amount of $42.4 million. The shared-loss agreement for two of the FDIC-assisted transactions include a provision related to a payment that may be owed to the FDIC at the termination of the agreement if actual cumulative losses on acquired covered assets are lower than the cumulative losses originally estimated by the FDIC at the time of acquisition (the “clawback liability”). BancShares issued a payment to the FDIC in the first quarter of 2020 for $99.5 million related to one of the transactions. The remaining clawback liability payment date is March 2021.
The following table provides changes in the FDIC shared-loss payable since December 31, 2019:
|
|
|
|
|
(Dollars in thousands)
|
Total
|
Balance at December 31, 2019
|
$
|
112,395
|
|
Accretion
|
1,810
|
|
Payment made to the FDIC to settle shared-loss agreement
|
(99,468
|
)
|
Balance at March 31, 2020
|
$
|
14,737
|
|
NOTE J - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) included the following as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
(Dollars in thousands)
|
Accumulated
other
comprehensive
income (loss)
|
|
Deferred
tax
expense
(benefit)
|
|
Accumulated
other
comprehensive
income (loss),
net of tax
|
|
Accumulated
other
comprehensive
income (loss)
|
|
Deferred
tax
expense
(benefit)
|
|
Accumulated
other
comprehensive
income (loss),
net of tax
|
Unrealized gains on securities available for sale
|
$
|
132,570
|
|
|
$
|
30,490
|
|
|
$
|
102,080
|
|
|
$
|
7,522
|
|
|
$
|
1,730
|
|
|
$
|
5,792
|
|
Defined benefit pension items
|
(165,834
|
)
|
|
(38,142
|
)
|
|
(127,692
|
)
|
|
(172,098
|
)
|
|
(39,583
|
)
|
|
(132,515
|
)
|
Total
|
$
|
(33,264
|
)
|
|
$
|
(7,652
|
)
|
|
$
|
(25,612
|
)
|
|
$
|
(164,576
|
)
|
|
$
|
(37,853
|
)
|
|
$
|
(126,723
|
)
|
The following table highlights changes in accumulated other comprehensive income (loss) by component for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
(Dollars in thousands, net of tax)
|
Unrealized gains on securities available for sale
|
|
Unrealized losses on securities available for sale transferred to held to maturity
|
|
Defined benefit pension items
|
|
Total
|
Beginning balance
|
$
|
5,792
|
|
|
$
|
—
|
|
|
$
|
(132,515
|
)
|
|
$
|
(126,723
|
)
|
Net unrealized gains arising during period
|
111,530
|
|
|
—
|
|
|
—
|
|
|
111,530
|
|
Amounts reclassified from accumulated other comprehensive loss
|
(15,242
|
)
|
|
—
|
|
|
4,823
|
|
|
(10,419
|
)
|
Net current period other comprehensive income
|
96,288
|
|
|
—
|
|
|
4,823
|
|
|
101,111
|
|
Ending balance
|
$
|
102,080
|
|
|
$
|
—
|
|
|
$
|
(127,692
|
)
|
|
$
|
(25,612
|
)
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
|
(Dollars in thousands, net of tax)
|
Unrealized gains on securities available for sale
|
|
Unrealized losses on securities available for sale transferred to held to maturity
|
|
Defined benefit pension items
|
|
Total
|
Beginning balance
|
$
|
(38,505
|
)
|
|
$
|
(71,149
|
)
|
|
$
|
(125,533
|
)
|
|
$
|
(235,187
|
)
|
Net unrealized gains arising during period
|
21,615
|
|
|
—
|
|
|
—
|
|
|
21,615
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
4,591
|
|
|
2,121
|
|
|
6,712
|
|
Net current period other comprehensive income
|
21,615
|
|
|
4,591
|
|
|
2,121
|
|
|
28,327
|
|
Ending balance
|
$
|
(16,890
|
)
|
|
$
|
(66,558
|
)
|
|
$
|
(123,412
|
)
|
|
$
|
(206,860
|
)
|
The following table presents the amounts reclassified from accumulated other comprehensive income (loss) and the line item affected in the statement where net income is presented for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
Details about accumulated other comprehensive income (loss)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
Affected line item in the statement where net income is presented
|
Unrealized gains on securities available for sale
|
|
$
|
19,795
|
|
|
Realized gains on investment securities available for sale, net
|
|
|
(4,553
|
)
|
|
Income taxes
|
|
|
$
|
15,242
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
Actuarial losses
|
|
$
|
(6,264
|
)
|
|
Other
|
|
|
1,441
|
|
|
Income taxes
|
|
|
$
|
(4,823
|
)
|
|
|
Total reclassifications for the period
|
|
$
|
10,419
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
|
Details about accumulated other comprehensive income (loss)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
Affected line item in the statement where net income is presented
|
Amortization of unrealized losses on securities available for sale transferred to held to maturity
|
|
$
|
(5,962
|
)
|
|
Net interest income
|
|
|
1,371
|
|
|
Income taxes
|
|
|
$
|
(4,591
|
)
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
Prior service costs
|
|
$
|
(14
|
)
|
|
Salaries and wages
|
Actuarial losses
|
|
(2,741
|
)
|
|
Other
|
|
|
(2,755
|
)
|
|
Income before income taxes
|
|
|
634
|
|
|
Income taxes
|
|
|
$
|
(2,121
|
)
|
|
|
Total reclassifications for the period
|
|
$
|
(6,712
|
)
|
|
|
NOTE K - ESTIMATED FAIR VALUES
Fair value estimates are intended to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Where there is no active market for a financial instrument, BancShares has made estimates using discounted cash flows or other valuation techniques. Inputs used in these valuation techniques are subjective in nature, involve uncertainties and require significant judgment and therefore can only be derived within a range of precision. Accordingly, the derived fair value estimates presented below are not necessarily indicative of the amounts BancShares would realize in a current market exchange.
ASC 820, Fair Value Measurements and Disclosures, indicates that assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. The levels are based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy for an asset or liability is based on the highest level of input that is significant to the fair value measurement (with Level 1 considered highest and Level 3 considered lowest). A brief description of each level follows:
|
|
•
|
Level 1 values are based on quoted prices for identical instruments in active markets.
|
|
|
•
|
Level 2 values are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
|
|
|
•
|
Level 3 values are derived from valuation techniques in which one or more significant inputs or assumptions are not observable in the market. These unobservable inputs and assumptions reflect estimates that market participants would use in pricing the asset or liability. Valuation techniques include the use of discounted cash flow models and similar techniques.
|
BancShares’ management reviews any changes to its valuation methodologies to ensure they are appropriate and supportable, and refines valuation methodologies as more market-based data becomes available. Accuracy of the levels of the fair value hierarchy are validated at the end of the reporting period.
The methodologies used to estimate the fair value of financial assets and financial liabilities are discussed below:
Investment securities available for sale and held to maturity. The fair value of U.S. Treasury, government agency and mortgage-backed securities, municipal securities, as well as a portion of corporate bonds, is generally estimated using a third party pricing service. The third party provider evaluates securities based on comparable investments with trades and market data and will utilize pricing models that use a variety of inputs, such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2. The remaining corporate bonds held are generally measured at fair value based on indicative bids from broker-dealers and are not directly observable. These securities are considered Level 3.
Investment in marketable equity securities. Equity securities are measured at fair value using observable closing prices and the market activity. Equity securities are classified as Level 1 if they are traded in an active market and as Level 2 if the observable closing price is from a less than active market.
Loans held for sale. Management elects the fair value option on certain residential real estate loans originated to be sold to investors. The loans are carried at fair value based on quoted market prices for similar types of loans. Accordingly, the inputs used to calculate fair value of originated residential real estate loans held for sale are classified as Level 2 inputs. Portfolio loans that are subsequently transferred to held for sale to be sold in the secondary market are carried at fair value when a firm commitment from a counterparty exists. The fair value of the transferred portfolio loans is based on the quoted prices and is considered a Level 1 input.
Net loans and leases. Fair value is estimated based on discounted future cash flows using the current interest rates at which loans with similar terms would be made to borrowers of similar credit quality. The inputs used in the fair value measurements for loans and leases are considered Level 3 inputs.
