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Securities
9 Months Ended
Sep. 30, 2014
Securities  
Securities

4. Securities

 

The amortized cost and fair value of securities, excluding trading securities, are summarized as follows (in thousands). No securities were classified as held to maturity at December 31, 2013.

 

 

 

Available for Sale

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

September 30, 2014

 

Cost

 

Gains

 

Losses

 

Fair Value

 

U.S. Treasury securities

 

$

44,709

 

$

149

 

$

(64

)

$

44,794

 

U.S. government agencies:

 

 

 

 

 

 

 

 

 

Bonds

 

637,882

 

1,397

 

(18,522

)

620,757

 

Residential mortgage-backed securities

 

53,780

 

1,626

 

(401

)

55,005

 

Collateralized mortgage obligations

 

100,938

 

137

 

(4,093

)

96,982

 

Corporate debt securities

 

95,251

 

4,795

 

(128

)

99,918

 

States and political subdivisions

 

141,813

 

1,917

 

(1,007

)

142,723

 

Commercial mortgage-backed securities

 

596

 

60

 

 

656

 

Equity securities

 

20,558

 

3,425

 

 

23,983

 

Note receivable

 

44,522

 

5,327

 

 

49,849

 

Warrant

 

12,068

 

 

(634

)

11,434

 

Totals

 

$

1,152,117

 

$

18,833

 

$

(24,849

)

$

1,146,101

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

December 31, 2013

 

Cost

 

Gains

 

Losses

 

Fair Value

 

U.S. Treasury securities

 

$

43,684

 

$

82

 

$

(238

)

$

43,528

 

U.S. government agencies:

 

 

 

 

 

 

 

 

 

Bonds

 

717,909

 

550

 

(55,727

)

662,732

 

Residential mortgage-backed securities

 

59,936

 

735

 

(584

)

60,087

 

Collateralized mortgage obligations

 

124,502

 

349

 

(4,390

)

120,461

 

Corporate debt securities

 

72,376

 

4,610

 

(378

)

76,608

 

States and political subdivisions

 

162,955

 

388

 

(6,508

)

156,835

 

Commercial mortgage-backed securities

 

691

 

69

 

 

760

 

Equity securities

 

20,067

 

2,012

 

 

22,079

 

Note receivable

 

42,674

 

5,235

 

 

47,909

 

Warrant

 

12,068

 

76

 

 

12,144

 

Totals

 

$

1,256,862

 

$

14,106

 

$

(67,825

)

$

1,203,143

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

September 30, 2014

 

Cost

 

Gains

 

Losses

 

Fair Value

 

U.S. Treasury securities

 

$

25,010

 

$

 

$

(1

)

$

25,009

 

U.S. government agencies:

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities

 

30,183

 

275

 

 

30,458

 

Collateralized mortgage obligations

 

58,825

 

 

(528

)

58,297

 

States and political subdivisions

 

6,121

 

30

 

(14

)

6,137

 

Totals

 

$

120,139

 

$

305

 

$

(543

)

$

119,901

 

 

Available for sale securities included 1,475,387 shares of SWS common stock, a $50.0 million aggregate principal amount note issued by SWS and a warrant to purchase 8,695,652 shares of SWS common stock (the “SWS Warrant”). SWS issued the note in July 2011 under a credit agreement pursuant to a senior unsecured loan from Hilltop. The note bore interest at a rate of 8.0% per annum, was prepayable by SWS subject to certain conditions after three years, and had a maturity of five years. The SWS Warrant provided for the purchase of 8,695,652 shares of SWS common stock at an exercise price of $5.75 per share, subject to anti-dilution adjustments. On October 2, 2014, as discussed in Note 23 to the consolidated financial statements, Hilltop exercised the SWS Warrant in full and paid the aggregate exercise price by the automatic elimination of the $50.0 million aggregate principal amount note due to Hilltop under the credit agreement. Consequently, Hilltop beneficially owned approximately 21% of the outstanding shares of SWS common stock as of October 4, 2014.

 

Information regarding securities that were in an unrealized loss position is shown in the following tables (dollars in thousands).

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

Number of

 

 

 

Unrealized

 

Number of

 

 

 

Unrealized

 

 

 

Securities

 

Fair Value

 

Losses

 

Securities

 

Fair Value

 

Losses

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss for less than twelve months

 

4

 

$

7,378

 

$

52

 

6

 

$

12,748

 

$

238

 

Unrealized loss for twelve months or longer

 

2

 

2,005

 

12

 

 

 

 

 

 

6

 

9,383

 

64

 

6

 

12,748

 

238

 

U.S. government agencies:

 

 

 

 

 

 

 

 

 

 

 

 

 

Bonds:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss for less than twelve months

 

5

 

64,792

 

208

 

35

 

526,817

 

45,274

 

Unrealized loss for twelve months or longer

 

27

 

439,772

 

18,314

 

5

 

90,931

 

10,453

 

 

 

32

 

504,564

 

18,522

 

40

 

617,748

 

55,727

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss for less than twelve months

 

 

 

 

2

 

2,194

 

54

 

Unrealized loss for twelve months or longer

 

4

 

10,870

 

401

 

3

 

9,309

 

530

 

 

 

4

 

10,870

 

401

 

5

 

11,503

 

584

 

Collateralized mortgage obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss for less than twelve months

 

1

 

10,915

 

69

 

7

 

84,054

 

4,320

 

Unrealized loss for twelve months or longer

 

8

 

63,839

 

4,024

 

2

 

4,995

 

70

 

 

 

9

 

74,754

 

4,093

 

9

 

89,049

 

4,390

 

Corporate debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss for less than twelve months

 

4

 

4,837

 

21

 

7

 

10,754

 

378

 

Unrealized loss for twelve months or longer

 

1

 

1,891

 

107

 

 

 

 

 

 

5

 

6,728

 

128

 

7

 

10,754

 

378

 

States and political subdivisions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss for less than twelve months

 

1

 

500

 

 

46

 

30,245

 

669

 

Unrealized loss for twelve months or longer

 

96

 

64,343

 

1,007

 

150

 

96,882

 

5,839

 

 

 

97

 

64,843

 

1,007

 

196

 

127,127

 

6,508

 

Warrants:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss for less than twelve months

 

1

 

11,434

 

634

 

 

 

 

Unrealized loss for twelve months or longer

 

 

 

 

 

 

 

 

 

1

 

11,434

 

634

 

 

 

 

Total available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss for less than twelve months

 

16

 

99,856

 

984

 

103

 

666,812

 

50,933

 

Unrealized loss for twelve months or longer

 

138

 

582,720

 

23,865

 

160

 

202,117

 

16,892

 

 

 

154

 

$

682,576

 

$

24,849

 

263

 

$

868,929

 

$

67,825

 

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

Number of

 

 

 

Unrealized

 

Number of

 

 

 

Unrealized

 

 

 

Securities

 

Fair Value

 

Losses

 

Securities

 

Fair Value

 

Losses

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss for less than twelve months

 

1

 

$

25,009

 

$

1

 

 

$

 

$

 

Unrealized loss for twelve months or longer

 

 

 

 

 

 

 

 

 

1

 

25,009

 

1

 

 

 

 

Collateralized mortgage obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss for less than twelve months

 

2

 

58,297

 

528

 

 

 

 

Unrealized loss for twelve months or longer

 

 

 

 

 

 

 

 

 

2

 

58,297

 

528

 

 

 

 

States and political subdivisions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss for less than twelve months

 

6

 

3,411

 

14

 

 

 

 

Unrealized loss for twelve months or longer

 

 

 

 

 

 

 

 

 

6

 

3,411

 

14

 

 

 

 

Total held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss for less than twelve months

 

9

 

86,717

 

543

 

 

 

 

Unrealized loss for twelve months or longer

 

 

 

 

 

 

 

 

 

9

 

$

86,717

 

$

543

 

 

$

 

$

 

 

During the three and nine months ended September 30, 2014 and 2013, the Company did not record any other-than-temporary impairments. While all of the investments are monitored for potential other-than-temporary impairment, the Company’s analysis and experience indicate that these available for sale investments generally do not present a significant risk of other-than-temporary-impairment, as fair value should recover over time. Factors considered in the Company’s analysis include the reasons for the unrealized loss position, the severity and duration of the unrealized loss position, credit worthiness, and forecasted performance of the investee. While some of the securities held in the investment portfolio have decreased in value since the date of acquisition, the severity of loss and the duration of the loss position are not believed to be significant enough to warrant other-than-temporary impairment of the securities. The Company does not intend, nor is it likely that the Company will be required, to sell these securities before the recovery of the cost basis. Therefore, management does not believe any other-than-temporary impairments exist at September 30, 2014.

 

Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties. The amortized cost and fair value of securities, excluding trading and available for sale equity securities and the available for sale SWS Warrant, at September 30, 2014 are shown by contractual maturity below (in thousands).

 

 

 

Available for Sale

 

Held to Maturity

 

 

 

Amortized

 

 

 

Amortized

 

 

 

 

 

Cost

 

Fair Value

 

Cost

 

Fair Value

 

Due in one year or less

 

$

122,236

 

$

122,520

 

$

 

$

 

Due after one year through five years

 

116,726

 

125,768

 

25,010

 

25,009

 

Due after five years through ten years

 

65,790

 

67,928

 

1,203

 

1,203

 

Due after ten years

 

659,425

 

641,825

 

4,918

 

4,934

 

 

 

964,177

 

958,041

 

31,131

 

31,146

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities

 

53,780

 

55,005

 

30,183

 

30,458

 

Collateralized mortgage obligations

 

100,938

 

96,982

 

58,825

 

58,297

 

Commercial mortgage-backed securities

 

596

 

656

 

 

 

 

 

$

1,119,491

 

$

1,110,684

 

$

120,139

 

$

119,901

 

 

The Company realized net gains from its trading securities portfolio of $0.2 million and $1.6 million during the three and nine months ended September 30, 2014, respectively, and a net gain of $0.1 million and a net loss of $2.6 million during the three and nine months ended September 30, 2013, respectively, which are recorded as a component of other noninterest income within the consolidated statements of operations.

 

Securities with a carrying amount of $910.2 million and $1.0 billion (with a fair value of $929.3 million and $938.1 million, respectively) at September 30, 2014 and December 31, 2013, were pledged to secure public and trust deposits, federal funds purchased and securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

 

Mortgage-backed securities and collateralized mortgage obligations consist principally of Government National Mortgage Association (“GNMA”), Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) pass-through and participation certificates. GNMA securities are guaranteed by the full faith and credit of the United States, while FNMA and FHLMC securities are fully guaranteed by those respective United States government-sponsored agencies, and conditionally guaranteed by the full faith and credit of the United States.

 

At September 30, 2014 and December 31, 2013, NLC had investments on deposit in custody for various state insurance departments with carrying values of $9.3 million and $9.4 million, respectively.