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 September 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: |
| | | | | | | | | | | | | |
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 |
| | | | |
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 | | ¨
☐ | | | | | |
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,April 20, 2022, 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 49,626,54550,723,232
Texas Capital Bancshares, Inc.
Form 10-Q
Quarter Ended September 30, 2017March 31, 2022
Index
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| Item 1. | | |
Item 1. | | | |
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| Item 2. | | |
Item 2. | | |
| 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 6.2. | | |
| 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 |
|
Interest-bearing deposits | 2,332,537 |
| | 2,700,645 |
|
Federal funds sold and securities purchased under resale agreements | 25,000 |
| | 25,000 |
|
Securities, available-for-sale | 24,224 |
| | 24,874 |
|
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 |
|
Loans held for investment (net of unearned income) | 14,828,406 |
| | 13,001,011 |
|
Less: Allowance for loan losses | 182,929 |
| | 168,126 |
|
Loans held for investment, net | 20,287,762 |
| | 17,330,223 |
|
Mortgage servicing rights, net | 77,630 |
| | 28,536 |
|
Premises and equipment, net | 23,882 |
| | 19,775 |
|
Accrued interest receivable and other assets | 511,207 |
| | 465,933 |
|
Goodwill and intangible assets, net | 19,157 |
| | 19,512 |
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Total assets | $ | 24,400,998 |
| | $ | 21,697,134 |
|
Liabilities and Stockholders’ Equity | | | |
Liabilities: | | | |
Deposits: | | | |
Non-interest-bearing | $ | 8,263,202 |
| | $ | 7,994,201 |
|
Interest-bearing | 10,818,055 |
| | 9,022,630 |
|
Total deposits | 19,081,257 |
| | 17,016,831 |
|
Accrued interest payable | 4,562 |
| | 5,498 |
|
Other liabilities | 178,599 |
| | 161,223 |
|
Federal funds purchased and repurchase agreements | 83,496 |
| | 109,575 |
|
Other borrowings | 2,500,000 |
| | 2,000,000 |
|
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 |
|
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 |
|
Additional paid-in capital | 959,251 |
| | 955,468 |
|
Retained earnings | 1,048,195 |
| | 903,187 |
|
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 |
|
Total stockholders’ equity | 2,158,363 |
| | 2,009,557 |
|
Total liabilities and stockholders’ equity | $ | 24,400,998 |
| | $ | 21,697,134 |
|
- UNAUDITED | | | | | | | | | | | |
(in thousands except share data) | March 31, 2022 | | December 31, 2021 |
| (Unaudited) | | |
Assets | | | |
Cash and due from banks | $ | 234,853 | | | $ | 180,663 | |
Interest-bearing cash and cash equivalents | 5,136,680 | | | 7,765,996 | |
| | | |
Available-for-sale debt securities | 2,591,218 | | | 3,538,201 | |
Held-to-maturity debt securities | 1,009,972 | | | — | |
Equity securities | 40,825 | | | 45,607 | |
Investment securities | 3,642,015 | | | 3,583,808 | |
Loans held for sale | 8,085 | | | 8,123 | |
| | | |
Loans held for investment, mortgage finance | 5,827,965 | | | 7,475,497 | |
Loans held for investment | 15,849,434 | | | 15,331,457 | |
Less: Allowance for credit losses on loans | 211,151 | | | 211,866 | |
Loans held for investment, net | 21,466,248 | | | 22,595,088 | |
| | | |
| | | |
Premises and equipment, net | 24,181 | | | 20,901 | |
Accrued interest receivable and other assets | 556,154 | | | 559,897 | |
Goodwill and intangible assets, net | 17,161 | | | 17,262 | |
Total assets | $ | 31,085,377 | | | $ | 34,731,738 | |
| | | |
Liabilities and Stockholders’ Equity | | | |
Liabilities: | | | |
Non-interest bearing | $ | 13,434,723 | | | $ | 13,390,370 | |
Interest bearing | 11,943,215 | | | 14,718,995 | |
| | | |
Total deposits | 25,377,938 | | | 28,109,365 | |
Accrued interest payable | 8,560 | | | 7,699 | |
| | | |
Other liabilities | 252,394 | | | 273,488 | |
Short-term borrowings | 1,427,033 | | | 2,202,832 | |
Long-term debt | 929,414 | | | 928,738 | |
| | | |
| | | |
Total liabilities | 27,995,339 | | | 31,522,122 | |
| | | |
Stockholders’ equity: | | | |
Preferred stock, $0.01 par value, $1,000 liquidation value: | | | |
Authorized shares - 10,000,000 | | | |
Issued shares - 300,000 at March 31, 2022 and December 31, 2021 | 300,000 | | | 300,000 | |
Common stock, $0.01 par value: | | | |
Authorized shares - 100,000,000 | | | |
Issued shares - 50,710,858 and 50,618,911 at March 31, 2022 and December 31, 2021, respectively | 507 | | | 506 | |
Additional paid-in capital | 1,011,353 | | | 1,008,559 | |
Retained earnings | 1,983,611 | | | 1,948,274 | |
Treasury stock - 417 shares at cost at March 31, 2022 and December 31, 2021 | (8) | | | (8) | |
Accumulated other comprehensive income/(loss), net of taxes | (205,425) | | | (47,715) | |
Total stockholders’ equity | 3,090,038 | | | 3,209,616 | |
Total liabilities and stockholders’ equity | $ | 31,085,377 | | | $ | 34,731,738 | |
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 March 31, |
| 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) | | | 2022 | | 2021 |
Interest income | | | | | | | | Interest income | | |
Interest and fees on loans | $ | 229,116 |
| | $ | 177,724 |
| | $ | 607,386 |
| | $ | 501,673 |
| Interest and fees on loans | | | $ | 187,657 | | | $ | 210,331 | |
Securities | 341 |
| | 232 |
| | 853 |
| | 739 |
| |
Federal funds sold and securities purchased under resale agreements | 642 |
| | 455 |
| | 1,606 |
| | 1,209 |
| |
Deposits in other banks | 7,544 |
| | 4,081 |
| | 19,935 |
| | 11,116 |
| |
Investment securities | | Investment securities | | | 17,302 | | | 9,887 | |
| Interest-bearing cash and cash equivalents | | Interest-bearing cash and cash equivalents | | | 3,571 | | | 2,933 | |
Total interest income | 237,643 |
| | 182,492 |
| | 629,780 |
| | 514,737 |
| Total interest income | | | 208,530 | | | 223,151 | |
Interest expense | | | | | | | | Interest expense | | |
Deposits | 22,435 |
| | 8,950 |
| | 52,261 |
| | 26,743 |
| Deposits | | | 13,630 | | | 20,004 | |
Federal funds purchased | 891 |
| | 126 |
| | 1,869 |
| | 362 |
| |
Other borrowings | 4,835 |
| | 1,733 |
| | 9,757 |
| | 4,265 |
| |
Subordinated notes | 4,191 |
| | 4,191 |
| | 12,573 |
| | 12,573 |
| |
Trust preferred subordinated debentures | 930 |
| | 753 |
| | 2,641 |
| | 2,203 |
| |
| Short-term borrowings | | Short-term borrowings | | | 758 | | | 2,592 | |
Long-term debt | | Long-term debt | | | 10,595 | | | 5,743 | |
| Total interest expense | 33,282 |
| | 15,753 |
| | 79,101 |
| | 46,146 |
| Total interest expense | | | 24,983 | | | 28,339 | |
Net interest income | 204,361 |
| | 166,739 |
| | 550,679 |
| | 468,591 |
| Net interest income | | | 183,547 | | | 194,812 | |
Provision for credit losses | 20,000 |
| | 22,000 |
| | 42,000 |
| | 68,000 |
| Provision for credit losses | | | (2,000) | | | (6,000) | |
Net interest income after provision for credit losses | 184,361 |
| | 144,739 |
| | 508,679 |
| | 400,591 |
| Net interest income after provision for credit losses | | | 185,547 | | | 200,812 | |
Non-interest income | | | | | | | | Non-interest income | | |
Service charges on deposit accounts | 3,211 |
| | 2,880 |
| | 9,323 |
| | 7,401 |
| Service charges on deposit accounts | | | 6,022 | | | 4,716 | |
Wealth management and trust fee income | 1,627 |
| | 1,113 |
| | 4,386 |
| | 3,024 |
| Wealth management and trust fee income | | | 3,912 | | | 2,855 | |
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 | | | 3,970 | | | 9,311 | |
Servicing income | 4,486 |
| | 310 |
| | 10,387 |
| | 305 |
| Servicing income | | | 237 | | | 9,009 | |
Swap fees | 647 |
| | 918 |
| | 3,404 |
| | 2,330 |
| |
Investment banking and trading income | | Investment banking and trading income | | | 4,179 | | | 5,787 | |
Net gain/(loss) on sale of loans held for sale | | Net gain/(loss) on sale of loans held for sale | | | — | | | 5,572 | |
Other | 2,265 |
| | 3,394 |
| | 8,181 |
| | 9,203 |
| Other | | | 1,962 | | | 7,103 | |
Total non-interest income | 19,003 |
| | 16,716 |
| | 54,882 |
| | 41,945 |
| Total non-interest income | | | 20,282 | | | 44,353 | |
Non-interest expense | | | | | | | | Non-interest expense | | |
Salaries and employee benefits | 67,882 |
| | 56,722 |
| | 194,039 |
| | 162,904 |
| |
Net occupancy expense | 6,436 |
| | 5,634 |
| | 19,062 |
| | 17,284 |
| |
Salaries and benefits | | Salaries and benefits | | | 100,098 | | | 87,522 | |
Occupancy expense | | Occupancy expense | | | 8,885 | | | 8,274 | |
Marketing | 7,242 |
| | 4,292 |
| | 18,349 |
| | 12,686 |
| Marketing | | | 4,977 | | | 1,697 | |
Legal and professional | 6,395 |
| | 5,333 |
| | 20,975 |
| | 16,883 |
| Legal and professional | | | 10,302 | | | 8,277 | |
Communications and technology | 6,002 |
| | 6,620 |
| | 24,414 |
| | 19,228 |
| Communications and technology | | | 14,700 | | | 15,969 | |
FDIC insurance assessment | 6,203 |
| | 6,355 |
| | 16,800 |
| | 17,867 |
| |
Servicing related expenses | 3,897 |
| | 620 |
| | 8,329 |
| | 1,305 |
| |
Federal Deposit Insurance Corporation (“FDIC”) insurance assessment | | Federal Deposit Insurance Corporation (“FDIC”) insurance assessment | | | 3,981 | | | 6,613 | |
Servicing-related expenses | | Servicing-related expenses | | | — | | | 12,989 | |
| Other | 10,773 |
| | 9,223 |
| | 30,770 |
| | 27,717 |
| Other | | | 10,149 | | | 8,975 | |
Total non-interest expense | 114,830 |
| | 94,799 |
| | 332,738 |
| | 275,874 |
| Total non-interest expense | | | 153,092 | | | 150,316 | |
Income before income taxes | 88,534 |
| | 66,656 |
| | 230,823 |
| | 166,662 |
| Income before income taxes | | | 52,737 | | | 94,849 | |
Income tax expense | 29,850 |
| | 23,931 |
| | 78,502 |
| | 59,929 |
| Income tax expense | | | 13,087 | | | 22,911 | |
Net income | 58,684 |
| | 42,725 |
| | 152,321 |
| | 106,733 |
| Net income | | | 39,650 | | | 71,938 | |
Preferred stock dividends | 2,438 |
| | 2,438 |
| | 7,313 |
| | 7,313 |
| Preferred stock dividends | | | 4,313 | | | 3,779 | |
Net income available to common stockholders | $ | 56,246 |
| | $ | 40,287 |
| | $ | 145,008 |
| | $ | 99,420 |
| Net income available to common stockholders | | | $ | 35,337 | | | $ | 68,159 | |
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 income/(loss): | | Other comprehensive income/(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 | | | $ | (199,633) | | | $ | (91,407) | |
Income tax benefit | | Income tax benefit | | | (41,923) | | | (19,196) | |
Other comprehensive loss, net of tax | 34 |
| | (40 | ) | | 14 |
| | (78 | ) | Other comprehensive loss, net of tax | | | (157,710) | | | (72,211) | |
Comprehensive income | $ | 58,718 |
| | $ | 42,685 |
| | $ | 152,335 |
| | $ | 106,655 |
| |
| | | | | | | | |
Comprehensive loss | | Comprehensive loss | | | $ | (118,060) | | | $ | (273) | |
Basic earnings per common share | $ | 1.13 |
| | $ | 0.88 |
| | $ | 2.93 |
| | $ | 2.16 |
| Basic earnings per common share | | | $ | 0.70 | | | $ | 1.35 | |
Diluted earnings per common share | $ | 1.12 |
| | $ | 0.87 |
| | $ | 2.89 |
| | $ | 2.14 |
| Diluted earnings per common share | | | $ | 0.69 | | | $ | 1.33 | |
See accompanying notes to consolidated financial statements.
TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
(In thousands except share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 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/(loss): | | | | | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | — | | | 71,938 | | | — | | | — | | | — | | | 71,938 | |
Change in unrealized gain/(loss) on available-for-sale debt securities, net of taxes | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (72,211) | | | (72,211) | |
Total comprehensive loss | | | | | | | | | | | | | | | | | | | (273) | |
| | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense recognized in earnings | — | | | — | | | — | | | — | | | 5,461 | | | — | | | — | | | — | | | — | | | 5,461 | |
Issuance of preferred stock | 300,000 | | | 300,000 | | | — | | | — | | | (10,277) | | | — | | | — | | | — | | | — | | | 289,723 | |
Preferred stock dividend | — | | | — | | | — | | | — | | | — | | | (3,779) | | | — | | | — | | | — | | | (3,779) | |
Issuance of stock related to stock-based awards | — | | | — | | | 87,317 | | | 1 | | | (2,875) | | | — | | | — | | | — | | | — | | | (2,874) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 (audited) | 300,000 | | | $ | 300,000 | | | 50,618,911 | | | $ | 506 | | | $ | 1,008,559 | | | $ | 1,948,274 | | | (417) | | | $ | (8) | | | $ | (47,715) | | | $ | 3,209,616 | |
| | | | | | | | | | | | | | | | | | | |
Comprehensive income/(loss): | | | | | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | — | | | 39,650 | | | — | | | — | | | — | | | 39,650 | |
Change in unrealized gain/(loss) on available-for-sale debt securities, net of taxes | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (157,710) | | | (157,710) | |
Total comprehensive loss | | | | | | | | | | | | | | | | | | | (118,060) | |
| | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense recognized in earnings | — | | | — | | | — | | | — | | | 5,407 | | | — | | | — | | | — | | | — | | | 5,407 | |
| | | | | | | | | | | | | | | | | | | |
Preferred stock dividend | — | | | — | | | — | | | — | | | — | | | (4,313) | | | — | | | — | | | — | | | (4,313) | |
Issuance of stock related to stock-based awards | — | | | — | | | 91,947 | | | 1 | | | (2,613) | | | — | | | — | | | — | | | — | | | (2,612) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2022 | 300,000 | | | $ | 300,000 | | | 50,710,858 | | | $ | 507 | | | $ | 1,011,353 | | | $ | 1,983,611 | | | (417) | | | $ | (8) | | | $ | (205,425) | | | $ | 3,090,038 | |
See accompanying notes to consolidated financial statements.
TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS—FLOWS - UNAUDITED
(In thousands)
|
| | | | | | | |
| 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: | | | |
Accrued interest receivable and other assets | (68,672 | ) | | (79,267 | ) |
Accrued interest payable and other liabilities | 8,434 |
| | 34,172 |
|
Net cash provided by (used in) operating activities | 141,517 |
| | (427,201 | ) |
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 |
|
Originations of mortgage finance loans | (62,284,036 | ) | | (74,594,117 | ) |
Proceeds from pay-offs of mortgage finance loans | 61,139,089 |
| | 74,599,234 |
|
Net increase in loans held for investment, excluding mortgage finance loans | (1,856,253 | ) | | (943,534 | ) |
Purchase of premises and equipment, net | (9,056 | ) | | (1,526 | ) |
Proceeds from sale of foreclosed assets | 767 |
| | 62 |
|
Net cash used in investing activities | (3,008,817 | ) | | (936,366 | ) |
Financing activities | | | |
Net increase in deposits | 2,064,426 |
| | 3,060,504 |
|
Costs from issuance of stock related to stock-based awards and warrants | (1,933 | ) | | (1,772 | ) |
Preferred dividends paid | (7,313 | ) | | (7,313 | ) |
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 |
|
Cash and cash equivalents at beginning of period | 2,839,352 |
| | 1,790,870 |
|
Cash and cash equivalents at end of period | $ | 2,501,153 |
| | $ | 3,588,419 |
|
Supplemental disclosures of cash flow information: | | | |
Cash paid during the period for interest | $ | 80,037 |
| | $ | 48,119 |
|
Cash paid during the period for income taxes | 72,485 |
| | 68,716 |
|
Transfers from loans/leases to OREO and other repossessed assets | — |
| | 18,822 |
|
| | | | | | | | | | | |
| Three months ended March 31, |
(in thousands) | 2022 | | 2021 |
Operating activities | | | |
Net income | $ | 39,650 | | | $ | 71,938 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Provision/(benefit) for credit losses | (2,000) | | | (6,000) | |
| | | |
Depreciation and amortization expense | 10,604 | | | 26,067 | |
Net (gain)/loss on sale of loans held for sale | — | | | (5,572) | |
Decrease in valuation allowance on mortgage servicing rights | — | | | (16,448) | |
| | | |
| | | |
Stock-based compensation expense | 5,588 | | | 6,368 | |
| | | |
Purchases and originations of loans held for sale | — | | | (1,133,239) | |
Proceeds from sales and repayments of loans held for sale | 571 | | | 1,233,725 | |
| | | |
| | | |
| | | |
Changes in operating assets and liabilities: | | | |
Accrued interest receivable and other assets | 43,200 | | | 48,927 | |
Accrued interest payable and other liabilities | (24,691) | | | (27,335) | |
Net cash provided by operating activities | 72,922 | | | 198,431 | |
Investing activities | | | |
Purchases of available-for-sale debt securities | (376,415) | | | (460,793) | |
Proceeds from maturities, redemptions and pay-downs of available-for-sale debt securities | 104,338 | | | 118,316 | |
| | | |
Proceeds from maturities, redemptions and pay-downs of held-to-maturity debt securities | 9,882 | | | — | |
Sales/(purchases) of equity securities, net | 940 | | | (588) | |
Originations of loans held for investment, mortgage finance | (26,902,960) | | | (48,097,222) | |
Proceeds from pay-offs of loans held for investment, mortgage finance | 28,550,492 | | | 48,167,550 | |
| | | |
Net (increase)/decrease in loans held for investment, excluding mortgage finance | (517,465) | | | (54,141) | |
Purchases of premises and equipment, net | (2,709) | | | (924) | |
| | | |
| | | |
| | | |
Net cash provided by/(used in) investing activities | 866,103 | | | (327,802) | |
Financing activities | | | |
Net increase/(decrease) in deposits | (2,731,427) | | | 2,395,381 | |
Issuance of stock related to stock-based awards | (2,612) | | | (2,874) | |
| | | |
Net proceeds from issuance of preferred stock | — | | | 289,723 | |
| | | |
Preferred stock dividends paid | (4,313) | | | (3,779) | |
Net decrease in short-term borrowings | (775,799) | | | (596,164) | |
| | | |
| | | |
Net proceeds from issuance of long-term debt | — | | | 268,815 | |
| | | |
| | | |
Net cash provided by/(used in) financing activities | (3,514,151) | | | 2,351,102 | |
Net increase/(decrease) in cash and cash equivalents | (2,575,126) | | | 2,221,731 | |
Cash and cash equivalents at beginning of period | 7,946,659 | | | 9,206,380 | |
Cash and cash equivalents at end of period | $ | 5,371,533 | | | $ | 11,428,111 | |
Supplemental disclosures of cash flow information: | | | |
Cash paid during the period for interest | $ | 24,122 | | | $ | 33,860 | |
Cash paid during the period for income taxes | 302 | | | 440 | |
Transfers of debt securities from available-for-sale to held-to-maturity | 1,019,365 | | | — | |
| | | |
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(“we,” “us”, “TCBI” or 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 unaudited 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 unaudited 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, 2016,2021, included in our Annual Report on Form 10-K filed withfor the SEC on February 17, 2017year ended December 31, 2021 (the “2016“2021 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 (in thousands except per share data):share:
| | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
(in thousands except share and per share data) | | | | | 2022 | | 2021 |
Numerator: | | | | | | | |
Net income | | | | | $ | 39,650 | | | $ | 71,938 | |
Preferred stock dividends | | | | | 4,313 | | | 3,779 | |
Net income available to common stockholders | | | | | $ | 35,337 | | | $ | 68,159 | |
Denominator: | | | | | | | |
Denominator for basic earnings per common share—weighted average common shares | | | | | 50,667,090 | | | 50,513,277 | |
Effect of dilutive outstanding stock-settled awards | | | | | 656,937 | | | 556,234 | |
| | | | | | | |
Denominator for dilutive earnings per common share—weighted average diluted common shares | | | | | 51,324,027 | | | 51,069,511 | |
| | | | | | | |
Basic earnings per common share | | | | | $ | 0.70 | | | $ | 1.35 | |
Diluted earnings per common share | | | | | $ | 0.69 | | | $ | 1.33 | |
| | | | | | | |
Anti-dilutive outstanding stock-settled awards | | | | | 229,488 | | | 80,263 | |
|
| | | | | | | | | | | | | | | |
| 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
The following is a summary of our investment securities:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Amortized Cost(1) | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
March 31, 2022 | | | | | | | |
Available-for-sale debt securities: | | | | | | | |
U.S. Treasury securities | $ | 376,569 | | | $ | — | | | $ | (8,715) | | | $ | 367,854 | |
U.S. government agency securities | 125,000 | | | — | | | (11,484) | | | 113,516 | |
Residential mortgage-backed securities | 2,099,900 | | | 46 | | | (167,844) | | | 1,932,102 | |
| | | | | | | |
Tax-exempt asset-backed securities | 166,889 | | | 926 | | | (1,970) | | | 165,845 | |
Credit risk transfer (“CRT”) securities | 14,713 | | | — | | | (2,812) | | | 11,901 | |
Total available-for-sale debt securities | 2,783,071 | | | 972 | | | (192,825) | | | 2,591,218 | |
Held-to-maturity debt securities: | | | | | | | |
Residential mortgage-backed securities | 1,009,972 | | | — | | | (36,381) | | | 973,591 | |
Total held-to-maturity debt securities | 1,009,972 | | | — | | | (36,381) | | | 973,591 | |
Equity securities | | | | | | | 40,825 | |
Total investment securities(2) | | | | | | | $ | 3,642,015 | |
| | | | | | | |
December 31, 2021 | | | | | | | |
Available-for-sale debt securities: | | | | | | | |
U.S. government agency securities | $ | 125,000 | | | $ | — | | | $ | (4,056) | | | $ | 120,944 | |
Residential mortgage-backed securities | 3,288,261 | | | 156 | | | (63,039) | | | 3,225,378 | |
Tax-exempt asset-backed securities | 170,626 | | | 9,407 | | | — | | | 180,033 | |
CRT securities | 14,713 | | | — | | | (2,867) | | | 11,846 | |
Total available-for-sale debt securities | 3,598,600 | | | 9,563 | | | (69,962) | | | 3,538,201 | |
Equity securities | | | | | | | 45,607 | |
Total investment securities(2) | | | | | | | $ | 3,583,808 | |
| | | | | | | |
(1)Excludes accrued interest receivable of $5.5 million and $6.6 million at March 31, 2022 and December 31, 2021, respectively, related to available-for-sale debt securities, (in thousands):and $1.6 million at March 31, 2022 related to held-to-maturity debt securities that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.
(2)Includes available-for-sale debt securities and equity securities at estimated fair value and held-to-maturity debt securities at amortized cost. |
| | | | | | | | | | | | | | | |
| 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 |
|
Debt Securities | |
(1) | Equity securities consist of Community Reinvestment Act funds and investments related to our non-qualified deferred compensation plan. |
In the first quarter of 2022, we transferred $1.0 billion of available-for-sale debt securities to held-to-maturity at fair value. The transfer was the result of deliberate actions taken to execute on our asset-liability management strategies in response to rising interest rates. Management determined that it has both the positive intent and ability to hold these securities to maturity. On the date of transfer, the difference between the carrying value and fair value of these securities, which was recorded, net of tax, as a loss in accumulated other comprehensive income/(loss) (“AOCI”), resulted in the securities transferring at a discount of $69.2 million. The discount and unrealized loss, net of tax, in AOCI will be amortized to interest income over the remaining life of the securities using the interest method. There were no gains or losses recognized as a result of this transfer.
The amortized cost and estimated fair value as of March 31, 2022, excluding accrued interest receivable, of available-for-sale and held-to-maturity debt securities are presented below by contractual maturity (in thousands, except percentage data):maturity. Actual maturities may differ from contractual maturities of mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Available-for-sale | | Held-to-maturity |
(in thousands) | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Due within one year | | $ | 95 | | | $ | 101 | | | $ | — | | | $ | — | |
Due after one year through five years | | 376,612 | | | 367,899 | | | — | | | — | |
Due after five years through ten years | | 156,492 | | | 140,462 | | | — | | | — | |
Due after ten years | | 2,249,872 | | | 2,082,756 | | | 1,009,972 | | | 973,591 | |
Total | | $ | 2,783,071 | | | $ | 2,591,218 | | | $ | 1,009,972 | | | $ | 973,591 | |
|
| | | | | | | | | | | | | | | |
| 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 |
March 31, 2022 | | | | | | | | | | | |
U.S. treasury securities | $ | 367,854 | | | $ | (8,715) | | | $ | — | | | $ | — | | | $ | 367,854 | | | $ | (8,715) | |
U.S. government agency securities | — | | | — | | | 113,516 | | | (11,484) | | | 113,516 | | | (11,484) | |
Residential mortgage-backed securities | 962,312 | | | (77,250) | | | 967,491 | | | (90,594) | | | 1,929,803 | | | (167,844) | |
Tax-exempt asset-backed securities | 70,464 | | | (1,970) | | | — | | | — | | | 70,464 | | | (1,970) | |
CRT securities | — | | | — | | | 11,901 | | | (2,812) | | | 11,901 | | | (2,812) | |
Total | $ | 1,400,630 | | | $ | (87,935) | | | $ | 1,092,908 | | | $ | (104,890) | | | $ | 2,493,538 | | | $ | (192,825) | |
December 31, 2021 | | | | | | | | | | | |
U.S. government agency securities | $ | 24,085 | | | $ | (915) | | | $ | 96,859 | | | $ | (3,141) | | | $ | 120,944 | | | $ | (4,056) | |
Residential mortgage-backed securities | 2,871,052 | | | (50,721) | | | 303,491 | | | (12,318) | | | 3,174,543 | | | (63,039) | |
CRT securities | — | | | — | | | 11,846 | | | (2,867) | | | 11,846 | | | (2,867) | |
Total | $ | 2,895,137 | | | $ | (51,636) | | | $ | 412,196 | | | $ | (18,326) | | | $ | 3,307,333 | | | $ | (69,962) | |
| | | | | | | | | | | |
At September 30, 2017,March 31, 2022, we owned one securityhad 81 available-for-sale debt securities in an unrealized loss position.position, comprised of 5 U.S. treasury securities, 5 U.S. government agency securities, 68 residential mortgage-backed securities, 1 tax-exempt asset-backed security and 2 CRT securities. The security is a publicly traded equity fund and is subjectunrealized losses on the available-for-sale debt securities were the result of changes in market interest rates compared to market pricing volatility.the date the securities were acquired rather than the credit quality of the issuers or underlying loans. We do not believe thisintend to sell and it is not more likely than not that we will be required to sell before recovery of the amortized cost of the available-for-sale debt securities in an unrealized loss position and have recorded the unrealized losses related to this portfolio in AOCI. Held-to-maturity debt securities consist of government guaranteed securities for which no loss is “other-than-temporary” as of September 30, 2017. We have evaluated the near-term prospects of the investment in relation to the severity and duration of the impairment and based on that evaluation we have the ability and intent to hold the investment until recovery of fair value.