FHLB stock. The carrying amount of FHLB stock is a reasonable estimate of fair value as these securities are not readily marketable and are evaluated for impairment based on the ultimate recoverability of the par value. BancShares considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. BancShares believes its investment in FHLB stock is ultimately recoverable at par. The inputs used in the fair value measurement for the FHLB stock are considered Level 2 inputs.
Mortgage and other servicing rights. Mortgage and other servicing rights are carried at the lower of amortized cost or market value and are, therefore, carried at fair value only when fair value is less than the amortized cost. The fair value of mortgage and other servicing rights is performed using a pooling methodology. Similar loans are pooled together and a model that relies on discount rates, estimates of prepayment rates and the weighted average cost to service the loans is used to determine the fair value. The inputs used in the fair value measurement for mortgage and other servicing rights are considered Level 3 inputs.
Deposits. For non-time deposits, carrying value is a reasonable estimate of fair value. The fair value of time deposits is estimated by discounting future cash flows using the interest rates currently offered for deposits with similar remaining maturities. The inputs used in the fair value measurement for deposits are considered Level 2 inputs.
Borrowings. For borrowings, the fair values are determined based on recent trades or sales of the actual security if available. Otherwise, fair values are estimated by discounting future cash flows using current interest rates for similar financial instruments. The inputs used in the fair value measurement for FHLB borrowings, subordinated debentures, and other borrowings are considered Level 2 inputs.
Payable to the FDIC for shared-loss agreements. The fair value of the payable to the FDIC for shared-loss agreements is determined based on expected payments to the FDIC in accordance with the shared-loss agreements. Cash flows are discounted using current discount rates to reflect the timing of the estimated amounts due to the FDIC. The inputs used in the fair value measurement for the payable to the FDIC are considered Level 3 inputs.
Off-balance-sheet commitments and contingencies. Carrying amounts are reasonable estimates of the fair values for such financial instruments. Carrying amounts include unamortized fee income and, in some cases, reserves for any credit losses from those financial instruments. These amounts are not material to BancShares’ financial position.
For all other financial assets and financial liabilities, the carrying value is a reasonable estimate of the fair value as of March 31, 2020 and December 31, 2019. The carrying value and fair value for these assets and liabilities are equivalent because they are relatively short term in nature and there is no interest rate or credit risk that would cause the fair value to differ from the carrying value. Cash and due from banks is classified on the fair value hierarchy as Level 1. Overnight investments, income earned not collected, securities sold under customer repurchase agreements, and accrued interest payable are considered Level 2.
The table presents the carrying values and estimated fair values for financial instruments as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
Carrying value
|
|
Fair value
|
|
Carrying value
|
|
Fair value
|
Cash and due from banks
|
$
|
454,220
|
|
|
$
|
454,220
|
|
|
$
|
376,719
|
|
|
$
|
376,719
|
|
Overnight investments
|
688,518
|
|
|
688,518
|
|
|
1,107,844
|
|
|
1,107,844
|
|
Investment in marketable equity securities
|
315,501
|
|
|
