Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
OR
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o | 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: 0-12247
SOUTHSIDE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
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TEXAS | | 75-1848732 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1201 S. Beckham Avenue, Tyler, Texas | | 75701 |
(Address of principal executive offices) | | (Zip Code) |
903-531-7111
(Registrant’s telephone number, including area code)
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 x No o
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 (§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 x No o
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer x | Accelerated filer o |
Non-accelerated filer o | (Do not check if a smaller reporting company) |
| Smaller reporting company o |
| Emerging growth company o |
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. o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of the issuer’s common stock, par value $1.25, outstanding as of October 23, 2017 was 29,433,437 shares.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION | |
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PART II. OTHER INFORMATION | |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share amounts) |
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
ASSETS | | | | |
Cash and due from banks | | $ | 57,947 |
| | $ | 59,363 |
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Interest earning deposits | | 120,996 |
| | 102,251 |
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Federal funds sold | | 5,570 |
| | 8,040 |
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Total cash and cash equivalents | | 184,513 |
| | 169,654 |
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Securities available for sale, at estimated fair value | | 1,292,072 |
| | 1,479,600 |
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Securities held to maturity, at carrying value (estimated fair value of $928,507 and $944,282, respectively) | | 909,844 |
| | 937,487 |
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FHLB stock, at cost | | 61,845 |
| | 61,084 |
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Other investments | | 5,439 |
| | 5,508 |
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Loans held for sale | | 2,177 |
| | 7,641 |
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Loans: | | |
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Loans | | 2,682,766 |
| | 2,556,537 |
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Less: Allowance for loan losses | | (19,871 | ) | | (17,911 | ) |
Net Loans | | 2,662,895 |
| | 2,538,626 |
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Premises and equipment, net | | 107,099 |
| | 106,003 |
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Goodwill | | 91,520 |
| | 91,520 |
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Other intangible assets, net | | 3,379 |
| | 4,608 |
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Interest receivable | | 18,792 |
| | 25,183 |
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Deferred tax asset, net | | 21,842 |
| | 28,891 |
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Unsettled trades to sell securities | | 11,843 |
| | — |
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Bank owned life insurance | | 99,616 |
| | 97,775 |
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Other assets | | 11,554 |
| | 10,187 |
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Total assets | | $ | 5,484,430 |
| | $ | 5,563,767 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | | |
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Deposits: | | |
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Noninterest bearing | | $ | 781,701 |
| | $ | 704,013 |
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Interest bearing | | 2,782,474 |
| | 2,829,063 |
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Total deposits | | 3,564,175 |
| | 3,533,076 |
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Short-term obligations: | | |
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Federal funds purchased and repurchase agreements | | 9,083 |
| | 7,097 |
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FHLB advances | | 990,500 |
| | 866,518 |
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Total short-term obligations | | 999,583 |
| | 873,615 |
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Long-term obligations: | | |
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FHLB advances | | 152,056 |
| | 443,128 |
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Subordinated notes, net of unamortized debt issuance costs | | 98,209 |
| | 98,100 |
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Long-term debt, net of unamortized debt issuance costs | | 60,240 |
| | 60,236 |
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Total long-term obligations | | 310,505 |
| | 601,464 |
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Unsettled trades to purchase securities | | 16,673 |
| | 160 |
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Other liabilities | | 37,471 |
| | 37,178 |
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Total liabilities | | 4,928,407 |
| | 5,045,493 |
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Off-balance-sheet arrangements, commitments and contingencies (Note 13) | |
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Shareholders’ equity: | | |
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Common stock ($1.25 par value, 40,000,000 shares authorized, 32,256,777 shares issued at September 30, 2017 and 31,455,951 shares issued at December 31, 2016) | | 40,321 |
| | 39,320 |
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Paid-in capital | | 563,553 |
| | 535,240 |
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Retained earnings | | 25,677 |
| | 30,098 |
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Treasury stock, at cost (2,823,340 shares at September 30, 2017 and 2,913,064 shares at December 31, 2016) | | (47,291 | ) | | (47,891 | ) |
Accumulated other comprehensive loss | | (26,237 | ) | | (38,493 | ) |
Total shareholders’ equity | | 556,023 |
| | 518,274 |
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Total liabilities and shareholders’ equity | | $ | 5,484,430 |
| | $ | 5,563,767 |
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The accompanying notes are an integral part of these consolidated financial statements.
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in thousands, except per share data) |
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| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Interest income | | | | | | | |
Loans | $ | 29,322 |
| | $ | 25,740 |
| | $ | 84,666 |
| | $ | 79,738 |
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Investment securities – taxable | 58 |
| | 251 |
| | 702 |
| | 572 |
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Investment securities – tax-exempt | 5,670 |
| | 5,467 |
| | 18,381 |
| | 15,959 |
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Mortgage-backed securities | 10,567 |
| | 9,399 |
| | 31,430 |
| | 28,156 |
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FHLB stock and other investments | 329 |
| | 186 |
| | 926 |
| | 588 |
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Other interest earning assets | 527 |
| | 89 |
| | 1,265 |
| | 220 |
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Total interest income | 46,473 |
| | 41,132 |
| | 137,370 |
| | 125,233 |
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Interest expense | |
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Deposits | 5,420 |
| | 3,604 |
| | 14,839 |
| | 10,375 |
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Short-term obligations | 3,382 |
| | 1,122 |
| | 7,927 |
| | 2,724 |
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Long-term obligations | 2,711 |
| | 2,476 |
| | 8,940 |
| | 7,210 |
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Total interest expense | 11,513 |
| | 7,202 |
| | 31,706 |
| | 20,309 |
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Net interest income | 34,960 |
| | 33,930 |
| | 105,664 |
| | 104,924 |
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Provision for loan losses | 960 |
| | 1,631 |
| | 3,404 |
| | 7,715 |
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Net interest income after provision for loan losses | 34,000 |
| | 32,299 |
| | 102,260 |
| | 97,209 |
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Noninterest income | |
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Deposit services | 5,476 |
| | 5,335 |
| | 15,845 |
| | 15,519 |
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Net gain on sale of securities available for sale | 627 |
| | 2,343 |
| | 874 |
| | 5,512 |
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Gain on sale of loans | 347 |
| | 818 |
| | 1,553 |
| | 2,334 |
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Trust income | 873 |
| | 867 |
| | 2,662 |
| | 2,591 |
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Bank owned life insurance income | 636 |
| | 656 |
| | 1,905 |
| | 1,977 |
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Brokerage services | 561 |
| | 551 |
| | 1,790 |
| | 1,661 |
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Other | 888 |
| | 1,162 |
| | 3,745 |
| | 3,104 |
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Total noninterest income | 9,408 |
| | 11,732 |
| | 28,374 |
| | 32,698 |
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Noninterest expense | |
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Salaries and employee benefits | 14,395 |
| | 15,203 |
| | 45,229 |
| | 47,784 |
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Occupancy expense | 2,981 |
| | 4,569 |
| | 8,741 |
| | 10,897 |
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Advertising, travel & entertainment | 487 |
| | 588 |
| | 1,618 |
| | 1,995 |
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ATM and debit card expense | 1,024 |
| | 868 |
| | 2,840 |
| | 2,316 |
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Professional fees | 996 |
| | 1,148 |
| | 2,985 |
| | 3,964 |
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Software and data processing expense | 732 |
| | 736 |
| | 2,145 |
| | 2,224 |
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Telephone and communications | 459 |
| | 407 |
| | 1,461 |
| | 1,359 |
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FDIC insurance | 441 |
| | 643 |
| | 1,327 |
| | 1,926 |
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Other | 3,492 |
| | 4,263 |
| | 10,056 |
| | 11,180 |
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Total noninterest expense | 25,007 |
| | 28,425 |
| | 76,402 |
| | 83,645 |
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Income before income tax expense | 18,401 |
| | 15,606 |
| | 54,232 |
| | 46,262 |
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Income tax expense | 3,890 |
| | 2,741 |
| | 10,251 |
| | 8,486 |
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Net income | $ | 14,511 |
| | $ | 12,865 |
| | $ | 43,981 |
| | $ | 37,776 |
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Earnings per common share – basic | $ | 0.49 |
| | $ | 0.48 |
| | $ | 1.50 |
| | $ | 1.40 |
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Earnings per common share – diluted | $ | 0.49 |
| | $ | 0.48 |
| | $ | 1.49 |
| | $ | 1.39 |
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Dividends paid per common share | $ | 0.28 |
| | $ | 0.24 |
| | $ | 0.81 |
| | $ | 0.71 |
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The accompanying notes are an integral part of these consolidated financial statements.
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (in thousands) |
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| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income | $ | 14,511 |
| | $ | 12,865 |
| | $ | 43,981 |
| | $ | 37,776 |
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Other comprehensive income: | |
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Securities available for sale and transferred securities: | | | | | | | |
Change in net unrealized holding gains (losses) on available for sale securities during the period | 344 |
| | (10,960 | ) | | 18,450 |
| | 33,031 |
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Reclassification adjustment for amortization of unrealized losses on securities transferred to held to maturity | 490 |
| | 16 |
| | 1,191 |
| | 160 |
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Reclassification adjustment for net gain on sale of available for sale securities, included in net income | (627 | ) | | (2,343 | ) | | (874 | ) | | (5,512 | ) |
Derivatives: | | | | | | | |
Change in net unrealized (loss) gain on effective cash flow hedge interest rate swap derivatives | (236 | ) | | 1,070 |
| | (2,084 | ) | | (5,125 | ) |
Change in net unrealized gains on interest rate swap derivatives terminated during the period | — |
| | — |
| | 273 |
| | — |
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Reclassification adjustment for net loss on interest rate swap derivatives, included in net income | 122 |
| | 521 |
| | 746 |
| | 1,338 |
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Reclassification adjustment for amortization of unrealized gains on terminated interest rate swap derivatives | (21 | ) | | — |
| | (52 | ) | | — |
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Pension plans: | | | | | | | |
Amortization of net actuarial loss, included in net periodic benefit cost | 403 |
| | 458 |
| | 1,210 |
| | 1,371 |
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Amortization of prior service credit, included in net periodic benefit cost | (1 | ) | | (10 | ) | | (5 | ) | | (6 | ) |
Other comprehensive income (loss), before tax | 474 |
| | (11,248 | ) | | 18,855 |
| | 25,257 |
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Income tax (expense) benefit related to items of other comprehensive income | (166 | ) | | 3,937 |
| | (6,599 | ) | | (8,840 | ) |
Other comprehensive income (loss), net of tax | 308 |
| | (7,311 | ) | | 12,256 |
| | 16,417 |
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Comprehensive income | $ | 14,819 |
| | $ | 5,554 |
| | $ | 56,237 |
| | $ | 54,193 |
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The accompanying notes are an integral part of these consolidated financial statements.
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) (in thousands, except share and per share data) |
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| Common Stock | | Paid In Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders’ Equity |
Balance at December 31, 2015 | $ | 34,832 |
| | $ | 424,078 |
| | $ | 41,527 |
| | $ | (37,692 | ) | | $ | (18,683 | ) | | $ | 444,062 |
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Net income | — |
| | — |
| | 37,776 |
| | — |
| | — |
| | 37,776 |
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Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 16,417 |
| | 16,417 |
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Issuance of common stock for dividend reinvestment plan (33,622 shares) | 42 |
| | 950 |
| | — |
| | — |
| | — |
| | 992 |
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Purchase of common stock (443,426 shares) | — |
| | — |
| | — |
| | (10,199 | ) | | — |
| | (10,199 | ) |
Stock compensation expense | — |
| | 1,156 |
| | — |
| | — |
| | — |
| | 1,156 |
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Tax benefits related to stock awards | — |
| | 79 |
| | — |
| | — |
| | — |
| | 79 |
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Net issuance of common stock under employee stock plans (39,468 shares) | 50 |
| | 345 |
| | (49 | ) | | — |
| | — |
| | 346 |
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Cash dividends paid on common stock ($0.71 per share) | — |
| | — |
| | (18,069 | ) | | — |
| | — |
| | (18,069 | ) |
Stock dividend declared (1,252,353 shares) | 1,565 |
| | 33,200 |
| | (34,765 | ) | | — |
| | — |
| | — |
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Balance at September 30, 2016 | $ | 36,489 |
| | $ | 459,808 |
| | $ | 26,420 |
| | $ | (47,891 | ) | | $ | (2,266 | ) | | $ | 472,560 |
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Balance at December 31, 2016 | $ | 39,320 |
| | $ | 535,240 |
| | $ | 30,098 |
| | $ | (47,891 | ) | | $ | (38,493 | ) | | $ | 518,274 |
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Net income | — |
| | — |
| | 43,981 |
| | — |
| | — |
| | 43,981 |
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Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 12,256 |
| | 12,256 |
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Issuance of common stock for dividend reinvestment plan (33,000 shares) | 41 |
| | 1,057 |
| | — |
| | — |
| | — |
| | 1,098 |
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Stock compensation expense | — |
| | 1,393 |
| | — |
| | — |
| | — |
| | 1,393 |
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Net issuance of common stock under employee stock plans (138,035 shares) | 61 |
| | 1,802 |
| | (73 | ) | | 600 |
| | — |
| | 2,390 |
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Cash dividends paid on common stock ($0.81 per share) | — |
| | — |
| | (23,369 | ) | | — |
| | — |
| | (23,369 | ) |
Stock dividend declared (719,515 shares) | 899 |
| | 24,061 |
| | (24,960 | ) | | — |
| | — |
| | — |
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Balance at September 30, 2017 | $ | 40,321 |
| | $ | 563,553 |
| | $ | 25,677 |
| | $ | (47,291 | ) | | $ | (26,237 | ) | | $ | 556,023 |
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The accompanying notes are an integral part of these consolidated financial statements.
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) (in thousands) |
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| Nine Months Ended |
| September 30, |
| 2017 | | 2016 |
OPERATING ACTIVITIES: | | | |
Net income | $ | 43,981 |
| | $ | 37,776 |
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Adjustments to reconcile net income to net cash provided by operations: | |
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Depreciation and net amortization | 7,251 |
| | 6,612 |
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Securities premium amortization (discount accretion), net | 13,502 |
| | 14,245 |
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Loan (discount accretion) premium amortization, net | (818 | ) | | (2,113 | ) |
Provision for loan losses | 3,404 |
| | 7,715 |
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Stock compensation expense | 1,393 |
| | 1,156 |
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Deferred tax expense | 453 |
| | 1,916 |
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Net tax benefit related to stock awards | — |
| | (79 | ) |
Net gain on sale of securities available for sale | (874 | ) | | (5,512 | ) |
Net loss on premises and equipment | 77 |
| | 235 |
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Gross proceeds from sales of loans held for sale | 50,689 |
| | 67,144 |
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Gross originations of loans held for sale | (45,225 | ) | | (68,634 | ) |
Net (gain) loss on other real estate owned | (1 | ) | | 224 |
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Net gain on sale of customer receivables | — |
| | (144 | ) |
Net change in: | |
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Interest receivable | 6,391 |
| | 5,242 |
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Other assets | 2,696 |
| | (2,094 | ) |
Interest payable | (923 | ) | | 726 |
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Other liabilities | (4,639 | ) | | 2,182 |
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Net cash provided by operating activities | 77,357 |
| | 66,597 |
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INVESTING ACTIVITIES: | |
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Securities available for sale: | | | |
Purchases | (371,555 | ) | | (761,900 | ) |
Sales | 486,460 |
| | 495,011 |
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Maturities, calls and principal repayments | 87,096 |
| | 160,676 |
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Securities held to maturity: | |
| | |
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Purchases | (1,521 | ) | | (29,725 | ) |
Maturities, calls and principal repayments | 25,455 |
| | 22,029 |
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Proceeds from redemption of FHLB stock and other investments | 114 |
| | 3,644 |
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Purchases of FHLB stock and other investments | (761 | ) | | (4,433 | ) |
Net loan originations | (127,240 | ) | | (66,633 | ) |
Proceeds from sales of customer receivables | — |
| | 3,314 |
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Purchases of premises and equipment | (7,090 | ) | | (5,189 | ) |
Proceeds from sales of premises and equipment | 8 |
| | 120 |
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Proceeds from sales of other real estate owned | 134 |
| | 1,918 |
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Proceeds from sales of repossessed assets | 341 |
| | 767 |
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Net cash provided by (used in) investing activities | 91,441 |
| | (180,401 | ) |
| | | |
(continued) | | | |
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) (continued) (in thousands) |
| | | | | | | |
| Nine Months Ended |
| September 30, |
| 2017 | | 2016 |
FINANCING ACTIVITIES: | | | |
Net change in deposits | $ | 31,031 |
| | $ | 126,748 |
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Net increase in federal funds purchased and repurchase agreements | 1,986 |
| | 9,087 |
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Proceeds from FHLB advances | 2,366,476 |
| | 6,548,551 |
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Repayment of FHLB advances | (2,533,551 | ) | | (6,523,701 | ) |
Net proceeds from issuance of subordinated long-term debt | — |
| | 98,083 |
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Tax benefit related to stock awards | — |
| | 79 |
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Proceeds from stock option exercises | 2,527 |
| | 418 |
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Cash paid to tax authority from stock option exercises | (137 | ) | | (72 | ) |
Purchase of common stock | — |
| | (10,199 | ) |
Proceeds from the issuance of common stock for dividend reinvestment plan | 1,098 |
| | 992 |
|
Cash dividends paid | (23,369 | ) | | (18,069 | ) |
Net cash (used in) provided by financing activities | (153,939 | ) | | 231,917 |
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Net increase in cash and cash equivalents | 14,859 |
| | 118,113 |
|
Cash and cash equivalents at beginning of period | 169,654 |
| | 80,975 |
|
Cash and cash equivalents at end of period | $ | 184,513 |
| | $ | 199,088 |
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SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION: | |
| | |
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| | | |
Interest paid | $ | 32,629 |
| | $ | 19,583 |
|
Income taxes paid | $ | 8,300 |
| | $ | 5,700 |
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| | | |
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: | |
| | |
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| | | |
Loans transferred to other repossessed assets and real estate through foreclosure | $ | 407 |
| | $ | 5,434 |
|
Adjustment to pension liability | $ | (1,205 | ) | | $ | (1,365 | ) |
Stock dividend (2.5% and 5%, respectively) | $ | 24,960 |
| | $ | 34,765 |
|
Unsettled trades to purchase securities | $ | (16,673 | ) | | $ | (30,214 | ) |
Unsettled trades to sell securities | $ | 11,843 |
| | $ | — |
|
The accompanying notes are an integral part of these consolidated financial statements.
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting and Reporting Policies
Basis of Presentation
In this report, the words “the Company,” “we,” “us,” and “our” refer to the combined entities of Southside Bancshares, Inc. and its subsidiaries. The words “Southside” and “Southside Bancshares” refer to Southside Bancshares, Inc. The words “Southside Bank” and “the Bank” refer to Southside Bank. “Omni” refers to OmniAmerican Bancorp, Inc., a bank holding company acquired by Southside on December 17, 2014.
The accompanying unaudited consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, not all information required by GAAP for complete financial statements is included in these interim statements. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. The preparation of these consolidated financial statements in accordance with GAAP requires the use of management’s estimates. These estimates are subjective in nature and involve matters of judgment. Actual amounts could differ from these estimates.
On May 4, 2017, our board of directors declared a 2.5% stock dividend to common stock shareholders of record as of May 30, 2017, which was paid on June 27, 2017. All share data has been adjusted to give retroactive recognition to stock dividends.
Interim results are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with the financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2016.
Accounting Changes and Reclassifications
Certain prior period amounts have been reclassified to conform to current year presentation.
We adopted ASU 2016-09 “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” on January 1, 2017 which requires all income tax effects related to settlements of share-based payment awards be reported in earnings as an increase (or decrease) to income tax expense. Previously, income tax benefits at settlement of an award were reported as an increase (or decrease) to additional paid-in capital to the extent that those benefits were greater than (or less than) the income tax benefits recognized in earnings during the vesting period or exercise of the award. The requirement to report those income tax effects in earnings has been applied to settlements occurring on or after January 1, 2017, and the impact of applying that guidance reduced reported income tax expense by $213,000, or less than $0.01 on our diluted earnings per common share for the three months ended September 30, 2017, and $423,000, or $0.01 on our diluted earnings per common share for the nine months ended September 30, 2017. ASU 2016-09 also 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 settlement of an award 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 vesting period or exercise of the award. We have elected to apply that change in cash flow on a prospective basis and therefore, prior periods have not been adjusted. ASU 2016-09 also requires the classification of employee taxes paid when an employer withholds shares for tax withholding purposes be classified as a financing activity in the statement of cash flow and be applied retrospectively. The requirement to report the employee taxes paid is reflected in prior period presentation in our consolidated statement of cash flows. In connection with the adoption of ASU 2016-09, we have also elected to recognize forfeitures as they occur.
Terminated Derivative Financial Instruments
In accordance with ASC Topic 815, if a hedging item is terminated prior to maturity for a cash settlement, the existing gain or loss within accumulated other comprehensive income (“AOCI”) will continue to be reclassified into earnings during the period or periods in which the hedged forecasted transaction affects earnings unless it is probable that the forecasted transaction will not occur by the end of the originally specified time period. If the forecasted transaction is deemed probable to not occur, the derivative gain or loss reported in AOCI shall be reclassified into earnings immediately. During the first quarter of 2017, we terminated two interest rate swap contracts designated as cash flow hedges of forecasted transactions. At the time of termination, we determined that the underlying hedged forecasted transactions were still probable of occurring. These transactions are reevaluated on a monthly basis thereafter, to determine if the hedged forecasted transactions are still probable of occurring. If at a subsequent evaluation, it is determined that the transactions will not occur, any related gains or losses recorded in AOCI are immediately recognized in earnings.
The existing gain in AOCI related to the terminated interest rate swap contracts will be reclassified into earnings through straight-line accretion in the same periods the hedged forecasted transaction affects earnings.
Further information on our derivative instruments and hedging activities is included in “Note 10 - Derivative Financial Instruments and Hedging Activities.”
For a description of our significant accounting and reporting policies, refer to “Note 1- Summary of Significant Accounting and Reporting Policies” in our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016.
Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” This update states 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. This update affects entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which defers the effective date of the previously issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) until the interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through cumulative adjustment. We anticipate adopting the new standard using the modified retrospective method beginning January 1, 2018. Our revenue consists of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and noninterest income. We have evaluated the impact this guidance will have in relation to our noninterest income derived from contracts with our customers as it relates to deposit services, trust income, brokerage services, and merchant services (included in other noninterest income) which we have determined to be in the scope of ASU 2014-09. The adoption of ASU 2014-09 is not expected to have a material impact on our consolidated financial statements. We are continuing to evaluate the impact of the additional disclosures required by this guidance.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 requires a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet, the new ASU 2016-02 will require both finance (formerly known as “capital”) and operating leases to be recognized on the balance sheet. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The guidance requires companies to apply the requirements in the year of adoption using a modified retrospective approach. We are currently evaluating the impact this guidance will have on our consolidated financial statements, and we anticipate our assessment to be completed during the fiscal year 2018.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. ASU 2016-13 also modifies the impairment model for available for sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The guidance requires companies to apply the requirements in the year of adoption through cumulative adjustment with some aspects of the update requiring a prospective transition approach. We are currently evaluating the potential impact of the pending adoption of ASU 2016-13 on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 is intended to simplify goodwill impairment testing by eliminating the second step of the analysis which requires the calculation of the implied fair value of goodwill to measure a goodwill impairment charge. The update requires entities to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for any amount by which the carrying amount exceeds the reporting unit’s fair value, to the extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual and interim goodwill impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The guidance requires companies to apply the requirements prospectively in the year of adoption. ASU 2017-04 is not expected to have a significant impact on our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU 2017-07 requires employers to present the service cost component of net periodic postretirement benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Only the service cost component will be eligible for
capitalization in assets. Employers are required to present the other components of the net periodic benefit cost separately from the line item that includes the service cost and outside of any subtotal of operating income, if one is presented. ASU 2017-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. We did not early adopt ASU 2017-07. The guidance requires companies to apply the requirements retrospectively to all prior periods presented. ASU 2017-07 is not expected to have a significant impact on our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” Under current GAAP, premiums on callable debt securities are generally amortized over the contractual life of the security. ASU 2017-08 requires the premium on callable debt securities to be amortized to the earliest call date. If the debt security is not called at the earliest call date, the holder of the debt security would be required to reset the effective yield on the debt security based on the payment terms required by the debt security. ASU 2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The guidance requires companies to apply the requirements on a modified retrospective basis through a cumulative adjustment directly to retained earnings as of the beginning of the period of adoption. We are currently evaluating the potential impact of the pending adoption of ASU 2017-08 on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Subtopic 718): Scope of Modification Accounting.” ASU 2017-09 clarifies when changes to terms or conditions of a share-based payment award must be accounted for as a modification. Under the new guidance, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the fair value of the award, (ii) the vesting conditions of the award, and (iii) the classification of the award as either an equity or liability instrument. ASU 2017-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. We did not early adopt ASU 2017-09. The guidance requires companies to apply the requirements prospectively to awards modified on or after the adoption date. ASU 2017-09 is not expected to have a significant impact on our consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 (i) expands hedge accounting for nonfinancial and financial risk components and amends measurement methodologies to more closely align hedge accounting with a company’s risk management activities, (ii) decreases the complexity of preparing and understanding hedge results by eliminating the separate measurement and reporting of hedge ineffectiveness, (iii) enhances transparency, comparability, and understanding of hedge results through enhanced disclosures and changing the presentation of hedge results to align the effects of the hedging instrument and the hedged item, and (iv) reduces the cost and complexity of applying hedge accounting by simplifying the manner in which assessments of hedge effectiveness may be performed. ASU 2017-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The guidance requires companies to apply the requirements to existing hedging relationships on the date of adoption, and the effect of the adoption should be reflected as of the beginning of the fiscal year of adoption. We are currently evaluating the potential impact of the pending adoption of ASU 2017-12 on our consolidated financial statements.
2. Pending Acquisition
On June 12, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Diboll State Bancshares, Inc., a Texas corporation (“Diboll”) and the holding company for First Bank & Trust East Texas, a Texas banking association based in Diboll, Texas. As of September 30, 2017, Diboll had $1.01 billion in assets and $908.7 million in deposits The Merger Agreement provides that, subject to the terms and conditions thereof, Diboll will merge with and into the Company, with the Company as the surviving corporation. On October 17, 2017, Diboll’s shareholders approved the Merger Agreement and the merger at a special meeting of shareholders. The merger of Southside Bank and Diboll’s subsidiary bank has previously received the approval of the Federal Deposit Insurance Corporation and the Texas Department of Banking. The merger is expected to close during the fourth quarter of 2017, subject to receipt of regulatory approval from the Federal Reserve Board and the satisfaction of other customary closing conditions.
Pursuant to the Merger Agreement, the Company will issue 5,535,000 shares of Company common stock and up to $25.0 million in cash for all outstanding shares of Diboll common stock, subject to adjustment pursuant to the terms of the Merger Agreement.
3. Earnings Per Share
Earnings per share on a basic and diluted basis has been adjusted to give retroactive recognition to stock dividends and is calculated as follows (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Basic and Diluted Earnings: | | | | | | | |
Net income | $ | 14,511 |
| | $ | 12,865 |
| | $ | 43,981 |
| | $ | 37,776 |
|
Basic weighted-average shares outstanding | 29,370 |
| | 26,923 |
| | 29,326 |
| | 26,976 |
|
Add: Stock awards | 200 |
| | 157 |
| | 205 |
| | 115 |
|
Diluted weighted-average shares outstanding | 29,570 |
| | 27,080 |
| | 29,531 |
| | 27,091 |
|
| |
| | |
| | |
| | |
|
Basic Earnings Per Share: | | | | | | | |
Net Income | $ | 0.49 |
| | $ | 0.48 |
| | $ | 1.50 |
| | $ | 1.40 |
|
Diluted Earnings Per Share: | | | | | | | |
Net Income | $ | 0.49 |
| | $ | 0.48 |
| | $ | 1.49 |
| | $ | 1.39 |
|
For the three- and nine-month periods ended September 30, 2017, there were approximately 45,000 and 49,000 anti-dilutive shares, respectively. For the three- and nine-month periods ended September 30, 2016, there were approximately 3,000 and 29,000 anti-dilutive shares, respectively.
4. Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component are as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 |
| | | | Pension Plans | | |
| Unrealized Gains (Losses) on Securities | | Unrealized Gains (Losses) on Derivatives | | Net Prior Service (Cost) Credit | | Net Gain (Loss) | | Total |
Beginning balance, net of tax | $ | (11,644 | ) | | $ | 3,957 |
| | $ | (136 | ) | | $ | (18,722 | ) | | $ | (26,545 | ) |
Other comprehensive income (loss): | | | | | | | | | |
Other comprehensive income (loss) before reclassifications | 344 |
| | (236 | ) | | — |
| | — |
| | 108 |
|
Reclassified from accumulated other comprehensive (loss) income | (137 | ) | | 101 |
| | (1 | ) | | 403 |
| | 366 |
|
Income (expense) tax benefit | (72 | ) | | 47 |
| | — |
| | (141 | ) | | (166 | ) |
Net current-period other comprehensive income (loss), net of tax | 135 |
| | (88 | ) | | (1 | ) | | 262 |
| | 308 |
|
Ending balance, net of tax | $ | (11,509 | ) | | $ | 3,869 |
| | $ | (137 | ) | | $ | (18,460 | ) | | $ | (26,237 | ) |
| | | | | | | | | |
| Nine Months Ended September 30, 2017 |
|
| | | Pension Plans | | |
| Unrealized Gains (Losses) on Securities | | Unrealized Gains (Losses) on Derivatives | | Net Prior Service (Cost) Credit | | Net Gain (Loss) | | Total |
Beginning balance, net of tax | $ | (23,708 | ) | | $ | 4,595 |
| | $ | (133 | ) | | $ | (19,247 | ) | | $ | (38,493 | ) |
Other comprehensive income (loss): | | | | | | | | | |
Other comprehensive income (loss) before reclassifications | 18,450 |
| | (1,811 | ) | | — |
| | — |
| | 16,639 |
|
Reclassified from accumulated other comprehensive income (loss) | 317 |
| | 694 |
| | (5 | ) | | 1,210 |
| | 2,216 |
|
Income tax (expense) benefit | (6,568 | ) | | 391 |
| | 1 |
| | (423 | ) | | (6,599 | ) |
Net current-period other comprehensive income (loss), net of tax | 12,199 |
| | (726 | ) | | (4 | ) | | 787 |
| | 12,256 |
|
Ending balance, net of tax | $ | (11,509 | ) | | $ | 3,869 |
| | $ | (137 | ) | | $ | (18,460 | ) | | $ | (26,237 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2016 |
| | | | Pension Plans | | |
| Unrealized Gains (Losses) on Securities | | Unrealized Gains (Losses) on Derivatives | | Net Prior Service (Cost) Credit | | Net Gain (Loss) | | Total |
Beginning balance, net of tax | $ | 26,389 |
| | $ | (3,496 | ) | | $ | (42 | ) | | $ | (17,806 | ) | | $ | 5,045 |
|
Other comprehensive income (loss): | | | | | | | | | |
Other comprehensive (loss) income before reclassifications | (10,960 | ) | | 1,070 |
| | — |
| | — |
| | (9,890 | ) |
Reclassified from accumulated other comprehensive (loss) income | (2,327 | ) | | 521 |
| | (10 | ) | | 458 |
| | (1,358 | ) |
Income tax benefit (expense) | 4,650 |
| | (557 | ) | | 4 |
| | (160 | ) | | 3,937 |
|
Net current-period other comprehensive (loss) income, net of tax | (8,637 | ) | | 1,034 |
| | (6 | ) | | 298 |
| | (7,311 | ) |
Ending balance, net of tax | $ | 17,752 |
| | $ | (2,462 | ) | | $ | (48 | ) | | $ | (17,508 | ) | | $ | (2,266 | ) |
| | | | | | | | | |
| Nine Months Ended September 30, 2016 |
|
| | | Pension Plans | | |
| Unrealized Gains (Losses) on Securities | | Unrealized Gains (Losses) on Derivatives | | Net Prior Service (Cost) Credit | | Net Gain (Loss) | | Total |
Beginning balance, net of tax | $ | (239 | ) | | $ | — |
| | $ | (44 | ) | | $ | (18,400 | ) | | $ | (18,683 | ) |
Other comprehensive income (loss): | | | | | | | | | |
Other comprehensive income (loss) before reclassifications | 33,031 |
| | (5,125 | ) | | — |
| | — |
| | 27,906 |
|
Reclassified from accumulated other comprehensive (loss) income | (5,352 | ) | | 1,338 |
| | (6 | ) | | 1,371 |
| | (2,649 | ) |
Income tax (expense) benefit | (9,688 | ) | | 1,325 |
| | 2 |
| | (479 | ) | | (8,840 | ) |
Net current-period other comprehensive income (loss), net of tax | 17,991 |
| | (2,462 | ) | | (4 | ) | | 892 |
| | 16,417 |
|
Ending balance, net of tax | $ | 17,752 |
| | $ | (2,462 | ) | | $ | (48 | ) | | $ | (17,508 | ) | | $ | (2,266 | ) |
The reclassifications out of accumulated other comprehensive income (loss) into net income are presented below (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | |
Unrealized losses on securities transferred to held to maturity: | | | | | | | |
Amortization of unrealized losses (1) | $ | (490 | ) | | $ | (16 | ) | | $ | (1,191 | ) | | $ | (160 | ) |
Tax benefit | 172 |
| | 6 |
| | 417 |
| | 56 |
|
Net of tax | $ | (318 | ) | | $ | (10 | ) | | $ | (774 | ) | | $ | (104 | ) |
| | | | | | | |
Unrealized gains and losses on available for sale securities: | | | | | | | |
Realized net gain on sale of securities (2) | $ | 627 |
| | $ | 2,343 |
| | $ | 874 |
| | $ | 5,512 |
|
Tax expense | (220 | ) | | (820 | ) | | (306 | ) | | (1,929 | ) |
Net of tax | $ | 407 |
| | $ | 1,523 |
| | $ | 568 |
| | $ | 3,583 |
|
| | | | | | | |
Derivatives: | | | | | | | |
Realized net loss on interest rate swap derivatives (3) | $ | (122 | ) | | $ | (521 | ) | | $ | (746 | ) | | $ | (1,338 | ) |
Tax benefit | 43 |
| | 182 |
| | 261 |
| | 468 |
|
Net of tax | $ | (79 | ) | | $ | (339 | ) | | $ | (485 | ) | | $ | (870 | ) |
| | | | | | | |
Amortization of unrealized gains on terminated interest rate swap derivatives (3) | $ | 21 |
| | $ | — |
| | $ | 52 |
| | $ | — |
|
Tax expense | (7 | ) | | — |
| | (18 | ) | | — |
|
Net of tax | $ | 14 |
| | $ | — |
| | $ | 34 |
| | $ | — |
|
| | | | | | | |
Amortization of pension plan: | | | | | | | |
Net actuarial loss (4) | $ | (403 | ) | | $ | (458 | ) | | $ | (1,210 | ) | | $ | (1,371 | ) |
Prior service credit (4) | 1 |
| | 10 |
| | 5 |
| | 6 |
|
Total before tax | (402 | ) | | (448 | ) | | (1,205 | ) | | (1,365 | ) |
Tax benefit | 141 |
| | 156 |
| | 422 |
| | 477 |
|
Net of tax | (261 | ) | | (292 | ) | | (783 | ) | | (888 | ) |
Total reclassifications for the period, net of tax | $ | (237 | ) | | $ | 882 |
| | $ | (1,440 | ) | | $ | 1,721 |
|
(1) Included in interest income on the consolidated statements of income.
(2) Listed as net gain on sale of securities available for sale on the consolidated statements of income.
(3) Included in interest expense for long-term obligations on the consolidated statements of income.
| |
(4) | These accumulated other comprehensive income components are included in the computation of net periodic pension cost (income) presented in “Note 8 - Employee Benefit Plans.” |
5. Securities
The amortized cost, gross unrealized gains and losses, carrying value, and estimated fair value of investment and mortgage-backed securities available for sale and held to maturity as of September 30, 2017 and December 31, 2016 are reflected in the tables below (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | | | Recognized in OCI | | | | Not recognized in OCI | | |
| | Amortized | | Gross Unrealized | | Gross Unrealized | | Carrying | | Gross Unrealized | | Gross Unrealized | | Estimated |
AVAILABLE FOR SALE | | Cost | | Gains | | Losses | | Value | | Gains | | Losses | | Fair Value |
Investment Securities: | | | | | | | | | | | | | |
|
State and Political Subdivisions | | $ | 340,790 |
| | $ | 2,757 |
| | $ | 6,387 |
| | $ | 337,160 |
| | $ | — |
| | $ | — |
| | $ | 337,160 |
|
Other Stocks and Bonds | | 5,042 |
| | 73 |
| | — |
| | 5,115 |
| | — |
| | — |
| | 5,115 |
|
Other Equity Securities | | 6,031 |
| | — |
| | 71 |
| | 5,960 |
| | — |
| | — |
| | 5,960 |
|
Mortgage-backed Securities: (1) | | |
| | |
| | |
| | | | | | | | |
Residential | | 617,860 |
| | 6,319 |
| | 4,484 |
| | 619,695 |
| | — |
| | — |
| | 619,695 |
|
Commercial |
| 322,577 |
| | 2,320 |
| | 755 |
| | 324,142 |
| | — |
| | — |
| | 324,142 |
|
Total | | $ | 1,292,300 |
| | $ | 11,469 |
| | $ | 11,697 |
| | $ | 1,292,072 |
| | $ | — |
| | $ | — |
| | $ | 1,292,072 |
|
| | | | | | | | | | | | | | |
HELD TO MATURITY | | | | | | | | | | | | | | |
Investment Securities: | | | | | | | | | | | | | | |
State and Political Subdivisions | | $ | 424,729 |
| | $ | 2,812 |
| | $ | 12,299 |
| | $ | 415,242 |
| | $ | 13,019 |
| | $ | 2,039 |
| | $ | 426,222 |
|
Mortgage-backed Securities: (1) | | |
| | |
| | |
| | | | | | | | |
Residential | | 132,426 |
| | — |
| | 5,143 |
| | 127,283 |
| | 2,513 |
| | 181 |
| | 129,615 |
|
Commercial | | 370,167 |
| | 941 |
| | 3,789 |
| | 367,319 |
| | 5,925 |
| | 574 |
| | 372,670 |
|
Total | | $ | 927,322 |
| | $ | 3,753 |
| | $ | 21,231 |
| | $ | 909,844 |
| | $ | 21,457 |
| | $ | 2,794 |
| | $ | 928,507 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | | | Recognized in OCI | | | | Not recognized in OCI | | |
| | Amortized | | Gross Unrealized | | Gross Unrealized | | Carrying | | Gross Unrealized | | Gross Unrealized | | Estimated |
AVAILABLE FOR SALE | | Cost | | Gains | | Losses | | Value | | Gains | | Losses | | Fair Value |
Investment Securities: | | | | | | | | |
| | | | | |
U.S. Treasury | | $ | 74,016 |
| | $ | — |
| | $ | 3,947 |
| | $ | 70,069 |
| | $ | — |
| | $ | — |
| | $ | 70,069 |
|
State and Political Subdivisions | | 394,050 |
| | 3,217 |
| | 12,070 |
| | 385,197 |
|
| — |
| | — |
| | 385,197 |
|
Other Stocks and Bonds | | 6,587 |
| | 64 |
| | — |
|
| 6,651 |
|
| — |
| | — |
| | 6,651 |
|
Other Equity Securities | | 6,039 |
| | — |
| | 119 |
| | 5,920 |
| | — |
| | — |
| | 5,920 |
|
Mortgage-backed Securities: (1) | | | | | | |
| | |
| | | | | |
Residential | | 630,603 |
| | 6,434 |
| | 9,529 |
|
| 627,508 |
|
| — |
| | — |
| | 627,508 |
|
Commercial |
| 386,109 |
|
| 1,201 |
|
| 3,055 |
|
| 384,255 |
|
| — |
| | — |
| | 384,255 |
|
Total | | $ | 1,497,404 |
| | $ | 10,916 |
| | $ | 28,720 |
| | $ | 1,479,600 |
| | $ | — |
| | $ | — |
| | $ | 1,479,600 |
|
| | | | | | | | | | | | | | |
HELD TO MATURITY | | | | | | | | | | | | | | |
Investment Securities: | | | | | | | | | | | | | | |
State and Political Subdivisions | | $ | 435,080 |
| | $ | 3,987 |
| | $ | 13,257 |
| | $ | 425,810 |
| | $ | 7,595 |
| | $ | 3,493 |
| | $ | 429,912 |
|
Mortgage-backed Securities: (1) | | |
| | |
| | |
| | | | | | | | |
|
Residential | | 142,060 |
| | — |
| | 5,748 |
| | 136,312 |
| | 1,534 |
| | 950 |
| | 136,896 |
|
Commercial | | 379,016 |
| | 1,067 |
| | 4,718 |
| | 375,365 |
| | 4,372 |
| | 2,263 |
| | 377,474 |
|
Total | | $ | 956,156 |
| | $ | 5,054 |
| | $ | 23,723 |
| | $ | 937,487 |
| | $ | 13,501 |
| | $ | 6,706 |
| | $ | 944,282 |
|
| |
(1) | All mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises. |
From time to time, we may transfer securities from available for sale (“AFS”) to held to maturity (“HTM”) due to overall balance sheet strategies. During 2016, the Company transferred securities with a fair value of $157.1 million from AFS to HTM. The unrealized loss on the securities transferred from AFS to HTM was $10.2 million ($6.7 million, net of tax) at the date of transfer based on the fair value of the securities on the transfer date. Our management has the current intent and ability to hold the transferred securities until maturity. Any net unrealized gain or loss on the transferred securities included in accumulated other comprehensive income at the time of transfer will be amortized over the remaining life of the underlying security as an adjustment to the yield on those securities. AFS securities transferred with losses included in accumulated other comprehensive income continue to be included in management’s assessment for other-than-temporary impairment for each individual security. There were no securities transferred from AFS to HTM during the nine months ended September 30, 2017.
The following tables represent the estimated fair value and unrealized loss on securities AFS and HTM as of September 30, 2017 and December 31, 2016 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2017 |
| Less Than 12 Months | | More Than 12 Months | | Total |
| Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss |
AVAILABLE FOR SALE | | | | | | | | | | | |
Investment Securities: | | | | | | | | | | | |
State and Political Subdivisions | $ | 67,886 |
| | $ | 991 |
| | $ | 153,073 |
| | $ | 5,396 |
| | $ | 220,959 |
| | $ | 6,387 |
|
Other Equity Securities | 5,960 |
| | 71 |
| | — |
| | — |
| | 5,960 |
| | 71 |
|
Mortgage-backed Securities: | | | | | | | | | | | |
Residential | 161,949 |
| | 710 |
| | 110,503 |
| | 3,774 |
| | 272,452 |
| | 4,484 |
|
Commercial | 36,549 |
| | 258 |
| | 13,122 |
| | 497 |
| | 49,671 |
| | 755 |
|
Total | $ | 272,344 |
| | $ | 2,030 |
| | $ | 276,698 |
| | $ | 9,667 |
| | $ | 549,042 |
| | $ | 11,697 |
|
HELD TO MATURITY | |
| | |
| | |
| | |
| | |
| | |
|
Investment Securities: | | | | | | | | | | | |
State and Political Subdivisions | $ | 52,088 |
| | $ | 643 |
| | $ | 41,006 |
| | $ | 1,396 |
| | $ | 93,094 |
| | $ | 2,039 |
|
Mortgage-backed Securities: | | | | | | | | | | | |
Residential | 3,795 |
| | 57 |
| | 2,922 |
| | 124 |
| | 6,717 |
| | 181 |
|
Commercial | 36,340 |
| | 561 |
| | 895 |
| | 13 |
| | 37,235 |
| | 574 |
|
Total | $ | 92,223 |
| | $ | 1,261 |
| | $ | 44,823 |
| | $ | 1,533 |
| | $ | 137,046 |
| | $ | 2,794 |
|
| | | | | | | | | | | |
| As of December 31, 2016 |
| Less Than 12 Months | | More Than 12 Months | | Total |
| Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss |
AVAILABLE FOR SALE | |
| | |
| | |
| | |
| | |
| | |
|
Investment Securities: | | | | | | |