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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Inc.
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Maryland | 52-2061461 | ||||||||||||||||||||||
(State or other jurisdiction of | (I.R.S. Employer | ||||||||||||||||||||||
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7830 Old Georgetown Road, Third Floor, Bethesda, Maryland | 20814 | ||||||||||||||||||||||
(Address of principal executive offices) | (Zip Code) |
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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 |
☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
PART I. | FINANCIAL INFORMATION |
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Consolidated Statements of Income | ||||||||
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2
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| June 30, 2020 |
| December 31, 2019 | ||
Assets | | | | | | |
Cash and due from banks | | $ | 12,199 | | $ | 7,539 |
Federal funds sold |
| | 25,466 |
| | 38,987 |
Interest bearing deposits with banks and other short-term investments |
| | 598,377 |
| | 195,447 |
Investment securities available for sale, at fair value (amortized cost of $750,653 and $839,192 and allowance for credit losses of $138 and $0 as of June 30, 2020 and December 31, 2019, respectively). |
| | 772,394 |
| | 843,363 |
Federal Reserve and Federal Home Loan Bank stock |
| | 40,018 |
| | 35,194 |
Loans held for sale |
| | 68,433 |
| | 56,707 |
Loans |
| | 8,021,761 |
| | 7,545,748 |
Less allowance for credit losses |
| | (108,796) |
| | (73,658) |
Loans, net |
| | 7,912,965 |
| | 7,472,090 |
Premises and equipment, net |
| | 12,970 |
| | 14,622 |
Operating lease right-of-use assets | | | 25,368 | | | 27,372 |
Deferred income taxes |
| | 37,364 |
| | 29,804 |
Bank owned life insurance |
| | 75,913 |
| | 75,724 |
Intangible assets, net |
| | 104,651 |
| | 104,739 |
Other real estate owned |
| | 8,237 |
| | 1,487 |
Other assets |
| | 105,315 |
| | 85,644 |
Total Assets | | $ | 9,799,670 | | $ | 8,988,719 |
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Liabilities and Shareholders’ Equity | |
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Liabilities | |
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Deposits: | |
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Noninterest bearing demand | | $ | 2,416,058 | | $ | 2,064,367 |
Interest bearing transaction | |
| 861,703 | |
| 863,856 |
Savings and money market | |
| 3,504,718 | |
| 3,013,129 |
Time, $100,000 or more | |
| 527,870 | |
| 663,987 |
Other time | |
| 625,623 | |
| 619,052 |
Total deposits | |
| 7,935,972 | |
| 7,224,391 |
Customer repurchase agreements | |
| 31,198 | |
| 30,980 |
Other short-term borrowings | |
| 300,000 | |
| 250,000 |
Long-term borrowings | |
| 267,882 | |
| 217,687 |
Operating lease liabilities | | | 27,137 | | | 29,959 |
Reserve for unfunded commitments | | | 7,170 | | | — |
Other liabilities | |
| 42,416 | |
| 45,021 |
Total Liabilities | |
| 8,611,775 | |
| 7,798,038 |
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Shareholders’ Equity | |
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Common stock, par value $.01 per share; shares authorized 100,000,000, shares issued and outstanding 32,224,756 and 33,241,496, respectively | |
| 320 | |
| 331 |
Additional paid in capital | |
| 440,934 | |
| 482,286 |
Retained earnings | |
| 731,973 | |
| 705,105 |
Accumulated other comprehensive income | |
| 14,668 | |
| 2,959 |
Total Shareholders’ Equity | |
| 1,187,895 | |
| 1,190,681 |
Total Liabilities and Shareholders’ Equity | | $ | 9,799,670 | | $ | 8,988,719 |
March 31, 2021 | December 31, 2020 | ||||||||||
Assets | |||||||||||
Cash and due from banks | $ | 9,112 | $ | 8,435 | |||||||
Federal funds sold | 25,785 | 28,200 | |||||||||
Interest bearing deposits with banks and other short-term investments | 1,708,374 | 1,752,420 | |||||||||
Investment securities (amortized cost of $1,370,927 and $1,129,057 and allowance for credit losses of $78 and $167 as of March 31, 2021 and December 31, 2020, respectively). | 1,369,107 | 1,151,083 | |||||||||
Federal Reserve and Federal Home Loan Bank stock | 33,978 | 40,104 | |||||||||
Loans held for sale | 142,196 | 88,205 | |||||||||
Loans | 7,526,689 | 7,760,212 | |||||||||
Less allowance for credit losses | (102,070) | (109,579) | |||||||||
Loans, net | 7,424,619 | 7,650,633 | |||||||||
Premises and equipment, net | 15,045 | 13,553 | |||||||||
Operating lease right-of-use assets | 30,707 | 25,237 | |||||||||
Deferred income taxes | 44,623 | 38,571 | |||||||||
Bank owned life insurance | 77,119 | 76,729 | |||||||||
Goodwill and Intangible assets, net | 105,179 | 105,114 | |||||||||
Other real estate owned | 4,987 | 4,987 | |||||||||
Other assets | 137,033 | 134,531 | |||||||||
Total Assets | $ | 11,127,864 | $ | 11,117,802 | |||||||
Liabilities and Shareholders’ Equity | |||||||||||
Liabilities | |||||||||||
Deposits: | |||||||||||
Noninterest bearing demand | $ | 2,594,334 | $ | 2,809,334 | |||||||
Interest bearing transaction | 862,709 | 756,923 | |||||||||
Savings and money market | 4,875,840 | 4,645,186 | |||||||||
Time, $100,000 or more | 513,998 | 546,173 | |||||||||
Other time | 351,963 | 431,587 | |||||||||
Total deposits | 9,198,844 | 9,189,203 | |||||||||
Customer repurchase agreements | 20,061 | 26,726 | |||||||||
Other short-term borrowings | 300,000 | 300,000 | |||||||||
Long-term borrowings | 218,175 | 268,077 | |||||||||
Operating lease liabilities | 33,338 | 28,022 | |||||||||
Reserve for unfunded commitments | 5,056 | 5,498 | |||||||||
Other liabilities | 91,557 | 59,384 | |||||||||
Total Liabilities | 9,867,031 | 9,876,910 | |||||||||
Shareholders’ Equity | |||||||||||
Common stock, par value $0.01 per share; shares authorized 100,000,000, shares issued and outstanding 31,960,379 and 31,779,663, respectively | 316 | 315 | |||||||||
Additional paid in capital | 428,917 | 427,016 | |||||||||
Retained earnings | 833,598 | 798,061 | |||||||||
Accumulated other comprehensive (loss) income | (1,998) | 15,500 | |||||||||
Total Shareholders’ Equity | 1,260,833 | 1,240,892 | |||||||||
Total Liabilities and Shareholders’ Equity | $ | 11,127,864 | $ | 11,117,802 |
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| | Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
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| 2020 |
| 2019 |
| 2020 |
| 2019 | | ||||
Interest Income |
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Interest and fees on loans | | $ | 92,928 | | $ | 101,889 | | $ | 189,683 | | $ | 199,710 | |
Interest and dividends on investment securities | |
| 4,571 | |
| 5,238 | |
| 9,998 | |
| 10,836 | |
Interest on balances with other banks and short-term investments | |
| 161 | |
| 1,105 | |
| 1,720 | |
| 2,771 | |
Interest on federal funds sold | |
| 12 | |
| 47 | |
| 72 | |
| 96 | |
Total interest income | |
| 97,672 | |
| 108,279 | |
| 201,473 | |
| 213,413 | |
Interest Expense | |
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Interest on deposits | |
| 12,514 | |
| 22,461 | |
| 33,060 | |
| 43,361 | |
Interest on customer repurchase agreements | |
| 86 | |
| 75 | |
| 173 | |
| 173 | |
Interest on short-term borrowings | |
| 501 | |
| 1,435 | |
| 858 | |
| 1,575 | |
Interest on long-term borrowings | |
| 3,208 | |
| 2,979 | |
| 6,275 | |
| 5,958 | |
Total interest expense | |
| 16,309 | |
| 26,950 | |
| 40,366 | |
| 51,067 | |
Net Interest Income | |
| 81,363 | |
| 81,329 | |
| 161,107 | |
| 162,346 | |
Provision for Credit Losses | |
| 19,737 | |
| 3,600 | |
| 34,047 | |
| 6,960 | |
Provision for Unfunded Commitments | | | 940 | | | — | | | 3,052 | | | — | |
Net Interest Income After Provision For Credit Losses | |
| 60,686 | |
| 77,729 | |
| 124,008 | |
| 155,386 | |
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Noninterest Income | |
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Service charges on deposits | |
| 942 | |
| 1,606 | |
| 2,367 | |
| 3,300 | |
Gain on sale of loans | |
| 3,079 | |
| 1,923 | |
| 4,023 | |
| 3,311 | |
Gain on sale of investment securities | |
| 713 | |
| 563 | |
| 1,535 | |
| 1,475 | |
Increase in the cash surrender value of bank owned life insurance | |
| 828 | |
| 429 | |
| 1,242 | |
| 854 | |
Other income | |
| 6,933 | |
| 1,839 | |
| 8,798 | |
| 3,711 | |
Total noninterest income | |
| 12,495 | |
| 6,360 | |
| 17,965 | |
| 12,651 | |
Noninterest Expense | |
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Salaries and employee benefits | |
| 17,104 | |
| 17,743 | |
| 34,901 | |
| 41,387 | |
Premises and equipment expenses | |
| 3,468 | |
| 3,652 | |
| 7,289 | |
| 7,504 | |
Marketing and advertising | |
| 1,111 | |
| 1,268 | |
| 2,189 | |
| 2,416 | |
Data processing | |
| 2,759 | |
| 2,603 | |
| 5,255 | |
| 4,978 | |
Legal, accounting and professional fees | |
| 3,979 | |
| 2,740 | |
| 10,967 | |
| 4,449 | |
FDIC insurance | |
| 1,980 | |
| 1,126 | |
| 3,404 | |
| 2,242 | |
Other expenses | |
| 4,491 | |
| 4,227 | |
| 8,234 | |
| 8,687 | |
Total noninterest expense | |
| 34,892 | |
| 33,359 | |
| 72,239 | |
| 71,663 | |
Income Before Income Tax Expense | |
| 38,289 | |
| 50,730 | |
| 69,734 | |
| 96,374 | |
Income Tax Expense | |
| 9,433 | |
| 13,487 | |
| 17,755 | |
| 25,382 | |
Net Income | | $ | 28,856 | | $ | 37,243 | | $ | 51,979 | | $ | 70,992 | |
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Earnings Per Common Share | |
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Basic | | $ | 0.90 | | $ | 1.08 | | $ | 1.60 | | $ | 2.06 | |
Diluted | | $ | 0.90 | | $ | 1.08 | | $ | 1.60 | | $ | 2.05 | |
Three Months Ended March 31, | |||||||||||||||||||||||
2021 | 2020 | ||||||||||||||||||||||
Interest Income | |||||||||||||||||||||||
Interest and fees on loans | $ | 89,238 | $ | 96,755 | |||||||||||||||||||
Interest and dividends on investment securities | 4,395 | 5,427 | |||||||||||||||||||||
Interest on balances with other banks and short-term investments | 553 | 1,559 | |||||||||||||||||||||
Interest on federal funds sold | 8 | 60 | |||||||||||||||||||||
Total interest income | 94,194 | 103,801 | |||||||||||||||||||||
Interest Expense | |||||||||||||||||||||||
Interest on deposits | 7,899 | 20,546 | |||||||||||||||||||||
Interest on customer repurchase agreements | 11 | 87 | |||||||||||||||||||||
Interest on short-term borrowings | 495 | 357 | |||||||||||||||||||||
Interest on long-term borrowings | 3,138 | 3,067 | |||||||||||||||||||||
Total interest expense | 11,543 | 24,057 | |||||||||||||||||||||
Net Interest Income | 82,651 | 79,744 | |||||||||||||||||||||
Provision for Credit Losses | (2,350) | 14,310 | |||||||||||||||||||||
Provision for Unfunded Commitments | (442) | 2,112 | |||||||||||||||||||||
Net Interest Income After Provision For Credit Losses | 85,443 | 63,322 | |||||||||||||||||||||
Noninterest Income | |||||||||||||||||||||||
Service charges on deposits | 977 | 1,425 | |||||||||||||||||||||
Gain on sale of loans | 5,178 | 944 | |||||||||||||||||||||
Gain on sale of investment securities | 221 | 822 | |||||||||||||||||||||
Increase in the cash surrender value of bank owned life insurance | 389 | 414 | |||||||||||||||||||||
Other income | 3,822 | 1,865 | |||||||||||||||||||||
Total noninterest income | 10,587 | 5,470 | |||||||||||||||||||||
Noninterest Expense | |||||||||||||||||||||||
Salaries and employee benefits | 21,769 | 17,797 | |||||||||||||||||||||
Premises and equipment expenses | 3,618 | 3,821 | |||||||||||||||||||||
Marketing and advertising | 886 | 1,078 | |||||||||||||||||||||
Data processing | 2,814 | 2,496 | |||||||||||||||||||||
Legal, accounting and professional fees | 2,999 | 6,988 | |||||||||||||||||||||
FDIC insurance | 2,428 | 1,424 | |||||||||||||||||||||
Other expenses | 3,473 | 3,743 | |||||||||||||||||||||
Total noninterest expense | 37,987 | 37,347 | |||||||||||||||||||||
Income Before Income Tax Expense | 58,043 | 31,445 | |||||||||||||||||||||
Income Tax Expense | 14,574 | 8,322 | |||||||||||||||||||||
Net Income | $ | 43,469 | $ | 23,123 | |||||||||||||||||||
Earnings Per Common Share | |||||||||||||||||||||||
Basic | $ | 1.36 | $ | 0.70 | |||||||||||||||||||
Diluted | $ | 1.36 | $ | 0.70 |
4
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| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||
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| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net Income | | $ | 28,856 | | $ | 37,243 | | $ | 51,979 | | $ | 70,992 |
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Other comprehensive income, net of tax: | |
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Unrealized gain on securities available for sale | |
| 1,870 | |
| 5,925 | |
| 13,977 | |
| 11,979 |
Reclassification adjustment for net gains included in net income | |
| (537) | |
| (417) | |
| (1,144) | |
| (1,092) |
Total unrealized gain on investment securities | |
| 1,333 | |
| 5,508 | |
| 12,833 | |
| 10,887 |
Unrealized gain (loss) on derivatives | |
| 565 | |
| (513) | |
| (902) | |
| (1,665) |
Reclassification adjustment for amounts included in net income | |
| (295) | |
| (236) | |
| (222) | |
| (1,180) |
Total unrealized gain (loss) on derivatives | |
| 270 | |
| (749) | |
| (1,124) | |
| (2,845) |
Other comprehensive income | |
| 1,603 | |
| 4,759 | |
| 11,709 | |
| 8,042 |
Comprehensive Income | | $ | 30,459 | | $ | 42,002 | | $ | 63,688 | | $ | 79,034 |
Three Months Ended March 31, | |||||||||||||||||||||||
2021 | 2020 | ||||||||||||||||||||||
Net Income | $ | 43,469 | $ | 23,123 | |||||||||||||||||||
Other comprehensive income, net of tax: | |||||||||||||||||||||||
Unrealized (loss) gain on securities available for sale | (17,617) | 12,104 | |||||||||||||||||||||
Reclassification adjustment for net gains included in net income | (166) | (604) | |||||||||||||||||||||
Total unrealized (loss) gain on investment securities | (17,783) | 11,500 | |||||||||||||||||||||
Unrealized gain (loss) on derivatives | 573 | (1,325) | |||||||||||||||||||||
Reclassification adjustment for amounts included in net income | (288) | (69) | |||||||||||||||||||||
Total unrealized gain (loss) on derivatives | 285 | (1,394) | |||||||||||||||||||||
Other comprehensive (loss) income | (17,498) | 10,106 | |||||||||||||||||||||
Comprehensive Income | $ | 25,971 | $ | 33,229 |
5
Accumulated | |||||||||||||||||||||||||||||||||||
Other | |||||||||||||||||||||||||||||||||||
Common | Additional Paid | Retained | Comprehensive | Shareholders' | |||||||||||||||||||||||||||||||
Shares | Amount | in Capital | Earnings | Income (Loss) | Equity | ||||||||||||||||||||||||||||||
Balance January 1, 2021 | 31,779,663 | $ | 315 | $ | 427,016 | $ | 798,061 | $ | 15,500 | $ | 1,240,892 | ||||||||||||||||||||||||
Net Income | — | — | — | 43,469 | — | 43,469 | |||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (17,498) | (17,498) | |||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 1,825 | — | — | 1,825 | |||||||||||||||||||||||||||||
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes | (16,663) | 1 | (1) | — | — | 0 | |||||||||||||||||||||||||||||
Vesting of performance based stock awards, net of shares withheld for payroll taxes | 15,686 | — | — | — | — | — | |||||||||||||||||||||||||||||
Time based stock awards granted | 178,001 | — | — | — | — | — | |||||||||||||||||||||||||||||
Issuance of common stock related to employee stock purchase plan | 5,158 | — | 139 | — | — | 139 | |||||||||||||||||||||||||||||
Cash dividends declared ($0.25 per share) | — | — | — | (7,932) | — | (7,932) | |||||||||||||||||||||||||||||
Common stock repurchased | (1,466) | 0 | (62) | — | — | (62) | |||||||||||||||||||||||||||||
Balance March 31, 2021 | 31,960,379 | $ | 316 | $ | 428,917 | $ | 833,598 | $ | (1,998) | $ | 1,260,833 | ||||||||||||||||||||||||
Balance January 1, 2020 | 33,241,496 | $ | 331 | $ | 482,286 | $ | 705,105 | $ | 2,959 | $ | 1,190,681 | ||||||||||||||||||||||||
Net Income | — | — | — | 23,123 | — | 23,123 | |||||||||||||||||||||||||||||
Cumulative effect adjustment due to the adoption of ASC 326, net of tax | — | — | — | (10,931) | — | (10,931) | |||||||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | 10,106 | 10,106 | |||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 996 | — | — | 996 | |||||||||||||||||||||||||||||
Issuance of common stock related to options exercised, net of shares withheld for payroll taxes | 0 | — | 0 | — | — | 0 | |||||||||||||||||||||||||||||
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes | (22,183) | — | — | — | — | — | |||||||||||||||||||||||||||||
Vesting of performance based stock awards, net of shares withheld for payroll taxes | 4,126 | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Time based stock awards granted | 152,184 | — | — | — | — | — | |||||||||||||||||||||||||||||
Issuance of common stock related to employee stock purchase plan | 4,476 | — | 196 | — | — | 196 | |||||||||||||||||||||||||||||
Cash dividends declared ($0.22 per share) | — | — | — | (7,225) | — | (7,225) | |||||||||||||||||||||||||||||
Common stock repurchased | (1,182,841) | (11) | (44,157) | — | (44,168) | ||||||||||||||||||||||||||||||
Balance March 31, 2020 | 32,197,258 | $ | 320 | $ | 439,321 | $ | 710,072 | $ | 13,065 | $ | 1,162,778 |
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| | | | | | | | | | | | Accumulated | | | | ||
| | | | | | | | | | | | Other | | | | ||
| | Common | | Additional Paid | | Retained | | Comprehensive | | Shareholders' | |||||||
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| Shares | Amount |
| in Capital |
| Earnings |
| Income |
| Equity | ||||||
Balance April 1, 2020 | | 32,197,258 |
| $ | 320 | | $ | 439,321 | | $ | 710,072 | | $ | 13,065 | | $ | 1,162,778 |
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Net Income |
| — | |
| — | |
| — | |
| 28,856 | |
| — | |
| 28,856 |
Other comprehensive income, net of tax |
| — | |
| — | |
| — | |
| — | |
| 1,603 | |
| 1,603 |
Stock-based compensation expense |
| — | |
| — | |
| 1,427 | |
| — | |
| — | |
| 1,427 |
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes |
| (2,738) | |
| — | |
| — | |
| — | |
| — | |
| — |
Time based stock awards granted |
| 24,068 | |
| — | |
| — | |
| — | |
| — | |
| — |
Issuance of common stock related to employee stock purchase plan |
| 6,168 | |
| — | |
| 186 | |
| — | |
| — | |
| 186 |
Cash dividends declared ($0.22 per share) |
| — | |
| — | |
| — | |
| (6,955) | |
| — | |
| (6,955) |
Balance June 30, 2020 |
| 32,224,756 | | $ | 320 | | $ | 440,934 | | $ | 731,973 | | $ | 14,668 | | $ | 1,187,895 |
| | | | | | | | | | | | | | | | | |
Balance April 1, 2019 |
| 34,537,193 | | $ | 343 | | $ | 530,894 | | $ | 618,243 | | $ | (992) | | $ | 1,148,488 |
Net Income |
| — | |
| — | |
| — | |
| 37,243 | |
| — | |
| 37,243 |
Other comprehensive income, net of tax |
| — | |
| — | |
| — | |
| — | |
| 4,759 | |
| 4,759 |
Stock-based compensation expense |
| — | |
| — | |
| 1,471 | |
| — | |
| — | |
| 1,471 |
Issuance of common stock related to options exercised, net of shares withheld for payroll taxes |
| 750 | |
| — | |
| 37 | |
| — | |
| — | |
| 37 |
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes |
| (1,800) | |
| — | |
| — | |
| — | |
| — | |
| — |
Issuance of common stock related to employee stock purchase plan | �� | 3,710 | |
| — | |
| 183 | |
| — | |
| — | |
| 183 |
Cash dividends declared ($0.22 per share) |
| — | |
| — | |
| — | |
| (7,599) | |
| — | |
| (7,599) |
Balance June 30, 2019 |
| 34,539,853 | | $ | 343 | | $ | 532,585 | | $ | 647,887 | | $ | 3,767 | | $ | 1,184,582 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | Additional | | | | | Other | | | |||
| | Common | | Paid | | Retained | | Comprehensive | | Shareholders’ | |||||||
|
| Shares |
| Amount |
| in Capital |
| Earnings |
| Income |
| Equity | |||||
Balance January 1, 2020 | | 33,241,496 | | $ | 331 | | $ | 482,286 | | $ | 705,105 | | $ | 2,959 | | $ | 1,190,681 |
| | | | | | | | | | | | | | | ��� | | |
Cumulative effect adjustment due to the adoption of ASC 326, net of tax | | — | | | — | | | — | | | (10,931) | | | — | | | (10,931) |
Net Income | | — | | | — | | | — | | | 51,979 | | | — | | | 51,979 |
Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 11,709 | | | 11,709 |
Stock-based compensation expense | | — | | | — | | | 2,423 | | | — | | | — | | | 2,423 |
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes | | (24,921) | | | — | | | — | | | — | | | — | | | — |
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 | | 10,644 | | | — | | | 382 | | | — | | | — | | | 382 |
Cash dividends declared ($0.44 per share) | | — | | | — | | | — | | | (14,180) | | | — | | | (14,180) |
Common stock repurchased | | (1,182,841) | | | (11) | | $ | (44,157) | | | — | | | — | | | (44,168) |
Balance June 30, 2020 | | 32,224,756 | | $ | 320 | | $ | 440,934 | | $ | 731,973 | | $ | 14,668 | | $ | 1,187,895 |
| | | | | | | | | | | | | | | | | |
Balance January 1, 2019 |
| 34,387,919 | | $ | 342 | | $ | 528,380 | | $ | 584,494 | | $ | (4,275) | | $ | 1,108,941 |
| | | | | | | | | | | | | | | | | |
Net Income | | — | | | — | | | — | | | 70,992 | | | — | | | 70,992 |
Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 8,042 | | | 8,042 |
Stock-based compensation expense | | — | | | — | | | 3,501 | | | — | | | — | | | 3,501 |
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 | | (12,744) | | | 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 | | 7,603 | | | — | | | 373 | | | — | | | — | | | 373 |
Cash dividends declared ($0.22 per share) | | — | | | — | | | — | | | (7,599) | | | — | | | (7,599) |
Balance June 30, 2019 | | 34,539,853 | | $ | 343 | | $ | 532,585 | | $ | 647,887 | | $ | 3,767 | | $ | 1,184,582 |
6
| | | | | | |
| | Six Months Ended June 30, | ||||
|
| 2020 |
| 2019 | ||
Cash Flows From Operating Activities: |
| |
|
| |
|
Net Income | | $ | 51,979 | | $ | 70,992 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| |
Provision for credit losses | |
| 34,047 | |
| 6,960 |
Provision for unfunded commitments | | | 3,052 | | | — |
Depreciation and amortization | |
| 2,238 | |
| 3,567 |
Amortization of operating lease right-of-use assets | | | — | | | 1,360 |
Gains on sale of loans | |
| (4,023) | |
| (3,311) |
Gains on sale of GNMA loans | |
| — | |
| (71) |
Securities premium amortization (discount accretion), net | |
| 2,931 | |
| 2,519 |
Origination of loans held for sale | |
| (307,790) | |
| (230,865) |
Proceeds from sale of loans held for sale | |
| 300,087 | |
| 215,995 |
Net increase in cash surrender value of BOLI | |
| (1,242) | |
| (854) |
Deferred income tax (benefit) expense | |
| (7,560) | |
| 2,807 |
Net gain on sale of investment securities | |
| (1,535) | |
| (1,475) |
Stock-based compensation expense | |
| 2,423 | |
| 3,501 |
Net tax (expense) benefits from stock compensation | |
| (313) | |
| 10 |
(Increase) decrease in other assets | |
| (20,365) | |
| 6,912 |
Increase (decrease) in other liabilities | |
| (5,612) | |
| (29,242) |
Net cash provided by operating activities | |
| 48,317 | |
| 48,805 |
Cash Flows From Investing Activities: | |
|
| |
|
|
Purchases of available-for-sale investment securities | |
| (209,460) | |
| (63,572) |
Proceeds from maturities of available-for-sale securities | |
| 170,754 | |
| 67,223 |
Proceeds from sale/call of available-for-sale securities | |
| 119,988 | |
| 42,143 |
Purchases of Federal Reserve and Federal Home Loan Bank stock | |
| (9,074) | |
| (76,150) |
Proceeds from redemption of Federal Reserve and Federal Home Loan Bank stock | |
| 4,250 | |
| 65,663 |
Net increase in loans | |
| (481,672) | |
| (405,986) |
Increase (decrease) in premises and equipment | |
| (2,965) | |
| 1,675 |
Net cash used in investing activities | |
| (408,179) | |
| (369,004) |
Cash Flows From Financing Activities: | |
|
| |
|
|
Increase (decrease) in deposits | |
| 711,581 | |
| (24,393) |
Increase in customer repurchase agreements | |
| 218 | |
| 1,256 |
Increase in short-term borrowings | |
| 50,000 | |
| 225,000 |
Increase in long-term borrowings | |
| 50,098 | |
| — |
Proceeds from exercise of equity compensation plans | |
| — | |
| 332 |
Proceeds from employee stock purchase plan | |
| 382 | |
| 373 |
Common stock repurchased | |
| (44,168) | |
| — |
Cash dividends paid | | | (14,180) | | | (7,599) |
Net cash provided by financing activities | |
| 753,931 | |
| 194,969 |
Net Increase (Decrease) In Cash and Cash Equivalents | |
| 394,069 | |
| (125,230) |
Cash and Cash Equivalents at Beginning of Period | |
| 241,973 | |
| 321,864 |
Cash and Cash Equivalents at End of Period | | $ | 636,042 | | $ | 196,634 |
Supplemental Cash Flows Information: | |
| | |
| |
Interest paid | | $ | 41,413 | | $ | 51,735 |
Income taxes paid | | $ | 26,900 | | $ | 31,850 |
Non-Cash Investing Activities | |
| | |
| |
Initial recognition of operating lease right-of-use assets | | $ | 945 | | $ | 29,574 |
Transfers from loans to other real estate owned | | $ | 6,750 | | $ | — |
Three Months Ended March 31, | |||||||||||
2021 | 2020 | ||||||||||
Cash Flows From Operating Activities: | |||||||||||
Net Income | $ | 43,469 | $ | 23,123 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Provision for credit losses | (2,350) | 14,310 | |||||||||
Provision for unfunded commitments | (442) | 2,112 | |||||||||
Depreciation and amortization | 1,078 | 1,171 | |||||||||
Mortgage servicing rights gain | (140) | 0 | |||||||||
Gains on sale of loans | (5,178) | (944) | |||||||||
Securities premium amortization (discount accretion), net | 2,705 | 1,513 | |||||||||
Origination of loans held for sale | (432,372) | (187,338) | |||||||||
Proceeds from sale of loans held for sale | 383,559 | 184,953 | |||||||||
Net increase in cash surrender value of BOLI | (389) | (414) | |||||||||
Deferred income tax (benefit) expense | 0 | (562) | |||||||||
Net gain on sale of investment securities | (221) | (822) | |||||||||
Stock-based compensation expense | 1,825 | 996 | |||||||||
Net tax benefits from stock compensation | 144 | (312) | |||||||||
(Increase) decrease in other assets | (777) | (15,337) | |||||||||
Increase (decrease) in other liabilities | 20,346 | 13,337 | |||||||||
Net cash provided by operating activities | 11,257 | 35,786 | |||||||||
Cash Flows From Investing Activities: | |||||||||||
Purchases of available-for-sale investment securities | (347,787) | (138,594) | |||||||||
Proceeds from maturities of available-for-sale securities | 85,116 | 54,426 | |||||||||
Proceeds from sale/call of available-for-sale securities | 28,505 | 78,030 | |||||||||
Purchases of Federal Reserve and Federal Home Loan Bank stock | (43) | (9,044) | |||||||||
Sale of Federal Reserve and Federal Home Loan Bank stock | 6,169 | 4,250 | |||||||||
Net change in loans | 228,275 | (293,507) | |||||||||
Net change in premises and equipment | (2,397) | (83) | |||||||||
Net cash used in investing activities | (2,162) | (304,522) | |||||||||
Cash Flows From Financing Activities: | |||||||||||
Increase in deposits | 9,641 | 917,177 | |||||||||
Net change in customer repurchase agreements | (6,665) | 397 | |||||||||
Increase in short-term borrowings | 0 | 50,000 | |||||||||
Net change in long-term borrowings | (50,000) | 50,000 | |||||||||
Proceeds from issuance of common stock | 139 | 0 | |||||||||
Proceeds from employee stock purchase plan | 0 | 196 | |||||||||
Common stock repurchased | (62) | (44,168) | |||||||||
Cash dividends paid | (7,932) | (7,225) | |||||||||
Net cash used in financing activities | (54,879) | 966,377 | |||||||||
Net Decrease In Cash and Cash Equivalents | (45,784) | 697,641 | |||||||||
Cash and Cash Equivalents at Beginning of Period | 1,789,055 | 241,973 | |||||||||
Cash and Cash Equivalents at End of Period | $ | 1,743,271 | $ | 939,614 | |||||||
Supplemental Cash Flows Information: | |||||||||||
Interest paid | $ | 14,384 | $ | 26,483 | |||||||
Income taxes paid | $ | 0 | $ | 0 | |||||||
Non-Cash Investing Activities | |||||||||||
Initial recognition of operating lease right-of-use assets | $ | 7,339 | $ | 0 | |||||||
Transfers from loans to other real estate owned | $ | 0 | $ | 6,750 | |||||||
Change in fair value of cash flow hedges | $ | 383 | $ | — | |||||||
Change in fair value of investments | $ | (23,934) | $ | — |
7
The following table presents a breakdown of the provision for credit losses included in our Consolidated Statements of Income for the applicable periods (in thousands):
| | | | |
|
| Three Months Ended |
| Six Months Ended |
(dollars in thousands) | | June 30, 2020 | | June 30, 2020 |
Provision for credit losses- loans |
| 19,599 |
| 33,909 |
Provision for credit losses- AFS debt securities |
| 138 |
| 138 |
Total provision for credit losses |
| 19,737 |
| 34,047 |
Risks and Uncertainties
The ongoing COVID-19 pandemic has caused and could continue to cause a furtherprolonged volatility and sustained declinepotential declines in the Company’s stock price. As of June 30, 2020, the Company performed a qualitative assessment
The Company determined that there were no triggering events and an impairment analysis was not performed as of March 31, 2021. Annual impairment testing of intangibles and goodwill as required by GAAP will be performed in the fourth quarter of 2021.
