UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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ý☒ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the quarterly period ended SeptemberJune 30, 2017
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¨☐ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the transition period from to
Commission file number 001-34657
TEXAS CAPITAL BANCSHARES, INC.
(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)
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Delaware | | 75-2679109 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
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2000 McKinney Avenue Suite 700, Dallas, Texas, U.S.A. | | 75201 |
Suite 700 | |
| Dallas | TX | USA | | | 75201 |
(Address of principal executive officers)offices) | | (Zip Code) |
214/(214)932-6600
(Registrant’s telephone number,
including area code)
N/A
(Former Name, Former Addressname, former address and Former Fiscal Year,former fiscal year, if Changed Since Last Report)changed since last report)
Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | | TCBI | | Nasdaq Stock Market |
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5.75% Non-Cumulative Perpetual Preferred Stock Series B, par value $0.01 per share | | TCBIO | | Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” "smaller“smaller reporting company"company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer | x | ý | | | Accelerated Filer | | ¨☐ | | |
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Non-Accelerated Filer | ☐ | ¨ | (Do not check if a smaller reporting company) | | Smaller Reporting Company | | ¨☐ | | |
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Emerging Growth Company | | ¨
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý
APPLICABLE ONLY TO CORPORATE ISSUERS:
On October 18, 2017,July 21, 2021, the number of shares set forth below was outstanding with respect to each of the issuer’sissuer's classes of common stock:
Common Stock, par value $0.01 per share 49,626,54550,597,797
Texas Capital Bancshares, Inc.
Form 10-Q
Quarter Ended SeptemberJune 30, 20172021
Index
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Item 1. | | |
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Item 2. | | |
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| Item 3. | | |
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Item 4. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 6. | | |
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PART I – I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
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| September 30, 2017 | | December 31, 2016 |
| (Unaudited) | | |
Assets | | | |
Cash and due from banks | $ | 143,616 |
| | $ | 113,707 |
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Interest-bearing deposits | 2,332,537 |
| | 2,700,645 |
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Federal funds sold and securities purchased under resale agreements | 25,000 |
| | 25,000 |
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Securities, available-for-sale | 24,224 |
| | 24,874 |
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Loans held for sale, at fair value | 955,983 |
| | 968,929 |
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Loans held for investment, mortgage finance | 5,642,285 |
| | 4,497,338 |
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Loans held for investment (net of unearned income) | 14,828,406 |
| | 13,001,011 |
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Less: Allowance for loan losses | 182,929 |
| | 168,126 |
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Loans held for investment, net | 20,287,762 |
| | 17,330,223 |
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Mortgage servicing rights, net | 77,630 |
| | 28,536 |
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Premises and equipment, net | 23,882 |
| | 19,775 |
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Accrued interest receivable and other assets | 511,207 |
| | 465,933 |
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Goodwill and intangible assets, net | 19,157 |
| | 19,512 |
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Total assets | $ | 24,400,998 |
| | $ | 21,697,134 |
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Liabilities and Stockholders’ Equity | | | |
Liabilities: | | | |
Deposits: | | | |
Non-interest-bearing | $ | 8,263,202 |
| | $ | 7,994,201 |
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Interest-bearing | 10,818,055 |
| | 9,022,630 |
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Total deposits | 19,081,257 |
| | 17,016,831 |
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Accrued interest payable | 4,562 |
| | 5,498 |
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Other liabilities | 178,599 |
| | 161,223 |
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Federal funds purchased and repurchase agreements | 83,496 |
| | 109,575 |
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Other borrowings | 2,500,000 |
| | 2,000,000 |
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Subordinated notes, net | 281,315 |
| | 281,044 |
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Trust preferred subordinated debentures | 113,406 |
| | 113,406 |
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Total liabilities | 22,242,635 |
| | 19,687,577 |
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Stockholders’ equity: | | | |
Preferred stock, $.01 par value, $1,000 liquidation value: | | | |
Authorized shares – 10,000,000 | | | |
Issued shares – 6,000,000 shares issued at September 30, 2017 and December 31, 2016 | 150,000 |
| | 150,000 |
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Common stock, $.01 par value: | | | |
Authorized shares – 100,000,000 | | | |
Issued shares – 49,622,242 and 49,504,079 at September 30, 2017 and December 31, 2016, respectively | 496 |
| | 495 |
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Additional paid-in capital | 959,251 |
| | 955,468 |
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Retained earnings | 1,048,195 |
| | 903,187 |
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Treasury stock (shares at cost: 417 at September 30, 2017 and December 31, 2016) | (8 | ) | | (8 | ) |
Accumulated other comprehensive income, net of taxes | 429 |
| | 415 |
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Total stockholders’ equity | 2,158,363 |
| | 2,009,557 |
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Total liabilities and stockholders’ equity | $ | 24,400,998 |
| | $ | 21,697,134 |
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- UNAUDITED | | | | | | | | | | | |
(in thousands except share data) | June 30, 2021 | | December 31, 2020 |
| (Unaudited) | | |
Assets | | | |
Cash and due from banks | $ | 202,549 | | | $ | 173,573 | |
Interest-bearing deposits in other banks | 6,768,650 | | | 9,032,807 | |
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Investment securities | 3,798,275 | | | 3,196,970 | |
Loans held for sale ($63.7 million and $239.1 million at June 30, 2021 and December 31, 2020, respectively, at fair value) | 63,747 | | | 283,165 | |
Loans held for investment, mortgage finance | 8,772,799 | | | 9,079,409 | |
Loans held for investment (net of unearned income) | 15,168,565 | | | 15,351,451 | |
Less: Allowance for credit losses on loans | 221,511 | | | 254,615 | |
Loans held for investment, net | 23,719,853 | | | 24,176,245 | |
Mortgage servicing rights, net | 1,316 | | | 105,424 | |
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Premises and equipment, net | 21,969 | | | 24,546 | |
Accrued interest receivable and other assets | 634,719 | | | 715,699 | |
Goodwill and intangible assets, net | 17,464 | | | 17,667 | |
Total assets | $ | 35,228,542 | | | $ | 37,726,096 | |
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Liabilities and Stockholders’ Equity | | | |
Liabilities: | | | |
Deposits: | | | |
Non-interest-bearing | $ | 14,228,038 | | | $ | 12,740,947 | |
Interest-bearing | 14,611,525 | | | 18,255,642 | |
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Total deposits | 28,839,563 | | | 30,996,589 | |
Accrued interest payable | 8,116 | | | 11,150 | |
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Other liabilities | 324,039 | | | 339,486 | |
Federal funds purchased and repurchase agreements | 14,481 | | | 111,751 | |
Other borrowings | 2,000,000 | | | 3,000,000 | |
Long-term debt | 927,386 | | | 395,896 | |
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Total liabilities | 32,113,585 | | | 34,854,872 | |
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Stockholders’ equity: | | | |
Preferred stock, $0.01 par value, $1,000 liquidation value: | | | |
Authorized shares—10,000,000 | | | |
Issued shares—300,000 and 6,000,000 at June 30, 2021 and December 31, 2020, respectively | 300,000 | | | 150,000 | |
Common stock, $0.01 par value: | | | |
Authorized shares—100,000,000 | | | |
Issued shares— 50,592,618 and 50,470,867 at June 30, 2021 and December 31, 2020, respectively | 506 | | | 504 | |
Additional paid-in capital | 992,469 | | | 991,898 | |
Retained earnings | 1,848,379 | | | 1,713,056 | |
Treasury stock (shares at cost: 417 at June 30, 2021 and December 31, 2020) | (8) | | | (8) | |
Accumulated other comprehensive income/(loss), net of taxes | (26,389) | | | 15,774 | |
Total stockholders’ equity | 3,114,957 | | | 2,871,224 | |
Total liabilities and stockholders’ equity | $ | 35,228,542 | | | $ | 37,726,096 | |
See accompanying notes to consolidated financial statements.
TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND OTHER
COMPREHENSIVE INCOME –INCOME/(LOSS) - UNAUDITED
(In thousands except per share data)
| | | | | | | | | | | | Three months ended June 30, | | Six months ended June 30, |
| Three months ended September 30, | | Nine months ended September 30, | |
| 2017 | | 2016 | | 2017 | | 2016 | |
(in thousands except per share data) | | (in thousands except per share data) | 2021 | | 2020 | | 2021 | | 2020 |
Interest income | | | | | | | | Interest income | |
Interest and fees on loans | $ | 229,116 |
| | $ | 177,724 |
| | $ | 607,386 |
| | $ | 501,673 |
| Interest and fees on loans | $ | 210,611 | | | $ | 247,595 | | | $ | 426,203 | | | $ | 531,220 | |
Securities | 341 |
| | 232 |
| | 853 |
| | 739 |
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Investment securities | | Investment securities | 10,918 | | | 2,024 | | | 20,805 | | | 4,207 | |
Federal funds sold and securities purchased under resale agreements | 642 |
| | 455 |
| | 1,606 |
| | 1,209 |
| Federal funds sold and securities purchased under resale agreements | 0 | | | 77 | | | 1 | | | 691 | |
Deposits in other banks | 7,544 |
| | 4,081 |
| | 19,935 |
| | 11,116 |
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Interest-bearing deposits in other banks | | Interest-bearing deposits in other banks | 2,961 | | | 2,314 | | | 5,893 | | | 21,900 | |
Total interest income | 237,643 |
| | 182,492 |
| | 629,780 |
| | 514,737 |
| Total interest income | 224,490 | | | 252,010 | | | 452,902 | | | 558,018 | |
Interest expense | | | | | | | | Interest expense | |
Deposits | 22,435 |
| | 8,950 |
| | 52,261 |
| | 26,743 |
| Deposits | 16,271 | | | 32,294 | | | 36,275 | | | 94,468 | |
Federal funds purchased | 891 |
| | 126 |
| | 1,869 |
| | 362 |
| Federal funds purchased | 51 | | | 176 | | | 126 | | | 845 | |
| Other borrowings | 4,835 |
| | 1,733 |
| | 9,757 |
| | 4,265 |
| Other borrowings | 451 | | | 4,569 | | | 2,968 | | | 14,151 | |
Subordinated notes | 4,191 |
| | 4,191 |
| | 12,573 |
| | 12,573 |
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Trust preferred subordinated debentures | 930 |
| | 753 |
| | 2,641 |
| | 2,203 |
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Long-term debt | | Long-term debt | 10,723 | | | 5,043 | | | 16,466 | | | 10,307 | |
| Total interest expense | 33,282 |
| | 15,753 |
| | 79,101 |
| | 46,146 |
| Total interest expense | 27,496 | | | 42,082 | | | 55,835 | | | 119,771 | |
Net interest income | 204,361 |
| | 166,739 |
| | 550,679 |
| | 468,591 |
| Net interest income | 196,994 | | | 209,928 | | | 397,067 | | | 438,247 | |
Provision for credit losses | 20,000 |
| | 22,000 |
| | 42,000 |
| | 68,000 |
| Provision for credit losses | (19,000) | | | 100,000 | | | (25,000) | | | 196,000 | |
Net interest income after provision for credit losses | 184,361 |
| | 144,739 |
| | 508,679 |
| | 400,591 |
| Net interest income after provision for credit losses | 215,994 | | | 109,928 | | | 422,067 | | | 242,247 | |
Non-interest income | | | | | | | | Non-interest income | |
Service charges on deposit accounts | 3,211 |
| | 2,880 |
| | 9,323 |
| | 7,401 |
| Service charges on deposit accounts | 4,634 | | | 2,459 | | | 9,350 | | | 5,752 | |
Wealth management and trust fee income | 1,627 |
| | 1,113 |
| | 4,386 |
| | 3,024 |
| Wealth management and trust fee income | 3,143 | | | 2,348 | | | 5,998 | | | 4,815 | |
Bank owned life insurance (BOLI) income | 615 |
| | 520 |
| | 1,562 |
| | 1,592 |
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| Brokered loan fees | 6,152 |
| | 7,581 |
| | 17,639 |
| | 18,090 |
| Brokered loan fees | 6,933 | | | 10,764 | | | 16,244 | | | 18,779 | |
Servicing income | 4,486 |
| | 310 |
| | 10,387 |
| | 305 |
| Servicing income | 5,935 | | | 6,120 | | | 14,944 | | | 10,866 | |
Swap fees | 647 |
| | 918 |
| | 3,404 |
| | 2,330 |
| Swap fees | 534 | | | 1,468 | | | 1,060 | | | 4,225 | |
Net gain/(loss) on sale of loans held for sale | | Net gain/(loss) on sale of loans held for sale | (3,070) | | | 39,023 | | | 2,502 | | | 26,023 | |
Other | 2,265 |
| | 3,394 |
| | 8,181 |
| | 9,203 |
| Other | 11,993 | | | 8,303 | | | 19,096 | | | 11,805 | |
Total non-interest income | 19,003 |
| | 16,716 |
| | 54,882 |
| | 41,945 |
| Total non-interest income | 30,102 | | | 70,485 | | | 69,194 | | | 82,265 | |
Non-interest expense | | | | | | | | Non-interest expense | |
Salaries and employee benefits | 67,882 |
| | 56,722 |
| | 194,039 |
| | 162,904 |
| Salaries and employee benefits | 86,830 | | | 100,791 | | | 174,352 | | | 177,984 | |
Net occupancy expense | 6,436 |
| | 5,634 |
| | 19,062 |
| | 17,284 |
| Net occupancy expense | 7,865 | | | 9,134 | | | 16,139 | | | 17,846 | |
Marketing | 7,242 |
| | 4,292 |
| | 18,349 |
| | 12,686 |
| Marketing | 1,900 | | | 7,988 | | | 3,597 | | | 16,510 | |
Legal and professional | 6,395 |
| | 5,333 |
| | 20,975 |
| | 16,883 |
| Legal and professional | 9,147 | | | 11,330 | | | 17,424 | | | 28,796 | |
Communications and technology | 6,002 |
| | 6,620 |
| | 24,414 |
| | 19,228 |
| Communications and technology | 14,352 | | | 42,760 | | | 30,321 | | | 56,551 | |
FDIC insurance assessment | 6,203 |
| | 6,355 |
| | 16,800 |
| | 17,867 |
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Servicing related expenses | 3,897 |
| | 620 |
| | 8,329 |
| | 1,305 |
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Federal Deposit Insurance Corporation (“FDIC”) insurance assessment | | Federal Deposit Insurance Corporation (“FDIC”) insurance assessment | 5,226 | | | 7,140 | | | 11,839 | | | 12,989 | |
Servicing-related expenses | | Servicing-related expenses | 12,355 | | | 20,100 | | | 25,344 | | | 36,454 | |
| Merger-related expenses | | Merger-related expenses | 0 | | | 10,486 | | | 0 | | | 17,756 | |
Other | 10,773 |
| | 9,223 |
| | 30,770 |
| | 27,717 |
| Other | 11,385 | | | 12,606 | | | 20,360 | | | 22,866 | |
Total non-interest expense | 114,830 |
| | 94,799 |
| | 332,738 |
| | 275,874 |
| Total non-interest expense | 149,060 | | | 222,335 | | | 299,376 | | | 387,752 | |
Income before income taxes | 88,534 |
| | 66,656 |
| | 230,823 |
| | 166,662 |
| |
Income tax expense | 29,850 |
| | 23,931 |
| | 78,502 |
| | 59,929 |
| |
Net income | 58,684 |
| | 42,725 |
| | 152,321 |
| | 106,733 |
| |
Income/(loss) before income taxes | | Income/(loss) before income taxes | 97,036 | | | (41,922) | | | 191,885 | | | (63,240) | |
Income tax expense/(benefit) | | Income tax expense/(benefit) | 23,555 | | | (7,606) | | | 46,466 | | | (12,237) | |
Net income/(loss) | | Net income/(loss) | 73,481 | | | (34,316) | | | 145,419 | | | (51,003) | |
Preferred stock dividends | 2,438 |
| | 2,438 |
| | 7,313 |
| | 7,313 |
| Preferred stock dividends | 6,317 | | | 2,437 | | | 10,096 | | | 4,875 | |
Net income available to common stockholders | $ | 56,246 |
| | $ | 40,287 |
| | $ | 145,008 |
| | $ | 99,420 |
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Other comprehensive income (loss) | | | | | | | | |
Change in net unrealized gain on available-for-sale securities arising during period, before-tax | $ | 52 |
| | $ | (63 | ) | | $ | 22 |
| | $ | (121 | ) | |
Income tax benefit related to net unrealized gain on available-for-sale securities | 18 |
| | (23 | ) | | 8 |
| | (43 | ) | |
Other comprehensive loss, net of tax | 34 |
| | (40 | ) | | 14 |
| | (78 | ) | |
Comprehensive income | $ | 58,718 |
| | $ | 42,685 |
| | $ | 152,335 |
| | $ | 106,655 |
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Basic earnings per common share | $ | 1.13 |
| | $ | 0.88 |
| | $ | 2.93 |
| | $ | 2.16 |
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Diluted earnings per common share | $ | 1.12 |
| | $ | 0.87 |
| | $ | 2.89 |
| | $ | 2.14 |
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Net income/(loss) available to common stockholders | | Net income/(loss) available to common stockholders | $ | 67,164 | | | $ | (36,753) | | | $ | 135,323 | | | $ | (55,878) | |
Other comprehensive loss | | Other comprehensive loss | |
Change in unrealized gain/(loss) on available-for-sale debt securities, before tax | | Change in unrealized gain/(loss) on available-for-sale debt securities, before tax | $ | 38,037 | | | $ | (5,435) | | | $ | (53,370) | | | $ | (10,727) | |
Income tax expense/(benefit) | | Income tax expense/(benefit) | 7,989 | | | (1,142) | | | (11,207) | | | (2,253) | |
Other comprehensive income/(loss), net of tax | | Other comprehensive income/(loss), net of tax | 30,048 | | | (4,293) | | | (42,163) | | | (8,474) | |
Comprehensive income/(loss) | | Comprehensive income/(loss) | $ | 103,529 | | | $ | (38,609) | | | $ | 103,256 | | | $ | (59,477) | |
Basic earnings/(loss) per common share | | Basic earnings/(loss) per common share | $ | 1.33 | | | $ | (0.73) | | | $ | 2.68 | | | $ | (1.11) | |
Diluted earnings/(loss) per common share | | Diluted earnings/(loss) per common share | $ | 1.31 | | | $ | (0.73) | | | $ | 2.65 | | | $ | (1.11) | |
See accompanying notes to consolidated financial statements.
TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
(In thousands except share data)
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| Preferred Stock | | Common Stock | | Additional | | | | Treasury Stock | | Accumulated Other | | |
| Paid-in | | Retained | | Comprehensive | | |
(in thousands except share data) | Shares | | Amount | | Shares | | Amount | | Capital | | Earnings | | Shares | | Amount | | Income/(Loss) | | Total |
Balance at March 31, 2020 | 6,000,000 | | | $ | 150,000 | | | 50,408,195 | | | $ | 504 | | | $ | 979,939 | | | $ | 1,637,392 | | | (417) | | | $ | (8) | | | $ | 4,769 | | | $ | 2,772,596 | |
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Comprehensive loss: | | | | | | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (34,316) | | | — | | | — | | | — | | | (34,316) | |
Change in unrealized gain on available-for-sale securities, net of taxes | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,293) | | | (4,293) | |
Total comprehensive loss | | | | | | | | | | | | | | | | | | | (38,609) | |
| | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense recognized in earnings | — | | | — | | | — | | | — | | | 3,322 | | | — | | | — | | | — | | | — | | | 3,322 | |
| | | | | | | | | | | | | | | | | | | |
Preferred stock dividend | — | | | — | | | — | | | — | | | — | | | (2,437) | | | — | | | — | | | — | | | (2,437) | |
Issuance of stock related to stock-based awards | — | | | — | | | 27,894 | | | — | | | (117) | | | — | | | — | | | — | | | — | | | (117) | |
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Balance at June 30, 2020 | 6,000,000 | | | $ | 150,000 | | | 50,436,089 | | | $ | 504 | | | $ | 983,144 | | | $ | 1,600,639 | | | (417) | | | $ | (8) | | | $ | 476 | | | $ | 2,734,755 | |
| | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2021 | 6,300,000 | | | $ | 450,000 | | | 50,558,184 | | | $ | 505 | | | $ | 984,207 | | | $ | 1,781,215 | | | (417) | | | $ | (8) | | | $ | (56,437) | | | $ | 3,159,482 | |
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Comprehensive income: | | | | | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | — | | | 73,481 | | | — | | | — | | | — | | | 73,481 | |
Change in unrealized gain on available-for-sale securities, net of taxes | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 30,048 | | | 30,048 | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | 103,529 | |
| | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense recognized in earnings | — | | | — | | | — | | | — | | | 8,315 | | | — | | | — | | | — | | | — | | | 8,315 | |
Preferred stock dividend | — | | | — | | | — | | | — | | | — | | | (6,317) | | | — | | | — | | | — | | | (6,317) | |
Issuance of stock related to stock-based awards | — | | | — | | | 34,434 | | | 1 | | | (53) | | | — | | | — | | | — | | | — | | | (52) | |
Redemption of preferred stock | (6,000,000) | | | (150,000) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (150,000) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2021 | 300,000 | | | $ | 300,000 | | | 50,592,618 | | | $ | 506 | | | $ | 992,469 | | | $ | 1,848,379 | | | (417) | | | $ | (8) | | | $ | (26,389) | | | $ | 3,114,957 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | | | | | Treasury Stock | | | | |
| Shares | | Amount | | Shares | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Shares | | Amount | | Accumulated Other Comprehensive Income (Loss), Net of Taxes | | Total |
Balance at December 31, 2015 (audited) | 6,000,000 |
| | $ | 150,000 |
| | 45,874,224 |
| | $ | 459 |
| | $ | 714,546 |
| | $ | 757,818 |
| | (417 | ) | | $ | (8 | ) | | $ | 718 |
| | $ | 1,623,533 |
|
Comprehensive income: | | | | | | | | | | | | | | | | | | | |
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 106,733 |
| | — |
| | — |
| | — |
| | 106,733 |
|
Change in unrealized gain on available-for-sale securities, net of taxes of $43 | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (78 | ) | | (78 | ) |
Total comprehensive income | | | | | | | | | | | | | | | | | | | 106,655 |
|
Tax benefit related to exercise of stock-based awards | — |
| | — |
| | — |
| | — |
| | 1,213 |
| | — |
| | — |
| | — |
| | — |
| | 1,213 |
|
Stock-based compensation expense recognized in earnings | — |
| | — |
| | — |
| | — |
| | 3,466 |
| | — |
| | — |
| | — |
| | — |
| | 3,466 |
|
Preferred stock dividend | — |
| | — |
| | — |
| | — |
| | — |
| | (7,313 | ) | | — |
| | — |
| | — |
| | (7,313 | ) |
Issuance of stock related to stock-based awards | — |
| | — |
| | 135,688 |
| | 1 |
| | (1,773 | ) | | — |
| | — |
| | — |
| | — |
| | (1,772 | ) |
Balance at September 30, 2016 | 6,000,000 |
| | $ | 150,000 |
| | 46,009,912 |
| | $ | 460 |
| | $ | 717,452 |
| | $ | 857,238 |
| | (417 | ) | | $ | (8 | ) | | $ | 640 |
| | $ | 1,725,782 |
|
| | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2016 (audited) | 6,000,000 |
| | $ | 150,000 |
| | 49,504,079 |
| | $ | 495 |
| | $ | 955,468 |
| | $ | 903,187 |
| | (417 | ) | | $ | (8 | ) | | $ | 415 |
| | $ | 2,009,557 |
|
Comprehensive income: | | | | | | | | | | | | | | | | | | | |
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 152,321 |
| | — |
| | — |
| | — |
| | 152,321 |
|
Change in unrealized gain on available-for-sale securities, net of taxes of $8 | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14 |
| | 14 |
|
Total comprehensive income | | | | | | | | | | | | | | | | | | | 152,335 |
|
Stock-based compensation expense recognized in earnings | — |
| | — |
| | — |
| | — |
| | 5,717 |
| | — |
| | — |
| | — |
| | — |
| | 5,717 |
|
Preferred stock dividend | — |
| | — |
| | — |
| | — |
| | — |
| | (7,313 | ) | | — |
| | — |
| | — |
| | (7,313 | ) |
Issuance of stock related to stock-based awards | — |
| | — |
| | 84,568 |
| | 1 |
| | (1,934 | ) | | — |
| | — |
| | — |
| | — |
| | (1,933 | ) |
Issuance of common stock related to warrants | — |
| | — |
| | 33,595 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balance at September 30, 2017 | 6,000,000 |
| | $ | 150,000 |
| | 49,622,242 |
| | $ | 496 |
| | $ | 959,251 |
| | $ | 1,048,195 |
| | (417 | ) | | $ | (8 | ) | | $ | 429 |
| | $ | 2,158,363 |
|
See accompanying notes to consolidated financial statements.
TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED - CONTINUED
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Additional | | | | Treasury Stock | | Accumulated Other | | |
| Paid-in | | Retained | | Comprehensive | | |
(in thousands except share data) | Shares | | Amount | | Shares | | Amount | | Capital | | Earnings | | Shares | | Amount | | Income/(Loss) | | Total |
Balance at December 31, 2019 (audited) | 6,000,000 | | | $ | 150,000 | | | 50,338,158 | | | $ | 503 | | | $ | 978,205 | | | $ | 1,663,671 | | | (417) | | | $ | (8) | | | $ | 8,950 | | | $ | 2,801,321 | |
Impact of adoption of new accounting standards, net of taxes(1) | — | | | — | | | — | | | — | | | — | | | (7,154) | | | — | | | — | | | — | | | (7,154) | |
Comprehensive loss: | | | | | | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (51,003) | | | — | | | — | | | — | | | (51,003) | |
Change in unrealized gain/(loss) on available-for-sale securities, net of taxes | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (8,474) | | | (8,474) | |
Total comprehensive loss | | | | | | | | | | | | | | | | | | | (59,477) | |
| | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense recognized in earnings | — | | | — | | | — | | | — | | | 6,549 | | | — | | | — | | | — | | | — | | | 6,549 | |
| | | | | | | | | | | | | | | | | | | |
Preferred stock dividend | — | | | — | | | — | | | — | | | — | | | (4,875) | | | — | | | — | | | — | | | (4,875) | |
Issuance of stock related to stock-based awards | — | | | — | | | 97,931 | | | 1 | | | (1,610) | | | — | | | — | | | — | | | — | | | (1,609) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2020 | 6,000,000 | | | $ | 150,000 | | | 50,436,089 | | | $ | 504 | | | $ | 983,144 | | | $ | 1,600,639 | | | (417) | | | $ | (8) | | | $ | 476 | | | $ | 2,734,755 | |
| | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 (audited) | 6,000,000 | | | $ | 150,000 | | | 50,470,867 | | | $ | 504 | | | $ | 991,898 | | | $ | 1,713,056 | | | (417) | | | $ | (8) | | | $ | 15,774 | | | $ | 2,871,224 | |
| | | | | | | | | | | | | | | | | | | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | — | | | 145,419 | | | — | | | — | | | — | | | 145,419 | |
Change in unrealized gain/(loss) on available-for-sale securities, net of taxes | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (42,163) | | | (42,163) | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | 103,256 | |
| | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense recognized in earnings | — | | | — | | | — | | | — | | | 13,776 | | | — | | | — | | | — | | | — | | | 13,776 | |
Issuance of preferred stock | 300,000 | | | 300,000 | | | — | | | — | | | (10,277) | | | — | | | — | | | — | | | — | | | 289,723 | |
Preferred stock dividend | — | | | — | | | — | | | — | | | — | | | (10,096) | | | — | | | — | | | — | | | (10,096) | |
Issuance of stock related to stock-based awards | — | | | — | | | 121,751 | | | 2 | | | (2,928) | | | — | | | — | | | — | | | — | | | (2,926) | |
Redemption of preferred stock | (6,000,000) | | | (150,000) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (150,000) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2021 | 300,000 | | | $ | 300,000 | | | 50,592,618 | | | $ | 506 | | | $ | 992,469 | | | $ | 1,848,379 | | | (417) | | | $ | (8) | | | $ | (26,389) | | | $ | 3,114,957 | |
(1) Represents the impact of adopting Accounting Standard Update (“ASU”) 2016-13. See Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for more information.
See accompanying notes to consolidated financial statements.
TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS—FLOWS - UNAUDITED
(In thousands)
| | | | Six months ended June 30, |
(in thousands) | | (in thousands) | 2021 | | 2020 |
Operating activities | | Operating activities | |
Net income/(loss) | | Net income/(loss) | $ | 145,419 | | | $ | (51,003) | |
Adjustments to reconcile net income/(loss) to net cash provided by operating activities: | | Adjustments to reconcile net income/(loss) to net cash provided by operating activities: | |
Provision for credit losses | | Provision for credit losses | (25,000) | | | 196,000 | |
| Depreciation and amortization | | Depreciation and amortization | 47,531 | | | 31,320 | |
Net (gain)/loss on sale of loans held for sale | | Net (gain)/loss on sale of loans held for sale | (2,502) | | | (26,023) | |
Increase/(decrease) in valuation allowance on mortgage servicing rights | | Increase/(decrease) in valuation allowance on mortgage servicing rights | (16,448) | | | 20,818 | |
| Stock-based compensation expense | | Stock-based compensation expense | 14,804 | | | 7,029 | |
| Purchases and originations of loans held for sale | | Purchases and originations of loans held for sale | (1,409,716) | | | (4,931,981) | |
Proceeds from sales and repayments of loans held for sale | | Proceeds from sales and repayments of loans held for sale | 1,618,331 | | | 7,022,960 | |
| | | Nine months ended September 30, | |
| 2017 | | 2016 | |
Operating activities | | | | |
Net income | $ | 152,321 |
| | $ | 106,733 |
| |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Provision for credit losses | 42,000 |
| | 68,000 |
| |
Depreciation and amortization | 19,624 |
| | 16,179 |
| |
Increase in valuation allowance on mortgage servicing rights | 216 |
| | 414 |
| |
Bank owned life insurance (BOLI) income | (1,562 | ) | | (1,592 | ) | |
Stock-based compensation expense | 15,021 |
| | 6,175 |
| |
Excess tax benefits from stock-based compensation arrangements | — |
| | (1,328 | ) | |
Purchases and originations of loans held for sale | (4,315,065 | ) | | (1,927,702 | ) | |
Proceeds from sales and repayments of loans held for sale | 4,282,910 |
| | 1,352,322 |
| |
Net (gain) loss on sale of loans held for sale and other assets | 1,005 |
| | (1,307 | ) | |
Technology write-off | 5,285 |
| | — |
| |
Changes in operating assets and liabilities: | | | | Changes in operating assets and liabilities: | |
Accrued interest receivable and other assets | (68,672 | ) | | (79,267 | ) | Accrued interest receivable and other assets | 85,388 | | | (74,155) | |
Accrued interest payable and other liabilities | 8,434 |
| | 34,172 |
| Accrued interest payable and other liabilities | (19,164) | | | 57,795 | |
Net cash provided by (used in) operating activities | 141,517 |
| | (427,201 | ) | |
Net cash provided by operating activities | | Net cash provided by operating activities | 438,643 | | | 2,252,760 | |
Investing activities | | | | Investing activities | |
Purchases of available-for-sale securities | (97,381 | ) | | (1,278 | ) | |
Maturities and calls of available-for-sale securities | 94,775 |
| | 265 |
| |
Principal payments received on available-for-sale securities | 3,278 |
| | 4,528 |
| |
Purchases of investment securities | | Purchases of investment securities | (903,395) | | | (10,813) | |
| Principal payments received on investment securities | | Principal payments received on investment securities | 240,891 | | | 5,168 | |
Originations of mortgage finance loans | (62,284,036 | ) | | (74,594,117 | ) | Originations of mortgage finance loans | (88,516,423) | | | (94,837,775) | |
Proceeds from pay-offs of mortgage finance loans | 61,139,089 |
| | 74,599,234 |
| Proceeds from pay-offs of mortgage finance loans | 88,823,033 | | | 94,034,998 | |
Net increase in loans held for investment, excluding mortgage finance loans | (1,856,253 | ) | | (943,534 | ) | |
Proceeds from sale of mortgage servicing rights | | Proceeds from sale of mortgage servicing rights | 108,646 | | | 0 | |
Net increase/(decrease) in loans held for investment, excluding mortgage finance loans | | Net increase/(decrease) in loans held for investment, excluding mortgage finance loans | 174,095 | | | (207,635) | |
Purchase of premises and equipment, net | (9,056 | ) | | (1,526 | ) | Purchase of premises and equipment, net | (1,516) | | | (2,344) | |
Proceeds from sale of foreclosed assets | 767 |
| | 62 |
| |
| Net cash used in investing activities | (3,008,817 | ) | | (936,366 | ) | Net cash used in investing activities | (74,669) | | | (1,018,401) | |
Financing activities | | | | Financing activities | |
Net increase in deposits | 2,064,426 |
| | 3,060,504 |
| |
Net increase/(decrease) in deposits | | Net increase/(decrease) in deposits | (2,157,026) | | | 3,709,102 | |
Costs from issuance of stock related to stock-based awards and warrants | (1,933 | ) | | (1,772 | ) | Costs from issuance of stock related to stock-based awards and warrants | (2,926) | | | (1,609) | |
| Net proceeds from issuance of preferred stock | | Net proceeds from issuance of preferred stock | 289,723 | | | 0 | |
Redemption of preferred stock | | Redemption of preferred stock | (150,000) | | | 0 | |
Preferred dividends paid | (7,313 | ) | | (7,313 | ) | Preferred dividends paid | (10,096) | | | (4,875) | |
Net increase in other borrowings | 500,000 |
| | 170,000 |
| |
Excess tax benefits from stock-based compensation arrangements | — |
| | 1,328 |
| |
Decrease in Federal funds purchased and repurchase agreements | (26,079 | ) | | (61,631 | ) | |
Net cash provided by financing activities | 2,529,101 |
| | 3,161,116 |
| |
Net increase (decrease) in cash and cash equivalents | (338,199 | ) | | 1,797,549 |
| |
Net increase/(decrease) in other borrowings | | Net increase/(decrease) in other borrowings | (1,000,000) | | | 300,000 | |
| Net increase/(decrease) in federal funds purchased and repurchase agreements | | Net increase/(decrease) in federal funds purchased and repurchase agreements | (97,270) | | | 54,024 | |
Net proceeds from issuance of long-term debt | | Net proceeds from issuance of long-term debt | 639,440 | | | 0 | |
Redemption of long-term debt | | Redemption of long-term debt | (111,000) | | | 0 | |
| Net cash provided by/(used in) financing activities | | Net cash provided by/(used in) financing activities | (2,599,155) | | | 4,056,642 | |
Net increase/(decrease) in cash and cash equivalents | | Net increase/(decrease) in cash and cash equivalents | (2,235,181) | | | 5,291,001 | |
Cash and cash equivalents at beginning of period | 2,839,352 |
| | 1,790,870 |
| Cash and cash equivalents at beginning of period | 9,206,380 | | | 4,425,583 | |
Cash and cash equivalents at end of period | $ | 2,501,153 |
| | $ | 3,588,419 |
| Cash and cash equivalents at end of period | $ | 6,971,199 | | | $ | 9,716,584 | |
Supplemental disclosures of cash flow information: | | | | Supplemental disclosures of cash flow information: | |
Cash paid during the period for interest | $ | 80,037 |
| | $ | 48,119 |
| Cash paid during the period for interest | $ | 58,869 | | | $ | 112,217 | |
Cash paid during the period for income taxes | 72,485 |
| | 68,716 |
| Cash paid during the period for income taxes | 36,701 | | | 19,835 | |
Transfers from loans/leases to OREO and other repossessed assets | — |
| | 18,822 |
| |
|
See accompanying notes to consolidated financial statements.
