0001558370-19-004694.txt : 20190509 0001558370-19-004694.hdr.sgml : 20190509 20190509162620 ACCESSION NUMBER: 0001558370-19-004694 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 63 CONFORMED PERIOD OF REPORT: 20190331 FILED AS OF DATE: 20190509 DATE AS OF CHANGE: 20190509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL BANCSHARES CORP CENTRAL INDEX KEY: 0000315709 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 742157138 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09439 FILM NUMBER: 19810949 BUSINESS ADDRESS: STREET 1: 12OO SAN BERNARDO AVE STREET 2: PO BOX 1359 CITY: LAREDO STATE: TX ZIP: 78040-1359 BUSINESS PHONE: 9567227611 MAIL ADDRESS: STREET 1: P O BOX 1359 STREET 2: 1200 SAN BERNARDO CITY: LAREDO STATE: TX ZIP: 78040 10-Q 1 iboc-20190331x10q.htm 10-Q iboc_Current Folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to           

 

Commission file number 000-09439

 

INTERNATIONAL BANCSHARES CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

Texas

 

74-2157138

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

1200 San Bernardo Avenue, Laredo, Texas 78042-1359

(Address of principal executive offices)

(Zip Code)

 

(956) 722-7611

(Registrant’s telephone number, including area code)

 

None

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock, $1.00 par value

 

IBOC

 

NASDAQ

 

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 ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒  No ☐

 

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company, in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer ☒

 

Accelerated filer ☐

 

 

 

Non-accelerated filer ☐ 

 

Smaller reporting company ☐

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 ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date

 

 

 

 

Class

 

Shares Issued and Outstanding

Common Stock, $1.00 par value

 

65,647,503 shares outstanding at May 6, 2019

 

 

 

 


 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Condition (Unaudited)

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

    

2019

    

2018

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

349,164

 

$

316,797

 

Investment securities:

 

 

 

 

 

 

 

Held to maturity debt securities (Market value of $2,400 on March 31, 2019 and $1,200 on December 31, 2018)

 

 

2,400

 

 

1,200

 

Available for sale debt securities (Amortized cost of $3,447,719 on March 31, 2019 and $3,481,165 on December 31, 2018)

 

 

3,410,088

 

 

3,411,350

 

Equity securities with readily determinable fair values

 

 

6,075

 

 

5,937

 

Total investment securities

 

 

3,418,563

 

 

3,418,487

 

Loans

 

 

6,707,343

 

 

6,561,289

 

Less allowance for probable loan losses

 

 

(67,030)

 

 

(61,384)

 

Net loans

 

 

6,640,313

 

 

6,499,905

 

Bank premises and equipment, net

 

 

504,581

 

 

506,899

 

Accrued interest receivable

 

 

37,406

 

 

36,803

 

Other investments

 

 

303,950

 

 

337,507

 

Cash surrender value of life insurance policies

 

 

284,327

 

 

282,646

 

Goodwill

 

 

282,532

 

 

282,532

 

Other assets

 

 

206,867

 

 

190,376

 

Total assets

 

$

12,027,703

 

$

11,871,952

 

 

1


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Condition, continued (Unaudited)

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

    

2019

    

2018

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Demand—non-interest bearing

 

$

3,558,719

 

$

3,454,840

 

Savings and interest bearing demand

 

 

3,346,749

 

 

3,268,237

 

Time

 

 

1,990,462

 

 

1,973,468

 

Total deposits

 

 

8,895,930

 

 

8,696,545

 

Securities sold under repurchase agreements

 

 

278,630

 

 

229,989

 

Other borrowed funds

 

 

510,895

 

 

705,665

 

Junior subordinated deferrable interest debentures

 

 

160,416

 

 

160,416

 

Other liabilities

 

 

197,128

 

 

139,755

 

Total liabilities

 

 

10,042,999

 

 

9,932,370

 

Shareholders’ equity:

 

 

 

 

 

 

 

Common shares of $1.00 par value. Authorized 275,000,000 shares; issued 96,137,257 shares on March 31, 2019 and 96,104,029 shares on December 31, 2018

 

 

96,137

 

 

96,104

 

Surplus

 

 

146,113

 

 

145,283

 

Retained earnings

 

 

2,083,218

 

 

2,064,134

 

Accumulated other comprehensive loss

 

 

(29,405)

 

 

(54,634)

 

 

 

 

2,296,063

 

 

2,250,887

 

Less cost of shares in treasury, 30,495,448 shares on March 31, 2019 and 30,494,143 on December 31, 2018

 

 

(311,359)

 

 

(311,305)

 

Total shareholders’ equity

 

 

1,984,704

 

 

1,939,582

 

Total liabilities and shareholders’ equity

 

$

12,027,703

 

$

11,871,952

 

 

See accompanying notes to consolidated financial statements.