With the passage of
On May 3, 2021, we transacted to sell 849 PPP loans for a total purchase price of $169.0 million. Immediately following this sale, the principal outstanding on PPP loans totaled approximately $378.4 million across 789 notes.
10
Allowance for Credit Losses
On January 1, 2020, we adopted ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which replaces the incurred loss methodology for determining our provision for credit losses and ACL with an expected loss methodology that is referred to as the current expected credit loss model. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivable and held-to-maturity (“HTM”) debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with ASU 2016-02 "Leases (Topic 842)" ("ASU 2016-02"). In addition, ASU 2016-13 made changes to the accounting for available-for-sale (“AFS”) debt securities. One such change is to require credit-related impairments to be recognized as an allowance for credit losses rather than as a write-down of the securities amortized cost basis when management does not intend to sell or believes that it is not more than likely that they will be required to sell the securities prior to recovery of the securities amortized cost basis. We adopted ASU 2016-13 using the modified retrospective method. Results for reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company does not own Held to Maturity investment debt securities.
Loans
Loans held for investment are stated at the amount of unpaid principal reduced by deferred income (net of costs). Interest on loans is recognized using the simple-interest method on the daily balances of the principal amounts outstanding. Loan origination fees, net of direct loan origination costs, and commitment fees are deferred and amortized as an adjustment to yield over the life of the loan, or over the commitment period, as applicable.
Refer to the subsection above "Lending operations and accommodations to borrowers" for a discussion on the impact of the CARES Act on TDRs.
ASU 2016-13 replaces the incurred loss impairment model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognizeportfolio.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, loan concentrations, credit quality, or term, as well as for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors.
11
The allowance for credit losses is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Reserves on loans that do not share risk characteristics are evaluated on an individual basis (nonaccrual, TDR). In order to determine the allowance for credit losses, all loans are assigned a credit grade. Nonaccrual loans are specifically reviewed for loss potential and when deemed appropriate are assigned a reserve based on an individual evaluation. For purposes of determining the pool-basis reserve, theThe remainder of the portfolio, representing all loans not assigned an individual reserve, is segregated by call report codes. Each credit grade within each product typecodes and a loan-level probability of default (“PD”) / Loss Given Default (“LGD”) cash flow method with and using an exposure at default (“EAD”) model is assigned a historical loss rate.applied. These historical loss rates are then modified to incorporate our reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments. level.
Even thoughACL attributes portions of the allowance may be allocatedACL and RUC to specific loans,the separate loan pools or segments, the entire allowanceACL and RUC is available for anyto absorb credit that,losses expected in management's judgment, should be charged off.the total loan portfolio and total amount of unfunded credit commitments, respectively. Portfolio segments are used to pool loans with similar risk characteristics and align with our methodology for measuring expected credit losses.
Three Months Ended | Three Months Ended | |||||||||||||
(dollars in thousands) | March 31, 2021 | March 31, 2020 | ||||||||||||
Provision for credit losses- loans | (2,261) | 14,310 | ||||||||||||
Provision for credit losses- AFS debt securities | (89) | 0 | ||||||||||||
Total provision for credit losses | (2,350) | 14,310 |
Commercial.
12
Other Consumer.Consumer: The other consumer portfolio is comprised of consumer purpose loans not secured by real property, including personal lines of credit and loans, overdraft lines, and vehicle loans. This category also includes other loan items such as overdrawn deposit accounts as well as loans and loan payments in process.
nonaccrual.
Whenstatements.When management determines that foreclosure is probable, and for certain collateral-dependent loans where foreclosure is not considered probable, expected credit losses are based on the estimated fair value of the collateral adjusted for selling costs, when appropriate. A loan is considered collateral- dependentcollateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral.
a trouble debt restructuring.
Discounted Cash Flow Method
The Company uses the discounted cash flow (“DCF”) method to estimate expected credit losses for the commercial, income producing – commercial real estate, owner occupied – commercial real estate, real estate mortgage - residential, construction – commercial and residential, construction – C&I (owner occupied), home equity, and other consumer loan pools. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, probability of default, and loss given default. The modeling of expected prepayment speeds is based on historical internal data.
The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, management utilizes and forecasts regional unemployment as a loss driver. COVID-19 has negatively impacted unemployment projections, which inform our CECL economic forecast and increased our loss reserve as of June 30, 2020.
13
For all DCF models, management has determined that 8 quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over twelve months on a straight-line basis. Management leverages economic projections from reputable and independent third parties to inform its loss driver forecasts over the forecast period.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level Net Present Value ("NPV "). An ACL is established for the difference between the instrument’s NPV and amortized cost basis.
Collateral Dependent Financial Assets
The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected TDR.
Although ASU No. 2016-13 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model. One notable change from the legacy OTTI model is when evaluating whether credit loss exists, an entity may no longer consider the length of time fair value has been less than amortized cost.
14
securities could be the result of credit losses, and therefore, an allowance for credit losses of $138 thousand was recorded.losses. See Note 3 Investment Securities for more information.
Consolidated Balance Sheet.
2020.
2021
ASU 2016-13, “Measurement of Credit Losses on Financial Instruments (Topic 326).” Under the CECL standard and based on the January 1, 2020 effective date, the Company made an initial adjustment to the allowance for credit losses of $10.6 million along with $4.1 million to the reserve for unfunded commitments. In accordance with adoption of CECL, the initial January 1, 2020 cumulative-effect adjustment was to retained earnings,net of taxes under the modified retrospective approach. Results for reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. Refer to the “Allowance for Credit Losses- Loans” section above for additional detail.
ASU 2020-02 "Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842)" ("ASU 2020-02") incorporates SEC SAB 119 (updated from SAB 102) into the Accounting Standards Codification (the "Codification") by aligning SEC recommended policies and procedures with ASC 326. ASU 2020-02 was effective on January 1, 2020 and had no significant impact on our documentation requirements, financial statement or disclosures.
15
ASU 2020-03 "Codification Improvements to Financial Instruments" ("ASU 2020-03") revised a wide variety of topics in the Codification with the intent to make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications. ASU 2020-03 was effective immediately upon its release in March 2020 and did not have a material impact on our consolidated financial statements.
Accounting Standards Pending Adoption
ASU 2019-12 "Income"Income Taxes (Topic 740)" ("ASU 2019-12") simplifies the accounting for income taxes by removing certain exceptions and improves the consistent application of GAAP by clarifying and amending other existing guidance. ASU 2019-012 will be2019-12 became effective for us on January 1, 2021 and isdid not expected to have anya material impact on our consolidated financial statements.
| | | | | | | | | | | | | | | |
| | | | | Gross | | Gross | | Allowance | | Estimated | ||||
June 30, 2020 | | Amortized | | Unrealized | | Unrealized | | for Credit | | Fair | |||||
(dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Losses |
| Value | |||||
U. S. agency securities | | $ | 116,223 | | $ | 1,580 | | $ | 749 | | $ | — | | $ | 117,054 |
Residential mortgage backed securities | |
| 516,297 | |
| 15,346 | |
| 115 | |
| — | |
| 531,528 |
Municipal bonds | |
| 86,374 | |
| 4,333 | |
| — | |
| 13 | |
| 90,694 |
Corporate bonds | |
| 31,561 | |
| 1,562 | |
| 78 | |
| 125 | |
| 32,920 |
Other equity investments | |
| 198 | |
| — | |
| — | |
| — | |
| 198 |
| | $ | 750,653 | | $ | 22,821 | | $ | 942 | | $ | 138 | | $ | 772,394 |
16
Gross | Gross | Allowance | Estimated | |||||||||||||||||||||||||||||
March 31, 2021 | Amortized | Unrealized | Unrealized | for Credit | Fair | |||||||||||||||||||||||||||
(dollars in thousands) | Cost | Gains | Losses | Losses | Value | |||||||||||||||||||||||||||
U.S. agency securities | $ | 280,147 | $ | 1,247 | $ | (5,859) | $ | — | $ | 275,535 | ||||||||||||||||||||||
Residential mortgage backed securities | 934,615 | 9,710 | (11,706) | — | 932,619 | |||||||||||||||||||||||||||
Municipal bonds | 103,230 | 4,352 | (453) | (7) | 107,122 | |||||||||||||||||||||||||||
Corporate bonds | 52,935 | 1,250 | (481) | (71) | 53,633 | |||||||||||||||||||||||||||
$ | 1,370,927 | $ | 16,559 | $ | (18,499) | $ | (78) | $ | 1,368,909 |
| | | | | | | | | | | | | | | |
| | | | | Gross | | Gross | | Allowance | | Estimated | ||||
December 31, 2019 | | Amortized | | Unrealized | | Unrealized | | for Credit | | Fair | |||||
(dollars in thousands) |
| Cost |
| Gains |
| Losses |
| 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 |
Gross | Gross | Estimated | ||||||||||||||||||||||||||||||
December 31, 2020 | Amortized | Unrealized | Unrealized | Allowance for | Fair | |||||||||||||||||||||||||||
(dollars in thousands) | Cost | Gains | Losses | Credit Losses | Value | |||||||||||||||||||||||||||
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 | — | (18) | 108,113 | |||||||||||||||||||||||||||
Corporate bonds | 34,383 | 1,624 | (8) | (149) | 35,850 | |||||||||||||||||||||||||||
$ | 1,129,057 | $ | 23,463 | $ | (1,468) | $ | (167) | $ | 1,150,885 |
Consolidated Balance Sheets.
Less than | 12 Months | |||||||||||||||||||||||||||||||||||||||||||
12 Months | or Greater | Total | ||||||||||||||||||||||||||||||||||||||||||
Estimated | Estimated | Estimated | ||||||||||||||||||||||||||||||||||||||||||
March 31, 2021 | Number of | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Securities | Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||||||||||||||||||||
U. S. agency securities | 50 | $ | 197,761 | $ | 5,346 | $ | 38,854 | $ | 513 | $ | 236,615 | $ | 5,859 | |||||||||||||||||||||||||||||||
Residential mortgage backed securities | 267 | 579,364 | 11,646 | 5,035 | 60 | 584,399 | 11,706 | |||||||||||||||||||||||||||||||||||||
Corporate bonds | 16 | 23,763 | 481 | 0 | 0 | 23,763 | 481 | |||||||||||||||||||||||||||||||||||||
Municipal bonds | 46 | 26,885 | 453 | 0 | 0 | 26,885 | 453 | |||||||||||||||||||||||||||||||||||||
379 | $ | 827,773 | $ | 17,926 | $ | 43,889 | $ | 573 | $ | 871,662 | $ | 18,499 |
| | | | | | | | | | | | | | | | | | | | |
| | | | Less than | | 12 Months | | | | | | | ||||||||
| | | | 12 Months | | or Greater | | Total | ||||||||||||
| | | | Estimated | | | | | Estimated | | | | | Estimated | | | | |||
June 30, 2020 | | Number of | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||
(dollars in thousands) |
| Securities |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
U. S. agency securities |
| 25 | | $ | 24,653 | | $ | 99 | | $ | 37,287 | | $ | 650 | | $ | 61,940 | | $ | 749 |
Residential mortgage backed securities |
| 20 | |
| 41,864 | |
| 66 | |
| 7,721 | |
| 49 | |
| 49,585 | |
| 115 |
Corporate bonds |
| 2 | |
| 4,447 | |
| 78 | |
| — | |
| — | |
| 4,447 | |
| 78 |
|
| 47 | | $ | 70,964 | | $ | 243 | | $ | 45,008 | | $ | 699 | | $ | 115,972 | | $ | 942 |
| | | | | | | | | | | | | | | | | | | | |
| | | | 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, 2020 | Number of | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Securities | Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||||||||||||||||||||
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 |
17
The amortized cost and estimated fair value of investments available-for-sale at June 30, 2020March 31, 2021 and December 31, 20192020 by contractual maturity are shown in the table below. Expected maturities for residential mortgage backed securities (“MBS”) will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||
Amortized | Estimated | Amortized | Estimated | |||||||||||||||||||||||
(dollars in thousands) | Cost | Fair Value | Cost | Fair Value | ||||||||||||||||||||||
U. S. agency securities maturing: | ||||||||||||||||||||||||||
One year or less | $ | 96,891 | $ | 94,564 | $ | 53,916 | $ | 53,906 | ||||||||||||||||||
After one year through five years | 125,593 | 125,151 | 110,083 | 110,777 | ||||||||||||||||||||||
Five years through ten years | 57,663 | 55,820 | 17,087 | 17,240 | ||||||||||||||||||||||
Residential mortgage backed securities | 934,615 | 932,619 | 811,328 | 825,001 | ||||||||||||||||||||||
Municipal bonds maturing: | ||||||||||||||||||||||||||
One year or less | 3,343 | 3,327 | 4,329 | 4,348 | ||||||||||||||||||||||
After one year through five years | 26,564 | 28,042 | 26,622 | 28,272 | ||||||||||||||||||||||
Five years through ten years | 71,323 | 73,698 | 69,309 | 73,389 | ||||||||||||||||||||||
After ten years | 2,000 | 2,062 | 2,000 | 2,121 | ||||||||||||||||||||||
Corporate bonds maturing: | ||||||||||||||||||||||||||
One year or less | 500 | 500 | 5,218 | 5,220 | ||||||||||||||||||||||
After one year through five years | 37,823 | 38,392 | 22,189 | 23,267 | ||||||||||||||||||||||
After ten years | 14,612 | 14,812 | 6,976 | 7,511 | ||||||||||||||||||||||
Allowance for Credit Losses | — | (78) | — | (167) | ||||||||||||||||||||||
$ | 1,370,927 | $ | 1,368,909 | $ | 1,129,057 | $ | 1,150,885 |
| | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 | ||||||||
| | Amortized | | Estimated | | Amortized | | Estimated | ||||
(dollars in thousands) |
| Cost |
| Fair Value |
| Cost |
| Fair Value | ||||
U. S. agency securities maturing: | | | | | | | | | | | | |
One year or less | | $ | 34,038 | | $ | 34,219 | | $ | 96,332 | | $ | 96,226 |
After one year through five years | |
| 77,465 | |
| 78,008 | |
| 76,121 | |
| 75,821 |
Five years through ten years | |
| 4,720 | |
| 4,827 | |
| 7,775 | |
| 7,747 |
Residential mortgage backed securities | |
| 516,297 | |
| 531,528 | |
| 541,490 | |
| 543,852 |
Municipal bonds maturing: | |
| | |
| | |
| | |
| |
One year or less | |
| 7,382 | |
| 7,437 | |
| 5,897 | |
| 5,969 |
After one year through five years | |
| 19,797 | |
| 20,703 | |
| 21,416 | |
| 21,953 |
Five years through ten years | |
| 51,195 | |
| 54,407 | |
| 42,589 | |
| 44,015 |
After ten years | |
| 8,000 | |
| 8,160 | |
| 2,000 | |
| 1,994 |
Corporate bonds maturing: | |
| | |
| | |
| | |
| |
One year or less | | | 10,929 | | | 11,312 | | | 502 | | | 508 |
After one year through five years | |
| 15,407 | |
| 15,999 | |
| 8,528 | |
| 8,725 |
After ten years | |
| 5,225 | |
| 5,734 | |
| 1,500 | |
| 1,500 |
U.S. treasury | | | — | | | — | | | 34,844 | | | 34,855 |
Other equity investments | |
| 198 | |
| 198 | |
| 198 | |
| 198 |
Allowance for Credit Losses | | | — | | | (138) | | | — | | | — |
| | $ | 750,653 | | $ | 772,394 | | $ | 839,192 | | $ | 843,363 |
2020.
18
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.
assets.
March 31, 2020.
| | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 |
| ||||||
(dollars in thousands) |
| Amount |
| % |
| Amount |
| % | | ||
Commercial | | $ | 1,607,056 |
| 20 | % | $ | 1,545,906 |
| 20 | % |
PPP loans | | | 456,476 | | 6 | % | | — | | — | |
Income producing - commercial real estate | |
| 3,678,946 |
| 46 | % |
| 3,702,747 |
| 50 | % |
Owner occupied - commercial real estate | |
| 964,077 |
| 12 | % |
| 985,409 |
| 13 | % |
Real estate mortgage - residential | |
| 93,601 |
| 1 | % |
| 104,221 |
| 1 | % |
Construction - commercial and residential | |
| 995,550 |
| 12 | % |
| 1,035,754 |
| 14 | % |
Construction - C&I (owner occupied) | |
| 149,845 |
| 2 | % |
| 89,490 |
| 1 | % |
Home equity | |
| 74,921 |
| 1 | % |
| 80,061 |
| 1 | % |
Other consumer | |
| 1,289 |
| — | |
| 2,160 |
| — | |
Total loans | |
| 8,021,761 |
| 100 | % |
| 7,545,748 |
| 100 | % |
Less: allowance for credit losses | |
| (108,796) |
| | | | (73,658) |
| | |
Net loans | | $ | 7,912,965 | (1) | | | $ | 7,472,090 | | | |
March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||
(dollars in thousands) | Amount | % | Amount | % | |||||||||||||||||||||||||
Commercial | $ | 1,398,155 | 19 | % | $ | 1,437,433 | 19 | % | |||||||||||||||||||||
PPP loans | 565,018 | 8 | % | 454,771 | 6 | % | |||||||||||||||||||||||
Income producing - commercial real estate | 3,430,077 | 45 | % | 3,687,000 | 47 | % | |||||||||||||||||||||||
Owner occupied - commercial real estate | 1,012,457 | 13 | % | 997,694 | 13 | % | |||||||||||||||||||||||
Real estate mortgage - residential | 71,209 | 1 | % | 76,592 | 1 | % | |||||||||||||||||||||||
Construction - commercial and residential | 829,481 | 11 | % | 873,261 | 11 | % | |||||||||||||||||||||||
Construction - C&I (owner occupied) | 152,240 | 2 | % | 158,905 | 2 | % | |||||||||||||||||||||||
Home equity | 67,167 | 1 | % | 73,167 | 1 | % | |||||||||||||||||||||||
Other consumer | 885 | 0 | 1,389 | 0 | |||||||||||||||||||||||||
Total loans | 7,526,689 | 100 | % | 7,760,212 | 100 | % | |||||||||||||||||||||||
Less: allowance for credit losses | (102,070) | (109,579) | |||||||||||||||||||||||||||
Net loans (1) | $ | 7,424,619 | $ | 7,650,633 |
19
Loan Origination / Risk Management
The Company’s goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of economic downturn or other negative influences. Plans for mitigating inherent risks in managing loan assets include: carefully enforcing loan policies and procedures, evaluating each borrower’s business plan during the underwriting process and throughout the loan term, identifying and monitoring primary and alternative sources for loan repayment, and obtaining collateral to mitigate economic loss in the event of liquidation.
supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments.
20
Loans intended for residential land acquisition, lot development and construction are made on the premise that the land: 1) is or will be developed for building sites for residential structures, and 2) will ultimately be utilized for construction or improvement of residential zoned real properties, including the creation of housing. Residential development and construction loans will finance projects such as single family subdivisions, planned unit developments, townhouses, and condominiums. Residential land acquisition, development and construction loans generally are underwritten with a maximum term of 36 months, including extensions approved at origination.