(4) LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR LOAN LOSSES
expected. At September 30, 2017March 31, 2022 and December 31, 2016, loans held2021, no allowance for investmentcredit losses was established for available-for-sale or held-to-maturity debt securities.
Debt securities with carrying values of approximately $19.5 million and $1.9 million were as follows (in thousands)pledged to secure certain customer repurchase agreements and deposits, respectively, at March 31, 2022. The comparative amounts at December 31, 2021 were $22.0 million and $2.0 million, respectively.
Equity 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. The following is a summary of unrealized and realized gains/(losses) recognized on equity securities included in other non-interest income on the consolidated statements of income and other comprehensive income/(loss):
| | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
(in thousands) | | | | | 2022 | | 2021 |
Net gains/(losses) recognized during the period | | | | | $ | (3,640) | | | $ | 378 | |
Less: Realized net gains/(losses) recognized on securities sold | | | | | 202 | | | 398 | |
Unrealized net gains/(losses) recognized on securities held | | | | | $ | (3,842) | | | $ | (20) | |
|
| | | | | | | |
| 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(4) Loans and Leases. Our commercial loanAllowance for Credit Losses on Loans
Loans are summarized by portfolio segment as follows:
| | | | | | | | | | | |
(in thousands) | March 31, 2022 | | December 31, 2021 |
Loans held for investment: | | | |
Commercial | $ | 10,175,668 | | | $ | 9,897,561 | |
Energy | 797,191 | | | 721,373 | |
Mortgage finance | 5,827,965 | | | 7,475,497 | |
Real estate | 4,943,195 | | | 4,777,530 | |
Gross loans held for investment(1) | 21,744,019 | | | 22,871,961 | |
Unearned income (net of direct origination costs) | (66,620) | | | (65,007) | |
Total loans held for investment(1) | 21,677,399 | | | 22,806,954 | |
Allowance for credit losses on loans | (211,151) | | | (211,866) | |
Total loans held for investment, net(1) | $ | 21,466,248 | | | $ | 22,595,088 | |
| | | |
Loans held for sale: | | | |
Mortgage loans, at fair value | $ | 8,085 | | | $ | 8,123 | |
| | | |
Total loans held for sale | $ | 8,085 | | | $ | 8,123 | |
(1) Excludes accrued interest receivable of $49.7 million and $50.3 million at March 31, 2022 and December 31, 2021, respectively, that 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 accountsrecorded in accrued interest receivable inventory, equipment and other assets of our clients’ businesses.on the consolidated balance sheets.
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. Balances as of September 30, 2017 and December 31, 2016 are stated net of $150.7 million and $839.0 million participations sold, respectively.
Construction Loans. Our construction loan portfolio consists primarily of single- 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 at comparable values.
At September 30, 2017 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 losses is comprised of general reserves, specific reserves for impaired loans and an additional qualitative reserve based on our estimate of losses inherent 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 areas and other factors.
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) | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 and prior | | Revolving lines of credit | | Revolving lines of credit converted to term loans | | Total |
March 31, 2022 | | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 234,841 | | | $ | 3,863,274 | | | $ | 330,939 | | | $ | 453,566 | | | $ | 305,767 | | | $ | 430,483 | | | $ | 4,264,331 | | | $ | 34,280 | | | $ | 9,917,481 | |
(8) Special mention | | 3,118 | | | 26,848 | | | 4,077 | | | 26,776 | | | — | | | 5,043 | | | 28,622 | | | 3,907 | | | 98,391 | |
(9) Substandard - accruing | | — | | | 666 | | | 3,410 | | | 77,915 | | | 24,366 | | | 16,847 | | | 9,458 | | | 1,664 | | | 134,326 | |
(9+) Non-accrual | | — | | | 2,003 | | | — | | | 44 | | | 12,898 | | | 6,918 | | | 3,607 | | | — | | | 25,470 | |
Total commercial | | $ | 237,959 | | | $ | 3,892,791 | | | $ | 338,426 | | | $ | 558,301 | | | $ | 343,031 | | | $ | 459,291 | | | $ | 4,306,018 | | | $ | 39,851 | | | $ | 10,175,668 | |
Energy | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 34,710 | | | $ | 61,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,581 | | | $ | 673,649 | | | $ | — | | | $ | 770,940 | |
(8) Special mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
(9) Substandard - accruing | | — | | | — | | | — | | | — | | | — | | | 7,984 | | | — | | | — | | | 7,984 | |
(9+) Non-accrual | | — | | | 8,584 | | | — | | | — | | | — | | | — | | | 9,683 | | | — | | | 18,267 | |
Total energy | | $ | 34,710 | | | $ | 69,584 | | | $ | — | | | $ | — | | | $ | — | | | $ | 9,565 | | | $ | 683,332 | | | $ | — | | | $ | 797,191 | |
Mortgage finance | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | — | | | $ | 385,449 | | | $ | 599,899 | | | $ | 512,708 | | | $ | 550,246 | | | $ | 3,779,663 | | | $ | — | | | $ | — | | | $ | 5,827,965 | |
(8) Special mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
(9) Substandard - accruing | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
(9+) Non-accrual | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total mortgage finance | | $ | — | | | $ | 385,449 | | | $ | 599,899 | | | $ | 512,708 | | | $ | 550,246 | | | $ | 3,779,663 | | | $ | — | | | $ | — | | | $ | 5,827,965 | |
Real estate | | | | | | | | | | | | | | | | | | |
CRE | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 152,474 | | | $ | 548,881 | | | $ | 640,761 | | | $ | 602,864 | | | $ | 277,042 | | | $ | 552,259 | | | $ | 100,734 | | | $ | 25,101 | | | $ | 2,900,116 | |
(8) Special mention | | — | | | — | | | — | | | — | | | — | | | 39,697 | | | — | | | 451 | | | 40,148 | |
(9) Substandard - accruing | | — | | | 17,850 | | | — | | | — | | | 40,658 | | | 40,292 | | | — | | | 411 | | | 99,211 | |
(9+) Non-accrual | | — | | | — | | | — | | | — | | | — | | | 194 | | | — | | | — | | | 194 | |
RBF | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | 23,129 | | | 138,381 | | | 27,533 | | | 13,382 | | | 10,434 | | | 9,080 | | | 471,488 | | | — | | | 693,427 | |
(8) Special mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
(9) Substandard - accruing | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
(9+) Non-accrual | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | 61,121 | | | 167,638 | | | 146,058 | | | 112,818 | | | 89,998 | | | 197,678 | | | 37,600 | | | 29,107 | | | 842,018 | |
(8) Special mention | | — | | | — | | | 6,698 | | | — | | | — | | | 16,217 | | | — | | | — | | | 22,915 | |
(9) Substandard - accruing | | — | | | — | | | 6,373 | | | — | | | — | | | 4,816 | | | — | | | — | | | 11,189 | |
(9+) Non-accrual | | — | | | — | | | — | | | — | | | — | | | 2,544 | | | — | | | 12,666 | | | 15,210 | |
Secured by 1-4 family | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | 21,493 | | | 95,823 | | | 58,845 | | | 29,654 | | | 21,551 | | | 84,616 | | | 4,035 | | | — | | | 316,017 | |
(8) Special mention | | — | | | 1,084 | | | — | | | — | | | — | | | 289 | | | — | | | — | | | 1,373 | |
(9) Substandard - accruing | | — | | | — | | | — | | | — | | | — | | | 1,191 | | | — | | | — | | | 1,191 | |
(9+) Non-accrual | | — | | | — | | | — | | | — | | | — | | | 186 | | | — | | | — | | | 186 | |
Total real estate | | $ | 258,217 | | | $ | 969,657 | | | $ | 886,268 | | | $ | 758,718 | | | $ | 439,683 | | | $ | 949,059 | | | $ | 613,857 | | | $ | 67,736 | | | $ | 4,943,195 | |
Total | | $ | 530,886 | | | $ | 5,317,481 | | | $ | 1,824,593 | | | $ | 1,829,727 | | | $ | 1,332,960 | | | $ | 5,197,578 | | | $ | 5,603,207 | | | $ | 107,587 | | | $ | 21,744,019 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
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) | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 and prior | | Revolving lines of credit | | Revolving lines of credit converted to term loans | | Total |
December 31, 2021 | | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 1,133,013 | | | $ | 3,157,150 | | | $ | 546,520 | | | $ | 319,246 | | | $ | 200,478 | | | $ | 289,795 | | | $ | 3,960,706 | | | $ | 41,377 | | | $ | 9,648,285 | |
(8) Special mention | | 2,650 | | | 5,277 | | | 23,129 | | | 8,697 | | | 39 | | | 5,322 | | | 5,120 | | | 7,883 | | | 58,117 | |
(9) Substandard - accruing | | — | | | 7,705 | | | 102,619 | | | 25,010 | | | 6,202 | | | 6,962 | | | 14,742 | | | 2,007 | | | 165,247 | |
(9+) Non-accrual | | 736 | | | 1,191 | | | 49 | | | 12,955 | | | 1,166 | | | 6,196 | | | 3,619 | | | — | | | 25,912 | |
Total commercial | | $ | 1,136,399 | | | $ | 3,171,323 | | | $ | 672,317 | | | $ | 365,908 | | | $ | 207,885 | | | $ | 308,275 | | | $ | 3,984,187 | | | $ | 51,267 | | | $ | 9,897,561 | |
Energy | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 71,750 | | | $ | — | | | $ | — | | | $ | 3 | | | $ | — | | | $ | 7,188 | | | $ | 577,988 | | | $ | — | | | $ | 656,929 | |
(8) Special mention | | — | | | — | | | — | | | — | | | — | | | — | | | 27,421 | | | — | | | 27,421 | |
(9) Substandard - accruing | | — | | | — | | | — | | | — | | | — | | | 8,643 | | | — | | | — | | | 8,643 | |
(9+) Non-accrual | | — | | | — | | | — | | | — | | | — | | | — | | | 28,380 | | | — | | | 28,380 | |
Total energy | | $ | 71,750 | | | $ | — | | | $ | — | | | $ | 3 | | | $ | — | | | $ | 15,831 | | | $ | 633,789 | | | $ | — | | | $ | 721,373 | |
Mortgage finance | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 289,042 | | | $ | 590,616 | | | $ | 656,445 | | | $ | 754,507 | | | $ | 332,001 | | | $ | 4,852,886 | | | $ | — | | | $ | — | | | $ | 7,475,497 | |
(8) Special mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
(9) Substandard - accruing | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
(9+) Non-accrual | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total mortgage finance | | $ | 289,042 | | | $ | 590,616 | | | $ | 656,445 | | | $ | 754,507 | | | $ | 332,001 | | | $ | 4,852,886 | | | $ | — | | | $ | — | | | $ | 7,475,497 | |
Real estate | | | | | | | | | | | | | | | | | | |
CRE | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | $ | 497,462 | | | $ | 576,344 | | | $ | 600,005 | | | $ | 294,005 | | | $ | 155,252 | | | $ | 451,042 | | | $ | 73,988 | | | $ | 25,970 | | | $ | 2,674,068 | |
(8) Special mention | | — | | | — | | | 291 | | | 8,827 | | | 20,089 | | | 26,344 | | | — | | | — | | | 55,551 | |
(9) Substandard - accruing | | 17,850 | | | — | | | — | | | 40,900 | | | 37,393 | | | 38,188 | | | — | | | 2,308 | | | 136,639 | |
(9+) Non-accrual | | — | | | — | | | — | | | — | | | — | | | 198 | | | — | | | — | | | 198 | |
RBF | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | 155,595 | | | 44,362 | | | 9,693 | | | 8,565 | | | — | | | 12,732 | | | 460,888 | | | — | | | 691,835 | |
(8) Special mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
(9) Substandard - accruing | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
(9+) Non-accrual | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | 166,202 | | | 148,811 | | | 119,017 | | | 106,343 | | | 61,723 | | | 139,723 | | | 47,653 | | | 29,595 | | | 819,067 | |
(8) Special mention | | — | | | 7,365 | | | — | | | — | | | 845 | | | 4,982 | | | — | | | — | | | 13,192 | |
(9) Substandard - accruing | | — | | | 6,424 | | | — | | | — | | | 16,922 | | | 20,184 | | | — | | | — | | | 43,530 | |
(9+) Non-accrual | | — | | | — | | | — | | | — | | | 2,641 | | | 1,450 | | | — | | | 13,741 | | | 17,832 | |
Secured by 1-4 family | | | | | | | | | | | | | | | | | | |
(1-7) Pass | | 96,899 | | | 60,659 | | | 40,586 | | | 22,976 | | | 31,826 | | | 65,910 | | | 4,535 | | | — | | | 323,391 | |
(8) Special mention | | — | | | 553 | | | — | | | — | | | — | | | 291 | | | — | | | — | | | 844 | |
(9) Substandard - accruing | | — | | | — | | | — | | | — | | | — | | | 1,203 | | | — | | | — | | | 1,203 | |
(9+) Non-accrual | | — | | | — | | | — | | | — | | | — | | | 180 | | | — | | | — | | | 180 | |
Total real estate | | $ | 934,008 | | | $ | 844,518 | | | $ | 769,592 | | | $ | 481,616 | | | $ | 326,691 | | | $ | 762,427 | | | $ | 587,064 | | | $ | 71,614 | | | $ | 4,777,530 | |
Total | | $ | 2,431,199 | | | $ | 4,606,457 | | | $ | 2,098,354 | | | $ | 1,602,034 | | | $ | 866,577 | | | $ | 5,939,419 | | | $ | 5,205,040 | | | $ | 122,881 | | | $ | 22,871,961 | |
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 |
Three months ended March 31, 2022 | | Three months ended March 31, 2022 | | | | | |
Beginning balance | | Beginning balance | $ | 102,202 | | $ | 52,568 | | $ | 6,083 | | | $ | 51,013 | | | $ | 211,866 | |
| 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 | 5,437 | | (24,522) | | 4,159 | | | 13,699 | | | (1,227) | |
Charge-offs | 32,146 |
| | — |
| | 59 |
| | 290 |
| | 180 |
| | — |
| | — |
| | 32,675 |
| Charge-offs | 110 | | — | | — | | | 350 | | | 460 | |
Recoveries | 3,574 |
| | — |
| | 104 |
| | 74 |
| | 56 |
| | 9 |
| | — |
| | 3,817 |
| Recoveries | 217 | | 755�� | | — | | | — | | | 972 | |
Net charge-offs (recoveries) | 28,572 |
| | — |
| | (45 | ) | | 216 |
| | 124 |
| | (9 | ) | | — |
| | 28,858 |
| Net charge-offs (recoveries) | (107) | | (755) | | — | | | 350 | | | (512) | |
Ending balance | $ | 121,584 |
| | $ | — |
| | $ | 17,620 |
| | $ | 31,881 |
| | $ | 338 |
| | $ | 3,907 |
| | $ | 7,599 |
| | $ | 182,929 |
| Ending balance | $ | 107,746 | | $ | 28,801 | | $ | 10,242 | | | $ | 64,362 | | | $ | 211,151 | |
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 | |
| Three months ended March 31, 2021 | | Three months ended March 31, 2021 | | | | | |
Beginning balance | $ | 112,446 |
| | $ | — |
| | $ | 6,836 |
| | $ | 13,381 |
| | $ | 338 |
| | $ | 3,931 |
| | $ | 4,179 |
| | $ | 141,111 |
| Beginning balance | $ | 73,061 | | $ | 84,064 | | $ | 4,699 | | | $ | 92,791 | | | $ | 254,615 | |
Provision for loan losses | 65,446 |
| | — |
| | 1,607 |
| | 1,981 |
| | (23 | ) | | (2,646 | ) | | (226 | ) | | 66,139 |
| |
| Provision for credit losses on loans | | Provision for credit losses on loans | (1,001) | | (5,852) | | 211 | | | 929 | | | (5,713) | |
Charge-offs | 34,232 |
| | — |
| | — |
| | 528 |
| | 40 |
| | — |
| | — |
| | 34,800 |
| Charge-offs | 2,451 | | 5,732 | | — | | | — | | | 8,183 | |
Recoveries | 7,829 |
| | — |
| | 34 |
| | 36 |
| | 16 |
| | 71 |
| | — |
| | 7,986 |
| Recoveries | 1,050 | | 715 | | — | | | — | | | 1,765 | |
Net charge-offs (recoveries) | 26,403 |
| | — |
| | (34 | ) | | 492 |
| | 24 |
| | (71 | ) | | — |
| | 26,814 |
| Net charge-offs (recoveries) | 1,401 | | 5,017 | | — | | | — | | | 6,418 | |
Ending balance | $ | 151,489 |
| | $ | — |
| | $ | 8,477 |
| | $ | 14,870 |
| | $ | 291 |
| | $ | 1,356 |
| | $ | 3,953 |
| | $ | 180,436 |
| Ending balance | $ | 70,659 | | $ | 73,195 | | $ | 4,910 | | | $ | 93,720 | | | $ | 242,484 | |
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 negative $2.0 million provision for credit losses related to losses on unfunded commitments for the three and nine months ended September 30, 2017 and 2016 (in thousands). This liability is recorded in other liabilities 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 componentMarch 31, 2022, compared to compensatea negative provision of $6.0 million for the uncertainty and complexitysame period in estimating loan and lease losses including factors and conditions that may not be fully reflected2021, resulting from a decline in the determination and application of the allowance allocation percentages. Thecriticized loans, partially offset by an increase in loans held for investment, excluding mortgage finance. We recorded $512,000 in net recoveries during the additional qualitative reserve at September 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, Decemberthree months ended March 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 basis2022, compared to $811,000net charge-offs of $6.4 million during the same period in 2021. Criticized loans totaled $476.1 million at DecemberMarch 31, 2016. 2022, compared to $945.1 million at March 31, 2021.