TEXAS CAPITAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—STATEMENTS - UNAUDITED
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESOperations and Summary of Significant Accounting Policies
Organization and Nature of Business
Texas Capital Bancshares, Inc. (the “Company”), a Delaware corporation, was incorporated in November 1996 and commenced banking operations in December 1998. The consolidated financial statements of the Company include the accounts of Texas Capital Bancshares, Inc.the Company and its wholly owned subsidiary, Texas Capital Bank, National Association (the “Bank”). We serve the needs of commercial businesses and successful professionals and entrepreneurs located in Texas as well as operate several lines of business serving a regional andor national clientèleclientele of commercial borrowers. We are primarily a secured lender, with the majority of our greatest concentrationloans held for investment, excluding mortgage finance loans and other national lines of loansbusiness, being made to businesses headquartered or with operations in Texas. Our national lines of business provide specialized lending products to businesses throughout the United States.
Basis of Presentation
Our accounting and reporting policies conform to accounting principles generally accepted in the United States (“GAAP”) and to generally accepted practices within the banking industry. Certain prior period balances have been reclassified to conform to the current period presentation. In that regard, ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," ("ASU 2016-09") became effective for us on January 1, 2017. ASU 2016-09 requires that excess tax benefits and deficiencies be recognized as a component of income taxes within the income statement. Additionally, ASU 2016-09 requires that all income tax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows. Previously, income tax benefits at award settlement were reported as a reduction to operating cash flows and an increase to financing cash flows to the extent that those benefits exceeded the income tax benefits reported in earnings during the award's vesting period. We have elected to apply that change in cash flow presentation on a prospective basis. ASU 2016-09 also requires that companies make an accounting policy election regarding forfeitures, to either estimate the number of awards that are expected to vest or account for them when they occur. We have elected to recognize forfeitures as they occur. The impact of this change and that of the remaining provisions of ASU 2016-09 did not have a significant impact on our financial statements.
The consolidated interim financial statements have been prepared without audit. Certainare unaudited and certain information and footnote disclosures in the notes to consolidated financial statements that are presented in accordance with GAAP have been condensed or omitted. In the opinion of management, the interim financial statements include all normal and recurring adjustments and the disclosures made are adequate to make the interim financial information not misleading. The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q adopted by the U.S. Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotesnotes to the consolidated financial statements required by GAAP for complete annual financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2016,2020, included in our Annual Report on Form 10-K filed withfor the SEC on February 17, 2017year ended December 31, 2020 (the “2016“2020 Form 10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for loancredit losses, the fair value of stock-based compensation awards, the fair value of mortgage servicing rights ("MSRs")financial instruments and the status of contingencies are particularly susceptible to significant change.
(2) EARNINGS PER COMMON SHARE
Earnings Per Share
The following table presents the computation of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands except share and per share data) | 2021 | | 2020 | | 2021 | | 2020 |
Numerator: | | | | | | | |
Net income/(loss) | $ | 73,481 | | | $ | (34,316) | | | $ | 145,419 | | | $ | (51,003) | |
Preferred stock dividends | 6,317 | | | 2,437 | | | 10,096 | | | 4,875 | |
Net income/(loss) available to common stockholders | $ | 67,164 | | | $ | (36,753) | | | $ | 135,323 | | | $ | (55,878) | |
Denominator: | | | | | | | |
Denominator for basic earnings per share—weighted average shares | 50,580,184 | | | 50,392,394 | | | 50,549,236 | | | 50,401,401 | |
Effect of employee stock-based awards(1) | 513,476 | | | 23,937 | | | 553,851 | | | 71,749 | |
| | | | | | | |
Denominator for dilutive earnings per share—adjusted weighted average shares and assumed conversions | 51,093,660 | | | 50,416,331 | | | 51,103,087 | | | 50,473,150 | |
Basic earnings/(loss) per common share | $ | 1.33 | | | $ | (0.73) | | | $ | 2.68 | | | $ | (1.11) | |
Diluted earnings/(loss) per common share | $ | 1.31 | | | $ | (0.73) | | | $ | 2.65 | | | $ | (1.11) | |
(1)SARs and RSUs outstanding of 98,079 at June 30, 2021 and 510,095 at June 30, 2020 have not been included in diluted earnings/(loss) per common share (in thousands except per share data):
because to do so would have been antidilutive for the periods presented.
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Numerator: | | | | | | | |
Net income | $ | 58,684 |
| | $ | 42,725 |
| | $ | 152,321 |
| | $ | 106,733 |
|
Preferred stock dividends | 2,438 |
| | 2,438 |
| | 7,313 |
| | 7,313 |
|
Net income available to common stockholders | 56,246 |
| | 40,287 |
| | $ | 145,008 |
| | 99,420 |
|
Denominator: | | | | | | | |
Denominator for basic earnings per share— weighted average shares | 49,607,028 |
| | 45,980,517 |
| | 49,573,456 |
| | 45,931,357 |
|
Effect of employee stock-based awards(1) | 214,468 |
| | 118,885 |
| | 235,011 |
| | 119,021 |
|
Effect of warrants to purchase common stock | 429,370 |
| | 410,281 |
| | 431,551 |
| | 382,578 |
|
Denominator for dilutive earnings per share—adjusted weighted average shares and assumed conversions | 50,250,866 |
| | 46,509,683 |
| | 50,240,018 |
| | 46,432,956 |
|
Basic earnings per common share | $ | 1.13 |
| | $ | 0.88 |
| | $ | 2.93 |
| | $ | 2.16 |
|
Diluted earnings per common share | $ | 1.12 |
| | $ | 0.87 |
| | $ | 2.89 |
| | $ | 2.14 |
|
| |
(1) | SARs and RSUs outstanding of 6,200 at September 30, 2017 and 319,476 at September 30, 2016 have not been included in diluted earnings per share because to do so would have been anti-dilutive for the periods presented. |
(3) SECURITIESInvestment Securities
Available-for-Sale Debt Securities
The following is a summary of available-for-sale securities (in thousands):debt securities:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Amortized Cost(1) | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
June 30, 2021 | | | | | | | |
Available-for-sale debt securities: | | | | | | | |
U.S. government agency securities | $ | 125,000 | | | $ | 0 | | | $ | (2,585) | | | $ | 122,415 | |
Residential mortgage-backed securities | 3,477,491 | | | 771 | | | (41,116) | | | 3,437,146 | |
| | | | | | | |
Tax-exempt asset-backed securities | 173,427 | | | 12,527 | | | 0 | | | 185,954 | |
Credit risk transfer (“CRT”) securities | 14,713 | | | 0 | | | (3,000) | | | 11,713 | |
Total | $ | 3,790,631 | | | $ | 13,298 | | | $ | (46,701) | | | $ | 3,757,228 | |
| | | | | | | |
December 31, 2020 | | | | | | | |
Available-for-sale debt securities: | | | | | | | |
U.S. government agency securities | $ | 125,000 | | | $ | 1 | | | $ | (1,412) | | | $ | 123,589 | |
Residential mortgage-backed securities | 2,818,518 | | | 11,566 | | | (1,128) | | | 2,828,956 | |
Tax-exempt asset-backed securities | 184,940 | | | 14,236 | | | 0 | | | 199,176 | |
Credit risk transfer securities | 14,713 | | | 0 | | | (3,296) | | | 11,417 | |
Total | $ | 3,143,171 | | | $ | 25,803 | | | $ | (5,836) | | | $ | 3,163,138 | |
| | | | | | | |
(1)Excludes accrued interest receivable of $6.9 million and $6.0 million at June 30, 2021 and December 31, 2020, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.
|
| | | | | | | | | | | | | | | |
| September 30, 2017 |
| Amortized Cost |
| Gross Unrealized Gains |
| Gross Unrealized Losses |
| Estimated Fair Value |
Available-for-sale securities: |
|
|
|
|
|
|
|
Residential mortgage-backed securities | $ | 11,402 |
|
| $ | 756 |
| | $ | — |
| | $ | 12,158 |
|
Equity securities(1) | 12,161 |
|
| 266 |
| | (361 | ) | | 12,066 |
|
| $ | 23,563 |
|
| $ | 1,022 |
| | $ | (361 | ) | | $ | 24,224 |
|
| | | | | | | |
| December 31, 2016 |
| Amortized Cost |
| Gross Unrealized Gains |
| Gross Unrealized Losses |
| Estimated Fair Value |
Available-for-sale securities: |
|
|
|
|
|
|
|
Residential mortgage-backed securities | $ | 14,680 |
| | $ | 972 |
| | $ | — |
| | $ | 15,652 |
|
Municipals | 275 |
| | — |
| | — |
| | 275 |
|
Equity securities(1) | 9,280 |
| | 27 |
| | (360 | ) | | 8,947 |
|
| $ | 24,235 |
| | $ | 999 |
| | $ | (360 | ) | | $ | 24,874 |
|
| |
(1) | Equity securities consist of Community Reinvestment Act funds and investments related to our non-qualified deferred compensation plan. |
The amortized cost and estimated fair value, excluding accrued interest receivable, and weighted average yield of available-for-sale debt securities are presented below by contractual maturity (in thousands, except percentage data):maturity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except percentage data) | Less Than One Year | | After One Through Five Years | | After Five Through Ten Years | | After Ten Years | | Total |
June 30, 2021 | | | | | | | | | |
Available-for-sale: | | | | | | | | | |
U.S. government agency securities:(1) | | | | | | | | | |
Amortized cost | $ | 0 | | | $ | 0 | | | $ | 125,000 | | | $ | 0 | | | $ | 125,000 | |
Estimated fair value | 0 | | | 0 | | | 122,415 | | | 0 | | | 122,415 | |
Weighted average yield(3) | 0 | % | | 0 | % | | 1.13 | % | | 0 | % | | 1.13 | % |
Residential mortgage-backed securities:(1) | | | | | | | | | |
Amortized cost | $ | 0 | | | $ | 356 | | | $ | 17,354 | | | $ | 3,459,781 | | | $ | 3,477,491 | |
Estimated fair value | 0 | | | 395 | | | 16,787 | | | 3,419,964 | | | 3,437,146 | |
Weighted average yield(3) | 0 | % | | 4.59 | % | | 1.08 | % | | 1.19 | % | | 1.19 | % |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Tax-exempt asset-backed securities:(1) | | | | | | | | | |
Amortized Cost | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 173,427 | | | $ | 173,427 | |
Estimated fair value | 0 | | | 0 | | | 0 | | | 185,954 | | | 185,954 | |
Weighted average yield(2)(3) | 0 | % | | 0 | % | | 0 | % | | 4.95 | % | | 4.95 | % |
CRT securities:(1) | | | | | | | | | |
Amortized Cost | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 14,713 | | | $ | 14,713 | |
Estimated fair value | 0 | | | 0 | | | 0 | | | 11,713 | | | 11,713 | |
Weighted average yield(3) | 0 | % | | 0 | % | | 0 | % | | 0.92 | % | | 0.92 | % |
Total available-for-sale debt securities: | | | | | | | | | |
Amortized cost | | | | | | | | | $ | 3,790,631 | |
Estimated fair value | | | | | | | | | $ | 3,757,228 | |
| | | | | | | | | |
December 31, 2020 | | | | | | | | | |
Available-for-sale: | | | | | | | | | |
U.S. government agency securities:(1) | | | | | | | | | |
Amortized cost | $ | 0 | | | $ | 0 | | | $ | 125,000 | | | $ | 0 | | | $ | 125,000 | |
Estimated fair value | 0 | | | 0 | | | 123,589 | | | 0 | | | 123,589 | |
Weighted average yield(3) | 0 | % | | 0 | % | | 1.13 | % | | 0 | % | | 1.13 | % |
Residential mortgage-backed securities:(1) | | | | | | | | | |
Amortized cost | $ | 0 | | | $ | 545 | | | $ | 17,500 | | | $ | 2,800,473 | | | $ | 2,818,518 | |
Estimated fair value | 0 | | | 605 | | | 17,490 | | | 2,810,861 | | | 2,828,956 | |
Weighted average yield(3) | 0 | % | | 4.58 | % | | 1.08 | % | | 1.25 | % | | 1.25 | % |
Tax-exempt asset-backed securities:(1) | | | | | | | | | |
Amortized Cost | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 184,940 | | | $ | 184,940 | |
Estimated fair value | 0 | | | 0 | | | 0 | | | 199,176 | | | 199,176 | |
Weighted average yield(2)(3) | 0 | % | | 0 | % | | 0 | % | | 4.92 | % | | 4.92 | % |
CRT securities:(1) | | | | | | | | | |
Amortized Cost | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 14,713 | | | $ | 14,713 | |
Estimated fair value | 0 | | | 0 | | | 0 | | | 11,417 | | | 11,417 | |
Weighted average yield(3) | 0 | % | | 0 | % | | 0 | % | | 0.15 | % | | 0.15 | % |
Total available-for-sale debt securities: | | | | | | | | | |
Amortized cost | | | | | | | | | $ | 3,143,171 | |
Estimated fair value | | | | | | | | | $ | 3,163,138 | |
(1)Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.
(2)Yields have been adjusted to a tax equivalent basis assuming a 21% federal tax rate.
(3)Yields are calculated based on amortized cost.
|
| | | | | | | | | | | | | | | |
| September 30, 2017 |
| Less Than One Year |
| After One Through Five Years |
| After Five Through Ten Years |
| After Ten Years |
| Total |
Available-for-sale: |
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities:(1) |
|
|
|
|
|
|
|
|
|
Amortized cost | 689 |
| | 396 |
| | 2,177 |
| | 8,140 |
| | 11,402 |
|
Estimated fair value | 708 |
| | 440 |
| | 2,405 |
| | 8,605 |
| | 12,158 |
|
Weighted average yield(3) | 4.53 | % | | 5.97 | % | | 5.48 | % | | 3.01 | % | | 3.68 | % |
Equity securities:(4) | | | | | | | | | |
Amortized cost | 12,161 |
| | — |
| | — |
| | — |
| | 12,161 |
|
Estimated fair value | 12,066 |
| | — |
| | — |
| | — |
| | 12,066 |
|
Total available-for-sale securities: | | | | | | | | | |
Amortized cost | | | | | | | | | $ | 23,563 |
|
Estimated fair value | | | | | | | | | $ | 24,224 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Less Than One Year |
| After One Through Five Years |
| After Five Through Ten Years |
| After Ten Years |
| Total |
Available-for-sale: |
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities:(1) |
|
|
|
|
|
|
|
|
|
Amortized cost | $ | 9 |
| | $ | 2,047 |
| | $ | 3,147 |
| | $ | 9,477 |
| | $ | 14,680 |
|
Estimated fair value | 9 |
| | 2,104 |
| | 3,495 |
| | 10,044 |
| | 15,652 |
|
Weighted average yield(3) | 5.50 | % | | 4.70 | % | | 5.55 | % | | 2.84 | % | | 3.68 | % |
Municipals:(2) | | | | | | | | | |
Amortized cost | 275 |
| | — |
| | — |
| | — |
| | 275 |
|
Estimated fair value | 275 |
| | — |
| | — |
| | — |
| | 275 |
|
Weighted average yield(3) | 5.61 | % | | — | % | | — | % | | — | % | | 5.61 | % |
Equity securities:(4) | | | | | | | | | |
Amortized cost | 9,280 |
| | — |
| | — |
| | — |
| | 9,280 |
|
Estimated fair value | 8,947 |
| | — |
| | — |
| | — |
| | 8,947 |
|
Total available-for-sale securities: | | | | | | | | | |
Amortized cost | | | | | | | | | $ | 24,235 |
|
Estimated fair value | | | | | | | | | $ | 24,874 |
|
| |
(1) | Actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties. |
| |
(2) | Yields have been adjusted to a tax equivalent basis assuming a 35% federal tax rate. |
| |
(3) | Yields are calculated based on amortized cost. |
| |
(4) | These equity securities do not have a stated maturity. |
At September 30, 2017, securities with carrying values of $2.7 million and $8.0 million were pledged to secure certain deposits and repurchase agreements, respectively.
The following table discloses as of September 30, 2017 and December 31, 2016, our investmentavailable-for-sale debt securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months (in thousands):months:
|
| | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2017 | Less Than 12 Months |
| 12 Months or Longer |
| Total |
| Fair Value |
| Unrealized Loss |
| Fair Value |
| Unrealized Loss |
| Fair Value |
| Unrealized Loss |
Equity securities | $ | — |
| | $ | — |
| | $ | 6,139 |
| | $ | (361 | ) | | $ | 6,139 |
| | $ | (361 | ) |
| | | | | | | | | | | |
| Less Than 12 Months |
| 12 Months or Longer |
| Total |
December 31, 2016 | Fair Value |
| Unrealized Loss |
| Fair Value |
| Unrealized Loss |
| Fair Value |
| Unrealized Loss |
Equity securities | $ | 1,015 |
| | $ | (6 | ) | | $ | 6,146 |
| | $ | (354 | ) | | $ | 7,161 |
| | $ | (360 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less Than 12 Months | | 12 Months or Longer | | Total |
(in thousands) | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss |
June 30, 2021 | | | | | | | | | | | |
U.S. government agency securities | $ | 122,415 | | | $ | (2,585) | | | $ | 0 | | | $ | 0 | | | $ | 122,415 | | | $ | (2,585) | |
Residential mortgage-backed securities | 3,257,258 | | | (41,116) | | | 0 | | | 0 | | | 3,257,258 | | | (41,116) | |
| | | | | | | | | | | |
CRT securities | 0 | | | 0 | | | 11,713 | | | (3,000) | | | 11,713 | | | (3,000) | |
Total | $ | 3,379,673 | | | $ | (43,701) | | | $ | 11,713 | | | $ | (3,000) | | | $ | 3,391,386 | | | $ | (46,701) | |
December 31, 2020 | | | | | | | | | | | |
U.S. government agency securities | $ | 98,588 | | | $ | (1,412) | | | $ | 0 | | | $ | 0 | | | $ | 98,588 | | | $ | (1,412) | |
Residential mortgage-backed securities | 354,387 | | | (1,128) | | | 0 | | | 0 | | | 354,387 | | | (1,128) | |
CRT securities | 0 | | | 0 | | | 11,417 | | | (3,296) | | | 11,417 | | | (3,296) | |
Total | $ | 452,975 | | | $ | (2,540) | | | $ | 11,417 | | | $ | (3,296) | | | $ | 464,392 | | | $ | (5,836) | |
| | | | | | | | | | | |
At SeptemberJune 30, 2017,2021, we owned one securityhad 114 securities in an unrealized loss position. The security is a publicly traded equity fundposition, comprised of 5 U.S. government agency securities, 2 CRT securities and is subject to market pricing volatility. We do107 residential mortgage-backed securities. Based upon our June 30, 2021 review of securities with unrealized losses we have determined that all losses resulted from factors not believe this unrealized loss is “other-than-temporary” as of September 30, 2017.deemed credit-related. We have evaluated the near-term prospects of the investmenteach securities portfolio in relation to the severity and duration of the impairmentunrealized losses and basedadverse conditions related to the securities among other factors. Based on that evaluation management has determined that we have the ability and intent to hold the investmentsecurities until recovery of fair value.value and have recorded the unrealized losses in accumulated other comprehensive income (“AOCI”).
Available-for-sale debt securities with carrying values of approximately $26.3 million and $1.3 million were pledged to secure certain customer repurchase agreements and deposits, respectively, at June 30, 2021. The comparative amounts at December 31, 2020 were $31.7 million and $1.9 million, respectively.
(4) LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR LOAN LOSSESEquity Securities
Equity securities consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments related to our non-qualified deferred compensation plan. At SeptemberJune 30, 20172021 and December 31, 2016, loans2020, we had $41.0 million and $33.8 million, respectively, in equity securities recorded at fair value. The following is a summary of unrealized and realized gains/(losses) recognized on equity securities included in other non-interest income in the consolidated statements of income and other comprehensive income:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Net gains/(losses) recognized during the period | $ | 3,268 | | | $ | 2,912 | | | $ | 3,646 | | | $ | (65) | |
Less: Realized net gains/(losses) recognized during the period on equity securities sold | 351 | | | (226) | | | 749 | | | (245) | |
Unrealized net gains/(losses) recognized during the period on equity securities still held | $ | 2,917 | | | $ | 3,138 | | | $ | 2,897 | | | $ | 180 | |
(4) Loans Held for Investment and Allowance for Credit Losses on Loans
Loans held for investment wereare summarized by portfolio segment as follows (in thousands):follows:
| | | | | | | | | | | |
(in thousands) | June 30, 2021 | | December 31, 2020 |
Commercial | $ | 9,054,764 | | | $ | 8,861,580 | |
Energy | 618,371 | | | 766,217 | |
Mortgage finance(1) | 8,772,799 | | | 9,079,409 | |
| | | |
Real estate | 5,564,623 | | | 5,794,624 | |
| | | |
| | | |
Gross loans held for investment(2) | 24,010,557 | | | 24,501,830 | |
Unearned income (net of direct origination costs) | (69,193) | | | (70,970) | |
Allowance for credit losses on loans | (221,511) | | | (254,615) | |
Total loans held for investment, net(2) | $ | 23,719,853 | | | $ | 24,176,245 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Commercial | $ | 8,810,825 |
| | $ | 7,291,545 |
|
Mortgage finance | 5,642,285 |
| | 4,497,338 |
|
Construction | 2,099,355 |
| | 2,098,706 |
|
Real estate | 3,683,564 |
| | 3,462,203 |
|
Consumer | 70,436 |
| | 34,587 |
|
Leases | 259,720 |
| | 185,529 |
|
Gross loans held for investment | 20,566,185 |
| | 17,569,908 |
|
Deferred income (net of direct origination costs) | (95,494 | ) | | (71,559 | ) |
Allowance for loan losses | (182,929 | ) | | (168,126 | ) |
Total loans held for investment | $ | 20,287,762 |
| | $ | 17,330,223 |
|
Commercial Loans and Leases. Our commercial loan portfolio is comprised of lines of credit for working capital and term loans and leases to finance equipment and other business assets. Our energy production loans are generally collateralized with proven reserves based on appropriate valuation standards and take into account the risk of oil and gas price volatility. Our commercial loans and leases are underwritten after carefully evaluating and understanding the borrower’s ability to operate profitably. Our underwriting standards are designed to promote relationship banking rather than to make loans on a transaction basis. Our lines of credit typically are limited to a percentage of the value of the assets securing the line. Lines of credit and term loans typically are reviewed annually, or more frequently, as needed, and are supported by accounts receivable, inventory, equipment and other assets of our clients’ businesses.
Mortgage Finance Loans. Our mortgage finance loans consist of ownership interests purchased in single-family residential mortgages funded through our mortgage finance group. These loans are typically held on our balance sheet for 10 to 20 days. We have agreements with mortgage lenders and purchase interests in individual loans they originate. All loans are underwritten consistent with established programs for permanent financing with financially sound investors. Substantially all loans are conforming loans.(1) Balances as of Septemberat June 30, 20172021 and December 31, 20162020 are stated net of $150.7$617.9 million and $839.0 million$1.2 billion of participations sold, respectively.
Construction Loans. Our construction loan portfolio consists primarily(2) Excludes accrued interest receivable of single-$53.8 million and multi-family residential properties and commercial projects used in manufacturing, warehousing, service or retail businesses. Our construction loans generally have terms of one to three years. We typically make construction loans to developers, builders and contractors that have an established record of successful project completion and loan repayment and have a substantial equity investment in the borrowers. Loan amounts are derived primarily from the Bank's evaluation of expected cash flows available to service debt from stabilized projects under hypothetically stressed conditions. Construction loans are also based in part upon estimates of costs and value associated with the completed project. Sources of repayment for these types of loans may be pre-committed permanent loans from other lenders, sales of developed property, or an interim loan commitment from us until permanent financing is obtained. The nature of these loans makes ultimate repayment sensitive to overall economic conditions. Borrowers may not be able to correct conditions of default in loans, increasing risk of exposure to classification, non-performing status, reserve allocation and actual credit loss and foreclosure. These loans typically have floating rates and commitment fees.
Real Estate Loans. A portion of our real estate loan portfolio is comprised of loans secured by properties other than market risk or investment-type real estate. Market risk loans are real estate loans where the primary source of repayment is expected to come from the sale, permanent financing or lease of the real property collateral. We generally provide temporary financing for commercial and residential property. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Our real estate loans generally have maximum terms of five to seven years, and we provide loans with both floating and fixed rates. We generally avoid long-term loans for commercial real estate held for investment. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. Appraised values may be highly variable due to market conditions and the impact of the inability of potential purchasers and lessees to obtain financing and a lack of transactions$56.5 million at comparable values.
At SeptemberJune 30, 20172021 and December 31, 2016, we had a blanket floating lien on certain real estate-secured loans, mortgage finance loans and certain securities used as collateral for Federal Home Loan Bank (“FHLB”) borrowings.
Summary of Loan Loss Experience
The allowance for loan losses2020, respectively, that is comprised of general reserves, specific reserves for impaired loans and an additional qualitative reserve based on our estimate of losses inherentrecorded in the portfolio at the balance sheet date, but not yet identified with specified loans. We consider the allowance at September 30, 2017 to be appropriate, given management's assessment of losses inherent in the portfolio as of the evaluation date, the significant growth in the loan and lease portfolio, current economic conditions in our market areasaccrued interest receivable and other factors.assets on the consolidated balance sheets.