315,501
|
|
|
82,333
|
|
|
82,333
|
|
Investment securities available for sale
|
7,789,034
|
|
|
7,789,034
|
|
|
7,059,674
|
|
|
7,059,674
|
|
Investment securities held to maturity
|
740,662
|
|
|
753,178
|
|
|
30,996
|
|
|
30,996
|
|
Loans held for sale
|
76,347
|
|
|
76,347
|
|
|
67,869
|
|
|
67,869
|
|
Net loans and leases
|
29,031,700
|
|
|
29,565,373
|
|
|
28,656,355
|
|
|
28,878,550
|
|
Income earned not collected
|
125,626
|
|
|
125,626
|
|
|
123,154
|
|
|
123,154
|
|
Federal Home Loan Bank stock
|
51,087
|
|
|
51,087
|
|
|
43,039
|
|
|
43,039
|
|
Mortgage and other servicing rights
|
21,488
|
|
|
22,733
|
|
|
24,891
|
|
|
26,927
|
|
Deposits
|
35,346,711
|
|
|
35,382,365
|
|
|
34,431,236
|
|
|
34,435,789
|
|
Securities sold under customer repurchase agreements
|
540,362
|
|
|
540,362
|
|
|
442,956
|
|
|
442,956
|
|
Federal Home Loan Bank borrowings
|
792,684
|
|
|
829,785
|
|
|
572,185
|
|
|
577,362
|
|
Subordinated debt
|
504,145
|
|
|
467,612
|
|
|
163,412
|
|
|
173,685
|
|
Other borrowings
|
105,303
|
|
|
105,460
|
|
|
148,318
|
|
|
149,232
|
|
FDIC shared-loss payable
|
14,737
|
|
|
15,674
|
|
|
112,395
|
|
|
114,252
|
|
Accrued interest payable
|
13,500
|
|
|
13,500
|
|
|
18,124
|
|
|
18,124
|
|
Among BancShares’ assets and liabilities, investment securities available for sale, marketable equity securities and loans held for sale are reported at their fair values on a recurring basis. For assets and liabilities carried at fair value on a recurring basis, the following table provides fair value information as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
Fair value measurements using:
|
(Dollars in thousands)
|
Fair value
|
|
Level 1 inputs
|
|
Level 2 inputs
|
|
Level 3 inputs
|
Assets measured at fair value
|
|
|
|
|
|
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
205,782
|
|
|
$
|
—
|
|
|
$
|
205,782
|
|
|
$
|
—
|
|
Government agency
|
760,431
|
|
|
—
|
|
|
760,431
|
|
|
—
|
|
Residential mortgage-backed securities
|
5,952,841
|
|
|
—
|
|
|
5,952,841
|
|
|
—
|
|
Commercial mortgage-backed securities
|
650,565
|
|
|
—
|
|
|
650,565
|
|
|
—
|
|
Corporate bonds
|
219,415
|
|
|
—
|
|
|
152,399
|
|
|
67,016
|
|
Total investment securities available for sale
|
$
|
7,789,034
|
|
|
$
|
—
|
|
|
$
|
7,722,018
|
|
|
$
|
67,016
|
|
Marketable equity securities
|
$
|
315,501
|
|
|
$
|
111,807
|
|
|
$
|
203,694
|
|
|
$
|
—
|
|
Loans held for sale
|
$
|
76,347
|
|
|
$
|
—
|
|
|
$
|
76,347
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
Fair value measurements using:
|
|
Fair value
|
|
Level 1 inputs
|
|
Level 2 inputs
|
|
Level 3 inputs
|
Assets measured at fair value
|
|
|
|
|
|
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
409,999
|
|
|
$
|
—
|
|
|
$
|
409,999
|
|
|
$
|
—
|
|
Government agency
|
682,772
|
|
|
—
|
|
|
682,772
|
|
|
—
|
|
Residential mortgage-backed securities
|
5,267,090
|
|
|
—
|
|
|
5,267,090
|
|
|
—
|
|
Commercial mortgage-backed securities
|
380,020
|
|
|
—
|
|
|
380,020
|
|
|
—
|
|
Corporate bonds
|
201,566
|
|
|
—
|
|
|
131,881
|
|
|
69,685
|
|
State, county and municipal
|
118,227
|
|
|
—
|
|
|
118,227
|
|
|
—
|
|
Total investment securities available for sale
|
$
|
7,059,674
|
|
|
$
|
—
|
|
|
$
|
6,989,989
|
|
|
$
|
69,685
|
|
Marketable equity securities
|
$
|
82,333
|
|
|
$
|
29,458
|
|
|
$
|
52,875
|
|
|
$
|
—
|
|
Loans held for sale
|
$
|
67,869
|
|
|
$
|
—
|
|
|
$
|
67,869
|
|
|
$
|
—
|
|
During the three months ended March 31, 2020, there were transfers from Level 2 to Level 3 of $1.8 million in corporate bonds available for sale. The transfers were due to a lack of observable inputs and trade activity for those securities. During the three months ended March 31, 2019, there were no transfers between levels.