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.collateral. At March 31, 2021, we had $12.7 million in collateral-dependent real estate loans, collateralized by real estate property.
A loan 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, as of September 30, 2017 and December 31, 2016 (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
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 gross 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 |
March 31, 2022 | | | | | | | | | | | | | | | |
Commercial | $ | 13,349 | | | $ | 2,142 | | | $ | 3,808 | | | $ | 19,299 | | | $ | 25,470 | | | $ | 10,130,899 | | | $ | 10,175,668 | | | $ | 4,277 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Energy | — | | | — | | | — | | | — | | | 18,267 | | | 778,924 | | | 797,191 | | | 8,584 | |
Mortgage finance | — | | | — | | | — | | | — | | | — | | | 5,827,965 | | | 5,827,965 | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Real estate: | | | | | | | | | | | | | | | |
CRE | 187 | | | 194 | | | 1,986 | | | 2,367 | | | 194 | | | 3,037,108 | | | 3,039,669 | | | — | |
RBF | — | | | — | | | — | | | — | | | — | | | 693,427 | | | 693,427 | | | — | |
Other | — | | | — | | | — | | | — | | | 15,210 | | | 876,122 | | | 891,332 | | | 15,210 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Secured by 1-4 family | — | | | — | | | 237 | | | 237 | | | 186 | | | 318,344 | | | 318,767 | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total | $ | 13,536 | | | $ | 2,336 | | | $ | 6,031 | | | $ | 21,903 | | | $ | 59,327 | | | $ | 21,662,789 | | | $ | 21,744,019 | | | $ | 28,071 | |
(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$3.2 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 September 30, 2017March 31, 2022 and December 31, 2016,2021, none of our non-accrual loans were earning interest income on a cash basis. Additionally, no interest income was recognized on non-accrual loans for the three months ended March 31, 2022. Accrued interest of $4,000 was reversed during the three months ended March 31, 2022.
As of March 31, 2022 and December 31, 2021, we did not have any loans considered restructured that were not on non-accrual. Of the non-accrual loans at September 30, 2017March 31, 2022 and December 31, 2016, $12.02021, $18.0 million and $18.1$19.4 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, 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 nine months ended September 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 |
|
As of September 30, 2017 and 2016, we did not have any loans that were restructured withinduring the last 12three months that subsequently defaulted.ended March 31, 2022 or 2021.
(5) OREO AND VALUATION ALLOWANCE FOR LOSSES ON OREOShort-term Borrowings and Long-term Debt
The table below presents a summary of the activity related to OREO (in thousands):short-term borrowings:
|
| | | | | | | | | | | | | | | |
| 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, 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") business, 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 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 value of the loans held for sale are included in other non-interest income on the consolidated income statement.
Residential mortgage loans held for sale are subject to both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures, including collateral requirements, which are generally accepted 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. | | | | | | | | | | | | | | |
(in thousands) | | March 31, 2022 | | December 31, 2021 |
| | | | |
Customer repurchase agreements | | $ | 2,033 | | | $ | 2,832 | |
Federal Home Loan Bank borrowings | | 1,425,000 | | | 2,200,000 | |
Total short-term borrowings | | $ | 1,427,033 | | | $ | 2,202,832 | |
The table below presents a reconciliation of the changes in loans held for sale for the nine months ended September 30, 2017 and 2016 (in thousands):
|
| | | | | | | |
| 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 |
|
We generally retain the right to service the loans sold, creating MSRs which are recorded as assets on our balance sheet. A summary of MSR activity for the nine months ended September 30, 2017 and 2016 is as follows (in thousands):long-term debt:
| | | | | | | | | | | | | | |
(in thousands) | | March 31, 2022 | | December 31, 2021 |
Bank-issued floating rate senior unsecured credit-linked notes due 2024 | | $ | 270,988 | | | $ | 270,487 | |
Bank-issued 5.75% fixed rate subordinated notes due 2026 | | 174,000 | | | 173,935 | |
Company-issued 4.00% fixed rate subordinated notes due 2031 | | 371,020 | | | 370,910 | |
Trust preferred floating rate subordinated debentures due 2032 to 2036 | | 113,406 | | | 113,406 | |
Total long-term debt | | $ | 929,414 | | | $ | 928,738 | |
(6) Financial Instruments with Off-Balance Sheet Risk
|
| | | | | | | |
| 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 September 30, 2017 and December 31, 2016,The table below presents our servicing portfolio of residential mortgage loans had an outstanding principal balance of $6.1 billion and $2.2 billion, respectively. In connection with the servicing of these loans, we maintain
escrow funds for taxes and insurance in the name of investors, as well as collections in transit to investors. These escrow funds are segregated and held in separate non-interest-bearing accounts at the Bank. These deposits, included in total non-interest-bearing deposits on the consolidated balance sheets, were $81.4 million at September 30, 2017 and $21.0 million at December 31, 2016.
The estimated fair value of the MSR assets is obtained from an independent third party and reviewed by management on a quarterly basis. MSRs do not trade in an active, open market with readily observable prices; as such, the fair value of MSRs is determined using a discounted cash flow model to calculate 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, management used the following assumptions to determine the fair value of MSRs:
|
| | | | |
| September 30, 2017 | December 31, 2016 |
Average discount rates | 9.95 | % | 9.96 | % |
Expected prepayment speeds | 9.79 | % | 7.91 | % |
Weighted average life, in years | 7.1 |
| 8.0 |
|
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):
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
50 bp adverse change in prepayment speed | $ | (10,667 | ) | | $ | (2,833 | ) |
100 bp adverse change in prepayment speed | (25,043 | ) | | (6,812 | ) |
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 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 to changes in other factors, which could impact the above hypothetical effects.
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. Our estimated exposure related to these loans was $1.2 million at September 30, 2017 and $621,000 at September 30, 2016 and is recorded in other liabilities in the consolidated balance sheets. We had $14,000 in losses due to repurchase, indemnification or make-whole obligations during the nine months ended September 30, 2017 and no losses during the nine months ended 2016.
(7) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to 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 March 31, |
(in thousands) | | | | | 2022 | | 2021 |
Beginning balance of allowance for off-balance sheet credit losses | | | | | $ | 17,265 | | | $ | 17,434 | |
| | | | | | | |
Provision for off-balance sheet credit losses | | | | | (773) | | | (287) | |
Ending balance of allowance for off-balance sheet credit losses | | | | | $ | 16,492 | | | $ | 17,147 | |
| | | | | | | |
(in thousands) | | | | | March 31, 2022 | | December 31, 2021 |
Commitments to extend credit - period end balance | | | | $ | 9,917,556 | | | $ | 9,445,763 | |
Standby letters of credit - period end balance | | | | 364,765 | | | 357,672 | |
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 MATTERS(7) Regulatory 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 transition option). In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year
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 transition option). We adopted CECL on January 1, 2020 and have elected to utilize the five-year 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 September 30, 2017,March 31, 2022, 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 and the Bank’s capital ratios exceeded the regulatory definition of adequatelywell capitalized as of September 30, 2017March 31, 2022 and December 31, 2016. Based upon the
information in its most recently filed call report, the Bank met the capital ratios necessary to be well capitalized.2021. The regulatory authorities can apply changes in classification of assets and such changes may retroactively subject the Company and the Bank 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(2) | | Capital Required to be Well Capitalized |
(dollars in thousands) | | Capital Amount | Ratio | | | | | Capital Amount | Ratio | | Capital Amount | Ratio |
March 31, 2022 | | | | | | | | | | | | |
CET1 | | | | | | | | | | | | |
Company | | $ | 2,987,142 | | 11.46 | % | | | | | $ | 1,824,684 | | 7.00 | % | | N/A | N/A |
Bank | | 3,059,948 | | 11.74 | % | | | | | 1,824,675 | | 7.00 | % | | 1,694,341 | | 6.50 | % |
Total capital (to risk-weighted assets) | | | | | | | | | | | | |
Company | | 4,087,685 | | 15.68 | % | | | | | 2,737,026 | | 10.50 | % | | 2,606,691 | | 10.00 | % |
Bank | | 3,589,472 | | 13.77 | % | | | | | 2,737,013 | | 10.50 | % | | 2,606,679 | | 10.00 | % |
Tier 1 capital (to risk-weighted assets) | | | | | | | | | | | | |
Company | | 3,397,142 | | 13.03 | % | | | | | 2,215,688 | | 8.50 | % | | 1,564,015 | | 6.00 | % |
Bank | | 3,219,948 | | 12.35 | % | | | | | 2,215,677 | | 8.50 | % | | 2,085,343 | | 8.00 | % |
Tier 1 capital (to average assets)(1) | | | | | | | | | | | | |
Company | | 3,397,142 | | 9.89 | % | | | | | 1,373,788 | | 4.00 | % | | N/A | N/A |
Bank | | 3,219,948 | | 9.38 | % | | | | | 1,373,632 | | 4.00 | % | | 1,717,040 | | 5.00 | % |
December 31, 2021 | | | | | | | | | | | | |
CET1 | | | | | | | | | | | | |
Company | | $ | 2,949,785 | | 11.06 | % | | | | | $ | 1,866,444 | | 7.00 | % | | N/A | N/A |
Bank | | 3,013,170 | | 11.30 | % | | | | | 1,866,303 | | 7.00 | % | | 1,732,996 | | 6.50 | % |
Total capital (to risk-weighted assets) | | | | | | | | | | | | |
Company | | 4,085,540 | | 15.32 | % | | | | | 2,799,666 | | 10.50 | % | | 2,666,348 | | 10.00 | % |
Bank | | 3,578,014 | | 13.42 | % | | | | | 2,799,455 | | 10.50 | % | | 2,666,148 | | 10.00 | % |
Tier 1 capital (to risk-weighted assets) | | | | | | | | | | | | |
Company | | 3,359,785 | | 12.60 | % | | | | | 2,266,396 | | 8.50 | % | | 1,599,809 | | 6.00 | % |
Bank | | 3,173,170 | | 11.90 | % | | | | | 2,266,225 | | 8.50 | % | | 2,132,918 | | 8.00 | % |
Tier 1 capital (to average assets)(1) | | | | | | | | | | | | |
Company | | 3,359,785 | | 9.01 | % | | | | | 1,490,902 | | 4.00 | % | | N/A | N/A |
Bank | | 3,173,170 | | 8.51 | % | | | | | 1,490,677 | | 4.00 | % | | 1,863,346 | | 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) | (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, causing a meaningful difference between ending balance and average balance 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 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve Board and totalthe FDIC may require the Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum.