The following tables summarize the credit risk profileour gross loans held for investment by year of our loan portfolio byorigination and internally assigned grades and non-accrual status as of September 30, 2017 and December 31, 2016 (in thousands):credit grades:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 and prior | | Revolving lines of credit | | Revolving lines of credit converted to term loans | | Total |
June 30, 2021 | | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 637,105 | | | $ | 3,394,502 | | | $ | 602,181 | | | $ | 441,326 | | | $ | 209,229 | | | $ | 297,669 | | | $ | 3,082,499 | | | $ | 59,164 | | | $ | 8,723,675 | |
(8) Special mention | | 0 | | | 3,575 | | | 82,607 | | | 48,393 | | | 8,464 | | | 5,633 | | | 21,060 | | | 6,660 | | | 176,392 | |
(9) Substandard - accruing | | 0 | | | 1,288 | | | 27,441 | | | 25,620 | | | 9,988 | | | 31,354 | | | 16,621 | | | 7,029 | | | 119,341 | |
(9+) Non-accrual | | 0 | | | 6,105 | | | 3,243 | | | 846 | | | 5,549 | | | 11,945 | | | 7,315 | | | 353 | | | 35,356 | |
Total commercial | | $ | 637,105 | | | $ | 3,405,470 | | | $ | 715,472 | | | $ | 516,185 | | | $ | 233,230 | | | $ | 346,601 | | | $ | 3,127,495 | | | $ | 73,206 | | | $ | 9,054,764 | |
Energy | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 2,500 | | | $ | 0 | | | $ | 0 | | | $ | 3,539 | | | $ | 7,743 | | | $ | 21,621 | | | $ | 487,723 | | | $ | 0 | | | $ | 523,126 | |
(8) Special mention | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 52,035 | | | 0 | | | 52,035 | |
(9) Substandard - accruing | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 10,344 | | | 0 | | | 0 | | | 10,344 | |
(9+) Non-accrual | | 9,908 | | | 0 | | | 0 | | | 0 | | | 0 | | | 12,813 | | | 10,145 | | | 0 | | | 32,866 | |
Total energy | | $ | 12,408 | | | $ | 0 | | | $ | 0 | | | $ | 3,539 | | | $ | 7,743 | | | $ | 44,778 | | | $ | 549,903 | | | $ | 0 | | | $ | 618,371 | |
Mortgage finance | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 77,749 | | | $ | 825,516 | | | $ | 908,556 | | | $ | 750,947 | | | $ | 536,746 | | | $ | 5,673,285 | | | $ | 0 | | | $ | 0 | | | $ | 8,772,799 | |
(8) Special mention | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
(9) Substandard - accruing | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
(9+) Non-accrual | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total mortgage finance | | $ | 77,749 | | | $ | 825,516 | | | $ | 908,556 | | | $ | 750,947 | | | $ | 536,746 | | | $ | 5,673,285 | | | $ | 0 | | | $ | 0 | | | $ | 8,772,799 | |
Real estate | | | | | | | | | | | | | | | | | | |
CRE | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 182,837 | | | $ | 468,969 | | | $ | 811,387 | | | $ | 706,881 | | | $ | 301,041 | | | $ | 531,045 | | | $ | 46,790 | | | $ | 38,402 | | | $ | 3,087,352 | |
(8) Special mention | | 0 | | | 16,327 | | | 30,667 | | | 38,126 | | | 74,135 | | | 50,797 | | | 0 | | | 0 | | | 210,052 | |
(9) Substandard - accruing | | 17,850 | | | 0 | | | 309 | | | 46,923 | | | 53,179 | | | 66,710 | | | 0 | | | 5,022 | | | 189,993 | |
(9+) Non-accrual | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 206 | | | 0 | | | 0 | | | 206 | |
RBF | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | 127,790 | | | 106,195 | | | 30,165 | | | 13,214 | | | 562 | | | 11,863 | | | 594,642 | | | 0 | | | 884,431 | |
(8) Special mention | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
(9) Substandard - accruing | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
(9+) Non-accrual | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Other | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | 51,092 | | | 183,013 | | | 149,031 | | | 94,703 | | | 95,927 | | | 171,454 | | | 43,935 | | | 29,716 | | | 818,871 | |
(8) Special mention | | 0 | | | 0 | | | 2,115 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,018 | | | 3,133 | |
(9) Substandard - accruing | | 0 | | | 0 | | | 0 | | | 4,194 | | | 14,255 | | | 21,195 | | | 0 | | | 0 | | | 39,644 | |
(9+) Non-accrual | | 0 | | | 0 | | | 0 | | | 0 | | | 908 | | | 2,987 | | | 0 | | | 14,099 | | | 17,994 | |
Secured by 1-4 family | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | 38,055 | | | 63,661 | | | 57,792 | | | 28,368 | | | 41,393 | | | 74,893 | | | 4,545 | | | 0 | | | 308,707 | |
(8) Special mention | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,758 | | | 0 | | | 0 | | | 1,758 | |
(9) Substandard - accruing | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2,268 | | | 0 | | | 0 | | | 2,268 | |
(9+) Non-accrual | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 214 | | | 0 | | | 0 | | | 214 | |
Total real estate | | $ | 417,624 | | | $ | 838,165 | | | $ | 1,081,466 | | | $ | 932,409 | | | $ | 581,400 | | | $ | 935,390 | | | $ | 689,912 | | | $ | 88,257 | | | $ | 5,564,623 | |
Total loans held for investment | | $ | 1,144,886 | | | $ | 5,069,151 | | | $ | 2,705,494 | | | $ | 2,203,080 | | | $ | 1,359,119 | | | $ | 7,000,054 | | | $ | 4,367,310 | | | $ | 161,463 | | | $ | 24,010,557 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2017 | | | | | | | | | | | | | |
| Commercial | | Mortgage Finance | | Construction | | Real Estate | | Consumer | | Leases | | Total |
Grade: | | | | | | | | | | | | | |
Pass | $ | 8,541,821 |
| | $ | 5,642,285 |
| | $ | 2,085,300 |
| | $ | 3,611,667 |
| | $ | 69,974 |
| | $ | 242,335 |
| | $ | 20,193,382 |
|
Special mention | 28,288 |
| | — |
| | 14,055 |
| | 34,804 |
| | 369 |
| | — |
| | 77,516 |
|
Substandard-accruing | 124,329 |
| | — |
| | — |
| | 35,275 |
| | 93 |
| | 17,385 |
| | 177,082 |
|
Non-accrual | 116,387 |
| | — |
| | — |
| | 1,818 |
| | — |
| | — |
| | 118,205 |
|
Total loans held for investment | $ | 8,810,825 |
| | $ | 5,642,285 |
| | $ | 2,099,355 |
| | $ | 3,683,564 |
| | $ | 70,436 |
| | $ | 259,720 |
| | $ | 20,566,185 |
|
| | | | | | | | | | | | | |
December 31, 2016 | | | | | | | | | | | | | |
| Commercial | | Mortgage Finance | | Construction | | Real Estate | | Consumer | | Leases | | Total |
Grade: | | | | | | | | | | | | | |
Pass | $ | 6,941,310 |
| | $ | 4,497,338 |
| | $ | 2,074,859 |
| | $ | 3,430,346 |
| | $ | 34,249 |
| | $ | 181,914 |
| | $ | 17,160,016 |
|
Special mention | 69,447 |
| | — |
| | 10,901 |
| | 21,932 |
| | — |
| | 3,532 |
| | 105,812 |
|
Substandard-accruing | 115,848 |
| | — |
| | 12,787 |
| | 7,516 |
| | 138 |
| | — |
| | 136,289 |
|
Non-accrual | 164,940 |
| | — |
| | 159 |
| | 2,409 |
| | 200 |
| | 83 |
| | 167,791 |
|
Total loans held for investment | $ | 7,291,545 |
| | $ | 4,497,338 |
| | $ | 2,098,706 |
| | $ | 3,462,203 |
| | $ | 34,587 |
| | $ | 185,529 |
| | $ | 17,569,908 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 and prior | | Revolving lines of credit | | Revolving lines of credit converted to term loans | | Total |
December 31, 2020 | | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 1,259,949 | | | $ | 2,816,425 | | | $ | 543,438 | | | $ | 374,455 | | | $ | 192,060 | | | $ | 213,212 | | | $ | 3,020,353 | | | $ | 40,253 | | | $ | 8,460,145 | |
(8) Special mention | | 2,664 | | | 115,015 | | | 38,751 | | | 26,423 | | | 1,983 | | | 290 | | | 19,971 | | | 22,797 | | | 227,894 | |
(9) Substandard - accruing | | 15,773 | | | 15,854 | | | 18,068 | | | 32,241 | | | 15,297 | | | 19,639 | | | 22,932 | | | 1,641 | | | 141,445 | |
(9+) Non-accrual | | 1,820 | | | 8,360 | | | 377 | | | 1,292 | | | 802 | | | 15,157 | | | 3,836 | | | 452 | | | 32,096 | |
Total commercial | | $ | 1,280,206 | | | $ | 2,955,654 | | | $ | 600,634 | | | $ | 434,411 | | | $ | 210,142 | | | $ | 248,298 | | | $ | 3,067,092 | | | $ | 65,143 | | | $ | 8,861,580 | |
Energy | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 0 | | | $ | 12,020 | | | $ | 7,598 | | | $ | 26,931 | | | $ | 0 | | | $ | 23,750 | | | $ | 553,970 | | | $ | 0 | | | $ | 624,269 | |
(8) Special mention | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 13,358 | | | 76,866 | | | 0 | | | 90,224 | |
(9) Substandard - accruing | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
(9+) Non-accrual | | 0 | | | 0 | | | 0 | | | 5,705 | | | 1,972 | | | 8,009 | | | 36,038 | | | 0 | | | 51,724 | |
Total energy | | $ | 0 | | | $ | 12,020 | | | $ | 7,598 | | | $ | 32,636 | | | $ | 1,972 | | | $ | 45,117 | | | $ | 666,874 | | | $ | 0 | | | $ | 766,217 | |
Mortgage finance | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 755,309 | | | $ | 1,063,641 | | | $ | 821,122 | | | $ | 483,436 | | | $ | 106,013 | | | $ | 5,849,888 | | | $ | 0 | | | $ | 0 | | | $ | 9,079,409 | |
(8) Special mention | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
(9) Substandard - accruing | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
(9+) Non-accrual | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total mortgage finance | | $ | 755,309 | | | $ | 1,063,641 | | | $ | 821,122 | | | $ | 483,436 | | | $ | 106,013 | | | $ | 5,849,888 | | | $ | 0 | | | $ | 0 | | | $ | 9,079,409 | |
Real estate | | | | | | | | | | | | | | | | | | |
CRE | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 352,688 | | | $ | 892,831 | | | $ | 923,762 | | | $ | 444,587 | | | $ | 208,426 | | | $ | 451,283 | | | $ | 62,336 | | | $ | 61,133 | | | $ | 3,397,046 | |
(8) Special mention | | 3,475 | | | 11,170 | | | 6,485 | | | 88,633 | | | 11,153 | | | 17,623 | | | 0 | | | 1,247 | | | 139,786 | |
(9) Substandard - accruing | | 0 | | | 327 | | | 47,708 | | | 11,601 | | | 32,645 | | | 30,766 | | | 0 | | | 15,940 | | | 138,987 | |
(9+) Non-accrual | | 0 | | | 0 | | | 0 | | | 0 | | | 5,749 | | | 4,852 | | | 0 | | | 0 | | | 10,601 | |
RBF | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | 162,397 | | | 60,077 | | | 65,271 | | | 3,727 | | | 5,888 | | | 8,483 | | | 551,703 | | | 0 | | | 857,546 | |
(8) Special mention | | 0 | | | 353 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 353 | |
(9) Substandard - accruing | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
(9+) Non-accrual | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Other | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | 190,995 | | | 150,787 | | | 119,696 | | | 120,817 | | | 82,465 | | | 113,105 | | | 16,630 | | | 39,129 | | | 833,624 | |
(8) Special mention | | 0 | | | 6,700 | | | 2,240 | | | 0 | | | 1,843 | | | 7,195 | | | 0 | | | 1,018 | | | 18,996 | |
(9) Substandard - accruing | | 0 | | | 0 | | | 2,567 | | | 14,452 | | | 3,301 | | | 14,453 | | | 0 | | | 0 | | | 34,773 | |
(9+) Non-accrual | | 0 | | | 0 | | | 0 | | | 927 | | | 5,524 | | | 6,403 | | | 0 | | | 14,496 | | | 27,350 | |
Secured by 1-4 family | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | 58,515 | | | 63,031 | | | 46,623 | | | 54,096 | | | 72,527 | | | 31,880 | | | 4,697 | | | 0 | | | 331,369 | |
(8) Special mention | | 646 | | | 0 | | | 0 | | | 635 | | | 0 | | | 1,768 | | | 0 | | | 0 | | | 3,049 | |
(9) Substandard - accruing | | 0 | | | 0 | | | 0 | | | 817 | | | 0 | | | 109 | | | 0 | | | 0 | | | 926 | |
(9+) Non-accrual | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 218 | | | 0 | | | 0 | | | 218 | |
Total real estate | | $ | 768,716 | | | $ | 1,185,276 | | | $ | 1,214,352 | | | $ | 740,292 | | | $ | 429,521 | | | $ | 688,138 | | | $ | 635,366 | | | $ | 132,963 | | | $ | 5,794,624 | |
Total loans held for investment | | $ | 2,804,231 | | | $ | 5,216,591 | | | $ | 2,643,706 | | | $ | 1,690,775 | | | $ | 747,648 | | | $ | 6,831,441 | | | $ | 4,369,332 | | | $ | 198,106 | | | $ | 24,501,830 | |
The following table details activity in the allowance for
loancredit losses
by portfolio segment for the nine months ended September 30, 2017 and 2016.on loans. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
| (in thousands) | | (in thousands) | Commercial | Energy | Mortgage Finance | | Real Estate | | Total |
Six months ended June 30, 2021 | | Six months ended June 30, 2021 | | | | | |
Allowance for credit losses on loans: | | Allowance for credit losses on loans: | | | | | |
Beginning balance | | Beginning balance | $ | 73,061 | | $ | 84,064 | | $ | 4,699 | | | $ | 92,791 | | | $ | 254,615 | |
| September 30, 2017 | | | | | | | | | | | | | | | | |
(in thousands) | Commercial | | Mortgage Finance | | Construction | | Real Estate | | Consumer | | Leases | | Additional Qualitative Reserve | | Total | |
Beginning balance | $ | 128,768 |
| | $ | — |
| | $ | 13,144 |
| | $ | 19,149 |
| | $ | 241 |
| | $ | 1,124 |
| | $ | 5,700 |
| | $ | 168,126 |
| |
Provision for loan losses | 21,388 |
| | — |
| | 4,431 |
| | 12,948 |
| | 221 |
| | 2,774 |
| | 1,899 |
| | 43,661 |
| |
Provision for credit losses on loans | | Provision for credit losses on loans | 12,035 | | (23,768) | | 352 | | | (12,932) | | | (24,313) | |
Charge-offs | 32,146 |
| | — |
| | 59 |
| | 290 |
| | 180 |
| | — |
| | — |
| | 32,675 |
| Charge-offs | 3,863 | | 6,418 | | 0 | | | 1,192 | | | 11,473 | |
Recoveries | 3,574 |
| | — |
| | 104 |
| | 74 |
| | 56 |
| | 9 |
| | — |
| | 3,817 |
| Recoveries | 1,358 | | 1,324 | | 0 | | | 0 | | | 2,682 | |
Net charge-offs (recoveries) | 28,572 |
| | — |
| | (45 | ) | | 216 |
| | 124 |
| | (9 | ) | | — |
| | 28,858 |
| Net charge-offs (recoveries) | 2,505 | | 5,094 | | 0 | | | 1,192 | | | 8,791 | |
Ending balance | $ | 121,584 |
| | $ | — |
| | $ | 17,620 |
| | $ | 31,881 |
| | $ | 338 |
| | $ | 3,907 |
| | $ | 7,599 |
| | $ | 182,929 |
| Ending balance | $ | 82,591 | | $ | 55,202 | | $ | 5,051 | | | $ | 78,667 | | | $ | 221,511 | |
Period end amount allocated to: | | | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | $ | 24,410 |
| | $ | — |
| | $ | — |
| | $ | 26 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24,436 |
| |
Loans collectively evaluated for impairment | 97,174 |
| | — |
| | 17,620 |
| | 31,855 |
| | 338 |
| | 3,907 |
| | 7,599 |
| | 158,493 |
| |
Ending balance | $ | 121,584 |
| | $ | — |
| | $ | 17,620 |
| | $ | 31,881 |
| | $ | 338 |
| | $ | 3,907 |
| | $ | 7,599 |
| | $ | 182,929 |
| |
| | | | | | | | | | | | | | | | |
September 30, 2016 | | | | | | | | | | | | | | | | |
(in thousands) | Commercial | | Mortgage Finance | | Construction | | Real Estate | | Consumer | | Leases | | Additional Qualitative Reserve | | Total | |
| Six months ended June 30, 2020 | | Six months ended June 30, 2020 | | | | | |
Allowance for credit losses on loans: | | Allowance for credit losses on loans: | | | | | |
Beginning balance | $ | 112,446 |
| | $ | — |
| | $ | 6,836 |
| | $ | 13,381 |
| | $ | 338 |
| | $ | 3,931 |
| | $ | 4,179 |
| | $ | 141,111 |
| Beginning balance | $ | 102,254 | | $ | 60,253 | | $ | 2,265 | | | $ | 30,275 | | | $ | 195,047 | |
Provision for loan losses | 65,446 |
| | — |
| | 1,607 |
| | 1,981 |
| | (23 | ) | | (2,646 | ) | | (226 | ) | | 66,139 |
| |
Impact of Current Expected Credit Loss (“CECL”) adoption | | Impact of Current Expected Credit Loss (“CECL”) adoption | (15,740) | | 24,154 | | 2,031 | | | (1,860) | | | 8,585 | |
Provision for credit losses on loans | | Provision for credit losses on loans | 28,850 | | 117,963 | | 299 | | | 45,823 | | | 192,935 | |
Charge-offs | 34,232 |
| | — |
| | — |
| | 528 |
| | 40 |
| | — |
| | — |
| | 34,800 |
| Charge-offs | 32,940 | | 100,098 | | 0 | | | 0 | | | 133,038 | |
Recoveries | 7,829 |
| | — |
| | 34 |
| | 36 |
| | 16 |
| | 71 |
| | — |
| | 7,986 |
| Recoveries | 770 | | 423 | | 0 | | | 0 | | | 1,193 | |
Net charge-offs (recoveries) | 26,403 |
| | — |
| | (34 | ) | | 492 |
| | 24 |
| | (71 | ) | | — |
| | 26,814 |
| Net charge-offs (recoveries) | 32,170 | | 99,675 | | 0 | | | 0 | | | 131,845 | |
Ending balance | $ | 151,489 |
| | $ | — |
| | $ | 8,477 |
| | $ | 14,870 |
| | $ | 291 |
| | $ | 1,356 |
| | $ | 3,953 |
| | $ | 180,436 |
| Ending balance | $ | 83,194 | | $ | 102,695 | | $ | 4,595 | | | $ | 74,238 | | | $ | 264,722 | |
Period end amount allocated to: | | | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | $ | 42,674 |
| | $ | — |
| | $ | 24 |
| | $ | 136 |
| | $ | 30 |
| | $ | — |
| | $ | — |
| | $ | 42,864 |
| |
Loans collectively evaluated for impairment | 108,815 |
| | — |
| | 8,453 |
| | 14,734 |
| | 261 |
| | 1,356 |
| | 3,953 |
| | 137,572 |
| |
Ending balance | $ | 151,489 |
| | $ | — |
| | $ | 8,477 |
| | $ | 14,870 |
| | $ | 291 |
| | $ | 1,356 |
| | $ | 3,953 |
| | $ | 180,436 |
| |
|
The table below presents the activity in the portion of the allowanceWe recorded a $25.0 million negative provision for credit losses related to losses on unfunded commitments for the three and ninesix months ended SeptemberJune 30, 20172021, compared to a provision of $196.0 million for the same period in 2020. The decreased provision resulted primarily from decreases in charge-offs and 2016 (in thousands). This liability is recorded in other liabilitiesnon-accrual loans, as well as improvement in the consolidated balance sheet. |
| | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Beginning balance | | $ | 9,205 |
| | $ | 9,355 |
| | $ | 11,422 |
| | $ | 9,011 |
|
Provision for off-balance sheet credit losses | | 556 |
| | 1,517 |
| | (1,661 | ) | | 1,861 |
|
Ending balance | | $ | 9,761 |
| | $ | 10,872 |
| | $ | 9,761 |
| | $ | 10,872 |
|
We have traditionally maintained an additional qualitative reserve componenteconomic outlook as the economy continues to compensate forrecover from the uncertainty and complexity in estimating loan and lease losses including factors and conditions that may not be fully reflected in the determination and applicationimpacts of the allowance allocation percentages. The increaseCOVID-19 pandemic. We recorded $8.8 million in net charge-offs during the additional qualitative reserve at Septembersix months ended June 30, 2017 was primarily driven by a $4.5 million provision related to the potential impact to our loan portfolio from Hurricanes Harvey and Irma ("Hurricanes"). This qualitative factor serves to measure 1) the impact on incurred credit losses resulting from the Hurricanes and 2) the imprecision in the identification and measurement of loans impacted by the Hurricanes. We believe the level of additional qualitative reserve at September 30, 2017 is warranted due to the continued uncertain economic environment which has produced losses, including those resulting from borrowers' misstatement of financial information or inaccurate certification of collateral values. Such losses are not necessarily correlated with historical loss trends or general economic conditions. Our methodology used to calculate the allowance considers historical losses; however, the historical loss rates for specific product types or credit risk grades may not fully incorporate the effects of continued uncertainty regarding the economy or the complete identification of loans impacted by the aforementioned weather events.
Our recorded investment in loans as of September 30, 2017, December 31, 2016 and September 30, 2016 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of our impairment methodology was as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2017 | | | | | | | | | | | | | |
| Commercial | | Mortgage Finance | | Construction | | Real Estate | | Consumer | | Leases | | Total |
Loans individually evaluated for impairment | $ | 117,426 |
| | $ | — |
| | $ | — |
| | $ | 2,117 |
| | $ | — |
| | $ | — |
| | $ | 119,543 |
|
Loans collectively evaluated for impairment | 8,693,399 |
| | 5,642,285 |
| | 2,099,355 |
| | 3,681,447 |
| | 70,436 |
| | 259,720 |
| | 20,446,642 |
|
Total | $ | 8,810,825 |
| | $ | 5,642,285 |
| | $ | 2,099,355 |
| | $ | 3,683,564 |
| | $ | 70,436 |
| | $ | 259,720 |
| | $ | 20,566,185 |
|
| | | | | | | | | | | | | |
December 31, 2016 | | | | | | | | | | | | | |
| Commercial | | Mortgage Finance | | Construction | | Real Estate | | Consumer | | Leases | | Total |
Loans individually evaluated for impairment | $ | 166,669 |
| | $ | — |
| | $ | 159 |
| | $ | 3,751 |
| | $ | 200 |
| | $ | 83 |
| | $ | 170,862 |
|
Loans collectively evaluated for impairment | 7,124,876 |
| | 4,497,338 |
| | 2,098,547 |
| | 3,458,452 |
| | 34,387 |
| | 185,446 |
| | 17,399,046 |
|
Total | $ | 7,291,545 |
| | $ | 4,497,338 |
| | $ | 2,098,706 |
| | $ | 3,462,203 |
| | $ | 34,587 |
| | $ | 185,529 |
| | $ | 17,569,908 |
|
| | | | | | | | | | | | | |
September 30, 2016 | | | | | | | | | | | | | |
| Commercial | | Mortgage Finance | | Construction | | Real Estate | | Consumer | | Leases | | Total |
Loans individually evaluated for impairment | $ | 168,014 |
| | $ | — |
| | $ | 159 |
| | $ | 3,787 |
| | $ | 200 |
| | $ | — |
| | $ | 172,160 |
|
Loans collectively evaluated for impairment | 6,885,965 |
| | 4,961,159 |
| | 2,150,294 |
| | 3,388,044 |
| | 27,354 |
| | 96,878 |
| | 17,509,694 |
|
Total | $ | 7,053,979 |
| | $ | 4,961,159 |
| | $ | 2,150,453 |
| | $ | 3,391,831 |
| | $ | 27,554 |
| | $ | 96,878 |
| | $ | 17,681,854 |
|
Generally we place loans on non-accrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. When a loan is placed on non-accrual status, all previously accrued and unpaid interest is reversed. Interest income is subsequently recognized on a cash basis as long as the remaining unpaid principal amount of the loan is deemed to be fully collectible. If collectability is questionable, then cash payments are applied to principal. As of September 30, 2017, none of our non-accrual loans were earning on a cash basis2021, compared to $811,000$131.8 million during the same period in 2020. Criticized loans totaled $891.6 million at December 31, 2016. June 30, 2021, compared to $1.0 billion at June 30, 2020.
A loan is placed back on accrual statusconsidered collateral-dependent when both principalthe borrower is experiencing financial difficulty and interest are current and itrepayment is probable that we willexpected to be able to collect all amounts due (both principal and interest) according toprovided substantially through the termsoperation or sale of the loan agreement.
A loancollateral. The following table summarizes collateral-dependent gross loans held for investment is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due (both principal and interest) according to the terms of the original loan agreement. In accordance with ASC 310, Receivables, we have also included all restructured and formerly restructured loans in our impaired loan totals. The following tables detail our impaired loans, by portfolio class,collateral type as of September 30, 2017 and December 31, 2016 (in thousands):follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | Collateral Type |
(in thousands) | | | | Real Property | | | | | | | | Total |
June 30, 2021 | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Real estate | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Other | | | | $ | 908 | | | | | | | | | $ | 908 | |
| | | | | | | | | | | | |
Total collateral-dependent loans held for investment | | | | $ | 908 | | | | | | | | | $ | 908 | |
|
| | | | | | | | | | | | | | | | | | | |
September 30, 2017 | | | | | | | | | |
| Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Average Recorded Investment | | Interest Income Recognized |
With no related allowance recorded: | | | | | | | | | |
Commercial | | | | | | | | | |
Business loans | $ | 23,561 |
| | $ | 24,983 |
| | $ | — |
| | $ | 23,513 |
| | $ | — |
|
Energy | 32,378 |
| | 37,221 |
| | — |
| | 39,196 |
| | — |
|
Construction | | | | | | | | | |
Market risk | — |
| | — |
| | — |
| | — |
| | — |
|
Real estate | | | | | | | | | |
Market risk | — |
| | — |
| | — |
| | — |
| | — |
|
Commercial | 1,700 |
| | 1,700 |
| | — |
| | 2,388 |
| | — |
|
Secured by 1-4 family | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer | — |
| | — |
| | — |
| | — |
| | — |
|
Leases | — |
| | — |
| | — |
| | — |
| | — |
|
Total impaired loans with no allowance recorded | $ | 57,639 |
| | $ | 63,904 |
| | $ | — |
| | $ | 65,097 |
| | $ | — |
|
With an allowance recorded: | | | | | | | | | |
Commercial | | | | | | | | | |
Business loans | $ | 12,267 |
| | $ | 12,267 |
| | $ | 3,226 |
| | $ | 15,689 |
| | $ | — |
|
Energy | 49,220 |
| | 62,259 |
| | 21,184 |
| | 53,839 |
| | 6 |
|
Construction | | | | | | | | | |
Market risk | — |
| | — |
| | — |
| | 35 |
| | — |
|
Real estate | | | | | | | | | |
Market risk | 299 |
| | 299 |
| | 6 |
| | 548 |
| | — |
|
Commercial | — |
| | — |
| | — |
| | — |
| | — |
|
Secured by 1-4 family | 118 |
| | 118 |
| | 20 |
| | 649 |
| | — |
|
Consumer | — |
| | — |
| | — |
| | 44 |
| | — |
|
Leases | — |
| | — |
| | — |
| | 18 |
| | — |
|
Total impaired loans with an allowance recorded | $ | 61,904 |
| | $ | 74,943 |
| | $ | 24,436 |
| | $ | 70,822 |
| | $ | 6 |
|
Combined: | | | | | | | | | |
Commercial | | | | | | | | | |
Business loans | $ | 35,828 |
| | $ | 37,250 |
| | $ | 3,226 |
| | $ | 39,202 |
| | $ | — |
|
Energy | 81,598 |
| | 99,480 |
| | 21,184 |
| | 93,035 |
| | 6 |
|
Construction | | | | | | | | | |
Market risk | — |
| | — |
| | — |
| | 35 |
| | — |
|
Real estate | | | | | | | | | |
Market risk | 299 |
| | 299 |
| | 6 |
| | 548 |
| | — |
|
Commercial | 1,700 |
| | 1,700 |
| | — |
| | 2,388 |
| | — |
|
Secured by 1-4 family | 118 |
| | 118 |
| | 20 |
| | 649 |
| | — |
|
Consumer | — |
| | — |
| | — |
| | 44 |
| | — |
|
Leases | — |
| | — |
| | — |
| | 18 |
| | — |
|
Total impaired loans | $ | 119,543 |
| | $ | 138,847 |
| | $ | 24,436 |
| | $ | 135,919 |
| | $ | 6 |
|
|
| | | | | | | | | | | | | | | | | | | |
December 31, 2016 | | | | | | | | | |
| Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Average Recorded Investment | | Interest Income Recognized |
With no related allowance recorded: | | | | | | | | | |
Commercial | | | | | | | | | |
Business loans | $ | 23,868 |
| | $ | 27,992 |
| | $ | — |
| | $ | 12,361 |
| | $ | — |
|
Energy | 46,753 |
| | 54,522 |
| | — |
| | 54,075 |
| | — |
|
Construction | | | | | | | | | |
Market risk | — |
| | — |
| | — |
| | 2,778 |
| | — |
|
Real estate | | | | | | | | | |
Market risk | — |
| | — |
| | — |
| | — |
| | — |
|
Commercial | 2,083 |
| | 2,083 |
| | — |
| | 4,483 |
| | 38 |
|
Secured by 1-4 family | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer | — |
| | — |
| | — |
| | — |
| | — |
|
Leases | — |
| | — |
| | — |
| | 403 |
| | — |
|
Total impaired loans with no allowance recorded | $ | 72,704 |
| | $ | 84,597 |
| | $ | — |
| | $ | 74,100 |
| | $ | 38 |
|
With an allowance recorded: | | | | | | | | | |
Commercial | | | | | | | | | |
Business loans | $ | 21,303 |
| | $ | 21,303 |
| | $ | 7,055 |
| | $ | 22,277 |
| | $ | — |
|
Energy | 74,745 |
| | 88,987 |
| | 27,350 |
| | 73,637 |
| | 24 |
|
Construction | | | | | | | | | |
Market risk | 159 |
| | 159 |
| | 24 |
| | 53 |
| | — |
|
Real estate | | | | | | | | | |
Market risk | 1,342 |
| | 1,342 |
| | 20 |
| | 3,000 |
| | — |
|
Commercial | — |
| | — |
| | — |
| | — |
| | — |
|
Secured by 1-4 family | 326 |
| | 326 |
| | 113 |
| | 435 |
| | — |
|
Consumer | 200 |
| | 200 |
| | 30 |
| | 67 |
| | — |
|
Leases | 83 |
| | 83 |
| | 13 |
| | 548 |
| | — |
|
Total impaired loans with an allowance recorded | $ | 98,158 |
| | $ | 112,400 |
| | $ | 34,605 |
| | $ | 100,017 |
| | $ | 24 |
|
Combined: | | | | | | | | | |
Commercial | | | | | | | | | |
Business loans | $ | 45,171 |
| | $ | 49,295 |
| | $ | 7,055 |
| | $ | 34,638 |
| | $ | — |
|
Energy | 121,498 |
| | 143,509 |
| | 27,350 |
| | 127,712 |
| | 24 |
|
Construction | | | | | | | | | |
Market risk | 159 |
| | 159 |
| | 24 |
| | 2,831 |
| | — |
|
Real estate | | | | | | | | | |
Market risk | 1,342 |
| | 1,342 |
| | 20 |
| | 3,000 |
| | — |
|
Commercial | 2,083 |
| | 2,083 |
| | — |
| | 4,483 |
| | 38 |
|
Secured by 1-4 family | 326 |
| | 326 |
| | 113 |
| | 435 |
| | — |
|
Consumer | 200 |
| | 200 |
| | 30 |
| | 67 |
| | — |
|
Leases | 83 |
| | 83 |
| | 13 |
| | 951 |
| | — |
|
Total impaired loans | $ | 170,862 |
| | $ | 196,997 |
| | $ | 34,605 |
| | $ | 174,117 |
| | $ | 62 |
|
Average impaired loans outstanding during the nine months ended September 30, 2017 and 2016 totaled $135.9 million and $174.9 million, respectively.
The table below provides an age analysis of our loans held for investment asinvestment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due(1) | | Total Past Due | | Non-Accrual Loans(2) | | Current | | Total | | Non-Accrual With No Allowance |
June 30, 2021 | | | | | | | | | | | | | | | |
Commercial | $ | 16,215 | | | $ | 1,555 | | | $ | 7,607 | | | $ | 25,377 | | | $ | 35,356 | | | $ | 8,994,031 | | | $ | 9,054,764 | | | $ | 12,451 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Energy | 0 | | | 0 | | | 0 | | | 0 | | | 32,866 | | | 585,505 | | | 618,371 | | | 9,908 | |
Mortgage finance loans | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 8,772,799 | | | 8,772,799 | | | 0 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Real estate | | | | | | | | | | | | | | | |
CRE | 0 | | | 0 | | | 0 | | | 0 | | | 206 | | | 3,487,397 | | | 3,487,603 | | | 0 | |
RBF | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 884,431 | | | 884,431 | | | 0 | |
Other | 888 | | | 3,672 | | | 0 | | | 4,560 | | | 17,994 | | | 857,088 | | | 879,642 | | | 2,777 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Secured by 1-4 family | 0 | | | 37 | | | 64 | | | 101 | | | 214 | | | 312,632 | | | 312,947 | | | 0 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total loans held for investment | $ | 17,103 | | | $ | 5,264 | | | $ | 7,671 | | | $ | 30,038 | | | $ | 86,636 | | | $ | 23,893,883 | | | $ | 24,010,557 | | | $ | 25,136 | |
(1)Loans past due 90 days and still accruing includes premium finance loans of September 30, 2017 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 30-59 Days Past Due | | 60-89 Days Past Due | | Greater Than 90 Days and Accruing(1) | | Total Past Due | | Non-accrual | | Current | | Total |
Commercial | | | | | | | | | | | | | |
Business loans | $ | 25,301 |
| | $ | 18,704 |
| | $ | 8,892 |
| | $ | 52,897 |
| | $ | 34,789 |
| | $ | 7,635,061 |
| | $ | 7,722,747 |
|
Energy | 9,950 |
| | 4,484 |
| | — |
| | 14,434 |
| | 81,598 |
| | 992,046 |
| | 1,088,078 |
|
Mortgage finance loans | — |
| | — |
| | — |
| | — |
| | — |
| | 5,642,285 |
| | 5,642,285 |
|
Construction | | | | | | | | | | | | | |
Market risk | 663 |
| | — |
| | — |
| | 663 |
| | — |
| | 2,074,537 |
| | 2,075,200 |
|
Secured by 1-4 family | — |
| | — |
| | — |
| | — |
| | — |
| | 24,155 |
| | 24,155 |
|
Real estate | | | | | | | | | | | | | |
Market risk | 1,301 |
| | — |
| | — |
| | 1,301 |
| | — |
| | 2,639,169 |
| | 2,640,470 |
|
Commercial | 1,839 |
| | — |
| | — |
| | 1,839 |
| | 1,700 |
| | 782,185 |
| | 785,724 |
|
Secured by 1-4 family | 2,798 |
| | — |
| | — |
| | 2,798 |
| | 118 |
| | 254,454 |
| | 257,370 |
|
Consumer | — |
| | — |
| | — |
| | — |
| | — |
| | 70,436 |
| | 70,436 |
|
Leases | 11,701 |
| | — |
| | — |
| | 11,701 |
| | — |
| | 248,019 |
| | 259,720 |
|
Total loans held for investment | $ | 53,553 |
| | $ | 23,188 |
| | $ | 8,892 |
| | $ | 85,633 |
| | $ | 118,205 |
| | $ | 20,362,347 |
| | $ | 20,566,185 |
|
| |
(1) | Loans past due 90 days and still accruing includes premium finance loans of $8.4$3.0 million. These loans are generally secured by obligations of insurance carriers to refund premiums on canceled insurance policies. The refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date. |
Restructured loans are loansgenerally secured by obligations of insurance carriers to refund premiums on which, due tocanceled insurance policies. The receipt of the borrower’s financial difficulties, we have granted a concession that we would not otherwise consider for borrowersrefund of similar credit quality. This may include a transfer of real estate or other assetspremiums from the borrower, a modificationinsurance carriers can take 180 days or longer from the cancellation date.
(2)As of loan terms, or a combination of the two. Modifications of terms that could potentially qualify as a restructuring include reduction of the contractual interest rate, extension of the maturity date at a contractual interest rate lower than the current rate for new debt with similar risk, a reduction of the face amount of debt or forgiveness of either principal or accrued interest. At SeptemberJune 30, 20172021 and December 31, 2016,2020, NaN of our non-accrual loans were earning interest income on a cash basis. Additionally, 0 interest income was recognized on non-accrual loans for the six months ended June 30, 2021. Accrued interest of $468,000 was reversed during the six months ended June 30, 2021.
As of June 30, 2021 and December 31, 2020, we did not have any loans considered restructured that were not on non-accrual. Of the non-accrual loans at SeptemberJune 30, 20172021 and December 31, 2016, $12.02020, $24.4 million and $18.1$45.4 million, respectively, met the criteria for restructured. These loans had no unfunded commitments at their respective balance sheet dates. A loan continues to qualify as restructured until a consistent payment history or change in borrower’s financial condition has been evidenced, generally over no less than twelve months. Assuming that the restructuring agreement specifies an interest rate at the time of the restructuring that is greater than or equal to the rate that we are willing to accept for a new extension of credit with comparable risk, then the loan no longer has to be considered a restructuring if it is in compliance with the modified terms in calendar years after the year of the restructure.
The following table summarizes, for the nine months ended September 30, 2017 and 2016,We did not have any loans that were restructured during 2017 and 2016 (in thousands):
|
| | | | | | | | | | |
September 30, 2017 | | | | | |
| Number of Restructured Loans | | Balance at Restructure | | Balance at Period-End |
Energy loans | 1 |
| | $ | 1,070 |
| | $ | — |
|
Commercial business loans | 1 |
| | $ | 599 |
| | $ | 721 |
|
Total new restructured loans in 2017 | 2 |
| | $ | 1,669 |
| | $ | 721 |
|
| | | | | |
September 30, 2016 | | | | | |
| Number of Restructured Loans | | Balance at Restructure | | Balance at Period-End |
Energy loans | 2 |
| | $ | 14,235 |
| | $ | 13,289 |
|
Total new restructured loans in 2016 | 2 |
| | $ | 14,235 |
| | $ | 13,289 |
|
The restructured loans generally include terms to temporarily place loans on interest only, extend the payment terms or reduce the interest rate. We did not forgive any principal on the above loans. The restructuring of the loans did not have a significant impact on our allowance for loan losses at September 30, 2017 or 2016.
The following table provides information on how restructured loans were modified during the ninesix months ended SeptemberJune 30, 2017 and 2016 (in thousands):
|
| | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
Extended maturity | $ | 721 |
| | $ | — |
|
Adjusted payment schedule | — |
| | 12,647 |
|
Combination of maturity extension and payment schedule adjustment | — |
| | 642 |
|
Other | — |
| | — |
|
Total | $ | 721 |
| | $ | 13,289 |
|
2021 or 2020. As of SeptemberJune 30, 20172021 and 2016,2020, we did not have any loans that were restructured within the last 12 months that subsequently defaulted.
(5) OREO AND VALUATION ALLOWANCE FOR LOSSES ON OREOCertain Transfers of Financial Assets
The table below presents a summaryOn April 20, 2021, we entered into an agreement to sell our portfolio of the activity relatedmortgage servicing rights (“MSRs”) and to OREO (in thousands):
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Beginning balance | $ | 18,689 |
| | $ | 18,727 |
| | $ | 18,961 |
| | $ | 278 |
|
Additions | — |
| | 282 |
| | — |
| | 18,822 |
|
Sales | (457 | ) | | — |
| | (729 | ) | | (91 | ) |
Valuation allowance for OREO | (101 | ) | | — |
| | (101 | ) | | — |
|
Ending balance | $ | 18,131 |
| | $ | 19,009 |
| | $ | 18,131 |
| | $ | 19,009 |
|
When foreclosure occurs,transition the acquired asset is recorded at fair value less selling costs, generally based on appraised value, which may result in partial charge-off of the loan. Subsequent write-downs required for declines in value are recorded through a valuation allowance or taken directly to the assets and charged to other non-interest expense.