The following tables summarize activity for Level 3 assets:
|
|
|
|
|
|
Three months ended March 31, 2020
|
(Dollars in thousands)
|
Corporate bonds
|
Balance at January 1, 2020
|
$
|
69,685
|
|
Unrealized net losses included in other comprehensive income
|
(4,366
|
)
|
Amounts included in net income
|
(85
|
)
|
Transfers in
|
1,782
|
|
Balance at March 31, 2020
|
$
|
67,016
|
|
The following table presents quantitative information about Level 3 fair value measurements for fair value on a recurring basis at March 31, 2020:
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
March 31, 2020
|
Level 3 assets
|
|
Valuation technique
|
|
Significant unobservable input
|
|
Fair Value
|
Corporate bonds
|
|
Indicative bid provided by broker
|
|
Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer
|
|
$
|
67,016
|
|
Fair Value Option
BancShares has elected the fair value option for residential real estate loans originated to be sold. This election reduces certain timing differences in the Consolidated Statement of Income and better aligns with the management of the portfolio from a business perspective. The changes in fair value were recorded as a component of mortgage income and included a gain of $1.2 million and a gain of $249 thousand for the three months ended March 31, 2020 and 2019, respectively.
The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for residential real estate originated for sale measured at fair value as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
(Dollars in thousands)
|
Fair value
|
|
Aggregate unpaid principal balance
|
|
Difference
|
Originated loans held for sale
|
$
|
76,347
|
|
|
$
|
72,883
|
|
|
$
|
3,464
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Fair value
|
|
Aggregate unpaid principal balance
|
|
Difference
|
Originated loans held for sale
|
$
|
67,869
|
|
|
$
|
65,697
|
|
|
$
|
2,172
|
|
No originated loans held for sale were 90 or more days past due or on nonaccrual status as of March 31, 2020 or December 31, 2019.
We may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment.
Following the adoption of ASC 326, the population of loans measured at fair value on a non-recurring basis has greatly diminished and is limited to collateral-dependent loans evaluated individually. These collateral-dependent loans are deemed to be at fair value if there is an associated allowance for credit losses or if a charge-off has been recorded in the previous 12 months. Collateral values are determined using appraisals or other third-party value estimates of the subject property discounted based on estimated selling costs, generally between 9% and 11%, and immaterial adjustments for other external factors that may impact the marketability of the collateral. The weighted average discount for estimated selling costs applied was 9.45%.
Prior to the adoption of ASC 326, impaired loans were deemed to be at fair value if an associated allowance or current period charge-off had been recorded. The value of impaired loans was determined by either collateral valuations or discounted present value of the expected cash flow calculations. Collateral values were determined using appraisals or other third-party value estimates of the subject property with discounts, generally between 6% and 11%, applied for estimated selling costs and other external factors that may impact the marketability of the property. Expected cash flows were determined using expected payment information at the individual loan level, discounted using the effective interest rate. The effective interest rate for the majority of impaired loans generally ranges between 3% and 7%.
OREO acquired or written down within the previous 12 months is deemed to be at fair value. Asset valuations are determined by using appraisals or other third-party value estimates of the subject property with with discounts generally between 7% and 22% applied for estimated selling costs and other external factors that may impact the marketability of the property. At March 31, 2020, the weighted average discount applied was 8.37%. Changes to the value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager assigned to each asset. If there are any significant changes in the market or the subject property, valuations are adjusted or new appraisals ordered to ensure the reported values reflect the most current information.
For financial assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
Fair value measurements using:
|
(Dollars in thousands)
|
Fair value
|
|
Level 1 inputs
|
|
Level 2 inputs
|
|
Level 3 inputs
|
Collateral-dependent loans
|
$
|
5,489
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,489
|
|
Other real estate owned
|
46,710
|
|
|
—
|
|
|
—
|
|
|
46,710
|
|
Mortgage servicing rights
|
19,068
|
|
|
—
|
|
|
—
|
|
|
19,068
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
Fair value measurements using:
|
|
Fair value
|
|
Level 1 inputs
|
|
Level 2 inputs
|
|
Level 3 inputs
|
Impaired loans
|
$
|
132,336
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
132,336
|
|
Other real estate owned
|
38,310
|
|
|
—
|
|
|
—
|
|
|
38,310
|
|
Mortgage servicing rights
|
3,757
|
|
|
—
|
|
|
—
|
|
|
3,757
|
|
No financial liabilities were carried at fair value on a nonrecurring basis as of March 31, 2020 and December 31, 2019.
NOTE L - EMPLOYEE BENEFIT PLANS
BancShares sponsors noncontributory defined benefit pension plans for its qualifying employees. The service cost component of net periodic benefit cost is included in salaries and wages while all other non-service cost components are included in other noninterest expense.
For the three months ended March 31, 2020 and 2019, the components of net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31
|
(Dollars in thousands)
|
2020
|
|
2019
|
Service cost
|
$
|
3,457
|
|
|
$
|
3,113
|
|
Interest cost
|
8,531
|
|
|
9,291
|
|
Expected return on assets
|
(16,409
|
)
|
|
(15,635
|
)
|
Amortization of prior service cost
|
—
|
|
|
14
|
|
Amortization of net actuarial loss
|
6,264
|
|
|
2,741
|
|
Net periodic cost (benefit)
|
$
|
1,843
|
|
|
$
|
(476
|
)
|
A discretionary contribution of $100.0 million was made to the pension plans during the three months ended March 31, 2020. Management evaluates the need for its pension plan contributions on a periodic basis based upon numerous factors including, but not limited to, the funded status of the plans, returns on plan assets, discount rates and the current economic environment.
NOTE M - LEASES
The following table presents lease assets and liabilities as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Classification
|
March 31, 2020
|
|
December 31, 2019
|
Assets:
|
|
|
|
|
Operating
|
Other assets
|
$
|
75,174
|
|
|
$
|
77,115
|
|
Finance
|
Premises and equipment
|
9,261
|
|
|
8,820
|
|
Total leased assets
|
|
$
|
84,435
|
|
|
$
|
85,935
|
|
Liabilities:
|
|
|
|
|
Operating
|
Other liabilities
|
$
|
75,011
|
|
|
$
|
76,746
|
|
Finance
|
Other borrowings
|
9,024
|
|
|
8,230
|
|
Total lease liabilities
|
|
$
|
84,035
|
|
|
$
|
84,976
|
|
NOTE N - COMMITMENTS AND CONTINGENCIES
To meet the financing needs of its customers, BancShares and its subsidiaries have financial instruments with off-balance sheet risk. These financial instruments involve elements of credit, interest rate or liquidity risk and include commitments to extend credit and standby letters of credit.
Commitments to extend credit are legally binding agreements to lend to customers. These commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. Established credit standards control the credit risk exposure associated with these commitments. In some cases, BancShares requires collateral be pledged to secure the commitment, including cash deposits, securities and other assets.
Standby letters of credit are commitments guaranteeing performance of a customer to a third party. Those commitments are primarily issued to support public and private borrowing arrangements. To mitigate its risk, BancShares’ credit policies govern the issuance of standby letters of credit. The credit risk related to the issuance of these letters of credit is essentially the same as in extending loans to clients and, therefore, these letters of credit are collateralized when necessary.
The following table presents the commitments to extend credit and standby letters of credit as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
Unused commitments to extend credit
|
$
|
10,775,845
|
|
|
$
|
10,682,378
|
|
Standby letters of credit
|
106,055
|
|
|
99,601
|
|
BancShares has investments in qualified affordable housing projects primarily for the purposes of fulfilling Community Reinvestment Act requirements and obtaining tax credits. Affordable housing project investments were $166.6 million and $167.8 million as of March 31, 2020 and December 31, 2019, respectively, and were recorded in other assets. Unfunded commitments to fund future investments in affordable housing projects totaled $68.9 million and $70.0 million as of March 31, 2020 and December 31, 2019, respectively, and were recorded in other liabilities.
BancShares and various subsidiaries have been named as defendants in legal actions arising from their normal business activities in which damages in various amounts were claimed. BancShares has also been exposed to litigation risk relating to the prior business activities of banks from which assets were acquired and liabilities assumed in the various merger transactions. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, any such liability will not have a material effect on BancShares’ consolidated financial statements.