2


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Income (Unaudited)

 

(Dollars in Thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

    

2019

    

2018

 

Interest income:

 

 

 

 

 

 

 

Loans, including fees

 

$

102,805

 

$

87,833

 

Investment securities:

 

 

 

 

 

 

 

Taxable

 

 

19,300

 

 

21,214

 

Tax-exempt

 

 

1,649

 

 

2,195

 

Other interest income

 

 

309

 

 

165

 

Total interest income

 

 

124,063

 

 

111,407

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

Savings deposits

 

 

4,243

 

 

2,228

 

Time deposits

 

 

4,378

 

 

2,669

 

Securities sold under repurchase agreements

 

 

589

 

 

1,023

 

Other borrowings

 

 

3,494

 

 

4,689

 

Junior subordinated deferrable interest debentures

 

 

1,950

 

 

1,526

 

 

 

 

 

 

 

 

 

Total interest expense

 

 

14,654

 

 

12,135

 

 

 

 

 

 

 

 

 

Net interest income

 

 

109,409

 

 

99,272

 

 

 

 

 

 

 

 

 

Provision for probable loan losses

 

 

7,420

 

 

1,662

 

 

 

 

 

 

 

 

 

Net interest income after provision for probable loan losses

 

 

101,989

 

 

97,610

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

17,260

 

 

17,712

 

Other service charges, commissions and fees

 

 

 

 

 

 

 

Banking

 

 

10,876

 

 

11,122

 

Non-banking

 

 

1,509

 

 

1,360

 

Investment securities transactions, net

 

 

(4)

 

 

 —

 

Other investments, net

 

 

3,948

 

 

4,726

 

Other income

 

 

2,540

 

 

4,055

 

 

 

 

 

 

 

 

 

Total non-interest income

 

$

36,129

 

$

38,975

 

 

3


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Income, continued (Unaudited)

 

(Dollars in Thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

    

March 31,

 

 

 

 

2019

    

2018

    

 

Non-interest expense:

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

$

36,409

 

$

34,618

 

 

Occupancy

 

 

6,377

 

 

6,075

 

 

Depreciation of bank premises and equipment

 

 

6,981

 

 

6,273

 

 

Professional fees

 

 

3,592

 

 

2,572

 

 

Deposit insurance assessments

 

 

783

 

 

1,000

 

 

Net expense, other real estate owned

 

 

995

 

 

(271)

 

 

Advertising

 

 

2,082

 

 

1,839

 

 

Software and software maintenance

 

 

4,497

 

 

4,072

 

 

Other

 

 

11,235

 

 

12,731

 

 

 

 

 

 

 

 

 

 

 

Total non-interest expense

 

 

72,951

 

 

68,909

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

65,167

 

 

67,676

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

13,261

 

 

14,256

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

51,906

 

$

53,420

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

65,617,977

 

 

66,092,379

 

 

Net income

 

$

0.79

 

$

0.81

 

 

 

 

 

 

 

 

 

 

 

Fully diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

65,831,162

 

 

66,863,895

 

 

Net income

 

$

0.79

 

$

.80

 

 

 

 

 

See accompanying notes to consolidated financial statements

4


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Comprehensive Income (Unaudited)

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

    

March 31,

 

 

 

 

2019

    

2018

    

 

 

 

 

 

 

 

 

 

 

Net income

 

$

51,906

 

$

53,420

 

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized holding gains (losses) on securities available for sale arising during period (net of tax effects of $6,706, and $(9,427))

 

 

25,226

 

 

(39,953)

 

 

Reclassification adjustment for losses on securities available for sale included in net income (net of tax effects of $1, and $0)

 

 

 3

 

 

 —

 

 

 

 

 

25,229

 

 

(39,953)

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

77,135

 

$

13,467

 

 

 

See accompanying notes to consolidated financial statements.

5


 

 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

Quarters ended March 31, 2019 and 2018

(in Thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

   

Number

   

 

 

   

 

 

   

 

 

   

Other

   

 

 

   

 

 

 

 

 

of

 

Common

 

 

 

 

Retained

 

Comprehensive

 

Treasury

 

 

 

 

 

 

Shares

 

Stock

 

Surplus

 

Earnings

 

Income (Loss)

 

Stock

 

Total

Balance at December 31, 2018

 

 

96,104

 

$

96,104

 

$

145,283

 

$

2,064,134

 

$

(54,634)

 

$

(311,305)

 

$

1,939,582

Net Income

 

 

 —

 

 

 —

 

 

 —

 

 

51,906

 

 

 —

 

 

 —

 

 

51,906

Dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payable ($.50 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(32,822)

 

 

 —

 

 

 —

 

 

(32,822)

Purchase of treasury (1,305 shares)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(54)

 

 

(54)

Exercise of stock options

 

 

33

 

 

33

 

 

565

 

 

 —

 

 

 —

 

 

 —

 

 

598

Stock compensation expense recognized in earnings

 

 

 —

 

 

 —

 

 

265

 

 

 —

 

 

 —

 

 

 —

 

 

265

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in unrealized gains and losses on available for sale securities, net of reclassification adjustments

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

25,229

 

 

 —

 

 

25,229

Balance at March 31, 2019

 

 

96,137

 

$

96,137

 

$

146,113

 

$

2,083,218

 

$

(29,405)

 

$

(311,359)

 

$

1,984,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

   

Number

   

 

 

   

 

 

   

 

 

   

Other

   

 

 

   

 

 

 

 

 

of

 

Common

 

 

 

 

Retained

 

Comprehensive

 

Treasury

 

 

 

 

 

 

Shares

 

Stock

 

Surplus

 

Earnings

 

Income (Loss)

 

Stock

 

Total

Balance at December 31, 2017

 

 

96,019

 

$

96,019

 

$

171,816

 

$

1,891,805

 

$

(28,397)

 

$

(292,263)

 

$

1,838,980

Net Income

 

 

 —

 

 

 —

 

 

 —

 

 

53,420

 

 

 —

 

 

 —

 

 

53,420

Dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payable ($.33 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(21,814)

 

 

 —

 

 

 —

 

 

(21,814)

Purchase of treasury (0 shares)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Exercise of stock options

 

 

25

 

 

25

 

 

415

 

 

 —

 

 

 —

 

 

 —

 

 

440

Stock compensation expense recognized in earnings

 

 

 —

 

 

 —

 

 

185

 

 

 —

 

 

 —

 

 

 —

 

 

185

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in unrealized gains and losses on available for sale securities, net of reclassification adjustments

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(39,953)

 

 

 —

 

 

(39,953)

Balance at March 31, 2018

 

 

96,044

 

$

96,044

 

$

172,416

 

$

1,923,411

 

$

(68,350)

 

$

(292,263)

 

$

1,831,258

 

 

See accompanying notes to consolidated financial statements.

 

 

 

6


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows (Unaudited)

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

    

March 31,

 

 

 

2019

    

2018

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

51,906

 

$

53,420

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Provision for probable loan losses

 

 

7,420

 

 

1,662

 

Specific reserve, other real estate owned

 

 

 8

 

 

71

 

Depreciation of bank premises and equipment

 

 

6,981

 

 

6,273

 

Gain on sale of bank premises and equipment

 

 

(43)

 

 

(8)

 

Gain on sale of other real estate owned

 

 

(469)

 

 

(2)

 

Accretion of investment securities discounts

 

 

(55)

 

 

(75)

 

Amortization of investment securities premiums

 

 

4,024

 

 

5,700

 

Investment securities transactions, net

 

 

 4

 

 

 —

 

Unrealized (gain) loss on equity securities with readily determinable fair values

 

 

(138)

 

 

774

 

Stock based compensation expense

 

 

265

 

 

185

 

Earnings from affiliates and other investments

 

 

(3,444)

 

 

(4,303)

 

Deferred tax (benefit) expense

 

 

(1,435)

 

 

269

 

(Increase) decrease in accrued interest receivable

 

 

(603)

 

 

1,683

 

Increase in other assets

 

 

(20,685)

 

 

(42,473)

 

Increase in other liabilities

 

 

23,962

 

 

30,001

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

67,698

 

 

53,177

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from maturities of securities

 

 

 —

 

 

1,075

 

Proceeds from sales and calls of available for sale securities

 

 

41,420

 

 

18,145

 

Purchases of available for sale securities

 

 

(145,966)

 

 

(1,075)

 

Principal collected on mortgage backed securities

 

 

132,820

 

 

188,893

 

Net increase in loans

 

 

(147,124)

 

 

(107,206)

 

Purchases of other investments

 

 

(13,045)

 

 

(17,963)

 

Distributions from other investments

 

 

46,677

 

 

5,367

 

Purchases of bank premises and equipment

 

 

(6,130)

 

 

(3,519)

 

Proceeds from sales of bank premises and equipment

 

 

1,510

 

 

12

 

Proceeds from sales of other real estate owned

 

 

707

 

 

376

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by investing activities

 

$

(89,131)

 

$

84,105

 

 

7


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows, continued (Unaudited)

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

    

March 31,

 

 

2019

    

2018

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in non-interest bearing demand deposits

 

$

103,879

 

$

196,102

Net increase in savings and interest bearing demand deposits

 

 

78,512

 

 

148,635

Net increase (decrease) in time deposits

 

 

16,994

 

 

(34,717)

Net increase (decrease) in securities sold under repurchase agreements

 

 

48,641

 

 

(94,852)

Net decrease in other borrowed funds

 

 

(194,770)

 

 

(363,625)

Purchase of treasury stock

 

 

(54)

 

 

 —

Proceeds from stock transactions

 

 

598

 

 

440

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

 

53,800

 

 

(148,017)

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

32,367

 

 

(10,735)

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

316,797

 

 

265,357

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

349,164

 

$

254,622

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

 

$

13,982

 

$

12,052

Income taxes paid

 

 

 —

 

 

 —

Non-cash investing and financing activities:

 

 

 

 

 

 

Net transfers from loans to other real estate owned

 

$

704

 

$

80

Dividends declared, not yet paid on common stock

 

 

32,822

 

 

21,814

    Establishment of lease liability and right-of-use asset

 

 

6,171

 

 

 —

 

See accompanying notes to consolidated financial statements.

8


 

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(Unaudited)

 

As used in this report, the words “Company,” “we,” “us” and “our” refer to International Bancshares Corporation, a Texas corporation, its five wholly-owned subsidiary banks, and other subsidiaries.  The information that follows may contain forward-looking statements, which are qualified as indicated under “Cautionary Notice Regarding Forward-Looking Statements” in Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of this report.  Our website address is www.ibc.com.

 

 

Note 1 — Basis of Presentation

 

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.  Our consolidated financial statements include the accounts of International Bancshares Corporation, and our wholly-owned bank subsidiaries, International Bank of Commerce, Laredo (“IBC”), Commerce Bank, International Bank of Commerce, Zapata, International Bank of Commerce, Brownsville, International Bank of Commerce, Oklahoma (the “Subsidiary Banks”) and our wholly-owned non-bank subsidiaries,  IBC Trading Company, Premier Tierra Holdings, Inc., IBC Charitable and Community Development Corporation, and IBC Capital Corporation.  Effective January 1, 2019, we dissolved one of our non-bank subsidiaries, IBC Subsidiary Corporation, a  second-tier bank holding company incorporated in the State of Delaware.  All significant inter-company balances and transactions have been eliminated in consolidation.  Our consolidated financial statements are unaudited, but include all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of the periods presented.  All such adjustments were of a normal and recurring nature.  These financial statements should be read in conjunction with the financial statements and the notes thereto in our latest Annual Report on Form 10-K.  Our consolidated statement of condition at December 31, 2018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“US GAAP”) for complete financial statements.  Certain reclassifications have been made to make prior periods comparable. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results for the year ending December 31, 2019 or any future period.

 

We operate as one segment.  The operating information used by our chief executive officer for purposes of assessing performance and making operating decisions is the consolidated statements presented in this report.  We have five active operating subsidiaries, the Subsidiary Banks.  We apply the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), FASB ASC 280, “Segment Reporting,” in determining our reportable segments and related disclosures.

 

We have evaluated all events or transactions that occurred through the date we issued these financial statements. During this period, we did not have any material recognizable or non-recognizable subsequent events.

 

On January 1, 2019, we adopted the provisions of ASU 2016-02, “Leases.”  ASU 2016-02 amends existing standards for accounting for leases by lessees, with accounting for leases by lessors remaining mainly unchanged from current guidance.  The update requires that lessees recognize a lease liability and a right of use asset for all leases (with the exception of short-term leases) at the commencement date of the lease and disclose key information about leasing arrangements.  The update is to be applied on a modified retrospective basis for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements.  In January 2018, the FASB issued a proposal that provides an additional transition method that would allow entities to not apply the guidance in the update in the comparative periods presented in the consolidated financial statements, but instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  As part of our business model, we primarily own all property we occupy, with the exception of certain branches operating in grocery stores or shopping centers and certain ATM locations and were classified as operating leases under previous guidance.   The adoption of the standard did not have a significant impact on our consolidated financial statements.  As of the date of

9


 

adoption, we recorded a right of use asset and a lease liability of approximately $6.4 million.  The right of use asset and lease liability are included in other assets and other liabilities, respectively, on our consolidated statement of condition.  Amortization of the right of use asset for the three months ended March 31, 2019 was approximately $214,000 and is included as a part of occupancy expense in our consolidated income statement.

 

 

Note 2 — Fair Value Measurements

 

ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  ASC 820 applies to all financial instruments that are being measured and reported on a fair value basis.  ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; it also establishes a fair value hierarchy that prioritizes the inputs used in valuation methodologies into the following three levels:

 

·

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities.

·

Level 2 Inputs - Observable inputs other than Level 1 inputs, 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 3 Inputs - 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 other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

 

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy is set forth below.

 

The following table represents assets and liabilities reported on the consolidated balance sheets at their fair value on a recurring basis as of March 31, 2019 by level within the fair value measurement hierarchy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

 

Reporting Date Using

 

 

 

 

 

 

(in Thousands)

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

Significant

 

 

 

 

 

 

Assets/Liabilities

 

Markets for

 

Other

 

Significant

 

 

 

Measured at

 

Identical

 

Observable

 

Unobservable

 

 

 

Fair Value

 

Assets

 

Inputs

 

Inputs

 

 

 

March 31, 2019

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Measured on a recurring basis:

    

 

    

    

 

    

    

 

    

    

 

    

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities

 

$

3,263,030

 

$

 —

 

$

3,263,030

 

$

 —

 

States and political subdivisions

 

 

147,058

 

 

 —

 

 

147,058

 

 

 —

 

Equity Securities

 

 

6,075

 

 

6,075

 

 

 —

 

 

 —

 

 

 

$

3,416,163

 

$

6,075

 

$

3,410,088

 

$

 —

 

 

10


 

The following table represents assets and liabilities reported on the consolidated balance sheets at their fair value on a recurring basis as of December 31, 2018 by level within the fair value measurement hierarchy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

 

Reporting Date Using

 

 

 

 

 

 

(in Thousands)

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

Significant

 

 

 

 

 

 

Assets/Liabilities

 

Markets for

 

Other

 

Significant

 

 

 

Measured at

 

Identical

 

Observable

 

Unobservable

 

 

 

Fair Value

 

Assets

 

Inputs

 

Inputs

 

 

 

December 31, 2018

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Measured on a recurring basis:

    

 

    

    

 

    

    

 

    

    

 

    

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage - backed securities

 

$

3,223,010

 

$

 —

 

$

3,223,010

 

$

 —

 

States and political subdivisions

 

 

188,340

 

 

 —

 

 

188,340

 

 

 —

 

Equity Securities

 

 

5,937

 

 

5,937

 

 

 —

 

 

 —

 

 

 

$

3,417,287

 

$

5,937

 

$

3,411,350

 

$

 —

 

 

Available-for-sale debt securities are classified within Level 2 of the valuation hierarchy.  Equity securities with readily determinable fair values are classified within Level 1.  For debt investments classified as Level 2 in the fair value hierarchy, we obtain fair value measurements from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

 

Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis.  The instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

 

The following table represents financial instruments measured at fair value on a non-recurring basis as of and for the period ended March 31, 2019 by level within the fair value measurement hierarchy: