FORM 10-K
For the fiscal year ended December 31, 2019
2020
Commission file number: 0-25923
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Maryland | 52-2061461 | ||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | ||||
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Third Floor,Bethesda,Maryland 20814
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Securities Registered Pursuant to Section 12(b) of the Act: | ||||||||
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
Common Stock, $0.01 par value | EGBN | The Nasdaq Stock Market, LLC |
No☐
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Yes⌧ No ☒◻No
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No☐
Non-accelerated filer ◻☐
31,783,355.
EAGLE BANCORP, INC.
Part I | |||||||||
Item 1. | Business |
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Management’s Discussion and Analysis of Financial Condition and Results of Operation |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Certain Relationships and Related Transactions and Director Independence |
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This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies' trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.
The Bank provides a variety of commercial and consumer lending products to small, medium and large-sized businesses and to individuals for various business and personal purposes, including (i) commercial loans for a variety of business purposes such as for working capital, equipment purchases, real estate lines of credit, and government contract financing; (ii) asset based lending and accounts receivable financing (on a limited basis); (iii) construction and commercial real estate loans; (iv) business equipment financing; (v) consumer home equity lines of credit, personal lines of credit and term loans; (vi) consumer installment loans such as auto and personal loans; (vii) personal credit cards offered through an outside vendor; and (viii) residential mortgage loans.
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The Bank’s loan portfolio consists primarily of traditional business and real estate secured loans. Commercial and industrial loans are made, with a substantial portion having variable and adjustable rates, and where the cash flow of the borrower/borrower’sborrower(s) operating business is the principal source of debt service with a secondary emphasis on collateral. Real estate loans are made generally for commercial purposes and are structured using both variable and fixed rates and renegotiable rates which adjust in three to five years, with maturities of generally five to ten years. Commercial real estate loans, which comprise the largest portion of the loan portfolio, are secured by both owner occupied and non-owner occupied real property and include a significant component of acquisition, development and construction, or ADC lending.
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The Company is also an active traditional commercial lender providing loans for a variety of purposes, including working capital, equipment, and account receivable financing. This loan category represents approximately 20%19% of the loan portfolio at December 31, 20192020 and was generally variable or adjustable rate. Commercial loans meet reasonable underwriting standards, including appropriate collateral, and cash flow necessary to support debt service. Personal guarantees are generally required, but may be limited. SBA loans represent approximately 1%1.2% of the commercial loan category.category at December 31, 2020. In originating SBA loans, the Company assumes the risk of non-payment on the unguaranteed portion of the credit. The Company generally sells the guaranteed portion of the loan generating noninterest income from the gains on sale, as well as servicing income on the portion participated. SBA loans other than PPP loans are subject to the same cash flow analyses as other commercial loans. SBA loans are subject to a maximum loan size established by the SBA as well as internal loan size guidelines.
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The Bank enters into commitments to originate residential mortgage loans whereby the interest rate on the loan is determined prior to funding (i.e., rate lock commitments). Such rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives. The Bank manages the interest rate risk on rate lock commitments by entering into forward sale contracts of mortgage backed securities, whereby the Bank obtains the right to deliver securities to investors in the future at a specified price. Such contracts are accounted for as derivatives and are recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in other income. To protect against the price risk inherent in residential mortgage loan commitments, the Bank utilizes a combination of either or both “best efforts” and “mandatory delivery” forward loan sale commitments to mitigate the risk of potential decrease in the values of loans that would result from the exercise of the derivative loan commitments. Under a “best efforts” contract, the Bank commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor and the investor commits to a price that it will purchase the loan from the Bank if the loan to the underlying borrower closes. The Bank protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the investor commits to purchase a loan at a price representing a premium on the day the borrower commits to an interest rate with the intent that the buyer/investor has assumed the interest rate risk on the loan. As a result, the Bank is not generally exposed to losses on loans sold utilizing best efforts, nor will it realize gains related to rate lock commitments due to changes in interest rates. The market values of rate lock commitments and best efforts contracts are not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded. BecauseThe Bank determines the fair value of the high correlation betweeninterest rate lock commitments and best efforts contracts, nothe associated gain or loss should occur onby measuring the fair value of the underlying asset, which is impacted by current interest rates, taking into consideration the probability that the interest rate lock commitments.commitments will close or will be funded.. Under a “mandatory delivery” contract, the Bank commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Bank fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay the investor a “pair-off” fee, based on then-current market prices, to compensate the investor for the shortfall. The rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives. The Bank manages the interest rate risk on rate lock commitments by entering into forward sale contracts of mortgage backed securities, whereby the Bank obtains the right to deliver securities to investors in the future at a specified price. Such contracts are accounted for as derivatives and are recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in other income. The period of time between issuance of a loan commitment to the customer and closing and sale of the loan to an investor generally ranges from 30 to 90 days under current market conditions.
Loans
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Substantially all construction draw requests must be presented in writing on American Institute of Architects documents and certified either by the contractor, the borrower and/or the borrower’s architect. Each draw request shall also include the borrower’s soft cost breakdown certified by the borrower or their Chief Financial Officer. Prior to an advance, the Bank or its contractor inspects the project to determine that the work has been completed, to justify the draw requisition.
The
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Deposit services include business and personal checking accounts, NOW accounts, tiered savings and money market account and time deposits with varying maturity structures and customer options. A complete individual retirement account program is available. The Bank also participates in the Promontory InterfinancialIntraFi Network, LLC (“Promontory”IntraFi”) Certificate of Deposit Account Registry Service (“CDARS”) and its Insured Cash Sweep (“ICS”) program, both of which networks function to assure full FDIC insurance for participating Bank customers. In cooperation with Goldman Sachs Asset Management, the Bank offers a Goldman Sachs Investment Sweep Account, a check writing cash management account that sweeps funds to one of several non-FDIC insured off-balance sheet investment accounts managed by Goldman Sachs.
The Bank also utilizes brokered deposit funds in its overall asset/liability management program.
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MARKET AREA AND COMPETITION
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Fairfax County, Virginia, which is just across the Potomac River and west from Washington, D.C., is a large, affluent jurisdiction with an estimated population of 1,150,0001,145,862 as of 20182019 including Fairfax City. This county covers about 395 square miles. Fairfax County is one of the leading technology centers in the US. Eight Fortune 500 companies are headquartered in the county and 31 of the largest 100 technology federal contractors in the Washington D.C. metropolitan area are located in Fairfax County. The county has over 116.4 million square feet of office space and is one of the largest suburban office markets in the US. It is a thriving residential as well as business center with 393,380396,501 households. The county is among the most affluent in the country with average annual household income of $121,133$124,831 as of 2018.2019. Unemployment was 2.1%4.4% in DecemberNovember of 20182020 according to the BLS. Major companies headquartered in the county, which are also major employers, include Capital One Financial, CSC,DXC Technology, Gannett, General Dynamics, Hilton Hotels, Leidos, Sallie Mae, and Inova Health Systems. In 2018, global construction firm Bechtel moved their corporate headquarters from San Francisco to Fairfax County. The county is also home to several federal entities including the CIA, Fort Belvoir and a major facility of the Smithsonian Institution.
2019.
2019.
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Effective July 1, 2015, the Bank entered into a multi-faceted support agreement with George Mason University (“George Mason”), the Commonwealth of Virginia’s largest public research university. The agreement provides for significant educational support, and a strategic alliance including the Bank obtaining the naming rights to a multi-purpose sports and entertainment venue formerly known as the Patriot Center, now known as “EagleBank Arena” in Fairfax, VA for up to a 20 year term. Under the agreement, the Bank pays George Mason an annual fee to be used for scholarships, internships, overall educational and athletic support and beautification efforts.
EMPLOYEES
COVID related absences.
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With certain limited exceptions, a bank holding company is prohibited from acquiring control of any voting shares of any company which is not a bank or bank holding company and from engaging directly or indirectly in any activity other than banking or managing or controlling banks or furnishing services to or performing service for its authorized subsidiaries. A bank holding company may, however, engage in, or acquire an interest in a company that engages in, activities which the Federal Reserve Board has determined by order or regulation to be so closely related to banking or managing or controlling banks as to be properly incident thereto. In making such a determination, the Federal Reserve Board is required to consider whether the performance of such activities can reasonably be expected to produce benefits to the public, such as convenience, increased competition or gains in efficiency, which outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. Some of the activities that the Federal Reserve Board has determined by regulation to be closely related to banking include making or servicing loans, performing certain data processing services, acting as a fiduciary or investment or financial advisor, and making investments in corporations or projects designed primarily to promote community welfare. The Federal Reserve may order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness, or stability of it or any of its bank subsidiaries.
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Commercial banks, savings and loan associations and credit unions are generally able to engage in interstate banking or acquisition activities. As a result, banks in the Washington, D.C. Metropolitan area can, subject to limited restrictions, acquire or merge with a bank in another jurisdiction, and can branch de novo in any jurisdiction.
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Bank Secrecy Act. Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, commonly referred to as the “USA Patriot Act,” financial institutions are subject to prohibitions against specified financial transactions and account relationships, as well as enhanced due diligence standards intended to detect, and prevent, the use of the United States financial system for money laundering and terrorist financing activities. The Bank Secrecy Act requires financial institutions, including banks, to establish anti-money laundering programs, including employee training and independent audit requirements, meet minimum standards specified by the act, follow minimum standards for customer identification and maintenance of customer identification records, and regularly compare customer lists against lists of suspected terrorists, terrorist organizations and money launderers. The costs or other effects of the compliance burdens imposed by the Bank Secrecy Act or future anti-terrorist, homeland security or anti-money laundering legislation or regulation cannot be predicted with certainty.
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Under the Basel III Rules, mortgage-servicing assets and deferred tax assets are subject to certain restrictions on their inclusion as capital. In July 2019, the Federal Reserve and the other federal banking regulators issued a final rule to simplify the regulatory capital treatment of mortgage-servicing assets, certain deferred tax assets arising from temporary differences and investments in the capital of unconsolidated financial institutions. This final rule which becomes effective April 1, 2020 (although companies may choose to apply the simplifications as early as January 1, 2020), will result in (i) a change torevises the individual CET1 deduction threshold for these assets from 10% to 25%, (ii) elimination ofeliminates the aggregate deduction threshold of 15% for these assets, (iii) assignment ofand assigns a 250% risk weight for any mortgage-servicing assets or deferred tax assets not deducted from CET1 capital and (iv) assignment of an exposure category risk weight for investments in the capital of unconsolidated financial institutions not deducted from CET1 capital.
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The capital ratios described above are the minimum levels that the federal banking agencies expect. Our state and federal regulators have the discretion to require us to maintain higher capital levels based upon our concentrations of loans, the risk of our lending or other activities, the performance of our loan and investment portfolios and other factors. Failure to maintain such higher capital expectations could result in a lower composite regulatory rating, which would impact our deposit insurance premiums and could affect our ability to borrow and costs of borrowing, and could result in additional or more severe enforcement actions. In respect of institutions with high concentrations of loans in areas deemed to be higher risk, or during periods of significant economic stress, regulators may require an institution to maintain a higher level of capital, and/or to maintain more stringent risk management measures, than those required by these regulations.
2023.
COVID-19 pandemic, the federal banking regulators issued a final rule in March 2020 that provided banking organizations with an alternative option to temporarily delay for two years the estimated impact of the adoption of the CECL methodology on regulatory capital, followed by the three-year phase-in period. The cumulative amount that is not recognized in regulatory capital will be phased in at 25% per year beginning January 1, 2022. We have elected to adopt the March 2020 interim final rule.
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| Total Risk-Based Capital Ratio | Tier 1 Risk-Based Capital Ratio | Common Equity |
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| Leverage Ratio |
| Tangible Equity | ||||||||||||||||||||||
Well Capitalized | 10% or greater | 8% or greater | 6.5% or greater | 5% or greater | n/a | |||||||||||||||||||||||||||
Adequately Capitalized | 8% or greater | 6% or greater | 4.5% or greater | 4% or greater | n/a | |||||||||||||||||||||||||||
Undercapitalized | Less than 8% |
| Less than 6% |
| Less than 4.5% |
| Less than 4% |
| n/a | |||||||||||||||||||||||
Significantly Undercapitalized | Less than 6% |
| Less than 4% |
| Less than 3% |
| Less than 3% |
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Critically Undercapitalized | n/a | n/a |
| n/a | n/a | Less than 2% |
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A “critically undercapitalized institution” is required to be placed in conservatorship or receivership within 90 days, unless the FDIC formally determines that forbearance from such action would better protect the Deposit Insurance Fund. Unless the FDIC or other appropriate federal banking agency makes specific further findings and certifies that the institution is viable and is not expected to fail, an institution that remains critically undercapitalized during the fourth calendar quarter after the date it became critically undercapitalized must be placed in receivership. The general rule is that the FDIC will be appointed as receiver within 90 days after an institution becomes critically undercapitalized unless good cause is shown and an extension is agreed to by the federal regulators. In general, good cause requires that adequate capital has been raised and is imminently available for infusion into the institution, except for certain technical requirements, which may delay the infusion for a period of time beyond the 90 day time period.
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The 2018 Act includes provisions revising Dodd-Frank Act provisions, including provisions that, among other things: (i) exempt banks with less than $10 billion in assets from the ability-to-repay requirements for certain qualified residential mortgage loans; (ii) exempt certain transactions valued at less than $400,000 in rural areas from appraisal requirements; (iii) exempt banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages from the expanded data disclosures required under the Home Mortgage Disclosure Act, or HMDA; (iv) amend the SAFE Mortgage Licensing Act by providing registered mortgage loan originators in good standing with 120 days of transitional authority to originate loans when moving from a federal depository institution to a non-depository institution or across state lines; (v) require the CFPB to clarify how TILA-RESPA Integrated Disclosure applies to mortgage assumption transactions and construction-to-permanent home loans as well as outline certain liabilities related to model disclosure use; (vi) revise treatment of HVCRE exposures; and (vii) create the simplified Community Bank Leverage Capital Ratio. The 2018 Act also exempts community banks from the Volcker Rule, if they have less than $10 billion in total consolidated assets. The 2018 Act also adds certain protections for consumers, including veterans and active duty military personnel, expands credit freezes, and calls for the creation of an identity theft protection database.
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The rule implementing the Dodd-Frank Act requirement that lenders determine whether a consumer has the ability to repay a mortgage loan, established certain minimum requirements for creditors when making ability to pay determinations, and established certain protections from liability for mortgages meeting the definition of “qualified mortgages.” Generally, the rule applies to all consumer-purpose, closed-end loans secured by a dwelling including home-purchase loans, refinances and home equity loans – whether a first or subordinate lien. The rule does not cover, among other things, home equity lines of credit or other open-end credit; temporary or “bridge” loans with a term of 12 months or less, such as a loan to finance the initial construction of a dwelling; a construction phase of 12 months or less of a construction-to-permanent loan; and business-purpose loans, even if secured by a dwelling. The rule afforded greater legal protections for lenders making qualified mortgages that are not “higher priced.” Qualified mortgages must generally satisfy detailed requirements related to product features, underwriting standards, and a points and fees requirement whereby the total points and fees on a mortgage loan cannot exceed specified amounts or percentages of the total loan amount. Mandatory features of a qualified mortgage include: (1) a loan term not exceeding 30 years; and (2) regular periodic payments that do not result in negative amortization, deferral of principal repayment, or a balloon payment. Further, the rule clarified that qualified mortgages do not include “no-doc” loans and loans with negative amortization, interest-only payments, or balloon payments. The rule created special categories of qualified mortgages originated by certain smaller creditors. To the extent that we seek to make qualified mortgages, we are required to comply with these rules, subject to available exclusions. Our business strategy, product offerings, and profitability may change as the rule is interpreted by the regulators and courts.
In September 2020, the Federal Reserve issued an advance notice of proposed rulemaking (“ANPR”) that invites public comment on an approach to modernize the Federal Reserve’s regulations that implement the CRA. The ANPR seeks feedback on ways to evaluate how banks meet the needs of low- and moderate-income communities and address inequities in credit access. The comment period for the ANPR ended on February 16, 2021.
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Additionally, the federal bank regulatory agencies have issued guidance governing financial institutions with concentrations in commercial real estate lending. The guidance provides that institutions that have (i) total reported loans for construction, land development, and other land which represent 100% or more of an institution’s total risk-based capital; or (ii) total reported commercial real estate loans, excluding loans secured by owner-occupied commercial real estate, representing 300% or more of the institution’s total risk-based capital and the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months, are identified as having potential commercial real estate concentration risk. Institutions, which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital.
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We expect the negative impacts of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations to continue, and be the most severe in the following areas:
Our stock price may fluctuate significantly ascommercial real estate and real estate construction loans, and 85% of our loans being secured by real estate. As a result of a variety of factors, manyactual or expected credit losses, we may downgrade loans, increase our allowance for loan losses, and write-down or charge-off credit relationships, any of which are beyondwould negatively impact our control.results of operations. In addition, market upheavals are likely to those described in “Caution About Forward Looking Statements,” these factors include:
affect the value of real estate and commercial assets. In addition, the stock market in general has experiencedevent of foreclosure, it is unlikely that we will be able to sell the foreclosed property at a price and volume fluctuations. This volatility has hadthat will allow us to recoup a significant effect on the market price of securities issued by many companies, including for reasons unrelated to their operating performance. These broad market fluctuations may adversely affect our stock price, notwithstanding our operating results. We expect that the market price of our common stock will continue to fluctuate and there can be no assurances about the levelsportion of the market pricesdelinquent loan.
Shareholderslosses on our loans and other exposures could exceed our allowance.
Althoughpurchased by the daily trading volume of our common stock on Nasdaq Stock Market,SBA or Nasdaq, has increased, averaging approximately 236,178 shares per trading day for 2019 and 181,546 shares for the 90 trading days ended February 21, 2020, there can be no assurance that the market for our common stock can accommodate the sale of large quantities of our common stock in a short time frame without adversely impacting the market price for our stock. As a result, shareholders may find it difficult to sell a significant number of shares of our common stock at the prevailing market price.
Short sellers of our stock may be manipulative and may drive down the market price of our common stock.
Short selling is the practice of selling securities that the seller does not own but rather has borrowed or intends to borrow from aother third party with the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s interest for the price of the stock to decline, some short sellers publish, or arrange for the publication of, opinions or characterizations regarding the relevant issuer, its business practices and prospects and similar matters calculated to or which may create negative market momentum, which may permit them to obtain profits for themselves as a result of selling the stock short. Issuers whose securities have historically had limited trading volumes and/or have been susceptible to relatively high volatility levels can be particularly vulnerable to such short seller attacks. The publication of any such commentary regarding us in the future may bring about a temporary, or possibly long term, decline in the market price of our common stock. In the past, the publication of commentary regarding us by a self-described short seller has been associated with the selling of shares of our common stock in the market on a large scale, resulting in a significant decline in the market price per share of our common stock. No assurances can be made that similar declines in the market price of our common stock will not occur in the future, in connection with such commentary by short sellers, as a result of regulatory uncertainty, or otherwise. When the market price of a company's stock drops significantly, it is not unusual for stockholder lawsuits to be filed or threatened against the company and its board of directors and for a company to suffer reputational damage, or for a company to be subject to regulatory or governmental investigations or enforcement actions. Such events could cause us to incur substantial costs and divert the time and attention of our board and management.parties within expected timeframes. In addition, reputational damageborrowers may draw on existing lines of credit or seek additional loans to the Companyfinance their businesses. These factors may affect our abilityresult in reduced levels of capital and liquidity being available to attract and retain deposits and may cause our deposit costs to increase,originate more profitable loans, which could adversely affect our liquidity and earnings, and adversely impact our ability to raise capital, which could adversely affect our growth. Reputational damage may also affect our ability to attract and retain loan customers
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and maintain and develop other business relationships, which could likewise adversely affect our earnings. Negative reports issued by short sellers or reputational damage could alsowill negatively impact our ability to attractserve our existing customers and retain employees.
Ourour ability to make distributionsattract new customers.
Ourassets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results or financial condition.
We may issue additional equity securities, or engage in other transactions,our brand, which could affect the priority of our common stock, which may adversely affect the market price of our common stock.
Our Board of Directors may determine from time to time that we need to raise additional capital by issuing additional shares of our common stock or other securities. We are not restricted from issuing additional shares of common stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future offerings, or the prices at which such offerings may be effected. Such offerings could be dilutive to common shareholders. New investors also may have rights, preferences and privileges that are senior to, and thatmaterially adversely affect our then current common shareholders. Additionally, if we raise additional capital by making additional offeringsbusiness. We also face an increased risk of debt or preferred equity securities, upon liquidationlitigation and governmental and regulatory scrutiny as a result of the Company, holderseffects of our debt securitiesthe pandemic on market and shares of preferred stock,economic conditions and lenders with respectactions governmental authorities take in response to other borrowings, will receive distributions of our available assets priorthose conditions, as detailed in the Note 1 to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both. Holders of our common stock are not entitled to preemptive rights or other protections against dilution.
Changes in the value of goodwill and intangible assets could reduce our earnings.
The Company accounts for goodwill and other intangible assets in accordance with generally accepted accounting principles (“GAAP”), which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually at the reporting unit level. Testing for impairment of goodwill and intangible assets is performed annually and involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used. Changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates and other external factors (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability, and may materially impact the fair value of publicly traded financial institutions and could result in an impairment charge at a future date.
Consolidated Financial Statements.
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Substantial regulatory limitations on changes of control and anti-takeover provisions of Maryland law may make it more difficult for shareholders to receive a change in control premium.
With certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring more than 10% (5% if the acquiror is a bank holding company) of any class of the Company’s voting stock or obtaining the ability to control in any manner the election of a majority of its directors or otherwise direct the management or policies of the Company without prior notice or application to and the approval of the Federal Reserve. There are comparable prior approval requirements for changes in control under Maryland law. Also, the Maryland General Corporation Law, as amended, contains several provisions that may make it more difficult for a third party to acquire control of the Company without the approval of its Board of Directors, and may make it more difficult or expensive for a third party to acquire a majority of its outstanding common stock.
The economic environment continues to pose significant challenges for us and could adversely affect our financial condition and results of operations.
The Company and the Bank are operating in a challenging and uncertain economic environment. Financial institutions continue to be affected by some softness in selected segments of the real estate market and constrained financial markets, highlighted by historically low interest rates and a flat yield curve. If declines in real estate values, home sales volumes, and financial stress on borrowers as a result of the uncertain economic environment emerge, such events could have an adverse effect on our borrowers or their customers, which could adversely affect our financial condition and results of operations. A worsening of these conditions (further declining interest rates which negatively impact net interest margins) would likely exacerbate the adverse effects on the Company and others in the financial institutions industry. For example, deterioration in local economic conditions in our market could drive losses beyond that which is provided for in our allowance for loan losses (although adoption of the new CECL methodology effective January 1, 2020 could mitigate further additions to the allowance for loan losses). The Company may also face the following risks in connection with these events:
If these conditions or similar ones continue to exist or worsen, the Company could experience continuing or increased adverse effects on its financial condition and results of operations. Additionally, geopolitical events, terrorist attacks, natural disasters, severe weather conditions, floods, health pandemics (including the recent coronavirus outbreak) and other catastrophic events can have a material adverse effect on the economic environment and our business.
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Our financial condition and results of operations would be adversely affected if our allowance for credit losses is not sufficient to absorb actual losses or if we are required to increase our allowance for credit losses.
Historically, we have enjoyed a relatively low level of nonperforming assets and net charge-offs, both in absolute dollars, as a percentage of loans and as compared to many of our peer institutions. As a result of this historical experience, and our low level of losses inherent in our loan portfolio, we have incurred a relatively lower credit loss provision expense, which has positively impacted our earnings. The Financial Accounting Standards Board, or FASB, has issued a new credit impairment model, the Current Expected Credit Loss, or CECL model, which became applicable to us on January 1, 2020. CECL requires financial institutions to estimate and establish a provision for credit losses over the lifetime of the asset, at the origination or the date of acquisition of the asset, as opposed to reserving for incurred or probable losses through the balance sheet date. The CECL model also applies to certain financial assets other than loans, including held-to-maturity debt securities. Under the CECL model, expected credit deterioration would be reflected in the income statement in the period of origination or acquisition of an asset, with changes in expected credit losses due to further credit deterioration or improvement reflected in the periods in which the expectation changes. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Accordingly, the CECL model could require financial institutions, like the Bank, to increase their allowances for credit losses. Moreover, the CECL model may create more volatility in our level of allowance for credit losses, and consequently in our level of income. We plan to elect the Federal Reserve and FDIC’s rule providing for an optional three-year phase-in period for the day-one adverse regulatory capital effects upon adopting the standard. If we need to make significant and unanticipated increases in our loss allowance in the future, our business, results of operations, capital and financial condition could be materially adversely affected at that time.
We expect that the adoption of the CECL model will materially affect how we determine our allowance for credit losses, and will result in changes to our allowance. Moreover, the CECL model may create more volatility in the level of the allowance for credit losses. We are evaluating the impact the CECL accounting model will have on our accounting, but expect to recognize a one-time 10 to 20% increase in our reserve, inclusive of the reserve for unfunded commitments, as of January 1, 2020 as a cumulative-effect adjustment to the allowance for credit losses recognized through shareholder’s equity. This number is subject to change as we finalize our CECL testing and documentation. Please refer to Note 1 to the Consolidated Financial Statements for a more detailed discussion of CECL.
The implementation of the CECL model involves the use of estimates and forecasts based on difficult, subjective, and complex judgments, including estimates as to the direction and effects of economic conditions and how these economic conditions might affect the ability of our borrowers to repay their loans or the value of assets. To the extent that our analysis of our prior loss experience, current and forecast economic conditions, and other factors included in our estimates of expected loss are incorrect, our allowance for credit losses may be inadequate. Additionally, to the extent that economic conditions and forecasts and prior loss experience have been favorable, rapid or unforeseen changes in economic conditions or performance of our loans and other financial assets could result in our allowance for credit losses being inadequate, which could materially adversely affect our business, results of operations and financial condition. There can be no assurance that our judgments about our historical loss experience, categorization of loans and other assets and forecasts of economic conditions and other facts that will impact the expected losses on an asset will be correct.
Changes in tax laws could have an adverse effect on us, the banking industry, our customers, the value of collateral securing our loans and demand for loans.
We are subject to the effect of changes in tax laws which could increase the effective tax rate payable by us to federal and state governments, reduce the value of our beneficial tax attributes or otherwise adversely affect our business, results of operations or financial condition. Additionally, changes in tax laws could have a negative impact on the banking industry, borrowers, the market for single family residential or commercial real estate, or business borrowing. To the extent that changes in law discourage borrowing, ownership of real property or business investment, such changes may have an adverse effect on the demand for our loans. Further, the value of the properties securing loans in our portfolio may be adversely impacted as a result of the changing economics of real estate ownership and borrowing, which could require an increase in our allowance for credit losses, which would reduce our profitability and could materially adversely affect our business, financial condition and results of operations. Additionally, certain borrowers could become less able to service their debts as a result of changes in taxation. Any such changes could adversely affect our business, financial condition and results of operations.
Changes in accounting standards could impact reported earnings.
From time to time there are changes in the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be operationally complex to implement and can materially impact how we record and report
24
our financial condition and results of operations. In some instances, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. Effective January 1, 2020, we implemented the CECL framework for our allowance for credit losses. Any such changes (while not anticipated) could adversely affect the Company’s and Bank’s capital, regulatory capital ratios, ability to make larger loans, earnings and performance metrics.
Failure to maintain effective systems of internal and disclosure control could have a material adverse effect on our results of operation, financial condition and stock price.
25
We are subject to liquidity risk in our operations.
We will be subject to heightened regulatory requirements if our total assets grow and exceed $10.0 billion.
As of December 31, 2019, our total assets were $8.99 billion. We anticipate that our total assets may exceed $10 billion within the next few years. In addition to our current regulatory requirements, banks with $10 billion or more in total assets are examined directly by the CFPB with respect to various federal consumer protection laws, subject to enhanced prudential regulation, and subject to additional regulatory requirements. Compliance with these additional ongoing requirements may necessitate additional personnel, the design and implementation of additional internal controls, or the incurrence of significant expenses, any of which could have a material adverse effect on our business, financial condition and results of operations.
Our concentrations of loans may create a greater risk of loan defaults and losses.
Our concentrations of loans may require us to maintain higher levels of capital.
Under guidance adopted by the federal banking agencies, banks which have concentrations in construction, land development or commercial real estate loans (other than loans for majority owner occupied properties) would be expected to maintain higher levels of risk management and, potentially, higher levels of capital. Although not currently anticipated, we may be required to maintain higher levels of capital than we would otherwise be expected to maintain as a result of our levels of construction, development and commercial real estate loans.
27
Our financial condition, earnings and asset quality could be adversely affected if we are required to repurchase loans originated for sale by our Residential Lending department.
28
reserves we may establish for such proceedings and the eventual settlements, fines, or penalties. AdverseWhile the Company and Bank carry insurance to protect us from material outlays (excluding regulatory fees and penalties), such insurance may not always fully or even substantially cover such outlays, and any adverse determinations in such actions could have a material adverse effect on our business, financial condition, results of operations and stock price.
Changes in interest rates and other factors beyond our control could have an adverse impact on our financial performance and results.
Our operating income and net income depend to a great extent on our net interest margin, i.e., the difference between the interest yields we receive on loans, securities and other interest bearing assets and the interest rates we pay on interest bearing deposits and other liabilities. Net interest margin is affected by changes in market interest rates, because different types of assets and liabilities may react differently, and at different times, to market interest rate changes. When interest bearing liabilities mature or re-price more quickly than interest earning assets in a period, an increase in market rates of interest could reduce net interest income. Similarly, when interest earning assets mature or re-price more quickly than interest bearing liabilities, falling interest rates could reduce net interest income. These rates are highly sensitive to many factors beyond our control, including competition, general economic conditions and monetary and fiscal policies of various governmental and regulatory authorities, including the Federal Reserve Board.
We attempt to manage our risk from changes in market interest rates by adjusting the rates, maturity, re-pricing, and balances of the different types of interest earning assets and interest bearing liabilities, but interest rate risk management techniques are not exact. As a result, a rapid increase or decrease in interest rates could have an adverse effect on our net interest margin and results of operations. At December 31, 2019, our cumulative net asset sensitive twelve month gap position was +3% of total assets. As such, we expect modest increases of approximately 5.1% and 8.8%, respectively, in projected net interest income and net income over a twelve month period resulting from a 100 basis point increase in rates and our residential mortgage origination and sale volume could decline as interest rates increase. The results of our interest rate sensitivity simulation model depend upon a number of assumptions, which may not prove to be accurate. There can be no assurance that we will be able to successfully manage our interest rate risk.
Adverse changes in the real estate market in our market area could also have an adverse effect on our cost of funds and net interest margin, as we have a large amount of noninterest bearing deposits related to real estate sales and development. While we expect that we would be able to replace the liquidity provided by these deposits, the replacement funds would likely be more costly, negatively impacting earnings.
Uncertainty relating to the discontinuation, reform or replacement of LIBOR may adversely affect our results of operations.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee, or ARRC, has proposed that the Secured Overnight Financing Rate, or SOFR, as the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. The Company has material contracts that are indexed to USD-LIBOR and is monitoring this activity and evaluating the related risks.
The inability to obtain LIBOR rates, and the uncertainty as to the nature, comparability and utility of alternative reference rates which have been or may be established may adversely affect the value of LIBOR-based loans, investment securities and other financial instruments in our portfolio, and may impact the availability and cost of hedging instruments and borrowings. If LIBOR rates are no longer available, and the Bank is required to implement substitute indices for the calculation of interest rates under its loan agreements, it may incur additional expenses in effecting the transition, and may be subject to disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse affect on its results of operations. At this time, it is not possible to predict the effect that these developments, any discontinuance, modification or other reforms to LIBOR or any other reference rate, the establishment of alternative reference rates, or the impact of any such events on contractual mechanisms may have on the markets, us or our fixed-to-floating rate debt securities. Uncertainty as to the nature of such potential discontinuance, modification, alternative reference rates or other reforms may negatively impact market liquidity, our access to funding required to operate our business and the trading market for our fixed-to-floating rate debt securities. Furthermore, the use of alternative reference rates or other reforms could cause the interest payable on our outstanding fixed-to-floating rate debt securities to be materially different, and potentially higher, than expected.
29
We may not be able to successfully compete with others for business.
The Washington, D.C. metropolitan area in which we operate is considered highly attractive from an economic and demographic viewpoint, and is a highly competitive banking market. We compete for loans, deposits, and investment dollars with numerous regional and national banks, online divisions of out-of-market banks, and other community banking institutions, as well as other kinds of financial institutions and enterprises, such as securities firms, insurance companies, savings associations, credit unions, mortgage brokers, private lenders and nontraditional competitors such as fintech companies and internet-based lenders, depositories and payment systems. Our profitability depends upon our continued ability to successfully compete with traditional and new financial services providers, some of which maintain a physical presence in our market areas and others of which maintain only a virtual presence. Many competitors have substantially greater resources than us, and some operate under less stringent regulatory environments. The differences in resources and regulations may make it harder for us to compete profitably, reduce the rates that we can earn on loans and investments, increase the rates we must offer on deposits and other funds, and adversely affect our overall financial condition and earnings.
The Bank has been very successful in developing customer relationships. Going forward, should competitive pressures increase, we are subject to the risk that we may not be able to retain the loans and deposits produced by these new relationships. While we believe that our relationship banking model will enable us to keep a significant percentage of these new relationships, there can be no assurance that we will be able to do so, that we would be able to maintain favorable pricing, margins and asset quality, or that we will be able to grow at the same rate we did when alternative financing was not widely available.
The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a materially adverse effect on our operations.
30
In addition, regulators may elect to alter standards or the interpretation of the standards used to measure regulatory compliance or to determine the adequacy of liquidity, risk management or other operational practices for financial service companies in a manner that impacts our ability to implement our strategy and could affect us in substantial and unpredictable ways, and could have a material adverse effect on our business, financial condition and results of operations. Furthermore, the regulatory agencies have extremely broad discretion in their interpretation of laws and regulations and their assessment of the quality of our loan portfolio, securities portfolio and other assets. If any regulatory agency’s assessment of the quality of our assets, operations, lending practices, investment practices, capital structure or other aspects of our business differs from our assessment, we may be required to take additional charges or undertake, or refrain from taking, actions that could have a material adverse effect on our business, financial condition and results of operations.
Our customers and businesses in the Washington, D.C. metropolitan area in general, may be adversely impacted as a result of changes in government spending.
The Washington, D.C. metropolitan area is characterized by a significant number of businesses that are federal government contractors or subcontractors, or which depend on such businesses for a significant portion of their revenues. While the Company does not have a significant level of loans to federal government contractors or their subcontractors, the impact of a shutdown of federal government operations, a decline in federal government spending, a reallocation of government spending to different industries or different areas of the country, or a delay in payments to such contractors, could have a ripple effect. Temporary layoffs, staffing freezes, salary reductions or furloughs of government employees or government contractors could have adverse impacts on other businesses in the Company’s market and the general economy of the greater Washington, D.C. metropolitan area, and may indirectly lead to a loss of revenues by the Company’s customers, including vendors and lessors to the federal government and government contractors or to their employees, as well as a wide variety of commercial and retail businesses. Accordingly, such potential federal government actions could lead to increases in past due loans, nonperforming loans, credit loss reserves, and charge-offs, and a decline in liquidity.
We rely upon independent appraisals to determine the value of the real estate, which secures a significant portion of our loans, and the values indicated by such appraisals may not be realizable if we are forced to foreclose upon such loans.
A significant portion of our loan portfolio consists of loans secured by real estate. We rely upon independent appraisers to estimate the value of such real estate. Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment, which adversely affect the reliability of their appraisals. In addition, events occurring after the initial appraisal may cause the value of the real estate to increase or decrease. As a result of any of these factors, the real estate securing some of our loans may be more or less valuable than anticipated at the time the loans were made. If a default occurs on a loan secured by real estate that is less valuable than originally estimated, we may not be able to recover the outstanding balance of the loan and will suffer a loss.
We are exposed to risk of environmental liabilities with respect to properties to which we take title.
In the course of our business we lend against, and from time to time foreclose and take title to, real estate, potentially becoming subject to environmental liabilities associated with the properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and cleanup costs or we may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. Costs associated with investigation or remediation activities can be substantial. If the Bank is the lender to, or owner or former owner of, a contaminated site, it may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect our business.
Our operations rely significantly on certain external vendors.
Our business is dependent on the use of outside service providers that support our day-to-day operations including data processing and electronic communications. Our operations are exposed to risk that a service provider may not perform in accordance with established performance standards required in our agreements for any number of reasons including equipment or network failure, a change in their senior management, their financial condition, their product line or mix and how they support existing customers, or a simple change in their strategic focus. While we have comprehensive policies and procedures in place to mitigate risk at all phases of service provider management from selection, to performance monitoring and renewals, the failure of a service provider to perform in accordance with contractual agreements could be disruptive to our business, which could have a material adverse effect on our financial conditions and results of our operations.
31
Our operations, including our transactions with customers, are increasingly conducted via electronic means, and this has increased risks related to cybersecurity.
We are exposed to the risk of cyber-attacks in the normal course of business. In addition, we are exposed to cyber-attacks on vendors and merchants that affect us and our customers. In general, cyber incidents can result from deliberate attacks or unintentional events. We have observed an increased level of attention in the industry focused on cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. To combat against these attacks, policies and procedures are in place to identify, protect, detect, respond, and recover from the possible security breach of its information systems and cyber-fraud. While we maintain insurance coverage that may, subject to policy terms and conditions including significant self-insured deductibles, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. While we have not incurred any material losses related to cyber-attacks, nor are we aware of any specific or threatened cyber incidents as of the date of this report, we may incur substantial costs and suffer other negative consequences if we fall victim to successful cyber-attacks. Such negative consequences could include remediation costs that may include liability for stolen assets or information, and repairing system damage that may have been caused; deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants; lost revenues resulting from unauthorized use of proprietary information or the failure to retain or attract customers following an attack; disruption or failures of physical infrastructure, operating systems or networks that support our business and customers resulting in the loss of customers and business opportunities; additional regulatory scrutiny and possible regulatory penalties; litigation; and, reputational damage adversely affecting customer or investor confidence.
A breach or interruption of information security or cyber-related threats could negatively affect our earnings.
We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. Although we maintain insurance coverage that may, subject to policy terms and conditions including significant self-insured deductibles, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, adversely affecting customer or investor confidence, result in a loss of customer business, subject us to additional regulatory scrutiny and possible regulatory penalties, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
Failure to keep up with the rapid technological changes in the financial services industry could have a material adverse effect on our competitive position and profitability.
The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and reduce costs. Our future success will depend, in part, upon our ability to address the needs of customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to implement new technology-driven products and services effectively or be successful in marketing these products and services to customers. Failure to successfully keep pace with technological change affecting the financial services industry could harm our ability to compete effectively and could have a material adverse effect on our business, financial condition or results of operations. As these technologies are improved in the future, we may be required to make significant capital expenditures in order to remain competitive, which may increase our overall expenses and have a material adverse effect on our business, financial condition and results of operations.
32
We depend on the use of data and modeling in both management’s decision-making, generally, and in meeting regulatory expectations, in particular.
The use of statistical and quantitative models and other quantitatively-based analyses is endemic to bank decision-making and regulatory compliance processes, and the employment of such analyses is becoming increasingly widespread in our operations. Liquidity stress testing, interest rate sensitivity analysis, allowance for credit loss measurement, portfolio stress testing, assessing capital adequacy and the identification of possible violations of anti-money laundering regulations are examples of areas in which we are dependent on models and the data that underlies them. We anticipate that model-derived insights will be used more widely in decision-making in the future. While these quantitative techniques and approaches improve our decision-making, they also create the possibility that faulty data, flawed quantitative approaches or poorly designed or implemented models could yield adverse or faulty outcomes and decisions, and could result in regulatory scrutiny. Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision-making, which could have a material adverse effect on our business, financial condition, results of operations and share price.
We are subject to laws regarding the privacy, information security and protection of personal information, and any violation of these laws or another incident involving personal, confidential, or proprietary information of individuals could damage our reputation and otherwise adversely affect our business.
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From time
On July 24, 2019, a putative class action lawsuit was filed in the United States District Court for the Southern District of New York against the Company, its current and former President and Chief Executive Officer and its current and former Chief Financial Officer, on behalf of persons similarly situated, who purchased or otherwise acquired Company securities between March 2, 2015 and
35
July 17, 2019. On November 7, 2019, the court appointed a lead plaintiff and lead counsel in that matter, and on January 21, 2020, the lead plaintiff filed an amended complaint on behalf of the same class against the same defendants as well as the Company's former General Counsel. The plaintiff alleges that certain of the Company's 10-K reports and other public statements and disclosures contained materially false or misleading statements about, among other things, the effectiveness of its internal controls and related party loans, in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 20 (a) of that act, resulting in injury to the purported class members as a result of the decline in the value of the Company's common stock following the disclosure of increased legal expenses associated with certain government investigations involving the Company. The Company intends to defend vigorously against the claims asserted.
The Company has received various document requests and subpoenas from securities and banking regulators and U.S. Attorney’s offices in connection with investigations, which the Company believes relate to the Company's identification, classification and disclosure of related party transactions; the retirement of certain former officers and directors; and the relationship of the Company and certain of its former officers and directors with a local public official, among other things. The Company is cooperating with these investigations. There have been no regulatory restrictions placed on the Company's ability to fully engage in its banking business as presently conducted as a result of these ongoing investigations. We are, however, unable to predict the duration, scope or outcome of these investigations.
2020.
36
could only be funded in ways that weaken the holding company’s financial health, such as by borrowing. As a depository institution, the deposits of which are insured by the FDIC, the Bank may not pay dividends or distribute any of its capital assets while it remains in default on any assessment due the FDIC. The Bank currently is not in default under any of its obligations to the FDIC.
| | | | | | | | | | |
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| |
| | |
| Total Number of Shares |
| Maximum Number of |
|
| | | | | | | Purchased as Part | | Shares that May Yet Be |
|
| | Total Number of | | Average Price Paid Per | | of Publicly Announced | | Purchased Under the |
| |
Period | | Shares Purchased (4) | | Share | | Plan or Program | | Plans or Programs (1) (2) |
| |
October 1-31, 2019 |
| 160,707 | | $ | 44.52 |
| 141,000 |
| 752,347 | |
November 1-30, 2019 |
| 283,500 | |
| 44.68 |
| 283,500 |
| 468,847 | |
December 1-31, 2019 |
| 57,800 | |
| 44.30 |
| 57,800 |
| 1,641,000 | (3) |
Total |
| 502,007 | |
| 44.59 |
| 482,300 |
| 1,641,000 | |
Period | Total Number of Shares Purchased (3)(4) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) (2) | |||||||||||||||||||||||||
October 1-31, 2020 | — | n/a | n/a | 458,069 | |||||||||||||||||||||||||
November 1-30, 2020 | 371,300 | 37.46 | 371,300 | 86,769 | |||||||||||||||||||||||||
December 1-31, 2020 | 86,769 | 38.51 | 86,769 | — | |||||||||||||||||||||||||
Total | 458,069 | 37.66 | 458,069 | — |
suspension was lifted in the third quarter of 2020. We did not repurchase any shares during the second and third quarters of 2020.
17, 2020.
37
Stock Price Performance.The following table compares the cumulative total return on a hypothetical investment of $100 in the Company’s common stock on December 31, 20142015 through December 31, 2019,2020, with the hypothetical cumulative total return on the Nasdaq Stock Market Index (U.S. Companies) and the KBW Regional Banking Index for the comparable period, including reinvestment of dividends. The KBW Regional Banking Index seeks to reflect the performance of publicly traded companies that do business as regional banks or thrifts listed on all U.S. stock markets.
| | | | | | | | | | | | |
| | Period Ending | ||||||||||
Index |
| 12/31/14 |
| 12/31/15 |
| 12/31/16 |
| 12/31/17 |
| 12/31/18 |
| 12/31/19 |
Eagle Bancorp, Inc. |
| 100.00 |
| 142.09 |
| 171.59 |
| 163.01 |
| 137.13 |
| 138.17 |
Nasdaq Composite Index |
| 100.00 |
| 106.96 |
| 116.45 |
| 150.96 |
| 146.67 |
| 200.49 |
KBW Nasdaq Regional Banking Index |
| 100.00 |
| 105.91 |
| 147.24 |
| 149.82 |
| 123.60 |
| 153.03 |
38
Eagle Bancorp, Inc. |
Period Ending | ||||||||||||||||||||||||||||||||||||||
Index | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | ||||||||||||||||||||||||||||||||
Eagle Bancorp, Inc. | 100.00 | 120.76 | 114.72 | 96.51 | 97.25 | 84.81 | ||||||||||||||||||||||||||||||||
Nasdaq Composite Index | 100.00 | 108.87 | 141.13 | 137.12 | 187.44 | 271.64 | ||||||||||||||||||||||||||||||||
KBW Nasdaq Regional Banking Index | 100.00 | 139.02 | 141.45 | 116.70 | 144.49 | 131.91 |
| | | | | | | | | | | | | | | |
|
| Years Ended December 31, | |||||||||||||
(dollars in thousands except per share data) |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |||||
Balance Sheets - Period End | |
| | |
| | |
| | |
| | |
| |
Securities | | $ | 843,363 | | $ | 784,139 | | $ | 589,268 | | $ | 538,108 | | $ | 504,772 |
Loans held for sale | |
| 56,707 | |
| 19,254 | |
| 25,096 | |
| 51,629 | |
| 47,492 |
Loans | |
| 7,545,748 | |
| 6,991,447 | |
| 6,411,528 | |
| 5,677,893 | |
| 4,998,368 |
Allowance for credit losses | |
| 73,658 | |
| 69,944 | |
| 64,758 | |
| 59,074 | |
| 52,687 |
Intangible assets, net | |
| 104,739 | |
| 105,766 | |
| 107,212 | |
| 107,419 | |
| 108,542 |
Total assets | |
| 8,988,719 | |
| 8,389,137 | |
| 7,479,029 | |
| 6,890,096 | |
| 6,075,577 |
Deposits | |
| 7,224,391 | |
| 6,974,285 | |
| 5,853,984 | |
| 5,716,114 | |
| 5,158,444 |
Borrowings | |
| 498,667 | |
| 247,709 | |
| 618,466 | |
| 285,390 | |
| 141,284 |
Total liabilities | |
| 7,798,038 | |
| 7,280,196 | |
| 6,528,591 | |
| 6,047,297 | |
| 5,336,976 |
Total shareholders’ equity | |
| 1,190,681 | |
| 1,108,941 | |
| 950,438 | |
| 842,799 | |
| 738,601 |
Tangible common equity (1) | |
| 1,085,942 | |
| 1,003,175 | |
| 843,226 | |
| 735,380 | |
| 630,059 |
| | | | | | | | | | | | | | | |
Statements of Operations | |
|
| |
|
| |
|
| |
|
| |
|
|
Interest income | | $ | 429,630 | | $ | 393,286 | | $ | 324,034 | | $ | 285,805 | | $ | 253,180 |
Interest expense | |
| 105,585 | |
| 76,293 | |
| 40,147 | |
| 27,640 | |
| 19,238 |
Provision for credit losses | |
| 13,091 | |
| 8,660 | |
| 8,971 | |
| 11,331 | |
| 14,638 |
Noninterest income | |
| 25,699 | |
| 22,586 | |
| 29,372 | |
| 27,284 | |
| 26,628 |
Noninterest expense | |
| 139,862 | |
| 126,711 | |
| 118,552 | |
| 115,016 | |
| 110,716 |
Income before taxes | |
| 196,791 | |
| 204,208 | |
| 185,736 | |
| 159,102 | |
| 135,216 |
Income tax expense (2) | |
| 53,848 | |
| 51,932 | |
| 85,504 | |
| 61,395 | |
| 51,049 |
Net income (2) | |
| 142,943 | |
| 152,276 | |
| 100,232 | |
| 97,707 | |
| 84,167 |
Preferred dividends | |
| — | |
| — | |
| — | |
| — | |
| 601 |
Cash dividends declared | | | 22,332 | | | — | | | — | | | — | | | — |
Net income available to common shareholders (2) | |
| 142,943 | |
| 152,276 | |
| 100,232 | |
| 97,707 | |
| 83,566 |
Total Revenue (3) | |
| 349,744 | |
| 339,579 | |
| 313,259 | |
| 285,449 | |
| 260,570 |
39
Years Ended December 31, | ||||||||||||||||||||||||||||||||
(dollars in thousands except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||
Balance Sheets - Period End | ||||||||||||||||||||||||||||||||
Securities | $ | 1,151,083 | $ | 843,363 | $ | 784,139 | $ | 589,268 | $ | 538,108 | ||||||||||||||||||||||
Loans held for sale | 88,205 | 56,707 | 19,254 | 25,096 | 51,629 | |||||||||||||||||||||||||||
Loans | 7,760,212 | 7,545,748 | 6,991,447 | 6,411,528 | 5,677,893 | |||||||||||||||||||||||||||
Allowance for credit losses | 109,579 | 73,658 | 69,944 | 64,758 | 59,074 | |||||||||||||||||||||||||||
Intangible assets, net | 105,114 | 104,739 | 105,766 | 107,212 | 107,419 | |||||||||||||||||||||||||||
Total assets | 11,117,802 | 8,988,719 | 8,389,137 | 7,479,029 | 6,890,096 | |||||||||||||||||||||||||||
Deposits | 9,189,203 | 7,224,391 | 6,974,285 | 5,853,984 | 5,716,114 | |||||||||||||||||||||||||||
Borrowings | 568,077 | 498,667 | 247,709 | 618,466 | 285,390 | |||||||||||||||||||||||||||
Total liabilities | 9,876,910 | 7,798,038 | 7,280,196 | 6,528,591 | 6,047,297 | |||||||||||||||||||||||||||
Total shareholders’ equity | 1,240,892 | 1,190,681 | 1,108,941 | 950,438 | 842,799 | |||||||||||||||||||||||||||
Tangible common equity (1) | 1,135,778 | 1,085,942 | 1,003,175 | 843,226 | 735,380 | |||||||||||||||||||||||||||
Statements of Income | ||||||||||||||||||||||||||||||||
Interest income | $ | 389,986 | $ | 429,630 | $ | 393,286 | $ | 324,034 | $ | 285,805 | ||||||||||||||||||||||
Interest expense | 68,424 | 105,585 | 76,293 | 40,147 | 27,640 | |||||||||||||||||||||||||||
Provision for credit losses | 45,571 | 13,091 | 8,660 | 8,971 | 11,331 | |||||||||||||||||||||||||||
Noninterest income | 45,696 | 25,699 | 22,586 | 29,372 | 27,284 | |||||||||||||||||||||||||||
Noninterest expense | 144,162 | 139,862 | 126,711 | 118,552 | 115,016 | |||||||||||||||||||||||||||
Income before taxes | 176,145 | 196,791 | 204,208 | 185,736 | 159,102 | |||||||||||||||||||||||||||
Income tax expense (2) | 43,928 | 53,848 | 51,932 | 85,504 | 61,395 | |||||||||||||||||||||||||||
Net income (2) | 132,217 | 142,943 | 152,276 | 100,232 | 97,707 | |||||||||||||||||||||||||||
Cash dividends declared | 28,330 | 22,332 | — | — | — | |||||||||||||||||||||||||||
Net income available to common shareholders (2) | 132,217 | 142,943 | 152,276 | 100,232 | 97,707 | |||||||||||||||||||||||||||
Total Revenue (3) | 435,682 | 349,744 | 339,579 | 313,259 | 285,449 |
Years Ended December 31, | ||||||||||||||||||||||||||||||||
(dollars in thousands except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||
Per Common Share Data | ||||||||||||||||||||||||||||||||
Net income, basic (2) | $ | 4.09 | $ | 4.18 | $ | 4.44 | $ | 2.94 | $ | 2.91 | ||||||||||||||||||||||
Net income, diluted (2) | 4.09 | 4.18 | 4.42 | 2.92 | 2.86 | |||||||||||||||||||||||||||
Dividends declared | 0.88 | 0.66 | — | — | — | |||||||||||||||||||||||||||
Book value (2) | 39.05 | 35.82 | 32.25 | 27.80 | 24.77 | |||||||||||||||||||||||||||
Tangible book value (2) (4) | 35.74 | 32.67 | 29.17 | 24.67 | 21.61 | |||||||||||||||||||||||||||
Common shares outstanding | 31,779,663 | 33,241,496 | 34,387,919 | 34,185,163 | 34,023,850 | |||||||||||||||||||||||||||
Weighted average common shares outstanding, basic | 32,334,201 | 34,178,804 | 34,306,336 | 34,138,536 | 33,587,254 | |||||||||||||||||||||||||||
Weighted average common shares outstanding, diluted | 32,362,556 | 34,210,646 | 34,443,040 | 34,320,639 | 34,181,616 | |||||||||||||||||||||||||||
Ratios | ||||||||||||||||||||||||||||||||
Net interest margin | 3.19 | % | 3.77 | % | 4.10 | % | 4.15 | % | 4.16 | % | ||||||||||||||||||||||
Efficiency ratio (5) | 39.25 | % | 39.99 | % | 37.31 | % | 37.84 | % | 40.29 | % | ||||||||||||||||||||||
Return on average assets (2) | 1.28 | % | 1.61 | % | 1.91 | % | 1.41 | % | 1.52 | % | ||||||||||||||||||||||
Return on average common equity (2) | 10.98 | % | 12.20 | % | 14.89 | % | 11.06 | % | 12.27 | % | ||||||||||||||||||||||
Return on average tangible common equity (2) | 12.03 | % | 13.40 | % | 16.63 | % | 12.54 | % | 14.19 | % | ||||||||||||||||||||||
CET1 capital (to risk weighted assets) | 13.49 | % | 12.87 | % | 12.49 | % | 11.23 | % | 10.80 | % | ||||||||||||||||||||||
Total capital (to risk weighted assets) | 17.04 | % | 16.20 | % | 16.08 | % | 15.02 | % | 14.89 | % | ||||||||||||||||||||||
Tier 1 capital (to risk weighted assets) | 13.49 | % | 12.87 | % | 12.49 | % | 11.23 | % | 10.80 | % | ||||||||||||||||||||||
Tier 1 capital (to average assets) | 10.31 | % | 11.62 | % | 12.10 | % | 11.45 | % | 10.72 | % | ||||||||||||||||||||||
Tangible common equity ratio | 10.31 | % | 12.22 | % | 12.11 | % | 11.44 | % | 10.84 | % | ||||||||||||||||||||||
Dividend payout ratio | 21.59 | % | 15.79 | % | — | — | — | |||||||||||||||||||||||||
Asset Quality | ||||||||||||||||||||||||||||||||
Nonperforming assets and loans 90+ past due | $ | 65,930 | $ | 50,216 | $ | 17,671 | $ | 14,632 | $ | 20,569 | ||||||||||||||||||||||
Nonperforming assets and loans 90+ past due to total assets | 0.59 | % | 0.56 | % | 0.21 | % | 0.20 | % | 0.30 | % | ||||||||||||||||||||||
Nonperforming loans to total loans | 0.79 | % | 0.65 | % | 0.23 | % | 0.21 | % | 0.31 | % | ||||||||||||||||||||||
Allowance for credit losses to loans | 1.41 | % | 0.98 | % | 1.00 | % | 1.01 | % | 1.04 | % | ||||||||||||||||||||||
Allowance for credit losses to nonperforming loans | 179.80 | % | 151.16 | % | 429.72 | % | 489.20 | % | 330.49 | % | ||||||||||||||||||||||
Net charge-offs | $ | 20,097 | $ | 9,377 | $ | 3,475 | $ | 3,286 | $ | 4,945 | ||||||||||||||||||||||
Net charge-offs to average loans | 0.26 | % | 0.13 | % | 0.05 | % | 0.06 | % | 0.09 | % |
| | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| |||||||||||||
(dollars in thousands except per share data) |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| |||||
Per Common Share Data | |
| | |
| | |
| | |
| | |
| |
|
Net income, basic (2) | | $ | 4.18 | | $ | 4.44 | | $ | 2.94 | | $ | 2.91 | | $ | 2.54 | |
Net income, diluted (2) | |
| 4.18 | |
| 4.42 | |
| 2.92 | |
| 2.86 | |
| 2.50 | |
Dividends declared | | | 0.66 | | | — | | | — | | | — | | | — | |
Book value (2) | |
| 35.82 | |
| 32.25 | |
| 27.80 | |
| 24.77 | |
| 22.07 | |
Tangible book value (2) (4) | |
| 32.67 | |
| 29.17 | |
| 24.67 | |
| 21.61 | |
| 18.83 | |
Common shares outstanding | |
| 33,241,496 | |
| 34,387,919 | |
| 34,185,163 | |
| 34,023,850 | |
| 33,467,893 | |
Weighted average common shares outstanding, basic | |
| 34,178,804 | |
| 34,306,336 | |
| 34,138,536 | |
| 33,587,254 | |
| 32,836,449 | |
Weighted average common shares outstanding, diluted | |
| 34,210,646 | |
| 34,443,040 | |
| 34,320,639 | |
| 34,181,616 | |
| 33,479,592 | |
Ratios | |
|
| |
|
| |
|
| |
|
| |
|
| |
Net interest margin | |
| 3.77 | % |
| 4.10 | % |
| 4.15 | % |
| 4.16 | % |
| 4.33 | % |
Efficiency ratio (5) | |
| 39.99 | % |
| 37.31 | % |
| 37.84 | % |
| 40.29 | % |
| 42.49 | % |
Return on average assets (2) | |
| 1.61 | % |
| 1.91 | % |
| 1.41 | % |
| 1.52 | % |
| 1.49 | % |
Return on average common equity (2) | |
| 12.20 | % |
| 14.89 | % |
| 11.06 | % |
| 12.27 | % |
| 12.32 | % |
Return on average tangible common equity (2) | |
| 13.40 | % |
| 16.63 | % |
| 12.54 | % |
| 14.19 | % |
| 14.69 | % |
CET1 capital (to risk weighted assets) | |
| 12.87 | % |
| 12.49 | % |
| 11.23 | % |
| 10.80 | % |
| 10.68 | % |
Total capital (to risk weighted assets) | |
| 16.20 | % |
| 16.08 | % |
| 15.02 | % |
| 14.89 | % |
| 12.75 | % |
Tier 1 capital (to risk weighted assets) | |
| 12.87 | % |
| 12.49 | % |
| 11.23 | % |
| 10.80 | % |
| 10.68 | % |
Tier 1 capital (to average assets) | |
| 11.62 | % |
| 12.10 | % |
| 11.45 | % |
| 10.72 | % |
| 10.90 | % |
Tangible common equity ratio | |
| 12.22 | % |
| 12.11 | % |
| 11.44 | % |
| 10.84 | % |
| 10.56 | % |
Dividend payout ratio | | | 15.79 | % | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
Asset Quality | |
|
| |
|
| |
|
| |
|
| |
|
| |
Nonperforming assets and loans 90+ past due | | $ | 50,216 | | $ | 17,671 | | $ | 14,632 | | $ | 20,569 | | $ | 19,091 | |
Nonperforming assets and loans 90+ past due to total assets | |
| 0.56 | % |
| 0.21 | % |
| 0.20 | % |
| 0.30 | % |
| 0.31 | % |
Nonperforming loans to total loans | |
| 0.65 | % |
| 0.23 | % |
| 0.21 | % |
| 0.31 | % |
| 0.26 | % |
Allowance for credit losses to loans | |
| 0.98 | % |
| 1.00 | % |
| 1.01 | % |
| 1.04 | % |
| 1.05 | % |
Allowance for credit losses to nonperforming loans | |
| 151.16 | % |
| 429.72 | % |
| 489.20 | % |
| 330.49 | % |
| 397.95 | % |
Net charge-offs | | $ | 9,377 | | $ | 3,475 | | $ | 3,286 | | $ | 4,945 | | $ | 8,026 | |
Net charge-offs to average loans | |
| 0.13 | % |
| 0.05 | % |
| 0.06 | % |
| 0.09 | % |
| 0.17 | % |
40
Non-GAAP Reconciliation | Years Ended December 31, | |||||||||||||||||||||||||||||||
(dollars in thousands except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||
Common shareholders’ equity | $ | 1,240,891 | $ | 1,190,681 | $ | 1,108,941 | $ | 950,438 | $ | 842,799 | ||||||||||||||||||||||
Less: Intangible assets | (105,114) | (104,739) | (105,766) | (107,212) | (107,419) | |||||||||||||||||||||||||||
Tangible common equity | $ | 1,135,777 | $ | 1,085,942 | $ | 1,003,175 | $ | 843,226 | $ | 735,380 | ||||||||||||||||||||||
Book value per common share | $ | 39.05 | $ | 35.82 | $ | 32.25 | $ | 27.80 | $ | 24.77 | ||||||||||||||||||||||
Less: Intangible book value per common share | (3.31) | (3.15) | (3.08) | (3.13) | (3.16) | |||||||||||||||||||||||||||
Tangible book value per common share | $ | 35.74 | $ | 32.67 | $ | 29.17 | $ | 24.67 | $ | 21.61 | ||||||||||||||||||||||
Total assets | $ | 11,117,802 | $ | 8,988,719 | $ | 8,389,137 | $ | 7,479,029 | $ | 6,890,096 | ||||||||||||||||||||||
Less: Intangible assets | (105,114) | (104,739) | (105,766) | (107,212) | (107,419) | |||||||||||||||||||||||||||
Tangible assets | $ | 11,012,688 | $ | 8,883,980 | $ | 8,283,371 | $ | 7,371,817 | $ | 6,782,677 | ||||||||||||||||||||||
Tangible common equity ratio | 10.31 | % | 12.22 | % | 12.11 | % | 11.44 | % | 10.84 | % | ||||||||||||||||||||||
Average common shareholders’ equity | $ | 1,204,341 | $ | 1,172,051 | $ | 1,022,642 | $ | 906,169 | $ | 796,400 | ||||||||||||||||||||||
Less: Average intangible assets | (104,903) | (105,167) | (106,806) | (107,117) | (107,207) | |||||||||||||||||||||||||||
Average tangible common equity | $ | 1,099,438 | $ | 1,066,884 | $ | 915,836 | $ | 799,052 | $ | 689,193 | ||||||||||||||||||||||
Net Income | $ | 132,217 | $ | 142,943 | $ | 152,276 | $ | 100,232 | $ | 97,707 | ||||||||||||||||||||||
Average tangible common equity | $ | 1,099,438 | $ | 1,066,884 | $ | 915,836 | $ | 799,052 | $ | 689,193 | ||||||||||||||||||||||
Return on Average Tangible Common Equity | 12.03 | % | 13.40 | % | 16.63 | % | 12.54 | % | 14.18 | % |
Year Ended December 31, 2017 (1) | |||||||||||||||||
(dollars in thousands except per share data) | GAAP | Change | Non-GAAP | ||||||||||||||
Income Statements: | |||||||||||||||||
Income tax expense | 85,504 | (14,588) | 70,916 | ||||||||||||||
Net income | $ | 100,232 | (14,588) | $ | 114,820 | ||||||||||||
Earnings Per Common Share | |||||||||||||||||
Basic | $ | 2.94 | $ | 0.43 | $ | 3.36 | |||||||||||
Diluted | $ | 2.92 | $ | 0.42 | $ | 3.35 | |||||||||||
Performance Ratios: | |||||||||||||||||
Return on average assets | 1.41 | % | 1.62 | % | |||||||||||||
Return on average common equity | 11.06 | % | 12.67 | % |
| | | | | | | | | | | | | | | |
Non-GAAP Reconciliation | | Years Ended December 31, | |||||||||||||
(dollars in thousands except per share data) |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |||||
Common shareholders’ equity | | $ | 1,190,681 | | $ | 1,108,941 | | $ | 950,438 | | $ | 842,799 | | $ | 738,601 |
Less: Intangible assets | |
| (104,739) | |
| (105,766) | |
| (107,212) | |
| (107,419) | |
| (108,542) |
Tangible common equity | | $ | 1,085,942 | | $ | 1,003,175 | | $ | 843,226 | | $ | 735,380 | | $ | 630,059 |
| | | | | | | | | | | | | | | |
Book value per common share | | $ | 35.82 | | $ | 32.25 | | $ | 27.80 | | $ | 24.77 | | $ | 22.07 |
Less: Intangible book value per common share | |
| (3.15) | |
| (3.08) | |
| (3.13) | |
| (3.16) | |
| (3.24) |
Tangible book value per common share | | $ | 32.67 | | $ | 29.17 | | $ | 24.67 | | $ | 21.61 | | $ | 18.83 |
| | | | | | | | | | | | | | | |
Total assets | | $ | 8,988,719 | | $ | 8,389,137 | | $ | 7,479,029 | |
|
| |
|
|
Less: Intangible assets | |
| (104,739) | |
| (105,766) | |
| (107,212) | |
|
| |
|
|
Tangible assets | | $ | 8,883,980 | | $ | 8,283,371 | | $ | 7,371,817 | |
|
| |
|
|
Tangible common equity ratio | |
| 12.22 | % |
| 12.11 | % |
| 11.44 | % |
|
| |
|
|
| | | | | | | | | | | | | | | |
Average common shareholders’ equity | | $ | 1,172,051 | | $ | 1,022,642 | | $ | 906,169 | |
|
| |
|
|
Less: Average intangible assets | |
| (105,167) | |
| (106,806) | |
| (107,117) | |
|
| |
|
|
Average tangible common equity | | $ | 1,066,884 | | $ | 915,836 | | $ | 799,052 | |
|
| |
|
|
| | | | | | | | | | | | | | | |
Net Income | | $ | 142,943 | | $ | 152,276 | | $ | 100,232 | |
|
| |
|
|
Average tangible common equity | | $ | 1,066,884 | | $ | 915,836 | | $ | 799,052 | |
|
| |
|
|
Return on Average Tangible Common Equity | |
| 13.40 | % |
| 16.63 | % |
| 12.54 | % |
|
| |
|
|
| | | | | | | | | | |
| | Year Ended December 31, 2017 |
| |||||||
(dollars in thousands except per share data) |
| GAAP |
| Change |
| Non-GAAP |
| |||
Income Statements: |
| |
|
| |
|
| |
| |
Income tax expense |
| | 85,504 |
| | (14,588) |
| | 70,916 | |
Net income | | $ | 100,232 | | | (14,588) | | $ | 114,820 | |
| | | | | | | | | | |
Earnings Per Common Share | |
|
| |
|
| |
|
| |
Basic | | $ | 2.94 | | $ | 0.43 | | $ | 3.36 | |
Diluted | | $ | 2.92 | | $ | 0.42 | | $ | 3.35 | |
| | | | | | | | | | |
Performance Ratios: | |
|
| |
|
| |
|
| |
Return on average assets | |
| 1.41 | % |
| |
|
| 1.62 | % |
Return on average common equity | |
| 11.06 | % |
| | |
| 12.67 | % |
| | | | | | | | | |
| | As of December 31, 2017 | |||||||
|
| GAAP |
| Change |
| Non-GAAP | |||
Assets | | | | | | | | | |
Deferred income taxes |
| | 28,770 |
| | 14,588 |
| | 43,358 |
Total Assets | | $ | 7,479,029 | | $ | 14,588 | | $ | 7,493,617 |
| | | | | | | | | |
Shareholders’ Equity | |
|
| |
|
| |
|
|
Retained earnings | |
| 431,544 | |
| 14,588 | |
| 446,132 |
Total Shareholders’ Equity | |
| 950,438 | |
| 14,588 | |
| 965,026 |
Total Liabilities and Shareholders’ Equity | | $ | 7,479,029 | | | 14,588 | | $ | 7,493,617 |
41
As of December 31, 2017 | |||||||||||||||||
GAAP | Change | Non-GAAP | |||||||||||||||
Assets | |||||||||||||||||
Deferred income taxes | 28,770 | 14,588 | 43,358 | ||||||||||||||
Total Assets | $ | 7,479,029 | $ | 14,588 | $ | 7,493,617 | |||||||||||
Shareholders’ Equity | |||||||||||||||||
Retained earnings | 431,544 | 14,588 | 446,132 | ||||||||||||||
Total Shareholders’ Equity | 950,438 | 14,588 | 965,026 | ||||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 7,479,029 | 14,588 | $ | 7,493,617 |
42
The Bank offers a broad range of commercial Refer to the Business Section above which describes in detail the various banking services to its business and professional clients as well as full service consumer banking services to individuals living and/or working primarily in the Bank's market area. The Bank emphasizes providing commercial banking services to sole proprietors, small and medium-sized businesses, non-profit organizations and associations, and investors living and working in and near the primary service area. These services include the usual deposit functions of commercial banks, including business and personal checking accounts, "NOW" accounts and money market and savings accounts, business, construction, and commercial loans, residential mortgages and consumer loans, and cash management services. The Bank is also active in the origination and sale of residential mortgage loans and the origination of SBA loans. The residential mortgage loans are originated for sale to third-party investors, generally large mortgage and banking companies, under best efforts and mandatory delivery commitments with the investors to purchase the loans subject to compliance with pre-established criteria. The Bank generally sells the guaranteed portion of the SBA loans in a transaction apart from the loan origination generating noninterest income from the gains on sale, as well as servicing income on the portion participated. The Company originates multifamily FHA loans through HUD's MAP. The Company securitizes these loans through the Ginnie Mae MBS I program, and sells the resulting securities in the open market to authorized dealers in the normal course of business and periodically bundles and sells the servicing rights. Bethesda Leasing, LLC, a subsidiary of the Bank, holds title to and manages other real estate owned ("OREO") assets. Eagle Insurance Services, LLC, a subsidiary of the Bank, offers access to insurance products and services through a referral program with a third party insurance broker. Additionally, the Bank offers investment advisory services through referral programs with third parties. Landroval Municipal Finance, Inc., a subsidiary of the Bank, focuses on lending to municipalities by buying debt on the public market as well as direct purchase issuance.
offered.
continue through 2021, including continued very low interest rates.
43
below 2017 prices by the end of 2018. In 2019, energy prices remained relatively stable at 2018's average price. Inflationary factors remained close to, but still below, the FOMC's target rate of 2.00% throughout 2019.
As the ten year U.S. Treasury rate dropped back to 2016 levels in the summer of 2019,2020, the volume of residential mortgage lending began to increase. Overall, real estate values in most of the Company's markets were stable to increasing in 20192020 as interest rates remained historically low and job growth and personal income levels rose modestly.low. Political gridlock continued in Washington, D.C. over concerns of Presidential impeachment, immigration and health carepandemic policy, public debt and deficits, as well as tax policy and spending levels. Major corporatelevels, and personal tax reform was passed late in 2017, which benefited business earnings and consumer spending, while deficit spending continued and remains a point of serious concern.
the November elections.
During 2019, the Company enhanced its marketplace positioning by remaining proactive in growing client relationships.
44
AllowanceProvision for Credit Losses
The and Provision for Unfunded Commitments
Three components comprise our allowance for credit losses: a specific allowance, a formula allowance and a nonspecific or environmental factors allowance. Each component is determined basedloss rates on estimates that can and do change when actual events occur.
The specific allowance allocates a reserve to identified impaired loans. Impaired loans are assigned specific reserves based on an impairment analysis. Under ASC Topic 310, “Receivables,” a loan for which reserves are individually allocated may show deficiencies in the borrower’s overall financial condition, payment record, support available from financial guarantors and for the fair market value of collateral. When a loan is identified as impaired, a specific reserve is established based on the Company’s assessment of the loss that may be associated with the individual loan.
The formula allowance is used to estimate the loss on internally risk rated loans, exclusive of those identified as requiring specific reserves. The portfolio of unimpaired loans is stratified by loan type and risk assessment. Allowance factors relate to the type of loan and level of the internal risk rating, with loans exhibiting higher risk and loss experience receiving a higher allowance factor.
The environmental factors allowance is also used to estimate the loss associated with pools of non-classified loans. These non-classified loans are also stratified by loan type, and environmental allowance factors are assigned by management based upon a number of conditions, including delinquencies, loss history, changes in lending policy and procedures, changes in business and economic conditions, changes in the nature and volume of the portfolio, management expertise, concentrations within the portfolio, quality of internal and external loan review systems, competition, and legal and regulatory requirements.
The allowance captures losses inherent in the loan portfolio, which have not yet been recognized. Allowance factors and the overall size of the allowance may change from period to period based upon management’s assessment of the above described factors, the relative weights given to each factor, and portfolio composition.
draws.
losses.
45
The Company performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Determining the fair value of a reporting unit under the goodwill impairment test is judgmental and often involves the use of significant estimates and assumptions. Similarly, estimates and assumptions are used in determining the fair value of other intangible assets. Estimates of fair value are primarily determined using discounted cash flows, market comparisons and recent transactions. These approaches use significant estimates and assumptions including projected future cash flows, discount rates reflecting the market rate of return, projected growth rates and determination and evaluation of appropriate market comparables.
See “Item 1A Risk Factors—Changes in the value of goodwill and intangible assets could reduce our earnings” for more information.
See “Item 1A Risk Factors—Changes in tax laws could have an adverse effect on us, the banking industry, our customers, the value of collateral securing our loans and demand for loans” for more information.
FASB ASC Topic 815, Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments.
For
46
Where appropriate, parenthetical references refer to operating earnings, which the Company believes are more relevant comparisons to current and historical period results of operations. Reconciliations of 2017 GAAP earnings to operating earnings are contained in the tables under “Selected Financial Data”.
For the year ended December 31, 2019, net income was $4.18 per basic and diluted common share as comparedfor 2019, a 2% decrease.
For the year ended December 31, 2019, the Company reported a return on average assets, or ROAA, of 1.61% as compared to 1.91% for the year ended December 31, 2018. The return on average common equity, or ROACE, for the year ended December 31, 2019 was 12.20%, as compared to 14.89% for the year ended December 31, 2018. The return on average tangible common equity, or ROATCE, for the year ended December 31, 2019 was 13.40%, as compared to 16.63% for the year ended December 31, 2018.
The Company’s earnings are largely dependent on net interest margin, and increased provisioning for credit losses
17%.
For the year ended December 31, 2019, the net interest spread decreased by 43 basis points (to 3.05% from 3.48%) as compared to 2018, due primarily to an increasechange are detailed in the average cost of interest bearing liabilities. The cost of interest bearing liabilities increased in 2019 largely as a result of interest rate increases by the FOMC in mid to late 2018"Net Interest Income and increased competition for deposits within our market area, though funding costs started to moderate in the second half of 2019, as the market rate cuts passed through to the liability base. Overall, the Company believes its deposit mix and cost of funds remain favorable. Net Interest Margin" section below.
significantly lower market interest rates.
The combination of aThe Company believes it has effectively managed its net interest margin and net interest income during 2019 as market2019.
longer term.
At December 31, 2019, the allowance for credit losses represented 0.98% of loans outstanding, as compared to 1.00% at December 31, 2018. The allowance for credit losses represented 151% of nonperforming loans at December 31, 2019, as compared to 430% at December 31, 2018.
Credit Losses" section below.
47
The efficiency ratio, which measures the ratio of noninterest expense to total revenue, remained favorable at 39.99%was 39.25% for the year ended December 31, 20192020 as compared to 37.31%39.99% for 2019.
PPP, income producing commercial real estate, and commercial loans. Average investment securities for 2020 and 2019 both amounted to 9% average earning assets. The combination of federal funds sold, interest bearing deposits with other banks and loans held for sale represented 12% and 5% of average earning assets for 2020 and 2019, respectively, as much higher levels of on-balance sheet liquidity existed throughout 2020.
2018.
in 2020.
48
Eagle Bancorp, Inc.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| |||||||||||||||||||||||
| | 2019 | | 2018 | | 2017 |
| |||||||||||||||||||
| | | | | | | | Average | | | | | | | | Average | | | | | | | | Average | | |
| | Average | | | | | Yield / | | Average | | | | | Yield / | | Average | | | | | Yield / |
| ||||
|
| Balance |
| Interest |
| Rate |
| Balance |
| Interest |
| Rate |
| Balance |
| Interest |
| Rate | | |||||||
Assets |
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Interest earning assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Interest bearing deposits with other banks and other short-term investments | | $ | 392,245 | | $ | 7,438 |
| | 1.90 | % | $ | 356,017 | | $ | 6,616 |
| 1.86 | % | $ | 313,296 | | $ | 3,258 |
| 1.04 | % |
Loans held for sale | |
| 40,192 | |
| 1,565 |
| | 3.89 | % |
| 23,877 | |
| 1,095 |
| 4.59 | % |
| 35,813 | |
| 1,400 |
| 3.91 | % |
Loans (1) (2) | |
| 7,332,886 | |
| 399,358 |
| | 5.45 | % |
| 6,638,136 | |
| 367,511 |
| 5.54 | % |
| 5,939,985 | |
| 307,110 |
| 5.17 | % |
Investment securities available-for-sale (2) | |
| 796,608 | |
| 21,037 |
| | 2.64 | % |
| 692,753 | |
| 17,907 |
| 2.58 | % |
| 557,049 | |
| 12,214 |
| 2.19 | % |
Federal funds sold | |
| 23,253 | |
| 232 |
| | 1.00 | % |
| 15,618 | |
| 157 |
| 1.01 | % |
| 7,672 | |
| 52 |
| 0.68 | % |
Total interest earning assets | |
| 8,585,184 | |
| 429,630 |
| | 5.00 | % |
| 7,726,401 | |
| 393,286 |
| 5.09 | % |
| 6,853,815 | |
| 324,034 |
| 4.73 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest earning assets | |
| 339,565 | | | |
| | | |
| 299,653 | |
| |
| | | | 296,562 | |
|
|
|
| |
Less: allowance for credit losses | |
| 71,683 | | | |
| | | |
| 67,113 | |
| |
| | | | 61,166 | |
|
|
|
| |
Total noninterest earning assets | |
| 267,882 | | | |
| | | |
| 232,540 | |
| |
| | | | 235,396 | |
|
|
|
| |
Total Assets | | $ | 8,853,066 | | | | | | | | $ | 7,958,941 | |
| |
| | | $ | 7,089,211 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Shareholders’ Equity | |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Interest bearing liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Interest bearing transaction | | $ | 743,361 | | $ | 6,491 | |
| 0.87 | % | $ | 460,599 | | $ | 3,348 |
| 0.73 | % | $ | 369,953 | | $ | 1,537 |
| 0.42 | % |
Savings and money market | |
| 2,873,054 | |
| 50,042 | |
| 1.74 | % |
| 2,691,726 | |
| 35,534 |
| 1.32 | % |
| 2,739,776 | |
| 17,284 |
| 0.63 | % |
Time deposits | |
| 1,404,748 | |
| 34,493 | |
| 2.46 | % |
| 1,141,795 | |
| 21,328 |
| 1.87 | % |
| 799,816 | |
| 8,465 |
| 1.06 | % |
Total interest bearing deposits | |
| 5,021,163 | |
| 91,026 | |
| 1.81 | % |
| 4,294,120 | |
| 60,210 |
| 1.40 | % |
| 3,909,545 | |
| 27,286 |
| 0.70 | % |
Customer repurchase agreements and federal funds purchased | |
| 30,024 | |
| 345 | |
| 1.15 | % |
| 44,333 | |
| 225 |
| 0.51 | % |
| 73,237 | |
| 197 |
| 0.27 | % |
Other short-term borrowings | |
| 135,699 | |
| 2,298 | |
| 1.67 | % |
| 192,131 | |
| 3,942 |
| 2.02 | % |
| 65,416 | |
| 748 |
| 1.13 | % |
Long-term borrowings | |
| 217,507 | |
| 11,916 | |
| 5.40 | % |
| 217,117 | |
| 11,916 |
| 5.41 | % |
| 216,724 | |
| 11,916 |
| 5.42 | % |
Total interest bearing liabilities | |
| 5,404,393 | |
| 105,585 | |
| 1.95 | % |
| 4,747,701 | |
| 76,293 |
| 1.61 | % |
| 4,264,922 | |
| 40,147 |
| 0.94 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest bearing liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Noninterest bearing demand | |
| 2,210,516 | | | | | | | |
| 2,150,431 | |
| |
| | |
| 1,878,120 | |
|
|
|
| |
Other liabilities | |
| 66,106 | | | | | | | |
| 38,167 | |
| |
| | |
| 40,000 | |
|
|
|
| |
Total noninterest bearing liabilities | |
| 2,276,622 | | | | | | | |
| 2,188,598 | |
| |
| | |
| 1,918,120 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Shareholders’ equity | |
| 1,172,051 | | | | | | | |
| 1,022,642 | |
| |
| | |
| 906,169 | |
|
|
|
| |
Total Liabilities and Shareholders’ Equity | | $ | 8,853,066 | | | | | | | | $ | 7,958,941 | |
| |
| | | $ | 7,089,211 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income | | | | | $ | 324,045 | | | | | | | | $ | 316,993 |
| | | | | | $ | 283,887 |
|
| |
Net interest spread | |
| | | | | | | 3.05 | % |
| | |
| |
| 3.48 | % |
| | |
|
|
| 3.79 | % |
Net interest margin | |
| | | | | | | 3.77 | % |
| | |
| |
| 4.10 | % |
| | |
|
|
| 4.15 | % |
Cost of funds | |
| | | | | | | 1.23 | % |
| | |
| |
| 0.99 | % |
| | |
|
|
| 0.58 | % |
49
Years Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest | Average Yield / Rate | Average Balance | Interest | Average Yield / Rate | Average Balance | Interest | Average Yield / Rate | |||||||||||||||||||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest earning assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest bearing deposits with other banks and other short-term investments | $ | 1,181,591 | $ | 2,601 | 0.22 | % | $ | 392,245 | $ | 7,438 | 1.90 | % | $ | 356,017 | $ | 6,616 | 1.86 | % | |||||||||||||||||||||||||||||||||||
Loans held for sale | 67,361 | 2,125 | 3.15 | % | 40,192 | 1,565 | 3.89 | % | 23,877 | 1,095 | 4.59 | % | |||||||||||||||||||||||||||||||||||||||||
Loans (1) (2) | 7,868,523 | 366,729 | 4.66 | % | 7,332,886 | 399,358 | 5.45 | % | 6,638,136 | 367,511 | 5.54 | % | |||||||||||||||||||||||||||||||||||||||||
Investment securities available-for-sale (2) | 929,983 | 18,440 | 1.98 | % | 796,608 | 21,037 | 2.64 | % | 692,753 | 17,907 | 2.58 | % | |||||||||||||||||||||||||||||||||||||||||
Federal funds sold | 32,781 | 91 | 0.28 | % | 23,253 | 232 | 1.00 | % | 15,618 | 157 | 1.01 | % | |||||||||||||||||||||||||||||||||||||||||
Total interest earning assets | 10,080,239 | 389,986 | 3.87 | % | 8,585,184 | 429,630 | 5.00 | % | 7,726,401 | 393,286 | 5.09 | % | |||||||||||||||||||||||||||||||||||||||||
Noninterest earning assets | 371,345 | 339,565 | 299,653 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Less: allowance for credit losses | 101,621 | 71,683 | 67,113 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total noninterest earning assets | 269,724 | 267,882 | 232,540 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total Assets | $ | 10,349,963 | $ | 8,853,066 | $ | 7,958,941 | |||||||||||||||||||||||||||||||||||||||||||||||
Liabilities and Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest bearing liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest bearing transaction | $ | 783,568 | $ | 3,190 | 0.41 | % | $ | 743,361 | $ | 6,491 | 0.87 | % | $ | 460,599 | $ | 3,348 | 0.73 | % | |||||||||||||||||||||||||||||||||||
Savings and money market | 3,925,413 | 26,271 | 0.67 | % | 2,873,054 | 50,042 | 1.74 | % | 2,691,726 | 35,534 | 1.32 | % | |||||||||||||||||||||||||||||||||||||||||
Time deposits | 1,149,185 | 24,105 | 2.10 | % | 1,404,748 | 34,493 | 2.46 | % | 1,141,795 | 21,328 | 1.87 | % | |||||||||||||||||||||||||||||||||||||||||
Total interest bearing deposits | 5,858,166 | 53,566 | 0.91 | % | 5,021,163 | 91,026 | 1.81 | % | 4,294,120 | 60,210 | 1.40 | % | |||||||||||||||||||||||||||||||||||||||||
Customer repurchase agreements and federal funds purchased | 29,345 | 293 | 1.00 | % | 30,024 | 345 | 1.15 | % | 44,333 | 225 | 0.51 | % | |||||||||||||||||||||||||||||||||||||||||
Other short-term borrowings | 280,126 | 1,870 | 0.66 | % | 135,699 | 2,298 | 1.67 | % | 192,131 | 3,942 | 2.02 | % | |||||||||||||||||||||||||||||||||||||||||
Long-term borrowings | 259,975 | 12,696 | 4.80 | % | 217,507 | 11,916 | 5.40 | % | 217,117 | 11,916 | 5.41 | % | |||||||||||||||||||||||||||||||||||||||||
Total interest bearing liabilities | 6,427,612 | 68,425 | 1.06 | % | 5,404,393 | 105,585 | 1.95 | % | 4,747,701 | 76,293 | 1.61 | % | |||||||||||||||||||||||||||||||||||||||||
Noninterest bearing liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Noninterest bearing demand | 2,643,856 | 2,210,516 | 2,150,431 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other liabilities | 74,154 | 66,106 | 38,167 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total noninterest bearing liabilities | 2,718,010 | 2,276,622 | 2,188,598 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders’ equity | 1,204,341 | 1,172,051 | 1,022,642 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 10,349,963 | $ | 8,853,066 | $ | 7,958,941 | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 321,561 | $ | 324,045 | $ | 316,993 | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest spread | 2.81 | % | 3.05 | % | 3.48 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest margin | 3.19 | % | 3.77 | % | 4.10 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Cost of funds | 0.68 | % | 1.23 | % | 0.99 | % |
Rate/Volume Analysis of Net Interest Income
assets more than offset by a decline in the net interest margin. The increase in net interest income in
| | | | | | | | | | | | | | | | | | |
| | 2019 compared with 2018 | | 2018 compared with 2017 | ||||||||||||||
| | Change | | Change | | Total | | Change | | Change | | Total | ||||||
| | Due to | | Due to | | Increase | | Due to | | Due to | | Increase | ||||||
(dollars in thousands) |
| Volume |
| Rate |
| (Decrease) |
| Volume |
| Rate |
| (Decrease) | ||||||
Interest earned on | |
| | |
| | |
| | |
| | |
| | |
| |
Loans | | $ | 38,464 | | $ | (6,617) | | $ | 31,847 | | $ | 36,096 | | $ | 24,305 | | $ | 60,401 |
Loans held for sale | |
| 748 | |
| (278) | |
| 470 | |
| (467) | |
| 162 | |
| (305) |
Investment securities | |
| 2,685 | |
| 445 | |
| 3,130 | |
| 2,975 | |
| 2,718 | |
| 5,693 |
Interest bearing bank deposits | |
| 673 | |
| 149 | |
| 822 | |
| 444 | |
| 2,914 | |
| 3,358 |
Federal funds sold | |
| 77 | |
| (2) | |
| 75 | |
| 54 | |
| 51 | |
| 105 |
Total interest income | |
| 42,647 | |
| (6,303) | |
| 36,344 | |
| 39,102 | |
| 30,150 | |
| 69,252 |
| | | | | | | | | | | | | | | | | | |
Interest paid on | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest bearing transaction | |
| 2,055 | |
| 1,088 | |
| 3,143 | |
| 377 | |
| 1,434 | |
| 1,811 |
Savings and money market | |
| 2,394 | |
| 12,114 | |
| 14,508 | |
| (303) | |
| 18,553 | |
| 18,250 |
Time deposits | |
| 4,912 | |
| 8,253 | |
| 13,165 | |
| 3,619 | |
| 9,244 | |
| 12,863 |
Customer repurchase agreements | |
| (73) | |
| 193 | |
| 120 | |
| (78) | |
| 106 | |
| 28 |
Other borrowings | |
| (1,136) | |
| (508) | |
| (1,644) | |
| 1,471 | |
| 1,723 | |
| 3,194 |
Total interest expense | |
| 8,152 | |
| 21,140 | |
| 29,292 | |
| 5,086 | |
| 31,060 | |
| 36,146 |
| | | | | | | | | | | | | | | | | | |
Net interest income | | $ | 34,495 | | $ | (27,443) | | $ | 7,052 | | $ | 34,016 | | $ | (910) | | $ | 33,106 |
2019 as compared to 2018
was a function of an increase in the volume of earning assets more than offsetting a decline in the net interest margin.
2020 compared with 2019 | 2019 compared with 2018 | ||||||||||||||||||||||||||||||||||
(dollars in thousands) | Change Due to Volume | Change Due to Rate | Total Increase (Decrease) | Change Due to Volume | Change Due to Rate | Total Increase (Decrease) | |||||||||||||||||||||||||||||
Interest earned on | |||||||||||||||||||||||||||||||||||
Loans | $ | 29,171 | $ | (61,799) | $ | (32,628) | $ | 38,464 | $ | (6,617) | $ | 31,847 | |||||||||||||||||||||||
Loans held for sale | 1,058 | (498) | 560 | 748 | (278) | 470 | |||||||||||||||||||||||||||||
Investment securities | 3,522 | (6,119) | (2,597) | 2,685 | 445 | 3,130 | |||||||||||||||||||||||||||||
Interest bearing bank deposits | 14,968 | (19,805) | (4,837) | 673 | 149 | 822 | |||||||||||||||||||||||||||||
Federal funds sold | 95 | (236) | (141) | 77 | (2) | 75 | |||||||||||||||||||||||||||||
Total interest income | 48,814 | (88,457) | (39,643) | 42,647 | (6,303) | 36,344 | |||||||||||||||||||||||||||||
Interest paid on | |||||||||||||||||||||||||||||||||||
Interest bearing transaction | 351 | (3,652) | (3,301) | 2,055 | 1,088 | 3,143 | |||||||||||||||||||||||||||||
Savings and money market | 18,329 | (42,101) | (23,772) | 2,394 | 12,114 | 14,508 | |||||||||||||||||||||||||||||
Time deposits | (6,275) | (4,113) | (10,388) | 4,912 | 8,253 | 13,165 | |||||||||||||||||||||||||||||
Customer repurchase agreements | (8) | (44) | (52) | (73) | 193 | 120 | |||||||||||||||||||||||||||||
Other borrowings | 4,772 | (4,420) | 352 | (1,136) | (508) | (1,644) | |||||||||||||||||||||||||||||
Total interest expense | 17,169 | (54,330) | (37,161) | 8,152 | 21,140 | 29,292 | |||||||||||||||||||||||||||||
Net interest income | $ | 31,645 | $ | (34,127) | $ | (2,482) | $ | 34,495 | $ | (27,443) | $ | 7,052 |
The ACL under CECL (adopted January 1, 2020) utilizes an economic forecast that is updated quarterly with the significant measure being the expected regional unemployment rate, which management estimates by using a national forecast and estimating a regional adjustment based on historical differences between the two.
ACL.
2019.
50
and circumstances surrounding each delinquent loan. The Bank’s loan policy requires that loans be placed on nonaccrual if they are ninety days past-due, unless they are well secured and in the process of collection. Additionally, Credit Administration specifically analyzes the status of development and construction projects, sales activities and utilization of interest reserves in order to carefully and prudently assess potential increased levels of risk requiring additional reserves.
waived fees due to the pandemic.
2019.
Other income totaled $7.8$1.8 million for the year ended December 31, 2019 as2020 compared to $8.0 million for the same period in 2018, a decrease of 3%.
Net investment gains amounted to $1.5 million for the year ended December 31, 2019 compared to $97 thousand2019.
2020 as compared to $7.8 million for 2019, a increase of 97%. The FHA business unit generated income of $501 thousand$3.4 million on the origination, securitization, servicing and sale of FHA Multifamily-Backed GNMA securities for the full year 20192020 compared to $357$501 thousand for the same period in 2018.
51
Servicing agreements relating to the Ginnie Mae ("GNMA") mortgage backed securities program require the Company to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. The Company will generally recover funds advanced pursuant to these arrangements under the FHA insurance and guarantee program. However, in the interim, the Company must absorb the cost of the funds it advances during the time the advance is outstanding. The Company must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and the Company would not receive any future servicing income with respect to that loan. At December 31, 2019,2020, the Company had nodid not have any funds advanced outstanding under FHA mortgage loan servicing agreements. The funds advanced were in conjunction with a single loan of $90 thousand that suffered financial hardship due to COVID-19 and was granted forbearance by the Company on November 25th, 2020 for the period from December 1, 2020 to December 31, 2021. Under the Forbearance Agreement, the borrower has the option to extend the Forbearance Period through February 28, 2021. During this time, the Company will advance principal and interest on the borrower’s behalf and will be repaid in 12 monthly installments beginning on March 1, 2021 and ending on February 1, 2022. To the extent the loan currently in forbearance or other mortgage loans underlying the Company’s servicing portfolio experience delinquencies, the Company would be required to dedicate cash resources to comply with its obligation to advance funds as well as incur additional administrative costs related to increases in collection efforts.
2019.
2019.
Data processing expenses decreased from $9.7 million for the year ended December 31, 2018 to $9.4 million for 2019, a decrease of 3%14%, primarily due to ongoing contract renegotiations.
yearly increases in license fee renewals and additional networking capacity needed related to COVID-19.
Refer to "Item 3- Legal Proceedings" for additional information on the Company’s recent proceedings.
higher assessment base in 2020 resulting from growth in total assets.
52
BALANCE SHEET ANALYSIS
2019.
21% increase.
The total risk based capital ratio was 16.20% at December 31, 2019, as compared to 16.08% at December 31, 2018. In addition, the tangible common equity ratio was 12.22% at December 31, 2019, compared to 12.11% at December 31, 2018. The ratio of common equity to total assets was 13.25% at December 31, 2019 as compared to 13.22% at December 31, 2018.
$757 thousand.
53
The following table provides information regarding the composition of the Company’s investment securities portfolio at the dates indicated. Amounts are reported at estimated fair value. The change in composition of the portfolio at December 31, 20192020 as compared to 20182019 was due principally to ALCO decisions to buy longer-term municipal investments and increase holdings of U.S. agencymortgage backed securities to better position the Company for the current interest rate environment while maintaining portfolio cash flow and liquidity. During the year ended December 31, 2019,2020, the investment portfolio balances at fair value increased as compared to balances at December 31, 2018,2019, as the Bank’s deposit growth outpaced loan growth.
| | | | | | | | | | | | | | | | |
| | | | | | | Years Ended December 31, |
| ||||||||
| | 2019 | | 2018 | | 2017 |
| |||||||||
(dollars in thousands) |
| Balance |
| Percent of Total |
| Balance |
| Percent of Total |
| Balance |
| Percent of Total |
| |||
U. S. agency securities | | $ | 179,794 | | 21.3 | % | $ | 256,345 |
| 32.7 | % | $ | 195,984 |
| 33.3 | % |
Residential mortgage backed securities | |
| 543,852 | | 64.5 | % |
| 472,231 |
| 60.3 | % |
| 317,836 |
| 54.0 | % |
Municipal bonds | |
| 73,931 | | 8.8 | % |
| 45,769 |
| 5.8 | % |
| 62,057 |
| 10.5 | % |
Corporate bonds | |
| 10,733 | | 1.3 | % |
| 9,576 |
| 1.2 | % |
| 13,173 |
| 2.2 | % |
U.S. treasury | | | 34,855 | | 4.1 | % | | — | | — | | | — | | — | |
Other equity investments | |
| 198 | | 0.0 | % |
| 218 |
| 0.0 | % |
| 218 |
| 0.0 | % |
| | $ | 843,363 | | 100 | % | $ | 784,139 |
| 100 | % | $ | 589,268 |
| 100 | % |
Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2018 | ||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Balance | Percent of Total | Balance | Percent of Total | Balance | Percent of Total | ||||||||||||||||||||||||||||||||
U. S. agency securities | $ | 181,921 | 15.8 | % | $ | 179,794 | 21.3 | % | $ | 256,345 | 32.7 | % | ||||||||||||||||||||||||||
Residential mortgage backed securities | 825,001 | 71.7 | % | 543,852 | 64.5 | % | 472,231 | 60.3 | % | |||||||||||||||||||||||||||||
Municipal bonds | 108,113 | 9.4 | % | 73,931 | 8.8 | % | 45,769 | 5.8 | % | |||||||||||||||||||||||||||||
Corporate bonds | 35,850 | 3.1 | % | 10,733 | 1.3 | % | 9,576 | 1.2 | % | |||||||||||||||||||||||||||||
U.S. treasury | — | — | % | 34,855 | 4.1 | % | — | — | ||||||||||||||||||||||||||||||
$ | 1,150,885 | $ | — | $ | 843,363 | 100 | % | $ | 784,139 | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | After One Year | | After Five Years | | | | | | | | | | |
| ||||||
| | One Year or Less | | Through Five Years | | Through Ten Years | | After Ten Years | | Total |
| |||||||||||||||
|
| | | | Weighted | | | | | Weighted | | | | | Weighted | | | | | Weighted | | | | | Weighted |
|
| | Amortized | | Average | | Amortized | | Average | | Amortized | | Average | | Amortized | | Average | | Amortized | | Average | | |||||
(dollars in thousands) |
| Cost |
| Yield |
| Cost |
| Yield |
| Cost |
| Yield |
| Cost |
| Yield |
| Cost |
| Yield | | |||||
U. S. Government agency securities | | $ | 96,332 |
| 2.16 | % | $ | 76,121 |
| 2.71 | % | $ | 7,775 |
| 2.37 | % | $ | — |
| — | | $ | 180,228 |
| 2.40 | % |
Residential mortgage backed securities | |
| 50,703 |
| 1.73 | % |
| 388,961 |
| 2.45 | % |
| 101,826 |
| 2.71 | % |
| — |
| — | |
| 541,490 |
| 2.43 | % |
Muncipal bonds | |
| 5,897 |
| 3.94 | % |
| 21,416 |
| 2.47 | % |
| 42,589 |
| 2.66 | % |
| 2,000 |
| 2.67 | % |
| 71,902 |
| 2.71 | % |
Corporate bonds | |
| 502 |
| 6.40 | % |
| 8,528 |
| 5.05 | % |
| 1,500 |
| 6.25 | % |
| — |
| — | |
| 10,530 |
| 5.29 | % |
U.S. treasury | | | 34,844 | | 1.64 | % | | — | | — | | | — | | — | | | — | | — | | | 34,844 | | 1.64 | % |
Other equity investments | |
| — |
| — | |
| — |
| — | |
| — |
| — | |
| — |
| — | |
| 198 |
| — | |
| | $ | 188,278 |
| 1.69 | % | $ | 495,026 |
| 2.45 | % | $ | 153,690 |
| 2.65 | % | $ | 2,000 |
| 2.67 | % | $ | 839,192 |
| 2.45 | % |
One Year or Less | After One Year Through Five Years | After Five Years Through Ten Years | After Ten Years | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | ||||||||||||||||||||||||||||||||||||||||||||||||||||
U. S. Government agency securities | $ | 53,916 | 0.70 | % | $ | 110,083 | 1.33 | % | $ | 17,087 | 1.26 | % | $ | — | — | $ | 181,086 | 1.14 | % | |||||||||||||||||||||||||||||||||||||||||||
Residential mortgage backed securities | 57,278 | 0.99 | % | 648,455 | 0.86 | % | 105,595 | 1.36 | % | — | — | 811,328 | 0.93 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Municipal bonds | 4,329 | 3.86 | % | 26,622 | 2.54 | % | 69,309 | 2.19 | % | 2,000 | 2.67 | % | 102,260 | 2.41 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Corporate bonds | 5,218 | 3.68 | % | 22,189 | 3.77 | % | 6,976 | 4.72 | % | — | — | 34,383 | 3.95 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
$ | 120,741 | 1.08 | % | $ | 807,349 | 0.98 | % | $ | 198,967 | 1.76 | % | $ | 2,000 | 2.67 | % | $ | 1,129,057 | 1.19 | % |
2019.
54
Loan growth over the past year has been favorable, with loans outstanding reaching $7.55$7.8 billion at December 31, 2019,2020, an increase of $554$214.5 million or 8%3% as compared to $6.99$7.5 billion at December 31, 2018. 2019.
Loan growth in 20192020 was predominantly in the income producing - commercial real estate and owner occupied – commercial real estate loan categories.categories, while construction loans have been de-emphasized. That said, the Company continues to be active as a construction lender and we expect to continue to see construction commitments funded up over time. Despite an increased level of in-market competition for business, the Bank continued to experience strong organic loan production, having originated more than $1 billion in new CRE loan commitments during 2020. This production was offset by the continued successful completion of projects and portfolio growth.subsequent paydowns. Notwithstanding increased supply of units, multi-family commercial real estate leasing in the Bank’s market area has held up well, particularly for well-located close-in projects. While as a general comment there has been some softening in the Suburban Maryland office leasing market, in certain well locatedwell-located pockets and submarkets, the sector has evidenced some positive absorption.resilience. Overall, commercial real estate values have generally held up well, with price escalation in prime pockets, but we continue to be cautious of the cap rates at which some assets are trading and we are being careful with valuations as a result. While the ultra high-end real estate market has softened, the moderately priced housing market has remained stable to increasing, with well-located, Metro accessible properties garnering a premium.
Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 1,437,433 | 19 | % | $ | 1,545,906 | 20 | % | $ | 1,553,112 | 22 | % | $ | 1,375,939 | 21 | % | $ | 1,200,728 | 21 | % | ||||||||||||||||||||||||||||||||||||||||||
PPP loans | 454,771 | 6 | % | — | — | % | — | — | % | — | — | % | — | — | % | |||||||||||||||||||||||||||||||||||||||||||||||
Income producing - commercial real estate | 3,687,000 | 47 | % | 3,702,747 | 50 | % | 3,256,900 | 46 | % | 3,047,094 | 48 | % | 2,509,517 | 44 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Owner occupied - commercial real estate | 997,694 | 13 | % | 985,409 | 13 | % | 887,814 | 13 | % | 755,444 | 12 | % | 640,870 | 12 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Real estate mortgage - residential | 76,592 | 1 | % | 104,221 | 1 | % | 106,418 | 2 | % | 104,357 | 2 | % | 152,748 | 3 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Construction - commercial and residential | 873,261 | 11 | % | 1,035,754 | 14 | % | 1,039,815 | 15 | % | 973,141 | 15 | % | 932,531 | 16 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Construction - C&I (owner occupied) | 158,905 | 2 | % | 89,490 | 1 | % | 57,797 | 1 | % | 58,691 | 1 | % | 126,038 | 2 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Home equity | 73,167 | 1 | % | 80,061 | 1 | % | 86,603 | 1 | % | 93,264 | 1 | % | 105,096 | 2 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Other consumer | 1,389 | — | % | 2,160 | — | 2,988 | — | 3,598 | — | 10,365 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total loans | 7,760,212 | 100 | % | 7,545,748 | 100 | % | 6,991,447 | 100 | % | 6,411,528 | 100 | % | 5,677,893 | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Less: Allowance for credit losses | (109,579) | (73,658) | (69,944) | (64,758) | (59,074) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loans | $ | 7,650,633 | $ | 7,472,090 | $ | 6,921,503 | $ | 6,346,770 | $ | 5,618,819 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| |||||||||||||||||||||||
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| |||||||||||||||
(dollars in thousands) |
| Amount |
| % |
| Amount |
| % |
| Amount |
| % |
| Amount |
| % |
| Amount |
| % |
| |||||
Commercial | | $ | 1,545,906 |
| 20 | % | $ | 1,553,112 |
| 22 | % | $ | 1,375,939 |
| 21 | % | $ | 1,200,728 |
| 21 | % | $ | 1,052,257 |
| 21 | % |
Income producing - commercial real estate | |
| 3,702,747 |
| 50 | % |
| 3,256,900 |
| 46 | % |
| 3,047,094 |
| 48 | % |
| 2,509,517 |
| 44 | % |
| 2,115,478 |
| 42 | % |
Owner occupied - commercial real estate | |
| 985,409 |
| 13 | % |
| 887,814 |
| 13 | % |
| 755,444 |
| 12 | % |
| 640,870 |
| 12 | % |
| 498,103 |
| 10 | % |
Real estate mortgage - residential | |
| 104,221 |
| 1 | % |
| 106,418 |
| 2 | % |
| 104,357 |
| 2 | % |
| 152,748 |
| 3 | % |
| 147,365 |
| 3 | % |
Construction - commercial and residential | |
| 1,035,754 |
| 14 | % |
| 1,039,815 |
| 15 | % |
| 973,141 |
| 15 | % |
| 932,531 |
| 16 | % |
| 985,607 |
| 20 | % |
Construction - C&I (owner occupied) | |
| 89,490 |
| 1 | % |
| 57,797 |
| 1 | % |
| 58,691 |
| 1 | % |
| 126,038 |
| 2 | % |
| 79,769 |
| 2 | % |
Home equity | |
| 80,061 |
| 1 | % |
| 86,603 |
| 1 | % |
| 93,264 |
| 1 | % |
| 105,096 |
| 2 | % |
| 112,885 |
| 2 | % |
Other consumer | |
| 2,160 |
| — | |
| 2,988 |
| — | |
| 3,598 |
| — | |
| 10,365 |
| — | |
| 6,904 |
| — | |
Total loans | |
| 7,545,748 |
| 100 | % |
| 6,991,447 |
| 100 | % |
| 6,411,528 |
| 100 | % |
| 5,677,893 |
| 100 | % |
| 4,998,368 |
| 100 | % |
Less: Allowance for credit losses | |
| (73,658) |
| | | | (69,944) | | | |
| (64,758) | |
| | | (59,074) |
|
| |
| (52,687) |
|
| |
Net loans | | $ | 7,472,090 | | | | $ | 6,921,503 | | | | $ | 6,346,770 | |
| | $ | 5,618,819 |
|
| | $ | 4,945,681 |
|
| |
55
The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development, and other land acquisitions which represent 100% or more of an institution’s total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institution’s total risk-based capital and the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital. The Company, like many community banks, has a concentration in commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years. As of December 31, 2019,2020, non-owner-occupied commercial real estate loans (including construction, land and land development loans) represent 347%321% of consolidated risk based capital; however, growth in that segment over the past 36 months at 46% doesat 18% does not exceed the 50% threshold laid out in the regulatory guidance. Construction, land and land development loans represent 118%122% of consolidated risk based capital. Management has extensive experience in commercial real estate lending, and has implemented and continues to maintain heightened risk management procedures, and strong underwriting criteria with respect to its commercial real estate portfolio. Loan monitoring practices include but are not limited to periodic stress testing analysis to evaluate changes to cash flows, owing to interest rate increases and declines in net operating income. Nevertheless, we may be required to maintain higher levels of capital as a result of our commercial real estate concentrations, which could require us to obtain additional capital, and may adversely affect shareholder returns. The Company has an extensive Capital PlanPolicy and Policy,Capital Plan, which includes pro-forma projections including stress testing within which the Board of Directors has established internal minimum targets for regulatory capital ratios that are in excess of well capitalized ratios.
Industry | Principal Balance (in 000's) | % of Loan Portfolio | |||||||||||||||
Accommodation & Food Services | $ | 768,568 | (1) | 9.9 | % | ||||||||||||
Retail Trade | $ | 98,882 | (2) | 1.3 | % |
Property Type | Principal Balance (in 000’s) | % of Loan Portfolio | |||||||||
Restaurant | $ | 44,541 | 0.6 | % | |||||||
Hotel | 35,741 | 0.5 | % | ||||||||
Retail | 377,269 | 4.9 | % |
2020.
| | | | | | | | | | | | | | | |
| | Due In | |||||||||||||
(dollars in thousands) |
| Total |
| One Year or Less |
| Over One to Five Years |
| Over Five to Ten Years |
| Over Ten Years | |||||
Commercial | | $ | 1,545,906 | | $ | 565,903 | | $ | 775,851 | | $ | 166,799 | | $ | 37,353 |
Income producing - commercial real estate | |
| 3,702,746 | |
| 1,150,512 | |
| 1,659,784 | |
| 873,267 | |
| 19,183 |
Owner occupied - commercial real estate | |
| 985,409 | |
| 45,419 | |
| 364,763 | |
| 500,431 | |
| 74,796 |
Real estate mortgage - residential | |
| 104,221 | |
| 21,035 | |
| 57,574 | |
| 12,646 | |
| 12,966 |
Construction - commercial and residential | |
| 1,035,754 | |
| 716,595 | |
| 289,957 | |
| 20,761 | |
| 8,441 |
Construction - C&I (owner occupied) | |
| 89,490 | |
| 6,750 | |
| 32,455 | |
| 43,268 | |
| 7,017 |
Home equity | |
| 80,061 | |
| 8,284 | |
| 24,137 | |
| 5,740 | |
| 41,900 |
Other consumer | |
| 2,161 | |
| 1,049 | |
| 430 | |
| — | |
| 682 |
Total loans | | $ | 7,545,748 | | $ | 2,515,547 | | $ | 3,204,951 | | $ | 1,622,912 | | $ | 202,338 |
Loans with: | |
|
| |
|
| |
|
| |
|
| |
|
|
Predetermined fixed interest rate | | $ | 3,063,702 | | $ | 409,834 | | $ | 1,582,587 | | $ | 974,877 | | $ | 96,404 |
Floating or Adjustable interest rate | |
| 4,482,046 | |
| 2,105,713 | |
| 1,622,364 | |
| 648,035 | |
| 105,934 |
Total loans | | $ | 7,545,748 | | $ | 2,515,547 | | $ | 3,204,951 | | $ | 1,622,912 | | $ | 202,338 |
Due In | ||||||||||||||||||||||||||||||||
(dollars in thousands) | Total | One Year or Less | Over One to Five Years | Over Five to Ten Years | Over Ten Years | |||||||||||||||||||||||||||
Commercial | $ | 1,437,432 | $ | 543,070 | $ | 726,409 | $ | 133,838 | $ | 34,115 | ||||||||||||||||||||||
PPP loans | 454,771 | — | 454,771 | — | — | |||||||||||||||||||||||||||
Income producing - commercial real estate | 3,687,000 | 1,014,785 | 1,942,146 | 730,069 | — | |||||||||||||||||||||||||||
Owner occupied - commercial real estate | 997,694 | 93,506 | 342,672 | 480,801 | 80,715 | |||||||||||||||||||||||||||
Real estate mortgage - residential | 76,592 | 20,618 | 39,057 | 2,795 | 14,122 | |||||||||||||||||||||||||||
Construction - commercial and residential | 873,261 | 633,584 | 173,584 | 50,014 | 16,079 | |||||||||||||||||||||||||||
Construction - C&I (owner occupied) | 158,905 | 8,508 | 44,007 | 75,346 | 31,044 | |||||||||||||||||||||||||||
Home equity | 73,167 | 6,867 | 17,031 | 2,739 | 46,530 | |||||||||||||||||||||||||||
Other consumer | 1,390 | 733 | 171 | — | 486 | |||||||||||||||||||||||||||
Total loans | $ | 7,760,212 | $ | 2,321,671 | $ | 3,739,848 | $ | 1,475,602 | $ | 223,091 | ||||||||||||||||||||||
Loans with: | ||||||||||||||||||||||||||||||||
Predetermined fixed interest rate | $ | 3,523,055 | $ | 481,868 | $ | 2,062,449 | $ | 867,641 | $ | 111,097 | ||||||||||||||||||||||
Floating or Adjustable interest rate | 4,237,157 | 1,839,803 | 1,677,399 | 607,961 | 111,994 | |||||||||||||||||||||||||||
Total loans | $ | 7,760,212 | $ | 2,321,671 | $ | 3,739,848 | $ | 1,475,602 | $ | 223,091 |
56
Allowance for Credit Losses
same factors.
Additionally, for COVID-19 impacted relationships, a Task Force comprised of senior executives has been formed to evaluate each request for deferral or modification, along with a remediation plan, before any modification to any loan is made.
57
The following table sets forth activity in the allowance for credit losses for the past five years.
| | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| |||||||||||||
(dollars in thousands) |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| |||||
Balance at beginning of year | | $ | 69,944 | | $ | 64,758 | | $ | 59,074 | | $ | 52,687 | | $ | 46,075 | |
Charge-offs: | | | | | | | | | | | | | | | | |
Commercial | |
| 4,868 | |
| 3,491 | |
| 747 | |
| 3,745 | |
| 4,693 | |
Income producing - commercial real estate | |
| 1,847 | |
| 121 | |
| 1,470 | |
| 2,341 | |
| 651 | |
Owner occupied - commercial real estate | |
| — | |
| 132 | |
| — | |
| — | |
| — | |
Real estate mortgage - residential | |
| — | |
| — | |
| — | |
| — | |
| — | |
Construction - commercial and residential | |
| 3,496 | |
| 1,160 | |
| 2,158 | |
| — | |
| 1,884 | |
Construction - C&I (owner occupied) | |
| — | |
| — | |
| — | |
| — | |
| — | |
Home equity | |
| — | |
| — | |
| 100 | |
| 217 | |
| 1,142 | |
Other consumer | |
| 8 | |
| 81 | |
| 100 | |
| 37 | |
| 228 | |
Total charge-offs | |
| 10,219 | |
| 4,985 | |
| 4,575 | |
| 6,340 | |
| 8,598 | |
| | | | | | | | | | | | | | | | |
Recoveries: | | | | | | | | | | | | | | | | |
Commercial | |
| 405 | |
| 340 | |
| 681 | |
| 220 | |
| 195 | |
Income producing - commercial real estate | |
| 26 | |
| 2 | |
| 80 | |
| 908 | |
| 26 | |
Owner occupied - commercial real estate | |
| 3 | |
| 3 | |
| 3 | |
| 3 | |
| 3 | |
Real estate mortgage - residential | |
| 3 | |
| 6 | |
| 6 | |
| 7 | |
| 7 | |
Construction - commercial and residential | |
| 354 | |
| 1,009 | |
| 492 | |
| 215 | |
| 206 | |
Construction - C&I (owner occupied) | |
| — | |
| — | |
| — | |
| — | |
| — | |
Home equity | |
| — | |
| 133 | |
| 5 | |
| 12 | |
| 25 | |
Other consumer | |
| 51 | |
| 18 | |
| 21 | |
| 31 | |
| 110 | |
Total recoveries | |
| 842 | |
| 1,511 | |
| 1,288 | |
| 1,396 | |
| 572 | |
Net charge-offs | |
| 9,377 | |
| 3,474 | |
| 3,287 | |
| 4,944 | |
| 8,026 | |
Provision for Credit Losses | |
| 13,091 | |
| 8,660 | |
| 8,971 | |
| 11,331 | |
| 14,638 | |
Balance at end of year | | $ | 73,658 | | $ | 69,944 | | $ | 64,758 | | $ | 59,074 | | $ | 52,687 | |
| | | | | | | | | | | | | | | | |
Ratio of allowance for credit losses to total loans outstanding at year end | |
| 0.98 | % |
| 1.00 | % |
| 1.01 | % |
| 1.04 | % |
| 1.05 | % |
Ratio of net charge-offs during the year to average loans outstanding during the year | |
| 0.13 | % |
| 0.05 | % |
| 0.06 | % |
| 0.09 | % |
| 0.17 | % |
58
Years Ended December 31, | ||||||||||||||||||||||||||||||||
(dollars in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||
Balance at beginning of year | $ | 73,658 | $ | 69,944 | $ | 64,758 | $ | 59,074 | $ | 52,687 | ||||||||||||||||||||||
Impact of adopting CECL | 10,614 | — | — | — | — | |||||||||||||||||||||||||||
Charge-offs: | ||||||||||||||||||||||||||||||||
Commercial | 12,082 | 4,868 | 3,491 | 747 | 3,745 | |||||||||||||||||||||||||||
Income producing - commercial real estate | 4,300 | 1,847 | 121 | 1,470 | 2,341 | |||||||||||||||||||||||||||
Owner occupied - commercial real estate | 20 | — | 132 | — | — | |||||||||||||||||||||||||||
Real estate mortgage - residential | 815 | — | — | — | — | |||||||||||||||||||||||||||
Construction - commercial and residential | 2,947 | 3,496 | 1,160 | 2,158 | — | |||||||||||||||||||||||||||
Home equity | 92 | — | — | 100 | 217 | |||||||||||||||||||||||||||
Other consumer | 3 | 8 | 81 | 100 | 37 | |||||||||||||||||||||||||||
Total charge-offs | 20,259 | 10,219 | 4,985 | 4,575 | 6,340 | |||||||||||||||||||||||||||
Recoveries: | ||||||||||||||||||||||||||||||||
Commercial | 130 | 405 | 340 | 681 | 220 | |||||||||||||||||||||||||||
Income producing - commercial real estate | — | 26 | 2 | 80 | 908 | |||||||||||||||||||||||||||
Owner occupied - commercial real estate | — | 3 | 3 | 3 | 3 | |||||||||||||||||||||||||||
Real estate mortgage - residential | — | 3 | 6 | 6 | 7 | |||||||||||||||||||||||||||
Construction - commercial and residential | 4 | 354 | 1,009 | 492 | 215 | |||||||||||||||||||||||||||
Home equity | — | — | 133 | 5 | 12 | |||||||||||||||||||||||||||
Other consumer | 28 | 51 | 18 | 21 | 31 | |||||||||||||||||||||||||||
Total recoveries | 162 | 842 | 1,511 | 1,288 | 1,396 | |||||||||||||||||||||||||||
Net charge-offs | 20,097 | 9,377 | 3,474 | 3,287 | 4,944 | |||||||||||||||||||||||||||
Provision for Credit Losses- Loans | $ | 45,404 | 13,091 | 8,660 | 8,971 | 11,331 | ||||||||||||||||||||||||||
Balance at end of year | $ | 109,579 | $ | 73,658 | $ | 69,944 | $ | 64,758 | $ | 59,074 | ||||||||||||||||||||||
Ratio of allowance for credit losses to total loans outstanding at year end | 1.41 | % | 0.98 | % | 1.00 | % | 1.01 | % | 1.04 | % | ||||||||||||||||||||||
Ratio of net charge-offs during the year to average loans outstanding during the year | 0.26 | % | 0.13 | % | 0.05 | % | 0.06 | % | 0.09 | % |
The following table presents the allocation of the allowance for credit lossesACL by loan category and the percent of loans each category bears to total loans. The allocation of the allowance at December 31, 20192020 includes specific reserves of $15.4 million against individually assessed loans of $71.2 million as compared to specific reserves of $10.0 million against impaired loans of $54.9 million as compared to specific reserves of $11.4 million against impaired loans of $40.3 million at December 31, 2019. The allocation of the allowance to each category is not necessarily indicative of future losses or charge-offs and does not restrict the usage of the allowance for any specific loan or category.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Years Ended December 31, |
| |||||||||||||||||||||||
| | 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | | |||||||||||||||
(dollars in thousands) | | Amount | | % (1) | | Amount | | % (1) | | Amount | | % (1) | | Amount | | % (1) | | Amount | | % (1) | | |||||
Commercial | | $ | 18,832 |
| 20 | % | $ | 18,832 |
| 22 | % | $ | 13,102 |
| 21 | % | $ | 14,700 |
| 21 | % | $ | 11,563 |
| 21 | % |
Income producing - commercial real estate | |
| 29,265 |
| 50 | % |
| 29,266 |
| 46 | % |
| 25,376 |
| 48 | % |
| 21,105 |
| 44 | % |
| 14,122 |
| 42 | % |
Owner occupied - commercial real estate | |
| 5,838 |
| 13 | % |
| 5,838 |
| 13 | % |
| 5,934 |
| 12 | % |
| 4,010 |
| 12 | % |
| 3,279 |
| 10 | % |
Real estate mortgage - residential | |
| 1,557 |
| 1 | % |
| 1,557 |
| 2 | % |
| 944 |
| 2 | % |
| 1,284 |
| 3 | % |
| 1,268 |
| 3 | % |
Construction - commercial and residential | |
| 16,372 |
| 14 | % |
| 16,372 |
| 15 | % |
| 17,805 |
| 15 | % |
| 15,002 |
| 16 | % |
| 20,133 |
| 20 | % |
Construction - C&I (owner occupied) | |
| 1,113 |
| 1 | % |
| 1,113 |
| 1 | % |
| 687 |
| 1 | % |
| 1,485 |
| 2 | % |
| 955 |
| 2 | % |
Home equity | |
| 656 |
| 1 | % |
| 656 |
| 1 | % |
| 770 |
| 1 | % |
| 1,328 |
| 2 | % |
| 1,292 |
| 2 | % |
Other consumer | |
| 25 |
| — | |
| 25 |
| — | |
| 140 |
| — | |
| 160 |
| — | |
| 75 |
| — | |
Total allowance for credit losses | | $ | 73,658 |
| 100 | % | $ | 73,659 |
| 100 | % | $ | 64,758 |
| 100 | % | $ | 59,074 |
| 100 | % | $ | 52,687 |
| 100 | % |
Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Amount | % (1) | Amount | % (1) | Amount | % (1) | Amount | % (1) | Amount | % (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 26,569 | 24 | % | $ | 18,832 | 20 | % | $ | 15,857 | 22 | % | $ | 13,102 | 21 | % | $ | 14,700 | 21 | % | ||||||||||||||||||||||||||||||||||||||||||
Income producing - commercial real estate | 55,385 | 51 | % | 29,265 | 50 | % | 28,034 | 46 | % | 25,376 | 48 | % | 21,105 | 44 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Owner occupied - commercial real estate | 14,000 | 13 | % | 5,838 | 13 | % | 6,242 | 13 | % | 5,934 | 12 | % | 4,010 | 12 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Real estate mortgage - residential | 1,020 | 1 | % | 1,557 | 1 | % | 965 | 2 | % | 944 | 2 | % | 1,284 | 3 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Construction - commercial and residential | 9,092 | 8 | % | 16,372 | 14 | % | 17,484 | 15 | % | 17,805 | 15 | % | 15,002 | 16 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Construction - C&I (owner occupied) | 2,437 | 2 | % | 1,113 | 1 | % | 691 | 1 | % | 687 | 1 | % | 1,485 | 2 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Home equity | 1,039 | 1 | % | 656 | 1 | % | 599 | 1 | % | 770 | 1 | % | 1,328 | 2 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Other consumer | 37 | — | % | 25 | — | 72 | — | 140 | — | 160 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total allowance for credit losses | $ | 109,579 | 100 | % | $ | 73,658 | 100 | % | $ | 69,944 | 100 | % | $ | 64,758 | 100 | % | $ | 59,074 | 100 | % |
Represents the percent of loans in each category to total loans.
Included
59
which suggests a temporary interest only period on an amortizing loan; (2) there may be delays in absorption on a real estate project which reasonably suggests extension of the loan maturity at market terms; or (3) there may be maturing loans to borrowers with demonstrated repayment ability who are not in a position at the time of maturity to obtain alternate long-term financing.
added to our watch list to raise visibility within the loan portfolio. Additionally, none of the deferrals are reflected in the Company’s asset quality measures (i.e. non-performing loans) due to the provision of the CARES Act that permits U.S. financial institutions to temporarily suspend the GAAP requirements to treat such short-term loan modifications as TDRs. Similar provisions have also been confirmed by interagency guidance issued by the federal banking agencies and confirmed with staff members of the Financial Accounting Standards Board. Other loan portfolio areas of concern and additional COVID-19 loan related matters are discussed below.
Industry/Collateral Type | Number of Notes | Total Outstanding (in millions) | Deferred Note Count | Total Deferred Outstanding (in millions) | Percentage Outstanding Deferred | Weighted Avg LTV of RE Collateral | Average Loan Size (in millions) | |||||||||||||||||||||||||||||||||||||
Hotels | 43 | $ | 529 | — | $ | — | — | % | N/A | N/A | ||||||||||||||||||||||||||||||||||
Transportation & Warehousing | 60 | 171 | 29 | 38 | 22 | % | 70 | % | $ | 1.3 | ||||||||||||||||||||||||||||||||||
Restaurants | 393 | 238 | 2 | 5 | 2 | % | 75 | % | 2.5 | |||||||||||||||||||||||||||||||||||
Retail | 139 | 276 | 1 | 4 | 1 | % | 75 | % | 4 | |||||||||||||||||||||||||||||||||||
Other Real Estate | 911 | 3,688 | 2 | 6 | >0.5% | 44 | % | 3 | ||||||||||||||||||||||||||||||||||||
Healthcare | 197 | 274 | 1 | 19 | 7 | % | 87 | % | 19 | |||||||||||||||||||||||||||||||||||
Art/Entertainment/Recreation | 66 | 139 | 0 | — | — | % | N/A | N/A | ||||||||||||||||||||||||||||||||||||
Other | 3,138 | 2,445 | 1 | 0.4 | >0.5% | 68 | % | 0.5 | ||||||||||||||||||||||||||||||||||||
Total | 4,947 | $ | 7,760 | 36 | $ | 72.4 | 1 | % | N/A | N/A |
| | | | | | | | | | | | | | | | |
(dollars in thousands) |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| |||||
Nonaccrual Loans: | | | | | | | | | | | | | | | | |
Commercial | | $ | 14,928 | | $ | 7,115 | | $ | 3,493 | | $ | 2,521 | | $ | 4,940 | |
Income producing - commercial real estate | |
| 9,711 | |
| 1,766 | |
| 832 | |
| 10,508 | |
| 5,961 | |
Owner occupied - commercial real estate | |
| 6,463 | |
| 2,368 | |
| 5,501 | |
| 2,093 | |
| 1,268 | |
Real estate mortgage - residential | |
| 5,631 | |
| 1,510 | |
| 775 | |
| 555 | |
| 329 | |
Construction - commercial and residential | |
| 11,509 | |
| 3,031 | |
| 2,052 | |
| 2,072 | |
| 557 | |
Construction - C&I (owner occupied) | |
| — | |
| — | |
| — | |
| — | |
| — | |
Home equity | |
| 487 | |
| 487 | |
| 494 | |
| — | |
| 161 | |
Other consumer | |
| — | |
| — | |
| 91 | |
| 126 | |
| 23 | |
Accrual loans-past due 90 days | |
| — | |
| — | |
| — | |
| — | |
| — | |
Total nonperforming loans (1)(2) | |
| 48,729 | |
| 16,277 | |
| 13,238 | |
| 17,875 | |
| 13,239 | |
Other real estate owned | |
| 1,487 | |
| 1,394 | |
| 1,394 | |
| 2,694 | |
| 5,852 | |
Total nonperforming assets | | $ | 50,216 | | $ | 17,671 | | $ | 14,632 | | $ | 20,569 | | $ | 19,091 | |
| | | | | | | | | | | | | | | | |
Coverage ratio, allowance for credit losses to total nonperforming loans | |
| 151.16 | % |
| 429.72 | % |
| 489.20 | % |
| 330.49 | % |
| 397.95 | % |
Ratio of nonperforming loans to total loans | |
| 0.65 | % |
| 0.23 | % |
| 0.21 | % |
| 0.31 | % |
| 0.26 | % |
Ratio of nonperforming assets to total assets | |
| 0.56 | % |
| 0.21 | % |
| 0.20 | % |
| 0.30 | % |
| 0.31 | % |
60
(dollars in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||
Nonaccrual Loans: | ||||||||||||||||||||||||||||||||
Commercial | $ | 15,352 | $ | 14,928 | $ | 7,115 | $ | 3,493 | $ | 2,521 | ||||||||||||||||||||||
Income producing - commercial real estate | 18,879 | 9,711 | 1,766 | 832 | 10,508 | |||||||||||||||||||||||||||
Owner occupied - commercial real estate | 23,158 | 6,463 | 2,368 | 5,501 | 2,093 | |||||||||||||||||||||||||||
Real estate mortgage - residential | 2,932 | 5,631 | 1,510 | 775 | 555 | |||||||||||||||||||||||||||
Construction - commercial and residential | 206 | 11,509 | 3,031 | 2,052 | 2,072 | |||||||||||||||||||||||||||
Construction - C&I (owner occupied) | — | — | — | — | — | |||||||||||||||||||||||||||
Home equity | 416 | 487 | 487 | 494 | — | |||||||||||||||||||||||||||
Other consumer | — | — | — | 91 | 126 | |||||||||||||||||||||||||||
Accrual loans-past due 90 days | — | — | — | — | — | |||||||||||||||||||||||||||
Total nonperforming loans (1)(2) | 60,943 | 48,729 | 16,277 | 13,238 | 17,875 | |||||||||||||||||||||||||||
Other real estate owned | 4,987 | 1,487 | 1,394 | 1,394 | 2,694 | |||||||||||||||||||||||||||
Total nonperforming assets | $ | 65,930 | $ | 50,216 | $ | 17,671 | $ | 14,632 | $ | 20,569 | ||||||||||||||||||||||
Coverage ratio, allowance for credit losses to total nonperforming loans | 179.80 | % | 151.16 | % | 429.72 | % | 489.20 | % | 330.49 | % | ||||||||||||||||||||||
Ratio of nonperforming loans to total loans | 0.79 | % | 0.65 | % | 0.23 | % | 0.21 | % | 0.31 | % | ||||||||||||||||||||||
Ratio of nonperforming assets to total assets | 0.59 | % | 0.56 | % | 0.21 | % | 0.20 | % | 0.30 | % |
Significant variation in the amount of nonperforming loans may occur from period to period because the amount of nonperforming loans depends largely on the condition of a relatively small number of individual credits and borrowers relative to the total loan portfolio.
Time deposits $250,000 or more | ||||||||||||||
(dollars in thousands) | 2020 | 2019 | ||||||||||||
Three months or less | $ | 201,312 | $ | 63,099 | ||||||||||
More than three months through twelve months | 325,329 | 197,141 | ||||||||||||
Over twelve months | 451,119 | 90,361 | ||||||||||||
Total | $ | 977,760 | $ | 350,601 |
Other Earning Assets
Residential mortgage loans held for sale amounted to $56.7 million at December 31, 2019 compared to $19.3 million at December 31, 2018. The Company’s general practice is to originate and sell such loans only on a “servicing released” basis in order to enhance noninterest income. See the “Business” section for a description of the Bank’s residential mortgage lending and sales activities.
Intangible Assets
The Company recognizes a servicing asset for the computed value of servicing fees on the sales of multifamily FHA loans, the guaranteed portion of SBA loans, and other loans sold with retained servicing which is in excess of the normal servicing fees. Assumptions related to loan term and amortization are made to arrive at the initial recorded value, which is included in intangible assets, net, on the Consolidated Balance Sheet.
In connection with the acquisitions of Fidelity in 2008 and Virginia Heritage in 2014, the Company allocated a portion of the purchase price to core deposit intangibles, based upon an independent evaluation, and which is included in intangible assets, on the Consolidated Balance Sheets. Refer to Note 7 to the Consolidated Financial Statements for information on the initial and current carrying values as well as additions and amortization. The core deposit intangible is being amortized over its remaining economic life as a component of other noninterest expense.
In 2008, the Company recorded an unidentified intangible asset (goodwill) incident to the acquisition of Fidelity of $2.2 million. In 2014, the Company recorded an initial amount of unidentified intangible (goodwill) incident to the acquisition of Virginia Heritage
61
of approximately $102 million. The Company’s testing of potential goodwill impairment (which is performed annually), has resulted in no impairment being recorded.
Deposits and Other Borrowings
The principal sources of funds for the Bank are core deposits, consisting of demand deposits, money market accounts, NOW accounts, and savings accounts. Additionally, the Bank obtains certificates of deposits from the Washington, D.C. metropolitan area. The deposit base includes transaction accounts, time and savings accounts and accounts which customers use for cash management and which provide the Bank with a source of fee income and cross-marketing opportunities, as well as an attractive source of lower cost funds. To meet funding needs during periods of high loan demand and seasonal variations in core deposits, the Bank utilizes alternative funding sources such as secured borrowings from the FHLB, federal funds purchased lines of credit from correspondent banks and brokered deposits from regional and national brokerage firms and Promontory.
For the year ended December 31, 2019, total deposits increased by $250.1 million or 4% compared to the same period in 2018. Noninterest bearing deposits decreased $39.9 million or 2% to $2.06 billion at December 31, 2019 as compared to $2.10 billion at December 31, 2018, while interest bearing deposits increased by $290.0 million, or 6%. Within interest bearing deposits, money market and savings accounts collectively amounted to $3.01$3.0 billion at December 31, 2019, or 42% of total deposits, as compared to $2.95 billion, or 42% of total deposits, at December 31, 2018, an increase of $63.6 million, or 2%.
Average total deposits for the year ended December 31, 2019 were $7.23 billion, as compared to $6.44 billion for the same period in 2018, a 12% increase.
The following table sets forth the maturities of time deposits with balances of $250 thousand or more, which represent 5% and 6% of total deposits as of December 31, 2019 and 2018, respectively. See Note 11 to the Consolidated Financial Statements for additional information regarding the maturities of time deposits and the Average Balances
o
f Contents | | | | | | |
Time deposits $250,000 or more | | | ||||
(dollars in thousands) |
| 2019 |
| 2018 | ||
Three months or less | | $ | 63,099 | | $ | 51,214 |
More than three months through twelve months | |
| 197,141 | |
| 286,300 |
Over twelve months | |
| 90,361 | |
| 108,273 |
Total | | $ | 350,601 | | $ | 445,787 |
From time to time, when appropriate in order to fund strong loan demand, the Bank accepts brokered time deposits, generally in denominations of less than $250 thousand, from a regional brokerage firm, and other national brokerage networks, including Promontory. Additionally, the Bank participates in the CDARS and the ICS products, which provides for reciprocal (“two-way”) transactions among banks facilitated by Promontory for the purpose of maximizing FDIC insurance. The total of reciprocal deposits at December 31, 2019 was $502.9 million (7% of total deposits) as compared to $391.7 million at December 31, 2018 (6% of total deposits). These sources are believed by the Company to represent a reliable and cost efficient alternative funding source for the Bank. The Bank also is able to obtain one way CDARS deposits and participates in Promontory’s Insured Network Deposit, (“IND”). The Bank had $533.1 million and $544.5 million of “IND” brokered deposits as of December 31, 2019 and 2018, respectively. However, to the extent that the condition or reputation of the Company or Bank deteriorates, or to the extent that there are significant changes in market interest rates which the Company and Bank do not elect to match, we may experience an outflow of brokered deposits. In that event we would be required to obtain alternate sources for funding.
62
At December 31, 2019, the Company had $2.06 billion in noninterest bearing demand deposits, representing 29% of total deposits. This compared to $2.10 billion of noninterest bearing demand deposits at December 31, 2018 or 30% of total deposits. The Bank also offers business NOW accounts and business savings accounts to accommodate those customers who may have excess short term cash to deploy in interest earning assets.
As an enhancement to the basic noninterest bearing demand deposit account, the Company offers a sweep account, or “customer repurchase agreement,” allowing qualifying businesses to earn interest on short-term excess funds, which are not suited for either a certificate of deposit or a money market account. The balances in these accounts were $31.0 million at December 31, 2019 compared to $30.4 million at December 31, 2018. Customer repurchase agreements are not deposits and are not insured by the FDIC, but are collateralized by U.S. agency securities and or U.S. agency backed mortgage backed securities. These accounts are particularly suitable to businesses with significant fluctuation in the levels of cash flows. Attorney and title company escrow accounts are examples of accounts which can benefit from this product, as are customers who may require collateral for deposits in excess of FDIC insurance limits but do not qualify for other pledging arrangements. This program requires the Company to maintain a sufficient investment securities level to accommodate the fluctuations in balances which may occur in these accounts.
The Company had no outstanding balances under its federal funds lines of credit provided by correspondent banks (which are unsecured) at December 31, 2019 and 2018. At December 31, 2019, the Company had $250.0$350.0 million of FHLB advances borrowed as part of the overall asset liability strategy and to support loan growth. The Company did not have FHLB advances outstanding as of December 31, 2018. Outstanding FHLB advances are secured by collateral consisting of a blanket lien on qualifying loans in the Bank’s commercial mortgage, residential mortgage and home equity loan portfolios.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2018 AND 2017
For the year ended December 31, 2018, the Company’s net income was $152.3 million, a 52% increase as compared to the $100.2 million for the year ended December 31, 2017. Net income per basic and diluted common share for the year ended December 31, 2018 was $4.44 and $4.42, respectively as compared to $2.94 per basic common share and $2.92 per diluted common share for 2017, an increase of 51% per basic and diluted common share.
For the year ended December 31, 2018, the Company reported a return on average assets, or ROAA, of 1.91% as compared to 1.41% for the year ended December 31, 2017. The return on average common equity, or ROACE, for the year ended December 31, 2018 was 14.89%, as compared to 11.06% for the year ended December 31, 2017. The return on average tangible common equity for the year ended December 31, 2018 was 16.63%, as compared to 12.54% for the year ended December 31, 2017.
The Company’s earnings are largely dependent on net interest income, the difference between interest income and interest expense, which represented 93% and 91% of total revenue for the full year of 2018 and 2017, respectively.
The net interest margin, which measures the difference between interest income and interest expense (i.e., net interest income) as a percentage of average earning assets, decreased 5 basis points from 4.15% for the year ended December 31, 2017 to 4.10% for the year ended December 31, 2018. Average earning asset yields increased by 36 basis points (4.73% to 5.09%) for the year ended December 31, 2018 compared to the same period in 2017, while the cost of interest bearing liabilities increased by 67 basis points (to 1.61% from 0.94%). For 2018, in spite of competitive factors, the Company has been able to increase its loan portfolio yields relative to 2017 levels (5.54% as compared to 5.17%) due to disciplined loan pricing practices.
For the year ended December 31, 2018, the net interest spread decreased by 31 basis points (to 3.48% from 3.79%) as compared to 2017, due primarily to an increase in the average cost of interest bearing liabilities. The cost of interest bearing liabilities increased in 2018 largely as a result of interest rate increases by the FOMC and increased competition for deposits within our market area. Overall, the Company believes its deposit mix and cost of funds remain favorable. The benefit of noninterest sources funding earning assets increased by 26 basis points to 62 basis points for the year ended December 31, 2018 as compared to 36 basis points for the year ended December 31, 2017 as a result of a favorable mix of noninterest bearing deposits. The percentage of average noninterest deposits relative to average total deposits increased to 33% for the full year 2018 from 32% for the same period in 2017.
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The combination of a 31 basis point decrease in the net interest spread and a 26 basis point increase in the value of noninterest sources resulted in the 5 basis point decrease in the net interest margin for the year ended December 31, 2018 as compared to the same period in 2017.
The provision for credit losses was $8.7 million for the year ended December 31, 2018 as compared to $9.0 million for the year ended December 31, 2017. Net charge-offs of $3.5 million during 2018 represented 0.05% of average loans, excluding loans held for sale, as compared to $3.3 million or 0.06% of average loans, excluding loans held for sale, in 2017.
Total noninterest income for the year ended December 31, 2018 decreased to $22.6 million from $29.4 million for the year ended December 31, 2017, a 23% decrease.
The efficiency ratio, which measures the ratio of noninterest expense to total revenue, remained favorable at 37.31% for the year ended December 31, 2018 as compared to 37.84% for the same period in 2017. Total noninterest expenses totaled $126.7 million for the year ended December 31, 2018, as compared to $118.6 million for the year ended December 31, 2017, a 7% increase. As a percentage of average assets, total noninterest expense was 1.59% for the year of 2018 as compared to 1.67% for the same period in 2017.
The ratio of common equity to total assets increased from 12.71% at December 31, 2017 to 13.22% at December 31, 2018 due to growth from earnings.
Net interest income in 2018 was $317.0 million as compared to $283.9 million in 2017. For the year ended December 31, 2018, net interest income increased 12% over the same period for 2017. Average loans increased $698.2 million (12%) and average deposits increased by $656.9 million (11%). The net interest margin was 4.10% for the year ended December 31, 2018, as compared to 4.15% for the same period in 2017. The Company has been able to improve its loan yields in 2018 as compared to 2017 levels due to disciplined loan pricing practices, and has managed its funding costs while maintaining a favorable deposit mix; much of which has occurred from sales efforts to increase and deepen client relationships.
The allowance for credit losses increased $5.2 million at December 31, 2018 as compared to December 31, 2017, reflecting $8.7 million in provision for credit losses and $3.5 million in net charge-offs during 2018. The provision for credit losses was $8.7 million for the year ended December 31, 2018 as compared to $9.0 million for the year ended December 31, 2017. The lower provisioning during 2018, as compared to 2017, is due to lower loan growth ($579.9 million as compared to $733.6 million) due to higher loan payoffs. Net charge-offs of $3.5 million during 2018 represented 0.05% of average loans, excluding loans held for sale, as compared to $3.3 million or 0.06% of average loans, excluding loans held for sale, in 2017. Net charge-offs during 2018 were attributable primarily to commercial loans ($3.2 million).
At December 31, 2018 the allowance for credit losses represented 1.00% of loans outstanding, as compared to 1.01% at December 31, 2017. The allowance for credit losses represented 430% of nonperforming loans at December 31, 2018, as compared to 489% at December 31, 2017.
Total noninterest income for the year ended December 31, 2018 was $22.6 million as compared to $29.4 million for the year ended December 31, 2017, a 23% decrease. This decrease was primarily due to $2.1 million lower revenue on the origination, securitization, servicing, and sale of FHA Multifamily-Backed GNMA securities, a $1.2 million nonrecurring adjustment to a tax credit investment recorded in the fourth quarter of 2017, a $354 thousand prepayment penalty associated with a single credit that was recorded during the fourth quarter of 2017, $269 thousand of premium and servicing income recorded during 2017 resulting from the portfolio sale of $44.3 million in residential mortgages and HELOC’s out of the loan portfolio, $3.3 million lower gains on sale of loans, and $445 thousand lower gain on sale of investment securities. The FHA business unit generated income of $357 thousand on the origination, securitization, servicing and sale of FHA Multifamily-Backed GNMA securities for the full year 2018 compared to $2.5 million for the same period in 2017. The residential mortgage unit had $5.4 million of gains on the sale of loans for the full year of 2018 as compared to $7.8 million for the same period in 2017 resulting from fewer loan originations and subsequent loan sales.
Total noninterest expenses totaled $126.7 million for the year ended December 31, 2018, as compared to $118.6 million for the year ended December 31, 2017, a 7% increase. Salaries and employee benefits were $67.7 million for the year ended December 31, 2018, as compared to $67.1 million for the same period in 2017, an increase of less than 1%. Cost increases for salaries and benefits were due to new hires and merit increases, higher stock-based compensation expense, and higher health insurance costs partially offset by lower incentive compensation accruals. At December 31, 2018, the Company’s full time equivalent staff numbered 470, as compared to 466 at December 31, 2017.
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Premises and equipment expenses amounted to $15.7 million for the year ended December 31, 2018 as compared to $15.6 million for the same period in 2017, an increase of less than 1%. For the year ended December 31, 2018, the Company recognized $501 thousand of sublease revenue as compared to $455 thousand for the same period in 2017. The sublease revenue is accounted for as a reduction to premises and equipment expenses.
Marketing and advertising increased from $4.1 million to $4.6 million, an increase of 12%, due primarily to increase digital and print advertising spend. Data processing increased from $8.2 million for the year ended December 31, 2017 to $9.7 million for 2018, an increase of 18%, and due primarily to the costs of software and infrastructure investments.
Legal, accounting and professional fees increased from $5.1 million to $9.7 million, an increase of 93% due primarily to due diligence costs from independent consultants associated with the internet event, related to the short seller claims, late in 2017 as well as costs to enhance risk management systems, including corporate governance as the Company approaches $10 billion in assets.
FDIC insurance increased $958 thousand to $3.5 million for the year ended December 31, 2018, an increase of 38% compared to 2017, primarily due to higher assessment rates and growth in total assets.
Other expenses decreased to $15.8 million for the year ended December 31, 2018 from $15.9 million for the same period in 2017, a decrease of less than 1%. The major components of cost in this category include broker fees, Virginia franchise tax, core deposit intangible amortization, insurance expenses, and director compensation. Cost control remains a significant operating objective of the Company.
The Company recorded income tax expense of $51.9 million in 2018 compared to $85.5 million in 2017 ($70.9 million on an operating basis), resulting in an effective tax rate of 25.4% and 46.0% (38.2% on an operating basis), respectively. The lower effective tax rate for 2018 was due to a $14.6 million deferred tax asset adjustment charged through tax expense during the fourth quarter of 2017 as a result of the 2017 Tax Act, and tax credits taken in the fourth quarter of 2018 resulting from new tax credit equity investments. While the Company’s earnings beginning in 2018 benefitted from the lower corporate federal income tax statutory rates (from 35% to 21%) resulting from the 2017 Tax Act, companies were required to revalue their deferred tax positions as of December 31, 2017 based upon the reduced federal income tax rates. This adjustment increased income tax expense for the year ended December 31, 2017 by $14.6 million ($0.43 per basic and $0.42 per diluted share). As a result of reduced income tax rates, the Company incurred substantially reduced income tax expense in 2018.
Total assets at December 31, 2018 were $8.39 billion, a 12% increase as compared to $7.48 billion at December 31, 2017. Total loans (excluding loans held for sale) were $6.99 billion at December 31, 2018, a 9% increase as compared to $6.41 billion at December 31, 2017. Loans held for sale amounted to $19.3 million at December 31, 2018 as compared to $25.1 million at December 31, 2017, a 23% decrease. The investment portfolio totaled $784.1 million at December 31, 2018, a 33% increase from $589.3 million at December 31, 2017.
Total borrowed funds (excluding customer repurchase agreements) were $217.3 million at December 31, 2018 and $541.9 million at December 31, 2017, a 60% decrease due to the $325.0 million in FHLB advances outstanding as of December 31, 2017 being paid off during 2018.
Total shareholders’ equity at December 31, 2018 increased 17%, to $1.11 billion, from $950.4 million at December 31, 2017. The increase in shareholders’ equity from December 31, 2017 was primarily due to increased retained earnings. Growth in retained earnings has enhanced the Company’s capital position well in excess of regulatory requirements for well capitalized status. The total risk based capital ratio was 16.08% at December 31, 2018, as compared to 15.02% at December 31, 2017. In addition, the tangible common equity ratio was 12.11% at December 31, 2018, compared to 11.44% at December 31, 2017. The ratio of common equity to total assets was 13.22% at December 31, 2018 as compared to 12.71% at December 31, 2017.
Federal funds sold amounted to $11.9 million at December 31, 2018 as compared to $15.8 million at December 31, 2017. These funds represent excess daily liquidity which is invested on an unsecured basis with well capitalized banks, in amounts generally limited both in the aggregate and to any one bank.
Interest bearing deposits with banks and other short-term investments amounted to $303.2 million at December 31, 2018 as compared to $167.3 million at December 31, 2017. These short term investments represent liquid funds held at the Federal Reserve to meet future loan demand, to fund future increases in investment securities and to meet other general liquidity needs of the Company. The Bank also holds a time deposit amounting to $1.6 million.
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Loan growth over the past year has been favorable, with loans outstanding reaching $6.99 billion at December 31, 2018, an increase of $580 million or 9% as compared to $6.41 billion at December 31, 2017. Loan growth over the last twelve months was due in part to the Bank’s enhanced marketing efforts and continued focus on our Relationships FIRST strategy.
Residential mortgage loans held for sale amounted to $19.3 million at December 31, 2018 compared to $25.1 million at December 31, 2017.
BOLI is utilized by the Company in accordance with income tax regulations as part of the Company’s financing of its benefit programs. At December 31, 2018, this asset amounted to $73.4 million as compared to $60.9 million at December 31, 2017, which reflected the purchase of $10.0 million in additional policies during 2018 and an increase in cash surrender values.
For the year ended December 31, 2018, total deposits increased by $1.12 billion or 19% compared to the same period in 2017. Noninterest bearing deposits increased $121.3 million or 6% to $2.10 billion at December 31, 2018 as compared to $1.98 billion at December 31, 2017, while interest bearing deposits increased by $999.0 million, or 26%. Within interest bearing deposits, money market and savings accounts collectively amounted to $2.95 billion at December 31, 2018, or 42% of total deposits, as compared to $2.62 billion, or 45% of total deposits, at December 31, 2017, an increase of $328.4 million, or 13%.
At December 31, 2018, total deposits included $1.36 billion of brokered deposits (excluding the CDARS and ICS two-way), which represented 19% of total deposits. At December 31, 2017, total brokered deposits (excluding the CDARS and ICS two-way) were $935.9 million, or 16% of total deposits.
At December 31, 2018, the Company had $2.10 billion in noninterest bearing demand deposits, representing 30% of total deposits. This compared to $1.98 billion of noninterest bearing demand deposits at December 31, 2017 or 34% of total deposits.
The Company had no outstanding balances under its federal funds lines of credit provided by correspondent banks (which are unsecured) at December 31, 2018 and 2017. The Company did not have FHLB advances outstanding as of December 31, 2018. At December 31, 2017 the Company had $325.0 million of FHLB advances borrowed as part of the overall asset liability strategy and to support loan growth. Outstanding FHLB advances are secured by collateral consisting of a blanket lien on qualifying loans in the Bank’s commercial mortgage, residential mortgage and home equity loan portfolios.
Long-term borrowings outstanding at December 31, 2018 and December 31, 2017 include the Company’s August 5, 2014 issuance of $70.0 million of subordinated notes, due September 1, 2024 and the Company’s July 26, 2016 issuance of $150.0 million of subordinated notes, due August 1, 2026.
CONTRACTUAL OBLIGATIONS
| | | | | | | | | | | | | | | |
| | Within One | | One to | | Three to | | Over Five | | | | ||||
(dollars in thousands) |
| Year |
| Three Years |
| Five Years |
| Years |
| Total | |||||
Deposits without a stated maturity (1) | | $ | 5,941,352 | | $ | — | | $ | — | | $ | — | | $ | 5,941,352 |
Time deposits (1) | |
| 798,380 | |
| 375,879 | |
| 108,780 | |
| — | |
| 1,283,039 |
Borrowed funds (2) | |
| 280,980 | |
| — | |
| 70,000 | |
| 150,000 | |
| 500,980 |
Operating lease obligations | |
| 8,468 | |
| 12,765 | |
| 7,674 | |
| 3,560 | |
| 32,467 |
Outside data processing (3) | |
| 5,037 | |
| 9,814 | |
| 5,261 | |
| — | |
| 20,112 |
George Mason sponsorship (4) | |
| 663 | |
| 1,350 | |
| 1,350 | |
| 7,463 | |
| 10,826 |
D.C. United (5) | |
| 796 | |
| 1,663 | |
| — | |
| — | |
| 2,459 |
LIHTC investments (6) | |
| 3,690 | |
| 4,426 | |
| 2,347 | |
| 797 | |
| 11,260 |
Total | | $ | 7,039,366 | | $ | 405,897 | | $ | 195,412 | | $ | 161,820 | | $ | 7,802,495 |
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(dollars in thousands) | Within One Year | One to Three Years | Three to Five Years | Over Five Years | Total | |||||||||||||||||||||||||||
Deposits without a stated maturity (1) | $ | 8,211,443 | $ | — | $ | — | $ | — | $ | 8,211,443 | ||||||||||||||||||||||
Time deposits (1) | 526,641 | 376,825 | 74,294 | — | $ | 977,760 | ||||||||||||||||||||||||||
Borrowed funds (2) | 326,726 | — | 70,000 | 200,000 | $ | 596,726 | ||||||||||||||||||||||||||
Operating lease obligations | 8,342 | 12,741 | 9,283 | 9,500 | $ | 39,866 | ||||||||||||||||||||||||||
Outside data processing (3) | 4,592 | 8,190 | 1,677 | — | $ | 14,459 | ||||||||||||||||||||||||||
George Mason sponsorship (4) | 675 | 1,350 | 1,363 | 6,775 | $ | 10,163 | ||||||||||||||||||||||||||
D.C. United (5) | 820 | 844 | — | — | $ | 1,664 | ||||||||||||||||||||||||||
LIHTC investments (6) | 5,343 | 2,070 | 672 | 676 | $ | 8,761 | ||||||||||||||||||||||||||
Other (7) | $ | — | $ | 2,000 | $ | — | $ | — | $ | 2,000 | ||||||||||||||||||||||
Total | $ | 9,084,582 | $ | 404,020 | $ | 157,289 | $ | 216,951 | $ | 9,862,842 |
(5)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Marketing sponsorship agreement with D.C. United.
(dollars in thousands) | 2020 | 2019 | ||||||||||||
Unfunded loan commitments | $ | 2,175,271 | $ | 2,176,641 | ||||||||||
Unfunded lines of credit | 107,683 | 86,426 | ||||||||||||
Letters of credit | 70,779 | 69,723 | ||||||||||||
Total | $ | 2,353,733 | $ | 2,332,790 |
| | | | | | |
(dollars in thousands) |
| 2019 |
| 2018 | ||
Unfunded loan commitments | | $ | 2,176,641 | | $ | 2,228,689 |
Unfunded lines of credit | |
| 86,426 | |
| 90,283 |
Letters of credit | |
| 69,723 | |
| 83,162 |
Total | | $ | 2,332,790 | | $ | 2,402,134 |
Unfunded
2019.
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The Company enters into interest rate lock commitments, which are commitments to originate residential mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. The Bank either locks in the loan and rate with an investor and commits to deliver the loan if settlement occurs under best efforts or commits to deliver the locked loan in a binding mandatory delivery program with an investor. Certain loans under rate lock commitments are covered under forward sales contracts of mortgage backed securities. Forward sales contracts of mortgage backed securities are recorded at fair value with changes in fair value recorded in noninterest income. Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because they are not actively traded in stand-alone markets. The Company determines the fair value of rate lock commitments and delivery contracts by measuring the fair value of the underlying asset, which is impacted by current interest rates and taking into consideration the probability that the rate lock commitments will close or will be funded.
The Company enters into interest rate swap derivative financial instruments to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to certain variable rate deposits. Such instruments are designated as cash flow hedges. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income (a Consolidated Balance Sheet component of shareholders’ equity) and is reclassified into earnings in the same period(s) during which the hedged transaction affects earnings (i.e. the period when cash flows are exchanged between counterparties). Changes in the fair value of derivatives that are not highly effective in hedging the changes in the expected cash flows of the hedged item are recognized immediately in current earnings. Please refer to Note 10 to the Consolidated Financial Statements for further detail.
During the third quarter of 2018, the Company entered into credit risk participation agreements (“RPAs”) with institutional counterparties, under which the Company assumes its pro-rata share of the credit exposure associated with a borrower’s performance related to interest rate derivative contracts. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. These derivatives are not designated as hedges, are not speculative, and have a notional value of $27.4 million as of December 31. 2019. The changes in fair value for these contracts are recognized directly in earnings. Please refer to Note 10 to the Consolidated Financial Statements for further detail.
Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate caps and swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. Please refer to Note 10 to the Consolidated Financial Statements for further detail.
In connection with deposit guarantees, the Bank collateralizes certain public funds using qualified investment securities.
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to $700.0 million2.0 billion of brokered deposits from its IND program in amounts requested by the Bank, as compared to an actual balance of $533.1 million$1.3 billion at December 31, 2019.2020. At December 31, 2019,2020, the Bank was also eligible to make advances from the FHLB up to $1.54$1.64 billion based on collateral at the FHLB, of which there was $250were $350 million outstanding as of December 31, 2019.2020. The Bank may enter into repurchase agreements as well as obtain additional borrowing capabilities from the FHLB provided adequate collateral exists to secure these lending relationships. The Bank also has a back-up borrowing facility through the Discount Window at the Federal Reserve Bank of Richmond (“Federal Reserve Bank”). This facility, which amounts to approximately $653.0$600 million, is collateralized with specific loan assets identified to the Federal Reserve Bank. It is anticipated that, except for periodic testing, this facility would be utilized for contingency funding only.
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The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements.
70
The
71
The Company is a party to interest rate swaps as part of its interest rate risk management strategy intended to mitigate the potential risk of rising interest rates on the Bank’s cost of funds. As of both December 31, 2020 and 2019, the Company had one interest rate swap transactionstransaction outstanding that had a notional amount of $100.0 million associated with the Company’s variable rate deposits as compared to three designated cash flow hedge notional interest rate swap transactions outstanding as of December 31, 2018 amounting to $250.0 million associated with the Company’s variable rate deposits. The decline in the amount of hedged variable rate deposits was due to a reduction in such variable rate deposits. The interest rate swaps areswap is designated as a cash flow hedgeshedge and involveinvolves the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed payments that began in April 2016. The net unrealized loss before income tax on the interest rate swapsswap was $516 thousand at December 31, 2020 as compared to a net unrealized loss before income tax of $202 thousand at December 31, 2019, as compared to a net unrealized gain before income tax of $3.7 million at December 31, 2018, and is included in accumulated other comprehensive income (net of taxes) on the Consolidated Balance Sheet. The increased unrealized lossgain in value since year end 20182019 was due to the termination of two of the interest rate swap transactions as part of the Company’s asset liability strategy as well as declines in market interest rates. As a result of the swap terminations, the Company recognized $829 thousand in noninterest income during March 2019. Additionally, the Company will amortize $123 thousand of realized gain as a reduction to interest expense through the swap’s original maturity date of March 31, 2020.
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The following table reflects the result of simulation analysis on the December 31, 20192020 asset and liability balances:
Change in interest rates (basis points) | Percentage change in net interest income | Percentage change in net income | Percentage change in market value of portfolio equity | |||||||||||||||||
+400 | +14.0 | +23.8 | +8.1 | |||||||||||||||||
+300 | +9.4 | +16.0 | +6.4 | |||||||||||||||||
+200 | +5.0 | +8.5 | +4.7 | |||||||||||||||||
+100 | +1.6 | +2.8 | +2.8 | |||||||||||||||||
— | — | — | — | |||||||||||||||||
(100) | (1.6) | (2.6) | (11.3) | |||||||||||||||||
(200) | (1.9) | (3.2) | (23.6) |
| | | | | | |
| | | | | | Percentage change in |
Change in interest | | Percentage change in net | | Percentage change in | | market value of portfolio |
rates (basis points) |
| interest income |
| net income |
| equity |
+400 | | +20.9% | | +36.2% | | +14.5% |
+300 | | +15.6% | | +27.1% | | +12.2% |
+200 | | +10.4% | | +18.0% | | +9.5% |
+100 | | +5.1% | | +8.8% | | +5.6% |
0 | | - | | - | | - |
(100) | | -3.2% | | -5.6% | | -7.9% |
(200) | | -7.7% | | -13.3% | | -21.5% |
2019.
2020, and as noted above, significant amounts of variable rate loans were below floor levels at December 31, 2020.
GAP
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93% of the Company’s revenue for the years ended December 31, 20192020 and December 31, 2018,2019, respectively. The Company’s net interest margin was 3.19% for the year ended December 31, 2020, as compared to 3.77% for the year ended December 31, 2019, as compared to 4.10% for the year ended December 31, 2018.2019. The decline in net interest margin for the year ended December 31, 20192020 as compared to the year ended December 31, 2018,2019, was due to increased funding costs from term deposits gathered early in the year, new loan and variable rate loans adjusting downward as market rates fell, exacerbated by a decrease in the average loan to deposit ratio, as the Bank rebuilt its liquidity position.
experienced high levels of on balance sheet liquidity.
gap.
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Because competitive market behavior does not necessarily track the trend of interest rates but at times moves ahead of financial market influences, the change in the cost of liabilities may be different than anticipated by the GAPgap model. If this were to occur, the effects of a declining interest rate environment may not be in accordance with management’s expectations.
| | | | | | | | | | | | | | | | | | | | | | | | |
GAP Analysis | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Total Rate | | | | | | | |
Repricible in: |
| 0-3 months |
| 4-12 months |
| 13-36 months |
| 37-60 months |
| Over 60 months |
| Sensitive |
| Non Sensitive |
| Total | ||||||||
RATE SENSITIVE ASSETS: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Investment securities | | $ | 146,214 | | $ | 161,322 | | $ | 198,109 | | $ | 137,007 | | $ | 235,906 | | $ | 878,558 |
| |
|
| |
|
Loans (1)(2) | |
| 3,858,735 | |
| 535,559 | |
| 1,354,716 | |
| 981,808 | |
| 871,637 | |
| 7,602,455 |
| |
|
| |
|
Fed funds and other short-term investments | |
| 234,434 | |
| — | |
| — | |
| — | |
| — | |
| 234,434 |
| |
|
| |
|
Other earning assets | |
| 75,724 | |
| — | |
| — | |
| — | |
| — | |
| 75,724 |
| |
|
| |
|
Total | | $ | 4,315,107 | | $ | 696,881 | | $ | 1,552,825 | | $ | 1,118,815 | | $ | 1,107,543 | | $ | 8,791,171 | | | 197,548 | | $ | 8,988,719 |
| | | | | | | | | | | | | | | | | | | | | | | | |
RATE SENSITIVE LIABILITIES: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Noninterest bearing demand | | $ | 75,733 | | $ | 210,367 | | $ | 454,884 | | $ | 333,658 | | $ | 989,725 | | $ | 2,064,367 | |
|
| |
|
|
Interest bearing transaction | |
| 863,856 | |
| — | |
| — | |
| — | |
| — | |
| 863,856 | |
|
| |
|
|
Savings and money market | |
| 2,788,129 | |
| — | |
| — | |
| — | |
| 225,000 | |
| 3,013,129 | |
|
| |
|
|
Time deposits | |
| 261,717 | |
| 538,353 | |
| 374,189 | |
| 105,643 | |
| 3,137 | |
| 1,283,039 | |
|
| |
|
|
Customer repurchase agreements and fed funds purchased | |
| 30,980 | |
| — | |
| — | |
| — | |
| — | |
| 30,980 | |
|
| |
|
|
Other borrowings | |
| 100,000 | |
| — | |
| 148,242 | |
| 69,445 | |
| 150,000 | |
| 467,687 | |
|
| |
|
|
Total | | $ | 4,120,415 | | $ | 748,720 | | $ | 977,315 | | $ | 508,746 | | $ | 1,367,862 | | $ | 7,723,058 | | | 74,981 | | $ | 7,798,039 |
GAP | | $ | 194,692 | | $ | (51,839) | | $ | 575,510 | | $ | 610,069 | | $ | (260,319) | | $ | 1,068,113 | |
|
| |
|
|
Cumulative GAP | | $ | 194,692 | | $ | 142,853 | | $ | 718,363 | | $ | 1,328,432 | | $ | 1,068,113 | |
|
| |
|
| |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Cumulative gap as percent of total assets | |
| 2.17 | % |
| 1.59 | % |
| 7.99 | % |
| 14.78 | % |
| 11.88 | % |
| — | |
|
| |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
OFF BALANCE-SHEET: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest Rate Swaps - LIBOR based | | $ | 100,000 | | $ | — | | $ | (100,000) | | $ | — | | $ | — | | $ | — | |
|
| |
|
|
Interest Rate Swaps - Fed Funds based | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
|
| |
|
|
Total | | $ | 100,000 | | $ | — | | $ | (100,000) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
GAP | | $ | 294,692 | | $ | (51,839) | | $ | 475,510 | | $ | 610,069 | | $ | (260,319) | | $ | 1,068,113 | |
|
| |
|
|
Cumulative GAP | | $ | 294,692 | | $ | 242,853 | | $ | 718,363 | | $ | 1,328,432 | | $ | 1,068,113 | | $ | — | |
|
| |
|
|
Cumulative gap as percent of total assets | |
| 3.28 | % |
| 2.70 | % |
| 7.99 | % |
| 14.78 | % |
| 11.88 | % |
| — | |
|
| |
|
|
Gap Analysis December 31, 2020 (dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Repricible in: | 0-3 months | 4-12 months | 13-36 months | 37-60 months | Over 60 months | Total Rate Sensitive | Non Sensitive | Total | ||||||||||||||||||||||||||||||||||||||||||
RATE SENSITIVE ASSETS: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Investment securities | $ | 129,321 | $ | 146,042 | $ | 271,885 | $ | 183,583 | $ | 420,252 | $ | 1,151,083 | ||||||||||||||||||||||||||||||||||||||
Loans (1)(2) | 3,805,449 | 588,026 | 1,873,182 | 739,945 | 841,815 | $ | 7,848,417 | |||||||||||||||||||||||||||||||||||||||||||
Fed funds and other short-term investments | 1,780,619 | — | — | — | — | $ | 1,780,619 | |||||||||||||||||||||||||||||||||||||||||||
Other earning assets | 76,729 | — | — | — | — | $ | 76,729 | |||||||||||||||||||||||||||||||||||||||||||
Total | $ | 5,792,118 | $ | 734,068 | $ | 2,145,067 | $ | 923,528 | $ | 1,262,067 | $ | 10,856,848 | 260,954 | $ | 11,117,802 | |||||||||||||||||||||||||||||||||||
RATE SENSITIVE LIABILITIES: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Noninterest bearing demand | $ | 97,582 | $ | 272,338 | $ | 596,428 | $ | 445,919 | $ | 1,402,067 | $ | 2,814,334 | ||||||||||||||||||||||||||||||||||||||
Interest bearing transaction | 751,923 | — | — | — | — | $ | 751,923 | |||||||||||||||||||||||||||||||||||||||||||
Savings and money market | 4,320,186 | — | — | — | 325,000 | $ | 4,645,186 | |||||||||||||||||||||||||||||||||||||||||||
Time deposits | 201,312 | 325,329 | 376,825 | 71,164 | 3,130 | $ | 977,760 | |||||||||||||||||||||||||||||||||||||||||||
Customer repurchase agreements and fed funds purchased | 26,726 | — | — | — | — | $ | 26,726 | |||||||||||||||||||||||||||||||||||||||||||
Other borrowings | — | 148,531 | — | 69,546 | 350,000 | $ | 568,077 | |||||||||||||||||||||||||||||||||||||||||||
Total | $ | 5,397,729 | $ | 746,198 | $ | 973,253 | $ | 586,629 | $ | 2,080,197 | $ | 9,784,006 | 92,904 | $ | 9,876,910 | |||||||||||||||||||||||||||||||||||
Gap | $ | 394,389 | $ | (12,130) | $ | 1,171,814 | $ | 336,899 | $ | (818,130) | $ | 1,072,842 | ||||||||||||||||||||||||||||||||||||||
Cumulative Gap | $ | 364,389 | $ | 352,259 | $ | 1,524,073 | $ | 1,860,972 | $ | 1,042,842 | ||||||||||||||||||||||||||||||||||||||||
Cumulative gap as percent of total assets | 3.55 | % | 3.44 | % | 13.98 | % | 17.01 | % | 9.65 | % | ||||||||||||||||||||||||||||||||||||||||
OFF BALANCE-SHEET: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Interest Rate Swaps - Fed Funds based | 100,000 | (100,000) | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 100,000 | $ | (100,000) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
Gap | $ | 494,389 | $ | (112,130) | $ | 1,171,814 | $ | 336,899 | $ | (818,130) | $ | 1,072,842 | ||||||||||||||||||||||||||||||||||||||
Cumulative Gap | $ | 464,389 | $ | 352,259 | $ | 1,524,073 | $ | 1,860,972 | $ | 1,042,842 | ||||||||||||||||||||||||||||||||||||||||
Cumulative gap as percent of total assets | 4.45 | % | 3.44 | % | 13.98 | % | 17.01 | % | 9.65 | % |
Includes loans held for sale
2019.
75
it relates.
76
a specific allowance, a formula allowanceestimated using information about past events, current conditions and a nonspecific or environmental factors allowance. Each component is determined based on estimatesreasonable and supportable forecasts. Estimates that can and do change when actual events occur:
qualitative adjustments.
included, among others: •We evaluated the design and operating effectiveness of controls relating to management’s determination |
|
|
|
|
77
Loss Contingencies
As described in Note 21 to the consolidated financial statements, the Company has received various document requests and subpoenas from securities and banking regulators and U.S. Attorney’s Offices in connection with investigations, which the Company believes relate to the Company’s identification, classification and disclosure of related party transactions; the retirement of certain former officers and directors; and the relationship of the Company and certain of its former officers and directors with a local public official, among other things. Estimating an amount or range of possibleallowance for credit losses, resulting from litigation, government actions and other legal proceedings is inherently difficult and requires an extensive degree of judgment. Therefore,including:
We identified the ongoing investigations as a critical audit matter. The principal considerations for this determination are the naturedevelopment of the items under investigation, about whichallowance for credit losses model, including validation of the Company engaged outside specialists to perform extensive investigations,model.
The primary procedures we performed to address this critical audit matter included:
78
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholdersShareholders and the boardBoard of directorsDirectors of Eagle Bancorp Inc.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management has identified a material weakness in internal controls resulting from tone at the top issues that contributed to a control environment that was insufficiently tailored to the culture of deference afforded to the former Chairman, President and Chief Executive Officer.
Commission.
79
Baltimore, Maryland
March 2, 2020
EAGLE BANCORP, INC.
| | | | | | |
Assets |
| December 31, 2019 |
| December 31, 2018 | ||
Cash and due from banks | | $ | 7,539 | | $ | 6,773 |
Federal funds sold |
| | 38,987 |
| | 11,934 |
Interest bearing deposits with banks and other short-term investments |
| | 195,447 |
| | 303,157 |
Investment securities available-for-sale, at fair value |
| | 843,363 |
| | 784,139 |
Federal Reserve and Federal Home Loan Bank stock |
| | 35,194 |
| | 23,506 |
Loans held for sale |
| | 56,707 |
| | 19,254 |
Loans |
| | 7,545,748 |
| | 6,991,447 |
Less allowance for credit losses |
| | (73,658) |
| | (69,944) |
Loans, net |
| | 7,472,090 |
| | 6,921,503 |
Premises and equipment, net |
| | 14,622 |
| | 16,851 |
Operating lease right-of-use assets | | | 27,372 | | | — |
Deferred income taxes |
| | 29,804 |
| | 33,027 |
Bank owned life insurance |
| | 75,724 |
| | 73,441 |
Intangible assets, net |
| | 104,739 |
| | 105,766 |
Other real estate owned |
| | 1,487 |
| | 1,394 |
Other assets |
| | 85,644 |
| | 88,392 |
Total Assets | | $ | 8,988,719 | | $ | 8,389,137 |
| | | | | | |
Liabilities and Shareholders’ Equity | |
|
| |
|
|
Liabilities | |
|
| |
|
|
Deposits: | |
|
| |
|
|
Noninterest bearing demand | | $ | 2,064,367 | | $ | 2,104,220 |
Interest bearing transaction | |
| 863,856 | |
| 593,107 |
Savings and money market | |
| 3,013,129 | |
| 2,949,559 |
Time, $100,000 or more | |
| 663,987 | |
| 801,957 |
Other time | |
| 619,052 | |
| 525,442 |
Total deposits | |
| 7,224,391 | |
| 6,974,285 |
Customer repurchase agreements | |
| 30,980 | |
| 30,413 |
Other short-term borrowings | |
| 250,000 | |
| — |
Long-term borrowings | |
| 217,687 | |
| 217,296 |
Operating lease liabilities | | | 29,959 | | | — |
Other liabilities | |
| 45,021 | |
| 58,202 |
Total Liabilities | |
| 7,798,038 | |
| 7,280,196 |
| | | | | | |
Shareholders’ Equity | |
|
| |
|
|
Common stock, par value $.01 per share; shares authorized 100,000,000, shares issued and outstanding 33,241,496 and 34,387,919, respectively | |
| 331 | |
| 342 |
Additional paid in capital | |
| 482,286 | |
| 528,380 |
Retained earnings | |
| 705,105 | |
| 584,494 |
Accumulated other comprehensive income (loss) | |
| 2,959 | |
| (4,275) |
Total Shareholders’ Equity | |
| 1,190,681 | |
| 1,108,941 |
Total Liabilities and Shareholders’ Equity | | $ | 8,988,719 | | $ | 8,389,137 |
Assets | December 31, 2020 | December 31, 2019 | ||||||||||||
Cash and due from banks | $ | 8,435 | $ | 7,539 | ||||||||||
Federal funds sold | 28,200 | 38,987 | ||||||||||||
Interest bearing deposits with banks and other short-term investments | 1,752,420 | 195,447 | ||||||||||||
Investment securities available-for-sale, at fair value (amortized cost of $1,129,057 and $838,994 and allowance for credit losses of $167 and $0 as of December 31, 2020 and December 31, 2019, respectively). | 1,151,083 | 843,363 | ||||||||||||
Federal Reserve and Federal Home Loan Bank stock | 40,104 | 35,194 | ||||||||||||
Loans held for sale | 88,205 | 56,707 | ||||||||||||
Loans | 7,760,212 | 7,545,748 | ||||||||||||
Less allowance for credit losses | (109,579) | (73,658) | ||||||||||||
Loans, net | 7,650,633 | 7,472,090 | ||||||||||||
Premises and equipment, net | 13,553 | 14,622 | ||||||||||||
Operating lease right-of-use assets | 25,237 | 27,372 | ||||||||||||
Deferred income taxes | 38,571 | 29,804 | ||||||||||||
Bank owned life insurance | 76,729 | 75,724 | ||||||||||||
Goodwill and intangible assets, net | 105,114 | 104,739 | ||||||||||||
Other real estate owned | 4,987 | 1,487 | ||||||||||||
Other assets | 134,531 | 85,644 | ||||||||||||
Total Assets | $ | 11,117,802 | $ | 8,988,719 | ||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||
Liabilities | ||||||||||||||
Deposits: | ||||||||||||||
Noninterest bearing demand | $ | 2,809,334 | $ | 2,064,367 | ||||||||||
Interest bearing transaction | 756,923 | 863,856 | ||||||||||||
Savings and money market | 4,645,186 | 3,013,129 | ||||||||||||
Time, $100,000 or more | 546,173 | 663,987 | ||||||||||||
Other time | 431,587 | 619,052 | ||||||||||||
Total deposits | 9,189,203 | 7,224,391 | ||||||||||||
Customer repurchase agreements | 26,726 | 30,980 | ||||||||||||
Other short-term borrowings | 300,000 | 250,000 | ||||||||||||
Long-term borrowings | 268,077 | 217,687 | ||||||||||||
Operating lease liabilities | 28,022 | 29,959 | ||||||||||||
Reserve for unfunded commitments | 5,498 | 0 | ||||||||||||
Other liabilities | 59,384 | 45,021 | ||||||||||||
Total Liabilities | 9,876,910 | 7,798,038 | ||||||||||||
Shareholders’ Equity | ||||||||||||||
Common stock, par value $0.01 per share; shares authorized 100,000,000, shares issued and outstanding 31,779,663 and 33,241,496, respectively | 315 | 331 | ||||||||||||
Additional paid in capital | 427,016 | 482,286 | ||||||||||||
Retained earnings | 798,061 | 705,105 | ||||||||||||
Accumulated other comprehensive income | 15,500 | 2,959 | ||||||||||||
Total Shareholders’ Equity | 1,240,892 | 1,190,681 | ||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 11,117,802 | $ | 8,988,719 |
80
EAGLE BANCORP, INC.
Income
| | | | | | | | | |
|
| 2019 |
| 2018 |
| 2017 | |||
Interest Income |
| |
|
| |
|
| |
|
Interest and fees on loans | | $ | 400,923 | | $ | 368,606 | | $ | 308,510 |
Interest and dividends on investment securities | |
| 21,037 | |
| 17,907 | |
| 12,214 |
Interest on balances with other banks and short-term investments | |
| 7,438 | |
| 6,616 | |
| 3,258 |
Interest on federal funds sold | |
| 232 | |
| 157 | |
| 52 |
Total interest income | |
| 429,630 | |
| 393,286 | |
| 324,034 |
Interest Expense | |
|
| |
|
| |
|
|
Interest on deposits | |
| 91,026 | |
| 60,210 | |
| 27,286 |
Interest on customer repurchase agreements | |
| 345 | |
| 225 | |
| 197 |
Interest on short-term borrowings | |
| 2,298 | |
| 3,942 | |
| 748 |
Interest on long-term borrowings | |
| 11,916 | |
| 11,916 | |
| 11,916 |
Total interest expense | |
| 105,585 | |
| 76,293 | |
| 40,147 |
Net Interest Income | |
| 324,045 | |
| 316,993 | |
| 283,887 |
Provision for Credit Losses | |
| 13,091 | |
| 8,660 | |
| 8,971 |
Net Interest Income After Provision For Credit Losses | |
| 310,954 | |
| 308,333 | |
| 274,916 |
| | | | | | | | | |
Noninterest Income | |
|
| |
|
| |
|
|
Service charges on deposits | |
| 6,247 | |
| 7,014 | |
| 6,364 |
Gain on sale of loans | |
| 8,474 | |
| 5,963 | |
| 9,275 |
Gain on sale of investment securities | |
| 1,517 | |
| 97 | |
| 542 |
Increase in the cash surrender value of bank owned life insurance | |
| 1,703 | |
| 1,507 | |
| 1,711 |
Other income | |
| 7,758 | |
| 8,005 | |
| 11,480 |
Total noninterest income | |
| 25,699 | |
| 22,586 | |
| 29,372 |
Noninterest Expense | |
|
| |
|
| |
|
|
Salaries and employee benefits | |
| 79,842 | |
| 67,734 | |
| 67,129 |
Premises and equipment expenses | |
| 14,387 | |
| 15,660 | |
| 15,632 |
Marketing and advertising | |
| 4,826 | |
| 4,566 | |
| 4,095 |
Data processing | |
| 9,412 | |
| 9,714 | |
| 8,220 |
Legal, accounting and professional fees | |
| 12,195 | |
| 9,742 | |
| 5,053 |
FDIC insurance | |
| 3,206 | |
| 3,512 | |
| 2,554 |
Other expenses | |
| 15,994 | |
| 15,783 | |
| 15,869 |
Total noninterest expense | |
| 139,862 | |
| 126,711 | |
| 118,552 |
Income Before Income Tax Expense | |
| 196,791 | |
| 204,208 | |
| 185,736 |
Income Tax Expense | |
| 53,848 | |
| 51,932 | |
| 85,504 |
Net Income | | | 142,943 | | | 152,276 | | | 100,232 |
| | | | | | | | | |
Earnings Per Common Share | |
|
| |
|
| |
|
|
Basic | | $ | 4.18 | | $ | 4.44 | | $ | 2.94 |
Diluted | | $ | 4.18 | | $ | 4.42 | | $ | 2.92 |
2020 | 2019 | 2018 | |||||||||||||||
Interest Income | |||||||||||||||||
Interest and fees on loans | $ | 368,854 | $ | 400,923 | $ | 368,606 | |||||||||||
Interest and dividends on investment securities | 18,440 | 21,037 | 17,907 | ||||||||||||||
Interest on balances with other banks and short-term investments | 2,601 | 7,438 | 6,616 | ||||||||||||||
Interest on federal funds sold | 91 | 232 | 157 | ||||||||||||||
Total interest income | 389,986 | 429,630 | 393,286 | ||||||||||||||
Interest Expense | |||||||||||||||||
Interest on deposits | 53,566 | 91,026 | 60,210 | ||||||||||||||
Interest on customer repurchase agreements | 293 | 345 | 225 | ||||||||||||||
Interest on short-term borrowings | 1,869 | 2,298 | 3,942 | ||||||||||||||
Interest on long-term borrowings | 12,696 | 11,916 | 11,916 | ||||||||||||||
Total interest expense | 68,424 | 105,585 | 76,293 | ||||||||||||||
Net Interest Income | 321,562 | 324,045 | 316,993 | ||||||||||||||
Provision for Credit Losses | 45,571 | 13,091 | 8,660 | ||||||||||||||
Provision for Unfunded Commitments | 1,380 | 0 | 0 | ||||||||||||||
Net Interest Income After Provision For Credit Losses | 274,611 | 310,954 | 308,333 | ||||||||||||||
Noninterest Income | |||||||||||||||||
Service charges on deposits | 4,416 | 6,247 | 7,014 | ||||||||||||||
Gain on sale of loans | 22,089 | 8,474 | 5,963 | ||||||||||||||
Gain on sale of investment securities | 1,815 | 1,517 | 97 | ||||||||||||||
Increase in the cash surrender value of bank owned life insurance | 2,071 | 1,703 | 1,507 | ||||||||||||||
Other income | 15,305 | 7,758 | 8,005 | ||||||||||||||
Total noninterest income | 45,696 | 25,699 | 22,586 | ||||||||||||||
Noninterest Expense | |||||||||||||||||
Salaries and employee benefits | 74,440 | 79,842 | 67,734 | ||||||||||||||
Premises and equipment expenses | 15,715 | 14,387 | 15,660 | ||||||||||||||
Marketing and advertising | 4,278 | 4,826 | 4,566 | ||||||||||||||
Data processing | 10,702 | 9,412 | 9,714 | ||||||||||||||
Legal, accounting and professional fees | 16,406 | 12,195 | 9,742 | ||||||||||||||
FDIC insurance | 7,941 | 3,206 | 3,512 | ||||||||||||||
Other expenses | 14,680 | 15,994 | 15,783 | ||||||||||||||
Total noninterest expense | 144,162 | 139,862 | 126,711 | ||||||||||||||
Income Before Income Tax Expense | 176,145 | 196,791 | 204,208 | ||||||||||||||
Income Tax Expense | 43,928 | 53,848 | 51,932 | ||||||||||||||
Net Income | 132,217 | 142,943 | 152,276 | ||||||||||||||
Earnings Per Common Share | |||||||||||||||||
Basic | $ | 4.09 | $ | 4.18 | $ | 4.44 | |||||||||||
Diluted | $ | 4.09 | $ | 4.18 | $ | 4.42 |
81
EAGLE BANCORP, INC.
| | | | | | | | | |
|
| 2019 |
| 2018 |
| 2017 | |||
Net Income | | $ | 142,943 | | $ | 152,276 | | $ | 100,232 |
| | | | | | | | | |
Other comprehensive income (loss), net of tax: | |
|
| |
|
| |
|
|
Unrealized gain (loss) on securities available for sale | |
| 11,254 | |
| (3,841) | |
| (840) |
Reclassification adjustment for net gains included in net income | |
| (1,101) | |
| (72) | |
| (336) |
Total unrealized gain (loss) on investment securities | |
| 10,153 | |
| (3,913) | |
| (1,176) |
Unrealized (loss) gain on derivatives | |
| (2,049) | |
| 1,806 | |
| 2,794 |
Reclassification adjustment for amounts included in net income | |
| (870) | |
| (418) | |
| (987) |
Total unrealized (loss) gain on derivatives | |
| (2,919) | |
| 1,388 | |
| 1,807 |
Other comprehensive income (loss) | |
| 7,234 | |
| (2,525) | |
| 631 |
Comprehensive Income | | $ | 150,177 | | $ | 149,751 | | $ | 100,863 |
2020 | 2019 | 2018 | |||||||||||||||
Net Income | $ | 132,217 | $ | 142,943 | $ | 152,276 | |||||||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||||
Unrealized gain (loss) on securities available for sale | 14,422 | 11,254 | (3,841) | ||||||||||||||
Reclassification adjustment for net gains included in net income | (1,363) | (1,101) | (72) | ||||||||||||||
Total unrealized gain (loss) on investment securities | 13,059 | 10,153 | (3,913) | ||||||||||||||
Unrealized (loss) gain on derivatives | (1,378) | (2,049) | 1,806 | ||||||||||||||
Reclassification adjustment for gain (loss) included in net income | 860 | (870) | (418) | ||||||||||||||
Total unrealized (loss) gain on derivatives | (518) | (2,919) | 1,388 | ||||||||||||||
Other comprehensive income (loss) | 12,541 | 7,234 | (2,525) | ||||||||||||||
Comprehensive Income | $ | 144,758 | $ | 150,177 | $ | 149,751 |
82
EAGLE BANCORP, INC.
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | | | | | | | Other | | Total | ||
| | Common | | Additional Paid | | Retained | | Comprehensive | | Shareholders’ | |||||||
|
| Shares |
| Amount |
| in Capital |
| Earnings |
| Income (Loss) |
| Equity | |||||
Balance January 1, 2017 |
| 34,023,850 | | $ | 338 | | $ | 513,531 | | $ | 331,311 | | $ | (2,381) | | $ | 842,799 |
| | | | | | | | | | | | | | | | | |
Net Income |
| — | |
| — | |
| — | |
| 100,232 | |
| — | | $ | 100,232 |
Other comprehensive income, net of tax |
| — | |
| — | |
| — | |
| — | |
| 631 | |
| 631 |
Stock-based compensation expense |
| — | |
| — | |
| 5,568 | |
| — | |
| — | |
| 5,568 |
Issuance of common stock related to options exercised, net of shares withheld for payroll taxes |
| 69,040 | |
| 1 | |
| 371 | |
| — | |
| — | |
| 372 |
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes |
| (17,801) | |
| 2 | |
| (2) | |
| — | |
| — | |
| — |
Vesting of performance based stock awards, net of shares withheld for payroll taxes | | 4,293 | | | — | | | — | | | — | | | — | | | — |
Time based stock awards granted |
| 91,097 | |
| — | |
| — | |
| — | |
| — | |
| — |
Issuance of common stock related to employee stock purchase plan |
| 14,684 | |
| (1) | |
| 836 | |
| 1 | |
| — | |
| 836 |
Balance December 31, 2017 |
| 34,185,163 | | $ | 340 | | $ | 520,304 | | $ | 431,544 | | $ | (1,750) | | $ | 950,438 |
| | | | | | | | | | | | | | | | | |
Net Income |
| — | | | — | | | — | | | 152,276 | | | — | | $ | 152,276 |
Other comprehensive loss, net of tax |
| — | |
| — | |
| — | |
| — | |
| (1,851) | |
| (1,851) |
Stock-based compensation expense |
| — | |
| — | |
| 6,494 | |
| — | |
| — | |
| 6,494 |
Issuance of common stock related to options exercised, net of shares withheld for payroll taxes |
| 108,201 | |
| 1 | |
| 775 | |
| — | |
| — | |
| 776 |
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes |
| (14,162) | |
| 1 | |
| (1) | |
| — | |
| — | |
| — |
Time based stock awards granted |
| 94,344 | |
| — | |
| — | |
| — | |
| — | |
| — |
Issuance of common stock related to employee stock purchase plan |
| 14,373 | |
| — | |
| 808 | |
| — | |
| — | |
| 808 |
Reclassification of the income tax effects of the Tax Cuts and Jobs Act from AOCI (ASU 2018-02) |
| — | |
| — | |
| — | |
| 674 | |
| (674) | |
| — |
Balance December 31, 2018 |
| 34,387,919 | | | 342 | | | 528,380 | | | 584,494 | | | (4,275) | | | 1,108,941 |
| | | | | | | | | | | | | | | | | |
Net Income |
| — | | | — | | | — | | | 142,943 | | | — | | | 142,943 |
Other comprehensive income, net of tax |
| — | |
| — | |
| — | |
| — | |
| 7,234 | |
| 7,234 |
Stock-based compensation expense |
| — | |
| — | |
| 7,684 | |
| — | |
| — | |
| 7,684 |
Issuance of common stock related to options exercised, net of shares withheld for payroll taxes |
| 26,784 | |
| — | |
| 332 | |
| — | |
| — | |
| 332 |
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes |
| (15,127) | |
| 1 | |
| (1) | |
| — | |
| — | |
| — |
Vesting of performance based stock awards, net of shares withheld for payroll taxes | | 17,655 | | | — | | | — | | | — | | | — | | | — |
Time based stock awards granted |
| 112,636 | |
| — | |
| — | |
| — | |
| — | |
| — |
Issuance of common stock related to employee stock purchase plan |
| 16,129 | |
| — | |
| 782 | |
| — | |
| — | |
| 782 |
Cash dividends declared ($0.66 per share) |
| — | |
| — | |
| — | |
| (22,332) | |
| — | |
| (22,332) |
Common stock repurchased | | (1,304,500) | | | (12) | | | (54,891) | | | — | | | — | | | (54,903) |
Balance December 31, 2019 |
| 33,241,496 | | $ | 331 | | $ | 482,286 | | $ | 705,105 | | $ | 2,959 | | $ | 1,190,681 |
Common | Additional Paid in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||||||||
Balance January 1, 2018 | 34,185,163 | $ | 340 | $ | 520,304 | $ | 431,544 | $ | (1,750) | $ | 950,438 | ||||||||||||||||||||||||
Net Income | — | — | — | 152,276 | — | $ | 152,276 | ||||||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | (1,851) | (1,851) | |||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 6,494 | — | — | 6,494 | |||||||||||||||||||||||||||||
Issuance of common stock related to options exercised, net of shares withheld for payroll taxes | 108,201 | 1 | 775 | — | — | 776 | |||||||||||||||||||||||||||||
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes | (14,162) | 1 | (1) | — | — | — | |||||||||||||||||||||||||||||
Time based stock awards granted | 94,344 | — | — | — | — | — | |||||||||||||||||||||||||||||
Issuance of common stock related to employee stock purchase plan | 14,373 | 0 | 808 | 0 | — | 808 | |||||||||||||||||||||||||||||
Balance Reclassification of the income tax effects of the Tax Cuts and Jobs Act from AOCI (ASU 2018-02) | — | — | — | 674 | (674) | — | |||||||||||||||||||||||||||||
Balance December 31, 2018 | 34,387,919 | $ | 342 | $ | 528,380 | $ | 584,494 | $ | (4,275) | $ | 1,108,941 | ||||||||||||||||||||||||
Net Income | — | — | — | 142,943 | — | $ | 142,943 | ||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | 7,234 | 7,234 | |||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 7,684 | — | — | 7,684 | |||||||||||||||||||||||||||||
Issuance of common stock related to options exercised, net of shares withheld for payroll taxes | 26,784 | 0 | 332 | — | — | 332 | |||||||||||||||||||||||||||||
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes | (15,127) | 1 | (1) | — | — | — | |||||||||||||||||||||||||||||
Vesting of performance based stock awards, net of shares withheld for payroll taxes | 17,655 | — | — | — | — | — | |||||||||||||||||||||||||||||
Time based stock awards granted | 112,636 | — | — | — | — | — | |||||||||||||||||||||||||||||
Issuance of common stock related to employee stock purchase plan | 16,129 | — | 782 | — | — | 782 | |||||||||||||||||||||||||||||
Cash dividends declared ($0.66 per share) | — | — | — | (22,332) | — | (22,332) | |||||||||||||||||||||||||||||
Common stock repurchased | (1,304,500) | (12) | (54,891) | — | — | (54,903) | |||||||||||||||||||||||||||||
Balance December 31, 2019 | 33,241,496 | 331 | 482,286 | 705,105 | 2,959 | 1,190,681 | |||||||||||||||||||||||||||||
Net Income | — | — | — | 132,217 | — | 132,217 | |||||||||||||||||||||||||||||
Cumulative effect adjustment due to the adoption of ASC 326, net of tax | — | $ | — | $ | — | $ | (10,931) | $ | — | (10,931) | |||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | 12,541 | 12,541 | |||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 5,324 | — | — | 5,324 | |||||||||||||||||||||||||||||
Issuance of common stock related to options exercised, net of shares withheld for payroll taxes | 3,300 | — | 63 | — | — | 63 | |||||||||||||||||||||||||||||
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes | (28,811) | — | (1) | — | — | (1) | |||||||||||||||||||||||||||||
Vesting of performance based stock awards, net of shares withheld for payroll taxes | 4,126 | — | — | — | — | — | |||||||||||||||||||||||||||||
Time based stock awards granted | 176,252 | — | — | — | — | — | |||||||||||||||||||||||||||||
Issuance of common stock related to employee stock purchase plan | 24,210 | — | 760 | — | — | 760 | |||||||||||||||||||||||||||||
Cash dividends declared ($0.88 per share) | — | — | — | (28,330) | — | (28,330) | |||||||||||||||||||||||||||||
Common stock repurchased | (1,640,910) | (16) | (61,416) | — | — | (61,432) | |||||||||||||||||||||||||||||
Balance December 31, 2020 | 31,779,663 | $ | 315 | $ | 427,016 | $ | 798,061 | $ | 15,500 | $ | 1,240,892 |
83
EAGLE BANCORP, INC.
| | | | | | | | | |
| | Years Ended December 31, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
Cash Flows From Operating Activities: |
| |
|
| |
|
| |
|
Net Income | | $ | 142,943 | | $ | 152,276 | | $ | 100,232 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
| |
|
| |
|
|
Provision for credit losses | |
| 13,091 | |
| 8,660 | |
| 8,971 |
Depreciation and amortization | |
| 6,174 | |
| 6,969 | |
| 6,883 |
Gains on sale of loans | |
| (8,474) | |
| (5,963) | |
| (9,544) |
Gains on sale of GNMA loans | |
| (139) | |
| (342) | |
| (2,450) |
Securities premium amortization (discount accretion), net | |
| 5,186 | |
| 4,445 | |
| 3,986 |
Origination of loans held for sale | |
| (665,726) | |
| (325,109) | |
| (707,489) |
Proceeds from sale of loans held for sale | |
| 636,747 | |
| 337,256 | |
| 746,016 |
Net increase in cash surrender value of BOLI | |
| (1,703) | |
| (1,507) | |
| (1,466) |
Deferred income tax (benefit) expense | |
| (61) | |
| (3,497) | |
| 18,974 |
Net loss (gain) on sale of other real estate owned | |
| — | |
| — | |
| 301 |
Net gain on sale of investment securities | |
| (1,517) | |
| (97) | |
| (542) |
Stock-based compensation expense | |
| 7,684 | |
| 6,494 | |
| 5,568 |
Net tax (expense) benefits from stock compensation | |
| (48) | |
| 110 | |
| 460 |
Increase in other assets | |
| (21,340) | |
| (16,301) | |
| (19,324) |
Increase in other liabilities | |
| 19,809 | |
| 2,061 | |
| 10,348 |
Net cash provided by operating activities | |
| 132,684 | |
| 165,455 | |
| 160,924 |
Cash Flows From Investing Activities: | |
|
| |
|
| |
|
|
Purchases of available-for-sale investment securities | |
| (374,648) | |
| (331,884) | |
| (202,974) |
Proceeds from maturities of available-for-sale securities | |
| 214,204 | |
| 93,848 | |
| 75,922 |
Proceeds from sale/call of available-for-sale securities | |
| 104,785 | |
| 36,292 | |
| 73,079 |
Purchases of Federal Reserve and Federal Home Loan Bank stock | |
| (100,939) | |
| (47,872) | |
| (33,008) |
Proceeds from redemption of Federal Reserve and Federal Home Loan Bank stock | |
| 89,250 | |
| 60,690 | |
| 18,285 |
Net increase in loans | |
| (563,771) | |
| (583,393) | |
| (738,067) |
Purchase of BOLI | |
| (580) | |
| (11,000) | |
| — |
Purchase of annuities | | | (2,589) | | | — | | | — |
Proceeds from sale of other real estate owned | |
| — | |
| — | |
| 2,144 |
Increase in premises and equipment | |
| (2,839) | |
| (1,482) | |
| (5,758) |
Net cash used in investing activities | |
| (637,127) | |
| (784,801) | |
| (810,377) |
Cash Flows From Financing Activities: | |
|
| |
|
| |
|
|
Increase in deposits | |
| 250,106 | |
| 1,120,301 | |
| 137,870 |
Increase (decrease) in customer repurchase agreements | |
| 567 | |
| (46,148) | |
| 7,685 |
Increase (decrease) in short-term borrowings | |
| 250,000 | |
| (325,000) | |
| 325,000 |
Proceeds from exercise of equity compensation plans | |
| 332 | |
| 776 | |
| 372 |
Proceeds from employee stock purchase plan | |
| 782 | |
| 808 | |
| 836 |
Common stock repurchased | |
| (54,903) | |
| — | |
| — |
Cash dividends paid | | | (22,332) | | | — | | | — |
Net cash provided by financing activities | |
| 424,552 | |
| 750,737 | |
| 471,763 |
Net (Decrease) Increase In Cash and Cash Equivalents | |
| (79,891) | |
| 131,391 | |
| (177,690) |
Cash and Cash Equivalents at Beginning of Period | |
| 321,864 | |
| 190,473 | |
| 368,163 |
Cash and Cash Equivalents at End of Period | | $ | 241,973 | | $ | 321,864 | | $ | 190,473 |
Supplemental Cash Flows Information: | |
|
| |
|
| |
|
|
Interest paid | | $ | 105,985 | | $ | 73,806 | | $ | 39,772 |
Income taxes paid | | $ | 54,650 | | $ | 55,200 | | $ | 69,200 |
Non-Cash Investing Activities | |
|
| |
|
| |
|
|
Initial recognition of operating lease right-of-use assets | | $ | 29,574 | | $ | — | | $ | 1,145 |
Transfers from loans to other real estate owned | | $ | 93 | | $ | — | | $ | — |
Years Ended December 31, | |||||||||||||||||
2020 | 2019 | 2018 | |||||||||||||||
Cash Flows From Operating Activities: | |||||||||||||||||
Net Income | $ | 132,217 | $ | 142,943 | $ | 152,276 | |||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
Provision for credit losses | 45,571 | 13,091 | 8,660 | ||||||||||||||
Provision for unfunded commitments | 1,380 | 0 | 0 | ||||||||||||||
Depreciation and amortization | 4,696 | 6,174 | 6,969 | ||||||||||||||
Gains on sale of loans | (22,089) | (8,474) | (5,963) | ||||||||||||||
Gain on MSRs | (667) | 0 | 0 | ||||||||||||||
Securities premium amortization (discount accretion), net | 8,196 | 5,186 | 4,445 | ||||||||||||||
Origination of loans held for sale | (1,240,682) | (665,726) | (325,109) | ||||||||||||||
Proceeds from sale of loans held for sale | 1,231,273 | 636,747 | 337,256 | ||||||||||||||
Net increase in cash surrender value of BOLI | (2,071) | (1,703) | (1,507) | ||||||||||||||
Deferred income tax (benefit) expense | (8,332) | (61) | (3,497) | ||||||||||||||
Net gain on sale of other real estate owned | (1,180) | 0 | 0 | ||||||||||||||
Net gain on sale of investment securities | (1,815) | (1,517) | (97) | ||||||||||||||
Stock-based compensation expense | 5,324 | 7,684 | 6,494 | ||||||||||||||
Net tax (expense) benefits from stock compensation | 118 | (48) | 110 | ||||||||||||||
Increase in other assets | (28,626) | (21,421) | (16,643) | ||||||||||||||
Increase in other liabilities | 9,826 | 19,809 | 2,061 | ||||||||||||||
Net cash provided by operating activities | 133,139 | 132,684 | 165,455 | ||||||||||||||
Cash Flows From Investing Activities: | |||||||||||||||||
Purchases of available-for-sale investment securities | (739,955) | (374,648) | (331,884) | ||||||||||||||
Proceeds from maturities of available-for-sale securities | 302,471 | 214,204 | 93,848 | ||||||||||||||
Proceeds from sale/call of available-for-sale securities | 124,144 | 104,785 | 36,292 | ||||||||||||||
Purchases of Federal Reserve and Federal Home Loan Bank stock | (9,160) | (100,939) | (47,872) | ||||||||||||||
Proceeds from redemption of Federal Reserve and Federal Home Loan Bank stock | 4,250 | 89,250 | 60,690 | ||||||||||||||
Net increase in loans | (240,911) | (563,771) | (583,393) | ||||||||||||||
Purchase of BOLI | 0 | (580) | (11,000) | ||||||||||||||
Purchase of annuities | 0 | (2,589) | 0 | ||||||||||||||
Proceeds from sale of other real estate owned | 4,430 | 0 | 0 | ||||||||||||||
Purchases of premises and equipment | (2,945) | (2,839) | (1,482) | ||||||||||||||
Net cash used in investing activities | (557,676) | (637,127) | (784,801) | ||||||||||||||
Cash Flows From Financing Activities: | |||||||||||||||||
Increase in deposits | 1,964,812 | 250,106 | 1,120,301 | ||||||||||||||
Increase (decrease) in customer repurchase agreements | (4,254) | 567 | (46,148) | ||||||||||||||
Increase (decrease) in short-term borrowings | 50,000 | 250,000 | (325,000) | ||||||||||||||
Increase in long-term borrowings | 50,000 | 0 | 0 | ||||||||||||||
Proceeds from exercise of equity compensation plans | 63 | 332 | 776 | ||||||||||||||
Proceeds from employee stock purchase plan | 760 | 782 | 808 | ||||||||||||||
Common stock repurchased | (61,432) | (54,903) | 0 | ||||||||||||||
Cash dividends paid | (28,330) | (22,332) | 0 | ||||||||||||||
Net cash provided by financing activities | 1,971,619 | 424,552 | 750,737 | ||||||||||||||
Net (Decrease) Increase In Cash and Cash Equivalents | 1,547,082 | (79,891) | 131,391 | ||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 241,973 | 321,864 | 190,473 | ||||||||||||||
Cash and Cash Equivalents at End of Period | $ | 1,789,055 | $ | 241,973 | $ | 321,864 | |||||||||||
Supplemental Cash Flows Information: | |||||||||||||||||
Interest paid | $ | 70,183 | $ | 105,985 | $ | 73,806 | |||||||||||
Income taxes paid | $ | 37,400 | $ | 54,650 | $ | 55,200 | |||||||||||
Non-Cash Investing Activities | |||||||||||||||||
Initial recognition of operating lease right-of-use assets | $ | 1,696 | $ | 29,574 | $ | 0 | |||||||||||
Transfers from loans to other real estate owned | $ | 6,750 | $ | 93 | $ | 0 | |||||||||||
Change in fair value of cash flow hedge | $ | (904) | $ | 0 | $ | 0 | |||||||||||
Change in fair value of investments | $ | 17,822 | $ | 0 | $ | 0 |
84
Eagle Bancorp, Inc.
Income.
2019.
85
that the buyer/investor has assumed the interest rate risk on the loan.loan as the Company protects itself from changes in interest rates. As a result, the Bank is not generally exposed to losses on loans sold utilizing best efforts, nor will it realize gains related to rate lock commitments due to changes in interest rates. The market values of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded. Because of the high correlation between rate lock commitments and best efforts contracts, novery little gain or loss should occur on the interest rate lock commitments.
Income.
2019.
Income.
86
The entire amount of an impairment loss is recognized in earnings only when: (1) the Company intends to sell the security; or (2) it is more likely than not that the Company will have to sell the security before recovery of its amortized cost basis; or (3) the Company does not expect to recover the entire amortized cost basis of the security. In all other situations, only the portion ofFor the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in shareholders’ equity as comprehensive income, net of deferred taxes.
investment securities please see "Allowance for Credit Losses - Available-for-Sale Debt Securities" below.
January 1, 2020 | ||||||||||||||||||||
(dollars in thousands) | As Reported Under ASC 326 | Pre-ASC 326 Adoption | Impact of ASC 326 Adoption | |||||||||||||||||
Assets: | ||||||||||||||||||||
Loans | ||||||||||||||||||||
Commercial | $ | 1,545,906 | $ | 1,545,906 | $ | 0 | ||||||||||||||
Income producing - commercial real estate | 3,702,747 | 3,702,747 | 0 | |||||||||||||||||
Owner occupied - commercial real estate | 985,409 | 985,409 | 0 | |||||||||||||||||
Real estate mortgage - residential | 104,221 | 104,221 | 0 | |||||||||||||||||
Construction - commercial and residential | 1,035,754 | 1,035,754 | 0 | |||||||||||||||||
Construction - C&I (owner occupied) | 89,490 | 89,490 | — | |||||||||||||||||
Home equity | 80,061 | 80,061 | 0 | |||||||||||||||||
Other consumer | 2,160 | 2,160 | 0 | |||||||||||||||||
Allowance for credit losses on loans | $ | (84,272) | $ | (73,658) | $ | (10,614) | ||||||||||||||
Liabilities: Reserve for Unfunded Commitments | $ | (4,118) | $ | 0 | $ | (4,118) |
For the Year Ended | ||||||||||||||
(dollars in thousands) | December 31, 2020 | December 31, 2019 | ||||||||||||
Provision for credit losses- loans | $ | 45,404 | $ | 13,091 | ||||||||||
Provision for credit losses- AFS debt securities | 167 | 0 | ||||||||||||
Total provision for credit losses | $ | 45,571 | $ | 13,091 |
Three components comprise our90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on nonaccrual status. Accordingly, we do not recognize an allowance for credit losses: a specific allowance, a formula allowanceloss against accrued interest receivable.
they are funded.
The formula allowance is used to estimate the loss on internally risk rated loans, exclusive of those identified as requiring specific reserves. The portfolio of unimpaired loans is stratified by loan type and risk assessment. Allowance factors relate to the type of loan and level of the internal risk rating, with loans exhibiting higher risk and loss experience receiving a higher allowance factor.
The environmental factors allowance is also used to estimate the loss associated with pools of non-classified loans. These non-classified loans are also stratified by loan type, and environmental allowance factors are assigned by management based upon a number of conditions, including delinquencies, loss history, changes in lending policy and procedures, changes in business and economic conditions, changes in the nature and volume of the portfolio, management expertise, concentrations within the portfolio, quality of internal and external loan review systems, competition, and legal and regulatory requirements.
The allowance captures losses inherent in the loan portfolio, which have not yet been recognized. Allowance factors and the overall size of the allowance may change from period to period based upon management’s assessment of the above described factors, the relative weights given to each factor, and portfolio composition.
87
Management has significant discretion in making the judgments inherent in the determination of the provision and allowance for credit losses, including in connection with the valuation of collateral, a borrower’s prospects of repayment, and in establishing allowance factors on the formula and environmental components of the allowance. The establishment of allowance factors involves a continuing evaluation, based on management’s ongoing assessment of the global factors discussed above and their impact on the portfolio. The allowance factors may change from period to period, resulting in an increase or decrease in the amount of the provision or allowance, based upon the same volume and classification of loans. Changes in allowance factors can have a direct impact on the amount of the provision, and a related after tax effect on net income. Errors in management’s perception and assessment of the global factors and their impact on the portfolio could result in the allowance not being adequate to cover losses in the portfolio, and may result in additional provisions or charge-offs. Alternatively, errors in management’s perception and assessment of the global factors and their impact on the portfolio could result in the allowance being in excess of amounts necessary to cover losses in the portfolio, and may result in lower provisions in the future.
Premises and Equipment
Income.
impaired, or at least annually as of December 31.
88
Interest Rate Swap Derivatives
certain.
2020.
89
Earnings per Common Share
ASU 2016-02, “Leases (Topic 842).2020
Accounting Standards Pending Adoption
Credit Losses" for further detail.
90
Entities2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We anticipate this ASU will applysimplify any changes resulting frommodifications we execute between the applicationselected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the new standard’s provisions as a cumulative-effect adjustment to retained earnings ascontinuation of the beginningcontract, rather than extinguishment of the first reporting periodold contract resulting in whichwriting off unamortized fees/costs. We are evaluating the guidance is effective (i.e., modified retrospective approach). We plan to electimpacts of this ASU and have not yet determined whether LIBOR transition and this ASU will have material effects on the Federal ReserveCompany's business operations and FDIC’s rule providing for an optional three-year phase-in period for the day-one adverse regulatory capital effects upon adopting the standard. We preliminarily expect this rule to increase the reserve for credit losses 10-20% inclusive of the impact on commitments to lend upon implementation on January 1, 2020. The ultimate impact may change as we finalize our model validations as well as the execution of our implementation controls and processes.
consolidated financial statements.
$780 thousand at December 31, 2019.
December 31, 2020 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for | Estimated Fair Value | |||||||||||||||||||||||||||
(dollars in thousands) | Credit Losses | |||||||||||||||||||||||||||||||
U. S. agency securities | $ | 181,087 | $ | 1,461 | $ | (627) | $ | — | $ | 181,921 | ||||||||||||||||||||||
Residential mortgage backed securities | 811,328 | 14,506 | (833) | — | 825,001 | |||||||||||||||||||||||||||
Municipal bonds | 102,259 | 5,872 | 0 | (18) | 108,113 | |||||||||||||||||||||||||||
Corporate bonds | 34,383 | 1,624 | (8) | (149) | 35,850 | |||||||||||||||||||||||||||
$ | 1,129,057 | $ | 23,463 | $ | (1,468) | $ | (167) | $ | 1,150,885 |
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | Estimated | |||
December 31, 2019 | | Amortized | | Unrealized | | Unrealized | | Fair | ||||
(dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Value | ||||
U. S. agency securities | | $ | 180,228 | | $ | 621 | # | $ | 1,055 | | $ | 179,794 |
Residential mortgage backed securities | |
| 541,490 | |
| 4,337 | |
| 1,975 | |
| 543,852 |
Municipal bonds | |
| 71,902 | |
| 2,034 | |
| 5 | |
| 73,931 |
Corporate bonds | |
| 10,530 | |
| 203 | |
| — | |
| 10,733 |
U.S. Treasury | | | 34,844 | | | 11 | | | — | | | 34,855 |
Other equity investments | |
| 198 | |
| — | |
| — | |
| 198 |
| | $ | 839,192 | | $ | 7,206 | | $ | 3,035 | | $ | 843,363 |
December 31, 2019 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||
U. S. agency securities | $ | 180,228 | $ | 621 | $ | (1,055) | $ | 179,794 | ||||||||||||||||||
Residential mortgage backed securities | 541,490 | 4,337 | (1,975) | 543,852 | ||||||||||||||||||||||
Municipal bonds | 71,902 | 2,034 | (5) | 73,931 | ||||||||||||||||||||||
Corporate bonds | 10,530 | 203 | — | 10,733 | ||||||||||||||||||||||
U.S. Treasury | 34,844 | 11 | — | 34,855 | ||||||||||||||||||||||
$ | 838,994 | $ | 7,206 | $ | (3,035) | $ | 843,165 |
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | Estimated | |||
December 31, 2018 | | Amortized | | Unrealized | | Unrealized | | Fair | ||||
(dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Value | ||||
U. S. agency securities | | $ | 260,150 | | $ | 228 | # | $ | 4,033 | | $ | 256,345 |
Residential mortgage backed securities | |
| 477,949 | |
| 1,575 | |
| 7,293 | |
| 472,231 |
Municipal bonds | |
| 45,814 | |
| 439 | |
| 484 | |
| 45,769 |
Corporate bonds | |
| 9,503 | |
| 79 | |
| 6 | |
| 9,576 |
Other equity investments | |
| 218 | |
| — | |
| — | |
| 218 |
| | $ | 793,634 | | $ | 2,321 | | $ | 11,816 | | $ | 784,139 |
91
Gross unrealized losses and fair value by length of time that the individual available-for-sale securities have been in a continuous unrealized loss position as of December 31, 20192020 and 20182019 are as follows:
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||||||||||||||||||||||
December 31, 2020 | Number of Securities | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | |||||||||||||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
U. S. agency securities | 28 | $ | 46,412 | $ | 67 | $ | 41,320 | $ | 560 | $ | 87,732 | $ | 627 | |||||||||||||||||||||||||||||||
Residential mortgage backed securities | 35 | 170,178 | 782 | 6,419 | 51 | 176,597 | 833 | |||||||||||||||||||||||||||||||||||||
Corporate bonds | 3 | 5,764 | 8 | 0 | 0 | 5,764 | 8 | |||||||||||||||||||||||||||||||||||||
66 | $ | 222,354 | $ | 857 | $ | 47,739 | $ | 611 | $ | 270,093 | $ | 1,468 |
| | | | | | | | | | | | | | | | | | | | |
| | | | Less than | | 12 Months | | | | | | | ||||||||
| | | | 12 Months | | or Greater | | Total | ||||||||||||
| | | | Estimated | | | | | Estimated | | | | | Estimated | | | | |||
December 31, 2019 | | Number of | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||
(dollars in thousands) |
| Securities |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
U. S. agency securities |
| 36 | | $ | 75,159 | | $ | 439 | | $ | 51,481 | | $ | 616 | | $ | 126,640 | | $ | 1,055 |
Residential mortgage backed securities |
| 111 | |
| 197,794 | |
| 1,148 | |
| 90,742 | |
| 827 | |
| 288,536 | |
| 1,975 |
Municipal bonds |
| 1 | |
| 1,994 | |
| 5 | |
| — | |
| — | |
| 1,994 | |
| 5 |
|
| 148 | | $ | 274,947 | | $ | 1,592 | | $ | 142,223 | | $ | 1,443 | | $ | 417,170 | | $ | 3,035 |
| | | | | | | | | | | | | | | | | | | | |
| | | | Less than | | 12 Months | | | | | | | ||||||||
| | | | 12 Months | | or Greater | | Total | ||||||||||||
| | | | Estimated | | | | | Estimated | | | | | Estimated | | | | |||
December 31, 2018 | | Number of | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||
(dollars in thousands) |
| Securities |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
U. S. agency securities |
| 58 | | $ | 72,679 | | $ | 533 | | $ | 144,636 | | $ | 3,500 | | $ | 217,315 | | $ | 4,033 |
Residential mortgage backed securities |
| 151 | |
| 61,199 | |
| 527 | |
| 225,995 | |
| 6,766 | |
| 287,194 | |
| 7,293 |
Municipal bonds |
| 11 | |
| 4,299 | |
| 50 | |
| 17,041 | |
| 434 | |
| 21,340 | |
| 484 |
Corporate bonds | | 1 | | | 1,494 | | | 6 | | | — | | | — | | | 1,494 | | | 6 |
|
| 221 | | $ | 139,671 | | $ | 1,116 | | $ | 387,672 | | $ | 10,700 | | $ | 527,343 | | $ | 11,816 |
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||||||||||||||||||||||
December 31, 2019 | Number of Securities | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | |||||||||||||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
U. S. agency securities | 36 | $ | 75,159 | $ | 439 | $ | 51,481 | $ | 616 | $ | 126,640 | $ | 1,055 | |||||||||||||||||||||||||||||||
Residential mortgage backed securities | 111 | 197,794 | 1,148 | 90,742 | 827 | 288,536 | 1,975 | |||||||||||||||||||||||||||||||||||||
Municipal bonds | 1 | 1,994 | 5 | 0 | 0 | 1,994 | 5 | |||||||||||||||||||||||||||||||||||||
148 | $ | 274,947 | $ | 1,592 | $ | 142,223 | $ | 1,443 | $ | 417,170 | $ | 3,035 |
December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||
(dollars in thousands) | Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | ||||||||||||||||||||||
U. S. agency securities maturing: | ||||||||||||||||||||||||||
One year or less | $ | 53,916 | $ | 53,906 | $ | 96,332 | $ | 96,226 | ||||||||||||||||||
After one year through five years | 110,083 | 110,777 | 76,121 | 75,821 | ||||||||||||||||||||||
Five years through ten years | 17,087 | 17,240 | 7,775 | 7,747 | ||||||||||||||||||||||
Residential mortgage backed securities | 811,328 | 825,001 | 541,490 | 543,852 | ||||||||||||||||||||||
Municipal bonds maturing: | ||||||||||||||||||||||||||
One year or less | 4,329 | 4,348 | 5,897 | 5,969 | ||||||||||||||||||||||
After one year through five years | 26,622 | 28,272 | 21,416 | 21,953 | ||||||||||||||||||||||
Five years through ten years | 69,309 | 73,389 | 42,589 | 44,015 | ||||||||||||||||||||||
After ten years | 2,000 | 2,121 | 2,000 | 1,994 | ||||||||||||||||||||||
Corporate bonds maturing: | ||||||||||||||||||||||||||
One year or less | 5,218 | 5,220 | 502 | 508 | ||||||||||||||||||||||
After one year through five years | 22,189 | 23,267 | 8,528 | 8,725 | ||||||||||||||||||||||
Five years through ten years | 6,976 | 7,511 | — | — | ||||||||||||||||||||||
After ten years | — | — | 1,500 | 1,500 | ||||||||||||||||||||||
U.S. treasury | — | — | 34,844 | 34,855 | ||||||||||||||||||||||
Allowance for credit losses | — | (167) | — | — | ||||||||||||||||||||||
$ | 1,129,057 | $ | 1,150,885 | $ | 838,994 | $ | 843,165 |
| | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 | ||||||||
| | Amortized | | Estimated | | Amortized | | Estimated | ||||
(dollars in thousands) |
| Cost |
| Fair Value |
| Cost |
| Fair Value | ||||
U. S. agency securities maturing: | | | | | | | | | | | | |
One year or less | | $ | 96,332 | | $ | 96,226 | | $ | 128,148 | | $ | 125,545 |
After one year through five years | |
| 76,121 | |
| 75,821 | |
| 119,856 | |
| 118,883 |
Five years through ten years | |
| 7,775 | |
| 7,747 | |
| 12,146 | |
| 11,917 |
Residential mortgage backed securities | |
| 541,490 | |
| 543,852 | |
| 477,949 | |
| 472,231 |
Municipal bonds maturing: | |
| | |
| | |
|
| |
|
|
One year or less | |
| 5,897 | |
| 5,969 | |
| 8,097 | |
| 8,167 |
After one year through five years | |
| 21,416 | |
| 21,953 | |
| 15,025 | |
| 15,081 |
Five years through ten years | |
| 42,589 | |
| 44,015 | |
| 21,626 | |
| 21,385 |
After ten years | |
| 2,000 | |
| 1,994 | |
| 1,066 | |
| 1,136 |
Corporate bonds maturing: | |
| | |
| | |
|
| |
|
|
One year or less | | | 502 | | | 508 | | | — | | | — |
After one year through five years | |
| 8,528 | |
| 8,725 | |
| 8,003 | |
| 8,076 |
After ten years | |
| 1,500 | |
| 1,500 | |
| 1,500 | |
| 1,500 |
U.S. treasury | | | 34,844 | | | 34,855 | | | — | | | — |
Other equity investments | |
| 198 | |
| 198 | |
| 218 | |
| 218 |
| | $ | 839,192 | | $ | 843,363 | | $ | 793,634 | | $ | 784,139 |
92
The carrying value of securities pledged as collateral for certain government deposits, securities sold under agreements to repurchase, and certain lines of credit with correspondent banks at December 31, 20192020 was $378$268.4 million, which is well in excess of required amounts in order to operationally provide significant reserve amounts for new business. As of December 31, 20192020 and December 31, 2018,2019, there were no holdings of securities of any one issuer, other than the U.S. Government and U.S. agency securities, which exceeded 10 percent of shareholders’ equity.
December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||
(dollars in thousands) | Amount | % | Amount | % | ||||||||||||||||||||||
Commercial | $ | 1,437,433 | 19 | % | $ | 1,545,906 | 20 | % | ||||||||||||||||||
PPP loans | 454,771 | 6 | % | 0 | 0 | % | ||||||||||||||||||||
Income producing - commercial real estate | 3,687,000 | 47 | % | 3,702,747 | 50 | % | ||||||||||||||||||||
Owner occupied - commercial real estate | 997,694 | 13 | % | 985,409 | 13 | % | ||||||||||||||||||||
Real estate mortgage - residential | 76,592 | 1 | % | 104,221 | 1 | % | ||||||||||||||||||||
Construction - commercial and residential | 873,261 | 11 | % | 1,035,754 | 14 | % | ||||||||||||||||||||
Construction - C&I (owner occupied) | 158,905 | 2 | % | 89,490 | 1 | % | ||||||||||||||||||||
Home equity | 73,167 | 1 | % | 80,061 | 1 | % | ||||||||||||||||||||
Other consumer | 1,389 | 0 | 2,160 | 0 | ||||||||||||||||||||||
Total loans | 7,760,212 | 100 | % | 7,545,748 | 100 | % | ||||||||||||||||||||
Less: allowance for credit losses | (109,579) | (73,658) | ||||||||||||||||||||||||
Net loans | $ | 7,650,633 | $ | 7,472,090 |
| | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 |
| ||||||
(dollars in thousands) |
| Amount |
| % |
| Amount |
| % | | ||
Commercial | | $ | 1,545,906 |
| 20 | % | $ | 1,553,112 |
| 22 | % |
Income producing - commercial real estate | |
| 3,702,747 |
| 50 | % |
| 3,256,900 |
| 46 | % |
Owner occupied - commercial real estate | |
| 985,409 |
| 13 | % |
| 887,814 |
| 13 | % |
Real estate mortgage - residential | |
| 104,221 |
| 1 | % |
| 106,418 |
| 2 | % |
Construction - commercial and residential | |
| 1,035,754 |
| 14 | % |
| 1,039,815 |
| 15 | % |
Construction - C&I (owner occupied) | |
| 89,490 |
| 1 | % |
| 57,797 |
| 1 | % |
Home equity | |
| 80,061 |
| 1 | % |
| 86,603 |
| 1 | % |
Other consumer | |
| 2,160 |
| — | |
| 2,988 |
| — | |
Total loans | |
| 7,545,748 |
| 100 | % |
| 6,991,447 |
| 100 | % |
Less: allowance for credit losses | |
| (73,658) |
| | | | (69,944) | | | |
Net loans | | $ | 7,472,090 | | | | $ | 6,921,503 | | | |
supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments.
93
The Company is also an active traditional commercial lender providing loans for a variety of purposes, including working capital, equipment and account receivable financing. This loan category represents approximately 20%19% of the loan portfolio at December 31, 20192020 and was generally with variable or adjustable rate. Commercial loans meet reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service. Personal guarantees are generally required, but may be limited. SBA loans represent approximately 1% of the commercial loan category. In originating SBA loans, the Company assumes the risk of non-payment on the unguaranteed portion of the credit. The Company generally sells the guaranteed portion of the loan, generating noninterest income from the gains on sale, as well as servicing income on the portion participated. SBA loans are subject to the same cash flow analyses as other commercial loans. SBA loans are subject to a maximum loan size established by the SBA as well as internal loan size guidelines.
94
The Company’s loan portfolio includes ADC real estate loans including both investment and owner occupied projects. ADC loans amounted to $1.61$1.4 billion at December 31, 2019.2020. A portion of the ADC portfolio, both speculative and non-speculative, includes loan funded interest reserves at origination. ADC loans that provide for the use of interest reserves represent approximately 65%61.4% of the outstanding ADC loan portfolio at December 31, 2019.2020. The decision to establish a loan-funded interest reserve is made upon origination of the ADC loan and is based upon a number of factors considered during underwriting of the credit including: (1) the feasibility of the project; (2) the experience of the sponsor; (3) the creditworthiness of the borrower and guarantors; (4) borrower equity contribution; and (5) the level of collateral protection. When appropriate, an interest reserve provides an effective means of addressing the cash flow characteristics of a properly underwritten ADC loan. The Company does not significantly utilize interest reserves in other loan products. The Company recognizes that one of the risks inherent in the use of interest reserves is the potential masking of underlying problems with the project and/or the borrower’s ability to repay the loan. In order to mitigate this inherent risk, the Company employs a series of reporting and monitoring mechanisms on all ADC loans, whether or not an interest reserve is provided, including: (1) construction and development timelines which are monitored on an ongoing basis which track the progress of a given project to the timeline projected at origination; (2) a construction loan administration department independent of the lending function; (3) third party independent construction loan inspection reports; (4) monthly interest reserve monitoring reports detailing the balance of the interest reserves approved at origination and the days of interest carry represented by the reserve balances as compared to the then current anticipated time to completion and/or sale of speculative projects; and (5) quarterly commercial real estate construction meetings among senior Company management, which includes monitoring of current and projected real estate market conditions. If a project has not performed as expected, it is not the customary practice of the Company to increase loan funded interest reserves.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Income Producing - | | Owner Occupied - | | Real Estate | | Construction - | | | | | | | |
| | ||||
| | | | | Commercial | | Commercial | | Mortgage - | | Commercial and | | Home | | Other | | | | ||||||
(dollars in thousands) |
| Commercial |
| Real Estate |
| Real Estate |
| Residential |
| Residential |
| Equity |
| Consumer |
| Total | ||||||||
Year Ended December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balance at beginning of period | | $ | 15,857 | | $ | 28,034 | | $ | 6,242 | | $ | 965 | | $ | 18,175 | | $ | 599 | | $ | 72 | | $ | 69,944 |
Loans charged-off | |
| (4,868) | |
| (1,847) | |
| — | |
| — | |
| (3,496) | |
| — | |
| (8) | |
| (10,219) |
Recoveries of loans previously charged-off | |
| 405 | |
| 26 | |
| 3 | |
| 3 | |
| 354 | |
| — | |
| 51 | |
| 842 |
Net loans charged-off | |
| (4,463) | |
| (1,821) | |
| 3 | |
| 3 | |
| (3,142) | |
| — | |
| 43 | |
| (9,377) |
Provision for credit losses | |
| 7,438 | |
| 3,052 | |
| (407) | |
| 589 | |
| 2,452 | |
| 57 | |
| (90) | |
| 13,091 |
Ending balance | | $ | 18,832 | | $ | 29,265 | | $ | 5,838 | | $ | 1,557 | | $ | 17,485 | | $ | 656 | | $ | 25 | | $ | 73,658 |
For the Year Ended December 31, 2019 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Allowance for credit losses: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Individually evaluated for impairment | | $ | 5,714 | | $ | 2,145 | | $ | 415 | | $ | 650 | | $ | 100 | | $ | 100 | | $ | — | | $ | 9,124 |
Collectively evaluated for impairment | |
| 13,118 | |
| 27,120 | |
| 5,423 | |
| 907 | |
| 17,385 | |
| 556 | |
| 25 | |
| 64,534 |
Ending balance | | $ | 18,832 | | $ | 29,265 | | $ | 5,838 | | $ | 1,557 | | $ | 17,485 | | $ | 656 | | $ | 25 | | $ | 73,658 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2018 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Allowance for credit losses: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Balance at beginning of period | | $ | 13,102 | | $ | 25,376 | | $ | 5,934 | | $ | 944 | | $ | 18,492 | | $ | 770 | | $ | 140 | | $ | 64,758 |
Loans charged-off | |
| (3,491) | |
| (121) | |
| (132) | |
| — | |
| (1,160) | |
| — | |
| (81) | |
| (4,985) |
Recoveries of loans previously charged-off | |
| 340 | |
| 2 | |
| 3 | |
| 6 | |
| 1,009 | |
| 133 | |
| 18 | |
| 1,511 |
Net loans (charged-off) recoveries | |
| (3,151) | |
| (119) | |
| (129) | |
| 6 | |
| (151) | |
| 133 | |
| (63) | |
| (3,474) |
Provision for credit losses | |
| 5,906 | |
| 2,777 | |
| 437 | |
| 15 | |
| (166) | |
| (304) | |
| (5) | |
| 8,660 |
Ending balance | | $ | 15,857 | | $ | 28,034 | | $ | 6,242 | | $ | 965 | | $ | 18,175 | | $ | 599 | | $ | 72 | | $ | 69,944 |
For the Year Ended December 31, 2018 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Allowance for credit losses: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Individually evaluated for impairment | | $ | 4,803 | | $ | 2,465 | | $ | 600 | | $ | — | | $ | 1,050 | | $ | — | | $ | — | | $ | 8,918 |
Collectively evaluated for impairment | |
| 11,054 | |
| 25,569 | |
| 5,642 | |
| 965 | |
| 17,125 | |
| 599 | |
| 72 | |
| 61,026 |
Ending balance | | $ | 15,857 | | $ | 28,034 | | $ | 6,242 | | $ | 965 | | $ | 18,175 | | $ | 599 | | $ | 72 | | $ | 69,944 |
95
(dollars in thousands) | Commercial | Income Producing - Commercial Real Estate | Owner Occupied - Commercial Real Estate | Real Estate Mortgage - Residential | Construction - Commercial and Residential | Home Equity | Other Consumer | Total | ||||||||||||||||||||||||||||||||||||||||||
Year Ended December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of period, prior to adoption of ASC 326 | $ | 18,832 | $ | 29,265 | $ | 5,838 | $ | 1,557 | $ | 17,485 | $ | 656 | $ | 25 | $ | 73,658 | ||||||||||||||||||||||||||||||||||
Impact of adopting ASC 326 | 892 | 11,230 | 4,674 | (301) | (6,143) | 245 | 17 | 10,614 | ||||||||||||||||||||||||||||||||||||||||||
Loans charged-off | (12,082) | (4,300) | (20) | (815) | (2,947) | (92) | (3) | (20,259) | ||||||||||||||||||||||||||||||||||||||||||
Recoveries of loans previously charged-off | 130 | 0 | 0 | 0 | 4 | 0 | 28 | 162 | ||||||||||||||||||||||||||||||||||||||||||
Net loans charged-off | (11,952) | (4,300) | (20) | (815) | (2,943) | (92) | 25 | (20,097) | ||||||||||||||||||||||||||||||||||||||||||
Provision for credit losses | 18,797 | 19,190 | 3,508 | 579 | 3,130 | 230 | (30) | 45,404 | ||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 26,569 | $ | 55,385 | $ | 14,000 | $ | 1,020 | $ | 11,529 | $ | 1,039 | $ | 37 | $ | 109,579 | ||||||||||||||||||||||||||||||||||
At December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 7,343 | $ | 6,425 | $ | 1,241 | $ | 330 | $ | 103 | $ | 0 | $ | 0 | $ | 15,442 | ||||||||||||||||||||||||||||||||||
Collectively evaluated for impairment | 19,226 | 48,960 | 12,759 | 690 | 11,426 | 1,039 | 37 | 94,137 | ||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 26,569 | $ | 55,385 | $ | 14,000 | $ | 1,020 | $ | 11,529 | $ | 1,039 | $ | 37 | $ | 109,579 | ||||||||||||||||||||||||||||||||||
Year Ended December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of period | $ | 15,857 | $ | 28,034 | $ | 6,242 | $ | 965 | $ | 18,175 | $ | 599 | $ | 72 | $ | 69,944 | ||||||||||||||||||||||||||||||||||
Loans charged-off | (4,868) | (1,847) | 0 | 0 | (3,496) | 0 | (8) | (10,219) | ||||||||||||||||||||||||||||||||||||||||||
Recoveries of loans previously charged-off | 405 | 26 | 3 | 3 | 354 | 0 | 51 | 842 | ||||||||||||||||||||||||||||||||||||||||||
Net loans (charged-off) recoveries | (4,463) | (1,821) | 3 | 3 | (3,142) | 0 | 43 | (9,377) | ||||||||||||||||||||||||||||||||||||||||||
Provision for credit losses | 7,438 | 3,052 | (407) | 589 | 2,452 | 57 | (90) | 13,091 | ||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 18,832 | $ | 29,265 | $ | 5,838 | $ | 1,557 | $ | 17,485 | $ | 656 | $ | 25 | $ | 73,658 | ||||||||||||||||||||||||||||||||||
At December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 5,714 | $ | 2,145 | $ | 415 | $ | 650 | $ | 100 | $ | 100 | $ | 0 | $ | 9,124 | ||||||||||||||||||||||||||||||||||
Collectively evaluated for impairment | 13,118 | 27,120 | 5,423 | 907 | 17,385 | 556 | 25 | 64,534 | ||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 18,832 | $ | 29,265 | $ | 5,838 | $ | 1,557 | $ | 17,485 | $ | 656 | $ | 25 | $ | 73,658 |
The Company’s recorded investments incollateral-dependent loans by class of loans as of December 31, 2019 and December 31, 2018 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology was as follows:
2020:
(dollars in thousands) | Business/Other Assets | Real Estate | ||||||||||||
Commercial | $ | 11,326 | $ | 4,026 | ||||||||||
PPP loans | 0 | 0 | ||||||||||||
Income-producing-commercial real estate | 3,193 | 15,686 | ||||||||||||
Owner occupied - commercial real estate | 0 | 23,159 | ||||||||||||
Real estate mortgage- residential | 0 | 2,932 | ||||||||||||
Construction - commercial and residential | 0 | 206 | ||||||||||||
Home Equity | 0 | 415 | ||||||||||||
Other consumer | 0 | 0 | ||||||||||||
Total | $ | 14,519 | $ | 46,424 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Income Producing - | | Owner Occupied - | | Real Estate | | Construction - | | | | |
| | |
| | ||||
| | | | | Commercial | | Commercial | | Mortgage - | | Commercial and | | Home | | Other | | | | ||||||
(dollars in thousands) |
| Commercial |
| Real Estate |
| Real Estate |
| Residential |
| Residential |
| Equity |
| Consumer |
| Total | ||||||||
December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | |
Recorded investment in loans: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Individually evaluated for impairment | | $ | 25,288 | | $ | 19,093 | | $ | 6,463 | | $ | 5,365 | | $ | 11,510 | | $ | 487 | | $ | — | | $ | 68,206 |
Collectively evaluated for impairment | |
| 1,520,618 | | | 3,683,654 | |
| 978,946 | |
| 98,856 | |
| 1,113,734 | |
| 79,574 | |
| 2,160 | |
| 7,477,542 |
Ending balance | | $ | 1,545,906 | | $ | 3,702,747 | | $ | 985,409 | | $ | 104,221 | | $ | 1,125,244 | | $ | 80,061 | | $ | 2,160 | | $ | 7,545,748 |
December 31, 2018 | |
|
| | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Recorded investment in loans: | |
|
| | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Individually evaluated for impairment | | $ | 8,738 | | $ | 61,747 | | $ | 5,307 | | $ | 1,228 | | $ | 7,012 | | $ | 487 | | $ | — | | $ | 84,519 |
Collectively evaluated for impairment | |
| 1,544,374 | | | 3,195,153 | |
| 882,507 | |
| 105,190 | |
| 1,090,600 | |
| 86,116 | |
| 2,988 | |
| 6,906,928 |
Ending balance | | $ | 1,553,112 | | $ | 3,256,900 | | $ | 887,814 | | $ | 106,418 | | $ | 1,097,612 | | $ | 86,603 | | $ | 2,988 | | $ | 6,991,447 |
| |||||
Pass: | Loans in all classes that comprise the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass. | ||||
|
| ||||
Watch: | Loan is paying as agreed with generally acceptable asset quality; however the obligor’s performance has not met expectations. Balance sheet and/or income statement has shown deterioration to the point that the obligor could not sustain any further setbacks. Credit is expected to be strengthened through improved obligor performance and/or additional collateral within a reasonable period of time. | ||||
|
| ||||
Special Mention: | Loans in the classes that comprise the commercial portfolio segment that have potential weaknesses that deserve management’s close attention. If not addressed, these potential weaknesses may result in deterioration of the repayment prospects for the loan. The special mention credit quality indicator is not used for classes of loans that comprise the consumer portfolio segment. Management believes that there is a moderate likelihood of some loss related to those loans that are considered special mention. | ||||
|
| ||||
Classified: | Classified (a) Substandard – Loans inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard. | ||||
|
| ||||
| Classified (b) Doubtful – Loans that have all the weaknesses inherent in a loan classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important |
96
and reasonably specific pending factors, which may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined. |
2019. The December 31, 2020 data is further defined by year of loan origination.
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Total | ||
(dollars in thousands) |
| Pass |
| Watch | | Special Mention |
| Substandard |
| Doubtful |
| Loans | ||||||
December 31, 2019 | | | | | | | | | | | | | | | | | | |
Commercial | | $ | 1,470,636 | | $ | 38,522 | | $ | 11,460 | | $ | 25,288 | | $ | — | | $ | 1,545,906 |
Income producing - commercial real estate | |
| 3,667,585 | |
| 16,069 | | | — | |
| 19,093 | |
| — | |
| 3,702,747 |
Owner occupied - commercial real estate | |
| 925,800 | |
| 53,146 | | | — | |
| 6,463 | |
| — | |
| 985,409 |
Real estate mortgage - residential | |
| 98,228 | |
| 628 | | | — | |
| 5,365 | |
| — | |
| 104,221 |
Construction - commercial and residential | |
| 1,113,734 | |
| — | | | — | |
| 11,510 | |
| — | |
| 1,125,244 |
Home equity | |
| 78,626 | |
| 948 | | | — | |
| 487 | |
| — | |
| 80,061 |
Other consumer | |
| 2,160 | |
| — | | | — | |
| — | |
| — | |
| 2,160 |
Total | | $ | 7,356,769 | | $ | 109,313 | | $ | 11,460 | | $ | 68,206 | | $ | — | | $ | 7,545,748 |
December 31, 2018 | |
|
| |
|
| | | | |
|
| |
|
| |
|
|
Commercial | | $ | 1,505,477 | | $ | 25,584 | | $ | — | | $ | 22,051 | | $ | — | | $ | 1,553,112 |
Income producing - commercial real estate | |
| 3,172,479 | |
| 1,536 | | | — | |
| 82,885 | |
| — | |
| 3,256,900 |
Owner occupied - commercial real estate | |
| 844,286 | |
| 38,221 | | | — | |
| 5,307 | |
| — | |
| 887,814 |
Real estate mortgage - residential | |
| 104,543 | |
| 647 | | | — | |
| 1,228 | |
| — | |
| 106,418 |
Construction - commercial and residential | |
| 1,090,600 | |
| — | | | — | |
| 7,012 | |
| — | |
| 1,097,612 |
Home equity | |
| 85,434 | |
| 682 | | | — | |
| 487 | |
| — | |
| 86,603 |
Other consumer | |
| 2,988 | |
| — | | | — | |
| — | |
| — | |
| 2,988 |
Total | | $ | 6,805,807 | | $ | 66,670 | | $ | — | | $ | 118,970 | | $ | — | | $ | 6,991,447 |
December 31, 2020 (dollars in thousands) | Prior | 2016 | 2017 | 2018 | 2019 | 2020 | Total | |||||||||||||||||||||||||||||||||||||
Commercial | ||||||||||||||||||||||||||||||||||||||||||||
Pass | 323,660 | 111,886 | 249,541 | 211,551 | 164,166 | 227,095 | 1,287,899 | |||||||||||||||||||||||||||||||||||||
Watch | 31,903 | 5,315 | 19,145 | 21,013 | 7,740 | 7,979 | 93,095 | |||||||||||||||||||||||||||||||||||||
Special Mention | 4,969 | 1,692 | 8,969 | 3,385 | 5,599 | 2,169 | 26,783 | |||||||||||||||||||||||||||||||||||||
Substandard | 17,679 | 5,803 | 1,820 | 3,525 | 829 | — | 29,656 | |||||||||||||||||||||||||||||||||||||
Total | 378,211 | 124,696 | 279,475 | 239,474 | 178,334 | 237,243 | 1,437,433 | |||||||||||||||||||||||||||||||||||||
PPP loans | — | |||||||||||||||||||||||||||||||||||||||||||
Pass | — | — | — | — | — | 454,771 | 454,771 |
Total | — | — | — | — | — | 454,771 | 454,771 | |||||||||||||||||||||||||||||||||||||
Income producing - commercial real estate | — | |||||||||||||||||||||||||||||||||||||||||||
Pass | 560,915 | 347,946 | 397,953 | 622,276 | 643,388 | 512,387 | 3,084,865 | |||||||||||||||||||||||||||||||||||||
Watch | 152,367 | 62,912 | 91,636 | 89,852 | 44,555 | 34,195 | 475,517 | |||||||||||||||||||||||||||||||||||||
Special Mention | 213 | 0 | 0 | 0 | 51,969 | — | 52,182 | |||||||||||||||||||||||||||||||||||||
Substandard | 58,555 | 800 | 4,656 | 4,883 | 5,542 | — | 74,436 | |||||||||||||||||||||||||||||||||||||
Total | 772,050 | 411,658 | 494,245 | 717,011 | 745,454 | 546,582 | 3,687,000 | |||||||||||||||||||||||||||||||||||||
Owner occupied - commercial real estate | — | |||||||||||||||||||||||||||||||||||||||||||
Pass | 343,371 | 100,272 | 111,996 | 136,644 | 59,681 | 49,584 | 801,548 | |||||||||||||||||||||||||||||||||||||
Watch | 16,014 | 5,011 | 2,640 | 10,338 | 15,501 | — | 49,504 | |||||||||||||||||||||||||||||||||||||
Special Mention | 418 | — | — | 83,110 | 19,091 | — | 102,619 | |||||||||||||||||||||||||||||||||||||
Substandard | 28,228 | 784 | 1,908 | 2,048 | 10,151 | 904 | 44,023 | |||||||||||||||||||||||||||||||||||||
Total | 388,031 | 106,067 | 116,544 | 232,140 | 104,424 | 50,488 | 997,694 | |||||||||||||||||||||||||||||||||||||
Real estate mortgage - residential | — | |||||||||||||||||||||||||||||||||||||||||||
Pass | 16,310 | 2,693 | 10,199 | 12,746 | 18,209 | 10,116 | 70,273 | |||||||||||||||||||||||||||||||||||||
Watch | 1,996 | 699 | — | 728 | — | — | 3,423 | |||||||||||||||||||||||||||||||||||||
Substandard | 1,198 | 1,698 | — | — | — | — | 2,896 | |||||||||||||||||||||||||||||||||||||
Total | 19,504 | 5,090 | 10,199 | 13,474 | 18,209 | 10,116 | 76,592 | |||||||||||||||||||||||||||||||||||||
Construction - commercial and residential | — | |||||||||||||||||||||||||||||||||||||||||||
Pass | 21,290 | 60,486 | 266,788 | 297,480 | 105,679 | 71,297 | 823,020 | |||||||||||||||||||||||||||||||||||||
Watch | 929 | — | 42,751 | 3,448 | — | — | 47,128 | |||||||||||||||||||||||||||||||||||||
Special Mention | 12 | — | — | 2,895 | — | — | 2,907 | |||||||||||||||||||||||||||||||||||||
Substandard | — | 0 | 206 | — | — | — | 206 | |||||||||||||||||||||||||||||||||||||
Total | 22,231 | 60,486 | 309,745 | 303,823 | 105,679 | 71,297 | 873,261 | |||||||||||||||||||||||||||||||||||||
Construction - C&I (owner occupied) | — | |||||||||||||||||||||||||||||||||||||||||||
Pass | 8,278 | 10,476 | 6,637 | 30,340 | 22,209 | 40,101 | 118,041 | |||||||||||||||||||||||||||||||||||||
Watch | 3,573 | — | 2,118 | 4,935 | 0 | — | 10,626 | |||||||||||||||||||||||||||||||||||||
Special Mention | 124 | — | — | — | 14,436 | 15,678 | 30,238 | |||||||||||||||||||||||||||||||||||||
Total | 11,975 | 10,476 | 8,755 | 35,275 | 36,645 | 55,779 | 158,905 | |||||||||||||||||||||||||||||||||||||
Home Equity | — | |||||||||||||||||||||||||||||||||||||||||||
Pass | 33,226 | 4,493 | 8,227 | 7,827 | 4,224 | 12,924 | 70,921 | |||||||||||||||||||||||||||||||||||||
Watch | 1,596 | — | — | — | — | — | 1,596 | |||||||||||||||||||||||||||||||||||||
Substandard | 603 | — | — | — | 47 | — | 650 | |||||||||||||||||||||||||||||||||||||
Total | 35,425 | 4,493 | 8,227 | 7,827 | 4,271 | 12,924 | 73,167 | |||||||||||||||||||||||||||||||||||||
Other Consumer | — | |||||||||||||||||||||||||||||||||||||||||||
Pass | 929 | 190 | 64 | 74 | 94 | 31 | 1,382 | |||||||||||||||||||||||||||||||||||||
Substandard | 7 | — | — | — | — | — | 7 | |||||||||||||||||||||||||||||||||||||
Total | 936 | 190 | 64 | 74 | 94 | 31 | 1,389 | |||||||||||||||||||||||||||||||||||||
Total Recorded Investment | $ | 1,628,363 | $ | 723,156 | $ | 1,227,254 | $ | 1,549,098 | $ | 1,193,110 | $ | 1,439,231 | $ | 7,760,212 |
(dollars in thousands) | Pass | Watch | Special Mention | Substandard | Doubtful | Total Loans | ||||||||||||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||||||||
Commercial | $ | 1,470,636 | $ | 38,522 | $ | 11,460 | $ | 25,288 | $ | 0 | $ | 1,545,906 | ||||||||||||||||||||||||||
Income producing - commercial real estate | 3,667,585 | 16,069 | — | 19,093 | — | 3,702,747 | ||||||||||||||||||||||||||||||||
Owner occupied - commercial real estate | 925,800 | 53,146 | — | 6,463 | — | 985,409 | ||||||||||||||||||||||||||||||||
Real estate mortgage - residential | 98,228 | 628 | — | 5,365 | — | 104,221 | ||||||||||||||||||||||||||||||||
Construction - commercial and residential | 1,113,734 | — | — | 11,510 | — | 1,125,244 | ||||||||||||||||||||||||||||||||
Home equity | 78,626 | 948 | — | 487 | — | 80,061 | ||||||||||||||||||||||||||||||||
Other consumer | 2,160 | — | — | — | — | 2,160 | ||||||||||||||||||||||||||||||||
Total | $ | 7,356,769 | $ | 109,313 | $ | 11,460 | $ | 68,206 | $ | 0 | $ | 7,545,748 |
December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||
(dollars in thousands) | Nonaccrual with No Allowance for Credit Loss | Nonaccrual with an Allowance for Credit Losses | Total Nonaccrual Loans | Total Nonaccrual Loans | ||||||||||||||||||||||
Commercial | $ | 3,263 | $ | 12,089 | $ | 15,352 | $ | 14,928 | ||||||||||||||||||
Income producing - commercial real estate | 6,500 | 12,380 | 18,880 | 9,711 | ||||||||||||||||||||||
Owner occupied - commercial real estate | 18,941 | 4,217 | 23,158 | 6,463 | ||||||||||||||||||||||
Real estate mortgage - residential | 1,234 | 1,697 | 2,931 | 5,631 | ||||||||||||||||||||||
Construction - commercial and residential | 0 | 206 | 206 | 11,509 | ||||||||||||||||||||||
Home equity | 416 | 0 | 416 | 487 | ||||||||||||||||||||||
Total nonaccrual loans (1)(2) | $ | 30,354 | $ | 30,589 | $ | 60,943 | $ | 48,729 |
in accordance with their original terms, while interest actually recorded on such loans were $679 thousand and $630 thousand at December 31, 2020 and 2019, respectively. See Note 1 to the Consolidated Financial Statements for a description of the Company’s policy for placing loans on nonaccrual status.
| | | | | | |
| | December 31, | | December 31, | ||
(dollars in thousands) |
| 2019 |
| 2018 | ||
Commercial | | $ | 14,928 | | $ | 7,115 |
Income producing - commercial real estate | |
| 9,711 | |
| 1,766 |
Owner occupied - commercial real estate | |
| 6,463 | |
| 2,368 |
Real estate mortgage - residential | |
| 5,631 | |
| 1,510 |
Construction - commercial and residential | |
| 11,509 | |
| 3,031 |
Home equity | |
| 487 | |
| 487 |
Total nonaccrual loans (1)(2) | | $ | 48,729 | | $ | 16,277 |
97
The following table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of December 31, 20192020 and 2018.
| | | | | | | | | | | | | | | | | | |
| | Loans | | Loans | | Loans | | | | |
| | | Total Recorded | ||||
| | 30-59 Days | | 60-89 Days | | 90 Days or | | Total Past | | Current | | Investment in | ||||||
(dollars in thousands) |
| Past Due |
| Past Due |
| More Past Due |
| Due Loans |
| Loans |
| Loans | ||||||
December 31, 2019 | | | | | | | | | | | | | | | | | | |
Commercial | | $ | 3,063 | | $ | 781 | | $ | 14,928 | | $ | 18,772 | | $ | 1,527,134 | | $ | 1,545,906 |
Income producing - commercial real estate | |
| — | |
| 5,542 | |
| 9,711 | |
| 15,253 | |
| 3,687,494 | |
| 3,702,747 |
Owner occupied - commercial real estate | |
| 13,008 | |
| — | |
| 6,463 | |
| 19,471 | |
| 965,938 | |
| 985,409 |
Real estate mortgage – residential | |
| 3,533 | |
| — | |
| 5,631 | |
| 9,164 | |
| 95,057 | |
| 104,221 |
Construction - commercial and residential | |
| — | |
| — | |
| 11,509 | |
| 11,509 | |
| 1,113,735 | |
| 1,125,244 |
Home equity | |
| 136 | |
| 192 | |
| 487 | |
| 815 | |
| 79,246 | |
| 80,061 |
Other consumer | |
| — | |
| 9 | |
| — | |
| 9 | |
| 2,151 | |
| 2,160 |
Total | | $ | 19,740 | | $ | 6,524 | | $ | 48,729 | | $ | 74,993 | | $ | 7,470,755 | | $ | 7,545,748 |
December 31, 2018 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial | | $ | 4,535 | | $ | 2,870 | | $ | 7,115 | | $ | 14,520 | | $ | 1,538,592 | | $ | 1,553,112 |
Income producing - commercial real estate | |
| 5,855 | |
| 27,479 | |
| 1,766 | |
| 35,100 | |
| 3,221,800 | |
| 3,256,900 |
Owner occupied - commercial real estate | |
| 5,051 | |
| 2,370 | |
| 2,368 | |
| 9,789 | |
| 878,025 | |
| 887,814 |
Real estate mortgage – residential | |
| 2,456 | |
| 1,698 | |
| 1,510 | |
| 5,664 | |
| 100,754 | |
| 106,418 |
Construction - commercial and residential | |
| 4,392 | |
| — | |
| 3,031 | |
| 7,423 | |
| 1,090,189 | |
| 1,097,612 |
Home equity | |
| 630 | |
| 47 | |
| 487 | |
| 1,164 | |
| 85,439 | |
| 86,603 |
Other consumer | |
| — | |
| — | |
| — | |
| — | |
| 2,988 | |
| 2,988 |
Total | | $ | 22,919 | | $ | 34,464 | | $ | 16,277 | | $ | 73,660 | | $ | 6,917,787 | | $ | 6,991,447 |
2019.
(dollars in thousands) | Loans 30-59 Days Past Due | Loans 60-89 Days Past Due | Loans 90 Days or More Past Due | Total Past Due Loans | Current Loans | Nonaccrual Loans | Total Recorded Investment in Loans | |||||||||||||||||||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 6,411 | $ | 21,426 | $ | 0 | $ | 27,837 | $ | 1,394,244 | $ | 15,352 | $ | 1,437,433 | ||||||||||||||||||||||||||||||
PPP loans | — | — | — | 454,771 | — | $ | 454,771 | |||||||||||||||||||||||||||||||||||||
Income producing - commercial real estate | — | 51,913 | — | 51,913 | 3,616,207 | 18,880 | 3,687,000 | |||||||||||||||||||||||||||||||||||||
Owner occupied - commercial real estate | 10,630 | 3,542 | — | 14,172 | 960,364 | 23,158 | 997,694 | |||||||||||||||||||||||||||||||||||||
Real estate mortgage – residential | 1,430 | — | — | 1,430 | 72,231 | 2,931 | 76,592 | |||||||||||||||||||||||||||||||||||||
Construction - commercial and residential | 2,992 | 340 | — | 3,332 | 869,723 | 206 | 873,261 | |||||||||||||||||||||||||||||||||||||
Construction - C&I (owner occupied) | — | — | — | 158,905 | — | $ | 158,905 | |||||||||||||||||||||||||||||||||||||
Home equity | 467 | 4,552 | — | 5,019 | 67,732 | 416 | 73,167 | |||||||||||||||||||||||||||||||||||||
Other consumer | 21 | 1 | — | 22 | 1,367 | — | 1,389 | |||||||||||||||||||||||||||||||||||||
Total | $ | 21,951 | $ | 81,774 | $ | 0 | $ | 103,725 | $ | 7,595,544 | $ | 60,943 | $ | 7,760,212 | ||||||||||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 3,063 | $ | 781 | $ | 0 | $ | 3,844 | $ | 1,527,134 | $ | 14,928 | $ | 1,545,906 | ||||||||||||||||||||||||||||||
Income producing - commercial real estate | 0 | 5,542 | — | 5,542 | 3,687,494 | 9,711 | 3,702,747 | |||||||||||||||||||||||||||||||||||||
Owner occupied - commercial real estate | 13,008 | 0 | — | 13,008 | 965,938 | 6,463 | 985,409 | |||||||||||||||||||||||||||||||||||||
Real estate mortgage – residential | 3,533 | 0 | — | 3,533 | 95,057 | 5,631 | 104,221 | |||||||||||||||||||||||||||||||||||||
Construction - commercial and residential | — | — | — | 0 | 1,113,735 | 11,509 | 1,125,244 | |||||||||||||||||||||||||||||||||||||
Home equity | 136 | 192 | — | 328 | 79,246 | 487 | 80,061 | |||||||||||||||||||||||||||||||||||||
Other consumer | — | 9 | — | 9 | 2,151 | — | 2,160 | |||||||||||||||||||||||||||||||||||||
Total | $ | 19,740 | $ | 6,524 | $ | 0 | $ | 26,264 | $ | 7,470,755 | $ | 48,729 | $ | 7,545,748 |
Impaired Loans
98
The following table presents, by class of loan, information related to impaired loans for the yearsyear ended December 31, 2019.
Average Recorded Investment | Interest Income Recognized | |||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Unpaid Contractual Principal Balance | Recorded Investment With No Allowance | Recorded Investment With Allowance | Total Recorded Investment | Related Allowance | Year To Date | Year To Date | |||||||||||||||||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 15,814 | $ | 11,858 | $ | 3,956 | $ | 15,814 | $ | 5,714 | $ | 15,682 | $ | 270 | ||||||||||||||||||||||||||||||
Income producing - commercial real estate | 14,093 | 2,713 | 11,380 | 14,093 | 2,145 | 18,133 | 382 | |||||||||||||||||||||||||||||||||||||
Owner occupied - commercial real estate | 7,349 | 6,388 | 961 | 7,349 | 415 | 6,107 | 197 | |||||||||||||||||||||||||||||||||||||
Real estate mortgage - residential | 5,631 | 3,175 | 2,456 | 5,631 | 650 | 5,638 | 0 | |||||||||||||||||||||||||||||||||||||
Construction - commercial and residential | 11,509 | 11,101 | 408 | 11,509 | 100 | 8,211 | 92 | |||||||||||||||||||||||||||||||||||||
Home equity | 487 | 0 | 487 | 487 | 100 | 487 | — | |||||||||||||||||||||||||||||||||||||
Other consumer | — | — | — | — | — | 0 | — | |||||||||||||||||||||||||||||||||||||
Total | $ | 54,883 | $ | 35,235 | $ | 19,648 | $ | 54,883 | $ | 9,124 | $ | 54,258 | $ | 941 |
disaggregated on the basis of the Company’s impairment methodology was as follows:
(dollars in thousands) | Commercial | Income Producing - Commercial Real Estate | Owner Occupied - Commercial Real Estate | Real Estate Mortgage - Residential | Construction - Commercial and Residential | Home Equity | Other Consumer | Total | ||||||||||||||||||||||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Recorded investment in loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 25,288 | $ | 19,093 | $ | 6,463 | $ | 5,365 | $ | 11,510 | $ | 487 | $ | 0 | $ | 68,206 | ||||||||||||||||||||||||||||||||||
Collectively evaluated for impairment | 1,520,618 | 3,683,654 | 978,946 | 98,856 | 1,113,734 | 79,574 | 2,160 | 7,477,542 | ||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 1,545,906 | $ | 3,702,747 | $ | 985,409 | $ | 104,221 | $ | 1,125,244 | $ | 80,061 | $ | 2,160 | $ | 7,545,748 |
| | | | | | | | | | | | | | | | | | | | | |
| | Unpaid | | Recorded | | Recorded | | | | | | | | | | | | | |||
| | Contractual | | Investment | | Investment | | Total | | | | | Average Recorded Investment | | Interest Income Recognized | ||||||
| | Principal | | With No | | With | | Recorded | | Related | | Year | | Year | |||||||
(dollars in thousands) |
| Balance |
| Allowance |
| Allowance |
| Investment |
| Allowance |
| To Date |
| To Date | |||||||
December 31, 2019 | | | | | | | | | | | | | | | | | | | | | |
Commercial | | $ | 15,814 | | $ | 11,858 | | $ | 3,956 | | $ | 15,814 | | $ | 5,714 | | $ | 15,682 | | $ | 270 |
Income producing - commercial real estate | |
| 14,093 | |
| 2,713 | |
| 11,380 | |
| 14,093 | |
| 2,145 | |
| 18,133 | |
| 382 |
Owner occupied - commercial real estate | |
| 7,349 | |
| 6,388 | |
| 961 | |
| 7,349 | |
| 415 | |
| 6,107 | |
| 197 |
Real estate mortgage – residential | |
| 5,631 | |
| 3,175 | |
| 2,456 | |
| 5,631 | |
| 650 | |
| 5,638 | |
| — |
Construction - commercial and residential | |
| 11,509 | |
| 11,101 | |
| 408 | |
| 11,509 | |
| 100 | |
| 8,211 | |
| 92 |
Home equity | |
| 487 | |
| — | |
| 487 | |
| 487 | |
| 100 | |
| 487 | |
| — |
Other consumer | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 54,883 | | $ | 35,235 | | $ | 19,648 | | $ | 54,883 | | $ | 9,124 | | $ | 54,258 | | $ | 941 |
December 31, 2018 | | | | | | | | | | | | | | | | | | | | | |
Commercial | | $ | 8,613 | | $ | 2,057 | | $ | 6,084 | | $ | 8,141 | | $ | 4,803 | | $ | 8,359 | | $ | 190 |
Income producing - commercial real estate | |
| 21,402 | |
| 1,720 | |
| 19,682 | |
| 21,402 | |
| 2,465 | |
| 12,309 | |
| 550 |
Owner occupied - commercial real estate | |
| 5,731 | |
| 4,361 | |
| 1,370 | |
| 5,731 | |
| 600 | |
| 6,011 | |
| 196 |
Real estate mortgage - residential | |
| 1,510 | |
| 1,510 | |
| — | |
| 1,510 | |
| — | |
| 1,688 | |
| 2 |
Construction - commercial and residential | |
| 3,031 | |
| 3,031 | |
| — | |
| 3,031 | |
| 1,050 | |
| 2,028 | |
| 68 |
Home equity | |
| 487 | |
| 487 | |
| — | |
| 487 | |
| — | |
| 491 | |
| — |
Other consumer | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 69 | |
| — |
Total | | $ | 40,774 | | $ | 13,166 | | $ | 27,136 | | $ | 40,302 | | $ | 8,918 | | $ | 30,955 | | $ | 1,006 |
99
Loans modified in a TDR for the Company may have the financial effect of increasing the specific allowance associated with the loan. An allowance for impaired consumer and commercial loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates.
2019.
For the Year Ended December 31, 2020 | ||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Number of Contracts | Commercial | Income Producing - Commercial Real Estate | Owner Occupied - Commercial Real Estate | Construction - Commercial Real Estate | Total | ||||||||||||||||||||||||||||||||
Troubled debt restructurings | ||||||||||||||||||||||||||||||||||||||
Restructured accruing | 7 | $ | 1,276 | $ | 9,183 | $ | 13 | $ | — | $ | 10,472 | |||||||||||||||||||||||||||
Restructured nonaccruing | 3 | 0 | 6,342 | 2,370 | — | 8,712 | ||||||||||||||||||||||||||||||||
Total | 10 | $ | 1,276 | $ | 15,525 | $ | 2,383 | $ | — | $ | 19,184 | |||||||||||||||||||||||||||
Specific allowance | $ | 733 | $ | 2,989 | $ | — | $ | — | $ | 3,722 | ||||||||||||||||||||||||||||
Restructured and subsequently defaulted | $ | — | $ | 6,342 | $ | 2,370 | $ | — | $ | 8,712 |
| | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2019 | ||||||||||||||||
| | | | | | | | Income | | Owner | | | | | | | ||
| | Number | | | | | Producing - | | Occupied - | | Construction - | | | | ||||
| | of | | | | | Commercial | | Commercial | | Commercial | | | | ||||
(dollars in thousands) |
| Contracts |
| Commercial |
| Real Estate |
| Real Estate |
| Real Estate |
| Total | ||||||
Troubled debt restructurings |
| |
| | |
| | |
| | |
|
| |
| | |
|
Restructured accruing |
| | 7 | | $ | 885 | | $ | 14,806 | | $ | 887 | | $ | — | | $ | 16,578 |
Restructured nonaccruing |
| | 2 | |
| 142 | |
| — | |
| 2,370 | |
| — | |
| 2,512 |
Total |
| | 9 | | $ | 1,027 | | $ | 14,806 | | $ | 3,257 | | $ | — | | $ | 19,090 |
| | | | | | | | | | | | | | | | | | |
Specific allowance | | | | | $ | — | | $ | 1,000 | | $ | — | | $ | — | | $ | 1,000 |
| | | | | | | | | | | | | | | | | | |
Restructured and subsequently defaulted | | | | | $ | — | | $ | 7,115 | | $ | 2,370 | | $ | — | | $ | 9,485 |
For the Year Ended December 31, 2019 | ||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Number of Contracts | Commercial | Income Producing - Commercial Real Estate | Owner Occupied - Commercial Real Estate | Construction - Commercial Real Estate | Total | ||||||||||||||||||||||||||||||||
Troubled debt restructings | ||||||||||||||||||||||||||||||||||||||
Restructured accruing | 7 | $ | 885 | $ | 14,806 | $ | 887 | $ | — | $ | 16,578 | |||||||||||||||||||||||||||
Restructured nonaccruing | 2 | 142 | — | 2,370 | — | 2,512 | ||||||||||||||||||||||||||||||||
Total | 9 | $ | 1,027 | $ | 14,806 | $ | 3,257 | $ | — | $ | 19,090 | |||||||||||||||||||||||||||
Specific allowance | $ | — | $ | 1,000 | $ | — | $ | — | $ | 1,000 | ||||||||||||||||||||||||||||
Restructured and subsequently defaulted | $ | 0 | $ | 7,115 | $ | 2,370 | $ | — | $ | 9,485 |
| ��� | | | | | | | | | | | | | | | | | |
|
| For the Year Ended December 31, 2018 | ||||||||||||||||
| | | | | | | | Income | | Owner | | | | | | |||
| | Number | | | | | Producing - | | Occupied - | | Construction - | | | | ||||
| | of | | | | | Commercial | | Commercial | | Commercial | | | | ||||
(dollars in thousands) |
| Contracts |
| Commercial |
| Real Estate |
| Real Estate |
| Real Estate |
| Total | ||||||
Troubled debt restructings | | |
| | |
| | |
| | |
| | |
| | |
|
Restructured accruing |
| | 9 | | $ | 1,026 | | $ | 19,636 | | $ | 3,363 | | $ | — | | $ | 24,025 |
Restructured nonaccruing |
| | 3 | |
| 544 | |
| — | |
| — | |
| — | |
| 544 |
Total |
| | 12 | | $ | 1,570 | | $ | 19,636 | | $ | 3,363 | | $ | — | | $ | 24,569 |
| | | | | | | | | | | | | | | | | | |
Specific allowance | | | | | $ | — | | $ | 3,000 | | $ | — | | $ | — | | $ | 3,000 |
| | | | | | | | | | | | | | | | | | |
Restructured and subsequently defaulted | | | | | $ | 408 | | $ | 937 | | $ | — | | $ | — | | $ | 1,345 |
100
The criteria used to determine if a loan should be considered for charge off relates to its ultimate collectability includes the following:
(dollars in thousands) | 2020 | 2019 | ||||||||||||
Balance at January 1, | $ | (975) | $ | (1,495) | ||||||||||
Net reclassifications from nonaccretable yield | — | — | ||||||||||||
Accretion | 370 | 520 | ||||||||||||
Balance at December 31, | $ | (605) | $ | (975) |
| | | | | | |
(dollars in thousands) |
| 2019 |
| 2018 | ||
Balance at January 1, | | $ | (1,495) | | $ | (2,459) |
Net reclassifications from nonaccretable yield | |
| — | |
| — |
Accretion | |
| 520 | |
| 964 |
Balance at December 31, | | $ | (975) | | $ | (1,495) |
101
The following table summarizes changes in amounts of loans outstanding, both direct and indirect, to those persons during 20192020 and 2018.
2019.
| | | | | | |
(dollars in thousands) |
| 2019 |
| 2018 | ||
Balance at January 1, | | $ | 167,884 | | $ | 238,236 |
Additions | |
| 30,153 | |
| 55,657 |
Repayments | |
| (38,204) | |
| (126,009) |
Additions due to Changes in Related Parties | | | 9,034 | | | — |
Deletions due to Changes in Related Parties | | | (116,499) | | | — |
Balance at December 31, | | $ | 52,368 | | $ | 167,884 |
During 2019, our related party loan balances decreased primarily due to the retirement of our former Chairman and Chief Executive Officer and the resignation of certain directors.
(dollars in thousands) | 2020 | 2019 | ||||||||||||
Balance at January 1, | $52,368 | $167,884 | ||||||||||||
Additions | 30,920 | 30,153 | ||||||||||||
Repayments | (10,332) | (38,204) | ||||||||||||
Additions due to Changes in Related Parties | 0 | 9,034 | ||||||||||||
Deletions due to Changes in Related Parties | 0 | (116,499) | ||||||||||||
Balance at December 31, | $72,956 | $52,368 |
(dollars in thousands) | 2020 | 2019 | ||||||||||||
Leasehold improvements | $ | 32,540 | $ | 31,462 | ||||||||||
Furniture and equipment | 32,770 | 30,898 | ||||||||||||
Less accumulated depreciation and amortization | (51,757) | (47,738) | ||||||||||||
Total premises and equipment, net | $ | 13,553 | $ | 14,622 |
| | | | | | |
(dollars in thousands) |
| 2019 |
| 2018 | ||
Leasehold improvements | | $ | 31,461 | | $ | 31,026 |
Furniture and equipment | |
| 30,897 | |
| 31,168 |
Less accumulated depreciation and amortization | |
| (47,738) | |
| (45,343) |
Total premises and equipment, net | | $ | 14,620 | | $ | 16,851 |
Note 6.6 – Leases
Balance Sheets.
102
| | | | |
|
| Year Ended |
| |
(dollars in thousands) |
| 12/31/2019 | | |
Lease Cost |
| |
| |
Operating Lease Cost (Cost resulting from lease payments) | | $ | 7,829 | |
Variable Lease Cost (Cost excluded from lease payments) | |
| 1,090 | |
Sublease Income | |
| (348) | |
Net Lease Cost | | $ | 8,571 | |
| | | | |
Operating Lease - Operating Cash Flows (Fixed Payments) | |
| 8,542 | |
Right-of-Use Assets - Operating Leases | |
| 27,372 | |
Weighted Average Lease Term - Operating Leases | |
| 4.94 | yrs |
Weighted Average Discount Rate - Operating Leases | |
| 4.00 | % |
Years Ended | |||||||||||||||||
(dollars in thousands) | December 31, 2020 | December 31, 2019 | |||||||||||||||
Lease cost | |||||||||||||||||
Operating lease cost (cost resulting from lease payments) | $ | 8,411 | $ | 7,829 | |||||||||||||
Variable lease cost (cost excluded from lease payments) | 971 | 1,090 | |||||||||||||||
Sublease income | (347) | (348) | |||||||||||||||
Net lease cost | $ | 9,035 | $ | 8,571 | |||||||||||||
Operating lease - operating cash flows (fixed payments) | $ | 9,232 | $ | 8,542 | |||||||||||||
Right-of-use assets - operating leases | $ | 25,237 | $ | 27,372 | |||||||||||||
Weighted average lease term - operating leases | 6.20 | yrs | 4.94 | yrs | |||||||||||||
Weighted average discount rate - operating leases | 4.00 | % | 4.00 | % |
(dollars in thousands) | ||||||||
Twelve Months Ended: | ||||||||
December 31, 2021 | $ | 8,342 | ||||||
December 31, 2022 | 6,832 | |||||||
December 31, 2023 | 5,909 | |||||||
December 31, 2024 | 5,137 | |||||||
December 31, 2025 | 4,146 | |||||||
Thereafter | 9,500 | |||||||
Total Future Minimum Lease Payments | 39,866 | |||||||
Amounts Representing Interest | (11,844) | |||||||
Present Value of Net Future Minimum Lease Payments | $ | 28,022 |
| | | |
(dollars in thousands) |
| | |
Twelve Months Ended: |
| |
|
December 31, 2020 | | $ | 8,468 |
December 31, 2021 | |
| 7,545 |
December 31, 2022 | |
| 5,220 |
December 31, 2023 | |
| 4,276 |
December 31, 2024 | |
| 3,398 |
Thereafter | |
| 3,560 |
Total Future Minimum Lease Payments | |
| 32,467 |
Amounts Representing Interest | |
| (2,508) |
Present Value of Net Future Minimum Lease Payments | | $ | 29,959 |
(dollars in thousands) | Gross Intangible Assets | Additions | Accumulated Amortization | FHA MSR Sales | Net Intangible Assets | |||||||||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||||||||
Goodwill | $ | 104,168 | $ | — | $ | — | $ | — | $ | 104,168 | ||||||||||||||||||||||
Core deposit | 7,070 | — | (7,070) | — | 0 | |||||||||||||||||||||||||||
Excess servicing (1) | 2,478 | 667 | (2,199) | — | 946 | |||||||||||||||||||||||||||
Non-compete agreements | 345 | — | (345) | — | 0 | |||||||||||||||||||||||||||
$ | 114,061 | $ | 667 | $ | (9,614) | $ | — | $ | 105,114 | |||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||
Goodwill | $ | 104,168 | $ | — | $ | — | $ | — | $ | 104,168 | ||||||||||||||||||||||
Core deposit | 7,070 | — | (7,027) | — | 43 | |||||||||||||||||||||||||||
Excess servicing (1) | 1,465 | 1,013 | (1,971) | 0 | 507 | |||||||||||||||||||||||||||
Non-compete agreements | 345 | — | (324) | — | 21 | |||||||||||||||||||||||||||
$ | 113,048 | $ | 1,013 | $ | (9,322) | $ | 0 | $ | 104,739 |
| | | | | | | | | | | | | | | |
| | Gross | | | | |
| | |
| | | Net | ||
| | Intangible | | | | | Accumulated | | FHA | | Intangible | ||||
(dollars in thousands) |
| Assets |
| Additions |
| Amortization |
| MSR Sales |
| Assets | |||||
December 31, 2019 |
| |
|
| |
|
| |
|
| |
|
| |
|
Goodwill (1) | | $ | 104,168 | | $ | — | | $ | — | | $ | — | | $ | 104,168 |
Core deposit (2) | |
| 7,070 | |
| — | |
| (7,027) | |
| — | |
| 43 |
Excess servicing (3) | |
| 1,465 | |
| 1,013 | |
| (1,971) | |
| — | |
| 507 |
Non-compete agreements (4) | |
| 345 | |
| — | |
| (324) | |
| — | |
| 21 |
| | $ | 113,048 | | $ | 1,013 | | $ | (9,322) | | $ | — | | $ | 104,739 |
December 31, 2018 | |
|
| |
|
| |
|
| |
|
| |
|
|
Goodwill (1) | | $ | 104,168 | | $ | — | | $ | — | | $ | — | | $ | 104,168 |
Core deposit (2) | |
| 7,070 | |
| — | |
| (6,312) | |
| — | |
| 758 |
Excess servicing (3) | |
| 1,465 | |
| 838 | |
| (1,053) | |
| (672) | |
| 578 |
Non-compete agreements (4) | |
| 345 | |
| — | |
| (83) | |
| — | |
| 262 |
| | $ | 113,048 | | $ | 838 | | $ | (7,448) | | $ | (672) | | $ | 105,766 |
103
The amount of the non-compete intangible was $21 thousand as of December 31, 2019, which is being amortized over its remaining term through 2020 as a component of professional fees.
The future estimated annual amortization expense is presented below:
| | | |
Years ending December 31: | |
| |
(dollars in thousands) |
| Amount | |
2020 |
| | 139 |
2021 |
| | 55 |
2022 |
| | 55 |
2023 |
| | 55 |
2024 | | | 55 |
Thereafter |
| | 212 |
Total annual amortization | | $ | 571 |
Years Ending December 31: | ||||||||
(dollars in thousands) | Amount | |||||||
2021 | 66 | |||||||
2022 | 66 | |||||||
2023 | 66 | |||||||
2024 | 66 | |||||||
2025 | 66 | |||||||
Thereafter | 616 | |||||||
Total annual amortization | $ | 946 |
OREO, respectively.
Years Ended December 31, | ||||||||||||||
(dollars in thousands) | 2020 | 2019 | ||||||||||||
Beginning Balance | $ | 1,487 | $ | 1,394 | ||||||||||
Real estate acquired from borrowers | 6,750 | 93 | ||||||||||||
Properties sold | (3,250) | 0 | ||||||||||||
Ending Balance | $ | 4,987 | $ | 1,487 |
| | | | | | |
| | Years Ended December 31, | ||||
(dollars in thousands) |
| 2019 |
| 2018 | ||
Beginning Balance | | $ | 1,394 | | $ | 1,394 |
Real estate acquired from borrowers | |
| 93 | |
| — |
Properties sold | |
| — | |
| — |
Ending Balance | | $ | 1,487 | | $ | 1,394 |
104
Certain additional risks arise from these forward delivery contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. The Bank does not expect any counterparty to any MBS to fail to meet its obligation. Additional risks inherent in mandatory delivery programs include the risk that, if the Bank does not close the loans subject to interest rate risk lock commitments, it will still be obligated to deliver MBS to the counterparty under the forward sales agreement. Should this be required, the Bank could incur significant costs in acquiring replacement loans or MBS and such costs could have an adverse effect on mortgage banking operations.
105
Non-designated Hedges
The Company is exposed to credit risk in the event of nonperformance by the interest rate swap counterparty. The Company minimizes this risk by entering into derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate derivatives. The Company monitors counterparty risk in accordance with the provisions of ASC Topic 815, "Derivatives and Hedging." In addition, the interest rate derivative agreements contain language outlining collateral-pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits.
106
The table below identifies the balance sheet category and fair value of the Company’s designated cash flow hedge derivative instruments and non-designated hedges as of December 31, 20192020 and December 31, 2018.
| | | | | | | | | | | | | | | | |
| | December 31, 2019 | |
| December 31, 2018 | |||||||||||
| | Notional | | | | | Balance Sheet | | Notional | | | | | Balance Sheet | ||
|
| Amount |
| Fair Value |
| Category |
| Amount |
| Fair Value |
| Category | ||||
Derivatives designated as hedging instruments | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(dollars in thousands) | | | | | | | | | | | | | | | | |
Interest rate product | | $ | — | | $ | — | | Other Assets | | $ | 250,000 | | $ | 3,840 | | Other Assets |
| | | | | | | | | | | | | | | | |
(dollars in thousands) | | | | | | | | | | | | | | | | |
Interest rate product | | $ | 100,000 | | $ | 206 | | Other Liabilities | | $ | — | | $ | — | | Other Liabilities |
| | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(dollars in thousands) | | | | | | | | | | | | | | | | |
Interest rate product | | $ | 26,000 | | $ | 10 |
| Other Assets | | $ | — | | $ | — |
| Other Assets |
Interest rate product | |
| 24,293 | |
| 168 |
| Other Assets | |
| — | |
| — |
| Other Assets |
Interest rate product | |
| 6,513 | |
| 133 |
| Other Assets | |
| — | |
| — |
| Other Assets |
| | $ | 56,806 | | $ | 311 | | Other Assets | | $ | — | | $ | — | | Other Assets |
| | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(dollars in thousands) | | | | | | | | | | | | | | | | |
Interest rate product | | $ | 26,000 | | $ | 10 | | Other Liabilities | | $ | — | | $ | — | | Other Liabilities |
Interest rate product | | | 24,293 | | | 172 | | Other Liabilities | | | — | | | — | | Other Liabilities |
Interest rate product | | | 6,513 | | | 137 | | Other Liabilities | | | — | | | — | | Other Liabilities |
Other Contracts | |
| 27,384 | |
| 86 | | Other Liabilities | |
| 27,500 | |
| 59 |
| Other Liabilities |
| | $ | 84,190 | | $ | 405 | | | | $ | 27,500 | | $ | 59 | | Other Liabilities |
107
(dollars in thousands) | December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||||
Notional Amount | Fair Value | Balance Sheet Category | Fair Value | Balance Sheet Category | |||||||||||||||||||||||||
Derivatives not designated as hedging instruments | |||||||||||||||||||||||||||||
Interest rate product | $ | 195,065 | $ | 3,491 | Other Assets | $ | 311 | Other Assets | |||||||||||||||||||||
Mortgage banking derivatives | 367,708 | 5,213 | Other Assets | 280 | Other Assets | ||||||||||||||||||||||||
$ | 562,773 | $ | 8,704 | Other Assets | $ | 591 | Other Assets | ||||||||||||||||||||||
Derivatives designated as hedging instruments | |||||||||||||||||||||||||||||
Interest rate product | 100,000 | $ | 516 | Other Liabilities | $ | 206 | Other Liabilities | ||||||||||||||||||||||
Derivatives not designated as hedging instruments | |||||||||||||||||||||||||||||
Interest rate product | $ | 209,830 | $ | 3,653 | Other Liabilities | $ | 319 | Other Liabilities | |||||||||||||||||||||
Other Contracts | 26,911 | 118 | Other Liabilities | 86 | Other Liabilities | ||||||||||||||||||||||||
Mortgage banking derivatives | 0 | 0 | Other Liabilities | 66 | Other Liabilities | ||||||||||||||||||||||||
$ | 236,741 | 3,771 | Other Liabilities | 471 | Other Liabilities | ||||||||||||||||||||||||
Net derivatives on the balance sheet | 4,287 | 677 | |||||||||||||||||||||||||||
Cash and other collateral(1) | 4,168 | 506 | |||||||||||||||||||||||||||
Net derivative Amounts | $ | 119 | $ | 171 |
The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the years ended December 31, 20192020 and December 31, 2018.
| | | | | | | | | | | | | | |
The Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income | ||||||||||||||
| | | | | | | | Location of Gain or (Loss) | | | | | | |
| | | | | | | | Recognized from | | | | | | |
| | | | | | | Accumulated Other | | Amount of Gain or (Loss) | |||||
| | Amount of Gain or (Loss) Recognized in OCI | | Comprehensive Income into | | Reclassified from Accumulated OCI | ||||||||
| | on Derivative | | Income | | into Income | ||||||||
| | Year Ended December 31, | | | | Year Ended December 31, | ||||||||
Derivatives in Subtopic 815-20 Hedging Relationships (dollars in thousands) |
| 2019 | | 2018 |
| |
| 2019 | | 2018 | ||||
Derivatives in Cash Flow Hedging Relationships |
| | | | | |
| | | | | | | |
Interest Rate Products |
| $ | (1,812) | | $ | 2,070 |
| Interest Expense | | $ | 1,165 | | $ | 560 |
Total |
| $ | (1,812) | | $ | 2,070 |
| | | $ | 1,165 | | $ | 560 |
| | | | | | | | | | | | | | |
| | | | | | | | Location of Gain or (Loss) | | | | | | |
| | | | | | | | Recognized from | | | ||||
| | | | Accumulated Other | | Amount of Gain or (Loss) | ||||||||
| | Amount of Gain or (Loss) Recognized in OCI | | Comprehensive Income into | | Reclassified from Accumulated OCI | ||||||||
| | on Derivative | | Income | | into Income | ||||||||
| | Year Ended December 31, | | | | Year Ended December 31, | ||||||||
Derivatives in Subtopic 815-20 Hedging Relationships (dollars in thousands) | | 2019 | | 2018 | | | | 2019 | | 2018 | ||||
Derivatives in Cash Flow Hedging Relationships | | | | | | | | | | | | | | |
Interest Rate Products | | $ | (1,812) | | $ | 2,070 | | Interest Expense | | $ | 1,165 | | $ | 560 |
Interest Rate Products | | | — | | | — | | Gain on sale of investment securities | | | 829 | | | — |
Total | | $ | (1,812) | | $ | 2,070 | | | | $ | 1,994 | | $ | 560 |
108
The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income | ||||||||||||||||||||||||||||||||
Amount of Gain or (Loss) Recognized in OCI on Derivative Year Ended December 31, | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Year Ended December 31, | |||||||||||||||||||||||||||||||
Derivatives in ASC 815-20 Hedging Relationships (dollars in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||
Derivatives in cash flow hedging relationships | ||||||||||||||||||||||||||||||||
Interest rate products | $ | (1,510) | $ | (1,812) | Interest expense | $ | (1,146) | $ | 1,165 | |||||||||||||||||||||||
Interest rate products | 0 | 0 | Gain on sale of investment securities | 0 | 829 | |||||||||||||||||||||||||||
Total | $ | (1,510) | $ | (1,812) | $ | (1,146) | $ | 1,994 |
The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of OperationIncome for the years ended December 31, 20192020 and 2018.
2019.
The Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Income | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2020 | 2019 | 2019 | ||||||||||||||||||
Interest Expense | Interest Expense | Gain on sale of investment securities | ||||||||||||||||||
Total amounts of income and expense line items presented in the Consolidated Statements of Income in which the effects of fair value or cash flow hedges are recorded | $ | (1,146) | $ | 1,165 | $ | 829 | ||||||||||||||
Gain or (loss) on cash flow hedging relationships in ASC 815-20 | ||||||||||||||||||||
Interest contracts | ||||||||||||||||||||
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income | $ | (1,146) | $ | 1,165 | 0 | |||||||||||||||
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring | $ | 0 | $ | 0 | $ | 829 | ||||||||||||||
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Included Component | $ | (1,146) | $ | 1,165 | $ | 829 |
| | | | | | | | | |
The Effect of Fair Value and Cash Flow Hedge Accounting on the Statements of Operation | |||||||||
| | | | | | | | | |
| | Year Ended December 31, | |||||||
| | 2019 | | 2019 | | 2018 | |||
| | Interest | | Gain on sale of | | Interest | |||
|
| Expense |
| investment securities |
| Expense | |||
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded | | $ | 1,165 | | $ | 829 | | $ | 560 |
| | | | | | | | | |
|
| |
|
| |
|
| |
|
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20 |
| |
|
| |
|
| |
|
Interest contracts |
| |
|
| |
|
| |
|
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income | | $ | 1,165 | | $ | — | | $ | 560 |
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring | | $ | — | | $ | 829 | | $ | — |
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Included Component | | $ | 1,165 | | $ | 829 | | $ | 560 |
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Excluded Component | | $ | — | | $ | — | | $ | — |
Effect of Derivatives Not Designated as Hedging Instruments on the Statements of Income | ||||||||||||||||||||
Derivatives Not Designated as Hedging Instruments under ASC 815-20 | Location of Gain or (Loss) Recognized in Income on Derivative | Amount of Gain or (Loss) Recognized in Income on Derivative | ||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||
Interest rate products | Other income / (expense) | $ | 153 | $ | (8) | |||||||||||||||
Mortgage banking derivatives | Other income | 5,213 | 280 | |||||||||||||||||
Other contracts | Other income / (expense) | 32 | (27) | |||||||||||||||||
Total | $ | 5,398 | $ | 245 |
| | | | | | |
Effect of Derivatives Not Designated as Hedging Instruments on the Statements of Operation | ||||||
| | | | Amount of Gain or (Loss) | ||
| | | | Recognized in Income on | ||
Derivatives Not Designated as | | Location of Gain or | | Derivative | ||
Hedging Instruments under Subtopic |
| (Loss) Recognized in |
| Year Ended December 31, | ||
815-20 | | Income on Derivative | | 2019 |
| 2018 |
Interest Rate Products |
| Other income / (expense) |
| (8) |
| — |
Other Contracts |
| Other income / (expense) |
| (27) |
| — |
Total | | |
| (35) |
| — |
Balance Sheet Offsetting: Our designated cash flow hedge interest rate swap derivatives are eligible for offset in the Consolidated Balance Sheet and are subject to master netting arrangements. Our derivative transactions with counterparties are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. The Company generally offsets such financial instruments for financial reporting purposes.
109
The following table presents the liabilities subject to an enforceable master netting arrangement as of December 31, 2019 and December 31, 2018.
| | | | | | | | | | | | | | | | | | |
As of December 31, 2019 | ||||||||||||||||||
|
| | |
| | |
| Net |
| | |
| | |
| | | |
| | | | | | | | Amounts of | | | | | | | | | | |
| | | | | Gross | | Assets | | Gross Amounts Not Offset in the | |||||||||
| | Gross | | Amounts | | presented | | Balance Sheet | ||||||||||
| | Amounts of | | Offset in | | in the | | | | | Cash | | | | ||||
| | Recognized | | the Balance | | Balance | | Financial | | Collateral | | Net | ||||||
Offsetting of Derivative Assets (dollars in thousands) | | Assets | | Sheet | | Sheet | | Instruments | | Posted | | Amount | ||||||
| | $ | 311 | | $ | — | | $ | 311 |
| $ | — | | $ | — | | $ | 311 |
| | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| Net |
| | |
| | |
| | | |
| | | | | | | | Amounts of | | | | | | | | | | |
| | | | | Gross | | Liabilities | | Gross Amounts Not Offset in the | |||||||||
| | Gross | | Amounts | | presented | | Balance Sheet | ||||||||||
| | Amounts of | | Offset in | | in the | | | | | Cash | | | | ||||
| | Recognized | | the Balance | | Balance | | Financial | | Collateral | | Net | ||||||
Offsetting of Derivative Liabilities (dollars in thousands) | | Liabilities | | Sheet | | Sheet | | Instruments | | Posted | | Amount | ||||||
Derivatives | | $ | 611 | | $ | — | | $ | 611 | | $ | — | | $ | 500 | | $ | 111 |
| | | | | | | | | | | | | | | | | | |
As of December 31, 2018 | ||||||||||||||||||
| | | | | | | | Net | | | | | | | | | | |
| | | | | | | | Amounts of | | | | | | | | | | |
| | | | | Gross | | Assets | | Gross Amounts Not Offset in the | |||||||||
|
| Gross |
| Amounts |
| presented |
| Balance Sheet | ||||||||||
| | Amounts of | | Offset in | | in the | | | | | Cash | | | | ||||
|
| Recognized |
| the Balance | | Balance | | Financial |
| Collateral | | Net | ||||||
Offsetting of Derivative Assets (dollars in thousands) |
| Assets |
| Sheet | | Sheet | | Instruments | | Posted | | Amount | ||||||
Derivatives | | $ | 3,840 | | $ | — | | $ | 3,840 | | $ | — | | $ | — | | $ | 3,840 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | Net | | | | | | | | | | |
| | | | | | | | Amounts of | | | | | | | | | | |
| | | | | Gross | | Liabilities | | Gross Amounts Not Offset in the | |||||||||
|
| Gross |
| Amounts |
| presented |
| Balance Sheet | ||||||||||
| | Amounts of | | Offset in | | in the | | | | | Cash | | | | ||||
|
| Recognized |
| the Balance | | Balance | | Financial |
| Collateral | | Net | ||||||
Offsetting of Derivative Liabilities (dollars in thousands) |
| Liabilities |
| Sheet | | Sheet | | Instruments | | Posted | | Amount | ||||||
Derivatives | | $ | 59 | | $ | — | | $ | 59 | | $ | — | | $ | — | | $ | 59 |
Note 11 – Deposits
| | | | | | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 | | |||||||||
| | | | | Average | | | | | Average | | | | | Average | |
(dollars in thousands) |
| Balance |
| Rate |
| Balance | | Rate |
| Balance |
| Rate | | |||
Noninterest bearing demand | | $ | 2,064,367 |
| — | | $ | 2,104,220 |
| — | | $ | 1,982,912 |
| — | |
Interest bearing transaction | |
| 863,856 |
| 0.99 | % |
| 593,107 |
| 0.81 | % |
| 420,417 |
| 0.46 | % |
Savings and money market | |
| 3,013,129 |
| 1.42 | % |
| 2,949,559 |
| 1.68 | % |
| 2,621,146 |
| 0.70 | % |
Time, $100,000 or more | |
| 663,987 |
| 2.55 | % |
| 801,957 |
| 2.25 | % |
| 515,682 |
| 1.20 | % |
Other time | |
| 619,052 |
| 2.21 | % |
| 525,442 |
| 2.25 | % |
| 313,827 |
| 1.17 | % |
Total | | $ | 7,224,391 | | | | $ | 6,974,285 |
|
| | $ | 5,853,984 |
|
| |
110
2020 | 2019 | |||||||||||||||||||||||||
(dollars in thousands) | Balance | Average Rate | Balance | Average Rate | ||||||||||||||||||||||
Noninterest bearing demand | $ | 2,809,334 | — | $ | 2,064,367 | — | ||||||||||||||||||||
Interest bearing transaction | 756,923 | 0.25 | % | 863,856 | 0.99 | % | ||||||||||||||||||||
Savings and money market | 4,645,186 | 0.37 | % | 3,013,129 | 1.42 | % | ||||||||||||||||||||
Time, $100,000 or more | 546,173 | 1.08 | % | 663,987 | 2.55 | % | ||||||||||||||||||||
Other time | 431,587 | 1.92 | % | 619,052 | 2.21 | % | ||||||||||||||||||||
Total | $ | 9,189,203 | $ | 7,224,391 |
(dollars in thousands) | 2020 | 2019 | ||||||||||||
Three months or less | $ | 201,312 | $ | 260,028 | ||||||||||
More than three months through twelve months | 325,329 | 538,352 | ||||||||||||
Over twelve months | 451,119 | 484,659 | ||||||||||||
Total | $ | 977,760 | $ | 1,283,039 |
| | | | | | | | | |
(dollars in thousands) |
| 2019 |
| 2018 |
| 2017 | |||
Three months or less | | $ | 260,028 | | $ | 230,360 | | $ | 180,459 |
More than three months through twelve months | |
| 538,352 | |
| 663,085 | |
| 437,067 |
Over twelve months | |
| 484,659 | |
| 433,954 | |
| 211,983 |
Total | | $ | 1,283,039 | | $ | 1,327,399 | | $ | 829,509 |
(dollars in thousands) | 2020 | 2019 | 2018 | |||||||||||||||||
Interest bearing transaction | $ | 3,190 | $ | 6,491 | $ | 3,348 | ||||||||||||||
Savings and money market | 26,272 | 50,042 | 35,534 | |||||||||||||||||
Time, $100,000 or more | 13,464 | 20,016 | 17,138 | |||||||||||||||||
Other time | 10,640 | 14,477 | 4,190 | |||||||||||||||||
Total | $ | 53,566 | $ | 91,026 | $ | 60,210 |
| | | | | | | | | |
(dollars in thousands) |
| 2019 |
| 2018 |
| 2017 | |||
Interest bearing transaction | | $ | 6,491 | | $ | 3,348 | | $ | 1,537 |
Savings and money market | |
| 50,042 | |
| 35,534 | |
| 17,284 |
Time, $100,000 or more | |
| 20,016 | |
| 17,138 | |
| 7,294 |
Other time | |
| 14,477 | |
| 4,190 | |
| 1,171 |
Total | | $ | 91,026 | | $ | 60,210 | | $ | 27,286 |
Time deposits $250,000 or more | ||||||||||||||
(dollars in thousands) | 2020 | 2019 | ||||||||||||
Three months or less | $ | 32,967 | $ | 63,099 | ||||||||||
More than three months through twelve months | 169,830 | 197,141 | ||||||||||||
Over twelve months | 28,280 | 90,361 | ||||||||||||
Total | $ | 231,077 | $ | 350,601 |
| | | | | | | | | |
Time deposits $250,000 or more | | | |||||||
(dollars in thousands) |
| 2019 |
| 2018 |
| 2017 | |||
Three months or less | | $ | 63,099 | | $ | 51,214 | | $ | 44,348 |
More than three months through twelve months | |
| 197,141 | |
| 286,300 | |
| 136,822 |
Over twelve months | |
| 90,361 | |
| 108,273 | |
| 98,519 |
Total | | $ | 350,601 | | $ | 445,787 | | $ | 279,689 |
111
As of December 31, 2019,2020, the expected payments for unfunded affordable housing commitments were as follows:
Years Ending December 31: | ||||||||
(dollars in thousands) | Amount | |||||||
2021 | 5,344 | |||||||
2022 | 330 | |||||||
2023 | 1,740 | |||||||
2024 | 509 | |||||||
2025 | 163 | |||||||
Thereafter | 676 | |||||||
Total unfunded commitments | $ | 8,762 |
| | | |
Years ending December 31: | |
| |
(dollars in thousands) |
| Amount | |
2020 | |
| 3,690 |
2021 | |
| 4,053 |
2022 | |
| 373 |
2023 | |
| 1,862 |
2024 | | | 485 |
Thereafter | |
| 797 |
Total unfunded commitments | | $ | 11,260 |
2020 | 2019 | |||||||||||||||||||||||||
(dollars in thousands) | Amount | Rate | Amount | Rate | ||||||||||||||||||||||
Short-term: | ||||||||||||||||||||||||||
At Year-End: | ||||||||||||||||||||||||||
Customer repurchase agreements and federal funds purchased | $ | 26,726 | 0.26 | % | $ | 30,980 | 1.18 | % | ||||||||||||||||||
Federal Home Loan Bank – current portion | 300,000 | 0.67 | % | 250,000 | 0.39 | % | ||||||||||||||||||||
Total | $ | 326,726 | $ | 280,980 | ||||||||||||||||||||||
Average Daily Balance: | ||||||||||||||||||||||||||
Customer repurchase agreements and federal funds purchased | $ | 29,345 | 1.00 | % | $ | 30,024 | 1.15 | % | ||||||||||||||||||
Federal Home Loan Bank – current portion | 280,126 | 0.66 | % | 135,699 | 1.67 | % | ||||||||||||||||||||
Total | $ | 309,471 | $ | 165,723 | ||||||||||||||||||||||
Maximum Month-end Balance: | ||||||||||||||||||||||||||
Customer repurchase agreements and federal funds purchased | $ | 32,987 | 1.13 | % | $ | 34,852 | 0.89 | % | ||||||||||||||||||
Federal Home Loan Bank – current portion | 300,000 | 0.67 | % | 440,000 | 0.92 | % | ||||||||||||||||||||
Total | $ | 332,987 | $ | 474,852 | ||||||||||||||||||||||
Long-term: | ||||||||||||||||||||||||||
At Year-End: | ||||||||||||||||||||||||||
Subordinated Notes | $ | 220,000 | 5.42 | % | $ | 220,000 | 5.42 | % | ||||||||||||||||||
Borrowings | 50,000 | 1.81 | % | 0 | 0 | % | ||||||||||||||||||||
Average Daily Balance: | ||||||||||||||||||||||||||
Subordinated Notes | $ | 220,000 | 5.42 | % | $ | 220,000 | 5.42 | % | ||||||||||||||||||
Borrowings | 50,000 | 1.81 | % | 0 | 0 | % | ||||||||||||||||||||
Maximum Month-end Balance: | ||||||||||||||||||||||||||
Subordinated Notes | $ | 220,000 | 5.42 | % | $ | 220,000 | 5.42 | % | ||||||||||||||||||
Borrowings | 50,000 | 1.81 | % | 0 | 0 | % |
| | | | | | | | | | | | | | | | |
| | 2019 | | 2018 | | | 2017 |
| ||||||||
(dollars in thousands) |
| Amount |
| Rate |
| Amount |
| Rate |
| Amount |
| Rate | | |||
Short-term: |
| |
|
|
|
| |
|
|
|
| |
|
|
| |
At Year-End: |
| |
|
|
|
| |
|
|
|
| |
|
|
| |
Customer repurchase agreements and federal funds purchased | | $ | 30,980 |
| 1.18 | % | $ | 30,413 |
| 0.86 | % | $ | 76,561 |
| 0.33 | % |
Federal Home Loan Bank – current portion | |
| 250,000 |
| 0.39 | % |
| — |
| — | |
| 325,000 |
| 1.48 | % |
Total | | $ | 280,980 | | | | $ | 30,413 |
| | | $ | 401,561 |
|
| |
| | | | | | | | | | | | | | | | |
Average Daily Balance: | |
|
| |
| |
|
|
|
| |
|
|
|
| |
Customer repurchase agreements and federal funds purchased | | $ | 30,024 | | 1.15 | % | $ | 44,333 |
| 0.51 | % | $ | 73,237 |
| 0.27 | % |
Federal Home Loan Bank – current portion | |
| 135,699 | | 1.67 | % |
| 192,131 |
| 2.02 | % |
| 65,416 |
| 1.13 | % |
Total | | $ | 165,723 | | | | $ | 236,464 |
| | | $ | 138,653 |
|
| |
| | | | | | | | | | | | | | | | |
Maximum Month-end Balance: | |
|
| |
| |
|
|
|
| |
|
|
|
| |
Customer repurchase agreements and federal funds purchased | | $ | 34,852 | | 0.89 | % | $ | 72,141 |
| 0.32 | % | $ | 85,614 |
| 0.29 | % |
Federal Home Loan Bank – current portion | |
| 440,000 | | 0.92 | % |
| 325,000 |
| 1.62 | % |
| 325,000 |
| 1.48 | % |
Total | | $ | 474,852 | | | | $ | 397,141 |
| | | $ | 410,614 |
|
| |
| | | | | | | | | | | | | | | | |
Long-term: | |
|
| |
| |
|
|
|
| |
|
|
|
| |
At Year-End: | |
|
| |
| |
|
|
|
| |
|
|
|
| |
Subordinated Notes | | $ | 220,000 | | 5.42 | % | $ | 220,000 |
| 5.42 | % | $ | 220,000 |
| 5.42 | % |
| | | | | | | | | | | | | | | | |
Average Daily Balance: | |
|
| |
| |
|
|
|
| |
|
|
|
| |
Subordinated Notes | | $ | 220,000 | | 5.42 | % | $ | 220,000 |
| 5.42 | % | $ | 220,000 |
| 5.42 | % |
| | | | | | | | | | | | | | | | |
Maximum Month-end Balance: | |
|
| |
| |
|
|
|
| |
|
|
|
| |
Subordinated Notes | | $ | 220,000 | | 5.42 | % | $ | 220,000 |
| 5.42 | % | $ | 220,000 |
| 5.42 | % |
112
The Bank can purchase up to $172.5$170 million in federal funds on an unsecured basis from its correspondents, against which there were no amounts outstanding at December 31, 20192020 and can borrow unsecuredplace brokered funds under one-way CDARS and ICS brokered deposits in the amount of $1.34$1.5 billion, against which there was $82.4 million$682 thousand outstanding at December 31, 2019.2020. The Bank also has a commitment at December 31, 20192020 from PromontoryIntraFi to place up to $700.0 million$1.5 billion of brokered deposits from its Insured Network Deposits (“IND”) program in amounts requested by the Bank, as compared to an actual balance of $533.1 million$1.3 billion at December 31, 2019.2020. At December 31, 2019,2020, the Bank was also eligible to maketake advances from the FHLB up to $1.54$1.6 billion based on collateral at the FHLB, of which there was $250$350 million outstanding at December 31, 2019.2020. The Bank may enter into repurchase agreements as well as obtain additional borrowing capabilities from the FHLB provided adequate collateral exists to secure these lending relationships. The Bank also has a back-up borrowing facility through the Discount Window at the Federal Reserve Bank of Richmond (“Federal Reserve Bank”). This facility, which amounts to approximately $653.0$644.6 million, is
The Tax Cuts
(dollars in thousands) | 2020 | 2019 | 2018 | |||||||||||||||||
Current federal income tax expense | $ | 40,201 | $ | 39,756 | $ | 39,498 | ||||||||||||||
Current state income tax expense | 12,059 | 14,153 | 15,931 | |||||||||||||||||
Total current tax expense | 52,260 | 53,909 | 55,429 | |||||||||||||||||
Deferred federal income tax expense (benefit) | (5,212) | 78 | (2,634) | |||||||||||||||||
Deferred state income tax benefit | (3,120) | (139) | (863) | |||||||||||||||||
Total deferred tax benefit | (8,332) | (61) | (3,497) | |||||||||||||||||
Total income tax expense | $ | 43,928 | $ | 53,848 | $ | 51,932 |
| | | | | | | | | |
(dollars in thousands) |
| 2019 |
| 2018 |
| 2017 | |||
Current federal income tax expense | | $ | 39,756 | | $ | 39,498 | | $ | 59,019 |
Current state income tax expense | |
| 14,153 | |
| 15,931 | |
| 7,511 |
Total current tax expense | |
| 53,909 | |
| 55,429 | |
| 66,530 |
| | | | | | | | | |
Deferred federal income tax expense (benefit) | |
| 78 | |
| (2,634) | |
| 18,459 |
Deferred state income tax expense (benefit) | |
| (139) | |
| (863) | |
| 515 |
Total deferred tax expense (benefit) | |
| (61) | |
| (3,497) | |
| 18,974 |
| | | | | | | | | |
Total income tax expense | | $ | 53,848 | | $ | 51,932 | | $ | 85,504 |
113
Temporary timing differences between the amounts reported in the financial statementsConsolidated Financial Statements and the tax bases of assets and liabilities result in deferred taxes. The table below summarizes significant components of our deferred tax assets and liabilities utilizing federal corporate income tax rates of 21% as of December 31, 2019, 2018,2020 and 2017:
2019:
| | | | | | | | | |
(dollars in thousands) |
| 2019 |
| 2018 |
| 2017 | |||
Deferred tax assets |
| |
|
| |
|
| |
|
Allowance for credit losses | | $ | 19,144 | | $ | 18,101 | | $ | 16,568 |
Deferred loan fees and costs | |
| 6,354 | |
| 6,733 | |
| 6,741 |
Deferred rent | |
| — | |
| 1,026 | |
| 1,009 |
Leases | | | 673 | | | — | | | — |
Stock-based compensation | |
| 674 | |
| 1,722 | |
| 847 |
Net operating loss | |
| 1,285 | |
| 2,003 | |
| 2,032 |
Unrealized loss on securities available-for-sale | |
| — | |
| 2,756 | |
| 1,312 |
Unrealized loss on interest rate swap derivatives | |
| 53 | |
| — | |
| — |
SERP | |
| 1,541 | |
| 1,497 | |
| 1,373 |
Premises and equipment | |
| 914 | |
| 795 | |
| 33 |
Other assets | |
| 816 | |
| 287 | |
| 35 |
Total deferred tax assets | |
| 31,454 | |
| 34,920 | |
| 29,950 |
| | | | | | | | | |
Deferred tax liabilities | | | | | | | | | |
Unrealized net gain on securities available-for-sale | | | (1,081) | | | — | | | — |
Unrealized gain on interest rate swap derivatives | |
| — | |
| (965) | |
| (578) |
Excess servicing | |
| (51) | |
| (77) | |
| (99) |
Intangible assets | |
| (9) | |
| (223) | |
| (503) |
Other liabilities | |
| (509) | |
| (328) | |
| — |
Total deferred tax liabilities | |
| (1,650) | |
| (1,593) | |
| (1,180) |
Net deferred income tax amount | | $ | 29,804 | | $ | 33,327 | | $ | 28,770 |
A reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate for the years ended December 31 follows:
| | | | | | | |
|
| 2019 |
| 2018 |
| 2017 |
|
Statutory federal income tax rate |
| 21.00 | % | 21.00 | % | 35.00 | % |
Increase (decrease) due to: | | | | | | | |
State income taxes |
| 5.73 |
| 5.83 |
| 3.41 | |
Deferred tax adjustment |
| 0.49 |
| — |
| 7.85 | |
Tax exempt interest and dividend income |
| (0.35) |
| (1.13) |
| (0.61) | |
Stock-based compensation expense |
| 1.15 |
| 0.01 |
| 0.01 | |
Other |
| (0.61) |
| (0.28) |
| 0.38 | |
Effective tax rate |
| 27.41 | % | 25.43 | % | 46.04 | % |
(dollars in thousands) | 2020 | 2019 | ||||||||||||
Deferred tax assets | ||||||||||||||
Allowance for credit losses | $ | 28,118 | $ | 19,144 | ||||||||||
Deferred loan fees and costs | 8,104 | 6,354 | ||||||||||||
Leases | 7,183 | 7,790 | ||||||||||||
Stock-based compensation | 828 | 674 | ||||||||||||
Net operating loss | 6,896 | 6,184 | ||||||||||||
Unrealized loss on interest rate swap derivatives | 132 | 53 | ||||||||||||
SERP | 2,495 | 1,541 | ||||||||||||
Premises and equipment | 879 | 914 | ||||||||||||
Other assets | 1,982 | 816 | ||||||||||||
Valuation allowances | (5,845) | (4,899) | ||||||||||||
Total deferred tax assets | 50,772 | 38,571 | ||||||||||||
Deferred tax liabilities | ||||||||||||||
Unrealized net gain on securities available-for-sale | (5,519) | (1,081) | ||||||||||||
Excess servicing | (206) | (51) | ||||||||||||
Intangible assets | 0 | (9) | ||||||||||||
Leases | (6,470) | (7,117) | ||||||||||||
Other liabilities | (6) | (509) | ||||||||||||
Total deferred tax liabilities | (12,201) | (8,767) | ||||||||||||
Net deferred income tax assets | $ | 38,571 | $ | 29,804 |
2020 | 2019 | 2018 | |||||||||||||||
Statutory federal income tax rate | 21.00 | % | 21.00 | % | 21.00 | % | |||||||||||
Increase (decrease) due to: | |||||||||||||||||
State income taxes | 5.04 | % | 5.49 | % | 5.83 | % | |||||||||||
Tax exempt interest and dividend income | (0.75) | % | (0.69) | % | (1.13) | % | |||||||||||
Stock-based compensation expense | 0.25 | % | 1.15 | % | 0.01 | % | |||||||||||
Other | (0.63) | % | 0.46 | % | (0.28) | % | |||||||||||
Effective tax rate | 24.91 | % | 27.41 | % | 25.43 | % |
114
(dollars and shares in thousands, except per share data) | 2020 | 2019 | 2018 | |||||||||||||||||
Basic: | ||||||||||||||||||||
Net income | $ | 132,217 | $ | 142,943 | $ | 152,276 | ||||||||||||||
Average common shares outstanding | 32,334 | 34,179 | 34,306 | |||||||||||||||||
Basic net income per common share | $ | 4.09 | $ | 4.18 | $ | 4.44 | ||||||||||||||
Diluted: | ||||||||||||||||||||
Net income | $ | 132,217 | $ | 142,943 | $ | 152,276 | ||||||||||||||
Average common shares outstanding | 32,334 | 34,179 | 34,306 | |||||||||||||||||
Adjustment for common share equivalents | 28 | 32 | 137 | |||||||||||||||||
Average common shares outstanding-diluted | 32,362 | 34,211 | 34,443 | |||||||||||||||||
Diluted net income per common share | $ | 4.09 | $ | 4.18 | $ | 4.42 | ||||||||||||||
Anti-dilutive shares | 26 | 2 | 0 |
| | | | | | | | | |
(dollars and shares in thousands, except per share data) |
| 2019 |
| 2018 |
| 2017 | |||
Basic: |
| |
|
| |
|
| |
|
Net income | | $ | 142,943 | | $ | 152,276 | | $ | 100,232 |
Average common shares outstanding | |
| 34,179 | |
| 34,306 | |
| 34,139 |
Basic net income per common share | | $ | 4.18 | | $ | 4.44 | | $ | 2.94 |
| | | | | | | | | |
Diluted: | |
|
| |
|
| |
|
|
Net income | | $ | 142,943 | | $ | 152,276 | | $ | 100,232 |
Average common shares outstanding | |
| 34,179 | |
| 34,306 | |
| 34,139 |
Adjustment for common share equivalents | |
| 32 | |
| 137 | |
| 182 |
Average common shares outstanding-diluted | |
| 34,211 | |
| 34,443 | |
| 34,321 |
Diluted net income per common share | | $ | 4.18 | | $ | 4.42 | | $ | 2.92 |
| | | | | | | | | |
Anti-dilutive shares | |
| 2 | |
| — | |
| — |
The Bank leases office space from a limited liability company in which a trust for the benefit of a former executive officer’s children has a 51% interest. During the fourth quarter of 2015, the Company entered into an agreement to lease office space for a second location with limited liability companies in which the executive officer indirectly owns a majority interest. The Company leased additional space at this location starting with the third quarter of 2017. The executive officer resigned during 2019. The Company paid $2.6 million, $2.2 million, and $2.1 million with respect to these leases, excluding certain pass-through expenses for the years ended December 31, 2019, 2018 and 2017, respectively.
A director that resigned from Company during 2019 was a shareholder in a law firm which has provided, and continues to provide, legal services to the Company and its subsidiaries. During 2019, the Company and its subsidiaries paid aggregate fees of $929 thousand to that firm. Under the director’s arrangement with his firm, he did not participate significantly in the profits or revenues resulting from the provision of legal services to the Company and its subsidiaries.
"Deposits" .
115
shares of stock, through awards of options, time vested restricted stock, performance-based restricted stock and stock appreciation rights. Under the 2016 Plan, 1,000,000 shares of common stock were initially reserved for issuance.
first anniversary of the date of grant.
| | | | | | | | | | |
| | Years Ended December 31, | ||||||||
| | 2019 |
| 2018 | ||||||
| | | | Weighted- | | | | Weighted- | ||
| | | | Average | | | | Average | ||
| | | | Grant Date | | | | Grant Date | ||
Perfomance Awards |
| Shares |
| Fair Value |
| Shares |
| Fair Value | ||
| | | | | | | | | | |
Unvested at beginning |
| 98,958 | | $ | 54.76 |
| 62,338 | | $ | 50.45 |
Issued |
| 43,145 | |
| 55.76 |
| 42,533 | |
| 60.45 |
Forfeited |
| (65,589) | |
| 55.25 |
| (5,913) | |
| 50.28 |
Vested |
| (17,734) | |
| — |
| — | |
| — |
Unvested at end |
| 58,780 | | $ | 57.74 |
| 98,958 | | $ | 54.76 |
| | | | | | | | | | |
|
| Years Ended December 31, | ||||||||
| | 2019 | | 2018 | ||||||
| | | | Weighted- | | | | Weighted- | ||
| | | | Average | | | | Average | ||
| | | | Grant Date | | | | Grant Date | ||
Time Vested Awards |
| Shares |
| Fair Value |
| Shares |
| Fair Value | ||
Unvested at beginning |
| 173,721 | | $ | 58.93 |
| 164,043 | | $ | 53.57 |
Issued |
| 112,636 | |
| 55.76 |
| 94,344 | |
| 60.45 |
Forfeited |
| (44,600) | |
| 58.73 |
| (7,132) | |
| 56.48 |
Vested |
| (131,043) | |
| 57.20 |
| (77,534) | |
| 49.67 |
Unvested at end |
| 110,714 | | $ | 57.84 |
| 173,721 | | $ | 58.93 |
116
Years Ended December 31, | ||||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||||
Performance Awards | Shares | Weighted- Average Grant Date Fair Value | Shares | Weighted- Average Grant Date Fair Value | ||||||||||||||||||||||
Unvested at beginning | 58,780 | $ | 57.74 | 98,958 | $ | 54.76 | ||||||||||||||||||||
Issued | 44,741 | 40.19 | 43,145 | 55.76 | ||||||||||||||||||||||
Forfeited | (8,586) | 54.89 | (65,589) | 55.25 | ||||||||||||||||||||||
Vested | (4,293) | 62.70 | (17,734) | 45.50 | ||||||||||||||||||||||
Unvested at end | 90,642 | $ | 49.11 | 58,780 | $ | 57.74 |
Years Ended December 31, | ||||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||||
Time Vested Awards | Shares | Weighted- Average Grant Date Fair Value | Shares | Weighted- Average Grant Date Fair Value | ||||||||||||||||||||||
Unvested at beginning | 110,714 | $ | 57.84 | 173,721 | $ | 58.93 | ||||||||||||||||||||
Issued | 176,252 | 42.51 | 112,636 | 55.76 | ||||||||||||||||||||||
Forfeited | (18,385) | 50.06 | (44,600) | 58.73 | ||||||||||||||||||||||
Vested | (50,550) | 58.76 | (131,043) | 57.20 | ||||||||||||||||||||||
Unvested at end | 218,031 | $ | 45.89 | 110,714 | $ | 57.84 |
Below is a summary of stock option activity for the twelve months ended December 31, 2020,2019, 2018 and 2017.2018. The information excludes restricted stock units and awards.
| | | | | | | | | | | | | | | |
| | Years Ended December 31, | |||||||||||||
| | 2019 | | 2018 | | 2017 | |||||||||
| | | | Weighted- | | | | Weighted- | | | | Weighted- | |||
| | | | Average | | | | Average | | | | Average | |||
| | | | Exercise | | | | Exercise | | | | Exercise | |||
|
| Shares |
| Price |
| Shares |
| Price |
| Shares |
| Price | |||
Beginning balance | | 34,123 | | $ | 14.69 | | 143,224 |
| $ | 9.13 | | 216,859 | | $ | 8.80 |
Issued | | — | | | — | | — |
| | — | | — | | | — |
Exercised | | (26,784) | | | 12.42 | | (108,201) |
| | 7.17 | | (72,535) | | | 8.19 |
Forfeited | | (750) | | | 49.08 | | (900) |
| | 34.47 | | — | | | — |
Expired | | — | | | — | | — |
| | — | | (1,100) | | | 5.76 |
Ending balance | | 6,589 | | $ | 19.99 | | 34,123 |
| $ | 14.69 | | 143,224 | | $ | 9.13 |
Years Ended December 31, | |||||||||||||||||||||||||||||||||||
2020 | 2019 | 2018 | |||||||||||||||||||||||||||||||||
Shares | Weighted- Average Exercise Price | Shares | Weighted- Average Exercise Price | Shares | Weighted- Average Exercise Price | ||||||||||||||||||||||||||||||
Beginning balance | 6,589 | $ | 19.99 | 34,123 | $ | 14.69 | 143,224 | $ | 9.13 | ||||||||||||||||||||||||||
Issued | 2,500 | 47.95 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||
Exercised | (3,300) | 11.40 | (26,784) | 12.42 | (108,201) | 7.17 | |||||||||||||||||||||||||||||
Forfeited | 0 | 0 | (750) | 49.08 | (900) | 34 | |||||||||||||||||||||||||||||
Ending balance | 5,789 | $ | 36.96 | 6,589 | $ | 19.99 | 34,123 | $ | 14.69 |
Outstanding: | Stock Options Outstanding | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life (Years) | |||||||||||||||||||||||
Range of Exercise Prices | ||||||||||||||||||||||||||
$5.76 - | $10.72 | 0 | 0 | — | ||||||||||||||||||||||
$10.73 - | $11.40 | 1,789 | $ | 10.73 | 1.30 | |||||||||||||||||||||
$11.41 - | $24.86 | 0 | 0 | — | ||||||||||||||||||||||
$24.87 - | $49.91 | 4,000 | 48.69 | 7.65 | ||||||||||||||||||||||
5,789 | $ | 36.96 | 5.69 |
| | | | | | | | | | | |
| | | | | | | | | | | Weighted-Average |
Outstanding: | | Stock Options | | | Weighted-Average | | Remaining | ||||
Range of Exercise Prices |
| Outstanding |
| Exercise Price |
| Contractual Life (Years) | |||||
$ | 5.76 | | $ | 10.72 |
| — | | | — |
| — |
$ | 10.73 | | $ | 11.40 |
| 5,089 | |
| 11.17 |
| 1.88 |
$ | 11.41 | | $ | 24.86 |
| — | |
| — |
| — |
$ | 24.87 | | $ | 49.91 |
| 1,500 | |
| 49.91 |
| 6.36 |
| | | | | | 6,589 | | $ | 19.99 | | 2.90 |
Exercisable: | Stock Options Exercisable | Weighted-Average Exercise Price | ||||||||||||||||||
Range of Exercise Prices | ||||||||||||||||||||
$5.76 - | $10.72 | 0 | 0 | |||||||||||||||||
$10.73 - | $11.40 | 1,789 | $ | 10.73 | ||||||||||||||||
$11.41 - | $24.86 | 0 | 0 | |||||||||||||||||
$24.87 - | $49.91 | 1,500 | 49.91 | |||||||||||||||||
3,289 | $ | 28.60 |
| | | | | | | | | |
Exercisable: |
| Stock Options |
| Weighted-Average | |||||
Range of Exercise Prices | | Exercisable | | Exercise Price | |||||
$ | 5.76 | | $ | 10.72 | | — | | | — |
$ | 10.73 | | $ | 11.40 |
| 5,089 |
| | 11.17 |
$ | 11.41 | | $ | 24.86 |
| — |
| | — |
$ | 24.87 | | $ | 49.91 |
| 1,125 |
| | 49.91 |
| | | | |
| 6,214 | | $ | 18.18 |
Year Ended December 31, 2020 | ||||||||
Expected volatility | 42.3 | % | ||||||
Weighted-Average volatility | 42.3 | % | ||||||
Expected dividends | 0 | |||||||
Expected term (in years) | 6.5 | |||||||
Risk-free rate | 1.67 | % | ||||||
Weighted-average fair value (grant date) | $ | 21.06 |
contractual term of the award.
Years Ended December 31, | ||||||||||||||||||||
(dollars in thousands) | 2020 | 2019 | 2018 | |||||||||||||||||
Proceeds from stock options exercised | $ | 63 | $ | 332 | $ | 776 | ||||||||||||||
Tax benefits realized from stock compensation | 24 | 50 | 5 | |||||||||||||||||
Intrinsic value of stock options exercised | 91 | 1,022 | 4,958 |
| | | | | | | | | |
| | Years Ended December 31, | |||||||
(dollars in thousands) |
| 2019 |
| 2018 |
| 2017 | |||
Proceeds from stock options exercised | | $ | 332 | | $ | 776 | | $ | 372 |
Tax benefits realized from stock compensation | |
| 50 | |
| 5 | |
| 99 |
Intrinsic value of stock options exercised | |
| 1,022 | |
| 4,958 | |
| 3,888 |
117
Included in salaries and employee benefits in the accompanying Consolidated Statements of Operations,Income, the Company recognized $5.3 million, $7.7 million $6.6 million and $5.6$6.6 million in stock-based compensation expense for 2020, 2019 2018 and 2017,2018, respectively. In addition, during 2019 the Company accrued $4.5 million in stock-based compensation costs associated with the retirement of our former Chairman and Chief Executive Officer. Stock-based compensation expense is recognized ratably over the requisite service period for all awards.
Income.
118
Loan commitments outstanding and lines and letters of credit at December 31, 20192020 and 20182019 are as follows:
(dollars in thousands) | 2020 | 2019 | ||||||||||||
Unfunded loan commitments | $ | 2,175,271 | $ | 2,176,641 | ||||||||||
Unfunded lines of credit | 107,683 | 86,426 | ||||||||||||
Letters of credit | 70,779 | 69,723 | ||||||||||||
Total | $ | 2,353,733 | $ | 2,332,790 |
| | | | | | |
(dollars in thousands) |
| 2019 |
| 2018 | ||
Unfunded loan commitments | | $ | 2,176,641 | | $ | 2,228,689 |
Unfunded lines of credit | | | 86,426 | | | 90,283 |
Letters of credit |
| | 69,723 |
| | 83,162 |
Total | | $ | 2,332,790 | | $ | 2,402,134 |
"Mortgage Banking Derivatives".
| | | | | | | | | | | | | | | |
|
| Within One |
| One to |
| Three to |
| Over Five |
| | |||||
(dollars in thousands) | | Year | | Three Years | | Five Years | | Years | | Total | |||||
Deposits without a stated maturity (1) | | $ | 5,941,352 | | $ | — | | $ | — | | $ | — | | $ | 5,941,352 |
Time deposits (1) |
| | 798,380 |
| | 375,879 |
| | 108,780 |
| | — |
| | 1,283,039 |
Borrowed funds (2) |
| | 280,980 |
| | — |
| | 70,000 |
| | 150,000 |
| | 500,980 |
Operating lease obligations |
| | 8,468 |
| | 12,765 |
| | 7,674 |
| | 3,560 |
| | 32,467 |
Outside data processing (3) |
| | 5,037 |
| | 9,814 |
| | 5,261 |
| | — |
| | 20,112 |
George Mason sponsorship (4) |
| | 663 |
| | 1,350 |
| | 1,350 |
| | 7,463 |
| | 10,826 |
D.C. United (5) |
| | 796 |
| | 1,663 |
| | — |
| | — |
| | 2,459 |
LIHTC investments (6) |
| | 3,690 |
| | 4,426 |
| | 2,347 |
| | 797 |
| | 11,260 |
Total | | $ | 7,039,366 | | $ | 405,897 | | $ | 195,412 | | $ | 161,820 | | $ | 7,802,495 |
119
(dollars in thousands) | Within One Year | One to Three Years | Three to Five Years | Over Five Years | Total | |||||||||||||||||||||||||||
Deposits without a stated maturity (1) | $ | 8,211,443 | $ | — | $ | — | $ | — | $ | 8,211,443 | ||||||||||||||||||||||
Time deposits (1) | 526,641 | 376,825 | 74,294 | — | 977,760 | |||||||||||||||||||||||||||
Borrowed funds (2) | 326,726 | — | 70,000 | 200,000 | 596,726 | |||||||||||||||||||||||||||
Operating lease obligations | 8,342 | 12,741 | 9,283 | 9,500 | 39,866 | |||||||||||||||||||||||||||
Outside data processing (3) | 4,592 | 8,190 | 1,677 | — | 14,459 | |||||||||||||||||||||||||||
George Mason sponsorship (4) | 675 | 1,350 | 1,363 | 6,775 | 10,163 | |||||||||||||||||||||||||||
D.C. United (5) | 820 | 844 | — | — | 1,664 | |||||||||||||||||||||||||||
LIHTC investments (6) | 5,343 | 2,070 | 672 | 676 | 8,761 | |||||||||||||||||||||||||||
Other (7) | 0 | 2,000 | 0 | 0 | 2,000 | |||||||||||||||||||||||||||
Total | $ | 9,084,582 | $ | 404,020 | $ | 157,289 | $ | 216,951 | $ | 9,862,842 |
120
Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain amounts and ratios (set forth in the table below) of Total capital, Tier 1 capital and CET1 (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined), referred to as the Leverage Ratio. Management believes, as of December 31, 20192020 and 2018,2019, that the Company and Bank met all capital adequacy requirements to which they are subject.
Company | Bank | Minimum Required For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Regulations * | |||||||||||||||||||||||||||||||||||
(dollars in thousands) | Actual Amount | Ratio | Actual Amount | Ratio | ||||||||||||||||||||||||||||||||||
As of December 31, 2020 | ||||||||||||||||||||||||||||||||||||||
CET1 capital (to risk weighted assets) | $ | 1,137,896 | 13.49 | % | $ | 1,244,028 | 14.90 | % | 7.000 | % | 6.5 | % | ||||||||||||||||||||||||||
Total capital (to risk weighted assets) | 1,438,224 | 17.04 | % | 1,338,356 | 16.03 | % | 10.500 | % | 10.0 | % | ||||||||||||||||||||||||||||
Tier 1 capital (to risk weighted assets) | 1,137,896 | 13.49 | % | 1,244,028 | 14.90 | % | 8.500 | % | 8.0 | % | ||||||||||||||||||||||||||||
Tier 1 capital (to average assets) | 1,137,896 | 10.31 | % | 1,244,028 | 11.29 | % | 4.000 | % | 5.0 | % | ||||||||||||||||||||||||||||
As of December 31, 2019 | ||||||||||||||||||||||||||||||||||||||
CET1 capital (to risk weighted assets) | $ | 1,082,516 | 12.87 | % | $ | 1,225,486 | 14.64 | % | 7.000 | % | 6.5 | % | ||||||||||||||||||||||||||
Total capital (to risk weighted assets) | 1,362,253 | 16.20 | % | 1,299,223 | 15.52 | % | 10.500 | % | 10.0 | % | ||||||||||||||||||||||||||||
Tier 1 capital (to risk weighted assets) | 1,082,516 | 12.87 | % | 1,225,486 | 14.64 | % | 8.500 | % | 8.0 | % | ||||||||||||||||||||||||||||
Tier 1 capital (to average assets) | 1,082,516 | 11.62 | % | 1,225,486 | 13.18 | % | 4.000 | % | 5.0 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | To Be Well | |
| | | | | | | | | | | | | | Capitalized | |
| | Company | | Bank | | Minimum Required | | Under Prompt |
| ||||||
| | Actual | | Actual | | For Capital | | Corrective Action |
| ||||||
(dollars in thousands) |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Adequacy Purposes |
| Regulations * |
| ||
As of December 31, 2019 |
| |
|
|
|
| |
|
|
|
|
|
|
| |
CET1 capital (to risk weighted assets) | | $ | 1,082,516 |
| 12.87 | % | $ | 1,225,486 |
| 14.64 | % | 7.000 | % | 6.5 | % |
Total capital (to risk weighted assets) | |
| 1,362,253 |
| 16.20 | % |
| 1,299,223 |
| 15.52 | % | 10.500 | % | 10.0 | % |
Tier 1 capital (to risk weighted assets) | |
| 1,082,516 |
| 12.87 | % |
| 1,225,486 |
| 14.64 | % | 8.500 | % | 8.0 | % |
Tier 1 capital (to average assets) | |
| 1,082,516 |
| 11.62 | % |
| 1,225,486 |
| 13.18 | % | 4.000 | % | 5.0 | % |
| | | | | | | | | | | | | | | |
As of December 31, 2018 | |
|
|
|
| |
|
|
|
|
|
|
|
| |
CET1 capital (to risk weighted assets) | | $ | 1,007,438 |
| 12.49 | % | $ | 1,147,151 |
| 14.23 | % | 6.375 | % | 6.5 | % |
Total capital (to risk weighted assets) | |
| 1,297,427 |
| 16.08 | % |
| 1,217,140 |
| 15.10 | % | 9.875 | % | 10.0 | % |
Tier 1 capital (to risk weighted assets) | |
| 1,007,438 |
| 12.49 | % |
| 1,147,151 |
| 14.23 | % | 7.875 | % | 8.0 | % |
Tier 1 capital (to average assets) | |
| 1,007,438 |
| 12.10 | % |
| 1,147,151 |
| 13.78 | % | 5.000 | % | 5.0 | % |
|
|
121
| | | | | | | | | |
(dollars in thousands) |
| Before Tax |
| Tax Effect |
| Net of Tax | |||
Year Ended December 31, 2019 | |
| | |
| | |
| |
Net unrealized gain on securities available-for-sale | | $ | 15,183 | | $ | (3,929) | | $ | 11,254 |
Less: Reclassification adjustment for net gains included in net income |
| | (1,517) |
| | (416) |
| | (1,101) |
Total unrealized gain |
| | 13,666 |
| | (4,345) |
| | 10,153 |
| | | | | | | | | |
Net unrealized loss on derivatives |
| | (2,731) |
| | 682 |
| | (2,049) |
Less: Reclassification adjustment for gain included in net income |
| | (1,198) |
| | (328) |
| | (870) |
Total unrealized loss |
| | (3,929) |
| | 354 |
| | (2,919) |
| | | | | | | | | |
Other Comprehensive Income | | $ | 9,737 | | $ | (3,991) | | $ | 7,234 |
| | | | | | | | | |
Year Ended December 31, 2018 | |
|
| |
|
| |
|
|
Net unrealized loss on securities available-for-sale | | $ | (4,279) | | $ | (438) | | $ | (3,841) |
Less: Reclassification adjustment for net gains included in net income | |
| (97) | |
| (25) | |
| (72) |
Total unrealized loss | |
| (4,376) | |
| (463) | |
| (3,913) |
| | | | | | | | | |
Net unrealized gain on derivatives | |
| 2,033 | |
| 227 | |
| 1,806 |
Less: Reclassification adjustment for gain included in net income | |
| (560) | |
| (142) | |
| (418) |
Total unrealized gain | |
| 1,473 | |
| 85 | |
| 1,388 |
| | | | | | | | | |
Other Comprehensive Loss | | $ | (2,903) | | $ | (378) | | $ | (2,525) |
| | | | | | | | | |
Year Ended December 31, 2017 | |
|
| |
|
| |
|
|
Net unrealized loss on securities available-for-sale | | $ | (1,319) | | $ | (479) | | $ | (840) |
Less: Reclassification adjustment for net gains included in net income | |
| (542) | |
| (206) | |
| (336) |
Total unrealized loss | |
| (1,861) | |
| (685) | |
| (1,176) |
| | | | | | | | | |
Net unrealized gain on derivatives | |
| 4,559 | |
| 1,765 | |
| 2,794 |
Less: Reclassification adjustment for losses included in net income | |
| (1,592) | |
| (605) | |
| (987) |
Total unrealized gain | |
| 2,967 | |
| 1,160 | |
| 1,807 |
| | | | | | | | | |
Other Comprehensive Income | | $ | 1,106 | | $ | 475 | | $ | 631 |
122
(dollars in thousands) | Before Tax | Tax Effect | Net of Tax | |||||||||||||||||
Year Ended December 31, 2020 | ||||||||||||||||||||
Net unrealized gain (loss) on securities available-for-sale | $ | 19,637 | $ | (5,215) | $ | 14,422 | ||||||||||||||
Less: Reclassification adjustment for net gain (loss) included in net income | (1,815) | 452 | (1,363) | |||||||||||||||||
Total unrealized gain (loss) | 17,822 | (4,763) | 13,059 | |||||||||||||||||
Net unrealized gain (loss) on derivatives | (2,049) | 671 | (1,378) | |||||||||||||||||
Less: Reclassification adjustment for gain (loss) included in net income | 1,145 | (285) | 860 | |||||||||||||||||
Total unrealized gain (loss) | (904) | 386 | (518) | |||||||||||||||||
Other comprehensive income (loss) | $ | 16,918 | $ | (4,377) | $ | 12,541 | ||||||||||||||
Year Ended December 31, 2019 | ||||||||||||||||||||
Net unrealized gain (loss) on securities available-for-sale | $ | 15,183 | $ | (3,929) | $ | 11,254 | ||||||||||||||
Less: Reclassification adjustment for net gain (loss) included in net income | (1,517) | 416 | (1,101) | |||||||||||||||||
Total unrealized gain (loss) | 13,666 | (3,513) | 10,153 | |||||||||||||||||
Net unrealized gain (loss) on derivatives | (2,731) | 682 | (2,049) | |||||||||||||||||
Less: Reclassification adjustment for gain (loss) included in net income | (1,198) | 328 | (870) | |||||||||||||||||
Total unrealized gain (loss) | (3,929) | 1,010 | (2,919) | |||||||||||||||||
Other comprehensive income (loss) | $ | 9,737 | $ | (2,503) | $ | 7,234 | ||||||||||||||
Year Ended December 31, 2018 | ||||||||||||||||||||
Net unrealized loss on securities available-for-sale | $ | (4,279) | $ | (438) | $ | (3,841) | ||||||||||||||
Less: Reclassification adjustment for net loss included in net income | (97) | (25) | (72) | |||||||||||||||||
Total unrealized loss | (4,376) | (463) | (3,913) | |||||||||||||||||
Net unrealized gain on derivatives | 2,033 | 227 | 1,806 | |||||||||||||||||
Less: Reclassification adjustment for losses included in net income | (560) | (142) | (418) | |||||||||||||||||
Total unrealized gain | 1,473 | 85 | 1,388 | |||||||||||||||||
Other comprehensive loss | $ | (2,903) | $ | (378) | $ | (2,525) |
The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2020, 2019 2018 and 2017.
2018.
(dollars in thousands) | Securities Available For Sale | Derivatives | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||
Year Ended December 31, 2020 | ||||||||||||||||||||
Balance at Beginning of Period | $ | 3,109 | $ | (150) | $ | 2,959 | ||||||||||||||
Other comprehensive income (loss) before reclassifications | 14,422 | (1,378) | 13,044 | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | (1,363) | 860 | (503) | |||||||||||||||||
Net other comprehensive income (loss) during period | 13,059 | (518) | 12,541 | |||||||||||||||||
Balance at End of Period | $ | 16,168 | $ | (668) | $ | 15,500 | ||||||||||||||
Year Ended December 31, 2019 | ||||||||||||||||||||
Balance at Beginning of Period | $ | (7,044) | $ | 2,769 | $ | (4,275) | ||||||||||||||
Other comprehensive (loss) income before reclassifications | 11,254 | (2,049) | 9,205 | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | (1,101) | (870) | (1,971) | |||||||||||||||||
Net other comprehensive (loss) income during period | 10,153 | (2,919) | 7,234 | |||||||||||||||||
Balance at End of Period | $ | 3,109 | $ | (150) | $ | 2,959 | ||||||||||||||
Year Ended December 31, 2018 | ||||||||||||||||||||
Balance at Beginning of Period | $ | (3,131) | $ | 1,381 | $ | (1,750) | ||||||||||||||
Other comprehensive (loss) income before reclassifications | (3,841) | 1,806 | (2,035) | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | (72) | (418) | (490) | |||||||||||||||||
Net other comprehensive (loss) income during period | (3,913) | 1,388 | (2,525) | |||||||||||||||||
Balance at End of Period | $ | (7,044) | $ | 2,769 | $ | (4,275) |
| | | | | | | | | |
| | Securities | | | | | Accumulated Other | ||
| | Available | | | | | Comprehensive Income | ||
(dollars in thousands) |
| For Sale |
| Derivatives |
| (Loss) | |||
Year Ended December 31, 2019 | | |
| | |
| | |
|
Balance at Beginning of Period | | $ | (7,044) | | $ | 2,769 | | $ | (4,275) |
Other comprehensive income (loss) before reclassifications | |
| 11,254 | |
| (2,049) | |
| 9,205 |
Amounts reclassified from accumulated other comprehensive income | |
| (1,101) | |
| (870) | |
| (1,971) |
Net other comprehensive income (loss) during period | |
| 10,153 | |
| (2,919) | |
| 7,234 |
Balance at End of Period | | $ | 3,109 | | $ | (150) | | $ | 2,959 |
| | | | | | | | | |
Year Ended December 31, 2018 | |
|
| |
|
| |
|
|
Balance at Beginning of Period | | $ | (3,131) | | $ | 1,381 | | $ | (1,750) |
Other comprehensive (loss) income before reclassifications | |
| (3,841) | |
| 1,806 | |
| (2,035) |
Amounts reclassified from accumulated other comprehensive income | |
| (72) | |
| (418) | |
| (490) |
Net other comprehensive (loss) income during period | |
| (3,913) | |
| 1,388 | |
| (2,525) |
Balance at End of Period | | $ | (7,044) | | $ | 2,769 | | $ | (4,275) |
| | | | | | | | | |
Year Ended December 31, 2017 | |
|
| |
|
| |
|
|
Balance at Beginning of Period | | $ | (1,955) | | $ | (426) | | $ | (2,381) |
Other comprehensive (loss) income before reclassifications | |
| (840) | |
| 2,794 | |
| 1,954 |
Amounts reclassified from accumulated other comprehensive income | |
| (336) | |
| (987) | |
| (1,323) |
Net other comprehensive (loss) income during period | |
| (1,176) | |
| 1,807 | |
| 631 |
Balance at End of Period | | $ | (3,131) | | $ | 1,381 | | $ | (1,750) |
| | | | | | | | | | | |
|
| Amount Reclassified from | | Affected Line Item in | |||||||
| | Accumulated Other | | the Statement Where | |||||||
Details about Accumulated Other |
| Comprehensive (Loss) Income |
| Net Income is Presented | |||||||
Comprehensive Income Components | | Year Ended December 31, | | | |||||||
(dollars in thousands) | | 2019 |
| 2018 |
| 2017 | | | |||
Realized gain on sale of investment securities | | $ | 1,517 | | $ | 97 | | $ | 542 |
| Gain on sale of investment securities |
Interest income (expense) derivative deposits | |
| 1,198 | |
| 560 | |
| (1,592) |
| Interest expense on deposits |
Income tax (expense) benefit | |
| (744) | |
| (167) | |
| 399 |
| Tax expense |
Total Reclassifications for the Period | | $ | 1,971 | | $ | 490 | | $ | (651) |
| Net Income |
123
Details about Accumulated Other | Amount Reclassified from Accumulated Other Comprehensive (Loss) Income | Affected Line Item in the Statement Where Net Income is Presented | ||||||||||||||||||||||||
Comprehensive Income Components | Year Ended December 31, | |||||||||||||||||||||||||
(dollars in thousands) | 2020 | 2019 | 2018 | |||||||||||||||||||||||
Realized gain on sale of investment securities | $ | 1,815 | $ | 1,517 | $ | 97 | Gain on sale of investment securities | |||||||||||||||||||
Interest income (expense) derivative deposits | (1,145) | 1,198 | 560 | Interest expense on deposits | ||||||||||||||||||||||
Income tax (expense) benefit | (167) | (744) | (167) | Tax expense | ||||||||||||||||||||||
Total Reclassifications for the Period | $ | 503 | $ | 1,971 | $ | 490 | Net Income |
124
| | | | | | | | | | | | |
| | | | | Significant | | Significant | | | | ||
| | | | | Other | | Other | | | | ||
| | | | | Observable | | Unobservable | | | | ||
| | Quoted Prices | | Inputs | | Inputs | | Total | ||||
(dollars in thousands) |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| (Fair Value) | ||||
December 31, 2019 | | | | | | | | | | | | |
Assets: | | |
| | |
| | |
| | |
|
Investment securities available-for-sale: | | |
| | |
| | |
| | |
|
U. S. agency securities | | $ | — | | $ | 179,794 | | $ | — | | $ | 179,794 |
Residential mortgage backed securities | |
| — | |
| 543,852 | |
| — | |
| 543,852 |
Municipal bonds | |
| — | |
| 73,931 | |
| — | |
| 73,931 |
Corporate bonds | |
| — | |
| — | |
| 10,733 | |
| 10,733 |
U.S. Treasury | | | — | | | 34,855 | | | — | | | 34,855 |
Other equity investments | |
| — | |
| — | |
| 198 | |
| 198 |
Loans held for sale | |
| — | |
| 56,707 | |
| — | |
| 56,707 |
Interest Rate Caps | |
| — | |
| 317 | |
| — | |
| 317 |
Mortgage banking derivatives | |
| — | |
| — | |
| 280 | |
| 280 |
Total assets measured at fair value on a recurring basis as of December 31, 2019 | | $ | — | | $ | 889,456 | | $ | 11,211 | | $ | 900,667 |
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Interest rate swap derivatives | | $ | — | | $ | 203 | | $ | — | | $ | 203 |
Derivative liability | | | — | | | 86 | | | — | | | 86 |
Interest Rate Caps | | | — | | | 312 | | | — | | | 312 |
Mortgage banking derivatives | | | — | | | — | | | 66 | | | 66 |
Total liabilities measured at fair value on a recurring basis as of December 31, 2019 | | $ | — | | $ | 601 | | $ | 66 | | $ | 667 |
December 31, 2018 | |
|
| |
|
| |
|
| |
|
|
Assets: | |
|
| |
|
| |
|
| |
|
|
Investment securities available-for-sale: | |
|
| |
|
| |
|
| |
|
|
U. S. agency securities | | $ | — | | $ | 256,345 | | $ | — | | $ | 256,345 |
Residential mortgage backed securities | |
| — | |
| 472,231 | |
| — | |
| 472,231 |
Municipal bonds | |
| — | |
| 45,769 | |
| — | |
| 45,769 |
Corporate bonds | |
| — | |
| — | |
| 9,576 | ��� |
| 9,576 |
Other equity investments | |
| — | |
| — | |
| 218 | |
| 218 |
Loans held for sale | |
| — | |
| 19,254 | |
| — | |
| 19,254 |
Mortgage banking derivatives | |
| — | |
| — | |
| 229 | |
| 229 |
Interest rate swap derivatives | |
| — | |
| 3,727 | |
| — | |
| 3,727 |
Total assets measured at fair value on a recurring basis as of December 31, 2018 | | $ | — | | $ | 797,326 | | $ | 10,023 | | $ | 807,349 |
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Mortgage banking derivatives | | $ | — | | $ | — | | $ | 269 | | $ | 269 |
Total liabilities measured at fair value on a recurring basis as of December 31, 2018 | | $ | — | | $ | — | | $ | 269 | | $ | 269 |
125
(dollars in thousands) | Quoted Prices (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | Total (Fair Value) | ||||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||
Investment securities available-for-sale: | ||||||||||||||||||||||||||
U. S. agency securities | $ | 0 | $ | 181,921 | $ | — | $ | 181,921 | ||||||||||||||||||
Residential mortgage backed securities | 0 | 825,001 | — | 825,001 | ||||||||||||||||||||||
Municipal bonds | 0 | 108,113 | — | 108,113 | ||||||||||||||||||||||
Corporate bonds | 0 | 34,350 | 1,500 | 35,850 | ||||||||||||||||||||||
Loans held for sale | 0 | 88,205 | — | 88,205 | ||||||||||||||||||||||
Interest rate caps | 0 | 3,413 | — | 3,413 | ||||||||||||||||||||||
Mortgage banking derivatives | 0 | 0 | 5,213 | 5,213 | ||||||||||||||||||||||
Total assets measured at fair value on a recurring basis as of December 31, 2020 | $ | 0 | $ | 1,241,003 | $ | 6,713 | $ | 1,247,716 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||
Interest rate swap derivatives | $ | 0 | $ | 516 | $ | — | $ | 516 | ||||||||||||||||||
Credit risk participation agreements | 0 | 118 | — | 118 | ||||||||||||||||||||||
Interest rate caps | 0 | 3,574 | — | 3,574 | ||||||||||||||||||||||
Total liabilities measured at fair value on a recurring basis as of December 31, 2020 | $ | 0 | $ | 4,208 | $ | 0 | $ | 4,208 | ||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||
Investment securities available-for-sale: | ||||||||||||||||||||||||||
U. S. agency securities | $ | 0 | $ | 179,794 | $ | — | $ | 179,794 | ||||||||||||||||||
Residential mortgage backed securities | 0 | 543,852 | — | 543,852 | ||||||||||||||||||||||
Municipal bonds | 0 | 73,931 | — | 73,931 | ||||||||||||||||||||||
Corporate bonds | 0 | 0 | 10,733 | 10,733 | ||||||||||||||||||||||
U.S. Treasury | 0 | 34,855 | 0 | 34,855 | ||||||||||||||||||||||
Loans held for sale | 0 | 56,707 | — | 56,707 | ||||||||||||||||||||||
Interest rate caps | 0 | 317 | — | 317 | ||||||||||||||||||||||
Mortgage banking derivatives | 0 | 0 | 280 | 280 | ||||||||||||||||||||||
Total assets measured at fair value on a recurring basis as of December 31, 2019 | $ | 0 | $ | 889,456 | $ | 11,013 | $ | 900,469 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||
Interest rate swap derivatives | $ | 0 | $ | 203 | $ | — | $ | 203 | ||||||||||||||||||
Credit risk participation agreements | 0 | 86 | — | 86 | ||||||||||||||||||||||
Interest rate caps | 0 | 312 | — | 312 | ||||||||||||||||||||||
Mortgage banking derivatives | 0 | 0 | 66 | 66 | ||||||||||||||||||||||
Total liabilities measured at fair value on a recurring basis as of December 31, 2019 | $ | 0 | $ | 601 | $ | 66 | $ | 667 |
2019.
December 31, 2020 | ||||||||||||||||||||
(dollars in thousands) | Fair Value | Aggregate Unpaid Principal Balance | Difference | |||||||||||||||||
Loans held for sale | $ | 88,205 | $ | 86,551 | $ | 1,654 |
| | | | | | | | | |
| | December 31, 2019 | |||||||
| | | | | Aggregate | | | | |
| | | | | Unpaid | | | | |
| | | | | Principal | | | | |
(dollars in thousands) |
| Fair Value |
| Balance |
| Difference | |||
Residential mortgage loans held for sale | | $ | 52,927 | | $ | 52,054 | | $ | 873 |
FHA mortgage loans held for sale | | $ | 3,780 | | $ | 3,780 | | $ | — |
December 31, 2019 | ||||||||||||||||||||
(dollars in thousands) | Fair Value | Aggregate Unpaid Principal Balance | Difference | |||||||||||||||||
Loans held for sale | $ | 56,707 | $ | 55,834 | $ | 873 |
| | | | | | | | | |
| | December 31, 2018 | |||||||
| | | | | Aggregate | | | | |
| | | | | Unpaid | | | | |
| | | | | Principal | | | | |
(dollars in thousands) |
| Fair Value |
| Balance |
| Difference | |||
Residential mortgage loans held for sale | | $ | 19,254 | | $ | 18,797 | | $ | 457 |
FHA mortgage loans held for sale | | $ | — | | $ | — | | $ | — |
2019.
126
Credit Risk Participation Agreementsrisk participation agreements: The Company enters into credit risk participation agreements (“RPAs”) with institutional counterparties, under which the Company assumes its pro-rata share of the credit exposure associated with a borrower’s performance related to interest rate derivative contracts. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. Accordingly, RPAs fall within Level 2.
(dollars in thousands) | Investment Securities | Mortgage Banking Derivatives | Total | |||||||||||||||||
Assets: | ||||||||||||||||||||
Beginning balance at January 1, 2020 | $ | 10,931 | $ | 280 | $ | 11,211 | ||||||||||||||
Realized (loss) gain included in earnings | 0 | 4,933 | 4,933 | |||||||||||||||||
Migrated to Level 2 valuation | (9,233) | 0 | (9,233) | |||||||||||||||||
Reclass fair value asset to cost method | (198) | 0 | $ | (198) | ||||||||||||||||
Ending balance at December 31, 2020 | $ | 1,500 | $ | 5,213 | $ | 6,713 | ||||||||||||||
Liabilities: | ||||||||||||||||||||
Beginning balance at January 1, 2020 | $ | 0 | $ | 66 | $ | 66 | ||||||||||||||
Realized gain included in earnings | 0 | (66) | (66) | |||||||||||||||||
Ending balance at December 31, 2020 | $ | 0 | $ | 0 | $ | 0 |
| | | | | | | | | |
| | Investment | | Mortgage Banking | | | | ||
(dollars in thousands) |
| Securities |
| Derivatives |
| Total | |||
Assets: |
| |
|
| |
|
| |
|
Beginning balance at January 1, 2019 | | $ | 9,794 | | $ | 229 | | $ | 10,023 |
Realized (loss) gain included in earnings | |
| (20) | |
| 51 | |
| 31 |
Unrealized gain included in other comprehensive income | | | 131 | | | — | | | 131 |
Purchases of available -for-sale securities | | | 4,030 | | | — | | | 4,030 |
Principal redemption | |
| (3,004) | |
| — | |
| (3,004) |
Ending balance at December 31, 2019 | | $ | 10,931 | | $ | 280 | | $ | 11,211 |
| | | | | | | | | |
Liabilities: | |
|
| |
|
| |
|
|
Beginning balance at January 1, 2019 | | $ | — | | $ | 269 | | $ | 269 |
Realized gain included in earnings | |
| — | |
| (203) | |
| (203) |
Principal redemption | |
| — | |
| — | |
| — |
Ending balance at December 31, 2019 | | $ | — | | $ | 66 | | $ | 66 |
(dollars in thousands) | Investment Securities | Mortgage Banking Derivatives | Total | |||||||||||||||||
Assets: | ||||||||||||||||||||
Beginning balance at January 1, 2019 | $ | 9,794 | $ | 229 | $ | 10,023 | ||||||||||||||
Realized gain included in earnings | (20) | 51 | 31 | |||||||||||||||||
Unrealized gain included in other comprehensive income | 131 | 0 | 131 | |||||||||||||||||
Purchases of available-for-sale securities | 4,030 | 0 | 4,030 | |||||||||||||||||
Principal redemption | (3,004) | 0 | (3,004) | |||||||||||||||||
Ending balance at December 31, 2019 | $ | 10,931 | $ | 280 | $ | 11,211 | ||||||||||||||
Liabilities: | ||||||||||||||||||||
Beginning balance at January 1, 2019 | 0 | 0 | 0 | |||||||||||||||||
Realized loss included in earnings | $ | 0 | $ | 269 | $ | 269 | ||||||||||||||
Principal redemption | 0 | (203) | (203) | |||||||||||||||||
Ending balance at December 31, 2019 | $ | 0 | $ | 66 | $ | 66 |
| | | | | | | | | |
| | Investment | | Mortgage Banking | | | | ||
(dollars in thousands) |
| Securities |
| Derivatives |
| Total | |||
Assets: |
| |
|
| |
|
| |
|
Beginning balance at January 1, 2018 | | $ | 1,718 | | $ | 43 | | $ | 1,761 |
Realized gain included in earnings | |
| — | |
| 186 | |
| 186 |
Purchases of available-for-sale securities | |
| 8,076 | |
| — | |
| 8,076 |
Principal redemption | |
| — | |
| — | |
| — |
Ending balance at December 31, 2018 | | $ | 9,794 | | $ | 229 | | $ | 10,023 |
| | | | | | | | | |
Liabilities: | |
|
| |
|
| |
|
|
Beginning balance at January 1, 2018 | | $ | — | | $ | 10 | | $ | 10 |
Realized loss included in earnings | |
| — | |
| 259 | |
| 259 |
Principal redemption | |
| — | |
| — | |
| — |
Ending balance at December 31, 2018 | | $ | — | | $ | 269 | | $ | 269 |
Securities
127
December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Valuation Technique | Description | Range | Weighted Average (1) | Fair Value | Weighted Average (1) | Fair Value | ||||||||||||||||||||||||||||||||||
Mortgage banking derivatives | Pricing Model | Pull Through Rate | 72% - 85% | 79.14 | % | $ | 5,213 | 76.25 | % | $ | 280 |
Mortgage banking derivatives: derivatives for loans settled on a mandatory basis: The Company reliesrelied on a third-party pricing service to value its mortgage banking derivative financial assets and liabilities, which the Company classifies as a Level 3 valuation. The external valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated pull-through rate based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment groups. The Company also relies on an external valuation model to estimate the fair value of its forward commitments to sell residential mortgage loans (i.e., an estimate of what the Company would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing.
Impaired
128
Other real estate owned: Other real estate owned is initially recorded at fair value less estimated selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral, which the Company classifies as a Level 3 valuation.
| | | | | | | | | | | | |
| | | | | Significant | | Significant | | | | ||
| | | | | Other | | Other | | | | ||
| | | | Observable | | Unobservable | | | ||||
| | Quoted Prices | | Inputs | | Inputs | | Total | ||||
(dollars in thousands) |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| (Fair Value) | ||||
December 31, 2019 | | |
| | |
| | |
| | |
|
Impaired loans: | | |
| | |
| | |
| | |
|
Commercial | | $ | — | | $ | — | | $ | 10,100 | | $ | 10,100 |
Income producing - commercial real estate | |
| — | |
| — | |
| 11,948 | |
| 11,948 |
Owner occupied - commercial real estate | |
| — | |
| — | |
| 6,934 | |
| 6,934 |
Real estate mortgage - residential | |
| — | |
| — | |
| 4,981 | |
| 4,981 |
Construction - commercial and residential | |
| — | |
| — | |
| 11,409 | |
| 11,409 |
Home equity | |
| — | |
| — | |
| 387 | |
| 387 |
Other real estate owned | |
| — | |
| — | |
| 1,487 | |
| 1,487 |
Total assets measured at fair value on a nonrecurring basis as of December 31, 2019 | | $ | — | | $ | — | | $ | 47,246 | | $ | 47,246 |
(dollars in thousands) | Quoted Prices (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | Total (Fair Value) | ||||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||
Individually assessed loans: | ||||||||||||||||||||||||||
Commercial | $ | 0 | $ | 0 | $ | 9,285 | $ | 9,285 | ||||||||||||||||||
Income producing - commercial real estate | 0 | 0 | 21,638 | 21,638 | ||||||||||||||||||||||
Owner occupied - commercial real estate | 0 | 0 | 21,930 | 21,930 | ||||||||||||||||||||||
Real estate mortgage - residential | 0 | 0 | 2,602 | 2,602 | ||||||||||||||||||||||
Construction - commercial and residential | 0 | 0 | 103 | 103 | ||||||||||||||||||||||
Home equity | 0 | 0 | 416 | 416 | ||||||||||||||||||||||
Other real estate owned | 0 | 0 | 4,987 | 4,987 | ||||||||||||||||||||||
Total assets measured at fair value on a nonrecurring basis as of December 31, 2020 | $ | 0 | $ | 0 | $ | 60,961 | $ | 60,961 |
| | | | | | | | | | | | |
| | | | | Significant | | Significant | | | |||
| | | | | Other | | Other | | | | ||
| | | | | Observable | | Unobservable | | | | ||
| | Quoted Prices | | Inputs | | Inputs | | Total | ||||
(dollars in thousands) |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| (Fair Value) | ||||
December 31, 2018 | | |
| | |
| | |
| | |
|
Impaired loans: | | |
| | |
| | |
| | |
|
Commercial | | $ | — | | $ | — | | $ | 3,338 | | $ | 3,338 |
Income producing - commercial real estate | |
| — | |
| — | |
| 18,937 | |
| 18,937 |
Owner occupied - commercial real estate | |
| — | |
| — | |
| 5,131 | |
| 5,131 |
Real estate mortgage - residential | |
| — | |
| — | |
| 1,510 | |
| 1,510 |
Construction - commercial and residential | |
| — | |
| — | |
| 1,981 | |
| 1,981 |
Home equity | |
| — | |
| — | |
| 487 | |
| 487 |
Other real estate owned | |
| — | |
| — | |
| 1,394 | |
| 1,394 |
Total assets measured at fair value on a nonrecurring basis as of December 31, 2018 | | $ | — | | $ | — | | $ | 32,778 | | $ | 32,778 |
(dollars in thousands) | Quoted Prices (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | Total (Fair Value) | ||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||
Impaired loans: | ||||||||||||||||||||||||||
Commercial | $ | 0 | $ | 0 | $ | 10,100 | $ | 10,100 | ||||||||||||||||||
Income producing - commercial real estate | 0 | 0 | 11,948 | 11,948 | ||||||||||||||||||||||
Owner occupied - commercial real estate | 0 | 0 | 6,934 | 6,934 | ||||||||||||||||||||||
Real estate mortgage - residential | 0 | 0 | 4,981 | 4,981 | ||||||||||||||||||||||
Construction - commercial and residential | 0 | 0 | 11,409 | 11,409 | ||||||||||||||||||||||
Home equity | 0 | 0 | 387 | 387 | ||||||||||||||||||||||
Other real estate owned | 0 | 0 | 1,487 | 1,487 | ||||||||||||||||||||||
Total assets measured at fair value on a nonrecurring basis as of December 31, 2019 | $ | 0 | $ | 0 | $ | 47,246 | $ | 47,246 |
The Company does not record loans at fair value on a recurring basis; however, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310, “Receivables.” The fair value of impairedindividually assessed loans is estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows. Those impairedindividually assessed loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At December 31, 2019,2020, substantially all of the Company’s impairedindividually assessed loans were evaluated based upon the fair value of the collateral. In accordance with ASC Topic 820, impairedindividually assessed loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3.
129
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each category of financial instrument for which it is practicable to estimate value:
Cash due from banks and federal funds sold: For cash and due from banks and federal funds sold the carrying amount approximates fair value.
Interest bearing deposits with other banks: For interest bearing deposits with other banks the carrying amount approximates fair value.
Investment securities: For these instruments, fair values are based upon quoted prices, if available. If quoted prices are not available, fair value is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.
Federal Reserve and Federal Home Loan Bank stock: The carrying amounts approximate the fair values at the reporting date.
Loans held for sale: As the Company has elected the fair value option, the fair value of loans held for sale is the carrying value and is based on commitments outstanding from investors as well as what secondary markets are currently offering for portfolios with similar characteristics for residential mortgage loans held for sale since such loans are typically committed to be sold (servicing released) at a profit. The fair value of multifamily FHA loans held for sale is the carrying value and is based on commitments outstanding from investors as well as what secondary markets are currently offering for portfolios with similar characteristics for multifamily FHA loans held for sale since such loans are typically committed to be securitized and sold (servicing retained) at a profit.
Loans: The loan portfolio is valued using an exit price notion. The present value of cash flows projection is established for each loan in the portfolio projecting contractual payments, default adjusted payments, cash flows in the event of default (including deferred timing of recoveries), and pre-payments. These expected cash flows are then discounted to present value using the note interest rate and an established market rate which, if different from the note rate, allows the Bank to isolate the amount above or below par a potential acquirer would pay to acquire the Bank’s portfolio.
Bank owned life insurance: The fair value of bank owned life insurance is the current cash surrender value, which is the carrying value.
Annuity investment: The fair value of the annuity investments is the carrying amount at the reporting date.
Mortgage banking derivatives: The Company enters into interest rate lock commitments with prospective residential mortgage borrowers. These commitments are carried at fair value based on the fair value of the underlying mortgage loans which are based on market data. These commitments are classified as Level 3 in the fair value disclosures, as the valuations are based on market unobservable inputs. The Company hedges the risk of the overall change in the fair value of loan commitments to borrowers by selling forward contracts on securities of GSEs. These forward settling contracts are classified as Level 3, as valuations are based on market unobservable inputs. See Note 9 to the Consolidated Financial Statements for additional detail.
130
Credit Risk Participation Agreements: The Company enters into credit risk participation agreements (“RPAs”) with institutional counterparties, under which the Company assumes its pro-rata share of the credit exposure associated with a borrower’s performance related to interest rate derivative contracts. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. Accordingly, RPAs fall within Level 2.
Interest Rate Caps: the Company entered into an interest rate cap agreement (“cap”) with an institutional counterparty, under which the Company will receive cash if and when market rates exceed the cap’s strike rate. The fair value of the cap is calculated by determining the total expected asset or liability exposure of the derivatives. Total expected exposure incorporates both the current and potential future exposure of the derivative, derived from using observable inputs, such as yield curves and volatilities. Accordingly, the cap falls within Level 2.
Interest rate swap derivatives: These derivative instruments consist of forward starting interest rate swap agreements, which are accounted for as cash flow hedges. The Company’s derivative position is classified within Level 2 of the fair value hierarchy and is valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers and/or non-binding broker-dealer quotations. The fair value of the derivatives is determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility. Derivative contracts are executed with a Credit Support Annex, which is a bilateral ratings-sensitive agreement that requires collateral postings when the market value exceeds certain threshold limits. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration.
Noninterest bearing deposits: The fair value of these deposits is the amount payable on demand at the reporting date, since generally accepted accounting standards do not permit an assumption of core deposit value.
Interest bearing deposits: The fair value of interest bearing transaction, savings, and money market deposits with no defined maturity is the amount payable on demand at the reporting date, since generally accepted accounting standards do not permit an assumption of core deposit value.
Certificates of deposit: The fair value of certificates of deposit is estimated by discounting the future cash flows using the current rates at which similar deposits with remaining maturities would be accepted.
Customer repurchase agreements: The carrying amount approximate the fair values at the reporting date.
Borrowings: The carrying amount for variable rate borrowings approximate the fair values at the reporting date. The fair value of fixed rate FHLB advances and the subordinated notes are estimated by computing the discounted value of contractual cash flows payable at current interest rates for obligations with similar remaining terms. The fair value of variable rate FHLB advances is estimated to be carrying value since these liabilities are based on a spread to a current pricing index.
Off-balance sheet items: Management has reviewed the unfunded portion of commitments to extend credit, as well as standby and other letters of credit, and has determined that the fair value of such instruments is equal to the fee, if any, collected and unamortized for the commitment made.
131
The estimatedEstimated fair values of the Company’s financial instruments at December 31, 20192020 and 20182019 are as follows:
| | | | | | | | | | | | | | | |
| | | | | | | | Fair Value Measurements | |||||||
| | | | | | | | | | | Significant | | | | |
| | | | | | | | | | | Other | | Significant | ||
| | | | | | | | | | | Observable | | Unobservable | ||
| | Carrying | | | | | Quoted Prices | | Inputs | | Inputs | ||||
(dollars in thousands) |
| Value |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | |||||
December 31, 2019 | | |
| | |
| | |
|
| |
|
| |
|
Assets | | |
| | |
| | |
|
| |
|
| |
|
Cash and due from banks | | $ | 7,539 | | $ | 7,539 | | $ | — | | $ | 7,539 | | $ | — |
Federal funds sold | |
| 38,987 | |
| 38,987 | |
| — | |
| 38,987 | |
| — |
Interest bearing deposits with other banks | |
| 195,447 | |
| 195,447 | |
| — | |
| 195,447 | |
| — |
Investment securities | |
| 843,363 | |
| 843,363 | |
| — | |
| 832,432 | |
| 10,931 |
Federal Reserve and Federal Home Loan Bank stock | |
| 35,194 | |
| 35,194 | |
| — | |
| 35,194 | |
| — |
Loans held for sale | |
| 56,707 | |
| 56,707 | |
| — | |
| 56,707 | |
| — |
Loans | |
| 7,472,090 | |
| 7,550,249 | |
| — | |
| — | |
| 7,550,249 |
Bank owned life insurance | |
| 75,724 | |
| 75,724 | |
| — | |
| 75,724 | |
| — |
Annuity investment | |
| 14,697 | |
| 14,697 | |
| — | |
| 14,697 | |
| — |
Interest Rate Caps | |
| 280 | |
| 280 | |
| — | |
| 280 | |
| — |
| | | | | | | | | | | | | | | |
Liabilities | |
|
| |
|
| |
|
| |
|
| |
|
|
Noninterest bearing deposits | |
| 2,064,367 | |
| 2,064,367 | |
| — | |
| 2,064,367 | |
| — |
Interest bearing deposits | |
| 3,876,985 | |
| 3,876,985 | |
| — | |
| 3,876,985 | |
| — |
Certificates of deposit | |
| 1,283,039 | |
| 1,291,688 | |
| — | |
| 1,291,688 | |
| — |
Customer repurchase agreements | |
| 30,980 | |
| 30,980 | |
| — | |
| 30,980 | |
| — |
Borrowings | |
| 467,687 | |
| 328,330 | |
| — | |
| 328,330 | |
| — |
Interest rate swap derivatives | | | 203 | | | 203 | | | — | | | 203 | | | — |
Derivative liability | | | 86 | | | 86 | | | — | | | 86 | | | — |
Interest Rate Caps | | | 312 | | | 312 | | | — | | | 312 | | | — |
Mortgage banking derivatives | |
| 66 | |
| 66 | |
| — | |
| — | |
| 66 |
| | | | | | | | | | | | | | | |
December 31, 2018 | |
|
| |
|
| |
|
| |
|
| |
|
|
Assets | |
|
| |
|
| |
|
| |
|
| |
|
|
Cash and due from banks | | $ | 6,773 | | $ | 6,773 | | $ | — | | $ | 6,773 | | $ | — |
Federal funds sold | |
| 11,934 | |
| 11,934 | |
| — | |
| 11,934 | |
| — |
Interest bearing deposits with other banks | |
| 303,157 | |
| 303,157 | |
| — | |
| 303,157 | |
| — |
Investment securities | |
| 784,139 | |
| 784,139 | |
| — | |
| 774,345 | |
| 9,794 |
Federal Reserve and Federal Home Loan Bank stock | |
| 23,506 | |
| 23,506 | |
| — | |
| 23,506 | |
| — |
Loans held for sale | |
| 19,254 | |
| 19,254 | |
| — | |
| 19,254 | |
| — |
Loans | |
| 6,921,503 | |
| 6,921,048 | |
| — | |
| — | |
| 6,921,048 |
Bank owned life insurance | |
| 73,441 | |
| 73,441 | |
| — | |
| 73,441 | |
| — |
Annuity investment | |
| 12,417 | |
| 12,417 | |
| — | |
| 12,417 | |
| — |
Mortgage banking derivatives | |
| 229 | |
| 229 | |
| — | |
| — | |
| 229 |
Interest rate swap derivatives | |
| 3,727 | |
| 3,727 | |
| — | |
| 3,727 | |
| — |
| | | | | | | | | | | | | | | |
Liabilities | |
|
| |
|
| |
|
| |
|
| |
|
|
Noninterest bearing deposits | |
| 2,104,220 | |
| 2,104,220 | |
| — | |
| 2,104,220 | |
| — |
Interest bearing deposits | |
| 3,542,666 | |
| 3,542,666 | |
| — | |
| 3,542,666 | |
| — |
Certificates of deposit | |
| 1,327,400 | |
| 1,325,209 | |
| — | |
| 1,325,209 | |
| — |
Customer repurchase agreements | |
| 30,413 | |
| 30,413 | |
| — | |
| 30,413 | |
| — |
Borrowings | |
| 217,196 | |
| 218,006 | |
| — | |
| 218,006 | |
| — |
Mortgage banking derivatives | |
| 269 | |
| 269 | |
| — | |
| — | |
| 269 |
132
Fair Value Measurements | ||||||||||||||||||||||||||||||||
(dollars in thousands) | Carrying Value | Fair Value | Quoted Prices (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and due from banks | $ | 8,435 | $ | 8,435 | $ | 8,435 | $ | 0 | $ | — | ||||||||||||||||||||||
Federal funds sold | 28,200 | 28,200 | — | 28,200 | — | |||||||||||||||||||||||||||
Interest bearing deposits with other banks | 1,752,420 | 1,752,420 | — | 1,752,420 | — | |||||||||||||||||||||||||||
Investment securities | 1,150,885 | 1,150,885 | — | 1,149,385 | 1,500 | |||||||||||||||||||||||||||
Federal Reserve and Federal Home Loan Bank stock | 40,104 | 40,104 | — | 40,104 | — | |||||||||||||||||||||||||||
Loans held for sale | 88,205 | 88,205 | — | 88,205 | — | |||||||||||||||||||||||||||
Loans | 7,650,633 | 7,608,687 | — | — | 7,608,687 | |||||||||||||||||||||||||||
Bank owned life insurance | 76,729 | 76,729 | — | 76,729 | — | |||||||||||||||||||||||||||
Annuity investment | 14,468 | 14,468 | — | 14,468 | — | |||||||||||||||||||||||||||
Mortgage banking derivatives | 5,213 | 5,213 | — | 0 | 5,213 | |||||||||||||||||||||||||||
Interest rate caps | 3,413 | 3,413 | — | 3,413 | — | |||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Noninterest bearing deposits | 2,809,334 | 2,809,334 | — | 2,809,334 | — | |||||||||||||||||||||||||||
Interest bearing deposits | 756,923 | 756,923 | — | 756,923 | — | |||||||||||||||||||||||||||
Time deposits | 977,760 | 993,500 | — | 993,500 | — | |||||||||||||||||||||||||||
Customer repurchase agreements | 26,726 | 26,726 | — | 26,726 | — | |||||||||||||||||||||||||||
Borrowings | 568,077 | 575,435 | — | 575,435 | — | |||||||||||||||||||||||||||
Interest rate swap derivatives | 516 | 516 | — | 516 | — | |||||||||||||||||||||||||||
Credit risk participation agreements | 118 | 118 | — | 118 | — | |||||||||||||||||||||||||||
Interest rate caps | 3,574 | 3,574 | — | 3,574 | — | |||||||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and due from banks | $ | 7,539 | $ | 7,539 | $ | 7,539 | $ | 0 | $ | — | ||||||||||||||||||||||
Federal funds sold | 38,987 | 38,987 | — | 38,987 | — | |||||||||||||||||||||||||||
Interest bearing deposits with other banks | 195,447 | 195,447 | — | 195,447 | — | |||||||||||||||||||||||||||
Investment securities | 843,363 | 843,363 | — | 832,432 | 10,931 | |||||||||||||||||||||||||||
Federal Reserve and Federal Home Loan Bank stock | 35,194 | 35,194 | — | 35,194 | — | |||||||||||||||||||||||||||
Loans held for sale | 56,707 | 56,707 | — | 56,707 | — | |||||||||||||||||||||||||||
Loans | 7,472,090 | 7,550,249 | — | — | 7,550,249 | |||||||||||||||||||||||||||
Bank owned life insurance | 75,724 | 75,724 | — | 75,724 | — | |||||||||||||||||||||||||||
Annuity investment | 14,697 | 14,697 | — | 14,697 | — | |||||||||||||||||||||||||||
Mortgage banking derivatives | 280 | 280 | — | 280 | — | |||||||||||||||||||||||||||
Interest rate swap derivatives | ||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Noninterest bearing deposits | 2,064,367 | 2,064,367 | — | 2,064,367 | — | |||||||||||||||||||||||||||
Interest bearing deposits | 3,876,985 | 3,876,985 | — | 3,876,985 | — | |||||||||||||||||||||||||||
Time deposits | 1,283,039 | 1,291,688 | — | 1,291,688 | — | |||||||||||||||||||||||||||
Customer repurchase agreements | 30,980 | 30,980 | — | 30,980 | — | |||||||||||||||||||||||||||
Borrowings | 467,687 | 328,330 | — | 328,330 | — | |||||||||||||||||||||||||||
Interest rate swap derivatives | 203 | 203 | — | 203 | — | |||||||||||||||||||||||||||
Credit risk participation agreements, | 86 | 86 | — | 86 | — | |||||||||||||||||||||||||||
Interest rate caps | 312 | 312 | — | 312 | — | |||||||||||||||||||||||||||
Mortgage banking derivatives | 66 | 66 | — | 0 | 66 |
Note 25 – Quarterly Results of Operations (unaudited)
The following table reports quarterly results of operations (unaudited) for 2019, 2018 and 2017:
| | | | | | | | | | | | |
| | 2019 | ||||||||||
(dollars in thousands except per share data) |
| Fourth Quarter |
| Third Quarter |
| Second Quarter |
| First Quarter | ||||
Total interest income | | $ | 107,183 | | $ | 109,034 | | $ | 108,279 | | $ | 105,134 |
Total interest expense | |
| 26,473 | |
| 28,045 | |
| 26,950 | |
| 24,117 |
Net interest income | |
| 80,710 | |
| 80,989 | |
| 81,329 | |
| 81,017 |
Provision for credit losses | |
| 2,945 | |
| 3,186 | |
| 3,600 | |
| 3,360 |
Net interest income after provision for credit losses | |
| 77,765 | |
| 77,803 | |
| 77,729 | |
| 77,657 |
Noninterest income | |
| 6,734 | |
| 6,314 | |
| 6,360 | |
| 6,291 |
Noninterest expense | |
| 34,726 | |
| 33,473 | |
| 33,359 | |
| 38,304 |
Income before income tax expense | |
| 49,773 | |
| 50,644 | |
| 50,730 | |
| 45,644 |
Income tax expense | |
| 14,317 | |
| 14,149 | |
| 13,487 | |
| 11,895 |
Net income | |
| 35,456 | |
| 36,495 | |
| 37,243 | |
| 33,749 |
Net income available to common shareholders | | $ | 35,456 | | $ | 36,495 | | $ | 37,243 | | $ | 33,749 |
Earnings per common share | |
|
| |
|
| |
|
| |
|
|
Basic (1) | | $ | 1.06 | | $ | 1.07 | | $ | 1.08 | | $ | 0.98 |
Diluted (1) | | $ | 1.06 | | $ | 1.07 | | $ | 1.08 | | $ | 0.98 |
| | | | | | | | | | | | |
| | 2018 | ||||||||||
(dollars in thousands except per share data) |
| Fourth Quarter |
| Third Quarter |
| Second Quarter |
| First Quarter | ||||
Total interest income | | $ | 105,581 | | $ | 102,360 | | $ | 96,296 | | $ | 89,049 |
Total interest expense | |
| 23,869 | |
| 21,069 | |
| 18,086 | |
| 13,269 |
Net interest income | |
| 81,712 | |
| 81,291 | |
| 78,210 | |
| 75,780 |
Provision for credit losses | |
| 2,600 | |
| 2,441 | |
| 1,650 | |
| 1,969 |
Net interest income after provision for credit losses | |
| 79,112 | |
| 78,850 | |
| 76,560 | |
| 73,811 |
Noninterest income | |
| 6,089 | |
| 5,640 | |
| 5,553 | |
| 5,304 |
Noninterest expense | |
| 31,687 | |
| 31,614 | |
| 32,289 | |
| 31,121 |
Income before income tax expense | |
| 53,514 | |
| 52,876 | |
| 49,824 | |
| 47,994 |
Income tax expense | |
| 13,197 | |
| 13,928 | |
| 12,528 | |
| 12,279 |
Net income | |
| 40,317 | |
| 38,948 | |
| 37,296 | |
| 35,715 |
Net income available to common shareholders | | $ | 40,317 | | $ | 38,948 | | $ | 37,296 | | $ | 35,715 |
Earnings per common share | |
|
| |
|
| |
|
| |
|
|
Basic (1) | | $ | 1.17 | | $ | 1.14 | | $ | 1.09 | | $ | 1.04 |
Diluted (1) | | $ | 1.17 | | $ | 1.13 | | $ | 1.08 | | $ | 1.04 |
| | | | | | | | | | | | |
| | 2017 | ||||||||||
(dollars in thousands except per share data) |
| Fourth Quarter |
| Third Quarter |
| Second Quarter |
| First Quarter | ||||
Total interest income | | $ | 86,526 | | $ | 82,370 | | $ | 79,344 | | $ | 75,794 |
Total interest expense | |
| 11,167 | |
| 10,434 | |
| 9,646 | |
| 8,900 |
Net interest income | |
| 75,359 | |
| 71,936 | |
| 69,698 | |
| 66,894 |
Provision for credit losses | |
| 4,087 | |
| 1,921 | |
| 1,566 | |
| 1,397 |
Net interest income after provision for credit losses | |
| 71,272 | |
| 70,015 | |
| 68,132 | |
| 65,497 |
Noninterest income | |
| 9,496 | |
| 6,784 | |
| 7,023 | |
| 6,070 |
Noninterest expense | |
| 29,803 | |
| 29,516 | |
| 30,001 | |
| 29,232 |
Income before income tax expense | |
| 50,965 | |
| 47,283 | |
| 45,154 | |
| 42,335 |
Income tax expense | |
| 35,396 | |
| 17,409 | |
| 17,382 | |
| 15,318 |
Net income | |
| 15,569 | |
| 29,874 | |
| 27,772 | |
| 27,017 |
Net income available to common shareholders | | $ | 15,569 | | $ | 29,874 | | $ | 27,772 | | $ | 27,017 |
Earnings per common share | |
|
| |
|
| |
|
| |
|
|
Basic (1) | | $ | 0.46 | | $ | 0.87 | | $ | 0.81 | | $ | 0.79 |
Diluted (1) | | $ | 0.45 | | $ | 0.87 | | $ | 0.81 | | $ | 0.79 |
133
| | | | | | |
(dollars in thousands) |
| December 31, 2019 |
| December 31, 2018 | ||
Assets |
| |
|
| |
|
Cash | | $ | 43,204 | | $ | 72,783 |
Investment securities available-for-sale, at fair value | |
| 7,218 | |
| 100 |
Investment in subsidiaries | |
| 1,334,197 | |
| 1,249,704 |
Other assets | |
| 30,773 | |
| 8,214 |
Total Assets | | $ | 1,415,392 | | $ | 1,330,801 |
| | | | | | |
Liabilities | |
|
| |
|
|
Other liabilities | | $ | 7,024 | | $ | 4,564 |
Long-term borrowings | |
| 217,687 | |
| 217,296 |
Total liabilities | |
| 224,711 | |
| 221,860 |
| | | | | | |
Shareholders’ Equity | |
|
| |
|
|
Common stock | |
| 331 | |
| 342 |
Additional paid in capital | |
| 482,286 | |
| 528,380 |
Retained earnings | |
| 705,105 | |
| 584,494 |
Accumulated other comprehensive income (loss) | |
| 2,959 | |
| (4,275) |
Total Shareholders’ Equity | |
| 1,190,681 | |
| 1,108,941 |
Total Liabilities and Shareholders’ Equity | | $ | 1,415,392 | | $ | 1,330,801 |
| | | | | | | | | |
| | Years Ended December 31, | |||||||
(dollars in thousands) |
| 2019 |
| 2018 |
| 2017 | |||
Income |
| |
|
| |
|
| |
|
Other interest and dividends | | $ | 85,851 | | $ | 678 | | $ | 234 |
Gain on sale of investment securities | |
| — | |
| — | |
| — |
Total Income | | $ | 85,851 | | $ | 678 | | $ | 234 |
| | | | | | | | | |
Expenses | |
|
| |
|
| |
|
|
Interest expense | |
| 11,916 | |
| 11,916 | |
| 11,916 |
Legal and professional | |
| 2,779 | |
| 870 | |
| 118 |
Directors compensation | |
| 491 | |
| 614 | |
| 352 |
Other | |
| 1,294 | |
| 1,287 | |
| 1,246 |
Total Expenses | | $ | 16,480 | | $ | 14,687 | | $ | 13,632 |
| | | | | | | | | |
Income (Loss) Before Income Tax (Benefit) and Equity in Undistributed Income of Subsidiaries | |
| 69,371 | |
| (14,009) | |
| (13,398) |
Income Tax Benefit | |
| (3,176) | |
| (2,892) | |
| (4,689) |
| | | | | | | | | |
Income (Loss) Before Equity in Undistributed Income of Subsidiaries | |
| 72,547 | |
| (11,117) | |
| (8,709) |
Equity in Undistributed Income of Subsidiaries | |
| 70,396 | |
| 163,393 | |
| 108,941 |
Net Income | | $ | 142,943 | | $ | 152,276 | | $ | 100,232 |
134
(dollars in thousands) | December 31, 2020 | December 31, 2019 | ||||||||||||
Assets | ||||||||||||||
Cash | $ | 29,275 | $ | 43,204 | ||||||||||
Investment securities available-for-sale, at fair value | 16,716 | 7,218 | ||||||||||||
Investment in subsidiaries | 1,347,235 | 1,334,197 | ||||||||||||
Other assets | 79,590 | 30,773 | ||||||||||||
Total Assets | $ | 1,472,816 | $ | 1,415,392 | ||||||||||
Liabilities | ||||||||||||||
Other liabilities | $ | 13,847 | $ | 7,024 | ||||||||||
Long-term borrowings | 218,077 | 217,687 | ||||||||||||
Total liabilities | 231,924 | 224,711 | ||||||||||||
Shareholders’ Equity | ||||||||||||||
Common stock | 315 | 331 | ||||||||||||
Additional paid in capital | 427,016 | 482,286 | ||||||||||||
Retained earnings | 798,061 | 705,105 | ||||||||||||
Accumulated other comprehensive income | 15,500 | 2,959 | ||||||||||||
Total Shareholders’ Equity | 1,240,892 | 1,190,681 | ||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 1,472,816 | $ | 1,415,392 |
Years Ended December 31, | ||||||||||||||||||||
(dollars in thousands) | 2020 | 2019 | 2018 | |||||||||||||||||
Income | ||||||||||||||||||||
Other interest and dividends | $ | 141,982 | $ | 85,851 | $ | 678 | ||||||||||||||
Gain on sale of investment securities | 0 | 0 | 0 | |||||||||||||||||
Total Income | $ | 141,982 | $ | 85,851 | $ | 678 | ||||||||||||||
Expenses | ||||||||||||||||||||
Interest expense | 11,915 | 11,916 | 11,916 | |||||||||||||||||
Legal and professional | 2,842 | 2,779 | 870 | |||||||||||||||||
Directors compensation | 500 | 491 | 614 | |||||||||||||||||
Other | 1,306 | 1,294 | 1,287 | |||||||||||||||||
Total Expenses | $ | 16,563 | $ | 16,480 | $ | 14,687 | ||||||||||||||
Income (Loss) Before Income Tax (Benefit) and Equity in Undistributed Income of Subsidiaries | 125,419 | 69,371 | (14,009) | |||||||||||||||||
Income Tax Benefit | (607) | (3,176) | (2,892) | |||||||||||||||||
Income (Loss) Before Equity in Undistributed Income of Subsidiaries | 126,026 | 72,547 | (11,117) | |||||||||||||||||
Equity in Undistributed Income of Subsidiaries | 6,191 | 70,396 | 163,393 | |||||||||||||||||
Net Income | $ | 132,217 | $ | 142,943 | $ | 152,276 |
Years Ended December 31, | ||||||||||||||||||||
(dollars in thousands) | 2020 | 2019 | 2018 | |||||||||||||||||
Cash Flows From Operating Activities | ||||||||||||||||||||
Net Income | $ | 132,217 | $ | 142,943 | $ | 152,276 | ||||||||||||||
Adjustments to reconcile net income to net cash used in operating activities: Equity in undistributed income of subsidiary | (6,191) | (70,396) | (163,393) | |||||||||||||||||
Net tax benefits from stock compensation | 118 | 10 | 110 | |||||||||||||||||
Securities premium amortization (discount accretion), net | 6 | 2 | 0 | |||||||||||||||||
Depreciation and amortization | 390 | 0 | 0 | |||||||||||||||||
Increase in other assets | (48,966) | (21,447) | (2,508) | |||||||||||||||||
Increase (decrease) in other liabilities | 6,823 | 2,460 | (61) | |||||||||||||||||
Net cash provided by (used in) operating activities | 84,397 | 53,572 | (13,576) | |||||||||||||||||
Cash Flows From Investing Activities | ||||||||||||||||||||
Purchases of available-for-sale investment securities | (10,000) | (7,030) | 0 | |||||||||||||||||
Proceeds from maturities of available-for-sale securities | 613 | 0 | 0 | |||||||||||||||||
Investment in subsidiary (net) | 0 | 0 | 6,892 | |||||||||||||||||
Net cash (used in) provided by investing activities | (9,387) | (7,030) | 6,892 | |||||||||||||||||
Cash Flows From Financing Activities | ||||||||||||||||||||
Proceeds from exercise of stock options | 63 | 332 | 776 | |||||||||||||||||
Proceeds from employee stock purchase plan | 760 | 782 | 808 | |||||||||||||||||
Common stock repurchased | (61,432) | (54,903) | 0 | |||||||||||||||||
Cash dividends paid | (28,330) | (22,332) | — | |||||||||||||||||
Net cash (used in) provided by financing activities | (88,939) | (76,121) | 1,584 | |||||||||||||||||
Net (Decrease) in Cash | (13,929) | (29,579) | (5,100) | |||||||||||||||||
Cash and Cash Equivalents at Beginning of Year | 43,204 | 72,783 | 77,883 | |||||||||||||||||
Cash and Cash Equivalents at End of Year | $ | 29,275 | $ | 43,204 | $ | 72,783 |
| | | | | | | | | |
| | Years Ended December 31, | |||||||
(dollars in thousands) |
| 2019 |
| 2018 |
| 2017 | |||
Cash Flows From Operating Activities |
| |
|
| |
|
| |
|
Net Income | | $ | 142,943 | | $ | 152,276 | | $ | 100,232 |
Adjustments to reconcile net income to net cash used in operating activities: Equity in undistributed income of subsidiary | |
| (70,396) | |
| (163,393) | |
| (108,941) |
Net tax benefits from stock compensation | |
| 10 | |
| 110 | |
| 460 |
Securities premium amortization (discount accretion), net | | | 2 | | | — | | | — |
Increase in other assets | |
| (21,447) | |
| (2,508) | |
| (988) |
Increase (decrease) in other liabilities | |
| 2,460 | |
| (61) | |
| (189) |
Net cash provided by (used in) operating activities | |
| 53,572 | |
| (13,576) | |
| (9,426) |
| | | | | | | | | |
Cash Flows From Investing Activities | |
|
| |
|
| |
|
|
Purchases of available-for-sale investment securities | | | (7,030) | | | — | | | — |
Investment in subsidiary (net) | |
| — | |
| 6,892 | |
| (460) |
Net cash (used in) provided by investing activities | |
| (7,030) | |
| 6,892 | |
| (460) |
| | | | | | | | | |
Cash Flows From Financing Activities | |
|
| |
|
| |
|
|
Proceeds from exercise of stock options | |
| 332 | |
| 776 | |
| 372 |
Proceeds from employee stock purchase plan | |
| 782 | |
| 808 | |
| 836 |
Common stock repurchased | | | (54,903) | | | — | | | — |
Cash dividends paid | | | (22,332) | | | — | | | — |
Net cash (used in) provided by financing activities | |
| (76,121) | |
| 1,584 | |
| 1,208 |
Net (Decrease) in Cash | |
| (29,579) | |
| (5,100) | |
| (8,678) |
Cash and Cash Equivalents at Beginning of Year | |
| 72,783 | |
| 77,883 | |
| 86,561 |
Cash and Cash Equivalents at End of Year | | $ | 43,204 | | $ | 72,783 | | $ | 77,883 |
135
In addition, the Chief Executive Officer and the Chief Financial Officer believe that had the material weakness described below been identified at the relevant time, they would have concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2017 and 2018 (and the interim periods in 2017, 2018 and 2019). Notwithstanding the material weakness, management believes that the 2017 and 2018 consolidated financial statements, as well as the interim financial statements in 2017, 2018 and 2019, fairly present, in all material respects, the Company’s financial position, results of operations and cash flows as of and for the periods presented in conformity with accounting principles generally accepted in the United States of America.
136
Management assessed the Company’s system of internal control over financial reporting as of December 31, 2019.2020. This assessment was conducted based on the Committee of Sponsoring Organizations (“COSO”)COSO of the Treadway Commission “Internal Control – Integrated Framework (2013).” Based on this assessment, management has concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2019 due to the material weakness identified below.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
In 2019, the Special Compliance Committee reviewed, and subsequently the Audit Committee has been reviewing, with the assistance of outside legal counsel that had no involvement in the underlying matters, the facts and circumstances associated with various governmental investigations and legal proceedings (see “Legal Proceedings”). In connection with this review, certain deficiencies in the Company’s internal controls were identified, which, in management’s opinion, when evaluated collectively, amounted to a material weakness in the Company’s internal control over financial reporting as of December 31, 2017 and 2018. This material weakness stemmed from “tone at the top” issues that contributed to a control environment that was insufficiently tailored to the culture of deference afforded to the former Chairman, President and Chief Executive Officer. This material weakness manifested in deficiencies in the following areas:
Management believes that while the material weakness did not result in any material misstatement of our financial statements, there is a reasonable possibility that material misstatements in our annual or interim consolidated financial statements would not be prevented or detected. In addition, management believes that had the material weakness described above been identified at the relevant time, they would have concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2017 and 2018.
The 20192020 financial statements have been audited by the independent registered public accounting firm of Dixon Hughes Goodman LLP (“DHG”). DHG has also issued a report on the effectiveness of internal control over financial reporting. That report has also been made a part of this Annual Report.
Remediation
effectively and the deficiencies that contributed to the Material Weakness have been fully and effectively remediated. The results of the year-end audit of the Company’s internal control over financial reporting by DHG, the Company’s independent auditors, are set forth in DHG’s report on the effectiveness of internal control over financial reporting, which has been made a part of this Annual Report.
the first quarter of 2020, the following further contributed to this remediation: upon the appointment of our Chairman, Norman R. Pozez, as Executive Chairman of the Board of Directors, the Board of Directors appointed Theresa G. LaPlaca as Lead Independent Director of the Board of Directors.ChangesInternal Control over Financial Reporting20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None
Number of securities remaining available for Number of securities to be future issuance under equity issued upon exercise of Weighted average exercise compensation plans outstanding price of outstanding excluding securities reflected Plan category options, warrants and rights options, warrants and rights in column (a) (a) (b) (c) Equity compensation plans approved by security holders (1) 6,589 $ 19.99 1,059,207 (2) Equity compensation plans not approved by security holders 0 0 0 Total 6,589 $ 19.99 1,059,207 (2)Securities Authorized for Issuance Under Equity Compensation Plans. The following table sets forth information regarding outstanding options and other rights to purchase or acquire common stock granted under the Company’s compensation plans as of December 31, 2019:Equity Compensation Plan Information138
The remainder of the information required by this Item is incorporated by reference to the material appearing under the caption “Voting Securities“Security Ownership of Certain Beneficial Owners and Principal Shareholders”Management” in the 2021 Proxy Statement.
2019
2018
2018
2018
2018
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Exhibit No. | Description of Exhibit | |||||||
3.1 |
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3.2 |
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4.1 |
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4.2 |
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4.3 |
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4.4 |
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4.5 |
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4.6 |
| Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 | ||||||
10.1 + |
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10.2 + |
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10.3 + |
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10.4 + |
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10.5 + | Amended and Restated Employment Agreement dated as of December 31, 2019, between EagleBank and Susan G. Riel (10) | |||||||||
10.6 + |
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10.7 + |
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10.9 + |
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10.11 + |
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10.14 + |
| Form of Supplemental Executive Retirement Plan Agreement (18) | ||||||||
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10.17 + |
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10.18 + |
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10.19 + |
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10.20 + |
| Employment Agreement between EagleBank and Paul Saltzman (24) | ||||||||
10.21 + |
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10.22 + |
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10.26+ | Restricted Stock Award Agreement for Norman R. Pozez dated April 2, 2020 (28) |
10.27+ | ||||||||||
16 | Letter from Dixon Hughes Goodman LLP to the Securities and Exchange Commission, dated October 7, 2020 (29) | |||||||||
21 | Subsidiaries of the Registrant | |||||||||
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31.1 | ||||||||||
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101 |
| Interactive data files pursuant to Rule 405 of Regulation S-T: | ||||||||
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| Consolidated Balance Sheets at December 31, | ||||||||
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| Consolidated Statement of Operations for the years ended December 31, 2020, 2019 | ||||||||
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| Consolidated Statement of Comprehensive Income for the years ended December 31, 2020, 2019 | ||||||||
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| Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2020, 2019 | ||||||||
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| Consolidated Statement of Cash Flows for the years ended December 31, 2020, 2019 | ||||||||
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| Notes to the Consolidated Financial Statements | ||||||||
104 |
| The cover page of this Annual Report on Form 10-K, formatted in Inline XBRL |
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(1) | Incorporated by reference to the Exhibit of the same number to the Company’s Current Report on Form 8-K filed on May 17, 2016. | |||||
(2) |
| Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on December 18, 2017. | ||||
(3) |
| Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 5, 2014. | ||||
(4) |
| Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on August 5, 2014. | ||||
(5) |
| Incorporated by Reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on July 22, 2016 | ||||
(6) |
| Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8 (No. 333-187713) | ||||
(7) |
| Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8 (No. 333-211857) |
140
(8) |
| Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 3, 2020. | ||||
(9) |
| Incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on February 3, 2020. | ||||
(10) |
| Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 14, | ||||
(11) |
| Incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K filed on February 3, 2020. | ||||
(12) |
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(13) | Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February 3, 2020. |
(14) | Incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on February 3, 2020. | |||||
(15) | Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on January 14, 2020. | |||||
(16) | Incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K filed on February 3, 2020. | |||||
(17) | Incorporated by reference to Exhibit 10.8 to the Company's Current Report on Form 8-K filed on February 3, 2020. | |||||
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| Incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the Year ended December 31, 2013. | ||||
(19) |
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| Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 26, 2019. | ||||
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(21) | Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 (No. 333-199875) | |||||
(22) | Incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q filed on May 11, 2020. | |||||
(23) | Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on December 26, 2019. | |||||
(24) |
| Incorporated by reference to Exhibit 10.9 to the Company's Current Report on Form 8-K filed on February 3, 2020. | ||||
(25) | Incorporated by reference to Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q filed on May 11, 2020. | |||||
(26) | Incorporated by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q filed on May 11, 2020. | |||||
(27) | Incorporated by reference to Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q filed on May 11, 2020. | |||||
(28) | Incorporated by reference to Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q filed on May 11, 2020. | |||||
(29) | Incorporated by reference to Exhibit 16.1 to the Company's Current Report on Form 8-K filed on October 7, 2020. |
141
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EAGLE BANCORP, INC. | |||||||||||
March |
| by: | /s/ Susan G. Riel | ||||||||
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/s/ Matthew D. Brockwell |
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/s/ Steven Freidkin | Director | March 1, 2021 | ||||||||||||
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/s/ Ernest D. Jarvis | Director | March 1, 2021 | ||||||||||||
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/s/ Theresa G. LaPlaca |
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/s/ Charles D. Levingston |
| Executive Vice President |
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Charles D. Levingston |
| and Chief Financial Officer of the Company |
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Director | March 1, 2021 | |||||||||||||
Leslie Ludwig | ||||||||||||||
/s/ Norman R. Pozez | Executive Chairman of the Company | March 1, 2021 | ||||||||||||
Norman R. Pozez | ||||||||||||||
/s/ Kathy A. Raffa | Director | March 1, 2021 | ||||||||||||
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/s/ Susan G. Riel | President and Chief | March 1, 2021 | ||||||||||||
Susan G. Riel | Executive Officer of the Company (Principal Executive Officer) | |||||||||||||
/s/ James A. Soltesz, P.E. | Director | March 1, 2021 | ||||||||||||
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/s/ Benjamin M. Soto, Esquire | Director | March 1, 2021 | ||||||||||||
Benjamin M. Soto | ||||||||||||||
142