21
Government. Allocation of a portion of the allowance to one category of loans does not preclude its availabilityrestrict the use of the allowance to absorb losses in other categories.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 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 | ||||||||
Three Months Ended June 30, 2020 | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balance at beginning of period | | $ | 27,346 | | $ | 43,551 | | $ | 9,867 | | $ | 1,369 | | $ | 13,341 | | $ | 818 | | $ | 44 | | | 96,336 |
Loans charged-off | |
| (7,145) | | | — | | | — | | | — | | | — | | | — | | | — | |
| (7,145) |
Recoveries of loans previously charged-off | |
| 5 | | | — | | | — | | | — | | | — | | | — | | | 1 | |
| 6 |
Net loans charged-off | |
| (7,140) | | | — | | | — | | | — | | | — | | | — | | | 1 | |
| (7,139) |
Provision for credit losses | |
| 7,872 | | | 8,312 | | | 2,474 | | | 181 | | | 467 | | | 294 | | | (1) | |
| 19,599 |
Ending balance | | $ | 28,078 | | $ | 51,863 | | $ | 12,341 | | $ | 1,550 | | $ | 13,808 | | $ | 1,112 | | $ | 44 | | $ | 108,796 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2020 | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of period, prior to adoption of ASC 326 | | $ | 15,857 | | $ | 28,034 | | $ | 6,242 | | $ | 965 | | $ | 18,175 | | $ | 599 | | $ | 72 | | $ | 69,944 |
Impact of adopting ASC 326 | | | 892 | | | 11,230 | | | 4,674 | | | (301) | | | (6,143) | | | 245 | | | 17 | | | 10,614 |
Loans charged-off | | | (7,145) | | | (550) | | | — | | | — | | | (1,768) | | | — | | | — | | | (9,463) |
Recoveries of loans previously charged-off | | | 74 | | | — | | | — | | | — | | | — | | | — | | | 4 | | | 78 |
Net loans (charged-off) recoveries | | | (7,071) | | | (550) | | | — | | | — | | | (1,768) | | | — | | | 4 | | | (9,385) |
Provision for credit losses | | | 18,400 | | | 13,149 | | | 1,425 | | | 886 | | | 3,544 | | | 268 | | | (49) | | | 37,623 |
Ending balance | | $ | 28,078 | | $ | 51,863 | | $ | 12,341 | | $ | 1,550 | | $ | 13,808 | | $ | 1,112 | | $ | 44 | | $ | 108,796 |
| | | | | | | | | | | | | | | | | | | | | | | | |
As of June 30, 2020 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Allowance for credit losses: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Individually evaluated for impairment | | $ | 8,797 | | $ | 5,260 | | $ | 405 | | $ | 746 | | $ | 1,383 | | $ | 107 | | $ | 3 | | $ | 16,701 |
Collectively evaluated for impairment | |
| 19,281 | | | 46,603 | | | 11,936 | | | 804 | | | 12,425 | | | 1,005 | | | 41 | |
| 92,095 |
Ending balance | | $ | 28,078 | | $ | 51,863 | | $ | 12,341 | | $ | 1,550 | | $ | 13,808 | | $ | 1,112 | | $ | 44 | | $ | 108,796 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2019 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Allowance for credit losses: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance at beginning of period | | $ | 17,195 | | $ | 26,765 | | $ | 5,980 | | $ | 681 | | $ | 18,469 | | $ | 605 | | $ | 248 | | $ | 69,943 |
Loans charged-off | |
| (1) | |
| (1,847) | |
| — | |
| — | |
| — | |
| — | |
| (2) | |
| (1,850) |
Recoveries of loans previously charged-off | |
| 37 | |
| 302 | |
| 2 | |
| 2 | |
| 37 | |
| — | |
| 13 | |
| 393 |
Net loans charged-off | |
| 36 | |
| (1,545) | |
| 2 | |
| 2 | |
| 37 | |
| — | |
| 11 | |
| (1,457) |
Provision for credit losses | |
| 905 | |
| 1,790 | |
| (226) | |
| 672 | |
| 500 | |
| (24) | |
| (17) | |
| 3,600 |
Ending balance | | $ | 18,136 | | $ | 27,010 | | $ | 5,756 | | $ | 1,355 | | $ | 19,006 | | $ | 581 | | $ | 242 | | $ | 72,086 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 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 | | | (5) | | | (5,343) | | | — | | | — | | | — | | | — | | | (2) | | | (5,350) |
Recoveries of loans previously charged-off | | | 167 | | | 302 | | | 2 | | | 3 | | | 37 | | | — | | | 21 | | | 532 |
Net loans (charged-off) recoveries | | | 162 | | | (5,041) | | | 2 | | | 3 | | | 37 | | | — | | | 19 | | | (4,818) |
Provision for credit losses | | | 2,117 | | | 4,017 | | | (488) | | | 387 | | | 794 | | | (18) | | | 151 | | | 6,960 |
Ending balance | | $ | 18,136 | | $ | 27,010 | | $ | 5,756 | | $ | 1,355 | | $ | 19,006 | | $ | 581 | | $ | 242 | | $ | 72,086 |
| | | | | | | | | | | | | | | | | | | | | | | | |
As of June 30, 2019 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Allowance for credit losses: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Individually evaluated for impairment | | $ | 7,905 | | $ | 1,000 | | $ | 475 | | $ | 650 | | $ | — | | $ | — | | $ | — | | $ | 10,030 |
Collectively evaluated for impairment | |
| 10,231 | |
| 26,010 | |
| 5,281 | |
| 705 | |
| 19,006 | |
| 581 | |
| 242 | |
| 62,056 |
Ending balance | | $ | 18,136 | | $ | 27,010 | | $ | 5,756 | | $ | 1,355 | | $ | 19,006 | | $ | 581 | | $ | 242 | | $ | 72,086 |
During the first quarter of 2020, we adopted ASU 2016-13, which replaced the incurred loss methodology for determining our provision for credit losses and allowance for credit losses with an expected loss methodology that is referred to as the CECL model. Upon adoption, the allowance for credit losses was increased by $14.7 million, which included a $4.1 million increase to the allowance for unfunded commitments, with no impact to the consolidated statement of operations.
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 | ||||||||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of period | $ | 26,569 | $ | 55,385 | $ | 14,000 | $ | 1,020 | $ | 11,529 | $ | 1,039 | $ | 37 | $ | 109,579 | ||||||||||||||||||||||||||||||||||
Loans charged-off | (4,150) | (1,000) | 0 | 0 | (206) | 0 | (1) | (5,357) | ||||||||||||||||||||||||||||||||||||||||||
Recoveries of loans previously charged-off | 96 | 0 | 0 | 0 | 0 | 0 | 13 | 109 | ||||||||||||||||||||||||||||||||||||||||||
Net loans (charged-off) recoveries | (4,054) | (1,000) | 0 | 0 | (206) | 0 | 12 | (5,248) | ||||||||||||||||||||||||||||||||||||||||||
Provision for credit losses- loans | 1,186 | (2,875) | 315 | (101) | (640) | (132) | (14) | (2,261) | ||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 23,701 | $ | 51,510 | $ | 14,315 | $ | 919 | $ | 10,683 | $ | 907 | $ | 35 | $ | 102,070 | ||||||||||||||||||||||||||||||||||
As of March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 5,365 | $ | 5,734 | $ | 1,076 | $ | 330 | $ | 0 | $ | 0 | $ | 0 | $ | 12,505 | ||||||||||||||||||||||||||||||||||
Collectively evaluated for impairment | 18,336 | 45,776 | 13,239 | 589 | 10,683 | 907 | 35 | 89,565 | ||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 23,701 | $ | 51,510 | $ | 14,315 | $ | 919 | $ | 10,683 | $ | 907 | $ | 35 | $ | 102,070 | ||||||||||||||||||||||||||||||||||
Three Months Ended March 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 | 0 | (550) | 0 | 0 | (1,768) | 0 | 0 | (2,318) | ||||||||||||||||||||||||||||||||||||||||||
Recoveries of loans previously charged-off | 69 | 0 | 0 | 0 | 0 | 0 | 3 | 72 | ||||||||||||||||||||||||||||||||||||||||||
Net loans (charged-off) recoveries | 69 | (550) | 0 | 0 | (1,768) | 0 | 3 | (2,246) | ||||||||||||||||||||||||||||||||||||||||||
Provision for credit losses- loans | 7,553 | 3,606 | (645) | 113 | 3,767 | (83) | (1) | 14,310 | ||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 27,346 | $ | 43,551 | $ | 9,867 | $ | 1,369 | $ | 13,341 | $ | 818 | $ | 44 | $ | 96,336 | ||||||||||||||||||||||||||||||||||
As of March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 7,239 | $ | 1,903 | $ | 375 | $ | 657 | $ | 1,554 | $ | 105 | $ | 0 | $ | 11,833 | ||||||||||||||||||||||||||||||||||
Collectively evaluated for impairment | 20,107 | 41,648 | 9,492 | 712 | 11,787 | 713 | 44 | 84,503 | ||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 27,346 | $ | 43,551 | $ | 9,867 | $ | 1,369 | $ | 13,341 | $ | 818 | $ | 44 | $ | 96,336 |
22
A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral.
| | | | | | |
| | Business/Other | | | | |
(dollars in thousands) |
| Assets |
| Real Estate | ||
Commercial | | $ | 15,105 | | $ | 2,895 |
Income producing - commercial real estate | |
| 3,193 | |
| 24,102 |
Owner occupied - commercial real estate | |
| — | |
| 10,815 |
Real estate mortgage - residential | |
| — | |
| 7,960 |
Construction - commercial and residential | |
| — | |
| 5,385 |
Construction - C&I (owner occupied) | |
| — | |
| — |
Home equity | |
| — | |
| 600 |
Other consumer | |
| 6 | |
| — |
Total | | $ | 18,304 | | $ | 51,757 |
March 31, 2021
(dollars in thousands) | Business/Other Assets | Real Estate | ||||||||||||
Commercial | $ | 10,310 | $ | 9,339 | ||||||||||
Income producing - commercial real estate | 3,193 | 23,135 | ||||||||||||
Owner occupied - commercial real estate | 0 | 14,075 | ||||||||||||
Real estate mortgage - residential | 0 | 1,942 | ||||||||||||
Construction - commercial and residential | 0 | 196 | ||||||||||||
Home equity | 0 | 413 | ||||||||||||
Other consumer | 0 | 0 | ||||||||||||
Total | $ | 13,503 | $ | 49,100 |
(dollars in thousands) | Business/Other Assets | Real Estate | ||||||||||||
Commercial | $ | 11,326 | $ | 4,026 | ||||||||||
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 |
The following are the definitions of the Company’s credit quality indicators:
|
| ||||
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 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 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. |
24
March 31, 2021 (dollars in thousands) | Prior | 2017 | 2018 | 2019 | 2020 | 2021 | Total | ||||||||||||||||||||||||||||||||||||||||
Commercial | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 413,814 | 221,839 | 217,567 | 155,489 | 181,351 | 75,196 | 1,265,256 | ||||||||||||||||||||||||||||||||||||||||
Watch | 35,974 | 23,444 | 19,089 | 7,171 | 10,930 | — | 96,608 | ||||||||||||||||||||||||||||||||||||||||
Special Mention | 1,403 | 0 | 3,366 | 3,980 | 899 | — | 9,648 | ||||||||||||||||||||||||||||||||||||||||
Substandard | 22,226 | 1,175 | 2,548 | 569 | 125 | — | 26,643 | ||||||||||||||||||||||||||||||||||||||||
Total | 473,417 | — | 246,458 | — | 242,570 | — | 167,209 | — | 193,305 | — | 75,196 | 1,398,155 | |||||||||||||||||||||||||||||||||||
PPP loans | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | — | — | — | — | — | — | — | — | 387,765 | 177,253 | 565,018 | ||||||||||||||||||||||||||||||||||||
Total | — | — | — | — | — | — | — | — | 387,765 | 177,253 | 565,018 | ||||||||||||||||||||||||||||||||||||
Income producing - commercial real estate | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 822,220 | 273,235 | 665,705 | 579,001 | 501,066 | 10,799 | 2,852,026 | ||||||||||||||||||||||||||||||||||||||||
Watch | 161,476 | 107,191 | — | 44,357 | 34,794 | — | 347,818 | ||||||||||||||||||||||||||||||||||||||||
Special Mention | 57,448 | — | 42,810 | 51,939 | — | — | 152,197 | ||||||||||||||||||||||||||||||||||||||||
Substandard | 63,990 | — | 8,504 | 5,542 | — | — | 78,036 | ||||||||||||||||||||||||||||||||||||||||
Total | 1,105,134 | — | 380,426 | — | 717,019 | — | 680,839 | — | 535,860 | — | 10,799 | 3,430,077 | |||||||||||||||||||||||||||||||||||
Owner occupied - commercial real estate | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 423,893 | 134,465 | 132,647 | 67,400 | 48,170 | 18,005 | 824,580 | ||||||||||||||||||||||||||||||||||||||||
Watch | 21,916 | 3,266 | 12,030 | 7,175 | 2,041 | — | 46,428 | ||||||||||||||||||||||||||||||||||||||||
Special Mention | 446 | — | 81,561 | 19,077 | — | — | 101,084 | ||||||||||||||||||||||||||||||||||||||||
Substandard | 26,528 | 1,908 | 1,993 | 9,936 | — | — | 40,365 | ||||||||||||||||||||||||||||||||||||||||
Total | 472,783 | — | 139,639 | — | 228,231 | — | 103,588 | — | 50,211 | — | 18,005 | 1,012,457 | |||||||||||||||||||||||||||||||||||
Real estate mortgage - residential | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 20,699 | 10,173 | 13,445 | 17,637 | 5,565 | 1,184 | 68,703 | ||||||||||||||||||||||||||||||||||||||||
Watch | 605 | 0 | — | — | — | — | 605 | ||||||||||||||||||||||||||||||||||||||||
Substandard | 1,901 | — | — | — | — | — | 1,901 | ||||||||||||||||||||||||||||||||||||||||
Total | 23,205 | — | 10,173 | — | 13,445 | — | 17,637 | — | 5,565 | — | 1,184 | 71,209 | |||||||||||||||||||||||||||||||||||
Construction - commercial and residential | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 73,112 | 233,218 | 230,716 | 108,156 | 107,338 | 15,504 | 768,044 | ||||||||||||||||||||||||||||||||||||||||
Watch | 270 | 56,309 | 4,662 | — | — | — | 61,241 | ||||||||||||||||||||||||||||||||||||||||
Substandard | — | — | — | 196 | — | — | 196 | ||||||||||||||||||||||||||||||||||||||||
Total | 73,382 | — | 289,527 | — | 235,378 | — | 108,352 | — | 107,338 | — | 15,504 | 829,481 | |||||||||||||||||||||||||||||||||||
Construction - C&I (owner occupied) | — | ||||||||||||||||||||||||||||||||||||||||||||||
Pass | 17,698 | 7,380 | 19,358 | 23,543 | 42,130 | 693 | 110,802 | ||||||||||||||||||||||||||||||||||||||||
Watch | 4,625 | 412 | 5,394 | — | — | — | 10,431 | ||||||||||||||||||||||||||||||||||||||||
Special Mention | 137 | — | — | 15,169 | 15,701 | — | 31,007 | ||||||||||||||||||||||||||||||||||||||||
Total | 22,460 | — | 7,792 | — | 24,752 | — | 38,712 | — | 57,831 | — | 693 | 152,240 | |||||||||||||||||||||||||||||||||||
Home Equity | — | ||||||||||||||||||||||||||||||||||||||||||||||
Pass | 33,548 | 6,850 | 6,631 | 3,704 | 11,675 | 2,910 | 65,318 | ||||||||||||||||||||||||||||||||||||||||
Watch | 1,436 | — | — | — | — | — | 1,436 | ||||||||||||||||||||||||||||||||||||||||
Substandard | 368 | — | — | 45 | — | — | 413 | ||||||||||||||||||||||||||||||||||||||||
Total | 35,352 | — | 6,850 | — | 6,631 | — | 3,749 | — | 11,675 | — | 2,910 | 67,167 | |||||||||||||||||||||||||||||||||||
Other Consumer | — | ||||||||||||||||||||||||||||||||||||||||||||||
Pass | 589 | 58 | 88 | 82 | 27 | 34 | 878 | ||||||||||||||||||||||||||||||||||||||||
Substandard | 7 | — | — | — | — | — | 7 | ||||||||||||||||||||||||||||||||||||||||
Total | 596 | — | 58 | — | 88 | — | 82 | — | 27 | — | 34 | 885 | |||||||||||||||||||||||||||||||||||
Total Recorded Investment | $ | 2,206,329 | $ | — | $ | 1,080,923 | $ | — | $ | 1,468,114 | $ | — | $ | 1,120,168 | $ | — | $ | 1,349,577 | $ | — | $ | 301,578 | 7,526,689 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
June 30, 2020 (dollars in thousands) |
| 2016 |
| 2017 |
| 2018 |
| 2019 |
| 2020 |
| Prior |
| Total | |||||||
Commercial | |
| |
| | |
| | | | | |
| | |
| | |
| | |
Pass | |
| 128,724 |
| | 316,829 |
| | 275,852 |
| | 227,726 |
| | 140,233 |
| | 439,707 |
| | 1,529,071 |
Watch | | | 362 | | | 16,583 |
| | — |
| | 2,275 |
| | — |
| | 18,743 | | | 37,963 |
Special Mention | |
| — |
| | — |
| | 10,977 |
| | — |
| | — |
| | 933 |
| | 11,910 |
Substandard | |
| 4,667 |
| | 2,128 |
| | 2,565 |
| | 459 |
| | — |
| | 18,293 |
| | 28,112 |
Total | |
| 133,753 |
| | 335,540 |
| | 289,394 |
| | 230,460 |
| | 140,233 |
| | 477,676 |
| | 1,607,056 |
PPP loans | | | | | | | | | | | | | | | | | | | | | |
Pass | | | — | | | — | | | — | | | — | | | 456,476 | | | — | | | 456,476 |
Total | | | — | | | — | | | — | | | — | | | 456,476 | | | — | | | 456,476 |
Income producing - commercial real estate | |
| | | | | | | | | | | | | | | | | | | |
Pass | |
| 412,724 |
| | 520,542 |
| | 726,838 |
| | 807,571 |
| | 208,386 |
| | 970,544 |
| | 3,646,605 |
Watch | |
| — |
| | — |
| | — |
| | 4,324 |
| | — |
| | 721 |
| | 5,045 |
Special Mention | |
| 800 |
| | — |
| | — |
| | — |
| | — |
| | 4,843 |
| | 5,643 |
Substandard | |
| — |
| | 4,656 |
| | 4,883 |
| | 5,542 |
| | — |
| | 6,572 |
| | 21,653 |
Total | |
| 413,524 |
| | 525,198 |
| | 731,721 |
| | 817,437 |
| | 208,386 |
| | 982,680 |
| | 3,678,946 |
Owner occupied - commercial real estate | |
| | | | | | | | | | | | | | | | | | | |
Pass | |
| 107,303 |
| | 117,523 |
| | 221,811 |
| | 92,496 |
| | 15,673 |
| | 358,051 |
| | 912,857 |
Watch | |
| — |
| | — |
| | — |
| | — |
| | — |
| | 40,465 |
| | 40,465 |
Substandard | |
| 803 |
| | — |
| | 360 |
| | — |
| | — |
| | 9,592 |
| | 10,755 |
Total | |
| 108,106 |
| | 117,523 |
| | 222,171 |
| | 92,496 |
| | 15,673 |
| | 408,108 |
| | 964,077 |
Real estate mortgage - residential | |
| | | | | | | | | | | | | | | | | | | |
Pass | |
| 3,423 |
| | 10,394 |
| | 15,429 |
| | 28,234 |
| | 5,701 |
| | 21,844 |
| | 85,025 |
Watch | |
| — |
| | — |
| | — |
| | — |
| | — |
| | 617 |
| | 617 |
Substandard | |
| 4,154 |
| | 2,619 |
| | — |
| | — |
| | — |
| | 1,186 |
| | 7,959 |
Total | |
| 7,577 |
| | 13,013 |
| | 15,429 |
| | 28,234 |
| | 5,701 |
| | 23,647 |
| | 93,601 |
Construction - commercial and residential | |
| | | | | | | | | | | | | | | | | | | |
Pass | |
| 71,957 |
| | 431,635 |
| | 317,131 |
| | 108,584 |
| | 25,385 |
| | 35,473 |
| | 990,165 |
Substandard | |
| 2,298 |
| | 408 |
| | — |
| | — |
| | — |
| | 2,679 |
| | 5,385 |
Total | |
| 74,255 |
| | 432,043 |
| | 317,131 |
| | 108,584 |
| | 25,385 |
| | 38,152 |
| | 995,550 |
Construction - C&I (owner occupied) | |
| | | | | | | | | | | | | | | | | | | |
Pass | |
| 11,689 |
| | 5,482 |
| | 41,084 |
| | 27,557 |
| | 17,441 |
| | 32,612 |
| | 135,865 |
Watch | |
| — |
| | 2,124 |
| | 11,087 |
| | — |
| | — |
| | 769 |
| | 13,980 |
Total | |
| 11,689 |
| | 7,606 |
| | 52,171 |
| | 27,557 |
| | 17,441 |
| | 33,381 |
| | 149,845 |
Home Equity | |
| | | | | | | | | | | | | | | | | | | |
Pass | |
| 4,859 |
| | 8,942 |
| | 8,658 |
| | 4,468 |
| | 3,785 |
| | 42,416 |
| | 73,128 |
Watch | |
| — |
| | — |
| | — |
| | — |
| | — |
| | 944 |
| | 944 |
Substandard | |
| — |
| | — |
| | — |
| | — |
| | — |
| | 849 |
| | 849 |
Total | |
| 4,859 |
| | 8,942 |
| | 8,658 |
| | 4,468 |
| | 3,785 |
| | 44,209 |
| | 74,921 |
Other Consumer | |
| | | | | | | | | | | | | | | | | | | |
Pass | |
| 177 |
| | 85 |
| | 121 |
| | 106 |
| | 28 |
| | 764 |
| | 1,281 |
Substandard | |
| — |
| | — |
| | — |
| | — |
| | — |
| | 8 |
| | 8 |
Total | |
| 177 |
| | 85 |
| | 121 |
| | 106 |
| | 28 |
| | 772 |
| | 1,289 |
Total Recorded Investment | | $ | 753,940 | | $ | 1,439,950 | | $ | 1,636,796 | | $ | 1,309,342 | | $ | 873,108 | | $ | 2,008,625 | | $ | 8,021,761 |
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 | — | — | — | 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 | — | — | 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 | — | — | 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 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 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 |
25
2020:
Loans | Loans | Loans | Total Recorded | |||||||||||||||||||||||||||||||||||||||||
Current | 30-59 Days | 60-89 Days | 90 Days or | Total Past | Investment in | |||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Loans | Past Due | Past Due | More Past Due | Due Loans | Non-Accrual | Loans | |||||||||||||||||||||||||||||||||||||
March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 1,371,357 | $ | 6,681 | $ | 1,626 | $ | — | $ | 8,307 | $ | 18,491 | $ | 1,398,155 | ||||||||||||||||||||||||||||||
PPP loans | 565,018 | — | — | — | — | — | 565,018 | |||||||||||||||||||||||||||||||||||||
Income producing - commercial real estate | 3,360,794 | 46,811 | 5,315 | — | 52,126 | 17,157 | 3,430,077 | |||||||||||||||||||||||||||||||||||||
Owner occupied - commercial real estate | 994,842 | 3,336 | 202 | — | 3,538 | 14,077 | 1,012,457 | |||||||||||||||||||||||||||||||||||||
Real estate mortgage - residential | 68,438 | 829 | — | — | 829 | 1,942 | 71,209 | |||||||||||||||||||||||||||||||||||||
Construction - commercial and residential | 825,823 | 3,462 | — | — | 3,462 | 196 | 829,481 | |||||||||||||||||||||||||||||||||||||
Construction - C&I (owner occupied) | 148,373 | 3,453 | 414 | — | 3,867 | — | 152,240 | |||||||||||||||||||||||||||||||||||||
Home equity | 66,488 | 197 | 69 | — | 266 | 413 | 67,167 | |||||||||||||||||||||||||||||||||||||
Other consumer | 885 | — | — | — | — | — | 885 | |||||||||||||||||||||||||||||||||||||
Total | $ | 7,402,018 | $ | 64,769 | $ | 7,626 | $ | 0 | $ | 72,395 | $ | 52,276 | $ | 7,526,689 | ||||||||||||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 1,394,244 | $ | 6,411 | $ | 21,426 | $ | — | $ | 27,837 | $ | 15,352 | $ | 1,437,433 | ||||||||||||||||||||||||||||||
PPP loans | 454,771 | — | — | — | — | — | 454,771 | |||||||||||||||||||||||||||||||||||||
Income producing - commercial real estate | 3,616,207 | — | 51,913 | — | 51,913 | 18,880 | 3,687,000 | |||||||||||||||||||||||||||||||||||||
Owner occupied - commercial real estate | 960,364 | 10,630 | 3,542 | — | 14,172 | 23,158 | 997,694 | |||||||||||||||||||||||||||||||||||||
Real estate mortgage – residential | 72,231 | 1,430 | — | — | 1,430 | 2,931 | 76,592 | |||||||||||||||||||||||||||||||||||||
Construction - commercial and residential | 869,723 | 2,992 | 340 | — | 3,332 | 206 | 873,261 | |||||||||||||||||||||||||||||||||||||
Construction- C&I (owner occupied) | 158,905 | — | — | — | — | — | 158,905 | |||||||||||||||||||||||||||||||||||||
Home equity | 67,732 | 467 | 4,552 | — | 5,019 | 416 | 73,167 | |||||||||||||||||||||||||||||||||||||
Other consumer | 1,367 | 21 | 1 | — | 22 | — | 1,389 | |||||||||||||||||||||||||||||||||||||
Total | $ | 7,595,544 | $ | 21,951 | $ | 81,774 | $ | 0 | $ | 103,725 | $ | 60,943 | $ | 7,760,212 |
| | | | | | | | | | | | | | | | | | | | | |
| | 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 | | Non-Accrual | | Loans | |||||||
June 30, 2020 | | | | | | | | | | | | | | | | | | | | | |
Commercial | | $ | 603 | | $ | 3,046 | | $ | — | | $ | 3,649 | | $ | 1,586,686 | | $ | 16,721 | | $ | 1,607,056 |
PPP loans | | | — | | | — | | | — | | | — | | | 456,476 | | | — | | $ | 456,476 |
Income producing - commercial real estate | |
| — | |
| 14,203 | |
| — | |
| 14,203 | |
| 3,647,464 | |
| 17,279 | |
| 3,678,946 |
Owner occupied - commercial real estate | |
| 542 | |
| 212 | |
| — | |
| 754 | |
| 952,568 | |
| 10,755 | |
| 964,077 |
Real estate mortgage - residential | |
| — | |
| — | |
| — | |
| — | |
| 85,385 | |
| 8,216 | |
| 93,601 |
Construction - commercial and residential | |
| — | |
| 751 | |
| — | |
| 751 | |
| 989,414 | |
| 5,385 | |
| 995,550 |
Construction - C&I (owner occupied) | |
| — | |
| — | | | — | |
| — | |
| 149,845 | |
| — | |
| 149,845 |
Home equity | |
| 263 | |
| 254 | | | — | |
| 517 | |
| 73,804 | |
| 600 | |
| 74,921 |
Other consumer | |
| — | |
| 3 | |
| — | |
| 3 | |
| 1,280 | |
| 6 | |
| 1,289 |
Total | | $ | 1,408 | | $ | 18,469 | | $ | — | | $ | 19,877 | | $ | 7,942,922 | | $ | 58,962 | | $ | 8,021,761 |
| | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Commercial | | $ | 3,063 | | $ | 781 | | $ | — | | $ | 3,844 | | $ | 1,527,134 | | $ | 14,928 | | $ | 1,545,906 |
Income producing - commercial real estate | |
| — | |
| 5,542 | |
| — | |
| 5,542 | |
| 3,687,494 | |
| 9,711 | |
| 3,702,747 |
Owner occupied - commercial real estate | |
| 13,008 | |
| — | |
| — | |
| 13,008 | |
| 965,938 | |
| 6,463 | |
| 985,409 |
Real estate mortgage – residential | |
| 3,533 | |
| — | |
| — | |
| 3,533 | |
| 95,057 | |
| 5,631 | |
| 104,221 |
Construction - commercial and residential | |
| — | |
| — | |
| — | |
| — | |
| 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 | | $ | — | | $ | 26,264 | | $ | 7,470,755 | | $ | 48,729 | | $ | 7,545,748 |
| | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 | ||||||||
| | Nonaccrual with | | Nonaccrual with | | Total | | Total | ||||
| | No Allowance | | an Allowance | | Nonaccrual | | Nonaccrual | ||||
(dollars in thousands) |
| for Credit Loss |
| for Credit Loss |
| Loans |
| Loans | ||||
| | | | | | | | | | | | |
Commercial | | | 1,507 | | | 15,214 | | | 16,721 | | | 14,928 |
PPP loans | | | — | | | — | | | — | | | — |
Income producing - commercial real estate | |
| 8,544 | |
| 8,735 | |
| 17,279 | |
| 9,711 |
Owner occupied - commercial real estate | |
| 7,065 | |
| 3,690 | |
| 10,755 | |
| 6,463 |
Real estate mortgage - residential | |
| 5,503 | |
| 2,713 | |
| 8,216 | |
| 5,631 |
Construction - commercial and residential | |
| 2,298 | |
| 3,087 | |
| 5,385 | |
| 11,509 |
Home equity | |
| 50 | |
| 550 | |
| 600 | |
| 487 |
Other consumer | |
| — | |
| 6 | |
| 6 | |
| — |
Total | | $ | 24,967 | | $ | 33,995 | | $ | 58,962 | | $ | 48,729 |
March 31, 2021 | ||||||||||||||||||||
Nonaccrual with | Nonaccrual with | Total | ||||||||||||||||||
No Allowance | an Allowance | Nonaccrual | ||||||||||||||||||
(dollars in thousands) | for Credit Loss | for Credit Loss | Loans | |||||||||||||||||
Commercial | $ | 8,493 | $ | 9,998 | $ | 18,491 | ||||||||||||||
Income producing - commercial real estate | 6,092 | 11,065 | 17,157 | |||||||||||||||||
Owner occupied - commercial real estate | 10,675 | 3,402 | 14,077 | |||||||||||||||||
Real estate mortgage - residential | 0 | 1,942 | 1,942 | |||||||||||||||||
Construction - commercial and residential | 196 | 0 | 196 | |||||||||||||||||
Home equity | 413 | 0 | 413 | |||||||||||||||||
Total (1)(2) | $ | 25,869 | $ | 26,407 | $ | 52,276 |
(1)Excludes TDRs that were performing under their restructured terms totaling $10.3 million at March 31, 2021 and $10.5 million at December 31, 2020. (2)Gross interest income of $0.8 million and $3.7 million would have been recorded for the three months ended March 31, 2021 and December 31, 2020, |
26
Pre Adoption of CECL
Loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with their original terms, while 0 interest was actually recorded on such loans for the original contractual termsthree months ended March 31, 2021 or 2020. See Note 1 to the Consolidated Financial Statements for a description of the loan agreement, including scheduled principal and interest payments. If a loan was impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral. The Bank’s loanCompany’s policy requires thatfor placing loans be placed on nonaccrual if they are ninety days past-due, unless they are well secured and in the process of collection. Impaired loans, or portions thereof, were charged-off when deemed uncollectible.
The following table presents, by class of loan, information related to impaired loans at December 31, 2019:
status.
| | | | | | | | | | | | | | | | | | | | | |
| | Unpaid | | Recorded | | Recorded | | | | | | | | Average Recorded | | Interest Income | |||||
| | Contractual | | Investment | | Investment | | Total | | | | | Investment | | 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 |
Modifications
A modification of a loan constitutes a TDR when athe borrower is experiencing financial difficulty and the modification constitutes a concession. The Company offers various types of concessions when modifying a loan. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. The most common change in terms provided by the Company is an extension of an interest onlyinterest-only term. As of June 30, 2020,March 31, 2021, all performing TDRs were categorized as interest-only modifications.
27
The following table presents by class, the recorded investment of loans modified in TDRs held by the Company for the periods ended June 30, 2020March 31, 2021 and 2019.
| | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended June 30, 2020 | ||||||||||||||||
| | | | | | | | 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 |
| | 10 | | $ | 1,420 | | $ | 10,016 | | $ | 836 | | $ | — | | $ | 12,272 |
Restructured nonaccruing |
| | 3 | |
| 138 | |
| 5,542 | |
| 2,370 | |
| — | |
| 8,050 |
Total |
| | 13 | | $ | 1,558 | | $ | 15,558 | | $ | 3,206 | | $ | — | | $ | 20,322 |
| | | | | | | | | | | | | | | | | | |
Specific allowance | | | | | $ | 257 | | $ | 1,295 | | $ | — | | $ | — | | $ | 1,552 |
| | | | | | | | | | | | | | | | | | |
Restructured and subsequently defaulted | | | | | $ | 138 | | $ | 5,542 | | $ | 2,370 | | $ | — | | $ | 8,050 |
| | | | | | | | | | | | | | | | | | |
|
| For the Six Months Ended June 30, 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 | | $ | 909 | | $ | 4,390 | | $ | 3,309 | | $ | — | | $ | 8,608 |
Restructured nonaccruing |
| | 4 | |
| 2,831 | |
| — | |
| — | |
| — | |
| 2,831 |
Total |
| | 11 | | $ | 3,740 | | $ | 4,390 | | $ | 3,309 | | $ | — | | $ | 11,439 |
| | | | | | | | | | | | | | | | | | |
Specific allowance | | | | | $ | — | | $ | 1,000 | | $ | — | | $ | — | | $ | 1,000 |
| | | | | | | | | | | | | | | | | | |
Restructured and subsequently defaulted | | | | | $ | — | | $ | 2,300 | | $ | — | | $ | — | | $ | 2,300 |
2020.
Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||
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 | 5 | $ | 1,157 | $ | 9,171 | $ | 0 | $ | 0 | $ | 10,328 | |||||||||||||||||||||||||||
Restructured nonaccruing | 3 | 101 | 6,342 | 0 | 0 | 6,443 | ||||||||||||||||||||||||||||||||
Total | 8 | $ | 1,258 | $ | 15,513 | $ | 0 | $ | 0 | $ | 16,771 | |||||||||||||||||||||||||||
Specific allowance | $ | 547 | $ | 2,976 | $ | 0 | $ | 0 | $ | 3,523 | ||||||||||||||||||||||||||||
Restructured and subsequently defaulted | $ | 101 | $ | 6,342 | $ | 0 | $ | 0 | $ | 6,443 |
Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||||||||||||
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 | 11 | $ | 1,438 | $ | 15,574 | $ | 860 | $ | 0 | $ | 17,872 | |||||||||||||||||||||||||||
Restructured nonaccruing | 2 | 137 | 0 | 2,370 | 0 | 2,507 | ||||||||||||||||||||||||||||||||
Total | 13 | $ | 1,575 | $ | 15,574 | $ | 3,230 | $ | 0 | $ | 20,379 | |||||||||||||||||||||||||||
Specific allowance | $ | 0 | $ | 1,007 | $ | 0 | $ | 0 | $ | 1,007 | ||||||||||||||||||||||||||||
Restructured and subsequently defaulted | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
TDR and 4 loans modified into a TDR totaling approximately $1.3 million, respectively.
28
required to be recognized on the Consolidated Statements of ConditionBalance Sheets as a right-of-use (“ROU”) asset and a corresponding lease liability.
OurBalance Sheets.
Three Months Ended | ||||||||||||||||||||
(dollars in thousands) | March 31, 2021 | March 31, 2020 | ||||||||||||||||||
Lease Cost | ||||||||||||||||||||
Operating Lease Cost (Cost resulting from lease payments) | $ | 2,159 | $ | 1,998 | ||||||||||||||||
Variable Lease Cost (Cost excluded from lease payments) | 250 | 267 | ||||||||||||||||||
Sublease Income | (87) | (87) | ||||||||||||||||||
Net Lease Cost | $ | 2,322 | $ | 2,178 | ||||||||||||||||
Operating Lease - Operating Cash Flows (Fixed Payments) | $ | 2,304 | $ | 2,206 | ||||||||||||||||
Right-of-Use Assets - Operating Leases | $ | 30,707 | $ | 25,655 | ||||||||||||||||
Weighted Average Lease Term - Operating Leases | 6.24 | yrs | 4.84 | yrs | ||||||||||||||||
Weighted Average Discount Rate - Operating Leases | 3.37 | % | 4.00 | % |
| | | | | | | |
|
| Six Months Ended | | ||||
(dollars in thousands) |
| June 30, 2020 | | June 30,2019 | | ||
Lease Cost |
| |
| | | | |
Operating Lease Cost (Cost resulting from lease payments) | | $ | 4,005 | | $ | 3,898 | |
Variable Lease Cost (Cost excluded from lease payments) | |
| 518 | | | 535 | |
Sublease Income | |
| (174) | | | (188) | |
Net Lease Cost | | $ | 4,349 | | $ | 4,245 | |
| | | | | | | |
Operating Lease - Operating Cash Flows (Fixed Payments) | |
| 4,419 | | | 4,246 | |
Right-of-Use Assets - Operating Leases | |
| 25,368 | | | 28,214 | |
Weighted Average Lease Term - Operating Leases | |
| 4.62 | yrs | | 5.59 | yrs |
Weighted Average Discount Rate - Operating Leases | |
| 4.00% | | | 4.00% | |
| | | |
(dollars in thousands) | |
| |
Twelve Months Ended: | |
|
|
June 30, 2021 | | $ | 8,531 |
June 30, 2022 | | | 6,745 |
June 30, 2023 | | | 4,707 |
June 30, 2024 | | | 4,107 |
June 30, 2025 | | | 2,997 |
Thereafter | | | 2,547 |
Total Future Minimum Lease Payments | | | 29,634 |
Amounts Representing Interest | | | (2,497) |
Present Value of Net Future Minimum Lease Payments | | $ | 27,137 |
(dollars in thousands) | ||||||||
Twelve Months Ended: | ||||||||
March 31, 2022 | $ | 8,199 | ||||||
March 31, 2023 | 4,519 | |||||||
March 31, 2024 | 6,040 | |||||||
March 31, 2025 | 5,268 | |||||||
March 31, 2026 | 4,277 | |||||||
Thereafter | 10,720 | |||||||
Total Future Minimum Lease Payments | 39,023 | |||||||
Amounts Representing Interest | (5,685) | |||||||
Present Value of Net Future Minimum Lease Payments | $ | 33,338 |
29
Cash Flow Hedges of Interest Rate Risk
Amounts reported in accumulated other comprehensive income related to designated cash flow hedge derivatives will be reclassified to interest income/expense as interest payments are made/received on the Company’s variable-rate assets/liabilities. During the next twelve months,The Company's sole designated cash flow hedge matured during April 2021. Accordingly, the Company estimates (based on existing interest rates) that $1.3 million$60 thousand will be reclassified as an increase in interest expense.
expense during April 2021.
30
The interest rate derivative agreements detail: 1) that collateral be posted when the market value exceeds certain threshold limits associated with the secured party’s exposure; 2) if the Company defaults on any of its indebtedness (including default where repayment of the indebtedness has not been accelerated by the lender), then the Company could also be declared in default on its derivative obligations; 3) if the Company fails to maintain its status as a well-capitalized institution then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.
| | | | | | | | | | | | | | | | |
| | June 30,2020 | |
| December 31,2019 | |||||||||||
| | Notional | | | | | Balance Sheet | | Notional | | | | | Balance Sheet | ||
Derivatives designated as hedging instruments |
| Amount |
| Fair Value |
| Category |
| Amount |
| Fair Value |
| Category | ||||
Interest rate product | | $ | 100,000 | | $ | 1,330 | | Other Liabilities | | $ | 100,000 | | $ | 206 | | Other Liabilities |
| | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(dollars in thousands) | | | | | | | | | | | | | | | | |
Interest rate product | | $ | 154,447 | | $ | 4,523 | | Other Assets | | $ | 56,806 | | $ | 311 | | Other Assets |
| | | | | | | | | | | | | | | | |
(dollars in thousands) | | | | | | | | | | | | | | | | |
Interest rate product | | $ | 154,447 | | $ | 4,818 | | Other Liabilities | | $ | 56,806 | | $ | 319 | | Other Liabilities |
Other Contracts | | | 27,150 | | | 150 | | Other Liabilities | | | 27,384 | | | 86 | | Other Liabilities |
| | $ | 181,597 | | $ | 4,968 | | Other Liabilities | | $ | 84,190 | | $ | 405 | | Other Liabilities |
31
March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||
(dollars in thousands) | Notional Amount | Fair Value | Balance Sheet Category | Fair Value | Balance Sheet Category | |||||||||||||||||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||||||||||||||||||
Interest rate product | $ | 217,398 | $ | 3,637 | Other Assets | $ | 3,491 | Other Assets | ||||||||||||||||||||||||
Mortgage banking derivatives | $ | 191,902 | $ | 2,514 | Other Assets | 5,213 | Other Assets | |||||||||||||||||||||||||
$ | 409,300 | $ | 6,151 | Other Assets | $ | 8,704 | Other Assets | |||||||||||||||||||||||||
Derivatives designated as hedging instruments | ||||||||||||||||||||||||||||||||
Interest rate product | $ | 100,000 | $ | 133 | Other Liabilities | $ | 516 | Other Liabilities | ||||||||||||||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||||||||||||||||||
Interest rate product | $ | 217,398 | $ | 3,516 | Other Liabilities | 3,653 | Other Liabilities | |||||||||||||||||||||||||
Other Contracts | $ | 26,789 | $ | 78 | Other Liabilities | 118 | Other Liabilities | |||||||||||||||||||||||||
$ | 244,187 | $ | 3,594 | Other Liabilities | $ | 3,771 | Other Liabilities | |||||||||||||||||||||||||
Net Derivatives on the balance sheet | $ | 3,727 | $ | 4,287 | ||||||||||||||||||||||||||||
Cash and other collateral | $ | 2,550 | 4,168 | |||||||||||||||||||||||||||||
Net Derivative Amounts | $ | 1,177 | $ | 119 |
The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the three and six months ended June 30, 2020March 31, 2021 and 2019 (unaudited):
2020:
The Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income | ||||||||||||||||||||||||||||||||
Location of Gain or (Loss) | Amount of Gain or (Loss) | |||||||||||||||||||||||||||||||
Amount of Gain (Loss) Recognized | Recognized from | Reclassified from Accumulated | ||||||||||||||||||||||||||||||
Derivatives in Subtopic | in OCI on Derivative | Accumulated Other | OCI into Income | |||||||||||||||||||||||||||||
815-20 Hedging | Three Months Ended March 31, | Comprehensive Income into | Three Months Ended March 31, | |||||||||||||||||||||||||||||
Relationships (dollars in thousands) | 2021 | 2020 | Income | 2021 | 2020 | |||||||||||||||||||||||||||
Derivatives in Cash Flow Hedging Relationships | ||||||||||||||||||||||||||||||||
Interest Rate Products | $ | (844) | $ | (1,521) | Interest Expense | $ | (385) | $ | 28 | |||||||||||||||||||||||
Total | $ | (844) | $ | (1,521) | $ | (385) | $ | 28 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | |
The Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income | ||||||||||||||
| | | | | | | Location of Gain or (Loss) | | Amount of Gain or (Loss) | |||||
| | Amount of (Loss) Recognized in | | Recognized from | | Reclassified from Accumulated OCI | ||||||||
| | OCI on Derivative | | Accumulated Other | | into Income | ||||||||
Derivatives in Subtopic 815-20 Hedging | | Three Months Ended June 30, | | Comprehensive Income into | | Three Months Ended June 30, | ||||||||
Relationships (dollars in thousands) |
| 2020 |
| 2019 |
| Income |
| 2020 |
| 2019 | ||||
Derivatives in Cash Flow Hedging Relationships |
| | | | | |
| | | | | | | |
Interest Rate Products |
| $ | (27) | | $ | (834) |
| Interest Expense | | $ | (394) | | $ | 313 |
Total |
| $ | (27) | | $ | (834) |
| | | $ | (394) | | $ | 313 |
| | | | | | | | | | | | | | |
| | | | | | | | Location of Gain or (Loss) | | | | | | |
| | | | | | | | Recognized from | | | ||||
| | | | Accumulated Other | | Amount of Gain or (Loss) | ||||||||
| | Amount of (Loss) Recognized in | | Comprehensive Income into | | Reclassified from Accumulated OCI | ||||||||
| | OCI on Derivative | | Income | | into Income | ||||||||
Derivatives in Subtopic 815-20 Hedging | | Six Months Ended June 30, | | | | Six Months Ended June 30, | ||||||||
Relationships (dollars in thousands) | | 2020 | | 2019 | | | | 2020 | | 2019 | ||||
Derivatives in Cash Flow Hedging Relationships | | | | | | | | | | | | | | |
Interest Rate Products | | $ | (1,548) | | $ | (1,867) | | Interest Expense | | $ | (366) | | $ | 775 |
Interest Rate Products | | | — | | | — | | Gain on sale of investment securities | | | — | | | 829 |
Total | | $ | (1,548) | | $ | (1,867) | | | | $ | (366) | | $ | 1,604 |
The tableable below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of OperationsIncome for the three and six months ended June 30, 2020March 31, 2021 and 2019 (unaudited):
2020:
| | | | | | | | | | | | | | | |
The Effect of Fair Value and Cash Flow Hedge Accounting on the Statements of Operation | |||||||||||||||
| | Location and Amount of Gain or (Loss) Recognized in Income on | |||||||||||||
| | Fair Value and Cash Flow Hedging Relationships (in 000's) | |||||||||||||
| | Three Months Ended June 30, | | Six Months Ended June 30, | |||||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | 2019 | |||||
| | Interest | | Interest | | Interest | | Gain on sale of | |||||||
|
| Expense |
| Expense |
| Expense |
| investment securities | |||||||
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 | | $ | (394) | | $ | 313 | | $ | (366) | | $ | 775 | | $ | 829 |
|
| | |
| | |
| |
| | | |
| | |
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 | | $ | (394) | | $ | 313 | | $ | (366) | | $ | 775 | | $ | — |
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 | | $ | (394) | | $ | 313 | | $ | (366) | | $ | 775 | | $ | — |
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Excluded Component | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
32
The Effect of Fair Value and Cash Flow Hedge Accounting on the Statements of Income | ||||||||||||||||||||||||||||||||
Location and Amount of Gain or (Loss) Recognized in Income on | ||||||||||||||||||||||||||||||||
Fair Value and Cash Flow Hedging Relationships (in 000's) | ||||||||||||||||||||||||||||||||
Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||||||||||
Interest Expense | ||||||||||||||||||||||||||||||||
Total amounts of income and expense line items presented in the consolidated statement of income in which the effects of fair value or cash flow hedges are recorded | $ | (384) | $ | 28 | ||||||||||||||||||||||||||||
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 | $ | (384) | $ | 28 | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Included Component | $ | (384) | $ | 28 | ||||||||||||||||||||||||||||
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Excluded Component | $ | 0 | $ | 0 |
Effect of Derivatives Not Designated as Hedging Instruments on the Statements of Income | ||||||||||||||||||||||||||||||||
Amount of Income (Loss) | ||||||||||||||||||||||||||||||||
Recognized in Income on | ||||||||||||||||||||||||||||||||
Location of | Derivative | |||||||||||||||||||||||||||||||
Derivatives Not Designated as Hedging | (Loss) Recognized in | Three Months Ended March 31, | ||||||||||||||||||||||||||||||
Instruments under Subtopic 815-20 | Income on Derivative | 2021 | 2020 | |||||||||||||||||||||||||||||
Interest Rate Products | Other income / (expense) | $ | 283 | $ | (168) | |||||||||||||||||||||||||||
Mortgage banking derivatives | Other income / (expense) | 2,514 | 663 | |||||||||||||||||||||||||||||
Other Contracts | Other income / (expense) | 40 | (66) | |||||||||||||||||||||||||||||
Total | $ | 2,837 | $ | 429 |
| | | | | | | | | | | | | | |
Effect of Derivatives Not Designated as Hedging Instruments on the Statements of Operation | ||||||||||||||
| | | | Amount of Gain or (Loss) | | Amount of (Loss) | ||||||||
| | | | Recognized in Income on | | Recognized in Income on | ||||||||
| | Location of Gain or | | Derivative | | Derivative | ||||||||
Derivatives Not Designated as Hedging |
| (Loss) Recognized in |
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||
Instruments under Subtopic 815-20 | | Income on Derivative | | 2020 |
| 2019 | | 2020 |
| 2019 | ||||
Interest Rate Products |
| Other income / (expense) | |
| (118) |
| | — | |
| (286) |
| | — |
Other Contracts |
| Other income / (expense) | | | 2 |
| | (29) | | | (64) |
| | (42) |
Total | | | | | (116) |
| | (29) | | | (350) |
| | (42) |
Balance Sheet Offsetting:Our designated cash flow hedge interest rate derivatives are eligible for offset in the Consolidated Balance Sheets 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. The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s cash flow hedge derivatives as of June 30, 2020 (unaudited) and December 31, 2019.
| | | | | | | | | | | | | | | | | | |
As of June 30, 2020 | ||||||||||||||||||
|
| | |
| | |
| 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 | | $ | 4,523 | | $ | — | | $ | 4,523 |
| $ | — | | $ | — | | $ | 4,523 |
| | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| 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 | | $ | 6,297 | | $ | — | | $ | 6,297 | | $ | — | | $ | 2,170 | | $ | 4,127 |
| | | | | | | | | | | | | | | | | | |
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 | ||||||
Derivatives | | $ | 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 |
33
Note 8. Other Real Estate Owned
The activity within Other Real Estate Owned (“OREO”) for the three and six months ended June 30, 2020 and 2019 (unaudited) is presented in the table below. There were no residential real estate loans in the process of foreclosure as of June 30, 2020. For the three and six months ended June 30, 2020 and 2019, there were 0 sales of OREO property.
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
(dollars in thousands) | | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Beginning Balance | | $ | 8,237 | | $ | 1,394 | | $ | 1,487 | | $ | 1,394 |
Real estate acquired from borrowers | |
| — | |
| — | |
| 6,750 | |
| — |
Properties sold | |
| — | |
| — | |
| — | |
| — |
Ending Balance | | $ | 8,237 | | $ | 1,394 | | $ | 8,237 | | $ | 1,394 |
Note 9. Long-Term Borrowings
| | | | | | |
(dollars in thousands) |
| June 30, 2020 |
| December 31, 2019 | ||
Subordinated Notes, 5.75% | | $ | 70,000 | | $ | 70,000 |
Subordinated Notes, 5.0% | |
| 150,000 | |
| 150,000 |
FHLB Advance, 1.81% | | | 50,000 | | | — |
Less: unamortized debt issuance costs | |
| (2,118) | |
| (2,313) |
Long-term borrowings | | $ | 267,882 | | $ | 217,687 |
2020.
(dollars in thousands) | March 31, 2021 | December 31, 2020 | ||||||||||||
Subordinated Notes, 5.75% | $ | 70,000 | $ | 70,000 | ||||||||||
Subordinated Notes, 5.0% | 150,000 | 150,000 | ||||||||||||
FHLB Advance, 1.81% | 0 | 50,000 | ||||||||||||
Less: unamortized debt issuance costs | (1,825) | (1,923) | ||||||||||||
Long-term borrowings | $ | 218,175 | $ | 268,077 |
We are in the process of evaluating the impact of the expected discontinuation of LIBOR on the 2026 notes.
34
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
(dollars and shares in thousands, except per share data) | | 2020 | | 2019 | | 2020 | | 2019 | ||||
Basic: | | |
|
| |
| | |
|
| |
|
Net income | | $ | 28,856 | | $ | 37,243 | | $ | 51,979 | | $ | 70,992 |
Average common shares outstanding | |
| 32,225 | |
| 34,540 | |
| 32,537 | |
| 34,511 |
Basic net income per common share | | $ | 0.90 | | $ | 1.08 | | $ | 1.60 | | $ | 2.06 |
| | | | | | | | | | | | |
Diluted: | |
|
| |
| | |
| | |
| |
Net income | | $ | 28,856 | | $ | 37,243 | | $ | 51,979 | | $ | 70,992 |
Average common shares outstanding | |
| 32,225 | |
| 34,540 | |
| 32,537 | |
| 34,511 |
Adjustment for common share equivalents | |
| 16 | |
| 25 | |
| 24 | |
| 38 |
Average common shares outstanding-diluted | |
| 32,241 | |
| 34,565 | |
| 32,561 | |
| 34,549 |
Diluted net income per common share | | $ | 0.90 | | $ | 1.08 | | $ | 1.60 | | $ | 2.05 |
| | | | | | | | | | | | |
Anti-dilutive shares | |
| 49 | |
| 2 | |
| 26 | |
| 19 |
35
Three Months Ended March 31, | ||||||||||||||||||||||||||
(dollars and shares in thousands, except per share data) | 2021 | 2020 | ||||||||||||||||||||||||
Basic: | ||||||||||||||||||||||||||
Net income | $ | 43,469 | $ | 23,123 | ||||||||||||||||||||||
Average common shares outstanding | 31,870 | 32,850 | ||||||||||||||||||||||||
Basic net income per common share | $ | 1.36 | $ | 0.70 | ||||||||||||||||||||||
Diluted: | ||||||||||||||||||||||||||
Net income | $ | 43,469 | $ | 23,123 | ||||||||||||||||||||||
Average common shares outstanding | 31,870 | 32,850 | ||||||||||||||||||||||||
Adjustment for common share equivalents | 53 | 25 | ||||||||||||||||||||||||
Average common shares outstanding-diluted | 31,923 | 32,875 | ||||||||||||||||||||||||
Diluted net income per common share | $ | 1.36 | $ | 0.70 | ||||||||||||||||||||||
Anti-dilutive shares | 4 | 26 |
| | | | | | | | | |
(dollars in thousands) |
| Before Tax |
| Tax Effect |
| Net of Tax | |||
Three Months Ended June 30, 2020 | |
| | |
| | |
| |
Net unrealized gain on securities available-for-sale | | $ | 2,506 | | $ | (636) | | $ | 1,870 |
Less: Reclassification adjustment for net gains included in net income |
| | (713) |
| | (176) |
| | (537) |
Total unrealized gain |
| | 1,793 |
| | (812) |
| | 1,333 |
| | | | | | | | | |
Net unrealized loss on derivatives |
| | (28) |
| | 3 |
| | (25) |
Less: Reclassification adjustment for loss included in net income |
| | 393 |
| | 98 |
| | 295 |
Total unrealized gain |
| | 365 |
| | 101 |
| | 270 |
| | | | | | | | | |
Other Comprehensive Income | | $ | 2,158 | | $ | (711) | | $ | 1,603 |
| | | | | | | | | |
Three Months Ended June 30, 2019 | |
|
| |
|
| |
|
|
Net unrealized gain on securities available-for-sale | | $ | 7,976 | | $ | 2,051 | | $ | 5,925 |
Less: Reclassification adjustment for net gains included in net income | |
| (563) |
| | (146) |
| | (417) |
Total unrealized gain | |
| 7,413 |
| | 1,905 |
| | 5,508 |
| | | | | | | | | |
Net unrealized loss on derivatives | |
| (171) |
| | (342) |
| | (513) |
Less: Reclassification adjustment for gain included in net income | |
| (319) |
| | (83) |
| | (236) |
Total unrealized loss | �� |
| (490) |
| | 259 |
| | (749) |
| | | | | | | | | |
Other Comprehensive Income | | $ | 6,923 | | $ | 2,164 | | $ | 4,759 |
| | | | | | | | | |
Six Months Ended June 30, 2020 | |
| | |
| | |
| |
Net unrealized gain on securities available-for-sale | | $ | 16,172 | | $ | (4,483) | | $ | 11,689 |
Less: Reclassification adjustment for net gains included in net income |
| | 1,535 |
| | 391 |
| | 1,144 |
Total unrealized gain |
| | 17,707 |
| | (4,092) |
| | 12,833 |
| | | | | | | | | |
Net unrealized loss on derivatives |
| | (2,017) |
| | 671 |
| | (1,346) |
Less: Reclassification adjustment for gain included in net income |
| | 299 |
| | 77 |
| | 222 |
Total unrealized loss |
| | (1,718) |
| | 748 |
| | (1,124) |
| | | | | | | | | |
Other Comprehensive Income | | $ | 15,989 | | $ | (3,344) | | $ | 11,709 |
| | | | | | | | | |
Six Months Ended June 30, 2019 | |
|
| |
|
| |
|
|
Net unrealized gain on securities available-for-sale | | $ | 16,127 | | $ | (4,148) | | $ | 11,979 |
Less: Reclassification adjustment for net gains included in net income | |
| (1,475) |
| | (383) |
| | (1,092) |
Total unrealized gain | |
| 14,652 |
| | (4,531) |
| | 10,887 |
| | | | | | | | | |
Net unrealized loss on derivatives | |
| (2,234) |
| | 569 |
| | (1,665) |
Less: Reclassification adjustment for gain included in net income | |
| (1,594) |
| | (414) |
| | (1,180) |
Total unrealized loss | |
| (3,828) |
| | 155 |
| | (2,845) |
| | | | | | | | | |
Other Comprehensive Income | | $ | 10,824 | | $ | (4,376) | | $ | 8,042 |
36
(dollars in thousands) | Before Tax | Tax Effect | Net of Tax | |||||||||||||||||
Three Months Ended March 31, 2021 | ||||||||||||||||||||
Net unrealized gain (loss) on securities available-for-sale | $ | (23,713) | $ | 6,096 | $ | (17,617) | ||||||||||||||
Less: Reclassification adjustment for net gains (losses) included in net income | (221) | 55 | (166) | |||||||||||||||||
Total unrealized gain (loss) | (23,934) | 6,151 | (17,783) | |||||||||||||||||
Net unrealized gain (loss) on derivatives | 767 | (194) | 573 | |||||||||||||||||
Less: Reclassification adjustment for gain (loss) included in net income | (384) | 96 | (288) | |||||||||||||||||
Total unrealized gain (loss) | 383 | (98) | 285 | |||||||||||||||||
Other Comprehensive Income (Loss) | $ | (23,551) | $ | 6,053 | $ | (17,498) | ||||||||||||||
Three Months Ended March 31, 2020 | ||||||||||||||||||||
Net unrealized gain (loss) on securities available-for-sale | $ | 16,736 | $ | (4,632) | $ | 12,104 | ||||||||||||||
Less: Reclassification adjustment for net gains (losses) included in net income | (822) | (218) | (604) | |||||||||||||||||
Total unrealized gain (loss) | 15,914 | (4,850) | 11,500 | |||||||||||||||||
Net unrealized gain (loss) on derivatives | (1,989) | 664 | (1,325) | |||||||||||||||||
Less: Reclassification adjustment for gain (loss) included in net income | (94) | (25) | (69) | |||||||||||||||||
Total unrealized gain (loss) | (2,083) | 639 | (1,394) | |||||||||||||||||
Other Comprehensive Income (Loss) | $ | 13,831 | $ | (4,211) | $ | 10,106 | ||||||||||||||
| | | | | | | | | |
| | Securities | | | | | Accumulated Other | ||
| | Available | | | | | Comprehensive Income | ||
(dollars in thousands) |
| For Sale |
| Derivatives |
| (Loss) | |||
Three Months Ended June 30, 2020 | | |
| | |
| | |
|
Balance at Beginning of Period | | $ | 14,609 | | $ | (1,544) | | $ | 13,065 |
Other comprehensive income before reclassifications | |
| 1,870 | |
| 565 | |
| 2,435 |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| (537) | |
| (295) | |
| (832) |
Net other comprehensive income during period | |
| 1,333 | |
| 270 | |
| 1,603 |
Balance at End of Period | | $ | 15,942 | | $ | (1,274) | | $ | 14,668 |
| | | | | | | | | |
| | Securities | | | | | Accumulated Other | ||
| | Available | | | | | Comprehensive Income | ||
(dollars in thousands) |
| For Sale |
| Derivatives |
| (Loss) | |||
Three Months Ended June 30, 2019 | |
|
| |
|
| |
|
|
Balance at Beginning of Period | | $ | (1,665) | | $ | 673 | | $ | (992) |
Other comprehensive income (loss) before reclassifications | |
| 5,925 | |
| (513) | |
| 5,412 |
Amounts reclassified from accumulated other comprehensive income | |
| (417) | |
| (236) | |
| (653) |
Net other comprehensive income (loss) during period | |
| 5,508 | |
| (749) | |
| 4,759 |
Balance at End of Period | | $ | 3,843 | | $ | (76) | | $ | 3,767 |
| | | | | | | | | |
| | Securities | | | | | Accumulated Other | ||
| | Available | | | | | Comprehensive Income | ||
(dollars in thousands) |
| For Sale |
| Derivatives |
| (Loss) | |||
Six Months Ended June 30, 2020 | | |
| | |
| | |
|
Balance at Beginning of Period | | $ | 3,109 | | $ | (150) | | $ | 2,959 |
Other comprehensive income (loss) before reclassifications | |
| 13,977 | |
| (902) | |
| 13,075 |
Amounts reclassified from accumulated other comprehensive income | |
| (1,144) | |
| (222) | |
| (1,366) |
Net other comprehensive income (loss) during period | |
| 12,833 | |
| (1,124) | |
| 11,709 |
Balance at End of Period | | $ | 15,942 | | $ | (1,274) | | $ | 14,668 |
| | | | | | | | | |
| | Securities | | | | | Accumulated Other | ||
| | Available | | | | | Comprehensive Income | ||
(dollars in thousands) |
| For Sale |
| Derivatives |
| (Loss) | |||
Six Months Ended June 30, 2019 | |
|
| |
|
| |
|
|
Balance at Beginning of Period | | $ | (7,044) | | $ | 2,769 | | $ | (4,275) |
Other comprehensive income (loss) before reclassifications | |
| 11,979 | |
| (1,665) | |
| 10,314 |
Amounts reclassified from accumulated other comprehensive income | |
| (1,092) | |
| (1,180) | |
| (2,272) |
Net other comprehensive income (loss) during period | |
| 10,887 | |
| (2,845) | |
| 8,042 |
Balance at End of Period | | $ | 3,843 | | $ | (76) | | $ | 3,767 |
| | | | | | | | | |
37
Securities | Accumulated Other | |||||||||||||||||||
Available | Comprehensive Income | |||||||||||||||||||
(dollars in thousands) | For Sale | Derivatives | (Loss) | |||||||||||||||||
Three Months Ended March 31, 2021 | ||||||||||||||||||||
Balance at Beginning of Period | $ | 16,168 | $ | (668) | $ | 15,500 | ||||||||||||||
Other comprehensive income (loss) before reclassifications | (17,617) | 573 | (17,044) | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | (166) | (288) | (454) | |||||||||||||||||
Net other comprehensive income (loss) during period | (17,783) | 285 | (17,498) | |||||||||||||||||
Balance at End of Period | $ | (1,615) | $ | (383) | $ | (1,998) | ||||||||||||||
Securities | Accumulated Other | |||||||||||||||||||
Available | Comprehensive Income | |||||||||||||||||||
(dollars in thousands) | For Sale | Derivatives | (Loss) | |||||||||||||||||
Three Months Ended March 31, 2020 | ||||||||||||||||||||
Balance at Beginning of Period | $ | 3,109 | $ | (150) | $ | 2,959 | ||||||||||||||
Other comprehensive income (loss) before reclassifications | 12,104 | (1,325) | 10,779 | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss | (604) | (69) | (673) | |||||||||||||||||
Net other comprehensive income (loss) during period | 11,500 | (1,394) | 10,106 | |||||||||||||||||
Balance at End of Period | $ | 14,609 | $ | (1,544) | $ | 13,065 | ||||||||||||||
The following tables present the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2020March 31, 2021 and 2019 (unaudited).
| | | | | | | | |
|
| Amount Reclassified from | | | ||||
| | Accumulated Other | | Affected Line Item in | ||||
Details about Accumulated Other |
| Comprehensive (Loss) Income | | the Statement Where | ||||
Comprehensive Income Components | | Three Months Ended June 30, | | Net Income is Presented | ||||
(dollars in thousands) | | 2020 |
| 2019 |
| | ||
Realized gain on sale of investment securities | | $ | 713 | | $ | 563 | | Gain on sale of investment securities |
Interest income derivative deposits | |
| 393 | |
| 319 | | Interest expense on deposits |
Income tax expense | |
| (274) | |
| (229) | | Income Tax Expense |
Total Reclassifications for the Period | | $ | 832 | | $ | 653 | | Net Income |
| | | | | | | | |
|
| Amount Reclassified from | | | ||||
| | Accumulated Other | | Affected Line Item in | ||||
Details about Accumulated Other |
| Comprehensive (Loss) Income | | the Statement Where | ||||
Comprehensive Income Components | | Six Months Ended June 30, | | Net Income is Presented | ||||
(dollars in thousands) | | 2020 |
| 2019 |
| | ||
Realized gain on sale of investment securities | | $ | 1,535 | | $ | 1,475 | | Gain on sale of investment securities |
Realized gain on swap termination | | | — | | | 829 | | Gain on sale of investment securities |
Interest income derivative deposits | |
| 299 | |
| 765 | | Interest expense on deposits |
Income tax expense | |
| (468) | |
| (797) | | Income Tax Expense |
Total Reclassifications for the Period | | $ | 1,366 | | $ | 2,272 | | Net Income |
2020.
Amount Reclassified from | ||||||||||||||||||||
Accumulated Other | Affected Line Item in | |||||||||||||||||||
Details about Accumulated Other | Comprehensive (Loss) Income | the Statement Where | ||||||||||||||||||
Comprehensive Income Components | Three Months Ended March 31, | Net Income is Presented | ||||||||||||||||||
(dollars in thousands) | 2021 | 2020 | ||||||||||||||||||
Realized gain on sale of investment securities | $ | 221 | $ | 822 | Gain on sale of investment securities | |||||||||||||||
Interest income derivative deposits | 384 | 94 | Interest income on deposits | |||||||||||||||||
Income tax expense | (151) | (243) | Income tax expense | |||||||||||||||||
Total Reclassifications for the Period | $ | 454 | $ | 673 | Net Income | |||||||||||||||
38
| | | | | | | | | | | | |
| | | | | Significant | | Significant | | | | ||
| | | | | Other | | Other | | | | ||
| | | | | Observable | | Unobservable | | | | ||
| | Quoted Prices | | Inputs | | Inputs | | Total | ||||
(dollars in thousands) |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| (Fair Value) | ||||
June 30, 2020 | | | | | | | | | | | | |
Assets: | | |
| | |
| | |
| | |
|
Investment securities available-for-sale: | | |
| | |
| | |
| | |
|
U. S. agency securities | | $ | — | | $ | 117,054 | | $ | — | | $ | 117,054 |
Residential mortgage backed securities | |
| — | |
| 531,528 | |
| — | |
| 531,528 |
Municipal bonds | |
| — | |
| 90,694 | |
| — | |
| 90,694 |
Corporate bonds | |
| — | |
| — | |
| 32,920 | |
| 32,920 |
Other equity investments | | | — | | | — | | | 198 | | | 198 |
Loans held for sale | |
| — | |
| 68,433 | |
| — | |
| 68,433 |
Interest Rate Caps | | | — | | | 4,454 | | | — | | | 4,454 |
Total assets measured at fair value on a recurring basis as of June 30, 2020 | | $ | — | | $ | 812,163 | | $ | 33,118 | | $ | 845,281 |
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Interest rate swap derivatives | | $ | — | | $ | 1,330 | | $ | — | | $ | 1,330 |
Derivative liability | | | — | | | 150 | | | — | | | 150 |
Interest Rate Caps | | | — | | | 4,748 | | | — | | | 4,748 |
Total liabilities measured at fair value on a recurring basis as of June 30, 2020 | | $ | — | | $ | 6,228 | | $ | — | | $ | 6,228 |
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 |
39
Significant | Significant | |||||||||||||||||||||||||
Other | Other | |||||||||||||||||||||||||
Observable | Unobservable | |||||||||||||||||||||||||
Quoted Prices | Inputs | Inputs | Total | |||||||||||||||||||||||
(dollars in thousands) | (Level 1) | (Level 2) | (Level 3) | (Fair Value) | ||||||||||||||||||||||
March 31, 2021 | ||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||
Investment securities available-for-sale: | ||||||||||||||||||||||||||
U. S. agency securities | $ | 0 | $ | 275,535 | $ | — | $ | 275,535 | ||||||||||||||||||
Residential mortgage backed securities | 0 | 932,619 | — | 932,619 | ||||||||||||||||||||||
Municipal bonds | 0 | 107,122 | — | 107,122 | ||||||||||||||||||||||
Corporate bonds | 0 | 52,133 | 1,500 | 53,633 | ||||||||||||||||||||||
Loans held for sale | 0 | 142,196 | — | 142,196 | ||||||||||||||||||||||
Interest rate caps | 0 | 3,607 | — | 3,607 | ||||||||||||||||||||||
Mortgage banking derivatives | 0 | 0 | 2,514 | 2,514 | ||||||||||||||||||||||
Total assets measured at fair value on a recurring basis as of March 31, 2021 | $ | 0 | $ | 1,513,212 | $ | 4,014 | $ | 1,517,226 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||
Interest rate swap derivatives | $ | 0 | $ | 133 | $ | — | $ | 133 | ||||||||||||||||||
Derivative liability | 0 | 78 | — | 78 | ||||||||||||||||||||||
Interest rate caps | 0 | 3,486 | — | 3,486 | ||||||||||||||||||||||
Total liabilities measured at fair value on a recurring basis as of March 31, 2021 | $ | 0 | $ | 3,697 | $ | 0 | $ | 3,697 | ||||||||||||||||||
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 | ||||||||||||||||||
Derivative liability | 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 |
Investment Securities Available-for-Sale: securities available-for-sale:Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is 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. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds.Exchange. Level 2 securities include U.S. agency debt securities, mortgage backed securities issued by Government Sponsored Entities (“GSE’s”) and municipal bonds. Securities classified as Level 3 include securities in less liquid markets, the carrying amounts approximate the fair value.
| | | | | | | | | |
| | June 30, 2020 | |||||||
| | | | | Aggregate | | | | |
| | | | | Unpaid | | | | |
| | | | | Principal | | | | |
(dollars in thousands) |
| Fair Value |
| Balance |
| Difference | |||
Loans held for sale | | $ | 68,433 | | $ | 67,397 | | $ | 1,036 |
| | | | | | | | | |
| | December 31, 2019 | |||||||
| | | | | Aggregate | | | | |
| | | | | Unpaid | | | | |
| | | | | Principal | | | | |
(dollars in thousands) |
| Fair Value |
| Balance |
| Difference | |||
Loans held for sale | | $ | 56,707 | | $ | 55,834 | | $ | 873 |
NaN2020.
March 31, 2021 | ||||||||||||||||||||
Aggregate Unpaid | ||||||||||||||||||||
(dollars in thousands) | Fair Value | Principal Balance | Difference | |||||||||||||||||
Loans held for sale | $ | 142,196 | $ | 139,606 | $ | 2,590 |
December 31, 2020 | ||||||||||||||||||||
Aggregate Unpaid | ||||||||||||||||||||
(dollars in thousands) | Fair Value | Principal Balance | Difference | |||||||||||||||||
Loans held for sale | $ | 88,205 | $ | 86,551 | $ | 1,654 |
2020.
40
Interest Rate Caps: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.
| | | | | | | | | |
| | Investment | | Mortgage Banking | | | | ||
(dollars in thousands) |
| Securities |
| Derivatives |
| Total | |||
Assets: |
| |
|
| |
|
| |
|
Beginning balance at January 1, 2020 | | $ | 10,931 | | $ | 280 | | $ | 11,211 |
Realized gain (loss) included in earnings | |
| 442 | |
| (280) | |
| 162 |
Unrealized gain included in other comprehensive income | | | 1,280 | | | — | | | 1,280 |
Purchases of available-for-sale securities | | | 41,547 | | | — | | | 41,547 |
Principal redemption | |
| (21,082) | |
| — | |
| (21,082) |
Ending balance at June 30, 2020 | | $ | 33,118 | | $ | — | | $ | 33,118 |
| | | | | | | | | |
Liabilities: | |
|
| |
|
| |
|
|
Beginning balance at January 1, 2020 | | $ | — | | $ | 66 | | $ | 66 |
Realized loss included in earnings | |
| — | |
| (66) | |
| (66) |
Principal redemption | |
| — | |
| — | |
| — |
Ending balance at June 30, 2020 | | $ | — | | $ | — | | $ | — |
| | | | | | | | | |
| | 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 |
Investment | Mortgage Banking | |||||||||||||||||||
(dollars in thousands) | Securities | Derivatives | Total | |||||||||||||||||
Assets: | ||||||||||||||||||||
Beginning balance at January 1, 2021 | $ | 1,500 | $ | 5,213 | $ | 6,713 | ||||||||||||||
Realized gain (loss) included in earnings | 0 | (2,699) | (2,699) | |||||||||||||||||
Ending balance at March 31, 2021 | $ | 1,500 | $ | 2,514 | $ | 4,014 | ||||||||||||||
Liabilities: | ||||||||||||||||||||
Beginning balance at January 1, 2021 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||
Ending balance at March 31, 2021 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||
Investment | Mortgage Balancing | |||||||||||||||||||
(dollars in thousands) | Securities | 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) | — | (9,233) | |||||||||||||||||
Reclass fair value asset to cost method | (198) | — | (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 |
41
March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||
(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 | 81.2% - 91.9% | 83.30 | % | $ | 2,514 | 0 | 79.14 | % | 76.25 | $ | 5,213 |
Pre Adoption of CECL: The Company did not record loans at fair value on a recurring basis; however, from time to time, a loan was considered impaired and an allowance for loan loss was established. The Company considered a loan impaired when it was probable that the Company would be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. Management had determined that nonaccrual loans and loans that had their terms restructured in a TDR met this impaired loan definition. Once a loan was identified as individually impaired, management measures impairment in accordance with ASC Topic 310, “Receivables.” The fair value of impaired loans was estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represented loans for which the fair value of expected repayments or collateral exceeded the recorded investment in such loans.
| | | | | | | | | | | | |
| | | | | Significant | | Significant | | | | ||
| | | | | Other | | Other | | | | ||
| | | | Observable | | Unobservable | | | ||||
| | Quoted Prices | | Inputs | | Inputs | | Total | ||||
(dollars in thousands) |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| (Fair Value) | ||||
June 30, 2020 | | |
| | |
| | |
| | |
|
Commercial | | $ | — | | $ | — | | $ | 18,047 | | $ | 18,047 |
Income producing - commercial real estate | |
| — | |
| — | |
| 27,295 | |
| 27,295 |
Owner occupied - commercial real estate | |
| — | |
| — | |
| 10,815 | |
| 10,815 |
Real estate mortgage - residential | |
| — | |
| — | |
| 7,960 | |
| 7,960 |
Construction - commercial and residential | |
| — | |
| — | |
| 5,385 | |
| 5,385 |
Home equity | |
| — | |
| — | |
| 600 | |
| 600 |
Other consumer | | | — | | | — | | | 6 | | | 6 |
Other real estate owned | |
| — | |
| — | |
| 8,237 | |
| 8,237 |
Total assets measured at fair value on a nonrecurring basis as of June 30, 2020 | | $ | — | | $ | — | | $ | 78,345 | | $ | 78,345 |
42
Significant | Significant | |||||||||||||||||||||||||
Other | Other | |||||||||||||||||||||||||
Observable | Unobservable | |||||||||||||||||||||||||
Quoted Prices | Inputs | Inputs | Total | |||||||||||||||||||||||
(dollars in thousands) | (Level 1) | (Level 2) | (Level 3) | (Fair Value) | ||||||||||||||||||||||
March 31, 2021 | ||||||||||||||||||||||||||
Commercial | $ | 0 | $ | 0 | $ | 14,284 | $ | 14,284 | ||||||||||||||||||
Income producing - commercial real estate | 0 | 0 | 20,595 | 20,595 | ||||||||||||||||||||||
Owner occupied - commercial real estate | 0 | 0 | 13,000 | 13,000 | ||||||||||||||||||||||
Real estate mortgage - residential | 0 | 0 | 1,368 | 1,368 | ||||||||||||||||||||||
Construction - commercial and residential | 0 | 0 | 196 | 196 | ||||||||||||||||||||||
Home equity | 0 | 0 | 414 | 414 | ||||||||||||||||||||||
Other consumer | 0 | 0 | 0 | 0 | ||||||||||||||||||||||
Other real estate owned | 0 | 0 | 4,987 | 4,987 | ||||||||||||||||||||||
Total assets measured at fair value on a nonrecurring basis as of March 31, 2021 | $ | 0 | $ | 0 | $ | 54,844 | $ | 54,844 |
| | | | | | | | | | | | |
| | | | | 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 |
Significant Significant Other Other Observable Unobservable Quoted Prices Inputs Inputs Total (dollars in thousands) (Level 1) (Level 2) (Level 3) (Fair Value) December 31, 2020 Impaired 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
43
The estimated fair value of the Company’s financial instruments at June 30, 2020March 31, 2021 (unaudited) and December 31, 20192020 are as follows:
| | | | | | | | | | | | | | | |
| | | | | | | | Fair Value Measurements | |||||||
| | | | | | | | | | | Significant | | | | |
| | | | | | | | | | | Other | | Significant | ||
| | | | | | | | Quoted | | Observable | | Unobservable | |||
| | Carrying | | | | | Prices | | Inputs | | Inputs | ||||
(dollars in thousands) |
| Value |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | |||||
June 30, 2020 | | |
| | |
| | |
|
| |
|
| |
|
Assets | | |
| | |
| | |
|
| |
|
| |
|
Cash and due from banks | | $ | 12,199 | | $ | 12,199 | | $ | — | | $ | 12,199 | | $ | — |
Federal funds sold | |
| 25,466 | |
| 25,466 | |
| — | |
| 25,466 | |
| — |
Interest bearing deposits with other banks | |
| 598,377 | |
| 598,377 | |
| — | |
| 598,377 | |
| — |
Investment securities | |
| 772,394 | |
| 772,394 | |
| — | |
| 719,212 | |
| 53,182 |
Federal Reserve and Federal Home Loan Bank stock | |
| 40,018 | |
| 40,018 | |
| — | |
| 40,018 | |
| — |
Loans held for sale | |
| 68,433 | |
| 68,433 | |
| — | |
| 68,433 | |
| — |
Loans | |
| 7,912,965 | |
| 7,828,639 | |
| — | |
| — | |
| 7,828,639 |
Bank owned life insurance | |
| 75,913 | |
| 75,913 | |
| — | |
| 75,913 | |
| — |
Annuity investment | |
| 14,480 | |
| 14,480 | |
| — | |
| 14,480 | |
| — |
Interest Rate Caps | | | 4,454 | | | 4,454 | | | — | | | 4,454 | | | — |
| | | | | | | | | | | | | | | |
Liabilities | |
|
| |
|
| |
|
| |
|
| |
|
|
Noninterest bearing deposits | |
| 2,416,058 | |
| 2,416,058 | |
| — | |
| 2,416,058 | |
| — |
Interest bearing deposits | |
| 4,366,421 | |
| 4,366,421 | |
| — | |
| 4,366,421 | |
| — |
Certificates of deposit | |
| 1,153,493 | |
| 1,149,418 | |
| — | |
| 1,149,418 | |
| — |
Customer repurchase agreements | |
| 31,198 | |
| 31,198 | |
| — | |
| 31,198 | |
| — |
Borrowings | |
| 567,882 | |
| 548,808 | |
| — | |
| 548,808 | |
| — |
Interest rate swap derivatives | | | 1,330 | | | 1,330 | | | | | | 1,330 | | | — |
Derivative liability | | | 150 | | | 150 | | | — | | | 150 | | | — |
Interest Rate Caps | | | 4,748 | | | 4,748 | | | — | | | 4,748 | | | — |
| | | | | | | | | | | | | | | |
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 |
44
Fair Value Measurements | ||||||||||||||||||||||||||||||||
Quoted Prices (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||
Carrying | ||||||||||||||||||||||||||||||||
(dollars in thousands) | Value | Fair Value | ||||||||||||||||||||||||||||||
March 31, 2021 | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and due from banks | $ | 9,112 | $ | 9,112 | $ | 9,112 | $ | 0 | $ | 0 | ||||||||||||||||||||||
Federal funds sold | 25,785 | 25,785 | 0 | 25,785 | 0 | |||||||||||||||||||||||||||
Interest bearing deposits with other banks | 1,708,374 | 1,708,374 | 0 | 1,708,374 | 0 | |||||||||||||||||||||||||||
Investment securities | 1,369,107 | 1,369,107 | 0 | 1,367,607 | 1,500 | |||||||||||||||||||||||||||
Federal Reserve and Federal Home Loan Bank stock | 33,978 | 33,978 | 0 | 33,978 | 0 | |||||||||||||||||||||||||||
Loans held for sale | 142,196 | 142,196 | 0 | 142,196 | 0 | |||||||||||||||||||||||||||
Loans | 7,424,619 | 7,369,359 | — | — | 7,369,359 | |||||||||||||||||||||||||||
Bank owned life insurance | 77,119 | 77,119 | 0 | 77,119 | 0 | |||||||||||||||||||||||||||
Annuity investment | 14,360 | 14,360 | 0 | 14,360 | 0 | |||||||||||||||||||||||||||
Mortgage banking derivatives | 2,514 | 2,514 | 0 | 0 | 2,514 | |||||||||||||||||||||||||||
Interest rate caps | 3,607 | 3,607 | 0 | 3,607 | 0 | |||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Noninterest bearing deposits | 2,594,334 | 2,594,334 | 0 | 2,594,334 | 0 | |||||||||||||||||||||||||||
Interest bearing deposits | 5,738,549 | 5,738,549 | 0 | 5,738,549 | 0 | |||||||||||||||||||||||||||
Time deposits | 865,961 | 879,569 | 0 | 879,569 | 0 | |||||||||||||||||||||||||||
Customer repurchase agreements | 20,061 | 20,061 | 0 | 20,061 | 0 | |||||||||||||||||||||||||||
Borrowings | 518,175 | 526,754 | 0 | 526,754 | 0 | |||||||||||||||||||||||||||
Interest rate swap derivatives | 133 | 133 | 0 | 133 | 0 | |||||||||||||||||||||||||||
Credit risk participation agreement | 78 | 78 | 0 | 78 | 0 | |||||||||||||||||||||||||||
Interest rate caps | 3,486 | 3,486 | 0 | 3,486 | 0 | |||||||||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and due from banks | $ | 8,435 | $ | 8,435 | $ | 8,435 | $ | 0 | $ | 0 | ||||||||||||||||||||||
Federal funds sold | 28,200 | 28,200 | 0 | 28,200 | 0 | |||||||||||||||||||||||||||
Interest bearing deposits with other banks | 1,752,420 | 1,752,420 | 0 | 1,752,420 | 0 | |||||||||||||||||||||||||||
Investment securities | 1,150,885 | 1,150,885 | 0 | 1,149,385 | 1,500 | |||||||||||||||||||||||||||
Federal Reserve and Federal Home Loan Bank stock | 40,104 | 40,104 | 0 | 40,104 | 0 | |||||||||||||||||||||||||||
Loans held for sale | 88,205 | 88,205 | 0 | 88,205 | 0 | |||||||||||||||||||||||||||
Loans | 7,650,633 | 7,608,687 | 0 | 0 | 7,608,687 | |||||||||||||||||||||||||||
Bank owned life insurance | 76,729 | 76,729 | 0 | 76,729 | 0 | |||||||||||||||||||||||||||
Annuity investment | 14,468 | 14,468 | 0 | 14,468 | 0 | |||||||||||||||||||||||||||
Mortgage banking derivative | 5,213 | 5,213 | 0 | 0 | 5,213 | |||||||||||||||||||||||||||
Interest rate caps | 3,413 | 3,413 | 0 | 3,413 | 0 | |||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Noninterest bearing deposits | 2,809,334 | 2,809,334 | 0 | 2,809,334 | 0 | |||||||||||||||||||||||||||
Interest bearing deposits | 756,923 | 756,923 | 0 | 756,923 | 0 | |||||||||||||||||||||||||||
Time deposits | 977,760 | 993,500 | — | 993,500 | 0 | |||||||||||||||||||||||||||
Customer repurchase agreements | 26,726 | 26,726 | 0 | 26,726 | 0 | |||||||||||||||||||||||||||
Borrowings | 568,077 | 575,435 | 0 | 575,435 | 0 | |||||||||||||||||||||||||||
Interest rate swap derivatives | 516 | 516 | 0 | 516 | 0 | |||||||||||||||||||||||||||
Credit risk participation agreements | 118 | 118 | 0 | 118 | 0 | |||||||||||||||||||||||||||
Interest rate caps | 3,574 | 3,574 | 0 | 3,574 | 0 |
2020.