(2) Percentages represent the minimum capital ratios are calculated using quarter-end risk-weighted assets and our mortgage finance loans are 100% risk-weighted,plus, as applicable, the quarter-end fluctuation in these balances can significantly impact our reported ratios. We managefully phased-in 2.5% CET1 capital allocated to mortgage finance
loans based on changing trends in average balances, as well asbuffer under the inherent risk associated with the assets which implies a risk weight that is significantly different than the regulatory risk weight, and do not believe that the quarter-end balance is representative of risk characteristics that would justify higher capital allocations. However, we continue to monitor our capital allocation to confirm that all capital levels remain above well-capitalized levels.Basel III Capital Rules.
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 approvalauthorities, including federal banking law requirements concerning the payment of the 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.dividends. The Basel III Capital Rules further limit the amount of dividends that may
be paid by us or our Bank. No dividends were declared or paid on our common stock during the ninethree months ended September 30, 2017March 31, 2022, or 2016.during the year ended December 31, 2021.
On April 19, 2022, our board of directors authorized a new share repurchase program under which we may repurchase up to $150.0 million in shares of our outstanding common stock. Any repurchases under the repurchase program will be made in accordance with applicable securities laws from time to time in open market or private transactions. The extent to which we repurchase shares, and the timing of such repurchases, will be at management’s discretion and will depend upon a variety of factors, including market conditions, our capital position and amount of retained earnings, regulatory requirements and other considerations. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time. (9) STOCK-BASED COMPENSATION
(8) Stock-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 totalOn April 19, 2022, the Company’s stockholders approved the Texas Capital Bancshares, Inc. 2022 Long-Term Incentive Plan, which provides for the issuance of 1,124,880 shares authorized underof common stock for compensation to the plans.Company’s key employees and non-employee directors.
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 March 31, |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 | (in thousands) | | | 2022 | | 2021 |
Stock-settled awards: | | | | | | | | Stock-settled awards: | | |
SARs | $ | 64 |
| | $ | 74 |
| | $ | 210 |
| | $ | 233 |
| |
| RSUs | 2,184 |
| | 1,145 |
| | 5,491 |
| | 3,223 |
| RSUs | | | $ | 5,407 | | | $ | 5,460 | |
Restricted stock | 8 |
| | 4 |
| | 16 |
| | 10 |
| Restricted stock | | | — | | | 1 | |
Cash-settled performance units | 3,811 |
| | 1,227 |
| | 9,304 |
| | 2,709 |
| |
Cash-settled units | | Cash-settled units | | | 181 | | | 907 | |
Total | $ | 6,067 |
| | $ | 2,450 |
| | $ | 15,021 |
| | $ | 6,175 |
| Total | | | $ | 5,588 | | | $ | 6,368 | |
| | | | | |
(in thousands except period data) | March 31, 2022 |
Unrecognized compensation expense related to unvested stock-settled awards | $ | 46,901 | |
Weighted average period over which expense is expected to be recognized, in years | 2.7 |
|
| | | |
(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, (9) 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 levelsthe Accounting Standards Codification (“ASC”) 820, Fair Value Measurement. See Note 1 - Operations and Summary of inputs that may be used to measureSignificant Accounting Policies in our 2021 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 |
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 |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using |
(in thousands) | Level 1 | | Level 2 | | Level 3 |
March 31, 2022 | | | | | |
Available-for-sale debt securities:(1) | | | | | |
U.S. Treasury securities | $ | 367,854 | | | $ | — | | | $ | — | |
U.S. government agency securities | — | | | 113,516 | | | — | |
Residential mortgage-backed securities | — | | | 1,932,102 | | | — | |
| | | | | |
Tax-exempt asset-backed securities | — | | | — | | | 165,845 | |
CRT securities | — | | | — | | | 11,901 | |
Equity securities(1)(2) | 29,154 | | | 11,671 | | | — | |
Loans held for sale(3) | — | | | — | | | 8,085 | |
| | | | | |
| | | | | |
Derivative assets(4) | — | | | 30,238 | | | — | |
Derivative liabilities(4) | — | | | 30,238 | | | — | |
Non-qualified deferred compensation plan liabilities(5) | 26,474 | | | — | | | — | |
| | | | | |
December 31, 2021 | | | | | |
Available-for-sale debt securities:(1) | | | | | |
U.S. government agency securities | $ | — | | | $ | 120,944 | | | $ | — | |
Residential mortgage-backed securities | — | | | 3,225,378 | | | — | |
Tax-exempt asset-backed securities | — | | | — | | | 180,033 | |
CRT securities | — | | | — | | | 11,846 | |
Equity securities(1)(2) | 33,589 | | | 12,018 | | | — | |
Loans held for sale(3) | — | | | 465 | | | 7,658 | |
| | | | | |
| | | | | |
Derivative assets(4) | — | | | 37,788 | | | — | |
Derivative liabilities(4) | — | | | 37,788 | | | — | |
Non-qualified deferred compensation plan liabilities(5) | 29,695 | | | — | | | — | |
(1)Investment securities are measured at fair value on a recurring basis, generally monthly, except for tax-exempt asset-backed securities and CRT securities which are measured quarterly.
| |
(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) | (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)Mortgage loans held for sale are measured at fair value on a recurring basis, generally monthly. (4)Derivative assets and liabilities are measured at fair value on a recurring basis, generally quarterly. (5)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 nonrecurring basis as described below.
Loans held for investment
At September 30, 2017 and December 31, 2016, certain impaired loans held for investment were reported at fair value through a specific allocation of the allowance for loan losses based upon the fair value of the underlying collateral. 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 $21.0 millionfollowing table summarizes the changes in Level 3 assets measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Net Gains (Losses) | | |
(in thousands) | Balance at Beginning of Period | | Purchases / Additions | | Sales / Reductions | | Realized | | Unrealized | | Balance at End of Period |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Three months ended March 31, 2022 | | | | | | | | | | | |
Available-for-sale debt securities:(1) | | | | | | | | | | | |
Tax-exempt asset-backed securities | $ | 180,033 | | | $ | — | | | $ | (3,736) | | | $ | — | | | $ | (10,452) | | | $ | 165,845 | |
CRT securities | 11,846 | | | — | | | — | | | — | | | 55 | | | 11,901 | |
Loans held for sale(2) | 7,658 | | | 933 | | | (41) | | | — | | | (465) | | | 8,085 | |
Three months ended March 31, 2021 | | | | | | | | | | | |
Available-for-sale debt securities:(1) | | | | | | | | | | | |
Tax-exempt asset-backed securities | $ | 199,176 | | | $ | — | | | $ | (11,371) | | | $ | — | | | $ | (6,239) | | | $ | 181,566 | |
CRT securities | 11,417 | | | — | | | — | | | — | | | 48 | | | 11,465 | |
Loans held for sale(2) | 6,933 | | | 537 | | | (279) | | | 5 | | | 79 | | | 7,275 | |
(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 on the consolidated statements of income and other comprehensive income/(loss).
(2)Realized and unrealized gains/(losses) on loans held for sale are recorded in net gain/(loss) on sale of loans held for sale on the consolidated statements of income and other comprehensive income/(loss).
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 March 31, 2022, the discount rates utilized ranged from 4.09% to 4.16% and the weighted-average life ranged from 4.33 years to 4.40 years. On a combined amortized cost weighted-average basis a discount rate of 4.12% and weighted-average life of 4.36 years were utilized to determine the fair value of these securities at March 31, 2022. At December 31, 2021, the combined weighted-average discount rate and weighted-average life utilized were 2.60% and 4.61 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 March 31, 2022, the discount rates utilized ranged from 4.57% to 9.54% and the weighted-average life ranged from 4.84 years to 9.38 years. On a combined amortized cost weighted-average basis a discount rate of 6.23% and a weighted-average life of 6.35 years were utilized to determine the fair value of these securities at March 31, 2022. At December 31, 2021, the combined weighted-average discount rate and combined weighted-average life utilized were 4.97% and 6.35 years, respectively.
Loans held for sale
The fair value of loans held for investment at September 30, 2017 reported above includes impaired loans held for investment with a carrying value of $28.3 million that were reduced by specific allowance allocations totaling $7.3 million based on collateral valuations utilizingsale using Level 3 valuation inputs. The $52.3 millioninputs include loans that cannot be sold through normal sale channels and thus require significant management judgment or estimation when determining the fair value of loans held for investment at December 31, 2016 reported above includes impaired loans with a carrying value of $74.1 million that were reduced by specific valuation allowance allocations totaling $21.8 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.value. The fair value of OREOsuch loans is generally based upon quoted prices of comparable loans with a liquidity discount applied. At March 31, 2022, the fair value of these loans was computed based on third party appraisals, which are Level 3 valuation inputs.calculated using a weighted-average discounted price of 92.3% compared to 97.8% at December 31, 2021.
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Estimated Fair Value |
(in thousands) | Carrying Amount | | Total | | Level 1 | | Level 2 | | Level 3 |
March 31, 2022 | | | | | | | | | |
Financial assets: | | | | | | | | | |
Cash and cash equivalents | $ | 5,371,533 | | | $ | 5,371,533 | | | $ | 5,371,533 | | | $ | — | | | $ | — | |
Available-for-sale debt securities | 2,591,218 | | | 2,591,218 | | | 367,854 | | | 2,045,618 | | | 177,746 | |
Held-to-maturity debt securities | 1,009,972 | | | 973,591 | | | — | | | 973,591 | | | — | |
Equity securities | 40,825 | | | 40,825 | | | 29,154 | | | 11,671 | | | — | |
Loans held for sale | 8,085 | | | 8,085 | | | — | | | — | | | 8,085 | |
| | | | | | | | | |
Loans held for investment, net | 21,466,248 | | | 21,436,263 | | | — | | | — | | | 21,436,263 | |
Derivative assets | 30,238 | | | 30,238 | | | — | | | 30,238 | | | — | |
Financial liabilities: | | | | | | | | | |
Total deposits | 25,377,938 | | | 25,378,165 | | | — | | | — | | | 25,378,165 | |
Short-term borrowings | 1,427,033 | | | 1,427,033 | | | — | | | 1,427,033 | | | — | |
Long-term debt | 929,414 | | | 913,678 | | | — | | | 913,678 | | | — | |
Derivative liabilities | 30,238 | | | 30,238 | | | — | | | 30,238 | | | — | |
| | | | | | | | | |
December 31, 2021 | | | | | | | | | |
Financial assets: | | | | | | | | | |
Cash and cash equivalents | $ | 7,946,659 | | | $ | 7,946,659 | | | $ | 7,946,659 | | | $ | — | | | $ | — | |
Available-for-sale debt securities | 3,538,201 | | | 3,538,201 | | | — | | | 3,346,322 | | | 191,879 | |
| | | | | | | | | |
Equity securities | 45,607 | | | 45,607 | | | 33,589 | | | 12,018 | | | — | |
Loans held for sale | 8,123 | | | 8,123 | | | — | | | 465 | | | 7,658 | |
| | | | | | | | | |
Loans held for investment, net | 22,595,088 | | | 22,631,252 | | | — | | | — | | | 22,631,252 | |
Derivative assets | 37,788 | | | 37,788 | | | — | | | 37,788 | | | — | |
Financial liabilities: | | | | | | | | | |
Total deposits | 28,109,365 | | | 28,109,762 | | | — | | | — | | | 28,109,762 | |
Short-term borrowings | 2,202,832 | | | 2,202,832 | | | — | | | 2,202,832 | | | — | |
Long-term debt | 928,738 | | | 952,404 | | | — | | | 952,404 | | | — | |
Derivative liabilities | 37,788 | | | 37,788 | | | — | | | 37,788 | | | — | |
|
| | | | | | | | | | | | | | | |
| 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.
(10) 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| | | Estimated Fair Value | | | | Estimated Fair Value |
(in thousands) | Notional Amount | | Asset Derivative | Liability Derivative | | Notional Amount | | Asset Derivative | Liability Derivative |
Non-hedging derivatives: | | | | | | | | | |
Financial institution counterparties: | | | | | | | | | |
Commercial loan/lease interest rate swaps | $ | 1,529,665 | | | $ | 29,161 | | $ | 8,072 | | | $ | 1,768,045 | | | $ | 3,228 | | $ | 37,694 | |
Commercial loan/lease interest rate caps | 168,701 | | | 713 | | — | | | 191,291 | | | 94 | | — | |
| | | | | | | | | |
Customer counterparties: | | | | | | | | | |
Commercial loan/lease interest rate swaps | 1,529,665 | | | 8,072 | | 29,161 | | | 1,768,045 | | | 37,694 | | 3,228 | |
Commercial loan/lease interest rate caps | 168,701 | | | — | | 713 | | | 191,291 | | | — | | 94 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Gross derivatives | | | 37,946 | | 37,946 | | | | | 41,016 | | 41,016 | |
Offsetting derivative assets/liabilities | | | (7,708) | | (7,708) | | | | | (3,228) | | (3,228) | |
Net derivatives included on the consolidated balance sheets | | | $ | 30,238 | | $ | 30,238 | | | | | $ | 37,788 | | $ | 37,788 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Estimated Fair Value | | Estimated Fair Value |
| Notional Amount | | Asset Derivative | | Liability Derivative | | Notional Amount | | Asset Derivative | | Liability Derivative |
Non-hedging interest rate derivatives: | | | | | | | | | | | |
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 caps | 267,765 |
| | 295 |
| | 1 |
| | 210,996 |
| | 819 |
| | — |
|
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 caps | 267,765 |
| | 1 |
| | 295 |
| | 210,996 |
| | — |
| | 819 |
|
Economic hedging interest rate derivatives: | | | | | | | | | | | |
Loan purchase commitments | 168,784 |
| | 279 |
| | 363 |
| | 237,805 |
| | 1,351 |
| | — |
|
Forward sales commitments | 1,022,613 |
| | 1,166 |
| | — |
| | 1,218,000 |
| | 10,287 |
| | — |
|
Gross derivatives | | | 26,781 |
| | 25,699 |
| | | | 39,632 |
| | 27,994 |
|
Offsetting derivative assets/liabilities | | | (1,651 | ) | | (1,651 | ) | | | | (1,754 | ) | | (1,754 | ) |
Net derivatives included in the consolidated balance sheets | | | $ | 25,130 |
| | $ | 24,048 |
| | | | $ | 37,878 |
| | $ | 26,240 |
|
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 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Received | | Paid | | Received | | Paid |
Non-hedging interest rate swaps - financial institution counterparties | 1.58 | % | | 2.83 | % | | 1.15 | % | | 2.65 | % |
Non-hedging interest rate swaps - customer counterparties | 2.83 | % | | 1.58 | % | | 2.65 | % | | 1.15 | % |
The weighted averageweighted-average strike rate for outstanding interest rate caps was 2.50%2.47% at September 30, 2017March 31, 2022 and 2.45%2.54% at December 31, 2016.2021.
