G3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20192020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-12669
SOUTH STATE CORPORATIONCORPORATION
(Exact name of registrant as specified in its charter)
South Carolina | | 57-0799315 |
(State or other jurisdiction of incorporation) | | ( |
| | |
| | |
Columbia, South Carolina | | 29201 |
(Address of principal executive offices) | | (Zip Code) |
(800) (800) 277-2175
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol | Name of each exchange on which registered: | ||
Common Stock, $2.50 par value | | SSB | | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.company, or an emerging growth company.. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | |
Large Accelerated Filer ☒ | | Accelerated Filer ☐ |
| | |
Non-Accelerated Filer ☐ | | Smaller Reporting Company ☐ |
| | |
| | Emerging Growth Company ☐ |
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. ☐◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
|
|
| ||
|
|
|
Indicate the number of shares outstanding of each of issuer’s classes of common stock, as of the latest practicable date:
| | |
| | |
Class | | |
| Outstanding as of | |
Common Stock, $2.50 par value | |
|
South State Corporation and Subsidiary
March 31, 20192020 Form 10-Q
INDEX
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9 | 3 | |
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9 | 4 | |
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9 | 5 | |
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9 | 6 | |
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9 | 7 | |
| | |
| 8 | |
| | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 58 | |
| | |
87 | ||
| | |
87 | ||
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| | |
87 | ||
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88 | ||
| | |
90 | ||
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91 | ||
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91 | ||
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91 | ||
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91 |
2
PART I — FINANCIAL INFORMATION
South State Corporation and Subsidiary
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value)
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
| March 31, |
| |||
|
| 2019 |
| 2018 |
| 2018 |
| |||
|
|
| (Unaudited) |
|
|
|
|
| (Unaudited) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 225,865 |
| $ | 251,411 |
| $ | 227,264 |
|
Interest-bearing deposits with banks |
|
| 723,726 |
|
| 124,895 |
|
| 362,773 |
|
Federal funds sold and securities purchased under agreements to resell |
|
| — |
|
| 32,677 |
|
| 54,467 |
|
Total cash and cash equivalents |
|
| 949,591 |
|
| 408,983 |
|
| 644,504 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
Securities held to maturity (fair value of $0 and $1,284, respectively) |
|
| — |
|
| — |
|
| 1,274 |
|
Securities available for sale, at fair value |
|
| 1,466,249 |
|
| 1,517,067 |
|
| 1,640,837 |
|
Other investments |
|
| 40,624 |
|
| 25,604 |
|
| 23,479 |
|
Total investment securities |
|
| 1,506,873 |
|
| 1,542,671 |
|
| 1,665,590 |
|
Loans held for sale |
|
| 33,297 |
|
| 22,925 |
|
| 42,690 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
Acquired credit impaired, net of allowance for loan losses |
|
| 452,258 |
|
| 485,119 |
|
| 597,274 |
|
Acquired non-credit impaired |
|
| 2,378,737 |
|
| 2,594,826 |
|
| 3,274,938 |
|
Non-acquired |
|
| 8,310,613 |
|
| 7,933,286 |
|
| 6,762,512 |
|
Less allowance for non-acquired loan losses |
|
| (52,008) |
|
| (51,194) |
|
| (45,203) |
|
Loans, net |
|
| 11,089,600 |
|
| 10,962,037 |
|
| 10,589,521 |
|
Other real estate owned |
|
| 11,297 |
|
| 11,410 |
|
| 11,073 |
|
Premises and equipment, net |
|
| 322,553 |
|
| 241,076 |
|
| 253,605 |
|
Bank owned life insurance |
|
| 230,629 |
|
| 230,105 |
|
| 226,222 |
|
Deferred tax assets |
|
| 31,884 |
|
| 37,128 |
|
| 46,736 |
|
Mortgage servicing rights |
|
| 32,415 |
|
| 34,727 |
|
| 34,196 |
|
Core deposit and other intangibles |
|
| 59,619 |
|
| 62,900 |
|
| 70,376 |
|
Goodwill |
|
| 1,002,900 |
|
| 1,002,900 |
|
| 999,592 |
|
Other assets |
|
| 136,229 |
|
| 119,466 |
|
| 105,004 |
|
Total assets |
| $ | 15,406,887 |
| $ | 14,676,328 |
| $ | 14,689,109 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing |
| $ | 3,219,864 |
| $ | 3,061,769 |
| $ | 3,120,818 |
|
Interest-bearing |
|
| 8,699,107 |
|
| 8,585,164 |
|
| 8,542,280 |
|
Total deposits |
|
| 11,918,971 |
|
| 11,646,933 |
|
| 11,663,098 |
|
Federal funds purchased and securities sold under agreements to repurchase |
|
| 276,891 |
|
| 270,649 |
|
| 357,574 |
|
Other borrowings |
|
| 616,250 |
|
| 266,084 |
|
| 215,589 |
|
Other liabilities |
|
| 218,298 |
|
| 126,366 |
|
| 130,269 |
|
Total liabilities |
|
| 13,030,410 |
|
| 12,310,032 |
|
| 12,366,530 |
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
Common stock - $2.50 par value; authorized 80,000,000 shares; 35,368,521, 35,829,549 and 36,783,438 shares issued and outstanding, respectively |
|
| 88,421 |
|
| 89,574 |
|
| 91,958 |
|
Surplus |
|
| 1,719,396 |
|
| 1,750,495 |
|
| 1,807,989 |
|
Retained earnings |
|
| 582,034 |
|
| 551,108 |
|
| 452,982 |
|
Accumulated other comprehensive loss |
|
| (13,374) |
|
| (24,881) |
|
| (30,350) |
|
Total shareholders’ equity |
|
| 2,376,477 |
|
| 2,366,296 |
|
| 2,322,579 |
|
Total liabilities and shareholders’ equity |
| $ | 15,406,887 |
| $ | 14,676,328 |
| $ | 14,689,109 |
|
| | | | | | | | | | |
| | March 31, | | December 31, | | March 31, |
| |||
|
| 2020 |
| 2019 |
| 2019 |
| |||
| | | (Unaudited) | | | | | | (Unaudited) | |
ASSETS | | |
|
| |
|
| |
| |
Cash and cash equivalents: | | | | | | | | | | |
Cash and due from banks | | $ | 259,775 | | $ | 262,019 | | $ | 225,865 | |
Interest-bearing deposits with banks | |
| 1,003,061 | |
| 426,685 | |
| 723,726 | |
Total cash and cash equivalents | |
| 1,262,836 | |
| 688,704 | |
| 949,591 | |
Investment securities: | | | | | | | | | | |
Securities available for sale, at fair value (Cost of $1,915,461 and allowance for credit losses of $0 for March 31, 2020) | |
| 1,971,195 | |
| 1,956,047 | |
| 1,466,249 | |
Other investments | |
| 62,994 | |
| 49,124 | |
| 40,624 | |
Total investment securities | |
| 2,034,189 | |
| 2,005,171 | |
| 1,506,873 | |
Loans held for sale | |
| 71,719 | |
| 59,363 | |
| 33,297 | |
Loans: | | | | | | | | | | |
Acquired | | | 1,943,971 | | | 2,117,209 | | | 2,830,995 | |
Non-acquired | |
| 9,562,919 | |
| 9,252,831 | |
| 8,310,613 | |
Less allowance for credit losses | |
| (144,785) | |
| (56,927) | |
| (52,008) | |
Loans, net | |
| 11,362,105 | |
| 11,313,113 | |
| 11,089,600 | |
Other real estate owned | |
| 12,844 | |
| 11,964 | |
| 11,297 | |
Premises and equipment, net | | | 312,151 | | | 317,321 | | | 322,553 | |
Bank owned life insurance | | | 233,849 | | | 234,567 | | | 230,629 | |
Deferred tax assets | | | 46,365 | | | 31,316 | | | 31,884 | |
Mortgage servicing rights | | | 26,365 | | | 30,525 | | | 32,415 | |
Core deposit and other intangibles | |
| 46,809 | |
| 49,816 | |
| 59,619 | |
Goodwill | | | 1,002,900 | | | 1,002,900 | | | 1,002,900 | |
Other assets | |
| 230,779 | |
| 176,332 | |
| 136,229 | |
Total assets | | $ | 16,642,911 | | $ | 15,921,092 | | $ | 15,406,887 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | |
Deposits: | | | | | | | | | | |
Noninterest-bearing | | $ | 3,367,422 | | $ | 3,245,306 | | $ | 3,219,864 | |
Interest-bearing | |
| 8,977,125 | |
| 8,931,790 | |
| 8,699,107 | |
Total deposits | |
| 12,344,547 | |
| 12,177,096 | |
| 11,918,971 | |
Federal funds purchased and securities sold under agreements to repurchase | |
| 325,723 | |
| 298,741 | |
| 276,891 | |
Other borrowings | |
| 1,316,100 | |
| 815,936 | |
| 616,250 | |
Other liabilities | |
| 335,498 | |
| 256,306 | |
| 218,298 | |
Total liabilities | |
| 14,321,868 | |
| 13,548,079 | |
| 13,030,410 | |
Shareholders’ equity: | | | | | | | | | | |
Common stock - $2.50 par value; authorized 80,000,000 shares; 33,444,236, 33,744,385 and 35,368,521 shares issued and outstanding, respectively | |
| 83,611 | |
| 84,361 | |
| 88,421 | |
Surplus | |
| 1,584,322 | |
| 1,607,740 | |
| 1,719,396 | |
Retained earnings | |
| 643,345 | |
| 679,895 | |
| 582,034 | |
Accumulated other comprehensive income (loss) | |
| 9,765 | |
| 1,017 | |
| (13,374) | |
Total shareholders’ equity | |
| 2,321,043 | |
| 2,373,013 | |
| 2,376,477 | |
Total liabilities and shareholders’ equity | | $ | 16,642,911 | | $ | 15,921,092 | | $ | 15,406,887 | |
The Accompanying Notes are an Integral Part of the Financial Statements.
3
South State Corporation and Subsidiary
Condensed Consolidated Statements of Income (unaudited)
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||
|
| March 31, |
| ||||
|
| 2019 |
| 2018 |
| ||
Interest income: |
|
|
|
|
|
|
|
Loans, including fees |
| $ | 131,834 |
| $ | 127,041 |
|
Investment securities: |
|
|
|
|
|
|
|
Taxable |
|
| 8,597 |
|
| 8,788 |
|
Tax-exempt |
|
| 1,496 |
|
| 1,559 |
|
Federal funds sold and securities purchased under agreements to resell |
|
| 1,463 |
|
| 660 |
|
Total interest income |
|
| 143,390 |
|
| 138,048 |
|
Interest expense: |
|
|
|
|
|
|
|
Deposits |
|
| 16,645 |
|
| 6,913 |
|
Federal funds purchased and securities sold under agreements to repurchase |
|
| 753 |
|
| 454 |
|
Other borrowings |
|
| 2,725 |
|
| 1,708 |
|
Total interest expense |
|
| 20,123 |
|
| 9,075 |
|
Net interest income |
|
| 123,267 |
|
| 128,973 |
|
Provision for loan losses |
|
| 1,488 |
|
| 2,454 |
|
Net interest income after provision for loan losses |
|
| 121,779 |
|
| 126,519 |
|
Noninterest income: |
|
|
|
|
|
|
|
Fees on deposit accounts |
|
| 17,808 |
|
| 22,543 |
|
Mortgage banking income |
|
| 2,385 |
|
| 4,948 |
|
Trust and investment services income |
|
| 7,269 |
|
| 7,514 |
|
Securities gains, net |
|
| 541 |
|
| — |
|
Recoveries on acquired loans |
|
| 1,867 |
|
| 2,975 |
|
Other |
|
| 2,188 |
|
| 2,575 |
|
Total noninterest income |
|
| 32,058 |
|
| 40,555 |
|
Noninterest expense: |
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 58,431 |
|
| 62,465 |
|
Net occupancy expense |
|
| 7,199 |
|
| 8,166 |
|
Information services expense |
|
| 9,009 |
|
| 9,738 |
|
Furniture and equipment expense |
|
| 4,413 |
|
| 4,626 |
|
OREO expense and loan related |
|
| 751 |
|
| 1,661 |
|
Amortization of intangibles |
|
| 3,281 |
|
| 3,413 |
|
Supplies, printing and postage expense |
|
| 1,504 |
|
| 1,392 |
|
Professional fees |
|
| 2,240 |
|
| 1,699 |
|
FDIC assessment and other regulatory charges |
|
| 1,535 |
|
| 1,263 |
|
Advertising and marketing |
|
| 807 |
|
| 736 |
|
Merger and branch consolidation related expense |
|
| 1,114 |
|
| 11,296 |
|
Other |
|
| 7,955 |
|
| 7,008 |
|
Total noninterest expense |
|
| 98,239 |
|
| 113,463 |
|
Earnings: |
|
|
|
|
|
|
|
Income before provision for income taxes |
|
| 55,598 |
|
| 53,611 |
|
Provision for income taxes |
|
| 11,231 |
|
| 11,285 |
|
Net income |
| $ | 44,367 |
| $ | 42,326 |
|
Earnings per common share: |
|
|
|
|
|
|
|
Basic |
| $ | 1.25 |
| $ | 1.15 |
|
Diluted |
| $ | 1.25 |
| $ | 1.15 |
|
Dividends per common share |
| $ | 0.38 |
| $ | 0.33 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
Basic |
|
| 35,445 |
|
| 36,646 |
|
Diluted |
|
| 35,619 |
|
| 36,899 |
|
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2020 |
| 2019 |
| ||
Interest income: | | | | | | | |
Loans, including fees | | $ | 133,034 | | $ | 131,834 | |
Investment securities: | | | | | | | |
Taxable | |
| 11,915 | |
| 8,597 | |
Tax-exempt | |
| 1,399 | |
| 1,496 | |
Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with banks | |
| 1,452 | |
| 1,463 | |
Total interest income | |
| 147,800 | |
| 143,390 | |
Interest expense: | | | | | | | |
Deposits | |
| 14,437 | |
| 16,645 | |
Federal funds purchased and securities sold under agreements to repurchase | |
| 615 | |
| 753 | |
Other borrowings | |
| 4,735 | |
| 2,725 | |
Total interest expense | |
| 19,787 | |
| 20,123 | |
Net interest income | |
| 128,013 | |
| 123,267 | |
Provision for loan losses | |
| 36,533 | |
| 1,488 | |
Net interest income after provision for loan losses | |
| 91,480 | |
| 121,779 | |
Noninterest income: | | | | | | | |
Fees on deposit accounts | |
| 18,141 | |
| 17,808 | |
Mortgage banking income | |
| 14,647 | |
| 2,385 | |
Trust and investment services income | |
| 7,389 | |
| 7,269 | |
Securities gains (losses), net | |
| — | |
| 541 | |
Recoveries on acquired loans | | | — | | | 1,867 | |
Other | |
| 3,955 | |
| 2,188 | |
Total noninterest income | |
| 44,132 | |
| 32,058 | |
Noninterest expense: | | | | | | | |
Salaries and employee benefits | |
| 60,978 | |
| 58,431 | |
Occupancy expense | |
| 12,287 | |
| 11,612 | |
Information services expense | |
| 9,306 | |
| 9,009 | |
OREO expense and loan related | |
| 587 | |
| 751 | |
Amortization of intangibles | |
| 3,007 | |
| 3,281 | |
Supplies, printing and postage expense | | | 1,505 | | | 1,504 | |
Professional fees | |
| 2,494 | |
| 2,240 | |
FDIC assessment and other regulatory charges | |
| 2,058 | |
| 1,535 | |
Advertising and marketing | |
| 814 | |
| 807 | |
Merger and branch consolidation related expense | |
| 4,129 | |
| 1,114 | |
Other | |
| 10,082 | |
| 7,955 | |
Total noninterest expense | |
| 107,247 | |
| 98,239 | |
Earnings: | | | | | | | |
Income before provision for income taxes | |
| 28,365 | |
| 55,598 | |
Provision for income taxes | |
| 4,255 | |
| 11,231 | |
Net income | | $ | 24,110 | | $ | 44,367 | |
Earnings per common share: | | | | | | | |
Basic | | $ | 0.72 | | $ | 1.25 | |
Diluted | | $ | 0.71 | | $ | 1.25 | |
Weighted average common shares outstanding: | | | | | | | |
Basic | |
| 33,566 | |
| 35,445 | |
Diluted | |
| 33,805 | |
| 35,619 | |
The Accompanying Notes are an Integral Part of the Financial Statements.
4
South State Corporation and Subsidiary
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||
|
| March 31, |
| ||||
|
| 2019 |
| 2018 |
| ||
Net income |
| $ | 44,367 |
| $ | 42,326 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
Unrealized gains (losses) on securities: |
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during period |
|
| 16,752 |
|
| (22,082) |
|
Tax effect |
|
| (3,686) |
|
| 4,890 |
|
Reclassification adjustment for gains included in net income |
|
| 541 |
|
| — |
|
Tax effect |
|
| (119) |
|
| — |
|
Net of tax amount |
|
| 13,488 |
|
| (17,192) |
|
Unrealized losses on derivative financial instruments qualifying as cash flow hedges: |
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during period |
|
| (2,651) |
|
| 36 |
|
Tax effect |
|
| 583 |
|
| (8) |
|
Reclassification adjustment for gains (losses) included in interest expense |
|
| (10) |
|
| 47 |
|
Tax effect |
|
| 2 |
|
| (10) |
|
Net of tax amount |
|
| (2,076) |
|
| 65 |
|
Change in pension plan obligation: |
|
|
|
|
|
|
|
Change in pension and retiree medical plan obligation during period |
|
| — |
|
| — |
|
Tax effect |
|
| — |
|
| — |
|
Reclassification adjustment for changes included in net income |
|
| 121 |
|
| 194 |
|
Tax effect |
|
| (26) |
|
| (43) |
|
Net of tax amount |
|
| 95 |
|
| 151 |
|
Other comprehensive gain (loss), net of tax |
|
| 11,507 |
|
| (16,976) |
|
Comprehensive income |
| $ | 55,874 |
| $ | 25,350 |
|
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2020 |
| 2019 |
| ||
Net income |
| $ | 24,110 |
| $ | 44,367 |
|
Other comprehensive income: | | | | | | | |
Unrealized gains on available for sale securities: | | | | | | | |
Unrealized holding gains arising during period | |
| 40,450 | |
| 20,291 | |
Tax effect | |
| (8,899) | |
| (4,464) | |
Reclassification adjustment for losses included in net income | |
| — | |
| (2,998) | |
Tax effect | |
| — | |
| 659 | |
Net of tax amount | |
| 31,551 | |
| 13,488 | |
Unrealized losses on derivative financial instruments qualifying as cash flow hedges: | | | | | | | |
Unrealized holding losses arising during period | |
| (28,512) | |
| (2,651) | |
Tax effect | |
| 6,272 | |
| 583 | |
Reclassification adjustment for losses included in interest expense | |
| (722) | |
| (10) | |
Tax effect | |
| 159 | |
| 2 | |
Net of tax amount | |
| (22,803) | |
| (2,076) | |
Change in pension plan obligation: | | | | | | | |
Change in pension and retiree medical plan obligation during period | |
| — | |
| — | |
Tax effect | |
| — | |
| — | |
Reclassification adjustment for changes included in net income | |
| — | |
| 121 | |
Tax effect | |
| — | |
| (26) | |
Net of tax amount | |
| — | |
| 95 | |
Other comprehensive income, net of tax | |
| 8,748 | |
| 11,507 | |
Comprehensive income | | $ | 32,858 | | $ | 55,874 | |
The Accompanying Notes are an Integral Part of the Financial Statements.
5
South State Corporation and Subsidiary
Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)
Three months ended March 31, 20192020 and 20182019
(Dollars in thousands, except for share data)
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| Accumulated Other |
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| |
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| Common Stock |
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| Retained |
| Comprehensive |
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| |||||
|
| Shares |
| Amount |
| Surplus |
| Earnings |
| Income (Loss) |
| Total |
| |||||
Balance, December 31, 2017 |
| 36,759,656 |
| $ | 91,899 |
| $ | 1,807,601 |
| $ | 419,847 |
| $ | (10,427) |
| $ | 2,308,920 |
|
Comprehensive income |
| — |
|
| — |
|
| — |
|
| 42,326 |
|
| (16,976) |
|
| 25,350 |
|
Cash dividends declared on common stock at $0.33 per share |
| — |
|
| — |
|
| — |
|
| (12,138) |
|
| — |
|
| (12,138) |
|
AOCI reclassification to retained earnings from adoption of ASU 2018-02 |
|
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|
| 2,947 |
|
| (2,947) |
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|
Stock options exercised |
| 2,240 |
|
| 5 |
|
| 61 |
|
| — |
|
| — |
|
| 66 |
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Restricted stock awards |
| 1,169 |
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| 3 |
|
| (3) |
|
| — |
|
| — |
|
| — |
|
Stock issued pursuant to restricted stock units |
| 38,365 |
|
| 96 |
|
| (96) |
|
| — |
|
| — |
|
| — |
|
Common stock repurchased |
| (17,992) |
|
| (45) |
|
| (1,567) |
|
| — |
|
| — |
|
| (1,612) |
|
Share-based compensation expense |
| — |
|
| — |
|
| 1,993 |
|
| — |
|
| — |
|
| 1,993 |
|
Balance, March 31, 2018 |
| 36,783,438 |
| $ | 91,958 |
| $ | 1,807,989 |
| $ | 452,982 |
| $ | (30,350) |
| $ | 2,322,579 |
|
Balance, December 31, 2018 |
| 35,829,549 |
| $ | 89,574 |
| $ | 1,750,495 |
| $ | 551,108 |
| $ | (24,881) |
| $ | 2,366,296 |
|
Comprehensive income |
| — |
|
| — |
|
| — |
|
| 44,367 |
|
| 11,507 |
|
| 55,874 |
|
Cash dividends declared on common stock at $0.38 per share |
| — |
|
| — |
|
| — |
|
| (13,441) |
|
| — |
|
| (13,441) |
|
Stock options exercised |
| 12,722 |
|
| 32 |
|
| 370 |
|
| — |
|
| — |
|
| 402 |
|
Restricted stock awards |
| 31 |
|
| 1 |
|
| (1) |
|
| — |
|
| — |
|
| — |
|
Common stock repurchased - buyback plan |
| (500,000) |
|
| (1,250) |
|
| (32,017) |
|
| — |
|
| — |
|
| (33,267) |
|
Common stock repurchased |
| (23,010) |
|
| (58) |
|
| (1,460) |
|
| — |
|
| — |
|
| (1,518) |
|
Stock issued pursuant to restricted stock units |
| 49,229 |
|
| 122 |
|
| (122) |
|
| — |
|
| — |
|
| — |
|
Share-based compensation expense |
| — |
|
| — |
|
| 2,131 |
|
| — |
|
| — |
|
| 2,131 |
|
Balance, March 31, 2019 |
| 35,368,521 |
| $ | 88,421 |
| $ | 1,719,396 |
| $ | 582,034 |
| $ | (13,374) |
| $ | 2,376,477 |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | |
| |
| | | | | | | | | | | | | Other | | | |
| |
| | Common Stock | | | | | Retained | | Comprehensive | | | |
| |||||
|
| Shares |
| Amount |
| Surplus |
| Earnings |
| Income (Loss) |
| Total |
| |||||
Balance, December 31, 2018 |
| 35,829,549 | | $ | 89,574 | | $ | 1,750,495 | | $ | 551,108 | | $ | (24,881) | | $ | 2,366,296 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | |
Net income | | — | |
| — | |
| — | |
| 44,367 | |
| — | |
| 44,367 | |
Other comprehensive income, net of tax effects | | — | |
| — | |
| — | |
| — | |
| 11,507 | |
| 11,507 | |
Total comprehensive income | | | | | | | | | | | | | | | |
| 55,874 | |
Cash dividends declared on common stock at $.38 per share | | — | |
| — | |
| — | |
| (13,441) | |
| — | |
| (13,441) | |
Stock options exercised | | 12,722 | |
| 32 | |
| 370 | |
| — | |
| — | |
| 402 | |
Restricted stock awards (forfeitures) | | 31 | |
| 1 | |
| (1) | |
| — | |
| — | |
| — | |
Stock issued pursuant to restricted stock units | | 49,229 | | | 122 | | | (122) | | | — | | | — | | | — | |
Common stock repurchased - buyback plan | | (500,000) | | | (1,250) | | | (32,017) | | | — | | | — | | | (33,267) | |
Common stock repurchased | | (23,010) | |
| (58) | |
| (1,460) | |
| — | |
| — | |
| (1,518) | |
Share-based compensation expense | | — | |
| — | |
| 2,131 | |
| — | |
| — | |
| 2,131 | |
Balance, March 31, 2019 | | 35,368,521 | | $ | 88,421 | | $ | 1,719,396 | | $ | 582,034 | | $ | (13,374) | | $ | 2,376,477 | |
Balance, December 31, 2019 | | 33,744,385 | | $ | 84,361 | | $ | 1,607,740 | | $ | 679,895 | | $ | 1,017 | | $ | 2,373,013 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | |
Net income | | — | |
| — | |
| — | |
| 24,110 | |
| — | |
| 24,110 | |
Other comprehensive income, net of tax effects | | — | |
| — | |
| — | |
| — | |
| 8,748 | |
| 8,748 | |
Total comprehensive income | | | | | | | | | | | | | | | |
| 32,858 | |
Cash dividends declared at $.47 per share | | — | |
| — | |
| — | |
| (15,840) | |
| — | |
| (15,840) | |
Stock options exercised | | 12,485 | |
| 31 | |
| 372 | |
| — | |
| — | |
| 403 | |
Restricted stock awards (forfeitures) | | 498 | |
| 1 | |
| (1) | |
| — | |
| — | |
| — | |
Stock issued pursuant to restricted stock units | | 31,435 | | | 79 | | | (79) | | | — | | | — | | | — | |
Common stock repurchased - buyback plan | | (320,000) | |
| (800) | |
| (23,914) | |
| — | |
| — | |
| (24,714) | |
Common stock repurchased | | (24,567) | |
| (61) | | | (1,803) | | | — | |
| — | | | (1,864) | |
Share-based compensation expense | | — | |
| — | |
| 2,007 | |
| — | |
| — | |
| 2,007 | |
Cumulative change in accounting principle due to the adoption of ASU 2016-13 | | | | | | | | | | | (44,820) | | | | | | (44,820) | |
Balance, March 31, 2020 | | 33,444,236 | | $ | 83,611 | | $ | 1,584,322 | | $ | 643,345 | | $ | 9,765 | | $ | 2,321,043 | |
The Accompanying Notes are an Integral Part of the Financial Statements.
6
South State Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)
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| Three Months Ended |
| ||||
|
| March 31, |
| ||||
|
| 2019 |
| 2018 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income |
| $ | 44,367 |
| $ | 42,326 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 8,527 |
|
| 8,939 |
|
Provision for loan losses |
|
| 1,488 |
|
| 2,454 |
|
Deferred income taxes |
|
| 1,998 |
|
| 3,993 |
|
Gain on sale of securities, net |
|
| (541) |
|
| — |
|
Share-based compensation expense |
|
| 2,131 |
|
| 1,993 |
|
Accretion of discount related to performing acquired loans |
|
| (3,170) |
|
| (9,656) |
|
(Gain) loss on disposal of premises and equipment |
|
| 271 |
|
| (72) |
|
Gain on sale of OREO |
|
| (2) |
|
| (58) |
|
Net amortization of premiums on investment securities |
|
| 1,699 |
|
| 1,966 |
|
OREO write downs |
|
| 98 |
|
| 777 |
|
Fair value adjustment for loans held for sale |
|
| (156) |
|
| (215) |
|
Originations and purchases of loans held for sale |
|
| (127,166) |
|
| (154,234) |
|
Proceeds from sales of loans |
|
| 116,951 |
|
| 182,649 |
|
Net change in: |
|
|
|
|
|
|
|
Accrued interest receivable |
|
| (968) |
|
| 1,553 |
|
Prepaid assets |
|
| (2,061) |
|
| (526) |
|
Operating Leases |
|
| 256 |
|
| — |
|
Miscellaneous other assets |
|
| (13,306) |
|
| 14,251 |
|
Accrued interest payable |
|
| 969 |
|
| 775 |
|
Accrued income taxes |
|
| 9,231 |
|
| 6,984 |
|
Miscellaneous other liabilities |
|
| (3,102) |
|
| 1,846 |
|
Net cash provided by operating activities |
|
| 37,514 |
|
| 105,745 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Proceeds from sales of investment securities available for sale |
|
| 134,486 |
|
| 5,215 |
|
Proceeds from maturities and calls of investment securities held to maturity |
|
| — |
|
| 1,255 |
|
Proceeds from maturities and calls of investment securities available for sale |
|
| 55,242 |
|
| 57,972 |
|
Proceeds from sales of other investment securities |
|
| 45 |
|
| 2,125 |
|
Purchases of investment securities available for sale |
|
| (122,774) |
|
| (79,661) |
|
Purchases of other investment securities |
|
| (15,066) |
|
| (2,556) |
|
Net increase in loans |
|
| (127,840) |
|
| (10,461) |
|
Net cash received from acquisitions |
|
| — |
|
| 6 |
|
Recoveries of loans previously charged off |
|
| 958 |
|
| 966 |
|
Purchases of premises and equipment |
|
| (3,436) |
|
| (3,615) |
|
Proceeds from sale of OREO |
|
| 1,019 |
|
| 2,516 |
|
Proceeds from sale of premises and equipment |
|
| 6 |
|
| 6 |
|
Net cash used in investing activities |
|
| (77,360) |
|
| (26,232) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Net increase in deposits |
|
| 272,038 |
|
| 130,332 |
|
Net increase in federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings |
|
| 6,242 |
|
| 70,717 |
|
Proceeds from FHLB advances |
|
| 500,000 |
|
| 50,000 |
|
Repayment of other borrowings |
|
| (150,002) |
|
| (50,001) |
|
Common stock repurchase |
|
| (34,785) |
|
| (1,612) |
|
Dividends paid on common stock |
|
| (13,441) |
|
| (12,138) |
|
Stock options exercised |
|
| 402 |
|
| 66 |
|
Net cash provided by financing activities |
|
| 580,454 |
|
| 187,364 |
|
Net increase in cash and cash equivalents |
|
| 540,608 |
|
| 266,877 |
|
Cash and cash equivalents at beginning of period |
|
| 408,983 |
|
| 377,627 |
|
Cash and cash equivalents at end of period |
| $ | 949,591 |
| $ | 644,504 |
|
Supplemental Disclosures: |
|
|
|
|
|
|
|
Cash Flow Information: |
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
Interest |
| $ | 19,154 |
| $ | 8,300 |
|
Income taxes |
| $ | 874 |
| $ | 786 |
|
Initial measurement and recognition of operating lease assets in exchange for lease liabilities per ASU 2016-02 |
| $ | 82,160 |
| $ | — |
|
Recognition of operating lease assets in exchange for lease liabilities |
| $ | 1,956 |
| $ | — |
|
Schedule of Noncash Investing Transactions: |
|
|
|
|
|
|
|
Acquisitions: |
|
|
|
|
|
|
|
Fair value of tangible assets acquired |
| $ | — |
| $ | (5) |
|
Net identifiable assets acquired over liabilities assumed |
|
| — |
|
| (5) |
|
Real estate acquired in full or in partial settlement of loans |
| $ | 1,004 |
| $ | 2,895 |
|
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2020 |
| 2019 |
| ||
Cash flows from operating activities: | | | | | | | |
Net income | | $ | 24,110 | | $ | 44,367 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | |
| 7,853 | |
| 8,527 | |
Provision for loan losses | |
| 36,533 | |
| 1,488 | |
Deferred income taxes | |
| (4,878) | |
| 1,998 | |
Gains on sale of securities, net | |
| — | |
| (541) | |
Share-based compensation expense | |
| 2,007 | |
| 2,131 | |
Accretion of discount related to performing acquired loans | |
| (10,931) | |
| (3,170) | |
(Gains) losses on disposal of premises and equipment | |
| (263) | |
| 271 | |
(Gains) losses on sale of OREO | |
| 69 | |
| (2) | |
Net amortization of premiums on investment securities | |
| 2,055 | |
| 1,699 | |
OREO write downs | |
| 111 | |
| 98 | |
Fair value adjustment for loans held for sale | |
| (926) | |
| (156) | |
Originations and purchases of loans held for sale | |
| (243,950) | |
| (127,166) | |
Proceeds from sales of loans | |
| 232,520 | |
| 116,951 | |
Net change in: | | | | | | | |
Accrued interest receivable | |
| (923) | |
| (968) | |
Prepaid assets | |
| 651 | |
| (2,061) | |
Operating Leases | |
| 268 | |
| 256 | |
Derivative assets | | | (45,690) | | | (3,637) | |
Miscellaneous other assets | |
| (9,086) | |
| (9,669) | |
Accrued interest payable | |
| (853) | |
| 969 | |
Accrued income taxes | |
| 9,131 | |
| 9,231 | |
Derivative liabilities | | | 38,143 | | | 3,030 | |
Miscellaneous other liabilities | |
| 5,132 | |
| (6,132) | |
Net cash provided by operating activities | |
| 41,083 | |
| 37,514 | |
Cash flows from investing activities: | | | | | | | |
Proceeds from sales of investment securities available for sale | |
| — | |
| 134,486 | |
Proceeds from maturities and calls of investment securities available for sale | |
| 113,381 | |
| 55,242 | |
Proceeds from sales of other investment securities | |
| — | |
| 45 | |
Purchases of investment securities available for sale | |
| (90,134) | |
| (122,774) | |
Purchases of other investment securities | |
| (13,869) | |
| (15,066) | |
Net increase in loans | |
| (129,458) | |
| (127,840) | |
Recoveries of loans previously charged off | | | 1,909 | | | 958 | |
Purchases of premises and equipment | |
| (2,193) | |
| (3,436) | |
Proceeds from sale of OREO | |
| 988 | |
| 1,019 | |
Proceeds from sale of premises and equipment | |
| 9 | |
| 6 | |
Net cash used in investing activities | |
| (119,367) | |
| (77,360) | |
Cash flows from financing activities: | | | | | | | |
Net increase in deposits | |
| 167,451 | |
| 272,038 | |
Net increase in federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings | |
| 26,982 | |
| 6,242 | |
Proceeds from other borrowings | | | 500,000 | | | 500,000 | |
Repayment of other borrowings | |
| (2) | |
| (150,002) | |
Common stock repurchases | |
| (26,578) | |
| (34,785) | |
Dividends paid on common stock | |
| (15,840) | |
| (13,441) | |
Stock options exercised | |
| 403 | |
| 402 | |
Net cash provided by financing activities | |
| 652,416 | |
| 580,454 | |
Net increase in cash and cash equivalents | |
| 574,132 | |
| 540,608 | |
Cash and cash equivalents at beginning of period | |
| 688,704 | |
| 408,983 | |
Cash and cash equivalents at end of period | | $ | 1,262,836 | | $ | 949,591 | |
Supplemental Disclosures: | | | | | | | |
Cash Flow Information: | | | | | | | |
Cash paid for: | | | | | | | |
Interest | | $ | 20,640 | | $ | 19,154 | |
Income taxes | | $ | 845 | | $ | 874 | |
Initial measurement and recognition of operating lease assets in exchange for lease liabilities per ASU 2016-02 | | $ | — | | $ | 82,160 | |
Recognition of operating lease assets in exchange for lease liabilities | | $ | 458 | | $ | 1,956 | |
Schedule of Noncash Investing Transactions: | | | | | | | |
Real estate acquired in full or in partial settlement of loans | | $ | 2,048 | | $ | 1,004 | |
The Accompanying Notes are an Integral Part of the Financial Statements.
7
South State Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1 — Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, (“GAAP”)otherwise referred to herein as GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period information has been reclassified to conform to the current period presentation, and these reclassifications had no impact on net income or equity as previously reported. Operating results for the three months ended March 31, 20192020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.2020.
The condensed consolidated balance sheet at December 31, 20182019 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by GAAP for complete financial statements.
Note 2 — Summary of Significant Accounting Policies
The information contained in the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 20182019, as filed with the Securities and Exchange Commission (the “SEC”) on February 22, 2019,21, 2020, as amended on March 6, 2020, should be referenced when reading these unaudited condensed consolidated financial statements. Unless otherwise mentioned or unless the context requires otherwise, references herein to “South State,” the “Company” “we,” “us,” “our” or similar references mean South State Corporation and its consolidated subsidiary. References to the “Bank” means South State Corporation’s wholly owned subsidiary, South State Bank, a South Carolina banking corporation.
Leases (Topic 842) and Method of AdoptionAllowance for Credit Losses (“ACL”)
On January 1, 2019,2020, we adopted the requirements of Accounting Standards Update (“ASU”)No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, sometimes referred to herein as ASU 2016-13. Topic 326 was subsequently amended by ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses; ASU No. 2019-05, Codification Improvements to Topic 326, Financial Instruments-Credit Losses; and ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This standard applies to all financial assets measured at amortized cost and off balance sheet credit exposures, including loans, investment securities and unfunded commitments. We applied the standard’s provisions using the modified retrospective method as a cumulative-effect adjustment to retained earnings as of January 1, 2020. With this transition method, we did not have to restate comparative prior periods presented in the financial statements related to Topic 326, but will present comparative prior periods disclosures using the previous accounting guidance for the allowance for loan losses. This adoption method is considered a change in accounting principle requiring additional disclosure of the nature of and reason for the change, which is solely a result of the adoption of the required standard.
ACL – Investment Securities
Management uses a systematic methodology to determine its ACL for investment securities held to maturity. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the held-to-maturity portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. Management monitors the held-to-maturity portfolio to determine whether a valuation account would need to be recorded. The Company currently has 0 investment securities held to maturity.
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Management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the investment securities and does not record an allowance for credit losses on accrued interest receivable. As of March 31, 2020, the accrued interest receivable for investment securities available for sale recorded in Other Assets was $7.1 million.
The Company’s estimate of expected credit losses includes a measure of the expected risk of credit loss even if that risk is remote. However, the Company does not measure expected credit losses on an investment security in which historical credit loss information adjusted for current conditions and reasonable and supportable forecast results in an expectation that nonpayment of the amortized cost basis is zero. Management does not expect nonpayment of the amortized cost basis to be zero solely on the basis of the current value of collateral securing the security but, instead, also considers the nature of the collateral, potential future changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, interest rate changes since purchase, volatility of the security’s fair value and historical loss information for financial assets secured with similar collateral. The Company performed an analysis that determined that the following securities have a zero expected credit loss: U.S. Treasury Securities, Agency-Backed Securities including Ginnie Mae Mortgage Association (“GNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), Federal Home Loan Bank (“FHLB”), Federal Farm Credit Banks (“FFCB”) and Small Business Administration (“SBA”). All of the U.S. Treasury and Agency-Backed Securities have the full faith and credit backing of the United State Government or one of its agencies. These securities are included in Government-Sponsored Entities Debt and Mortgage-Backed Securities line items in the Investment Securities footnote. Municipal securities and all other securities that do not have a zero expected credit loss will be evaluated quarterly to determine whether there is a credit loss associated with a decline in fair value.
Management no longer evaluates securities for other-than-temporary impairment, otherwise referred to herein as OTTI, as ASC Subtopic 326-30, Financial Instruments—Credit Losses—Available-for-Sale Debt Securities, changes the accounting for recognizing impairment on available-for-sale debt securities. Each quarter management evaluates impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value. Management considers the nature of the collateral, potential future changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, interest rate changes since purchase, volatility of the security’s fair value and historical loss information for financial assets secured with similar collateral among other factors. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the provision for credit losses in the Statement of Operations.
ACL - Loans
The ACL reflects management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. We established the incremental increase in the ACL at the adoption through equity and subsequent adjustments through a provision for credit losses charged to earnings. We record loans charged off against the ACL and subsequent recoveries, if any, increase the ACL when they are recognized.
Management uses a systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. The Company’s ACL recorded in the balance sheet reflects management’s best estimate within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. The Company’s ACL is calculated using collectively evaluated and individually evaluated loans.
The Company collectively evaluates loans that share similar risk characteristics. In general, Management has segmented loans by loan purpose. The Company collectively evaluates loans within the following 10 consumer and commercial segments: Consumer 1-4 Family Mortgage, Home Equity Line of Credit (“HELOC”), Consumer Non-Mobile Homes, Mobile Homes, Ready Reserve, Overdrafts, Land and Builder Finance Group Construction, Commercial Real Estate Owner-Occupied and Commercial Non-Real Estate, Commercial Income-Producing, and Business Express (“BEX”) and Microbusiness. The Consumer 1-4 Family Mortgage segment is further segmented by vintage year of
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origination or renewal. Although BEX and Microbusiness loans would typically be segmented within other commercial segments, Management has determined that BEX and Microbusiness loans share unique commercial risk characteristics such that there is a streamlined underwriting process more similar in nature to a consumer underwriting process. Commercial loans that have a total credit exposure greater than $100,000 but less than $1.5 million are eligible for the expedited BEX process; Commercial loans of $100,000 or less, which are typically for equipment, fleet or other small business needs, are eligible for the expedited Microbusiness process.
For collectively evaluated loans, the Company in general uses four modeling approaches to estimate expected credit losses. The Company applies a vintage modeling methodology for the Consumer 1-4 Family Mortgage segment. The Company applies a statistical linear regression modeling methodology for the HELOC, Consumer Non-Mobile Homes, Land and Builder Finance Group Construction, Commercial Real Estate Owner-Occupied and Commercial Non-Real Estate, Commercial Income-Producing, and Ready Reserve segments. The Company applies a loss rate modeling methodology that includes one macroeconomic driver for the Mobile Homes and BEX and Microbusiness segments. Further, the Company applies an average loss rate modeling methodology for the Overdrafts segment. A prepayment assumption is inherently embedded in the vintage modeling methodology. For all other modeling approaches, the Company projects the contractual run-off of its portfolio at the segment level and incorporates a prepayment assumption in order to estimate exposure at default.
Management has determined that the Company’s historical loss experience provides the best basis for its assessment of expected credit losses to determine the ACL. The Company utilized its own internal data to measure historical credit loss experience with similar risk characteristics within the segments over an economic cycle. Management reviewed the historical loss information to appropriately adjust for differences in current asset specific risk characteristics. Management also considered further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that existed for the period over which historical information was evaluated. For the majority of segment models for collectively evaluated loans, the Company incorporated at least one macroeconomic driver either using a statistical regression modeling methodology or simple loss rate modeling methodology.
Management considers forward-looking information in estimating expected credit losses. The Company subscribes to a third-party service which provides a quarterly macroeconomic baseline outlook and alternative scenarios for the United States economy. The baseline, along with the evaluation of alternative scenarios, is used by Management to determine the best estimate within the range of expected credit losses. The baseline forecast incorporates a 50% probability of the United States economy performing better than this projection and the same as the probability that it will perform worse. The baseline forecast was used for the two-year reasonable and supportable forecast period. Management determined that the forecast period was consistent with how the Company has historically forecasted for its profitability planning. Management has evaluated the appropriateness of the reasonable and supportable forecast for the current period along with the inputs used in the estimation of expected credit losses. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to historical loss information within four quarters using a straight-line approach. Management may apply different reversion techniques depending on the economic environment for the financial asset portfolio and as of the current period has utilized a linear reversion technique. Management has evaluated the appropriateness of a reversion period for the current period and noted that it was reasonable. Management has excluded the purchased failed financial institution’s transaction loss history in its reversion to the historical average loss rate.
Included in its systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures, Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process. These qualitative adjustments either increase or decrease the quantitative model estimation (i.e. formulaic model results). Each period the Company considers qualitative factors that are relevant within the qualitative framework that includes the following: 1) Concentration Risk, 2) Trends in Industry Conditions, 3) Trends in Portfolio Nature, Quality, and Composition, 4) Model Limitations, and 5) Other Qualitative Adjustments. For Concentration Risk, the Company incorporates qualitative adjustments to the formulaic model results for large loan concentrations, industry concentrations, geographic concentrations, and new market territories with limited or no loss history available. For Trends in Industry Conditions, the Company incorporates qualitative adjustments to the formulaic model result for drivers selected by our Credit Administration department that were not incorporated in the final statistical model or loss rate model. For Trends in Portfolio Nature, Quality, and
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Composition, the Company incorporates qualitative adjustments to the formulaic model results for underwriting exception trends, classified asset trends, delinquency trends, lending policies and procedures, and appraisal policies. For Model Limitations, the Company incorporates qualitative adjustments to the formulaic model results for predictive power, data limitations, and forecast risk. For Other Qualitative Adjustments, the Company incorporates qualitative adjustments to the formulaic model results for staff turnover rate/experience, staff coverage rate, changes in the training, legal or regulatory changes, natural disasters/weather events, political climate, and other “one-off” items.
When a loan no longer shares similar risk characteristics with its segment, the asset is assessed to determine whether it should be included in another pool or should be individually evaluated. The Company maintains a net book balance threshold of $250,000 for individually-evaluated loans unless further analysis in the future suggests a change is needed to this threshold based on the credit environment at that time. Generally, individually-evaluated loans other than Troubled Debt Restructurings, otherwise referred to herein as “TDRs,” are on nonaccrual status. Based on the threshold above, consumer financial assets will generally remain in pools unless they meet the dollar threshold or foreclosure is probable. The expected credit losses on individually-evaluated loans will be estimated based on discounted cash flow analysis unless the loan meets the criteria for use of the fair value of collateral, either by virtue of an expected foreclosure or through meeting the definition of collateral-dependent. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms were not considered to be unique to the asset.
Management measures expected credit losses over the contractual term of the loans. When determining the contractual term, the Company considers expected prepayments but is precluded from considering expected extensions, renewals, or modifications, unless the Company reasonably expects it will execute a TDR with a borrower. In the event of a reasonably-expected TDR, the Company factors the reasonably-expected TDR into the current expected credit losses estimate. The effects of a TDR are recorded when an individual asset is specifically identified as a reasonably-expected TDR. For consumer loans, the point at which a TDR is reasonably expected is when the Company approves the borrower’s application for a modification (i.e. the borrower qualifies for the TDR) or when the Credit Administration department approves loan concessions on substandard loans. For commercial loans, the point at which a TDR is reasonably expected is when the Company approves the loan for modification or when the Credit Administration department approves loan concessions on substandard loans. The Company uses a discounted cash flow methodology to calculate the effect of the concession provided to the borrower in TDR within the ACL.
Purchased credit-deteriorated, otherwise referred to herein as PCD, assets are defined as acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The Company records acquired PCD loans by adding the expected credit losses (i.e. allowance for credit losses) to the purchase price of the financial assets rather than recording through the provision for credit losses in the income statement. The expected credit loss, as of the acquisition day, of a PCD loan is added to the allowance for credit losses. The non-credit discount or premium is the difference between the unpaid principal balance and the amortized cost basis as of the acquisition date. Subsequent to the acquisition date, the change in the ACL on PCD loans is recognized through the provision for credit losses. The non-credit discount or premium is accreted or amortized, respectively, into interest income over the remaining life of the PCD loan on a level-yield basis. In accordance with the transition requirements within the standard, the Company’s acquired credit-impaired loans (i.e. ACI or Purchased Credit Impaired) were treated as PCD loans.
The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Therefore, Management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the portfolio and does not record an allowance for credit losses on accrued interest receivable. As of March 31, 2020, the accrued interest receivable for loans recorded in Other Assets was $30.2 million.
The Company has a variety of assets that have a component that qualifies as an off-balance sheet exposure. These primarily include undrawn portions of revolving lines of credit and standby letters of credit. The expected losses associated with these exposures within the unfunded portion of the expected credit loss will be recorded as a liability on the balance sheet with an offsetting income statement expense. Management has determined that a majority of the Company’s off-balance-sheet credit exposures are not unconditionally cancellable. As of March 31, 2020, the liability recorded for expected credit losses on unfunded commitments in Other Liabilities was $8.6 million. The current
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adjustment to the ACL for unfunded commitments would be recognized through the provision for credit losses in the Statement of Operations.
Leases (Topic 842) and Method of Adoption
On January 1, 2019, we adopted the requirements of ASU 2016-02, Leases (Topic 842). Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; and ASU No. 2019-01, Codification Improvements to Topic 842 Leases. The purpose of the update was to increase transparency and comparability between organizations that enter into lease agreements. The key difference between the previous guidance and the update is the recognition of a right-of-use asset, (ROU)otherwise referred to herein as a ROU, and lease liability on the statement of financial position for those leases previously classified as operating leases under the old guidance. Accounting Standards Codification (“ASC”) Topic 842 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. In applying this standard, we reviewed our material contracts to determine if they included a lease by this new definition and did not identify any new leases. Our lease agreements in which ASC Topic 842 has been applied are primarily for real estate properties, including retail branch locations, operations and administration locations and stand-alone ATM locations. These leases have lease terms from greater than 12 months to leases with options of more than 24 years.years. Related to lease payment terms, some are fixed payments or based on a fixed annual increases while others are variable and the annual increases are based on market rates. We performed an analysis on equipment leases for the implementation of ASC Topic 842 and determined the number and dollar amount of our equipment leases was not material.
A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We chose the transition method of adoption provided by ASU 2018-11, Leases (Topic 842) – Targeted Improvements, where we initially apply the new lease standard at the effective date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption if applicable. Therefore, we will applyapplied this standard to all existing leases as of the adoption date of January 1, 2019, recording a ROU asset and a lease liability in an equal amount. We did not have a
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cumulative-effect adjustment to the opening balance of retained earnings. With this transition method, we willdid not have to restate comparative prior periods presented in the financial statements related to ASC Topic 842, but will present comparative prior periods disclosures using the previous accounting guidance for leases. This adoption method is considered a change in accounting principle requiring additional disclosure of the nature of and reason for the change, which is solely a result of the adoption of the required standard.
ASC Topic 842 provides a package of practical expedients in applying the lease standard that had to be chosen at the date of adoption. We chose to elect this package of practical expedients. With this election, we do not have to reassess whether any expired or existing contracts are or contain a lease, do not have to reassess the classification of any expired or existing leases, do not have to separate lease and non-lease components and can account for both as a single lease component, and do not have to reassess initial direct costs or cash incentives for any existing leases due to immateriality. In addition, we chose not to apply ASC Topic 842 to short-term leases (leases with terms of 12 months or less) and not to record an underlying ROU asset or lease liability based on the uncertainty around the renewal of these leases. We will recognize lease expense for such leases on a straight-line basis over the lease term.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. We determined that we do not have any leases classified as finance leases and that all of our leases are operating leases. ROU assets and liabilities for operating leases are recognized at commencement date based on present value of lease payments not yet paid, discounted using the discount rate for the lease at the lease commencement date over the lease term. For operating leases, lease expense is determined by the sum of the lease payments to be recognized on a straight-line basis over the lease term. Based on the transition method that we chose to follow, the commencement date of the lease term for all existing leases is January 1, 2019. The lease term used for the calculation of the initial ROU asset and lease liability will include the initial lease term in addition to any renewal options or termination costs in the lease that we think are reasonably certain to be exercised or incurred. We received input from several levels of management and our corporate real estate department in determining which options were reasonably certain to be exercised. A discount rate is also needed in the calculation of the initial ROU assets and lease liability. ASC Topic 842 requires that the implicit rate within the lease agreement be used if available. If not available, we should use its incremental borrowing rate in effect at the time of the lease commencement
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date. We looked at the incremental borrowing rate from several of our borrowing sources to determine an average rate to be used in the calculation of the initial ROU asset and lease liability. We also considered the term of the borrowings as they relate to the terms of the leases.
The adoption of the new standard had a material impact on our consolidated balance sheet, with the recording of ROU asset and lease liability of $82.2 million at the commencement date of January 1, 2019. We did not have a cumulative-effect adjustment to the opening balance of retained earnings at commencement. As of March 31, 2020 and 2019, we had ROU assets of $86.4 million and $82.8 million, respectively, recorded within premises and equipment on the balance sheet and a lease liability of $88.2 million and $83.0 million, respectively, recorded within other liabilities on the balance sheet. The adoption of ASC Topic 842 did not have a material impact on our consolidated income statement.
Revenue from Contracts with Customers (Topic 606) and Method of Adoption
On January 1, 2018, we adopted the requirements of ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”). The majority of our revenue is derived primarily from interest income from receivables (loans) and securities. Other revenues are derived from fees received in connection with deposit accounts, mortgage banking activities including gains from the sale of loans and loan origination fees, and trust and investment advisory services. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
We adopted Topic 606 using the retrospective transition approach which requires restatement of prior periods. We selected this method even though there were no material changes in the timing of revenue recognition due to the fact that Topic 606 requires us to report network costs associated with debit card and ATM transactions netted against the related fees from such transactions. Previously, such network costs were reported as a component of other noninterest expense. We did restate prior periods for this reclassification. For the three months ended March 31, 2019, gross interchange and debit card transaction fees totaled $5.5 million while related network costs totaled $2.9 million. On a net basis we reported $2.6 million as interchange and debit card transactions fees in the accompanying Consolidated Statements of Income as noninterest income for the three months ended March 31, 2019. We also made this
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reclassification for the comparable period in 2018. For the three months endedthrough March 31, 2018 gross interchange and debit card transaction fees totaled $10.6 million while related network costs totaled $3.0 million. On a net basis we reported $7.6 million as net interchange and debit card transactions fees as noninterest income for the three months ended March 31, 2018.this reclassification. This adoption method is considered a change in accounting principle requiring additional disclosure of the nature of and reason for the change, which is solely a result of the adoption of the required standard. When applying the retrospective approach under Topic 606, we elected, as a practical expedient, to apply the revenue standard only to contracts that arewere not completed as of January 1, 2018. A completed contract is considered to be a contract for which all (or substantially all) of the revenue was recognized in accordance with revenue guidance that was in effect before January 1, 2018. There were no uncompleted contracts as of January 1, 2018 for which application of the new standard required an adjustment to retained earnings.
The following disclosures related to Topic 606 involve income derived from contracts with customers. Within the scope of Topic 606, we maintain contracts to provide services, primarily for investment advisory and/or custody of assets. Through our wholly-owned subsidiaries, the Bank and South State Advisory, Inc., we contract with our customers to perform IRA, Trust, and/or Custody and Agency advisory services.Total revenue recognized from these contracts with customers was $7.3$7.4 million and $7.5$7.3 million, respectively, for the three months ended March 31, 20192020 and 2018.2019. The Bank contracts with our customers to perform deposit account services. Total revenue recognized from these contracts with customers is $18.1$18.4 million and $25.8$18.1 million, respectively, for the three months ended March 31, 20192020 and 2018.2019. Due to the nature of our relationship with the customers that we provide services, we do not incur costs to obtain contracts and there are no material incremental costs to fulfill these contracts that should be capitalized.
Disaggregation of Revenue - Our portfolio of services provided to our customers which generates revenue for which the revenue recognition standard applies consists of approximately 816,000735,000 active contracts at March 31, 2019 compared to approximately 791,000 at March 31, 2018. 2020. We have disaggregated revenue according to timing of the transfer of service. Total revenue derived from contracts in which services are transferred at a point in time was $24.1$24.9 million and $33.8$24.1 million, respectively, for the three months ended March 31, 20192020 and 2018.2019. Total revenue derived from contracts in which services are transferred over time was $5.0$4.6 million and $4.8$5.0 million, respectively, for the three months ended March 31, 20192020 and 2018.2019. Revenue is recognized as the services are provided to the customers. Economic factors impacting the customers could affect the nature, amount, and timing of these cash flows, as unfavorable economic conditions could impair the customers’ ability to provide payment for services. This risk is mitigated as we generally deduct payments from customers’ accounts as services are rendered.
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Contract Balances - The timing of revenue recognition, billings, and cash collections results in billed accounts receivable on our balance sheet. Most contracts call for payment by a charge or deduction to the respective customer account but there are some that require a receipt of payment from the customer. For fee per transaction contracts, the customers are billed as the transactions are processed. For hourly rate and monthly service contracts related to trust and some investment revenues, the customers are billed monthly (generally as a percentage basis point of the market value of the investment account). In some cases, specific to South State Advisory, Inc., customers are billed in advance for quarterly services to be performed based on the past quarter’s average account balance. These do create contract liabilities or deferred revenue, as the customers pay in advance for service. Neither the contract liabilities nor the accounts receivables balances are material to our balance sheet.
Performance Obligations - A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The performance obligations for these contracts are satisfied as the service is provided to the customer (either over time or at a point in time). The payment terms of the contracts are typically based on a basis point percentage of the investment account market value, fee per hour of service, or fee for service incurred. There are no significant financing components in the contracts. Excluding deposit services revenues which are mostly billed at a point in time as a fee for services incurred, all other contracts within the scope of Topic 606 contain variable consideration in that fees earned are derived from market values of accounts or from hours worked for services performed which determines the amount of consideration to which we are entitled. The variability is resolved when the hours are incurred or services are provided. The contracts do not include obligations for returns, refunds, or warranties. The contracts are specific to the amounts owed to the Company for services performed during a period should the contracts be terminated.
Significant Judgments - All of the contracts create performance obligations that are satisfied at a point in time excluding the contracts billed in advance through South State Advisory, Inc. and some immaterial deposit revenues.
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Revenue is recognized as services are billed to the customers. Variable consideration does exist for contracts related to our trust and investment services as revenues are based on market values and services performed. We have adopted the right-to-invoice practical expedient for trust management contracts through the Bank which we contract with our customers to perform IRA, trust, and/or custody services.
Note 3 — Recent Accounting and Regulatory Pronouncements
Accounting Standards Adopted in 20192020
In February 2016,2020, the Financial Accounting Standards Board (“FASB”) issued ASCASU No. 2020-02, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section of Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842). This update adds the content of SEC Staff Accounting Bulletin (“SAB”) No. 119 to the FASB Codification. SAB No.119 provides interpretive guidance on methodologies and supporting documentation for measuring credit losses, with a focus on the documentation the staff would normally expect registrants engaged in lending transactions to prepare and maintain to support estimates of current expected credit losses for loan transactions. The ASU also updates the SEC section of the FASB Codification for the delay in the effective date of Topic 842 for public business entities that otherwise would not meet the definition of a public business entity except for a requirement to include its financial information in another entity’s filing with the SEC. The clarification related to leases. ASC Topic 842 applies a right-of-use, which we refer to herein as ROU, model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset and a liability to make lease payments. For leases with a term of 12 months or less, a practical expedient is available whereby a lessee may elect, by class of underlying asset, not to recognize an ROU asset or lease liability. At inception, lessees must classify all leases as either finance or operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of expense recognitionSAB No. 119 was adopted in the income statement, as well as thefirst quarter of 2020 when ASU 2016-13 was adopted. See ASU 2016-13 below for overall effect of Topic 326 Financial Instruments-Credit Losseson the statement of cash flows, differs depending on the lease classification. In July 2018, ASU 2018-11 - Targeted Improvements - Leases (Topic 842) (“ASU 2018-11”)was issued which provided targeted improvements related to ASC Topic 842. ASU 2018-11 updates the new lease standard ASC Topic 842 by providing another transition method in addition to the existing transition method by allowing entities to initially apply the new leases standard at the adoption date instead of at the beginning of the earliest period presentedour consolidated financial statements. The change in the financial statements as requiredeffective date for ASU 2016-02 – Leases did not affect the Company in that we adopted the original pronouncement. ASU 2018-11 also provides updated guidance for lessors related to separating lease and nonlease componentsstandard in a contract and allocating the consideration in the contract to the separate components. 2019.
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In December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors (“ASU 2018-20”). ASU 2018-20 updates the new lease standard ASC Topic 842 by addressing several issues related to lessors which should reduce lessors’ implementation and ongoing costs related to the new lease standard. In MarchNovember 2019, the FASB issued ASU No. 2019-01, Leases (Topic 842): 2019-11, Codification Improvements (“ASU 2019-01”). ASU 2019-01 provides clarification on several issuesto Topic 326, Financial Instruments-Credit Losses, Topic 815. This update, related to ASC Topic 842. None of these issues had a material effect on our financial statements. For public business entities, the amendments in ASU 2016-02, ASU 2018-11, ASU 2018-20 and ASU 2019-01 are effective for interim and annual periods beginning after December 15, 2018. In transition, lessees and lessors have the choice to recognize and measure leases at the beginning of the earliest period presented in financials using a modified retrospective approach or to allow the entity to recognize and measure leases as of the adoption date and not in comparative periods. We chose the option to recognize and measure leases as of the adoption date and not in comparative periods. See Note 2 – Summary of Significant Accounting Policies and Note 7 – Leases for further discussion around the adoption of these standards related to leases. On January 1, 2019, we recorded a ROU asset and a lease liability of approximately $82.2 million. The guidance did not have a material impact on our statement of operations.