45
The Bank offers a broad range of commercial 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 Small Business Administration ("SBA”) loans. The residential mortgage loans are originated for sale to third-party investors, generally large mortgage and banking companies, under best efforts and or mandatory delivery commitments with the investors to purchase the loans subject to compliance with pre-established criteria. The decision whether to sell residential mortgage loans on a mandatory or best efforts lock basis is a function of multiple factors, including but not limited to overall market volumes of mortgage loan originations, forecasted “pull-through” rates of origination, loan closing operational considerations, pricing differentials between the two methods, and availability and pricing of various interest rate hedging strategies associated with the mortgage origination pipeline. The Company continually monitors these factors to maximize profitability and minimize operational and interest rate risks.
Our Since the inception of the pandemic in March of 2020, much progress has been made in reopening economies back up domestically and abroad. In the United States and in other nations around the world, the availability of vaccination to immunize the masses ramped up significantly in the first quarter of 2021. While there is a hopeful reason to be optimistic, we remain cautious given the potential for lingering effects of the pandemic.
necessary, and our branches have modified hours and advanced safety measures. We have established general guidelines for returning that include having employees maintain safe distances, staggered work schedules to limit the number of employees in a single location, more frequent cleaning of our facilities and other practices encouraging a safe working environment during this challenging time, including required COVID-19 training programs.
2021. On May 3, 2021, we
transacted to sell 849 PPP loans for a total purchase price of $169.0 million. Immediately following this sale, the principal outstanding on PPP loans totaled approximately $378.4 million across 789 notes.46
In response to the COVID-19 pandemic, we have also implemented a short-term loan modification program to provide temporary payment relief to certain borrowers who meet the program's qualifications. ModificationsInitial modifications under thisthe program have predominantly been for 90 days, with a period ofsecond 90 days.day modification if warranted. The deferreddeferred payments along with interest accrued during the deferral period are due and payable on the existing maturity date of the existing loan. As of June 30, 2020,March 31, 2021, we had ongoing temporary modifications on approximately 58 loans representing $143.4 million (approximately 1.9% of total loans) in outstanding balances. Overall, through the twelve months of the pandemic ending March 31, 2021, the Bank's COVID-19 modification program has granted temporary modifications on approximately 708787 loans representing $1.63 billion (approximately 20% of total loans) in outstanding exposure. Through July 31, 2020, we granted approximately 724 temporary modifications representing approximately $1.65$1.6 billion in outstanding exposure, including 20 temporary modifications representing $14.5 million that subsequently returned to pre-modification terms.
balances. At March 31, 2021, the level of loans currently in COVID-19 related modification is $143 million.
Significant uncertainties as to future
Asrates, which management estimates by using a result of our January 1, 2020, adoption of ASU No. 2016-13, “Measurement of Credit Lossesnational forecast and estimating a regional adjustment based on Financial Instruments,” and its related amendments, our methodology for estimating these credit losses changed significantly from December 31, 2019. The standard replacedhistorical differences between the “incurred loss” approach with an “expected loss” approach known as CECL. The two.
47
The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting pointProvision for estimating expected credit losses. We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. Finally, we consider forecasts about future economic conditions that are reasonable and supportable. The RUCUnfunded Commitments represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. The RUC is determined by estimating future draws and applying the expected loss rates on those draws.
Going forward, the impact of utilizing the
As and Other Intangibles
48
RESULTS OF OPERATIONS
94% increase.
The provision for income taxes fordrivers of the three months ended June 30, 2020 was $9.4 million, a decrease of $4.1 million, or 30%, compared to the same period in 2019. The decrease in income taxes was primarily due to a significant decline in pre-tax income for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 due to increased credit reserves significantly attributable to COVID-19, and a decrease in disallowed compensation deductions for key executives, mainly related to share based compensation awards and other compensation of our former CEO and Chairman who resigned in March 2019.
The most significant portion ofchange).
For the three months ended June 30, 2020, the Company reported an annualized return on average assets (“ROAA”) of 1.12% as compared to 1.74% for the three months ended June 30, 2019. Total shareholders’ equity was $1.19 billion at both June 30, 2020 and December 31, 2019, a decrease of less than 1%. The annualized return on average common equity (“ROACE”) for the three months ended June 30, 2020 was 9.84% as compared to 12.81% for the three months ended June 30, 2019. The annualized return on average tangible common equity (“ROATCE”) for the three months ended June 30, 2020 was 10.80% as compared to 14.08% for the three months ended June 30, 2019. Refer to the “Use of Non-GAAP Financial Measures” section for additional detail and a reconciliation of GAAP to non-GAAP financial measures. The decline in these ratiosincome was primarily due to an increase in assets, which more than offset the implementation of CECL and COVID-19 impacts and to a lowerdecline in net interest margin.
Net Interest Margin" section below.
The provision for credit losses was $19.7 million for the three months ended June 30, 2020 as compared to $3.6 million for the three months ended June 30, 2019. The higher provisioning in the second quarter of 2020, as compared to the second quarter of 2019, is primarily due to the implementation of the CECL accounting standard for loan loss allowances, as well as COVID-19 impacts and higher net charge-offs primarily related to COVID-19 effects. Net charge-offs of $7.1 million in the second quarter of 2020 represented an annualized 0.36% of average loans, excluding loans held for sale, as compared to $1.5 million, or an annualized 0.08% of average loans, excluding loans held for sale, in the second quarter of 2019. Net charge-offs in the second quarter of 2020 were attributable primarily to one commercial relationship to a personal services company that ceased business operations as a result of COVID-19.
49
At June 30, 2020 the allowance for credit losses represented 1.36% of loans outstanding, as compared to 0.98% at December 31, 2019. The allowance for credit losses represented 185% of nonperforming loans at June 30, 2020, as compared to 151% at December 31, 2019. The higher coverage ratio was due to an increase in the allowance at June 30, 2020, substantially due to the implementation of CECL and the impact of COVID-19 on our expected future credit losses.
Total noninterest income for the three months ended June 30, 2020March 31, 2021 increased to $12.5$10.6 million from $6.4$5.5 million for the three months ended June 30, 2019,March 31, 2020, a 96%94% increase. Service chargesThe largest factor behind the increase was the gain on deposits forsale of loans which increased from $944 thousand to $5.2 million between the three months ended June 30,March 31, 2021 and March 31, 2020 decreased to $942 thousand from $1.6 million for the three months ended June 30, 2019, a 41% decrease, due to lesser insufficient funds fees. Gain on sale of loans for the three months ended June 30, 2020 increased to $3.1 million from $1.9 million for the three months ended June 30, 2019, a 60% increase, due to higher gains on the sale of residential mortgage loans ($1.24.2 million). For further information on the components and drivers of these changes see "Noninterest Income" section below.
"Income Tax Expense" section below.
Salaries and employee benefits were $17.1 million for the three months ended June 30, 2020, as compared to $17.7 million for the same period in 2019, a decrease of $639 thousand or 4%.
Data processing expenses were $2.8 million for the three months ended June 30, 2020 compared to $2.6 million for the same period in 2019, a 6% increase.
Legal, accounting and professional fees increased $1.2 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The reasons for the decrease in salaries and employee benefits and the increase in legal, accounting and professional fees for the periods noted above are discussed in the “Noninterest Expense” section.
FDIC expenses were $2.0 million for the three months ended June 30, 2020 compared to $1.1 million for the same period in 2019, a 76% increase, due to a higher assessment base resulting from growth in total assets.
Other expenses were $4.5 million for the three months ended June 30, 2020 compared to $4.2 million for the same period in 2019, a 6% increase, due primarily to $940 thousand higher other real estate owned ("OREO") expense offset by lower broker fees ($497 thousand).
Net income for the six months ended June 30, 2020 was $52.0 million compared to $71.0 million for the six months ended June 30, 2019, a 27% decrease. Net income per basic common share for the six months ended June 30, 2020 was $1.60 compared to $2.06 per basic common share for the same period in 2019, a 22% decrease. Net income per diluted common share for the six months ended June 30, 2020 was $1.60 compared to $2.05 per diluted common share for the same period in 2019, a 22% decrease.
Net income declined for the six months ended June 30, 2020 relative to the same period in 2019 due substantially to increased provisioning for credit losses offset by higher noninterest income (as discussed below). In particular, the provision for credit losses increased to $34.0 million for the six months ended June 30, 2020 compared to $7.0 million for the same period in 2019, a 389% increase, as the Company implemented CECL effective January 1, 2020 and increased reserves associated with the impact of COVID-19 through the second quarter of 2020. See Note 1 and Note 5 for further detail on CECL.
The provision for income taxes was $17.8 million for the six months ended June 30, 2020, a decrease of $7.6 million, or 30%, compared to the same period in 2019. The decrease was primarily due to a significant decline in pre-tax income for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, and a decrease in disallowed compensation deductions for key executives, mainly related to share based compensation awards and other compensation of our former CEO and Chairman who resigned in March 2019. The decrease in the effective income tax rate was recorded in the second quarter of 2020 based on a reduced pre-tax income budget for the year due to increased credit reserves significantly attributable to COVID-19.
50
Net interest income decreased by less than 1% for the six months ended June 30, 2020 over the same period in 2019 ($161.1 million as compared to $162.3 million). This was largely attributable to growth in average earning assets effectively offset by a decline in the net interest margin.
For the six months ended June 30, 2020, the Company reported an annualized ROAA of 1.06% as compared to 1.68% for the six months ended June 30, 2019. The annualized ROACE for the six months ended June 30, 2020 was 8.82% as compared to 12.47% for the six months ended June 30, 2019. The annualized ROATCE for the six months ended June 30, 2020 was 9.67% as compared to 13.73% for the six months ended June 30, 2019. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures. The decline in these ratios was primarily due to the implementation of CECL and COVID-19 impacts and to a lower net interest margin.
The net interest margin was 3.36% for the six months ended June 30, 2020 and 3.97% for the same period in 2019. Average earning asset yields decreased 100 basis points to 4.21% for the six months ended June 30, 2020, as compared to 5.21% for the same period in 2019. The average cost of interest bearing liabilities decreased by 70 basis points (to 1.31% from 2.01)% for the six months ended June 30, 2020 as compared to the same period in 2019. Combining the change in the yield on earning assets and the costs of interest bearing liabilities, the net interest spread decreased by 25 basis points for the six months ended June 30, 2020 as compared to 2019 (2.90% as compared to 3.20)%.
The benefit of noninterest sources funding earning assets decreased by 31 basis points to 46 basis points from 77 basis points for the six months ended June 30, 2020 as compared to the same period in 2019 due to significantly lower market interest rates. The combination of a 30 basis point decrease in the net interest spread and a 31 basis point decrease in the value of noninterest sources resulted in a 61 basis point decrease in the net interest margin for the six months ended June 30, 2020 as compared to the same period in 2019. Despite currently having lesser value resulting from lower interest rates, the Company continues to consider the value of its noninterest sources of funds as very significant to its business model and its overall profitability over the longer term.
The Company believes it has effectively managed its net interest income over the past twelve months as market interest rates have trended sharply lower. This factor has been significant to overall earnings performanceby growing its balance sheet over the past twelve months as net interest income represents 87% of the Company's total revenue for the three months ended June 30, 2020.
For the first six months ended June 30, 2020,months.
In order to fund growth in average loans of 10% over the six months ended June 30, 2020 as compared to the same period in 2019, as well as sustain significant liquidity,2020. This has allowed the Company has reliedto sustain strong primary and secondary sources of liquidity.
PPP loans totaled approximately
$378.4 million across 789 notes.The provision for credit losses was $34.0 million for the six months ended June 30, 2020 as compared to $7.0 million for the six months ended June 30, 2019. The higher provisioning for the six months ended June 30, 2020, as compared to the same period in 2019, is primarily due to the implementation of CECL and the impact of COVID-19 on our actual and expected future credit losses. Net charge-offs of $9.4 million for the six months ended June 30, 2020 represented an annualized 0.24% of average loans, excluding loans held for sale, as compared to $4.8 million, or an annualized 0.13% of average loans, excluding loans held for sale, in the first six months of 2019. Net charge-offs in the first six months of 2020 were attributable to commercial loans ($7.1 million) and commercial real estate loans ($2.3 million).
51
Total noninterest income for the six months ended June 30, 2020 increased to $18.0 million from $12.7 million for the six months ended June 30, 2019, a 42% increase. Service charges on deposits for the six months ended June 30, 2020 decreased to $2.4 million from $3.3 million for the six months ended June 30, 2019, a 28% decrease, due to lesser insufficient funds fees. Gain on sale of loans for the six months ended June 30, 2020 increased to $4.0 million from $3.3 million for the six months ended June 30, 2019, a 22% increase, due to higher gains on the sale of residential mortgage loans ($718 thousand). Residential lending gains for the first six months of 2020 are net of $2.6 million in hedge and mark to market losses incurred during the first quarter of 2020 attributable to the Federal Reserve’s market actions negatively impacting mortgage backed securities pricing combined with sharp declines in servicing right valuations associated with investor uncertainty surrounding COVID-19 at the end of March. Other income for the six months ended June 30, 2020 increased to $8.8 million from $3.7 million for the six months ended June 30, 2019, a 137% increase due substantially to higher gains associated with the origination, securitization, sale and servicing of FHA loans ($2.5 million), $1.4 million higher SBIC income related to a CRA qualified investment fund, $1.1 million higher swap fee income, and $380 thousand higher prepayment fees. Net investment gains were $1.5 million for both the six months ended June 30, 2020 and 2019. Residential mortgage loans closed were $501 million for the first six months of 2020 as compared to $246 million for the first six months of 2019.
For the first six months of 2020, the efficiency ratio was 40.34% as compared to 40.95% for the same period in 2019.
Noninterest expenses totaled $72.2 million for the six months ended June 30, 2020, as compared to $71.7 million for the six months ended June 30, 2019, a 1% increase. Noninterest expenses in 2020 periods increased slightly from the 2019 amounts primarily because of increased legal expenses. This increase was almost entirely offset by not having the nonrecurring costs related to the former CEO retirement that were present in the 2019 period.
Salaries and employee benefits were $34.9 million for the six months ended June 30, 2020, as compared to $41.4 million for the same period in 2019, a decrease of $6.5 million or 16%. Legal, accounting and professional fees increased $6.5 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The reason for the decrease in salaries and employee benefits and increase in legal, accounting and professional fees for the periods noted above are further discussed in the “Noninterest Expense” section.
Data processing expenses were $5.3 million for the six months ended June 30, 2020 compared to $5.0 million for the same period in 2019, a 6% increase.
FDIC expenses were $3.4 million for the six months ended June 30, 2020 compared to $2.2 million for the same period in 2019, a 52% increase, due to a higher assessment base resulting from growth in total assets.
Other expenses were $8.2 million for the six months ended June 30, 2020 compared to $8.7 million over the same period ended June 30, 2019, a 5% decrease, due primarily to lower broker fees ($1.6 million) partially offset by $940 thousand higher other real estate owned (“OREO”) expense.
The ratio of common equity to total assets decreased to 12.12%11.33% at June 30,March 31, 2021 from 11.64% at March 31, 2020, from 13.25% at December 31, 2019, due to totalas strong deposit inflows significantly increased assets growing faster than common equity, including common equity reductions due to $44 millionheld in share repurchase activity, the approximately $11 million charge to common equity due to implementation of CECL on January 1, 2020,cash and COVID-19’s impact on our loan loss provisioning as discussed in the “Earnings Summary” above.securities; average assets increased by 21.9%. As discussed later in “Capital Resources and Adequacy,” the regulatory capital ratios of the Bank and Company remain above well capitalized levels.
52
For the six months ended June 30, 2020, net interest income decreased by $1.2 million, average loans increased by $683.1 million, and average deposits increased by $1.15 billion over the same period for 2019. The addition of the PPP loans at an average yield of 2.91% for the six months ended June 30, 2020 negatively impacted the overall yield of the total loan portfolio by approximately four basis points.
margin, as explained below.
The net interest margin was 3.36%
2020. The lowaverage cost of interest rate environment bearing liabilities decreased by 98 basis points (to 0.66% from 1.64%) for the three months ended March 31, 2021 as compared to the same period in 2020. Combining the change
2.91%).
53
Eagle Bancorp, Inc.
| | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| ||||||||||||||
| | 2020 | | 2019 |
| ||||||||||||
|
| Average |
| | |
| Average |
| Average |
| | |
| Average |
| ||
|
| Balance |
| Interest |
| Yield/Rate |
| Balance |
| Interest |
| Yield/Rate |
| ||||
ASSETS |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Interest earning assets: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Interest bearing deposits with other banks and other short-term investments | | $ | 1,102,931 | | $ | 161 |
| 0.06 | % | $ | 209,096 | | $ | 1,105 |
| 2.12 | % |
Loans held for sale (1) | |
| 80,227 | |
| 686 |
| 3.42 | % |
| 34,760 | |
| 349 |
| 4.02 | % |
Loans (1) (2) | |
| 8,015,751 | |
| 92,242 |
| 4.63 | % |
| 7,260,899 | |
| 101,540 |
| 5.61 | % |
Investment securities available for sale (2) | |
| 821,340 | |
| 4,571 |
| 2.24 | % |
| 803,207 | |
| 5,238 |
| 2.62 | % |
Federal funds sold | |
| 36,251 | |
| 12 |
| 0.13 | % |
| 20,361 | |
| 47 |
| 0.93 | % |
Total interest earning assets | |
| 10,056,500 | |
| 97,672 |
| 3.91 | % |
| 8,328,323 | |
| 108,279 |
| 5.21 | % |
| | | | | | | | | | | | | | | | | |
Total noninterest earning assets | |
| 373,842 | | | |
|
| |
| 337,172 | |
|
|
|
| |
Less: allowance for credit losses | |
| 103,633 | | | |
|
| |
| 69,972 | |
|
|
|
| |
Total noninterest earning assets | |
| 270,209 | | | |
|
| |
| 267,200 | |
|
|
|
| |
TOTAL ASSETS | | $ | 10,326,709 | | | |
|
| | $ | 8,595,523 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Interest bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Interest bearing transaction | | $ | 801,508 | | $ | 530 |
| 0.27 | % | $ | 705,628 | | $ | 1,197 |
| 0.68 | % |
Savings and money market | |
| 3,914,916 | |
| 5,608 |
| 0.58 | % |
| 2,628,255 | |
| 12,279 |
| 1.87 | % |
Time deposits | |
| 1,199,946 | |
| 6,376 |
| 2.14 | % |
| 1,442,197 | |
| 8,985 |
| 2.50 | % |
Total interest bearing deposits | |
| 5,916,370 | |
| 12,514 |
| 0.85 | % |
| 4,776,080 | |
| 22,461 |
| 1.89 | % |
Customer repurchase agreements | |
| 30,611 | |
| 86 |
| 1.13 | % |
| 33,248 | |
| 75 |
| 0.90 | % |
Other short-term borrowings | |
| 300,003 | |
| 501 |
| 0.66 | % |
| 219,508 | |
| 1,435 |
| 2.59 | % |
Long-term borrowings | |
| 267,849 | |
| 3,208 |
| 4.74 | % |
| 217,458 | |
| 2,979 |
| 5.42 | % |
Total interest bearing liabilities | |
| 6,514,833 | |
| 16,309 |
| 1.01 | % |
| 5,246,294 | |
| 26,950 |
| 2.06 | % |
| | | | | | | | | | | | | | | | | |
Noninterest bearing liabilities: | |
| | |
|
|
|
| |
| | |
|
|
|
| |
Noninterest bearing demand | |
| 2,566,348 | |
| |
|
| |
| 2,117,901 | |
|
|
|
| |
Other liabilities | |
| 66,076 | |
| |
|
| |
| 64,841 | |
|
|
|
| |
Total noninterest bearing liabilities | |
| 2,632,424 | |
| |
|
| |
| 2,182,742 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Shareholders’ Equity | |
| 1,179,452 | | | |
|
| |
| 1,166,487 | |
|
|
|
| |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 10,326,709 | | | |
|
| | $ | 8,595,523 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Net interest income | | | | | $ | 81,363 |
|
| | | | | $ | 81,329 |
|
| |
Net interest spread | |
| | |
| | | 2.90 | % |
| | |
|
|
| 3.15 | % |
Net interest margin | |
| | |
| | | 3.26 | % |
| | |
|
|
| 3.91 | % |
Cost of funds | |
| | |
| | | 0.65 | % |
| | |
|
|
| 1.30 | % |
Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
2021 | 2020 | ||||||||||||||||||||||||||||||||||
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 | $ | 2,103,679 | $ | 553 | 0.11 | % | $ | 588,148 | $ | 1,559 | 1.07 | % | |||||||||||||||||||||||
Loans held for sale (1) | 104,784 | 739 | 2.82 | % | 38,749 | 354 | 3.65 | % | |||||||||||||||||||||||||||
Loans (1) (2) | 7,726,716 | 88,499 | 4.65 | % | 7,650,993 | 96,401 | 5.07 | % | |||||||||||||||||||||||||||
Investment securities available for sale (2) | 1,268,952 | 4,395 | 1.40 | % | 867,666 | 5,427 | 2.52 | % | |||||||||||||||||||||||||||
Federal funds sold | 32,309 | 8 | 0.10 | % | 30,618 | 60 | 0.79 | % | |||||||||||||||||||||||||||
Total interest earning assets | 11,236,440 | 94,194 | 3.40 | % | 9,176,174 | 103,801 | 4.55 | % | |||||||||||||||||||||||||||
Total noninterest earning assets | 390,775 | 356,317 | |||||||||||||||||||||||||||||||||
Less: allowance for credit losses | 109,379 | 84,828 | |||||||||||||||||||||||||||||||||
Total noninterest earning assets | 281,396 | 271,489 | |||||||||||||||||||||||||||||||||
TOTAL ASSETS | $ | 11,517,836 | $ | 9,447,663 | |||||||||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||||||||||||||||||
Interest bearing liabilities: | |||||||||||||||||||||||||||||||||||
Interest bearing transaction | $ | 771,321 | $ | 427 | 0.22 | % | $ | 805,134 | $ | 1,666 | 0.83 | % | |||||||||||||||||||||||
Savings and money market | 4,839,348 | 3,970 | 0.33 | % | 3,337,958 | 11,082 | 1.34 | % | |||||||||||||||||||||||||||
Time deposits | 921,208 | 3,503 | 1.54 | % | 1,287,310 | 7,798 | 2.44 | % | |||||||||||||||||||||||||||
Total interest bearing deposits | 6,531,877 | 7,900 | 0.49 | % | 5,430,402 | 20,546 | 1.52 | % | |||||||||||||||||||||||||||
Customer repurchase agreements | 20,615 | 11 | 0.22 | % | 30,008 | 87 | 1.17 | % | |||||||||||||||||||||||||||
Other short-term borrowings | 300,003 | 495 | 0.66 | % | 220,058 | 357 | 0.64 | % | |||||||||||||||||||||||||||
Long-term borrowings | 253,132 | 3,137 | 4.96 | % | 235,882 | 3,067 | 5.14 | % | |||||||||||||||||||||||||||
Total interest bearing liabilities | 7,105,627 | 11,543 | 0.66 | % | 5,916,350 | 24,057 | 1.64 | % | |||||||||||||||||||||||||||
Noninterest bearing liabilities: | |||||||||||||||||||||||||||||||||||
Noninterest bearing demand | 3,069,372 | 2,266,362 | |||||||||||||||||||||||||||||||||
Other liabilities | 88,057 | 73,771 | |||||||||||||||||||||||||||||||||
Total noninterest bearing liabilities | 3,157,429 | 2,340,133 | |||||||||||||||||||||||||||||||||
Shareholders’ Equity | 1,254,780 | 1,191,180 | |||||||||||||||||||||||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 11,517,836 | $ | 9,447,663 | |||||||||||||||||||||||||||||||
Net interest income | $ | 82,651 | $ | 79,744 | |||||||||||||||||||||||||||||||
Net interest spread | 2.74 | % | 2.91 | % | |||||||||||||||||||||||||||||||
Net interest margin | 2.98 | % | 3.49 | % | |||||||||||||||||||||||||||||||
Cost of funds | 0.42 | % | 1.06 | % | |||||||||||||||||||||||||||||||
54
Eagle Bancorp, Inc.
Consolidated Average Balances, Interest Yields and Rates (Unaudited)
(dollars in thousands)
| | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| ||||||||||||||
| | 2020 | | 2019 |
| ||||||||||||
|
| Average |
| | |
| Average |
| Average |
| | |
| Average |
| ||
|
| Balance |
| Interest |
| Yield/Rate |
| Balance |
| Interest |
| Yield/Rate |
| ||||
ASSETS |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Interest earning assets: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Interest bearing deposits with other banks and other short-term investments | | $ | 845,540 | | $ | 1,720 |
| 0.41 | % | $ | 254,804 | | $ | 2,771 |
| 2.19 | % |
Loans held for sale (1) | |
| 59,488 | |
| 1,040 |
| 3.50 | % |
| 26,386 | |
| 550 |
| 4.17 | % |
Loans (1) (2) | |
| 7,833,372 | |
| 188,643 |
| 4.84 | % |
| 7,150,300 | |
| 199,160 |
| 5.62 | % |
Investment securities available-for-sale (2) | |
| 844,503 | |
| 9,998 |
| 2.38 | % |
| 806,858 | |
| 10,836 |
| 2.71 | % |
Federal funds sold | |
| 33,434 | |
| 72 |
| 0.43 | % |
| 19,063 | |
| 96 |
| 1.02 | % |
Total interest earning assets | |
| 9,616,337 | |
| 201,473 |
| 4.21 | % |
| 8,257,411 | |
| 213,413 |
| 5.21 | % |
| | | | | | | | | | | | | | | | | |
Total noninterest earning assets | |
| 365,080 | | | |
|
| |
| 338,290 | |
|
|
|
| |
Less: allowance for credit losses | |
| 94,231 | | | |
|
| |
| 69,713 | |
|
|
|
| |
Total noninterest earning assets | |
| 270,849 | | | |
|
| |
| 268,577 | |
|
|
|
| |
TOTAL ASSETS | | $ | 9,887,186 | | | |
|
| | $ | 8,525,988 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Interest bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Interest bearing transaction | | $ | 803,321 | | $ | 2,196 |
| 0.55 | % | $ | 648,557 | | $ | 2,378 |
| 0.74 | % |
Savings and money market | |
| 3,626,437 | |
| 16,690 |
| 0.93 | % |
| 2,709,950 | |
| 24,242 |
| 1.80 | % |
Time deposits | |
| 1,243,628 | |
| 14,174 |
| 2.29 | % |
| 1,386,876 | |
| 16,741 |
| 2.43 | % |
Total interest bearing deposits | |
| 5,673,386 | |
| 33,060 |
| 1.17 | % |
| 4,745,383 | |
| 43,361 |
| 1.84 | % |
Customer repurchase agreements | |
| 30,310 | |
| 173 |
| 1.15 | % |
| 30,536 | |
| 173 |
| 1.14 | % |
Other short-term borrowings | |
| 260,030 | |
| 858 |
| 0.65 | % |
| 120,832 | |
| 1,575 |
| 2.59 | % |
Long-term borrowings | |
| 251,866 | |
| 6,275 |
| 4.93 | % |
| 217,408 | |
| 5,958 |
| 5.45 | % |
Total interest bearing liabilities | |
| 6,215,592 | |
| 40,366 |
| 1.31 | % |
| 5,114,159 | |
| 51,067 |
| 2.01 | % |
| | | | | | | | | | | | | | | | | |
Noninterest bearing liabilities: | |
| | |
|
|
|
| |
| | |
|
|
|
| |
Noninterest bearing demand | |
| 2,416,355 | |
| |
|
| |
| 2,195,084 | |
|
|
|
| |
Other liabilities | |
| 69,923 | |
| |
|
| |
| 68,963 | |
|
|
|
| |
Total noninterest bearing liabilities | |
| 2,486,278 | |
| |
|
| |
| 2,264,047 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Shareholders’ equity | |
| 1,185,316 | | | |
|
| |
| 1,147,782 | |
|
|
|
| |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 9,887,186 | | | |
|
| | $ | 8,525,988 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Net interest income | | | | | $ | 161,107 |
|
| | | | | $ | 162,346 |
|
| |
Net interest spread | |
| | |
| | | 2.90 | % |
| | |
|
|
| 3.20 | % |
Net interest margin | |
| | |
| | | 3.36 | % |
| | |
|
|
| 3.97 | % |
Cost of funds | |
| | |
| | | 0.85 | % |
| | |
|
|
| 1.24 | % |
55
Provision for Credit Losses
During the six months ended June 30, 2020, the ACL on loans reflected $33.9 million in provision for credit losses attributable to the ACL for loans, a day one CECL impact of $10.6 million charged to retained earnings, and $9.4 million in net charge-offs during the period. The provision for credit losses on loans was $33.9 million for the six months ended June 30, 2020 as compared to $7.0 million for the same period in 2019. Net charge-offs of $9.4 million in the first six months of 2020 represented an annualized 0.24% of average loans, excluding loans held for sale, as compared to $4.8 million, or an annualized 0.13%0.12% of average loans, excluding loans held for sale, in the first six monthsquarter of 2019.
2020.
56
The following table sets forth activity in the allowance for credit losses for the periods indicated (unaudited).
Three Months Ended March 31, | ||||||||||||||
(dollars in thousands) | 2021 | 2020 | ||||||||||||
Balance at beginning of period | $ | 109,579 | $ | 73,658 | ||||||||||
Impact of adopting CECL | — | 10,614 | ||||||||||||
Charge-offs: | ||||||||||||||
Commercial | 4,150 | — | ||||||||||||
Income producing - commercial real estate | 1,000 | 550 | ||||||||||||
Owner occupied - commercial real estate | — | — | ||||||||||||
Real estate mortgage - residential | — | — | ||||||||||||
Construction - commercial and residential | 206 | 1,768 | ||||||||||||
Construction - C&I (owner occupied) | — | — | ||||||||||||
Home equity | — | — | ||||||||||||
Other consumer | 1 | — | ||||||||||||
Total charge-offs | 5,357 | 2,318 | ||||||||||||
Recoveries: | ||||||||||||||
Commercial | 96 | 69 | ||||||||||||
Income producing - commercial real estate | — | — | ||||||||||||
Owner occupied - commercial real estate | — | — | ||||||||||||
Real estate mortgage - residential | — | — | ||||||||||||
Construction - commercial and residential | — | — | ||||||||||||
Construction - C&I (owner occupied) | — | — | ||||||||||||
Home equity | — | — | ||||||||||||
Other consumer | 13 | 3 | ||||||||||||
Total recoveries | 109 | 72 | ||||||||||||
Net charge-offs | 5,248 | 2,246 | ||||||||||||
Provision for Credit Losses- Loans | (2,261) | 14,310 | ||||||||||||
Balance at end of period | $ | 102,070 | $ | 96,336 | ||||||||||
Annualized ratio of net charge-offs during the period to average loans outstanding during the period | 0.27 | % | 0.12 | % |
| | | | | | | |
| | | | | | |
|
| | Six Months Ended June 30, |
| ||||
(dollars in thousands) |
| 2020 |
| 2019 |
| ||
Balance at beginning of period, prior to adoption of CECL | | $ | 73,658 | | $ | 69,944 | |
Impact of adopting CECL | | | 10,614 | | | | |
Charge-offs: | |
| | |
| | |
Commercial | |
| 7,145 | |
| 5 | |
Income producing - commercial real estate | |
| 550 | |
| 5,343 | |
Owner occupied - commercial real estate | |
| — | |
| — | |
Real estate mortgage - residential | |
| — | |
| — | |
Construction - commercial and residential | |
| 1,768 | |
| — | |
Construction - C&I (owner occupied) | |
| — | |
| — | |
Home equity | |
| — | |
| — | |
Other consumer | |
| — | |
| 2 | |
Total charge-offs | |
| 9,463 | |
| 5,350 | |
| | | | | | | |
Recoveries: | |
| | |
| | |
Commercial | |
| 74 | |
| 167 | |
Income producing - commercial real estate | |
| — | |
| 302 | |
Owner occupied - commercial real estate | |
| — | |
| 2 | |
Real estate mortgage - residential | |
| — | |
| 3 | |
Construction - commercial and residential | |
| — | |
| 37 | |
Construction - C&I (owner occupied) | |
| — | |
| — | |
Home equity | |
| — | |
| — | |
Other consumer | |
| 4 | |
| 21 | |
Total recoveries | |
| 78 | |
| 532 | |
Net charge-offs | |
| 9,385 | |
| 4,818 | |
Provision for Credit Losses- Loans | |
| 33,909 | |
| 6,960 | |
Balance at end of period | | $ | 108,796 | | $ | 72,086 | |
| | | | | | | |
Annualized ratio of net charge-offs during the period to average loans outstanding during the period | |
| 0.24 | % |
| 0.13 | % |
| | | | | | | | | | | |
|
| June 30, 2020 |
| December 31, 2019 |
| ||||||
(dollars in thousands) |
| Amount |
| % (1) |
| Amount |
| % (1) |
| ||
Commercial | | $ | 28,078 | | 20 | % | $ | 18,169 |
| 20 | % |
PPP loans | | | — | | 6 | % | | — | | — | |
Income producing - commercial real estate | |
| 51,863 | | 46 | % |
| 28,527 |
| 50 | % |
Owner occupied - commercial real estate | |
| 12,341 | | 12 | % |
| 5,598 |
| 13 | % |
Real estate mortgage - residential | |
| 1,550 | | 1 | % |
| 1,352 |
| 1 | % |
Construction - commercial and residential | |
| 11,410 | | 12 | % |
| 17,739 |
| 14 | % |
Construction - C&I (owner occupied) | |
| 2,398 | | 2 | % |
| 1,533 |
| 1 | % |
Home equity | |
| 1,112 | | 1 | % |
| 575 |
| 1 | % |
Other consumer | |
| 44 | | — | |
| 227 |
| — | |
Total allowance | | $ | 108,796 | | 100 | % | $ | 73,720 |
| 100 | % |
March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||
(dollars in thousands) | Amount | % (1) | Amount | % (1) | ||||||||||||||||||||||
Commercial | $ | 23,701 | 19 | % | $ | 26,569 | 19 | % | ||||||||||||||||||
PPP loans | — | 8 | % | — | 6 | % | ||||||||||||||||||||
Income producing - commercial real estate | 51,510 | 45 | % | 55,385 | 47 | % | ||||||||||||||||||||
Owner occupied - commercial real estate | 14,315 | 13 | % | 14,000 | 13 | % | ||||||||||||||||||||
Real estate mortgage - residential | 919 | 1 | % | 1,020 | 1 | % | ||||||||||||||||||||
Construction - commercial and residential | 8,342 | 11 | % | 9,092 | 11 | % | ||||||||||||||||||||
Construction - C&I (owner occupied) | 2,341 | 2 | % | 2,437 | 2 | % | ||||||||||||||||||||
Home equity | 907 | 1 | % | 1,039 | 1 | % | ||||||||||||||||||||
Other consumer | 35 | — | % | 37 | — | % | ||||||||||||||||||||
Total allowance | $ | 102,070 | 100 | % | $ | 109,579 | 100 | % | ||||||||||||||||||
57
For the three months ended June 30, 2020, after the initial adjustment to the allowance for credit losses on loans as of January 1, 2020, we further increased the allowance for credit losses on loans by $19.6 million and $33.9 million, respectively.
Nonperforming Assets
The2020.
The updated standard
Under the incurred loss methodology that the Company applied as of December 31, 2019 included in nonperforming assets were loans that the Company considered to be impaired. Impaired loans were defined as those as to which we believed it is probable that we would not collect all amounts due according to the contractual terms of the loan agreement, as well as those loans whose terms had been modified in a TDR that had not shown a period of performance as required under applicable accounting standards. Valuation allowances for those loans determined to be impaired were evaluated in accordance with ASC Topic 310—“Receivables,” and updated quarterly. For collateral dependent impaired loans, the carrying amount of the loan was determined by current appraised value less estimated costs to sell the underlying collateral, which may have been adjusted downward under certain circumstances for actual events and/or changes in market conditions. For example, current average actual selling prices less average actual closing costs on an impaired multi-unit real estate project may have indicated the need for an adjustment in the appraised valuation of the project, which in turn could increase the associated ASC Topic 310 specific reserve for the loan. Generally, all appraisals associated with impaired loans were updated on a not less than annual basis.
58
impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. For both the three months ended June 30,March 31, 2021 and 2020, and 2019, there were no loans modified in a TDR.
The Company had one foreclosed property with a net carrying valuegeneral desire for increased space as some figure working from home may be part of $1.4 million at June 30, 2019. future working arrangements.
59
The following table shows the amounts of nonperforming assets at the dates indicated (unaudited for June 30, 2020)March 31, 2021).
(dollars in thousands) | March 31, 2021 | December 31, 2020 | ||||||||||||
Nonaccrual Loans: | ||||||||||||||
Commercial | $ | 18,491 | $ | 15,352 | ||||||||||
Income producing - commercial real estate | 17,157 | 18,879 | ||||||||||||
Owner occupied - commercial real estate | 14,077 | 23,158 | ||||||||||||
Real estate mortgage - residential | 1,942 | 2,932 | ||||||||||||
Construction - commercial and residential | 196 | 206 | ||||||||||||
Construction - C&I (owner occupied) | — | — | ||||||||||||
Home equity | 413 | 416 | ||||||||||||
Other consumer | — | — | ||||||||||||
Accruing loans-past due 90 days | — | — | ||||||||||||
Total nonperforming loans (1) | 52,276 | 60,943 | ||||||||||||
Other real estate owned | 4,987 | 4,987 | ||||||||||||
Total nonperforming assets | $ | 57,263 | $ | 65,930 | ||||||||||
Coverage ratio, allowance for credit losses to total nonperforming loans | 195.25 | % | 179.80 | % | ||||||||||
Ratio of nonperforming loans to total loans | 0.69 | % | 0.79 | % | ||||||||||
Ratio of nonperforming assets to total assets | 0.51 | % | 0.59 | % |
| | | | | | | | |
| | June 30, | | | December 31, |
| ||
(dollars in thousands) |
| 2020 | |
| 2019 |
| ||
Nonaccrual Loans: |
| |
| |
| |
| |
Commercial | | $ | 16,721 | | | $ | 14,928 | |
Income producing - commercial real estate | |
| 17,278 | | |
| 9,711 | |
Owner occupied - commercial real estate | |
| 10,755 | | |
| 6,463 | |
Real estate mortgage - residential | |
| 8,217 | | |
| 5,631 | |
Construction - commercial and residential | |
| 5,385 | | |
| 11,509 | |
Construction - C&I (owner occupied) | |
| — | | |
| — | |
Home equity | |
| 600 | | |
| 487 | |
Loans held for sale | | | — | | | | — | |
Other consumer | |
| 6 | | |
| — | |
Accrual loans-past due 90 days | |
| — | | |
| — | |
Total nonperforming loans (1) | |
| 58,962 | | |
| 48,729 | |
Other real estate owned | |
| 8,237 | | |
| 1,487 | |
Total nonperforming assets | | $ | 67,199 | | | $ | 50,216 | |
| | | | | | | | |
Coverage ratio, allowance for credit losses to total nonperforming loans | |
| 184.52 | % | |
| 151.16 | % |
Ratio of nonperforming loans to total loans | |
| 0.74 | % | |
| 0.65 | % |
Ratio of nonperforming assets to total assets | |
| 0.69 | % | |
| 0.56 | % |
|
|
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.
60
Total noninterest income for the six months ended June 30, 2020 increased to $18.0 million from $12.7 million for the six months ended June 30, 2019, a 42% increase. Service charges on deposits for the six months ended June 30, 2020 decreased to $2.4 million from $3.3 million for the six months ended June 30, 2019, a 28% decrease, due to lesser insufficient funds fees. Gain on sale of loans for the six months ended June 30, 2020 increased to $4.0 million from $3.3 million for the six months ended June 30, 2019, a 22% increase, due to higher gains on the sale of residential mortgage loans ($718 thousand). Residential mortgage loans closed were $501 million for the first six months of 2020 as compared to $246 million for the first six months of 2019. Residential lending gains for the first six months of 2020 include $2.6 million in hedge and mark to market losses incurred during the first quarter of 2020 attributable to the Federal Reserve’s market actions negatively impacting mortgage backed securities pricing combined with sharp declines in servicing right valuations associated with investor uncertainty surrounding COVID-19 at the end of March. Other income for the six months ended June 30, 2020 increased to $8.8 million from $3.7 million for the six months ended June 30, 2019, a 137% increase due substantially to higher gains associated with the origination, securitization, sale and servicing of FHA loans ($2.5 million), $1.4 million higher SBIC income related to a CRA qualified investment fund, $1.1 million higher swap fee income, and $380 thousand higher prepayment fees. Net investment gains were $1.5 million for both the six months ended June 30, 2020 and 2019.
Servicing agreements relating to the Ginnie Mae 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 June 30, 2020,March 31, 2021, the Company had no funds advancedone loan outstanding under FHA mortgage loan servicing agreements. Toagreements for $3.1 million. To the extent the 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.
followin
g:61
2020. Salaries and employee benefits were $34.9 million for the six months ended June 30, 2020, as compared to $41.4 million for the same period in 2019, a decrease of $6.5 million or 16%. The decrease was primarily due to the $6.2 million of largely nonrecurring charges accruednus accruals based on economic outlook in the first quarter of 2019 related2021 (gradual reopening of economy) compared to share based compensation awards and the resignation of our former CEO and Chairman in March 2019, as well as a lower accrual for incentive bonuses and the release of a portion of an accrual related to the charges for share based compensation awards for our former CEO and Chairmanaccruals in the first halfquarter of 2020. The decrease was partially offset by higher salaries2020 (on-set of COVID-19 pandemic), and increased headcountan increase in the first halfnumber of 2020.
shares granted and vested in 2021.
2020.
virtual modifications to event structures.
licensing fees.
FDIC expenses
deposit base.
7% decrease.
noninterest income and net interest income, while non-interest expenses remained relatively flat.
62
Income Tax Expense
The effective income tax rate for the six months ended June 30, 2020 was 25.5% as compared to 26.3% for the six months ended June 30, 2019. The decrease in the effective income tax rate largely relates to a significant decline in pre-tax income for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, and a decrease in disallowed compensation deductions for key executives, mainly related to share based compensation awards and other compensation of our former CEO and Chairman who resigned in March 2019. The decrease in the effective income tax rate was recorded in the secondfirst quarter of 2020 based on a reduced pre-tax income budget for the year due to increased credit reserves significantly attributable to COVID-19.
2021.
18.9%, primarily due to the deployment of deposit inflows into higher yielding assets.
2020.
declared.
While the Company’s capital position remains above regulatory well capitalized levels, due to the heightened volatility of the stock market and uncertainty regarding the impact of COVID-19, the Board decided to place the Company’s remaining authorization to repurchase shares on hold during the first quarter of 2020. Accordingly, no shares were repurchased during the second quarter of 2020. The Board of Directors and Management continue to monitor this area and may enter the markets from time to time as determined appropriate.
Under the capital rules applicable to the Company and Bank, in
63
of 2.5% of CET1 capital forrequired to engage in capital adequacy purposes.distribution. Failure to maintain the required capital conservation buffer would limit the ability of the Company and the Bank to pay dividends, repurchase shares or pay discretionary bonuses.
| | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 |
| ||||||
(dollars in thousands) |
| Amount |
| % |
| Amount |
| % |
| ||
Commercial | | $ | 1,607,056 |
| 20 | % | $ | 1,545,906 |
| 20 | % |
PPP loans | | | 456,476 | | 6 | % | | — | | — | |
Income producing - commercial real estate | |
| 3,678,946 |
| 46 | % |
| 3,702,747 |
| 50 | % |
Owner occupied - commercial real estate | |
| 964,077 |
| 12 | % |
| 985,409 |
| 13 | % |
Real estate mortgage - residential | |
| 93,601 |
| 1 | % |
| 104,221 |
| 1 | % |
Construction - commercial and residential | |
| 995,550 |
| 12 | % |
| 1,035,754 |
| 14 | % |
Construction - C&I (owner occupied) | |
| 149,845 |
| 2 | % |
| 89,490 |
| 1 | % |
Home equity | |
| 74,921 |
| 1 | % |
| 80,061 |
| 1 | % |
Other consumer | |
| 1,289 |
| — | |
| 2,160 |
| — | |
Total loans | |
| 8,021,761 |
| 100 | % |
| 7,545,748 |
| 100 | % |
Less: allowance for credit losses | |
| (108,796) |
|
| |
| (73,658) |
|
| |
Net loans | | $ | 7,912,965 | (1) |
| | $ | 7,472,090 |
|
| |
March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
(dollars in thousands) | Amount | % | Amount | % | |||||||||||||||||||
Commercial | $ | 1,398,155 | 19 | % | $ | 1,437,433 | 19 | % | |||||||||||||||
PPP loans | 565,018 | 8 | % | 454,771 | 6 | % | |||||||||||||||||
Income producing - commercial real estate | 3,430,077 | 45 | % | 3,687,000 | 47 | % | |||||||||||||||||
Owner occupied - commercial real estate | 1,012,457 | 13 | % | 997,694 | 13 | % | |||||||||||||||||
Real estate mortgage - residential | 71,209 | 1 | % | 76,592 | 1 | % | |||||||||||||||||
Construction - commercial and residential | 829,481 | 11 | % | 873,261 | 11 | % | |||||||||||||||||
Construction - C&I (owner occupied) | 152,240 | 2 | % | 158,905 | 2 | % | |||||||||||||||||
Home equity | 67,167 | 1 | % | 73,167 | 1 | % | |||||||||||||||||
Other consumer | 885 | — | % | 1,389 | — | % | |||||||||||||||||
Total loans | 7,526,689 | 100 | % | 7,760,212 | 100 | % | |||||||||||||||||
Less: allowance for credit losses | (102,070) | (109,579) | |||||||||||||||||||||
Net loans (1) | $ | 7,424,619 | $ | 7,650,633 | |||||||||||||||||||
| | | | | | | |
| | Principal Balance | | % of Loan |
| ||
Industry |
| (in 000’s) |
| Portfolio | | ||
Accommodation & Food Services | | $ | 840,961 | 1 | | 10.5 | % |
Retail Trade | |
| 106,544 | 2 |
| 1.3 | % |
March 31, 2021 that we believe may have heightened risk from the COVID-19 pandemic include:
Industry | Principal Balance (in 000’s) | % of Loan Portfolio | |||||||||||||||
Accommodation & Food Services | $ | 807,237 | (1) | 10.7 | % | ||||||||||||
Retail Trade | 85,878 | (2) | 1.1 | % | |||||||||||||
Commercial Real Estate exposure (not included above) | |||||||||||||||||
Restaurant | 42,386 | 0.6 | % | ||||||||||||||
Hotel | 26,255 | 0.3 | % | ||||||||||||||
Retail | 374,863 | 5.0 | % | ||||||||||||||
Total | $ | 1,336,619 | 17.8 | % | |||||||||||||
1 Includes $82,154$152,135 of PPP loans.
64
assisting where necessary with PPP loans and payment deferrals or interest onlyinterest-only periods in the short term while customers work withto adopt to the Bank to develop longer term stabilization strategies as theevolving landscape of the COVID-19 pandemic evolves. pandemic. The uncertain duration and severity of the pandemic will likelyand the timing of recovery may impact future credit challenges in these areas.
The table below is collateral driven and shows exposures on loans secured by commercial real estate (“CRE”) by property type as of June 30, 2020 (unaudited). This table excludes loans disclosed in the industry table above.
| | | | | | | |
| | Principal Balance | | % of Loan |
| ||
Property Type |
| (in 000’s) |
| Portfolio | | ||
Restaurant | | $ | 31,364 | | | 0.4 | % |
Hotel | |
| 35,815 | |
| 0.4 | % |
Retail | |
| 405,918 | |
| 5.1 | % |
oversight.
65
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.
66
may experience an outflow of brokered deposits as a result of our inability to attract them or to accept or renew them. In that event, we would be required to obtain alternate sources for funding.
| | | |
(dollars in thousands) |
| | |
Unfunded loan commitments | | $ | 2,208,726 |
Unfunded lines of credit | |
| 90,704 |
Letters of credit | |
| 59,455 |
Total | | $ | 2,358,885 |
follows:
(dollars in thousands) | ||||||||
Unfunded loan commitments | $ | 1,913,148 | ||||||
Unfunded lines of credit | 93,836 | |||||||
Letters of credit | 65,776 | |||||||
Total | $ | 2,072,760 |
nature slightly.
67
During the sixthree months ended June 30, 2020, as compared to the same period in 2019,March 31, 2021, the Company was able to produce a net interest margin of 3.36%2.98% as compared to 3.97%,3.49% during the same period in 2020, and continue to manage its overall interest rate risk position.
position. The Company, along with many other banks, continues to be challenged in 2021 during a period of extremely low interest rates together with relatively low loan demand.
December 31, 2020.
The Company has continued its emphasis on funding loans in its marketplace, although competition for new loans has diminished. A disciplined approach to loan pricing, with variable and adjustable rate loans comprising 56% of total loans (offset by 3% from the dilution impact of PPP loans) at June 30, 2020, has resulted in a loan portfolio yield of 4.84% for the six months ended June 30, 2020 as compared to 5.62% for the same period in 2019. Variable and adjustable rate loans provide additional income opportunities should interest rates rise from current levels.
CD portfolio.
68
For the analysis presented below, at June 30 , 2020,March 31, 2021, the simulation assumes a 50 basis point change in interest rates on money market and interest bearing transaction deposits for each 100 basis point change in market interest rates in a decreasing interest rate shock scenario with a floor of 0 basis points (compared to a floor of 10 basis points in the same analysis as of March 31, 2020), and assumes a 70 basis point change in interest rates on money market and interest bearing transaction deposits for each 100 basis point change in market interest rates in an increasing interest rate shock scenario. The floor rate in the analysis was lowered due to the fact that in the current interest rate environment, there are interest bearing accounts with current rates less than 10 basis points.
As quantified in the table below, the
| | | | | | |
| | | | | | 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 | | +17.4% | | +31.6% | | +17.3% |
+300 | | +12.0% | | +21.8% | | +13.8% |
+200 | | +6.7% | | +12.1% | | +10.0% |
+100 | | +23% | | +4.2% | | +5.7% |
0 | | — | | — | | — |
-100 | | -0.3% | | -0.5% | | -15.8% |
-200 | | -0.8% | | -1.4% | | -28.1% |
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 | 7.6% | 13.1% | 2.8% | |||||||||||||||||||
+ | 300 | 4.3% | 7.3% | 2.0% | |||||||||||||||||||
+ | 200 | 1.1% | 1.9% | 1.3% | |||||||||||||||||||
+ | 100 | (1.0)% | (1.6)% | 0.6% | |||||||||||||||||||
— | — | — | — | ||||||||||||||||||||
- | 100 | (4.0)% | (6.8)% | (7.5)% | |||||||||||||||||||
- | 200 | (4.6)% | (7.7)% | (20.0)% |
Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, althoughscenarios.
69
As compared to the secondfirst quarter of 2019,2020, the average two-year U.S. Treasury rate decreased by 19495 basis points from 2.13%1.08% to 0.19%0.13%, the average five year U.S. Treasury rate decreased by 17653 basis points from 2.12%1.14% to 0.36%0.61% and the average ten year U.S. Treasury rate decreased by 1655 basis points from 2.34%1.37% to 0.69%1.32%. The Company’s net interest margin was 3.26%2.98% for the secondfirst quarter of 20202021 and 3.91%3.49% in the secondfirst quarter of 2019.2020. The Company believes that the net interest margin in the most recent quarter as compared to 2019’s second2020’s first quarter has been consistent with its interest rate risk analysis.
70
GAP Analysis
June 30, 2020
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
| Total |
| | |
| | | |
| | 0-3 |
| 4-12 |
| 13-36 |
| 37-60 |
| Over 60 | | Rate | | Non | | | | |||||||
Repricible in: | | months | | months | | months | | months | | months | | Sensitive | | Sensitive | | Total | ||||||||
RATE SENSITIVE ASSETS: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Investment securities | | $ | 155,966 | | $ | 114,656 | | $ | 146,829 | | $ | 119,774 | | $ | 235,169 | | $ | 772,394 |
| | |
| | |
Loans (1)(2) | |
| 4,025,799 | |
| 881,156 | |
| 1,586,143 | |
| 793,459 | |
| 803,637 | |
| 8,090,194 |
| | |
| | |
Fed funds and other short-term investments | |
| 623,843 | |
| — | |
| — | |
| — | |
| — | |
| 623,843 |
| | |
| | |
Other earning assets | |
| 75,912 | |
| — | |
| — | |
| — | |
| — | |
| 75,912 |
| | |
| | |
Total | | $ | 4,881,520 | | $ | 995,812 | | $ | 1,732,972 | | $ | 913,233 | | $ | 1,038,806 | | $ | 9,562,343 | | | 237,327 | | $ | 9,799,670 |
| | | | | | | | | | | | | | | | | | | | | | | | |
RATE SENSITIVE LIABILITIES: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Noninterest bearing demand | | $ | 88,262 | | $ | 245,520 | | $ | 532,958 | | $ | 393,206 | | $ | 1,156,112 | | $ | 2,416,058 | |
| | |
| |
Interest bearing transaction | |
| 861,703 | |
| — | |
| — | |
| — | |
| — | |
| 861,703 | |
| | |
| |
Savings and money market | |
| 3,279,718 | |
| — | |
| — | |
| — | |
| 225,000 | |
| 3,504,718 | |
| | |
| |
Time deposits | |
| 244,371 | |
| 502,658 | |
| 341,655 | |
| 61,676 | |
| 3,133 | |
| 1,153,493 | |
| | |
| |
Customer repurchase agreements and fed funds purchased | |
| 31,198 | |
| — | |
| — | |
| — | |
| — | |
| 31,198 | |
| | |
| |
Other borrowings | |
| — | |
| — | |
| 148,307 | |
| 69,574 | |
| 350,000 | |
| 567,881 | |
| | |
| |
Total | | $ | 4,505,252 | | $ | 748,178 | | $ | 1,022,920 | | $ | 524,456 | | $ | 1,734,245 | | $ | 8,535,051 | | | 76,724 | | $ | 8,611,775 |
GAP | | $ | 376,269 | | $ | 247,634 | | $ | 710,052 | | $ | 388,776 | | $ | (695,438) | | $ | 1,027,292 | |
| | |
| |
Cumulative GAP | | $ | 376,269 | | $ | 623,902 | | $ | 1,333,954 | | $ | 1,722,731 | | $ | 1,027,292 | |
| | |
| | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cumulative gap as percent of total assets | |
| 3.84 | % |
| 6.37 | % |
| 13.61 | % |
| 17.58 | % |
| 10.48 | % |
| | |
| | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | |
OFF BALANCE-SHEET: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Interest Rate Swaps - LIBOR based | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | |
| |
Interest Rate Swaps - Fed Funds based | |
| 100,000 | |
| (100,000) | |
| — | |
| — | |
| — | |
| — | |
| | |
| |
Total | | $ | 100,000 | | $ | (100,000) | | $ | — | | $ | — | | $ | — | | $ | — | | | — | | $ | — |
GAP | | $ | 476,269 | | $ | 147,634 | | $ | 710,052 | | $ | 388,776 | | $ | (695,438) | | $ | 1,027,292 | |
|
| |
|
|
Cumulative GAP | | $ | 476,269 | | $ | 623,902 | | $ | 1,333,954 | | $ | 1,722,731 | | $ | 1,027,292 | | $ | — | |
|
| |
|
|
Cumulative gap as percent of total assets | |
| 4.86 | % |
| 6.37 | % |
| 13.61 | % |
| 17.58 | % |
| 10.48 | % |
|
| |
|
| |
|
|
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 | $ | 122,403 | $ | 108,415 | $ | 310,435 | $ | 228,198 | $ | 599,656 | $ | 1,369,107 | ||||||||||||||||||||||||||||||||||||||
Loans (1)(2) | 3,682,415 | 800,853 | 1,603,352 | 895,599 | 686,666 | 7,668,885 | ||||||||||||||||||||||||||||||||||||||||||||
Fed funds and other short-term investments | 1,734,159 | — | — | — | — | 1,734,159 | ||||||||||||||||||||||||||||||||||||||||||||
Other earning assets | 77,119 | — | — | — | — | 77,119 | ||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 5,616,096 | $ | 909,268 | $ | 1,913,787 | $ | 1,123,797 | $ | 1,286,322 | $ | 10,849,270 | 278,594 | $ | 11,127,864 | |||||||||||||||||||||||||||||||||||
RATE SENSITIVE LIABILITIES: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Noninterest bearing demand | $ | 89,083 | $ | 248,618 | $ | 544,481 | $ | 407,081 | $ | 1,305,071 | $ | 2,594,334 | ||||||||||||||||||||||||||||||||||||||
Interest bearing transaction | 862,709 | — | — | — | — | 862,709 | ||||||||||||||||||||||||||||||||||||||||||||
Savings and money market | 4,550,840 | — | — | — | 325,000 | 4,875,840 | ||||||||||||||||||||||||||||||||||||||||||||
Time deposits | 200,285 | 237,733 | 376,718 | 48,095 | 3,130 | 865,961 | ||||||||||||||||||||||||||||||||||||||||||||
Customer repurchase agreements and fed funds purchased | 20,061 | — | — | — | — | 20,061 | ||||||||||||||||||||||||||||||||||||||||||||
Other borrowings | — | 148,618 | — | 69,557 | 300,000 | 518,175 | ||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 5,722,978 | $ | 634,969 | $ | 921,199 | $ | 524,733 | $ | 1,933,201 | $ | 9,737,080 | 129,951 | $ | 9,867,031 | |||||||||||||||||||||||||||||||||||
GAP | $ | (106,883) | $ | 274,299 | $ | 992,587 | $ | 599,065 | $ | (646,878) | $ | 1,112,190 | ||||||||||||||||||||||||||||||||||||||
Cumulative GAP | $ | (106,883) | $ | 167,416 | $ | 1,160,003 | $ | 1,759,068 | $ | 1,112,190 | ||||||||||||||||||||||||||||||||||||||||
Cumulative gap as percent of total assets | (0.96) | % | 1.50 | % | 10.42 | % | 15.81 | % | 9.99 | % | ||||||||||||||||||||||||||||||||||||||||
OFF BALANCE-SHEET: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Interest Rate Swaps - LIBOR based | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||
Interest Rate Swaps - Fed Funds based | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Total | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | — | $ | — | |||||||||||||||||||||||||||||||||||
GAP | $ | (106,883) | $ | 274,299 | $ | 992,587 | $ | 599,065 | $ | (646,878) | $ | 1,112,190 | ||||||||||||||||||||||||||||||||||||||
Cumulative GAP | $ | (106,883) | $ | 167,416 | $ | 1,160,003 | $ | 1,759,068 | $ | 1,112,190 | ||||||||||||||||||||||||||||||||||||||||
Cumulative gap as percent of total assets | (0.96) | % | 1.50 | % | 10.42 | % | 15.81 | % | 9.99 | % |
71
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.
While the Company’s capital position remains well above regulatory well capitalized levels, due to the heightened volatility of the stock market and uncertainty regarding the impact of COVID-19, the Company’s remaining authorization to repurchase shares was put on hold during the first quarter of 2020 and there were no shares repurchased during the second quarter of 2020. The Board of Directors and Management continue to monitor this area and may enter the markets from time to time as determined appropriate.
72
The actual capital amounts and ratios for the Company and Bank as of June 30, 2020March 31, 2021 (unaudited) and December 31, 20192020 are presented in the table below.
Company | Bank | Minimum Required For Capital | To Be Well Capitalized Under Prompt Corrective | |||||||||||||||||||||||||||||||||||
Actual | Actual | Adequacy | Action | |||||||||||||||||||||||||||||||||||
(dollars in thousands) | Amount | Ratio | Amount | Ratio | Purposes | Regulations* | ||||||||||||||||||||||||||||||||
As of March 31, 2021 | ||||||||||||||||||||||||||||||||||||||
CET1 capital (to risk weighted assets) | $ | 1,173,421 | 14.42 | % | $ | 1,282,555 | 15.79 | % | 7.00 | % | 6.50 | % | ||||||||||||||||||||||||||
Total capital (to risk weighted assets) | 1,453,707 | 17.86 | % | 1,370,841 | 16.88 | % | 10.50 | % | 10.00 | % | ||||||||||||||||||||||||||||
Tier 1 capital (to risk weighted assets) | 1,173,421 | 14.42 | % | 1,282,555 | 15.79 | % | 8.50 | % | 8.00 | % | ||||||||||||||||||||||||||||
Tier 1 capital (to average assets) | 1,173,421 | 10.28 | % | 1,282,555 | 11.27 | % | 4.00 | % | 5.00 | % | ||||||||||||||||||||||||||||
As of December 31, 2020 | ||||||||||||||||||||||||||||||||||||||
CET1 capital (to risk weighted assets) | $ | 1,137,896 | 13.49 | % | $ | 1,244,028 | 14.90 | % | 7.00 | % | 6.50 | % | ||||||||||||||||||||||||||
Total capital (to risk weighted assets) | 1,438,224 | 17.04 | % | 1,338,356 | 16.03 | % | 10.50 | % | 10.00 | % | ||||||||||||||||||||||||||||
Tier 1 capital (to risk weighted assets) | 1,137,896 | 13.49 | % | 1,224,028 | 14.90 | % | 8.50 | % | 8.00 | % | ||||||||||||||||||||||||||||
Tier 1 capital (to average assets) | 1,137,896 | 10.31 | % | 1,224,028 | 11.29 | % | 4.00 | % | 5.00 | % |
| | | | | | | | | | | | | | | |
|
| | |
| |
| | |
| |
| |
| |
|
| | | | | | | | | | | | | | To Be Well |
|
| | | | | | | | | | | | Minimum | | Capitalized |
|
| | | | | | | | | | | | Required For | | Under Prompt |
|
| | Company | | Bank | | Capital | | Corrective |
| ||||||
|
| Actual | | Actual |
| Adequacy |
| Action |
| ||||||
(dollars in thousands) | | Amount |
| Ratio |
| Amount |
| Ratio |
| Purposes | | Regulations* | | ||
As of June 30, 2020 |
| |
|
|
|
| |
|
|
|
| |
| | |
CET1 capital (to risk weighted assets) | | $ | 1,085,861 |
| 12.80 | % | $ | 1,244,976 |
| 14.69 | % | 7.00 | % | 6.50 | % |
Total capital (to risk weighted assets) | |
| 1,379,471 |
| 16.26 | % |
| 1,332,586 |
| 15.72 | % | 10.50 | % | 10.00 | % |
Tier 1 capital (to risk weighted assets) | |
| 1,085,861 |
| 12.80 | % |
| 1,244,976 |
| 14.69 | % | 8.50 | % | 8.00 | % |
Tier 1 capital (to average assets) | |
| 1,085,861 |
| 10.63 | % |
| 1,244,976 |
| 12.20 | % | 4.00 | % | 5.00 | % |
| | | | | | | | | | | | | | | |
As of December 31, 2019 | |
|
|
|
| |
|
|
|
|
| |
| | |
CET1 capital (to risk weighted assets) | | $ | 1,082,516 |
| 12.87 | % | $ | 1,225,486 |
| 14.64 | % | 7.00 | % | 6.50 | % |
Total capital (to risk weighted assets) | |
| 1,362,253 |
| 16.20 | % |
| 1,299,223 |
| 15.52 | % | 10.50 | % | 10.00 | % |
Tier 1 capital (to risk weighted assets) | |
| 1,082,516 |
| 12.87 | % |
| 1,225,486 |
| 14.64 | % | 8.50 | % | 8.00 | % |
Tier 1 capital (to average assets) | |
| 1,082,516 |
| 11.62 | % |
| 1,225,486 |
| 13.18 | % | 4.00 | % | 5.00 | % |
* Applies to Bank only
The regulatory capital ratios presented above vary slightly from what was presented in our second quarter earnings release, reflecting adjustments to fully capture the delay in reflecting the impact of the adoption of the CECL methodology provided by the federal banking regulators in March 2020, as described below.
73
The Company considers this information important to shareholders as tangible equity is a measure that is consistent with the calculation of capital for bank regulatory purposes, which excludes intangible assets from the calculation of risk based ratios and as such is useful for investors, regulators, management and others to evaluate capital adequacy and to compare against other financial institutions.
| | | | | | | | | | | | | | | | |
| | Three Months Ended |
| Six Months Ended | | Year Ended |
| Three Months Ended |
| Six Months Ended | | |||||
|
| June 30, 2020 |
| June 30, 2020 |
| December 31, 2019 |
| June 30, 2019 |
| June 30, 2019 |
| |||||
Common shareholders’ equity | | | | | $ | 1,187,895 | | $ | 1,190,681 | | | | | $ | 1,184,582 | |
Less: Intangible assets | | | | |
| (104,651) | |
| (104,739) | | | | |
| (105,219) | |
Tangible common equity | | | | | $ | 1,083,244 | | $ | 1,085,942 | | | | | $ | 1,079,363 | |
| | | | | | | | | | | | | | | | |
Book value per common share | | | | | $ | 36.86 | | $ | 35.82 | | | | | $ | 34.30 | |
Less: Intangible book value per common share | | | | |
| (3.24) | |
| (3.15) | | | | |
| (3.05) | |
Tangible book value per common share | | | | | $ | 33.62 | | $ | 32.67 | | | | | $ | 31.25 | |
| | | | | | | | | | | | | | | | |
Total assets | | | | | $ | 9,799,670 | | $ | 8,988,719 | | | | | $ | 8,670,003 | |
Less: Intangible assets | | | | |
| (104,651) | |
| (104,739) | | | | |
| (105,219) | |
Tangible assets | | | | | $ | 9,695,019 | | $ | 8,883,980 | | | | | $ | 8,564,784 | |
Tangible common equity ratio | | | | |
| 11.17 | % |
| 12.22 | % | | | |
| 12.60 | % |
| | | | | | | | | | | | | | | | |
Average common shareholders’ equity | | $ | 1,179,452 | | $ | 1,185,316 | | $ | 1,172,051 | | $ | 1,166,487 | | $ | 1,147,782 | |
Less: Average intangible assets | |
| (104,672) | |
| (104,684) | |
| (105,167) | |
| (105,280) | |
| (105,430) | |
Average tangible common equity | | $ | 1,074,780 | | $ | 1,080,632 | | $ | 1,066,884 | | $ | 1,061,206 | | $ | 1,042,352 | |
| | | | | | | | | | | | | | | | |
Net Income Available to Common Shareholders | | $ | 28,856 | | $ | 51,979 | | $ | 142,943 | | $ | 37,243 | | $ | 70,992 | |
Average tangible common equity | | $ | 1,074,780 | | $ | 1,080,632 | | $ | 1,066,884 | | $ | 1,061,206 | | $ | 1,042,352 | |
Annualized Return on Average Tangible Common Equity | |
| 10.80 | % |
| 9.67 | % |
| 13.40 | % |
| 14.08 | % |
| 13.73 | % |
Three Months Ended | |||||||||||||||||||||||||||||
March 31, 2021 | March 31, 2020 | ||||||||||||||||||||||||||||
Common shareholders’ equity | $ | 1,260,833 | $ | 1,162,777 | |||||||||||||||||||||||||
Less: Intangible assets | (105,179) | (104,695) | |||||||||||||||||||||||||||
Tangible common equity | $ | 1,155,654 | $ | 1,058,082 | |||||||||||||||||||||||||
Book value per common share | $ | 39.45 | $ | 36.11 | |||||||||||||||||||||||||
Less: Intangible book value per common share | (3.29) | (3.25) | |||||||||||||||||||||||||||
Tangible book value per common share | $ | 36.16 | $ | 32.86 | |||||||||||||||||||||||||
Total assets | $ | 11,127,864 | $ | 9,992,219 | |||||||||||||||||||||||||
Less: Intangible assets | (105,179) | (104,695) | |||||||||||||||||||||||||||
Tangible assets | $ | 11,022,685 | $ | 9,887,524 | |||||||||||||||||||||||||
Tangible common equity ratio | 10.48 | % | 10.70 | % | |||||||||||||||||||||||||
Average common shareholders’ equity | $ | 1,254,780 | $ | 1,191,180 | |||||||||||||||||||||||||
Less: Average intangible assets | (105,164) | (104,697) | |||||||||||||||||||||||||||
Average tangible common equity | $ | 1,149,616 | $ | 1,086,483 | |||||||||||||||||||||||||
Net Income Available to Common Shareholders | $ | 43,469 | $ | 23,123 | |||||||||||||||||||||||||
Average tangible common equity | $ | 1,086,016 | $ | 1,086,483 | |||||||||||||||||||||||||
Annualized Return on Average Tangible Common Equity | 15.33 | % | 8.56 | % |
74
Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) that occurred during the secondfirst quarter of 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than as described below under the caption “Remediation.”
Remediation.
As previously described in Part I, Item 4 of our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, management has been testing the Company’s enhanced controls to determine whether they operate effectively over time. That testing process is now complete and management believes that the enhanced controls are operating effectively and the deficiencies that contributed to the material weakness have been remediated, subject to the results of the year-end audit of the Company’s internal control over financial reporting by Dixon Hughes Goodman LLP (“DHG”), the Company’s independent auditors.
The following contributed to this remediation:
In addition, in 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.
75
The amount of legal fees and expenditures for the year is net of expected insurance coverage where we believe we have a high likelihood of recovery pursuant to our D&O insurance policies, but does not include any offset for potential claims we may have in the future as to which recovery is impossible to predict at this time.
76
Many of the risks described in the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and in other periodic and current reports filed by the Company with the Securities and Exchange Commission will likely be exacerbated, and the impact of such risks will likely be magnified, as a result of the COVID-19 pandemic. We expect the negative impacts of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations to be the most severe in the following areas:
77
●Operational Risk. Current and future restrictions on our workforce's access to our facilities could limit our ability to meet customer servicing expectations and have a material adverse effect on our operations. We rely on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information, applications, payment systems and other services provided by third parties. In response to COVID-19, we have modified our business practices by directing a portion of our employees to work remotely from their homes to minimize interruptions to our operations. These actions will likely result in increased spending on our business continuity efforts, such as technology and readiness procedures for returning to our offices. We could also experience an increased strain on our risk management policies, including, but not limited to, the effectiveness and accuracy of our models, given the lack of data inputs and comparable precedent. Further, technology in employees' homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices. The continuation of these work-from-home measures also introduces additional operational risk, including related to the effectiveness of our anti-money laundering and other compliance programs, as well as increased cybersecurity risk. These cyber risks include greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction or misuse of valuable information, and potential impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted customers.
Furthermore, while our current plans to return to our offices remain fluid as federal, state and local guidelines continue to evolve, the execution of these plans, and in particular, any delays in executing such plans, may negatively impact our ability to attract and retain qualified personnel. Even after the market fully recovers from the impacts of the COVID-19 pandemic, differences in the demands, expectations and priorities of the workforce may require us to rethink and amend our recruiting and retention strategies in order to attract and keep new employees. There is no guarantee that we will be successful in gaining or maintaining a competitive edge against our
(a) Sales of Unregistered Securities. | None | ||||
|
| ||||
(b) Use of Proceeds. | Not Applicable | ||||
|
| ||||
(c) Issuer Purchases of Securities. |
78
Period | Total Number of Shares Purchased (2) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) | ||||||||||||||||||||||
January 1 - 31, 2021 | — | — | — | 1,588,848 | ||||||||||||||||||||||
February 1- 28, 2021 | 1,466 | $ | 42.46 | 1,466 | 1,587,382 | |||||||||||||||||||||
March 1- 31, 2021 | — | — | — | 1,587,382 | ||||||||||||||||||||||
Total | 1,466 | $ | 42.46 | 1,466 |
| | | | | | | | | |
|
| Total Number of |
| Average Price |
| Total Number of Shares Purchased as Part |
| Maximum Number of Shares that May Yet Be | |
Period | | Shares Purchased (2) | | Paid Per Share | | of Publicly Announced Plans or Programs | | Purchased Under the Plans or Programs (1) | |
April 1-30, 2020 |
| 58 | | $ | 44.60 |
| 58 |
| 447,890 |
May 1-31, 2020 |
| — | |
| — |
| — |
| 447,890 |
June 1-30, 2020 |
| — | |
| — |
| — |
| 447,890 |
Total |
| 58 | |
| 44.60 |
| 58 |
| |
101 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets at 2020 104 The cover page of this Measures Weight Threshold Target Stretch/Maximum Return on Average Assets (KRX Index)* 50% Median 62.5 % Percentile 75 % Percentile Total Shareholder Return (KRX Index)* 50% Median 62.5 % Percentile 75 % Percentile Payout Range (% of Target) 100% 50% 100% 150% 793.13.24.14.24.34.44.510.1Restricted Stock Award Agreement for Norman R. Pozez dated April 2, 2020 (6)31.1June 30, 2020,March 31, 2021, December 31, 2019(ii) Consolidated Statement of OperationsIncome for the three and six months ended June 30,March 31, 2021 and 2020 and 2019(iii) Consolidated Statement of Comprehensive Income for the three and six months ended June 30,March 31, 2021 and 2020 and 2019(iv) Consolidated Statement of Changes in Shareholders’ Equity for the three and six months ended June 30,March 31, 2021 and 2020 and 2019(v) Consolidated Statement of Cash Flows for the sixthree months ended June 30,March 31, 2021 and 2020 and 2019(vi) Notes to the Consolidated Financial Statements AnnualQuarterly Report on Form 10-K,10-Q, formatted in Inline XBRL(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 10.16 to the Company’s Form 10-Q for the Quarter ended March 31, 2020.80
| ||||||||
EAGLE BANCORP, INC. | ||||||||
|
| |||||||
Date: | By: | /s/ Susan G. Riel | ||||||
|
| Susan G. Riel, President and Chief Executive Officer of the Company | ||||||
|
|
| ||||||
|
|
| ||||||
Date: | By: | /s/ Charles D. Levingston | ||||||
|
| Charles D. Levingston, Executive Vice President and Chief Financial Officer of the Company |
81