ISBC 2017 Form 10-K & 2018 Proxy Statement

FORM 10-K sources of liquidity if a need for additional funds arises, including unsecured overnight lines of credit, brokered deposits and other borrowings from the FHLB and other correspondent banks. A primary source of funds is cash provided by cash flows on loans and securities. Principal repayments on loans for the years ended December 31, 2017, 2016 and 2015 were $2.81 billion, $3.30 billion and $2.95 billion, respectively. Principal repayments on securities for the years ended December 31, 2017, 2016 and 2015 were $660.3 million, $671.3 million and $553.2 million, respectively. There were sales of securities during years ended December 31, 2017 and 2016 of $102.1 million and $72.2 million, respectively. There were no sales of securities during the year ended December 31, 2015. Included in principal repayments for the year ended December 31, 2015 were security payoffs of $2.6 million. In addition to cash provided by principal and interest payments on loans and securities, our other sources of funds include cash provided by operating activities, deposits and borrowings. Net cash provided by operating activities for the years ended December 31, 2017, 2016 and 2015 totaled $302.4 million, $227.1 million and $536.1 million, respectively. For the years ended December 31, 2017, 2016 and 2015 deposits increased $2.08 billion, $1.22 billion and $1.89 billion, respectively. Deposit flows are affected by the overall level of and direction of changes in market interest rates, the interest rates and products offered by us and our local competitors, and other factors. For the year ended December 31, 2017 net borrowed funds decreased $84.7 million. For the years ended December 31, 2016 and 2015, net borrowed funds increased $1.28 billion, and $497.0 million, respectively largely due to new loan originations outpacing deposit growth. Our primary use of funds are for the origination and purchase of loans and the purchase of securities. During the years ended December 31, 2017, 2016 and 2015, we originated loans of $3.60 billion, $5.08 billion and $4.92 billion, respectively. During the years ended December 31, 2017, 2016 and 2015 we purchased loans of $540.9 million, $141.6 million and $198.6 million, respectively. During the year ended December 31, 2017, 2016 and 2015 we purchased securities of $1.15 billion, $1.04 billion and $957.9 million, respectively. In addition, we utilized $59.1 million, $363.4 million and $382.9 million during the years ended December 31, 2017, 2016 and 2015, respectively, to repurchase shares of our common stock under our stock repurchase plans. At December 31, 2017, we had commitments to originate commercial loans of $347.9 million. Additionally, we had commitments to originate residential loans of approximately $143.4 million and purchase residential loans of $168.2 million. Unused home equity lines of credit and undisbursed business and constructions loans totaled approximately $1.22 billion at December 31, 2017. Certificates of deposit due within one year of December 31, 2017 totaled $2.84 billion, or 16.4% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including but not limited to other certificates of deposit and wholesale funding. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2017. Liquidity management is both a short and long-term function of business management. Our most liquid assets are cash and cash equivalents. The levels of these assets depend upon our operating, financing, lending and investing activities during any given period. At December 31, 2017, cash and cash equivalents totaled $618.4 million. Securities, which provide additional sources of liquidity, totaled $3.78 billion at December 31, 2017. If we require funds beyond our ability to generate them internally, we have wholesale funding alternatives, which provide an additional source of funds. At December 31, 2017, our borrowing capacity at the FHLB was $11.58 billion, of which we had outstanding borrowings of $8.03 billion, which included letters of credit totaling $3.70 billion. In addition, the Bank had uncommitted unsecured overnight borrowing lines with other institutions totaling $475.0 million, of which no balance was outstanding at December 31, 2017. Investors Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk- 67