In October 2018, the FASB issued ASU No. 2018-16, Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes (Derivatives and Hedging - Topic 815) (“ASU 2018-16”). The amendments in this ASU permit the OIS rate based on SOFR as a U.S. benchmark interest rate. Including the OIS rate based on SOFR as an eligible benchmark interest rate during the early stages of the marketplace transition will facilitate the London Interbank Offered Rate (LIBOR) to SOFR transition and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk management and hedge accounting purposes. The guidance is effective for public companies for annual periods beginning on or after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. All transition requirements and elections should be applied to hedging relationships existing on the date of adoption. This guidance became effective on January 1, 2019 and we determined that the implementation of this standard did not have a material impact to our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (Subtopic 350-40) (“ASU 2018-15”). This ASU2016-01, clarifies certain aspects of ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which was issued in April 2015. Specifically, ASU 2018-15 “align[s]brought to the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an
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internal-use software license).” This ASU does not affect the accounting for the service element of a hosting arrangement that is a service contract. An entity would expense the capitalized implementation costsAccount Standards Board attention by stakeholders related to a hosting arrangement that is a service contract over the hosting arrangement’s term, which comprises the arrangement’s noncancelable term and any renewal options whose exercise is reasonably certain. The expense would be presented in the same line item in the statement of income as that in which the fee associated with the hosting arrangement is presented. For public business entities, the amendments in ASU 2018-15 are effective for interim and annual periods beginning after December 15, 2019 and an entity has the option of using either a retrospective or prospective transition method. Early adoption is permitted. We are early adopting this standard as of January 1, 2019, but do not believe it will have a material impact on our consolidated financial statements. There were no capitalized costs in the first quarter of 2019, but we do expect to begin to capitalize costs starting in the second quarter of 2019.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 amends ASU 2018-16 to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. These amendments will improve the transparency of information about an entity’s risk management activities and simplify the application of hedge accounting. The guidance is effective for public companies for annual periods beginning on or after December 15, 2018 and interim periods within those fiscal years. All transition requirements and elections should be applied to hedging relationships existing on the date of adoption. This guidance became effective on January 1, 2019 and we determined that the implementation of this standard did not have a material impact to our consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-08, Receivables-Nonrefundable Fees and Other Cost (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities; (“ASU 2017-08”). ASU 2017-08 shortens the amortization period of the premium for certain callable debt securities, from the contractual maturity date to the earliest call date. The amendments do not require an accounting change for securities held at a discount; an entity will continue to amortize to the contractual maturity date the discount related to callable debt securities. The amendments apply to the amortization of premiums on callable debt securities with explicit, noncontingent call features that are callable at fixed prices on preset dates. For public business entities, ASU 2017-08 is effective in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For entities other than public business entities, the amendments are effective in fiscal years beginning after December 15, 2019 and in interim periods in fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including in an interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the amendments are adopted. This guidance became effective on January 1, 2019 and we determined that the implementation of this standard did not have a material impact to our consolidated financial statements.
Accounting Standards Adopted in 2018
In February 2018, the FASB issued ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10)(“ASU 2018-03”). ASU 2018-03 updates the new financial instruments standard by clarifying issues that arose from ASU 2016-01,these ASUs, but does not change the core principleprinciples of the new standard.these standards. The issues addressedareas of improvement clarified in this ASU include: (1) Equity securities without a readily determinable fair value-discontinuation, (2) Equity securities without a readily determinable fair value-adjustments, (3) Forward contracts and purchased options, (4) Presentation requirements for certain fair value option liabilities, (5) Fair value option liabilities denominated in a foreign currency, (6) Transition guidance for equity securities without a readily determinable fair value, and (7) Transition and open effective date information. For public business entities, the amendments in ASU 2018-03 and ASU 2016-01update are effective for interim and annual periods beginning after December 15, 2017. An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively1) Expected recoveries for purchased financial assets with credit deterioration, 2) Transition relief for troubled debt restructurings, 3) Disclosures related to equity investments that exist asaccrued interest receivables, 4) Financial assets secured by collateral maintenance provisions and 5) Conforming amendment to Subtopic 805-20. This clarification was adopted in the first quarter of 2020 when the dateoverall standard was adopted. See ASU 2016-13 below for overall effect of adoption of ASU 2018-03 and ASU 2016-01. This guidance became effectiveTopic 326 Financial Instruments-Credit Losses on January 1, 2018 and we determined that the implementation of this standard did not have a material impact to our consolidated financial statements.
In February 2018,April 2019, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income2019-05, Targeted Transition Relief (Topic 220): Reclassification326 – Financial Instruments-Credit Losses). This update provides entities that have certain instruments within the scope of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). ASU 2018-02 amends ASCSubtopic 326-20, Financial Instruments—Credit Losses— Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10 applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 220326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement—Overall, and allows a reclassification from accumulated other comprehensive
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income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”). Consequently, this amendment eliminates the stranded tax effects resulting from the Tax Reform Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Reform Act, the underlying guidance that requires that the effects of the change in tax laws or rates be included in income from continuing operations is not affected. The guidance is effective for public companies for annual periods beginning on or after December 15, 2018 and interim periods within those fiscal years. Early adoption825-10. This update was permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. This amendment should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in U.S. federal corporate income tax rate in the Tax Reform Act is recognized. We early adopted this amendment in the first quarter of 2018 and reclassified $2.9 million from accumulated other comprehensive income to retained earnings2020 when the overall standard was adopted. See ASU 2016-13 below for the stranded tax effects resulting from the Tax Reform Act. overall effect of Topic 326 Financial Instruments-Credit Losses on our consolidated financial statements.
In May 2017,April 2019, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting (“2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This update related to ASU 2017-09”).2016-01, ASU 2017-09 provides clarity by offering guidance on the scope of modification accounting for share-based payment awards2017-12 and gives direction on which changesASU 2016-13 clarifies certain aspects brought to the terms or conditionsAccount Standards Board attention by stakeholders related to these ASUs, but does not change the core principles of these awards require an entitystandards. The clarifications related to apply modification accounting. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or a liability) changes as a result of the change in terms or conditions. The guidance is effective prospectively for all companies for annual periods beginning on or after December 15, 2017. WeASU 2016-01 and 2017-12 were adopted this standard in the firstsecond quarter of 20182019 and determined that this guidance did not have a material impact on our consolidated financial statements.
In March 2017, the FASB issued The clarifications related to ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). ASU 2017-07 applies to any employer that sponsors a defined benefit pension plan, other postretirement benefit plan, or other types of benefits accounted for under Topic 715. The amendments require that an employer disaggregate the service cost component from the other components of net benefit cost, as follows (1) service cost must be presented in the same line item(s) as other employee compensation costs, which costs are generally included within income from continuing operations, but in some cases may be eligible for capitalization, (2) all other components of net benefit cost must be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented, and (3) the amendments permit capitalizing only the service cost component of net benefit cost, assuming such costs meet the criteria required for capitalization by other GAAP , rather than total net benefit cost which has been permitted under prior GAAP. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years. The amendments should be2016-13 were adopted prospectively and allows a practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior periods to apply the retrospective presentation requirements. We adopted this standard in the first quarter of 2018 and determined that this guidance did not have a material impact on our consolidated financial statements.
In January 2017,2020 when the FASB issuedoverall standard was adopted. See ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). These amendments are intended to clarify the definition of a business to assist companies and other reporting entities with evaluating whether transactions should be accounted2016-13 below for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 requires an entity to evaluate if substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC Topic 606. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years. We adopted this standard in the first quarter of 2018 and determined that this guidance did not have a material impact on our consolidated financial statements.
In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers(“ASU 2016-20”). ASU 2016-20 updates the new revenue standard by clarifying issues that arose from ASU 2014-09, but does not change the core principle of the new standard. The issues addressed in this ASU include: (1) Loan guarantee fees, (2) Impairment testing of contract costs, (3) Interaction of impairment testing with guidance in other topics, (4) Provisions for losses on construction-type and production-type contracts, (5) Scope of topic 606, (6) Disclosure of remaining performance obligations, (7) Disclosure of prior-period
13
performance obligations, (8) Contract modifications, (9) Contract asset vs. receivable, (10) Refund liability, (11) Advertising costs, (12) Fixed-odds wagering contracts in the casino industry, (13) Cost capitalization for advisors to private funds and public funds. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulativeoverall effect of initially applying this new guidance recognized at the date of initial application. Our revenue includes net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and noninterest income. ASU 2016-20, ASU 2016-08 and ASU 2014-09 became effective on January 1, 2018 and we refined our disclosures around the standard in the first quarter of 2018. See Note 2 – Summary of Significant Accounting Policies for additional information. We determined that there is no material change on how we recognize our revenue streams and the adoption of these standards did not have a material impactTopic 326 Financial Instruments-Credit Losses on our consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses eight classification issues related to the statement of cash flows: Debt prepayment or debt extinguishment costs; Settlement of zero-coupon bonds; Contingent consideration payments made after a business combination; Proceeds from the settlement of insurance claims; Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; Distributions received from equity method investees; Beneficial interests in securitization transactions; and Separately identifiable cash flows and application of the predominance principle. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Entities will apply the standard’s provisions using a retrospective transition method to each period presented. We adopted this standard in the first quarter of 2018 and determined that this guidance did not have a material impact on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”). ASU 2016-08 updates the new revenue standard by clarifying the principal versus agent implementation guidance, but does not change the core principle of the new standard. The updates to the principal versus agent guidance: (i) require an entity to determine whether it is a principal or an agent for each distinct good or service (or a distinct bundle of goods or services) to be provided to the customer; (ii) illustrate how an entity that is a principal might apply the control principle to goods, services, or rights to services, when another party is involved in providing goods or services to a customer and (iii) Clarify that the purpose of certain specific control indicators is to support or assist in the assessment of whether an entity controls a good or service before it is transferred to the customer, provide more specific guidance on how the indicators should be considered, and clarify that their relevance will vary depending on the facts and circumstances. For public business entities, the effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09 which is effective for interim and annual periods beginning after December 15, 2017. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this new guidance recognized at the date of initial application. Our revenue includes net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and noninterest income. ASU 2016-20, ASU 2016-08 and ASU 2014-09 became effective on January 1, 2018 and we refined its disclosures around the standard in the first quarter of 2018. We determined that there is no material change on how we recognize our revenue streams and the adoption of these standards did not have a material impact on our consolidated financial statements, other than the required disclosures and the reclassification of interchange costs from noninterest expense to noninterest income on the Consolidated Statement of Income which we applied retrospectively to each prior reporting period. See further discussion in Note 2 – Summary of Significant Accounting Policies.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10); Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This update is intended to improve the recognition and measurement of financial instruments and it requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in other comprehensive income the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price; and (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. ASU 2016-01 also provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes and requires a qualitative impairment assessment of such equity
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investments and amends certain fair value disclosure requirements. For public business entities, the amendments in ASU 2016-01 are effective for interim and annual periods beginning after December 15, 2017. An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of the ASU 2016-01. This guidance became effective on January 1, 2018 and we determined that the implementation of this standard did not have a material impact to our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, Topic 606 (“ASU 2014-09”). The new standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under existing guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, Topic 606: Deferral of the Effective Date, deferring the effective date ofASU 2014-09 until annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this new guidance recognized at the date of initial application. Our revenue includes net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and noninterest income. ASU 2016-20, ASU 2016-08 and ASU 2014-09 became effective on January 1, 2018 and we refined our disclosures around the standard in the first quarter of 2018. See Note 2 – Summary of Significant Accounting Policies for additional information. We determined that there is no material change on how we recognize our revenue streams, other than the required disclosures and the reclassification of interchange costs from noninterest expense to noninterest income on the Consolidated Statement of Income which we applied retrospectively to each prior reporting period.
Issued But Not Yet Adopted Accounting Standards
In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (Subtopic 715-20) (“ASU 2018-14”). ASU 2018-14 amends ASC 715-20 to add, remove, and clarify disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. For public business entities, ASU 2018-14 is effective for fiscal years ending after December 15, 2020 and requires entities to apply the amendment on a retrospective basis. Early adoption is permitted. At this point in time, we do not expect that this guidance will have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) (“ASU 2018-13”). ASU 2018-13 removes, modifies, and adds certain disclosure requirements in ASC 820 related to Fair Value Measurement on the basis of the concepts in the FASB Concepts Statement Conceptual Framework for Financial Reporting — Chapter 8: Notes to Financial Statements. ASU 2018-13 iswas effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted upon issuance of this ASU, including in any interim period for which financial statements have not yet been issued or made available for issuance. Entities making this election are permitted to early adopt the eliminated or modified disclosure requirements and delay the adoption of all the new disclosure requirements until their effective date. The ASU requires application of the prospective method of transition (for only the most recent interim or annual period presented in the initial fiscal year of adoption) to the new disclosure requirement additions. The ASU also requires prospective application to any modifications to disclosures made because of the change to the requirements for the narrative description of measurement uncertainty. The effects of all other amendments made by the ASU must be applied retrospectively to all periods presented. The Company is still assessing the impact of this new guidance, but doesThis update did not believe it will have a material impact on the Company’sour consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangible-Goodwill and other (Topic 350): Simplifying the Test for Goodwill Impairment(“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in today’s two-step impairment test under ASC Topic 350 and eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consistconsists of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The guidance iswas effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods
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within those years. The amendments should be adopted prospectivelyBased on effects of the COVID-19 pandemic on the economy and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are still assessing the impact of this new guidance, but at this point in time, do not believe it will have a material impact on our consolidated financial statements.stock price, we evaluated our goodwill based on ASU 2017-04. We determined there was 0 impairment of goodwill or other intangibles as of March 31, 2020.
In June 2016, the FASB issued ASU No. 2016-13,, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).Instruments. ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowanceACL that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in earlier recognition of credit losses for loans, investment securities portfolio, and purchased financial assets with credit deterioration. See Note 2 –
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Summary of Significant Account Policies – Allowance for Credit Losses for further discussion. We adopted the new standard as of January 1, 2020. This standard did not have a material impact on our investment securities portfolio at implementation. Related to the implementation of ASU 2016-13, we recorded additional ACL for loans of $54.4 million, deferred tax assets of $12.6 million, an additional reserve for unfunded commitments of $6.4 million and an adjustment to retained earnings of $44.8 million. See table the below for impact of ASU 2016-13 on the Company’s consolidated balance sheet.
| | | | | | | |
| | | | January 1, 2020 | | | |
| | As Reported Under | | Pre-ASC 326 | | Impact of ASC 326 | |
Dollars in thousands |
| ASC 326 |
| Adoption |
| Adoption |
|
| | | | | | | |
Assets: | | | | | | | |
Allowance for Credit Losses on Debt Securities | | | | | | | |
Investment Securities - Available for Sale | | 1,956,047 | | 1,956,047 | | — | A |
Investment Securities - Held to Maturity | | — | | — | | — | A |
Loans | | | | | | | |
Non - Acquired Loans | | 9,252,831 | | 9,252,831 | | — | |
Acquired Loans | | 2,118,940 | | 2,117,209 | | 1,723 | B |
Allowance for Credit Losses on Loans | | (111,365) | | (56,927) | | (54,438) | C |
Deferred Tax Asset | | 43,955 | | 31,316 | | 12,639 | D |
Accrued Interest Receivable - Loans | | 30,009 | | 28,332 | | 1,677 | B |
| | | | | | | |
Liabilities: | | | | | | | |
Reserve for Loan Losses - Unfunded Commitments | | 6,756 | | 335 | | 6,421 | E |
| | | | | | | |
Equity: | | | | | | | |
Retained Earnings | | 635,075 | | 679,895 | | (44,820) | F |
A - The Company did not have any held-to maturity securities as of January 1, 2020. Per our analysis we determined that no ACL was necessary for investment securities – available for sale.
B – Accrued interest receivable from acquired credit impaired loans of $1,677 was reclassed to other assets and was offset by the reclass of the grossed up credit discount on acquired credit impaired loans of $3,408 that was moved to the ACL for the purchased credit deteriorated loans.
C – This is the calculated adjustment to the ACL related to the adoption of ASC 326. Additional reserve related to non-acquired loans was $34,049, to acquired loans was $16,981 and to purchased credit deteriorated loans was $3,408.
D – This is the effect of deferred tax assets related to the adjustment to the ACL from the adoption of ASC 326 using a 22% tax rate.
E – This is the adjustment to the reserve for unfunded commitments related to the adoption of ASC 326.
F – This is the net adjustment to retained earnings related to the adoption of ASC 326.
Issued But Not Yet Adopted Accounting Standards
In March 2020, FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848 – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. The amendments in this Update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this update were effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments in this update to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected, the amendments in this update must be applied prospectively for all eligible contract modifications and hedging relationships. The Company is currently evaluating all of its contracts, hedging relationships and other transactions that will be effected by reference rates that are being discontinued.
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In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also will require enhanced disclosures. The newimprove consistent application of and simplify GAAP for other areas of Topic 740 by clarifying the amending existing guidance. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years.2020. Early adoption is permitted. Entities will apply the standard’s provisions asThe amendments in this update related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. A cross-functional working group comprisedfiscal year of individuals from credit administration, risk management, accounting and finance, information technology, among othersadoption. The amendments related to franchise taxes that are in place implementing and developing the data, forecast, processes, and portfolio segmentation that willpartially based on income should be used in the models that will estimate the expected credit lossapplied on either a retrospective basis for each loan segment. We also contracted withall periods presented or a third party vendor solutionmodified retrospective basis through a cumulative-effect adjustment to assist us in the application and analysis of ASU 2016-13 in aggregating the resultsretained earnings as of the modelsbeginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. We do not believe this update will have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (Subtopic 715-20. ASU 2018-14 amends ASC 715-20 to add, remove, and provide macroeconomic forecastclarify disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. For public business entities, ASU 2018-14 is effective for fiscal years ending after December 15, 2020 and requires entities to apply the markets served relative to each loan segment. We are currently unable to reasonably estimate theamendment on a retrospective basis. Early adoption is permitted. At this point in time, we do not expect that this guidance will have a material impact of adopting ASU 2016-13, and it will be influenced by the composition, characteristics and quality ofon our loan and securities portfolio, as well as the economic conditions and forecasts as of each reporting period. These economic conditions and forecasts could be significantly different in future periods.consolidated financial statements.
Note 4 — Investment Securities
The following is the amortized cost and fair value of investment securities held to maturity:
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| Gross |
| Gross |
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| Amortized |
| Unrealized |
| Unrealized |
| Fair |
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(Dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Value |
| ||||
March 31, 2019: |
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State and municipal obligations |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
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December 31, 2018: |
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|
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|
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State and municipal obligations |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
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March 31, 2018: |
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|
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|
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State and municipal obligations |
| $ | 1,274 |
| $ | 10 |
| $ | — |
| $ | 1,284 |
|
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The following is the amortized cost and fair value of investment securities available for sale:
| | | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | | ||
| | Amortized | | Unrealized | | Unrealized | | Fair |
| ||||
(Dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Value |
| ||||
March 31, 2020: | | | | | | | | | | | | | |
Government-sponsored entities debt* | | $ | 4,882 | | $ | 39 | | $ | — | | $ | 4,921 | |
State and municipal obligations | |
| 215,388 | |
| 6,631 | |
| (415) | |
| 221,604 | |
Mortgage-backed securities** | |
| 1,695,191 | |
| 51,971 | |
| (2,492) | |
| 1,744,670 | |
| | $ | 1,915,461 | | $ | 58,641 | | $ | (2,907) | | $ | 1,971,195 | |
December 31, 2019: | | | | | | | | | | | | | |
Government-sponsored entities debt* | | $ | 25,356 | | $ | 585 | | $ | — | | $ | 25,941 | |
State and municipal obligations | |
| 204,150 | |
| 5,029 | |
| (764) | |
| 208,415 | |
Mortgage-backed securities** | |
| 1,711,257 | |
| 14,209 | |
| (3,775) | |
| 1,721,691 | |
| | $ | 1,940,763 | | $ | 19,823 | | $ | (4,539) | | $ | 1,956,047 | |
March 31, 2019: | | | | | | | | | | | | | |
Government-sponsored entities debt* | | $ | 65,567 | | $ | 441 | | $ | (304) | | $ | 65,704 | |
State and municipal obligations | |
| 190,302 | |
| 3,170 | |
| (54) | |
| 193,418 | |
Mortgage-backed securities** | |
| 1,216,669 | |
| 1,991 | |
| (11,533) | |
| 1,207,127 | |
| | $ | 1,472,538 | | $ | 5,602 | | $ | (11,891) | | $ | 1,466,249 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross |
| Gross |
|
|
|
| ||
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair |
| ||||
(Dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Value |
| ||||
March 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored entities debt* |
| $ | 65,567 |
| $ | 441 |
| $ | (304) |
| $ | 65,704 |
|
State and municipal obligations |
|
| 190,302 |
|
| 3,170 |
|
| (54) |
|
| 193,418 |
|
Mortgage-backed securities** |
|
| 1,216,669 |
|
| 1,991 |
|
| (11,533) |
|
| 1,207,127 |
|
|
| $ | 1,472,538 |
| $ | 5,602 |
| $ | (11,891) |
| $ | 1,466,249 |
|
December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored entities debt* |
| $ | 48,982 |
| $ | 21 |
| $ | (752) |
| $ | 48,251 |
|
State and municipal obligations |
|
| 200,184 |
|
| 1,709 |
|
| (1,125) |
|
| 200,768 |
|
Mortgage-backed securities** |
|
| 1,291,484 |
|
| 697 |
|
| (24,133) |
|
| 1,268,048 |
|
|
| $ | 1,540,650 |
| $ | 2,427 |
| $ | (26,010) |
| $ | 1,517,067 |
|
March 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored entities debt* |
| $ | 91,483 |
| $ | — |
| $ | (1,737) |
| $ | 89,746 |
|
State and municipal obligations |
|
| 224,994 |
|
| 2,232 |
|
| (1,540) |
|
| 225,686 |
|
Mortgage-backed securities** |
|
| 1,353,356 |
|
| 248 |
|
| (28,199) |
|
| 1,325,405 |
|
|
| $ | 1,669,833 |
| $ | 2,480 |
| $ | (31,476) |
| $ | 1,640,837 |
|
* - Our government-sponsored entities holdings are comprised of debt securities offered by Federal Home Loan Mortgage Corporation (“FHLMC”) or Freddie Mac, Federal National Mortgage Association (“FNMA”) or Fannie Mae, Federal Home Loan Bank (“FHLB”),FHLMC, FNMA, FHLB, GNMA and Federal Farm Credit Banks (“FFCB”). FFCB.
** - All of the mortgage-backed securities are issued by government-sponsored entities; there are no0 private-label holdings. Also, included in our mortgage-backed securities are debt securities offered by the Small Business Administration (“SBA”),SBA, which have the full faith and credit backing of the United States Government.
There were 0 realized gains or losses on the sale of securities for the three months ended March 31, 2020 compared to a net realized gain of $541,000 for the three months ended March 31, 2019. The net realized gain of $541,000 for the three months ended March 31, 2019 includes net realized gains totaling $3.5 million from the sale of VISA Class B shares. If the gains from the VISA Class B share are excluded, the Company would have had a net realized loss of $3.0 million on the sale of available for sale securities for the three months ended March 31, 2019.
17
The following is the amortized cost and carrying value of other investment securities:
|
|
|
|
| ||||
|
|
|
|
| ||||
|
| Carrying |
| |||||
| | | | | ||||
| | | | | ||||
| | Carrying |
| |||||
(Dollars in thousands) |
| Value |
|
| Value |
| ||
March 31, 2020: | | | | | ||||
Federal Home Loan Bank stock | | $ | 56,914 | | ||||
Investment in unconsolidated subsidiaries | |
| 3,563 | | ||||
Other nonmarketable investment securities | |
| 2,517 | | ||||
| | $ | 62,994 | | ||||
December 31, 2019: | | | | | ||||
Federal Home Loan Bank stock | | $ | 43,044 | | ||||
Investment in unconsolidated subsidiaries | |
| 3,563 | | ||||
Other nonmarketable investment securities | |
| 2,517 | | ||||
| | $ | 49,124 | | ||||
March 31, 2019: |
|
|
|
| | | | |
Federal Home Loan Bank stock |
| $ | 34,544 |
| | $ | 34,544 | |
Investment in unconsolidated subsidiaries |
|
| 3,563 |
| |
| 3,563 | |
Other nonmarketable investment securities |
|
| 2,517 |
| |
| 2,517 | |
|
| $ | 40,624 |
| ||||
December 31, 2018: |
|
|
|
| ||||
Federal Home Loan Bank stock |
| $ | 19,524 |
| ||||
Investment in unconsolidated subsidiaries |
|
| 3,563 |
| ||||
Other nonmarketable investment securities |
|
| 2,517 |
| ||||
|
| $ | 25,604 |
| ||||
March 31, 2018: |
|
|
|
| ||||
Federal Home Loan Bank stock |
| $ | 17,399 |
| ||||
Investment in unconsolidated subsidiaries |
|
| 3,563 |
| ||||
Other nonmarketable investment securities |
|
| 2,517 |
| ||||
|
| $ | 23,479 |
| ||||
| | $ | 40,624 | |
Our other investment securities consist of non-marketable equity securities that have no readily determinable market value. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. As of March 31, 2019,2020, we determined that there was no impairment on its other investment securities.
17
The amortized cost and fair value of debt and equity securities at March 31, 20192020 by contractual maturity are detailed below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.
| | | | | | | |
| | Securities |
| ||||
| | Available for Sale |
| ||||
| | Amortized | | Fair |
| ||
(Dollars in thousands) |
| Cost |
| Value |
| ||
Due in one year or less |
| $ | 12,015 |
| $ | 12,051 | |
Due after one year through five years | |
| 36,369 | |
| 37,250 | |
Due after five years through ten years | |
| 415,577 | |
| 427,830 | |
Due after ten years | |
| 1,451,500 | |
| 1,494,064 | |
| | $ | 1,915,461 | | $ | 1,971,195 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Securities |
| Securities |
| ||||||||
|
| Held to Maturity |
| Available for Sale |
| ||||||||
|
| Amortized |
| Fair |
| Amortized |
| Fair |
| ||||
(Dollars in thousands) |
| Cost |
| Value |
| Cost |
| Value |
| ||||
Due in one year or less |
| $ | — |
| $ | — |
| $ | 9,437 |
| $ | 9,415 |
|
Due after one year through five years |
|
| — |
|
| — |
|
| 74,473 |
|
| 74,860 |
|
Due after five years through ten years |
|
| — |
|
| — |
|
| 361,457 |
|
| 360,630 |
|
Due after ten years |
|
| — |
|
| — |
|
| 1,027,171 |
|
| 1,021,344 |
|
|
| $ | — |
| $ | — |
| $ | 1,472,538 |
| $ | 1,466,249 |
|
18
Information pertaining to our securities with gross unrealized losses at March 31, 2019,2020, December 31, 20182019 and March 31, 2018,2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Less Than |
| Twelve Months |
| |||||||||||||||||||||
|
| Twelve Months |
| or More |
| |||||||||||||||||||||
|
| Gross |
|
|
|
| Gross |
|
|
|
| |||||||||||||||
|
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | Less Than | | Twelve Months |
| |||||||||||||||||||||
| | Twelve Months | | or More |
| |||||||||||||||||||||
| | Gross | | | | | Gross | | | |
| |||||||||||||||
| | Unrealized | | Fair | | Unrealized | | Fair |
| |||||||||||||||||
(Dollars in thousands) |
| Losses |
| Value |
| Losses |
| Value |
|
| Losses |
| Value |
| Losses |
| Value |
| ||||||||
March 31, 2020: | | | | | | | | | | | | | | |||||||||||||
Securities Available for Sale | | | | | | | | | | | | | | |||||||||||||
Government-sponsored entities debt | | $ | — | | $ | — | | $ | — | | $ | — | | |||||||||||||
State and municipal obligations | |
| 415 | |
| 15,646 | |
| — | |
| — | | |||||||||||||
Mortgage-backed securities | |
| 1,888 | |
| 231,144 | |
| 604 | |
| 52,993 | | |||||||||||||
| | $ | 2,303 | | $ | 246,790 | | $ | 604 | | $ | 52,993 | | |||||||||||||
December 31, 2019: | | | | | | | | | | | | | | |||||||||||||
Securities Available for Sale | | | | | | | | | | | | | | |||||||||||||
Government-sponsored entities debt | | $ | — | | $ | — | | $ | — | | $ | — | | |||||||||||||
State and municipal obligations | |
| 764 | |
| 42,070 | |
| — | |
| — | | |||||||||||||
Mortgage-backed securities | |
| 2,422 | |
| 461,658 | |
| 1,353 | |
| 141,982 | | |||||||||||||
| | $ | 3,186 | | $ | 503,728 | | $ | 1,353 | | $ | 141,982 | | |||||||||||||
March 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Securities Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Government-sponsored entities debt |
| $ | 49 |
| $ | 11,687 |
| $ | 255 |
| $ | 30,490 |
| | $ | 49 | | $ | 11,687 | | $ | 255 | | $ | 30,490 | |
State and municipal obligations |
|
| — |
|
| — |
|
| 54 |
|
| 10,310 |
| |
| — | |
| — | |
| 54 | |
| 10,310 | |
Mortgage-backed securities |
|
| 726 |
|
| 110,389 |
|
| 10,807 |
|
| 826,714 |
| |
| 726 | |
| 110,389 | |
| 10,807 | |
| 826,714 | |
|
| $ | 775 |
| $ | 122,076 |
| $ | 11,116 |
| $ | 867,514 |
| |||||||||||||
December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Securities Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Government-sponsored entities debt |
| $ | 100 |
| $ | 10,571 |
| $ | 652 |
| $ | 32,959 |
| |||||||||||||
State and municipal obligations |
|
| 760 |
|
| 40,387 |
|
| 365 |
|
| 14,231 |
| |||||||||||||
Mortgage-backed securities |
|
| 5,182 |
|
| 405,055 |
|
| 18,951 |
|
| 755,223 |
| |||||||||||||
|
| $ | 6,042 |
| $ | 456,013 |
| $ | 19,968 |
| $ | 802,413 |
| |||||||||||||
March 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Securities Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Government-sponsored entities debt |
| $ | 918 |
| $ | 34,712 |
| $ | 819 |
| $ | 55,034 |
| |||||||||||||
State and municipal obligations |
|
| 1,523 |
|
| 69,118 |
|
| 17 |
|
| 724 |
| |||||||||||||
Mortgage-backed securities |
|
| 17,030 |
|
| 938,924 |
|
| 11,169 |
|
| 304,731 |
| |||||||||||||
|
| $ | 19,471 |
| $ | 1,042,754 |
| $ | 12,005 |
| $ | 360,489 |
| |||||||||||||
| | $ | 775 | | $ | 122,076 | | $ | 11,116 | | $ | 867,514 | |
Management evaluates securities for other-than-temporary impairment (“OTTI”)where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby Management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the provision for credit losses. Consideration is given to (1) the financial condition and near-term prospects of the issuer including looking at default and delinquency rates, (2) the outlook for receiving the contractual cash flows of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, and (5) the anticipated outlook for changes in the general level of interest rates.rates, (6) credit ratings, (7) third party guarantees, and (8) collateral values. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the investments. The Company performed an analysis that determined that the following securities have a zero expected credit loss: U.S. Treasury Securities, Agency-Backed Securities including GNMA, FHLMC, FNMA, FHLB, FFCB and SBA. All of the U.S. Treasury and Agency-Backed Securities have the full faith and credit backing of the United State Government or one of its agencies. Municipal securities and all other securities that do not have a zero expected credit loss are evaluated quarterly to determine whether there is a credit loss associated with a decline in fair value. All debt securities available for sale in an unrealized loss position as of March 31, 20192020 continue to perform as scheduled. Asscheduled and we do not believe that there is a credit loss or that a provision for credit losses is necessary. Also, as part of our evaluation of itsour intent and ability to hold investments for a period of time sufficient to allow for any anticipated recovery in the market, we consider our investment strategy, cash flow needs, liquidity position, capital adequacy and interest rate risk position. We do not currently intend to sell the securities within the portfolio and it is not more-likely-than-not that we will be required to sell the debt securities; therefore, management does not consider these investments to be other-than-temporarily impaired at March 31, 2019.securities. See Note 2 – Summary of Significant Account Policies for further discussion.
18
Management continues to monitor all of our securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of its securities may be sold or are other than temporarily impaired, which would require a charge to earnings as a provision for credit losses in such periods.
19
Note 5 — Loans
The following is a summary of total loans:
| | | | | | | | | | |
| | March 31, | | December 31, | | March 31, | | |||
(Dollars in thousands) |
| 2020 |
| 2019 |
| 2019 |
| |||
Loans: | | |
| | |
| | |
| |
Commercial non-owner occupied real estate: | | | | | | | | | | |
Construction and land development | | $ | 1,105,308 | | $ | 1,017,261 | | $ | 946,503 | |
Commercial non-owner occupied | |
| 2,371,371 | |
| 2,323,967 | |
| 2,329,449 | |
Total commercial non-owner occupied real estate | |
| 3,476,679 | |
| 3,341,228 | |
| 3,275,952 | |
Consumer real estate: | | | | | | | | | | |
Consumer owner occupied | |
| 2,665,405 | |
| 2,706,960 | |
| 2,731,499 | |
Home equity loans | |
| 758,482 | |
| 758,020 | |
| 791,658 | |
Total consumer real estate | |
| 3,423,887 | |
| 3,464,980 | |
| 3,523,157 | |
Commercial owner occupied real estate | |
| 2,177,738 | |
| 2,158,701 | |
| 2,086,662 | |
Commercial and industrial | |
| 1,418,421 | |
| 1,386,327 | |
| 1,251,719 | |
Other income producing property | |
| 327,696 | |
| 346,554 | |
| 380,177 | |
Consumer | |
| 674,791 | |
| 663,422 | |
| 610,231 | |
Other loans | |
| 7,678 | |
| 13,892 | |
| 18,224 | |
Total loans | |
| 11,506,890 | |
| 11,375,104 | |
| 11,146,122 | |
Less allowance for credit losses | |
| (144,785) | |
| (61,991) | |
| (56,522) | |
Loans, net | | $ | 11,362,105 | | $ | 11,313,113 | | $ | 11,089,600 | |
In accordance with the adoption of ASU 2016-13, the above table reflects the loan portfolio at the amortized cost basis for the current period March 31, 2020, to include net deferred cost of $817,693 and Allowanceunamortized discount total related to loans acquired of $52.2 million. Accrued interest receivable (AIR) of $30.2 million is accounted for Loan Lossesseparately and reported in other assets. The allowance for credit losses in the comparative periods includes the day 2 valuation allowance on the acquired credit impaired loans, which was $5.1 million at December 31, 2019 and $4.5 million at March 31, 2019.
The comparative periods in the above table reflect the loan portfolio prior to the adoption of ASU 2016-13. Prior periods were reported as shown in the below tables, with the acquired loans being net of earned income and of related discounts,which includes the credit discount on the acquired credit impaired loans.
20
The following is a summary of non-acquired loans:loans for comparative periods, prior to the adoption of ASU 2016-13:
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| March 31, |
| December 31, |
| March 31, |
| ||||||||||
| | | | | | | | ||||||||||
| | December 31, | | March 31, | | ||||||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
|
| 2019 |
| 2019 |
| |||||
Non-acquired loans: |
|
|
|
|
|
|
|
|
|
| | |
| | |
| |
Commercial non-owner occupied real estate: |
|
|
|
|
|
|
|
|
|
| | | | | | | |
Construction and land development |
| $ | 810,551 |
| $ | 841,445 |
| $ | 871,141 |
| | $ | 968,360 | | $ | 810,551 | |
Commercial non-owner occupied |
|
| 1,615,416 |
|
| 1,415,551 |
|
| 1,050,924 |
| |
| 1,811,138 | |
| 1,615,416 | |
Total commercial non-owner occupied real estate |
|
| 2,425,967 |
|
| 2,256,996 |
|
| 1,922,065 |
| |
| 2,779,498 | |
| 2,425,967 | |
Consumer real estate: |
|
|
|
|
|
|
|
|
|
| | | | | | | |
Consumer owner occupied |
|
| 2,005,314 |
|
| 1,936,265 |
|
| 1,612,501 |
| |
| 2,118,839 | |
| 2,005,314 | |
Home equity loans |
|
| 508,326 |
|
| 495,148 |
|
| 448,582 |
| |
| 518,628 | |
| 508,326 | |
Total consumer real estate |
|
| 2,513,640 |
|
| 2,431,413 |
|
| 2,061,083 |
| |
| 2,637,467 | |
| 2,513,640 | |
Commercial owner occupied real estate |
|
| 1,601,360 |
|
| 1,517,551 |
|
| 1,296,738 |
| |
| 1,784,017 | |
| 1,601,360 | |
Commercial and industrial |
|
| 1,072,070 |
|
| 1,054,952 |
|
| 872,363 |
| |
| 1,280,859 | |
| 1,072,070 | |
Other income producing property |
|
| 214,235 |
|
| 214,353 |
|
| 198,684 |
| |
| 218,617 | |
| 214,235 | |
Consumer |
|
| 465,117 |
|
| 448,664 |
|
| 390,784 |
| |
| 538,481 | |
| 465,117 | |
Other loans |
|
| 18,224 |
|
| 9,357 |
|
| 20,795 |
| |
| 13,892 | |
| 18,224 | |
Total non-acquired loans |
|
| 8,310,613 |
|
| 7,933,286 |
|
| 6,762,512 |
| |
| 9,252,831 | |
| 8,310,613 | |
Less allowance for loan losses |
|
| (52,008) |
|
| (51,194) |
|
| (45,203) |
| |
| (56,927) | |
| (52,008) | |
Non-acquired loans, net |
| $ | 8,258,605 |
| $ | 7,882,092 |
| $ | 6,717,309 |
| | $ | 9,195,904 | | $ | 8,258,605 | |
The following is a summary of acquired non-credit impaired loans accounted for under FASB ASC Topic 310-20, net of related discount:discount, for comparative periods, prior to the adoption of ASU 2016-13:
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| March 31, |
| December 31, |
| March 31, |
| |||||||||||
| | | | | | | | |||||||||||
| | December 31, | | March 31, |
| |||||||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
| | 2019 | | 2019 |
| ||||||
FASB ASC Topic 310-20 acquired loans: |
|
|
|
|
|
|
|
|
|
| ||||||||
Acquired non-credit impaired loans: |
| |
|
| |
| | |||||||||||
Commercial non-owner occupied real estate: |
|
|
|
|
|
|
|
|
|
| | | | | | | | |
Construction and land development |
| $ | 113,572 |
| $ | 165,070 |
| $ | 349,532 |
| | $ | 33,569 | | $ | 113,572 | | |
Commercial non-owner occupied |
|
| 629,394 |
|
| 679,253 |
|
| 783,466 |
| |
| 447,441 | |
| 629,394 | | |
Total commercial non-owner occupied real estate |
|
| 742,966 |
|
| 844,323 |
|
| 1,132,998 |
| |
| 481,010 | |
| 742,966 | | |
Consumer real estate: |
|
|
|
|
|
|
|
|
|
| | | | | | | | |
Consumer owner occupied |
|
| 610,376 |
|
| 628,813 |
|
| 683,614 |
| |
| 496,431 | |
| 610,376 | | |
Home equity loans |
|
| 225,278 |
|
| 242,425 |
|
| 295,721 |
| |
| 188,732 | |
| 225,278 | | |
Total consumer real estate |
|
| 835,654 |
|
| 871,238 |
|
| 979,335 |
| |
| 685,163 | |
| 835,654 | | |
Commercial owner occupied real estate |
|
| 400,658 |
|
| 421,841 |
|
| 498,541 |
| |
| 307,193 | |
| 400,658 | | |
Commercial and industrial |
|
| 173,840 |
|
| 212,537 |
|
| 344,171 |
| |
| 101,880 | |
| 173,840 | | |
Other income producing property |
|
| 120,696 |
|
| 133,110 |
|
| 186,091 |
| |
| 95,697 | |
| 120,696 | | |
Consumer |
|
| 104,923 |
|
| 111,777 |
|
| 133,802 |
| |
| 89,484 | |
| 104,923 | | |
Total FASB ASC Topic 310-20 acquired loans |
| $ | 2,378,737 |
| $ | 2,594,826 |
| $ | 3,274,938 |
| ||||||||
Acquired non-credit impaired loans | | $ | 1,760,427 | | $ | 2,378,737 | |
The unamortized discount related to the acquired non-credit impaired loans totaled $20.3 million and $30.2 million $33.4 million,at December 31, 2019, and $55.3 million at March 31, 2019, December 31, 2018, and March 31, 2018, respectively.
19
21
In accordance with FASB ASC Topic 310-30, we aggregated acquired loans that have common risk characteristics into pools of loan categories as described in the table below. The following is a summary of acquired credit impaired loans accounted for under FASB ASC Topic 310-30 (identified as credit impaired at the time of acquisition), net of related discount:
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
| March 31, |
| |||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
| |||
FASB ASC Topic 310-30 acquired loans: |
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
| $ | 173,707 |
| $ | 196,764 |
| $ | 233,277 |
|
Commercial real estate—construction and development |
|
| 32,257 |
|
| 32,942 |
|
| 46,219 |
|
Residential real estate |
|
| 199,701 |
|
| 207,482 |
|
| 248,766 |
|
Consumer |
|
| 40,182 |
|
| 42,492 |
|
| 48,801 |
|
Commercial and industrial |
|
| 10,925 |
|
| 10,043 |
|
| 24,295 |
|
Total FASB ASC Topic 310-30 acquired loans |
|
| 456,772 |
|
| 489,723 |
|
| 601,358 |
|
Less allowance for loan losses |
|
| (4,514) |
|
| (4,604) |
|
| (4,084) |
|
FASB ASC Topic 310-30 acquired loans, net |
| $ | 452,258 |
| $ | 485,119 |
| $ | 597,274 |
|
The table below reflects refined contractual loan payments (principal and interest), estimates of the amounts not expected to be collected (non-accretable difference), accretable yield (interest income recognized over time), and the resulting fair values at the acquisition date discount, for Park Sterling Corporation (“PSC”) (November 30, 2017) for loans accounted for using FASB ASC Topic 310-30. During the second quarter of 2018, the initial fair value of loans at acquisition were adjusted to reflect movement of loans between the ASC Topic 310-20 portfolio and the ASC Topic 310-30 portfolio and the movement in interest rates from the initial valuation.
|
|
|
|
|
|
|
|
| November 30, 2017 |
| |
|
|
| Loans Impaired |
| |
(Dollars in thousands) |
|
| at Acquisition |
| |
Contractual principal and interest |
|
| $ | 113,584 |
|
Non-accretable difference |
|
|
| (27,248) |
|
Cash flows expected to be collected |
|
|
| 86,336 |
|
Accretable difference |
|
|
| (7,369) |
|
Carrying value |
|
| $ | 78,967 |
|
The table above excludes $2.1 billion ($2.2 billion in contractual principal less a $46.5 million fair value adjustment) in acquired loans at fair value that were identified as either performing with no discount relatedcomparative periods, prior to the credit or as revolving linesadoption of credit (commercial or consumer) as of the acquisition date and will be accounted for under FASB ASC Topic 310-20.ASU 2016-13:
| | | | | | | |
| | December 31, | | March 31, |
| ||
(Dollars in thousands) |
| 2019 |
| 2019 |
| ||
Acquired credit impaired loans: | | |
| | |
| |
Commercial real estate | | $ | 130,938 | | $ | 173,707 | |
Commercial real estate—construction and development | |
| 25,032 | |
| 32,257 | |
Residential real estate | |
| 163,359 | |
| 199,701 | |
Consumer | |
| 35,488 | |
| 40,182 | |
Commercial and industrial | |
| 7,029 | |
| 10,925 | |
Acquired credit impaired loans | |
| 361,846 | |
| 456,772 | |
Less allowance for loan losses | |
| (5,064) | |
| (4,514) | |
Acquired credit impaired loans, net | | $ | 356,782 | | $ | 452,258 | |
The table below reflects refined contractual loan payments (principal and interest), estimates of the amounts not expected to be collected (non-accretable difference), accretable yield (interest income recognized over time), and the resulting fair values at the acquisition date for Southeastern Bank Financial Corporation (“SBFC”) (January 3, 2017) for loans accounted for using FASB ASC Topic 310-30. During the third quarter of 2017, the initial fair values of the acquired loan portfolios were adjusted to reflect movement of loans between the ASC Topic 310-20 portfolio and the ASC Topic 310-30 portfolio
.
|
|
|
|
|
|
|
|
| January 3, 2017 |
| |
|
|
| Loans Impaired |
| |
(Dollars in thousands) |
|
| at Acquisition |
| |
Contractual principal and interest |
|
| $ | 78,963 |
|
Non-accretable difference |
|
|
| (13,072) |
|
Cash flows expected to be collected |
|
|
| 65,891 |
|
Accretable difference |
|
|
| (4,910) |
|
Carrying value |
|
| $ | 60,981 |
|
The table above excludes $986.5 million ($1.0 billion in contractual principal less a $18.8 million fair value adjustment) in acquired loans at fair value that were identified as either performing with no discount related to the credit
20
or as revolving lines of credit (commercial or consumer) as of the acquisition date and will be accounted for under FASB ASC Topic 310-20.
Contractual loan payments receivable, estimates of amounts not expected to be collected, other fair value adjustments and the resulting carrying values of acquired credit impaired loans as of March 31, 2019, December 31, 2018 and March 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
| March 31, |
| |||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
| |||
Contractual principal and interest |
| $ | 583,518 |
| $ | 626,691 |
| $ | 760,973 |
|
Non-accretable difference |
|
| (24,282) |
|
| (24,818) |
|
| (33,841) |
|
Cash flows expected to be collected |
|
| 559,236 |
|
| 601,873 |
|
| 727,132 |
|
Accretable yield |
|
| (106,978) |
|
| (116,754) |
|
| (129,858) |
|
Carrying value |
| $ | 452,258 |
| $ | 485,119 |
| $ | 597,274 |
|
Income on acquired credit impaired loans that are not impaired at the acquisition date is recognized in the same manner as loans impaired at the acquisition date. A portion of the fair value discount on acquired non-impaired loans has been ascribed as an accretable yield that is accreted into interest income over the estimated remaining life of the loans. The remaining nonaccretable difference represents cash flows not expected to be collected.
The following are changes in the carrying value of acquired credit impaired loans:
|
|
|
|
|
|
|
|
| Three Months Ended March 31, | ||||
(Dollars in thousands) |
| 2019 |
| 2018 | ||
Balance at beginning of period |
| $ | 485,119 |
| $ | 618,803 |
Net reductions for payments, foreclosures, and accretion |
|
| (32,951) |
|
| (22,072) |
Change in the allowance for loan losses on acquired loans |
|
| 90 |
|
| 543 |
Balance at end of period, net of allowance for loan losses on acquired loans |
| $ | 452,258 |
| $ | 597,274 |
The table below reflects refined accretable yield balance for acquired credit impaired loans:
|
|
|
|
|
|
|
|
| Three Months Ended March 31, | ||||
(Dollars in thousands) |
| 2019 |
| 2018 | ||
Balance at beginning of period |
| $ | 116,754 |
| $ | 133,096 |
Contractual interest income |
|
| (7,078) |
|
| (8,696) |
Accretion on acquired loans |
|
| (5,120) |
|
| (3,801) |
Reclass of nonaccretable difference due to improvement in expected cash flows |
|
| 2,474 |
|
| 9,335 |
Other changes, net |
|
| (52) |
|
| (76) |
Balance at end of period |
| $ | 106,978 |
| $ | 129,858 |
The table above reflects the changes in the carrying amount of accretable yield for the acquired credit impaired loans and shows both the contractual interest income and incremental accretion for the three months ended March 31, 2019 and 2018. In the first quarter of 2019, the accretable yield balance declined by $9.8 million as total contractual interest and accretion income of $12.2 million was recognized. This was partially offset by improved expected cash flows of $2.5 million. The improved cash flows for the prior year was adjusted to accurately reflect the split between income types.
As of March 31, 2019, the table above excludes $2.4 billion ($2.4 billion in contractual principal less a $30.2 million discount) in acquired loans which are accounted for under FASB ASC Topic 310-20. These loans were identified as either performing with no discount related to the credit or as a revolving lines of credit (commercial or consumer) at acquisition. As of March 31, 2018, the balance of these acquired loans totaled $3.3 billion ($3.3 billion in contractual principal less a $55.3 million remaining discount).
Our loan loss policy adheres to GAAP as well as interagency guidance. The allowance for loan losses, which we sometimes refer to herein as ALLL, is based upon estimates made by management. We maintain an allowance for loan losses at a level that we believe is appropriate to cover estimated credit losses on individually evaluated loans that are determined to be impaired as well as estimated credit losses inherent in the remainder of our loan portfolio. Arriving at the allowance involves a high degree of management judgment and results in a range of estimated losses. We
21
regularly evaluate the adequacy of the allowance through our internal risk rating system, outside credit review, and regulatory agency examinations to assess the quality of the loan portfolio and identify problem loans. The evaluation process also includes our analysis of current economic conditions, composition of the loan portfolio, past due and nonaccrual loans, concentrations of credit, lending policies and procedures, and historical loan loss experience. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on, among other factors, changes in economic conditions in our markets. In addition, regulatory agencies, as an integral part of their examination process, periodically review our allowances for losses on loans. These agencies may require management to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Because of these and other factors, it is possible that the allowances for losses on loans may change. The provision for loan losses is charged to expense in an amount necessary to maintain the allowance at an appropriate level.
The allowance for loan losses on non‑acquired loans consists of general and specific reserves. The general reserves are determined by applying loss percentages to the portfolio that are based on historical loss experience for each class of loans and management’s evaluation and “risk grading” of the loan portfolio. Additionally, the general economic and business conditions affecting key lending areas, credit quality trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, the findings of internal and external credit reviews and results from external bank regulatory examinations are included in this evaluation. Currently, these adjustments are applied to the non‑acquired loan portfolio when estimating the level of reserve required. The specific reserves are determined on a loan‑by‑loan basis based on management’s evaluation of our exposure for each credit, given the current payment status of the loan and the value of any underlying collateral. These are loans classified by management as doubtful or substandard. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. Generally, the need for specific reserve is evaluated on impaired loans, and once a specific reserve is established for a loan, a charge off of that amount occurs in the quarter subsequent to the establishment of the specific reserve. Loans that are determined to be impaired are provided a specific reserve, if necessary, and are excluded from the calculation of the general reserves.
Beginning with the First Financial Holdings, Inc. acquisition, we segregated the loan portfolio into performing loans (“non‑credit impaired) and purchased credit impaired loans. The performing loans and revolving type loans are accounted for under FASB ASC 310‑20, with each loan being accounted for individually. The allowance for loan losses on these loans will be measured and recorded consistent with non‑acquired loans. The acquired credit impaired loans will follow the description in the next paragraph.
In determining the acquisition date fair value of purchased loans, and in subsequent accounting, we generally aggregate purchased loans into pools of loans with common risk characteristics. Expected cash flows at the acquisition date in excess of the fair value of loans are recorded as interest income over the life of the loans using a level yield method if the timing and amount of the future cash flows of the pool is reasonably estimable. Subsequent to the acquisition date, increases in cash flows over those expected at the acquisition date are reclassified from the non‑accretable difference to accretable yield and recognized as interest income prospectively. Decreases in expected cash flows after the acquisition date are recognized by recording an allowance for loan losses. Management analyzes the acquired loan pools using various assessments of risk to determine an expected loss. The expected loss is derived based upon a loss given default based upon the collateral type and/or detailed review by loan officers and the probability of default that is determined based upon historical data at the loan level. All acquired loans managed by Special Asset Management are reviewed quarterly and assigned a loss given default. Acquired loans not managed by Special Asset Management are reviewed twice a year in a similar method to our originated portfolio of loans which follow review thresholds based on risk rating categories. In the fourth quarter of 2015, we modified its methodology to a more granular approach in determining loss given default on substandard loans with a net book balance between $100,000 and $500,000 by adjusting the loss given default to 90% of the most current collateral valuation based on appraised value. Substandard loans greater than $500,000 were individually assigned loss given defaults each quarter. Trends are reviewed in terms of accrual status, past due status, and weighted‑average grade of the loans within each of the accounting pools. In addition, the relationship between the change in the unpaid principal balance and change in the mark is assessed to correlate the directional consistency of the expected loss for each pool.
22
An aggregated analysis of the changes in allowance for loan losses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Non-acquired |
| Acquired Non-Credit |
| Acquired Credit |
|
|
|
| |||||||||||||
(Dollars in thousands) |
| Loans |
| Impaired Loans |
| Impaired Loans |
| Total |
| ||||||||||||||
Three Months Ended March 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at beginning of period |
| $ | 51,194 |
| $ | — |
| $ | 4,604 |
| $ | 55,798 |
| ||||||||||
Loans charged-off |
|
| (1,245) |
|
| (374) |
|
| — |
|
| (1,619) |
| ||||||||||
Recoveries of loans previously charged off (1) |
|
| 752 |
|
| 206 |
|
| — |
|
| 958 |
| ||||||||||
Net charge-offs |
|
| (493) |
|
| (168) |
|
| — |
|
| (661) |
| ||||||||||
Provision for loan losses charged to operations |
|
| 1,307 |
|
| 168 |
|
| 13 |
|
| 1,488 |
| ||||||||||
Reduction due to loan removals |
|
| — |
|
| — |
|
| (103) |
|
| (103) |
| ||||||||||
Balance at end of period |
| $ | 52,008 |
| $ | — |
| $ | 4,514 |
| $ | 56,522 |
| ||||||||||
Three Months Ended March 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at beginning of period |
| $ | 43,448 |
| $ | — |
| $ | 4,627 |
| $ | 48,075 |
| ||||||||||
Loans charged-off |
|
| (1,169) |
|
| (334) |
|
| — |
|
| (1,503) |
| ||||||||||
Recoveries of loans previously charged off (1) |
|
| 802 |
|
| 165 |
|
| — |
|
| 967 |
| ||||||||||
Net charge-offs |
|
| (367) |
|
| (169) |
|
| — |
|
| (536) |
| ||||||||||
Provision for loan losses charged to operations |
|
| 2,122 |
|
| 169 |
|
| 163 |
|
| 2,454 |
| ||||||||||
Reduction due to loan removals |
|
| — |
|
| — |
|
| (706) |
|
| (706) |
| ||||||||||
Balance at end of period |
| $ | 45,203 |
| $ | — |
| $ | 4,084 |
| $ | 49,287 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present a disaggregated analysis of activity in the allowance for loan losses and loan balances for non-acquired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Construction |
| Commercial |
| Commercial |
| Consumer |
|
|
|
|
|
|
| Other Income |
|
|
|
|
|
|
|
|
| |||||
|
| & Land |
| Non-owner |
| Owner |
| Owner |
| Home |
| Commercial |
| Producing |
|
|
|
| Other |
|
|
| ||||||||
(Dollars in thousands) |
| Development |
| Occupied |
| Occupied |
| Occupied |
| Equity |
| & Industrial |
| Property |
| Consumer |
| Loans |
| Total | ||||||||||
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018 |
| $ | 5,682 |
| $ | 8,754 |
| $ | 9,369 |
| $ | 11,913 |
| $ | 3,434 |
| $ | 7,454 |
| $ | 1,446 |
| $ | 3,101 |
| $ | 41 |
| $ | 51,194 |
Charge-offs |
|
| — |
|
| — |
|
| (12) |
|
| (37) |
|
| (15) |
|
| (19) |
|
| — |
|
| (1,162) |
|
| — |
|
| (1,245) |
Recoveries |
|
| 299 |
|
| 22 |
|
| 25 |
|
| 2 |
|
| 36 |
|
| 71 |
|
| 45 |
|
| 252 |
|
| — |
|
| 752 |
Provision (benefit) |
|
| (610) |
|
| 964 |
|
| 247 |
|
| 180 |
|
| (182) |
|
| (257) |
|
| (104) |
|
| 1,004 |
|
| 65 |
|
| 1,307 |
Balance, March 31, 2019 |
| $ | 5,371 |
| $ | 9,740 |
| $ | 9,629 |
| $ | 12,058 |
| $ | 3,273 |
| $ | 7,249 |
| $ | 1,387 |
| $ | 3,195 |
| $ | 106 |
| $ | 52,008 |
Loans individually evaluated for impairment |
| $ | 786 |
| $ | 60 |
| $ | 21 |
| $ | 37 |
| $ | 161 |
| $ | 420 |
| $ | 111 |
| $ | 3 |
| $ | — |
| $ | 1,599 |
Loans collectively evaluated for impairment |
| $ | 4,585 |
| $ | 9,680 |
| $ | 9,608 |
| $ | 12,021 |
| $ | 3,112 |
| $ | 6,829 |
| $ | 1,276 |
| $ | 3,192 |
| $ | 106 |
| $ | 50,409 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | 38,257 |
| $ | 375 |
| $ | 4,220 |
| $ | 6,885 |
| $ | 2,754 |
| $ | 1,315 |
| $ | 2,357 |
| $ | 110 |
| $ | — |
| $ | 56,273 |
Loans collectively evaluated for impairment |
|
| 772,294 |
|
| 1,615,041 |
|
| 1,597,140 |
|
| 1,998,429 |
|
| 505,572 |
|
| 1,070,755 |
|
| 211,878 |
|
| 465,007 |
|
| 18,224 |
|
| 8,254,340 |
Total non-acquired loans |
| $ | 810,551 |
| $ | 1,615,416 |
| $ | 1,601,360 |
| $ | 2,005,314 |
| $ | 508,326 |
| $ | 1,072,070 |
| $ | 214,235 |
| $ | 465,117 |
| $ | 18,224 |
| $ | 8,310,613 |
Three Months Ended March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017 |
| $ | 5,921 |
| $ | 6,525 |
| $ | 8,128 |
| $ | 9,668 |
| $ | 3,250 |
| $ | 5,488 |
| $ | 1,375 |
| $ | 2,788 |
| $ | 305 |
| $ | 43,448 |
Charge-offs |
|
| (35) |
|
| — |
|
| — |
|
| (4) |
|
| (66) |
|
| (85) |
|
| — |
|
| (979) |
|
| — |
|
| (1,169) |
Recoveries |
|
| 442 |
|
| 2 |
|
| 8 |
|
| 23 |
|
| 101 |
|
| 15 |
|
| 8 |
|
| 203 |
|
| — |
|
| 802 |
Provision (benefit) |
|
| (481) |
|
| 271 |
|
| 210 |
|
| 506 |
|
| (48) |
|
| 915 |
|
| 10 |
|
| 887 |
|
| (148) |
|
| 2,122 |
Balance, March 31, 2018 |
| $ | 5,847 |
| $ | 6,798 |
| $ | 8,346 |
| $ | 10,193 |
| $ | 3,237 |
| $ | 6,333 |
| $ | 1,393 |
| $ | 2,899 |
| $ | 157 |
| $ | 45,203 |
Loans individually evaluated for impairment |
| $ | 767 |
| $ | 110 |
| $ | 63 |
| $ | 35 |
| $ | 73 |
| $ | 489 |
| $ | 166 |
| $ | 9 |
| $ | — |
| $ | 1,712 |
Loans collectively evaluated for impairment |
| $ | 5,080 |
| $ | 6,688 |
| $ | 8,283 |
| $ | 10,158 |
| $ | 3,164 |
| $ | 5,844 |
| $ | 1,227 |
| $ | 2,890 |
| $ | 157 |
| $ | 43,491 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | 46,198 |
| $ | 1,181 |
| $ | 5,578 |
| $ | 5,493 |
| $ | 3,168 |
| $ | 1,677 |
| $ | 3,086 |
| $ | 315 |
| $ | — |
| $ | 66,696 |
Loans collectively evaluated for impairment |
|
| 824,943 |
|
| 1,049,743 |
|
| 1,291,160 |
|
| 1,607,008 |
|
| 445,414 |
|
| 870,686 |
|
| 195,598 |
|
| 390,469 |
|
| 20,795 |
|
| 6,695,816 |
Total non-acquired loans |
| $ | 871,141 |
| $ | 1,050,924 |
| $ | 1,296,738 |
| $ | 1,612,501 |
| $ | 448,582 |
| $ | 872,363 |
| $ | 198,684 |
| $ | 390,784 |
| $ | 20,795 |
| $ | 6,762,512 |
23
The following tables present a disaggregated analysis of activity in the allowance for loan losses and loan balances for acquired non-credit impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Construction |
| Commercial |
| Commercial |
| Consumer |
|
|
|
|
|
|
| Other Income |
|
|
|
|
|
|
|
|
|
| |||||
|
| & Land |
| Non-owner |
| Owner |
| Owner |
| Home |
| Commercial |
| Producing |
|
|
|
|
|
|
|
|
|
| |||||||
(Dollars in thousands) |
| Development |
| Occupied |
| Occupied |
| Occupied |
| Equity |
| & Industrial |
| Property |
| Consumer |
| Other |
| Total |
| ||||||||||
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Charge-offs |
|
| (6) |
|
| — |
|
| — |
|
| — |
|
| (72) |
|
| (134) |
|
| (26) |
|
| (136) |
|
| — |
|
| (374) |
|
Recoveries |
|
| 1 |
|
| — |
|
| — |
|
| 2 |
|
| 22 |
|
| 165 |
|
| — |
|
| 16 |
|
| — |
|
| 206 |
|
Provision (benefit) |
|
| 5 |
|
| — |
|
| — |
|
| (2) |
|
| 50 |
|
| (31) |
|
| 26 |
|
| 120 |
|
| — |
|
| 168 |
|
Balance, March 31, 2019 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Loans collectively evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Loans collectively evaluated for impairment |
|
| 113,572 |
|
| 629,394 |
|
| 400,658 |
|
| 610,376 |
|
| 225,278 |
|
| 173,840 |
|
| 120,696 |
|
| 104,923 |
|
| — |
|
| 2,378,737 |
|
Total acquired non-credit impaired loans |
| $ | 113,572 |
| $ | 629,394 |
| $ | 400,658 |
| $ | 610,376 |
| $ | 225,278 |
| $ | 173,840 |
| $ | 120,696 |
| $ | 104,923 |
| $ | — |
| $ | 2,378,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Charge-offs |
|
| (1) |
|
| — |
|
| — |
|
| (70) |
|
| (82) |
|
| (43) |
|
| — |
|
| (138) |
|
| — |
|
| (334) |
|
Recoveries |
|
| 1 |
|
| — |
|
| — |
|
| 57 |
|
| 51 |
|
| 53 |
|
| — |
|
| 3 |
|
| — |
|
| 165 |
|
Provision (benefit) |
|
| — |
|
| — |
|
| — |
|
| 13 |
|
| 31 |
|
| (10) |
|
| — |
|
| 135 |
|
| — |
|
| 169 |
|
Balance, March 31, 2018 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Loans collectively evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Loans collectively evaluated for impairment |
|
| 349,532 |
|
| 783,466 |
|
| 498,541 |
|
| 683,614 |
|
| 295,721 |
|
| 344,171 |
|
| 186,091 |
|
| 133,802 |
|
| — |
|
| 3,274,938 |
|
Total acquired non-credit impaired loans |
| $ | 349,532 |
| $ | 783,466 |
| $ | 498,541 |
| $ | 683,614 |
| $ | 295,721 |
| $ | 344,171 |
| $ | 186,091 |
| $ | 133,802 |
| $ | — |
| $ | 3,274,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present a disaggregated analysis of activity in the allowance for loan losses and loan balances for acquired credit impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commercial |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
| Real Estate- |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Commercial |
| Construction and |
| Residential |
|
|
|
| Commercial |
|
|
| ||||
(Dollars in thousands) |
| Real Estate |
| Development |
| Real Estate |
| Consumer |
| and Industrial |
| Total | ||||||
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018 |
| $ | 801 |
| $ | 717 |
| $ | 2,246 |
| $ | 761 |
| $ | 79 |
| $ | 4,604 |
Provision (benefit) for loan losses |
|
| 51 |
|
| — |
|
| 16 |
|
| (54) |
|
| — |
|
| 13 |
Reduction due to loan removals |
|
| (5) |
|
| — |
|
| (98) |
|
| — |
|
| — |
|
| (103) |
Balance, March 31, 2019 |
| $ | 847 |
| $ | 717 |
| $ | 2,164 |
| $ | 707 |
| $ | 79 |
| $ | 4,514 |
Loans individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Loans collectively evaluated for impairment |
| $ | 847 |
| $ | 717 |
| $ | 2,164 |
| $ | 707 |
| $ | 79 |
| $ | 4,514 |
Loans:* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Loans collectively evaluated for impairment |
|
| 173,707 |
|
| 32,257 |
|
| 199,701 |
|
| 40,182 |
|
| 10,925 |
|
| 456,772 |
Total acquired credit impaired loans |
| $ | 173,707 |
| $ | 32,257 |
| $ | 199,701 |
| $ | 40,182 |
| $ | 10,925 |
| $ | 456,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance , December 31, 2017 |
| $ | 288 |
| $ | 180 |
| $ | 3,553 |
| $ | 461 |
| $ | 145 |
| $ | 4,627 |
Provision (benefit) for loan losses |
|
| (14) |
|
| 88 |
|
| (944) |
|
| 133 |
|
| 900 |
|
| 163 |
Reduction due to loan removals |
|
| (13) |
|
| (53) |
|
| (100) |
|
| — |
|
| (540) |
|
| (706) |
Balance, March 31, 2018 |
| $ | 261 |
| $ | 215 |
| $ | 2,509 |
| $ | 594 |
| $ | 505 |
| $ | 4,084 |
Loans individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Loans collectively evaluated for impairment |
| $ | 261 |
| $ | 215 |
| $ | 2,509 |
| $ | 594 |
| $ | 505 |
| $ | 4,084 |
Loans:* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Loans collectively evaluated for impairment |
|
| 233,277 |
|
| 46,219 |
|
| 248,766 |
|
| 48,801 |
|
| 24,295 |
|
| 601,358 |
Total acquired credit impaired loans |
| $ | 233,277 |
| $ | 46,219 |
| $ | 248,766 |
| $ | 48,801 |
| $ | 24,295 |
| $ | 601,358 |
*— The carrying value of acquired credit impaired loans includes a non-accretable difference which is primarily associated with the assessment of credit quality of acquired loans.