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$30.2 million at September 30, 2017March 31, 2022, and approximately $37.9$37.8 million at December 31, 2016, which primarily relates to Bank customers.2021. Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values. At September 30, 2017, weand cap values, as well as for changes in the value of forward sale commitments. We had $35.1$14.3 million and $40.3 million in cash collateral pledged for these derivatives of which $28.0 million wasat March 31, 2022 and December 31, 2021, respectively, included in interest-bearing depositscash and $7.1cash equivalents on the consolidated balance sheets.
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 12 risk participation agreements where we are a participant bank with a notional amount of $126.8 million was included in accrued interest receivable and other assets. Atat March 31, 2022, compared to 7 risk participation agreements having a notional amount of $79.2 million at December 31, 2016,2021. The maximum estimated exposure to these agreements, assuming 100% default by all obligors, was approximately $750,000 at March 31, 2022 and $2.3 million at December 31, 2021. The fair value of these exposures was insignificant to the consolidated financial statements at both March 31, 2022 and December 31, 2021. 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 17 risk participation agreements where we had $24.8are the lead bank having a notional amount of $197.8 million in cash collateral pledged for these derivatives, allat March 31, 2022, compared to 15 agreements having a notional amount of which was included in interest-bearing deposits.
$156.1 million at December 31, 2021.
(12) NEW ACCOUNTING PRONOUNCEMENTS(11) New Accounting Standards
Accounting Standard Update (“ASU”) ASU 2017-09 "Compensation-Stock Compensation2022-01, “Derivatives and Hedging (Topic 718)-Scope of Modification Accounting" ("815)” (“ASU 2017-09"2022-01”) clarifies when changes to the terms or conditionsguidance in ASC 815 on fair value hedge accounting of a share-based payment must be accountedinterest rate risk for as modifications. Under ASU 2017-09, an entity should accountportfolios and financial assets. Among other things, the amended guidance established the “last-of-layer” method for changes to the terms or conditions of a share-based payment as a modification unless all of the following are met: 1)making the fair value ofhedge accounting for these portfolios more accessible and renamed that method the modified award“portfolio layer” method. ASU 2022-01 is the same as the fair value 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 diversity 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, 20182023 and is not expected to have a significant impact on our consolidated financial statements.
ASU 2016-13 "Financial2022-02, “Financial Instruments - Credit Losses (Topic 326)" ("” (“ASU 2016-13"2022-02”) eliminates the guidance on troubled debt restructurings and requires an entityentities to utilizeevaluate all loan modifications to determine if they result in 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 basisloan or a continuation 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.existing loan. ASU 2016-132022-02 also requires new disclosuresthat entities disclose current-period gross charge-offs by year of origination 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 guidanceleases. ASU 2022-02 is adopted. ASU 2016-13 will be effective for us on January 1, 2020. We are evaluating the impact adoption of ASU 2016-132023 and 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 a transition method as we are in the process of determining the effect of the standard on our 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 andstatement 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)
|
| | | | | | | | | | | | | | | | | | | | | |
| 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 and results of operations for the three months ended March 31, 2022 and 2021 should be read in conjunction with our audited consolidated financial statements and the related notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results for the year ending December 31, 2022 or any future period.
Forward-Looking Statements
Certain statements and financial analysis contained in this report that are not historical facts are forward-looking statements made pursuant toThis Quarterly Report on Form 10-Q contains “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 identifyexpressions. These forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements may include, among other things, statements about the credit quality of our loan portfolio, economic conditions, including the continued impact on our customers from declines and volatility in oil and gas prices, the impact on our loan and deposit portfolios as a result of Hurricanes Harvey and Irma, expectations regarding rates of default or 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 loan losses and provision for credit losses, the impact of increased regulatory requirements 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 the forward-looking statements include, but are not limited to, the following:
Deterioration of the credit qualityhistorical performance of our loan portfoliothe Company or declines inon 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.
Changing economic conditions or other developments adversely affecting our commercial, entrepreneurial and professional customers.
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.
The failure to correctly assess and model the assumptions supporting our allowance for loan losses, causing it to become inadequate in the event of deteriorations in loan quality and increases in charge-offs.
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.
Adverse changes in economic or market conditions, or our operating performance, which could 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 failure to manage 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.
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.
Legislative and regulatory changes imposing further restrictions and costs on our business, a failure to remain well capitalized or well managed status or regulatory enforcement actions against us, and uncertainty related to future implementation and enforcement of regulatory requirements resulting from theCompany’s current political environment.
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 or to successfully manage the risks related to the development and implementation of these new businesses, products or services.
The failure to 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.
Uncertainty in the pricing of mortgage loans that we purchase, and later sell or securitize, as well as competition for the MSRs related to these loans and related interest rate risk resulting from retaining MSRs, and the potential effects of higher interest rates on our MCA loan volumes.
Material failures of our accountingplans, estimates and risk management processes based on management judgment, or the supporting analytical and forecasting models.
Failureexpectations. The inclusion 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 Bank and our customers.
The failure to maintain adequate regulatory capital to support our business.
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 ourthis forward-looking statements and from our historical financial results due to the factors discussed elsewhere in this report or disclosed in our other SEC filings. Forward-looking statements included herein speak only as of the date hereof andinformation 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, whetherregarded as a result of new information,representation by the Company that the future eventsplans, estimates or otherwise. The factors discussed herein are not intended toexpectations so contemplated will 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 predictionsachieved, 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 service Certain risks, uncertainties 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 out 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-offs during the nine 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, 2017 and $129.3 million at September 30, 2016. We continue to proactively manage our energy portfolio and overall credit quality, and we believe we are appropriately reserved against further energy-related losses.
The following discussion and analysis presents the significantother 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 appearingincluding those set forth under “Risk Factors” in Part I, Item 11A of the 2021 Form 10-K and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K may cause actual results to differ materially from the results discussed in the forward-looking statements appearing in this report.discussion and analysis and may include factors such as, but not limited to, credit quality and risk, the COVID-19 pandemic, industry and technological changes, cyber incidents or other failures, disruptions or security breaches, interest rates, commercial and residential real estate values, economic and market conditions in Texas, the United States or internationally, fund availability, accounting estimates and risk management processes, the transition away from the London Interbank Offered Rate (LIBOR), legislative and regulatory changes, business strategy execution, key personnel, competition, mortgage markets, fraud, environmental liability and severe weather, natural disasters, acts of war or terrorism or other external events. The Company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
Results of Operations
SummaryThree months ended March 31, 2022 compared to three months ended March 31, 2021
Selected income statement data and key performance indicators are presented in the table below:
| | | | | | | | | | | | | |
| For the Three Months Ended |
(dollars in thousands except per share data) | March 31, 2022 | | | | March 31, 2021 |
Net interest income | $ | 183,547 | | | | | $ | 194,812 | |
Provision for credit losses | (2,000) | | | | | (6,000) | |
Non-interest income | 20,282 | | | | | 44,353 | |
Non-interest expense | 153,092 | | | | | 150,316 | |
Income before income taxes | 52,737 | | | | | 94,849 | |
Income tax expense | 13,087 | | | | | 22,911 | |
Net income | 39,650 | | | | | 71,938 | |
Preferred stock dividends | 4,313 | | | | | 3,779 | |
Net income available to common stockholders | $ | 35,337 | | | | | $ | 68,159 | |
Earnings per common share - basic | $ | 0.70 | | | | | $ | 1.35 | |
Earnings per common share - diluted | $ | 0.69 | | | | | $ | 1.33 | |
Net interest margin | 2.23 | % | | | | 2.04 | % |
Return on average assets | 0.47 | % | | | | 0.73 | % |
Return on average common equity | 4.97 | % | | | | 10.08 | % |
Non-interest income to average earning assets | 0.25 | % | | | | 0.46 | % |
Efficiency ratio(1) | 75.1 | % | | | | 62.9 | % |
Non-interest expense to average earning assets | 1.86 | % | | | | 1.57 | % |
(1) Non-interest expense divided by the sum of Performancenet interest income and non-interest income.
We reported net income of $58.7$39.7 million and net income available to common stockholders of $56.2$35.3 million or $1.12 per diluted common share, for the thirdfirst quarter of 20172022 compared to net income of $42.7$71.9 million and net income available to common stockholders of $40.3$68.2 million or $0.87for the first quarter of 2021. On a fully diluted basis, earnings per diluted common share were $0.69 for the thirdfirst quarter of 2016.2022, compared to $1.33 for the first quarter of 2021. Return on average common equity (“ROE”) was 11.20%4.97% and return on average assets ("ROA"(“ROA”) was 0.99%0.47% for the thirdfirst quarter of 2017,2022, compared to 10.20%10.08% and 0.78%0.73%, respectively, for the thirdfirst quarter of 2016.2021. The increasedecrease in ROE and ROAnet income for the first quarter of 2022 compared to the first quarter of 2021 resulted primarily from increasesdecreases 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 as balances were deployed into higher yielding loan categories.
Net income and net income available to common stockholders for the nine months ended September 30, 2017 totaled $152.3 million and $145.0 million, respectively, or $2.89 per diluted common share, compared to net income and net income available to common stockholders of $106.7 million and $99.4 million, respectively, or $2.14 per diluted common share, for the same period in 2016. ROE was 9.99% and ROA was 0.93% for the nine months ended September 30, 2017 compared to 8.70% and 0.70%, 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.income.
Details of the changes in the various components of net income are discussed below.
Taxable Equivalent Net Interest Income Analysis
Net interest income was $204.4 million for the third quarter
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2022 | | | | Three months ended March 31, 2021 |
(in thousands except percentages) | Average Balance | | Income/ Expense | | Yield/ Rate | | | | | | | | Average Balance | | Income/ Expense | | Yield/ Rate |
Assets | | | | | | | | | | | | | | | | | |
Investment securities(1) | $ | 3,669,257 | | | $ | 17,743 | | | 1.96 | % | | | | | | | | $ | 3,422,571 | | | $ | 10,359 | | | 1.23 | % |
Interest bearing cash and cash equivalents | 8,552,300 | | | 3,571 | | | 0.17 | % | | | | | | | | 11,845,547 | | | 2,933 | | | 0.10 | % |
Loans held for sale | 7,633 | | | 113 | | | 6.01 | % | | | | | | | | 243,326 | | | 1,595 | | | 2.66 | % |
Loans held for investment, mortgage finance | 5,732,901 | | | 43,466 | | | 3.07 | % | | | | | | | | 8,177,759 | | | 64,942 | | | 3.22 | % |
Loans held for investment(1)(2) | 15,686,319 | | | 144,134 | | | 3.73 | % | | | | | | | | 15,457,888 | | | 143,935 | | | 3.78 | % |
Less: Allowance for credit losses on loans | 212,612 | | | — | | | — | | | | | | | | | 254,697 | | | — | | | — | |
Loans held for investment, net | 21,206,608 | | | 187,600 | | | 3.59 | % | | | | | | | | 23,380,950 | | | 208,877 | | | 3.62 | % |
Total earning assets | 33,435,798 | | | 209,027 | | | 2.54 | % | | | | | | | | 38,892,394 | | | 223,764 | | | 2.33 | % |
Cash and other assets | 819,486 | | | | | | | | | | | | | 1,064,679 | | | | | |
Total assets | $ | 34,255,284 | | | | | | | | | | | | | $ | 39,957,073 | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | | |
Transaction deposits | $ | 2,432,687 | | | $ | 3,962 | | | 0.66 | % | | | | | | | | $ | 3,991,966 | | | $ | 5,861 | | | 0.60 | % |
Savings deposits | 10,420,545 | | | 8,583 | | | 0.33 | % | | | | | | | | 12,889,974 | | | 10,788 | | | 0.34 | % |
Time deposits | 1,038,722 | | | 1,085 | | | 0.42 | % | | | | | | | | 2,204,242 | | | 3,355 | | | 0.62 | % |
Total interest bearing deposits | 13,891,954 | | | 13,630 | | | 0.40 | % | | | | | | | | 19,086,182 | | | 20,004 | | | 0.43 | % |
Short-term borrowings | 1,770,781 | | | 758 | | | 0.17 | % | | | | | | | | 2,686,398 | | | 2,592 | | | 0.39 | % |
Long-term debt | 929,005 | | | 10,595 | | | 4.63 | % | | | | | | | | 464,731 | | | 5,743 | | | 5.01 | % |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Total interest bearing liabilities | 16,591,740 | | | 24,983 | | | 0.61 | % | | | | | | | | 22,237,311 | | | 28,339 | | | 0.52 | % |
Non-interest bearing deposits | 14,235,749 | | | | | | | | | | | | | 14,421,505 | | | | | |
Other liabilities | 243,141 | | | | | | | | | | | | | 309,644 | | | | | |
Stockholders’ equity | 3,184,654 | | | | | | | | | | | | | 2,988,613 | | | | | |
Total liabilities and stockholders’ equity | $ | 34,255,284 | | | | | | | | | | | | | $ | 39,957,073 | | | | | |
Net interest income(1) | | | $ | 184,044 | | | | | | | | | | | | | $ | 195,425 | | | |
Net interest margin | | | | | 2.23 | % | | | | | | | | | | | | 2.04 | % |
Net interest spread | | | | | 1.93 | % | | | | | | | | | | | | 1.81 | % |
| | | | | | | | | | | | | | | | | |
(1)Taxable equivalent rates used where applicable.
(2)Average balances include non-accrual loans which are stated net of 2017, compared to $166.7 million for the third quarter 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.unearned income.
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 average cost of total deposits and borrowed funds increased to 0.54% for the third quarter of 2017 compared to 0.22% for the same period of 2016. The 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 total 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.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.
| | | | | | | | | | | | | | | | | | | | | | | |
| |
| Three months ended March 31, 2022/2021 | | |
| Net Change | | Change due to(1) | | | | |
(in thousands) | Volume | | Yield/Rate(2) | | | | |
Interest income: | | | | | | | | | | | |
Investment securities | $ | 7,384 | | | $ | 748 | | | $ | 6,636 | | | | | | | |
Interest bearing cash and cash equivalents | 638 | | | (812) | | | 1,450 | | | | | | | |
Loans held for sale | (1,482) | | | (1,546) | | | 64 | | | | | | | |
Loans held for investment, mortgage finance loans | (21,476) | | | (19,412) | | | (2,064) | | | | | | | |
Loans held for investment | 199 | | | 2,129 | | | (1,930) | | | | | | | |
| | | | | | | | | | | |
Total | (22,759) | | | (18,829) | | | (3,930) | | | | | | | |
Interest expense: | | | | | | | | | | | |
Transaction deposits | (1,899) | | | (2,307) | | | 408 | | | | | | | |
Savings deposits | (2,205) | | | (2,070) | | | (135) | | | | | | | |
Time deposits | (2,270) | | | (1,782) | | | (488) | | | | | | | |
Short-term borrowings | (1,834) | | | (880) | | | (954) | | | | | | | |
Long-term debt | 4,852 | | | 5,735 | | | (883) | | | | | | | |
Total | (3,356) | | | (1,304) | | | (2,052) | | | | | | | |
Net interest income | $ | (19,403) | | | $ | (17,525) | | | $ | (1,878) | | | | | | | |
(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 |
|
| |
(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. |
Net interest margin, which is defined as the ratio of net interest income to average earning assets, was 3.59%$183.5 million for the third quarter of 2017three months ended March 31, 2022, compared to 3.14%$194.8 million for the third quarter of 2016.same period in 2021. The year-over-year increasedecrease was primarily due to a decrease in average loans held for investment, mortgage finance, partially offset by an increase in investment securities yields.
Average earning assets for the effectthree months ended March 31, 2022 decreased $5.5 billion compared to the same period in 2021, and included a $3.3 billion decrease in average interest-bearing cash and cash equivalents and a $2.4 billion decrease in average loans held for investment, mortgage finance. The decrease in average interest bearing cash and cash equivalents resulted primarily from our proactive exit of increasescertain high-cost indexed deposit products in the second half of 2021. The decrease in average loans held for investment, mortgage finance, was primarily due to reduced volumes as a result of the rising interest rates on loan yields attributablerate environment. Average interest-bearing liabilities for the three months ended March 31, 2022 decreased $5.6 billion compared to our highly asset-sensitive balance sheet. the same period in 2021, primarily due to a $5.2 billion decrease in average interest-bearing deposits. Average demand deposits for the three months ended March 31, 2022 decreased $185.8 million compared to the same period in 2021.
Net interest margin for the three months ended March 31, 2022 was 2.23% compared to 2.04% for the same period in 2021, primarily due to a shift in the composition of earning assets, primarily declines in interest-bearing cash and cash equivalents and LHI, mortgage finance.
The yield on total loans held for investment increaseddecreased to 4.59%3.59% for the third quarter of 2017three months ended March 31, 2022 compared to 4.05%3.62% for the third quarter of 2016same period in 2021, and the yield on earning assets increased to 4.17%2.54% for the third quarter of 2017three months ended March 31, 2022 compared to 3.44%2.33% for the third quartersame period in 2021. The average cost of 2016. Funding costs, including demandtotal deposits and borrowed funds, increaseddecreased to 0.54%0.20% for the third quarter of 2017 compared to 0.22%three months ended March 31, 2022 from 0.24% for the third quarter of 2016. The spread onsame period in 2021, and 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, increased to 0.56%0.30% for the third quarter of 2017three months ended March 31, 2022 compared to .29%0.29% for the third quarter of 2016.same period in 2021.
Non-interest Income
The components of non-interest income were as follows (in thousands): | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
(in thousands) | 2022 | | | | 2021 | | | | |
Service charges on deposit accounts | $ | 6,022 | | | | | $ | 4,716 | | | | | |
Wealth management and trust fee income | 3,912 | | | | | 2,855 | | | | | |
Brokered loan fees | 3,970 | | | | | 9,311 | | | | | |
Servicing income | 237 | | | | | 9,009 | | | | | |
Investment banking and trading income | 4,179 | | | | | 5,787 | | | | | |
Net gain/(loss) on sale of loans held for sale | — | | | | | 5,572 | | | | | |
Other | 1,962 | | | | | 7,103 | | | | | |
Total non-interest income | $ | 20,282 | | | | | $ | 44,353 | | | | | |
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Service charges on deposit accounts | $ | 3,211 |
| | $ | 2,880 |
| | $ | 9,323 |
| | $ | 7,401 |
|
Wealth management and trust fee income | 1,627 |
| | 1,113 |
| | 4,386 |
| | 3,024 |
|
Bank owned life insurance (BOLI) income | 615 |
| | 520 |
| | 1,562 |
| | 1,592 |
|
Brokered loan fees | 6,152 |
| | 7,581 |
| | 17,639 |
| | 18,090 |
|
Servicing income | 4,486 |
| | 310 |
| | 10,387 |
| | 305 |
|
Swap fees | 647 |
| | 918 |
| | 3,404 |
| | 2,330 |
|
Other | 2,265 |
| | 3,394 |
| | 8,181 |
| | 9,203 |
|
Total non-interest income | $ | 19,003 |
| | $ | 16,716 |
| | $ | 54,882 |
| | $ | 41,945 |
|
Non-interest income increased $2.3decreased $24.1 million during the three months ended September 30, 2017March 31, 2022 compared to the same period in 2021. The decrease was primarily due to decreases in brokered loan fees, servicing fee income and net gain/(loss) on sale of 2016. Thisloans held for sale all as a result of the sale of our mortgage servicing rights portfolio and transition of the mortgage correspondent aggregation program in 2021.
Non-interest Expense
| | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
(in thousands) | 2022 | | | | 2021 | | | | |
Salaries and benefits | $ | 100,098 | | | | | $ | 87,522 | | | | | |
Occupancy expense | 8,885 | | | | | 8,274 | | | | | |
Marketing | 4,977 | | | | | 1,697 | | | | | |
Legal and professional | 10,302 | | | | | 8,277 | | | | | |
Communications and technology | 14,700 | | | | | 15,969 | | | | | |
FDIC insurance assessment | 3,981 | | | | | 6,613 | | | | | |
Servicing-related expenses | — | | | | | 12,989 | | | | | |
Other | 10,149 | | | | | 8,975 | | | | | |
Total non-interest expense | $ | 153,092 | | | | | $ | 150,316 | | | | | |
Non-interest expense for the three months ended March 31, 2022 increased $2.8 million compared to the same period in 2021. The increase was primarily due to a $4.2 million increaseincreases in servicing income during the three months ended September 30, 2017 compared to the same period of 2016 primarily attributable to an increase in MSRs. Offsetting this increase was a $1.4 million decrease in brokered loan fees compared to the three months ended September 30, 2016 resulting fromsalaries and benefits, partially offset by a decrease in total mortgage finance volumes.
Non-interest income increased $12.9 million during the nine months ended September 30, 2017 compared to the same period of 2016. This increase was primarily due to a $10.1 millionservicing-related expenses. The increase in servicing income during the nine months ended September 30, 2017 compared to the same period of 2016salaries and benefits expense was 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 duringheadcount, while the nine months ended September 30, 2017 compared to the same period of 2016. Swap fees relate to customer swap transactions and are receiveddecrease in service-related expenses resulted primarily from the institution that issale of 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 decreasesmortgage servicing rights portfolio in brokered loan fees, BOLI income and other non-interest income compared to the same period of 2016.2021.
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 growth and continued build-out. The $7.0 million increase in servicing related expenses resulting from an increase in MSRs, which are being amortized.
Analysis of Financial Condition
Loans Held for Investment
LoansThe following table summarizes our loans held for investment by portfolio segment:
| | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 | | | | | | |
(in thousands) | | | | | | | |
Commercial | $ | 10,175,668 | | | $ | 9,897,561 | | | | | | | |
Energy | 797,191 | | | 721,373 | | | | | | | |
Mortgage finance | 5,827,965 | | | 7,475,497 | | | | | | | |
| | | | | | | | | |
Real estate | 4,943,195 | | | 4,777,530 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Gross loans held for investment | $ | 21,744,019 | | | $ | 22,871,961 | | | | | | | |
Deferred income (net of direct origination costs) | (66,620) | | | (65,007) | | | | | | | |
Total loans held for investment | 21,677,399 | | | 22,806,954 | | | | | | | |
Allowance for credit losses on loans | (211,151) | | | (211,866) | | | | | | | |
Total loans held for investment, net | $ | 21,466,248 | | | $ | 22,595,088 | | | | | | | |
Total loans held for investment were as follows as$21.7 billion at March 31, 2022, 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$1.1 billion from December 31, 2021. The decline in total loans held for investment was primarily on lendingdue to middle market businessesa decline in mortgage finance loans, partially offset by increases in commercial and successful professionals and entrepreneurs, and as such, commercial, real estate and construction loans have comprised a majority of our loan portfolio. Consumer loans generally have represented 1% or less of the portfolio.loans. 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.days and represent 27% of total loans held for investment at March 31, 2022 compared to 33% at December 31, 2021. 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. The balances of mortgage finance loans have continued to decline in the first quarter of 2022 as interest rates have continued to rise.
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 September 30, 2017,March 31, 2022, we had $2.6$2.7 billion in syndicated loans, $797.4$649.5 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 September 30, 2017, $23.6 millionMarch 31, 2022, none of our syndicated loans were on non-accrual.
Portfolio Geographic ConcentrationConcentrations
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 September 30, 2017,March 31, 2022, 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) | March 31, 2022 | | December 31, 2021 | | |
Non-accrual loans held for investment(1): | | | | | |
Commercial: | | | | | |
| | | | | |
Assets of the borrowers | $ | 17,927 | | | $ | 18,366 | | | |
Accounts receivable and inventory | 5,450 | | | 5,501 | | | |
| | | | | |
Other | 2,093 | | | 2,045 | | | |
Total commercial | 25,470 | | | 25,912 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Energy: | | | | | |
Oil and gas properties | 18,267 | | | 28,380 | | | |
Total energy | 18,267 | | | 28,380 | | | |
Real estate: | | | | | |
Assets of the borrowers | 12,666 | | | 13,741 | | | |
Commercial property | 2,738 | | | 2,840 | | | |
| | | | | |
Single family residences | 186 | | | 1,629 | | | |
| | | | | |
| | | | | |
| | | | | |
Total real estate | 15,590 | | | 18,210 | | | |
| | | | | |
| | | | | |
Total non-accrual loans held for investment | 59,327 | | | 72,502 | | | |
Non-accrual loans held for sale | — | | | — | | | |
Other real estate owned | — | | | — | | | |
Total non-performing assets | $ | 59,327 | | | $ | 72,502 | | | |
| | | | | |
Non-accrual loans held for investment to total loans held for investment | 0.27 | % | | 0.32 | % | | |
Allowance for credit losses on loans to non-accrual loans held for investment | 3.6x | | 2.9x | | |
| | | | | |
Loans held for investment past due 90 days and still accruing(2) | $ | 6,031 | | | $ | 3,467 | | | |
Loans held for investment past due 90 days to total loans held for investment | 0.03 | % | | 0.02 | % | | |
Loans held for sale past due 90 days and still accruing(3) | $ | 3,865 | | | $ | 3,986 | | | |
(1)As of March 31, 2022 and OREO (in thousands):
|
| | | | | | | | | | | |
| 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 |
|
| |
(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 September 30, 2017 decreased $51.8 million from September 30, 2016 and $50.4 million from December 31, 2016. We experienced a significant decrease2021, non-accrual loans included $18.0 million and 19.4 million, respectively, in levels of non-performing assets duringloans that met the nine months ended September 30, 2017 compared to the same period in 2016, primarily related to improvements in our energy portfolio. Energy non-performing assets totaled $81.6 million at September 30, 2017 compared to $121.5 million atcriteria for restructured.
(2)At March 31, 2022 and December 31, 20162021, loans past due 90 days and $129.3still accruing includes premium finance loans of $3.2 million and $3.3 million, respectively.
(3)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 September 30, 2016. Ourfair value on the balance sheet. Interest on these past due loans accrues at the debenture rate guaranteed by the U.S. government.
Summary of Credit Loss Experience
The provision for credit losses, decreased ascomprised of a resultprovision for loans and off-balance sheet credit losses, is a charge to earnings to maintain the allowance for credit losses at a level consistent with management’s assessment of these improvements, as well as improvements inexpected losses at each balance sheet date.
We recorded a $2.0 million negative provision for credit losses for the composition of our pass-rated 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, 2017three months ended March 31, 2022, compared to Decembera negative provision of $6.0 million for the three months ended March 31, 2016 and September 30, 2016.
Potential problem2021. The $2.0 million negative provision for credit losses resulted from a decline in criticized loans, consist of loans that are performingpartially offset by an increase 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 September 30, 2017, we had $34.6 million in loans of this type, compared to $19.3 million at December 31, 2016, which were not included in either non-accrual or 90 days past due categories.
Loans Held for Sale
We launched our MCA business in the third quarter of 2015. In that business, 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 GSEs such as Fannie Mae and Freddie Mac. For additional information on our loans held for sale portfolio, see Note 6 - Certain Transfersinvestment, excluding mortgage finance. We recorded $512,000 in net recoveries during the three months ended March 31, 2022, compared to net charge-offs of Financial Assets in$6.4 million during the accompanying notesthree months ended March 31, 2021. Criticized loans totaled $476.1 million at March 31, 2022, compared to the consolidated financial statements included elsewhere in this report.$945.1 million at March 31, 2021.
The table below presents key metrics related to our credit loss experience:
| | | | | | | | | | | |
| March 31, 2022 | | March 31, 2021 |
Allowance for credit losses on loans to total loans held for investment | 0.97 | % | | 0.99 | % |
Allowance for credit losses on loans to total average loans held for investment | 0.99 | % | | 1.03 | % |
Total provision for credit losses to average total loans held for investment(1) | (0.04) | % | | (0.10) | % |
Total allowance for credit losses to total loans held for investment | 1.05 | % | | 1.06 | % |
(1) Interim period ratios are annualized.
The table below details net charge-offs (recoveries) as a percentage of average total loans by loan category:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, |
| 2022 | | 2021 |
| | | Net Charge-offs | | | | Net Charge-offs |
| Net Charge-offs | | to Average Loans(1) | | Net Charge-offs | | to Average Loans(1) |
Commercial | $ | (107) | | | — | % | | $ | 1,401 | | | 0.06 | % |
Energy | (755) | | | (0.40) | % | | 5,017 | | | 2.94 | % |
Mortgage finance | — | | | — | % | | — | | | — | % |
Real estate | 350 | | | 0.03 | % | | — | | | — | % |
Total | $ | (512) | | | (0.01) | % | | $ | 6,418 | | | 0.11 | % |
(1) Interim period ratios are annualized.
Liquidity and Capital Resources
Liquidity
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,as well as long-term debt. We also rely on the availability of the mortgage secondary market provided by Ginnie Mae and continuethe government-sponsored enterprises to be significant as a resultsupport the liquidity of deposit growth and increases in borrowing capacity related to our mortgage finance loans.assets.
During 2020 and into the first half of 2021, we significantly increased our interest-bearing cash and cash equivalents to ensure that we had the balance sheet strength to serve our clients during the COVID-19 pandemic. In the second half of 2021 and continuing into the first three months of 2022, these balances have 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):these balances:
|
| | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 | | September 30, 2016 |
Federal funds sold and securities purchased under resale agreements | $ | 25,000 |
| | $ | 25,000 |
| | $ | 30,000 |
|
Interest-bearing deposits | 2,332,537 |
| | 2,700,645 |
| | 3,441,074 |
|
Total liquidity assets | $ | 2,357,537 |
| | $ | 2,725,645 |
| | $ | 3,471,074 |
|
| | | | | |
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 earning assets | 10.0 | % | | 12.9 | % | | 16.1 | % |
Total deposits | 12.4 | % | | 16.0 | % | | 19.1 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
(in thousands except percentage data) | | March 31, 2022 | | December 31, 2021 | | March 31, 2021 | | |
| | | | | | | | |
| | | | | | | | |
Interest-bearing cash and cash equivalents | | $ | 5,136,680 | | | $ | 7,765,996 | | | $ | 11,212,276 | | | |
Interest-bearing cash and cash equivalents as a percent of: | | | | | | | | |
Total loans held for investment | | 23.7 | % | | 34.1 | % | | 45.9 | % | | |
Total earning assets | | 17.0 | % | | 22.9 | % | | 28.8 | % | | |
Total deposits | | 20.2 | % | | 27.6 | % | | 33.6 | % | | |
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) | March 31, 2022 | | December 31, 2021 | | March 31, 2021 |
Deposits from core customers | $ | 24,020,695 | | | $ | 25,409,180 | | | $ | 30,102,156 | |
Deposits from core customers as a percent of total deposits | 94.7 | % | | 90.4 | % | | 90.1 | % |
Relationship brokered deposits | $ | 812,108 | | | $ | 1,855,892 | | | $ | 1,933,376 | |
Relationship brokered deposits as a percent of average total deposits | 3.2 | % | | 6.6 | % | | 5.8 | % |
Traditional brokered deposits | $ | 545,135 | | | $ | 844,293 | | | $ | 1,356,438 | |
Traditional brokered deposits as a percent of total deposits | 2.1 | % | | 3.0 | % | | 4.1 | % |
Average deposits from core customers(1) | $ | 25,906,368 | | | $ | 28,734,460 | | | $ | 29,980,945 | |
Average deposits from core customers as a percent of average total deposits | 92.1 | % | | 91.1 | % | | 89.5 | % |
Average relationship brokered deposits(1) | $ | 1,517,430 | | | $ | 1,608,587 | | | $ | 1,912,099 | |
Average relationship brokered deposits as a percent of average total deposits | 5.4 | % | | 5.1 | % | | 5.7 | % |
Average traditional brokered deposits(1) | $ | 703,905 | | | $ | 1,188,544 | | | $ | 1,614,643 | |
Average traditional brokered deposits as a percent of average total deposits | 2.5 | % | | 3.8 | % | | 4.8 | % |
|
| | | | | | | | | | | |
| 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, 2021. | |
(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 the outstanding balance of our short-term borrowings, asall of September 30, 2017 (in thousands):which mature within one year:
| | | | | | | | | | | | | | |
| | |
(in thousands) | | March 31, 2022 | | December 31, 2021 |
| | | | |
Repurchase agreements | | $ | 2,033 | | | 2,832 | |
FHLB borrowings | | 1,425,000 | | | 2,200,000 | |
| | | | |
Total short-term borrowings | | $ | 1,427,033 | | | 2,202,832 | |
| | | | |
|
| | | |
| |
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 othershort-term borrowing capacities in excessnet of balances outstanding at September 30, 2017 (in thousands):outstanding. | | | | |
(in thousands) | | (in thousands) | | March 31, 2022 | | December 31, 2021 |
FHLB borrowing capacity relating to loans | $ | 4,218,138 |
| FHLB borrowing capacity relating to loans | | $ | 4,200,346 | | | $ | 5,190,703 | |
FHLB borrowing capacity relating to securities | 1,424 |
| FHLB borrowing capacity relating to securities | | 3,378,391 | | | 3,352,111 | |
Total FHLB borrowing capacity(1) | $ | 4,219,562 |
| | $ | 7,578,737 | | | $ | 8,542,814 | |
Unused Federal funds lines available from commercial banks | $ | 1,164,000 |
| |
Unused federal funds lines available from commercial banks | | Unused federal funds lines available from commercial banks | | $ | 1,096,000 | | | $ | 892,000 | |
Unused Federal Reserve borrowings capacity | | Unused Federal Reserve borrowings capacity | | $ | 2,806,914 | | | $ | 2,414,702 | |
Unused revolving line of credit(2) | | Unused revolving line of credit(2) | | $ | 75,000 | | | $ | 75,000 | |
(1) FHLB borrowings are collateralized by a blanket floating lien on certain real estate secured loans, mortgage finance assets and 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 proceedsFebruary 8, 2023. 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. No borrowings were made against this line of credit during the three months ended March 31, 2022.
We also have long-term debt outstanding of $929.4 million as of March 31, 2022, comprised of trust preferred securities, subordinated notes and senior unsecured credit linked notes with maturity dates ranging from September 2024 to December 2036. The Company may consider raising additional capital, if needed, in public or private offerings of debt or equity securities to supplement deposits and meet our long-term funding needs.
For additional information regarding our borrowings see Note 5 - Borrowings in the accompanying notes to the consolidated unaudited financial statements included elsewhere in this report.
As the Company is a holding company and is a separate operating entity from our subsidiary bank, our primary sources of liquidity are dividends received from the Bank and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid by the Bank. See Note 7 - Regulatory Restrictions in the accompanying notes to the consolidated unaudited financial statements included elsewhere in this report for additional information regarding dividend restrictions.
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 we seek to actively manage our debt maturity profile and interest cost.
As of September 30, 2017 and DecemberMarch 31, 2016, there were no borrowings outstanding.2022, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us.
Capital Resources
Our equity capital including $150 million in preferred stock, averaged $2.1$3.2 billion for the ninethree months ended September 30, 2017, asMarch 31, 2022 compared to $1.7$3.0 billion for the same period in 2016.2021. We have not paid any cash dividends on our common stock since we commenced operations and have no plans to do so in the foreseeable future.
AsOn April 19, 2022, our board of September 30, 2017,directors authorized a new share repurchase program under which we may repurchase up to $150.0 million in shares of our outstanding common stock. Any repurchases under the repurchase program will be made in accordance with applicable securities laws from time to time in open market or private transactions. The extent to which we repurchase shares, and the timing of such repurchases, will be at management’s discretion and will depend upon a variety of factors, including market conditions, our capital ratios were aboveposition and amount of retained earnings, regulatory requirements and other considerations. No time limit was set for the levels required to be well capitalized. We believe that our earnings, periodic capital raising transactionscompletion of the share repurchase program, and the addition of loan and deposit relationships will allow us to continue to grow organically.program may be suspended or discontinued at any time.
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 specifiedSee Note 7 - Regulatory Restrictions in the underlying contracts. As of September 30, 2017, our significant fixed and determinable contractual obligationsaccompanying notes to third parties, excluding interest, were as follows (in thousands):the consolidated unaudited financial statements included elsewhere in this report for additional information regarding dividend restrictions.
|
| | | | | | | | | | | | | | | | | | | |
| 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 PoliciesEstimates
SEC guidance requires disclosure of “critical accounting policies.estimates.” The SEC defines “critical accounting policies”estimates” as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are most importantreasonably likely to the presentation ofhave a company’smaterial impact on the financial condition andor results and require management’s most difficult, subjective or complex judgments, often as a resultof operations of the need to make estimates about the effect of matters that are inherently uncertain.registrant.
We follow financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States. The moreCertain significant of these policies are summarized in Note 1 - Operations and Summary of Significant Accounting Policies in the accompanying notes to the consolidated unaudited financial statements included elsewhere in the 2016this report and in our 2021 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 be highly dependent on estimates, assumptions and judgments that meet the SEC’s definition of a critical accounting policy.estimate.
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 unaudited financial statements included elsewhere in this report for further discussion of the risk factors considered by management in establishing the allowance for loancredit losses.
| |
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,Asset and Liability Management Committee (“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 establish minimum levels for unpledged assets, 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 boardBoard of directorsDirectors 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 September 30, 2017,March 31, 2022 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
September 30, 2017March 31, 2022
(In thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | 0-3 month Balance | | 4-12 month Balance | | 1-3 year Balance | | 3+ year Balance | | Total Balance |
Assets: | | | | | | | | | |
Interest-bearing cash and cash equivalents | $ | 5,136,680 | | | $ | — | | | $ | — | | | $ | — | | | $ | 5,136,680 | |
Investment securities(1) | 53,362 | | | 1,616 | | | 262,638 | | | 3,324,399 | | | 3,642,015 | |
Total variable loans | 18,758,901 | | | 103,979 | | | 27,640 | | | 270,758 | | | 19,161,278 | |
Total fixed loans | 260,346 | | | 1,338,040 | | | 227,872 | | | 764,568 | | | 2,590,826 | |
Total loans(2) | 19,019,247 | | | 1,442,019 | | | 255,512 | | | 1,035,326 | | | 21,752,104 | |
Total interest sensitive assets | $ | 24,209,289 | | | $ | 1,443,635 | | | $ | 518,150 | | | $ | 4,359,725 | | | $ | 30,530,799 | |
Liabilities: | | | | | | | | | |
Interest bearing customer deposits | $ | 11,092,017 | | | $ | — | | | $ | — | | | $ | — | | | $ | 11,092,017 | |
CDs & IRAs | 54,225 | | | 233,417 | | | 17,897 | | | 524 | | | 306,063 | |
Traditional brokered deposits | — | | | 545,135 | | | — | | | — | | | 545,135 | |
Total interest bearing deposits | 11,146,242 | | | 778,552 | | | 17,897 | | | 524 | | | 11,943,215 | |
Short-term borrowings | 1,427,033 | | | — | | | — | | | — | | | 1,427,033 | |
Long-term debt | 270,988 | | | — | | | — | | | 658,426 | | | 929,414 | |
Total interest sensitive liabilities | $ | 12,844,263 | | | $ | 778,552 | | | $ | 17,897 | | | $ | 658,950 | | | $ | 14,299,662 | |
GAP | $ | 11,365,026 | | | $ | 665,083 | | | $ | 500,253 | | | $ | 3,700,775 | | | $ | — | |
Cumulative GAP | $ | 11,365,026 | | | $ | 12,030,109 | | | $ | 12,530,362 | | | $ | 16,231,137 | | | $ | 16,231,137 | |
| | | | | | | | | |
Non-interest bearing deposits | | | | | | | | | 13,434,723 | |
Stockholders’ equity | | | | | | | | | 3,090,038 | |
Total | | | | | | | | | $ | 16,524,761 | |
(1)Available-for-sale debt securities and equity 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 |
|
| |
(1) | Securities based on fair market value. |
| |
(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, LIBOR and LIBORother alternative indexes 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 theseThese are our primary interest rate exposures. We are currently not currently using derivatives to manage our interest rate exposure.exposure, although we may do so in the future if that appears advisable.
The twoFor modeling purposes, the “shock test” scenarios as of March 31, 2022 and 2021 assume aimmediate, sustained parallel 100 and 200 basis point increaseincreases in interest rates. AsAlthough short-term rates have begun to rise, they still remained low through 2016 and the first ninethree months of 2017,2021 and 2022, and, as such, 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.change.
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:
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| 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 |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Anticipated Impact Over the Next Twelve Months as Compared to Most Likely Scenario |
| March 31, 2022 | | | | March 31, 2021 |
(in thousands) | 100 bps Increase | | 200 bps Increase | | | | 100 bps Increase | | 200 bps Increase | | |
Change in net interest income | $ | 70,943 | | | $ | 149,105 | | | | | $ | 38,809 | | | $ | 93,622 | | | |
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.
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. We have significant exposure to financial instruments with attributes that are either directly or indirectly dependent on LIBOR to establish their interest rate and/or value, some of which 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 changes and to guide the Bank’s response. This team is continuing to work 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. Based on our transition progress to date, we ceased originating LIBOR-based products and began originating Bloomberg Short Term Yield Index based loans in December 2021. We are also prepared with other alternative benchmarks to support the transition from LIBOR. Over the next 12 months, we will continue to transition all remaining LIBOR-based products to an alternative benchmark. We will also continue to evaluate the transition process and align our trajectory with regulatory guidelines regarding the cessation of LIBOR as well as monitor new developments for transitioning to alternative reference rates.
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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 20162021 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 19, 2022, our board of directors authorized a new share repurchase program under which we may repurchase up to $150.0 million in shares of our outstanding common stock. Any repurchases under the repurchase program will be made in accordance with applicable securities laws from time to time in open market or private transactions. The extent to which we repurchase shares, and the timing of such repurchases, will be at management’s discretion and will depend upon a variety of factors, including market conditions, our capital position and amount of retained earnings, regulatory requirements and other considerations. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
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(a) | Exhibits |
| 31.1 |
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10.1 | |
10.2 | |
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
+ Management contract or compensatory plan arrangement
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 AndersonJ. Matthew Scurlock |
Julie AndersonJ. Matthew Scurlock |
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 |