(6) CERTAIN TRANSFERS OF FINANCIAL ASSETS
Through our Mortgage Correspondent Aggregation ("MCA"(“MCA”) business, we commitprogram to purchase residentiala third-party. The sale of MSRs was completed on June 1, 2021, and the transfer of servicing on the underlying mortgage loans from independent correspondent lenders and deliver those loans intois expected to occur on August 1, 2021. Transition activities began immediately following the secondary market via whole loan sales to independent third parties or in securitization transactions to Ginnie Mae and government sponsored entities ("GSEs") such as Fannie Mae and Freddie Mac. We have elected to carry these loans at fair value based on sales commitments and market quotes. Gains and losses on the sale of mortgage loans held for sale and changes in the fair valueexecution of the loans held for saleagreement and are included in other non-interest income on the consolidated income statement.
Residential mortgage loans held for sale are subjectexpected to both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures, including collateral requirements, which are generally acceptedbe significantly complete by the secondary loan markets. Exposure to interest rate fluctuations is partially mitigated through forward sales contracts, which set the price for loans that will be delivered in the next 60 to 90 days.
The table below presents the unpaid principal balance of loans held for sale and related fair values at September 30, 2017 and December 31, 2016 (in thousands):
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Outstanding balance | $ | 957,560 |
| | $ | 980,414 |
|
Fair value | 955,983 |
| | 968,929 |
|
Fair value over/(under) outstanding balance | $ | (1,577 | ) | | $ | (11,485 | ) |
No loans held for sale were 90 days or more past due or on non-accrual as of September 30, 2017 and December 31, 2016.2021.
The table below presents a reconciliation of the changes in loans held for sale:
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
(in thousands) | | 2021 | | 2020 |
Outstanding balance(1): | | | | |
Beginning balance | | $ | 281,137 | | | $ | 2,568,362 | |
Loans purchased and originated | | 1,409,716 | | | 4,931,981 | |
Payments and loans sold | | (1,625,973) | | | (7,052,942) | |
Ending balance | | 64,880 | | | 447,401 | |
Fair value adjustment: | | | | |
Beginning balance | | 2,028 | | | 8,772 | |
Increase/(decrease) to fair value | | (3,161) | | | (1,592) | |
Ending balance | | (1,133) | | | 7,180 | |
Loans held for sale at fair value | | $ | 63,747 | | | $ | 454,581 | |
(1) Includes $44.1 million of loans held for sale that are carried at lower of cost or market as of December 31, 2020, as well as $5.8 million as of December 31, 2019.
NaN loans held for the nine months ended Septembersale were on non-accrual as of June 30, 20172021. At December 31, 2020 we had $7.0 million in non-accrual loans held for sale, comprised of one loan previously reported in loans held for investment that was transferred to loans held for sale as of December 31, 2020 and 2016 (in thousands):subsequently sold at carrying value. At June 30, 2021 and December 31, 2020, we had $2.7 million and $16.7 million, respectively, of loans held for sale that were 90 days or more past due. The $2.7 million in loans held for sale that were 90 days or more past due at June 30, 2021 was comprised of loans guaranteed by U.S. government agencies
|
| | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
Beginning balance | $ | 968,929 |
| | $ | 86,075 |
|
Loans purchased | 4,315,065 |
| | 1,927,702 |
|
Payments and loans sold | (4,337,919 | ) | | (1,368,987 | ) |
Change in fair value | 9,908 |
| | 3,894 |
|
Ending balance | $ | 955,983 |
| | $ | 648,684 |
|
that were purchased out of Ginnie Mae securities and recorded as loans held for sale, at fair value, on the balance sheet. Interest on these past due loans accrues at the debenture rate guaranteed by the U.S. government. At December 31, 2020, $3.3 million of the $16.7 million in loans held for sale that were 90 days or more past due were loans guaranteed by U.S. government agencies that were purchased out of Ginnie Mae securities and recorded as loans held for sale, at fair value, on the balance sheet and $13.4 million were loans that, pursuant to Ginnie Mae servicing guidelines, we have the unilateral right, but not the obligation, to repurchase if defined delinquent loan criteria are met, and therefore must record as held for sale on our balance sheet regardless of whether the repurchase option has been exercised.We generallyFrom time to time we retain the right to service the loans sold through the MCA program, creating MSRs which are recorded as assets on our consolidated balance sheet.sheets. A summary of MSR activity for the nine months ended September 30, 2017 and 2016 is as follows (in thousands):follows:
| | | | | | | | | | | |
| Six months ended June 30, |
(in thousands) | 2021 | | 2020 |
MSRs: | | | |
Balance, beginning of year | $ | 131,391 | | | $ | 70,707 | |
Capitalized servicing rights | 15,835 | | | 45,397 | |
Amortization | (18,629) | | | (14,032) | |
Sales | (127,281) | | | 0 | |
Balance, end of period | $ | 1,316 | | | $ | 102,072 | |
Valuation allowance: | | | |
Balance, beginning of year | $ | 25,967 | | | $ | 5,803 | |
Change in valuation allowance | (25,967) | | | 20,818 | |
Balance, end of period | $ | 0 | | | $ | 26,621 | |
MSRs, net | $ | 1,316 | | | $ | 75,451 | |
MSRs, fair value | $ | 1,326 | | | $ | 75,451 | |
|
| | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
MSRs: | | | |
Balance, beginning of year(1) | $ | 28,536 |
| | $ | 423 |
|
Capitalized servicing rights | 54,614 |
| | 16,344 |
|
Amortization | (5,304 | ) | | (891 | ) |
Balance, end of period | $ | 77,846 |
| | $ | 15,876 |
|
Valuation allowance: | | | |
Balance, beginning of year | $ | — |
| | $ | — |
|
Increase in valuation allowance | 216 |
| | 414 |
|
Balance, end of period | $ | 216 |
| | $ | 414 |
|
MSRs, net(1) | $ | 77,630 |
| | $ | 15,462 |
|
MSRs, fair value | $ | 78,940 |
| | $ | 15,970 |
|
| |
(1) | MSRs are reported on the consolidated balance sheets at lower of amortized cost or market. |
At SeptemberJune 30, 20172021 and December 31, 2016,2020, our servicing portfolio of MSRs was comprised of residential mortgage loans had anwith outstanding principal balancebalances of $6.1$129.3 million and $13.8 billion, and $2.2 billion, respectively.
In connection with the servicing of these loans, we maintain
hold deposits in the name of investors representing escrow funds for taxes and insurance, in the name of investors, as well as collections in transit to such investors. These escrow funds are segregated and held in separate non-interest-bearing deposit accounts at the Bank. These deposits, included in total non-interest-bearing deposits on the consolidated balance sheets, were $81.4 millioninsignificant at SeptemberJune 30, 20172021 and $21.0$152.6 million at December 31, 2016.2020.
The estimated fair value of the MSR assets is obtainedTo mitigate exposure to potential impairment charges from an independent third party and reviewed by management on a quarterly basis. MSRs do not tradeadverse changes in an active, open market with readily observable prices; as such, the fair value of MSRsour MSR portfolio, we enter into certain derivative contracts, as is determined using a discounted cash flow model to calculatefurther discussed in Note 11 - Derivative Financial Instruments. The following summarizes the present value of the estimated future net servicing income. The assumptions utilized in the discounted cash flow model are based on market data for comparable collateral, where available. Each quarter, management and the independent third party discuss the key assumptions used in the discounted cash flow model and make adjustments as necessary to estimate the fair value of the MSRs. As of September 30, 2017 and December 31, 2016,by management used the following assumptions to determine the fair value of MSRs:
| | | September 30, 2017 | December 31, 2016 | | June 30, 2021 | | December 31, 2020 |
Average discount rates | 9.95 | % | 9.96 | % | Average discount rates | 9.00 | % | | 9.09 | % |
Expected prepayment speeds | 9.79 | % | 7.91 | % | Expected prepayment speeds | 9.48 | % | | 16.37 | % |
Weighted average life, in years | 7.1 |
| 8.0 |
| |
Weighted-average life, in years | | Weighted-average life, in years | 7.1 | | 4.9 |
A sensitivity analysis of changes in the fair value of our MSR portfolio resulting from certain key assumptions is presented in the following table (in thousands):table:
| | | September 30, 2017 | | December 31, 2016 | |
(in thousands) | | (in thousands) | June 30, 2021 | | December 31, 2020 |
50 bp adverse change in prepayment speed | $ | (10,667 | ) | | $ | (2,833 | ) | 50 bp adverse change in prepayment speed | $ | (162) | | | $ | (12,203) | |
100 bp adverse change in prepayment speed | (25,043 | ) | | (6,812 | ) | 100 bp adverse change in prepayment speed | (285) | | | (16,062) | |
These sensitivities are hypothetical and actual results may differ materially due to a number of factors. The effect on fair value of a 10% variation in assumptions generally cannot be determined with confidence because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead tobe correlated with changes in other factors, which could impact the above hypothetical effects.sensitivity analysis as presented.
In conjunction with the sale and securitization of loans held for sale, we may be exposed to liability resulting from recourse agreements and repurchase agreements. If it is determined subsequent to our sale of a loan that the loan sold is in breach of the representations or warranties made in the applicable sale agreement, we may have an obligation to either (a) repurchase the loan for the unpaid principal balance, accrued interest and related advances, (b) indemnify the purchaser against any loss it suffers or (c) make the purchaser whole for the economic benefits of the loan.
Our repurchase, indemnification and make whole obligations vary based upon the terms of the applicable agreements, the nature of the asserted breach and the status of the mortgage loan at the time a claim is made. We establish reserves for estimated losses of this nature inherent in the origination of mortgage loans by estimating the losses inherent in the population of all loans sold based on trends in claims and actual loss severities experienced. The reserve includes accruals for probable contingent losses in addition to those identified in the pipeline of claims received. The estimation process is designed to include amounts based on any actual losses experienced from actual repurchase activity.
Because the MCA business commenced in late 2015, we have limited historical data to support the establishment of a reserve. The baseline for the repurchase reserve uses historical loss factors obtained from industry data that are applied to loan pools originated and sold during the nine months ended September 30, 2017 and 2016. The historical industry data loss factors and experienced losses are accumulated for each sale vintage and applied to more recent sale vintages to estimate inherent losses not yet realized.make-whole agreements. Our estimated exposure related to these loans was $1.2 million at September 30, 2017those agreements totaled $648,000 and $621,000 at SeptemberJune 30, 20162021 and December 31, 2020, respectively, and is recorded in other liabilities inon the consolidated balance sheets. We had $14,000$47,000 in losses due to repurchase, indemnification or make-whole obligationsobligation payments were made during the ninesix months ended June 30, 2021 compared to $4.5 million during the six months ended June 30, 2020.
(6) Long-term Debt
From November 2002 to September 2006 various Texas Capital Statutory Trusts were created and subsequently issued floating rate trust preferred securities in various private offerings totaling $113.4 million. For the three and six months ended June 30, 2021, the combined weighted-average interest rate on the trust preferred subordinated debentures was 2.14% and 2.17%, respectively, compared to 3.02% and 3.41%, respectively, for the same periods in 2020. The details of the trust preferred subordinated debentures as of June 30, 2021 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollar amounts in thousands) | Texas Capital Bancshares Statutory Trust I | | Texas Capital Statutory Trust II | | Texas Capital Statutory Trust III | | Texas Capital Statutory Trust IV | | Texas Capital Statutory Trust V |
Date issued | November 19, 2002 | | April 10, 2003 | | October 6, 2005 | | April 28, 2006 | | September 29, 2006 |
Trust preferred securities issued | $10,310 | | $10,310 | | $25,774 | | $25,774 | | $41,238 |
Floating or fixed rate securities | Floating | | Floating | | Floating | | Floating | | Floating |
Interest rate on subordinated debentures | 3 month LIBOR + 3.35% | | 3 month LIBOR + 3.25% | | 3 month LIBOR + 1.51% | | 3 month LIBOR + 1.60% | | 3 month LIBOR + 1.71% |
Maturity date | November 2032 | | April 2033 | | December 2035 | | June 2036 | | December 2036 |
On September 21, 2012, the Company issued $111.0 million of subordinated notes. The notes mature in September 2042 and bear interest at a rate of 6.50% per annum, payable quarterly. The indenture governing the notes contains customary covenants and restrictions. These notes were redeemed on June 21, 2021.
On January 31, 2014, the Bank issued $175.0 million of subordinated notes in an offering to institutional investors exempt from registration under Section 3(a)(2) of the Securities Act of 1933 and 12 C.F.R. Part 16. The notes mature in January 2026 and bear interest at a rate of 5.25% per annum, payable semi-annually. The notes are unsecured and are subordinate to the Bank’s obligations to its depositors, its obligations under banker’s acceptances and letters of credit, certain obligations to Federal Reserve Banks and the FDIC and the Bank’s obligations to its other creditors, except any obligations which expressly rank on a parity with or junior to the notes. The notes qualify as Tier 2 capital for regulatory capital purposes, subject to applicable limitations. At the beginning of each of the last five years of the life of the notes, the amount that is eligible to be included in Tier 2 capital is reduced by 20% of the original amount of the notes (net of redemptions). In 2021, the amount of the notes that qualify as Tier 2 capital has been reduced by 20%.
On March 9, 2021, the Bank issued and sold $275 million of senior unsecured credit-linked notes. The notes mature on September 30, 20172024, and no losses duringaccrue interest at a rate equal to the ninehigher of LIBOR plus 4.50% or 4.25%, payable quarterly on each of March 31, June 30, September 30 and December 31. For the three and six months ended 2016.
June 30, 2021, the weighted-average interest rate on the notes was 5.62% and 5.60%, respectively. The notes effectively transfer the risk of first losses on a $2.2 billion reference pool of the Bank’s mortgage warehouse loans to the purchasers of the notes in an amount up to $275.0 million. In the event of a failure to pay by the relevant mortgage originator, insolvency of the relevant mortgage originator, or restructuring of such loans that results in a loss on a loan included in the reference pool, the principal balance of the notes will be reduced to the extent of such loss and recognized as a debt extinguishment gain within non-interest income on our consolidated statements of income and other comprehensive income. The purchasers of the notes have the option to acquire the underlying mortgage loan collateralizing the reference warehouse line of credit in lieu of a principal reduction on the notes. Losses on our warehouse lines of credit have not generally been significant. The notes are recorded in long-term debt on our consolidated balance sheets and accounted for at amortized cost. The fair value of the credit-linked note is based on observable inputs, when available, and as such are categorized as Level 2 liabilities. Because the notes are variable rate debt, the fair value approximates carrying value.
On May 6, 2021, the Company issued and sold $375.0 million of subordinated notes. The notes mature in May 2031 and bear interest at a fixed rate of 4.00% per annum, payable semi-annually. Net proceeds from the transaction were $370.7 million providing additional capital to be used for general corporate purposes. A portion of the proceeds were also used to redeem the Company’s 6.50% fixed rate subordinated notes, as is described above. The indenture governing the notes contains customary covenants and restrictions.
(7) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKFinancial Instruments with Off-Balance Sheet Risk
The Bank is a party totable below presents our financial instruments with off-balance sheet risk, as well as the activity in the normal course of businessallowance for off-balance sheet credit losses related to meet the financing needs of its customers. Thesethose financial instruments include commitments to extend credit and standby letters of credit that involve varying degrees of credit riskinstruments. This allowance is recorded in excess of the amount recognized inother liabilities on the consolidated balance sheets. The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the borrower. | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Beginning balance of allowance for off-balance sheet credit losses | $ | 17,147 | | | $ | 10,174 | | | $ | 17,434 | | | $ | 8,640 | |
Impact of CECL adoption | — | | | — | | | 0 | | | 563 | |
Provision for off-balance sheet credit losses | (400) | | | 2,094 | | | (687) | | | 3,065 | |
Ending balance of allowance for off-balance sheet credit losses | $ | 16,747 | | | $ | 12,268 | | | $ | 16,747 | | | $ | 12,268 | |
| | | | | | | |
(in thousands) | | | | | June 30, 2021 | | December 31, 2020 |
Commitments to extend credit - period end balance | | | | $ | 8,228,992 | | | $ | 8,530,453 | |
Standby letters of credit - period end balance | | | | $ | 328,726 | | | $ | 268,894 | |
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit-worthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
The table below summarizes our off-balance sheet financial instruments whose contract amounts represented credit risk (in thousands):
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Commitments to extend credit | $ | 6,539,498 |
| | $ | 5,704,381 |
|
Standby letters of credit | 203,070 |
| | 171,266 |
|
(8) REGULATORY MATTERSRegulatory Restrictions
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory (and possibly additional discretionary) actions by regulators that, if undertaken, could have a direct material adverse effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
The Basel III regulatory capital framework (the "Basel“Basel III Capital Rules"Rules”) adopted by U.S. federal regulatory authorities, among other things, (i) establishestablishes the capital measure called "Common“Common Equity Tier 1" ("CET1"1” (“CET1”), (ii) specifyspecifies that Tier 1 capital consist of CET1 and "Additional“Additional Tier 1 Capital"Capital” instruments meeting stated requirements, (iii) define CET1 narrowly by requiringrequires that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) set forthdefines the acceptable scope of the deductions/adjustments to the specified capital measures. The Basel III Capital Rules became effective for us on January 1, 2015 with certain transition provisions fully phased in on January 1, 2019.
Additionally, the Basel III Capital Rules require that we maintain a 2.5% capital conservation buffer with respect to each of the CET1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. The capital conservation buffer is subject to a three year phase-in period that began on January 1, 2016 and will be fully phased in on January 1, 2019 at 2.5%. The required phase-in capital conservation buffer during 2017 is 1.25% and was 0.625% during 2016. A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.
In February 2019, the federal bank regulatory agencies issued a final rule (the “2019 CECL Rule”) that revised certain capital regulations to account for changes to credit loss accounting under GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of adopting the new accounting standard related to the measurement of current expected credit losses on their regulatory capital ratios (three-year CECL transition option). In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year CECL transition option of the 2019 CECL Rule and also provides banking organizations that were required under GAAP to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period (five-year CECL transition option). We adopted CECL on January 1, 2020 and have elected to utilize the five-year CECL transition option.
Quantitative measures established by these regulationsregulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of CET1, Tier 1 and total capital to risk-weighted assets and of Tier 1 capital to average assets, each as defined in the regulations. Management believes, as of SeptemberJune 30, 2017,2021, that the Company and the Bank metmeet all capital adequacy requirements to which they are subject.
Financial institutions are categorized as well capitalized or adequately capitalized, based on minimum total risk-based, capital, Tier 1 risk-based, capital, CET1 and Tier 1 leverage ratios. As shown in the table below, the Company’s capital ratios exceeded the regulatory definition of adequately capitalized as of SeptemberJune 30, 20172021 and December 31, 2016.2020. Based upon the
information in its most recently filed call report, the Bank met the capital ratios necessary to be well capitalized. The regulatory authorities can apply changes in classification of assets and such changes may retroactively subject the Company to changes in capital ratios. Any
such changeschange could result in reducingreduce one or more capital ratios below well-capitalized status. In addition, a change may result in imposition of additional assessments by the FDIC or could result in regulatory actions that could have a material adverse effect on our financial condition and results of operations.
Because our Bank had less than $15.0 billion in total consolidated assets as of December 31, 2009, we are allowed to continue to classify our trust preferred securities, all of which were issued prior to May 19, 2010, as Tier 1 capital.
The table below summarizes our actual and required capital ratios under the Basel III Capital Rules:Rules. The ratios presented below include the effects of our election to utilize the five-year CECL transition described above.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | | | Minimum Capital Required | | Capital Required to be Well Capitalized |
(dollars in thousands) | | Capital Amount | Ratio | | | | | Capital Amount | Ratio | | Capital Amount | Ratio |
June 30, 2021 | | | | | | | | | | | | |
CET1 | | | | | | | | | | | | |
Company | | $ | 2,835,896 | | 10.53 | % | | | | | $ | 1,885,230 | | 7.00 | % | | N/A | N/A |
Bank | | 2,897,617 | | 10.76 | % | | | | | 1,884,671 | | 7.00 | % | | 1,750,052 | | 6.50 | % |
Total capital (to risk-weighted assets) | | | | | | | | | | | | |
Company | | 3,978,147 | | 14.77 | % | | | | | 2,827,845 | | 10.50 | % | | N/A | N/A |
Bank | | 3,469,176 | | 12.89 | % | | | | | 2,827,006 | | 10.50 | % | | 2,692,387 | | 10.00 | % |
Tier 1 capital (to risk-weighted assets) | | | | | | | | | | | | |
Company | | 3,245,896 | | 12.05 | % | | | | | 2,289,208 | | 8.50 | % | | N/A | N/A |
Bank | | 3,057,617 | | 11.36 | % | | | | | 2,288,529 | | 8.50 | % | | 2,153,910 | | 8.00 | % |
Tier 1 capital (to average assets)(1) | | | | | | | | | | | | |
Company | | 3,245,896 | | 8.38 | % | | | | | 1,548,586 | | 4.00 | % | | N/A | N/A |
Bank | | 3,057,617 | | 7.90 | % | | | | | 1,548,104 | | 4.00 | % | | 1,935,130 | | 5.00 | % |
December 31, 2020 | | | | | | | | | | | | |
CET1 | | | | | | | | | | | | |
Company | | $ | 2,708,150 | | 9.35 | % | | | | | $ | 2,026,400 | | 7.00 | % | | N/A | N/A |
Bank | | 2,744,211 | | 9.48 | % | | | | | 2,025,417 | | 7.00 | % | | 1,880,745 | | 6.50 | % |
Total capital (to risk-weighted assets) | | | | | | | | | | | | |
Company | | 3,498,737 | | 12.08 | % | | | | | 3,039,600 | | 10.50 | % | | N/A | N/A |
Bank | | 3,375,983 | | 11.67 | % | | | | | 3,038,126 | | 10.50 | % | | 2,893,453 | | 10.00 | % |
Tier 1 capital (to risk-weighted assets) | | | | | | | | | | | | |
Company | | 2,968,150 | | 10.25 | % | | | | | 2,460,628 | | 8.50 | % | | N/A | N/A |
Bank | | 2,904,211 | | 10.04 | % | | | | | 2,459,435 | | 8.50 | % | | 2,314,763 | | 8.00 | % |
Tier 1 capital (to average assets)(1) | | | | | | | | | | | | |
Company | | 2,968,150 | | 7.52 | % | | | | | 1,578,651 | | 4.00 | % | | N/A | N/A |
Bank | | 2,904,211 | | 7.36 | % | | | | | 1,578,207 | | 4.00 | % | | 1,972,758 | | 5.00 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Minimum Capital Required - Basel III Phase-In Schedule | | Minimum capital Required - Basel III Fully Phased-In | | Required to be Considered Well Capitalized |
| | Capital Amount | Ratio | | Capital Amount | Ratio | | Capital Amount | Ratio | | Capital Amount | Ratio |
As of September 30, 2017: | | | | | | | | | | | | |
CET1 | | | | | | | | | | | | |
Company | | $ | 1,989,547 |
| 8.35 | % | | $ | 1,369,699 |
| 5.75 | % | | $ | 1,667,460 |
| 7.00 | % | | N/A |
| N/A |
|
Bank | | 1,930,836 |
| 8.11 | % | | 1,369,659 |
| 5.75 | % | | 1,667,411 |
| 7.00 | % | | 1,548,311 |
| 6.50 | % |
Total capital (to risk-weighted assets) | | | | | | | | | | | | |
Company | | 2,722,408 |
| 11.43 | % | | 2,203,429 |
| 9.25 | % | | 2,501,189 |
| 10.50 | % | | N/A |
| N/A |
|
Bank | | 2,505,209 |
| 10.52 | % | | 2,203,365 |
| 9.25 | % | | 2,501,117 |
| 10.50 | % | | 2,382,016 |
| 10.00 | % |
Tier 1 capital (to risk-weighted assets) | | | | | | | | | | | | |
Company | | 2,248,403 |
| 9.44 | % | | 1,727,012 |
| 7.25 | % | | 2,024,772 |
| 8.50 | % | | N/A |
| N/A |
|
Bank | | 2,089,692 |
| 8.77 | % | | 1,726,962 |
| 7.25 | % | | 2,024,714 |
| 8.50 | % | | 1,905,613 |
| 8.00 | % |
Tier 1 capital (to average assets)(1) | | | | | | | | | | | | |
Company | | 2,248,403 |
| 9.57 | % | | 939,319 |
| 4.00 | % | | 939,319 |
| 4.00 | % | | N/A |
| N/A |
|
Bank | | 2,089,692 |
| 8.90 | % | | 939,139 |
| 4.00 | % | | 939,139 |
| 4.00 | % | | 1,173,924 |
| 5.00 | % |
As of December 31, 2016: | | | | | | | | | | | | |
CET1 | | | | | | | | | | | | |
Company | | $ | 1,841,219 |
| 8.97 | % | | $ | 1,052,205 |
| 5.13 | % | | $ | 1,437,159 |
| 7.00 | % | | N/A |
| N/A |
|
Bank | | 1,735,496 |
| 8.45 | % | | 1,051,989 |
| 5.13 | % | | 1,436,863 |
| 7.00 | % | | 1,334,244 |
| 6.50 | % |
Total capital (to risk-weighted assets) | | | | | | | | | | | | |
Company | | 2,561,663 |
| 12.48 | % | | 1,770,766 |
| 8.63 | % | | 2,155,715 |
| 10.50 | % | | N/A |
| N/A |
|
Bank | | 2,297,528 |
| 11.19 | % | | 1,770,421 |
| 8.63 | % | | 2,155,295 |
| 10.50 | % | | 2,052,683 |
| 10.00 | % |
Tier 1 capital (to risk-weighted assets) | | | | | | | | | | | | |
Company | | 2,101,071 |
| 10.23 | % | | 1,360,154 |
| 6.63 | % | | 1,745,103 |
| 8.50 | % | | N/A |
| N/A |
|
Bank | | 1,895,348 |
| 9.23 | % | | 1,359,888 |
| 6.63 | % | | 1,744,762 |
| 8.50 | % | | 1,642,147 |
| 8.00 | % |
Tier 1 capital (to average assets)(1) | | | | | | | | | | | | |
Company | | 2,101,071 |
| 9.34 | % | | 900,268 |
| 4.00 | % | | 900,268 |
| 4.00 | % | | N/A |
| N/A |
|
Bank | | 1,895,348 |
| 8.42 | % | | 900,070 |
| 4.00 | % | | 900,070 |
| 4.00 | % | | 1,125,087 |
| 5.00 | % |
(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve Board and the FDIC may require the Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum. | |
(1) | The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, it should be noted that the Federal Reserve Board and the FDIC may require the Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum. |
Our mortgage finance loan volumes can increase significantly at month end,month-end, causing a meaningful difference between ending balance and average balancebalances for any period. At September 30, 2017, our total mortgage finance loans were $5.6 billion compared to the average for the three months ended September 30, 2017 of $4.8 billion. As CET1, Tier 1 and total capital ratios are calculated using quarter-end risk-weighted assets and our mortgage finance loans are 100% risk-weighted (excluding MCA loans held for sale, which receive lower risk weights), the quarter-endperiod-end fluctuation in these balances can significantly impact our reported ratios. We manage capital allocatedDue to mortgage finance
loans based on changing trends in average balances, as well as the inherentactual risk associated with the assets which implies a risk weight that is significantly different than the regulatory risk weight,profile and liquidity of this asset class, we do not believe that the quarter-endperiod-end balance is representative of risk characteristics that would justify higher allocations, and while we manage capital allocations. However,allocated to mortgage finance loans based on changing trends in average balances, we continue todo monitor our capital allocation to confirm that all capital levels remain above well-capitalized levels. To better align the actual risk profile of this asset class to its required capital allocation, the Bank issued and sold senior unsecured credit-linked notes in the first quarter of 2021 that effectively transfer the risk of first losses on a $2.2 billion reference pool of the Bank's mortgage warehouse loans to the purchasers of the notes in an amount up to $275.0 million. The issuance of these notes decreases the required risk-weight on the $2.2 billion reference pool, which significantly improves our reported ratios.
Dividends that may be paid by subsidiary banks are routinely restricted by various regulatory authorities. The amount that can be paid in any calendar year without prior approval of theour Bank’s regulatory agencies cannot exceed the lesser of the net profits (as defined) for that year plus the net profits for the preceding two calendar years, or retained earnings. The Basel III Capital Rules further limit the amount of dividends that may be paid by our Bank. No dividends were declared or paid on our common stock during the ninesix months ended SeptemberJune 30, 20172021, or 2016.during the year ended December 31, 2020.
(9) STOCK-BASED COMPENSATIONStock-based Compensation
We have long-term incentive plans under which stock-based compensation awards are granted to employees and directors by the board of directors, or its designated committee. Grants are subject to vesting requirements and may include, among other things, nonqualified stock options, stock appreciation rights ("SARs"(“SARs”), restricted stock units ("RSUs"(“RSUs”), restricted stock and performance units, or any combination thereof. There are 2,550,000 total shares authorized for grant under the plans.
Stock-basedThe table below summarizes our stock-based compensation expense presented below consists of awards granted from 2011 through September 30, 2017.expense:
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Stock-settled awards: | | | | | | | | Stock-settled awards: | |
SARs | $ | 64 |
| | $ | 74 |
| | $ | 210 |
| | $ | 233 |
| |
| RSUs | 2,184 |
| | 1,145 |
| | 5,491 |
| | 3,223 |
| RSUs | $ | 8,315 | | | $ | 3,313 | | | $ | 13,775 | | | $ | 6,532 | |
Restricted stock | 8 |
| | 4 |
| | 16 |
| | 10 |
| Restricted stock | 0 | | | 9 | | | 1 | | | 17 | |
Cash-settled performance units | 3,811 |
| | 1,227 |
| | 9,304 |
| | 2,709 |
| |
Cash-settled units | | Cash-settled units | 121 | | | 338 | | | 1,028 | | | 480 | |
Total | $ | 6,067 |
| | $ | 2,450 |
| | $ | 15,021 |
| | $ | 6,175 |
| Total | $ | 8,436 | | | $ | 3,660 | | | $ | 14,804 | | | $ | 7,029 | |
| | | | | |
(in thousands except period data) | June 30, 2021 |
Unrecognized compensation expense related to unvested stock-settled awards | $ | 45,429 | |
Weighted average period over which expense is expected to be recognized, in years | 2.3 |
|
| | | |
(in thousands) | September 30, 2017 |
Unrecognized compensation expense related to unvested stock-settled awards | $ | 19,426 |
|
Weighted average period over which expense is expected to be recognized, in years | 3.1 |
|
(10) FAIR VALUE DISCLOSURES
ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value under GAAP and requires enhanced disclosures about fair value measurements. Fair value is defined under ASC 820 as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal market for the asset or liability in an orderly transaction between market participants on the measurement date.
We determine the fair market values of our assets and liabilities measured at fair value on a recurring and nonrecurring basis using the fair value hierarchy as prescribed in ASC 820. The standard describes three levelsSee Note 1 - Operations and Summary of inputs that may be used to measureSignificant Accounting Policies in our 2020 Form 10-K for information regarding the fair value as provided below.
| |
Level 1 | Quoted prices in active markets for identical assets or liabilities. This category includes the assets and liabilities related to our non-qualified deferred compensation plan where values are based on quoted market prices for identical equity securities in an active market. |
| |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets include U.S. government and agency mortgage-backed debt securities, municipal bonds, and Community Reinvestment Act funds. This category also includes loans held for sale and derivative assets and liabilities where values are obtained from independent pricing services using observable market data. |
| |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair values requires significant management judgment or estimation. This category includes impaired loans and OREO where collateral values have been based on third party appraisals; comparative sales data typically used in appraisals may be unavailable or more subjective with respect to some asset classes due to lack of market activity. |
hierarchy and a description of the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial instruments.
Assets and liabilities measured at fair value at September 30, 2017 and December 31, 2016 are as follows (in thousands):follows:
| | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using |
(in thousands) | Level 1 | | Level 2 | | Level 3 |
June 30, 2021 | | | | | |
Available-for-sale debt securities:(1) | | | | | |
U.S. government agency securities | $ | 0 | | | $ | 122,415 | | | $ | 0 | |
Residential mortgage-backed securities | 0 | | | 3,437,146 | | | 0 | |
| | | | | |
Tax-exempt asset-backed securities | 0 | | | 0 | | | 185,954 | |
CRT securities | 0 | | | 0 | | | 11,713 | |
Equity securities(1)(2) | 33,906 | | | 7,141 | | | 0 | |
Loans held for sale(3) | 0 | | | 55,520 | | | 8,227 | |
Loans held for investment(4) | 0 | | | 0 | | | 908 | |
| | | | | |
Derivative assets(5) | 0 | | | 64,349 | | | 0 | |
Derivative liabilities(5) | 0 | | | 64,347 | | | 0 | |
Non-qualified deferred compensation plan liabilities(6) | 29,552 | | | 0 | | | 0 | |
| | | | | |
December 31, 2020 | | | | | |
Available-for-sale debt securities:(1) | | | | | |
U.S. government agency securities | $ | 0 | | | $ | 123,589 | | | $ | 0 | |
Residential mortgage-backed securities | 0 | | | 2,828,956 | | | 0 | |
Tax-exempt asset-backed securities | 0 | | | 0 | | | 199,176 | |
CRT securities | 0 | | | 0 | | | 11,417 | |
Equity securities(1)(2) | 26,593 | | | 7,239 | | | 0 | |
Loans held for sale(3) | 0 | | | 232,147 | | | 6,933 | |
Loans held for investment(4) | 0 | | | 0 | | | 21,209 | |
| | | | | |
Derivative assets(5) | 0 | | | 102,720 | | | 0 | |
Derivative liabilities(5) | 0 | | | 99,255 | | | 0 | |
Non-qualified deferred compensation plan liabilities(6) | 26,593 | | | 0 | | | 0 | |
|
| | | | | | | | | | | |
| Fair Value Measurements Using |
September 30, 2017 | Level 1 | | Level 2 | | Level 3 |
Available-for-sale securities:(1) | | | | | |
Residential mortgage-backed securities | $ | — |
| | $ | 12,158 |
| | $ | — |
|
Equity securities(2) | 4,905 |
| | 7,161 |
| | — |
|
Loans held for sale (3) | — |
| | 955,983 |
| | — |
|
Loans held for investment(4) (6) | — |
| | — |
| | 21,022 |
|
OREO(5) (6) | — |
| | — |
| | 18,131 |
|
Derivative assets(7) | — |
| | 25,130 |
| | — |
|
Derivative liabilities(7) | — |
| | 24,048 |
| | — |
|
Non-qualified deferred compensation plan liabilities (8) | 4,961 |
| | — |
| | — |
|
| | | | | |
December 31, 2016 | | | | | |
Available-for-sale securities:(1) | | | | | |
Residential mortgage-backed securities | $ | — |
| | $ | 15,652 |
| | $ | — |
|
Municipals | — |
| | 275 |
| | — |
|
Equity securities(2) | 1,786 |
| | 7,161 |
| | — |
|
Loans held for sale(3) | — |
| | 968,929 |
| | — |
|
Loans held for investment(4) (6) | — |
| | — |
| | 52,323 |
|
OREO(5) (6) | — |
| | — |
| | 18,961 |
|
Derivative assets(7) | — |
| | 37,878 |
| | — |
|
Derivative liabilities(7) | — |
| | 26,240 |
| | — |
|
Non-qualified deferred compensation plan liabilities (8) | 1,811 |
| | — |
| | — |
|
| |
(1) | (1)Securities are measured at fair value on a recurring basis, generally monthly. |
| |
(2) | Equity securities consist of Community Reinvestment Act funds and investments related to our non-qualified deferred compensation plan. |
| |
(3) | Loans held for sale, excluding Small Business Administration loans, are measured at fair value on a recurring basis, generally monthly. |
| |
(4) | Includes impaired loans that have been measured for impairment at the fair value of the loan’s collateral. |
| |
(5) | OREO is transferred from loans to OREO at fair value less selling costs. |
| |
(6) | Loans held for investment and OREO are measured on a nonrecurring basis, generally annually or more often as warranted by market and economic conditions. |
| |
(7) | Derivative assets and liabilities are measured at fair value on a recurring basis, generally quarterly. |
| |
(8) | Non-qualified deferred compensation plan liabilities represent the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets, and are measured at fair value on a recurring basis, generally monthly. |
Level 3 Valuations
Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments include those for which the determination of fair value requires significant management judgment or estimation. Currently, we measure the fair value for certain collateral dependent impaired loans and OREO on a nonrecurringrecurring basis, as described below.generally monthly, except for tax-exempt asset-backed securities and CRT securities which are measured quarterly.