As part of the ongoing monitoring of the credit quality of our loan portfolio, management tracks certain credit quality indicators, including trends related to (i) the level of classified loans, (ii) net charge-offs, (iii) non-performing loans (see details below), and (iv) the general economic conditions of the markets that we serve.
24
We utilize a risk grading matrix to assign a risk grade to each of its loans.commercial loan. Classified loans are assessed at a minimum every six months. A description of the general characteristics of the risk grades is as follows:
| Pass—These loans range from minimal credit risk to average, however, still acceptable credit risk. |
| Special mention—A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date. |
| Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. |
| Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable. |
The following table presents the credit risk profile by risk grade of commercial loans by origination year:
| | | | | | | | |
---|---|---|---|---|---|---|---|---|
| Term Loans | | | |||||
(Dollars in thousands) | Amortized Cost Basis by Origination Year | | | |||||
As of March 31, 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving | Total |
Construction and land development | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | $ 78,673 | $ 307,578 | $ 232,414 | $ 47,764 | $ 18,265 | $ 19,662 | $ 39,789 | $ 744,145 |
Special mention | 1,967 | 954 | 1,439 | 535 | 160 | 693 | - | 5,748 |
Substandard | 885 | 943 | 558 | 1,195 | 51 | 430 | - | 4,062 |
Doubtful | - | - | - | - | - | 9 | - | 9 |
Total Construction and land development | $ 81,525 | $ 309,475 | $ 234,411 | $ 49,494 | $ 18,476 | $ 20,794 | $ 39,789 | $ 753,964 |
Construction and land development | | | | | | | | |
Current-period gross charge-offs | $ (37) | $ - | $ - | $ - | $ - | $ - | $ - | (37) |
Current-period recoveries | - | - | - | 6 | - | 206 | - | 212 |
Current-period net (charge-offs) / recoveries | $ (37) | $ - | $ - | $ 6 | $ - | $ 206 | $ - | $ 175 |
| | | | | | | | |
22
| | | | | | | | |
---|---|---|---|---|---|---|---|---|
| Term Loans | | | |||||
(Dollars in thousands) | Amortized Cost Basis by Origination Year | | | |||||
As of March 31, 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving | Total |
Commercial non-owner occupied | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | $ 94,375 | $ 637,401 | $ 419,596 | $ 385,069 | $ 339,042 | $ 381,430 | $ 70,151 | $ 2,327,064 |
Special mention | 5,145 | 8,905 | 7,094 | 1,278 | 488 | 15,162 | - | 38,072 |
Substandard | 114 | 524 | 750 | 2,039 | 505 | 2,299 | - | 6,231 |
Doubtful | - | - | - | - | - | 4 | - | 4 |
Total Commercial non-owner occupied | $ 99,634 | $ 646,830 | $ 427,440 | $ 388,386 | $ 340,035 | $ 398,895 | $ 70,151 | $ 2,371,371 |
Commercial non-owner occupied | | | | | | | | |
Current-period gross charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
Current-period recoveries | - | - | - | - | - | 79 | - | 79 |
Current-period net (charge-offs) / recoveries | $ - | $ - | $ - | $ - | $ - | $ 79 | $ - | $ 79 |
| | | | | | | | |
Commercial Owner Occupied | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | $ 149,781 | $ 544,487 | $ 389,294 | $ 326,347 | $ 278,186 | $ 402,083 | $ 38,039 | $ 2,128,217 |
Special mention | 2,344 | 3,855 | 4,718 | 6,848 | 6,592 | 4,557 | 154 | $ 29,068 |
Substandard | 260 | 6,536 | 2,644 | 5,401 | 606 | 4,651 | 350 | $ 20,448 |
Doubtful | - | - | - | - | - | 5 | - | $ 5 |
Total commercial owner occupied | $ 152,385 | $ 554,878 | $ 396,656 | $ 338,596 | $ 285,384 | $ 411,296 | $ 38,543 | $ 2,177,738 |
Commercial owner occupied | | | | | | | | |
Current-period gross charge-offs | $ - | $ - | $ - | $ - | $ - | $ (315) | $ - | $ (315) |
Current-period recoveries | - | 24 | 5 | - | - | 59 | - | 88 |
Current-period net (charge-offs) / recoveries | $ - | $ 24 | $ 5 | $ - | $ - | $ (256) | $ - | $ (227) |
| | | | | | | | |
Commercial and industrial | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | $ 117,663 | $ 396,201 | $ 231,025 | $ 118,471 | $ 122,025 | $ 74,688 | $ 327,219 | $ 1,387,292 |
Special mention | 609 | 7,993 | 3,067 | 4,193 | 179 | 914 | 5,850 | 22,805 |
Substandard | 441 | 675 | 2,039 | 1,519 | 230 | 598 | 2,810 | 8,312 |
Doubtful | - | - | 1 | 3 | 3 | 4 | 1 | 12 |
Total commercial and industrial | $ 118,713 | $ 404,869 | $ 236,132 | $ 124,186 | $ 122,437 | $ 76,204 | $ 335,880 | $ 1,418,421 |
Commercial and industrial | | | | | | | | |
Current-period gross charge-offs | $ - | $ (3) | $ (14) | $ - | $ - | $ (9) | $ (73) | $ (99) |
Current-period recoveries | - | 26 | - | 4 | 75 | 89 | 4 | 198 |
Current-period net (charge-offs) / recoveries | $ - | $ 23 | $ (14) | $ 4 | $ 75 | $ 80 | $ (69) | $ 99 |
| | | | | | | | |
Other income producing property | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | $ 17,679 | $ 61,806 | $ 51,950 | $ 37,084 | $ 23,250 | $ 54,295 | $ 7,829 | $ 253,893 |
Special mention | 1,675 | 2,300 | 2,163 | 735 | 661 | 5,848 | 37 | 13,419 |
Substandard | 891 | 985 | 773 | 1,572 | 170 | 2,770 | 49 | 7,210 |
Doubtful | - | - | - | - | - | 7 | - | 7 |
Total other income producing property | $ 20,245 | $ 65,091 | $ 54,886 | $ 39,391 | $ 24,081 | $ 62,920 | $ 7,915 | $ 274,529 |
Other income producing property | | | | | | | | |
Current-period gross charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
Current-period recoveries | - | - | - | - | - | 139 | - | 139 |
Current-period net (charge-offs) / recoveries | $ - | $ - | $ - | $ - | $ - | $ 139 | $ - | $ 139 |
| | | | | | | | |
Consumer owner occupied | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | $ 1,566 | $ 6,140 | $ 673 | $ 476 | $ 1,668 | $ 5,468 | $ 16,657 | $ 32,648 |
Special mention | 23 | 4,091 | 254 | 63 | - | 196 | 366 | $ 4,993 |
Substandard | - | 394 | 164 | 91 | 65 | 409 | - | $ 1,123 |
Doubtful | - | - | - | 1 | - | - | - | $ 1 |
Total Consumer owner occupied | $ 1,589 | $ 10,625 | $ 1,091 | $ 631 | $ 1,733 | $ 6,073 | $ 17,023 | $ 38,765 |
Consumer owner occupied | | | | | | | | |
Current-period gross charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
Current-period recoveries | - | - | - | 23 | 1 | 5 | 1 | 30 |
Current-period net (charge-offs) / recoveries | $ - | $ - | $ - | $ 23 | $ 1 | $ 5 | $ 1 | $ 30 |
| | | | | | | | |
23
| | | | | | | | |
---|---|---|---|---|---|---|---|---|
| Term Loans | | | |||||
(Dollars in thousands) | Amortized Cost Basis by Origination Year | | | |||||
As of March 31, 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving | Total |
Other loans | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | $ 7,678 | $ - | $ - | $ - | $ - | $ - | $ - | $ 7,678 |
Special mention | - | - | - | - | - | - | - | - |
Substandard | - | - | - | - | - | - | - | - |
Doubtful | - | - | - | - | - | - | - | - |
Total other loans | $ 7,678 | $ - | $ - | $ - | $ - | $ - | $ - | $ 7,678 |
Other loans | | | | | | | | |
Current-period gross charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
Current-period recoveries | - | - | - | - | - | - | - | - |
Current-period net (charge-offs) / recoveries | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
| | | | | | | | |
Total Commercial Loans | | | | | | | | |
Risk rating: | | | | | | | | |
Pass | $ 467,415 | $ 1,953,613 | $ 1,324,952 | $ 915,211 | $ 782,436 | $ 937,626 | $ 499,684 | $ 6,880,937 |
Special mention | 11,763 | 28,098 | 18,735 | 13,652 | 8,080 | 27,370 | 6,407 | 114,105 |
Substandard | 2,591 | 10,057 | 6,928 | 11,817 | 1,627 | 11,157 | 3,209 | 47,386 |
Doubtful | - | - | 1 | 4 | 3 | 29 | 1 | 38 |
Total Commercial Loans | $ 481,769 | $ 1,991,768 | $ 1,350,616 | $ 940,684 | $ 792,146 | $ 976,182 | $ 509,301 | $ 7,042,466 |
Total Commercial Loans | | | | | | | | |
Current-period gross charge-offs | $ (37) | $ (3) | $ (14) | $ - | $ - | $ (324) | $ (73) | $ (451) |
Current-period recoveries | - | 50 | 5 | 33 | 76 | 577 | 5 | 746 |
Current-period net (charge-offs) / recoveries | $ (37) | $ 47 | $ (9) | $ 33 | $ 76 | $ 253 | $ (68) | $ 295 |
For the consumer segment, delinquency of a loan is determined by past due status. Consumer loans are automatically placed on nonaccrual status once the loan is 90 days past due. The following table presents the credit risk profile by past due status of consumer loans by origination year:
| | | | | | | | |
---|---|---|---|---|---|---|---|---|
| Term Loans | | | |||||
(Dollars in thousands) | Amortized Cost Basis by Origination Year | | | |||||
As of March 31, 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving | Total |
Consumer owner occupied | | | | | | | | |
Days past due: | | | | | | | | |
Current | $ 101,254 | $ 373,790 | $ 498,020 | $ 492,026 | $ 361,132 | $ 789,977 | $ - | $ 2,616,199 |
30 days past due | - | 27 | 169 | 476 | - | 5,117 | - | 5,789 |
60 days past due | - | - | - | - | - | 468 | - | 468 |
90 days past due | 72 | 78 | 88 | 668 | 411 | 2,867 | - | 4,184 |
Total Consumer owner occupied | $ 101,326 | $ 373,895 | $ 498,277 | $ 493,170 | $ 361,543 | $ 798,429 | $ - | $ 2,626,640 |
Consumer owner occupied | | | | | | | | |
Current-period gross charge-offs | $ - | $ - | $ - | $ - | $ - | $ (304) | $ - | $ (304) |
Current-period recoveries | - | - | - | - | - | 223 | - | 223 |
Current-period net (charge-offs) / recoveries | $ - | $ - | $ - | $ - | $ - | $ (81) | $ - | $ (81) |
| | | | | | | | |
Home equity loans | | | | | | | | |
Days past due: | | | | | | | | |
Current | $ 1,976 | $ 8,007 | $ 11,699 | $ 3,536 | $ 429 | $ 37,322 | $ 687,900 | $ 750,869 |
30 days past due | 57 | 90 | 31 | 183 | - | 1,078 | 920 | 2,359 |
60 days past due | - | 68 | - | - | - | 2,107 | 613 | 2,788 |
90 days past due | - | 25 | - | 34 | 315 | 1,385 | 707 | 2,466 |
Total Home equity loans | $ 2,033 | $ 8,190 | $ 11,730 | $ 3,753 | $ 744 | $ 41,892 | $ 690,140 | $ 758,482 |
Home equity loans | | | | | | | | |
Current-period gross charge-offs | $ - | $ (22) | $ (260) | $ - | $ - | $ (67) | $ (265) | $ (614) |
Current-period recoveries | - | - | - | 1 | 1 | 375 | 1 | 378 |
Current-period net (charge-offs) / recoveries | $ - | $ (22) | $ (260) | $ 1 | $ 1 | $ 308 | $ (264) | $ (236) |
| | | | | | | | |
24
| | | | | | | | |
---|---|---|---|---|---|---|---|---|
| Term Loans | | | |||||
(Dollars in thousands) | Amortized Cost Basis by Origination Year | | | |||||
As of March 31, 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving | Total |
Consumer | | | | | | | | |
Days past due: | | | | | | | | |
Current | $ 56,854 | $ 209,713 | $ 117,022 | $ 63,494 | $ 41,965 | $ 169,875 | $ 10,928 | $ 669,851 |
30 days past due | 14 | 222 | 185 | 107 | 95 | 1,263 | 165 | 2,051 |
60 days past due | - | 26 | 51 | 37 | 12 | 914 | 26 | 1,066 |
90 days past due | - | 126 | 236 | 232 | 103 | 1,126 | - | 1,823 |
Total consumer | $ 56,868 | $ 210,087 | $ 117,494 | $ 63,870 | $ 42,175 | $ 173,178 | $ 11,119 | $ 674,791 |
Consumer | | | | | | | | |
Current-period gross charge-offs | $ - | $ (80) | $ (96) | $ (57) | $ (30) | $ (347) | $ (1,176) | $ (1,786) |
Current-period recoveries | - | - | 1 | 2 | 3 | 84 | 379 | 469 |
Current-period net (charge-offs) / recoveries | $ - | $ (80) | $ (95) | $ (55) | $ (27) | $ (263) | $ (797) | $ (1,317) |
| | | | | | | | |
Construction and land development | | | | | | | | |
Days past due: | | | | | | | | |
Current | $ 25,564 | $ 212,413 | $ 68,321 | $ 16,477 | $ 5,830 | $ 22,346 | $ - | $ 350,951 |
30 days past due | - | - | 29 | - | - | 237 | - | 266 |
60 days past due | - | - | - | - | - | | - | - |
90 days past due | - | - | - | - | - | 127 | - | 127 |
Total Construction and land development | $ 25,564 | $ 212,413 | $ 68,350 | $ 16,477 | $ 5,830 | $ 22,710 | $ - | $ 351,344 |
Construction and land development | | | | | | | | |
Current-period gross charge-offs | $ - | $ - | $ - | $ - | $ - | $ (68) | $ - | $ (68) |
Current-period recoveries | - | - | - | - | - | 70 | - | 70 |
Current-period net (charge-offs) / recoveries | $ - | $ - | $ - | $ - | $ - | $ 2 | $ - | $ 2 |
| | | | | | | | |
Other income producing property | | | | | | | | |
Days past due: | | | | | | | | |
Current | $ 346 | $ 2,488 | $ 2,703 | $ 4,537 | $ 4,032 | $ 38,955 | - | $ 53,061 |
30 days past due | - | - | - | - | - | 105 | - | 105 |
60 days past due | - | - | - | - | - | - | - | - |
90 days past due | - | - | - | - | - | 1 | - | 1 |
Total other income producing property | $ 346 | $ 2,488 | $ 2,703 | $ 4,537 | $ 4,032 | $ 39,061 | $ - | $ 53,167 |
Other income producing property | | | | | | | | |
Current-period gross charge-offs | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $ - |
Current-period recoveries | - | - | - | - | - | 23 | - | 23 |
Current-period net (charge-offs) / recoveries | $ - | $ - | $ - | $ - | $ - | $ 23 | $ - | $ 23 |
| | | | | | | | |
Total Consumer Loans | | | | | | | | |
Days past due: | | | | | | | | |
Current | $ 185,994 | $ 806,411 | $ 697,765 | $ 580,070 | $ 413,388 | $ 1,058,475 | $ 698,828 | $ 4,440,931 |
30 days past due | 71 | 339 | 414 | 766 | 95 | 7,800 | 1,085 | 10,570 |
60 days past due | - | 94 | 51 | 37 | 12 | 3,489 | 639 | 4,322 |
90 days past due | 72 | 229 | 324 | 934 | 829 | 5,506 | 707 | 8,601 |
Total Consumer Loans | $ 186,137 | $ 807,073 | $ 698,554 | $ 581,807 | $ 414,324 | $ 1,075,270 | $ 701,259 | $ 4,464,424 |
Total Consumer Loans | | | | | | | | |
Current-period gross charge-offs | $ - | $ (102) | $ (356) | $ (57) | $ (30) | $ (786) | $ (1,441) | $ (2,772) |
Current-period recoveries | - | - | 1 | 3 | 4 | 775 | 380 | 1,163 |
Current-period net (charge-offs) / recoveries | $ - | $ (102) | $ (355) | $ (54) | $ (26) | $ (11) | $ (1,061) | $ (1,609) |
| | | | | | | | |
| Term Loans | | | |||||
(Dollars in thousands) | Amortized Cost Basis by Origination Year | | | |||||
As of March 31, 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving | Total |
Total Loans | $ 667,906 | $ 2,798,841 | $ 2,049,170 | $ 1,522,491 | $ 1,206,470 | $ 2,051,452 | $ 1,210,560 | $ 11,506,890 |
Total Loans | | | | | | | | |
Current-period gross charge-offs | $ (37) | $ (105) | $ (370) | $ (57) | $ (30) | $ (1,110) | $ (1,514) | $ (3,223) |
Current-period recoveries | $ - | $ 50 | $ 6 | $ 36 | $ 80 | $ 1,352 | $ 385 | 1,909 |
Current-period net (charge-offs) / recoveries | $ (37) | $ (55) | $ (364) | $ (21) | $ 50 | $ 242 | $ (1,129) | $ (1,314) |
25
The following table presents the credit risk profile by risk grade of commercial loans for non-acquired loans:loans, for comparative periods, prior to the adoption of ASU 2016-13, under the incurred loss model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| Construction & Development |
| Commercial Non-owner Occupied |
| Commercial Owner Occupied |
| ||||||||||||||||||||||||||||||||||||||||
|
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
| | Construction & Development | | Commercial Non-owner Occupied | | Commercial Owner Occupied |
| ||||||||||||||||||||||||||||||||||||||||
| | December 31, | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, |
| ||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
|
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| |||||||||||||||
Pass |
| $ | 801,949 |
| $ | 832,612 |
| $ | 857,307 |
| $ | 1,607,034 |
| $ | 1,407,744 |
| $ | 1,040,669 |
| $ | 1,564,083 |
| $ | 1,480,267 |
| $ | 1,267,759 |
| | $ | 959,206 | | $ | 801,949 | | $ | 1,787,306 | | $ | 1,607,034 | | $ | 1,754,801 | | $ | 1,564,083 | |
Special mention |
|
| 5,303 |
|
| 6,015 |
|
| 10,499 |
|
| 7,372 |
|
| 6,427 |
|
| 8,497 |
|
| 24,241 |
|
| 24,576 |
|
| 22,619 |
| |
| 7,095 | |
| 5,303 | |
| 22,410 | |
| 7,372 | |
| 19,742 | |
| 24,241 | |
Substandard |
|
| 3,299 |
|
| 2,818 |
|
| 3,335 |
|
| 1,010 |
|
| 1,380 |
|
| 1,758 |
|
| 13,036 |
|
| 12,708 |
|
| 6,360 |
| |
| 2,059 | |
| 3,299 | |
| 1,422 | |
| 1,010 | |
| 9,474 | |
| 13,036 | |
Doubtful |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
|
| $ | 810,551 |
| $ | 841,445 |
| $ | 871,141 |
| $ | 1,615,416 |
| $ | 1,415,551 |
| $ | 1,050,924 |
| $ | 1,601,360 |
| $ | 1,517,551 |
| $ | 1,296,738 |
| |||||||||||||||||||
| | $ | 968,360 | | $ | 810,551 | | $ | 1,811,138 | | $ | 1,615,416 | | $ | 1,784,017 | | $ | 1,601,360 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| Commercial & Industrial |
| Other Income Producing Property |
| Commercial Total |
| ||||||||||||||||||||||||||||||||||||||||
|
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| ||||||||||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
| ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
| | Commercial & Industrial | | Other Income Producing Property | | Commercial Total |
| ||||||||||||||||||||||||||||||||||||||||
| | December 31, | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, |
| ||||||||||||||||||||||||||||||||||
|
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| ||||||||||||||||||||||||||||||||||
Pass |
| $ | 1,054,732 |
| $ | 1,037,915 |
| $ | 857,567 |
| $ | 208,345 |
| $ | 208,186 |
| $ | 191,856 |
| $ | 5,236,143 |
| $ | 4,966,724 |
| $ | 4,215,158 |
| | $ | 1,256,465 | | $ | 1,054,732 | | $ | 213,291 | | $ | 208,345 | | $ | 5,971,069 | | $ | 5,236,143 | |
Special mention |
|
| 7,056 |
|
| 5,887 |
|
| 12,286 |
|
| 4,250 |
|
| 4,706 |
|
| 5,321 |
|
| 48,222 |
|
| 47,611 |
|
| 59,222 |
| |
| 16,055 | |
| 7,056 | |
| 3,966 | |
| 4,250 | |
| 69,268 | |
| 48,222 | |
Substandard |
|
| 10,282 |
|
| 11,150 |
|
| 2,510 |
|
| 1,640 |
|
| 1,461 |
|
| 1,507 |
|
| 29,267 |
|
| 29,517 |
|
| 15,470 |
| |
| 8,339 | |
| 10,282 | |
| 1,360 | |
| 1,640 | |
| 22,654 | |
| 29,267 | |
Doubtful |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
|
| $ | 1,072,070 |
| $ | 1,054,952 |
| $ | 872,363 |
| $ | 214,235 |
| $ | 214,353 |
| $ | 198,684 |
| $ | 5,313,632 |
| $ | 5,043,852 |
| $ | 4,289,850 |
| |||||||||||||||||||
| | $ | 1,280,859 | | $ | 1,072,070 | | $ | 218,617 | | $ | 214,235 | | $ | 6,062,991 | | $ | 5,313,632 | |
The following table presents the credit risk profile by risk grade of consumer loans for non-acquired loans:loans, for comparative periods, prior to the adoption of ASU 2016-13, under the incurred loss model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| Consumer Owner Occupied |
| Home Equity |
| Consumer |
| ||||||||||||||||||||||||||||||||||||||||
|
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
| | Consumer Owner Occupied | | Home Equity | | Consumer |
| ||||||||||||||||||||||||||||||||||||||||
| | December 31, | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, |
| ||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
|
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| |||||||||||||||
Pass |
| $ | 1,978,122 |
| $ | 1,909,427 |
| $ | 1,584,427 |
| $ | 495,127 |
| $ | 481,607 |
| $ | 435,282 |
| $ | 463,271 |
| $ | 446,823 |
| $ | 389,386 |
| | $ | 2,094,080 | | $ | 1,978,122 | | $ | 508,054 | | $ | 495,127 | | $ | 536,002 | | $ | 463,271 | |
Special mention |
|
| 10,769 |
|
| 11,304 |
|
| 13,329 |
|
| 6,915 |
|
| 7,293 |
|
| 6,767 |
|
| 467 |
|
| 437 |
|
| 301 |
| |
| 9,585 | |
| 10,769 | |
| 4,490 | |
| 6,915 | |
| 487 | |
| 467 | |
Substandard |
|
| 16,423 |
|
| 15,534 |
|
| 14,745 |
|
| 6,284 |
|
| 6,248 |
|
| 6,533 |
|
| 1,379 |
|
| 1,404 |
|
| 1,097 |
| |
| 15,174 | |
| 16,423 | |
| 6,084 | |
| 6,284 | |
| 1,992 | |
| 1,379 | |
Doubtful |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
|
| $ | 2,005,314 |
| $ | 1,936,265 |
| $ | 1,612,501 |
| $ | 508,326 |
| $ | 495,148 |
| $ | 448,582 |
| $ | 465,117 |
| $ | 448,664 |
| $ | 390,784 |
| |||||||||||||||||||
| | $ | 2,118,839 | | $ | 2,005,314 | | $ | 518,628 | | $ | 508,326 | | $ | 538,481 | | $ | 465,117 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Other |
| Consumer Total |
| |||||||||||||||||||||||||||
|
| March 31, 2019 |
| December 31, 2018 |
| March 31, 2018 |
| March 31, 2019 |
| December 31, 2018 |
| March 31, 2018 |
| |||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||||
| | Other | | Consumer Total |
| |||||||||||||||||||||||||||
|
| December 31, 2019 |
| March 31, 2019 |
| December 31, 2019 |
| March 31, 2019 |
| |||||||||||||||||||||||
Pass |
| $ | 18,224 |
| $ | 9,357 |
| $ | 20,795 |
| $ | 2,954,744 |
| $ | 2,847,214 |
| $ | 2,429,890 |
| | $ | 13,892 | | $ | 18,224 | | $ | 3,152,028 | | $ | 2,954,744 | |
Special mention |
|
| — |
|
| — |
|
| — |
|
| 18,151 |
|
| 19,034 |
|
| 20,397 |
| |
| — | |
| — | |
| 14,562 | |
| 18,151 | |
Substandard |
|
| — |
|
| — |
|
| — |
|
| 24,086 |
|
| 23,186 |
|
| 22,375 |
| |
| — | |
| — | |
| 23,250 | |
| 24,086 | |
Doubtful |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |
| — | |
| — | |
| — | |
| — | |
|
| $ | 18,224 |
| $ | 9,357 |
| $ | 20,795 |
| $ | 2,996,981 |
| $ | 2,889,434 |
| $ | 2,472,662 |
| |||||||||||||
| | $ | 13,892 | | $ | 18,224 | | $ | 3,189,840 | | $ | 2,996,981 | |
The following table presents the credit risk profile by risk grade of total non-acquired loans:loans for comparative periods, prior to the adoption of ASU 2016-13, under the incurred loss model:
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Total Non-acquired Loans |
| ||||||||||||||
|
| March 31, |
| December 31, |
| March 31, |
| ||||||||||
| | | | | | | | ||||||||||
| | Total Non-acquired Loans |
| ||||||||||||||
| | December 31, | | March 31, |
| ||||||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
|
| 2019 |
| 2019 |
| |||||
Pass |
| $ | 8,190,887 |
| $ | 7,813,938 |
| $ | 6,645,048 |
| | $ | 9,123,097 | | $ | 8,190,887 | |
Special mention |
|
| 66,373 |
|
| 66,645 |
|
| 79,619 |
| |
| 83,830 | |
| 66,373 | |
Substandard |
|
| 53,353 |
|
| 52,703 |
|
| 37,845 |
| |
| 45,904 | |
| 53,353 | |
Doubtful |
|
| — |
|
| — |
|
| — |
| |
| — | |
| — | |
|
| $ | 8,310,613 |
| $ | 7,933,286 |
| $ | 6,762,512 |
| |||||||
| | $ | 9,252,831 | | $ | 8,310,613 | |
25
The following table presents the credit risk profile by risk grade of commercial loans for acquired non-credit impaired loans:loans for comparative periods, prior to the adoption of ASU 2016-13, under the incurred loss model:
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Commercial Non-owner | | | | | | |
| ||||
| | Construction & Development | | Occupied | | Commercial Owner Occupied |
| ||||||||||||
| | December 31, | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, |
| ||||||
(Dollars in thousands) |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| ||||||
Pass | | $ | 31,690 | | $ | 111,414 | | $ | 432,710 | | $ | 615,277 | | $ | 300,678 | | $ | 380,536 | |
Special mention | |
| 966 | |
| 845 | |
| 14,162 | |
| 13,682 | |
| 3,092 | |
| 15,440 | |
Substandard | |
| 913 | |
| 1,313 | |
| 569 | |
| 435 | |
| 3,423 | |
| 4,682 | |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| | $ | 33,569 | | $ | 113,572 | | $ | 447,441 | | $ | 629,394 | | $ | 307,193 | | $ | 400,658 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commercial Non-owner |
|
|
|
|
|
|
|
|
|
| |||||||
|
| Construction & Development |
| Occupied |
| Commercial Owner Occupied |
| |||||||||||||||||||||
|
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| |||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
| |||||||||
Pass |
| $ | 111,414 |
| $ | 163,777 |
| $ | 345,635 |
| $ | 615,277 |
| $ | 665,913 |
| $ | 775,924 |
| $ | 380,536 |
| $ | 411,783 |
| $ | 490,089 |
|
Special mention |
|
| 845 |
|
| 838 |
|
| 2,892 |
|
| 13,682 |
|
| 13,018 |
|
| 7,533 |
|
| 15,440 |
|
| 5,664 |
|
| 8,254 |
|
Substandard |
|
| 1,313 |
|
| 455 |
|
| 1,005 |
|
| 435 |
|
| 322 |
|
| 9 |
|
| 4,682 |
|
| 4,394 |
|
| 198 |
|
Doubtful |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| $ | 113,572 |
| $ | 165,070 |
| $ | 349,532 |
| $ | 629,394 |
| $ | 679,253 |
| $ | 783,466 |
| $ | 400,658 |
| $ | 421,841 |
| $ | 498,541 |
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other Income Producing |
|
|
| ||||||||||||||
|
| Commercial & Industrial |
| Property |
| Commercial Total |
| |||||||||||||||||||||
|
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| |||||||||
|
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
| |||||||||
Pass |
| $ | 163,298 |
| $ | 202,399 |
| $ | 327,409 |
| $ | 113,047 |
| $ | 125,399 |
| $ | 180,825 |
| $ | 1,383,572 |
| $ | 1,569,271 |
| $ | 2,119,882 |
|
Special mention |
|
| 7,897 |
|
| 6,523 |
|
| 8,049 |
|
| 6,333 |
|
| 6,419 |
|
| 4,369 |
|
| 44,197 |
|
| 32,462 |
|
| 31,097 |
|
Substandard |
|
| 2,645 |
|
| 3,615 |
|
| 8,713 |
|
| 1,316 |
|
| 1,292 |
|
| 897 |
|
| 10,391 |
|
| 10,078 |
|
| 10,822 |
|
Doubtful |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| $ | 173,840 |
| $ | 212,537 |
| $ | 344,171 |
| $ | 120,696 |
| $ | 133,110 |
| $ | 186,091 |
| $ | 1,438,160 |
| $ | 1,611,811 |
| $ | 2,161,801 |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Other Income Producing | | | | | | | | ||||
| | Commercial & Industrial | | Property | | Commercial Total | | ||||||||||||
| | December 31, | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | | ||||||
|
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| ||||||
Pass | | $ | 97,092 | | $ | 163,298 | | $ | 87,892 | | $ | 113,047 | | $ | 950,062 | | $ | 1,383,572 | |
Special mention | |
| 2,948 | |
| 7,897 | |
| 5,837 | |
| 6,333 | |
| 27,005 | |
| 44,197 | |
Substandard | |
| 1,840 | |
| 2,645 | |
| 1,968 | |
| 1,316 | |
| 8,713 | |
| 10,391 | |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| | $ | 101,880 | | $ | 173,840 | | $ | 95,697 | | $ | 120,696 | | $ | 985,780 | | $ | 1,438,160 | |
The following table presents the credit risk profile by risk grade of consumer loans for acquired non-credit impaired loans:loans for comparative periods, prior to the adoption of ASU 2016-13, under the incurred loss model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Consumer Owner Occupied |
| Home Equity |
| Consumer |
| ||||||||||||||||||||||||||||||||||||||||
|
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
| | Consumer Owner Occupied | | Home Equity | | Consumer | | ||||||||||||||||||||||||||||||||||||||||
| | December 31, | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | | ||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
|
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| |||||||||||||||
Pass |
| $ | 597,220 |
| $ | 617,391 |
| $ | 676,981 |
| $ | 210,066 |
| $ | 227,515 |
| $ | 279,487 |
| $ | 101,907 |
| $ | 108,833 |
| $ | 130,915 |
| | $ | 486,433 | | $ | 597,220 | | $ | 174,912 | | $ | 210,066 | | $ | 86,535 | | $ | 101,907 | |
Special mention |
|
| 7,325 |
|
| 7,868 |
|
| 4,484 |
|
| 7,623 |
|
| 7,688 |
|
| 8,942 |
|
| 666 |
|
| 698 |
|
| 520 |
| |
| 6,434 | |
| 7,325 | |
| 5,679 | |
| 7,623 | |
| 654 | |
| 666 | |
Substandard |
|
| 5,831 |
|
| 3,554 |
|
| 2,149 |
|
| 7,589 |
|
| 7,222 |
|
| 7,292 |
|
| 2,350 |
|
| 2,246 |
|
| 2,367 |
| |
| 3,564 | |
| 5,831 | |
| 8,141 | |
| 7,589 | |
| 2,295 | |
| 2,350 | |
Doubtful |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
|
| $ | 610,376 |
| $ | 628,813 |
| $ | 683,614 |
| $ | 225,278 |
| $ | 242,425 |
| $ | 295,721 |
| $ | 104,923 |
| $ | 111,777 |
| $ | 133,802 |
| |||||||||||||||||||
| | $ | 496,431 | | $ | 610,376 | | $ | 188,732 | | $ | 225,278 | | $ | 89,484 | | $ | 104,923 | |
|
|
|
|
|
|
|
|
|
| ||||||
| Consumer Total |
| |||||||||||||
| March 31, |
| December 31, |
| March 31, |
| |||||||||
| 2019 |
| 2018 |
| 2018 |
| |||||||||
| | | | | | | |||||||||
| | Consumer Total | |||||||||||||
| | December 31, | | March 31, | |||||||||||
| | 2019 |
| 2019 | |||||||||||
Pass | $ | 909,193 |
| $ | 953,739 |
| $ | 1,087,383 |
| | $ | 747,880 | | $ | 909,193 |
Special mention |
| 15,614 |
|
| 16,254 |
|
| 13,946 |
| |
| 12,767 | |
| 15,614 |
Substandard |
| 15,770 |
|
| 13,022 |
|
| 11,808 |
| |
| 14,000 | |
| 15,770 |
Doubtful |
| — |
|
| — |
|
| — |
| |
| — | |
| — |
| $ | 940,577 |
| $ | 983,015 |
| $ | 1,113,137 |
| ||||||
| | $ | 774,647 | | $ | 940,577 |
The following table presents the credit risk profile by risk grade of total acquired non-credit impaired loans:loans for comparative periods, prior to the adoption of ASU 2016-13, under the incurred loss model:
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Total Acquired |
| ||||||||||||||
|
| Non-credit Impaired Loans |
| ||||||||||||||
|
| March 31, |
| December 31, |
| March 31, |
| ||||||||||
| | | | | | | | ||||||||||
| | Total Acquired | | ||||||||||||||
| | Non-credit Impaired Loans | | ||||||||||||||
| | December 31, | | March 31, | | ||||||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
|
| 2019 |
| 2019 |
| |||||
Pass |
| $ | 2,292,765 |
| $ | 2,523,010 |
| $ | 3,207,265 |
| | $ | 1,697,942 | | $ | 2,292,765 | |
Special mention |
|
| 59,811 |
|
| 48,716 |
|
| 45,043 |
| |
| 39,772 | |
| 59,811 | |
Substandard |
|
| 26,161 |
|
| 23,100 |
|
| 22,630 |
| |
| 22,713 | |
| 26,161 | |
Doubtful |
|
| — |
|
| — |
|
| — |
| |
| — | |
| — | |
|
| $ | 2,378,737 |
| $ | 2,594,826 |
| $ | 3,274,938 |
| |||||||
| | $ | 1,760,427 | | $ | 2,378,737 | |
The following table presents the credit risk profile by risk grade of acquired credit impaired loans (identified as credit-impaired at the time of acquisition), net of the related discount (this table should be read in conjunction withfor comparative periods, prior to the allowance for acquired credit impaired loan losses table found on page 24):adoption of ASU 2016-13, under the incurred loss model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
| Commercial Real Estate— |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Construction and |
| ||||||||||||||||||||
|
| Commercial Real Estate |
| Development |
| |||||||||||||||||||||||||||
|
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| |||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | Commercial Real Estate— |
| |||||||||||||||||||||||
| | | | | | | | Construction and |
| |||||||||||||||||||||||
| | Commercial Real Estate | | Development |
| |||||||||||||||||||||||||||
|
| December 31, | | March 31, | | December 31, | | March 31, |
| |||||||||||||||||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
|
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| ||||||||||
Pass |
| $ | 140,785 |
| $ | 160,788 |
| $ | 171,585 |
| $ | 20,950 |
| $ | 20,293 |
| $ | 28,501 |
| | $ | 108,762 | | $ | 140,785 | | $ | 17,756 | | $ | 20,950 | |
Special mention |
|
| 13,025 |
|
| 14,393 |
|
| 24,550 |
|
| 3,500 |
|
| 3,001 |
|
| 4,654 |
| |
| 6,465 | |
| 13,025 | |
| 2,904 | |
| 3,500 | |
Substandard |
|
| 19,897 |
|
| 21,583 |
|
| 37,142 |
|
| 7,807 |
|
| 9,648 |
|
| 13,064 |
| |
| 15,711 | |
| 19,897 | |
| 4,372 | |
| 7,807 | |
Doubtful |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |
| — | |
| — | |
| — | |
| — | |
|
| $ | 173,707 |
| $ | 196,764 |
| $ | 233,277 |
| $ | 32,257 |
| $ | 32,942 |
| $ | 46,219 |
| |||||||||||||
| | $ | 130,938 | | $ | 173,707 | | $ | 25,032 | | $ | 32,257 | |
| | | | | | | | | | | | | | | | | | | |
| | Residential Real Estate | | Consumer | | Commercial & Industrial |
| ||||||||||||
| | December 31, | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, |
| ||||||
|
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| 2019 |
| ||||||
Pass | | $ | 82,203 | | $ | 100,803 | | $ | 4,483 | | $ | 5,134 | | $ | 5,160 | | $ | 6,802 | |
Special mention | |
| 35,968 | |
| 40,036 | |
| 12,658 | |
| 13,935 | |
| 286 | |
| 530 | |
Substandard | |
| 45,188 | |
| 58,862 | |
| 18,347 | |
| 21,113 | |
| 1,583 | |
| 3,593 | |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| | $ | 163,359 | | $ | 199,701 | | $ | 35,488 | | $ | 40,182 | | $ | 7,029 | | $ | 10,925 | |
26
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| Residential Real Estate |
| Consumer |
| Commercial & Industrial |
| |||||||||||||||||||||||||||||||||||
|
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| March 31, |
| December 31, |
| March 31, |
| |||||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
| 2019 |
| 2018 |
| 2018 |
| |||||||||||||||||||||||
Pass |
| $ | 100,803 |
| $ | 104,181 |
| $ | 129,952 |
| $ | 5,134 |
| $ | 5,751 |
| $ | 7,247 |
| $ | 6,802 |
| $ | 5,093 |
| $ | 17,163 |
| ||||||||||||||
Special mention |
|
| 40,036 |
|
| 41,964 |
|
| 50,845 |
|
| 13,935 |
|
| 14,484 |
|
| 16,329 |
|
| 530 |
|
| 546 |
|
| 1,132 |
| ||||||||||||||
Substandard |
|
| 58,862 |
|
| 61,337 |
|
| 67,969 |
|
| 21,113 |
|
| 22,257 |
|
| 25,225 |
|
| 3,593 |
|
| 4,404 |
|
| 6,000 |
| ||||||||||||||
Doubtful |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||||||
|
| $ | 199,701 |
| $ | 207,482 |
| $ | 248,766 |
| $ | 40,182 |
| $ | 42,492 |
| $ | 48,801 |
| $ | 10,925 |
| $ | 10,043 |
| $ | 24,295 |
|
| | | | | | | |
| | Total Acquired | | ||||
| | Credit Impaired Loans | | ||||
| | December 31, | | March 31, | | ||
|
| 2019 |
| 2019 |
| ||
Pass | | $ | 218,364 | | $ | 274,474 | |
Special mention | |
| 58,281 | |
| 71,026 | |
Substandard | |
| 85,201 | |
| 111,272 | |
Doubtful | |
| — | |
| — | |
| | $ | 361,846 | | $ | 456,772 | |
|
|
|
|
|
|
|
|
|
|
|
|
| Total Acquired |
| |||||||
|
| Credit Impaired Loans |
| |||||||
|
| March 31, |
| December 31, |
| March 31, |
| |||
|
| 2019 |
| 2018 |
| 2018 |
| |||
Pass |
| $ | 274,474 |
| $ | 296,106 |
| $ | 354,448 |
|
Special mention |
|
| 71,026 |
|
| 74,388 |
|
| 97,510 |
|
Substandard |
|
| 111,272 |
|
| 119,229 |
|
| 149,400 |
|
Doubtful |
|
| — |
|
| — |
|
| — |
|
|
| $ | 456,772 |
| $ | 489,723 |
| $ | 601,358 |
|
The risk grading of acquired credit impaired loans is determined utilizing a loan’s contractual balance, while the amount recorded in the financial statements and reflected above is the carrying value.
The following table presents an aging analysis of past due loans (includes nonaccrual loans), segregated by class:
| | | | | | | | | | | | | | | | | | | | | |
|
| 30 - 59 Days |
| 60 - 89 Days |
| 90+ Days |
| Total |
| | |
| Total | | Amortized Cost | ||||||
(Dollars in thousands) | | Past Due | | Past Due | | Past Due | | Past Due | | Current | | Loans | | > 90 Days Accruing | |||||||
March 31, 2020 | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | |
Construction and land development | | $ | 1,700 | | $ | 67 | | $ | 364 | | $ | 2,131 | | $ | 1,103,177 | | $ | 1,105,308 | | $ | — |
Commercial non-owner occupied | |
| 1,445 | |
| 407 | |
| 1,818 | |
| 3,670 | |
| 2,367,701 | |
| 2,371,371 | |
| — |
Commercial owner occupied | |
| 5,606 | | | 156 | |
| 5,168 | |
| 10,930 | |
| 2,166,808 | |
| 2,177,738 | |
| 119 |
Consumer real estate: | | | | | | | | | | | | | | | | | | | | | |
Consumer owner occupied | |
| 6,047 | |
| 467 | |
| 4,408 | |
| 10,922 | |
| 2,654,483 | |
| 2,665,405 | |
| — |
Home equity loans | |
| 2,359 | |
| 2,788 | |
| 2,466 | |
| 7,613 | |
| 750,869 | |
| 758,482 | |
| — |
Commercial and industrial | |
| 2,128 | |
| 2,220 | |
| 1,054 | |
| 5,402 | |
| 1,413,019 | |
| 1,418,421 | |
| 167 |
Other income producing property | |
| 1,338 | |
| 143 | |
| 1,707 | |
| 3,188 | |
| 324,508 | |
| 327,696 | |
| 74 |
Consumer | |
| 2,570 | |
| 1,069 | |
| 1,825 | |
| 5,464 | |
| 669,327 | |
| 674,791 | |
| 2 |
Other loans | |
| — | |
| — | |
| — | |
| — | |
| 7,678 | |
| 7,678 | |
| — |
| | $ | 23,193 | | $ | 7,317 | | $ | 18,810 | | $ | 49,320 | | $ | 11,457,570 | | $ | 11,506,890 | | $ | 362 |
27
28
The following table presents an aging analysis of past due loans (includes nonaccrual loans), segregated by class for non-acquired loans:loans, for comparative periods, prior to the adoption of ASU 2016-13:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| 30 - 59 Days |
| 60 - 89 Days |
| 90+ Days |
| Total |
|
|
|
| Total | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
|
| 30 - 59 Days |
| 60 - 89 Days |
| 90+ Days |
| Total |
| | |
| Total | |||||||||||||||||||||||
(Dollars in thousands) |
| Past Due |
| Past Due |
| Past Due |
| Past Due |
| Current |
| Loans | | Past Due | | Past Due | | Past Due | | Past Due | | Current | | Loans | ||||||||||||
December 31, 2019 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Commercial real estate: | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Construction and land development | | $ | 321 | | $ | 39 | | $ | 255 | | $ | 615 | | $ | 967,745 | | $ | 968,360 | ||||||||||||||||||
Commercial non-owner occupied | |
| 114 | |
| — | |
| 299 | |
| 413 | |
| 1,810,725 | |
| 1,811,138 | ||||||||||||||||||
Commercial owner occupied | |
| 4,011 | | | 636 | |
| 2,302 | |
| 6,949 | |
| 1,777,068 | |
| 1,784,017 | ||||||||||||||||||
Consumer real estate: | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Consumer owner occupied | |
| 1,157 | |
| 285 | |
| 2,424 | |
| 3,866 | |
| 2,114,973 | |
| 2,118,839 | ||||||||||||||||||
Home equity loans | |
| 1,343 | |
| 39 | |
| 562 | |
| 1,944 | |
| 516,684 | |
| 518,628 | ||||||||||||||||||
Commercial and industrial | |
| 5,531 | |
| 100 | |
| 649 | |
| 6,280 | |
| 1,274,579 | |
| 1,280,859 | ||||||||||||||||||
Other income producing property | |
| 208 | |
| — | |
| 457 | |
| 665 | |
| 217,952 | |
| 218,617 | ||||||||||||||||||
Consumer | |
| 825 | |
| 285 | |
| 826 | |
| 1,936 | |
| 536,545 | |
| 538,481 | ||||||||||||||||||
Other loans | |
| 25 | |
| 3 | |
| — | |
| 28 | |
| 13,864 | |
| 13,892 | ||||||||||||||||||
| | $ | 13,535 | | $ | 1,387 | | $ | 7,774 | | $ | 22,696 | | $ | 9,230,135 | | $ | 9,252,831 | ||||||||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | |
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | |
Construction and land development |
| $ | 563 |
| $ | 141 |
| $ | 283 |
| $ | 987 |
| $ | 809,564 |
| $ | 810,551 | | $ | 563 | | $ | 141 | | $ | 283 | | $ | 987 | | $ | 809,564 | | $ | 810,551 |
Commercial non-owner occupied |
|
| — |
|
| — |
|
| 22 |
|
| 22 |
|
| 1,615,394 |
|
| 1,615,416 | |
| — | |
| — | |
| 22 | |
| 22 | |
| 1,615,394 | |
| 1,615,416 |
Commercial owner occupied |
|
| 3,336 |
|
| 1,556 |
|
| 889 |
|
| 5,781 |
|
| 1,595,579 |
|
| 1,601,360 | |
| 3,336 | |
| 1,556 | |
| 889 | |
| 5,781 | |
| 1,595,579 | |
| 1,601,360 |
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | |
Consumer owner occupied |
|
| 1,929 |
|
| 743 |
|
| 2,510 |
|
| 5,182 |
|
| 2,000,132 |
|
| 2,005,314 | |
| 1,929 | |
| 743 | |
| 2,510 | |
| 5,182 | |
| 2,000,132 | |
| 2,005,314 |
Home equity loans |
|
| 333 |
|
| 206 |
|
| 1,022 |
|
| 1,561 |
|
| 506,765 |
|
| 508,326 | |
| 333 | |
| 206 | |
| 1,022 | |
| 1,561 | |
| 506,765 | |
| 508,326 |
Commercial and industrial |
|
| 4,658 |
|
| 222 |
|
| 614 |
|
| 5,494 |
|
| 1,066,576 |
|
| 1,072,070 | |
| 4,658 | |
| 222 | |
| 614 | |
| 5,494 | |
| 1,066,576 | |
| 1,072,070 |
Other income producing property |
|
| 658 |
|
| — |
|
| 372 |
|
| 1,030 |
|
| 213,205 |
|
| 214,235 | |
| 658 | |
| — | |
| 372 | |
| 1,030 | |
| 213,205 | |
| 214,235 |
Consumer |
|
| 471 |
|
| 230 |
|
| 677 |
|
| 1,378 |
|
| 463,739 |
|
| 465,117 | |
| 471 | |
| 230 | |
| 677 | |
| 1,378 | |
| 463,739 | |
| 465,117 |
Other loans |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 18,224 |
|
| 18,224 | |
| — | |
| — | |
| — | |
| — | |
| 18,224 | |
| 18,224 |
|
| $ | 11,948 |
| $ | 3,098 |
| $ | 6,389 |
| $ | 21,435 |
| $ | 8,289,178 |
| $ | 8,310,613 | ||||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Construction and land development |
| $ | 693 |
| $ | 305 |
| $ | 452 |
| $ | 1,450 |
| $ | 839,995 |
| $ | 841,445 | ||||||||||||||||||
Commercial non-owner occupied |
|
| 68 |
|
| 18 |
|
| 396 |
|
| 482 |
|
| 1,415,069 |
|
| 1,415,551 | ||||||||||||||||||
Commercial owner occupied |
|
| 1,639 |
|
| 1,495 |
|
| 904 |
|
| 4,038 |
|
| 1,513,513 |
|
| 1,517,551 | ||||||||||||||||||
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Consumer owner occupied |
|
| 1,460 |
|
| 789 |
|
| 943 |
|
| 3,192 |
|
| 1,933,073 |
|
| 1,936,265 | ||||||||||||||||||
Home equity loans |
|
| 744 |
|
| 532 |
|
| 713 |
|
| 1,989 |
|
| 493,159 |
|
| 495,148 | ||||||||||||||||||
Commercial and industrial |
|
| 898 |
|
| 120 |
|
| 573 |
|
| 1,591 |
|
| 1,053,361 |
|
| 1,054,952 | ||||||||||||||||||
Other income producing property |
|
| 169 |
|
| 26 |
|
| 289 |
|
| 484 |
|
| 213,869 |
|
| 214,353 | ||||||||||||||||||
Consumer |
|
| 437 |
|
| 174 |
|
| 718 |
|
| 1,329 |
|
| 447,335 |
|
| 448,664 | ||||||||||||||||||
Other loans |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 9,357 |
|
| 9,357 | ||||||||||||||||||
|
| $ | 6,108 |
| $ | 3,459 |
| $ | 4,988 |
| $ | 14,555 |
| $ | 7,918,731 |
| $ | 7,933,286 | ||||||||||||||||||
March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Construction and land development |
| $ | 673 |
| $ | 4 |
| $ | 133 |
| $ | 810 |
| $ | 870,331 |
| $ | 871,141 | ||||||||||||||||||
Commercial non-owner occupied |
|
| 89 |
|
| 20 |
|
| 707 |
|
| 816 |
|
| 1,050,108 |
|
| 1,050,924 | ||||||||||||||||||
Commercial owner occupied |
|
| 573 |
|
| 1,218 |
|
| 1,702 |
|
| 3,493 |
|
| 1,293,245 |
|
| 1,296,738 | ||||||||||||||||||
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Consumer owner occupied |
|
| 1,274 |
|
| 601 |
|
| 1,598 |
|
| 3,473 |
|
| 1,609,028 |
|
| 1,612,501 | ||||||||||||||||||
Home equity loans |
|
| 1,452 |
|
| 65 |
|
| 1,423 |
|
| 2,940 |
|
| 445,642 |
|
| 448,582 | ||||||||||||||||||
Commercial and industrial |
|
| 983 |
|
| 476 |
|
| 899 |
|
| 2,358 |
|
| 870,005 |
|
| 872,363 | ||||||||||||||||||
Other income producing property |
|
| 360 |
|
| 108 |
|
| 125 |
|
| 593 |
|
| 198,091 |
|
| 198,684 | ||||||||||||||||||
Consumer |
|
| 134 |
|
| 160 |
|
| 496 |
|
| 790 |
|
| 389,994 |
|
| 390,784 | ||||||||||||||||||
Other loans |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 20,795 |
|
| 20,795 | ||||||||||||||||||
|
| $ | 5,538 |
| $ | 2,652 |
| $ | 7,083 |
| $ | 15,273 |
| $ | 6,747,239 |
| $ | 6,762,512 | ||||||||||||||||||
| | $ | 11,948 | | $ | 3,098 | | $ | 6,389 | | $ | 21,435 | | $ | 8,289,178 | | $ | 8,310,613 |
28
29
The following table presents an aging analysis of past due loans (includes nonaccrual loans), segregated by class for acquired non-credit impaired loans:loans, for comparative periods, prior to the adoption of ASU 2016-13:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| 30 - 59 Days |
| 60 - 89 Days |
| 90+ Days |
| Total |
|
|
|
| Total | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
|
| 30 - 59 Days |
| 60 - 89 Days |
| 90+ Days |
| Total |
| | |
| Total | |||||||||||||||||||||||
(Dollars in thousands) |
| Past Due |
| Past Due |
| Past Due |
| Past Due |
| Current |
| Loans | | Past Due | | Past Due | | Past Due | | Past Due | | Current | | Loans | ||||||||||||
December 31, 2019 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Commercial real estate: | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Construction and land development | | $ | 20 | | $ | — | | $ | 256 | | $ | 276 | | $ | 33,293 | | $ | 33,569 | ||||||||||||||||||
Commercial non-owner occupied | |
| 144 | |
| 1,146 | |
| 76 | |
| 1,366 | |
| 446,075 | |
| 447,441 | ||||||||||||||||||
Commercial owner occupied | |
| 890 | |
| 702 | |
| 698 | |
| 2,290 | |
| 304,903 | |
| 307,193 | ||||||||||||||||||
Consumer real estate: | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Consumer owner occupied | |
| 768 | |
| 151 | |
| 414 | |
| 1,333 | |
| 495,098 | |
| 496,431 | ||||||||||||||||||
Home equity loans | |
| 369 | |
| 55 | |
| 1,154 | |
| 1,578 | |
| 187,154 | |
| 188,732 | ||||||||||||||||||
Commercial and industrial | |
| 93 | |
| 204 | |
| 17 | |
| 314 | |
| 101,566 | |
| 101,880 | ||||||||||||||||||
Other income producing property | |
| 378 | |
| 4,309 | |
| 551 | |
| 5,238 | |
| 90,459 | |
| 95,697 | ||||||||||||||||||
Consumer | |
| 485 | |
| 613 | |
| 423 | |
| 1,521 | |
| 87,963 | |
| 89,484 | ||||||||||||||||||
| | $ | 3,147 | | $ | 7,180 | | $ | 3,589 | | $ | 13,916 | | $ | 1,746,511 | | $ | 1,760,427 | ||||||||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | |
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | |
Construction and land development |
| $ | 521 |
| $ | 116 |
| $ | 226 |
| $ | 863 |
| $ | 112,709 |
| $ | 113,572 | | $ | 521 | | $ | 116 | | $ | 226 | | $ | 863 | | $ | 112,709 | | $ | 113,572 |
Commercial non-owner occupied |
|
| 96 |
|
| — |
|
| 289 |
|
| 385 |
|
| 629,009 |
|
| 629,394 | |
| 96 | |
| — | |
| 289 | |
| 385 | |
| 629,009 | |
| 629,394 |
Commercial owner occupied |
|
| 659 |
|
| 237 |
|
| 1,209 |
|
| 2,105 |
|
| 398,553 |
|
| 400,658 | |
| 659 | |
| 237 | |
| 1,209 | |
| 2,105 | |
| 398,553 | |
| 400,658 |
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | |
Consumer owner occupied |
|
| 349 |
|
| 72 |
|
| 1,968 |
|
| 2,389 |
|
| 607,987 |
|
| 610,376 | |
| 349 | |
| 72 | |
| 1,968 | |
| 2,389 | |
| 607,987 | |
| 610,376 |
Home equity loans |
|
| 1,483 |
|
| 298 |
|
| 2,237 |
|
| 4,018 |
|
| 221,260 |
|
| 225,278 | |
| 1,483 | |
| 298 | |
| 2,237 | |
| 4,018 | |
| 221,260 | |
| 225,278 |
Commercial and industrial |
|
| 1,185 |
|
| 1,479 |
|
| 18 |
|
| 2,682 |
|
| 171,158 |
|
| 173,840 | |
| 1,185 | |
| 1,479 | |
| 18 | |
| 2,682 | |
| 171,158 | |
| 173,840 |
Other income producing property |
|
| 210 |
|
| 81 |
|
| 37 |
|
| 328 |
|
| 120,368 |
|
| 120,696 | |
| 210 | |
| 81 | |
| 37 | |
| 328 | |
| 120,368 | |
| 120,696 |
Consumer |
|
| 337 |
|
| 107 |
|
| 396 |
|
| 840 |
|
| 104,083 |
|
| 104,923 | |
| 337 | |
| 107 | |
| 396 | |
| 840 | |
| 104,083 | |
| 104,923 |
|
| $ | 4,840 |
| $ | 2,390 |
| $ | 6,380 |
| $ | 13,610 |
| $ | 2,365,127 |
| $ | 2,378,737 | ||||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Construction and land development |
| $ | 647 |
| $ | 45 |
| $ | 365 |
| $ | 1,057 |
| $ | 164,013 |
| $ | 165,070 | ||||||||||||||||||
Commercial non-owner occupied |
|
| 607 |
|
| 21 |
|
| 283 |
|
| 911 |
|
| 678,342 |
|
| 679,253 | ||||||||||||||||||
Commercial owner occupied |
|
| 964 |
|
| 1,006 |
|
| — |
|
| 1,970 |
|
| 419,871 |
|
| 421,841 | ||||||||||||||||||
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Consumer owner occupied |
|
| 1,127 |
|
| 621 |
|
| 789 |
|
| 2,537 |
|
| 626,276 |
|
| 628,813 | ||||||||||||||||||
Home equity loans |
|
| 1,286 |
|
| 442 |
|
| 2,209 |
|
| 3,937 |
|
| 238,488 |
|
| 242,425 | ||||||||||||||||||
Commercial and industrial |
|
| 2,648 |
|
| 130 |
|
| 19 |
|
| 2,797 |
|
| 209,740 |
|
| 212,537 | ||||||||||||||||||
Other income producing property |
|
| 603 |
|
| 276 |
|
| 129 |
|
| 1,008 |
|
| 132,102 |
|
| 133,110 | ||||||||||||||||||
Consumer |
|
| 574 |
|
| 209 |
|
| 532 |
|
| 1,315 |
|
| 110,462 |
|
| 111,777 | ||||||||||||||||||
|
| $ | 8,456 |
| $ | 2,750 |
| $ | 4,326 |
| $ | 15,532 |
| $ | 2,579,294 |
| $ | 2,594,826 | ||||||||||||||||||
March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Construction and land development |
| $ | 1,788 |
| $ | 115 |
| $ | 288 |
| $ | 2,191 |
| $ | 347,341 |
| $ | 349,532 | ||||||||||||||||||
Commercial non-owner occupied |
|
| 242 |
|
| — |
|
| 134 |
|
| 376 |
|
| 783,090 |
|
| 783,466 | ||||||||||||||||||
Commercial owner occupied |
|
| 1,142 |
|
| — |
|
| — |
|
| 1,142 |
|
| 497,399 |
|
| 498,541 | ||||||||||||||||||
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Consumer owner occupied |
|
| 1,304 |
|
| 76 |
|
| 786 |
|
| 2,166 |
|
| 681,448 |
|
| 683,614 | ||||||||||||||||||
Home equity loans |
|
| 1,881 |
|
| 833 |
|
| 2,125 |
|
| 4,839 |
|
| 290,882 |
|
| 295,721 | ||||||||||||||||||
Commercial and industrial |
|
| 1,998 |
|
| 27 |
|
| 87 |
|
| 2,112 |
|
| 342,059 |
|
| 344,171 | ||||||||||||||||||
Other income producing property |
|
| 101 |
|
| 69 |
|
| 195 |
|
| 365 |
|
| 185,726 |
|
| 186,091 | ||||||||||||||||||
Consumer |
|
| 287 |
|
| 138 |
|
| 1,118 |
|
| 1,543 |
|
| 132,259 |
|
| 133,802 | ||||||||||||||||||
|
| $ | 8,743 |
| $ | 1,258 |
| $ | 4,733 |
| $ | 14,734 |
| $ | 3,260,204 |
| $ | 3,274,938 | ||||||||||||||||||
| | $ | 4,840 | | $ | 2,390 | | $ | 6,380 | | $ | 13,610 | | $ | 2,365,127 | | $ | 2,378,737 |
29
The following table presents an aging analysis of past due loans (includes nonaccrual loans), segregated by class for acquired credit impaired loans:loans, for comparative periods, prior to the adoption of ASU 2016-13:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| 30 - 59 Days |
| 60 - 89 Days |
| 90+ Days |
| Total |
|
|
|
| Total | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
|
| 30 - 59 Days |
| 60 - 89 Days |
| 90+ Days |
| Total |
| | |
| Total | |||||||||||||||||||||||
(Dollars in thousands) |
| Past Due |
| Past Due |
| Past Due |
| Past Due |
| Current |
| Loans | | Past Due | | Past Due | | Past Due | | Past Due | | Current | | Loans | ||||||||||||
December 31, 2019 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Commercial real estate | | $ | 2,283 | | $ | — | | $ | 2,659 | | $ | 4,942 | | $ | 125,996 | | $ | 130,938 | ||||||||||||||||||
Commercial real estate—construction and development | |
| — | |
| — | |
| 393 | |
| 393 | |
| 24,639 | |
| 25,032 | ||||||||||||||||||
Residential real estate | |
| 2,838 | |
| 976 | |
| 5,571 | |
| 9,385 | |
| 153,974 | |
| 163,359 | ||||||||||||||||||
Consumer | |
| 820 | |
| 283 | |
| 534 | |
| 1,637 | |
| 33,851 | |
| 35,488 | ||||||||||||||||||
Commercial and industrial | |
| 118 | |
| 910 | |
| 75 | |
| 1,103 | |
| 5,926 | |
| 7,029 | ||||||||||||||||||
| | $ | 6,059 | | $ | 2,169 | | $ | 9,232 | | $ | 17,460 | | $ | 344,386 | | $ | 361,846 | ||||||||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | |
Commercial real estate |
| $ | 788 |
| $ | 238 |
| $ | 3,959 |
| $ | 4,985 |
| $ | 168,722 |
| $ | 173,707 | | $ | 788 | | $ | 238 | | $ | 3,959 | | $ | 4,985 | | $ | 168,722 | | $ | 173,707 |
Commercial real estate—construction and development |
|
| — |
|
| — |
|
| 2,481 |
|
| 2,481 |
|
| 29,776 |
|
| 32,257 | |
| — | |
| — | |
| 2,481 | |
| 2,481 | |
| 29,776 | |
| 32,257 |
Residential real estate |
|
| 2,529 |
|
| 1,034 |
|
| 6,385 |
|
| 9,948 |
|
| 189,753 |
|
| 199,701 | |
| 2,529 | |
| 1,034 | |
| 6,385 | |
| 9,948 | |
| 189,753 | |
| 199,701 |
Consumer |
|
| 373 |
|
| 190 |
|
| 591 |
|
| 1,154 |
|
| 39,028 |
|
| 40,182 | |
| 373 | |
| 190 | |
| 591 | |
| 1,154 | |
| 39,028 | |
| 40,182 |
Commercial and industrial |
|
| — |
|
| — |
|
| 2,514 |
|
| 2,514 |
|
| 8,411 |
|
| 10,925 | |
| — | |
| — | |
| 2,514 | |
| 2,514 | |
| 8,411 | |
| 10,925 |
|
| $ | 3,690 |
| $ | 1,462 |
| $ | 15,930 |
| $ | 21,082 |
| $ | 435,690 |
| $ | 456,772 | ||||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Commercial real estate |
| $ | 876 |
| $ | 112 |
| $ | 4,533 |
| $ | 5,521 |
| $ | 191,243 |
| $ | 196,764 | ||||||||||||||||||
Commercial real estate—construction and development |
|
| 115 |
|
| 12 |
|
| 2,816 |
|
| 2,943 |
|
| 29,999 |
|
| 32,942 | ||||||||||||||||||
Residential real estate |
|
| 4,620 |
|
| 1,251 |
|
| 8,487 |
|
| 14,358 |
|
| 193,124 |
|
| 207,482 | ||||||||||||||||||
Consumer |
|
| 722 |
|
| 90 |
|
| 839 |
|
| 1,651 |
|
| 40,841 |
|
| 42,492 | ||||||||||||||||||
Commercial and industrial |
|
| 2,437 |
|
| — |
|
| 88 |
|
| 2,525 |
|
| 7,518 |
|
| 10,043 | ||||||||||||||||||
|
| $ | 8,770 |
| $ | 1,465 |
| $ | 16,763 |
| $ | 26,998 |
| $ | 462,725 |
| $ | 489,723 | ||||||||||||||||||
March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Commercial real estate |
| $ | 6,043 |
| $ | 5,293 |
| $ | 6,239 |
| $ | 17,575 |
| $ | 215,702 |
| $ | 233,277 | ||||||||||||||||||
Commercial real estate—construction and development |
|
| 53 |
|
| 321 |
|
| 3,438 |
|
| 3,812 |
|
| 42,407 |
|
| 46,219 | ||||||||||||||||||
Residential real estate |
|
| 4,497 |
|
| 3,063 |
|
| 8,598 |
|
| 16,158 |
|
| 232,608 |
|
| 248,766 | ||||||||||||||||||
Consumer |
|
| 800 |
|
| 275 |
|
| 1,028 |
|
| 2,103 |
|
| 46,698 |
|
| 48,801 | ||||||||||||||||||
Commercial and industrial |
|
| 55 |
|
| — |
|
| 820 |
|
| 875 |
|
| 23,420 |
|
| 24,295 | ||||||||||||||||||
|
| $ | 11,448 |
| $ | 8,952 |
| $ | 20,123 |
| $ | 40,523 |
| $ | 560,835 |
| $ | 601,358 | ||||||||||||||||||
| | $ | 3,690 | | $ | 1,462 | | $ | 15,930 | | $ | 21,082 | | $ | 435,690 | | $ | 456,772 |
30
The following is a summary of certain information pertaining to impaired non-acquirednonaccrual loans by class, including restructured loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Unpaid |
| Recorded |
| Gross |
|
|
|
|
|
| ||||||||||||||||
|
| Contractual |
| Investment |
| Recorded |
| Total |
|
|
| |||||||||||||||||
|
| Principal |
| With No |
| Investment |
| Recorded |
| Related | ||||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||
| | December 31, | | March 31, | | Greater than | | Non-accrual | | |||||||||||||||||||
(Dollars in thousands) |
| Balance |
| Allowance |
| With Allowance |
| Investment |
| Allowance |
| 2019 |
| 2020 | | 90 Days Accruing |
| with no allowance |
| |||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Commercial non-owner occupied real estate: | | |
| | |
| | | | |
| | ||||||||||||||||
Construction and land development |
| $ | 38,668 |
| $ | 343 |
| $ | 37,914 |
| $ | 38,257 |
| $ | 786 | | $ | 1,193 | | $ | 1,294 | | $ | — | | $ | — | |
Commercial non-owner occupied |
|
| 514 |
|
| 99 |
|
| 276 |
|
| 375 |
|
| 60 | |
| 1,154 | |
| 2,863 | | | — | |
| 2,010 | |
Commercial owner occupied |
|
| 5,158 |
|
| 3,130 |
|
| 1,090 |
|
| 4,220 |
|
| 21 | |||||||||||||
Total commercial non-owner occupied real estate | |
| 2,347 | |
| 4,157 | | | — | |
| 2,010 | | |||||||||||||||
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Consumer owner occupied |
|
| 7,462 |
|
| 5,223 |
|
| 1,662 |
|
| 6,885 |
|
| 37 | |
| 9,718 | |
| 19,614 | | | — | |
| 3,972 | |
Home equity loans |
|
| 2,885 |
|
| 1,136 |
|
| 1,618 |
|
| 2,754 |
|
| 161 | |
| 4,640 | |
| 8,891 | | | — | |
| 3,002 | |
Total consumer real estate | |
| 14,358 | |
| 28,505 | | | — | |
| 6,974 | | |||||||||||||||
Commercial owner occupied real estate | |
| 4,385 | |
| 9,498 | | | 119 | |
| 5,490 | | |||||||||||||||
Commercial and industrial |
|
| 1,357 |
|
| — |
|
| 1,315 |
|
| 1,315 |
|
| 420 | |
| 6,913 | |
| 4,834 | | | 167 | |
| 1,304 | |
Other income producing property |
|
| 2,605 |
|
| 141 |
|
| 2,216 |
|
| 2,357 |
|
| 111 | |
| 1,947 | |
| 4,343 | | | 74 | |
| 2,554 | |
Consumer |
|
| 200 |
|
| — |
|
| 110 |
|
| 110 |
|
| 3 | |
| 3,191 | |
| 5,004 | | | 2 | |
| 345 | |
Total |
| $ | 58,849 |
| $ | 10,072 |
| $ | 46,201 |
| $ | 56,273 |
| $ | 1,599 | |||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Construction and land development |
| $ | 38,314 |
| $ | 339 |
| $ | 37,574 |
| $ | 37,913 |
| $ | 788 | |||||||||||||
Commercial non-owner occupied |
|
| 1,157 |
|
| 536 |
|
| 489 |
|
| 1,025 |
|
| 70 | |||||||||||||
Commercial owner occupied |
|
| 5,085 |
|
| 3,101 |
|
| 1,041 |
|
| 4,142 |
|
| 27 | |||||||||||||
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Consumer owner occupied |
|
| 7,291 |
|
| 4,992 |
|
| 1,769 |
|
| 6,761 |
|
| 41 | |||||||||||||
Home equity loans |
|
| 2,953 |
|
| 1,129 |
|
| 1,697 |
|
| 2,826 |
|
| 142 | |||||||||||||
Commercial and industrial |
|
| 1,332 |
|
| 467 |
|
| 824 |
|
| 1,291 |
|
| 416 | |||||||||||||
Other income producing property |
|
| 3,117 |
|
| 150 |
|
| 2,722 |
|
| 2,872 |
|
| 142 | |||||||||||||
Consumer |
|
| 211 |
|
| — |
|
| 188 |
|
| 188 |
|
| 2 | |||||||||||||
Total |
| $ | 59,460 |
| $ | 10,714 |
| $ | 46,304 |
| $ | 57,018 |
| $ | 1,628 | |||||||||||||
March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Construction and land development |
| $ | 50,399 |
| $ | 476 |
| $ | 45,722 |
| $ | 46,198 |
| $ | 767 | |||||||||||||
Commercial non-owner occupied |
|
| 2,916 |
|
| 659 |
|
| 522 |
|
| 1,181 |
|
| 110 | |||||||||||||
Commercial owner occupied |
|
| 8,972 |
|
| 3,273 |
|
| 2,305 |
|
| 5,578 |
|
| 63 | |||||||||||||
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Consumer owner occupied |
|
| 7,245 |
|
| 4,332 |
|
| 1,161 |
|
| 5,493 |
|
| 35 | |||||||||||||
Home equity loans |
|
| 3,855 |
|
| 1,105 |
|
| 2,063 |
|
| 3,168 |
|
| 73 | |||||||||||||
Commercial and industrial |
|
| 2,679 |
|
| 634 |
|
| 1,043 |
|
| 1,677 |
|
| 489 | |||||||||||||
Other income producing property |
|
| 3,793 |
|
| 112 |
|
| 2,974 |
|
| 3,086 |
|
| 166 | |||||||||||||
Consumer |
|
| 787 |
|
| — |
|
| 315 |
|
| 315 |
|
| 9 | |||||||||||||
Total |
| $ | 80,646 |
| $ | 10,591 |
| $ | 56,105 |
| $ | 66,696 |
| $ | 1,712 | |||||||||||||
Total loans on nonaccrual status | | $ | 33,141 | | $ | 56,341 | | $ | 362 | | $ | 18,677 | |
AcquiredThere is no interest income recognized during the period on nonaccrual loans. The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Loans on nonaccrual status in which there is no allowance assigned are individually evaluated loans that do not carry a specific reserve. See Note 2 – Summary of Significant Accounting Policies for further detailed on individually evaluated loans. The increase in the nonaccrual balance in the above schedule, compared to December 31, 2019, is primarily due to the addition of $21.0 million, formerly accounted for as credit impaired loans, are accountedprior to the adoption of ASU 2016-13. These loans were previously excluded from nonaccrual loans. The adoption of CECL resulted in the discontinuation of the pool-level accounting for in pools as shown on page 20 rather than being individually evaluated for impairment; therefore, the table above excludes acquired credit impaired loans.
31
The following summarizes the average investment in impaired non-acquired loans and interest income recognized on these loans:replaced it with loan-level evaluation for nonaccrual status.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, | ||||||||||
|
| 2019 |
| 2018 | ||||||||
|
| Average |
|
|
|
| Average |
|
|
| ||
|
| Investment in |
| Interest Income |
| Investment in |
| Interest Income | ||||
(Dollars in thousands) |
| Impaired Loans |
| Recognized |
| Impaired Loans |
| Recognized | ||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development |
| $ | 38,085 |
| $ | 481 |
| $ | 44,714 |
| $ | 513 |
Commercial non-owner occupied |
|
| 700 |
|
| 2 |
|
| 1,278 |
|
| 5 |
Commercial owner occupied |
|
| 4,181 |
|
| 67 |
|
| 5,610 |
|
| 75 |
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer owner occupied |
|
| 6,823 |
|
| 49 |
|
| 5,563 |
|
| 43 |
Home equity loans |
|
| 2,790 |
|
| 32 |
|
| 3,090 |
|
| 29 |
Commercial and industrial |
|
| 1,303 |
|
| 20 |
|
| 1,417 |
|
| 17 |
Other income producing property |
|
| 2,614 |
|
| 30 |
|
| 3,112 |
|
| 46 |
Consumer |
|
| 149 |
|
| — |
|
| 277 |
|
| — |
Total Impaired Loans |
| $ | 56,645 |
| $ | 681 |
| $ | 65,061 |
| $ | 728 |
The following is a summary of information pertaining to non-acquired nonaccrual loans by class, including restructured loans:loans, for comparative periods, prior to the adoption of ASU 2016-13:
sc | | | | | | | |
| | December 31, | | March 31, | | ||
(Dollars in thousands) |
| 2019 |
| 2019 |
| ||
Commercial non-owner occupied real estate: | | |
| | |
| |
Construction and land development | | $ | 363 | | $ | 414 | |
Commercial non-owner occupied | |
| 732 | |
| 505 | |
Total commercial non-owner occupied real estate | |
| 1,095 | |
| 919 | |
Consumer real estate: | | | | | | | |
Consumer owner occupied | |
| 7,202 | |
| 7,658 | |
Home equity loans | |
| 1,468 | |
| 2,666 | |
Total consumer real estate | |
| 8,670 | |
| 10,324 | |
Commercial owner occupied real estate | |
| 3,482 | |
| 1,215 | |
Commercial and industrial | |
| 4,092 | |
| 286 | |
Other income producing property | |
| 798 | |
| 596 | |
Consumer | |
| 1,587 | |
| 1,244 | |
Restructured loans | |
| 2,578 | |
| 830 | |
Total loans on nonaccrual status | | $ | 22,302 | | $ | 15,414 | |
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
| March 31, |
| |||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
| |||
Commercial non-owner occupied real estate: |
|
|
|
|
|
|
|
|
|
|
Construction and land development |
| $ | 414 |
| $ | 424 |
| $ | 500 |
|
Commercial non-owner occupied |
|
| 505 |
|
| 831 |
|
| 1,174 |
|
Total commercial non-owner occupied real estate |
|
| 919 |
|
| 1,255 |
|
| 1,674 |
|
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
Consumer owner occupied |
|
| 7,658 |
|
| 7,109 |
|
| 5,541 |
|
Home equity loans |
|
| 2,666 |
|
| 2,333 |
|
| 2,593 |
|
Total consumer real estate |
|
| 10,324 |
|
| 9,442 |
|
| 8,134 |
|
Commercial owner occupied real estate |
|
| 1,215 |
|
| 1,068 |
|
| 1,647 |
|
Commercial and industrial |
|
| 286 |
|
| 647 |
|
| 799 |
|
Other income producing property |
|
| 596 |
|
| 500 |
|
| 170 |
|
Consumer |
|
| 1,244 |
|
| 1,267 |
|
| 903 |
|
Restructured loans |
|
| 830 |
|
| 648 |
|
| 782 |
|
Total loans on nonaccrual status |
| $ | 15,414 |
| $ | 14,827 |
| $ | 14,109 |
|
31
The following is a summary of information pertaining to acquired non-credit impaired nonaccrual loans by class, including restructured loans:loans, for comparative periods, prior to the adoption of ASU 2016-13:
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| March 31, |
| December 31, |
| March 31, |
| ||||||||||
| | | | | | | | ||||||||||
| | December 31, | | March 31, | | ||||||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
|
| 2019 |
| 2019 | | |||||
Commercial non-owner occupied real estate: |
|
|
|
|
|
|
|
|
|
| | | | | | | |
Construction and land development |
| $ | 1,114 |
| $ | 252 |
| $ | 426 |
| | $ | 699 | | $ | 1,114 | |
Commercial non-owner occupied |
|
| 289 |
|
| 283 |
|
| — |
| | | 393 | | | 289 | |
Total commercial non-owner occupied real estate |
|
| 1,403 |
|
| 535 |
|
| 426 |
| | | 1,092 | | | 1,403 | |
Consumer real estate: |
|
|
|
|
|
|
|
|
|
| | | | | | | |
Consumer owner occupied |
|
| 3,693 |
|
| 3,864 |
|
| 1,427 |
| | | 2,350 | | | 3,693 | |
Home equity loans |
|
| 4,750 |
|
| 4,512 |
|
| 3,931 |
| | | 3,067 | | | 4,750 | |
Total consumer real estate |
|
| 8,443 |
|
| 8,376 |
|
| 5,358 |
| | | 5,417 | | | 8,443 | |
Commercial owner occupied real estate |
|
| 1,664 |
|
| 1,470 |
|
| 178 |
| | | 903 | | | 1,664 | |
Commercial and industrial |
|
| 915 |
|
| 1,296 |
|
| 138 |
| | | 722 | | | 915 | |
Other income producing property |
|
| 205 |
|
| 244 |
|
| 325 |
| | | 1,101 | | | 205 | |
Consumer |
|
| 1,664 |
|
| 1,568 |
|
| 1,651 |
| | | 1,604 | | | 1,664 | |
Total loans on nonaccrual status |
| $ | 14,294 |
| $ | 13,489 |
| $ | 8,076 |
| | $ | 10,839 | | $ | 14,294 | |
The following is a summary of collateral dependent loans, by type of collateral, and the extent to which they are collateralized during the period:
| | | | | | | | | | | | | |
| | December 31, | | Collateral | | March 31, | | Collateral | | ||||
(Dollars in thousands) |
| 2019 |
| Coverage | % | 2020 |
| Coverage | % | ||||
Commercial non-owner occupied | |
| | |
| | | | | |
| | |
Hotel | |
| 245 | |
| 846 | 345% | | 245 | |
| 1,476 | 602% |
Office | | | 1,045 | | | 1,800 | 172% | | 1,045 | | | 1,350 | 129% |
Other | | | 398 | | | 648 | 163% | | 398 | | | 608 | 153% |
Retail | | | 299 | | | 1,269 | 424% | | 294 | | | 1,269 | 432% |
Commercial owner occupied real estate | |
| | |
| | | | | |
| | |
Industrial | | | 738 | | | 1,103 | 149% | | 738 | | | 1,103 | 149% |
Office | | | 1,076 | | | 1,485 | 138% | | 1,076 | | | 1,485 | 138% |
Other | | | 3,303 | | | 7,285 | 221% | | 3,676 | | | 8,581 | 233% |
Consumer owner occupied | |
| | |
| | | | | |
| | |
Other | | | 5,413 | | | 9,286 | 172% | | 4,250 | | | 6,040 | 142% |
Home equity loans | |
| | |
| | | | | |
| | |
Other | | | 1,768 | | | 2,679 | 152% | | 3,002 | | | 4,513 | 150% |
Commercial and industrial | |
| | |
| | | | | |
| | |
Industrial | | | 291 | | | 702 | 241% | | — | | | — | 0% |
Other | | | 3,696 | | | 8,442 | 228% | | 1,710 | | | 4,389 | 257% |
Other income producing property | |
| | |
| | | | | |
| | |
Other | | | 3,212 | | | 10,186 | 317% | | 2,209 | | | 6,898 | 312% |
Consumer | |
| | |
| | | | | |
| | |
Other | | | 363 | | | 525 | 145% | | 345 | | | 525 | 152% |
Total collateral dependent loans | | $ | 21,847 | | $ | 46,256 | | $ | 18,988 | | $ | 38,237 | |
The Bank designates individually evaluated loans (excluding TDRs) on non-accrual with a net book balance of $250,000 or greater as collateral dependent loans. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining ACL. Under ASC 326-20-35-6, the Bank has adopted the collateral maintenance practical expedient to measure the ACL based on the fair value of collateral. The ACL is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for selling costs and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required. The significant changes above in collateral percentage are due to appraisal value updates or changes in the number of loans within the asset class and collateral type.
In the course of resolving delinquent loans, the Bank may choose to restructure the contractual terms of certain loans. Any loans that are modified are reviewed by the Bank to determine if a troubled debt restructuring (“TDR” or “restructured loan”)TDR, sometimes referred to herein as a restructured loan, has occurred. The Bank designates loan modifications as TDRs when it grants a concession to a borrower that it would not otherwise consider due to the borrower experiencing financial difficulty (FASB ASC Topic 310-40). The concessions granted on TDRs generally include terms to reduce the interest rate, extend the term of the debt obligation, or modify the payment structure on the debt obligation.
See Note 2 – Summary of Significant Accounting Policies for how such modifications are factored into the determination of the ACL.
32
Loans on nonaccrual status at the date of modification are initially classified as nonaccrual TDRs. Loans on accruing status at the date of concession are initially classified as accruing TDRs if the note is reasonably assured of repayment and performance is expected in accordance with its modified terms. Such loans may be designated as nonaccrual loans subsequent to the concession date if reasonable doubt exists as to the collection of interest or principal under the restructuring agreement. Nonaccrual TDRs are returned to accruing status when there is economic substance to the restructuring, there is documented credit evaluation of the borrower’s financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated sustained repayment performance in accordance with the modified terms for a reasonable period of time (generally a minimum of six months)months). ForIn prior periods our TDR levels were deemed to be immaterial, therefore no comparative data is shown.
The following table presents loans designated as TDRs segregated by class and type of concession that were restructured during the three months ended March 31, 20192020.
| | | | | | |
| Three Months Ended March 31, | |||||
| 2020 | |||||
| | | Pre-Modification | | Post-Modification | |
| Number | | Amortized | | Amortized | |
(Dollars in thousands) | of loans | | Cost | | Cost | |
Interest rate modification | | | | | | |
Construction and land development | 2 | | $106 | | $106 | |
Commercial non-owner occupied | -- | | -- | | -- | |
Commercial owner occupied | -- | | -- | | -- | |
Consumer owner occupied | 1 | | 30 | | 30 | |
Home equity loans | -- | | -- | | -- | |
Commercial and industrial | 6 | | 782 | | 782 | |
Other income producing property | 1 | | 345 | | 345 | |
Consumer | -- | | -- | | -- | |
Other loans | -- | | -- | | -- | |
Total interest rate modifications | 10 | | $1,263 | | $1,263 | |
Term modification | | | | | | |
Construction and land development | - | | $-- | | $-- | |
Commercial non-owner occupied | -- | | -- | | -- | |
Commercial owner occupied | -- | | -- | | -- | |
Consumer owner occupied | 1 | | 52 | | 52 | |
Home equity loans | 1 | | 52 | | 52 | |
Commercial and industrial | 1 | | 284 | | 284 | |
Other income producing property | -- | | -- | | -- | |
Consumer | -- | | -- | | -- | |
Other loans | -- | | -- | | -- | |
Total term modifications | 3 | | $388 | | $388 | |
| 13 | | $ 1,651 | | $ 1,651 | |
At March 31, 2020, the balance of accruing TDRs was $10.9 million. The Company had $1.1 million remaining availability under commitments to lend additional funds on restructured loans at March 31, 2020. The amount of specific reserve associated with restructured loans was $1.1 million at March 31, 2020.
33
The following table presents the changes in status of loans restructured within the previous 12 months as of March 31, 2020 by type of concession. The change in accrual status in this case had no impact on the expected credit losses.
| | | | | | | | | | | | |
| | Paying Under | | | | | | | | | ||
| | Restructured Terms | | Converted to Nonaccrual | | Foreclosures and Defaults | ||||||
| | Number | | Amortized | | Number | | Amortized | | Number | | Amortized |
(Dollars in thousands) | | of Loans | | Cost | | of Loans | | Cost | | of Loans | | Cost |
Interest rate modification | | 17 | | $ 2,787 | | 2 | | $1,349 | | -- | | $-- |
Term modification | | 9 | | 905 | | -- | | -- | | -- | | -- |
| | 26 | | $ 3,692 | | 2 | | $1,349 | | -- | | $-- |
Note 6 — Allowance for Credit Losses (ACL)
See Note 2 - Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and 2018, our TDRs were not material.methodology related to the allowance for credit losses.
The following table presents a disaggregated analysis of activity in the allowance for credit losses as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Consumer | | | | Consumer | | | | Ready | | | | | | CRE-OO | | CRE and | | BEX and | | | | | | |||||||||||
(Dollars in thousands) | | Mortgage | | HELOC | | Non Mobile Home | | Mobile Home | | Reserves | | Overdrafts | | Land | | and C&I | | OIPP | | Micro | | Other | | Total | ||||||||||||
Three Months Ended March 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of period January 1, 2020 | | $ | 5,076 | | $ | 4,310 | | $ | 1,142 | | $ | 2,176 | | $ | 231 | | $ | 561 | | $ | 3,055 | | $ | 18,189 | | $ | 20,800 | | $ | 1,148 | | $ | 239 | | $ | 56,927 |
Impact of Adoption | | | 4,757 | | | 3,836 | | | 1,079 | | | 1,426 | | | 220 | | | 537 | | | 2,574 | | | 16,487 | | | 18,878 | | | 1,007 | | | 229 | | | 51,030 |
Initial PCD Allowance | | | 98 | | | 286 | | | 14 | | | 655 | | | | | | | | | 348 | | | 907 | | | 1,010 | | | 90 | | | — | | | 3,408 |
Adjusted CECL balance at January 1, 2020 | | $ | 9,931 | | $ | 8,432 | | $ | 2,235 | | $ | 4,257 | | $ | 451 | | $ | 1,098 | | $ | 5,977 | | $ | 35,583 | | $ | 40,688 | | $ | 2,245 | | $ | 468 | | $ | 111,365 |
Charge-offs | |
| (304) | |
| (615) | |
| (230) | |
| (380) | |
| (99) | |
| (1,076) | |
| (105) | |
| (361) | |
| — | | | (53) | | | — | |
| (3,223) |
Recoveries | |
| 219 | |
| 405 | |
| 35 | |
| 53 | |
| 5 | |
| 374 | |
| 172 | |
| 245 | |
| 201 | | | 200 | | | — | |
| 1,909 |
Net charge offs | | | (85) | | | (210) | | | (195) | | | (327) | | | (94) | | | (702) | | | 67 | | | (116) | | | 201 | | | 147 | | | — | | | (1,314) |
Provision (benefit) (1) | |
| 6,187 | |
| 3,828 | |
| 692 | |
| 528 | |
| 156 | |
| 459 | |
| 1,210 | |
| 4,878 | |
| 16,548 | | | 273 | | | (25) | |
| 34,734 |
Balance at end of period March 31, 2020 | | $ | 16,033 | | $ | 12,050 | | $ | 2,732 | | $ | 4,458 | | $ | 513 | | $ | 855 | | $ | 7,254 | | $ | 40,345 | | $ | 57,437 | | $ | 2,665 | | $ | 443 | | $ | 144,785 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Quantitative allowance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Collectively evaluated | | $ | 10,278 | | $ | 7,489 | | $ | 1,873 | | $ | 3,719 | | $ | 382 | | $ | 772 | | $ | 8,019 | | $ | 24,417 | | $ | 20,580 | | $ | 1,722 | | $ | — | | $ | 79,251 |
Individually evaluated | | | 182 | | | 314 | | | — | | | — | | | — | | | — | | | 64 | | | 570 | | | 30 | | | 152 | | | — | | | 1,312 |
Total quantitative allowance | | | 10,460 | | | 7,803 | | | 1,873 | | | 3,719 | | | 382 | | | 772 | | | 8,083 | | | 24,987 | | | 20,610 | | | 1,874 | | | — | | | 80,563 |
Qualitative allowance | | | 5,573 | | | 4,247 | | | 859 | | | 739 | | | 131 | | | 83 | | | (829) | | | 15,358 | | | 36,827 | | | 791 | | | 443 | | | 64,222 |
Balance at end of period March 31, 2020 | | $ | 16,033 | | $ | 12,050 | | $ | 2,732 | | $ | 4,458 | | $ | 513 | | $ | 855 | | $ | 7,254 | | $ | 40,345 | | $ | 57,437 | | $ | 2,665 | | $ | 443 | | $ | 144,785 |
(1) | – Additional provision for credit losses of $1,799 was recorded during the first quarter of 2020 for the allowance for credit losses for unfunded commitments that is not considered in the above table. See Note 13 |
An aggregated analysis of the changes in allowance for loan losses, for comparative periods, prior to the adoption of ASU 2016-13 is as follows:
| | | | | | | | | | | | | |
|
| Non-acquired |
| Acquired Non-Credit |
| Acquired Credit |
| | |
| |||
(Dollars in thousands) | | Loans | | Impaired Loans | | Impaired Loans | | Total |
| ||||
Three Months Ended March 31, 2019: | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 51,194 | | $ | — | | $ | 4,604 | | $ | 55,798 | |
Loans charged-off | |
| (1,245) | | | (374) | |
| — | |
| (1,619) | |
Recoveries of loans previously charged off (1) | |
| 752 | | | 206 | |
| — | |
| 958 | |
Net charge-offs | |
| (493) | | | (168) | |
| — | |
| (661) | |
Provision for loan losses charged to operations | |
| 1,307 | | | 168 | |
| 13 | |
| 1,488 | |
Reduction due to loan removals | |
| — | | | — | |
| (103) | |
| (103) | |
Balance at end of period | | $ | 52,008 | | $ | — | | $ | 4,514 | | $ | 56,522 | |
(1) | Recoveries related to acquired credit impaired loans are recorded through other noninterest income on the consolidated statement of income and do not run through the ALLL. |
34
The following tables present a disaggregated analysis of activity in the allowance for loan losses and loan balances for non-acquired loans, for comparative periods, prior to the adoption of ASU 2016-13:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Construction |
| Commercial |
| Commercial |
| Consumer |
| | |
| | |
| Other Income |
| | |
| | |
| | | |||||
| | & Land | | Non-owner | | Owner | | Owner | | Home | | Commercial | | Producing | | | | | Other | | | | ||||||||
(Dollars in thousands) | | Development | | Occupied | | Occupied | | Occupied | | Equity | | & Industrial | | Property | | Consumer | | Loans | | Total | ||||||||||
Three Months Ended March 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2018 | | $ | 5,682 | | $ | 8,754 | | $ | 9,369 | | $ | 11,913 | | $ | 3,434 | | $ | 7,454 | | $ | 1,446 | | $ | 3,101 | | $ | 41 | | $ | 51,194 |
Charge-offs | |
| — | |
| — | |
| (12) | |
| (37) | |
| (15) | |
| (19) | |
| — | |
| (1,162) | |
| — | |
| (1,245) |
Recoveries | |
| 299 | |
| 22 | |
| 25 | |
| 2 | |
| 36 | |
| 71 | |
| 45 | |
| 252 | |
| — | |
| 752 |
Provision (benefit) | |
| (610) | |
| 964 | |
| 247 | |
| 180 | |
| (182) | |
| (257) | |
| (104) | |
| 1,004 | |
| 65 | |
| 1,307 |
Balance, March 31, 2019 | | $ | 5,371 | | $ | 9,740 | | $ | 9,629 | | $ | 12,058 | | $ | 3,273 | | $ | 7,249 | | $ | 1,387 | | $ | 3,195 | | $ | 106 | | $ | 52,008 |
Loans individually evaluated for impairment | | $ | 786 | | $ | 60 | | $ | 21 | | $ | 37 | | $ | 161 | | $ | 420 | | $ | 111 | | $ | 3 | | $ | — | | $ | 1,599 |
Loans collectively evaluated for impairment | | $ | 4,585 | | $ | 9,680 | | $ | 9,608 | | $ | 12,021 | | $ | 3,112 | | $ | 6,829 | | $ | 1,276 | | $ | 3,192 | | $ | 106 | | $ | 50,409 |
Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | $ | 38,257 | | $ | 375 | | $ | 4,220 | | $ | 6,885 | | $ | 2,754 | | $ | 1,315 | | $ | 2,357 | | $ | 110 | | $ | — | | $ | 56,273 |
Loans collectively evaluated for impairment | |
| 772,294 | |
| 1,615,041 | |
| 1,597,140 | |
| 1,998,429 | |
| 505,572 | |
| 1,070,755 | |
| 211,878 | |
| 465,007 | |
| 18,224 | |
| 8,254,340 |
Total non-acquired loans | | $ | 810,551 | | $ | 1,615,416 | | $ | 1,601,360 | | $ | 2,005,314 | | $ | 508,326 | | $ | 1,072,070 | | $ | 214,235 | | $ | 465,117 | | $ | 18,224 | | $ | 8,310,613 |
The following tables present a disaggregated analysis of activity in the allowance for loan losses and loan balances for acquired non-credit impaired loans, for comparative periods, prior to the adoption of ASU 2016-13:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Construction |
| Commercial |
| Commercial |
| Consumer |
| | |
| | |
| Other Income |
| | |
| | |
| | |
| |||||
| | & Land | | Non-owner | | Owner | | Owner | | Home | | Commercial | | Producing | | | | | | | | | |
| |||||||
(Dollars in thousands) | | Development | | Occupied | | Occupied | | Occupied | | Equity | | & Industrial | | Property | | Consumer | | Other | | Total |
| ||||||||||
Three Months Ended March 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
Charge-offs | |
| (6) | |
| — | |
| — | |
| — | |
| (72) | |
| (134) | |
| (26) | |
| (136) | |
| — | |
| (374) | |
Recoveries | |
| 1 | |
| — | |
| — | |
| 2 | |
| 22 | |
| 165 | |
| — | |
| 16 | |
| — | |
| 206 | |
Provision (benefit) | |
| 5 | |
| — | |
| — | |
| (2) | |
| 50 | |
| (31) | |
| 26 | |
| 120 | |
| — | |
| 168 | |
Balance, March 31, 2019 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
Loans collectively evaluated for impairment | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
Loans collectively evaluated for impairment | |
| 113,572 | |
| 629,394 | |
| 400,658 | |
| 610,376 | |
| 225,278 | |
| 173,840 | |
| 120,696 | |
| 104,923 | |
| — | |
| 2,378,737 | |
Total acquired non-credit impaired loans | | $ | 113,572 | | $ | 629,394 | | $ | 400,658 | | $ | 610,376 | | $ | 225,278 | | $ | 173,840 | | $ | 120,696 | | $ | 104,923 | | $ | — | | $ | 2,378,737 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following tables present a disaggregated analysis of activity in the allowance for loan losses and loan balances for acquired credit impaired loans, for comparative periods, prior to the adoption of ASU 2016-13:
| | | | | | | | | | | | | | | | | | |
|
| | |
| Commercial |
| | |
| | |
| | |
| | | |
| | | | | Real Estate- | | | | | | | | | | | | | |
| | Commercial | | Construction and | | Residential | | | | | Commercial | | | | ||||
(Dollars in thousands) | | Real Estate | | Development | | Real Estate | | Consumer | | and Industrial | | Total | ||||||
| | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2019 | | | | | | | | | | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | |
Balance , December 31, 2018 | | $ | 801 | | $ | 717 | | $ | 2,246 | | $ | 761 | | $ | 79 | | $ | 4,604 |
Provision (benefit) for loan losses | |
| 51 | |
| — | |
| 16 | |
| (54) | |
| — | |
| 13 |
Reduction due to loan removals | |
| (5) | |
| — | |
| (98) | |
| — | |
| — | |
| (103) |
Balance, March 31, 2019 | | $ | 847 | | $ | 717 | | $ | 2,164 | | $ | 707 | | $ | 79 | | $ | 4,514 |
Loans individually evaluated for impairment | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Loans collectively evaluated for impairment | | $ | 847 | | $ | 717 | | $ | 2,164 | | $ | 707 | | $ | 79 | | $ | 4,514 |
Loans:* | | | | | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Loans collectively evaluated for impairment | |
| 173,707 | |
| 32,257 | |
| 199,701 | |
| 40,182 | |
| 10,925 | |
| 456,772 |
Total acquired credit impaired loans | | $ | 173,707 | | $ | 32,257 | | $ | 199,701 | | $ | 40,182 | | $ | 10,925 | | $ | 456,772 |
*— The carrying value of acquired credit impaired loans includes a non-accretable difference which is primarily associated with the assessment of credit quality of acquired loans.
35
Note 6—7—Other Real Estate Owned
The following is a summary of information pertaining to OREO:
|
|
|
|
|
|
|
| |||||||
|
| Three Months Ended March 31, |
| |||||||||||
| | | | | | | | |||||||
| | Three Months Ended March 31, | | |||||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| | 2020 | | 2019 | | ||||
| | OREO | | OREO | | |||||||||
Beginning balance |
| $ | 11,410 |
| $ | 11,203 |
| | $ | 11,964 | | $ | 11,410 | |
Acquired in PSC acquisition |
|
| — |
|
| 210 |
| |||||||
Additions |
|
| 1,004 |
|
| 2,895 |
| |
| 2,048 | |
| 1,004 | |
Writedowns |
|
| (98) |
|
| (777) |
| |
| (111) | |
| (98) | |
Sold |
|
| (1,019) |
|
| (2,458) |
| |
| (1,057) | |
| (1,019) | |
Ending Balance |
| $ | 11,297 |
| $ | 11,073 |
| | $ | 12,844 | | $ | 11,297 | |
At March 31, 2019,2020, there were a total of 7472 properties included in OREO compared to 7774 properties at March 31, 2018.2019. At March 31, 2019,2020, we had $1.2$2.3 million in residential real estate included in OREO and $4.8$7.4 million in residential real estate consumer mortgage loans in the process of foreclosure.
Note 78 — Leases
As of March 31, 2019,2020, we had operating ROU assets of $82.8$86.4 million and operating lease liabilities of $83.0$88.2 million. We maintain operating leases on land and buildings for our operating centers, branch facilities and ATM locations. Most leases include one or more options to renew, with renewal terms extending up to 24 years. The exercise of renewal options is based on the sole judgment of management and what they consider to be reasonably certain given the environment today. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of renewal rate compared to market rates, and the presence of factors that would cause a significant economic penalty to us if the option is not exercised. Leases with an initial term of 122 months or less are not recorded on the balance sheet and instead are recognized in lease expense on a straight-line basis over the lease term. We do not sublease any portion of these locations to third parties.
33
36
| | | | | | | | |
| | Three Months Ended | | | ||||
(Dollars in thousands) | | March 31, |
| | ||||
|
| 2020 | 2019 |
|
| |||
Lease Expense Components: | | | | | | | | |
Operating lease expense | | $ | 2,258 | | $ | 2,146 | | |
Short-term lease expense | | | 98 | | | 144 | | |
Variable term leased expense | |
| 166 | |
| 69 | | |
Total lease expense | | $ | 2,522 | | $ | 2,359 | | |
Supplemental Cash Flow and Other Information Related to Leases: | | | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities - operating leases | | $ | 1,672 | | $ | 1,890 | | |
Initial ROU assets recorded in exchange for new lease liabilities - operating leases | | $ | 458 | | $ | 1,956 | | |
Weighted - average remaining lease term (years) - operating leases | |
| 13.92 | |
| 14.33 | | |
Weighted - average discount rate - operating leases | |
| 3.9% | |
| 4.0% | | |
| |
| | |
| | | |
Supplemental Balance Sheet Information Related to Leases | | | | | | | | |
Operating lease ROU assets (premises and equipment) | | $ | 86,437 | | $ | 82,787 | | |
Operating lease liabilities (other liabilities) | | $ | 88,163 | | $ | 83,043 | | |
| | | | | | | | |
Maturity Analysis of Lease Liabilities: | | | | | | | | |
Year Ending December 31, | | | | | | | | |
2020 (excluding the three months ended March 31, 2020) | | $ | 6,132 | |
| | | |
2021 | | | 8,276 | |
| | | |
2022 | | | 8,392 | |
| | | |
2023 | | | 8,466 | |
| | | |
2024 | | | 8,026 | | | | | |
Thereafter | | | 76,498 | |
| | | |
Total | | | 115,790 | |
| | | |
Less: Imputed Interest | | | (27,627) | | | | | |
Lease Liability | | $ | 88,163 | |
| | | |
|
|
|
|
|
|
| Three Months Ended | ||
(Dollars in thousands) |
| March 31, | ||
|
| 2019 | ||
Lease Expense Components: |
|
|
|
|
Operating lease expense |
| $ | 2,146 |
|
Short-term lease expense |
|
| 144 |
|
Variable lease expense |
|
| 69 |
|
Total lease expense |
| $ | 2,359 |
|
Supplemental Cash Flow Information Related to Leases: |
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities - operating leases |
| $ | 1,890 |
|
Initial ROU assets recorded in exchange for new lease liabilities at January 1, 2019 - operating leases |
| $ | 82,160 |
|
ROU assets obtained in exchange for new lease liabilities during first quarter 2019- operating leases |
| $ | 1,956 |
|
Weighted - average remaining lease term (years) - operating leases |
|
| 14.33 |
|
Weighted - average discount rate - operating leases |
|
| 4.0% |
|
Supplemental Balance Sheet Information Related to Leases |
|
|
|
|
Operating lease ROU assets (premises and equipment) |
| $ | 82,787 |
|
Operating lease liabilities (other liabilities) |
| $ | 83,043 |
|
|
|
|
|
|
Maturity Analysis of Lease Liabilities: |
|
|
|
|
Year Ending December 31, |
|
|
|
|
2019 (excluding the three months ended March 31, 2019) |
| $ | 5,820 |
|
2020 |
|
| 7,866 |
|
2021 |
|
| 7,939 |
|
2022 |
|
| 7,937 |
|
2023 |
|
| 7,890 |
|
Thereafter |
|
| 73,186 |
|
Total |
| $ | 110,638 |
|
Less: Imputed Interest |
|
| (27,595) |
|
Lease Liability |
| $ | 83,043 |
|
As of March 31, 2019,2020, we did not maintain any finance leases, leases with related parties, and we determined that the number and dollar amount of our equipment leases was immaterial. As of March 31, 2019,2020, we have $5.0 million in additional operating leases that have not yet commenced of $7.9 million. Thesefrom an amendment to a current lease. The amendment to this operating leaseslease will commence in fiscal year 2019the third or fourth quarter of 2020 with a lease termsterm of 15 years. Disclosures for prior periods under the previous accounting guidance were on an annual basis only, therefore are not included for the March 31, 2019 interim reporting period.
Note 89 — Deposits
Our total deposits are comprised of the following:
|
|
|
|
|
|
|
|
|
| |||||||||
|
| March 31, |
| December 31, |
| March 31, | ||||||||||||
| | | | | | | | | | |||||||||
| | March 31, | | December 31, | | March 31, | ||||||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
| 2020 |
| 2019 |
| 2019 | ||||||
Certificates of deposit |
| $ | 1,756,637 |
| $ | 1,775,095 |
| $ | 1,765,576 | | $ | 1,640,324 | | $ | 1,651,399 | | $ | 1,756,637 |
Interest-bearing demand deposits |
|
| 5,562,111 |
|
| 5,407,175 |
|
| 5,308,154 | |
| 5,993,448 | |
| 5,966,496 | |
| 5,562,111 |
Non-interest bearing demand deposits |
|
| 3,219,864 |
|
| 3,061,769 |
|
| 3,120,818 | |
| 3,367,422 | |
| 3,245,306 | |
| 3,219,864 |
Savings deposits |
|
| 1,374,557 |
|
| 1,399,815 |
|
| 1,464,074 | |
| 1,337,730 | |
| 1,309,896 | |
| 1,374,557 |
Other time deposits |
|
| 5,802 |
|
| 3,079 |
|
| 4,476 | |
| 5,623 | |
| 3,999 | |
| 5,802 |
Total deposits |
| $ | 11,918,971 |
| $ | 11,646,933 |
| $ | 11,663,098 | | $ | 12,344,547 | | $ | 12,177,096 | | $ | 11,918,971 |
34
At March 31, 2019,2020, December 31, 2018,2019, and March 31, 2018,2019, we had $325.1$298.0 million, $320.0$303.2 million, and $340.9$325.1 million in certificates of deposits of $250,000 and greater, respectively. At March 31, 2019,2020 and December 31, 2018, and2019 the Company 0 longer held traditional, out-of-market brokered deposits, as compared with March 31, 2018,2019, in which we had $7.6 million, $7.6 million and $35.0 million in traditional, out-of-market brokered deposits, respectively.
37
Note 910 — Retirement Plans
The Company and the Bank provide certain retirement benefits to their employees in the form of an employees’ savings plan. The Company and the Bank previously provided benefits through a non-contributory defined benefit pension plan and an employees’ savings plan. The non-contributory defined benefit pension plan coversthat covered all employees hired on or before December 31, 2005, who havehad attained age 21, and who havehad completed a year of eligible service.service, but this plan was terminated in the second quarter of 2019. Employees hired on or after January 1, 2006 arewere not eligible to participate in the non-contributory defined benefit pension plan, but are eligible to participate in the employees’ savings plan. On this date, a new benefit formula applies only to participants who have not attained age 45 or who do not have five years of service.
Effective July 1, 2009, we suspended the accrual of benefits for pension plan participants under the non-contributory defined benefit plan. The pension plan remained suspended as of March 31, 2019.
During 2018, we made the decision to terminate the non-contributory defined benefit pension plan. We received approval from the IRS through a determination letter in the fourth quarter of 2018 to proceed with the termination. The termination of the pension plan is expected to be fully terminated and paid outwas recorded during the second quarter of 2019 .and distributions of assets from the plan were fully paid out by the fourth quarter of 2019. During the second quarter of 2019, the Company recorded a charge of $9.5 million related to the termination of the pension plan in the consolidated statement of income. This cost was the result of the recognition of the pre-tax losses from the pension plan that were recorded and held in accumulated other comprehensive income of $7.7 million and the write-off of the pension plan asset of $1.8 million. Participants havehad the option to be fully paid out in a lump sum or be paid through an annuity over time. If the participant chooseschose the annuity, the funds will bewere placed in an annuity product with a third party. As of March 31, 2019, approximately 98% of
Employees hired on or after January 1, 2006 were not eligible to participate in the non-contributory defined benefit pension plan, assets were invested with Fixed Income Assets, and approximately 2% of pension plan assets were held in cash equivalents. When the decision was madebut are eligible to terminate the plan, the Investment Committee and the Company made the decision to move the Plan assets into less risky investments of Cash Equivalents and Fixed Income Assets and out of Equities.
The components of net periodic pension expense (benefit) recognized are as follows:
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||
|
| March 31, |
| ||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| ||
Interest cost |
| $ | 289 |
| $ | 270 |
|
Service cost |
|
| 30 |
|
| 19 |
|
Expected return on plan assets |
|
| (590) |
|
| (582) |
|
Recognized net actuarial loss |
|
| 121 |
|
| 194 |
|
Net periodic pension benefit |
| $ | (150) |
| $ | (99) |
|
Based on the immaterial nature of the components of the net periodic pension expense (benefit), we recorded the entire amountparticipate in the line item salaries and employee benefits on the statement of income.
We do not expect to contribute to the pensionemployees’ savings plan in 2019, but reserve the right to contribute between the minimum required and maximum deductible amounts as determined under applicable federal laws.
(as are employees hired before January 1, 2006). Under the provisions of Internal Revenue Code Section 401(k), electing employees are eligible to participate in the employees’ savings plan after attaining age 21. Plan participants elect to contribute portions of their annual base compensation as a before tax contribution. Employer contributions may be made from current or accumulated net profits. Participants may elect to contribute 1% to 50% of annual base compensation as a before tax contribution. In 2018, employees participating in the plan received a 100% match of their 401(k) plan contribution from the Company, up to 4% of their salary. The employees were also eligible for an additional 2% discretionary matching contribution contingent upon certain of our annual financial goals which would be paid in the first quarter of the following year. Based on our financial performance in 2018,2019, we paid a 0.75%0.375% discretionary matching contribution in the first quarter of 2019.2020. Currently, we expect the same terms in the employees’ savings plan for 2019.2020. We expensed $1.2 million and $2.4$1.9 million for the 401(k) plan during the three months ended March 31, 2020 compared to $1.2 million for the three ended March 31, 2019, and 2018, respectively.
Employees can enter the savings plan on or after the first day of each month. The employee may enter into a salary deferral agreement at any time to select an alternative deferral amount or to elect not to defer in the plan. If the employee does not elect an investment allocation, the plan administrator will select a retirement-based portfolio
35
according to the employee’s number of years until normal retirement age. The plan’s investment valuations are generally provided on a daily basis.
Note 1011 — Earnings Per Share
Basic earnings per share are calculated by dividing net income by the weighted-average shares of common stock outstanding during each period, excluding non-vested shares. Our diluted earnings per share are based on the weighted-average shares of common stock outstanding during each period plus the maximum dilutive effect of common stock issuable upon exercise of stock options or vesting of restricted shares. The weighted-average number of shares and equivalents are determined after giving retroactive effect to stock dividends and stock splits.
38
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
| |||||||
|
| Three Months Ended |
| |||||||||||
|
| March 31, |
| |||||||||||
| | | | | | | | |||||||
| | Three Months Ended | | |||||||||||
| | March 31, | | |||||||||||
(Dollars and shares in thousands, except for per share amounts) |
| 2019 |
| 2018 |
|
| 2020 |
| 2019 |
| ||||
Basic earnings per common share: |
|
|
|
|
|
|
| | |
| | |
| |
Net income |
| $ | 44,367 |
| $ | 42,326 |
| | $ | 24,110 | | $ | 44,367 | |
Weighted-average basic common shares |
|
| 35,445 |
|
| 36,646 |
| | | 33,566 | | | 35,445 | |
Basic earnings per common share |
| $ | 1.25 |
| $ | 1.15 |
| | $ | 0.72 | | $ | 1.25 | |
Diluted earnings per share: |
|
|
|
|
|
|
| | | | | | | |
Net income |
| $ | 44,367 |
| $ | 42,326 |
| | $ | 24,110 | | $ | 44,367 | |
Weighted-average basic common shares |
|
| 35,445 |
|
| 36,646 |
| | | 33,566 | | | 35,445 | |
Effect of dilutive securities |
|
| 174 |
|
| 253 |
| | | 239 | | | 174 | |
Weighted-average dilutive shares |
|
| 35,619 |
|
| 36,899 |
| | | 33,805 | | | 35,619 | |
Diluted earnings per common share |
| $ | 1.25 |
| $ | 1.15 |
| | $ | 0.71 | | $ | 1.25 | |
The calculation of diluted earnings per common share excludes outstanding stock options for which the results would have been anti-dilutive under the treasury stock method as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Three Months Ended March 31, |
| |||||||||||||||||||||||
| | | | | | | | | | | | |||||||||||||||
| | Three Months Ended March 31, | | |||||||||||||||||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
|
| 2020 |
| 2019 |
| ||||||||||||||||
Number of shares |
|
|
|
|
| 87,917 |
|
|
|
|
| 61,272 |
| | | | | | 62,235 | | | | | | 87,917 | |
Range of exercise prices |
| $ | 63.54 | to | $ | 91.35 |
| $ | 91.05 | to | $ | 91.35 |
| | $ | 87.30 | to | $ | 91.35 | | $ | 63.54 | to | $ | 91.35 | |
Note 1112 — Share-Based Compensation
Our 2004, 2012 and 2019 share-based compensation plans are long-term retention plans intended to attract, retain, and provide incentives for key employees and non-employee directors in the form of incentive and non-qualified stock options, restricted stock, and restricted stock units (“RSUs”). Our 2019 plan was adopted by our shareholders at our annual meeting on April 25, 2019.
Stock Options
With the exception of non-qualified stock options granted to directors under the 2004 and 2012 plans, which in some cases may be exercised at any time prior to expiration and in some other cases may be exercised at intervals less than a year following the grant date, incentive stock options granted under our 2004, 2012 and 2019 plans may not be exercised in whole or in part within a year following the date of the grant, as these incentive stock options become exercisable in 25% increments pro ratably over the four-year period following the grant date. The options are granted at an exercise price at least equal to the fair value of the common stock at the date of grant and expire ten years from the date of grant. NoNaN options were granted under the 2004 plan after January 26, 2012, and the 2004 plan is closed other than for any options still unexercised and outstanding. NoNaN options were granted under the 2012 plan after February 1, 2019, and the 2012 plan is closed other than for any options still unexercised and outstanding. The 2019 plan is the only plan from which new share-based compensation grants may be issued. It is our policy to grant options out of the 1,000,000 shareshares registered under the 2019 plan.
36
39
Activity in our stock option plans for 2004, 2012 and 20122019 is summarized in the following table. Our 2019 plan was adopted by our shareholders at our annual meeting on April 25, 2019. All information has been retroactively adjusted for stock dividends and stock splits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
| ||||||
|
|
|
|
|
| Weighted |
|
|
| ||
|
|
|
| Weighted |
| Average |
| Aggregate |
| ||
|
|
|
| Average |
| Remaining |
| Intrinsic |
| ||
|
| Shares |
| Price |
| (Yrs.) |
| (000's) |
| ||
Outstanding at January 1, 2019 |
| 213,866 |
| $ | 61.28 |
|
|
|
|
|
|
Granted |
| — |
|
| — |
|
|
|
|
|
|
Exercised |
| (12,722) |
|
| 31.62 |
|
|
|
|
|
|
Outstanding at March 31, 2019 |
| 201,144 |
|
| 63.16 |
| 5.64 |
| $ | 2,461 |
|
Exercisable at March 31, 2019 |
| 155,472 |
|
| 56.07 |
| 4.88 |
| $ | 2,432 |
|
Weighted-average fair value of options granted during the year |
| $ 0.00 |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
| | | | ||||||||
| | | | | | ||||||
| | | | | | Weighted | | | | ||
| | | | Weighted | | Average | | Aggregate | | ||
| | | | Average | | Remaining | | Intrinsic | | ||
|
| Shares |
| Price |
| (Yrs.) |
| (000's) |
| ||
Outstanding at January 1, 2020 | | 176,888 | | $ | 67.14 | | | | | | |
Exercised | | (12,485) | |
| 32.33 | | | |
| | |
Outstanding at March 31, 2020 | | 164,403 | |
| 69.78 | | 5.39 | | $ | 563 | |
Exercisable at March 31, 2020 | | 140,473 | | | 66.15 | | 5.03 | | $ | 562 | |
Weighted-average fair value of options granted during the year | | $0.00 | | | | | | | | | |
The fair value of options is estimated at the date of grant using the Black-Scholes option pricing model and expensed over the options’ vesting periods. The following weighted-average assumptions were used in valuingThere have been 0 stock options issued:issued during the first quarter of 2020 or 2019.
|
|
|
|
|
|
|
|
| Year ended March 31, | ||||
|
| 2019 |
| 2018 | ||
Dividend yield |
| — | % |
| 1.46 | % |
Expected life |
| — | years |
| 8.5 | years |
Expected volatility |
| — | % |
| 28.0 | % |
Risk-free interest rate |
| — | % |
| 2.54 | % |
As of March 31, 2019,2020, there was $1.2 million$600,000 of total unrecognized compensation cost related to nonvested stock option grants under the plans. The cost is expected to be recognized over a weighted-average period of 1.511.15 years as of March 31, 2019.2020. The total fair value of shares vested duringfor the three months ended March 31, 20192020 was $799,000.$641,000.
Restricted Stock
We from time-to-time also grants shares of restricted stock to key employees and non-employee directors. These awards help align the interests of these employees and directors with the interests of our shareholders by providing economic value directly related to increases in the value of our stock. The value of the stock awarded is established as the fair market value of the stock at the time of the grant. We recognize expenses, equal to the total value of such awards, ratably over the vesting period of the stock grants. Restricted stock grants to employees typically “cliff vest” after four years. Grants to non-employee directors typically vest within a 12-month period.
All restricted stock agreements are conditioned upon continued employment, andor service in the case of directors. Termination of employment prior to a vesting date, as described below, would terminate any interest in non-vested shares. Prior to vesting of the shares, as long as employed by the Company, the key employees and non-employee directors will have the right to vote such shares and to receive dividends paid with respect to such shares. All restricted shares will fully vest in the event of change in control of the Company or upon the death of the recipient.
Nonvested restricted stock for the three months ended March 31, 20192020 is summarized in the following table. All information has been retroactively adjusted for stock dividends and stock splits.
|
|
|
|
|
|
| ||||||
|
|
|
| Weighted- |
| |||||||
|
|
|
| Average |
| |||||||
|
|
|
| Grant-Date |
| |||||||
| | | | | | | ||||||
|
| |
| Weighted- |
| |||||||
| | | | Average |
| |||||||
| | | | Grant-Date |
| |||||||
Restricted Stock |
| Shares |
| Fair Value |
| | Shares | | Fair Value |
| ||
Nonvested at January 1, 2019 |
| 104,419 |
| $ | 62.45 |
| ||||||
Nonvested at January 1, 2020 |
| 69,450 | | $ | 58.96 | | ||||||
Granted |
| 1,148 |
|
| 59.95 |
|
| 815 | |
| 86.75 | |
Vested |
| (7,040) |
|
| 86.82 |
|
| (37,359) | |
| 72.65 | |
Forfeited |
| (1,118) |
|
| 77.88 |
|
| (317) | |
| 65.86 | |
Nonvested at March 31, 2019 |
| 97,409 |
|
| 60.48 |
| ||||||
Nonvested at March 31, 2020 |
| 32,589 | |
| 43.89 | |
37
As of March 31, 2019,2020, there was $1.8 million$850,000 of total unrecognized compensation cost related to nonvested restricted stock granted under the plans. This cost is expected to be recognized over a weighted-average period of 1.502.52 years as of March 31, 2019.2020. The total fair value of shares vested during the three months ended March 31, 20192020 was $732,000.$2.8 million.
Restricted Stock Units
We from time‑to‑timetime-to-time also grantsgrant performance RSUs and time-vested RSUs to key employees. These awards help align the interests of these employees with the interests of our shareholders by providing economic value directly
40
related to our performance. Some performance RSU grants contain a three-year performance period while others contain a one-year performance period and a time vestedtime-vested requirement (generally four years from the grant date). We communicate threshold, target, and maximum performance RSU awards and performance targets to the applicable key employees at the beginning of a performance period. Dividends are not paid in respect to the awards during the performance or time-vested period. The value of the RSUs awarded is established as the fair market value of the stock at the time of the grant. We recognize expenses on a straight‑linestraight-line basis typically over the performance and vestingvesting/or time-vesting periods based upon the probable performance target, as applicable, that will be met. For the three months ended March 31, 2019,2020, we accrued for 80.6%85.2% of the RSUs granted, based on Management’sthe Company’s expectations of performance.
Nonvested RSUs for the three months ended March 31, 20192020 is summarized in the following table.
|
|
|
|
|
|
| ||||||
|
|
|
| Weighted- |
| |||||||
|
|
|
| Average |
| |||||||
|
|
|
| Grant-Date |
| |||||||
| | | | | | | ||||||
|
| |
| Weighted- |
| |||||||
| | | | Average |
| |||||||
| | | | Grant-Date |
| |||||||
Restricted Stock Units |
| Shares |
| Fair Value |
| | Shares | | Fair Value |
| ||
Nonvested at January 1, 2019 |
| 200,540 |
| $ | 85.15 |
| ||||||
Nonvested at January 1, 2020 |
| 324,601 | | $ | 76.44 | | ||||||
Granted |
| 128,386 |
|
| 66.80 |
|
| 19,424 | |
| 86.14 | |
Forfeited |
| (227) |
|
| 89.43 |
| | (2,830) | | | 81.39 | |
Nonvested at March 31, 2019 |
| 328,699 |
|
| 77.98 |
| ||||||
Nonvested at March 31, 2020 |
| 341,195 | |
| 76.95 | |
As of March 31, 2019,2020, there was $13.5$10.4 million of total unrecognized compensation cost related to nonvested RSUs granted under the plan. This cost is expected to be recognized over a weighted-average period of 2.171.56 years as of March 31, 2019.2020. The total fair value of RSUs vested during the three months ended March 31, 20192020 was $2.9$2.8 million. During the three months ended March 31, 2019, 44,599 vested2020, 31,435 restricted stock units that vested in 2019 were issued to the participants infrom the 20162017 Long-Term Incentive Plan.
Note 1213 — Commitments and Contingent Liabilities
In the normal course of business, we make various commitments and incur certain contingent liabilities, which are not reflected in the accompanying financial statements. The commitments and contingent liabilities include guarantees, commitments to extend credit, and standby letters of credit. At March 31, 2019,2020, commitments to extend credit and standby letters of credit totaled $2.8$3.0 billion. We do not anticipate any material losses as a result of these transactions.As of March 31, 2020, the liability recorded for expected credit losses on unfunded commitments was $8.6 million and recorded in Other Liabilities on the Balance Sheet. See Note 2 – Summary of Significant Accounting Policies for discussion of liability recorded for expected credit losses on unfunded commitments.
We have been named as defendant in various legal actions, arising from its normal business activities, in which damages in various amounts are claimed. We are also exposed to litigation risk related to the prior business activities of banks acquired through whole bank acquisitions as well as banks from which assets were acquired and liabilities assumed in FDIC-assisted transactions. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, any such liability is not expected to have a material effect on our consolidated financial statements.
The Company and the Bank are involved at times in certain litigation arising in the normal course of business. In the opinion of management as of March 31, 2019,2020, there is no pending or threatened litigation that will have a material effect on our consolidated financial position or results of operations.
38
Note 1314 — Fair Value
FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. FASB ASC Topic 820 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.
We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available for sale securities, derivative contracts, and mortgage servicing rights (“MSRs”) are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, OREO, and certain other assets. These
41
nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.
FASB ASC Topic 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
Level 1 | Observable inputs such as quoted prices in active markets; |
Level 2 | Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
Level 3 | Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
The following is a description of valuation methodologies used for assets recorded at fair value.
Investment Securities
Securities available for sale are valued on a recurring basis at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and The NASDAQ Stock Market, or U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities and debentures issued by government sponsored entities, municipal bonds and corporate debt securities. Securities held to maturity are valued at quoted market prices or dealer quotes similar to securities available for sale. The carrying value of FHLB stock approximates fair value based on the redemption provisions.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at fair value. The fair values of mortgage loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics. As such, the fair value adjustments for mortgage loans held for sale are recurring Level 2.
Loans
We do not record loans at fair value on a recurring basis. However, from time to time, a loan may be considered impaired and an ALLLACL may be established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using estimated fair value methodologies. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2019,2020, substantially all of the impaired loans were evaluated based on the fair value of the collateral because such loans were considered collateral dependent. Impaired loans, where an allowance is established based on the fair value of collateral; require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, we consider the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we consider the impaired loan as nonrecurring Level 3.
39
Other Real Estate Owned
Typically OREO, consisting of properties obtained through foreclosure or in satisfaction of loans, is typically reported at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs (Level 2). However, OREO is considered Level 3 in the fair value hierarchy because management has qualitatively applied a discount due to the size, supply of inventory, and the incremental discounts applied to the appraisals. Management also considers other factors, including changes in absorption rates, length of time the property has been on the market and anticipated sales values, which have resulted in adjustments to the collateral value estimates indicated in certain appraisals. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the ALLL. ACL.
42
Gains or losses on sale and generally any subsequent adjustments to the value are recorded as a component of OREO expense.
Derivative Financial Instruments
Fair value is estimated using pricing models of derivatives with similar characteristics or discounted cash flow models where future floating cash flows are projected and discounted back; and accordingly, these derivatives are classified within Level 2 of the fair value hierarchy. (See Note 15—16—Derivative Financial Instruments for additional information).
Mortgage servicing rights
The estimated fair value of MSRs is obtained through an independent derivatives dealer analysis of future cash flows. The evaluation utilizes assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, as well as the market’s perception of future interest rate movements. MSRs are classified as Level 3.
40
43
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis.
| | | | | | | | | | | | | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| | |
| Quoted Prices |
| | |
| | | |
|
|
|
|
| Quoted Prices |
|
|
|
|
|
| |||||||||||||
|
|
|
|
| In Active |
| Significant |
|
|
| ||||||||||||||
|
|
|
|
| Markets |
| Other |
| Significant | |||||||||||||||
|
|
|
|
| for Identical |
| Observable |
| Unobservable | |||||||||||||||
|
|
|
|
| Assets |
| Inputs |
| Inputs | |||||||||||||||
| | | | | In Active | | Significant | | | | ||||||||||||||
| | | | | Markets | | Other | | Significant | |||||||||||||||
| | | | | for Identical | | Observable | | Unobservable | |||||||||||||||
| | | | | Assets | | Inputs | | Inputs | |||||||||||||||
(Dollars in thousands) |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | | Fair Value | | (Level 1) | | (Level 2) | | (Level 3) | ||||||||
March 31, 2020: | | | | | | | | | | | | | ||||||||||||
Assets | | | | | | | | | | | | | ||||||||||||
Derivative financial instruments | | $ | 61,153 | | $ | — | | $ | 61,153 | | $ | — | ||||||||||||
Loans held for sale | |
| 71,719 | |
| — | |
| 71,719 | |
| — | ||||||||||||
Securities available for sale: | | | | | | | | | | | | | ||||||||||||
Government-sponsored entities debt | | | 4,921 | | | — | | | 4,921 | | | — | ||||||||||||
State and municipal obligations | |
| 221,604 | |
| — | |
| 221,604 | |
| — | ||||||||||||
Mortgage-backed securities | |
| 1,744,670 | |
| — | |
| 1,744,670 | |
| — | ||||||||||||
Total securities available for sale | |
| 1,971,195 | |
| — | |
| 1,971,195 | |
| — | ||||||||||||
Mortgage servicing rights | |
| 26,365 | |
| — | |
| — | |
| 26,365 | ||||||||||||
| | $ | 2,130,432 | | $ | — | | $ | 2,104,067 | | $ | 26,365 | ||||||||||||
Liabilities | | | | | | | | | | | | | ||||||||||||
Derivative financial instruments | | $ | 97,861 | | $ | — | | $ | 97,861 | | $ | — | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
December 31, 2019: | | | | | | | | | | | | | ||||||||||||
Assets | | | | | | | | | | | | | ||||||||||||
Derivative financial instruments | | $ | 16,252 | | $ | — | | $ | 16,252 | | $ | — | ||||||||||||
Loans held for sale | |
| 59,363 | |
| — | |
| 59,363 | |
| — | ||||||||||||
Securities available for sale: | | | | | | | | | | | | | ||||||||||||
Government-sponsored entities debt | | | 25,941 | | | — | | | 25,941 | | | — | ||||||||||||
State and municipal obligations | |
| 208,415 | |
| — | |
| 208,415 | |
| — | ||||||||||||
Mortgage-backed securities | |
| 1,721,691 | |
| — | |
| 1,721,691 | |
| — | ||||||||||||
Total securities available for sale | |
| 1,956,047 | |
| — | |
| 1,956,047 | |
| — | ||||||||||||
Mortgage servicing rights | |
| 30,525 | |
| — | |
| — | |
| 30,525 | ||||||||||||
| | $ | 2,062,187 | | $ | — | | $ | 2,031,662 | | $ | 30,525 | ||||||||||||
Liabilities | | | | | | | | | | | | | ||||||||||||
Derivative financial instruments | | $ | 31,273 | | $ | — | | $ | 31,273 | | $ | — | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
March 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Assets |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Derivative financial instruments |
| $ | 8,727 |
| $ | — |
| $ | 8,727 |
| $ | — | | $ | 8,727 | | $ | — | | $ | 8,727 | | $ | — |
Loans held for sale |
|
| 33,297 |
|
| — |
|
| 33,297 |
|
| — | |
| 33,297 | |
| — | |
| 33,297 | |
| — |
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Government-sponsored entities debt |
|
| 65,704 |
|
| — |
|
| 65,704 |
|
| — | | | 65,704 | | | — | | | 65,704 | | | — |
State and municipal obligations |
|
| 193,418 |
|
| — |
|
| 193,418 |
|
| — | |
| 193,418 | |
| — | |
| 193,418 | |
| — |
Mortgage-backed securities |
|
| 1,207,127 |
|
| — |
|
| 1,207,127 |
|
| — | |
| 1,207,127 | |
| — | |
| 1,207,127 | |
| — |
Total securities available for sale |
|
| 1,466,249 |
|
| — |
|
| 1,466,249 |
|
| — | |
| 1,466,249 | |
| — | |
| 1,466,249 | |
| — |
Mortgage servicing rights |
|
| 32,415 |
|
| — |
|
| — |
|
| 32,415 | |
| 32,415 | |
| — | |
| — | |
| 32,415 |
|
| $ | 1,540,688 |
| $ | — |
| $ | 1,508,273 |
| $ | 32,415 | ||||||||||||
| | $ | 1,540,688 | | $ | — | | $ | 1,508,273 | | $ | 32,415 | ||||||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Derivative financial instruments |
| $ | 10,330 |
| $ | — |
| $ | 10,330 |
| $ | — | | $ | 10,330 | | $ | — | | $ | 10,330 | | $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Derivative financial instruments |
| $ | 5,090 |
| $ | — |
| $ | 5,090 |
| $ | — | ||||||||||||
Loans held for sale |
|
| 22,925 |
|
| — |
|
| 22,925 |
|
| — | ||||||||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Government-sponsored entities debt |
|
| 48,251 |
|
| — |
|
| 48,251 |
|
| — | ||||||||||||
State and municipal obligations |
|
| 200,768 |
|
| — |
|
| 200,768 |
|
| — | ||||||||||||
Mortgage-backed securities |
|
| 1,268,048 |
|
| — |
|
| 1,268,048 |
|
| — | ||||||||||||
Total securities available for sale |
|
| 1,517,067 |
|
| — |
|
| 1,517,067 |
|
| — | ||||||||||||
Mortgage servicing rights |
|
| 34,727 |
|
| — |
|
| — |
|
| 34,727 | ||||||||||||
|
| $ | 1,579,809 |
| $ | — |
| $ | 1,545,082 |
| $ | 34,727 | ||||||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Derivative financial instruments |
| $ | 4,421 |
| $ | — |
| $ | 4,421 |
| $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
March 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Derivative financial instruments |
| $ | 7,420 |
| $ | — |
| $ | 7,420 |
| $ | — | ||||||||||||
Loans held for sale |
|
| 42,690 |
|
| — |
|
| 42,690 |
|
| — | ||||||||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Government-sponsored entities debt |
|
| 89,746 |
|
| — |
|
| 89,746 |
|
| — | ||||||||||||
State and municipal obligations |
|
| 225,686 |
|
| — |
|
| 225,686 |
|
| — | ||||||||||||
Mortgage-backed securities |
|
| 1,325,405 |
|
| — |
|
| 1,325,405 |
|
| — | ||||||||||||
Total securities available for sale |
|
| 1,640,837 |
|
| — |
|
| 1,640,837 |
|
| — | ||||||||||||
Mortgage servicing rights |
|
| 34,196 |
|
| — |
|
| — |
|
| 34,196 | ||||||||||||
|
| $ | 1,725,143 |
| $ | — |
| $ | 1,690,947 |
| $ | 34,196 | ||||||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Derivative financial instruments |
| $ | 6,094 |
| $ | — |
| $ | 6,094 |
| $ | — |
Changes in Level 1, 2 and 3 Fair Value Measurements
When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement.
41
44
However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses below include changes in fair value due in part to observable factors that are part of the valuation methodology.
There were no0 changes in hierarchy classifications of Level 3 assets or liabilities for the three months ended March 31, 2019.2020. A reconciliation of the beginning and ending balances of Level 3 assets and liabilities recorded at fair value on a recurring basis for the three months ended March 31, 20192020 and 20182019 is as follows:
|
|
|
|
|
|
|
| |||||||
| | | | | | | | |||||||
(Dollars in thousands) |
| Assets |
| Liabilities |
|
| Assets |
| Liabilities |
| ||||
Fair value, January 1, 2020 | | $ | 30,525 | | $ | — | | |||||||
Servicing assets that resulted from transfers of financial assets | |
| 1,963 | |
| — | | |||||||
Changes in fair value due to valuation inputs or assumptions | |
| (4,919) | |
| — | | |||||||
Changes in fair value due to decay | |
| (1,204) | |
| — | | |||||||
Fair value , March 31, 2020 | | $ | 26,365 | | $ | — | | |||||||
| | | | | | | | |||||||
Fair value, January 1, 2019 |
| $ | 34,727 |
| $ | — |
| | $ | 34,727 | | $ | — | |
Servicing assets that resulted from transfers of financial assets |
|
| 931 |
|
| — |
| |
| 931 | |
| — | |
Changes in fair value due to valuation inputs or assumptions |
|
| (2,357) |
|
| — |
| | | (2,357) | | | — | |
Changes in fair value due to decay |
|
| (886) |
|
| — |
| |
| (886) | |
| — | |
Fair value , March 31, 2019 |
| $ | 32,415 |
| $ | — |
| |||||||
|
|
|
|
|
|
|
| |||||||
Fair value, January 1, 2018 |
| $ | 31,119 |
| $ | — |
| |||||||
Servicing assets that resulted from transfers of financial assets |
|
| 1,490 |
|
| — |
| |||||||
Changes in fair value due to valuation inputs or assumptions |
|
| 2,516 |
|
| — |
| |||||||
Changes in fair value due to decay |
|
| (929) |
|
| — |
| |||||||
Fair value, March 31, 2018 |
| $ | 34,196 |
| $ | — |
| |||||||
Fair value, March 31, 2019 | | $ | 32,415 | | $ | — | |
There were no0 unrealized losses included in accumulated other comprehensive income related to Level 3 financial assets and liabilities at March 31, 20192020 or 2018.2019.
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
The tables below present the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quoted Prices |
|
|
|
|
|
|
| |
|
|
|
|
| In Active |
| Significant |
|
|
|
| ||
|
|
|
|
| Markets |
| Other |
| Significant |
| |||
|
|
|
|
| for Identical |
| Observable |
| Unobservable |
| |||
|
|
|
|
| Assets |
| Inputs |
| Inputs |
| |||
(Dollars in thousands) |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| ||||
March 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO |
| $ | 11,297 |
| $ | — |
| $ | — |
| $ | 11,297 |
|
Non-acquired impaired loans |
|
| 1,839 |
|
| — |
|
| — |
|
| 1,839 |
|
December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO |
| $ | 11,410 |
| $ | — |
| $ | — |
| $ | 11,410 |
|
Non-acquired impaired loans |
|
| 13,164 |
|
| — |
|
| — |
|
| 13,164 |
|
March 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO |
| $ | 11,073 |
| $ | — |
| $ | — |
| $ | 11,073 |
|
Non-acquired impaired loans |
|
| 2,118 |
|
| — |
|
| — |
|
| 2,118 |
|
| | | | | | | | | | | | | |
|
| | |
| Quoted Prices |
| | |
| | |
| |
| | | | | In Active | | Significant | | | |
| ||
| | | | | Markets | | Other | | Significant |
| |||
| | | | | for Identical | | Observable | | Unobservable |
| |||
| | | | | Assets | | Inputs | | Inputs |
| |||
(Dollars in thousands) | | Fair Value | | (Level 1) | | (Level 2) | | (Level 3) |
| ||||
March 31, 2020: | | | | | | | | | | | | | |
OREO | | $ | 12,844 | | $ | — | | $ | — | | $ | 12,844 | |
Impaired loans | |
| 12,264 | |
| — | |
| — | |
| 12,264 | |
December 31, 2019: | | | | | | | | | | | | | |
OREO | | $ | 11,964 | | $ | — | | $ | — | | $ | 11,964 | |
Non-acquired impaired loans | |
| 15,444 | |
| — | |
| — | |
| 15,444 | |
March 31, 2019: | | | | | | | | | | | | | |
OREO | | $ | 11,297 | | $ | — | | $ | — | | $ | 11,297 | |
Non-acquired impaired loans | |
| 1,839 | |
| — | |
| — | |
| 1,839 | |
Quantitative Information about Level 3 Fair Value Measurement
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
| Weighted Average | ||||||||||||||||||
|
|
|
|
|
| March 31, |
| December 31, | March 31, |
| ||||||||||||||
|
| Valuation Technique |
| Unobservable Input |
| 2019 |
| 2018 | 2018 |
| ||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | | | | | Weighted Average | ||||||||||||||||||
| | | | | | March 31, | | December 31, | March 31, | | ||||||||||||||
|
| Valuation Technique |
| Unobservable Input |
| 2020 |
| 2019 | 2019 |
| ||||||||||||||
Nonrecurring measurements: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Non-acquired impaired loans |
| Discounted appraisals |
| Collateral discounts |
| 3 | % |
| 3 | % | 3 | % | ||||||||||||
Impaired loans |
| Discounted appraisals and discounted cash flows |
| Collateral discounts | | 4 | % | | 2 | % | 3 | % | ||||||||||||
OREO |
| Discounted appraisals |
| Collateral discounts and estimated costs to sell |
| 24 | % |
| 23 | % | 28 | % |
| Discounted appraisals |
| Collateral discounts and estimated costs to sell | | 29 | % | | 31 | % | 24 | % |
42
45
Fair Value of Financial Instruments
We used the following methods and assumptions in estimating our fair value disclosures for financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those models are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different methodologies may have a material effect on the estimated fair value amounts. The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2019,2020, December 31, 20182019 and March 31, 2018.2019. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and Cash Equivalents — The carrying amount is a reasonable estimate of fair value.
Investment Securities — Securities held to maturity are valued at quoted market prices or dealer quotes. The carrying value of FHLB stock approximates fair value based on the redemption provisions. The carrying value of our investment in unconsolidated subsidiaries approximates fair value. See Note 4—Investment Securities for additional information, as well as page 3942 regarding fair value.
Loans held for sale — The fair values disclosed for loans held for sale are based on commitments from investors for loans with similar characteristics.
Loans — ASU 2016-01 - Financial Instruments – Overall – Recognition and Measurement of Financial Assets and Financial Liabilities became effective for us on January 1, 2018. This accounting standard requires us to calculate the fair value of our loans for disclosure purposes based on an estimated exit price. With ASU 2016-01, to estimate an exit price, all loans (fixed and variable) are being valued with a discounted cash flow analyses for loans that includes our estimate of future credit losses expected to be incurred over the life of the loans. Fair values for certain mortgage loans (e.g., one-to-four family residential) and other consumer loans are estimated using discounted cash flow analyses based on our current rates offered for new loans of the same type, structure and credit quality. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial and industrial loans) are estimated using discounted cash flow analyses-using interest rates we currently offer for loans with similar terms to borrowers of similar credit quality. Fair values for non-performing loans are estimated using a discounted cash flow analyses.analysis.
Deposit Liabilities — The fair values disclosed for demand deposits (e.g., interest and noninterest bearing checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts, and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase — The carrying amount of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days approximate their fair values.
Other Borrowings — The fair value of other borrowings is estimated using discounted cash flow analysis on our current incremental borrowing rates for similar types of instruments.
Accrued Interest — The carrying amounts of accrued interest approximate fair value.
Derivative Financial Instruments — The fair value of derivative financial instruments (including interest rate swaps) is estimated using pricing models of derivatives with similar characteristics or discounted cash flow models where future floating cash flows are projected and discounted back.
43
46
Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees — The fair values of commitments to extend credit are estimated taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of guarantees and letters of credit are based on fees currently charged for similar agreements or on the estimated costs to terminate them or otherwise settle the obligations with the counterparties at the reporting date.
The estimated fair value, and related carrying amount, of our financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| Carrying |
| Fair |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
|
| Carrying |
| Fair |
| | |
| | |
| | |
| ||||||||||||||||||
(Dollars in thousands) |
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 |
| | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
| ||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Cash and cash equivalents |
| $ | 949,591 |
| $ | 949,591 |
| $ | 949,591 |
| $ | — |
| $ | — |
| ||||||||||||||||
Investment securities |
|
| 1,506,873 |
|
| 1,506,873 |
|
| 40,624 |
|
| 1,466,249 |
|
| — |
| ||||||||||||||||
Loans held for sale |
|
| 22,925 |
|
| 22,925 |
|
| — |
|
| 22,925 |
|
| — |
| ||||||||||||||||
Loans, net of allowance for loan losses |
|
| 11,089,600 |
|
| 11,005,731 |
|
| — |
|
| — |
|
| 11,005,731 |
| ||||||||||||||||
Accrued interest receivable |
|
| 36,965 |
|
| 36,965 |
|
| 524 |
|
| 5,891 |
|
| 30,550 |
| ||||||||||||||||
Mortgage servicing rights |
|
| 32,415 |
|
| 32,415 |
|
| — |
|
| — |
|
| 32,415 |
| ||||||||||||||||
Interest rate swap - non-designated hedge |
|
| 6,672 |
|
| 6,672 |
|
| — |
|
| 6,672 |
|
| — |
| ||||||||||||||||
Interest rate swap - cash flow hedge |
|
| 217 |
|
| 217 |
|
| — |
|
| 217 |
|
| — |
| ||||||||||||||||
Other derivative financial instruments (mortgage banking related) |
|
| 1,838 |
|
| 1,838 |
|
| — |
|
| 1,838 |
|
| — |
| ||||||||||||||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Deposits |
|
| 11,918,971 |
|
| 10,956,761 |
|
| — |
|
| 10,956,761 |
|
| — |
| ||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase |
|
| 276,891 |
|
| 276,891 |
|
| — |
|
| 276,891 |
|
| — |
| ||||||||||||||||
Other borrowings |
|
| 616,250 |
|
| 619,140 |
|
| — |
|
| 619,140 |
|
| — |
| ||||||||||||||||
Accrued interest payable |
|
| 5,688 |
|
| 5,688 |
|
| — |
|
| 5,688 |
|
| — |
| ||||||||||||||||
Interest rate swap - non-designated hedge |
|
| 7,403 |
|
| 7,403 |
|
| — |
|
| 7,403 |
|
| — |
| ||||||||||||||||
Interest rate swap - cash flow hedge |
|
| 2,927 |
|
| 2,927 |
|
| — |
|
| 2,927 |
|
| — |
| ||||||||||||||||
Off balance sheet financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Commitments to extend credit |
|
| — |
|
| (21,189) |
|
| — |
|
| (21,189) |
|
| — |
| ||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
March 31, 2020 | | | | | | | | | | | | | | | | | ||||||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Cash and cash equivalents |
| $ | 408,983 |
| $ | 408,983 |
| $ | 408,983 |
| $ | — |
| $ | — |
| | $ | 1,262,836 | | $ | 1,262,836 | | $ | 1,262,836 | | $ | — | | $ | — | |
Investment securities |
|
| 1,542,671 |
|
| 1,542,671 |
|
| 25,604 |
|
| 1,517,067 |
|
| — |
| |
| 2,034,189 | |
| 2,034,189 | |
| 62,994 | |
| 1,971,195 | |
| — | |
Loans held for sale |
|
| 22,925 |
|
| 22,925 |
|
| — |
|
| 22,925 |
|
| — |
| | | 71,719 | | | 71,719 | | | — | | | 71,719 | | | — | |
Loans, net of allowance for loan losses |
|
| 10,962,037 |
|
| 10,613,571 |
|
| — |
|
| — |
|
| 10,613,571 |
| |
| 11,362,105 | |
| 11,338,975 | |
| — | |
| — | |
| 11,338,975 | |
Accrued interest receivable |
|
| 35,997 |
|
| 35,997 |
|
| — |
|
| 6,908 |
|
| 29,089 |
| |
| 37,696 | |
| 37,696 | |
| — | |
| 7,752 | |
| 29,944 | |
Mortgage servicing rights |
|
| 34,727 |
|
| 34,727 |
|
| — |
|
| — |
|
| 34,727 |
| |
| 26,365 | |
| 26,365 | |
| — | |
| — | |
| 26,365 | |
Interest rate swap - non-designated hedge |
|
| 3,824 |
|
| 3,824 |
|
| — |
|
| 3,824 |
|
| — |
| |
| 51,244 | |
| 51,244 | |
| — | |
| 51,244 | |
| — | |
Other derivative financial instruments (mortgage banking related) |
|
| 1,267 |
|
| 1,267 |
|
| — |
|
| 1,267 |
|
| — |
| |
| 9,909 | |
| 9,909 | |
| — | |
| 9,909 | |
| — | |
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Deposits |
|
| 11,646,933 |
|
| 10,561,394 |
|
| — |
|
| 10,561,394 |
|
| — |
| |
| 12,344,547 | |
| 11,911,840 | |
| — | |
| 11,911,840 | |
| — | |
Federal funds purchased and securities sold under agreements to repurchase |
|
| 270,649 |
|
| 270,649 |
|
| — |
|
| 270,649 |
|
| — |
| |
| 325,723 | |
| 325,723 | |
| — | |
| 325,723 | |
| — | |
Other borrowings |
|
| 266,084 |
|
| 269,134 |
|
| — |
|
| 269,134 |
|
| — |
| |
| 1,316,100 | |
| 1,318,621 | |
| — | |
| 1,318,621 | |
| — | |
Accrued interest payable |
|
| 4,719 |
|
| 4,719 |
|
| — |
|
| 4,719 |
|
| — |
| |
| 4,063 | |
| 4,063 | |
| — | |
| 4,063 | |
| — | |
Interest rate swap - non-designated hedge |
|
| 4,373 |
|
| 4,373 |
|
| — |
|
| 4,373 |
|
| — |
| |
| 54,836 | |
| 54,836 | |
| — | |
| 54,836 | |
| — | |
Interest rate swap - cash flow hedge |
|
| 48 |
|
| 48 |
|
| — |
|
| 48 |
|
| — |
| |
| 43,025 | |
| 43,025 | |
| — | |
| 43,025 | |
| — | |
Off balance sheet financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Commitments to extend credit |
|
| — |
|
| (88,424) |
|
| — |
|
| (88,424) |
|
| — |
| |
| — | |
| (6,109) | |
| — | |
| (6,109) | |
| — | |
March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
December 31, 2019 | | | | | | | | | | | | | | | | | ||||||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Cash and cash equivalents |
| $ | 644,504 |
| $ | 644,504 |
| $ | 644,504 |
| $ | — |
| $ | — |
| | $ | 688,704 | | $ | 688,704 | | $ | 688,704 | | $ | — | | $ | — | |
Investment securities |
|
| 1,665,590 |
|
| 1,665,600 |
|
| 23,479 |
|
| 1,642,121 |
|
| — |
| |
| 2,005,171 | |
| 2,005,171 | |
| 49,124 | |
| 1,956,047 | |
| — | |
Loans held for sale |
|
| 42,690 |
|
| 42,690 |
|
| — |
|
| 42,690 |
|
| — |
| | | 59,363 | | | 59,363 | | | — | | | 59,363 | | | — | |
Loans, net of allowance for loan losses |
|
| 10,589,521 |
|
| 10,419,134 |
|
| — |
|
| — |
|
| 10,419,134 |
| |
| 11,313,113 | |
| 11,452,003 | |
| — | |
| — | |
| 11,452,003 | |
Accrued interest receivable |
|
| 31,175 |
|
| 31,175 |
|
| — |
|
| 6,661 |
|
| 24,514 |
| |
| 36,774 | |
| 36,774 | |
| — | |
| 8,500 | |
| 28,274 | |
Mortgage servicing rights |
|
| 34,196 |
|
| 34,196 |
|
| — |
|
| — |
|
| 34,196 |
| |
| 30,525 | |
| 30,525 | |
| — | |
| — | |
| 30,525 | |
Interest rate swap - non-designated hedge |
|
| 5755 |
|
| 5755 |
|
| — |
|
| 5755 |
|
| — |
| |
| 15,350 | |
| 15,350 | |
| — | |
| 15,350 | |
| — | |
Other derivative financial instruments (mortgage banking related) |
|
| 1,665 |
|
| 1,665 |
|
| — |
|
| 1,665 |
|
| — |
| |
| 902 | |
| 902 | |
| — | |
| 902 | |
| — | |
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Deposits |
|
| 11,663,098 |
|
| 10,780,965 |
|
| — |
|
| 10,780,965 |
|
| — |
| |
| 12,177,096 | |
| 11,406,477 | |
| — | |
| 11,406,477 | |
| — | |
Federal funds purchased and securities sold under agreements to repurchase |
|
| 357,574 |
|
| 357,574 |
|
| — |
|
| 357,574 |
|
| — |
| |
| 298,741 | |
| 298,741 | |
| — | |
| 298,741 | |
| — | |
Other borrowings |
|
| 215,589 |
|
| 219,037 |
|
| — |
|
| 219,037 |
|
| — |
| |
| 815,936 | |
| 818,210 | |
| — | |
| 818,210 | |
| — | |
Accrued interest payable |
|
| 3,563 |
|
| 3,563 |
|
| — |
|
| 3,563 |
|
| — |
| |
| 4,916 | |
| 4,916 | |
| — | |
| 4,916 | |
| — | |
Interest rate swap - non-designated hedge | |
| 16,693 | |
| 16,693 | |
| — | |
| 16,693 | |
| — | | ||||||||||||||||
Interest rate swap - cash flow hedge | |
| 13,791 | |
| 13,791 | |
| — | |
| 13,791 | |
| — | | ||||||||||||||||
Other derivative financial instruments (mortgage banking related) | | | 789 | | | 789 | |
| — | |
| 789 | |
| — | | ||||||||||||||||
Off balance sheet financial instruments: | |
| | |
| | | | | | | | | | | | ||||||||||||||||
Commitments to extend credit | | | — | |
| 36,031 | |
| — | |
| 36,031 | |
| — | | ||||||||||||||||
March 31, 2019 | | | | | | | | | | | | | | | | | ||||||||||||||||
Financial assets: | | | | | | | | | | | | | | | | | ||||||||||||||||
Cash and cash equivalents | | $ | 949,591 | | $ | 949,591 | | $ | 949,591 | | $ | — | | $ | — | | ||||||||||||||||
Investment securities | |
| 1,506,873 | |
| 1,506,873 | |
| 40,624 | |
| 1,466,249 | |
| — | | ||||||||||||||||
Loans held for sale | | | 33,297 | | | 33,297 | | | — | | | 33,297 | | | — | | ||||||||||||||||
Loans, net of allowance for loan losses | |
| 11,089,600 | |
| 11,005,731 | |
| — | |
| — | |
| 11,005,731 | | ||||||||||||||||
Accrued interest receivable | |
| 36,965 | |
| 36,965 | |
| 524 | |
| 5,891 | |
| 30,550 | | ||||||||||||||||
Mortgage servicing rights | |
| 32,415 | |
| 32,415 | |
| — | |
| — | |
| 32,415 | | ||||||||||||||||
Interest rate swap - non-designated hedge | |
| 6,672 | |
| 6,672 | |
| — | |
| 6,672 | |
| — | | ||||||||||||||||
Interest rate swap - cash flow hedge | | | 217 | | | 217 | | | — | | | 217 | | | — | | ||||||||||||||||
Other derivative financial instruments (mortgage banking related) | |
| 1,838 | |
| 1,838 | |
| — | |
| 1,838 | |
| — | | ||||||||||||||||
Financial liabilities: | | | | | | | | | | | | | | | | | ||||||||||||||||
Deposits | |
| 11,918,971 | |
| 10,956,761 | |
| — | |
| 10,956,761 | |
| — | | ||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | |
| 276,891 | |
| 276,891 | |
| — | |
| 276,891 | |
| — | | ||||||||||||||||
Other borrowings | |
| 616,250 | |
| 619,140 | |
| — | |
| 619,140 | |
| — | | ||||||||||||||||
Accrued interest payable | |
| 5,688 | |
| 5,688 | |
| — | |
| 5,688 | |
| — | | ||||||||||||||||
Interest rate swap - cash flow hedge |
|
| 162 |
|
| 162 |
|
| — |
|
| 162 |
|
| — |
| |
| 2,927 | |
| 2,927 | |
| — | |
| 2,927 | |
| — | |
Interest rate swap - non-designated hedge |
|
| 5,932 |
|
| 5,932 |
|
| — |
|
| 5,932 |
|
| — |
| |
| 7,403 | |
| 7,403 | |
| — | |
| 7,403 | |
| — | |
Off balance sheet financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
| | |
| | |
| | | | | |
Commitments to extend credit |
|
| — |
|
| (48,841) |
|
| — |
|
| (48,841) |
|
| — |
| | | — | |
| (21,189) | |
| — | |
| (21,189) | |
| — | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| | | | | | | | | | | | | | | | |
44
47
Note 1415 — Accumulated Other Comprehensive Income (Loss)
The changes in each componentscomponent of accumulated other comprehensive income (loss), net of tax, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
| Unrealized Gains |
|
|
|
|
|
| |||||||||||||
|
|
|
|
| and Losses |
| Gains and |
|
|
| ||||||||||||||
|
|
|
|
| on Securities |
| Losses on |
|
|
| ||||||||||||||
|
| Benefit |
| Available |
| Cash Flow |
|
|
| |||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
|
| | |
| Unrealized Gains |
| | |
| | | |||||||||||||
| | | | | and Losses | | Gains and | | | | ||||||||||||||
| | | | | on Securities | | Losses on | | | | ||||||||||||||
| | Benefit | | Available | | Cash Flow | | | | |||||||||||||||
(Dollars in thousands) |
| Plans |
| for Sale |
| Hedges |
| Total | | Plans | | for Sale | | Hedges | | Total | ||||||||
Three Months Ended March 31, 2020 | | | | | | | | | | | | | ||||||||||||
Balance at December 31, 2019 | | $ | (149) | | $ | 11,922 | | $ | (10,756) | | $ | 1,017 | ||||||||||||
Other comprehensive gain (loss) before reclassifications | |
| — | |
| 31,551 | |
| (22,240) | |
| 9,311 | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss | |
| — | |
| — | |
| (563) | |
| (563) | ||||||||||||
Net comprehensive income (loss) | |
| — | |
| 31,551 | |
| (22,803) | |
| 8,748 | ||||||||||||
Balance at March 31, 2020 | | $ | (149) | | $ | 43,473 | | $ | (33,559) | | $ | 9,765 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Balance at December 31, 2018 |
| $ | (6,450) |
| $ | (18,394) |
| $ | (37) |
| $ | (24,881) | | $ | (6,450) | | $ | (18,394) | | $ | (37) | | $ | (24,881) |
Other comprehensive gain (loss) before reclassifications |
|
| — |
|
| 13,066 |
|
| (2,068) |
|
| 10,998 | |
| — | |
| 15,827 | |
| (2,068) | | | 13,759 |
Amounts reclassified from accumulated other comprehensive income (loss) |
|
| 95 |
|
| 422 |
|
| (8) |
|
| 509 | |
| 95 | |
| (2,339) | |
| (8) | |
| (2,252) |
Net comprehensive income (loss) |
|
| 95 |
|
| 13,488 |
|
| (2,076) |
|
| 11,507 | |
| 95 | |
| 13,488 | |
| (2,076) | |
| 11,507 |
Balance at March 31, 2019 |
| $ | (6,355) |
| $ | (4,906) |
| $ | (2,113) |
| $ | (13,374) | | $ | (6,355) | | $ | (4,906) | | $ | (2,113) | | $ | (13,374) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Three Months Ended March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Balance at December 31, 2017 |
| $ | (5,998) |
| $ | (4,278) |
| $ | (151) |
| $ | (10,427) | ||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| — |
|
| (17,192) |
|
| 28 |
|
| (17,164) | ||||||||||||
Amounts reclassified from accumulated other comprehensive income |
|
| 151 |
|
| — |
|
| 37 |
|
| 188 | ||||||||||||
Net comprehensive income (loss) |
|
| 151 |
|
| (17,192) |
|
| 65 |
|
| (16,976) | ||||||||||||
AOCI reclassification to retained earnings from the adoption of ASU 2018-02 |
|
| (1,760) |
|
| (1,147) |
|
| (40) |
|
| (2,947) | ||||||||||||
Balance at March 31, 2018 |
| $ | (7,607) |
| $ | (22,617) |
| $ | (126) |
| $ | (30,350) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | | |
The table below presents the reclassifications out of accumulated other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
| ||||||||
|
| Amount Reclassified from Accumulated Other Comprehensive Income (Loss) |
| |||||||||||||
| | | | | | | | | ||||||||
| | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | |||||||||||||
(Dollars in thousands) |
| For the Three Months Ended March 31, |
|
| | For the Three Months Ended March 31, | | | ||||||||
Accumulated Other Comprehensive Income (Loss) Component |
| 2019 |
| 2018 |
| Income Statement |
| 2020 |
| 2019 |
| Income Statement | ||||
Losses on cash flow hedges: |
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|
|
|
|
|
| | | | | | | | |
Interest rate contracts |
| $ | (10) |
| $ | 47 |
| Interest expense | | $ | (722) | | $ | (10) | | Interest expense |
|
|
| 2 |
|
| (10) |
| Provision for income taxes | ||||||||
|
|
| (8) |
|
| 37 |
| Net income | ||||||||
Gains on sales of available for sale securities: |
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| ||||||||
|
| $ | 541 |
| $ | — |
| Securities gains, net | ||||||||
|
|
| (119) |
|
| — |
| Provision for income taxes | ||||||||
|
|
| 422 |
|
| — |
| Net income | ||||||||
Amortization of defined benefit pension: |
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| ||||||||
| | | 159 | | | 2 | | Provision for income taxes | ||||||||
| | | (563) | | | (8) | | Net income | ||||||||
Losses on sales of available for sale securities: | | | | | | | | | ||||||||
| | $ | — | | $ | (2,998) | | Securities gains (losses), net | ||||||||
| | | — | | | 659 | | Provision for income taxes | ||||||||
| | | — | | | (2,339) | | Net income | ||||||||
Losses and amortization of defined benefit pension: | | | | | | | | | ||||||||
Actuarial losses |
| $ | 121 |
| $ | 194 |
| Salaries and employee benefits | | $ | — | | $ | 121 | | Salaries and employee benefits |
|
|
| (26) |
|
| (43) |
| Provision for income taxes | ||||||||
|
|
| 95 |
|
| 151 |
| Net income | ||||||||
| | | — | | | (26) | | Provision for income taxes | ||||||||
| | | — | | | 95 | | Net income | ||||||||
Total reclassifications for the period |
| $ | 509 |
| $ | 188 |
|
| | $ | (563) | | $ | (2,252) | | |
45
48
Note 1516 — Derivative Financial Instruments
We use certain derivative instruments to meet the needs of its customers as well as to manage the interest rate risk associated with certain transactions. The following table summarizes the derivative financial instruments utilized by the Company:
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| March 31, 2019 |
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| March 31, 2018 | ||||||||
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| Balance Sheet |
| Notional |
| Estimated Fair Value |
| Notional |
| Estimated Fair Value | ||||||||||
(Dollars in thousands) |
| Location |
| Amount |
| Gain |
| Loss |
| Amount |
| Gain |
| Loss | ||||||
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Cash flow hedges of interest rate risk on Junior Subordinated Debt: |
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Pay fixed rate swap with counterparty |
| Other Liabilities |
| $ | 8,000 |
| $ | — |
| $ | 25 |
| $ | 8,000 |
| $ | — |
| $ | 162 |
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Cash flow hedges of interest rate risk on FHLB Advances: |
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Pay fixed rate swap with counterparty |
| Other Assets and Other Liabilities |
| $ | 500,000 |
| $ | 217 |
| $ | 2,902 |
| $ | — |
| $ | — |
| $ | — |
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Fair value hedge of interest rate risk: |
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|
Pay fixed rate swap with counterparty |
| Other Assets |
| $ | 2,799 |
| $ | — |
| $ | 108 |
| $ | 2,824 |
| $ | — |
| $ | 21 |
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Not designated hedges of interest rate risk: |
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Customer related interest rate contracts: |
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Matched interest rate swaps with borrowers |
| Other Assets and Other Liabilities |
| $ | 355,045 |
| $ | 6,112 |
| $ | 2,137 |
| $ | 282,047 |
| $ | 146 |
| $ | 5,908 |
Matched interest rate swaps with counterparty |
| Other Assets and Other Liabilities |
| $ | 355,045 |
| $ | 560 |
| $ | 5,158 |
| $ | 282,047 |
| $ | 5,609 |
| $ | 3 |
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Not designated hedges of interest rate risk - mortgage banking activities: |
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Contracts used to hedge mortgage servicing rights |
| Other Assets |
| $ | 129,000 |
| $ | 1,100 |
| $ | — |
| $ | 69,000 |
| $ | 390 |
| $ | — |
Forward sales commitments used to hedge mortgage pipeline |
| Other Assets |
| $ | 80,059 |
| $ | 738 |
| $ | — |
| $ | 98,860 |
|
| 1,275 |
| $ | — |
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Total derivatives |
|
|
| $ | 1,429,948 |
| $ | 8,727 |
| $ | 10,330 |
| $ | 742,778 |
| $ | 7,420 |
| $ | 6,094 |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | March 31, 2020 | | | | | March 31, 2019 | ||||||||
| | Balance Sheet | | Notional | | Estimated Fair Value | | Notional | | Estimated Fair Value | ||||||||||
(Dollars in thousands) |
| Location |
| Amount |
| Gain |
| Loss |
| Amount |
| Gain |
| Loss | ||||||
| | | | | | | | | | | | | | | | | | | | |
Cash flow hedges of interest rate risk on Junior Subordinated Debt: | | | | | | | | | | | | | | | | | | | | |
Pay fixed rate swap with counterparty | | Other Liabilities | | $ | — | | $ | — | | $ | — | | $ | 8,000 | | $ | — | | $ | 25 |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Cash flow hedges of interest rate risk on FHLB Advances: | | | | | | | | | | | | | | | | | | | | |
Pay fixed rate swap with counterparty | | Other Liabilities | | $ | 700,000 | | $ | — | | $ | 43,025 | | $ | 500,000 | | $ | 217 | | $ | 2,902 |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Fair value hedge of interest rate risk: | | | | | | | | | | | | | | | | | | | | |
Pay fixed rate swap with counterparty | | Other Assets and Other Liabilities | | $ | 2,738 | | $ | — | | $ | 472 | | $ | 2,799 | | $ | — | | $ | 108 |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Not designated hedges of interest rate risk: | | | | | | | | | | | | | | | | | | | | |
Customer related interest rate contracts: | | | | | | | | | | | | | | | | | | | | |
Matched interest rate swaps with borrowers | | Other Assets and Other Liabilities | | $ | 685,818 | | $ | 51,188 | | $ | 63 | | $ | 355,045 | | $ | 6,112 | | $ | 2,137 |
Matched interest rate swaps with counterparty | | Other Assets and Other Liabilities | | $ | 685,818 | | $ | 56 | | $ | 54,301 | | $ | 355,045 | | $ | 560 | | $ | 5,158 |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Not designated hedges of interest rate risk - mortgage banking activities: | | | | | | | | | | | | | | | | | | | | |
Contracts used to hedge mortgage servicing rights | | Other Assets and Other Liabilities | | $ | 146,500 | | $ | 5,901 | | $ | — | | $ | 129,000 | | $ | 1,100 | | $ | — |
Forward sales commitments used to hedge mortgage pipeline | | Other Assets | | $ | 174,011 | | $ | 4,008 | | $ | — | | $ | 80,059 | | $ | 738 | | $ | — |
| | | | | | | | | | | | | | | | | | | | |
Total derivatives | | | | $ | 2,394,885 | | $ | 61,153 | | $ | 97,861 | | $ | 1,429,948 | | $ | 8,727 | | $ | 10,330 |
Cash Flow Hedge of Interest Rate Risk
We areThe Company is exposed to interest rate risk in the course of its business operations and manages a portion of this risk through the use of derivative financial instruments, in the form of interest rate swaps. We account for interest rate swaps that are classified as cash flow hedges in accordance with FASB ASC 815, Derivatives and Hedging, which requires that all derivatives be recognized as assets or liabilities on the balance sheet at fair value. We have three cash flow hedges as of March 31, 2020. We had one cash flow hedge mature during the second quarter of 2019. For more information regarding the fair value of our derivative financial instruments, see Note 1314 to these financial statements.
For oneOur cash flow hedge, in which we utilizeutilized an interest rate swap agreement to essentially convert a portion of itsour variable-rate debt to a fixed rate (cash flow hedge)., matured June 15, 2019 and was no longer in existence at June 30, 2019. During 2009, we entered into a forward starting interest rate swap agreement with a notional amount of $8.0 million to manage interest rate risk due to periodic rate resets on its junior subordinated debt issued by SCBT Capital Trust II, an unconsolidated subsidiary of the Company established for the purpose of issuing trust preferred securities. We hedgehedged the variable rate cash flows of subordinated debt against future interest rate increases by using an interest rate swap that effectively fixed the rate on the debt beginning on June 15, 2010, at which time the debt contractually converted from a fixed interest rate to a variable interest rate. This hedge expires on June 15, 2019. The notional amount on which the interest payments arewere based willwas not be exchanged. This derivatives contract callscalled for us to pay a fixed rate of 4.06% on the $8.0 million notional amount and receive a variable rate of three-month LIBOR on the $8.0 million notional amount.
For the other twothree remaining cash flow hedges, we utilize interest rate swap agreements to manage interest rate risk related to funding through short term FHLB advances. In March 2019, we entered into three monththree-month FHLB advances for $350
46
million and $150 million for which at this time we plan to continuously renew. At the same time, we entered into interest rate swap agreements with a notional amount of $350 million and $150 million to manage the interest rate risk related to these FHLB advances. In June 2019, we entered into a three-month FHLB advance for $200 million for which at this time we plan to continuously renew. At the same time, we entered into an interest rate swap agreement with a notional amount of $200 million to manage the interest rate risk related to this FHLB advance. With our plan to continually renew and reprice the FHLB advances every three months, we are treating this funding as variable rate
49
funding. We are hedging the cash flows from these FHLB advances against future interest rate increases by using an interest rate swap that effectively fixed the rate on the debt, which began in March 2019.debt. The notional amount on which the interest payments are based will not be exchanged related to these interest rate swaps. The derivative contract on the $350 million notationalnotional amount calls for us to pay a fixed rate of 2.44% and receive a variable rate of three-month LIBOR (2.63%(1.12% at March 31, 2019)2020). The derivative contract on the $150 million notationalnotional amount calls for us to pay a fixed rate of 2.21% and receive a variable rate of three-month LIBOR (2.60%(1.37% at March 31, 2019)2020). The derivative contract on the $200 million notational amount calls for us to pay a fixed rate of 1.89% and receive a variable rate of three-month LIBOR (1.46% at March 31, 2020). The hedge for $350 million expires on March 23, 2023, and the hedge for $150 million expires on March 29, 2024, and the hedge for the $200 million expires on June 3, 2024.
For derivatives designated as hedging exposure to variable cash flows of a forecasted transaction (cash flow hedge), the derivative’s entire gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings or when the hedge is terminated. For derivatives that are not designated as hedging instruments, changes in the fair value of the derivatives are recognized in earnings immediately.
For designated hedging relationships, we have a third party perform retrospective and prospective effectiveness testing on a quarterly basis using quantitative methods to determine if the hedge is still highly effective. Hedge accounting ceases on transactions that are no longer deemed highly effective, or for which the derivative has been terminated or de-designated.
We recognized an after-tax unrealized loss on our cash flow hedges in other comprehensive income of $22.8 million for the three months ended March 31, 2020. This compares to an unrealized loss of $2.1 million for the three months ended March 31, 2019. This compares to an unrealized gain of $65,000 for the three months ended March 31, 2018. We recognized a $2.9$43.0 million cash flow hedge liability in other liabilities and a $217,000 cash flow hedge asset in other assets on the balance sheet at March 31, 2019,2020, as compared to a $162,000$217,000 cash flow hedge asset and $2.9 million cash flow hedge liability at March 31, 2018.2019. There was no0 ineffectiveness in the cash flow hedge during the three months ended March 31, 2018.2020 and 2019. (See Note 1415 – Accumulated Other Comprehensive Income (Loss) for activity in accumulated comprehensive income (loss) and the amounts reclassified into earnings related the cash flow hedges.)
Credit risk related to the derivative arises when amounts receivable from the counterparty (derivatives dealer) exceed those payable. We control the risk of loss by only transacting with derivatives dealers that are national market makers whose credit ratings are strong. Each party to the interest rate swap is required to provide collateral in the form of cash or securities to the counterparty when the counterparty’s exposure to a mark-to-market replacement value exceeds certain negotiated limits. These limits are typically based on current credit ratings and vary with ratings changes. As of both March 31, 2019 and 2018,2020, we provided $300,000 of collateral, respectively, on the cash flow hedge on the junior subordinated debt which is included in cash and cash equivalents on the balance sheet as interest-bearing deposits with banks. As of March 31, 2019, the Company provided $8.0$52.4 million of collateral on the cash flow hedges on the FHLB advances which is also included in cash and cash equivalents on the balance sheet as interest-bearing deposits with banks. Also, we have a netting agreement with the counterparties.
Balance Sheet Fair Value Hedge
We maintain one loan swap, with an aggregate notional amount of $2.8$2.7 million at March 31, 2019,2020, accounted for as fair value hedges in accordance with ASC 815, Derivatives and Hedging. This derivative protects us from interest rate risk caused by changes in the LIBOR curve in relation to a certain designated fixed rate loan. The derivative converts the fixed rate loan to a floating rate. Settlement occurs in any given period where there is a difference in the stated fixed rate and variable rate. The fair value of this hedge is recorded in either other assets or in other liabilities depending on the position of the hedge. All changes in fair value are recorded through earnings as noninterest income. There was no0 gain or loss recorded on this derivative for the three months ended March 31, 20192020 or 2018.2019.
47
Non-designated Hedges of Interest Rate Risk
Customer Swap
We maintain interest rate swap contracts with customers that are classified as non-designated hedges and are not speculative in nature. These agreements are designed to convert customer’s variable rate loans with the Company to fixed rate. These interest rate swaps are executed with loan customers to facilitate a respective risk management strategy and allow the customer to pay a fixed rate of interest to the Company. These interest rate swaps are simultaneously hedged by executing offsetting interest rate swaps with unrelated market counterparties to minimize the net risk
50
exposure to the Company resulting from the transactions and allow the Company to receive a variable rate of interest. The interest rate swaps pay and receive interest based on a floating rate based on one month LIBOR plus credit spread, with payments being calculated on the notional amount. The interest rate swaps are settled monthly with varying maturities.
As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of March 31, 2020, the interest rate swaps had an aggregate notional amount of approximately $1.4 billion and the fair value of the interest rate swap derivatives are recorded in other assets at $51.2 million and in other liabilities at $54.4 million for a net liability position of $3.2 million, which was recorded through earnings. As of March 31, 2019, the interest rate swaps had an aggregate notional amount of approximately $710.0$710.1 million and the fair value of the interest rate swap derivatives are recorded in other assets at $6.7 million and in other liabilities at $7.3 million for a net liability position of $622,000 which was recorded through earnings. The fair value. As of the interest rate swap derivative with the derivatives dealer was in a net liability position of $156,000 at March 31, 2018.2020, we provided $72.3 million of collateral on the customer swaps which is also included in cash and cash equivalents on the balance sheet as interest-bearing deposits with banks.
Foreign Exchange
We also enter into foreign exchange contracts with customers to accommodate their need to convert certain foreign currencies into to U.S. Dollars. To offset the foreign exchange risk, we have entered into substantially identical agreements with an unrelated market counterparty to hedge these foreign exchange contracts. At March 31, 2020 and 2019, there were no outstanding contracts or agreements related to foreign currency. If there were foreign currency contracts outstanding March 31, 2019,2020, the fair value of these contracts would be included in other assets and other liabilities in the accompanying balance sheet. All changes in fair value are recorded as other noninterest income. There was no0 gain or loss recorded related to the foreign exchange derivative for the three months ended March 31, 20192020 or 2018.2019.
Mortgage Banking
We also have derivatives contracts that are classified as non-designated hedges. These derivatives contracts are a part of our risk management strategy for itsour mortgage banking activities. These instruments may include financial forwards, futures contracts, and options written and purchased, which are used to hedge MSRs; while forward sales commitments are typically used to hedge the mortgage pipeline. Such instruments derive their cash flows, and therefore their values, by reference to an underlying instrument, index or referenced interest rate. We do not elect hedge accounting treatment for any of these derivative instruments and as a result, changes in fair value of the instruments (both gains and losses) are recorded in our consolidated statements of income in mortgage banking income.
Mortgage Servicing Rights
Derivatives contracts related to MSRs are used to help offset changes in fair value and are written in amounts referred to as notional amounts. Notional amounts provide a basis for calculating payments between counterparties but do not represent amounts to be exchanged between the parties, and are not a measure of financial risk. On March 31, 2019,2020, we had derivative financial instruments outstanding with notional amounts totaling $129.0$146.5 million related to MSRs, compared to $69.0$129.0 million on March 31, 2018.2019. The estimated net fair value of the open contracts related to the MSRs was recorded as a gain of $5.9 million at March 31, 2020, compared to a gain of $1.1 million at March 31, 2019, compared to a gain of $390,000 at March 30, 2018.2019.
48
Mortgage Pipeline
The following table presents our notional value of forward sale commitments and the fair value of those obligations along with the fair value of the mortgage pipeline.
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(Dollars in thousands) |
| March 31, 2019 |
| December 31, 2018 |
| March 31, 2018 |
| March 31, 2020 |
| December 31, 2019 |
| March 31, 2019 |
| ||||||
Mortgage loan pipeline |
| $ | 95,731 |
| $ | 50,442 |
| $ | 92,647 | | $ | 229,082 | | $ | 80,785 | | $ | 95,731 | |
Expected closures |
|
| 71,798 |
|
| 37,832 |
|
| 69,485 | |
| 171,811 | |
| 60,588 | |
| 71,798 | |
Fair value of mortgage loan pipeline commitments |
|
| 1,364 |
|
| 705 |
|
| 1,190 | |
| 6,490 | |
| 1,160 | |
| 1,364 | |
Forward sales commitments |
|
| 80,059 |
|
| 54,533 |
|
| 98,860 | |
| 174,011 | |
| 87,773 | |
| 80,059 | |
Fair value of forward commitments |
|
| (626) |
|
| (621) |
|
| 85 | |
| (2,482) | |
| (258) | |
| (626) | |
51
Note 1617 — Capital Ratios
We are subject to regulations with respect to certain risk-based capital ratios. These risk-based capital ratios measure the relationship of capital to a combination of balance sheet and off-balance sheet risks. The values of both balance sheet and off-balance sheet items are adjusted based on the rules to reflect categorical credit risk. In addition to the risk-based capital ratios, the regulatory agencies have also established a leverage ratio for assessing capital adequacy. The leverage ratio is equal to Tier 1 capital divided by total consolidated on-balance sheet assets (minus amounts deducted from Tier 1 capital). The leverage ratio does not involve assigning risk weights to assets.
In July 2013, the Federal Reserve announced its approval of a final rule to implement the regulatory capital reforms developed by the Basel Committee on Banking Supervision (“Basel III”), among other changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The new rules became effective January 1, 2015, subject to a phase-in period for certain aspects of the new rules.
As applied to the Company and the Bank, the new rules include a new minimum ratio of common equity Tier 1 capital (“CET1”) to risk-weighted assets of 4.5%. The new rules also raised the minimum required ratio of Tier 1 capital to risk-weighted assets from 4% to 6%6%. The minimum required leverage ratio under the new rules is 4%. The minimum required total capital to risk-weighted assets ratio remains at 8% under the new rules.
In order to avoid restrictions on capital distributions and discretionary bonus payments to executives, under the new rules a covered banking organization is also required to maintain a “capital conservation buffer” in addition to its minimum risk-based capital requirements. This buffer is required to consist solely of CET1, and the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital). The capital conservation buffer was phased in incrementally over time, beginning January 1, 2016 and becomebecame fully effectivephased-in on January 1, 2019. The fully phased-in capital conservation buffer2019 and consists of an additional amount of Tier 1 common equity equal to 2.5% of risk-weighted assets.
The Bank is also subject to the regulatory framework for prompt corrective action, which identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized) and is based on specified thresholds for each of the three risk-based regulatory capital ratios (CET1, Tier 1 capital and total capital) and for the leverage ratio.
49
52
The following table presents actual and required capital ratios as of March 31, 2019,2020, December 31, 20182019 and March 30, 201831, 2019 for the Company and the Bank under the Basel III capital rules. The minimum required capital amounts presented below include the minimum required capital levels based on the phase-in provisions of the Basel III Capital Rules. The minimum required capital levels plus the capital conservation buffer under the Basel III capital rules became fully phased-in as of January 1, 2019. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.
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| Minimum Capital |
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| Phase-In Schedule |
| Fully Phased In |
| Capitalized |
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| | | | | | | Minimum Capital |
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| | Actual | | Required - Basel III | | Capitalized | | ||||||||||||||||||||||||||||||
(Dollars in thousands) |
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| Ratio |
| Capital Amount |
| Ratio |
| Capital Amount |
| Ratio |
| Capital Amount |
| Ratio |
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| Amount |
| Ratio |
| Capital Amount |
| Ratio |
| Capital Amount |
| Ratio |
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March 31, 2019 |
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March 31, 2020 | | |
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Common equity Tier 1 to risk-weighted assets: |
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| | | | | | | | | | | | | | | | |
Consolidated |
| $ | 1,338,085 |
| 11.86 | % | $ | 789,903 |
| 7.00 | % | $ | 789,903 |
| 7.00 | % | $ | 733,481 |
| 6.50 | % | | $ | 1,325,607 |
| 11.09 | % | $ | 836,974 | | 7.00 | % | $ | 777,190 |
| 6.50 | % |
South State Bank (the Bank) |
|
| 1,429,219 |
| 12.67 | % |
| 789,867 |
| 7.00 | % |
| 789,867 |
| 7.00 | % |
| 733,448 |
| 6.50 | % | |
| 1,388,822 |
| 11.62 | % |
| 836,917 | | 7.00 | % |
| 777,137 |
| 6.50 | % |
Tier 1 capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Consolidated |
|
| 1,449,854 |
| 12.85 | % |
| 959,168 |
| 8.50 | % |
| 959,168 |
| 8.50 | % |
| 902,746 |
| 8.00 | % | |
| 1,438,043 |
| 12.03 | % |
| 1,016,325 | | 8.50 | % |
| 956,542 |
| 8.00 | % |
South State Bank (the Bank) |
|
| 1,429,219 |
| 12.67 | % |
| 959,125 |
| 8.50 | % |
| 959,125 |
| 8.50 | % |
| 902,706 |
| 8.00 | % | |
| 1,388,822 |
| 11.62 | % |
| 1,016,256 | | 8.50 | % |
| 956,476 |
| 8.00 | % |
Total capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Consolidated |
|
| 1,506,710 |
| 13.35 | % |
| 1,184,855 |
| 10.50 | % |
| 1,184,855 |
| 10.50 | % |
| 1,128,433 |
| 10.00 | % | |
| 1,520,966 |
| 12.72 | % |
| 1,255,461 | | 10.50 | % |
| 1,195,677 |
| 10.00 | % |
South State Bank (the Bank) |
|
| 1,486,075 |
| 13.17 | % |
| 1,184,801 |
| 10.50 | % |
| 1,184,801 |
| 10.50 | % |
| 1,128,382 |
| 10.00 | % | |
| 1,471,745 |
| 12.31 | % |
| 1,255,375 | | 10.50 | % |
| 1,195,595 |
| 10.00 | % |
Tier 1 capital to average assets (leverage ratio): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Consolidated |
|
| 1,449,854 |
| 10.52 | % |
| 551,366 |
| 4.00 | % |
| 551,366 |
| 4.00 | % |
| 689,207 |
| 5.00 | % | |
| 1,438,043 |
| 9.56 | % |
| 601,691 | | 4.00 | % |
| 752,114 |
| 5.00 | % |
South State Bank (the Bank) |
|
| 1,429,219 |
| 10.37 | % |
| 551,218 |
| 4.00 | % |
| 551,218 |
| 4.00 | % |
| 689,022 |
| 5.00 | % | |
| 1,388,822 |
| 9.24 | % |
| 601,530 | | 4.00 | % |
| 751,912 |
| 5.00 | % |
December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
December 31, 2019: | | |
| |
| | |
| |
| | |
| |
| | |||||||||||||||||||||
Common equity Tier 1 to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Consolidated |
| $ | 1,335,826 |
| 12.05 | % | $ | 706,981 |
| 6.38 | % | $ | 776,293 |
| 7.00 | % | $ | 720,844 |
| 6.50 | % | | $ | 1,326,725 |
| 11.30 | % | $ | 822,225 | | 7.00 | % | $ | 763,495 |
| 6.50 | % |
South State Bank (the Bank) |
|
| 1,427,764 |
| 12.87 | % |
| 707,039 |
| 6.38 | % |
| 776,356 |
| 7.00 | % |
| 720,902 |
| 6.50 | % | |
| 1,417,616 |
| 12.07 | % |
| 822,218 | | 7.00 | % |
| 763,488 |
| 6.50 | % |
Tier 1 capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Consolidated |
|
| 1,447,428 |
| 13.05 | % |
| 873,330 |
| 7.88 | % |
| 942,642 |
| 8.50 | % |
| 887,192 |
| 8.00 | % | |
| 1,438,995 |
| 12.25 | % |
| 998,416 | | 8.50 | % |
| 939,686 |
| 8.00 | % |
South State Bank (the Bank) |
|
| 1,427,764 |
| 12.87 | % |
| 873,401 |
| 7.88 | % |
| 942,718 |
| 8.50 | % |
| 887,264 |
| 8.00 | % | |
| 1,417,616 |
| 12.07 | % |
| 998,407 | | 8.50 | % |
| 939,677 |
| 8.00 | % |
Total capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Consolidated |
|
| 1,503,561 |
| 13.56 | % |
| 1,095,128 |
| 9.88 | % |
| 1,164,440 |
| 10.50 | % |
| 1,108,990 |
| 10.00 | % | |
| 1,501,321 |
| 12.78 | % |
| 1,233,338 | | 10.50 | % |
| 1,174,607 |
| 10.00 | % |
South State Bank (the Bank) |
|
| 1,483,897 |
| 13.38 | % |
| 1,095,217 |
| 9.88 | % |
| 1,164,534 |
| 10.50 | % |
| 1,109,080 |
| 10.00 | % | |
| 1,479,942 |
| 12.60 | % |
| 1,233,327 | | 10.50 | % |
| 1,174,597 |
| 10.00 | % |
Tier 1 capital to average assets (leverage ratio): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Consolidated |
|
| 1,447,428 |
| 10.65 | % |
| 543,506 |
| 4.00 | % |
| 543,506 |
| 4.00 | % |
| 679,383 |
| 5.00 | % | |
| 1,438,995 |
| 9.73 | % |
| 591,731 | | 4.00 | % |
| 739,664 |
| 5.00 | % |
South State Bank (the Bank) |
|
| 1,427,764 |
| 10.51 | % |
| 543,387 |
| 4.00 | % |
| 543,387 |
| 4.00 | % |
| 679,234 |
| 5.00 | % | |
| 1,417,616 |
| 9.59 | % |
| 591,592 | | 4.00 | % |
| 739,490 |
| 5.00 | % |
March 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
March 31, 2019: | | |
| |
| | |
| |
| | |
| |
| | |||||||||||||||||||||
Common equity Tier 1 to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Consolidated |
| $ | 1,295,729 |
| 11.85 | % | $ | 697,237 |
| 6.38 | % | $ | 765,594 |
| 7.00 | % | $ | 710,909 |
| 6.50 | % | | $ | 1,338,085 |
| 11.86 | % | $ | 789,903 | | 7.00 | % | $ | 733,481 |
| 6.50 | % |
South State Bank (the Bank) |
|
| 1,385,289 |
| 12.67 | % |
| 697,253 |
| 6.38 | % |
| 765,612 |
| 7.00 | % |
| 710,925 |
| 6.50 | % | |
| 1,429,219 |
| 12.67 | % |
| 789,867 | | 7.00 | % |
| 733,448 |
| 6.50 | % |
Tier 1 capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Consolidated |
|
| 1,406,832 |
| 12.86 | % |
| 861,293 |
| 7.88 | % |
| 929,650 |
| 8.50 | % |
| 874,964 |
| 8.00 | % | |
| 1,449,854 |
| 12.85 | % |
| 959,168 | | 8.50 | % |
| 902,746 |
| 8.00 | % |
South State Bank (the Bank) |
|
| 1,385,289 |
| 12.67 | % |
| 861,313 |
| 7.88 | % |
| 929,671 |
| 8.50 | % |
| 874,985 |
| 8.00 | % | |
| 1,429,219 |
| 12.67 | % |
| 959,125 | | 8.50 | % |
| 902,706 |
| 8.00 | % |
Total capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Consolidated |
|
| 1,456,453 |
| 13.32 | % |
| 1,080,034 |
| 9.88 | % |
| 1,148,391 |
| 10.50 | % |
| 1,093,706 |
| 10.00 | % | |
| 1,506,710 |
| 13.35 | % |
| 1,184,855 | | 10.50 | % |
| 1,128,433 |
| 10.00 | % |
South State Bank (the Bank) |
|
| 1,434,911 |
| 13.12 | % |
| 1,080,059 |
| 9.88 | % |
| 1,148,417 |
| 10.50 | % |
| 1,093,731 |
| 10.00 | % | |
| 1,486,075 |
| 13.17 | % |
| 1,184,801 | | 10.50 | % |
| 1,128,382 |
| 10.00 | % |
Tier 1 capital to average assets (leverage ratio): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Consolidated |
|
| 1,406,832 |
| 10.50 | % |
| 535,724 |
| 4.00 | % |
| 535,724 |
| 4.00 | % |
| 669,654 |
| 5.00 | % | |
| 1,449,854 |
| 10.52 | % |
| 551,366 | | 4.00 | % |
| 689,207 |
| 5.00 | % |
South State Bank (the Bank) |
|
| 1,385,289 |
| 10.35 | % |
| 535,522 |
| 4.00 | % |
| 535,522 |
| 4.00 | % |
| 669,402 |
| 5.00 | % | |
| 1,429,219 |
| 10.37 | % |
| 551,218 | | 4.00 | % |
| 689,022 |
| 5.00 | % |
As of March 31, 2019,2020, December 31, 2018,2019, and March 30, 2018,31 2019, the capital ratios of the Company and the Bank were well in excess of the minimum regulatory requirements and exceeded the thresholds for the “well capitalized” regulatory classification.
In June 2016, the FASB issued ASU No. 2016-13 which required an entity to utilize a new impairment model known as the CECL model to estimate its lifetime “expected credit loss.” This standard was adopted and became effective on January 1, 2020 and the Company applied the provisions of the standard using the modified retrospective method as a cumulative-effect adjustment to retained earnings. Related to the implementation of ASU 2016-13, we recorded additional allowance for credit losses for loans of $54.4 million, deferred tax assets of $12.6 million, an additional reserve for unfunded commitments of $6.4 million and an adjustment to retained earnings of $44.8 million. Instead of recognizing the effects from ASU 2016-13 at adoption, the standard included a transitional method option for recognizing the Day 1 effects on the Company’s regulatory capital calculations over a three year phase-in. In March 2020, in response to the COVID-19 pandemic, the regulatory agencies provided an additional transitional method option of a two-year deferral for the start of the three year phase-in of the recognition of the Day 1 effects of ASU 2016-13 along with an option to defer the current impact on regulatory capital calculations of ASU 2016-13 during the first two years (“5 year method”). Under this 5 year method, the Company would recognize an estimate of the previous method for determining the allowance for credit losses in regulatory capital calculations and the difference from the CECL method would be deferred for two years. After two years, the effects from Day 1 and the deferral difference from the first two years of applying CECL would be phased-in over three years using the straight-line method. The regulatory rules provide a one-time opportunity at the end of the first quarter of 2020 for covered banking organizations to choose
53
its transition option for CECL. The Company chose the 5 year method and is deferring the recognition of the effects from Day 1 and the CECL difference from the first two years of application. If the Company had not chosen to apply a transitional method related to CECL, its consolidated common equity tier 1 to risk-weighted assets ratio would be 10.62%, its consolidated tier 1 capital to risk-weighted assets would be 11.56%, its consolidated total capital to risk-weighted assets would be 12.81% and its consolidated tier 1 capital to average assets (leverage ratio) would be 9.23% at March 31, 2020. As such, the Company would still exceed the thresholds for the “well capitalized” regulatory classification.
Note 17—18—Goodwill and Other Intangible Assets
The carrying amount of goodwill was $1.0 billion at March 31, 2020, December 31, 2019 and March 31, 2019. The Company updated its valuation of the carrying value of goodwill as of March 31, 2020 based on the drop in the Company’s stock price in the first quarter of 2020 along with the effect that the COVID-19 pandemic is having on our local economy and determined again that no impairment charge was necessary. We will continue to monitor the impact of COVID-19 on the Company’ business, operating results, cash flows and/or financial condition.
Our other intangible assets, consisting of core deposit intangibles, noncompete intangibles, and client list intangibles are included on the face of the balance sheet. The following is a summary of gross carrying amounts and accumulated amortization of other intangible assets:
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| March 31, |
| December 31, |
| March 31, |
| |||||||||||||
| | | | | | | | | | | ||||||||||
| | March 31, | | December 31, | | March 31, | | |||||||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
|
| 2020 |
| 2019 |
| 2019 |
| ||||||
Gross carrying amount |
| $ | 119,501 |
| $ | 121,736 |
| $ | 118,415 |
| | $ | 119,501 | | $ | 119,501 | | $ | 119,501 | |
Accumulated amortization |
|
| (59,882) |
|
| (58,836) |
|
| (48,039) |
| |
| (72,692) | |
| (69,685) | |
| (59,882) | |
|
| $ | 59,619 |
| $ | 62,900 |
| $ | 70,376 |
| ||||||||||
| | $ | 46,809 | | $ | 49,816 | | $ | 59,619 | |
Amortization expense totaled $3.0 million for the three months ended March 31, 2020, respectively, compared to $3.3 million for the three months ended March 31, 2019, respectively, compared to $3.4 million for the three months ended March 31, 2018, respectively. Other intangibles are amortized using either the
50
straight-line method or an accelerated basis over their estimated useful lives, with lives generally between two and 15 years. Estimated amortization expense for other intangibles for each of the next five quarters is as follows:
|
|
|
|
| ||||
|
|
|
|
| ||||
| | | | | ||||
| | | | | ||||
(Dollars in thousands) |
|
|
|
| | | | |
Quarter ending: |
|
|
|
|
| |
|
|
June 30, 2019 |
| $ | 3,268 |
| ||||
September 30, 2019 |
|
| 3,268 |
| ||||
December 31, 2019 |
|
| 3,267 |
| ||||
March 31, 2020 |
|
| 3,007 |
| ||||
June 30, 2020 |
|
| 2,995 |
| | $ | 2,995 | |
September 30, 2020 | |
| 2,945 | | ||||
December 31, 2020 | |
| 2,921 | | ||||
March 31, 2021 | |
| 2,656 | | ||||
June 30, 2021 | | | 2,643 | | ||||
Thereafter |
|
| 43,814 |
| |
| 32,649 | |
|
| $ | 59,619 |
| ||||
| | $ | 46,809 | |
Note 1819 — Loan Servicing, Mortgage Origination, and Loans Held for Sale
As of March 31, 2019,2020, December 31, 2018,2019, and March 31, 2018,2019, the portfolio of residential mortgages serviced for others, which is not included in the accompanying balance sheets, was $3.1$3.3 billion, $3.1$3.3 billion, and $3.0$3.1 billion, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts and disbursing payments to investors. The amount of contractually specified servicing fees we earned during both the three months ended March 31, 20192020 and March 31, 20182019 was $2.1 million and $1.9 million.million, respectively. Servicing fees are recorded in mortgage banking income in our consolidated statements of income.
At March 31, 2019,2020, December 31, 2018,2019, and March 31, 2018,2019, MSRs were $32.4$26.4 million, $34.7$30.5 million, and $34.2$32.4 million on our consolidated balance sheets, respectively. MSRs are recorded at fair value with changes in fair value recorded as a component of mortgage banking income in the consolidated statements of income. The market value adjustments related to MSRs recorded in mortgage banking income for the three months ended March 31, 20192020 and March 31, 20182019 were losses of $2.4$4.9 million, and gainscompared with losses of $2.5$2.4 million, respectively. We used various free free-
54
standing derivative instruments to mitigate the income statement effect of changes in fair value due to changes in market value adjustments and to changes in valuation inputs and assumptions related to MSRs.
See Note 1314 — Fair Value for the changes in fair value of MSRs. The following table presents the changes in the fair value of the MSR and offsetting hedge.
|
|
|
|
|
|
|
| |||||||
|
| Three Months Ended |
| |||||||||||
| | | | | | | | |||||||
| | Three Months Ended |
| |||||||||||
(Dollars in thousands) |
| March 31, 2019 |
| March 31, 2018 |
|
| March 31, 2020 |
| March 31, 2019 |
| ||||
Increase (decrease) in fair value of MSRs |
| $ | (2,357) |
| $ | 2,516 |
| |||||||
Decrease in fair value of MSRs | | $ | (4,919) | | $ | (2,357) | | |||||||
Decay of MSRs |
|
| (886) |
|
| (929) |
| |
| (1,204) | |
| (886) | |
Gain (loss) related to derivatives |
|
| 1,280 |
|
| (1,554) |
| |||||||
Gain related to derivatives | | | 9,607 | | | 1,280 | | |||||||
Net effect on statements of income |
| $ | (1,963) |
| $ | 33 |
| | $ | 3,484 | | $ | (1,963) | |
The fair value of MSRs is highly sensitive to changes in assumptions and fair value is determined by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates and other assumptions validated through comparison to trade information, industry surveys and with the use of independent third partythird-party appraisals. Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs. Generally, as interest rates increase, mortgage loan prepayments decelerate due to decreased refinance activity, which results in an increase in the fair value of the MSRs. Measurement of fair value is limited to the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time. See Note 1314 — Fair Value for additional information regarding fair value.
51
The characteristics and sensitivity analysis of the MSRs are included in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| March 31, |
|
| December 31, |
|
| March 31, |
| ||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||
| | March 31, | | | December 31, | | | March 31, |
| | |||||||||||||||
(Dollars in thousands) |
| 2019 |
|
| 2018 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2019 | | | ||||||
Composition of residential loans serviced for others |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Fixed-rate mortgage loans |
|
| 99.8 | % |
|
| 99.8 | % |
|
| 99.7 | % | | | 99.9 | % | | | 99.8 | % | | | 99.8 | % | |
Adjustable-rate mortgage loans |
|
| 0.2 | % |
|
| 0.2 | % |
|
| 0.3 | % | | | 0.1 | % | | | 0.2 | % | | | 0.2 | % | |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | |
Weighted average life |
|
| 7.08 | years |
|
| 7.88 | years |
|
| 8.45 | years | | | 5.98 | years | | | 6.55 | years | | | 7.08 | years | |
Constant Prepayment rate (CPR) |
|
| 8.8 | % |
|
| 7.3 | % |
|
| 6.3 | % | | | 11.8 | % | | | 10.3 | % | | | 8.8 | % | |
Weighted average discount rate |
|
| 9.4 | % |
|
| 9.4 | % |
|
| 9.6 | % | | | 9.6 | % | | | 9.4 | % | | | 9.4 | % | |
Effect on fair value due to change in interest rates |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
25 basis point increase |
| $ | 2,044 |
|
| $ | 1,504 |
|
| $ | 1,025 |
| | $ | 2,652 | | | $ | 2,477 | | | $ | 2,044 | | |
50 basis point increase |
|
| 3,747 |
|
|
| 2,740 |
|
|
| 1,791 |
| | | 4,897 | | | | 4,452 | | |
| 3,747 | | |
25 basis point decrease |
|
| (2,438) |
|
|
| (1,981) |
|
|
| (1,439) |
| | | (2,971) | | | | (2,938) | | |
| (2,438) | | |
50 basis point decrease |
|
| (5,171) |
|
|
| (4,421) |
|
|
| (3,189) |
| | | (6,027) | | | | (6,228) | | |
| (5,171) | | |
The sensitivity calculations in the previous table are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the changes in assumptions to fair value may not be linear. Also, the effects of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumptions, while in reality, changes in one factor may result in changing another, which may magnify or contract the effect of the change.
Custodial escrow balances maintained in connection with the loan servicing were $22.1$23.5 million and $20.9$22.1 million at March 31, 20192020 and March 31, 2018,2019, respectively.
Whole loan sales were $115.3$228.3 million and $154.9for the three months ended March 31, 2020, compared to $115.3 million for the three months ended March 31, 2019, and March 31, 2018, respectively. For the three months ended March 31, 2019 and March 31, 2018, $89.1 million and $118.42020, $194.5 million, or 77.3% and 76.5%85.2%, respectively, were sold with the servicing rights retained by the company.company, compared to $89.1 million, or 77.3%, for the three ended March 31, 2019.
Loans held for sale have historically been comprised of residential mortgage loans awaiting sale in the secondary market, which generally settle in 15 to 45 days.days. Loans held for sale were $33.3$71.7 million, $22.9$59.4 million and $42.7$33.3 million at March 31, 2019,2020, December 31, 20182019 and March 31, 2018,2019, respectively.
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Note 1920 – Investments in Qualified Affordable Housing Projects
We have investments in qualified affordable housing projects (“QAHPs”) that provide low income housing tax credits and operating loss benefits over an extended period. The tax credits and the operating loss tax benefits that are generated by each of the properties are expected to exceed the total value of the investment made by the Company. For the three months ended March 31, 2020, tax credits and other tax benefits of $2.6 million and amortization of $3.3 million were recorded. For the three months ended March 31, 2019, tax credits and other tax benefits of $1.5 million and amortization of $1.5 million were recorded. For the three months ended March 31, 2018, we recorded tax credits and other tax benefits of $1.2 million and amortization of $1.0 million. At March 31, 20192020 and 2018,2019, our carrying value of QAHPs was $54.2$90.0 million and $38.7$54.2 million, respectively, with an original investment of $113.4 million and $69.6 million.million, respectively. We have $24.0$46.4 million and $17.9$24.1 million in remaining funding obligations related to these QAHPs recorded in liabilities at March 31, 2020 and 2019, and 2018, respectively. NoneNaN of the original investment will be repaid. The investment in QAHPs is being accounted for using the equity method.
Note 2021 – Repurchase Agreements
Securities sold under agreements to repurchase (“repurchase agreements”) represent funds received from customers, generally on an overnight or continuous basis, which are collateralized by investment securities owned or, at times, borrowed and re-hypothecated by the Company. Repurchase agreements are subject to terms and conditions of the master repurchase agreements between the Company and the client and are accounted for as secured borrowings. Repurchase agreements are included in federal funds purchased and securities sold under agreements to repurchase on the condensed consolidated balance sheets.
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At March 31, 2019,2020, December 31, 20182019 and March 31, 2018,2019, our repurchase agreements totaled $218.8$287.2 million, $205.3$242.2 million, and $269.5$218.8 million, respectively. All of our repurchase agreements were overnight or continuous (until-further-notice) agreements at March 31, 2019,2020, December 31, 20182019 and March 31, 2018.2019. These borrowings were collateralized with government, government-sponsored enterprise, or state and political subdivision-issued securities with a carrying value of $218.8$287.2 million, $205.3$242.2 million and $269.5$218.8 million at March 31, 2019,2020, December 31, 20182019 and March 31, 2018,2019, respectively. Declines in the value of the collateral would require us to increase the amounts of securities pledged.
Note 2122 – Subsequent Events
COVID-19
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in China, and has since spread to a number of other countries, including the United States. In March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a National Public Health Emergency. The COVID-19 pandemic has severely restricted the level of economic activity in our markets. In response to the COVID-19 pandemic, the governments of the states in which we have financial center and of most other states have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential.
While our business has been designated an essential business, which allows us to continue to serve our customers, we serve many customers that have been deemed, or who are employed by businesses that have been deemed, to be non-essential. And many of our customers that have been categorized to date as essential businesses, or who are employed by businesses that have been categorized as essential businesses, have been adversely affected by the COVID-19 pandemic.
The impact of the COVID-19 pandemic is fluid and continues to evolve. The COVID-19 pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities has resulted in less economic activity, lower equity market valuations and significant volatility and disruption in financial markets, and has had an adverse effect on our business, financial condition and results of operations. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including, among others, the duration and scope of the pandemic, as well as governmental, regulatory and
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private sector responses to the pandemic, and the associated impacts on the economy, financial markets and our customers, employees and vendors.
Our business, financial condition and results of operations generally rely upon the ability of our borrowers to repay their loans, the value of collateral underlying our secured loans, and demand for loans and other products and services we offer, which are highly dependent on the business environment in our primary markets where we operate and in the United States as a whole. The COVID-19 pandemic has begun to have a significant impact on our business and operations. As of April 30, 2020, we have deferrals of $2.4 billion of our total loan portfolio. For commercial loans, the standard deferral was 90 days for both principal and interest or 120 days of principal only. For consumer and mortgage loans, the standard deferral was 120 days of both principal and interest. We have actively reached out to our customers to provide guidance and direction on these deferrals. Also, we have extended credit to both customers and non-customers related to the Payroll Protection Program (“PPP”). As of April 30, 2020, we have secured funding of approximately 9,300 loans totaling approximately $1.1 billion.
CenterState Bank Corporation Proposed Merger
On January 25, 2019,2020, South State and CenterState Bank Corporation, a Florida corporation, otherwise referred to herein as CenterState, entered into an Agreement and Plan of Merger, or the Boardmerger agreement, pursuant to which South State and CenterState have agreed to combine their respective companies in an all-stock merger of Directors equals. The merger agreement provides that, upon the terms and subject to the conditions set forth therein, CenterState will merge with and into South State, with South State continuing as the surviving entity, in a transaction we refer to as the “merger.” The merger agreement was unanimously approved by the boards of directors of South State and resetCenterState, and is subject to shareholder and regulatory approval and other customary closing conditions.
Under the numberterms of the merger agreement, shareholders of CenterState will receive 0.3001 shares availableof South State common stock for each share of CenterState common stock they own. After the merger, it is anticipated that CenterState shareholders will own approximately 53% and South State shareholders will own approximately 47% of the combined company. The aggregate consideration, including “in the money” outstanding stock options, is valued at approximately $2.2 billion, based on approximately 124,132,401 shares of CenterState common stock outstanding as of April 29, 2020 and on South State’s April 30, 2020 closing stock price of $57.84. The transaction is expected to be repurchased to 1,000,000 common shares underclose by the 2019 Stock Repurchase Program (“Repurchase Program”). In the firstthird quarter of 2019, we repurchased 500,000 shares at an average price of $66.53 a share for a2020. At March 31, 2020, CenterState reported $18.6 billion in total of $33.3 millionassets, $12.0 billion in common stock. In May 2019, we repurchased an additional 250,000 shares at an average price of $75.15 a share for a total of $18.8 millionloans and $14.1 billion in common stock. We may repurchase up to an additional 250,000 shares of common stock under the Repurchase Program. We are not obligated to repurchase any additional shares under the Repurchase Program, and any repurchases under the Repurchase Program after December 23, 2019 would require additional Federal Reserve approval.deposits.
We have evaluated subsequent events for accounting and disclosure purposes through the date the financial statements are issued and have determined that there is no additional disclosure necessary.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) relates to the financial statements contained in this Quarterly Report beginning on page 3. For further information, refer to the MD&A appearing in the Annual Report on Form 10-K for the year ended December 31, 2018.2019. Results for the three months ended March 31, 20192020 are not necessarily indicative of the results for the year ending December 31, 20192020 or any future period.
Unless otherwise mentioned or unless the context requires otherwise, references herein to “South State,” the “Company” “we,” “us,” “our” or similar references mean South State Corporation and its consolidated subsidiary. References to the “Bank” means South State Corporation’s wholly owned subsidiary, South State Bank, a South Carolina banking corporation.
Overview
South State Corporation is a bank holding company headquartered in Columbia, South Carolina, and was incorporated under the laws of South Carolina in 1985. We provide a wide range of banking services and products to our customers through our wholly owned bank subsidiary, South State Bank, a South Carolina-chartered commercial bank that opened for business in 1934. The Bank also operates South State Advisory, Inc. (formerly First Southeast 401K Fiduciaries), a wholly owned registered investment advisor. We merged Minis & Co., Inc., another registered investment advisor that was wholly-owned by the Bank, with and into South State Advisory effective January 1, 2019. We do not engage in any significant operations other than the ownership of our banking subsidiary.
At March 31, 2019,2020, we had approximately $15.4$16.6 billion in assets and 2,5892,583 full-time equivalent employees. Through the Bank, we provide our customers with checking accounts, NOW accounts, savings and time deposits of various types, brokerage services and alternative investment products such as annuities and mutual funds, trust and asset management services, business loans, agriculture loans, real estate loans, personal use loans, home improvement loans, manufactured housing loans, automobile loans, credit cards, letters of credit, home equity lines of credit, safe deposit boxes, bank money orders, wire transfer services, correspondent banking services, and use of ATM facilities.
We have pursued, and continue to pursue, a growth strategy that focuses on organic growth, supplemented by acquisitions of select financial institutions, or branches in certain market areas.
The following discussion describes our results of operations for the three months ended March 31, 20192020 as compared to the three months ended March 31, 20182019 and also analyzes our financial condition as of March 31, 20192020 as compared to December 31, 20182019 and March 31, 2018.2019. Like most financial institutions, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we may pay interest. Consequently, one of the key measures of our success is the amount of our net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.
Of course, there are risks inherent in all loans, soas such we maintain an ALLLallowance for credit losses, otherwise referred to herein as ACL, to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for loan losses against our operating earnings. In the following section,discussion, we have included a detailed discussion of this process.
In addition to earning interest on our loans and investments, we earn income through fees and other services we charge to our customers. We incur costs in addition to interest expense on deposits and other borrowings, the largest of which is salaries and employee benefits. We describe the various components of this noninterest income and noninterest expense in the following discussion.
The following sections also identifiesidentify significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report.
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Recent Events
COVID-19
In mid-JanuaryDecember 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in China, and has since spread to a number of other countries, including the United States. In March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a National Public Health Emergency. The COVID-19 pandemic has severely restricted the level of economic activity in our markets. In response to the COVID-19 pandemic, the governments of the states in which we scheduledhave financial centers and of most other states have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential.
While our business has been designated an essential business, which allows us to continue to serve our customers, we serve many customers that have been deemed, or who are employed by businesses that have been deemed, to be non-essential. And many of our customers that have been categorized to date as essential businesses, or who are employed by businesses that have been categorized as essential businesses, have been adversely affected by the closeCOVID-19 pandemic.
The impact of 13 branch locations during 2019. Mostthe COVID-19 pandemic is fluid and continues to evolve. The COVID-19 pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities has resulted in less economic activity, lower equity market valuations and significant volatility and disruption in financial markets, and has had an adverse effect on our business, financial condition and results of operations. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including, among others, the duration and scope of the pandemic, as well as governmental, regulatory and private sector responses to the pandemic, and the associated impacts on the economy, financial markets and our customers, employees and vendors.
Our business, financial condition and results of operations generally rely upon the ability of our borrowers to repay their loans, the value of collateral underlying our secured loans, and demand for loans and other products and services we offer, which are scheduledhighly dependent on the business environment in our primary markets where we operate and in the United States as a whole. The COVID-19 pandemic has begun to have a significant impact on our business and operations. As part of our efforts to exercise social distancing, in March 2020, we closed all of our banking lobbies and are conducting most of our business at this time through drive-thru tellers and through electronic and online means. To support the health and well-being of our employees, a majority of our workforce is working from home. To support our customers or to comply with law, we have deferred loan payments from 90 to 120 days for consumer and commercial customers, and we have suspended residential property foreclosure sales, evictions, and involuntary automobile repossessions, and are offering fee waivers, payment deferrals, and other expanded assistance for automobile, mortgage, small business and personal lending customers. Future governmental actions may require these and other types of customer-related responses.
As of March 31, 2020, we have deferrals of $1.7 billion of our total loan portfolio, which had increased to $2.4 billion as of April 30, 2020. For commercial loans, the secondstandard deferral was 90 days for both principal and interest or 120 days of principal only. For consumer and mortgage loans, the standard deferral was 120 days of both principal and interest. We have actively reached out to our customers to provide guidance and direction on these deferrals. In terms of available lines of credit, the company has not experienced an increase in borrowers drawing down on their lines. Below are the loan portfolios which we view are of the greatest risk:
● | Lodging (hotel / motel) loan portfolio - we have experienced 100% deferrals, the average loan balance was $8.2 million and the weighted average loan to value (“LTV”) was 57%. The Company currently has $590 million, or 5.1% of the total loan portfolio, in lodging loans. |
● | Restaurant loan portfolio – 59% is under deferral, with average loan balance of $692,000, and weighted average LTV of real estate secured was 66%. The Company currently has $225 million, or 2% of the total loan portfolio, in restaurants. |
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● | Retail loan portfolio – 37% of retail CRE loan portfolio is under deferral, with an average loan balance of $888,000, and weighted average LTV of 59%. The Company currently has $558 million, or 4.8% of the total loan portfolio, in retail CRE loans. |
Also, we have extended credit to both customers and non-customers related to the Payroll Protection Program (“PPP”). As of April 30, 2020, we have secured funding of approximately 9,300 loans totaling approximately $1.1 billion through the PPP.
We are monitoring the impact of the COVID-19 pandemic on our results of operations and financial condition. We implemented ASU 2016-13 in the first quarter of 2019. In addition, certain cost reduction initiatives began2020 related to the calculation for our ACL for loans, investments, unfunded commitments and other financial assets. Taking into consideration the COVID-19 pandemic into our CECL models, we recorded a provision for credit losses of $36.4 million in the first quarter of 2020 which was significantly higher than in previous quarters. Our provision for credit losses for periods ending after March 31, 2020 may be materially impacted by the COVID-19 pandemic. We also adjust our investment securities portfolio to market each period end and review for any impairment that would require a provision for credit losses. At this time, we have determined there is no need for a provision for credit losses related to our investment securities portfolio. Because of changing economic and market conditions affecting issuers, we may be required to recognize impairments in the future on the securities we hold as well as reductions in other comprehensive income. We cannot currently determine the ultimate impact of the pandemic on the long-term value of our portfolio.
We also are monitoring the impact of COVID-19 on the valuation of goodwill. Our stock price has historically traded above its book value and tangible book value. However, during the first quarter of 2019.2020, our stock price fell below book value. This drop in stock was in reaction to the COVID-19 pandemic which has affected stock prices of companies in almost all industries. The expected costslowest trading price for our stock during the first quarter of 2020 was $51.47, and the stock price closed on March 31, 2020 at $58.73, which was below book value of $69.40 but above tangible book value of $38.01. The Company updated its valuation of the carrying value of goodwill as of March 31, 2020 based on the drop in the Company’s stock price in the first quarter of 2020, and taking into account the effect that the COVID-19 pandemic has had and continues to be incurredhave on our local economy, we determined that no impairment charge was necessary at this time. We will continue to monitor the impact of COVID-19 on the Company’ business, operating results, cash flows and/or financial condition. If the COVID-19 pandemic extends beyond a few more months and the economy continues to deteriorate, we will have to reevaluate the impact on our financial condition and impairment of goodwill.
CenterState Bank Corporation Proposed Merger
On January 25, 2020, South State and CenterState entered into the merger agreement, pursuant to which South State and CenterState have agreed to combine their respective companies in 2019an all-stock merger of equals. The merger agreement provides that, upon the terms and subject to the conditions set forth therein, CenterState will merge with these closures and cost initiatives has been estimatedinto South State, with South State continuing as the surviving entity, in a transaction we refer to beas the “merger.” The merger agreement was unanimously approved by the boards of directors of South State and CenterState, and is subject to shareholder and regulatory approval and other customary closing conditions.
Under the terms of the merger agreement, shareholders of CenterState will receive 0.3001 shares of South State common stock for each share of CenterState common stock they own. After the merger, it is anticipated that CenterState shareholders will own approximately $3.2 million,53% and primarily includes personnel, facilitiesSouth State shareholders will own approximately 47% of the combined company. The aggregate consideration, including “in the money” outstanding stock options, is valued at approximately $2.2 billion, based on approximately 124,132,401 shares of CenterState common stock outstanding as of April 29, 2020 and equipment cost.on South State’s April 30, 2020 closing stock price of $57.84. The annual savings of these closures and cost initiativestransaction is expected to be $13.0 million,close by the third quarter of 2020. At March 31, 2020, CenterState reported $18.6 billion in total assets, $12.0 billion in loans and $14.1 billion in deposits.
Capital Management
During the impact onfirst quarter of 2020, we remained active in repurchasing the company’s common stock and bought 320,000 shares at an average price of $77.29 per share (excludes commission expense), a total of $24.7 million. In June of 2019, is anticipated to be approximately $10.0 million.the Company’s Board of Directors authorized a new Repurchase Program of 2,000,000 shares, and there were 515,000 shares available for repurchase under this plan as of March 31, 2020.
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Critical Accounting Policies
We have established various accounting policies that governOur consolidated financial statements are prepared based on the application of accounting policies in accordance with GAAP and follow general practices within the banking industry. Our financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Differences in the preparationapplication of these policies could result in material changes in our consolidated financial statements. Significantposition and consolidated results of operations and related disclosures. Understanding our accounting policies is fundamental to understanding our consolidated financial position and consolidated results of operations. Accordingly, our significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are describeddiscussed in Note 1 to the auditedof our consolidated financial statements in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2018. These2019.
The following is a summary of our critical accounting policies may involve significant judgmentsthat are highly dependent on estimates, assumptions and estimates that have a material impact on the carrying value of certain assets and liabilities. Different assumptions made in the application of these policies could result in material changes in our financial position and results of operations.judgments.
Allowance for LoanCredit Losses or ACL
The ALLLACL reflects the estimatedmanagement’s estimate of losses that will result from the inability of our bank’s borrowers to make required loan payments. In determining an appropriate levelManagement uses a systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. Management considers the allowance, we identify portions applicable to specific loans as well as providing amounts that are not identified with any specific loan but are derived with reference to actual loss experience, loan types, loan volumes, economiceffects of past events, current conditions, and industry standards. Changes in these factors may cause ourreasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of the allowance to increase or decrease andits ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in adjustmentsa range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded in the balance sheet reflects management’s best estimate within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust the provisionACL for loanmanagement’s current estimate of expected credit losses. See Note 52 - Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the ACL. See also Note 6 — Loans and Allowance for LoanCredit Losses in this Quarterly Report on Form 10-Q, “Provision for Loan Losses and Nonperforming Assets” in this MD&A and “Allowance for Loan Losses” in Note 1 to the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018 for further detailed descriptions of our estimation process and methodology related to the allowance for loan losses.&A.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed in a business combination. As of March 31, 2019,31, 2020, December 31, 20182019 and March 31, 2018,2019, the balance of goodwill was $1.0 billion $1.0 billion, and $999.6 million, respectively.for all periods. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. The goodwill impairment analysis is a two-step test. The first step, used to identify potential impairment, involves comparing each reporting unit’s estimated fair value to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is not considered to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment, if any.
If required, the second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying value of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted.
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In January 2017, the FASB issued ASU No. 2017-04, which simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in today’s two-step impairment test under ASC Topic 350 and eliminating Step 2 from the goodwill impairment test. This guidance iswas effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within those years.as of January 1, 2020.
We previously had evaluated the carrying value of goodwill as of April 30, 2018,2019, our annual test date, and determined that no impairment charge was necessary. Our stock price has historically traded above its book value and tangible book value. However, during the fourthfirst quarter of 2018,2020, our stock price fell below book value. This drop in stock was in reaction to the COVID-19 pandemic which has affected stock prices of companies in almost all industries. The lowest trading price for our stock during the fourthfirst quarter of 20182020 was $56.55,$51.47, and the stock price closed on DecemberMarch 31, 20182020 at $59.95,$58.73, which was below book value of $66.04$69.40 but above tangible book value of $36.30. We$38.01. The Company updated ourits valuation of the carrying value of goodwill as of DecemberMarch 31, 20182020 based on the drop in ourthe Company’s stock price in the fourthfirst quarter of 20182020 along with the effect that the COVID-19 pandemic is having on our local economy and determined again that no impairment charge was necessary. DuringWe will continue to monitor the first quarterimpact of 2019, our stock price traded both above and below book value, and therefore, we again updated its analysis of goodwill. At March 31, 2019, our stock price was $68.34 which was above book value of $67.19 and tangible book value of $37.15. BasedCOVID-19 on the updated analysis of goodwill as of March 31, 2019Company’ business, operating results, cash flows and/or financial condition. If the pandemic extends beyond a few more months and the fact thateconomy continues to deteriorate, we will have to reevaluate the impact on our stock price has traded above book value during the quarter, we believe there is nofinancial condition and impairment ofto goodwill. Should our future earnings and cash flows decline discount rates increase, and/or the market value of our stock decreases further, an impairment charge to goodwill and other intangible assets may be required.
Core deposit intangibles, client list intangibles, and noncompetition (“noncompete”) intangibles consist primarily of amortizing assets established during the acquisition of other banks. This includes whole bank acquisitions and the acquisition of certain assets and liabilities from other financial institutions. Core deposit intangibles represent the estimated value of long-term deposit relationships acquired in these transactions. Client list intangibles represent the value of long-term client relationships for the wealth and trust management business. Noncompete intangibles represent the value of key personnel relative to various competitive factors such as ability to compete, willingness or likelihood to compete, and feasibility based upon the competitive environment, and what the Bank could lose from competition. These costs are amortized over the estimated useful lives, such as deposit accounts in the case of core deposit intangible, on a method that we believe reasonably approximates the anticipated benefit stream from this intangible. The estimated useful lives are periodically reviewed for reasonableness.
Income Taxes and Deferred Tax Assets
Income taxes are provided for the tax effects of the transactions reported in our condensed consolidated financial statements and consist of taxes currently due plus deferred taxes related to differences between the tax basis and accounting basis of certain assets and liabilities, including available‑for‑saleavailable-for-sale securities, allowance for loan losses,ACL, write downs of OREO properties, accumulated depreciation, net operating loss carry forwards, accretion income, deferred compensation, intangible assets, mortgage servicing rights, and pension plan and post‑post-retirement benefits. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. A valuation allowance is recorded in situations where it is “more likely than not” that a deferred tax asset is not realizable. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company and its subsidiaries file a consolidated federal income tax return. Additionally, income tax returns are filed by the Company or its subsidiaries in the state of South Carolina, Georgia, North Carolina, Florida, Virginia, Alabama, and Mississippi. We evaluate the need for income tax reserves related to uncertain income tax positions but had no material reserves at March 31, 20192020 or 2018.2019.
Other Real Estate Owned
We report OREO, consisting of properties obtained through foreclosure or through a deed in lieu of foreclosure in satisfaction of loans or through reclassification of former branch sites, is reported at the lower of cost or fair value, determined on the basis of current valuations obtained principally from independent sources, adjusted for estimated selling costs. At the time of foreclosure or initial possession of collateral, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the ALLL.ACL. Subsequent adjustments to this value are described below.
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SubsequentWe report subsequent declines in the fair value of OREO below the new cost basis are recorded through valuation adjustments. Significant judgments and complex estimates are required in estimating the fair value of OREO, and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility. In response to market conditions and other economic factors, management may utilize liquidation sales as part of its problem asset disposition strategy. As a result of the significant judgments required in estimating fair value and the variables involved in different methods of disposition, the net proceeds realized from sales transactions could differ significantly from the current valuations used to determine the fair value of OREO. Management reviews the value of OREO periodically and adjusts the values as appropriate. Revenue and expenses from OREO operations as well as gains or losses on sales and any subsequent adjustments to the value are recorded as OREO expense and loan related expense, a component of non-interest expense.
Business Combinations and Method of Accounting for Loans Acquired
We account for acquisitions under FASB ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No ALLL related to the acquired loans is recorded on the acquisition date because the fair value of the loans acquired incorporates assumptions regarding credit risk.
Acquired credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality, found in FASB ASC Topic 310-30, Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality, formerly American Institute of Certified Public Accountants Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer, and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loans. Loans acquired in business combinations with evidence of credit deterioration are considered impaired. Loans acquired through business combinations that do not meet the specific criteria of FASB ASC Topic 310-30, but for which a discount is attributable, at least in part to credit quality, are also accounted for under this guidance. Certain acquired loans, including performing loans and revolving lines of credit (consumer and commercial), are accounted for in accordance with FASB ASC Topic 310-20, where the discount is accreted through earnings based on estimated cash flows over the estimated life of the loan.
For further discussion of our loan accounting and acquisitions, see “Business Combinations and Method of Accounting for Loans Acquired” in our Annual Report on Form 10-K for the year ended December 31, 2018 and Note 5—Loans and Allowance for Loan Losses in this Quarterly Report on Form 10-Q.
Results of Operations
We reported consolidated net income of $44.4$24.1 million, or diluted earnings per share (“EPS”) of $1.25,$0.71, for the first quarter of 20192020 as compared to consolidated net income of $42.3$44.4 million, or diluted EPS of $1.15,$1.25, in the comparable period of 2018,2019, a 5.0% increase. The $2.0 million increase45.7% decrease in consolidated net income and a 43.2% increase in diluted EPS. The $20.3 million decrease in consolidated net income was primarily the net result of the following items:
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Our asset quality related to non-acquired loans continued to remain strong at the end of the first quarter of 2019. Non-acquired2020. Total nonperforming assets (“NPAs”) increased by $27.5 million from $16.7March 31, 2019 to $69.9 million as of March 31, 2020 due to the addition of $21.0 million, formerly accounted for as credit impaired loans (with ASU 2016-13 are now considered PCD loans), prior to the adoption of ASU 2016-13. Acquired credit impaired loans were considered to be performing in prior periods, due to the application of the accretion method under FASB ASC Topic 310-30. The Company has not assumed or taken on any additional risk relative to these assets. NPAs as a percentage of total loans and repossessed assets increased 23 basis points to 0.61% at March 31, 20182020 as compared to $20.0 million0.38% at March 31, 2019, an2019. This increase also was related to the addition of $3.3 million, which resulted from a $1.6 million increase in OREO and a $1.6 million increase in non-acquired nonperforming loans. The increase in OREO was primarily the result of closing branchesnon-accrual acquired credit impaired loans into NPAs due to the merger with PSC which increased OREO by $5.3 million duringadoption of ASU 2016-13 and accounted for 19 basis points of the secondincrease in the first quarter of 2018. Non-acquired nonperforming assets2020 compared to the first quarter of 2019. NPAs increased slightly$23.6 million from $19.1$46.2 million at December 31, 20182019. Excluding the $21.0 million increase due the inclusion of acquired credit impaired non-accrual loans, NPAs increased $2.6 million compared to $20.0 millionthe balance at MarchDecember 31, 2019, an increase of $925,000, which was primarily the result of an increase in nonperforming loans.2019. Annualized net charge-offs for the first quarter of 20192020 were 0.02%0.05%, or $493,000, compared to$1.3
63
million. Of the net charge-offs in the first quarter of 2018 of 0.02%, or $367,000,2020, $782,000 were related to charge-offs from overdrafts and net charge-offs in the fourth quarter of 2018 of 0.06%, or $1.1 million. ready reserve accounts.
The ALLL declined to 0.63% of total non-acquired loansNon-acquired NPAs increased $7.6 million from $20.0 million at March 31, 2019 to $27.6 million at March 31, 2020, which resulted from an $8.0 million increase in non-acquired nonperforming loans. NPAs as a percentage of non-acquired loans and repossessed assets increased five basis points to 0.29% at March 31, 2020 as compared to 0.65%0.24% at March 31, 2019. Non-acquired NPAs increased $1.0 million from $26.5 million at December 31, 2018 and 0.67%2019. Acquired NPAs increased $20.0 million from $22.3 million at March 31, 2018.2019 to $42.3 million at March 31, 2020 which was due to the inclusion of the non-accrual acquired credit impaired loans noted above. Excluding the $21.0 million increase due the inclusion of acquired credit impaired non-accrual loans, acquired NPAs decreased $1.0 million compared the balance at March 31, 2019 and increased $1.6 million from $19.7 million at December 31, 2019.
With the adoption of ASU 2016-13 on January 1, 2020, the Company changed its method for calculating its allowance for loans from an incurred loss method to a life of loan method. See Note 2 – Significant Accounting Policies for further details. At March 31, 2020, the ACL was $144.8 million, or 1.26% of period end loans. Additionally, with the adoption of ASU 2016-13, the Company recorded separately a reserve for unfunded commitments of $8.6 million, or 0.07% of period end loans. For prior comparative periods, the allowance for non-acquired loan losses was $56.9 million, or 0.62%, of non-acquired period-end loans and $52.0 million, or 0.63%, at March 31, 2019. The allowanceACL provides 3.272.55 times coverage of non-acquired nonperforming loans at March 31, 2019, a decrease from 3.41 times at2020. At December 31, 2018,2019 and an increase from 3.16 times at March 31, 2018.2019, the allowance for loan losses on non-acquired loans provided coverage of 2.50 times and 3.27 times, respectively. We continuecontinued to show solid and stable asset quality numbers and ratios.ratios as of March 31, 2020.
NonperformingDuring the first quarter of 2020, acquired non-credit impairedloan interest income increased $587,000 compared to the fourth quarter of 2019. The yield on acquired loans increased $6.3 million from $8.2 millionwas up to 7.14% at March 31, 2018 and increased $907,0002020 from $13.7 million6.28% at December 31, 2018 to $14.6 million at March 31, 2019. The increase in the yield in the first quarter of 2020 was primarily the result of the increase in accretion income recognized in the first quarter of 2020. Accretion income increased from March 31, 2018 was mainly due to approximately $4.3$7.4 million in additions from the PSC loan portfolio acquired in the fourth quarter of 2017. During the first quarter of 2019 we had net charge-offs related to acquired non-credit impaired loans of $168,000, or 0.03% annualized, and accordingly, recorded a provision for loan losses equal to the net charge-off for the same amount. We had a net charge-off of $169,000$10.9 million in the first quarter of 20182020. The higher accretion was directly related to the adoption of CECL and net charge-offselimination of $574,000loan pools, resulting in an acceleration of the recognition of the loan discount. The increase in income on acquired loans from the increase in yield was partially offset by the effects of the reduction in the fourth quarterbalance of 2018 related to acquired non-credit impaired loans.
During the first quarter of 2019, the valuation allowance onAcquired period-end loan balances decreased by $173.2 million and acquired credit impaired loans decreased $90,000, or 2.0%. average balance declined by $208.9 million, from December 31, 2019. This decrease was due to loan removals from loans being paid off, fully charged off or transferredcontinued payoffs, charge-offs, transfers to OREO, and renewals of $103,000 offset by impairments recorded throughacquired loans moved to the provision fornon-acquired loan losses of only $13,000. From March 31, 2018, the valuation allowance on acquired credit impaired loans increased $430,000, or 10.5%. This was due to impairments recorded through the provision for loan losses of $961,000 offset by loan removals form loans being paid off, fully charged off or transferred to OREO of $531,000.portfolio.
We perform ongoing assessments of the estimated cash flows of our acquired credit impaired loan portfolios. In general, increases in cash flow expectations result in a favorable adjustment to interest income over the remaining life of the related loans, and decreases in cash flow expectations result in an immediate recognition of a provision for loans losses. When a provision for loan losses (impairments) has been recognized in earlier periods, subsequent improvement in cash flows will result in reversals of those impairments.
During the first quarter of 2019, acquired loan interest income declined $3.9 million due to lower average acquired loan balance from payoffs and paydowns. Below is additional detail of the first quarter of 2019 changes within the acquired loan portfolio:
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The table below provides an analysis of the yield on our total loan portfolio, excluding loans held for sale, including both non-acquired and acquired loans (credit impaired and non-credit impaired loans).loans. The acquired loan yield increased from the first quarter of 20182019 due to increase in acquired loan accretion related to the adoption of ASU 2016-13, which eliminated loan pools and changed the accounting for credit impaired loans discussed above, together with acquired credit impaired loans being renewed
64
and the cash flow from these assets being extended out, increasingwhich increased the weighted average life of the loan pools within all acquired loan portfolios.
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| Three Months Ended |
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| March 31, |
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| March 31, |
| March 31, |
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(Dollars in thousands) |
| 2019 |
| 2018 |
| | 2020 | | 2019 | | ||||
Average balances: |
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Acquired loans, net of allowance for loan losses |
| $ | 2,947,018 |
| $ | 4,007,757 |
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Acquired loans, net of allowance for loan losses only in comparative period | | $ | 2,015,492 | | $ | 2,947,018 | | |||||||
Non-acquired loans |
|
| 8,075,987 |
|
| 6,596,749 |
| |
| 9,424,184 | |
| 8,075,987 | |
Total loans, excluding held for sale |
| $ | 11,023,005 |
| $ | 10,604,506 |
| | $ | 11,439,676 | | $ | 11,023,005 | |
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Interest income: |
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Noncash interest income on acquired performing loans |
| $ | 3,157 |
| $ | 9,585 |
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Accretion income on acquired loans (1) | | $ | 10,931 | | $ | 9,662 | | |||||||
Acquired loan interest income |
|
| 42,926 |
|
| 51,957 |
| |
| 24,867 | |
| 36,421 | |
Total acquired loans |
|
| 46,083 |
|
| 61,542 |
| |
| 35,798 | |
| 46,083 | |
Non-acquired loans |
|
| 85,537 |
|
| 65,192 |
| |
| 96,905 | |
| 85,537 | |
Total loans, excluding held for sale |
| $ | 131,620 |
| $ | 126,734 |
| | $ | 132,703 | | $ | 131,620 | |
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| | | | | | | | |||||||
Non-taxable equivalent yield: |
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| | | | | | | |
Acquired loans |
|
| 6.34 | % |
| 6.23 | % | |
| 7.14 | % |
| 6.34 | % |
Non-acquired loans |
|
| 4.30 | % |
| 4.01 | % | |
| 4.14 | % |
| 4.30 | % |
Total loans, excluding held for sale |
|
| 4.84 | % |
| 4.85 | % | |
| 4.67 | % |
| 4.84 | % |
(1) | The accretion income on acquired loans includes the accretion from the discount on all acquired loans for the three months ended March 31, 2020 and 2019. In our previously filed Quarterly Reports on Form 10-Q, the accretion income on acquired loans included the accretion from the discount on the acquired non-credit impaired loan only. For the prior period, we reclassed the discount recognized related to acquired credit impaired loans to make the table comparable. This change was due to the adoption of ASU 2016-13 on January 1, 2020, which changed the accounting related to the acquired loan portfolio. |
Compared to the balance at December 31, 2018,2019, our non-acquired loan portfolio has increased $377.3$310.1 million, or 19.3%13.5% annualized, to $8.3$9.6 billion, driven by increases in almost all categories: consumer real estate lending by $82.2$6.7 million, or 13.7%1.0% annualized; consumer non real estate lending by $16.5$18.5 million, or 14.9% annualized; commercial owner occupied loans by $83.8 million, or 22.4%13.9% annualized; commercial and industrial by $17.1$44.9 million, or 6.6% annualized14.1% annualized; commercial owner occupied real estate by $65.8 million, or $14.8% annualized; and commercial non-owner occupied by $169.0$181.0 million, or 30.4%26.2% annualized. The acquired loan portfolio decreased by $249.0$178.3 million to $2.8$1.9 billion in the first quarter of 20192020 compared to $3.1$2.1 billion at December 31, 2018.2019. This decrease was due to continued payoffs, charge-offs, transfers to OREO, and renewals of acquired loans moved to the non-acquired loan portfolio. Since March 31, 2018,2019, the non-acquired loan portfolio has grown by $1.5$1.3 billion, or 22.9%15.1%, driven by increases in allmost loan categories. Consumer real estate loans, commercial non-owner occupied real estate loans, commercial owner occupied real estate loans, and commercial and industrial loans and consumer non real estate loans have accounted for the largest increases contributing $452.6$130.5 million, or 5.2%, $534.5 million, or 22.0%, $503.9$248.5 million, or 26.2%15.5%, $304.6$253.7 million, or 23.5%23.7%, and $199.7$91.9 million, or 22.9%19.8% of growth, respectively. Since March 31, 2018,2019, the acquired loan portfolio decreased by $1.0 billion,$891.5 million, or 26.9%31.4% due to continued payoffs, charge-offs, transfers to OREO, and renewals of acquired loans moved to the non-acquired loan portfolio. Consumer real estate loans, commercial non-owner occupied real estate loans, commercial owner occupied real estate loans and commercial and industrial loans have accounted for the largest decreases in the acquired loan portfolio contributing $187.5 million, or 15.7%, $426.6 million, or 33.4%, $125.4 million, or 20.5%, and $179.3 million, or 49.9% of reduction, respectively.
Compared to the fourth quarter of 2018,2019, non-taxable equivalent net interest income decreased $3.1increased $1.6 million or 10.0%5.0% annualized. The decreaseincrease in net interest income during the first quarter of 20192020 was mainly due to the increase in costinterest income on loans of interest-bearing liabilities$752,000 (non-acquired loans interest income increased $165,000 and acquired loans interest income increased $587,000), an increase in interest income from investment securities of 11 basis points, the decrease$812,000 and a decline in the average balanceinterest expense from deposits of $790,000 and from other borrowings of $446,000. The increase in interest income on the acquired loan portfolio of $228.5 million and thenon-acquired loans was due to an increase in the average balance of $351.1 million through organic loan growth. The effects from the increase in average balance on other borrowingsnon-acquired loans was mostly offset by the decline in yield of $179.0 million. The cost on all categories of interest-bearing liabilities except for other borrowings increased duringnine basis points due to the first quarter of 2019 as thefalling interest rate environment rose in 2018 withas the Federal Reserve increasingdropped the federal funds target rate 100by 75 basis points since
59
December 2017. The cost of depositsfrom July 2019 to October 2019 and cost ofthen dropped the federal funds purchased and repurchase agreements increased 6target rate 150 basis points and 11to a range of 0.00% to 0.25% in March 2020 in reaction to the COVID-19 pandemic. The increase in interest income on acquired loans was due to an increase in yield of 86 basis points respectively, duringdue to higher accretion income of $3.5 million resulting from the first quarteradoption of 2019 comparedCECL as discussed above. The increase in interest income from investment securities was due to the fourth quarter of 2018. The decreasean increase in the average balance on the acquired loan portfolio was due to continued payoffs, charge-offs, transfers to OREO, and renewals of acquired loans moved to the non-acquired loan portfolio causing interest income from acquired loans to decline.$133.4 million. The increase in the average balance of investment securities was due to the Company making the strategic decision to increase the size of the portfolio with the excess funds from deposit growth and the increase in other borrowings. The declines in interest expense on interest-bearing deposits and other
65
borrowings was due to the Bank making the strategic decision to use longer term FHLB advances to fund balance sheet growth as the average balance of FHLB advances increased $183.2 million. The increase in netfalling interest incomerate environment resulting from the increasedrops in average balance of other borrowings was partially offsetthe federal funds rate made by the cost of other borrowings decreasing 121 basis points.Federal Reserve during 2019 and in March 2020. The decline in cost on other borrowings was due to the lower average cost of the FHLB advances added during the first quarter which brought the overall yield on other borrowings down 121 basis points. The negativepositive effects on net interest income were partially offset by an increasea decline in interest income on the non-acquired loan portfoliofederal funds sold, reverse repurchase agreements and interest-earning deposits of $3.3 million$885,000 and on loans held for sale of $333,000. The decrease in interest income from federal funds sold, reverse repurchase agreements and interest-earning deposits was due to both an increasedecline in yield of 54 basis points due the falling rate environment as well as a decrease in average balance and yield on the non-acquired loan portfolio of $323.2 million and 9 basis points, respectively.$35.6 million. The decrease in interest income from loans held for sale was mostly due to a decline in average balance $31.7 million. The non-taxable equivalent net interest margin also declinedincreased during the first quarter of 2019 compare2020 compared to the fourth quarter of 20182019 by 6four basis points from 3.96%3.63% to 3.90%3.67%. The declineincrease in the net interest margin was mainly due to the increasedecline in the cost ofon interest-bearing liabilities of 11six basis points to 0.89%0.78% from 0.78% for0.84% as well as the reasons stated above. The decline in the net interest margin due to increase in the cost of funds was partially offset by an increase in the yield on interest earning assets of 4 basis points. The increase in yield on interest-earning asset wasacquired loans of 86 basis points to 7.14%. The cost of all categories of interest-bearing liabilities declined during the first quarter of 2020 as interest-bearing deposits declined four basis points, federal funds purchased and repurchase agreements declined six basis points and other borrowings declined 37 basis points. These declines in cost were mainly due to the falling rate environment resulting from the drops in the federal funds rate made by the Federal Reserve during 2019 and in March 2020.The increase in yieldsinterest income on the acquired loan portfolioloans was due to an increase in yield of 9 basis points and on the non-acquired loan portfolio of 986 basis points due to higher accretion income of $3.5 million resulting from the rising rate environment.adoption of CECL as discussed above.
ComparingCompared to the first quarter of 2019, to the same period in 2018, non-taxable equivalent net interest income decreased $5.7increased $4.7 million, or 4.4%,15.5% annualized, and the non-taxable equivalent net interest margin decreased to 3.90%3.67% from 4.19%3.90%. The decrease inFor further discussion of the comparison of net interest income was due mainly to both an increase in the average cost on interest-bearing liabilities of 48 basis points and a decline in the average balance on the acquired loan portfolio of $1.1 billion. The cost on all categories of interest-bearing liabilities increased from the first quarter in 2018 as the interest rate environment rose during 2018 with the Federal Reserve increasing the federal funds target rate 100 basis points since December 2017. The cost of interest-bearing deposits, the cost of federal funds purchased and repurchase agreements and the cost of other borrowings increased 45 basis points, 53 basis points and 59 basis points, respectively, during the first quarter of 2019 compared to the first quarter of 2018. The decrease in the average balance on the acquired loan portfolio was due to continued payoffs, charge-offs, transfers to OREO, and renewals of acquired loans moved to the non-acquired loan portfolio causing interest income from acquired loans to decline. The decrease in the net interest margin was also due tofor the increase in the average cost of interest-bearing liabilities of 48 basis points as stated above. The decline in the net interest margin due to the increase in cost was partially offset by the increase in the yieldperiods ended March 31, 2020 and 2019, see Net Interest Income and Margin section below on interest-earning assets of 5 basis points, including a 78 basis point increase in federal funds sold, reverse repos and other interest-bearing deposit, a 18 basis point increase on investment securities, a 11 basis point increase on the acquired loan portfolio and a 29 basis point increase on the non-acquired loan portfolio.page 68.
Our quarterly efficiency ratio increased to 62.1% in the first quarter of 2020 compared to 61.6% in the fourth quarter of 2019 and decreased from 63.2% in the first quarter of 2019 compared to 59.4% in the fourth quarter of 2018, but improved from 66.7% in the first quarter of 2018.2019. The increase in the efficiency ratio compared to the fourth quarter of 20182019 was the result of both a $1.6$6.6 million, or 1.6%6.6% increase in noninterest expense andpartially offset by the effects of a $6.7$9.4 million, or 4.1% decline5.8% increase in net interest income and noninterest income. The increase in noninterest expense from the fourth quarter of 20182019 was mainly due to a $2.8 million increase in salaries and employee benefits, a $1.6 million increase in other noninterest expense and a $2.6 million decrease in merger and branch consolidation related expense. The increase in net interest income was mainly due to the decrease in interest expense of $1.2 million and the increase in noninterest income was mainly due to a $10.9 million increase in mortgage banking income. The main reason for the decrease in the efficiency ratio compared to the first quarter of 2019 was due to an increase in net interest margin and noninterest income of $16.8 million, or 10.8% partially offset by the effects of a $9.0 million, or 9.2% increase in noninterest expense. The increase in net interest income was mainly due to the increase in interest income of $4.4 million and the increase in noninterest income was mainly due to a $12.3 million increase in mortgage banking income. The increase in noninterest expense was mainly due to an increase in information services expense of $1.1 million and an increase in merger and branch consolidation related expense of $980,000. The$3.0 million, an increase in information services expense was mainly due to credits applied to bills in the fourth quarter of 2018 that lowered expense and the increase in merger and branch consolidation related expense was due to branch consolidation expenses in the first quarter of 2019. Net interest income declined $3.1 million which was mainly due to the increase in our cost of funds. Noninterest income declined $3.6 million which was mainly due to a decline in fees on deposit accounts of $896,000, primarily attributable to lower NSF fees, a decline in recoveries on acquired loans of $870,000 and a decline in other noninterest expense of $1.9 million, primarily attributable to the sale of an acquired credit impaired not resulting in a gain of $1.6 million in the fourth quarter of 2018. The main reason for the improvement in the efficiency ratio compared to the fourth quarter of 2018 was due to the decrease in noninterest expense of $15.2 million due to a decline in merger and branch consolidation related expense of $10.3 million and a reduction in salaries and employee benefits of $4.0$2.5 million, and an increase in other noninterest expense of $2.1 million. The decrease in merger and branch consolidation related expense was related to costs in the first quarter of 2018 associated with the merger with PSC which occurred in the fourth quarter of 2017 and the decrease in salaries and benefits was attributable to the cost savings from the merger with PSC along with a one-time bonus paid to employees of $2.8 million in the first quarter of 2018.
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Diluted EPS and basic EPS increaseddecreased to $1.25$0.71 and $1.25,$0.72, respectively, for the first quarter of 2019,2020, from the first quarter 20182019 amounts of $1.15$1.25 and $1.15,$1.25, respectively. This was the result of the 4.8% increase45.7% decrease in net income andpartially offset by a 3.8%5.4% decrease in outstanding common shares. The decrease in net income was mainly due the increase in the provision for credit losses of $35.0 million which resulted primarily from forecasted losses taking into consideration the impact that the COVID-19 pandemic will have on the loan portfolio in 2020 and beyond. The decrease in outstanding shares from March 31, 20182019 was due to the Company repurchasing 1,500,0001,985,000 common shares through its stockshare repurchase program.programs.
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Selected Figures and Ratios
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
(Dollars in thousands) |
| 2020 |
| 2019 | | ||
Return on average assets (annualized) |
| | 0.60 | % | | 1.21 | % |
Return on average equity (annualized) |
| | 4.15 | % | | 7.61 | % |
Return on average tangible equity (annualized)* |
| | 8.35 | % | | 14.66 | % |
Dividend payout ratio ** |
| | 65.70 | % | | 30.29 | % |
Equity to assets ratio |
| | 13.95 | % | | 15.42 | % |
Average shareholders’ equity | | $ | 2,336,348 | | $ | 2,364,299 | |
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| Three Months Ended |
| ||||
|
| March 31, |
| ||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| ||
Return on average assets (annualized) |
|
| 1.21 | % |
| 1.19 | % |
Return on average equity (annualized) |
|
| 7.61 | % |
| 7.41 | % |
Return on average tangible equity (annualized)* |
|
| 14.66 | % |
| 14.69 | % |
Dividend payout ratio ** |
|
| 30.29 | % |
| 28.68 | % |
Equity to assets ratio |
|
| 15.42 | % |
| 15.81 | % |
Average shareholders’ equity |
| $ | 2,364,299 |
| $ | 2,315,352 |
|
* - Denotes a non-GAAP financial measure. The section titled “Reconciliation of GAAP to non-GAAP” below provides a table that reconciles GAAP measures to non-GAAP measures.
** - See explanation of the dividend payout ratio below.
● |
| For the three months ended March 31, |
● |
| For the three months ended March 31, |
● |
| Dividend payout ratio |
● |
| Equity to assets ratio |
61
Reconciliation of GAAP to Non-GAAP
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|
|
| Three Months Ended |
| ||||
|
| March 31, |
| ||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| ||
Return on average equity (GAAP) |
|
| 7.61 | % |
| 7.41 | % |
Effect to adjust for intangible assets |
|
| 7.05 | % |
| 7.28 | % |
Return on average tangible equity (non-GAAP) |
|
| 14.66 | % |
| 14.69 | % |
|
|
|
|
|
|
|
|
Average shareholders’ equity (GAAP) |
| $ | 2,364,299 |
| $ | 2,315,352 |
|
Average intangible assets |
|
| (1,064,450) |
|
| (1,072,228) |
|
Adjusted average shareholders’ equity (non-GAAP) |
| $ | 1,299,849 |
| $ | 1,243,124 |
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|
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|
|
Net income (GAAP) |
| $ | 44,367 |
| $ | 42,326 |
|
Amortization of intangibles |
|
| 3,281 |
|
| 3,413 |
|
Tax effect |
|
| (663) |
|
| (718) |
|
Net income excluding the after-tax effect of amortization of intangibles (non-GAAP) |
| $ | 46,985 |
| $ | 45,021 |
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The return on average tangible equity is a non-GAAP financial measure. Itmeasure that excludes the effect of the average balance of intangible assets and adds back the after-tax amortization of intangibles to GAAP basis net income. Management believes these non-GAAP financial measures provide additional information that this non-GAAP measure provides additionalis useful information, particularly since this measure is widely used byto investors in evaluating our performance and capital and may facilitate comparisons with other institutions in the banking industry analysts following companies with prior merger and acquisition activities.as well as period-to-period comparisons. Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider ourSouth State’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company.South State. Non-GAAP measures have limitations as analytical tools, are not audited, and investorsmay not be comparable to other similarly titled financial measures used by other companies. Investors should not consider themnon-GAAP measures in isolation or as a substitute for analysis of ourSouth State’s results ofor financial condition as reported under GAAP.
67
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
(Dollars in thousands) |
| 2020 |
| 2019 | | ||
Return on average equity (GAAP) |
| | 4.15 | % | | 7.61 | % |
Effect to adjust for intangible assets |
| | 4.20 | % | | 7.05 | % |
Return on average tangible equity (non-GAAP) |
| | 8.35 | % | | 14.66 | % |
| | | | | | | |
Average shareholders’ equity (GAAP) | | $ | 2,336,348 | | $ | 2,364,299 | |
Average intangible assets | |
| (1,051,491) | |
| (1,064,450) | |
Adjusted average shareholders’ equity (non-GAAP) | | $ | 1,284,857 | | $ | 1,299,849 | |
| | | | | | | |
Net income (GAAP) | | $ | 24,110 | | $ | 44,367 | |
Amortization of intangibles | |
| 3,007 | |
| 3,281 | |
Tax effect | |
| (451) | |
| (663) | |
Net income excluding the after-tax effect of amortization of intangibles (non-GAAP) | | $ | 26,666 | | $ | 46,985 | |
| | | | | | | |
Net Interest Income and Margin
Summary
Our taxable equivalent (“TE”) net interest margin for the first quarter of 20182020 decreased by 3024 basis points from 4.22%3.92% in the first quarter of 20182019 to 3.92%3.68%. This decrease was due to an increasea decrease in the costyield of interest-bearing liabilitiesinterest-earning assets of 4831 basis points.
Non-TE net interest margin decreased by 23 basis points from the first quarter of 2019, which was mainly due to the yield on interest-earning assets decreasing by 21 basis points. The decrease in the yield on interest-earning assets was due to decreases in the yield on federal funds sold, reverse repurchase agreements and interest-earning deposits of 131 basis point and decreases in the yield on investment securities of five basis point and on non-acquired loans of 16 basis points. The decrease in these yields was mostly due to the falling interest rate environment resulting from the drops in the federal funds rate made by the Federal Reserve during 2019 and in March 2020. The overall yield on interest-earning assets also declined due to a change in the mix of interest-earning assets. The average balance on federal funds sold, reverse repurchase agreements and interest earning deposit and investments securities, the Company’s lowest yielding assets, increased $797.3 million while the average balance on the acquired loan portfolio, the Company’s highest yielding asset, declined $931.5 million. The decreases in yield on interest-earning assets noted above was partially offset by an increase in the yield on acquired loans. The increase in yield of 80 basis points on acquired loans was due to higher accretion income of $1.3 million and due to acquired credit impaired loans being renewed and the cash flow from these assets being extended out, increasing the weighted average life of the loan pools within all acquired loan portfolios. The higher accretion income was due to the adoption of ASU 2016-13, which eliminated loan pools and changed the accounting for acquired credit impaired loans. The effects from the decline in yield on interest-earning assets were partially offset by a decrease in the cost of 5 basis points.
Non-TE net interest margin decreased by 29interest-bearing liabilities. The cost of interest-bearing liabilities declined 11 basis points from 0.89% in the first quarter of 2018, which was2019 to 0.78% in the resultfirst quarter of the2020. This decrease in cost on interest-bearing liabilities increasing by 48was due to decrease in cost on interest-bearing deposits of 14 basis points, and the declinea decrease in average balance of the acquired loan portfolio of $1.1 billion. The cost on all categories of interest-bearing liabilities increased from the first quarter in 2018 as the interest rate environment rose during 2018 with the Federal Reserve increasing the federal funds target rate 100 basis points since December 2017. The cost of interest-bearing deposits, federal funds purchased and repurchase agreements and other borrowings increased 45 basis points, 53of 32 basis points and 59a decrease in cost on other borrowings of 151 basis points, respectively duringpoints. The decrease in cost on interest-bearing deposits and federal funds purchased and repurchase agreements was due to the falling interest rate environment in the last half of 2019 and first quarter of 2020. The decrease in cost in other borrowings since March 31, 2019 was also due to the falling interest rate environment, but also related to the fact that the Company added $700 million in borrowings ($200 million FHLB borrowings in the second quarter of 2019, $300 million in FHLB borrowings in the first quarter of 2020 and $200 million in FRB borrowings in the first quarter of 2020) at a lower average cost than the borrowings held in the first quarter of 2019. The increase in other borrowings during 2019 was due to the Bank making the strategic decision to use longer term FHLB funding strategy to fund its balance sheet growth while the increase in borrowings in the first quarter of 2020 was to provide the Bank with additional liquidity in reaction to the COVID-19 pandemic.
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| | Three Months Ended | | ||||
| | March 31, | | ||||
(Dollars in thousands) |
| 2020 |
| 2019 | | ||
Non-TE net interest income | | $ | 128,013 | | $ | 123,267 | |
Non-TE yield on interest-earning assets | |
| 4.23 | % |
| 4.54 | % |
Non-TE rate on interest-bearing liabilities | |
| 0.78 | % |
| 0.89 | % |
Non-TE net interest margin | |
| 3.67 | % |
| 3.90 | % |
TE net interest margin | |
| 3.68 | % |
| 3.92 | % |
Non-TE net interest income increased $4.7 million, or 3.9%, in the first quarter of 2020 compared to the same period in 2018 due mainly to the rising rate environment. The average cost of other borrowings also increased due to the rate paid on trust preferred debt continuing to rise as it is tied to a floating rate (three month LIBOR plus a spread). The decline in the net interest margin was also due to $1.1 billion decrease in the average balance of the acquired loan portfolio which is the highest yielding interest-earning asset category. Even though the overall yields on interest earning assets increased 5 basis points and the yields on non-acquired loans, acquired loans and investment securities all increased during the first quarter of 2019, the decline in the average balance of the higher yielding acquired loan portfolio limited the increase in the yield of average interest-earning assets during the quarter. This decrease in the acquired loan portfolio was due to continued payoffs, charge-offs, transfers to OREO, and renewals of acquired loans moved to the non-acquired loan portfolio. The negative effects on the net interest margin from the increase in the average cost of interest-bearing liabilities and the decline in the average balance of the acquired loan portfolio were partially offset by an increase in the yield on the non-acquired loan portfolio of 29 basis points, on he acquired loan portfolio of 11 basis points and on investment securities of 18 basis points. The yield on the non-acquired loan portfolio increased mainly due to the Federal Reserve increasing the federal funds target rate 100 basis points since December 2017 which effectively increased the Prime Rate, the rate used in pricing a majority of our variable rate loans and new originated loans. The yield on the acquired loan portfolio increased mainly due to improvements in the
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projected cash flows and due to the Company reevaluating loans acquired in the PSC merger and adjusting the fair value of these assets. The yield on investment securities increased mainly due to the rising rate environment as new securities purchased during 2018 were at higher rates.
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| Three Months Ended |
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| March 31, |
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(Dollars in thousands) |
| 2019 |
| 2018 |
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Non-TE net interest income |
| $ | 123,267 |
| $ | 128,973 |
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Non-TE yield on interest-earning assets |
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| 4.54 | % |
| 4.49 | % |
Non-TE rate on interest-bearing liabilities |
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| 0.89 | % |
| 0.41 | % |
Non-TE net interest margin |
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| 3.90 | % |
| 4.19 | % |
TE net interest margin |
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| 3.92 | % |
| 4.22 | % |
Non-TE net interest income decreased $5.7 million, or 4.4%, in the first quarter of 2019 compared to the same period in 2018.2019. Some key highlights are outlined below:
| Higher |
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| Non-TE yield on interest-earning assets for the first quarter of |
| The average cost of interest-bearing liabilities for the first quarter of |
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funds purchased and repurchase agreements of 32 basis points and a decrease in cost on other borrowings |
| The Non-TE net interest margin decreased by |
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Loans
The following table presents a summary of the loan portfolio by category (excludes loans held for sale):
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LOAN PORTFOLIO (ENDING BALANCE) |
| March 31, |
| % of |
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| December 31, |
| % of |
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| March 31, |
| % of |
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(Dollars in thousands) |
| 2019 |
| Total |
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| 2018 |
| Total |
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| 2018 |
| Total |
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Acquired loans: |
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Acquired non-credit impaired loans: |
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Commercial non-owner occupied real estate: |
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Construction and land development | $ | 113,572 |
| 1.0 | % | $ | 165,070 |
| 1.5 | % | $ | 349,532 |
| 3.3 | % |
Commercial non-owner occupied |
| 629,394 |
| 5.6 | % |
| 679,253 |
| 6.2 | % |
| 783,466 |
| 7.4 | % |
Total commercial non-owner occupied real estate |
| 742,966 |
| 6.6 | % |
| 844,323 |
| 7.7 | % |
| 1,132,998 |
| 10.7 | % |
Consumer real estate: |
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Consumer owner occupied |
| 610,376 |
| 5.5 | % |
| 628,813 |
| 5.7 | % |
| 683,614 |
| 6.4 | % |
Home equity loans |
| 225,278 |
| 2.0 | % |
| 242,425 |
| 2.2 | % |
| 295,721 |
| 2.8 | % |
Total consumer real estate |
| 835,654 |
| 7.5 | % |
| 871,238 |
| 7.9 | % |
| 979,335 |
| 9.2 | % |
Commercial owner occupied real estate |
| 400,658 |
| 3.6 | % |
| 421,841 |
| 3.8 | % |
| 498,541 |
| 4.7 | % |
Commercial and industrial |
| 173,840 |
| 1.6 | % |
| 212,537 |
| 1.9 | % |
| 344,171 |
| 3.2 | % |
Other income producing property |
| 120,696 |
| 1.1 | % |
| 133,110 |
| 1.2 | % |
| 186,091 |
| 1.7 | % |
Consumer non real estate |
| 104,923 |
| 0.9 | % |
| 111,777 |
| 1.0 | % |
| 133,802 |
| 1.3 | % |
Other |
| - |
| - | % |
| - |
| - | % |
| - |
| - | % |
Total acquired non-credit impaired loans |
| 2,378,737 |
| 21.3 | % |
| 2,594,826 |
| 23.5 | % |
| 3,274,938 |
| 30.8 | % |
Acquired credit impaired loans: |
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Commercial non-owner occupied real estate: |
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Construction and land development |
| 22,380 |
| 0.2 | % |
| 30,893 |
| 0.3 | % |
| 44,255 |
| 0.4 | % |
Commercial non-owner occupied |
| 84,639 |
| 0.8 | % |
| 82,183 |
| 0.7 | % |
| 99,345 |
| 0.9 | % |
Total commercial non-owner occupied real estate |
| 107,019 |
| 1.0 | % |
| 113,076 |
| 1.0 | % |
| 143,600 |
| 1.3 | % |
Consumer real estate: |
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Consumer owner occupied |
| 115,809 |
| 1.0 | % |
| 119,288 |
| 1.1 | % |
| 152,181 |
| 1.4 | % |
Home equity loans |
| 58,054 |
| 0.5 | % |
| 59,978 |
| 0.5 | % |
| 65,492 |
| 0.6 | % |
Total consumer real estate |
| 173,863 |
| 1.5 | % |
| 179,266 |
| 1.6 | % |
| 217,673 |
| 2.0 | % |
Commercial owner occupied real estate |
| 84,644 |
| 0.8 | % |
| 95,861 |
| 0.9 | % |
| 112,134 |
| 1.1 | % |
Commercial and industrial |
| 5,809 |
| 0.1 | % |
| 8,230 |
| 0.1 | % |
| 14,752 |
| 0.1 | % |
Other income producing property |
| 45,246 |
| 0.4 | % |
| 50,808 |
| 0.5 | % |
| 64,833 |
| 0.6 | % |
Consumer non real estate |
| 40,191 |
| 0.4 | % |
| 42,482 |
| 0.4 | % |
| 48,366 |
| 0.5 | % |
Other |
| - |
| - | % |
| - |
| - | % |
| - |
| - | % |
Total acquired credit impaired loans |
| 456,772 |
| 4.2 | % |
| 489,723 |
| 4.5 | % |
| 601,358 |
| 5.6 | % |
Total acquired loans |
| 2,835,509 |
| 25.5 | % |
| 3,084,549 |
| 28.0 | % |
| 3,876,296 |
| 36.4 | % |
Non-acquired loans: |
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Commercial non-owner occupied real estate: |
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Construction and land development |
| 810,551 |
| 7.2 | % |
| 841,445 |
| 7.6 | % |
| 871,141 |
| 8.2 | % |
Commercial non-owner occupied |
| 1,615,416 |
| 14.5 | % |
| 1,415,551 |
| 12.8 | % |
| 1,050,924 |
| 9.9 | % |
Total commercial non-owner occupied real estate |
| 2,425,967 |
| 21.7 | % |
| 2,256,996 |
| 20.4 | % |
| 1,922,065 |
| 18.1 | % |
Consumer real estate: |
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Consumer owner occupied |
| 2,005,314 |
| 18.0 | % |
| 1,936,265 |
| 17.6 | % |
| 1,612,501 |
| 15.2 | % |
Home equity loans |
| 508,326 |
| 4.6 | % |
| 495,148 |
| 4.5 | % |
| 448,582 |
| 4.2 | % |
Total consumer real estate |
| 2,513,640 |
| 22.6 | % |
| 2,431,413 |
| 22.1 | % |
| 2,061,083 |
| 19.4 | % |
Commercial owner occupied real estate |
| 1,601,360 |
| 14.4 | % |
| 1,517,551 |
| 13.8 | % |
| 1,296,738 |
| 12.1 | % |
Commercial and industrial |
| 1,072,070 |
| 9.6 | % |
| 1,054,952 |
| 9.6 | % |
| 872,363 |
| 8.2 | % |
Other income producing property |
| 214,235 |
| 1.9 | % |
| 214,353 |
| 1.9 | % |
| 198,684 |
| 1.9 | % |
Consumer non real estate |
| 465,117 |
| 4.2 | % |
| 448,664 |
| 4.1 | % |
| 390,784 |
| 3.7 | % |
Other |
| 18,224 |
| 0.1 | % |
| 9,357 |
| 0.1 | % |
| 20,795 |
| 0.2 | % |
Total non-acquired loans |
| 8,310,613 |
| 74.5 | % |
| 7,933,286 |
| 72.0 | % |
| 6,762,512 |
| 63.6 | % |
Total loans (net of unearned income) | $ | 11,146,122 |
| 100.0 | % | $ | 11,017,835 |
| 100.0 | % | $ | 10,638,808 |
| 100.0 | % |
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LOAN PORTFOLIO (ENDING BALANCE) | | March 31, | | % of | | | December 31, | | % of | | | March 31, | | % of | |
(Dollars in thousands) | | 2020 |
| Total | | | 2019 |
| Total | | | 2019 |
| Total | |
Acquired loans: | | | | | | | | | | | | | | | |
Commercial non-owner occupied real estate: | | | | | | | | | | | | | | | |
Construction and land development | $ | 42,720 | | 0.4 | % | $ | 48,901 | | 0.4 | % | $ | 135,952 | | 1.2 | % |
Commercial non-owner occupied | | 473,486 | | 4.1 | % | | 512,829 | | 4.5 | % | | 714,033 | | 6.4 | % |
Total commercial non-owner occupied real estate | | 516,206 | | 4.5 | % | | 561,730 | | 4.9 | % | | 849,985 | | 7.6 | % |
Consumer real estate: | | | | | | | | | | | | | | | |
Consumer owner occupied | | 553,863 | | 4.8 | % | | 588,121 | | 5.2 | % | | 726,185 | | 6.5 | % |
Home equity loans | | 225,843 | | 2.0 | % | | 239,392 | | 2.1 | % | | 283,332 | | 2.5 | % |
Total consumer real estate | | 779,706 | | 6.8 | % | | 827,513 | | 7.3 | % | | 1,009,517 | | 9.0 | % |
Commercial owner occupied real estate | | 327,894 | | 2.8 | % | | 374,684 | | 3.3 | % | | 485,302 | | 4.4 | % |
Commercial and industrial | | 92,619 | | 0.8 | % | | 105,468 | | 0.9 | % | | 179,649 | | 1.6 | % |
Other income producing property | | 109,785 | | 1.0 | % | | 127,937 | | 1.1 | % | | 165,942 | | 1.5 | % |
Consumer non real estate | | 117,761 | | 1.0 | % | | 124,941 | | 1.1 | % | | 145,114 | | 1.3 | % |
Total acquired loans | | 1,943,971 | | 16.9 | % | | 2,122,273 | | 18.6 | % | | 2,835,509 | | 25.4 | % |
Non-acquired loans: | | | | | | | | | | | | | | | |
Commercial non-owner occupied real estate: | | | | | | | | | | | | | | | |
Construction and land development | | 1,062,588 | | 9.2 | % | | 968,360 | | 8.5 | % | | 810,551 | | 7.3 | % |
Commercial non-owner occupied | | 1,897,885 | | 16.5 | % | | 1,811,138 | | 15.9 | % | | 1,615,416 | | 14.5 | % |
Total commercial non-owner occupied real estate | | 2,960,473 | | 25.7 | % | | 2,779,498 | | 24.4 | % | | 2,425,967 | | 21.8 | % |
Consumer real estate: | | | | | | | | | | | | | | | |
Consumer owner occupied | | 2,111,542 | | 18.4 | % | | 2,118,839 | | 18.6 | % | | 2,005,314 | | 18.0 | % |
Home equity loans | | 532,639 | | 4.6 | % | | 518,628 | | 4.6 | % | | 508,326 | | 4.6 | % |
Total consumer real estate | | 2,644,181 | | 23.0 | % | | 2,637,467 | | 23.2 | % | | 2,513,640 | | 22.6 | % |
Commercial owner occupied real estate | | 1,849,844 | | 16.1 | % | | 1,784,017 | | 15.7 | % | | 1,601,360 | | 14.4 | % |
Commercial and industrial | | 1,325,802 | | 11.5 | % | | 1,280,859 | | 11.3 | % | | 1,072,070 | | 9.6 | % |
Other income producing property | | 217,911 | | 1.9 | % | | 218,617 | | 1.9 | % | | 214,235 | | 1.9 | % |
Consumer non real estate | | 557,030 | | 4.8 | % | | 538,481 | | 4.7 | % | | 465,117 | | 4.2 | % |
Other | | 7,678 | | 0.1 | % | | 13,892 | | 0.2 | % | | 18,224 | | 0.1 | % |
Total non-acquired loans | | 9,562,919 | | 83.1 | % | | 9,252,831 | | 81.4 | % | | 8,310,613 | | 74.6 | % |
Total loans (net of unearned income) | $ | 11,506,890 | | 100.0 | % | $ | 11,375,104 | | 100.0 | % | $ | 11,146,122 | | 100.0 | % |
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Total loans, net of deferred loan costs and fees (excluding mortgage loans held for sale), increased by $507.3$360.8 million, or 4.8%3.2%, to $11.1$11.5 billion at March 31, 20192020 as compared to the same period in 2018.2019. Non-acquired loans or legacy loans increased by $1.5$1.3 billion, or 22.9%15.1%, from March 31, 20182019 to March 31, 20192020 through organic loan growth. Acquired non-credit impaired loans decreased by $896.2$891.5 million, or 27.4% and acquired credit impaired loans decreased by $144.6 million, or 24.0%31.4% as compared to the same period in 2018.2019. The overall decrease in acquired loans was the result of principal payments, charge-offs, foreclosures and renewals of acquired loans. Acquired loans as a percentage of total loans decreased to 25.5%16.9% at March 31, 20192020 compared to 36.4%25.4% at March 31, 2018.2019. As of March 31, 2019,2020, non-acquired loans as a percentage of the overall portfolio were 74.5%83.1% compared to 63.6%74.6% at March 31, 2018.2019.
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| Three Months Ended March 31, |
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(Dollars in thousands) |
| 2019 |
| 2018 |
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| 2020 |
| 2019 |
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Average total loans |
| $ | 11,023,005 |
| $ | 10,604,506 |
| | $ | 11,439,676 | | $ | 11,023,005 | |
Interest income on total loans |
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| 131,620 |
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| 126,734 |
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| 132,703 | |
| 131,620 | |
Non-TE yield |
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| 4.84 | % |
| 4.85 | % | |
| 4.67 | % |
| 4.84 | % |
Interest earned on loans increased $4.9$1.1 million in the first quarter of 20192020 compared to the first quarter of 2018.2019. Some key highlights for the quarter ended March 31, 20192020 are outlined below:
| Our non-TE yield on total loans decreased |
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same period in |
The balance of mortgage loans held for sale increased $10.4$12.4 million from December 31, 20182019 to $71.7 million at March 31, 2020, and increased $38.4 million from a balance of $33.3 million at March 31, 2019, and decreased $9.4 million from a balance of $42.7 million at March 31, 2018. 2019.
Investment Securities
We use investment securities, our second largest category of earning assets, to generate interest income through the deployment of excess funds, to provide liquidity, to fund loan demand or deposit liquidation, and to pledge as collateral for public funds deposits and repurchase agreements. At March 31, 2019,2020, investment securities totaled $1.5$2.0 billion, compared to $1.5$2.0 billion and $1.7$1.5 billion at December 31, 20182019 and March 31, 2018, respectively.2019, respectively. Our investment portfolio decreased $35.8increased $29.0 million from December 31, 20182019 and $158.7$527.3 million from March 31, 2018. Related to the decline2019. The increase in investment securities from December 31, 2018, we had2019 was a result of purchases of $104.0 million as well as improvements in the market value of the available for sale investment securities portfolio of $40.5 million. These increases were partially offset by maturities, calls and paydowns of investment securities totaling $55.2$113.4 million. Net amortization of premiums were $2.7 million and sales totaling $134.5 million which were partially offset by purchases of $137.8 million as well as the unrealized loss in the investment portfolio declining by $17.3 million during thefirst three months ended March 31, 2019.of 2020. We completed a restructuringcontinue to try and increase our investment securities strategically with the excess funds from deposit growth and the increase in other borrowings in 2019 and the first quarter of 2020. The increase in fair value in the available for sale investment portfolio in the first quarter of 2020 compared to December 31, 2019 where we sold some lower yielding securities (mostly mortgage-backed securities) at a loss and reinvested the funds in higher yielding securities that also mostly consisted of mortgage-backed securities. The losses on the sales of securities of approximately $3.0 million in this restructuring were offset by a gain of $3.5 million that we recorded on the sale of VISA Class B shares Relatedwas mainly due to the declinedecrease in investment securities frominterest rates in March 31, 2018, we had maturities, calls and
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paydowns of investment securities totaling $223.9 million and sales totaling $216.2 million which were partially offset by purchases of $250.4 million as well as2020 in reaction to the unrealized loss in the investment portfolio declining by $22.7 million.COVID-19 pandemic.
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| | March 31, | | |||||||||||
(Dollars in thousands) |
| 2019 |
| 2018 |
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| 2020 |
| 2019 |
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Average investment securities |
| $ | 1,515,068 |
| $ | 1,666,199 |
| | $ | 2,022,726 | | $ | 1,515,068 | |
Interest income on investment securities |
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| 10,093 |
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| 10,347 |
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| 13,314 | |
| 10,093 | |
Non-TE yield |
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| 2.70 | % |
| 2.52 | % | |
| 2.65 | % |
| 2.70 | % |
Interest earned on investment securities was lowerhigher in the first quarter of 2020 compared to the first quarter of 2019, as a result of the Bank carrying a higher average balance in investment securities in the first quarter of 2020 compared to the same period in 2019. The average balance of investment securities during the first quarter of 2020 increased $507.7 million from the first quarter of 2019. With the excess liquidity from the growth in deposits and other borrowings during 2019 and the first quarter of 2020, the Bank used the excess funds to strategically increase the size of its investment portfolio. The yield on the investment portfolio declined five basis points from the first quarter of 2019 compared to the first quarter of 2018, as result of a lower average balance as the maturities, calls, paydowns and sales of investment securities outpaced the purchases since March 31, 2018. The decline in interest earned on investment securities from the lower average balance was partially offset by an increase in yield on securities which was mainly2020 due to the purchasing of securities in a risingfalling interest rate environment overresulting from the past 12 months. drops in the federal funds rate made by the Federal Reserve during 2019 and in March 2020.
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(Dollars in thousands) |
| Cost |
| Value |
| (Loss) |
| AAA - A |
| BBB |
| Lower |
| Not Rated |
| |||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored entities debt |
| $ | 65,567 |
| $ | 65,704 |
| $ | 137 |
| $ | 65,567 |
| $ | — |
| $ | — |
| $ | — |
|
State and municipal obligations |
|
| 190,302 |
|
| 193,418 |
|
| 3,116 |
|
| 187,284 |
|
| — |
|
| — |
|
| 3,018 |
|
Mortgage-backed securities * |
|
| 1,216,669 |
|
| 1,207,127 |
|
| (9,542) |
|
| — |
|
| — |
|
| — |
|
| 1,216,669 |
|
|
| $ | 1,472,538 |
| $ | 1,466,249 |
| $ | (6,289) |
| $ | 252,851 |
| $ | — |
| $ | — |
| $ | 1,219,687 |
|
71
| | | | | | | | | | | | | | | | | | | | | | |
|
|
| |
|
| |
| Unrealized |
|
| |
|
| |
|
| |
|
| |
| |
| | Amortized | | Fair | | Gain | | | | | | | | BB or | | | |
| ||||
(Dollars in thousands) | | Cost | | Value | | (Loss) | | AAA - A | | BBB | | Lower | | Not Rated |
| |||||||
March 31, 2020 | | | | | | | | | | | | | | | | | | | | | | |
Government-sponsored entities debt | | $ | 4,882 | | $ | 4,921 | | $ | 39 | | $ | 4,882 | | $ | — | | $ | — | | $ | — | |
State and municipal obligations | |
| 215,387 | |
| 221,603 | |
| 6,216 | |
| 215,387 | |
| — | |
| — | |
| — | |
Mortgage-backed securities * | |
| 1,695,191 | |
| 1,744,671 | |
| 49,480 | |
| — | |
| — | |
| — | |
| 1,695,191 | |
| | $ | 1,915,460 | | $ | 1,971,195 | | $ | 55,735 | | $ | 220,269 | | $ | — | | $ | — | | $ | 1,695,191 | |
* - Agency mortgage-backed securities (“MBS”) are guaranteed by the issuing government-sponsored enterprise (“GSE”) as to the timely payments of principal and interest. Except for Government National Mortgage Association securities, which have the full faith and credit backing of the United States Government, the GSE alone is responsible for making payments on this guaranty. While the rating agencies have not rated any of the MBS issued, senior debt securities issued by GSEs are rated consistently as “Triple-A.” Most market participants consider agency MBS as carrying an implied Aaa rating (S&P rating of AA+) because of the guarantees of timely payments and selection criteria of mortgages backing the securities. We do not own any private label mortgage-backed securities.
At March 31, 2020, we had 62 securities available for sale in an unrealized loss position, which totaled $2.9 million. At December 31, 2019, we had 143 securities available for sale in an unrealized loss position, which totaled $4.5 million. At March 31, 2019, we had 269 securities available for sale in an unrealized loss position, which totaled $11.9 million. At December 31, 2018, we had 384 securities available for sale in an unrealized loss position, which totaled $26.0 million. At March 31, 2018, we had 380 securities available for sale in an unrealized loss position, which totaled $31.5 million.
As of March 31, 20192020 as compared to December 31, 20182019 and March 31, 2018,2019, the total number of available for sale securities with an unrealized loss position decreased by 11581 and 111207 securities, respectively, while the total dollar amount of the unrealized loss decreased by $14.1$1.6 million and $19.6$9.0 million, respectively. This decrease in number and the amount of the unrealized loss was mainly due to the restructuringdrop in both short and long term interest rates during the last half of the investment portfolio completed in2019 and the first quarter of 2019 where we sold many2020. In particular, the Federal Reserve dropped the federal funds target rate 150 basis points to a range of 0.00% to 0.25% in March 2020 in reaction to the securities that were in a loss position.COVID-19 pandemic.
All debt securities available for sale in an unrealized loss position as of March 31, 20192020 continue to perform as scheduled. We have evaluated the cash flows and determined that all contractual cash flows should be received; therefore impairment is temporary because we have the ability to hold these securities within the portfolio until the maturity or until the value recovers, and we believe that it is not likely that we will be required to sell these securities prior to recovery. We continue to monitor all of our securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of theseits securities are other than temporarily impaired, whichmay be sold or would require a charge to earnings as a provision for credit losses in such periods. Any charges as a provision for OTTIcredit losses related to investment securities available-for-sale would notcould impact cash flow, tangible capital or liquidity. See Note 2 – Summary of Significant Account Policies and Note 4 – Investment securities for further discussion on the application of ASU 2016-13 on the investment securities portfolio.
As securities are purchased, they are designated as held to maturity or available for sale based upon our intent, which incorporates liquidity needs, interest rate expectations, asset/liability management strategies, and capital requirements. We do not currently hold, nor have we ever held, any securities that are designated as trading securities. Although securities classified as available for sale may be sold from time to time to meet liquidity or other needs, it is
66
not our normal practice to trade this segment of the investment securities portfolio. While management generally holds these assets on a long-term basis or until maturity, any short-term investments or securities available for sale could be converted at an earlier point, depending partly on changes in interest rates and alternative investment opportunities.
Other Investments
Other investment securities include primarily our investments in FHLB stock with no readily determinable market value. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. As of March 31, 2019,2020, we determined that there was no impairment on its other investment securities. As of March 31, 2019,2020, other investment securities represented approximately $40.6$63.0 million, or 0.26%0.38% of total assets and primarily consists of FHLB stock which totals $34.5$56.9 million, or 0.22%0.34% of total assets.There were no gains or losses on the sales of these securities for the three months ended March 31, 2020 and 2019, respectively.
72
Interest-Bearing Liabilities
Interest-bearing liabilities include interest-bearing transaction accounts, savings deposits, CDs, other time deposits, federal funds purchased, and other borrowings. Interest-bearing transaction accounts include NOW, HSA, IOLTA, and Market Rate checking accounts.
|
|
|
|
|
|
|
|
| ||||||||
| Three Months Ended |
|
| |||||||||||||
| March 31, |
|
| |||||||||||||
| | | | | | | | | ||||||||
| Three Months Ended | | | |||||||||||||
| March 31, | | | |||||||||||||
(Dollars in thousands) | 2019 |
| 2018 |
|
| 2020 |
| 2019 |
|
| ||||||
Average interest-bearing liabilities |
| $ | 9,168,474 |
| $ | 8,993,535 |
|
| | $ | 10,159,093 | | $ | 9,168,474 | | |
Interest expense |
|
| 20,123 |
|
| 9,075 |
|
| |
| 19,787 | |
| 20,123 | | |
Average rate |
|
| 0.89 | % |
| 0.41 | % |
| |
| 0.78 | % |
| 0.89 | % | |
The average balance of interest-bearing liabilities increased $174.9$990.6 million in the first quarter of 20192020 compared to the same period in 20182019 due to increases in interest-bearing deposits of $158.4$360.9 million and in other borrowings of $76.2$585.7 million. The increase in average interest-bearing deposits is due to our continued focus on increasing core deposits (excluding certificates of deposits and other time deposits), which increased $143.2$491.5 million during the first quarter of 20192020 compared to the same period in 2018.2019. These funds are normally lower cost funds. The increase in other borrowings was due to the Company executing two 90-day FHLB Advancesadvances of $350.0 million and $150.0 million in March 2019 and another 90-day FHLB advance of $200.0 million in June 2019, each with a cash flow hedge. These advances with these hedges are effectively locking in four and five years of fixed rate funding. The $350.0 million advance is four year funding respectively, at a rate of 2.44% and 2.21%. We paid off a, the $150.0 million advance is five year funding at a rate of 2.21% and the $200.0 million advance is five year funding at a rate of 1.89%. In March 2020, the Bank executed another FHLB advance of $300.0 million at a rate of 0.47% for nine months and FRB borrowings of $200.0 million at a rate of 0.25% for three months. The borrowings executed in March 2019 that was executed2020 were to provide additional liquidity in reaction to the fourth quarter of 2018.COVID-19 pandemic. The increasedecrease in interest expense of $11.0 million$336,000 in the first quarter of 20192020 compared to the same period in 20182019 was driven by higherlower deposit interest expense of $9.7$2.2 million and was mostly offset by higher short and long-term borrowingsan increase in interest expense from other borrowings of $1.3$2.0 million. These increases wereThe cost on interest-bearing deposits was 0.65% for the first quarter of 2020 compared to 0.79% for the same period in 2019. The decline in cost related to deposits was due the falling interest rate environment resulting from the drops in the federal funds rate made by the Federal Reserve during 2019 and in March 2020. The increase in interest expense related to other borrowing was from an increase in the average balance due to higher average balancesour strategic decision to use a longer term FHLB funding strategy to fund balance sheet growth. This increase was partially offset by a decrease in interest-bearing deposits of $158.4 million andcost in other borrowings of $76.2 million and due to higher average cost on all categories of interest-bearing liabilities151 basis points due to the risingfalling interest rate environment, asbut also related to the Federal Reservefact that the Company has increasedadded $700 million in borrowings since March 31, 2019 at a lower average cost than the federal funds target rate 100 basis points since December 2017. Overall, thisborrowings held in the first quarter of 2019. Overall, all these factors resulted in a 48an 11 basis point increasedecrease in the average rate on all interest-bearing liabilities from 0.89% to 0.78% for the three months ended March 31, 2018.2020. Some key highlights are outlined below:
| Average interest-bearing deposits for the three months ended March 31, |
| Interest-bearing deposits increased |
| Average transaction and money market |
| Average savings account balances decreased |
67
|
73
| The average rate on certificates of deposit and other time deposits for the three months ended March 31, |
| In the first quarter of |
Noninterest-Bearing Deposits
Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. Average noninterest-bearing deposits increased $66.5$209.4 million, or 2.2%6.8%, to $3.1$3.3 billion in the first quarter of 20192020 compared to $3.0$3.1 billion during the same period in 2018.2019. At March 31, 2019,2020, the period end balance of noninterest-bearing deposits was $3.2$3.4 billion, exceeding the March 31, 20182019 balance by $99.0$147.6 million. We continue to focus on increasing the noninterest-bearing deposits to try and limit our funding costs. Our overall cost of funds including noninterest-bearing deposits was 0.59% for the three months ended March 31, 2020 compared to 0.67% for the three months ended March 31, 2019.
Provision for Expected Credit Losses
The ACL reflects management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. Management uses a systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded in the balance sheet reflects management’s best estimate within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. The Company’s measurement of credit losses policy adheres to GAAP as well as interagency guidance. The Company's ACL is calculated using collectively evaluated and individually evaluated loans.
For collectively evaluated loans, the Company in general uses four modeling approaches to estimate expected credit losses. A prepayment assumption is inherently embedded in the vintage modeling methodology. For all other modeling approaches, the Company projects the contractual run-off of its portfolio at the segment level and incorporates a prepayment assumption in order to estimate exposure at default. When a loan no longer shares similar risk characteristics with its segment, the asset is assessed to determine whether it should be included in another segment or should be individually evaluated. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms were not considered to be unique to the asset.
Management has determined that the Company’s historical loss experience provides the best basis for its assessment of expected credit losses to determine the ACL. The Company utilized its own internal data to measure historical credit loss experience with similar risk characteristics within the segments. For the majority of segment models for collectively evaluated loans, the Company incorporated at least one macroeconomic driver either using a statistical
74
regression modeling methodology or simple loss rate modeling methodology. Management considers forward-looking information in estimating expected credit losses. The Company subscribes to a third-party to provide a quarterly macroeconomic baseline outlook and alternative scenarios for the United States economy. The baseline, along with the evaluation of alternative scenarios, are used by Management to determine the best estimate within the range of expected credit losses. The baseline forecast was used for the two-year reasonable and supportable forecast period. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to historical loss information within four quarters using a straight-line approach.
Included in its systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures, Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process. These qualitative adjustments either increase or decrease the quantitative model estimation (i.e. formulaic model results). Each period the Company considers qualitative factors that are relevant within the qualitative framework that includes the following: 1) Concentration Risk, 2) Trends in Industry Conditions, 3) Trends in Portfolio Nature, Quality, and Composition, 4) Model Limitations, and 5) Other Qualitative Adjustments. For further discussion of our Allowance for Credit Losses - See Note 2 - Summary of Significant Accounting Policies.
With the adoption of ASU 2016-13 on January 1, 2020, the Company changed its method for calculating it allowance for loans from an incurred loss method to a life of loan method. See Note 2 – Significant Accounting Policies for further details. As of March 31, 2020, the balance of the ACL was $144.8 million or 1.26% of total loans. The ACL increased $33.4 million from the balance of $111.4 million recorded at adoption of the CECL standard as of January 1, 2020. This increase included a $34.7 million provision of credit losses during the first quarter of 2020. This provision increase was a result of a $31.0 million increase from adjustments in qualitative measures, a $2.3 million increase from collectively evaluated loans, a $1.3 million increase from the impact of net charge offs during the quarter and a $0.1 million decline in the reserve for individually evaluated loans. The increase from qualitative measures was predominately driven by the impact of COVID-19. Forecasts considering the effects of COVID-19 caused a $20.3 million increase in concentration risk from loans with a balance greater than $15.0 million and a $7.3 million increase in model limitations from the impact of the COVID-19. The increase from the provision on collectively evaluated loans is a result of a 0.02% increase from the total loss rate that was used during adoption of CECL. Net charge offs during the first quarter of 2020 were $1.3 million. These net charge offs were primarily driven by the Overdraft/Ready Reserves, HELOCs and Mobile Home segments with net charge offs of $797,000, $211,000 and $326,000, respectively.
At March 31, 2020, the Company also had an ACL on unfunded commitments of $8.6 million which was recorded in Other Liabilities on the Balance Sheet. With the adoption of ASU 2016-13 on January 1, 2020, the Company increased its allowance for credit losses on unfunded commitments by $6.5 million. During the first quarter of 2020, the provision for credit losses on unfunded commitments was $1.8 million which was recorded in the provision for credit losses on the Statement of Operations. The Company did not have an allowance for credit losses or record a provision for credit losses on investment securities or other financials asset during the first quarter of 2020.
For prior comparative periods, the allowance for non-acquired loan losses was $56.9 million, or 0.62%, of non-acquired period-end loans and $52.0 million, or 0.63%, at March 31, 2019. With the adoption of ASU 2016-13 on January 1, 2020, the allowance was adjusted by $54.5 million. The ACL provides 2.55 times coverage of nonperforming loans at March 31, 2020. At December 31, 2019 comparedand March 31, 2019, the allowance for loan losses on non-acquired loans provided coverage of 2.50 times and 3.27 times, respectively. Net charge-offs to 0.31%total loans during the first quarter of 2020 were 0.05%. Net charge-offs from non-acquired loans were 0.06% and 0.02% for the three months ended December 31, 2019 and March 31,2019, respectively. On acquired loans only, net charge-offs were 0.04% during the first quarter of 2020. For the fourth quarter of 2019 and first quarter of 2019, acquired loan net charge-offs were net recoveries of (0.01)% and net charge-offs of 0.03%, respectively. We continued to show solid and stable asset quality numbers and ratios as of March 31, 2020.
75
The following table provides the allocation, by segment, for expected credit losses.
| | | | | |
| March 31, 2020 | ||||
(Dollars in thousands) | Amount |
| %* | ||
| | | | | |
Consumer 1-4 Family Mortgage | $ | 16,033 |
| 24.8 | % |
Home Equity Line of Credit |
| 12,050 |
| 6.8 | % |
Consumer Non-Mobile Homes |
| 2,732 |
| 3.9 | % |
Mobile Home |
| 4,458 |
| 1.9 | % |
Land and Builder Finance |
| 7,254 |
| 2.2 | % |
Commercial Real Estate Owner-Occupied and Commercial Non-Real Estate |
| 40,345 |
| 26.9 | % |
Commercial Income Producing | | 57,437 | | 24.8 | % |
Business Express and Microbusiness | | 2,665 | | 8.2 | % |
Ready Reserves | | 513 | | 0.1 | % |
Overdrafts | | 855 | | 0.1 | % |
Other |
| 443 |
| 0.3 | % |
Total | $ | 144,785 |
| 100.0 | % |
* Loan amortized cost in each category, expressed as a percentage of total loans
The following table presents a summary of the changes in the ACL, for the three months ended March 31, 2018.2020:
| | | |
| Three Months Ended March 31, | ||
(Dollars in thousands) | 2020 | ||
Allowance for credit losses at January 1 | $ | 111,365 | |
Loans Charged‑off | | (3,223) | |
Recoveriesof loans previously charged off | | 1,909 | �� |
Net charge‑offs |
| (1,314) | |
Provision for loan losses |
| 34,734 | |
Allowance for credit losses at March 31, | $ | 144,785 | |
Average loans, net of unearned income | $ | 11,439,676 | |
Ratio of net charge‑offs to average loans, net of unearned income (annualized) |
| 0.05 | % |
Allowance for credit losses as a percentage of total loans |
| 1.26 | % |
Provision for Loan Losses and Nonperforming Assets
The ALLL is based upon estimates made by management. We maintain an ALLL at a level that we believe is appropriate to cover estimated credit losses on individually evaluated loans that are determined to be impaired as well as estimated credit losses inherent in the remainder of our loan portfolio. Arriving at the allowance involves a high degree of management judgment and results in a range of estimated losses. We regularly evaluate the adequacy of the allowance through our internal risk rating system, outside and internal credit review, and regulatory agency examinations to assess the quality of the loan portfolio and identify problem loans. The evaluation process also includes our analysis of current economic conditions, composition of the loan portfolio, past due and nonaccrual loans, concentrations of credit, lending policies and procedures, and historical loan loss experience. The provision for loan losses is charged to expense in an amount necessary to maintain the allowance at an appropriate level.
The ALLL on non-acquired loans consists of general and specific reserves. The general reserves are determined by applying loss percentages to the portfolio that are based on historical loss experience for each class of loans and management’s evaluation and “risk grading” of the loan portfolio. Additionally, the general economic and business conditions affecting key lending areas, credit quality trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, the findings of internal and external credit reviews and results from external bank regulatory examinations are included in this evaluation. Currently, these adjustments are applied to the non-acquired loan portfolio when estimating the level of reserve required. The specific reserves are determined on a loan-by-loan basis based on management’s evaluation of our exposure for each credit, given the current payment status of the loan and the value of any underlying collateral. These are loans classified by management as doubtful or substandard. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. Generally, the need for a specific reserve is evaluated on impaired loans, and once a specific reserve is established for a loan, a charge-off of that amount occurs in the quarter subsequent to the establishment of the specific reserve. Loans that are determined to be impaired are provided a specific reserve, if necessary, and are excluded from the calculation of the general reserves.
68
We segregate the acquired loan portfolio into performing loans (“non‑credit impaired”) and credit impaired loans. The acquired non‑credit impaired loans and acquired revolving type loans are accounted for under FASB ASC 310‑20, with each loan being accounted for individually. Acquired credit impaired loans are recorded net of any acquisition accounting discounts and have no ALLL associated with them at acquisition date. The related discount, if applicable, is accreted into interest income over the remaining contractual life of the loan using the level yield method. Subsequent deterioration in the credit quality of these loans is recognized by recording a provision for loan losses through the income statement, increasing the non‑acquired and acquired non‑credit impaired ALLL. The acquired credit impaired loans will follow the description in the next paragraph.
In determining the acquisition date fair value of acquired credit impaired loans, and in subsequent accounting, we generally aggregate purchased loans into pools of loans with common risk characteristics. Expected cash flows at the acquisition date in excess of the fair value of loans are recorded as interest income over the life of the loans using a level yield method if the timing and amount of the future cash flows of the pool is reasonably estimable. Subsequent to the acquisition date, increases in cash flows over those expected at the acquisition date are recognized as interest income prospectively. Decreases in expected cash flows after the acquisition date are recognized by recording an ALLL. Evidence of credit quality deterioration for the loan pools may include information such as increased past‑due and nonaccrual levels and migration in the pools to lower loan grades. For further discussion of our ALLL on acquired loans, see Note 5—Loans and Allowance for Loan Losses.
During the first quarter of 2019, the valuation allowance on acquired credit impaired loans decreased by $90,000. This was the result of impairments of $13,000 which were recorded through the provision for loan losses, being offset by removals of $103,000 from loans being paid off, fully charged off or transferred to OREO. During the first quarter of 2018, we recorded impairments totaling $163,000, offset by loan removals of $706,000. Impairments are recognized immediately and releases are generally spread over time.
Net charge offs related to “acquired non-credit impaired loans” were $168,000, or 0.03% annualized, in the first quarter of 2019; and we recorded a provision for loan losses, accordingly. This compares to a net charge off of $169,000 in the first quarter of 2018. The charge off level within the acquired non-credit impaired portfolio remains as expected.
69
The following table presents a summary of the changes in the ALLL, for the three months ended March 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, |
| ||||||||||||||||||||||
|
| 2019 |
| 2018 |
| ||||||||||||||||||||
|
|
|
|
| Acquired |
| Acquired |
|
|
|
|
|
|
| Acquired |
| Acquired |
|
|
|
| ||||
|
|
|
|
| Non-credit |
| Credit |
|
|
|
|
|
|
| Non-credit |
| Credit |
|
|
|
| ||||
|
| Non-acquired |
| Impaired |
| Impaired |
|
|
|
| Non-acquired |
| Impaired |
| Impaired |
|
|
|
| ||||||
(Dollars in thousands) |
| Loans |
| Loans |
| Loans |
| Total |
| Loans |
| Loans |
| Loans |
| Total |
| ||||||||
Balance at beginning of period |
| $ | 51,194 |
| $ | — |
| $ | 4,604 |
| $ | 55,798 |
| $ | 43,448 |
| $ | — |
| $ | 4,627 |
| $ | 48,075 |
|
Loans charged-off |
|
| (1,245) |
|
| (374) |
|
| — |
|
| (1,619) |
|
| (1,169) |
|
| (334) |
|
| — |
|
| (1,503) |
|
Recoveries of loans previously charged off |
|
| 752 |
|
| 206 |
|
| — |
|
| 958 |
|
| 802 |
|
| 165 |
|
| — |
|
| 967 |
|
Net charge-offs |
|
| (493) |
|
| (168) |
|
| — |
|
| (661) |
|
| (367) |
|
| (169) |
|
| — |
|
| (536) |
|
Provision for loan losses |
|
| 1,307 |
|
| 168 |
|
| 13 |
|
| 1,488 |
|
| 2,122 |
|
| 169 |
|
| 163 |
|
| 2,454 |
|
Reductions due to loan removals |
|
| — |
|
| — |
|
| (103) |
|
| (103) |
|
| — |
|
| — |
|
| (706) |
|
| (706) |
|
Balance at end of period |
| $ | 52,008 |
| $ | — |
| $ | 4,514 |
| $ | 56,522 |
| $ | 45,203 |
| $ | — |
| $ | 4,084 |
| $ | 49,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period end |
| $ | 8,310,613 |
|
|
|
|
|
|
|
|
|
| $ | 6,762,512 |
|
|
|
|
|
|
|
|
|
|
Average |
|
| 8,075,987 |
|
|
|
|
|
|
|
|
|
|
| 6,596,749 |
|
|
|
|
|
|
|
|
|
|
Net charge-offs as a percentage of average non-acquired loans (annualized) |
|
| 0.02 | % |
|
|
|
|
|
|
|
|
|
| 0.02 | % |
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of period end non-acquired loans |
|
| 0.63 | % |
|
|
|
|
|
|
|
|
|
| 0.67 | % |
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of period end non-performing non-acquired loans (“NPLs”) |
|
| 326.89 | % |
|
|
|
|
|
|
|
|
|
| 315.95 | % |
|
|
|
|
|
|
|
|
|
The ALLL as a percent of non-acquired loans continues to reflect our solid and stable credit quality over the last year. Although total nonperforming loans increased by $1.6 million in the first quarter of 2019, comparedcomparative periods, prior to the same quarter in 2018, total non-acquired nonperforming loansadoption of ASU 2016-13 as a percentage of total non-acquired loans declined 2 basis points. Bankruptcies and foreclosures also declined by $2.0 million and as a percentage of total non-acquired loans in the first quarter of 2019, compared to the same quarter in 2018. Nonperforming loans increased slightly by $925,000 in the first quarter of 2019, but remained consistent as a percentage of total non-acquired loans when compared to the fourth quarter of 2018. Bankruptcies and foreclosures declined by one basis point as a percentage of total non-acquired loans, when compared to the fourth quarter of 2018. The ratio of the ALLL to cover total nonperforming non-acquired loans increased from 315.95% at March 31, 2018 to 326.89% at March 31, 2019, and declined from 340.88% at December 31, 2018. Overall net charge offs for the quarter on non-acquired loans was 2 basis points annualized, or $493,000, compared to 2 basis points annualized, or $367,000, a year ago, and 6 basis points, or $1.1 million in the fourth quarter of 2018. Net charge-offs related to the non-acquired loan portfolio were primarily from overdraft and ready reserve accounts over the past several quarters. During the first quarter of 2019, net charge-offs related to the non-acquired loan portfolio excluding overdraft and ready reserve accounts was in a net recovery position of $235,000.follows:
We increased the ALLL compared to the first quarter of 2018, as well as compared to the fourth quarter of 2018, due primarily to loan growth and increased risk and uncertainty in new and expanded markets from our mergers in 2017. From a general perspective, we generally consider a three-year historical loss rate on all loan portfolios, unless circumstances within a portfolio loan type require the use of an alternate historical loss rate to better capture the risk within the portfolio. We also consider qualitative factors such as economic risk, model risk and operational risk when determining the ALLL. We adjust our qualitative factors to account for uncertainty and certain risk inherent in the portfolio that cannot be measured with historical loss rates. All of these factors are reviewed and adjusted each reporting period to account for management’s assessment of loss within the loan portfolio. Overall, the general reserve increased by $6.9 million compared to the balance at March 31, 2018, and $842,000 compared to the balance at December 31, 2018.
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
|
| | 2019 |
| ||||||||||
| | | | | Acquired | | Acquired | | | | | ||
| | | | | Non-credit | | Credit | | | | | ||
|
| Non-acquired |
| Impaired |
| Impaired |
| | |
| |||
(Dollars in thousands) |
| Loans |
| Loans |
| Loans |
| Total |
| ||||
Balance at beginning of period | | $ | 51,194 | | $ | — | | $ | 4,604 | | $ | 55,798 | |
Loans charged-off | |
| (1,245) | |
| (374) | |
| — | |
| (1,619) | |
Recoveries of loans previously charged off | |
| 752 | |
| 206 | |
| — | |
| 958 | |
Net charge-offs | |
| (493) | |
| (168) | |
| — | |
| (661) | |
Provision for loan losses | |
| 1,307 | |
| 168 | |
| 13 | |
| 1,488 | |
Reductions due to loan removals | |
| — | |
| — | |
| (103) | |
| (103) | |
Balance at end of period | | $ | 52,008 | | $ | — | | $ | 4,514 | | $ | 56,522 | |
| | | | | | | | | | | | | |
Total non-acquired loans: | | | | | | | | | | | | | |
At period end | | $ | 8,310,613 | | | | | | | | | | |
Average | |
| 8,075,987 | | | | | | | | | | |
Net charge-offs as a percentage of average non-acquired loans (annualized) | |
| 0.02 | % | | | | | | | | | |
Allowance for loan losses as a percentage of period end non-acquired loans | |
| 0.63 | % | | | | | | | | | |
Allowance for loan losses as a percentage of period end non-performing non-acquired loans (“NPLs”) | |
| 326.89 | % | | | | | | | | | |
On a specific reserve basis, the ALLL decreased $29,000 from December 31, 2018 to $1.6 million, with loan balances being evaluated for specific reserves decreasing $745,000 during the first quarter of 2019, to $56.3 million. Specific reserves decreased $113,000 from $1.7 million at March 31, 2018 with the loan balances being evaluated for specific reserves decreasing $10.4 million from $66.7 million at March 31, 2018. The decrease in loans being evaluated for specific reserves during the first quarter of 2019 compared to both the same period in 2018, as well as the previous quarter, is primarily due to the maturity or roll off of builder loans for which greater scrutiny was provided. These builder loans for which greater scrutiny was provided were all performing under their contractual terms.
During the three months ended March 31, 2019, qualitative factors declined by 1 basis point, which is reflective of stability in the unemployment rates and economy as a whole within the markets that we serve. We continue to work our nonperforming assets out through collections, transfers to OREO and disposals of OREO.
70
76
Nonperforming Assets
The following table summarizes our nonperforming assets for the past five quarters:
| | | | | | | | | | | | | | | | |
|
| March 31, |
| December 31, |
| September 30, |
| June 30, |
| March 31, |
| |||||
(Dollars in thousands) | | 2020 |
| 2019 | | 2019 | | 2019 | | 2019 | | |||||
Non-acquired: | | | | | | | | | | | | | | | | |
Nonaccrual loans | | $ | 19,773 | | $ | 19,724 | | $ | 18,310 | | $ | 14,654 | | $ | 14,584 | |
Accruing loans past due 90 days or more | |
| 119 | |
| 514 | |
| 333 | |
| 280 | |
| 496 | |
Restructured loans - nonaccrual | |
| 4,020 | |
| 2,578 | |
| 544 | |
| 671 | |
| 830 | |
Total nonperforming loans | |
| 23,912 | |
| 22,816 | |
| 19,187 | |
| 15,605 | |
| 15,910 | |
Other real estate owned (3) | |
| 3,478 | |
| 3,569 | |
| 3,654 | |
| 4,345 | |
| 3,918 | |
Other nonperforming assets (4) | |
| 157 | |
| 136 | |
| 70 | |
| 29 | |
| 152 | |
Total non-acquired nonperforming assets | |
| 27,547 | |
| 26,521 | |
| 22,911 | |
| 19,979 | |
| 19,980 | |
Acquired: | | | | | | | | | | | | | | | | |
Nonaccrual loans (1) | |
| 32,548 | |
| 10,839 | |
| 9,596 | |
| 9,948 | |
| 14,294 | |
Accruing loans past due 90 days or more | |
| 243 | |
| 275 | |
| — | |
| 37 | |
| 264 | |
Total acquired nonperforming loans (2) | |
| 32,791 | |
| 11,114 | |
| 9,596 | |
| 9,985 | |
| 14,558 | |
Acquired OREO and other nonperforming assets: | | | | | | | | | | | | | | | | |
Acquired OREO (3) | |
| 9,366 | |
| 8,395 | |
| 9,761 | |
| 10,161 | |
| 7,379 | |
Other acquired nonperforming assets (4) | |
| 154 | |
| 184 | |
| 177 | |
| 251 | |
| 403 | |
Total acquired OREO and other nonperforming assets | |
| 9,520 | |
| 8,579 | |
| 9,938 | |
| 10,412 | |
| 7,782 | |
Total nonperforming assets | | $ | 69,858 | | $ | 46,214 | | $ | 42,445 | | $ | 40,376 | | $ | 42,320 | |
| | | | | | | | | | | | | | | | |
Excluding Acquired Assets | | | | | | | | | | | | | | | | |
Total NPAs as a percentage of total loans and repossessed assets (5) | |
| 0.29 | % |
| 0.29 | % |
| 0.26 | % |
| 0.23 | % |
| 0.24 | % |
Total NPAs as a percentage of total assets (6) | |
| 0.17 | % |
| 0.17 | % |
| 0.15 | % |
| 0.13 | % |
| 0.13 | % |
Total NPLs as a percentage of total loans (5) | |
| 0.25 | % |
| 0.25 | % |
| 0.21 | % |
| 0.18 | % |
| 0.19 | % |
| | | | | | | | | | | | | | | | |
Including Acquired Assets | | | | | | | | | | | | | | | | |
Total NPAs as a percentage of total loans and repossessed assets (5) | |
| 0.61 | % |
| 0.41 | % |
| 0.38 | % |
| 0.36 | % |
| 0.38 | % |
Total NPAs as a percentage of total assets | |
| 0.42 | % |
| 0.29 | % |
| 0.27 | % |
| 0.26 | % |
| 0.27 | % |
Total NPLs as a percentage of total loans (5) | |
| 0.49 | % |
| 0.30 | % |
| 0.25 | % |
| 0.23 | % |
| 0.27 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 30, |
| September 30, |
| June 30, |
| March 31, |
| |||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| 2018 |
| 2018 |
| 2018 |
| |||||
Non-acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans |
| $ | 14,584 |
| $ | 14,179 |
| $ | 14,214 |
| $ | 13,858 |
| $ | 13,327 |
|
Accruing loans past due 90 days or more |
|
| 496 |
|
| 191 |
|
| 36 |
|
| 110 |
|
| 198 |
|
Restructured loans - nonaccrual |
|
| 830 |
|
| 648 |
|
| 1,065 |
|
| 902 |
|
| 782 |
|
Total nonperforming loans |
|
| 15,910 |
|
| 15,018 |
|
| 15,315 |
|
| 14,870 |
|
| 14,307 |
|
Other real estate owned (2) |
|
| 3,918 |
|
| 3,902 |
|
| 3,154 |
|
| 8,042 |
|
| 2,363 |
|
Other nonperforming assets (3) |
|
| 152 |
|
| 135 |
|
| 75 |
|
| 137 |
|
| — |
|
Total non-acquired nonperforming assets |
|
| 19,980 |
|
| 19,055 |
|
| 18,544 |
|
| 23,049 |
|
| 16,670 |
|
Acquired non-credit impaired: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
| 14,294 |
|
| 13,489 |
|
| 10,798 |
|
| 9,373 |
|
| 8,076 |
|
Accruing loans past due 90 days or more |
|
| 264 |
|
| 162 |
|
| 2 |
|
| 217 |
|
| 157 |
|
Total acquired nonperforming loans (1) |
|
| 14,558 |
|
| 13,651 |
|
| 10,800 |
|
| 9,590 |
|
| 8,233 |
|
Acquired OREO and other nonperforming assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired OREO (2) |
|
| 7,379 |
|
| 7,508 |
|
| 8,965 |
|
| 9,180 |
|
| 8,710 |
|
Other acquired nonperforming assets (3) |
|
| 403 |
|
| 247 |
|
| 337 |
|
| 347 |
|
| 429 |
|
Total acquired OREO and other nonperforming assets |
|
| 7,782 |
|
| 7,755 |
|
| 9,302 |
|
| 9,527 |
|
| 9,139 |
|
Total nonperforming assets |
| $ | 42,320 |
| $ | 40,461 |
| $ | 38,646 |
| $ | 42,166 |
| $ | 34,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding Acquired Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NPAs as a percentage of total loans and repossessed assets (4) |
|
| 0.24 | % |
| 0.24 | % |
| 0.24 | % |
| 0.32 | % |
| 0.25 | % |
Total NPAs as a percentage of total assets (5) |
|
| 0.13 | % |
| 0.13 | % |
| 0.13 | % |
| 0.16 | % |
| 0.11 | % |
Total NPLs as a percentage of total loans (4) |
|
| 0.19 | % |
| 0.19 | % |
| 0.20 | % |
| 0.21 | % |
| 0.21 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including Acquired Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NPAs as a percentage of total loans and repossessed assets (4) |
|
| 0.38 | % |
| 0.37 | % |
| 0.35 | % |
| 0.39 | % |
| 0.32 | % |
Total NPAs as a percentage of total assets |
|
| 0.27 | % |
| 0.28 | % |
| 0.27 | % |
| 0.29 | % |
| 0.23 | % |
Total NPLs as a percentage of total loans (4) |
|
| 0.27 | % |
| 0.26 | % |
| 0.24 | % |
| 0.23 | % |
| 0.21 | % |
(1) |
|
(2) |
|
(3) |
| Includes certain real estate acquired as a result of foreclosure and property not intended for bank use. |
(4) |
| Consists of non-real estate foreclosed assets, such as repossessed vehicles. |
(5) |
| Loan data excludes mortgage loans held for sale. |
(6) |
| For purposes of this calculation, total assets include all assets (both acquired and non-acquired). |
Nonperforming assets were $69.9 million, or 0.49% of total loans, at March 31, 2020, an increase of $23.6 million, or 51.1%, from December 31, 2019 and an increase of $27.5 million, or 65.1%, from March 31, 2019. The increase in the nonperforming loan balance in the above schedule at March 31, 2020, compared to these prior periods, is due to the addition of $21.0 million, formerly accounted for as credit impaired loans (with ASU 2016-13 are now considered PCD loans), prior to the adoption of ASU 2016-13. Acquired credit impaired loans were considered to be performing in prior periods, due to the application of the accretion method under FASB ASC Topic 310-30. The Company has not assumed or taken on any additional risk relative to these assets. Excluding the addition of these loans
77
in the current period, nonperforming assets increased $2.6 million and $6.5 million, respectively, from December 31, 2019 and March 31, 2019.
Nonperforming non-acquired loans, including restructured loans, were $15.9$23.9 million, or 0.19%0.25% of non-acquired loans, at March 31, 2019,2020, an increase of $1.6$8.0 million, or 11.2%50.3%, from March 31, 2018.2019. The increase in nonperforming loans was driven primarily by an increase in commercial nonaccrual loans of $6.1 million and an increase in restructured loans of $3.2 million, offset by a decline in consumer nonaccrual loans of $2.6$934,000 and a decline in past due 90 day loans still accruing of $377,000. Nonperforming non-acquired loans, including restructured loans, increased by $1.1 million during the first quarter of 2020 from the level at December 31, 2019. This increase was primarily driven by an increase in restructured loan nonaccrualsnonaccrual loans of $48,000$1.4 million and consumer nonaccrual loans of $384,000, offset by a decline in commercial nonaccrual loans of $335,000 and past due 90 day loans still accruing of $298,000, offset by a decline in commercial nonaccrual loans of $1.4 million. Nonperforming non-acquired loans overall, including restructured loans, increased by $892,000 during the first quarter of 2019 from the level at December 31, 2018. This increase was primarily driven by an increase in consumer nonaccrual loans of $919,000, restructured nonaccrual loans of $182,000 and past due 90 day loans still accruing of $305,000, offset by a decline in commercial nonaccrual loans of $514,000.$395,000. Non-acquired nonperforming loans still remain at historically low levels at March 31, 2019.2020.
71
Nonperforming acquired non-credit impairedloans, including restructured loans, were $14.6$32.8 million, or 1.69% of acquired loans, at March 31, 2019,2020, an increase of $6.3$18.2 million, or 76.8%125.3%, from March 31, 2018. The increase in nonperforming loans was driven by an increase in consumer nonaccrual loans of $3.1 million, in commercial nonaccrual loans of $3.1 million and by an increase in past due 90 day loans still accruing of $108,000.As a percentage of the2019.Nonperforming acquired non-credit impaired loan portfolio, nonperforming loans increased by 36 basis points to 0.61% from 0.25% at December 31, 2018. The increase was mainly due to approximately $4.3$21.7 million in additions from the PSC loan portfolio acquired in the fourth quarter of 2017. Nonperforming acquired non-credit impaired loans increased by $907,000 during the first quarter of 20192020, or 195.0%, from $13.7 million at December 31, 2018. The2019. These increase in nonperforming loans was driven by an increase in consumer nonaccrual loanswere primarily due to the application of $163,000, in commercial nonaccrual loans of $641,000 and by an increase in past due 90 day loans still accruing of $102,000. As a percentage of the acquired non-credit impaired loan portfolio, nonperforming loans increased by 8 basis points to 0.61% from 0.53% at December 31, 2018.ASU-2016-13 as discussed above.
At March 31, 2019,2020, OREO totaled $11.3$12.8 million which included $3.9$3.5 million in non-acquired OREO and $7.4$9.3 million in acquired OREO. Total OREO remained flatincreased $880,000 from December 31, 2018 and declined by only $113,000 from $11.4 million.2019. At March 31, 2019,2020, non-acquired OREO consisted of 2017 properties with an average value of $196,000.$205,000. This compared to 2117 properties with an average value of $186,000$210,000 at December 31, 2018.2019. At March 31, 2019,2020, acquired OREO consisted of 5455 properties with an average value of $137,000.$170,000. This compared to 5442 properties with an average value of $139,000$200,000 at December 31, 2018.2019. In the first quarter of 2019,2020, we added fourone property with an aggregate value of $8,000 into non-acquired OREO, and we sold one property with a basis of $99,000. We added 19 properties with an aggregate value of $421,000 into non-acquired OREO, and we sold five properties with a basis of $398,000. We added seven properties with an aggregate value of $582,000$2.0 million into acquired OREO, and we sold seven6 properties with a basis of $620,000$958,000 in the first quarter of 2019.2020.
Potential Problem Loans
Potential problem loans (excluding all acquired loans) totaled $8.9 million, or 0.09% of total non-acquired loans outstanding, at March 31, 2020, compared to $7.5 million, or 0.08% of total non-acquired loans outstanding, at December 31, 2019, and compared to $8.0 million, or 0.10% of total non-acquired loans outstanding, at March 31, 2019, compared to $5.8 million, or 0.07% of total non-acquired loans outstanding, at December 31, 2018, and compared to $5.9 million, or 0.09% of total non-acquired loans outstanding, at March 31, 2018.2019. Potential problem loans related to acquired loans totaled $7.0 million, or 0.36% of total acquired loans outstanding, at March 31, 2020. Prior to the adoption of ASU 2016-13, prior period acquired problem loans included only the non-credit impaired loans. At December 31, 2019 and March 31, 2019, the acquired non-credit impaired potential problem loans were $4.4 million, or 0.25% of acquired non-credit impaired loans totaledoutstanding and $4.2 million, or 0.18% of total acquired non-credit impaired loans, at March 31, 2019, compared to $5.3 million, or 0.22% of total acquired non-credit impaired loans outstanding, at December 31, 2018, and compared to $8.3 million, or 0.25% of total acquired non-credit impaired loans outstanding, at March 31, 2018.respectively. All potential problem loans represent those loans where information about possible credit problems of the borrowers has caused management to have serious concern about the borrower’s ability to comply with present repayment terms.
78
Noninterest Income
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
| ||||
|
| March 31, |
|
| ||||
(Dollars in thousands) |
| 2019 |
| 2018 |
|
| ||
Fees on deposit accounts |
| $ | 17,808 |
| $ | 22,543 |
|
|
Mortgage banking income |
|
| 2,385 |
|
| 4,948 |
|
|
Trust and investment services income |
|
| 7,269 |
|
| 7,514 |
|
|
Securities gains, net |
|
| 541 |
|
| — |
|
|
Recoveries on acquired loans |
|
| 1,867 |
|
| 2,975 |
|
|
Other |
|
| 2,188 |
|
| 2,575 |
|
|
Total noninterest income |
| $ | 32,058 |
| $ | 40,555 |
|
|
Noninterest income provides us with additional revenues that are significant sources of income. At March 31, 2020 and 2019, noninterest income comprised 25.6%, and 20.6%, respectively, of total net interest income and noninterest income.
| | | | | | | | |
| | Three Months Ended | | | ||||
| | March 31, | | | ||||
(Dollars in thousands) |
| 2020 |
| 2019 |
|
| ||
Fees on deposit accounts | | $ | 18,141 | | $ | 17,808 | | |
Mortgage banking income | |
| 14,647 | |
| 2,385 | | |
Trust and investment services income | |
| 7,389 | |
| 7,269 | | |
Securities gains, net | |
| — | |
| 541 | | |
Recoveries on acquired loans | |
| — | |
| 1,867 | | |
Other | |
| 3,955 | |
| 2,188 | | |
Total noninterest income | | $ | 44,132 | | $ | 32,058 | | |
Note that “Fees on deposit accounts” include service charges on deposit accounts and bankcard income
Noninterest income decreasedincreased by $8.5$12.1 million, or 21.0%37.7%, during the first quarter of 20192020 compared to the same period in 2018. The2019. This quarterly decreasechange in total noninterest income primarily resulted from the following:
● |
|
|
| Mortgage banking income |
72
fair value in the mortgage pipeline and loans held for sale increased by $3.4 million. Income from mortgage servicing rights, net of the hedge |
● |
| Securities gains, net of $541,000 during the first quarter of |
● |
|
|
● | Other noninterest income increased $1.8 million, or |
Reclassification of Interchange network costs
ASU Topic 606 requires us to report network costs associated with debit card and ATM transactions netted against the related fees from such transactions. Previously, such network costs were reported as a component of noninterest expense as Bankcard Expense. For the three months ended March 31, 2019, gross interchange and debit card transaction fees totaled $5.5 million while related network costs totaled $2.9 million. On a net basis we reported $2.6 million as interchange and debit card transactions fees in the accompanying Consolidated Statements of Income as noninterest income for the three months ended March 31, 2019. We also made this reclassification for the comparable period in 2018. For the three months ended March 31, 2018, gross interchange and debit card transaction fees totaled $10.6 million while related network costs totaled $3.0 million. On a net basis we reported $7.6 million as net interchange and debit card transactions fees as noninterest income for the three months ended March 31, 2018. (See Bankcard Services Income section below for discussion on the decline in gross interchange fees during the first quarter of 2019)
Bankcard Services Income
We exceeded $10 billion in total consolidated assets upon consummation of our merger with SBFC on January 3, 2017. Banks with over $10 billion in total assets are no longer exempt from the requirements of the Federal Reserve’s rules on interchange transaction fees for debit cards. This means that, beginning on July 1, 2018 by way of the Durbin amendment, the Bank was limited to receiving only a “reasonable” interchange transaction fee for any debit card transactions processed using debit cards issued by the Bank to our customers. The Federal Reserve has determined that it is unreasonable for a bank with more than $10 billion in total assets to receive more than $0.21 plus 5 basis points of the transaction plus a $0.01 fraud adjustment for an interchange transaction fee for debit card transactions. This reduction in the amount of interchange fees we receive for electronic debit interchange began reducing our revenues in the third quarter of 2018. As noted above, bankcard income including interchange transaction fees is included in “Fees on deposit accounts”. In the three months ended March 31, 2019, we earned approximately $5.5 million in interchange transaction fees for debit cards. We estimate that bankcard service income was reduced by approximately $5.3 million during the first quarter of 2019 compared the first quarter of 2018 due to the Durbin amendment, which became effective with respect to us on July 1, 2018.
Noninterest Expense
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||
|
| March 31, |
| ||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| ||
Salaries and employee benefits |
| $ | 58,431 |
| $ | 62,465 |
|
Net occupancy expense |
|
| 7,199 |
|
| 8,166 |
|
Information services expense |
|
| 9,009 |
|
| 9,738 |
|
Furniture and equipment expense |
|
| 4,413 |
|
| 4,626 |
|
OREO expense and loan related |
|
| 751 |
|
| 1,661 |
|
Amortization of intangibles |
|
| 3,281 |
|
| 3,413 |
|
Supplies, printing and postage expense |
|
| 1,504 |
|
| 1,392 |
|
Professional fees |
|
| 2,240 |
|
| 1,699 |
|
FDIC assessment and other regulatory charges |
|
| 1,535 |
|
| 1,263 |
|
Advertising and marketing |
|
| 807 |
|
| 736 |
|
Merger and branch consolidation related expense |
|
| 1,114 |
|
| 11,296 |
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Other |
|
| 7,955 |
|
| 7,008 |
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Total noninterest expense |
| $ | 98,239 |
| $ | 113,463 |
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| | | | | | | | |
| | Three Months Ended | |
| ||||
| | March 31, | | | ||||
(Dollars in thousands) |
| 2020 |
| 2019 |
|
| ||
Salaries and employee benefits | | $ | 60,978 | | $ | 58,431 | | |
Occupancy expense | |
| 12,287 | |
| 11,612 | | |
Information services expense | |
| 9,306 | |
| 9,009 | | |
OREO expense and loan related | |
| 587 | |
| 751 | | |
Amortization of intangibles | |
| 3,007 | |
| 3,281 | | |
Supplies, printing and postage expense | |
| 1,505 | |
| 1,504 | | |
Professional fees | |
| 2,494 | |
| 2,240 | | |
FDIC assessment and other regulatory charges | |
| 2,058 | |
| 1,535 | | |
Advertising and marketing | |
| 814 | |
| 807 | | |
Merger and branch consolidation related expense | |
| 4,129 | |
| 1,114 | | |
Other | |
| 10,082 | |
| 7,955 | | |
Total noninterest expense | | $ | 107,247 | | $ | 98,239 | | |
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Noninterest expense decreasedincreased by $15.2$9.0 million, or 13.4%9.2%, in the first quarter of 20192020 as compared to the same period in 2018.2019. The quarterly decreaseincrease in total noninterest expense primarily resulted from the following:
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● | Occupancy expense increased by $675,000, or 5.8% from the first quarter of 2019. This increase was mainly due to an increase in lease expense of $698,000 in the first quarter of 2020 compared to the |
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See in Note 2 – Summary of Significant Accounting Policies and in the Noninterest Income section above a discussion on the reclassification of our interchange network costs to net against interchange network fees included in Fees of Deposit Accounts in Noninterest income.
Income Tax Expense
During the first quarter of 2019, ourOur effective income tax rate declinedwas 15.0% for the three months ended March 31, 2020 compared to 20.20% from 20.49%20.2% for the three months ended March 31, 2019. The lower effective tax rate was driven mainly by a significant decrease in the fourth quarter of 2018pretax net income and from 21.05%an increase in federal tax credits in the first quarter of 2018. The primary factor in the lower effective tax rate compared to the fourth quarter of 2018 was due to a reduction in pre-tax book income, while the reduction in the rate2020 compared to the first quarter of 20182019. Pretax income was reduced in the current quarter by the large provision for credit losses totaling $36.5 million stemming from the COVID-19 pandemic. During the first quarter of 2020, the ACL increased by approximately $60.9 million due primarilythe adoption of ASU 2016-13 in the first quarter, as well as recording $36.5 million of provision for credit losses due to ananticipated losses from COVID-19 pandemic. The increase in federal tax credits available, partially offset by an increasethe ACL resulted in pre-tax book income.a much larger change in deferred income taxes during the quarter than we normally experience.
Capital Resources
Our ongoing capital requirements have been met primarily through retained earnings, less the payment of cash dividends. As of March 31, 2019,2020, shareholders’ equity was $2.4$2.3 billion, an increasea decrease of $10.2$52.0 million, or 0.4%2.2%, from December 31, 2018,2019, and an increasea decrease of $53.9$55.4 million, or 2.3%, from $2.3$2.4 billion at March 31, 2018.2019. The change from year-end was mainly attributable to net income of $44.4 million and a decline in the accumulated other comprehensive loss of $11.5 million, which was partially offset by the common stock dividend paid of $13.4$15.8 million, and a reduction in capital of $33.3$24.7 million from the repurchase of 500,000320,000 shares of common stock through our stock buyback planrepurchase plans, and a reduction in retained earnings of $44.8 million from a cumulative change in accounting principle from the first quarteradoption of 2019.ASU 2016-13. These decreases in equity were partially offset by net income of $24.1 million and an increase in accumulated other comprehensive income of $8.7 million. At March 31, 2019,2020, we had an accumulated other comprehensive lossgain of $13.4$9.8 million compared to an accumulated other comprehensive lossgain of $24.9$1.0 million at December 31, 2018.2019. This change was mainly attributable to the decrease of $13.5a $31.5 million, net of tax, improvement in the unrealized lossgain (loss) position in the available for sale securities portfolio duringand a $22.8 million, net of tax, decline in the first quarter of 2019unrealized gain (loss) position related to the cash flow hedges. The change in the unrealized gain (loss) position in the available for sale securities portfolio and the cash flow hedges are due to the decline in interest rates towardsduring the endlast half of the2019 and first quarter of 2019.in 2020. The increasedecrease in shareholders’ equity from March 31, 20182019 was primarily attributable to net income of $180.9 million and a decline in the accumulated other comprehensive loss of $17.0 million, which was partially offset by dividends paid to common shareholders of $51.9$60.1 million,a reduction in retained earnings of $44.8 million from a cumulative change in accounting principle from the adoption of ASU 2016-13 and a reduction in capital of $101.7$148.4 million from the repurchase of 1,985,000 shares of common stock through our stock buyback plan.repurchase plans. These decreases in equity were partially offset by net income of $166.2 million, an increase from accumulated other comprehensive income of $23.1 million and recognition of share based compensation expense of $8.7 million. Our common equity-to-assets ratio was 13.95% at March 31, 2020, down from 14.90% at December 31, 2019 and 15.42% at March 31, 2019, down from 16.12% at December 31, 2018 and 15.81% at March 31, 2018.2019. The decrease from December 31, 2018 is2019 was due to the percentage increaseboth a decrease in equity of 0.4% being less than the percentage2.2% and an increase in total assets of 5.0%4.5%. This was mainly
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due to the reduction in equity during the first quarter of 20192020 from a reduction in retained earnings of $44.8 million from a cumulative change in
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accounting principle from the adoption of ASU 2016-13 and our repurchase of 500,000320,000 shares of common stock at a cost of $33.3$24.7 million.
In March 2017, our board of directors approved and reset the number of shares available to be repurchased under the 2004 Stock Repurchase Program to 1,000,000 of which all the shares were repurchased in the third and fourth quarters of 2018. On January 25, 2019, our boardBoard of directorsDirectors approved a new program to repurchase up to 1,000,000 of our common stock, (“2019 Stock repurchase Program”). Startingwhich were repurchased in late Januarythe first and second quarter of 2019 we began repurchasingat an average price of $69.89 per share (excluding commission expense) for a total of $69.9 million. In June 2019, our Board of Directors authorized the repurchase of up to an additional 2,000,000 shares of our common stock in open market transactions again. We made this determination after considering, theamong other things, our liquidity needs and capital resources as well as the estimated current value of our net assets.assets (the “new Repurchase Program”). The number of shares to be purchased and the timing of the purchases areduring 2019 were based on a variety of factors, including, but not limited to, the level of cash balances, general business conditions, regulatory requirements, the market price of our common stock, and the availability of alternative investment opportunities. WeAs of December 31, 2019, we had repurchased 500,0001,165,000 shares at an average price of $66.53$74.72 a share (excluding sales commission) for a total of $33.3$87.1 million in common stock sinceunder the resetNew Repurchase Program. During the first quarter of the number2020, we remained active in repurchasing our common stock and bought 320,000 shares at an average price of $77.29 per share (excludes commission expense), a total of $24.7 million. There were 515,000 shares available in January 2019. We mayfor repurchase up to an additional 500,000 shares of common stockremaining under the 2019 Stock Repurchase Program. We are not obligated to repurchase any additional shares under the 2019 StockNew Repurchase Program and any repurchases under the 2019 Stock Repurchase Program after December 23, 2019 would require additional Federal Reserve approval.as of March 31, 2020.
We are subject to regulations with respect to certain risk-based capital ratios. These risk-based capital ratios measure the relationship of capital to a combination of balance sheet and off-balance sheet risks. The values of both balance sheet and off-balance sheet items are adjusted based on the rules to reflect categorical credit risk. In addition to the risk-based capital ratios, the regulatory agencies have also established a leverage ratio for assessing capital adequacy. The leverage ratio is equal to Tier 1 capital divided by total consolidated on-balance sheet assets (minus amounts deducted from Tier 1 capital). The leverage ratio does not involve assigning risk weights to assets.
As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, regulatory capital rules adopted in July 2013 the Federal Reserve announced its approvaland fully-phased in as of a final ruleJanuary 1, 2019, which we refer to implement the regulatory capital reforms developed byas the Basel CommitteeIII rules or Basel III, impose minimum capital requirements for bank holding companies and banks. The Basel III rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan holding companies with more than $3 billion in total consolidated assets. More stringent requirements are imposed on Banking Supervision,“advanced approaches” banking organizations which are organizations with $250 billion or more in total consolidated assets, $10 billion or more in total foreign exposures, or that have opted into the Basel III capital regime.
Specifically, we are required to maintain the following minimum capital levels:
●a CET1, risk-based capital ratio of 4.5%;
●a Tier 1 risk-based capital ratio of 6%;
●a total risk-based capital ratio of 8%; and
●a leverage ratio of 4%.
Under Basel III, Tier 1 capital includes two components: CET1 capital and additional Tier 1 capital. The highest form of capital, CET1 capital, consists solely of common stock (plus related surplus), retained earnings, accumulated other comprehensive income, otherwise referred to as Basel III, among other changes required byAOCI, and limited amounts of minority interests that are in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Basel III became effective January 1, 2015, subject to a phase-in period for certain aspectsform of the new rules.
The Basel III capital rules framework requires banking organizations to hold more and higher quality capital, which acts as a financial cushion to absorb losses, taking into account the impact of risk. As applied to the Company and the Bank, the rules include a minimum ratio of CET1 to risk-weighted assets of 4.5%. The rules also require a ratio ofcommon stock. Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, Tier 1 minority interests and grandfathered trust preferred securities (as discussed below). Tier 2 capital generally includes the allowance for loan losses up to 1.25% of risk-weighted assets, of 6%. Our minimum required leverage ratio under Basel III is 4% (the rules eliminated a previous exemption that permitted a minimum leverage ratio of 3% for certain institutions). Our minimum required total capital to risk-weighted assets ratio remains at 8% under Basel III.
In order to avoid restrictions on capital distributionsqualifying preferred stock, subordinated debt and discretionary bonus payments to executives, under the rules a covered banking organization is also required to maintain a “capital conservation buffer”qualifying tier 2 minority interests, less any deductions in addition to its minimum risk-based capital requirements. This buffer is required to consist solely of CET1, and the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital). The capital conservation buffer was phased in over a four year period at 0.625% per annual, beginning January 1, 2016. The capital conservation buffer became fully effective on January 1, 2019, and now consists2 instruments of an additional amount ofunconsolidated financial institution. Cumulative perpetual preferred stock is included only in Tier 1 common equity equal to 2.5% of risk-weighted assets.
In terms of quality of2 capital, the rule emphasizes CET1 capital and implements strict eligibility criteria for regulatory capital instruments. When implemented,except that the Basel III rules also changed the methodology for calculating risk-weightedpermit bank holding companies with less than $15 billion in total consolidated assets to enhance risk sensitivity.
Under the Basel III rules, accumulated other comprehensive income (“AOCI”)continue to include trust preferred securities and cumulative perpetual preferred stock issued before May 19, 2010 in Tier 1 Capital (but not in CET1 capital), subject to certain restrictions. AOCI is presumptively included in CET1 capital and canoften would operate to reduce this category of capital. When implemented, the final ruleBasel III provided a one-time opportunity at the end of the first quarter of 2015 for covered banking organizations to opt out of much of this treatment of AOCI, whichAOCI. We made this opt-out election and, as a result, retained our pre-existing treatment for AOCI.
In addition, in order to avoid restrictions on capital distributions or discretionary bonus payments to executives, under Basel III, a banking organization must maintain a “capital conservation buffer” on top of its minimum risk-based capital requirements. This buffer must consist solely of Tier 1 Common Equity, but the Bankbuffer applies to all three risk-
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based measurements (CET1, Tier 1 capital and total capital). The 2.5% capital conservation buffer was phased in incrementally over time, and became fully effective for us on January 1, 2019, resulting in the following effective minimum capital plus capital conservation buffer ratios: (i) a CET1 capital ratio of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%.
On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to (i) address the implementation of CECL; (ii) provide an optional three-year phase-in period for the Day 1 adverse regulatory capital effects that banking organizations are expected to experience upon adopting CECL; and (iii) require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for certain banking organizations that are subject to stress testing. CECL was adopted and became effective on January 1, 2020 and the Company have made. Asapplied the provisions of the standard using the modified retrospective method as a result,cumulative-effect adjustment to retained earnings. Related to the implementation of ASU 2016-13, we recorded additional allowance for credit losses for loans of $54.4 million, deferred tax assets of $12.6 million, an additional reserve for unfunded commitments of $6.4 million and an adjustment to retained earnings of $44.8 million. Instead of recognizing the effects from ASU 2016-13 at adoption, the standard included a transitional method option for recognizing the Day 1 effects on the Company’s regulatory capital calculations over a three year phase-in.
In March 2020, in reaction to the COVID-19 pandemic, the regulatory agencies provided an additional transitional method option of a two years deferral for the start of the three year phase-in of the recognition of the Day 1 effects of ASU 2016-13 along with an option to defer the current impact on regulatory capital calculations of ASU 2016-13 during the first two years, otherwise referred to herein as the 5 year method. The Company would recognize an estimate of the previous method for determining the ACL in regulatory capital calculations and the difference from the CECL method would be deferred for two years. After two years, the effects from Day 1 and the deferral difference from the first two years of applying ASU 2016-13 would be phased-in over three years using the straight-line method. The regulatory rules provide a one-time opportunity at the end of the first quarter of 2020 for covered banking organizations to choose its transition option for ASU 2016-13. The Company chose the 5 year method and is deferring the recognition of the effects from Day 1 and the CECL difference from the first two years of application. If the Company had not chosen to apply a transitional method related to ASU 2016-13, its consolidated common equity tier 1 to risk-weighted assets ratio would be 10.62%, its consolidated tier 1 capital to risk-weighted assets would be 11.56%, its consolidated total capital to risk-weighted assets would be 12.81% and its consolidated tier 1 capital to average assets (leverage ratio) would be 9.23% at March 31, 2020. The Company would still exceed the Bank retainthresholds for the pre-existing treatment for AOCI.“well capitalized” regulatory classification.
The Bank is also subject to the regulatory framework for prompt corrective action, which identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly
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undercapitalized, and critically undercapitalized) and is based on specified thresholds for each of the three risk-based regulatory capital ratios (CET1, Tier 1 capital and total capital) and for the leverage ratio.
The Company’s and the Bank’s regulatory capital ratios for the following periods are reflected below:
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South State Corporation: |
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Common equity Tier 1 risk-based capital |
| 11.86 | % | 12.05 | % | 11.85 | % |
| 11.09 | % | 11.30 | % | 11.86 | % |
Tier 1 risk-based capital |
| 12.85 | % | 13.05 | % | 12.86 | % |
| 12.03 | % | 12.25 | % | 12.85 | % |
Total risk-based capital |
| 13.35 | % | 13.56 | % | 13.32 | % |
| 12.72 | % | 12.78 | % | 13.35 | % |
Tier 1 leverage |
| 10.52 | % | 10.65 | % | 10.50 | % |
| 9.56 | % | 9.73 | % | 10.52 | % |
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South State Bank: |
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Common equity Tier 1 risk-based capital |
| 12.67 | % | 12.87 | % | 12.67 | % |
| 11.62 | % | 12.07 | % | 12.67 | % |
Tier 1 risk-based capital |
| 12.67 | % | 12.87 | % | 12.67 | % |
| 11.62 | % | 12.07 | % | 12.67 | % |
Total risk-based capital |
| 13.17 | % | 13.38 | % | 13.12 | % |
| 12.31 | % | 12.60 | % | 13.17 | % |
Tier 1 leverage |
| 10.37 | % | 10.51 | % | 10.35 | % |
| 9.24 | % | 9.59 | % | 10.37 | % |
The Tier 1 leverage ratio decreased compared to December 31, 20182019 due to the increase in our average assets and outpacing the increase in our equity.tier 1 risk-based regulatory capital. The CET1 risk-based capital, Tier 1 risk-based capital and total risk-based capital ratios all decreased compared to December 31, 20182019 due to the increase in our risk-based assets increase outpacing the increase in our equity.tier 1 risk-based and total risk-based regulatory capital. The main reason for
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the lowerlesser increase in equityregulatory capital was due to our repurchase of500,000of 320,000 shares of common stock at a cost of $33.3$24.7 million through our stock buyback planrepurchase plans in the first quarter of 2019.2020 along with the lower net income this quarter. The main drivers for the increase in both average and risk-weighted assets was due towere loan growth and growth in interest-bearing deposits and in premises equipment from the recording of right of use asset related to the new lease standard.deposits. Our capital ratios are currently well in excess of the minimum standards and continue to be in the “well capitalized” regulatory classification.
Liquidity
Liquidity refers to our ability to generate sufficient cash to meet our financial obligations, which arise primarily from the withdrawal of deposits, extension of credit and payment of operating expenses. Our Asset/Liability Management Committee (“ALCO”) is charged with monitoring liquidity management policies, which are designed to ensure acceptable composition of asset/liability mix. Two critical areas of focus for ALCO are interest rate sensitivity and liquidity risk management. We have employed our funds in a manner to provide liquidity from both assets and liabilities sufficient to meet our cash needs.
Asset liquidity is maintained by the maturity structure of loans, investment securities and other short-term investments. Management has policies and procedures governing the length of time to maturity on loans and investments. Normally, changes in the earning asset mix are of a longer-term nature and are not utilized for day-to-day corporate liquidity needs.
Our liabilities provide liquidity on a day-to-day basis. Daily liquidity needs are met from deposit levels or from our use of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings. We engage in routine activities to retain deposits intended to enhance our liquidity position. These routine activities include various measures, such as the following:
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| Emphasizing relationship banking to new and existing customers, where borrowers are encouraged and normally expected to maintain deposit accounts with our Bank; |
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| Pricing deposits, including certificates of deposit, at rate levels that will attract and/or retain balances of deposits that will enhance our Bank’s asset/liability management and net interest margin requirements; and |
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| Continually working to identify and introduce new products that will attract customers or enhance our Bank’s appeal as a primary provider of financial services. |
Our non-acquired loan portfolio increased by approximately $1.5$1.3 billion, or approximately 22.9%15.1%, compared to the balance at March 31, 2018,2019, and by $377.3$310.1 million, or 19.3%13.5% annualized, compared to the balance at December 31, 2018. 2019. The acquired loan portfolio decreased by $1.0 billion,$887.0 million, or 26.9%31.3%, from the balance at March 31, 20182019 and by
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$249.0 $173.2 million, or 32.8%32.9%, annualized, from the balance at December 31, 20182019 through principal paydowns, charge-offs, foreclosures and renewals of acquired loans.
Our investment securities portfolio decreased $35.8increased $29.0 million, or 9.4%5.8%, annualized, compared to the balance at December 31, 2018,2019, and decreasedincreased by $158.7$527.3 million, or 9.5%35.0% compared to the balance at March 31, 2018. Related to the decline2019. The increase in investment securities from December 31, 2018, we had2019 was a result of purchases of $104.0 million as well as improvements in the market value of the available for sale investment securities portfolio of $40.5 million. These increases were partially offset by maturities, calls and paydowns of investment securities totaling $55.2$113.4 million. Net amortization of premiums were $2.7 million and sales totaling $134.5 million which were partially offset by purchases of $137.8 million as well as the unrealized loss in the investment portfolio declining by $17.3 million during the three months ended March 31, 2019. We completed a restructuring of the investment portfolio in the first quarterthree months of 2019 where we sold certain lower yielding securities (mostly mortgage-backed securities) at a loss and reinvested the funds in higher yielding securities which also mostly consisted of mortgage-backed securities.2020. The losses on the sales of securities of approximately $3.0 million taken in this restructuring were offset by a gain of $3.5 million that we recorded on the sale of VISA Class B shares. Related to the declineincrease in investment securities was due to the Company making the strategic decision to increase the size of the portfolio with the excess funds from March 31, 2018, we had maturities, callsdeposit growth and paydowns of investment securities totaling $223.9 million and sales totaling $216.2 million which were partially offset by purchases of $250.4 million as well as the unrealized lossincrease in the investment portfolio declining by $22.7 million.other borrowings. Total cash and cash equivalents were $1.3 billion at March 31, 2020 as compared to $688.7 million at December 31, 2019 and $949.6 million at March 31, 2019 as compared to $409.0 million at December 31, 2018 and $644.5 million at March 31, 2018.2019. We borrowed an additional $350.0$300.0 million in FHLB advances and $200.0 million in FRB borrowings in the first quarter of 20192020 as well as total deposits increased $167.5 million which improved liquidity.liquidity in the first quarter of 2020. We borrowed an additional $500.0 million in the first quarter of 2020 to provide the Bank additional liquidity in reaction to the COVID-19 pandemic.
At March 31, 2019,2020 and December 31, 20182019, we had no traditional, out –of-market brokered deposits, and at March 31, 2018,2019, we had $7.6 million $7.6 million and $35.0 million, respectively, in traditional, out-of-market brokered depositsdeposits. At March 31, 2020, December 31, 2019 and $60.1March 31, 2019, we had $115.0 million, $72.2$45.8 million, and $101.0$60.1 million, respectively, of reciprocal brokered deposits. Total deposits were $12.3 billion at March 31, 2020, an increase of $167.5 million or 5.5% annualized from $12.2 billion at December 31, 2019 and an increase of $425.6 million or 3.6%, from $11.9 billion at March 31, 2019, up $272.0 million or 9.5% annualized from $11.6 billion at December 31, 2018 and up $255.9 million or 2.2%, from $11.7 billion at March 31, 2018.2019. Our deposit growth since December 31, 20182019 included an increase in demand deposit accounts of $158.1$122.1 million and an
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increase in savings and money market accounts of $124.2$80.6 million andpartially offset by declines in interest-bearing transaction accounts of $5.4$25.8 million partially offset by a declineand in certificates of deposit of $15.7$9.5 million. Other borrowings increased $350.2$500.2 million and $400.7$699.9 million, respectively, from December 31, 20182019 and March 31, 20182019 to $616.2 million.$1.3 billion at March 31, 2019. Other borrowings at March 31, 20192020 included $500.1 million$1.2 billion in FHLB advances and FRB borrowing compared to $150.1$700.1 million at December 31, 20182019 and $100.1$500.1 million at March 31, 2018.2019. We had approximately $115 million in junior subordinated debt at March 31, 2019,2020, December 31, 20182019 and March 31, 2018.2019. During the first quarter of 2019, we paid-off early the FHLB advance of $150.0 million that was outstanding at December 31, 2018 that would have matured in December 2019. We then borrowed $500 million in March 2019 and $200 million in June 2019 in 90-day fixed rate FHLB advances, for which at this time we currently plan to continuously renew. At the same time, we entered into interest rate swap agreements with a notional amount of $350 million (4(a four year agreement) and $150$350 million (5(a five year agreement) to manage the interest rate risk related to these 90-day FHLB advances. We borrowed these FHLB advances to provide liquidity for operations, loan growth and investment growth. In March 2020, we executed another FHLB advance of $300.0 million at a rate of 0.47% for nine months and FRB borrowings of $200.0 million at a rate of 0.25% for three months. These borrowings executed in March 2020 were to provide additional liquidity in reaction to the COVID-19 pandemic. To the extent that we employ other types of non-deposit funding sources, typically to accommodate retail and correspondent customers, we continue to take in some shorter maturities of such funds. Our current approach may provide an opportunity to sustain a low funding rate or possibly lower our cost of funds but could also increase our cost of funds if interest rates rise.
Our ongoing philosophy is to remain in a liquid position taking into account our current composition of earning assets, asset quality, capital position, and operating results. Our liquid earning assets include federal funds sold, balances at the Federal Reserve Bank, reverse repurchase agreements, and/or other short-term investments. Cyclical and other economic trends and conditions can disrupt our Bank’s desired liquidity position at any time. We expect that these conditions would generally be of a short-term nature. Under such circumstances, our Bank’s federal funds sold position and any balances at the Federal Reserve Bank serve as the primary sources of immediate liquidity. At March 31, 2019,2020, our Bank had total federal funds credit lines of $606.0 million with no balance outstanding. If additional liquidity were needed, the Bank would turn to short-term borrowings as an alternative immediate funding source and would consider other appropriate actions such as promotions to increase core deposits or the sale of a portion of our investment portfolio. At March 31, 2019,2020, our Bank had $366.3$387.3 million of credit available at the Federal Reserve Bank’s Discount Window butand had no outstanding advances asborrowing of $200.0 million resulting in $187.3 million remaining available at the end of the quarter.Federal Reserve Bank Discount Window. In addition, we could draw on additional alternative immediate funding sources from lines of credit extended to us from our correspondent banks and/or the FHLB. At March 31, 2019,2020, our Bank had a total FHLB credit facility of $1.6$2.5 billion with total outstanding FHLB letters of credit consuming $231.5$231.1 million, $500.1 million$1.0 billion in outstanding advances and $72,000$62,000 in credit enhancements from participation in the FHLB’s Mortgage Partnership Finance Program, leaving $823.6 million$1.2 billion in availability on the FHLB credit facility. The Company has a $10.0$25.0 million unsecured line of credit with U.S. Bank National Association with no outstanding advances. We believe that our liquidity position continues to be adequate and readily available.
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Our contingency funding plans incorporate several potential stages based on liquidity levels. Also, we review on at least an annual basis our liquidity position and our contingency funding plans with our principal banking regulator. We maintain various wholesale sources of funding. If our deposit retention efforts were to be unsuccessful, we would utilize these alternative sources of funding. Under such circumstances, depending on the external source of funds, our interest cost would vary based on the range of interest rates we are charged. This could increase our cost of funds, impacting net interest margins and net interest spreads.
Deposit and Loan Concentrations
We have no material concentration of deposits from any single customer or group of customers. We have no significant portion of our loans concentrated within a single industry or group of related industries. Furthermore, we attempt to avoid making loans that, in an aggregate amount, exceed 10% of total loans to a multiple number of borrowers engaged in similar business activities. As of March 31, 2019,2020, there were no aggregated loan concentrations of this type. We do not believe there are any material seasonal factors that would have a material adverse effect on us. We do not have any foreign loans or deposits.
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Concentration of Credit Risk
We consider concentrations of credit to exist when, pursuant to regulatory guidelines, the amounts loaned to a multiple number of borrowers engaged in similar business activities which would cause them to be similarly impacted by general economic conditions represents 25 percent25% of total risk‑basedrisk-based capital, or $380.5$380.2 million at March 31, 2019.2020. Based on this criteria, we had three such credit concentrations at March 31, 2019,20120, including loans on hotels and motels of $523.4$590.0 million, loans to lessors of nonresidential buildings (except mini‑warehouses)mini-warehouses) of $1.4$1.1 billion, and loans to lessors of residential buildings (investment properties and multi-family) of $583.3$591.4 million. The risk for these loans and for all loans is managed collectively through the use of credit underwriting practices developed and updated over time. The loss estimate for these loans is determined using our standard ALLLACL methodology.
Banking regulators have established guidelines for the construction, land development and other land loans to total less than 100% of total risk-based capital and for total commercial real estate loans to total less than 300% of total risk-based capital. Both ratios are calculated by dividing certain types of loan balances for each of the two categories by the Bank’s total risk-based capital. At March 31, 2019 ,2020, December 31, 2018,2019, and March 31, 20182019 the Bank’s construction, land development and other land loans as a percentage of total risk-based capital were 63.2%72.9%, 69.5%68.7%, and 87.9%63.2%, respectively. Commercial real estate loans (which includes construction, land development and other land loans along with other non-owner occupied commercial real estate and multifamily loans) as a percentage of total risk-based capital were 219.2%229.5%, 216.0%225.6% and 222.3%219.2% as of March 31, 2019,2020, December 31, 20182019 and March 31, 2018,2019, respectively. As of March 31, 2019,2020, December 31, 20182019 and March 31, 2018,2019, the Bank was below the established regulatory guidelines. When a bank’s ratios are in excess of one or both of these commercial real estate loan ratio guidelines, banking regulators generally require an increased level of monitoring in these lending areas by bank management. Therefore, we monitor these two ratios as part of our concentration management processes.
Cautionary Note Regarding Any Forward-Looking Statements
Statements included in this report, which are not historical in nature are intended to be, and are hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements are based on, among other things, management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, South State and South State.the proposed merger with CenterState. Words and phrases such as “may,” “approximately,” “continue,” “should,” “expects,” “projects,” “anticipates,” “is likely,” “look ahead,” “look forward,” “believes,” “will,” “intends,” “estimates,” “strategy,” “plan,” “could,” “potential,” “possible” and variations of such words and similar expressions are intended to identify such forward-looking statements. We caution readers that forward lookingforward-looking statements are subject to certain risks, uncertainties and assumptions that are difficult to predict with regard to, among other things, timing, extent, likelihood and degree of occurrence, which could cause actual results to differ materially from anticipated results. Such risks, uncertainties and assumptions, include, among others, the matters described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2018, and the following:
| Economic downturn risk, potentially resulting in deterioration in the credit markets, greater than expected noninterest expenses, excessive loan losses and other negative consequences, which risks could be exacerbated |
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by potential negative economic developments resulting from the COVID-19 pandemic or government or regulatory responses thereto, federal spending cuts and/or one or more federal budget-related impasses or actions; |
| Increased expenses, loss of revenues, and increased regulatory scrutiny associated with our total assets having exceeded $10.0 billion; |
● | Personnel risk, including our inability to attract and retain consumer and commercial bankers to execute on our client-centered, relationship driven banking model; |
● | Risks related to our proposed merger with CenterState, including: |
o | the possibility that the merger does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all; |
o | the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; |
o | potential difficulty in maintaining relationships with clients, employees or business partners as a result of our proposed merger with CenterState; |
o | the amount of the costs, fees, expenses and charges related to the merger; |
| problems arising from the integration of the two companies, including the risk that the integration will be materially delayed or will be more costly or difficult than expected; |
| Failure to realize cost savings and any revenue synergies from, and to limit liabilities associated with, mergers and acquisitions within the expected time frame, including our proposed merger with CenterState; |
● | Controls and procedures risk, including the potential failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures; |
| Ownership dilution risk associated with potential mergers and acquisitions in which |
| Potential deterioration in real estate values; |
| The impact of competition with other financial |
| Credit risks associated with an obligor’s failure to meet the terms of any contract with the |
| Interest risk involving the effect of a change in interest rates on |
| Liquidity risk affecting |
| Risks associated with an anticipated increase in |
| Price risk focusing on changes in market factors that may affect the value of traded instruments in “mark-to-market” portfolios; |
| Transaction risk arising from problems with service or product delivery; |
| Compliance risk involving risk to earnings or capital resulting from violations of or nonconformance with laws, rules, regulations, prescribed practices, or ethical standards; |
| Regulatory change risk resulting from new laws, rules, regulations, accounting principles, proscribed practices or ethical standards, including, without limitation, the possibility that regulatory agencies may require higher levels of capital above the current regulatory-mandated minimums and including the impact of the |
| Strategic risk resulting from adverse business decisions or improper implementation of business decisions; |
| Reputation risk that adversely affects our earnings or capital arising from negative public opinion; |
| Terrorist activities risk that results in loss of consumer confidence and economic disruptions; |
| Cybersecurity risk related to |
| Greater than expected noninterest expenses; |
| Noninterest income risk resulting from the effect of regulations that prohibit or restrict the charging of fees on paying overdrafts on ATM and |
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|
|
|
| Potential deposit attrition, higher than expected costs, customer loss and business disruption associated with merger and acquisition integration, including, without limitation, and potential difficulties in maintaining relationships with key personnel; |
| The risks of fluctuations in the market |
| The payment of dividends on |
| Risks associated with actual or potential information gatherings, investigations or legal proceedings by customers, regulatory agencies or others, including litigation related to our proposed merger with CenterState; |
● | Operational, technological, cultural, regulatory, legal, credit and other risks associated with the exploration, consummation and integration of potential future acquisition, whether involving stock or cash consideration; and |
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| Other risks and uncertainties disclosed in |
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disclosed in Part II, Tem 1A. Risk Factors, of this Quarterly Report on Form 10-Q, any of which could cause actual results to differ materially from future results expressed, implied or otherwise anticipated by such forward-looking statements. |
For any forward-looking statements made in this report or in any documents incorporated by reference into this Report, we claim the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. All forward-looking statements speak only as of the date they are made and are based on information available at that time. We do not undertake any obligation to update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements. All subsequent written and oral forward-looking statements by us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.
Additional information with respect to factors that may cause actual results to differ materially from those contemplated by our forward-looking statements may also be included in other reports that we file with the SEC. We caution that the foregoing list of risk factors is not exclusive and not to place undue reliance on forward-looking statements.
For any forward-looking statements made in this Quarterly Report on Form 10-Q or in any documents incorporated by reference into this Quarterly Report on Form 10-Q, we claim the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference in Quarterly Report on Form 10-Q. We do not undertake to update forward looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. All subsequent written and oral forward looking statements by us or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our quantitative and qualitative disclosures about market risk as of March 31, 20192020 from those disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance regarding our control objective that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the three months ended March 31, 2019,2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
As of March 31, 20192020 and the date of this Quarterly Report on Form 10-Q, we believe that we are not party to, nor is any or our property the subject of, any pending material legal proceeding other than those that may occur in the ordinary course of our business.
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Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, as well as cautionary statements contained in this Quarterly Report on Form 10-Q, including those under the caption “Cautionary Note Regarding Any Forward-Looking Statements” set forth in Part I, Item 2 of this Quarterly Report on Form 10-Q, risks and matters described elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC.
There have been no material changesThe Company is providing these additional risk factors to supplement the risk factors disclosedcontained in Item 1A.1A of Part I in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
The COVID-19 pandemic has adversely affected our business, financial condition and results of operations, and the ultimate impacts of the pandemic on our business, financial condition and results of operations will depend on future developments and other factors that are highly uncertain and will be impacted by the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.
The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets and has had an adverse effect on our business, financial condition and results of operations. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, supply chain interruptions and overall economic and financial market instability. In response to the COVID-19 pandemic, the governments of the states in which we have financial center and of most other states have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential. These restrictions and other consequences of the pandemic have resulted in significant adverse effects for many different types of businesses, including, among others, those in the travel, hospitality and food and beverage industries, and have resulted in a significant number of layoffs and furloughs of employees nationwide and in the regions in which we operate.
The ultimate effects of the COVID-19 pandemic on the broader economy and the markets that we serve are not known nor is the ultimate length of the restrictions described above and any accompanying effects. Moreover, the Federal Reserve has taken action to lower the Federal Funds rate, which may negatively affect our interest income and, therefore, earnings, financial condition and results of operation. Additional impacts of the COVID-19 pandemic on our business could be widespread and material, and may include, or exacerbate, among other consequences, the following:
● | employees contracting COVID-19; |
● | reductions in our operating effectiveness as our employees work from home; |
● | a work stoppage, forced quarantine, or other interruption of our business; |
● | unavailability of key personnel necessary to conduct our business activities; |
● | effects on key employees, including operational management personnel and those charged with preparing, monitoring and evaluating our financial reporting and internal controls; |
● | sustained closures of our branch lobbies or the offices of our customers; |
● | declines in demand for loans and other banking services and products; |
● | reduced consumer spending due to both job losses and other effects attributable to the COVID-19 pandemic; |
● | unprecedented volatility in United States financial markets; |
● | volatile performance of our investment securities portfolio; |
● | decline in the credit quality of our loan portfolio, owing to the effects of the COVID-19 pandemic in the markets we serve, leading to a need to increase our allowance for credit losses; |
● | declines in value of collateral for loans, including real estate collateral; |
● | declines in the net worth and liquidity of borrowers and loan guarantors, impairing their ability to honor commitments to us; and |
● | declines in demand resulting from businesses being deemed to be “non-essential” by governments in the markets we serve, and from “non-essential” and “essential” businesses suffering adverse effects from reduced levels of economic activity in our markets. |
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These factors, together or in combination with other events or occurrences that may not yet be known or anticipated, may materially and adversely affect our business, financial condition and results of operations.
The ongoing COVID-19 pandemic has resulted in meaningfully lower stock prices for many companies, as well as the trading prices for many other securities. The further spread of the COVID-19 outbreak, as well as ongoing or new governmental, regulatory and private sector responses to the pandemic, may materially disrupt banking and other economic activity generally and in the areas in which we operate. This could result in further decline in demand for our banking products and services, and could negatively impact, among other things, our liquidity, regulatory capital and our growth strategy. Any one or more of these developments could have a material adverse effect on our business, financial condition and results of operations.
We are taking precautions to protect the safety and well-being of our employees and customers. However, no assurance can be given that the steps being taken will be adequate or deemed to be appropriate, nor can we predict the level of disruption which will occur to our employee’s ability to provide customer support and service. If we are unable to recover from a business disruption on a timely basis, our business, financial condition and results of operations could be materially and adversely affected. We may also incur additional costs to remedy damages caused by such disruptions, which could further adversely affect our business, financial condition and results of operations.
The COVID-19 pandemic has resulted in a higher allowance for credit losses (“ACL”) determined in accordance with the Current Expected Credit Loss, or CECL standard, and may result in increased volatility and further increases in our allowance for loan losses.
The measure of our ACL is dependent on the adoption and interpretation of applicable accounting standards. The Financial Accounting Standards Board issued a new credit impairment model, the Current Expected Credit Loss, or CECL standard, which has become effective and was adopted by us in the first quarter of 2020. Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount and certain management judgments over the life of the loan. This initial measurement took place as of January 1, 2020 at the time of our adoption of CECL, and measurements will occur periodically thereafter. The adoption of the CECL model has materially affected how we determine our ACL and, combined with the effects of the COVID-19 pandemic, required us to significantly increase our allowance as of March 31, 2020.
The CECL model may create more volatility in the level of our ACL, as compared to the “incurred loss” standard that we previously applied in determining our ACL. The CECL model requires us to estimate the lifetime “expected credit loss” with respect to loans and other applicable financial assets, which may change more rapidly than the level of “incurred losses” that would have been used to determine our allowance for loan losses under the prior incurred loss standard. The potentially material effects of the COVID-19 pandemic on lifetime expected credit loss, and the challenges associated with estimating lifetime credit losses in view of the uncertain ultimate impacts of the pandemic, may result in increased volatility and significant additions to our ACL in the future, which could have a material and adverse effect on our business, financial condition and results of operations.
As a participating lender in the SBA Paycheck Protection Program (“PPP”), the Company and the Bank are subject to additional risks of litigation from the Bank’s customers or other parties regarding the Bank’s processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guaranties.
On March 27, 2020, President Trump signed the CARES Act, which included a $349 billion loan program administered through the SBA referred to as the PPP. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP. The PPP opened on April 3, 2020; however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to risks relating to noncompliance with the PPP. As of April 30, 2020, we have secured funding of approximately 9,300 loans totaling approximately $1.1 billion though the PPP program. On or about April 16, 2020, the SBA notified lenders that the $349 billion earmarked for the PPP was exhausted. Congress approved additional funding for the PPP of
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approximately $320 billion on April 24, 2020. Since the opening of the PPP, several other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. The Company and the Bank may be exposed to the risk of litigation, from both customers and non-customers that approached the Bank regarding PPP loans, regarding its process and procedures used in processing applications for the PPP. If any such litigation is filed against the Company or the Bank and is not resolved in a manner favorable to the Company or the Bank, it may result in significant financial liability or adversely affect the Company’s reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations.
The Bank also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Company, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) | Not applicable |
(b) | Not applicable |
(c) | Issuer Purchases of Registered Equity Securities: |
In February 2004, we announced a program with no formal expiration date to repurchase up to 250,000 of our common shares. In March 2017, the Board of Directors approved and reset the number of shares available to be repurchased under the 2004 stock repurchase program to 1,000,000, all of which had been repurchased as of December 31, 2018. In January 2019, theour Board of Directors approved a newshare repurchase program allowing us to repurchase up to 1,000,000 shares of our common shares. We are not obligatedstock, which replaced and superseded our prior share repurchase program. In June 2019, our Board of Directors announced the authorization for the repurchase of up to repurchase anyan additional 2,000,000 shares of our common stock (the “New Repurchase Program”), which began once all shares were repurchased under the 2019 stock repurchase program, and any repurchases under the 2019 stock repurchase program after December 23, 2019 would require additional Federal Reserve approval.previous Repurchase Program. As of the date of this filing,March 31, 2020, we have repurchased 500,0001,485,000 shares of the 1,000,000 approved in January 20192,000,000 shares authorized for repurchase under the New Repurchase Program and may repurchase up to an additional 515,000 shares of common stock under the New Repurchase Program. In the first quarter of 2020, we repurchased 320,000 shares of our common stock at an average price of $77.29per share (excludes cost of $66.53. commission) for a total of $24.7 million.
The following table reflects share repurchase activity during the first quarter of 2019:2020:
| | | | | | | | | | |
|
| |
| | |
| |
| (d) Maximum |
|
| | | | | | | (c) Total | | Number (or |
|
| | | | | | | Number of | | Approximate |
|
| | | | | | | Shares (or | | Dollar Value) of |
|
| | | | | | | Units) | | Shares (or |
|
| | (a) Total | | | | | Purchased as | | Units) that May |
|
| | Number of | | | | | Part of Publicly | | Yet Be |
|
| | Shares (or | | (b) Average | | Announced | | Purchased |
| |
| | Units) | | Price Paid per | | Plans or | | Under the Plans |
| |
Period | | Purchased | | Share (or Unit) | | Programs | | or Programs |
| |
| | | | | | | | | | |
January 1 - January 31 |
| 14,573 | * | $ | 84.38 |
| — |
| 835,000 | |
February 1 - February 29 |
| 323,069 | * |
| 77.17 |
| 320,000 |
| 515,000 | |
March 1 - March 31 |
| 6,925 | * |
| 60.53 |
| — |
| 515,000 | |
| | | | | | | | | | |
Total |
| 344,567 | | | |
| 320,000 |
| 515,000 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (d) Maximum |
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|
|
| (c) Total |
| Number (or |
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|
|
|
|
|
| Number of |
| Approximate |
|
|
|
|
|
|
|
| Shares (or |
| Dollar Value) of |
|
|
|
|
|
|
|
| Units) |
| Shares (or |
|
|
| (a) Total |
|
|
|
| Purchased as |
| Units) that May |
|
|
| Number of |
|
|
|
| Part of Publicly |
| Yet Be |
|
|
| Shares (or |
| (b) Average |
| Announced |
| Purchased |
| |
|
| Units) |
| Price Paid per |
| Plans or |
| Under the Plans |
| |
Period |
| Purchased |
| Share (or Unit) |
| Programs |
| or Programs |
| |
|
|
|
|
|
|
|
|
|
|
|
January 1 - January 31 |
| 16,040 | * | $ | 65.16 |
| — |
| 1,000,000 |
|
February 1 - February 28 |
| 506,789 | * |
| 66.55 |
| 500,000 |
| 500,000 |
|
March 1 - March 31 |
| 181 | * |
| 70.70 |
| — |
| 500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| 523,010 |
|
|
|
| 500,000 |
| 500,000 |
|
* | For the months ended January 31, 2020, February 29, 2020 and March 31, 2020, total includes 14,573 shares, 3,069 shares and 6,925 shares, respectively, that were repurchased under arrangements, authorized by our stock-based compensation plans and Board of Directors, whereby officers or directors may sell previously owned shares to the Company in order to pay for the exercises of stock options or for income taxes owed on vesting shares of restricted stock. These shares were not purchased under the 2004 or 2019 stock repurchase programs to repurchase shares. |
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*For the months ended January 31, 2019, February 28, 2019 and March 31, 2019, total includes 16,040 shares, 6,789 shares and 181 shares, respectively, that were repurchased under arrangements, authorized by our stock‑based compensation plans and BoardTable of Directors, whereby officers or directors may sell previously owned shares to the Company in order to pay for the exercises of stock options or for income taxes owed on vesting shares of restricted stock. These shares were not purchased under the 2004 or 2019 stock repurchase programs to repurchase 1,000,000 shares.Contents
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
None.
Not applicable.
The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index attached hereto and are incorporated by reference.
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Exhibit Index
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Exhibit No. | Description | |
| | |
Exhibit 2.1 | | |
| | |
Exhibit 3.1 | | |
| | |
Exhibit 3.2 | | |
| | |
Exhibit 3.3 | | |
| | |
Exhibit 4.1 | | |
| | |
Exhibit 4.2 | | |
| | |
Exhibit 10.1* | | |
| | |
Exhibit 10.2* | | |
| | |
Exhibit 10.3* | | |
| | |
Exhibit 10.4* | | |
| | |
Exhibit 10.5* | | |
| | |
Exhibit 10.6* | | |
| | |
Exhibit 31.1 | | |
| | |
Exhibit 31.2 | | |
| | |
Exhibit 32 | | Section 1350 Certifications of Principal Executive Officer and Principal Financial Officer |
| | |
Exhibit 101 | | The following financial statements from the Quarterly Report on Form 10-Q of South State Corporation for the quarter ended March, 31, |
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Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Shareholders’ Equity, (v) Condensed Consolidated Statement of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements. Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document). | ||
Exhibit 104 | | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document). |
† Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules and similar attachments have been omitted. The registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request.
* Denotes a management compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SOUTH STATE CORPORATION |
| (Registrant) |
| |
| |
Date: May | /s/ Robert R. Hill, Jr. |
| Robert R. Hill, Jr. |
| Chief Executive Officer |
| (Principal Executive Officer) |
| |
Date: May | /s/ John C. Pollok |
| John C. Pollok |
| Senior Executive Vice President, |
| Chief Financial Officer |
| (Principal Financial Officer) |
| |
Date: May | /s/ Keith S. Rainwater |
| Keith S. Rainwater |
| Executive Vice President and |
| Principal Accounting Officer |
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