(2)Equity securities consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments related to our non-qualified deferred compensation plan.
(3)Loans held for investmentsale purchased through the MCA program are measured at fair value on a recurring basis, generally monthly.
At September 30, 2017 and December 31, 2016,(4)Includes certain impairedcollateral-dependent loans held for investment were reported at fair value throughfor which a specific allocation of the allowance for loancredit losses is based upon the fair value of the loan’s underlying collateral. These loans held for investment are measured on a nonrecurring basis, generally annually or more often as warranted by market and economic conditions.
(5)Derivative assets and liabilities are measured at fair value on a recurring basis, generally quarterly.
(6)Non-qualified deferred compensation plan liabilities represent the fair value of the obligation to the employee, which generally corresponds to the fair value of the invested assets, and are measured at fair value on a recurring basis, generally monthly.
Level 3 Valuations
The following table presents a reconciliation of the Level 3 fair value category measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Net Realized/Unrealized Gains (Losses) | | |
(in thousands) | Balance at Beginning of Period | | Purchases / Additions | | Sales / Reductions | | Realized | | Unrealized | | Balance at End of Period |
Three months ended June 30, 2021 | | | | | | | | | | | |
Available-for-sale debt securities:(1) | | | | | | | | | | | |
Tax-exempt asset-backed securities | $ | 181,566 | | | $ | 0 | | | $ | (142) | | | $ | 0 | | | $ | 4,530 | | | $ | 185,954 | |
CRT securities | 11,465 | | | 0 | | | 0 | | | 0 | | | 248 | | | 11,713 | |
Loans held for sale(2) | 7,275 | | | 1,148 | | | (246) | | | 0 | | | 50 | | | 8,227 | |
Three months ended June 30, 2020 | | | | | | | | | | | |
Available-for-sale debt securities:(1) | | | | | | | | | | | |
Tax-exempt asset-backed securities | $ | 191,474 | | | $ | 8,470 | | | $ | (132) | | | $ | 0 | | | $ | (8,395) | | | $ | 191,417 | |
CRT securities | 8,015 | | | 0 | | | 0 | | | 0 | | | 2,938 | | | 10,953 | |
Loans held for sale(2) | 6,694 | | | 107 | | | (780) | | | 88 | | | 50 | | | 6,159 | |
| | | | | | | | | | | |
Six months ended June 30, 2021 | | | | | | | | | | | |
Available-for-sale debt securities:(1) | | | | | | | | | | | |
Tax-exempt asset-backed securities | $ | 199,176 | | | $ | 0 | | | $ | (11,513) | | | $ | 0 | | | $ | (1,709) | | | $ | 185,954 | |
CRT securities | 11,417 | | | 0 | | | 0 | | | 0 | | | 296 | | | 11,713 | |
Loans held for sale(2) | 6,933 | | | 1,685 | | | (525) | | | 5 | | | 129 | | | 8,227 | |
Six months ended June 30, 2020 | | | | | | | | | | | |
Available-for-sale debt securities:(1) | | | | | | | | | | | |
Tax-exempt asset-backed securities | $ | 197,027 | | | $ | 8,470 | | | $ | (4,485) | | | $ | 0 | | | $ | (9,595) | | | $ | 191,417 | |
CRT securities | 11,964 | | | 0 | | | 0 | | | 0 | | | (1,011) | | | 10,953 | |
Loans held for sale(2) | 7,043 | | | 320 | | | (1,464) | | | 116 | | | 144 | | | 6,159 | |
(1)Unrealized gains/(losses) on available-for-sale debt securities are recorded in AOCI and relate to assets that remain outstanding at period end. Realized gains/(losses) are recorded in other non-interest income.
(2)Realized and unrealized gains/(losses) on loans held for sale are recorded in gain/(loss) on sale of loans held for sale.
Tax-exempt asset-backed securities
The fair value of tax-exempt asset-backed securities is based on a discounted cash flow model, which utilizes Level 3, or unobservable, inputs, the most significant of which were a discount rate and a weighted-average life. At June 30, 2021, the discount rates utilized ranged from 2.29% to 2.37% and the weighted-average life ranged from 5.0 to 5.1 years. On a combined amortized cost weighted-average basis a discount rate of 2.33% and weighted-average life of 5.0 years were utilized to determine the fair value of these securities at June 30, 2021. At December 31, 2020, the combined weighted-average discount rate and weighted-average life utilized were 2.49% and 5.5 years, respectively.
CRT securities
The fair value of CRT securities is based on a discounted cash flow model, which utilizes Level 3, or unobservable, inputs, the most significant of which were a discount rate and a weighted-average life. At June 30, 2021, the discount rates utilized ranged from 3.09% to 7.97% and the weighted-average life ranged from 5.4 years to 10.0 years. On a combined amortized cost
weighted-average basis a discount rate of 4.72% and a weighted-average life of 6.9 years were utilized to determine the fair value of these securities at June 30, 2021. At December 31, 2020, the combined weighted-average discount rate and combined weighted-average life utilized were 4.36% and 7.5 years, respectively.
Loans held for sale
The fair value of loans held for sale using Level 3 inputs include loans that cannot be sold through normal sale channels and thus require significant management judgment or estimation when determining the fair value. The fair value of such loans is generally based upon quoted prices of comparable loans with a liquidity discount applied. At June 30, 2021, the fair value of these loans was calculated using a weighted-average discounted price of 99.2%, compared to 97.2% at December 31, 2020.
Loans held for investment
Certain collateral-dependent loans held for investment are reported at fair value when, based upon an individual evaluation, the specific allocation of the allowance for credit losses that is deducted from the loan's amortized cost is based upon the fair value of the loan's underlying collateral. The $21.0 million$908,000 fair value of loans held for investment at SeptemberJune 30, 20172021 reported above includes impaired loans held for investment with a carrying value of $28.3 millionvalues that, were reduced by specific allowance allocations totaling $7.3 million based on collateral valuations utilizing Level 3 valuation inputs.inputs, equate to their fair value. The $52.3$21.2 million fair value of loans held for investment at December 31, 20162020 reported above includes impaired loans with a carrying value of $74.1$25.3 million that were reduced by specific valuation allowance allocations totaling $21.8$4.1 million based on collateral valuations utilizing Level 3 valuation inputs. Fair values were based on third party appraisals.
OREO
Certain foreclosed assets, upon initial recognition, are recorded at fair value less estimated selling costs. At September 30, 2017 and December 31, 2016, OREO had a carrying value of $18.1 million million and $19.0 million, respectively, with a valuation allowance of $101,000 at September 30, 2017 and none at December 31, 2016. The fair value of OREO was computed based on third party appraisals, which are Level 3 valuation inputs.
Fair Value of Financial Instruments
GAAP requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practical to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. This disclosure does not and is not intended to represent the fair value of the Company.
A summary of the carrying amounts and estimated fair values of financial instruments is as follows (in thousands):follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
(in thousands) | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Financial assets: | | | | | | | |
Level 1 inputs: | | | | | | | |
Cash and cash equivalents | $ | 6,971,199 | | | $ | 6,971,199 | | | $ | 9,206,380 | | | $ | 9,206,380 | |
Investment securities | 33,906 | | | 33,906 | | | 26,593 | | | 26,593 | |
Level 2 inputs: | | | | | | | |
Investment securities | 3,566,702 | | | 3,566,702 | | | 2,959,784 | | | 2,959,784 | |
Loans held for sale | 55,520 | | | 55,520 | | | 232,147 | | | 232,147 | |
Derivative assets | 64,349 | | | 64,349 | | | 102,720 | | | 102,720 | |
Level 3 inputs: | | | | | | | |
Investment securities | 197,667 | | | 197,667 | | | 210,593 | | | 210,593 | |
Loans held for sale | 8,227 | | | 8,227 | | | 6,933 | | | 6,933 | |
Loans held for investment, net | 23,719,853 | | | 23,775,475 | | | 24,176,245 | | | 24,233,185 | |
Financial liabilities: | | | | | | | |
Level 2 inputs: | | | | | | | |
Federal funds purchased and repurchase agreements | 14,481 | | | 14,481 | | | 111,751 | | | 111,751 | |
| | | | | | | |
| | | | | | | |
Other borrowings | 2,000,000 | | | 2,000,000 | | | 3,000,000 | | | 3,000,000 | |
Long-term debt | 927,386 | | | 952,792 | | | 395,896 | | | 405,110 | |
| | | | | | | |
| | | | | | | |
Derivative liabilities | 64,347 | | | 64,347 | | | 99,255 | | | 99,255 | |
Level 3 inputs: | | | | | | | |
Deposits | 28,839,563 | | | 28,839,971 | | | 30,996,589 | | | 30,997,980 | |
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Financial assets: | | | | | | | |
Level 1 inputs: | | | | | | | |
Cash and cash equivalents | $ | 2,501,153 |
| | $ | 2,501,153 |
| | $ | 2,839,352 |
| | $ | 2,839,352 |
|
Securities, available-for-sale | 4,905 |
| | 4,905 |
| | 1,786 |
| | 1,786 |
|
Level 2 inputs: | | | | | | | |
Securities, available-for-sale | 19,319 |
| | 19,319 |
| | 23,088 |
| | 23,088 |
|
Loans held for sale | 955,983 |
| | 955,983 |
| | 968,929 |
| | 968,929 |
|
Derivative assets | 25,130 |
| | 25,130 |
| | 37,878 |
| | 37,878 |
|
Level 3 inputs: | | | | | | | |
Loans held for investment, net | 20,287,762 |
| | 20,274,939 |
| | 17,330,223 |
| | 17,347,199 |
|
Financial liabilities: | | | | | | | |
Level 2 inputs: | | | | | | | |
Federal funds purchased | 75,800 |
| | 75,800 |
| | 101,800 |
| | 101,800 |
|
Customer repurchase agreements | 7,696 |
| | 7,696 |
| | 7,775 |
| | 7,775 |
|
Other borrowings | 2,500,000 |
| | 2,500,000 |
| | 2,000,000 |
| | 2,000,000 |
|
Subordinated notes | 281,315 |
| | 287,686 |
| | 281,044 |
| | 304,672 |
|
Derivative liabilities | 24,048 |
| | 24,048 |
| | 26,240 |
| | 26,240 |
|
Level 3 inputs: | | | | | | | |
Deposits | 19,081,257 |
| | 19,081,954 |
| | 17,016,831 |
| | 17,017,221 |
|
Trust preferred subordinated debentures | 113,406 |
| | 113,406 |
| | 113,406 |
| | 113,406 |
|
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate their fair value, and these financial instruments are characterized as Level 1 assets in the fair value hierarchy.
Securities available-for-sale
Within the securities available-for-sale portfolio, we hold equity securities related to our non-qualified deferred compensation plan which are valued using quoted market prices for identical equity securities in an active market. These financial instruments are classified as Level 1 assets in the fair value hierarchy. The fair value of the remaining investment portfolio is based on prices obtained from independent pricing services which are based on quoted market prices for the same or similar securities, and these financial instruments are characterized as Level 2 assets in the fair value hierarchy. We have obtained documentation from the primary pricing service we use about their processes and controls over pricing. In addition, on a quarterly basis we independently verify the prices that we receive from the service provider using two additional independent pricing sources. Any significant differences are investigated and resolved.
Loans held for sale
Fair value for loans held for sale is derived from quoted market prices for similar loans, and these financial instruments are characterized as Level 2 assets in the fair value hierarchy.
Loans held for investment, net
Loans held for investment are characterized as Level 3 assets in the fair value hierarchy. For variable-rate loans held for investment that reprice frequently with no significant change in credit risk, fair values are generally based on carrying values. The fair value for all other loans held for investment is estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest approximates its fair value.
Derivatives
The estimated fair value of the interest rate swaps and caps is obtained from independent pricing services based on quoted market prices for similar derivative contracts and these financial instruments are characterized as Level 2 assets and liabilities in the fair value hierarchy. On a quarterly basis, we independently verify the fair value using an additional independent pricing source. Any significant differences are investigated and resolved. The derivative instruments related to the loans held for sale portfolio include loan purchase commitments and forward sales commitments. Loan purchase commitments are valued based upon the fair value of the underlying mortgage loans to be purchased, which is based on observable market data for similar loans. Forward sales commitments are valued based upon the quoted market prices from brokers. As such, these loan purchase commitments and forward sales commitments are classified as Level 2 assets or liabilities in the fair value hierarchy.
Deposits
Deposits are characterized as Level 3 liabilities in the fair value hierarchy. The carrying amounts for variable-rate money market accounts approximate their fair value. The fair values of fixed-term certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities.
Federal funds purchased, customer repurchase agreements, other borrowings, subordinated notes and trust preferred subordinated debentures
The carrying value reported in the consolidated balance sheets for Federal funds purchased, customer repurchase agreements and other short-term, floating rate borrowings approximates their fair value, and these financial instruments are characterized as Level 2 liabilities in the fair value hierarchy. The fair value of any fixed rate short-term borrowings and trust preferred subordinated debentures are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar borrowings, and these financial instruments are characterized as Level 3 liabilities in the fair value hierarchy. The subordinated notes are publicly, though infrequently, traded, are valued based on market prices and are characterized as Level 2 liabilities in the fair value hierarchy.
(11) DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of derivative positions outstanding is included in accrued interest receivable and other assets and other liabilities in the accompanying consolidated balance sheets on a net basis when a right of offset exists, based on transactions with a single counterparty that are subject to a legally enforceable master netting agreement.
During the three and nine months ended September 30, 2017 and 2016, we entered into certain interest rate derivative positions that were not designated as hedging instruments. These derivative positions relate to transactions in which we enter into an interest rate swap, cap and/or floor with a customer while at the same time entering into an offsetting interest rate swap, cap and/or floor with another financial institution. In connection with each swap transaction, we agree to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, we agree to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our customer to effectively convert a variable rate loan to a fixed rate. Because we act as an intermediary for our customer, changes in the fair value of the underlying derivative contracts substantially offset each other and do not have a material impact on our results of operations.
During the three and nine months ended September 30, 2017 and 2016, we entered into loan purchase commitment contracts with mortgage originators to purchase residential mortgage loans at a future date, as well as forward sales commitment contracts to sell residential mortgage loans at a future date.
Derivative Financial Instruments
The notional amounts and estimated fair values of interest rate derivative positions outstanding at September 30, 2017 and December 31, 2016 are presented in the following tables (in thousands):table:
| | | | | | | | | | | | | | | | June 30, 2021 | | December 31, 2020 |
| September 30, 2017 | | December 31, 2016 | | | Estimated Fair Value | | Estimated Fair Value |
| Estimated Fair Value | | Estimated Fair Value | |
| Notional Amount | | Asset Derivative | | Liability Derivative | | Notional Amount | | Asset Derivative | | Liability Derivative | |
Non-hedging interest rate derivatives: | | | | | | | | | | | | |
(in thousands) | | (in thousands) | Notional Amount | | Asset Derivative | Liability Derivative | | Notional Amount | | Asset Derivative | Liability Derivative |
Non-hedging derivatives: | | Non-hedging derivatives: | |
Financial institution counterparties: | | | | | | | | | | | | Financial institution counterparties: | |
Commercial loan/lease interest rate swaps | $ | 1,376,915 |
| | $ | 1,650 |
| | $ | 23,390 |
| | $ | 1,144,367 |
| | $ | 1,754 |
| | $ | 25,421 |
| Commercial loan/lease interest rate swaps | $ | 1,902,259 | | | $ | 948 | | $ | 64,195 | | | $ | 1,922,956 | | | $ | 71 | | $ | 96,246 | |
Commercial loan/lease interest rate caps | 267,765 |
| | 295 |
| | 1 |
| | 210,996 |
| | 819 |
| | — |
| Commercial loan/lease interest rate caps | 217,739 | | | 65 | | 0 | | | 565,634 | | | 34 | | 0 | |
Foreign currency forward contracts | | Foreign currency forward contracts | 5,015 | | | 31 | | 0 | | | 6,667 | | | 214 | | 78 | |
Customer counterparties: | | | | | | | | | | | | Customer counterparties: | |
Commercial loan/lease interest rate swaps | 1,376,915 |
| | 23,390 |
| | 1,650 |
| | 1,144,367 |
| | 25,421 |
| | 1,754 |
| Commercial loan/lease interest rate swaps | 1,902,259 | | | 64,195 | | 948 | | | 1,922,956 | | | 96,246 | | 71 | |
Commercial loan/lease interest rate caps | 267,765 |
| | 1 |
| | 295 |
| | 210,996 |
| | — |
| | 819 |
| Commercial loan/lease interest rate caps | 217,739 | | | 0 | | 65 | | | 565,634 | | | 0 | | 34 | |
Economic hedging interest rate derivatives: | | | | | | | | | | | | |
Foreign currency forward contracts | | Foreign currency forward contracts | 5,015 | | | 0 | | 31 | | | 6,667 | | | 78 | | 214 | |
Economic hedging derivatives to hedge: | | Economic hedging derivatives to hedge: | |
Residential MSRs: | | Residential MSRs: | |
Interest rate swap futures | | Interest rate swap futures | 3,000 | | | 19 | | 4 | | | 320,000 | | | 474 | | 0 | |
Forward sale commitments | | Forward sale commitments | 1,000 | | | 3 | | 0 | | | 155,000 | | | 551 | | 0 | |
Loans held for sale: | | Loans held for sale: | |
Loan purchase commitments | 168,784 |
| | 279 |
| | 363 |
| | 237,805 |
| | 1,351 |
| | — |
| Loan purchase commitments | 2,800 | | | 36 | | 0 | | | 332,145 | | | 5,123 | | 8 | |
Forward sales commitments | 1,022,613 |
| | 1,166 |
| | — |
| | 1,218,000 |
| | 10,287 |
| | — |
| |
Forward sale commitments | | Forward sale commitments | 20,000 | | | 0 | | 52 | | | 485,326 | | | 0 | | 2,675 | |
Gross derivatives | | | 26,781 |
| | 25,699 |
| | | | 39,632 |
| | 27,994 |
| Gross derivatives | | 65,297 | | 65,295 | | | 102,791 | | 99,326 | |
Offsetting derivative assets/liabilities | | | (1,651 | ) | | (1,651 | ) | | | | (1,754 | ) | | (1,754 | ) | Offsetting derivative assets/liabilities | | (948) | | (948) | | | (71) | | (71) | |
Net derivatives included in the consolidated balance sheets | | | $ | 25,130 |
| | $ | 24,048 |
| | | | $ | 37,878 |
| | $ | 26,240 |
| Net derivatives included in the consolidated balance sheets | | $ | 64,349 | | $ | 64,347 | | | $ | 102,720 | | $ | 99,255 | |
The weighted averageweighted-average received and paid interest rates for interest rate swaps outstanding at September 30, 2017 and December 31, 2016 were as follows:
|
| | | | | | | | | | | |
| September 30, 2017 Weighted Average Interest Rate | | December 31, 2016 Weighted Average Interest Rate |
| Received | | Paid | | Received | | Paid |
Non-hedging interest rate swaps | 3.46 | % | | 4.43 | % | | 3.17 | % | | 4.58 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 Weighted-Average Interest Rate | | December 31, 2020 Weighted-Average Interest Rate |
| Received | | Paid | | Received | | Paid |
Non-hedging interest rate swaps | 2.83 | % | | 1.20 | % | | 3.14 | % | | 1.38 | % |
The weighted averageweighted-average strike rate for outstanding interest rate caps was 2.50%2.68% at SeptemberJune 30, 20172021 and 2.45%3.41% at December 31, 2016.2020.
Our credit exposure on derivative instruments is limited to the net favorable value and interest payments by each counterparty. In suchsome cases collateral may be required from the counterparties involved if the net value of the derivative instruments exceedexceeds a nominal amount considered to be immaterial.amount. Our credit exposure associated with these instruments, net of any collateral pledged, was approximately $25.1$64.3 million at SeptemberJune 30, 20172021, and approximately $37.9$102.7 million at December 31, 2016, which primarily relates to Bank customers.2020. Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values.and cap values, as well as for changes in the value of forward sale commitments. At SeptemberJune 30, 2017,2021, we had $35.1$72.4 million in cash collateral pledged for these derivatives, of which $28.0$70.2 million was included in interest-bearing deposits in other banks and $7.1$2.2 million was included in accrued interest receivable and other assets. At December 31, 2016,2020, we had $24.8$108.3 million in cash collateral pledged for these derivatives, all of which $104.4 million was included in interest-bearing deposits.
deposits in other banks and $3.9 million was included in accrued interest receivable and other assets.
We also enter into credit risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are either a participant or a lead bank. The risk participation agreements entered into by us as a participant bank provide credit protection to the financial institution counterparty should the borrower fail to perform on its interest rate derivative contract with that financial institution. We are party to 9 risk participation agreements where we are a participant bank with a notional amount of $118.1 million at June 30, 2021, compared to 9 risk participation agreements having a notional amount of $119.5 million at December 31, 2020. The maximum estimated exposure to these agreements, assuming 100% default by all obligors, was approximately $4.3 million at June 30, 2021 and $6.0 million at December 31, 2020. The fair value of these exposures was insignificant to the consolidated financial statements at both June 30, 2021 and December 31, 2020. Risk participation agreements entered into by us as the lead bank provide credit protection to us should the borrower fail to perform on its interest rate derivative contract with us. We are party to 15 risk participation agreements where we are the lead
bank having a notional amount of $160.1 million at June 30, 2021, compared to 16 agreements having a notional amount of $165.9 million at December 31, 2020.
(12) NEW ACCOUNTING PRONOUNCEMENTSMaterial Transactions Affecting Stockholders' Equity
ASU 2017-09 "Compensation-Stock Compensation (Topic 718)-ScopeOn March 3, 2021, we completed an issuance of Modification Accounting" ("ASU 2017-09"5.75% fixed rate non-cumulative perpetual preferred stock, Series B, with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share) (the “Series B Preferred Stock”) clarifiesand an issuance and sale of 12,000,000 depositary shares, each representing a 1/40th interest in a share of the Series B Preferred Stock. Dividends on the Series B Preferred Stock are not cumulative and will be paid when changesdeclared by our board of directors to the extent that we have legally available funds to pay dividends. If declared, dividends will accrue and be payable quarterly, in arrears, on the liquidation preference amount, on a non-cumulative basis, at a rate of 5.75% per annum. Holders of preferred stock will not have voting rights, except with respect to certain changes in the terms or conditions of a share-based payment mustthe preferred stock, certain dividend non-payments and as otherwise required by applicable law. Net proceeds from the sale totaled $289.7 million, providing additional capital to be used for general corporate purposes. A portion of the proceeds were also used to redeem, in whole, our 6.50% non-cumulative perpetual preferred stock Series A, par value $0.01 per share, in accordance with its terms.
On June 15, 2021 we redeemed all 6,000,000 outstanding shares of our 6.50% non-cumulative perpetual preferred stock, Series A.
(13) New Accounting Standards
ASU 2020-04, “Reference Rate Reform (Topic 848)” (“ASU 2020-04”) provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered “minor” so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as modifications. Undera continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2017-09,2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an entity should account for changesinterim period that includes or is subsequent to March 12, 2020, up to the termsdate that the financial statements are available to be issued. Once elected for a Topic or conditions of a share-based payment as a modification unlessan Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the following are met: 1)the fair valuecontinuation of the modified award is the same as the fair valuecontract, rather than extinguishment of the original award immediately before modification, 2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before modification, and 3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before modification. ASU 2017-09 will be effective for us on January 1, 2018, and is not expected to have a significant impact on our financial statements.
ASU 2016-15 "Statement of Cash Flows (Topic 230)" ("ASU 2016-15") is intended to reduce the diversityold contract resulting in practice around how certain transactions are classified within the statement of cash flows. ASU 2016-15 will be effective for us on January 1, 2018 and is not expected to have a significant impact on our consolidated financial statements.
ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2016-13") requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. ASU 2016-13 will be effective for us on January 1, 2020.writing off unamortized fees/costs. We are evaluating the impact adoptionimpacts of this ASU 2016-13 will have on our consolidated financial statements and disclosures.
ASU 2016-02 "Leases (Topic 842)" ("ASU 2016-02") requires that lessees and lessors recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 will be effective for us on January 1, 2019. We have not yet selected adetermined whether LIBOR transition method as we are in the process of determining the effect of the standardand this ASU will have material effects on our business operations and consolidated financial statements and disclosures.
ASU 2014-09 "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09") implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 establishes a five-step model which entities must follow to recognize revenue and removes inconsistencies and weaknesses in existing guidance. The guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, which comprises a significant portion of our revenue stream. Adoption of ASU 2014-09 may require us to amend how we recognize certain recurring revenue streams related to trust fees, which are recorded in non-interest income; however, we do not expect adoption of ASU 2014-09 to have a material impact on our consolidated financial statements and disclosures. We plan to adopt the revenue recognition guidance in the first quarter of 2018 with a cumulative effect adjustment to opening retained earnings, if management deems such adjustment significant. Our implementation efforts to date include identification of revenue streams within the scope of the guidance, and we are in the process of reviewing revenue contracts.
QUARTERLY FINANCIAL SUMMARIES – UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(In thousands)
statements.
|
| | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, 2017 | | For the three months ended September 30, 2016 |
| Average Balance | | Revenue/ Expense | | Yield/ Rate | | Average Balance | | Revenue/ Expense | | Yield/ Rate |
Assets | | | | | | | | | | | |
Securities – taxable | $ | 86,087 |
| | $ | 340 |
| | 1.57 | % | | $ | 26,051 |
| | $ | 228 |
| | 3.47 | % |
Securities – non-taxable(2) | — |
| | — |
| | — | % | | 564 |
| | 8 |
| | 5.82 | % |
Federal funds sold and securities purchased under resale agreements | 205,938 |
| | 642 |
| | 1.24 | % | | 369,215 |
| | 455 |
| | 0.49 | % |
Deposits in other banks | 2,383,060 |
| | 7,544 |
| | 1.26 | % | | 3,192,141 |
| | 4,080 |
| | 0.51 | % |
Loans held for sale | 1,009,703 |
| | 9,882 |
| | 3.88 | % | | 430,869 |
| | 3,662 |
| | 3.38 | % |
Loans held for investment, mortgage finance | 4,847,530 |
| | 42,294 |
| | 3.46 | % | | 4,658,804 |
| | 36,655 |
| | 3.13 | % |
Loans held for investment(1)(2) | 14,427,980 |
| | 178,839 |
| | 4.92 | % | | 12,591,561 |
| | 137,407 |
| | 4.34 | % |
Less reserve for loan losses | 172,774 |
| | — |
| | — |
| | 168,086 |
| | — |
| | — |
|
Loans held for investment, net | 19,102,736 |
| | 221,133 |
| | 4.59 | % | | 17,082,279 |
| | 174,062 |
| | 4.05 | % |
Total earning assets | 22,787,524 |
| | 239,541 |
| | 4.17 | % | | 21,101,119 |
| | 182,495 |
| | 3.44 | % |
Cash and other assets | 713,778 |
| | | | | | 588,440 |
| | | | |
Total assets | $ | 23,501,302 |
| | | | | | $ | 21,689,559 |
| | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | |
Transaction deposits | $ | 2,145,324 |
| | $ | 4,359 |
| | 0.81 | % | | $ | 2,301,362 |
| | $ | 1,960 |
| | 0.34 | % |
Savings deposits | 7,618,843 |
| | 17,152 |
| | 0.89 | % | | 6,177,681 |
| | 6,228 |
| | 0.40 | % |
Time deposits | 496,076 |
| | 924 |
| | 0.74 | % | | 501,701 |
| | 763 |
| | 0.61 | % |
Total interest-bearing deposits | 10,260,243 |
| | 22,435 |
| | 0.87 | % | | 8,980,744 |
| | 8,951 |
| | 0.40 | % |
Other borrowings | 1,821,837 |
| | 5,726 |
| | 1.25 | % | | 1,607,613 |
| | 1,860 |
| | 0.46 | % |
Subordinated notes | 281,256 |
| | 4,191 |
| | 5.91 | % | | 280,895 |
| | 4,191 |
| | 5.94 | % |
Trust preferred subordinated debentures | 113,406 |
| | 930 |
| | 3.25 | % | | 113,406 |
| | 752 |
| | 2.64 | % |
Total interest-bearing liabilities | 12,476,742 |
| | 33,282 |
| | 1.06 | % | | 10,982,658 |
| | 15,754 |
| | 0.57 | % |
Demand deposits | 8,764,263 |
| | | | | | 8,849,725 |
| | | | |
Other liabilities | 116,998 |
| | | | | | 135,141 |
| | | | |
Stockholders’ equity | 2,143,299 |
| | | | | | 1,722,035 |
| | | | |
Total liabilities and stockholders’ equity | $ | 23,501,302 |
| | | | | | $ | 21,689,559 |
| | | | |
Net interest income(2) | | | $ | 206,259 |
| | | | | | $ | 166,741 |
| | |
Net interest margin | | | | | 3.59 | % | | | | | | 3.14 | % |
Net interest spread | | | | | 3.11 | % | | | | | | 2.87 | % |
Loan spread(3) | | | | | 4.02 | % | | | | | | 3.83 | % |
| |
(1) | The loan averages include non-accrual loans and are stated net of unearned income. |
| |
(2) | Taxable equivalent rates used where applicable. |
| |
(3) | Yield on loans, net of reserves, less funding cost including all deposits and borrowed funds. |
|
| | | | | | | | | | | | | | | | | | | | | |
| For the nine months ended September 30, 2017 | | For the nine months ended September 30, 2016 |
| Average Balance | | Revenue/ Expense | | Yield/ Rate | | Average Balance | | Revenue/ Expense | | Yield/ Rate |
Assets | | | | | | | | | | | |
Securities – taxable | $ | 61,212 |
| | $ | 851 |
| | 1.86 | % | | $ | 27,160 |
| | $ | 722 |
| | 3.55 | % |
Securities – non-taxable(2) | 74 |
| | 3 |
| | 4.85 | % | | 629 |
| | 27 |
| | 5.74 | % |
Federal funds sold and securities purchased under resale agreements | 218,777 |
| | 1,606 |
| | 0.98 | % | | 328,971 |
| | 1,209 |
| | 0.49 | % |
Deposits in other banks | 2,645,145 |
| | 19,935 |
| | 1.01 | % | | 2,905,251 |
| | 11,115 |
| | 0.51 | % |
Loans held for sale | 973,016 |
| | 27,652 |
| | 3.80 | % | | 238,987 |
| | 6,106 |
| | 3.41 | % |
Loans held for investment, mortgage finance | 3,811,298 |
| | 98,798 |
| | 3.47 | % | | 4,266,573 |
| | 99,666 |
| | 3.12 | % |
Loans held for investment(1)(2) | 13,714,390 |
| | 485,226 |
| | 4.73 | % | | 12,260,752 |
| | 395,901 |
| | 4.31 | % |
Less reserve for loan losses | 171,029 |
| | — |
| | — |
| | 157,880 |
| | — |
| | — |
|
Loans held for investment, net | 17,354,659 |
| | 584,024 |
| | 4.50 | % | | 16,369,445 |
| | 495,567 |
| | 4.04 | % |
Total earning assets | 21,252,883 |
| | 634,071 |
| | 3.99 | % | | 19,870,443 |
| | 514,746 |
| | 3.46 | % |
Cash and other assets | 651,270 |
| | | | | | 546,553 |
| | | | |
Total assets | $ | 21,904,153 |
| | | | | | $ | 20,416,996 |
| | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | |
Transaction deposits | $ | 2,054,701 |
| | $ | 9,445 |
| | 0.61 | % | | $ | 2,171,776 |
| | $ | 5,085 |
| | 0.31 | % |
Savings deposits | 7,189,274 |
| | 40,575 |
| | 0.75 | % | | 6,299,965 |
| | 19,441 |
| | 0.41 | % |
Time deposits | 460,046 |
| | 2,241 |
| | 0.65 | % | | 499,366 |
| | 2,217 |
| | 0.59 | % |
Total interest-bearing deposits | 9,704,021 |
| | 52,261 |
| | 0.72 | % | | 8,971,107 |
| | 26,743 |
| | 0.40 | % |
Other borrowings | 1,539,208 |
| | 11,626 |
| | 1.01 | % | | 1,455,888 |
| | 4,628 |
| | 0.25 | % |
Subordinated notes | 281,167 |
| | 12,573 |
| | 5.98 | % | | 280,805 |
| | 12,573 |
| | 5.98 | % |
Trust preferred subordinated debentures | 113,406 |
| | 2,641 |
| | 3.11 | % | | 113,406 |
| | 2,203 |
| | 2.59 | % |
Total interest-bearing liabilities | 11,637,802 |
| | 79,101 |
| | 0.91 | % | | 10,821,206 |
| | 46,147 |
| | 0.55 | % |
Demand deposits | 8,062,792 |
| | | | | | 7,786,562 |
| | | | |
Other liabilities | 112,505 |
| | | | | | 132,506 |
| | | | |
Stockholders’ equity | 2,091,054 |
| | | | | | 1,676,722 |
| | | | |
Total liabilities and stockholders’ equity | $ | 21,904,153 |
| | | | | | $ | 20,416,996 |
| | | | |
Net interest income(2) | | | $ | 554,970 |
| | | | | | $ | 468,599 |
| | |
Net interest margin | | | | | 3.49 | % | | | | | | 3.15 | % |
Net interest spread | | | | | 3.08 | % | | | | | | 2.91 | % |
Loan spread(3) | | | | | 4.02 | % | | | | | | 3.82 | % |
| |
(1) | The loan averages include non-accrual loans and are stated net of unearned income. |
| |
(2) | Taxable equivalent rates used where applicable. |
| |
(3) | Yield on loans, net of reserves, less funding cost including all deposits and borrowed funds. |
| |
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition as of June 30, 2021 and December 31, 2020 and results of operations for the three and six month periods ended June 30, 2021 and June 30, 2020 should be read in conjunction with our consolidated financial statements and the related notes to the consolidated financial statements for the year ended December 31, 2020, and the other information included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”). Certain risks, uncertainties and other factors, including those set forth under “Risk Factors” in Part I, Item 1A of the 2020 Form 10-K may cause actual results to differ materially from the results discussed in the forward-looking statements appearing in this discussion and analysis.
Forward-Looking Statements
Certain statements and financial analysis contained in this report that are not historical facts are forward-looking statements made pursuant tomay constitute “forward-looking statements” within the safe harbor provisionsmeaning of federal securities laws. Forward-looking statements may also be contained in our future filings with SEC, in press releases and in oral and written statements made by us or with our approval that are not statementsthe Private Securities Litigation Reform Act of historical fact.1995. These forward-looking statements are based on our beliefs, assumptions and expectations of our future performance taking into account all information currently available to us. Wordsus at the time such statements are made. Forward-looking statements may often be identified by the use of words such as “believes,” “expects,” “estimates,” “anticipates,” “plans,” “goals,” “objectives,” “expects,” “intends,” “seeks,” “likely,” “targeted,” “continue,” “remain,” “will,” “should,” “may” “could” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.expressions.
Forward-looking statements may include, among other things and without limitation, statements about the credit quality of our loan portfolio, general economic conditions in the United States and in our markets, including the continued impact on our customers from declines and volatility in oil and gas prices, the impact onmaterial risks and uncertainties for the U.S. and world economies and for our loan and deposit portfolios as a result of Hurricanes Harvey and Irma,business, resulting from the COVID-19 pandemic, expectations regarding rates of default orand loan losses, volatility in the mortgage industry, our business strategies and our expectations about future financial performance, future growth and earnings, the appropriateness of our allowance for loancredit losses and provision for credit losses, the impact of increasedchanging regulatory requirements and legislative changes on our business, increased competition, interest rate risk, new lines of business, new product or service offerings and new technologies.
Forward-looking statements are subject to various risks and uncertainties, which change over time, are based on management’s expectations and assumptions at the time the statements are made and are not guarantees of future results. Important factors that could cause actual results to differ materially from thethose expressed or implied by such forward-looking statements include, but are not limited to, the following:
•Deterioration of the credit quality of our loan portfolio or declines in the value of collateral related to external factors such as commodity prices, real estate values or interest rates, increased default rates and loan losses or adverse changes in the industry concentrations of our loan portfolio.portfolio attributed to changes in the U.S. economy in general or the Texas economy specifically.
Changing•The adverse effect of the COVID-19 pandemic on us and our customers, employees and third-party service providers; the material adverse impacts of the COVID-19 pandemic on our business, financial position, operations and prospects. It is not possible to accurately predict the extent, severity or duration of the COVID-19 pandemic or to what level and when normal economic and operational conditions will return. This also includes the incurrence of material costs and liabilities associated with legal and regulatory proceedings, investigations, inquiries and related matters with respect to the financial services industry, including those directly involving us or our Bank and arising from our participation in government stimulus programs responding to the economic impact of the COVID-19 pandemic.
•Operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent. This also includes the failure to manage information systems risk or to prevent cyber-incidents against us, our customers or our third-party vendors, or to manage risks from failures, disruptions or security breaches affecting us, our customers or our third-party vendors, which risks have been materially enhanced by our increased reliance on technology to support associates working outside our offices.
•The costs and effects of cyber-incidents or other developments adversely affectingfailures, disruptions or security breaches of our commercial, entrepreneurialsystems or those our third-party providers.
•Changes in interest rates, which may affect our net income and professional customers.other future cash flows, or the market value of our assets, including the market value of investment securities.
•Changes in the value of commercial and residential real estate securing our loans or in the demand for credit to support the purchase and ownership of such assets.
•Changing economic conditions or other developments adversely affecting our commercial, entrepreneurial and professional customers.
•Adverse economic or market conditions and other factors in Texas, the United States or internationally that could affect the credit quality of our loan portfolio or our operating performance, including any conditions or factors affecting our middle market customers and their ability to continue to meet their loan obligations.
•The failure to correctly assess and model the assumptions supporting our allowance for loancredit losses, causing it to become inadequate in the event of deteriorations in loan quality and increases in charge-offs.charge-offs, or increases or decreases to our allowance for credit losses as a result of the implementation of CECL.
•Changes in the U.S. economy in general or the Texas economy specifically resulting in deterioration of credit quality, increases in non-performing assets or charge-offs or reduced demand for credit or other financial services we offer, including the effects from declines in the level of drilling and production related to the continued volatility in oil and gas prices.prices and the effects of the COVID-19 pandemic.
•Adverse changes in economic or market conditions, in Texas, the United States or internationally, that could affect the credit quality of our loan portfolio or our operating performance, whichperformance.
•Unexpected market conditions, regulatory changes or changes in our credit ratings that could, among other things, cause access to capital market transactions and other sources of funding to become more difficult to obtain on terms and conditions that are acceptable to us.
•The inadequacy of our available funds to meet our deposit, debt and other obligations as they become due, or our failure to maintain our capital ratios as a result of adverse changes in our operating performance or financial condition, or changes in applicable regulations or regulator interpretation of regulations impacting our business or the characterization or risk weight of our assets.
•The failure to effectively balance our funding sources with cash demands by depositors and borrowers.
The•Material failures of our accounting estimates and risk management processes based on management judgment, or the supporting analytical and forecasting models.
•Failure of our risk management strategies and procedures, including failure to manageor circumvention of our information systems risk or to prevent cyber-attacks against us or our third party vendors, or to manage risks from disruptions or security breaches affecting our third party vendors.controls.
•The failure to effectively manage our interest rate risk resulting from unexpectedly large or sudden changes in interest rates, or rate or maturity imbalances in our assets and liabilities, and potential adverse effects to our borrowers including their inability to repay loans with increased interest rates.rates and the impact to our net interest income from the increasing cost of interest-bearing deposits.
•The failure of our enterprise risk management framework, our compliance program, or our corporate governance and supervisory oversight functions to timely identify and address emerging risks adequately, which may result in unexpected losses.
•Uncertainty regarding the upcoming transition away from the London Interbank Offered Rate, or LIBOR, toward new interest rate benchmarks and our ability to successfully implement any new interest rate benchmarks.
•Legislative and regulatory changes imposing further restrictions and costs on our business, a failure to remainmaintain well capitalized or well managed status or any regulatory enforcement actions brought against us and uncertainty related to future implementation and enforcement of regulatory requirements resulting from the current political environment.
•The effect of changes in laws, regulations, policies and guidelines (including, among others, laws, regulations, policies and guidelines concerning taxes, banking, accounting, securities and monetary and fiscal policies) with which we and our subsidiaries must generally comply, including those promulgated by the U.S. government, U.S. Department of Treasury and the Federal Reserve and any changes made by the new Biden Administration and the effects of any such changes on our business and results of operations.
•The failure to successfully execute our business strategy, which may include expanding into new markets, developing and launching new lines of business or new products and services within the expected timeframes and budgets, completing planned merger, acquisition or sale transactions or to successfully manage the risks related to the development and implementation of these new businesses, products or services.
•The failure to identify, attract and retain key personnel or the loss of key individuals or groups of employees.
Adverse changes in economic or business conditions that impact the financial markets or our customers.
Structural changes in the markets for origination, sale and servicing of residential mortgages.
•Increased or more effective competition from banks and other financial service providers in our markets.
•Structural changes in the markets for origination, sale and servicing of residential mortgages.
•Uncertainty in the pricing of mortgage loans that we purchase, and later sell or securitize, as well as competition for the MSRsmortgage servicing rights related to these loans and related interest rate risk or price risk resulting from retaining MSRs,mortgage servicing rights, and the potential effects of higher interest rates on our MCAMortgage Correspondent Aggregation loan volumes.
Material failures of our accounting estimates and risk management processes based on management judgment, or the supporting analytical and forecasting models.
Failure of our risk management strategies and procedures, including failure or circumvention of our controls.
•Credit risk resulting from our exposure to counterparties.
•An increase in the incidence or severity of fraud, illegal payments, security breaches and other illegal acts impacting our subsidiary, Texas Capital Bank, National Association (the “Bank”) and our customers.
•The failure to maintain adequate regulatory capital to support our business.
Unavailabilitybusiness, including the unavailability of funds obtained from borrowing or capital transactions or from our Bank to fund our obligations.
Incurrence of material costs and liabilities associated with legal and regulatory proceedings and related matters with respect to the financial services industry, including those directly involving us or our Bank.
•Environmental liability associated with properties related to our lending activities.
•Severe weather, natural disasters, acts of war or terrorism and other external events.
Actual outcomes and results may differ materially from what is expressed in our forward-looking statements and from our historical financial results due to the factors discussed above or elsewhere in this report or disclosed in our other SECU.S. Securities and Exchange Commission (“SEC”) filings. Forward-looking statements included herein speak only as of the date hereof and should not be relied upon as representing our expectations or beliefs as of any date subsequent to the date of this report. Except as required by law, we undertake no obligation to revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise. The factors discussed herein are not intended to be a complete summary of all risks and uncertainties that may affect our businesses. For a more detailed discussion of these and other factors that may affect our business, see "Risk Factors" in the 2016 Form 10-K and other filings we have made with the SEC. Though we strive to monitor and mitigate risk, we cannot anticipate all potential economic, operational and financial developments that may adversely impact our operations and our financial results. Forward-looking statements should not be viewed as predictions and should not be the primary basis upon which investors evaluate an investment in our securities.
Overview of Our Business Operations
We commenced our banking operations in December 1998. An important aspect of our growth strategy has been our ability to effectively service and manage effectively a large number of loans and deposit accounts in multiple markets in Texas, as well as several lines of business serving a regional or national clientele of commercial borrowers. Accordingly, we have created an operations infrastructure sufficient to support our lending and banking operations that we continue to build outsupplement and optimize as needed to serve a larger customer base and specialized industries.
Outstanding energy loans totaled $1.2 billion, or approximately 6% of total loans, at September 30, 2017. Unfunded energy loan commitments increased by $93.5 million to $624.3 million (51% of outstanding energy loans) at September 30, 2017 compared to $530.8 million at December 31, 2016. We recorded $19.8 million in energy net charge-offsSignificant transactions affecting our financial statements during the ninethree months ended September 30, 2017 compared to $19.8 million for the same period in 2016. Energy non-accruals decreased to $81.6 million at September 30, 2017 compared to $82.6 million at June 30, 20172021 included:
•Sale of our portfolio of mortgage servicing rights (“MSRs”) and $129.3transition of the Mortgage Correspondent Aggregation (“MCA”) program to a third-party. For additional information, see Note 5 - Certain Transfers of Financial Assets in the accompanying notes to the consolidated financial statements included elsewhere in this report;
•Issuance and sale of $375.0 million of 4.00% fixed-to-fixed rate subordinated notes due 2031. For additional information, see Note 6 - Long-Term Debt in the accompanying notes to the consolidated financial statements included elsewhere in this report;
•Redemption of our 6.50% non-cumulative perpetual preferred stock, Series A (the “Series A Preferred Stock”). For additional information, see Note 12 - Material Transactions Affecting Stockholders' Equity in the accompanying notes to the consolidated financial statements included elsewhere in this report;
•Redemption of our 6.50% subordinated notes due 2042. For additional information, see Note 6 - Long-Term Debt in the accompanying notes to the consolidated financial statements included elsewhere in this report; and
•In May 2021 the Bank, applied to the Texas Department of Banking to convert from a national association to a Texas state-chartered bank. If approved and the conversion is completed, the Texas Department of Banking will be the Bank's primary regulator, the Federal Deposit Insurance Corporation will be the Bank's primary federal regulator and the Federal Reserve will continue to be the Company's primary federal regulator. The application is currently being reviewed.
Impact of COVID-19 Pandemic
The COVID-19 pandemic and related restrictive measures taken by governments, businesses and individuals have caused and continue to cause unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that we serve. As the restrictive measures began to be eased during the latter part of 2020 and continue to be eased during 2021, the U.S. economy has begun to improve from 2020, and with the availability and distribution of COVID-19 vaccines, we anticipate continued improvements in commercial and consumer activity and the U.S. economy. During the first quarter of 2021, the governor of Texas removed all restrictions initially set in place which has allowed businesses, including ours as well as our clients' businesses, to reopen at September 30, 2016.full capacities.
While positive headwinds exist, we recognize that our business and consumer customers are continuing to experience varying degrees of financial distress, which we expect to continue, though to a lesser degree, throughout 2021. Commercial activity has improved, but has not returned to the levels existing prior to the outbreak of the COVID-19 pandemic, which may result in our
customers’ inability to meet their loan obligations to us. In addition, the economic pressures and uncertainties related to the COVID-19 pandemic have seemingly resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer. Our borrowing base includes customers in industries such as energy, hotel/lodging, restaurants, entertainment, retail and commercial real estate, which have been significantly impacted by the COVID-19 pandemic. We recognize that these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a more permanent basis as a result of the COVID-19 pandemic. We continue to proactivelymonitor these customers closely.
We have taken deliberate actions to meet our goal of ensuring that we have the balance sheet strength to serve our clients and communities, including by seeking to increase our liquidity and manage our energy portfolioassets and overall credit quality,liabilities in order to maintain a strong capital position; however, future economic conditions are subject to significant uncertainty. Uncertainties associated with the COVID-19 pandemic include the duration of any COVID-19 outbreaks and any related variants, the availability and effectiveness of COVID-19 vaccines, the impact to our customers, employees and vendors and the impact to the economy as a whole. COVID-19 had a significant adverse impact on our business, financial position and operating results for the year ended December 31, 2020 and while uncertainty still exists, we believe we are appropriately reserved against further energy-related losses.well-positioned to operate effectively through the present economic environment.
Effective June 1, 2021, we returned to pre-pandemic business operations and brought 100% of our workforce back into the office. Our branch locations are currently open and operating during normal business hours. We continue to take additional precautions within our branch locations, including enhanced cleaning procedures, to ensure the safety of our customers and our employees.
The following discussion and analysis presents the significant factors affecting our financial condition as of September 30, 2017 and December 31, 2016 and results of operations for the three and nine months in the periods ended September 30, 2017 and 2016. This discussion should be read in conjunction with our consolidated financial statements and notes to the financial statements appearing in Part I, Item 1 of this report.
Results of Operations
Summary of Performance
We reported net income of $58.7$73.5 million and net income available to common stockholders of $56.2$67.2 million or $1.12 per diluted common share, for the thirdsecond quarter of 20172021 compared to a net incomeloss of $42.7$34.3 million and net incomeloss available to common stockholders of $40.3$36.8 million or $0.87for the second quarter of 2020. On a fully diluted basis, earnings per diluted common share were $1.31 for the thirdsecond quarter of 2016.2021, compared to a loss per common share of $0.73 for the second quarter of 2020. Return on average common equity (“ROE”) was 11.20%9.74% and return on average assets ("ROA"(“ROA”) was 0.99%0.76% for the thirdsecond quarter of 2017,2021, compared to 10.20%a negative 5.48% and 0.78%negative 0.36%, respectively, for the thirdsecond quarter of 2016.2020. The increase in net income, ROE and ROA for the second quarter of 2021 resulted primarily from increases in net interest income and non-interest income and a $119.0 million decrease in the provision for credit losses that exceeded growth in non-interest expense. ROA also benefited from more effective utilization of liquidity balances as balances were deployed into higher yielding loan categories.losses.
Net income and net income available to common stockholders for the ninesix months ended SeptemberJune 30, 20172021 totaled $152.3$145.4 million and $145.0$135.3 million, respectively, or $2.89 per diluted common share, compared to net incomeloss and net incomeloss available to common stockholders of $106.7$51.0 million and $99.4$55.9 million, respectively, or $2.14 per diluted common share, for the same period in 2016.2020. On a fully diluted basis, earnings per common share were $2.65 for the six months ended June 30, 2021, compared to a loss per common share of $1.11 for the same period in 2020. ROE was 9.99%9.91% and ROA was 0.93%0.75% for the ninesix months ended SeptemberJune 30, 20172021, compared to 8.70%a negative 4.16% and 0.70%$0.28%, respectively, for the nine months ended September 30, 2016. The increase in ROE and ROA for the first nine months of 2017 resulted from increases in net interest income and non-interest income and a decrease in the provision for credit losses that exceeded growth in non-interest expense. ROA also benefited from more effective utilization of liquidity balances and an increase in net interest margin.
Net income increased $16.0 million, or 37%, for the three months ended September 30, 2017, as compared to the same period in 2016. The increase was primarily the result of a $37.6 million increase in net interest income, a $2.0 million decrease in the provision for credit losses and a $2.3 million increase in non-interest income, offset by a $20.0 million increase in non-interest expense and a $5.9 million increase in income tax expense. Net income increased $45.6 million, or 43%, for the nine months ended September 30, 2017, as compared to the same period in 2016. The increase was primarily the result of an $82.1 million increase in net interest income, a $26.0 million decrease in the provision for credit losses and a $12.9 million increase in non-interest income, offset by a $56.9 million increase in non-interest expense and a $18.6 million increase in income tax expense.2020.
Details of the changes in the various components of net income are discussed below.
Net Interest IncomeQUARTERLY FINANCIAL SUMMARIES - UNAUDITED
Net interest income was $204.4 million for the third quarterConsolidated Daily Average Balances, Average Yields and Rates
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2021 | | Three months ended June 30, 2020 |
(in thousands except percentages) | Average Balance | | Revenue/ Expense | | Yield/ Rate | | Average Balance | | Revenue/ Expense | | Yield/ Rate |
Assets | | | | | | | | | | | |
Investment securities – taxable | $ | 3,361,696 | | | $ | 9,222 | | | 1.10 | % | | $ | 38,829 | | | $ | 185 | | | 1.92 | % |
Investment securities – non-taxable(2) | 181,574 | | | 2,147 | | | 4.74 | % | | 195,806 | | | 2,327 | | | 4.78 | % |
Federal funds sold and securities purchased under resale agreements | 713 | | | — | | | 0.18 | % | | 245,434 | | | 77 | | | 0.13 | % |
Interest-bearing deposits in other banks | 11,583,046 | | | 2,961 | | | 0.10 | % | | 10,521,240 | | | 2,314 | | | 0.09 | % |
Loans held for sale | 93,164 | | | 781 | | | 3.36 | % | | 380,624 | | | 2,547 | | | 2.69 | % |
Loans held for investment, mortgage finance | 7,462,223 | | | 57,401 | | | 3.09 | % | | 8,676,521 | | | 74,518 | | | 3.45 | % |
Loans held for investment(1)(2) | 15,242,975 | | | 152,515 | | | 4.01 | % | | 17,015,041 | | | 170,970 | | | 4.04 | % |
Less reserve for credit losses on loans | 241,676 | | | — | | | — | | | 236,823 | | | — | | | — | |
Loans held for investment, net | 22,463,522 | | | 209,916 | | | 3.75 | % | | 25,454,739 | | | 245,488 | | | 3.88 | % |
Total earning assets | 37,683,715 | | | 225,027 | | | 2.40 | % | | 36,836,672 | | | 252,938 | | | 2.76 | % |
Cash and other assets | 996,946 | | | | | | | 1,075,864 | | | | | |
Total assets | $ | 38,680,661 | | | | | | | $ | 37,912,536 | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | |
Transaction deposits | $ | 3,795,152 | | | $ | 5,395 | | | 0.57 | % | | $ | 3,923,966 | | | $ | 5,998 | | | 0.61 | % |
Savings deposits | 11,296,382 | | | 8,990 | | | 0.32 | % | | 12,537,467 | | | 13,510 | | | 0.43 | % |
Time deposits | 1,755,993 | | | 1,886 | | | 0.43 | % | | 3,434,388 | | | 12,786 | | | 1.50 | % |
Total interest-bearing deposits | 16,847,527 | | | 16,271 | | | 0.39 | % | | 19,895,821 | | | 32,294 | | | 0.65 | % |
Other borrowings | 2,349,718 | | | 502 | | | 0.09 | % | | 3,612,263 | | | 4,745 | | | 0.53 | % |
Long-term debt | 881,309 | | | 10,723 | | | 4.88 | % | | 395,658 | | | 5,043 | | | 5.13 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total interest-bearing liabilities | 20,078,554 | | | 27,496 | | | 0.55 | % | | 23,903,742 | | | 42,082 | | | 0.71 | % |
Demand deposits | 15,139,546 | | | | | | | 10,865,896 | | | | | |
Other liabilities | 274,401 | | | | | | | 293,698 | | | | | |
Stockholders’ equity | 3,188,160 | | | | | | | 2,849,200 | | | | | |
Total liabilities and stockholders’ equity | $ | 38,680,661 | | | | | | | $ | 37,912,536 | | | | | |
Net interest income(2) | | | $ | 197,531 | | | | | | | $ | 210,856 | | | |
Net interest margin | | | | | 2.10 | % | | | | | | 2.30 | % |
Net interest spread | | | | | 1.85 | % | | | | | | 2.05 | % |
Loan spread(3) | | | | | 3.55 | % | | | | | | 3.43 | % |
(1)The loan averages include non-accrual loans and are stated net of 2017, compared to $166.7 million for the third quarterunearned income.
(2)Taxable equivalent rates used where applicable.
(3)Yield on loans, net of 2016. The increase was due to an increase in average earning assets of $1.7 billion as compared to the third quarter of 2016, as well as the effect of increases in interest rates on loan yields. The increase in average earning assets included a $578.8 million increase in average loans held for sale, a $2.0 billion increase in average net loans held for investment and a $59.5 million increase in average securities, offset by a $972.4 million decrease in average liquidity assets. For the quarter ended September 30, 2017, average net loans held for investment, liquidity assets and loans held for sale represented approximately 84%, 11% and 5%, respectively, of average earning assets compared to approximately 81%, 17% and 2% for the same quarter of 2016.
Average interest-bearing liabilities for the quarter ended September 30, 2017 increased $1.5 billion from the third quarter of 2016, which included a $1.3 billion increase in average interest-bearing deposits and a $214.2 million increase in other borrowings. Average demand deposits were $8.8 billion for the quarter ended September 30, 2016, compared to $8.8 billion for the same period at 2017. The averagereserves, less funding cost of totalincluding all deposits and borrowed funds increased to 0.54% for the third quarterfunds.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2021 | | Six months ended June 30, 2020 |
(in thousands except percentages) | Average Balance | | Revenue/ Expense | | Yield/ Rate | | Average Balance | | Revenue/ Expense | | Yield/ Rate |
Assets | | | | | | | | | | | |
Investment securities – taxable | $ | 3,294,117 | | | $ | 17,334 | | | 1.06 | % | | $ | 40,814 | | | $ | 459 | | | 2.26 | % |
Investment securities – non-taxable(2) | 189,137 | | | 4,394 | | | 4.69 | % | | 195,692 | | | 4,744 | | | 4.88 | % |
Federal funds sold and securities purchased under resale agreements | 2,649 | | | 1 | | | 0.08 | % | | 222,580 | | | 691 | | | 0.62 | % |
Interest-bearing deposits in other banks | 11,711,282 | | | 5,893 | | | 0.10 | % | | 8,373,594 | | | 21,900 | | | 0.53 | % |
Loans held for sale | 167,830 | | | 2,376 | | | 2.85 | % | | 1,758,502 | | | 30,027 | | | 3.43 | % |
Loans held for investment, mortgage finance | 7,818,014 | | | 122,343 | | | 3.16 | % | | 7,865,602 | | | 129,842 | | | 3.32 | % |
Loans held for investment(1)(2) | 15,349,838 | | | 301,711 | | | 3.96 | % | | 16,806,908 | | | 372,751 | | | 4.46 | % |
Less reserve for loan losses | 248,151 | | | — | | | — | | | 219,330 | | | — | | | — | |
Loans held for investment, net | 22,919,701 | | | 424,054 | | | 3.73 | % | | 24,453,180 | | | 502,593 | | | 4.13 | % |
Total earning assets | 38,284,716 | | | 454,052 | | | 2.39 | % | | 35,044,362 | | | 560,414 | | | 3.22 | % |
Cash and other assets | 1,030,625 | | | | | | | 1,026,193 | | | | | |
Total assets | $ | 39,315,341 | | | | | | | $ | 36,070,555 | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | |
Transaction deposits | $ | 3,893,015 | | | $ | 11,256 | | | 0.58 | % | | $ | 3,848,517 | | | $ | 19,580 | | | 1.02 | % |
Savings deposits | 12,088,776 | | | 19,778 | | | 0.33 | % | | 11,803,448 | | | 49,471 | | | 0.84 | % |
Time deposits | 1,978,879 | | | 5,241 | | | 0.53 | % | | 3,138,461 | | | 25,417 | | | 1.63 | % |
Total interest-bearing deposits | 17,960,670 | | | 36,275 | | | 0.41 | % | | 18,790,426 | | | 94,468 | | | 1.01 | % |
Other borrowings | 2,517,128 | | | 3,094 | | | 0.25 | % | | 3,316,259 | | | 14,996 | | | 0.91 | % |
Long-term debt | 674,171 | | | 16,466 | | | 4.93 | % | | 395,614 | | | 10,307 | | | 5.24 | % |
| | | | | | | | | | | |
Total interest-bearing liabilities | 21,151,969 | | | 55,835 | | | 0.53 | % | | 22,502,299 | | | 119,771 | | | 1.07 | % |
Demand deposits | 14,782,509 | | | | | | | 10,434,696 | | | | | |
Other liabilities | 291,925 | | | | | | | 282,283 | | | | | |
Stockholders’ equity | 3,088,938 | | | | | | | 2,851,277 | | | | | |
Total liabilities and stockholders’ equity | $ | 39,315,341 | | | | | | | $ | 36,070,555 | | | | | |
Net interest income(2) | | | $ | 398,217 | | | | | | | $ | 440,643 | | | |
Net interest margin | | | | | 2.10 | % | | | | | | 2.53 | % |
Net interest spread | | | | | 1.86 | % | | | | | | 2.15 | % |
Loan spread(3) | | | | | 3.49 | % | | | | | | 3.41 | % |
(1)The loan averages include non-accrual loans and are stated net of 2017 compared to 0.22% for the same periodunearned income.
(2)Taxable equivalent rates used where applicable.
(3)Yield on loans, net of 2016. Thereserves, less funding cost of interest-bearing liabilities increased from 0.57% for the quarter ended September 30, 2016 to 1.06% for the same period of 2017.
Net interest income was $550.7 million for the nine months ended September 30, 2017, compared to $468.6 million for the same period of 2016. The increase was due to an increase in average earning assets of $1.4 billion as compared to the nine months ended September 30, 2016, as well as the effect of increases in interest rates on loan yields. The increase in average earning assets included a $734.0 million increase in average loans held for sale, a $985.2 million increase in average net loans held for investment and a $33.5 million increase in average securities, offset by a $370.3 million decrease in average liquidity assets. For the nine months ended September 30, 2017, average net loans held for investment, liquidity assets and loans held for sale represented approximately 82%, 13% and 5%, respectively, of average earning assets compared to approximately 83%, 16% and 1% for the same period of 2016.
Average interest-bearing liabilities for the nine months ended September 30, 2017 increased $816.6 million from the same period of 2016, which included a $732.9 million increase in average interest-bearing deposits and a $83.3 million increase in other borrowings. Average demand deposits increased from $7.8 billion for the nine months ended September 30, 2016 to $8.1 billion for the nine months ended September 30, 2017. The average cost of totalincluding all deposits and borrowed funds increased to 0.44% for the nine months ended September 30, 2017 compared to 0.23% for the same period of 2016. The cost of interest-bearing liabilities increased from 0.55% for the nine months ended September 30, 2016 to 0.91% for the same period of 2017.funds.
Volume/Rate Analysis
The following table (in thousands) presents the changes in taxable-equivalent net interest income between the three and nine month periods ended September 30, 2017 and September 30, 2016 and identifies the changes due to differences in the average volume of earning assets and interest-bearing liabilities and the changes due to differences in the average interest rate on those assets and liabilities.
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| |
| Three months ended June 30, 2021/2020 | | Six months ended June 30, 2021/2020 |
| Net Change | | Change due to(1) | | Net Change | | Change Due To(1) |
(in thousands) | Volume | | Yield/Rate(2) | | Volume | | Yield/Rate(2) |
Interest income: | | | | | | | | | | | |
Investment securities | $ | 8,857 | | | $ | 35,456 | | | $ | (26,599) | | | $ | 16,525 | | | $ | 71,399 | | | $ | (54,874) | |
Loans held for sale | (1,766) | | | (1,923) | | | 157 | | | (27,651) | | | (27,243) | | | (408) | |
Loans held for investment, mortgage finance loans | (17,117) | | | (10,416) | | | (6,701) | | | (7,499) | | | (1,620) | | | (5,879) | |
Loans held for investment | (18,455) | | | (17,800) | | | (655) | | | (71,040) | | | (31,671) | | | (39,369) | |
Federal funds sold and securities purchased under resale agreements | (77) | | | (79) | | | 2 | | | (690) | | | (681) | | | (9) | |
Interest-bearing deposits in other banks | 647 | | | 238 | | | 409 | | | (16,007) | | | 17,968 | | | (33,975) | |
Total | (27,911) | | | 5,476 | | | (33,387) | | | (106,362) | | | 28,152 | | | (134,514) | |
Interest expense: | | | | | | | | | | | |
Transaction deposits | (603) | | | (195) | | | (408) | | | (8,324) | | | 594 | | | (8,918) | |
Savings deposits | (4,520) | | | (1,327) | | | (3,193) | | | (29,693) | | | 4,603 | | | (34,296) | |
Time deposits | (10,900) | | | (6,260) | | | (4,640) | | | (20,176) | | | (9,101) | | | (11,075) | |
Other borrowings | (4,243) | | | (1,664) | | | (2,579) | | | (11,902) | | | (2,801) | | | (9,101) | |
Long-term debt | 5,680 | | | 6,194 | | | (514) | | | 6,159 | | | 7,114 | | | (955) | |
Total | (14,586) | | | (3,252) | | | (11,334) | | | (63,936) | | | 409 | | | (64,345) | |
Net interest income | $ | (13,325) | | | $ | 8,728 | | | $ | (22,053) | | | $ | (42,426) | | | $ | 27,743 | | | $ | (70,169) | |
(1)Yield/rate and volume variances are allocated to yield/rate.
(2)Taxable equivalent rates used where applicable assuming a 21% tax rate.
Net Interest Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2017/2016 | | Nine months ended September 30, 2017/2016 |
| Net | | Change Due To(1) | | Net | | Change Due To(1) |
| Change | | Volume | | Yield/Rate | | Change | | Volume | | Yield/Rate |
Interest income: | | | | | | | | | | | |
Securities(2) | $ | 104 |
| | $ | 517 |
| | $ | (413 | ) | | $ | 105 |
| | $ | 888 |
| | $ | (783 | ) |
Loans held for sale | 6,220 |
| | 4,931 |
| | 1,289 |
| | 21,546 |
| | 18,737 |
| | 2,809 |
|
Loans held for investment, mortgage finance loans | 5,639 |
| | 1,489 |
| | 4,150 |
| | (868 | ) | | (10,625 | ) | | 9,757 |
|
Loans held for investment(2) | 41,432 |
| | 20,089 |
| | 21,343 |
| | 89,325 |
| | 46,895 |
| | 42,430 |
|
Federal funds sold | 187 |
| | (202 | ) | | 389 |
| | 397 |
| | (404 | ) | | 801 |
|
Deposits in other banks | 3,464 |
| | (1,040 | ) | | 4,504 |
| | 8,820 |
| | (994 | ) | | 9,814 |
|
Total | 57,046 |
| | 25,784 |
| | 31,262 |
| | 119,325 |
| | 54,497 |
| | 64,828 |
|
Interest expense: | | | | | | | | | | | |
Transaction deposits | 2,399 |
| | (134 | ) | | 2,533 |
| | 4,355 |
| | (274 | ) | | 4,629 |
|
Savings deposits | 10,924 |
| | 1,453 |
| | 9,471 |
| | 21,139 |
| | 2,741 |
| | 18,398 |
|
Time deposits | 161 |
| | (9 | ) | | 170 |
| | 23 |
| | (174 | ) | | 197 |
|
Borrowed funds | 3,866 |
| | 248 |
| | 3,618 |
| | 6,998 |
| | 265 |
| | 6,733 |
|
Long-term debt | 178 |
| | 5 |
| | 173 |
| | 439 |
| | — |
| | 439 |
|
Total | 17,528 |
| | 1,563 |
| | 15,965 |
| | 32,954 |
| | 2,558 |
| | 30,396 |
|
Net interest income | $ | 39,518 |
| | $ | 24,221 |
| | $ | 15,297 |
| | $ | 86,371 |
| | $ | 51,939 |
| | $ | 34,432 |
|
Net interest income was $197.0 million for the three months ended June 30, 2021, compared to $209.9 million for the same period in 2020. The decrease was primarily due to declines in total average loans and earning asset yields, partially offset by an increase in loan fees and declining cost of funds.
| |
(1) | Yield/rate and volume variances are allocated to yield/rate. |
| |
(2) | Taxable equivalent rates are used where applicable and assume a 35% tax rate. |
Average earning assets for the three months ended June 30, 2021 increased $847.0 million compared to the same period in 2020, and included a $3.3 billion increase in average total investment securities, reflecting the deployment of excess liquidity into higher-yielding investment securities, and an $817.1 million increase in average liquidity assets, partially offset by a $3.3 billion decrease in average total loans. Throughout 2020, management took deliberate actions to increase liquidity balances to ensure we had the balance sheet strength to serve our clients during the COVID-19 pandemic. Through the first six months of 2021 these balances have remained elevated, although they are beginning to run off as we have purchased investment securities and proactively exited certain high-cost indexed deposit products. The decrease in average loans held for sale compared to the second quarter of 2020 resulted from the transition of the MCA program to a third-party. Average interest-bearing liabilities for the three months ended June 30, 2021 decreased $3.8 billion compared to the same period in 2020, primarily due to a $3.0 billion decrease in average interest-bearing deposits and a $1.3 billion decrease in average other borrowings, partially offset by a $485.7 million increase in average long-term debt. Average demand deposits for the three months ended June 30, 2021 increased to $15.1 billion from $10.9 billion for the three months ended June 30, 2020.
Net interest margin which is defined as the ratio of net interest income to average earning assets, was 3.59% for the third quarter of 2017three months ended June 30, 2021 was 2.10% compared to 3.14%2.30% for the third quarter of 2016.same period in 2020. The year-over-year increasedecrease was primarily due to the effect of increases indeclining interest rates on earning asset yields and a shift in earning asset composition, primarily increases in lower-yielding investment securities and liquidity assets, partially offset by increases in loan yields attributablefees and lower funding costs compared to our highly asset-sensitive balance sheet. the second quarter of 2020.
The yield on total loans held for investment increaseddecreased to 4.59%3.75% for the third quarter of 2017three months ended June 30, 2021 compared to 4.05%3.88% for the third quarter of 2016same period in 2020, and the yield on earning assets increaseddecreased to 4.17%2.40% for the thirdthree months ended June 30, 2021 compared to 2.76% for the same period in 2020. The average cost of total deposits decreased to 0.20% for the second quarter of 2017 compared to 3.44%2021 from 0.42% for the thirdsecond quarter of 2016. Funding costs, including demand deposits2020 and borrowed funds, increased to 0.54% for the third quarter of 2017 compared to 0.22% for the third quarter of 2016. The spread on total earning assets, net of the cost of deposits and borrowed funds, was 3.63% for the third quarter of 2017 compared to 3.22% for the third quarter of 2016. The increase resulted primarily from increases in interest rates and increases in the higher yielding loan components of earning assets. Total funding costs, including all deposits, long-term debt and stockholders’stockholders' equity, decreased to 0.29% for the second quarter of 2021 compared to 0.45% for the second quarter of 2020.
Net interest income was $397.1 million for the six months ended June 30, 2021 compared to $438.2 million for the same period in 2020. The decrease was primarily due to a decrease in earning asset yields, partially offset by declining cost of funds.
Average earning assets increased $3.2 billion for the six months ended June 30, 2021, compared to the same period in 2020, and included a $3.2 billion increase in average total investment securities, reflecting the deployment of excess liquidity into higher-yielding investment securities and a $3.1 billion increase in average liquidity assets, partially offset by a $3.1 billion decrease in average total loans. The increases in average total investment securities and liquidity assets were the result of deliberate actions taken by management to enhance the strength of our balance sheet as described above. Average interest-bearing liabilities decreased $1.4 billion for the six months ended June 30, 2021, compared to the same period in 2020, primarily due to a $829.8 million decrease in average interest-bearing deposits and a $799.1 million decrease in average other borrowings, partially offset by a $278.6 million increase in average long-term debt. Average demand deposits for the six months ended June 30, 2021 increased to 0.56%$14.8 billion from $10.4 billion for the third quarter of 2017same period in 2020.
Net interest margin for the six months ended June 30, 2021 was 2.10% compared to .29%2.53% for the third quartersame period of 2016.
Non-interest Income2020. The decrease was primarily due to the effect of declining interest rates on earning asset yields and a shift in earning asset composition, primarily the increases in lower-yielding investment securities and liquidity assets, partially offset by lower funding costs compared to the same period in 2020.
The componentsyield on total loans held for investment decreased to 3.73% for the six months ended June 30, 2021, compared to 4.13% for the same period in 2020, and the yield on earning assets decreased to 2.39% for the six months ended June 30, 2021, compared to 3.22% for the same period in 2020. The average cost of non-interest income were as follows (in thousands):total deposits decreased to 0.22% for the six months ended June 30, 2021 from 0.65% for the same period in 2020 and total funding costs, including all deposits, long-term debt and stockholders' equity, decreased to 0.29% for the six months ended June 30, 2021, compared to 0.67% for the same period in 2020.
| | | | | | | | | | | | Three months ended June 30, | Six months ended June 30, |
| Three months ended September 30, | | Nine months ended September 30, | |
| 2017 | | 2016 | | 2017 | | 2016 | |
(in thousands) | | (in thousands) | 2021 | | 2020 | 2021 | | 2020 |
Service charges on deposit accounts | $ | 3,211 |
| | $ | 2,880 |
| | $ | 9,323 |
| | $ | 7,401 |
| Service charges on deposit accounts | $ | 4,634 | | | $ | 2,459 | | $ | 9,350 | | | $ | 5,752 | |
Wealth management and trust fee income | 1,627 |
| | 1,113 |
| | 4,386 |
| | 3,024 |
| Wealth management and trust fee income | 3,143 | | | 2,348 | | 5,998 | | | 4,815 | |
Bank owned life insurance (BOLI) income | 615 |
| | 520 |
| | 1,562 |
| | 1,592 |
| |
| Brokered loan fees | 6,152 |
| | 7,581 |
| | 17,639 |
| | 18,090 |
| Brokered loan fees | 6,933 | | | 10,764 | | 16,244 | | | 18,779 | |
Servicing income | 4,486 |
| | 310 |
| | 10,387 |
| | 305 |
| Servicing income | 5,935 | | | 6,120 | | 14,944 | | | 10,866 | |
Swap fees | 647 |
| | 918 |
| | 3,404 |
| | 2,330 |
| Swap fees | 534 | | | 1,468 | | 1,060 | | | 4,225 | |
Net gain/(loss) on sale of loans held for sale | | Net gain/(loss) on sale of loans held for sale | (3,070) | | | 39,023 | | 2,502 | | | 26,023 | |
Other | 2,265 |
| | 3,394 |
| | 8,181 |
| | 9,203 |
| Other | 11,993 | | | 8,303 | | 19,096 | | | 11,805 | |
Total non-interest income | $ | 19,003 |
| | $ | 16,716 |
| | $ | 54,882 |
| | $ | 41,945 |
| Total non-interest income | $ | 30,102 | | | $ | 70,485 | | $ | 69,194 | | | $ | 82,265 | |
Non-interest income increased $2.3decreased by $40.4 million during the three months ended SeptemberJune 30, 20172021 compared to the same period in 2020. This decrease was primarily due to decreases in net gain/(loss) on sale of 2016.loans held for sale and brokered loan fees, partially offset by increases in service charges and other non-interest income. The decrease in net gain/(loss) on sale of loans held for sale and brokered loan fees was primarily due to the second quarter 2021 sale of our portfolio of MSRs and transition of the MCA program to a third-party.
Non-interest income decreased by $13.1 million during the six months ended June 30, 2021 compared to the same period in 2020. This increasedecrease was primarily due to a $4.2 milliondecrease in net gain/(loss) on sale of loans held for sale, partially offset by an increase in servicing income duringother non-interest income. The decrease in net gain/(loss) on sale of loans held for sale was primarily due to the second quarter 2021 sale of our portfolio of MSRs and transition of the MCA program to a third-party.
Non-interest Expense
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Salaries and employee benefits | $ | 86,830 | | | $ | 100,791 | | | $ | 174,352 | | | $ | 177,984 | |
Net occupancy expense | 7,865 | | | 9,134 | | | 16,139 | | | 17,846 | |
Marketing | 1,900 | | | 7,988 | | | 3,597 | | | 16,510 | |
Legal and professional | 9,147 | | | 11,330 | | | 17,424 | | | 28,796 | |
Communications and technology | 14,352 | | | 42,760 | | | 30,321 | | | 56,551 | |
FDIC insurance assessment | 5,226 | | | 7,140 | | | 11,839 | | | 12,989 | |
Servicing-related expenses | 12,355 | | | 20,100 | | | 25,344 | | | 36,454 | |
| | | | | | | |
Merger-related expenses | — | | | 10,486 | | | — | | | 17,756 | |
Other | 11,385 | | | 12,606 | | | 20,360 | | | 22,866 | |
Total non-interest expense | $ | 149,060 | | | $ | 222,335 | | | $ | 299,376 | | | $ | 387,752 | |
Non-interest expense for the three months ended SeptemberJune 30, 20172021 decreased $73.3 million compared to the same period of 2016in 2020. The decrease was primarily attributabledue to an increasedecreases in MSRs. Offsetting this increase was a $1.4 million decrease in brokered loan fees compared tosalaries and employee benefits, communications and technology expense, servicing-related expenses and merger-related expenses.
Non-interest expense for the threesix months ended SeptemberJune 30, 2016 resulting from a decrease in total mortgage finance volumes.
Non-interest income increased $12.92021 decreased $88.4 million during the nine months ended September 30, 2017 compared to the same period of 2016. This increasein 2020. The decrease was primarily due to a $10.1 million increase in servicing income during the nine months ended September 30, 2017 compared to the same period of 2016 primarily attributable to an increase in MSRs. Service charges increased $1.9 million during the nine months ended September 30, 2017 compared to the same period of 2016 as a result of the increase in deposit balances and improved pricing of treasury services. Wealth management and trust fee income increased $1.4 million during the nine months ended September 30, 2017 compared to the same period of 2016 due to an increase in assets under management. Swap fees increased $1.1 million during the nine months ended September 30, 2017 compared to the same period of 2016. Swap fees relate to customer swap transactions and are received from the institution that is our counterparty on the transaction. These fees fluctuate from quarter to quarter based on the volume and size of transactions closed during the quarter. These increases were offset by minor decreases in brokered loan fees, BOLI income and other non-interest income compared to the same period of 2016.
While management expects continued growth in certain components of non-interest income, the future rate of growth could be affected by increased competition from nationwide and regional financial institutions among other factors. In order to achieve growth in non-interest income, management from time to time evaluates new products, new lines of business and the expansion of existing lines of business. Any new product introduction or new market entry could place additional demands on capital and managerial resources.
Non-interest Expense
The components of non-interest expense were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Salaries and employee benefits | $ | 67,882 |
| | $ | 56,722 |
| | $ | 194,039 |
| | $ | 162,904 |
|
Net occupancy expense | 6,436 |
| | 5,634 |
| | 19,062 |
| | 17,284 |
|
Marketing | 7,242 |
| | 4,292 |
| | 18,349 |
| | 12,686 |
|
Legal and professional | 6,395 |
| | 5,333 |
| | 20,975 |
| | 16,883 |
|
Communications and technology | 6,002 |
| | 6,620 |
| | 24,414 |
| | 19,228 |
|
FDIC insurance assessment | 6,203 |
| | 6,355 |
| | 16,800 |
| | 17,867 |
|
Servicing related expenses | 3,897 |
| | 620 |
| | 8,329 |
| | 1,305 |
|
Other(1) | 10,773 |
| | 9,223 |
| | 30,770 |
| | 27,717 |
|
Total non-interest expense | $ | 114,830 |
| | $ | 94,799 |
| | $ | 332,738 |
| | $ | 275,874 |
|
| |
(1) | Other expense includes such items as courier expenses, regulatory assessments other than FDIC insurance, due from bank charges and other general operating expenses, none of which account for 1% or more of total interest income and non-interest income. |
Non-interest expense for the third quarter of 2017 increased $20.0 million, or 21%, to $114.8 million from $94.8 million in the third quarter of 2016. The increase is primarily due to increases of $11.2 million in salaries and employee benefits expense, $3.0 million in marketing expense, and $1.1 million in legal and professional expense, all of which were due to general business growth and continued build-out. Also contributing to the year-over-year increase in non-interest expense was a $3.3 million increase in servicing related expenses resulting from an increase in MSRs, which are being amortized.
Non-interest expense for the nine months ended September 30, 2017 increased $56.9 million, or 21%, to $332.7 million from $275.9 million for the nine months ended September 30, 2016. The increase is primarily attributable to increases of $31.1 million in salaries and employee benefits expense, $5.7 million in marketing expense, $4.1 million in legal and professional expense, and $1.8 million in net occupancy expense, all of which were due to general business growth and continued build-out. The $5.2 million increase in communications and technology expense, primarily relates to the $5.3 million technology write-off taken in the second quarter of 2017, as well as general business growthservicing-related expenses and continued build-out. The $7.0 million increase in servicing related expenses resulting from an increase in MSRs, which are being amortized.merger-related expenses.
Analysis of Financial Condition
Loans Held for Investment
LoansThe following table summarizes our loans held for investment on a gross basis by portfolio segment:
| | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 | | | | | | |
(in thousands) | | | | | | | |
Commercial | $ | 9,054,764 | | | $ | 8,861,580 | | | | | | | |
Energy | 618,371 | | | 766,217 | | | | | | | |
Mortgage finance | 8,772,799 | | | 9,079,409 | | | | | | | |
| | | | | | | | | |
Real estate | 5,564,623 | | | 5,794,624 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Gross loans held for investment | $ | 24,010,557 | | | $ | 24,501,830 | | | | | | | |
Deferred income (net of direct origination costs) | (69,193) | | | (70,970) | | | | | | | |
Allowance for credit losses on loans | (221,511) | | | (254,615) | | | | | | | |
Total loans held for investment, net | $ | 23,719,853 | | | $ | 24,176,245 | | | | | | | |
Total gross loans held for investment were as follows as$24.0 billion at June 30, 2021, a decline of the dates indicated (in thousands):
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Commercial | $ | 8,810,825 |
| | $ | 7,291,545 |
|
Mortgage finance | 5,642,285 |
| | 4,497,338 |
|
Construction | 2,099,355 |
| | 2,098,706 |
|
Real estate | 3,683,564 |
| | 3,462,203 |
|
Consumer | 70,436 |
| | 34,587 |
|
Leases | 259,720 |
| | 185,529 |
|
Gross loans held for investment | 20,566,185 |
| | 17,569,908 |
|
Deferred income (net of direct origination costs) | (95,494 | ) | | (71,559 | ) |
Allowance for loan losses | (182,929 | ) | | (168,126 | ) |
Total loans held for investment, net | $ | 20,287,762 |
| | $ | 17,330,223 |
|
Our business plan focuses$491.3 million from December 31, 2020 primarily on lendingdue to middle market businessesdeclines in energy, mortgage finance and successful professionals and entrepreneurs, and as such, commercial, real estate and construction loans, have comprised a majoritypartially offset by an increase in commercial loans. The decline in the energy portfolio is consistent with our strategy of our loan portfolio. Consumer loans generally have represented 1% or less of the portfolio.planned reductions in this portfolio as it has experienced higher historic losses. Mortgage finance loans relate to our mortgage warehouse lending
operations in which we invest inpurchase mortgage loan ownership interests that are typically sold within 10 to 20 days. Volumes fluctuate based on the level of market demand for the product and the number of days between purchase and sale of the loans, as well aswhich can be affected by changes in overall market interest rates, and tend to peak at the end of each month. Despite the decline in the first half of 2021, balances in this portfolio remain elevated related to increases in volumes driven by continued lower long-term interest rates.
We originate a substantial majority of all loans held for investment (excluding mortgage finance loans).investment. We also participate in syndicated loan relationships, both as a participant and as an agent. As of SeptemberJune 30, 2017,2021, we had $2.6$2.0 billion in syndicated loans, $797.4$550.4 million of which we administer as agent. All syndicated loans, whether we act as agent or participant, are underwritten to the same standards as all other loans we originate. As of SeptemberJune 30, 2017, $23.62021, $12.8 million of our syndicated loans were on non-accrual.
Portfolio Geographic Concentrationand Industry Concentrations
When considering our mortgage finance loans and other national lines of business,Although more than 50% of our total loan exposure is outside of Texas and more than 50% of our deposits are sourced outside of Texas. However, asTexas, our Texas concentration remains significant. As of SeptemberJune 30, 2017,2021, a majority of our loans held for investment, excluding our mortgage finance loans and other national lines of business, were to businesses with headquarters andor operations in Texas. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. We also make loans to these customers that are secured by assets located outside of Texas.state. The risks created by this concentration have been considered by management in the determination of the appropriateness of the allowance for loancredit losses.
Summary of Loan Loss Experience
The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the allowance for loan losses at a level consistent with management’s assessment of the collectability of the loan portfolio in light of current economic conditions and market trends. We recorded a provision for credit losses of $20.0 million during the third quarter of 2017 compared to $22.0 million in the third quarter of 2016 and $13.0 million in the second quarter of 2017. The decrease in provision recorded during the third quarter of 2017 compared to the same period in 2016 was primarily related to improvements in the composition of our pass-rated and classified loan portfolios, including energy loans, offset by a $4.5 million provision related to the potential impact to our loan portfolio from Hurricanes Harvey and Irma and increased provision for loan growth.
The allowance for credit losses, which includes a liability for losses on unfunded commitments, totaled $192.7 million at September 30, 2017, $179.5 million at December 31, 2016 and $191.3 million at September 30, 2016. The combined allowance as a percentage of loans held for investment excluding mortgage finance loans decreased to 1.30% at September 30, 2017 from 1.38% and1.51% at December 31, 2016 and September 30, 2016, respectively, as a result of strong loan growth.
The allowance for credit losses results from consistent application of our loan loss reserve methodology. At September 30, 2017, we believe the allowance is sufficient to cover all inherent losses in the portfolio and has been derived from consistent application of our methodology. Should any of the factors considered by management in evaluating the appropriateness of the allowance for loan losses change, our estimate of inherent losses in the portfolio could also change, which would affect the level of future provisions for loan losses.
Activity in the allowance for loan losses is presented in the following table (in thousands, except percentage and multiple data):
|
| | | | | | | | | | | |
| Nine months ended September 30, 2017 | | Year ended December 31, 2016 | | Nine months ended September 30, 2016 |
Allowance for loan losses: | | | | | |
Beginning balance | $ | 168,126 |
| | $ | 141,111 |
| | $ | 141,111 |
|
Loans charged-off: | | | | | |
Commercial | 32,146 |
| | 56,558 |
| | 34,232 |
|
Construction | 59 |
| | — |
| | — |
|
Real estate | 290 |
| | 528 |
| | 528 |
|
Consumer | 180 |
| | 47 |
| | 40 |
|
Leases | — |
| | — |
| | — |
|
Total charge-offs | 32,675 |
| | 57,133 |
| | 34,800 |
|
Recoveries: | | | | | |
Commercial | 3,574 |
| | 9,364 |
| | 7,829 |
|
Construction | 104 |
| | 34 |
| | 34 |
|
Real estate | 74 |
| | 63 |
| | 36 |
|
Consumer | 56 |
| | 21 |
| | 16 |
|
Leases | 9 |
| | 77 |
| | 71 |
|
Total recoveries | 3,817 |
| | 9,559 |
| | 7,986 |
|
Net charge-offs | 28,858 |
| | 47,574 |
| | 26,814 |
|
Provision for loan losses | 43,661 |
| | 74,589 |
| | 66,139 |
|
Ending balance | $ | 182,929 |
| | $ | 168,126 |
| | $ | 180,436 |
|
Allowance for off-balance sheet credit losses: | | | | | |
Beginning balance | $ | 11,422 |
| | $ | 9,011 |
| | $ | 9,011 |
|
Provision for off-balance sheet credit losses | (1,661 | ) | | 2,411 |
| | 1,861 |
|
Ending balance | $ | 9,761 |
| | $ | 11,422 |
| | $ | 10,872 |
|
Total allowance for credit losses | $ | 192,690 |
| | $ | 179,548 |
| | $ | 191,308 |
|
Total provision for credit losses | $ | 42,000 |
| | $ | 77,000 |
| | $ | 68,000 |
|
Allowance for loan losses to LHI | 0.89 | % | | 0.96 | % | | 1.02 | % |
Allowance for loan losses to LHI excluding mortgage finance loans | 1.23 | % | | 1.29 | % | | 1.42 | % |
Net charge-offs to average LHI(1) | 0.22 | % | | 0.29 | % | | 0.22 | % |
Net charge-offs to average LHI excluding mortgage finance loans(1) | 0.28 | % | | 0.38 | % | | 0.29 | % |
Total provision for credit losses to average LHI(1) | 0.32 | % | | 0.46 | % | | 0.55 | % |
Total provision for credit losses to average LHI excluding mortgage finance loans(1) | 0.41 | % | | 0.62 | % | | 0.74 | % |
Recoveries to total charge-offs | 11.68 | % | | 16.73 | % | | 22.95 | % |
Allowance for off-balance sheet credit losses to off-balance sheet credit commitments | 0.14 | % | | 0.19 | % | | 0.19 | % |
Combined allowance for credit losses to LHI | 0.94 | % | | 1.03 | % | | 1.09 | % |
Combined allowance for credit losses to LHI excluding mortgage finance loans | 1.30 | % | | 1.38 | % | | 1.51 | % |
Non-performing assets: | | | | | |
Non-accrual loans(2) | $ | 118,205 |
| | $ | 167,791 |
| | $ | 169,113 |
|
OREO(3) | 18,131 |
| | 18,961 |
| | 19,009 |
|
Total | $ | 136,336 |
| | $ | 186,752 |
| | $ | 188,122 |
|
Loans past due 90 days and still accruing(4) | 8,892 |
| | 10,729 |
| | 9,706 |
|
Allowance for loan losses to non-accrual loans | 1.5x |
| | 1.0x |
| | 1.1x |
|
| |
(1) | Interim period ratios are annualized. |
| |
(2) | As of September 30, 2017, December 31, 2016 and September 30, 2016, non-accrual loans included $12.0 million, $18.1 million and $19.7 million, respectively, in loans that met the criteria for restructured. |
| |
(3) | We recorded a $101,000 valuation allowance against the OREO balance at September 30, 2017, compared to none at December 31, 2016 and September 30, 2016. |
| |
(4) | At September 30, 2017, December 31, 2016 and September 30, 2016, loans past due 90 days and still accruing include premium finance loans of $8.4 million, $6.8 million and $7.7 million, respectively. |
Non-performing Assets
Non-performing assets include non-accrual loans and leases and repossessed assets. The table below summarizes our non-accrual loansnon-performing assets by type and by type of property securing the creditcredit:
| | | | | | | | | | | | | | | | | |
| |
(in thousands) | June 30, 2021 | | December 31, 2020 | | June 30, 2020 |
Non-accrual loans(1) | | | | | |
Commercial | | | | | |
| | | | | |
Assets of the borrowers | $ | 16,715 | | | $ | 18,776 | | | $ | 27,164 | |
Inventory | 8,497 | | | 3,547 | | | 13,325 | |
| | | | | |
Other | 10,144 | | | 9,773 | | | 10,717 | |
Total commercial | 35,356 | | | 32,096 | | | 51,206 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Energy | | | | | |
Oil and gas properties | 32,866 | | | 51,724 | | | 103,874 | |
Total energy | 32,866 | | | 51,724 | | | 103,874 | |
Real estate | | | | | |
Assets of the borrowers | 14,098 | | | 14,496 | | | 14,883 | |
Commercial property | 2,639 | | | 13,569 | | | 1,096 | |
Hotel/motel | — | | | 4,619 | | | — | |
Single family residences | 1,677 | | | 218 | | | 218 | |
| | | | | |
| | | | | |
Other | — | | | 5,267 | | | 2,754 | |
Total real estate | 18,413 | | | 38,169 | | | 18,951 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total non-performing assets | $ | 86,635 | | | $ | 121,989 | | | $ | 174,031 | |
Restructured loans - accruing | $ | — | | | $ | — | | | $ | — | |
Loans held for investment past due 90 days and accruing(2) | 7,671 | | | 12,541 | | | 21,079 | |
Loans held for sale non-accrual(3) | — | | | 6,966 | | | — | |
Loans held for sale past due 90 days and accruing(4) | 2,695 | | | 16,667 | | | 10,152 | |
(1)As of June 30, 2021, December 31, 2020 and OREO (in thousands):June 30, 2020, non-accrual loans included $24.4 million, $45.4 million and $23.7 million, respectively, in loans that met the criteria for restructured.
(2)At June 30, 2021, December 31, 2020 and June 30, 2020, loans past due 90 days and still accruing includes premium finance loans of $3.0 million, $6.4 million and $14.8 million, respectively. |
| | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 | | September 30, 2016 |
| | | | | |
Non-accrual loans:(1) | | | | | |
Commercial | | | | | |
Oil and gas properties | $ | 80,142 |
| | $ | 115,599 |
| | $ | 143,372 |
|
Assets of the borrowers | 9,841 |
| | 18,592 |
| | 17,335 |
|
Inventory | 23,121 |
| | 27,630 |
| | 2,020 |
|
Other | 3,283 |
| | 3,119 |
| | 3,606 |
|
Total commercial | 116,387 |
| | 164,940 |
| | 166,333 |
|
Construction | | | | | |
Commercial buildings | — |
| | — |
| | — |
|
Unimproved land | — |
| | — |
| | — |
|
Other | — |
| | 159 |
| | 159 |
|
Total construction | — |
| | 159 |
| | 159 |
|
Real estate | | | | | |
Commercial property | 1,123 |
| | 2,083 |
| | 2,087 |
|
Unimproved land and/or developed residential lots | — |
| | — |
| | — |
|
Single family residences | — |
| | — |
| | — |
|
Farm land | — |
| | 326 |
| | — |
|
Other | 695 |
| | — |
| | 334 |
|
Total real estate | 1,818 |
| | 2,409 |
| | 2,421 |
|
Consumer | — |
| | 200 |
| | 200 |
|
Leases | — |
| | 83 |
| | — |
|
Total non-accrual loans | 118,205 |
| | 167,791 |
| | 169,113 |
|
Repossessed assets: | | | | | |
OREO(2) | 18,131 |
| | 18,961 |
| | 19,009 |
|
Other repossessed assets | — |
| | — |
| | — |
|
Total non-performing assets | $ | 136,336 |
| | $ | 186,752 |
| | $ | 188,122 |
|
(3)Includes one non-accrual loan previously reported in loans HFI that was transferred to loans HFS as of December 31, 2020 and subsequently sold at carrying value.
(4)Includes loans guaranteed by U.S. government agencies that were repurchased out of Ginnie Mae securities. Loans are recorded as loans held for sale and carried at fair value on the balance sheet. Interest on these past due loans accrues at the debenture rate guaranteed by the U.S. government. Also includes loans that, pursuant to Ginnie Mae servicing guidelines, we have the unilateral right, but not the obligation, to repurchase if defined delinquent loan criteria are met and therefore must record as loans held for sale on our balance sheet regardless of whether the repurchase option has been exercised.
| |
(1) | As of September 30, 2017, December 31, 2016 and September 30, 2016, non-accrual loans included $12.0 million, $18.1 million and $19.7 million, respectively, in loans that met the criteria for restructured. |
| |
(2) | We recorded a $101,000 valuation allowance against the OREO balance at September 30, 2017, compared to none at December 31, 2016 and September 30, 2016. |
Total non-performing assets at SeptemberJune 30, 20172021 decreased $51.8 million from September 30, 2016 and $50.4$35.4 million from December 31, 2016. We experienced a significant decrease in levels of non-performing assets during the nine months ended September 30, 20172020 and decreased $87.4 million compared to the same period in 2016, primarily related to improvements in our energy portfolio. Energy non-performing assets totaled $81.6 million at SeptemberJune 30, 2017 compared to $121.5 million at2020. The decrease from December 31, 20162020 was primarily due to declines in energy and $129.3 million at Septemberreal estate non-accrual loans, and the decrease from June 30, 2016. Our provision for credit losses decreased as a result of these improvements, as well as improvements2020 was primarily due to declines in the composition of our pass-ratedcommercial and classified loan portfolios. This resulted in a decrease in the reserve for loan losses as a percent of loans excluding mortgage finance loans for September 30, 2017 compared to December 31, 2016 and September 30, 2016.energy non-accrual loans.
Potential problem loans consist of loans that are performing in accordance with contractual terms, but for which we have concerns about the borrower’s ability to comply with repayment terms because of the borrower’s potential financial difficulties. We monitor these loans closely and review their performance on a regular basis. At SeptemberJune 30, 2017,2021, we had $34.6$22.0 million in loans of this type, compared to $19.3$193.2 million at December 31, 2016,2020 and $132.0 million at June 30, 2020. The decline in potential problem loans is consistent with the continued economic recovery from the impacts of the COVID-19 pandemic.
Summary of Credit Loss Experience
The provision for credit losses, which were not includedincludes a provision for losses on unfunded commitments, is a charge to earnings to maintain the allowance for credit losses at a level consistent with management’s assessment of expected losses in eitherthe loan portfolio at the balance sheet date. We recorded a $25.0 million negative provision for credit losses for the six months ended June 30, 2021, compared to a provision of $196.0 million in the same period of 2020. The year-over-year decrease resulted primarily from decreases in charge-offs and non-accrual or 90 days pastloans, as well as improvement in the economic outlook as the economy continues to recover from the impacts of the COVID-19 pandemic. We recorded $8.8 million in net charge-offs during the six months ended June 30, 2021, compared to $131.8 million during the same period of 2020. Criticized loans totaled $891.6 million at June 30, 2021, compared to $918.4 million at December 31, 2020 and $1.0 billion at June 30, 2020.
The table below presents a summary of our loan loss experience:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six months ended June 30, 2021 | | Year ended December 31, 2020 | | Six months ended June 30, 2020 | | | | | | | |
(in thousands except percentage and multiple data) | | | | | | | | | | | |
Allowance for credit losses on loans: | | | | | | | | | | | | | | |
Beginning balance | | | $ | 254,615 | | | $ | 195,047 | | | $ | 195,047 | | | | | | | | |
Impact of CECL adoption | | | — | | | 8,585 | | | 8,585 | | | | | | | | |
Loans charged-off: | | | | | | | | | | | | | | |
Commercial | | | 3,863 | | | 73,360 | | | 32,940 | | | | | | | | |
Energy | | | 6,418 | | | 133,522 | | | 100,098 | | | | | | | | |
| | | | | | | | | | | | | | |
Real estate | | | 1,192 | | | 180 | | | — | | | | | | | | |
| | | | | | | | | | | | | | |
Total charge-offs | | | 11,473 | | | 207,062 | | | 133,038 | | | | | | | | |
Recoveries: | | | | | | | | | | | | | | |
Commercial | | | 1,358 | | | 1,277 | | | 770 | | | | | | | | |
Energy | | | 1,324 | | | 6,999 | | | 423 | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Total recoveries | | | 2,682 | | | 8,276 | | | 1,193 | | | | | | | | |
Net charge-offs | | | 8,791 | | | 198,786 | | | 131,845 | | | | | | | | |
Provision for credit losses on loans | | | (24,313) | | | 249,769 | | | 192,935 | | | | | | | | |
Ending balance | | | $ | 221,511 | | | $ | 254,615 | | | $ | 264,722 | | | | | | | | |
Allowance for off-balance sheet credit losses: | | | | | | | | | | | | | | |
Beginning balance | | | $ | 17,434 | | | 8,640 | | | $ | 8,640 | | | | | | | | |
Impact of CECL adoption | | | — | | | 563 | | | 563 | | | | | | | | |
Provision for off-balance sheet credit losses | | | (687) | | | 8,231 | | | 3,065 | | | | | | | | |
Ending balance | | | $ | 16,747 | | | $ | 17,434 | | | $ | 12,268 | | | | | | | | |
Total allowance for credit losses | | | $ | 238,258 | | | $ | 272,049 | | | $ | 276,990 | | | | | | | | |
Total provision for credit losses | | | $ | (25,000) | | | $ | 258,000 | | | $ | 196,000 | | | | | | | | |
Allowance for credit losses on loans to LHI | | | 0.93 | | % | 1.04 | | % | 1.04 | | % | | | | | | |
Net charge-offs to average LHI | | | 0.08 | | % | 0.80 | | % | 1.07 | | % | | | | | | |
Total provision for credit losses to average LHI | | | (0.22) | | % | 1.03 | | % | 1.60 | | % | | | | | | |
Recoveries to total charge-offs | | | 23.38 | | % | 4.00 | | % | 0.90 | | % | | | | | | |
Allowance for off-balance sheet credit losses to off-balance sheet credit commitments | | | 0.20 | | % | 0.20 | | % | 0.15 | | % | | | | | | |
Total allowance for credit losses to LHI | | | 1.00 | | % | 1.11 | | % | 1.09 | | % | | | | | | |
Allowance for credit losses on loans as a multiple of non-performing loans | | | 2.6 | | x | 2.1 | | x | 1.5 | | x | | | | | | |
The allowance for credit losses, including the allowance for losses on unfunded commitments reported on the consolidated balance sheets in other liabilities, totaled $238.3 million at June 30, 2021, $272.0 million at December 31, 2020 and $277.0 million at June 30, 2020. The total allowance for credit losses as a percentage of loans held for investment was 1.00% at June 30, 2021, compared to 1.11% at December 31, 2020 and 1.09% at June 30, 2020. The total allowance for credit losses as a percentage of loans held for investment, excluding mortgage finance, was 1.57% at June 30, 2021, compared to 1.77% at December 31, 2020 and 1.67% at June 30, 2020. The decrease in the total allowance as a percentage of loans held for investment at June 30, 2021, compared to June 30, 2020, is due categories.primarily to a decrease in the allowance for credit losses, resulting from reserve releases during the first half of 2021 driven by a decrease in charge-offs and improvement in the economic outlook as the economy continues to recover from the impacts of the COVID-19 pandemic.
Loans Held for Sale
We launched ourThrough the MCA business in the third quarter of 2015. In that business,program we commit to purchase residential mortgage loans from independent correspondent lenders and deliver those loans into the secondary market via whole loan sales to independent third parties or in securitization transactions to Ginnie Mae and GSEsGovernment Sponsored Enterprises (“GSEs”) such as Fannie Mae and Freddie Mac. For additional information on our loans held for sale, portfolio, see Note 65 - Certain Transfers of Financial Assets in the accompanying notes to the consolidated financial statements included elsewhere in this report.
Liquidity and Capital Resources
In general terms, liquidity is a measurement of our ability to meet our cash needs. Our objectiveobjectives in managing our liquidity isare to maintain our ability to meet loan commitments, purchaserepurchase investment securities orand repay deposits and other liabilities in accordance with their terms, without an adverse impact on our current or future earnings. Our liquidity strategy is guided by policies, formulated and monitored by our senior management and our Balance SheetAsset and Liability Management Committee (“BSMC”ALCO”), which take into account the demonstrated marketability of our assets, the sources and stability of our funding and the level of unfunded commitments. We regularly evaluate all of our various funding sources with an emphasis on accessibility, stability, reliability and cost effectiveness. For the year ended December 31, 2016 and for the nine months ended September 30, 2017 ourcost-effectiveness. Our principal source of funding has been ouris customer deposits, supplemented by our short-term and long-term borrowings, primarily from Federalfederal funds purchased and Federal Home Loan Bank ("FHLB"(“FHLB”) borrowings, which are generally used to fund mortgage finance assets.
Liquidity assets were $2.4 billion at September 30, 2017, We also rely on the availability of the mortgage secondary market provided by Ginnie Mae and continuethe GSEs to be significant as a resultsupport the liquidity of deposit growth and increases in borrowing capacity related to our mortgage finance loans.assets.
Throughout 2020 we significantly increased our liquidity assets to ensure that we had the balance sheet strength to serve our clients during the COVID-19 pandemic. Through the first six months of 2021 these balances have remained elevated, although they are beginning to run off as we have purchased investment securities and proactively exited certain high-cost indexed deposit products. The following table summarizes the composition of liquidity assets (in thousands):assets:
| | | September 30, 2017 | | December 31, 2016 | | September 30, 2016 | |
(in thousands except percentage data) | | (in thousands except percentage data) | | June 30, 2021 | | December 31, 2020 | | June 30, 2020 | |
Federal funds sold and securities purchased under resale agreements | $ | 25,000 |
| | $ | 25,000 |
| | $ | 30,000 |
| Federal funds sold and securities purchased under resale agreements | | $ | — | | | $ | — | | | $ | 50,000 | | |
Interest-bearing deposits | 2,332,537 |
| | 2,700,645 |
| | 3,441,074 |
| Interest-bearing deposits | | 6,768,650 | | | 9,032,807 | | | 9,490,044 | | |
Total liquidity assets | $ | 2,357,537 |
| | $ | 2,725,645 |
| | $ | 3,471,074 |
| Total liquidity assets | | $ | 6,768,650 | | | $ | 9,032,807 | | | $ | 9,540,044 | | |
| | | | | | |
Total liquidity assets as a percent of: | | | | | | Total liquidity assets as a percent of: | | |
Total loans held for investment, excluding mortgage finance loans | 15.9 | % | | 21.0 | % | | 27.4 | % | |
Total loans held for investment | 11.5 | % | | 15.6 | % | | 19.7 | % | Total loans held for investment | | 28.3 | % | | 37.0 | % | | 37.4 | % | |
Total earning assets | 10.0 | % | | 12.9 | % | | 16.1 | % | Total earning assets | | 19.7 | % | | 24.6 | % | | 26.9 | % | |
Total deposits | 12.4 | % | | 16.0 | % | | 19.1 | % | Total deposits | | 23.5 | % | | 29.1 | % | | 31.6 | % | |
Our liquidity needs to support growth in loans held for investment have been fulfilled primarily through growth in our core customer deposits. Our goal is to obtain as much of our funding for loans held for investment and other earning assets as possible from deposits of these core customers. These deposits are generated principally through development of long-term customer relationships, with customers, with a significant focus on treasury management products. In addition to deposits from our core customers, we also have access to deposits through brokered customer relationships. For regulatory purposes, these relationship brokered deposits are categorized as brokered deposits; however, since these deposits arise from a customer relationship, which involves extensive treasury services, we consider these deposits to be core deposits for our reporting purposes.
We also have access to incremental deposits through brokered retail certificates of deposit, or CDs. These traditional brokered deposits are generally of short maturities 30 to 90 days, and are used to fund temporary differences in the growth in loansloan balances, including growth in loans held for sale or other specific categories of loans as compared to customer deposits. The following table summarizes our period-end and average year-to-date core customer deposits, relationship brokered deposits and traditional brokered deposits (in millions):deposits:
| | | | | | | | | | | | | | | | | |
| | | |
(in thousands) | June 30, 2021 | | December 31, 2020 | | June 30, 2020 |
Deposits from core customers | $ | 26,309,504 | | | $ | 27,581,532 | | | $ | 25,636,902 | |
Deposits from core customers as a percent of total deposits | 91.2 | % | | 89.0 | % | | 84.9 | % |
Relationship brokered deposits | $ | 1,373,763 | | | $ | 1,771,883 | | | $ | 2,236,028 | |
Relationship brokered deposits as a percent of average total deposits | 4.8 | % | | 5.7 | % | | 7.4 | % |
Traditional brokered deposits | $ | 1,156,296 | | | $ | 1,643,174 | | | $ | 2,314,765 | |
Traditional brokered deposits as a percent of total deposits | 4.0 | % | | 5.3 | % | | 7.7 | % |
Average deposits from core customers(1) | $ | 29,545,933 | | | $ | 26,537,612 | | | $ | 24,640,460 | |
Average deposits from core customers as a percent of average total deposits | 90.2 | % | | 86.0 | % | | 84.3 | % |
Average relationship brokered deposits(1) | $ | 1,804,015 | | | $ | 2,099,652 | | | $ | 1,961,338 | |
Average relationship brokered deposits as a percent of average total deposits | 5.5 | % | | 6.8 | % | | 6.7 | % |
Average traditional brokered deposits(1) | $ | 1,393,231 | | | $ | 2,235,359 | | | $ | 2,623,324 | |
Average traditional brokered deposits as a percent of average total deposits | 4.3 | % | | 7.2 | % | | 9.0 | % |
|
| | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 | | September 30, 2016 |
Deposits from core customers | $ | 17,259.2 |
| | $ | 15,400.5 |
| | $ | 16,633.0 |
|
Deposits from core customers as a percent of total deposits | 90.5 | % | | 90.5 | % | | 91.7 | % |
Relationship brokered deposits | $ | 1,822.1 |
| | $ | 1,616.3 |
| | $ | 1,512.2 |
|
Relationship brokered deposits as a percent of total deposits | 9.5 | % | | 9.5 | % | | 8.3 | % |
Traditional brokered deposits | $ | — |
| | $ | — |
| | $ | — |
|
Traditional brokered deposits as a percent of total deposits | — | % | | — | % | | — | % |
Average deposits from core customers(1) | $ | 16,239.7 |
| | $ | 15,723.8 |
| | $ | 15,277.0 |
|
Average deposits from core customers as a percent of total quarterly average deposits(1) | 91.4 | % | | 91.3 | % | | 91.2 | % |
Average relationship brokered deposits(1) | $ | 1,527.1 |
| | $ | 1,496.1 |
| | $ | 1,480.6 |
|
Average relationship brokered deposits as a percent of total quarterly average deposits(1) | 8.6 | % | | 8.7 | % | | 8.8 | % |
Average traditional brokered deposits(1) | $ | — |
| | $ | — |
| | $ | — |
|
Average traditional brokered deposits as a percent of total quarterly average deposits(1) | — | % | | — | % | | — | % |
(1) Annual averages presented for December 31, 2020. | |
(1) | Annual averages presented for December 31, 2016. |
We have access to sources of traditional brokered deposits that we estimate to be $3.5$7.5 billion. Based on our internal guidelines, we have currently chosen to limit our use of these sources to a lesser amount. Customer deposits (total deposits, including relationship brokered deposits, minus brokered CDs) at September 30, 2017 increased by $2.1 billion from December 31, 2016 and increased $936.1 million from September 30, 2016.
We have short-term borrowing sources available to supplement deposits and meet our funding needs. Such borrowings are generally used to fund our mortgage finance assets,loans, due to their liquidity, short duration and interest spreads available. These
borrowing sources include Federalfederal funds purchased from our downstream correspondent bank relationships (which consist of banks that are smaller than our bank)Bank) and from our upstream correspondent bank relationships (which consist of banks that are larger than our bank)Bank), customer repurchase agreements treasury, tax and loan notes and advances from the FHLB and the Federal Reserve. The following table summarizes our short-term borrowings as of September 30, 2017 (in thousands):and other borrowings:
| | | | | | | | | | |
| | |
(in thousands) | | June 30, 2021 | | |
Federal funds purchased | | $ | 10,000 | | | |
Repurchase agreements | | 4,481 | | | |
FHLB borrowings | | 2,000,000 | | | |
Line of credit | | — | | | |
Total short-term borrowings | | $ | 2,014,481 | | | |
Maximum short-term borrowings outstanding at any month-end during 2021 | | $ | 2,907,202 | | | |
|
| | | |
| |
Federal funds purchased | $ | 75,800 |
|
Repurchase agreements | 7,696 |
|
FHLB borrowings | 2,500,000 |
|
Line of credit | — |
|
Total short-term borrowings | $ | 2,583,496 |
|
Maximum short-term borrowings outstanding at any month-end during 2017 | $ | 3,162,224 |
|
The following table summarizes our other borrowing capacities in excessnet of balances outstanding at Septemberoutstanding. As of June 30, 2017 (in thousands):2021, all are scheduled to mature within one year. |
| | | |
| |
FHLB borrowing capacity relating to loans | $ | 4,218,138 |
|
FHLB borrowing capacity relating to securities | 1,424 |
|
Total FHLB borrowing capacity | $ | 4,219,562 |
|
Unused Federal funds lines available from commercial banks | $ | 1,164,000 |
|
| | | | | | | | | | |
| | | | |
(in thousands) | | June 30, 2021 | | |
FHLB borrowing capacity relating to loans | | $ | 6,680,417 | | | |
FHLB borrowing capacity relating to securities | | 3,553,721 | | | |
Total FHLB borrowing capacity(1) | | $ | 10,234,138 | | | |
Unused federal funds lines available from commercial banks | | $ | 1,235,000 | | | |
Unused Federal Reserve borrowings capacity | | $ | 2,003,114 | | | |
Unused revolving line of credit(2) | | $ | 130,000 | | | |
(1) FHLB borrowings are collateralized by a blanket floating lien on certain real estate secured loans, mortgage finance assets and also certain pledged securities.
The following table summarizes our long-term borrowings as of September 30, 2017 (in thousands): |
| | | |
| |
Subordinated notes | $ | 281,315 |
|
Trust preferred subordinated debentures | 113,406 |
|
Total long-term borrowings | $ | 394,721 |
|
At September 30, 2017, we had a(2) Unsecured revolving, non-amortizing line of credit with a maximum availabilitymaturity date of $130.0 million. This line of credit matures on December 19, 2017. The loan proceeds14, 2021. Proceeds may be used for general corporate purposes, including funding regulatory capital infusions into the Bank. The loan agreement contains customary financial covenants and restrictions. AsNo borrowings were made against this line of September 30, 2017 and December 31, 2016, there were no borrowings outstanding.
Our equity capital, including $150 million in preferred stock, averaged $2.1 billion forcredit during the ninesix months ended SeptemberJune 30, 2017,2021.
Periodically, based on market conditions and other factors, and subject to compliance with applicable laws and regulations and the terms of our existing indebtedness, we or the Bank may repay, repurchase, exchange or redeem outstanding indebtedness, or otherwise enter into transactions regarding our debt or capital structure. For example, we and the Bank periodically evaluate and may engage in liability management transactions, including repurchases or redemptions of outstanding subordinated notes, which may be funded by the issuance of, or exchanges of, newly issued unsecured borrowings, as comparedwe seek to $1.7 billion for the same period in 2016. We have not paid any cash dividends onactively manage our common stock since we commenced operationsdebt maturity profile and have no plans to do sointerest cost.
For additional information regarding our borrowings and our capital and stockholders' equity, see Note 6 – Long-Term Debt and Note 8 – Regulatory Restrictions, respectively, in the foreseeable future.accompanying notes to the consolidated financial statements included elsewhere in this report.
As of September 30, 2017, our capital ratios were above the levels required to be well capitalized. We believe that our earnings, periodic capital raising transactions and the addition of loan and deposit relationships will allow us to continue to grow organically.
Commitments and Contractual Obligations
The following table presents, significant fixed and determinable contractual payment obligations to third parties by payment date. Payments for borrowings do not include interest. Payments related to leases are based on actual payments specified in the underlying contracts. Asas of SeptemberJune 30, 2017, our2021, significant fixed and determinable contractual obligations to third parties excluding interest, were as follows (in thousands):by payment date. Amounts in the table do not include accrued or accruing interest.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years | | Total |
Deposits without a stated maturity | | | $ | 27,123,020 | | | $ | — | | | $ | — | | | $ | — | | | $ | 27,123,020 | |
Time deposits | | | 1,113,324 | | | 599,274 | | | 3,940 | | | 5 | | | 1,716,543 | |
Federal funds purchased and customer repurchase agreements | | | 14,481 | | | — | | | — | | | — | | | 14,481 | |
FHLB borrowings | | | 2,000,000 | | | — | | | — | | | — | | | 2,000,000 | |
Operating lease obligations | | | 17,211 | | | 32,286 | | | 12,989 | | | 20,154 | | | 82,640 | |
Long-term debt | | | — | | | — | | | 443,288 | | | 484,098 | | | 927,386 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total contractual obligations | | | $ | 30,268,036 | | | $ | 631,560 | | | $ | 460,217 | | | $ | 504,257 | | | $ | 31,864,070 | |
Off-Balance Sheet Arrangements
We enter into commitments to extend credit and standby letters of credit in the ordinary course of business, details of which are described in Note 1 – Operations and Summary of Significant Accounting Policies in our 2020 Form 10-K. For additional information, see Note 7 – Financial Instruments with Off-Balance Sheet Risk in the accompanying notes to the consolidated financial statements included elsewhere in this report.
|
| | | | | | | | | | | | | | | | | | | |
| Within One Year | | After One but Within Three Years | | After Three but Within Five Years | | After Five Years | | Total |
Deposits without a stated maturity | $ | 18,548,721 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 18,548,721 |
|
Time deposits | 491,917 |
| | 40,075 |
| | 544 |
| | — |
| | 532,536 |
|
Federal funds purchased and customer repurchase agreements | 83,496 |
| | — |
| | — |
| | — |
| | 83,496 |
|
FHLB borrowings | 2,500,000 |
| | — |
| | — |
| | — |
| | 2,500,000 |
|
Operating lease obligations(1) | 16,355 |
| | 31,809 |
| | 25,832 |
| | 20,429 |
| | 94,425 |
|
Subordinated notes | — |
| | — |
| | — |
| | 281,315 |
| | 281,315 |
|
Trust preferred subordinated debentures | — |
| | — |
| | — |
| | 113,406 |
| | 113,406 |
|
Total contractual obligations | $ | 21,640,489 |
| | $ | 71,884 |
| | $ | 26,376 |
| | $ | 415,150 |
| | $ | 22,153,899 |
|
| |
(1) | Non-balance sheet item. |
Critical Accounting Policies
SEC guidance requires disclosure of “critical accounting policies.” The SEC defines “critical accounting policies” as those that are most important to the presentation of a company’s financial condition and results, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
We follow financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States. The moreStates (“GAAP”). Certain significant of these policies are summarized in Note 1 - Operations and Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in the 2016this report and in our 2020 Form 10-K. Not all significant accounting policies require management to make difficult, subjective or complex judgments. However, the policy noted below could be deemed to meet the SEC’s definition of a critical accounting policy.
Allowance for LoanCredit Losses
Management considers the policies related to the allowance for loancredit losses as the most critical to the financial statement presentation. The total allowance for loancredit losses includes activity related to allowances calculated in accordance with Accounting Standards Codification (“ASC”) 310, Receivables, and ASC 450, Contingencies326, Credit Losses. The allowance for loancredit losses is established through a provision for credit losses charged to current earnings. The amount maintained in the allowance reflects management’s continuing evaluation of the loancredit losses inherentexpected to be recognized over the life of the loans in the loanour portfolio. The allowance for loancredit losses on loans is comprised of specific reserves assigneda valuation account that is deducted from the loans' amortized cost basis to certain classified loans and general reserves. Factors contributingpresent the net amount expected to be collected on the determination of specific reserves include the creditworthiness of the borrower, and more specifically, changes in the expected future receipt of principal and interest payments and/or in the value of pledged collateral. A reserve is recorded when the carrying amount of the loan exceeds the discounted estimated cash flows using the loan’s initial effective interest rate or the fair value of the collateral for certain collateral-dependent loans. For purposes of determining the general allowance for credit losses, the loan portfolio is segregated by product types in order to recognize differing risk profiles among categories, and then further segregated by credit grades. Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. Management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Adjustments to historical loss information are made to incorporate our reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments using a Portfolio Level Qualitative Factor (“PLQF”) and/or a Portfolio Segment Level Qualitative Factor (“SLQF”). The PLQF and SLQF are utilized to address factors that are not present in historical loss rates and are otherwise unaccounted for in the quantitative process. A reserve is recorded upon origination or purchase of a loan. See “Summary of LoanCredit Loss Experience” above and Note 4 – Loans Held for Investment and Allowance for LoanCredit Losses on Loans in the accompanying notes to the consolidated financial statements included elsewhere in this report for further discussion of the risk factors considered by management in establishing the allowance for loancredit losses.
Impact of Inflation and Changing Prices
The preparation of financial statements in conformity with GAAP requires management to measure the company’s financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on our operations is reflected in increased operating expenses. Management considers changes in interest rates to impact our financial condition and results of operations to a far greater degree than changes in prices due to inflation. Although interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. We manage our interest rate risk in several ways. Refer to “Interest Rate Risk Management” in Item 3 for further discussion. There can be no assurance that we will not be materially adversely affected by future changes in interest rates, as interest rates are highly sensitive to many factors that are beyond our control.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices, or equity prices. Additionally, the financial instruments subject to market risk can be classified either as held for trading purposes or held for other than trading.
We are subject to market risk primarily through the effect of changes in interest rates on our portfolio of assets held for purposes other than trading. Additionally, we have some market risk relative to commodity prices through our energy lending activities. PetroleumDeclines and natural gas commodity prices declined substantially beginning in 2014, and prices have continued to be suppressed through 2017. Such declinesvolatility in commodity prices have and, if continued, could negatively impactimpacted our energy clients' ability to perform on their loan obligations. Management does not currently expect the current declineobligations in commodity prices torecent years, and further uncertainty and volatility could have a material adverse effectnegative impact on our financial position.customers and our loan portfolio in future periods. Foreign exchange rates, commodity prices and/or(other than energy) and equity prices doare not expected to pose significant market risk to us.
The responsibility for managing market risk rests with the BSMC,ALCO, which operates under policy guidelines established by our board of directors. The acceptable negative acceptable variation in net interest revenue due to a 200100 basis point increase or decrease in interest rates is generally limited by these guidelines to plus or minus 5%10-12%. These guidelines also establish maximum levels for short-term borrowings, short-term assets and public and brokered deposits. They also establishdeposits and minimum levels for unpledged assets,liquidity, among other things. Oversight of our compliance with these guidelines is the ongoing responsibility of the BSMC,ALCO, with exceptions reported to the Executive Risk Management Committee, and to our board of directors if deemed necessary, on a quarterly basis. Additionally, the Credit Policy Committee ("CPC"(“CPC”) specifically manages risk relative to commodity price market risks. The CPC establishes maximum portfolio concentration levels for energy loans as well as maximum advance rates for energy collateral.
Interest Rate Risk Management
Our interest rate sensitivity is illustrated in the following table. The table reflects rate-sensitive positions as of SeptemberJune 30, 2017,2021, and is not necessarily indicative of positions on other dates. The balances of interest rate sensitive assets and liabilities are presented in the periods in which they next reprice to market rates or mature and are aggregated to show the interest rate sensitivity gap. The mismatch between repricings or maturities within a time period is commonly referred to as the “gap” for that period. A positive gap (asset sensitive), where interest-rate sensitiveinterest rate-sensitive assets exceed interest rate sensitive liabilities, generally will result in the net interest margin increasing in a rising rate environment and decreasing in a falling rate environment. A negative gap (liability sensitive) will generally have the opposite results on the net interest margin. To reflect anticipated prepayments, certain asset and liability categories are shown in the table using estimated cash flows rather than contractual cash flows. The Company employs interest rate floors in certain variable rate loans to enhance the yield on those loans at times when market interest rates are extraordinarily low. The degree of asset sensitivity, spreads on loans and net interest margin may be reduced until rates increase by an amount sufficient to eliminate the effects of floors. The adverse effect of floors as market rates increase may also be offset by the positive gap, the extent to which rates on deposits and other funding sources lag increasing market rates for loans and changes in composition of funding.
Interest Rate Sensitivity Gap Analysis
SeptemberJune 30, 20172021
(In thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | 0-3 mo Balance | | 4-12 mo Balance | | 1-3 yr Balance | | 3+ yr Balance | | Total Balance |
Assets: | | | | | | | | | |
Interest-bearing deposits in other banks, federal funds sold and securities purchased under resale agreements | $ | 6,971,199 | | | $ | — | | | $ | — | | | $ | — | | | $ | 6,971,199 | |
Investment securities(1) | 53,241 | | | 1,920 | | | 47,821 | | | 3,695,293 | | | 3,798,275 | |
Total variable loans | $ | 20,587,256 | | | $ | 165,989 | | | $ | 18,454 | | | $ | 262,401 | | | $ | 21,034,100 | |
Total fixed loans | 208,968 | | | 1,621,497 | | | 232,906 | | | 976,833 | | | 3,040,204 | |
Total loans(2) | 20,796,224 | | | 1,787,486 | | | 251,360 | | | 1,239,234 | | | 24,074,304 | |
Total interest sensitive assets | $ | 27,820,664 | | | $ | 1,789,406 | | | $ | 299,181 | | | $ | 4,934,527 | | | $ | 34,843,778 | |
Liabilities: | | | | | | | | | |
Interest-bearing customer deposits | $ | 12,894,982 | | | $ | — | | | $ | — | | | $ | — | | | $ | 12,894,982 | |
CDs & IRAs | 258,235 | | | 244,203 | | | 53,864 | | | 3,945 | | | 560,247 | |
Traditional brokered deposits | 169,765 | | | 441,121 | | | 545,410 | | | — | | | 1,156,296 | |
Total interest-bearing deposits | 13,322,982 | | | 685,324 | | | 599,274 | | | 3,945 | | | 14,611,525 | |
Repurchase agreements, federal funds purchased, FHLB borrowings | 2,014,481 | | | — | | | — | | | — | | | 2,014,481 | |
Long-term debt | 269,483 | | | — | | | — | | | 657,903 | | | 927,386 | |
| | | | | | | | | |
| | | | | | | | | |
Total borrowings | 2,283,964 | | | — | | | — | | | 657,903 | | | 2,941,867 | |
Total interest sensitive liabilities | $ | 15,606,946 | | | $ | 685,324 | | | $ | 599,274 | | | $ | 661,848 | | | $ | 17,553,392 | |
GAP | $ | 12,213,718 | | | $ | 1,104,082 | | | $ | (300,093) | | | $ | 4,272,679 | | | $ | — | |
Cumulative GAP | $ | 12,213,718 | | | $ | 13,317,800 | | | $ | 13,017,707 | | | $ | 17,290,386 | | | $ | 17,290,386 | |
| | | | | | | | | |
Demand deposits | | | | | | | | | 14,228,038 | |
Stockholders’ equity | | | | | | | | | 3,114,957 | |
Total | | | | | | | | | $ | 17,342,995 | |
(1)Investment securities based on fair market value.
(2)Total loans includes loans held for investments, stated at gross, and loans held for sale. |
| | | | | | | | | | | | | | | | | | | |
| 0-3 mo Balance | | 4-12 mo Balance | | 1-3 yr Balance | | 3+ yr Balance | | Total Balance |
Assets: | | | | | | | | | |
Interest-bearing deposits, federal funds sold and securities purchased under resale agreements | $ | 2,357,537 |
| | $ | — |
| | — |
| | $ | — |
| | $ | 2,357,537 |
|
Securities(1) | 7,397 |
| | 2,725 |
| | 1,158 |
| | 12,944 |
| | 24,224 |
|
Total variable loans | 18,252,896 |
| | 80,080 |
| | 13,745 |
| | — |
| | 18,346,721 |
|
Total fixed loans | 496,354 |
| | 1,439,840 |
| | 704,826 |
| | 534,427 |
| | 3,175,447 |
|
Total loans(2) | 18,749,250 |
| | 1,519,920 |
| | 718,571 |
| | 534,427 |
| | 21,522,168 |
|
Total interest sensitive assets | $ | 21,114,184 |
| | $ | 1,522,645 |
| | $ | 719,729 |
| | $ | 547,371 |
| | $ | 23,903,929 |
|
Liabilities: | | | | | | | | | |
Interest-bearing customer deposits | $ | 10,285,519 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,285,519 |
|
CDs & IRAs | 178,361 |
| | 313,556 |
| | 40,075 |
| | 544 |
| | 532,536 |
|
Traditional brokered deposits | — |
| | — |
| | — |
| | — |
| | — |
|
Total interest-bearing deposits | 10,463,880 |
| | 313,556 |
| | 40,075 |
| | 544 |
| | 10,818,055 |
|
Repurchase agreements, Federal funds purchased, FHLB borrowings, line of credit | 2,583,496 |
| | — |
| | — |
| | — |
| | 2,583,496 |
|
Subordinated notes | — |
| | — |
| | — |
| | 281,315 |
| | 281,315 |
|
Trust preferred subordinated debentures | — |
| | — |
| | — |
| | 113,406 |
| | 113,406 |
|
Total borrowings | 2,583,496 |
| | — |
| | — |
| | 394,721 |
| | 2,978,217 |
|
Total interest sensitive liabilities | $ | 13,047,376 |
| | $ | 313,556 |
| | $ | 40,075 |
| | $ | 395,265 |
| | $ | 13,796,272 |
|
Gap | $ | 8,066,808 |
| | $ | 1,209,089 |
| | $ | 679,654 |
| | $ | 152,106 |
| | $ | — |
|
Cumulative Gap | 8,066,808 |
| | 9,275,897 |
| | 9,955,551 |
| | 10,107,657 |
| | 10,107,657 |
|
| | | | | | | | | |
Demand deposits | | | | | | | | | $ | 8,263,202 |
|
Stockholders’ equity | | | | | | | | | 2,158,363 |
|
Total | | | | | | | | | $ | 10,421,565 |
|
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(1) | Securities based on fair market value. |
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(2) | Loans are stated at gross. |
The table above sets forth the balances as of September 30, 2017 for interest-bearing assets, interest-bearing liabilities and the total of non-interest-bearing deposits and stockholders’ equity. While a gap interest table is useful in analyzing interest rate sensitivity, an interest rate sensitivity simulation provides a better illustration of the sensitivity of earnings to changes in interest rates. Earnings are also affected by the effects of changing interest rates on the value of funding derived from demand deposits and stockholders’ equity. We perform a sensitivity analysis to identify interest rate risk exposure on net interest income. We quantify and measure interest rate risk exposure using a model to dynamically simulate the effect of changes in net interest income relative to changes in interest rates and loan and deposit account balances over the next twelve months based on three interest rate scenarios. These are a “most likely”static rate scenario and two “shock test” scenarios.
The “most likely” rate scenario isThese scenarios are based on the consensus forecast of future interest rates as of the last day of a reporting period published by independent sources. These forecastssources and incorporate future spot rates and relevant spreads of instruments that are actively traded in the open market. The Federal Reserve’s Federalfederal funds target affects short-term borrowing rates;borrowing; the prime lending rate and LIBOR are the basis for most of our variable-rate loan pricing. The 10-year mortgagetreasury rate is also monitored because of its effect on prepayment speeds for mortgage-backed securities. We believe thesesecurities and MSRs. These are our primary interest rate exposures. We are currently not currently using derivatives to manage our interest rate exposure.exposure, except for MSRs, although we may do so in the future if that appears advisable.
The twoFor modeling purposes, the “shock test” scenarios as of June 30, 2021 and 2020 assume aimmediate, sustained parallel 100 and 200 basis point increaseincreases in interest rates. As short-term rates have remaineddeclined during 2020 and remain low through 2016 and the first ninesix months of 2017,2021, we do not believe that analysis of an assumed decrease in interest rates would provide meaningful results. We will continue to evaluate these scenarios as interest rates change, until short-term rates rise above 3.0%, at which point we will resume evaluations of shock scenarios in which interest rates decrease.
Our interest rate risk exposure model incorporates assumptions regarding the level of interest rate or balance changes on indeterminable maturity deposits (demand deposits, interest-bearing transaction accounts and savings accounts) for a given level of market rate changes.change. In the current environment of decreasing short-term rates, deposit pricing can vary by product and customer. These assumptions have been developed through a combination of historical analysis and projection of future expected pricing behavior. Changes in prepayment behavior of mortgage-backed securities, and residential and commercial mortgage loans in each rate environment are captured using industry estimates of prepayment speeds for various coupon segments of the portfolio. The impact of planned growth and new business activitiesthese changes is factored into the simulation model. This modeling indicated interest rate sensitivity as follows (in thousands):follows:
|
| | | | | | | | | | | | | | | |
| Anticipated Impact Over the Next Twelve Months as Compared to Most Likely Scenario | | Anticipated Impact Over the Next Twelve Months as Compared to Most Likely Scenario |
| 100 bp Increase | | 200 bp Increase | | 100 bp Increase | | 200 bp Increase |
| September 30, 2017 | | September 30, 2016 |
Change in net interest income | $ | 114,593 |
| | $ | 231,113 |
| | $ | 117,094 |
| | $ | 241,366 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Anticipated Impact Over the Next Twelve Months as Compared to Most Likely Scenario |
| June 30, 2021 | | | | June 30, 2020 |
(in thousands) | 100 bps Increase | | 200 bps Increase | | | | 100 bps Increase | | 200 bps Increase | | |
Change in net interest income | $ | 24,267 | | | $ | 79,342 | | | | | $ | 70,160 | | | $ | 152,756 | | | |
The simulations used to manage market risk are based on numerous assumptions regarding the effect of changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results maywill differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions, customer behavior and management strategies, among other factors.
Our business relies upon a large volume of loans, derivative contracts and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR to establish their interest rate and/or value. In 2017, the U.K. Financial Conduct Authority announced that it would no longer compel banks to submit rates for the calculation of LIBOR after 2021. The administrator of LIBOR has proposed to extend publication of the most commonly used U.S. Dollar LIBOR settings to June 30, 2023 and to cease publishing other LIBOR settings on December 31, 2021. The U.S. federal banking agencies issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021. At this time, it is not possible to predict what rate or rates may become accepted alternatives to LIBOR or what the effect of any such changes in views or alternatives may have on the financial markets for LIBOR-linked financial instruments. The full impact of alternatives to LIBOR on the valuations, pricing and operation of our financial instruments is not yet known; however, the primary instruments that may be impacted include loans, securities, borrowings and derivatives indexed to LIBOR that mature after December 31, 2021. We have established a working group, consisting of key stakeholders from throughout the company, to monitor developments relating to LIBOR uncertainty and changes and to guide the Bank's response. This team is currently working to ensure that our technology systems are prepared for the transition, our loan documents that reference LIBOR-based rates have been appropriately amended to reference other methods of interest rate determinations and internal and external stakeholders are apprised of the transition.
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ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the supervision and participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, we have concluded that, as of the end of such period, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to the Company’sCompany's management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f)13a-15(e) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—II - OTHER INFORMATION
We areITEM 1. LEGAL PROCEEDINGS
The Company is subject to various claims and legal actions related to operating activities that may arise in the ordinary course of conducting its business. Management does not currently expect the ultimate disposition of any of these matters to have a material adverse impact on ourthe Company’s financial statements.statements or results of operations.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors previously disclosed in the 2016December 31, 2020 Form 10-K.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
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(a) | Exhibits |
| 31.1 |
| |
4 | |
31.1 | |
31.2 | 31.2 | |
32.1 | 32.1 | |
32.2 | |
| 32.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.Officer** |
101.INS | 101XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | The following materials from Texas Capital Bancshares, Inc.’s Quarterly Report on Form 10-Q forXBRL Taxonomy Extension Schema Document* |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document* |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document* |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document* |
104 | Cover Page Interactive Data File (embedded within the quarter ended September 30, 2017, formatted inInline XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statementsdocument) |
* Filed herewith
** Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TEXAS CAPITAL BANCSHARES, INC.
Date: October 19, 2017
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/s/ Julie L. Anderson |
Julie L. Anderson |
Chief Financial Officer |
(Duly authorized officer and principal financial officer) |
EXHIBIT INDEX
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Exhibit Number | |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101 | The following materials from Texas Capital Bancshares, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements |