UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 20202021
| |
☐ | 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: 001-13349
BAR HARBOR BANKSHARES
(Exact name of registrant as specified in its charter)
| | |
Maine | | 01-0393663 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
PO Box 400 | | |
82 Main Street, Bar Harbor, ME | | 04609-0400 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (207) 288-3314
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, par value $2.00 per share | | BHB | | NYSE American |
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 (§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, a smaller reporting company or an emerging growth company. See the definition of "large accelerated filer," "accelerated filer", "smaller reporting company", or "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 ⌧
The Registrant had 14,928,56514,986,786 shares of common stock, par value $2.00 per share, outstanding as of October 30, 2020.November 5, 2021.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
FORM 10-Q
INDEX
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| Consolidated Balance Sheets as of September 30, | 4 | |||
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| 8 | ||||
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| Consolidated Statements of Cash Flows for the Nine Months Ended September 30, | 9 | |||
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| Notes to Unaudited Consolidated Interim Financial Statements | | |||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Bar Harbor Bankshares conducts business operations principally through Bar Harbor Bank & Trust, which may be referred to as “the Bank”the “Bank” and which is a subsidiary of Bar Harbor Bankshares. Unless the context requires otherwise, references in this report to “the Company” "our company, "our," "us," and similar terms refer to Bar Harbor Bankshares and its subsidiaries, including the Bank, collectively.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Form 10-Q the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions are intended to identify forward-looking statements, but these terms are not the exclusive means of identifying forward-looking statements. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that the Company files with the Securities and Exchange Commission, including but not limited to those discussed in the section titled "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Part II, Item 1A. of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. Because of these and other uncertainties, the Company’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, the Company’s past results of operations do not necessarily indicate future results. You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made. The Company is not undertaking an obligation to update forward-looking statements, even though its situation may change in the future, except as required under federal securities law. The Company qualifies all of its forward-looking statements by these cautionary statements.
3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| | | | | | | | | | | | |
(in thousands, except share data) |
| September 30, 2020 |
| December 31, 2019 |
| September 30, 2021 |
| December 31, 2020 | ||||
Assets |
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents: | | | | | | | | | | | | |
Cash and due from banks | | $ | 53,173 | | $ | 37,261 | | $ | 39,081 | | $ | 27,566 |
Interest-bearing deposits with the Federal Reserve Bank | |
| 162,484 | |
| 19,649 | ||||||
Interest-bearing deposits with other banks | |
| 302,118 | |
| 198,441 | ||||||
Total cash and cash equivalents | |
| 215,657 | |
| 56,910 | |
| 341,199 | |
| 226,007 |
| | | | | | | | | | | | |
Securities: | | | | | | | | | | | | |
Securities available for sale, at fair value | |
| 604,529 | |
| 663,230 | ||||||
Securities available for sale | |
| 545,327 | |
| 585,046 | ||||||
Federal Home Loan Bank stock | |
| 13,975 | |
| 20,679 | |
| 10,192 | |
| 14,036 |
Total securities | |
| 618,504 | |
| 683,909 | |
| 555,519 | |
| 599,082 |
| | | | | | | | | | | | |
Loans: | |
|
| |
|
| ||||||
Commercial real estate | |
| 1,045,635 | |
| 930,661 | ||||||
Commercial and industrial | |
| 522,510 | |
| 423,291 | ||||||
Residential real estate | |
| 1,021,206 | |
| 1,151,857 | ||||||
Consumer | |
| 119,340 | |
| 135,283 | ||||||
Loans held for sale | | | 7,505 | | | 23,988 | ||||||
| | | | | | | ||||||
Total loans | |
| 2,708,691 | |
| 2,641,092 | |
| 2,534,154 | |
| 2,562,885 |
Less: Allowance for loan losses | |
| (17,907) | |
| (15,353) | ||||||
Less: Allowance for credit losses | |
| (22,448) | |
| (19,082) | ||||||
Net loans | |
| 2,690,784 | |
| 2,625,739 | |
| 2,511,706 | |
| 2,543,803 |
| | | | | | | | | | | | |
Premises and equipment, net | |
| 51,424 | |
| 51,205 | |
| 50,070 | |
| 52,458 |
Other real estate owned | |
| 1,983 | |
| 2,236 | ||||||
Goodwill | |
| 119,477 | |
| 118,649 | |
| 119,477 | |
| 119,477 |
Other intangible assets | |
| 7,913 | |
| 8,641 | |
| 6,966 | |
| 7,670 |
Cash surrender value of bank-owned life insurance | |
| 77,388 | |
| 75,863 | |
| 79,380 | |
| 77,870 |
Deferred tax assets, net | |
| 2,180 | |
| 3,865 | ||||||
Other assets | |
| 74,400 | |
| 42,111 | ||||||
Total assets | | $ | 3,859,710 | | $ | 3,669,128 | ||||||
Deferred tax assets, net(1) | |
| 5,811 | |
| 3,047 | ||||||
Other assets(1) | |
| 60,712 | |
| 70,873 | ||||||
Total assets(1) | | $ | 3,738,345 | | $ | 3,724,275 | ||||||
| | | | | | | | | | | | |
Liabilities | |
|
| |
|
| |
|
| |
|
|
Deposits: | |
|
| |
|
| |
|
| |
|
|
Demand | | $ | 515,064 | | $ | 414,534 | | $ | 664,395 | | $ | 544,636 |
NOW | |
| 706,048 | |
| 575,809 | |
| 888,021 | |
| 738,849 |
Savings | |
| 511,938 | |
| 388,683 | |
| 605,977 | |
| 521,638 |
Money market | |
| 388,356 | |
| 384,090 | |
| 379,651 | |
| 402,731 |
Time | |
| 813,509 | |
| 932,635 | |
| 469,221 | |
| 698,361 |
Total deposits | |
| 2,934,915 | |
| 2,695,751 | |
| 3,007,265 | |
| 2,906,215 |
| | | | | | | | | | | | |
Borrowings: | |
|
| |
|
| |
|
| |
|
|
Senior | |
| 385,472 | |
| 471,396 | |
| 190,267 | |
| 276,062 |
Subordinated | |
| 59,920 | |
| 59,920 | |
| 60,083 | |
| 59,961 |
Total borrowings | |
| 445,392 | |
| 531,316 | |
| 250,350 | |
| 336,023 |
| | | | | | | | | | | | |
Other liabilities | |
| 74,958 | |
| 45,654 | ||||||
Total liabilities | |
| 3,455,265 | |
| 3,272,721 | ||||||
Other liabilities(1) | |
| 62,295 | |
| 74,972 | ||||||
Total liabilities(1) | |
| 3,319,910 | |
| 3,317,210 | ||||||
| | | | | | |
(continued)
4
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (continued)
| | | | | | | | | | | | |
(in thousands, except share data) |
| September 30, 2020 |
| December 31, 2019 |
| September 30, 2021 |
| December 31, 2020 | ||||
Shareholders’ equity |
| | |
| | |
| | |
| | |
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,388 shares at September 30, 2020 and December 31, 2019 |
| | 32,857 |
| | 32,857 | ||||||
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,388 shares at September 30, 2021 and December 31, 2020 |
| | 32,857 |
| | 32,857 | ||||||
Additional paid-in capital |
| | 189,606 |
| | 188,536 |
| | 190,892 |
| | 190,084 |
Retained earnings |
| | 190,249 |
| | 175,780 |
| | 209,426 |
| | 195,607 |
Accumulated other comprehensive income |
| | 9,405 |
| | 3,911 |
| | 2,888 |
| | 6,740 |
Less: 1,499,823 and 870,257 shares of treasury stock at September 30, 2020 and December 31, 2019, respectively |
| | (17,672) |
| | (4,677) | ||||||
Less: 1,441,763 and 1,512,465 shares of treasury stock at September 30, 2021 and December 31, 2020, respectively |
| | (17,628) |
| | (18,223) | ||||||
Total shareholders’ equity |
| | 404,445 |
| | 396,407 |
| | 418,435 |
| | 407,065 |
Total liabilities and shareholders’ equity | | $ | 3,859,710 | | $ | 3,669,128 | | $ | 3,738,345 | | $ | 3,724,275 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
The accompanying notes are an integral part of these consolidated financial statements.
5
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, | | September 30, | | September 30, | ||||||||||||||||
(in thousands, except earnings per share data) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||
Interest and dividend income | | | | | | | | | | | | | | | | | | | | | | | | |
Loans | | $ | 25,918 | | $ | 28,157 | | $ | 80,398 | | $ | 82,681 | | $ | 25,094 | | $ | 25,918 | | $ | 72,490 | | $ | 80,398 |
Securities and other | |
| 4,557 | |
| 6,105 | |
| 15,006 | |
| 18,593 | |
| 3,821 | |
| 4,557 | |
| 11,792 | |
| 15,006 |
Total interest and dividend income | |
| 30,475 | |
| 34,262 | |
| 95,404 | |
| 101,274 | |
| 28,915 | |
| 30,475 | |
| 84,282 | |
| 95,404 |
Interest expense | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Deposits | |
| 3,869 | |
| 7,143 | |
| 14,437 | |
| 20,336 | |
| 1,555 | |
| 3,869 | |
| 7,109 | |
| 14,437 |
Borrowings | |
| 1,941 | |
| 4,674 | |
| 7,149 | |
| 15,232 | |
| 1,778 | |
| 1,941 | |
| 5,415 | |
| 7,149 |
Total interest expense | |
| 5,810 | |
| 11,817 | |
| 21,586 | |
| 35,568 | |
| 3,333 | |
| 5,810 | |
| 12,524 | |
| 21,586 |
Net interest income | |
| 24,665 | |
| 22,445 | |
| 73,818 | |
| 65,706 | |
| 25,582 | |
| 24,665 | |
| 71,758 | |
| 73,818 |
Provision for loan losses | |
| 1,800 | |
| 893 | |
| 4,265 | |
| 1,779 | ||||||||||||
Provision for credit losses | |
| (174) | |
| 1,800 | |
| (1,428) | |
| 4,265 | ||||||||||||
Net interest income after provision for loan losses | |
| 22,865 | |
| 21,552 | |
| 69,553 | |
| 63,927 | |
| 25,756 | |
| 22,865 | |
| 73,186 | |
| 69,553 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Non-interest income | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Trust and investment management fee income | |
| 3,532 | |
| 3,013 | |
| 10,060 | |
| 8,836 | |
| 3,868 | |
| 3,532 | |
| 11,335 | |
| 10,060 |
Customer service fees | |
| 2,886 | |
| 2,553 | |
| 8,437 | |
| 7,336 | |
| 3,515 | |
| 2,886 | |
| 9,742 | |
| 8,437 |
Gain on sales of securities, net | |
| — | |
| 157 | |
| 1,486 | |
| 157 | |
| 1,930 | |
| — | |
| 1,980 | |
| 1,486 |
Mortgage banking income | | | 2,649 | | | 452 | | | 4,230 | | | 1,094 | | | 850 | | | 2,649 | | | 4,973 | | | 4,230 |
Bank-owned life insurance income | |
| 492 | |
| 497 | |
| 1,525 | |
| 1,558 | |
| 494 | |
| 492 | |
| 1,510 | |
| 1,525 |
Customer derivative income | |
| 316 | |
| 828 | |
| 1,417 | |
| 1,553 | |
| 341 | |
| 316 | |
| 837 | |
| 1,417 |
Other income | |
| 227 | |
| 143 | |
| 1,078 | |
| 729 | |
| 352 | |
| 227 | |
| 726 | |
| 1,078 |
Total non-interest income | |
| 10,102 | |
| 7,643 | |
| 28,233 | |
| 21,263 | |
| 11,350 | |
| 10,102 | |
| 31,103 | |
| 28,233 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Non-interest expense | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Salaries and employee benefits | |
| 11,809 | |
| 11,364 | |
| 35,602 | |
| 33,568 | |
| 11,743 | |
| 11,809 | |
| 35,275 | |
| 35,602 |
Occupancy and equipment | |
| 4,279 | |
| 3,415 | |
| 12,559 | |
| 10,101 | |
| 4,029 | |
| 4,279 | |
| 12,251 | |
| 12,559 |
Loss on premises and equipment, net | |
| — | |
| — | |
| 90 | |
| 21 | ||||||||||||
Loss (gain) on sales of premises and equipment, net | |
| (146) | |
| — | |
| (137) | |
| 90 | ||||||||||||
Outside services | |
| 438 | |
| 424 | |
| 1,414 | |
| 1,278 | |
| 547 | |
| 438 | |
| 1,512 | |
| 1,414 |
Professional services | |
| 479 | |
| 707 | |
| 1,488 | |
| 1,821 | |
| 491 | |
| 479 | |
| 1,200 | |
| 1,488 |
Communication | |
| 215 | |
| 189 | |
| 698 | |
| 707 | |
| 188 | |
| 215 | |
| 707 | |
| 698 |
Marketing | |
| 300 | |
| 613 | |
| 970 | |
| 1,419 | |
| 339 | |
| 300 | |
| 1,163 | |
| 970 |
Amortization of intangible assets | |
| 256 | |
| 207 | |
| 768 | |
| 621 | |
| 233 | |
| 256 | |
| 707 | |
| 768 |
Loss on debt extinguishment | | | — | | | — | | | 1,351 | | | 0 | | | 1,768 | | | — | | | 1,768 | | | 1,351 |
Acquisition, conversion and other expenses | |
| 691 | |
| 3,039 | |
| 952 | |
| 3,319 | |
| 318 | |
| 691 | |
| 1,759 | |
| 952 |
Other expenses | |
| 3,952 | |
| 3,442 | |
| 11,152 | |
| 10,075 | |
| 3,862 | |
| 3,952 | |
| 11,382 | |
| 11,152 |
Total non-interest expense | |
| 22,419 | |
| 23,400 | |
| 67,044 | |
| 62,930 | |
| 23,372 | |
| 22,419 | |
| 67,587 | |
| 67,044 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes | |
| 10,548 | |
| 5,795 | |
| 30,742 | |
| 22,260 | |
| 13,734 | |
| 10,548 | |
| 36,702 | |
| 30,742 |
Income tax expense | |
| 2,146 | |
| 780 | |
| 6,138 | |
| 3,847 | |
| 2,706 | |
| 2,146 | |
| 7,169 | |
| 6,138 |
Net income | | $ | 8,402 | | $ | 5,015 | | $ | 24,604 | | $ | 18,413 | | $ | 11,028 | | $ | 8,402 | | $ | 29,533 | | $ | 24,604 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Earnings per share: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Basic | | $ | 0.56 | | $ | 0.32 | | $ | 1.60 | | $ | 1.19 | | $ | 0.74 | | $ | 0.56 | | $ | 1.97 | | $ | 1.60 |
Diluted | | $ | 0.56 | | $ | 0.32 | | $ | 1.60 | | $ | 1.18 | | $ | 0.73 | | $ | 0.56 | | $ | 1.96 | | $ | 1.60 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Basic | |
| 15,079 | |
| 15,547 | |
| 15,359 | |
| 15,536 | |
| 14,983 | |
| 15,079 | |
| 14,961 | |
| 15,359 |
Diluted | |
| 15,103 | |
| 15,581 | |
| 15,382 | |
| 15,582 | |
| 15,051 | |
| 15,103 | |
| 15,035 | |
| 15,382 |
The accompanying notes are an integral part of these consolidated financial statements.
6
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended |
| Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, | | September 30, | | September 30, | ||||||||||||||||
(in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||
Net income | | $ | 8,402 | | $ | 5,015 | | $ | 24,604 | | $ | 18,413 | | $ | 11,028 | | $ | 8,402 | | $ | 29,533 | | $ | 24,604 |
Other comprehensive income, before tax: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Changes in unrealized gain on securities available for sale | |
| 351 | |
| 3,200 | |
| 7,922 | |
| 21,746 | ||||||||||||
Changes in unrealized gain (loss) on hedging derivatives | |
| 805 | |
| (370) | |
| (833) | |
| (2,372) | ||||||||||||
Changes in unrealized (loss) gain on securities available for sale | |
| (3,700) | |
| 351 | |
| (7,328) | |
| 7,922 | ||||||||||||
Changes in unrealized (loss) gain on hedging derivatives(1) | |
| (203) | |
| 1,302 | |
| 2,311 | |
| (7,568) | ||||||||||||
Changes in unrealized loss on pension | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income taxes related to other comprehensive income: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Changes in unrealized gain on securities available for sale | |
| (82) | |
| (747) | |
| (1,791) | |
| (5,081) | ||||||||||||
Changes in unrealized (gain) loss on hedging derivatives | |
| (190) | |
| 85 | |
| 196 | |
| 554 | ||||||||||||
Changes in unrealized loss (gain) on securities available for sale | |
| 861 | |
| (82) | |
| 1,703 | |
| (1,791) | ||||||||||||
Changes in unrealized loss (gain) on hedging derivatives(1) | |
| 48 | |
| (308) | |
| (538) | |
| 1,776 | ||||||||||||
Changes in unrealized loss on pension | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Total other comprehensive income | |
| 884 | |
| 2,168 | |
| 5,494 | |
| 14,847 | ||||||||||||
Total other comprehensive (loss) income(1) | |
| (2,994) | |
| 1,263 | |
| (3,852) | |
| 339 | ||||||||||||
Total comprehensive income | | $ | 9,286 | | $ | 7,183 | | $ | 30,098 | | $ | 33,260 | | $ | 8,034 | | $ | 9,665 | | $ | 25,681 | | $ | 24,943 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
The accompanying notes are an integral part of these consolidated financial statements.
7
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)
| | | | | | | | | | | | | | | | | | |
|
| |
| | | |
| | | | Accumulated |
| | |
| | | |
| | Common | | Additional | | | | | other | | | | | | | |||
| | stock | | paid-in | | Retained | | comprehensive | | Treasury | | | | |||||
(in thousands, except per share data) |
| amount |
| capital |
| earnings |
| income (loss) |
| stock |
| Total | ||||||
Balance at December 31, 2018 |
| $ | 32,857 | | $ | 187,653 | | $ | 166,526 | | $ | (11,802) | | $ | (4,655) | | $ | 370,579 |
| |
| | | | | | | | | | | | | | | | |
Net income | |
| 0 | |
| 0 | |
| 13,398 | |
| 0 | |
| 0 | |
| 13,398 |
Other comprehensive income | |
| 0 | |
| 0 | |
| 0 | |
| 12,679 | |
| 0 | |
| 12,679 |
Cash dividends declared ($0.42 per share) | |
| 0 | |
| 0 | |
| (6,524) | |
| 0 | |
| 0 | |
| (6,524) |
Common stock purchased (8,010 shares) | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (210) | |
| (210) |
Net issuance (21,119 shares) to employee stock plans, including related tax effects | |
| 0 | |
| (69) | |
| 0 | |
| 0 | |
| 149 | |
| 80 |
Recognition of stock based compensation | |
| 0 | |
| 560 | |
| 0 | |
| 0 | |
| 0 | |
| 560 |
Balance at June 30, 2019 | |
| 32,857 | |
| 188,144 | |
| 173,400 | |
| 877 | |
| (4,716) | |
| 390,562 |
| | | | | | | | | | | | | | | | | | |
Net income | |
| 0 | |
| 0 | |
| 5,015 | |
| 0 | |
| 0 | |
| 5,015 |
Other comprehensive income | |
| 0 | |
| 0 | |
| 0 | |
| 2,168 | |
| 0 | |
| 2,168 |
Cash dividends declared ($0.22 per share) | |
| 0 | |
| 0 | |
| (3,421) | |
| 0 | |
| 0 | |
| (3,421) |
Common stock purchased (5,482 shares) | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (136) | |
| (136) |
Net issuance (4,297 shares) to employee stock plans, including related tax effects | |
| 0 | |
| (17) | |
| 0 | |
| 0 | |
| 132 | |
| 115 |
Recognition of stock based compensation | |
| 0 | |
| 156 | |
| 0 | |
| 0 | |
| 0 | |
| 156 |
Balance at September 30, 2019 | | $ | 32,857 | | $ | 188,283 | | $ | 174,994 | | $ | 3,045 | | $ | (4,720) | | $ | 394,459 |
| | | | | | | | | | | | | | | | | | |
Balance at December 31, 2019 | | $ | 32,857 | | $ | 188,536 | | $ | 175,780 | | $ | 3,911 | | $ | (4,677) | | $ | 396,407 |
| | | | | | | | | | | | | | | | | | |
Net income | |
| 0 | |
| 0 | |
| 16,202 | |
| 0 | |
| 0 | |
| 16,202 |
Other comprehensive income | |
| 0 | |
| 0 | |
| 0 | |
| 4,610 | |
| 0 | |
| 4,610 |
Cash dividends declared ($0.44 per share) | |
| 0 | |
| 0 | |
| (6,819) | |
| 0 | |
| 0 | |
| (6,819) |
Common stock purchased (405,208 shares) | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (7,467) | |
| (7,467) |
Net issuance (61,025 shares) to employee stock plans, including related tax effects | |
| 0 | |
| 406 | |
| 0 | |
| 0 | |
| 251 | |
| 657 |
Recognition of stock based compensation | |
| 0 | |
| 584 | |
| 0 | |
| 0 | |
| 0 | |
| 584 |
Balance at June 30, 2020 | | | 32,857 | | | 189,526 | | | 185,163 | | | 8,521 | | | (11,893) | | | 404,174 |
| | | | | | | | | | | | | | | | | | |
Net income | |
| 0 | |
| 0 | |
| 8,402 | |
| 0 | |
| 0 | |
| 8,402 |
Other comprehensive income | |
| 0 | |
| 0 | |
| 0 | |
| 884 | |
| 0 | |
| 884 |
Cash dividends declared ($0.22 per share) | |
| 0 | |
| 0 | |
| (3,316) | |
| 0 | |
| 0 | |
| (3,316) |
Common stock purchased (297,658 shares) | | | 0 | | | 0 | | | 0 | | | 0 | | | (6,003) | | | (6,003) |
Net issuance (12,275 shares) to employee stock plans, including related tax effects | |
| 0 | |
| (199) | |
| 0 | |
| 0 | |
| 224 | |
| 25 |
Recognition of stock based compensation | |
| 0 | |
| 279 | |
| 0 | |
| 0 | |
| 0 | |
| 279 |
Balance at September 30, 2020 | | $ | 32,857 | | $ | 189,606 | | $ | 190,249 | | $ | 9,405 | | $ | (17,672) | | $ | 404,445 |
| | | | | | | | | | | | | | | | | | |
|
| |
| | | |
| | | | Accumulated |
| | |
| | | |
| | Common | | Additional | | | | | other | | | | | | | |||
| | stock | | paid-in | | Retained | | comprehensive | | Treasury | | | | |||||
(in thousands, except per share data) |
| amount |
| capital |
| earnings |
| income (loss)(1) |
| stock |
| Total(1) | ||||||
Balance at December 31, 2019 |
| $ | 32,857 | | $ | 188,536 | | $ | 175,780 | | $ | 3,792 | | $ | (4,677) | | $ | 396,288 |
Net income | |
| 0 | |
| 0 | |
| 16,202 | |
| 0 | |
| 0 | |
| 16,202 |
Other comprehensive income | |
| 0 | |
| 0 | |
| 0 | |
| (924) | |
| 0 | |
| (924) |
Cash dividends declared ($0.44 per share) | |
| 0 | |
| 0 | |
| (6,819) | |
| 0 | |
| 0 | |
| (6,819) |
Treasury stock purchased (405,208 shares) | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (7,467) | |
| (7,467) |
Net issuance (61,025 shares) to employee stock plans, including related tax effects | |
| 0 | |
| 406 | |
| 0 | |
| 0 | |
| 251 | |
| 657 |
Recognition of stock based compensation | |
| 0 | |
| 584 | |
| 0 | |
| 0 | |
| 0 | |
| 584 |
Balance at June 30, 2020 | | $ | 32,857 | | $ | 189,526 | | $ | 185,163 | | $ | 2,868 | | $ | (11,893) | | $ | 398,521 |
Net income | |
| 0 | |
| 0 | |
| 8,402 | |
| 0 | |
| 0 | |
| 8,402 |
Other comprehensive income | |
| 0 | |
| 0 | |
| 0 | |
| 1,263 | |
| 0 | |
| 1,263 |
Cash dividends declared ($0.22 per share) | |
| 0 | |
| 0 | |
| (3,316) | |
| 0 | |
| 0 | |
| (3,316) |
Common stock purchased (297,658 shares) | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (6,003) | |
| (6,003) |
Net issuance (12,275 shares) to employee stock plans, including related tax effects | |
| 0 | |
| (199) | |
| 0 | |
| 0 | |
| 224 | |
| 25 |
Recognition of stock based compensation | |
| 0 | |
| 279 | |
| 0 | |
| 0 | |
| 0 | |
| 279 |
Balance at September 30, 2020 | | $ | 32,857 | | $ | 189,606 | | $ | 190,249 | | $ | 4,131 | | $ | (17,672) | | $ | 399,171 |
| | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | | $ | 32,857 | | $ | 190,084 | | $ | 195,607 | | $ | 6,740 | | $ | (18,223) | | $ | 407,065 |
Allowance for credit losses cumulative-effect adjustment - ASU 2016-13 (Note 1) | | | 0 | | | 0 | | | (5,242) | | | 0 | | | 0 | | | (5,242) |
Net income | |
| 0 | |
| 0 | |
| 18,505 | |
| 0 | |
| 0 | |
| 18,505 |
Other comprehensive loss | |
| 0 | |
| 0 | |
| 0 | |
| (858) | |
| 0 | |
| (858) |
Cash dividends declared ($0.46 per share) | |
| 0 | |
| 0 | |
| (6,876) | |
| 0 | |
| 0 | |
| (6,876) |
Net issuance (56,290 shares) to employee stock plans, including related tax effects | |
| 0 | |
| (280) | |
| 0 | |
| 0 | |
| 449 | |
| 169 |
Recognition of stock based compensation | |
| 0 | |
| 997 | |
| 0 | |
| 0 | |
| 0 | |
| 997 |
Balance at June 30, 2021 | | $ | 32,857 | | $ | 190,801 | | $ | 201,994 | | $ | 5,882 | | $ | (17,774) | | $ | 413,760 |
Net income | |
| 0 | |
| 0 | |
| 11,028 | |
| 0 | |
| 0 | |
| 11,028 |
Other comprehensive income | |
| 0 | |
| 0 | |
| 0 | |
| (2,994) | |
| 0 | |
| (2,994) |
Cash dividends declared ($0.24 per share) | |
| 0 | |
| 0 | |
| (3,596) | |
| 0 | |
| 0 | |
| (3,596) |
Net issuance (14,412 shares) to employee stock plans, including related tax effects | |
| 0 | |
| (276) | |
| 0 | |
| 0 | |
| 146 | |
| (130) |
Recognition of stock based compensation | |
| 0 | |
| 367 | |
| 0 | |
| 0 | |
| 0 | |
| 367 |
Balance at September 30, 2021 | | $ | 32,857 | | $ | 190,892 | | $ | 209,426 | | $ | 2,888 | | $ | (17,628) | | $ | 418,435 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
The accompanying notes are an integral part of these consolidated financial statements.
8
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
(in thousands) |
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||
Cash flows from operating activities: |
|
|
| | |
|
|
|
| | |
|
Net income |
| $ | 24,604 | | $ | 18,413 |
| $ | 29,533 | | $ | 24,604 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
| |
|
| |
| | |
|
|
Provision for loan losses | |
| 4,265 | |
| 1,779 | ||||||
Provision for credit losses | |
| (1,428) | |
| 4,265 | ||||||
Net amortization of securities | |
| 2,472 | |
| 2,535 | |
| 3,788 | |
| 2,472 |
Change in unamortized net loan costs and premiums | |
| 3,149 | |
| (278) | |
| (2,739) | |
| 1,923 |
Premises and equipment depreciation | |
| 3,571 | |
| 2,942 | |
| 3,466 | |
| 3,571 |
Stock-based compensation expense | |
| 863 | |
| 716 | |
| 1,364 | |
| 863 |
Accretion of purchase accounting entries, net | |
| (1,219) | |
| (2,613) | |
| 10 | |
| 7 |
Amortization of other intangibles | |
| 768 | |
| 621 | |
| 704 | |
| 768 |
Income from cash surrender value of bank-owned life insurance policies | |
| (1,525) | |
| (1,558) | |
| (1,510) | |
| (1,525) |
Gain on sales of securities, net | |
| (1,486) | |
| (157) | |
| (1,980) | |
| (1,486) |
Increase in right-of-use lease assets | | | (578) | | | — | ||||||
Increase in lease liabilities | | | 625 | | | — | ||||||
Decrease (increase) in right-of-use lease assets | | | 851 | | | (578) | ||||||
(Decrease) increase in lease liabilities | | | (786) | | | 625 | ||||||
Loss on other real estate owned | |
| 366 | |
| 146 | |
| — | |
| 366 |
Loss on premises and equipment, net | |
| 90 | |
| 21 | ||||||
(Gain) loss on premises and equipment, net | |
| (137) | |
| 90 | ||||||
Net change in other assets and liabilities | |
| (3,978) | |
| (1,722) | |
| (373) | |
| (3,978) |
Net cash provided by operating activities | |
| 31,987 | |
| 20,845 | |
| 30,763 | |
| 31,987 |
| | | | | | | | | | | | |
Cash flows from investing activities: | |
|
| |
|
| |
|
| |
|
|
Proceeds from sales of securities available for sale | |
| 87,521 | |
| 67,983 | |
| 54,388 | |
| 87,521 |
Proceeds from maturities, calls and prepayments of securities available for sale | |
| 109,314 | |
| 77,812 | |
| 99,580 | |
| 109,314 |
Purchases of securities available for sale | |
| (131,107) | |
| (76,620) | |
| (123,335) | |
| (131,107) |
Net change in loans | |
| (71,233) | |
| (85,483) | |
| 47,519 | |
| (71,233) |
Purchase of FHLB stock | |
| (4,044) | |
| (10,471) | |
| (790) | |
| (4,044) |
Proceeds from sale of FHLB stock | |
| 10,748 | |
| 18,661 | |
| 4,634 | |
| 10,748 |
Purchase of premises and equipment, net | |
| (4,449) | |
| (1,803) | |
| (1,216) | |
| (4,449) |
Net investment in community limited partnerships | | | (1,112) | | | — | ||||||
Acquisitions, net of cash acquired | | | (340) | | | — | | | — | | | (340) |
Proceeds from sale of other real estate | | | (113) | | | — | ||||||
Net cash used in investing activities | |
| (3,703) | |
| (9,921) | ||||||
Proceeds from sale of other real estate owned | | | — | | | (113) | ||||||
Net cash provided by (used in) investing activities | |
| 79,668 | |
| (3,703) | ||||||
| | | | | | | | | | | | |
Cash flows from financing activities: | |
|
| |
|
| |
|
| |
|
|
Net change in deposits | |
| 239,164 | |
| 10,968 | |
| 101,050 | |
| 239,164 |
Net change in short-term senior borrowings | | | (273,268) | | | (111,400) | | | 9,324 | | | (273,268) |
Proceeds from long-term senior borrowings | | | 273,342 | | | 174,000 | | | — | | | 273,342 |
Repayments of long-term senior borrowings | |
| (71,187) | |
| (106,605) | | | (89,018) | | | (71,187) |
Net change in short-term other borrowings | |
| (14,784) | |
| 5,048 | |
| (6,112) | |
| (14,784) |
Net change in subordinated debt issuance costs | | | 119 | | | — | ||||||
Net change subordinated debt issuance costs | | | — | | | 119 | ||||||
Exercise of stock options | | | 682 | | | 195 | | | 39 | | | 682 |
Purchase of treasury and common stock | | | (13,470) | | | (346) | | | — | | | (13,470) |
Cash dividends paid on common stock | |
| (10,135) | |
| (9,945) | |
| (10,472) | |
| (10,135) |
Net cash provided by (used in) financing activities | |
| 130,463 | |
| (38,085) | ||||||
| | | | | | | ||||||
Net change in cash and cash equivalents | |
| 158,747 | |
| (27,161) | ||||||
Cash and cash equivalents at beginning of year | |
| 56,910 | |
| 98,754 | ||||||
Cash and cash equivalents at end of year | | $ | 215,657 | | $ | 71,593 | ||||||
Net cash provided by financing activities | |
| 4,811 | |
| 130,463 | ||||||
(continued) | (continued) |
(continued)
9
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)
| | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
(in thousands) |
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||
Net change in cash and cash equivalents | |
| 115,242 | |
| 158,747 | ||||||
Cash and cash equivalents at beginning of year | |
| 226,007 | |
| 56,910 | ||||||
Cash and cash equivalents at end of period | | $ | 341,249 | | $ | 215,657 | ||||||
| | | | | | | ||||||
Supplemental cash flow information: | |
|
| |
|
| |
|
| |
|
|
Interest paid | | $ | 22,085 | | $ | 34,394 | | $ | 13,052 | | $ | 22,085 |
Income taxes paid, net | |
| 4,806 | |
| 2,479 | |
| 7,755 | |
| 4,806 |
| | | | | | | | | | | | |
Acquisition of non-cash assets and liabilities: | | | | | | | | | | | | |
Assets acquired | | | 1,171 | | | — | | | — | | | 1,171 |
Liabilities acquired | | | (343) | | | — | | | — | | | (343) |
| | | | | | | ||||||
Other non-cash changes: | |
|
| |
|
| ||||||
Real estate owned acquired in settlement of loans | |
| — | |
| 250 |
The accompanying notes are an integral part of these consolidated financial statements.
10
BAR HARBOR BANKSHARES AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements (the “financial statements”) of Bar Harbor Bankshares and its subsidiaries (the “Company” or “Bar Harbor”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Bar Harbor Bankshares is a Maine Financial Institution Holding Company for the purposes of the laws of the state of Maine, and as such is subject to the jurisdiction of the Superintendent of the Maine Bureau of Financial Institutions. These financial statements include the accounts of the Company, its wholly owned subsidiary Bar Harbor Bank & Trust (the "Bank") and the Bank’s consolidated subsidiaries. The results of operations of companies or assets acquired are included only from the dates of acquisition. All material wholly owned and majority owned subsidiaries are consolidated unless GAAP requires otherwise.
In addition, these interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X, and accordingly, certain information and footnote disclosures normally included in financial statements prepared according to GAAP have been omitted.
The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and note disclosures for the Company's Annual Report on Form 10-K for the year ended December 31, 20192020 previously filed with the Securities and Exchange Commission (the "SEC"). In management's opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented.
Reclassifications: Whenever necessary, amounts in the prior years’ financial statements are reclassified to conform to current presentation. The reclassifications had no impact on net income in the Company’s consolidated income statement.
Summary of Significant Accounting Policies
The disclosures below supplement updates the accounting policies previously disclosed in NOTE 1 – Summary of Significant Accounting Policies of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020. The updates reflect the adoption of the Financial Accounting Standards Board (FASB) Accounting Standards Updates (ASU) 2016-13, “Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments”, referred to as ASC 326 or, more commonly, referred to as Current Expected Credit Losses (CECL).
Allowance for Credit Loss on AFS Debt Securities: Upon adoption of CECL, effective January 1, 2021, the Company monitors the credit quality of available for sale (AFS) debt securities through credit ratings from various rating agencies and substantial price changes. Credit ratings express opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Securities are triggered for further review in the quarter if the security has significant fluctuations in ratings, drops below investment grade, or significant pricing changes. For securities without credit ratings, the Company utilizes other financial information indicating the financial health of the underlying municipality, agency, or organization associated with the underlying security. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance on AFS debt securities is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. When assessing an AFS debt security for credit loss, securities with identical CUSIPs are pooled together to assess for impairment using the average cost basis. Any impairment that has not been recorded through an allowance is recognized in other comprehensive income.
A change in the allowance on AFS debt securities may be in full or a portion thereof, is recorded as expense (credit) within provision for credit losses on the consolidated statements of income. Losses are charged against the allowance when management believes the uncollectibility of an AFS debt security is confirmed based on the above described analysis. As
11
of September 30, 2021 and January 1, 2021 (i.e. ASU 2016-13 adoption), there was 0 allowance carried on the Company's AFS debt securities. Refer to Note 2 of the consolidated financial statements for further discussion.
Loans: Loans held for investment by the Company are reported at amortized cost. Amortized cost is the principal balance outstanding net of the unamortized balance of any deferred fees or costs and the unamortized balance of any premiums or discounts on loans purchased or acquired through mergers.
For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the contractual term of the loan using the level-yield method over the estimated lives of the related loans. When a loan is paid off, the unamortized portion of deferred fees or costs are recognized in interest income. Interest income on originated loans is accrued based upon the daily principal amount outstanding except for loans on non-accrual status.
For acquired loans, interest income is accrued based upon the daily principal amount outstanding and is then further adjusted by the accretion of any discount or amortization of any premium associated with the loan that was recognized based on the acquisition date fair value. When a loan is paid off, the unamortized portion of any premiums or discounts on loans are recognized in interest income.
Purchase Credit Deteriorated (PCD) Loans: Loans that the Company acquired in acquisitions include some loans that have experienced more than insignificant credit deterioration since origination. The initial allowance for credit losses is determined on a collective basis and allocated to the individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost. The difference between the initial amortized cost and the par value of the loan is a discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.
The Company adopted CECL using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30. In accordance with the standard, the Company did not reassess whether PCI assets met the definition of PCD assets as of the date of adoption. On January 1, 2021, the amortized cost basis of the PCD assets representing the noncredit discount will be accreted into interest income using the level-yield method over the estimated lives of the related loans. The converted PCD assets of $12.5 million were then pooled by call report coding and an additional allowance was calculated on the pooled assets separately from other loan pools totaling $524 thousand.
Operating, AccountingNon-performing loans: Residential real estate and Reporting Considerations relatedconsumer loans are generally placed on non-accrual status when reaching 90 days past due, or in process of foreclosure, or sooner if considered appropriate by management. Secured consumer loans are written down to COVID-19:net realizable value and unsecured consumer loans are charged-off upon reaching 120 days past due. Commercial real estate loans and commercial business loans that are 90 days or more past due are generally placed on non-accrual status, unless secured by sufficient cash or other assets immediately convertible to cash, and the loan is in the process of collection. Commercial real estate and commercial business loans may be placed on non-accrual status prior to the 90 days delinquency date if considered appropriate by management.
When a loan has been placed on non-accrual status, previously accrued and uncollected interest is reversed against interest on the loan. The interest on non-accrual loans is accounted for using the cash-basis or cost-recovery method depending on corresponding credit risk, until qualifying for return to accrual status. A loan can be returned to accrual status when collectability of principal is reasonably assured and the loan has performed for a period of time, generally six months.
Previously, acquired loans that met the criteria for non-accrual of interest prior to the acquisition were considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company could reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans and any change in performance would have impacted accretable yield. After adoption of ASC 326 on January 1, 2021 the Company now treats these non-performing acquired loans that meet the criteria for non-accrual consistent with originated loans.
Allowance for Credit Losses: The allowance for credit losses (the “allowance”) is a significant accounting estimate used in the preparation of the Company’s consolidated financial statements. The Allowance is comprised of the allowance for
12
loan losses and the allowance for off-balance sheet credit exposures, which is accounted for as a separate liability in other liabilities on the balance sheet. The level of the allowance represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date.
Upon adoption of ASC 326 or CECL on January 1, 2021, the Company replaced the incurred loss impairment model that recognizes losses when it became probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The COVID-19 pandemic has negatively impactedallowance for credit losses is a valuation account that is deducted from the global economy. In responseamortized cost basis of loans to this crisis,present the Coronavirus Aid, Relief,net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and Economic Security (“CARES”) Act was passed by Congressexpected to be charged- off. The allowance is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans and signed into lawTDRs.
The Company uses the discounted cash flow (DCF) method to estimate expected credit losses for all loan portfolio segments measured on March 27, 2020.a collective (pool) basis. For each loan segment, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, probability of default, and loss given default. The CARES Act provides an estimated $2.2 trillionmodeling of prepayment speeds is based on historical internal data.
The Company uses regression analysis of historical internal and peer data to fightdetermine suitable loss drivers to utilize when modeling lifetime probability of default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the COVID-19 pandemic and stimulateloss drivers. For all loan pools utilizing the economy by supporting individuals and businesses through loans, grants, taxDCF method, management utilizes various economic indicators such as changes in unemployment rates, gross domestic product, property values, housing starts, and other types of relief. Somerelevant factors as loss drivers. For all DCF models, management has determined that due to historic volatility in economic data, two quarters currently represents a reasonable and supportable forecast period, followed by a six-period reversion to historical mean levels for each of the provisions applicablevarious economic indicators.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Specific instrument effective yields are calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level Net Present Value (NPV). An allowance is established for the difference between the instrument’s NPV and amortized cost basis.
The allowance evaluation also considers various qualitative factors, such as: (i) changes to lending policies, underwriting standards and/or management personnel performing such functions, (ii) delinquency and other credit quality trends, (iii) credit risk concentrations, if any, (iv) changes to the Companynature of the Company's business impacting the loan portfolio, (v) and other external factors, that may include, but are not limited to:to, results of internal loan reviews, stress testing, examinations by bank regulatory agencies, or other events such as a natural disaster.
Arriving at an appropriate level of allowance involves a high degree of judgment. The determination of the adequacy of the allowance and provisioning for estimated losses is evaluated regularly based on review of loans, with particular emphasis on non-performing and other loans that management believes warrant special consideration. While management uses available information to recognize losses on loans, changing economic conditions and the economic prospects of the borrowers may necessitate future additions or reductions to the allowance.
Individually Evaluated Loans: Prior to the adoption of CECL on January 1, 2021, a loan was individually evaluated when the loan was considered impaired. Impaired loans were based on current information and events, it is probable that the Company will not be able to collect all amounts due from the borrower in accordance with the contractual terms of the loan, including scheduled interest payments.
With the adoption of CECL, loans that do not share risk characteristics with existing pools are evaluated on an individual basis. For loans that are individually evaluated and collateral dependent, financial loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured
13
based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV from the operation of the collateral. When repayment is expected to be from the sale of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.
Accrued Interest. Upon adoption of CECL, effective as of January 1, 2021, the Company made the following elections regarding accrued interest receivable: (i) present accrued interest receivable balances within other assets on the consolidated statements of condition; (ii) exclude accrued interest from the measurement of the allowance for credit losses, including investments and loans; and (iii) continue to write-off accrued interest receivable by reversing interest income. The Company has a policy in place to write-off accrued interest when a loan is placed on non-accrual. Historically, the Company has not experienced uncollectible accrued interest receivable on investment debt securities.
Allowance for off-balance sheet credit exposures: The exposure is a component of other liabilities on the Company’s Consolidated Balance Sheet and represents the estimate for probable credit losses inherent in unfunded commitments to extend credit. Unfunded commitments to extend credit include unused portions of lines of credit and standby and commercial letters of credit. The process used to determine the allowance for these exposures is consistent with the process for determining the allowance for loans, as adjusted for estimated funding probabilities or loan equivalency factors. A charge (credit) to provision for credit losses on the consolidated statements of income is made to account for the change in the allowance on off-balance sheet exposures between reporting periods.
1114
Impact of Adoption
Also in response to
The following table illustrates the COVID-19 pandemic, the Boardadoption of Governors of the Federal Reserve Board (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to:CECL on January 1, 2021:
| | | | | | | | | | | | | | | |
| | | | | Reclassification | | Pre-CECL | | Post-CECL | | | | |||
| | | | | to CECL | | Adoption | | Adoption | | Impact of | ||||
| | Pre-CECL | | Portfolio | | Portfolio | | Portfolio | | CECL | |||||
(in thousands) |
| Adoption |
| Segmentation |
| Segmentation |
| Segmentation |
| Adoption | |||||
Assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
Loans: |
| |
|
| |
|
| |
|
| |
|
| |
|
Commercial construction | | $ | 131,123 | | $ | (13,241) | | $ | 117,882 | | $ | 117,882 | | $ | — |
Commercial real estate | |
| 953,258 | |
| (953,258) | |
| — | |
| — | |
| — |
Commercial real estate owner occupied | |
| — | |
| 219,217 | |
| 219,217 | |
| 219,217 | |
| — |
Commercial real estate non-owner occupied | |
| — | |
| 716,776 | |
| 716,776 | |
| 716,776 | |
| — |
Tax exempt | |
| 63,431 | |
| (15,569) | |
| 47,862 | |
| 47,862 | |
| — |
Commercial and industrial | |
| 377,638 | |
| (21,954) | |
| 355,684 | |
| 355,684 | |
| — |
Residential real estate | |
| 923,891 | |
| 71,325 | |
| 995,216 | |
| 995,216 | |
| — |
Home equity | |
| 102,464 | |
| (2,368) | |
| 100,096 | |
| 100,096 | |
| — |
Consumer other | |
| 11,080 | |
| (928) | |
| 10,152 | |
| 10,152 | |
| — |
Total loans | | $ | 2,562,885 | | $ | — | | $ | 2,562,885 | | $ | 2,562,885 | | $ | — |
| | | | | | | | | | | | | | | |
Allowance for credit losses on loans | |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial construction | | $ | 1,044 | | $ | (220) | | $ | 824 | | $ | 2,020 | | $ | 1,196 |
Commercial real estate | |
| 10,199 | |
| (10,199) | |
| — | |
| — | |
| — |
Commercial real estate owner occupied | |
| — | |
| 1,783 | |
| 1,783 | |
| 2,491 | |
| 708 |
Commercial real estate non-owner occupied | |
| — | |
| 7,864 | |
| 7,864 | |
| 5,856 | |
| (2,008) |
Tax exempt | |
| 80 | |
| (22) | |
| 58 | |
| 98 | |
| 40 |
Commercial and industrial | |
| 3,302 | |
| (165) | |
| 3,137 | |
| 6,133 | |
| 2,996 |
Residential real estate | |
| 4,078 | |
| 932 | |
| 5,010 | |
| 6,742 | |
| 1,732 |
Home equity | |
| 258 | |
| 27 | |
| 285 | |
| 888 | |
| 603 |
Consumer other | |
| 121 | |
| — | |
| 121 | |
| 82 | |
| (39) |
Total allowance for credit losses on loans | | $ | 19,082 | | $ | — | | $ | 19,082 | | $ | 24,310 | | $ | 5,228 |
| | | | | | | | | | | | | | | |
Liabilities: | |
|
| ��� |
|
| |
|
| |
|
| |
|
|
Allowance for credit losses on unfunded commitments | | $ | 359 | | $ | — | | $ | 359 | | $ | 1,975 | | $ | 1,616 |
| | | | | | | | | | | | | | | |
Total allowance for credit losses | | $ | 19,441 | | $ | — | | $ | 19,441 | | $ | 26,285 | | $ | 6,844 |
| | | | | | | | | | | | | | | |
Retained earnings: | |
|
| |
|
| |
|
| |
|
| |
|
|
Total increase in Allowance for credit losses | |
|
| |
|
| |
|
| |
|
| | $ | 6,844 |
Tax effect | |
|
| |
|
| |
|
| |
|
| |
| (1,602) |
Decrease to retained earnings | |
|
| |
|
| |
|
| |
|
| | $ | 5,242 |
15
Revision of Previously Issued Financial Statements
The Company has revised amounts reported in previously issued financial statements for the periods presented in this Quarterly Report on Form 10-Q related to errors. The revised amounts relate to derivatives that were incorrectly presented as assets instead of liabilities and related equity effects net of tax and the related effects on comprehensive income and shareholders’ equity.
The following tables present the revisions to the line items of our previously issued financial statements to reflect the correction of errors:
| | | | | | | | | |
Consolidated Balance Sheets | | | | | | | | | |
| | | | | | | | | |
December 31, 2020 | | As Reported | | Adjustment | | As Revised | |||
Deferred tax assets, net | | $ | 1,745 | | $ | 1,302 | | $ | 3,047 |
Other assets | | | 73,662 | | | (2,789) | | | 70,873 |
Total assets | | $ | 3,725,762 | | $ | (1,487) | | $ | 3,724,275 |
| | | | | | | | | |
Other liabilities | | $ | 72,183 | | $ | 2,789 | | $ | 74,972 |
Total liabilities | | | 3,314,421 | | | 2,789 | | | 3,317,210 |
Total shareholders' equity | | | 411,341 | | | (4,276) | | | 407,065 |
Total liabilities and shareholders' equity | | $ | 3,725,762 | | $ | (1,487) | | $ | 3,724,275 |
| | | | | | | | | |
Consolidated Statements of Comprehensive Income (Unaudited) | |||||||||
| | | | | | | | | |
Three months ended September 30, 2020 | | As Reported | | Adjustment | | As Revised | |||
Other comprehensive income, before tax: | | | | | | | | | |
Changes in unrealized gain (loss) on hedging derivatives | | $ | 805 | | $ | 497 | | $ | 1,302 |
| | | | | | | | | |
Income taxes related to other comprehensive income: | | | | | | | | | |
Changes in unrealized (gain) loss on hedging derivatives | | | (190) | | | (118) | | | (308) |
Total other comphrensive income | | | 884 | | | 379 | | | 1,263 |
Total comphrensive income | | $ | 9,286 | | $ | 379 | | $ | 9,665 |
| | | | | | | | | |
Nine months ended September 30, 2020 | | As Reported | | Adjustment | | As Revised | |||
Other comprehensive income, before tax: | | | | | | | | | |
Changes in unrealized gain (loss) on hedging derivatives | | $ | (833) | | $ | (6,735) | | $ | (7,568) |
| | | | | | | | | |
Income taxes related to other comprehensive income: | | | | | | | | | |
Changes in unrealized (gain) loss on hedging derivatives | | | 195 | | | 1,580 | | | 1,776 |
Total other comphrensive income | | | 5,494 | | | (5,155) | | | 339 |
Total comphrensive income | | $ | 30,098 | | $ | (5,155) | | $ | 24,943 |
16
| | | | | | | | | |
Consolidated Statements of Changes in Shareholder's Equity (Unaudited) | |||||||||
| | | | | | | | | |
| | As Reported | | Adjustment | | As Revised | |||
Balance at December 31, 2019 | | $ | 396,407 | | $ | (119) | | $ | 396,288 |
Beginning accumulated other comprehensive income | | | 3,911 | | | (119) | | | 3,792 |
Other comprehensive income | | | 4,610 | | | (5,534) | | | (924) |
Ending accumulated other comprehensive income | | | 8,521 | | | (5,653) | | | 2,868 |
| | | | | | | | | |
Balance at June 30, 2020 | | $ | 404,174 | | $ | (5,653) | | $ | 398,521 |
Beginning accumulated other comprehensive income | | | 8,521 | | | (5,653) | | | 2,868 |
Other comprehensive income | | | 884 | | | 379 | | | 1,263 |
Ending accumulated other comprehensive income | | | 9,405 | | | (5,274) | | | 4,131 |
| | | | | | | | | |
Balance at September 30, 2020 | | $ | 404,445 | | $ | (5,274) | | $ | 399,171 |
| | | | | | | | | |
Balance at December 31, 2020 | | $ | 411,341 | | $ | (4,276) | | $ | 407,065 |
Beginning accumulated other comprehensive income | | | 11,016 | | | (4,276) | | | 6,740 |
Other comprehensive income | | | (3,322) | | | 2,464 | | | (858) |
Ending accumulated other comprehensive income | | | 7,694 | | | (1,812) | | | 5,882 |
| | | | | | | | | |
Balance at June 30, 2021 | | $ | 415,572 | | $ | (1,812) | | $ | 413,760 |
17
Recent Accounting Pronouncements
The following table provides a brief description of recent accounting standards updates ("ASU")(ASU) that could have a material impact to the Company’s consolidated financial statements upon adoption:
| | | | | | | | | | |
Standard |
|
| Description |
|
| Required Date |
|
| Effect on financial statements | |
Standards Adopted in |
|
|
| |||||||
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
12
| ||||||||||
|
|
|
| |||||||
| | | | |||||||
ASU 2016-13, Measurement of Credit Losses on Financial Instruments ASU 2018‑19, Codification Improvements to ASU 2016-13 | | | This ASU amends Topic 326, Financial Instruments- Credit Losses to replace the current incurred loss accounting model with a current expected credit loss approach | | | January 1, | | | Adoption of this ASU | |
ASU 2018-14 Compensation- Disclosure Requirements for Defined Pension Plans Topic 715-20 | | | This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other post-retirement benefit plans. | | | January 1, 2021 | | | Adoption of this ASU |
1318
| | | | | | | | | |
Standard | Description | Required Date | Effect on financial statements | ||||||
Standards Adopted in 2021 | | | | ||||||
ASU 2020-01, Investments—Equity Securities, Investments Equity Method and Joint Ventures, and Derivatives and Hedging | | | In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which added Topic 321, Investments – Equity Securities, and made targeted improvements to address certain aspects of accounting for financial instruments. The amendments in this Update affect all entities that apply the guidance in Topics 321, 323, and 815 and (1) elect to apply the measurement alternative or (2) enter into a forward contract or purchase an option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting. | | | December 15, 2020 | | | The adoption had no material impact on the Company's consolidated financial statements. The Company’s equity method investments which primarily consist of community limited partnership investments are in compliance with the new guidance prospectively in 2021. |
Standard |
|
| Description |
|
| Required Date |
|
| Effect on financial statements |
Standards Not Yet Adopted | | | | ||||||
ASU 2020-04 Facilitation of the Effects of Reference Rate Reform, Topic 848, as amended in ASU 2021-01 | | | This ASU provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate | | | May be elected through December 31, 2022. | | | The Company is currently evaluating all of its contracts, hedging relationships and other transactions that will be effected by reference rates |
19
Rate Reform Elections
Adherence to ISDA Fallback Protocol
The ISDA 2020 IBOR Fallbacks Protocol (the “ISDA Fallback Protocol”) was made available for adherence on October 23, 2020 with an effective date of January 25, 2021. Once adhered to by both counterparties in a bilateral relationship and the effective date is reached, the ISDA Fallback Protocol represents a change to the contractual terms of derivatives governed by each respective ISDA agreement between the Company and a derivative counterparty. The change relates to reference rate reform and represents the potential for addition of or changes to contractual terms and was developed by a private-sector working group convened by a regulator as referenced in 848-20-15-5(g). For all of the Company’s interest rate swaps that meet the scope requirements of 848-10-15-3 and 848-10-15-3A and for which the Company adhered to the ISDA Fallback Protocol, the Company makes the following elections:
• | Modification related elections |
• | Option to not reassess a previous accounting determination (paragraph 848-20-35-4) |
• | Hedge accounting related modifications |
• | Option to not dedesignate a hedging relationship due to a change in a critical term (paragraph 848-30-25-3) |
• | Option to change the contractual terms of a hedging instrument, hedged item, or forecasted transaction and to not dedesignate a hedging relationship (paragraph 848-30-25-5) |
Cash flow hedges
The Company amends the hedge documentation, without dedesignating and redesignating, for all outstanding cash flow hedging relationships for the following elections:
• | Probability of forecasted transactions: The Company elects the expedient in ASC 848-50-25-2 to assert probability of the hedged interest payments/receipts regardless of any expected modification in terms related to reference rate reform. |
• | Assessment of effectiveness: In accordance with ASC 848-30-25-4, ASC 848-30-25-8, and ASC 848-50-35-1 through 35-24 the Company has the option to change the method of assessing effectiveness upon a change in the critical terms of the derivative or the hedged transactions and upon the end of relief under ASC 848. At this time the Company elects to continue the method of assessing effectiveness as documented in the original hedge documentation and elects to apply the expedient in ASC 848-50-35-17 so that the reference rate on the hypothetical derivative matches the reference rate on the hedging instrument. For new hedging relationships designated subsequent to the date of this memorandum, the Company elects to apply the expedient in ASC 848-50-25-11 to assume that the reference rate will not be replaced for the remainder of the hedging relationship. |
New hedging activity
The Company makes the same elections for each hedging relationship designated subsequent to March 31, 2021. Any hedging relationship-specific elections beyond the elections noted above will be documented in the respective inception hedge documentation. Subsequent election of optional expedients and exceptions after the March 31, 2021 will be documented in accordance with the elections being made here.
1420
NOTE 2. SECURITIES AVAILABLE FOR SALE
The following is a summary of securities available for sale:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | | | | | Gross | | Gross | | | | ||||
| | | | | Unrealized | | Unrealized | | | | | | | | Unrealized | | Unrealized | | | | ||||
(in thousands) |
| Amortized Cost |
| Gains |
| Losses |
| Fair Value |
| Amortized Cost |
| Gains |
| Losses |
| Fair Value | ||||||||
September 30, 2020 |
| |
|
| |
|
| |
|
| |
| ||||||||||||
Debt securities: |
| |
|
| |
|
| |
|
| |
| ||||||||||||
September 30, 2021 |
| |
|
| |
|
| |
|
| |
| ||||||||||||
Mortgage-backed securities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
US Government-sponsored enterprises | | $ | 226,930 | | $ | 8,683 | | $ | (441) | | $ | 235,172 | | $ | 181,821 | | $ | 3,386 | | $ | (1,939) | | $ | 183,268 |
US Government agency | |
| 92,517 | |
| 3,413 | |
| (145) | |
| 95,785 | |
| 53,475 | |
| 1,470 | |
| (239) | |
| 54,706 |
Private label | |
| 20,142 | |
| 40 | |
| (579) | |
| 19,603 | |
| 62,843 | |
| 185 | |
| (114) | |
| 62,914 |
Obligations of states and political subdivisions thereof | |
| 149,890 | |
| 4,267 | |
| — | |
| 154,157 | |
| 158,914 | |
| 2,090 | |
| (827) | |
| 160,177 |
Corporate bonds | |
| 99,786 | |
| 1,713 | |
| (1,687) | |
| 99,812 | |
| 82,533 | |
| 2,376 | |
| (647) | |
| 84,262 |
Total securities available for sale | | $ | 589,265 | | $ | 18,116 | | $ | (2,852) | | $ | 604,529 | | $ | 539,586 | | $ | 9,507 | | $ | (3,766) | | $ | 545,327 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | | | | | Gross | | Gross | | | | ||||
| | | | | Unrealized | | Unrealized | | | | | | | | Unrealized | | Unrealized | | | | ||||
(in thousands) |
| Amortized Cost |
| Gains |
| Losses |
| Fair Value |
| Amortized Cost |
| Gains |
| Losses |
| Fair Value | ||||||||
December 31, 2019 | |
|
| |
|
| |
|
| |
|
| ||||||||||||
Debt securities: | |
|
| |
|
| |
|
| |
|
| ||||||||||||
December 31, 2020 | |
|
| |
|
| |
|
| |
|
| ||||||||||||
Mortgage-backed securities: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
US Government-sponsored enterprises | | $ | 319,064 | | $ | 4,985 | | $ | (2,080) | | $ | 321,969 | | $ | 206,834 | | $ | 6,018 | | $ | (462) | | $ | 212,390 |
US Government agency | |
| 98,568 | |
| 1,640 | |
| (547) | |
| 99,661 | |
| 82,878 | |
| 2,870 | |
| (116) | |
| 85,632 |
Private label | |
| 20,212 | |
| 68 | |
| (747) | |
| 19,533 | |
| 19,810 | |
| 40 | |
| (141) | |
| 19,709 |
Obligations of states and political subdivisions thereof | |
| 139,240 | |
| 3,034 | |
| (268) | |
| 142,006 | |
| 164,766 | |
| 4,244 | |
| (6) | |
| 169,004 |
Corporate bonds | |
| 78,804 | |
| 1,478 | |
| (221) | |
| 80,061 | |
| 97,689 | |
| 1,465 | |
| (843) | |
| 98,311 |
Total securities available for sale | | $ | 655,888 | | $ | 11,205 | | $ | (3,863) | | $ | 663,230 | | $ | 571,977 | | $ | 14,637 | | $ | (1,568) | | $ | 585,046 |
Credit Quality Information
The Company monitors the credit quality of available for sale debt securities through credit ratings from various rating agencies and substantial price changes. Credit ratings express opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Securities are triggered for further review in the quarter if the security has significant fluctuations in ratings, drops below investment grade, or significant pricing changes. For securities without credit ratings, the Company utilizes other financial information indicating the financial health of the underlying municipality, agency, or organization associated with the underlying security.
As of September 30, 2021 the Company carried 0 allowance on available for sale debt securities in accordance with ASU 2016-13.
The amortized cost and estimated fair value of available for sale (“AFS”) securities segregated by contractual maturity at September 30, 20202021 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown in total, as their maturities are highly variable.
| | | | | | | | | | | | |
| | Available for sale | | Available for sale | ||||||||
(in thousands) |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Within 1 year |
| $ | — | | $ | — |
| $ | 11,755 | | $ | 11,664 |
Over 1 year to 5 years | |
| 25,596 | |
| 25,849 | |
| 23,313 | |
| 23,863 |
Over 5 years to 10 years | |
| 81,687 | |
| 79,979 | |
| 48,500 | |
| 47,493 |
Over 10 years | |
| 142,393 | |
| 148,141 | |
| 157,879 | |
| 161,419 |
Total bonds and obligations | |
| 249,676 | |
| 253,969 | |
| 241,447 | |
| 244,439 |
Mortgage-backed securities | |
| 339,589 | |
| 350,560 | |
| 298,139 | |
| 300,888 |
Total securities available for sale | | $ | 589,265 | | $ | 604,529 | | $ | 539,586 | | $ | 545,327 |
The following table presents the gains and losses from the sale of AFS securities for the periods presented:
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(In thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Gross gains on sales of available for sale securities | | $ | — | | $ | 716 | | $ | 1,508 | | $ | 716 |
Gross losses on sales of available for sale securities | |
| — | |
| (559) | |
| (22) | |
| (559) |
Net gains on sale of available for sale securities | | $ | — | | $ | 157 | | $ | 1,486 | | $ | 157 |
1521
The following table presents the gains and losses from the sale of AFS securities for the periods presented:
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Gross gains on sales of available for sale securities | | $ | 1,980 | | $ | — | | $ | 2,030 | | $ | 1,508 |
Gross losses on sales of available for sale securities | |
| (50) | |
| — | |
| (50) | |
| (22) |
Net gains on sale of available for sale securities | | $ | 1,930 | | $ | — | | $ | 1,980 | | $ | 1,486 |
Securities with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less Than Twelve Months | | Over Twelve Months | | Total | | Less Than Twelve Months | | Over Twelve Months | | Total | ||||||||||||||||||||||||
| | Gross |
| | |
| Gross |
| | |
| Gross |
| | | | Gross |
| | |
| Gross |
| | |
| Gross |
| | | ||||||
| | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | ||||||||||||
(In thousands) |
| Losses |
| Value |
| Losses |
| Value |
| Losses |
| Value | ||||||||||||||||||||||||
September 30, 2020 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||
Debt securities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||
(in thousands) |
| Losses |
| Value |
| Losses |
| Value |
| Losses |
| Value | ||||||||||||||||||||||||
September 30, 2021 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||
Mortgage-backed securities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
US Government-sponsored enterprises | | $ | 193 | | $ | 35,087 | | $ | 248 | | $ | 4,027 | | $ | 441 | | $ | 39,114 | | $ | 1,408 | | $ | 77,412 | | $ | 531 | | $ | 16,618 | | $ | 1,939 | | $ | 94,030 |
US Government agency | |
| 68 | |
| 8,671 | |
| 77 | |
| 3,458 | |
| 145 | |
| 12,129 | |
| 130 | |
| 10,488 | |
| 109 | |
| 4,729 | |
| 239 | |
| 15,217 |
Private label | |
| 1 | |
| 108 | |
| 578 | |
| 19,398 | |
| 579 | |
| 19,506 | |
| 109 | |
| 42,852 | |
| 5 | |
| 17 | |
| 114 | |
| 42,869 |
Obligations of states and political subdivisions thereof | |
| — | |
| 247 | |
| — | |
| — | |
| — | |
| 247 | |
| 827 | |
| 48,355 | |
| — | |
| — | |
| 827 | |
| 48,355 |
Corporate bonds | |
| 1,687 | |
| 41,260 | |
| — | |
| — | |
| 1,687 | |
| 41,260 | |
| 14 | |
| 2,486 | |
| 633 | |
| 11,617 | |
| 647 | |
| 14,103 |
Total securities available for sale | | $ | 1,949 | | $ | 85,373 | �� | $ | 903 | | $ | 26,883 | | $ | 2,852 | | $ | 112,256 | | $ | 2,488 | | $ | 181,593 | | $ | 1,278 | | $ | 32,981 | | $ | 3,766 | | $ | 214,574 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less Than Twelve Months | | Over Twelve Months | | Total | | Less Than Twelve Months | | Over Twelve Months | | Total | ||||||||||||||||||||||||
|
| Gross |
| | |
| Gross |
| | |
| Gross |
| | |
| Gross |
| | |
| Gross |
| | |
| Gross |
| | | ||||||
| | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | ||||||||||||
(In thousands) | | Losses | | Value | | Losses | | Value | | Losses | | Value | ||||||||||||||||||||||||
December 31, 2019 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||
Debt securities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||
(in thousands) | | Losses | | Value | | Losses | | Value | | Losses | | Value | ||||||||||||||||||||||||
December 31, 2020 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||
Mortgage-backed securities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
US Government-sponsored enterprises | | $ | 1,074 | | $ | 43,429 | | $ | 1,006 | | $ | 49,712 | | $ | 2,080 | | $ | 93,141 | | $ | 209 | | $ | 40,285 | | $ | 253 | | $ | 4,323 | | $ | 462 | | $ | 44,608 |
US Government agency | |
| 432 | |
| 19,717 | |
| 115 | |
| 9,120 | |
| 547 | |
| 28,837 | |
| 45 | |
| 6,776 | |
| 71 | |
| 3,297 | |
| 116 | |
| 10,073 |
Private label | |
| 380 | |
| 9,843 | |
| 367 | |
| 9,411 | |
| 747 | |
| 19,254 | |
| — | |
| — | |
| 141 | |
| 19,514 | |
| 141 | |
| 19,514 |
Obligations of states and political subdivisions thereof | |
| 137 | |
| 29,355 | |
| 131 | |
| 1,682 | |
| 268 | |
| 31,037 | |
| 6 | |
| 5,577 | |
| — | |
| — | |
| 6 | |
| 5,577 |
Corporate bonds | |
| 142 | |
| 9,888 | |
| 79 | |
| 12,276 | |
| 221 | |
| 22,164 | |
| 555 | |
| 21,774 | |
| 288 | |
| 11,712 | |
| 843 | |
| 33,486 |
Total securities available for sale | | $ | 2,165 | | $ | 112,232 | | $ | 1,698 | | $ | 82,201 | | $ | 3,863 | | $ | 194,433 | | $ | 815 | | $ | 74,412 | | $ | 753 | | $ | 38,846 | | $ | 1,568 | | $ | 113,258 |
22
The following table presents the changes in estimated credit losses recognized by the Company for the periods presented:
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Estimated credit losses as of prior year-end | | $ | 1,697 | | $ | 1,697 | | $ | 1,697 | | $ | 1,697 |
Reductions for securities paid off during the period | |
| — | |
| — | |
| 0 | |
| 0 |
Estimated credit losses at end of the period | | $ | 1,697 | | $ | 1,697 | | $ | 1,697 | | $ | 1,697 |
The Company expects to recover its amortized cost basis on all securities in its AFS portfolio. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of September 30, 2020,2021, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover.
16
The following summarizes, by investment security type, the basis for the conclusion thatimpact of securities in an unrealized loss position were not OTTIfor greater than 12 months at September 30, 2020:2021:
US Government-sponsored enterprises
3649 out of the total 611528 securities in the Company’s portfolios of AFS US Government-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented 1.12%1.07% of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association and Federal Home Loan Mortgage Corporation guarantee the contractual cash flows of all of the Company’s US Government-sponsored enterprises. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.
US Government agency
1411 out of the total 166150 securities in the Company’s portfolios of AFS US Government agency securities were in unrealized loss positions. Aggregate unrealized losses represented 1.18%0.45% of the amortized cost of securities in unrealized loss positions. The Government National Mortgage Association guarantees the contractual cash flows of all of the Company’s US Government agency securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.
Private label
1114 of the total 1631 securities in the Company’s portfolio of AFS private label mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 2.88%0.18% of the amortized cost of securities in unrealized loss positions. Based upon the expectation that the Company will receive all of the future contractual cash flows related to the amortized cost on these securities, the Company does not consider there to be any additional other-than-temporary impairment with respect to these securities.
Obligations of states and political subdivisions thereof
112 of the total 177119 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 0.08%0.52% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for the risk. There were no material underlying credit downgrades during the quarter. All securities are performing.
Corporate bonds
134 out of the total 3427 securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represents 3.97%0.78% of the amortized cost of bonds in unrealized loss positions. The Company reviews the financial strength of all of these bonds and has concluded that the amortized cost remains supported by the expected future cash flows of these securities. The most recent review includes all bond issuers and their current credit ratings, financial performance and capitalization.
1723
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES
Upon adoption of ASC 326 or CECL, at January 1, 2021, the Company evaluates its risk characteristics of loans based on regulatory call report code with segmentation based on the underlying collateral for certain loan types. Prior to the adoption of ASC 326, under the incurred loss model, the Company evaluated its risk characteristics of loans based on purpose of the loans.
The following is a summary of total loans by regulatory call report code segmentation based on underlying collateral for certain loan types:
| | | | | | |
| | September 30, | | December 31, | ||
(in thousands) |
| 2021 |
| 2020 | ||
Commercial construction | | $ | 152,700 | | $ | 117,882 |
Commercial real estate owner occupied | |
| 253,792 | |
| 219,217 |
Commercial real estate non-owner occupied | |
| 733,353 | |
| 716,776 |
Tax exempt | |
| 42,448 | |
| 47,862 |
Commercial and industrial | |
| 336,989 | |
| 355,684 |
Residential real estate | |
| 917,301 | |
| 995,216 |
Home equity | |
| 88,002 | |
| 100,096 |
Consumer other | |
| 9,569 | |
| 10,152 |
Total loans | |
| 2,534,154 | |
| 2,562,885 |
Allowance for credit losses | |
| 22,448 | |
| 19,082 |
Net loans | | $ | 2,511,706 | | $ | 2,543,803 |
Total unamortized net costs and premiums included in loan totals were as follows:
| | | | | | |
| | September 30, | | December 31, | ||
(in thousands) |
| 2021 |
| 2020 | ||
Unamortized net loan origination costs | | $ | 4,015 | | $ | 5,157 |
Unamortized net premium on purchased loans | |
| (65) | |
| (85) |
Total unamortized net costs and premiums | | $ | 3,950 | | $ | 5,072 |
The Company elected to exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of September 30, 2021 and December 31, 2020, accrued interest receivable for loans totaled $8.7 million and $11.4 million, respectively, and is included in the “other assets” line item on the Company’s consolidated balance sheets.
The CARES Act and subsequent legislation established the Payroll Protection Program (PPP), administered directly by the Small Business Administration (SBA). The Company has participated in both 2020 and 2021 rounds of funding. As of September 30, 2021 and December 31, 2020, the Company had 404 and 746 PPP loans outstanding, with an outstanding principal balance of $24.2 million and $53.8 million, respectively. The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible costs. PPP loans are included in the commercial and industrial portfolio segment.
Characteristics of each loan portfolio segment are as follows:
Commercial construction - Loans in this segment primarily include raw land, land development and construction of commercial and multifamily residential properties. Collateral values are determined based upon appraisals and evaluations of the completed structure in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy guidelines that are more restrictive than existing structures. Construction loans are primarily paid by the cash flow generated from the completed structure, such as operating leases, rents, or other operating cash flows from the borrower.
24
Commercial real estate owner occupied and non-owner occupied - Loans in these segments are primarily owner-occupied or income-producing properties. Loans to Real Estate Investment Trusts (REITs) and unsecured loans to developers that closely correlate to the inherent risk in commercial real estate markets are also included. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.
Tax Exempt - Loans in this segment primarily include loans to various state and municipal government entities. Loans made in these borrowers may provide the Company with tax-exempt income. While governed and underwritten similar to commercial loans they do have unique requirements based on established polices. Almost all state and municipal loans are considered a general obligation of the issuing entity. Given the size of many municipal borrowers, borrowings are normally not rated by major rating agencies.
Commercial and industrial loans - Loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment in this segment. Generally loans are secured by assets of the business such as accounts receivable, inventory, marketable securities, other liquid collateral, equipment and other business assets. Some loans in this category may be unsecured or guaranteed by government agencies such as the SBA. Loans are primarily paid by the operating cash flow of the borrower.
Residential real estate - All loans in this segment are collateralized by one-to-four family homes. Residential real estate loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to various underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.
Home equity - All loans and lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.
Consumer other - Loans in this segment include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as auto loans, recreational equipment, overdraft protection or other consumer loans. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines, as applicable.
Allowance for Credit Losses
The Allowance for Credit Losses (ACL) is comprised of the allowance for loan losses and the allowance for unfunded commitments which is accounted for as a separate liability in other liabilities on the balance sheet. The level of the ACL represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date.
Upon adoption of CECL on January 1, 2021, the Company replaced the incurred loss impairment model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged off. The ACL is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans and TDRs.
25
The Company’s activity in the allowance for credit losses for the periods ended are as follows:
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 | |||||||||||||
| | Balance at | | | | | | | | | | | | | |
| | Beginning of | | | | | | | | | | | Balance at | ||
(in thousands) |
| Period |
| Charge Offs |
| Recoveries |
| Provision |
| End of Period | |||||
Commercial construction | | $ | 2,372 | | $ | — | | $ | — | | $ | (286) | | $ | 2,086 |
Commercial real estate owner occupied | |
| 2,552 | |
| (142) | |
| 72 | |
| 237 | |
| 2,719 |
Commercial real estate non-owner occupied | |
| 5,604 | |
| — | |
| — | |
| (22) | |
| 5,582 |
Tax exempt | |
| 91 | |
| — | |
| — | |
| (6) | |
| 85 |
Commercial and industrial | |
| 5,225 | |
| (24) | |
| — | |
| 105 | |
| 5,306 |
Residential real estate | |
| 6,069 | |
| (6) | |
| 19 | |
| (290) | |
| 5,792 |
Home equity | |
| 822 | |
| (49) | |
| 1 | |
| 30 | |
| 804 |
Consumer other | |
| 80 | |
| (65) | |
| 1 | |
| 58 | |
| 74 |
Total | | $ | 22,815 | | $ | (286) | | $ | 93 | | $ | (174) | | $ | 22,448 |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 | ||||||||||||||||
| | Balance at | | | | | | | | | | | | | | | | |
| | Beginning of | | Impact of ASC | | | | | | | | | | | Balance at | |||
(in thousands) |
| Period |
| 326 |
| Charge Offs |
| Recoveries |
| Provision |
| End of Period | ||||||
Commercial construction | | $ | 824 | | $ | 1,196 | | $ | — | | $ | 18 | | $ | 48 | | $ | 2,086 |
Commercial real estate owner occupied | |
| 1,783 | |
| 708 | |
| (403) | |
| 72 | |
| 559 | |
| 2,719 |
Commercial real estate non-owner occupied | |
| 7,864 | |
| (2,008) | |
| — | |
| 4 | |
| (278) | |
| 5,582 |
Tax exempt | |
| 58 | |
| 40 | |
| — | |
| — | |
| (13) | |
| 85 |
Commercial and industrial | |
| 3,137 | |
| 2,996 | |
| (44) | |
| 14 | |
| (797) | |
| 5,306 |
Residential real estate | |
| 5,010 | |
| 1,732 | |
| (67) | |
| 141 | |
| (1,024) | |
| 5,792 |
Home equity | |
| 285 | |
| 603 | |
| (108) | |
| 48 | |
| (24) | |
| 804 |
Consumer other | |
| 121 | |
| (39) | |
| (119) | |
| 10 | |
| 101 | |
| 74 |
Total | | $ | 19,082 | | $ | 5,228 | | $ | (741) | | $ | 307 | | $ | (1,428) | | $ | 22,448 |
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | |||||||||||||
| | Balance at | | | | | | | | | | | | | |
| | Beginning of | | | | | | | | | | | Balance at | ||
(in thousands) |
| Period |
| Charge Offs |
| Recoveries |
| Provision |
| End of Period | |||||
Commercial construction | | $ | 532 | | $ | — | | $ | — | | $ | 185 | | $ | 717 |
Commercial real estate owner occupied | |
| 1,524 | |
| — | |
| — | |
| 370 | |
| 1,894 |
Commercial real estate non-owner occupied | |
| 5,926 | |
| (266) | |
| 14 | |
| 783 | |
| 6,457 |
Tax exempt | |
| 64 | |
| — | |
| — | |
| 4 | |
| 68 |
Commercial and industrial | |
| 3,056 | |
| (24) | |
| 14 | |
| 236 | |
| 3,282 |
Residential real estate | |
| 4,991 | |
| — | |
| 1 | |
| 86 | |
| 5,078 |
Home equity | |
| 318 | |
| — | |
| — | |
| (4) | |
| 314 |
Consumer other | |
| 98 | |
| (149) | |
| 8 | |
| 140 | |
| 97 |
Total | | $ | 16,509 | | $ | (439) | | $ | 37 | | $ | 1,800 | | $ | 17,907 |
26
| | | | | | | | | | | | | | | |
| | | |||||||||||||
| | Nine Months Ended September 30, 2020 | |||||||||||||
| | Balance at | | | | | | | | | | | | | |
| | Beginning of | | | | | | | | | | | Balance at | ||
(in thousands) |
| Period |
| Charge Offs |
| Recoveries |
| Provision |
| End of Period | |||||
Commercial construction | | $ | 317 | | $ | — | | $ | — | | $ | 400 | | $ | 717 |
Commercial real estate owner occupied | |
| 2,368 | |
| — | |
| — | |
| (474) | |
| 1,894 |
Commercial real estate non-owner occupied | |
| 4,695 | |
| (1,137) | |
| 109 | |
| 2,790 | |
| 6,457 |
Tax exempt | |
| 67 | |
| — | |
| — | |
| 1 | |
| 68 |
Commercial and industrial | |
| 3,262 | |
| (360) | | | 25 | |
| 355 | |
| 3,282 |
Residential real estate | |
| 4,213 | |
| (32) | |
| 12 | |
| 885 | |
| 5,078 |
Home equity | |
| 320 | |
| — | |
| — | |
| (6) | |
| 314 |
Consumer other | |
| 111 | |
| (341) | |
| 13 | |
| 314 | |
| 97 |
Total | | $ | 15,353 | | $ | (1,870) | | $ | 159 | | $ | 4,265 | | $ | 17,907 |
NOTE 3. LOANSUnfunded Commitments
The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (other liabilities on the consolidated balance sheet), with adjustments to the reserve recognized in other non-interest expense in the consolidated statement of operations. The Company’s activity in the allowance for credit losses on unfunded commitments for the periods ended was as follows:
| | | | | | |
(in thousands) | | Three Months Ended September 30, 2021 |
| Nine Months Ended September 30, 2021 | ||
Begininng Balance | | $ | 1,921 | | $ | 359 |
Impact of CECL adoption | | | — | | | 1,616 |
Provision for credit losses | |
| 280 | |
| 226 |
Ending Balance | | $ | 2,201 | | $ | 2,201 |
| | | | | �� | |
(in thousands) | | Three Months Ended September 30, 2020 |
| Nine Months Ended September 30, 2020 | ||
Begininng Balance | | $ | 319 | | $ | 314 |
Provision for credit losses | |
| 2 | |
| 7 |
Ending Balance | | $ | 321 | | $ | 321 |
Loan Origination/Risk Management: The Company has certain lending policies and procedures in place designed to maximize loan income within an acceptable level of risk. The Company’s Board of Directors reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management and the Company's Board of Directors with frequent reports related to loan production, loan quality, and concentration of credit, loan delinquencies, non-performing loans and potential problem loans. The Company seeks to diversify the loan portfolio is comprisedas a means of managing risk associated with fluctuations in economic conditions.
Credit Quality Indicators: In monitoring the credit quality of the following segments:portfolio, management applies a credit quality indicator and uses an internal risk rating system to categorize commercial real estate, commercialloans. These credit quality indicators range from one through nine, with a higher number correlating to increasing risk of loss. Consistent with regulatory guidelines, the Company provides for the classification of loans which are considered to be of lesser quality as special mention, substandard, doubtful, or loss (i.e. risk-rated 6, 7, 8 and industrial, residential real estate, and consumer loans. Commercial real estate loans include multi-family, commercial construction and land development, and other commercial real estate classes. Commercial and industrial loans include loans to commercial and agricultural businesses and tax exempt entities. Residential real estate loans consist of mortgages for 1-to-4 family housing. Consumer loans include home equity loans, auto and other installment loans.9, respectively).
The following are the definitions of the Company’s lending activities are principally conducted in Maine, New Hampshire, and Vermont.credit quality indicators:
Total loans include business activity loansPass: Loans the Company considers in the commercial portfolio segments that are not adversely rated, are contractually current as to principal and acquired loans. Acquired loansinterest, and are those loans previously acquired from other institutions. The followingotherwise in compliance with the contractual terms of the loan agreement. Management believes there is a summarylow risk of total loans:
| | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | ||||||||||||||
| | Business | | | | | | | | Business | | | | | | | ||
| | Activities | | Acquired | | | | | Activities | | Acquired | | | | ||||
(in thousands) |
| Loans |
| Loans |
| Total |
| Loans |
| Loans |
| Total | ||||||
Commercial real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Construction and land development | | $ | 86,927 | | $ | 2,191 | | $ | 89,118 | | $ | 31,387 | | $ | 2,903 | | $ | 34,290 |
Other commercial real estate | |
| 765,471 | |
| 191,046 | |
| 956,517 | |
| 666,051 | |
| 230,320 | |
| 896,371 |
Total commercial real estate | |
| 852,398 | |
| 193,237 | |
| 1,045,635 | |
| 697,438 | |
| 233,223 | |
| 930,661 |
| | | | | | | | | | | | | | | | | | |
Commercial and industrial: | |
|
| |
|
| |
| | |
|
| |
|
| |
| |
Commercial | |
| 381,512 | |
| 56,858 | |
| 438,370 | |
| 239,692 | |
| 59,072 | |
| 298,764 |
Agricultural | |
| 17,658 | |
| 156 | |
| 17,814 | |
| 20,018 | |
| 206 | |
| 20,224 |
Tax exempt | |
| 41,951 | |
| 24,375 | |
| 66,326 | |
| 66,860 | |
| 37,443 | |
| 104,303 |
Total commercial and industrial | |
| 441,121 | |
| 81,389 | |
| 522,510 | |
| 326,570 | |
| 96,721 | |
| 423,291 |
| | | | | | | | | | | | | | | | | | |
Total commercial loans | |
| 1,293,519 | |
| 274,626 | |
| 1,568,145 | |
| 1,024,008 | |
| 329,944 | |
| 1,353,952 |
| | | | | | | | | | | | | | | | | | |
Residential real estate: | |
|
| |
|
| |
| | |
|
| |
|
| |
| |
Residential mortgages | |
| 695,766 | |
| 325,440 | |
| 1,021,206 | |
| 740,687 | |
| 411,170 | |
| 1,151,857 |
Total residential real estate | |
| 695,766 | |
| 325,440 | |
| 1,021,206 | |
| 740,687 | |
| 411,170 | |
| 1,151,857 |
| | | | | | | | | | | | | | | | | | |
Consumer: | |
|
| |
|
| |
| | |
|
| |
|
| |
| |
Home equity | |
| 58,344 | |
| 50,530 | |
| 108,874 | |
| 59,368 | |
| 63,033 | |
| 122,401 |
Other consumer | |
| 9,217 | |
| 1,249 | |
| 10,466 | |
| 11,167 | |
| 1,715 | |
| 12,882 |
Total consumer | |
| 67,561 | |
| 51,779 | |
| 119,340 | |
| 70,535 | |
| 64,748 | |
| 135,283 |
| | | | | | | | | | | | | | | | | | |
Total loans | | $ | 2,056,846 | | $ | 651,845 | | $ | 2,708,691 | | $ | 1,835,230 | | $ | 805,862 | | $ | 2,641,092 |
The carrying amount of the acquired loans at September 30, 2020 totaled $651.8 million. A subset ofloss related to these loans was determined to have evidence of credit deterioration at acquisition date, which is accounted for in accordance with ASC 310-30, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. These purchased credit-impaired loans presently maintain a carrying value of $14.2 million (and total note balances of $18.1 million). These loans are evaluated for impairment through the periodic reforecasting of expected cash flows. Acquired loans considered not impaired at the acquisition date had a carrying amount of $637.6 million as of September 30, 2020.pass-rated.
1827
Special Mention: Loans the Company considers having some potential weaknesses, but are deemed to not carry levels of risk inherent in one of the subsequent categories, are designated as 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 asset or in the institution’s credit position at some future date. This might include loans which may require a higher level of supervision or internal reporting because of: (i) declining industry trends; (ii) increasing reliance on secondary sources of repayment; (iii) the poor condition of or lack of control over collateral; or (iv) failure to obtain proper documentation or any other deviations from prudent lending practices. Economic or market conditions which may, in the future, affect the obligor may warrant special mention of the asset. Loans for which an adverse trend in the borrower's operations or an imbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized may be included in this classification. Special mention loans are not adversely classified and do not expose the Company to sufficient risks to warrant classification.
Substandard: Loans the Company considers as substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard loans have a well-defined weakness that jeopardizes liquidation of the debt. Substandard loans include those loans where there is the distinct possibility of some loss of principal, if the deficiencies are not corrected.
Doubtful: Loans the Company considers as doubtful have all of the weaknesses inherent in those loans that are classified as substandard. These loans have the added characteristic of a well-defined weakness which is inadequately protected by the current sound worth and paying capacity of borrower or of the collateral pledged, if any, and calls into question the collectability of the full balance of the loan. The possibility of loss is high but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the loan, its classification as loss is deferred until its more exact status is determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. The entire amount of the loan might not be classified as doubtful when collection of a specific portion appears highly probable. Loans are generally not classified doubtful for an extended period of time (i.e., over a year).
Loss: Loans the Company considers as losses are those considered uncollectible and of such little value that their continuance as an asset is not warranted and the uncollectible amounts are charged-off. This classification does not mean the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this worthless asset even though partial recovery may be affected in the future. Losses are taken in the period in which they are determined to be uncollectible.
28
The following table summarizes activity intables present the accretable yield for the acquiredCompany’s loans by year of origination, loan portfolio that falls under the purviewsegmentation and risk indicator as of ASC 310-30, Accounting for Certain Loans or Debt Securities Acquired in a Transfer:September 30, 2021:
| | | | | | |
| | Three Months Ended September 30, | ||||
(in thousands) |
| 2020 |
| 2019 | ||
Balance at beginning of period | | $ | 6,227 | | $ | 4,195 |
Net reclassifications from (to) nonaccretable difference | |
| 53 | |
| (126) |
Accretion | |
| (455) | |
| (581) |
Balance at end of period | | $ | 5,825 | | $ | 3,488 |
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
(in thousands) | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | |||||||
Commercial construction |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Risk rating: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Pass | | $ | 22,192 | | $ | 76,226 | | $ | 44,453 | | $ | 9,829 | | $ | — | | $ | — | | $ | 152,700 |
Special mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 22,192 | | $ | 76,226 | | $ | 44,453 | | $ | 9,829 | | $ | — | | $ | — | | $ | 152,700 |
| | | | | | | | | | | | | | | | | | | | | |
Commercial real estate owner occupied | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 9,937 | | $ | 16,003 | | $ | 35,366 | | $ | 47,026 | | $ | 20,038 | | $ | 110,663 | | $ | 239,033 |
Special mention | |
| — | |
| — | |
| 767 | |
| — | |
| — | |
| 3,125 | |
| 3,892 |
Substandard | |
| — | |
| — | |
| — | |
| 248 | |
| 248 | |
| 10,030 | |
| 10,526 |
Doubtful | | | — | | | — | | | — | | | 172 | | | — | | | 169 | | | 341 |
Total | | $ | 9,937 | | $ | 16,003 | | $ | 36,133 | | $ | 47,446 | | $ | 20,286 | | $ | 123,987 | | $ | 253,792 |
| | | | | | | | | | | | | | | | | | | | | |
Commercial real estate non-owner occupied | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 101,706 | | $ | 147,754 | | $ | 90,963 | | $ | 40,545 | | $ | 147,197 | | $ | 186,056 | | $ | 714,221 |
Special mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 15,612 | |
| 15,612 |
Substandard | |
| — | |
| — | |
| — | |
| 131 | |
| 131 | |
| 3,086 | |
| 3,348 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | 172 | | | 172 |
Total | | $ | 101,706 | | $ | 147,754 | | $ | 90,963 | | $ | 40,676 | | $ | 147,328 | | $ | 204,926 | | $ | 733,353 |
| | | | | | | | | | | | | | | | | | | | | |
Tax exempt | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 1,511 | | $ | 604 | | $ | 975 | | $ | 14,453 | | $ | 5,387 | | $ | 19,518 | | $ | 42,448 |
Special mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 1,511 | | $ | 604 | | $ | 975 | | $ | 14,453 | | $ | 5,387 | | $ | 19,518 | | $ | 42,448 |
| | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 104,179 | | $ | 64,303 | | $ | 36,010 | | $ | 17,635 | | $ | 35,407 | | $ | 73,972 | | $ | 331,506 |
Special mention | |
| 619 | |
| 222 | |
| 717 | |
| 596 | |
| 202 | |
| 1,429 | |
| 3,785 |
Substandard | |
| 98 | |
| — | |
| 549 | |
| 14 | |
| 50 | |
| 677 | |
| 1,388 |
Doubtful | | | — | | | — | | | — | | | — | | | 122 | | | 188 | | | 310 |
Total | | $ | 104,896 | | $ | 64,525 | | $ | 37,276 | | $ | 18,245 | | $ | 35,781 | | $ | 76,266 | | $ | 336,989 |
| | | | | | | | | | | | | | | | | | | | | |
(continued) |
| | | | | | |
| | Nine Months Ended September 30, | ||||
(in thousands) |
| 2020 |
| 2019 | ||
Balance at beginning of period | | $ | 7,367 | | $ | 4,377 |
Net reclassifications from (to) nonaccretable difference | |
| 1,004 | |
| 498 |
Accretion | |
| (2,546) | |
| (1,387) |
Balance at end of period | | $ | 5,825 | | $ | 3,488 |
The following is a summary of past due loans at September 30, 2020 and December 31, 2019:
Business Activities Loans
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 90 Days or | | | | | | | | | | | Past Due > | ||
|
| 30-59 Days |
| 60-89 Days |
| Greater |
| Total Past |
| | |
| | |
| 90 days and | |||||
(in thousands) | | Past Due | | Past Due | | Past Due | | Due | | Current | | Total Loans | | Accruing | |||||||
September 30, 2020 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Commercial real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Construction and land development | | $ | 0 | | $ | 0 | | $ | 212 | | $ | 212 | | $ | 86,715 | | $ | 86,927 | | $ | 0 |
Other commercial real estate | |
| 200 | |
| 1,119 | |
| 725 | |
| 2,044 | |
| 763,427 | |
| 765,471 | |
| 0 |
Total commercial real estate | |
| 200 | |
| 1,119 | |
| 937 | |
| 2,256 | |
| 850,142 | |
| 852,398 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial | |
| 92 | |
| 310 | |
| 2,193 | |
| 2,595 | |
| 378,917 | |
| 381,512 | |
| 1,932 |
Agricultural | |
| 122 | |
| 0 | |
| 109 | |
| 231 | |
| 17,427 | |
| 17,658 | |
| 0 |
Tax exempt | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 41,951 | |
| 41,951 | |
| 0 |
Total commercial and industrial | |
| 214 | |
| 310 | |
| 2,302 | |
| 2,826 | |
| 438,295 | |
| 441,121 | |
| 1,932 |
| | | | | | | | | | | | | | | | | | | | | |
Total commercial loans | |
| 414 | |
| 1,429 | |
| 3,239 | |
| 5,082 | |
| 1,288,437 | |
| 1,293,519 | |
| 1,932 |
| | | | | | | | | | | | | | | | | | | | | |
Residential real estate: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Residential mortgages | |
| 217 | |
| 112 | |
| 1,369 | |
| 1,698 | |
| 694,068 | |
| 695,766 | |
| 0 |
Total residential real estate | |
| 217 | |
| 112 | |
| 1,369 | |
| 1,698 | |
| 694,068 | |
| 695,766 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | |
Consumer: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Home equity | |
| 39 | |
| 36 | |
| 171 | |
| 246 | |
| 58,098 | |
| 58,344 | |
| 0 |
Other consumer | |
| 12 | |
| 0 | |
| 2 | |
| 14 | |
| 9,203 | |
| 9,217 | |
| 0 |
Total consumer | |
| 51 | |
| 36 | |
| 173 | |
| 260 | |
| 67,301 | |
| 67,561 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | |
Total loans | | $ | 682 | | $ | 1,577 | | $ | 4,781 | | $ | 7,040 | | $ | 2,049,806 | | $ | 2,056,846 | | $ | 1,932 |
1929
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | |||||||
Residential real estate |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Performing | | $ | 143,071 | | $ | 126,171 | | $ | 95,942 | | $ | 70,062 | | $ | 69,486 | | $ | 404,395 | | $ | 909,127 |
Nonperforming | |
| — | |
| — | |
| — | |
| 576 | |
| 183 | |
| 7,415 | |
| 8,174 |
Total | | $ | 143,071 | | $ | 126,171 | | $ | 95,942 | | $ | 70,638 | | $ | 69,669 | | $ | 411,810 | | $ | 917,301 |
| | | | | | | | | | | | | | | | | | | | | |
Home equity | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Performing | | $ | 8,227 | | $ | 10,946 | | $ | 9,775 | | $ | 7,647 | | $ | 6,975 | | $ | 43,133 | | $ | 86,703 |
Nonperforming | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 1,299 | |
| 1,299 |
Total | | $ | 8,227 | | $ | 10,946 | | $ | 9,775 | | $ | 7,647 | | $ | 6,975 | | $ | 44,432 | | $ | 88,002 |
| | | | | | | | | | | | | | | | | | | | | |
Consumer other | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Performing | | $ | 3,037 | | $ | 1,942 | | $ | 1,023 | | $ | 803 | | $ | 329 | | $ | 2,429 | | $ | 9,563 |
Nonperforming | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 6 | |
| 6 |
Total | | $ | 3,037 | | $ | 1,942 | | $ | 1,023 | | $ | 803 | | $ | 329 | | $ | 2,435 | | $ | 9,569 |
| | | | | | | | | | | | | | | | | | | | | |
Total Loans | | $ | 394,577 | | $ | 444,171 | | $ | 316,540 | | $ | 209,737 | | $ | 285,755 | | $ | 883,374 | | $ | 2,534,154 |
The following table summarizes credit risk exposure indicators by portfolio segment, under the incurred loss methodology, as of the period indicated:
| | | | | | | | | | | | | | | |
|
| December 31, 2020 | |||||||||||||
| | Commercial | | Commercial | | Residential | |
| | |
| | |||
| | Real Estate | | and Industrial | | Real Estate | | Consumer | | Total | |||||
Grade: |
| |
| |
|
| |
|
| |
|
| |
| |
Pass |
| $ | 1,053,773 | | $ | 422,016 | | $ | — | | $ | — | | $ | 1,475,789 |
Performing | | | — | | | — | | | 914,749 | | | 112,190 | | | 1,026,939 |
Special mention |
| | 6,075 | | | 2,771 | | | — | | | — | | | 8,846 |
Substandard |
| | 22,267 | | | 15,180 | | | — | | | — | | | 37,447 |
Doubtful |
| | 2,265 | | | 1,100 | | | — | | | — | | | 3,365 |
Loss |
| | 1 | | | 2 | | | — | | | — | | | 3 |
Non-performing | | | — | | | — | | | 9,142 | | | 1,354 | | | 10,496 |
Total |
| $ | 1,084,381 | | $ | 441,069 | | $ | 923,891 | | $ | 113,544 | | $ | 2,562,885 |
Acquired LoansPast Dues
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| 90 Days or |
| | |
| Acquired |
| | |
| Past Due > | |||
| | 30-59 Days | | 60-89 Days | | Greater | | Total Past | | Credit | | | | | 90 days and | ||||||
(in thousands) | | Past Due | | Past Due | | Past Due | | Due |
| Impaired | | Total Loans |
| Accruing | |||||||
September 30, 2020 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Commercial real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Construction and land development | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 221 | | $ | 2,191 | | $ | — |
Other commercial real estate | |
| 169 | |
| 156 | |
| 678 | |
| 1,003 | |
| 7,227 | |
| 191,046 | |
| — |
Total commercial real estate | |
| 169 | |
| 156 | |
| 678 | |
| 1,003 | |
| 7,448 | |
| 193,237 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial | |
| 450 | |
| 65 | |
| 18 | |
| 533 | |
| 1,182 | |
| 56,858 | |
| — |
Agricultural | |
| — | |
| — | |
| — | |
| — | |
| 156 | |
| 156 | |
| — |
Tax exempt | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 24,375 | |
| — |
Total commercial and industrial | |
| 450 | |
| 65 | |
| 18 | |
| 533 | |
| 1,338 | |
| 81,389 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
Total commercial loans | |
| 619 | |
| 221 | |
| 696 | |
| 1,536 | |
| 8,786 | |
| 274,626 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
Residential real estate: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
Residential mortgages | |
| 291 | |
| 441 | |
| 2,006 | |
| 2,738 | |
| 4,657 | |
| 325,440 | |
| 215 |
Total residential real estate | |
| 291 | |
| 441 | |
| 2,006 | |
| 2,738 | |
| 4,657 | |
| 325,440 | |
| 215 |
| | | | | | | | | | | | | | | | | | | | | |
Consumer: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Home equity | |
| 291 | |
| 133 | |
| 170 | |
| 594 | |
| 711 | |
| 50,530 | |
| 69 |
Other consumer | |
| — | |
| — | |
| — | |
| — | |
| 44 | |
| 1,249 | |
| — |
Total consumer | |
| 291 | |
| 133 | |
| 170 | |
| 594 | |
| 755 | |
| 51,779 | |
| 69 |
| | | | | | | | | | | | | | | | | | | | | |
Total loans | | $ | 1,201 | | $ | 795 | | $ | 2,872 | | $ | 4,868 | | $ | 14,198 | | $ | 651,845 | | $ | 284 |
The following is a summary of past due loans for the periods ended:
| | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | ||||||||||||||||
(in thousands) |
| 30-59 |
| 60-89 |
| 90+ |
| Total Past Due |
| Current |
| Total Loans | ||||||
Commercial construction | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 152,700 | | $ | 152,700 |
Commercial real estate owner occupied | |
| — | |
| 10 | |
| 627 | |
| 637 | |
| 253,155 | |
| 253,792 |
Commercial real estate non-owner occupied | |
| 314 | |
| — | |
| 117 | |
| 431 | |
| 732,922 | |
| 733,353 |
Tax exempt | |
| — | |
| — | |
| — | |
| — | |
| 42,448 | |
| 42,448 |
Commercial and industrial | |
| 44 | |
| 35 | |
| 313 | |
| 392 | |
| 336,597 | |
| 336,989 |
Residential real estate | |
| 414 | |
| 1,007 | |
| 2,796 | |
| 4,217 | |
| 913,084 | |
| 917,301 |
Home equity | |
| 344 | |
| 95 | |
| 62 | |
| 501 | |
| 87,501 | |
| 88,002 |
Consumer other | |
| 32 | |
| 2 | |
| — | |
| 34 | |
| 9,535 | |
| 9,569 |
Total | | $ | 1,148 | | $ | 1,149 | | $ | 3,915 | | $ | 6,212 | | $ | 2,527,942 | | $ | 2,534,154 |
2030
Business Activities Loans
| | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||||||||
(in thousands) |
| 30-59 |
| 60-89 |
| 90+ |
| Total Past Due |
| Current |
| Total Loans | ||||||
Commercial construction | | $ | 74 | | $ | — | | $ | 1 | | $ | 75 | | $ | 117,807 | | $ | 117,882 |
Commercial real estate owner occupied | |
| 1,309 | |
| 464 | |
| 438 | |
| 2,211 | |
| 217,006 | |
| 219,217 |
Commercial real estate non-owner occupied | |
| 503 | |
| 674 | |
| 624 | |
| 1,801 | |
| 714,975 | |
| 716,776 |
Tax exempt | |
| — | |
| — | |
| — | |
| — | |
| 47,862 | |
| 47,862 |
Commercial and industrial | |
| 161 | |
| — | |
| 193 | |
| 354 | |
| 355,330 | |
| 355,684 |
Residential real estate | |
| 9,178 | |
| 2,511 | |
| 3,200 | |
| 14,889 | |
| 980,327 | |
| 995,216 |
Home equity | |
| 1,062 | |
| 614 | |
| 375 | |
| 2,051 | |
| 98,045 | |
| 100,096 |
Consumer other | |
| 20 | |
| — | |
| 2 | |
| 22 | |
| 10,130 | |
| 10,152 |
Total | | $ | 12,307 | | $ | 4,263 | | $ | 4,833 | | $ | 21,403 | | $ | 2,541,482 | | $ | 2,562,885 |
| | | | | | | | | | | | | | | | | | | | | |
| ` | | | | | 90 Days or | | | | | | | | | | Past Due > | |||||
|
| 30-59 Days |
| 60-89 Days |
| Greater |
| Total Past |
| | |
| | |
| 90 days and | |||||
(in thousands) | | Past Due | | Past Due | | Past Due | | Due | | Current | | Total Loans | | Accruing | |||||||
December 31, 2019 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Commercial real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Construction and land development | | $ | 205 | | $ | 53 | | $ | — | | $ | 258 | | $ | 31,129 | | $ | 31,387 | | $ | — |
Other commercial real estate | |
| 40 | |
| 1,534 | |
| 1,810 | |
| 3,384 | |
| 662,667 | |
| 666,051 | |
| — |
Total commercial real estate | |
| 245 | |
| 1,587 | |
| 1,810 | |
| 3,642 | |
| 693,796 | |
| 697,438 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial | |
| 452 | |
| 50 | |
| 894 | |
| 1,396 | |
| 238,296 | |
| 239,692 | |
| — |
Agricultural | |
| 62 | |
| 34 | |
| 96 | |
| 192 | |
| 19,826 | |
| 20,018 | |
| — |
Tax exempt | |
| — | |
| — | |
| — | |
| — | |
| 66,860 | |
| 66,860 | |
| — |
Total commercial and industrial | |
| 514 | |
| 84 | |
| 990 | |
| 1,588 | |
| 324,982 | |
| 326,570 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
Total commercial loans | |
| 759 | |
| 1,671 | |
| 2,800 | |
| 5,230 | |
| 1,018,778 | |
| 1,024,008 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
Residential real estate: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Residential mortgages | |
| 7,293 | |
| 1,243 | |
| 668 | |
| 9,204 | |
| 731,483 | |
| 740,687 | |
| — |
Total residential real estate | |
| 7,293 | |
| 1,243 | |
| 668 | |
| 9,204 | |
| 731,483 | |
| 740,687 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
Consumer: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Home equity | |
| 597 | |
| 43 | |
| 429 | |
| 1,069 | |
| 58,299 | |
| 59,368 | |
| 50 |
Other consumer | |
| 36 | |
| 12 | |
| — | |
| 48 | |
| 11,119 | |
| 11,167 | |
| — |
Total consumer | |
| 633 | |
| 55 | |
| 429 | |
| 1,117 | |
| 69,418 | |
| 70,535 | ��� |
| 50 |
| | | | | | | | | | | | | | | | | | | | | |
Total loans | | $ | 8,685 | | $ | 2,969 | | $ | 3,897 | | $ | 15,551 | | $ | 1,819,679 | | $ | 1,835,230 | | $ | 50 |
21
Acquired Loans
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| 90 Days or |
| | |
| Acquired |
| | |
| Past Due > | |||
| | 30-59 Days | | 60-89 Days | | Greater | | Total Past | | Credit | | | | | 90 days and | ||||||
(in thousands) | | Past Due | | Past Due | | Past Due | | Due | | Impaired | | Total Loans | | Accruing | |||||||
December 31, 2019 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Commercial real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Construction and land development | | $ | — | | $ | 12 | | $ | — | | $ | 12 | | $ | 384 | | $ | 2,903 | | $ | — |
Other commercial real estate | |
| 2,029 | |
| 245 | |
| 231 | |
| 2,505 | |
| 8,289 | |
| 230,320 | |
| — |
Total commercial real estate | |
| 2,029 | |
| 257 | |
| 231 | |
| 2,517 | |
| 8,673 | |
| 233,223 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial | |
| 440 | |
| 335 | |
| 140 | |
| 915 | |
| 2,723 | |
| 59,072 | |
| — |
Agricultural | |
| — | |
| — | |
| — | |
| — | |
| 173 | |
| 206 | |
| — |
Tax exempt | |
| — | |
| — | |
| — | |
| — | |
| 36 | |
| 37,443 | |
| — |
Total commercial and industrial | |
| 440 | |
| 335 | |
| 140 | |
| 915 | |
| 2,932 | |
| 96,721 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
Total commercial loans | |
| 2,469 | |
| 592 | |
| 371 | |
| 3,432 | |
| 11,605 | |
| 329,944 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
Residential real estate: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Residential mortgages | |
| 3,185 | |
| 864 | |
| 1,015 | |
| 5,064 | |
| 5,591 | |
| 411,170 | |
| — |
Total residential real estate | |
| 3,185 | |
| 864 | |
| 1,015 | |
| 5,064 | |
| 5,591 | |
| 411,170 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
Consumer: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Home equity | |
| 208 | |
| 548 | |
| 217 | |
| 973 | |
| 1,291 | |
| 63,033 | |
| 217 |
Other consumer | |
| 2 | |
| 9 | |
| — | |
| 11 | |
| 66 | |
| 1,715 | |
| — |
Total consumer | |
| 210 | |
| 557 | |
| 217 | |
| 984 | |
| 1,357 | |
| 64,748 | |
| 217 |
| | | | | | | | | | | | | | | | | | | | | |
Total loans | | $ | 5,864 | | $ | 2,013 | | $ | 1,603 | | $ | 9,480 | | $ | 18,553 | | $ | 805,862 | | $ | 217 |
22
Non-Accrual Loans
The following is a summary information pertaining toof non-accrual loans at September 30, 2020 and December 31, 2019:for the periods ended:
| | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | ||||||||||||||
|
| Business |
| | |
| | |
| Business |
| | |
| | | ||
| | Activities | | Acquired | | | | | Activities | | Acquired | | | | ||||
(in thousands) |
| Loans |
| Loans | | Total |
| Loans |
| Loans | | Total | ||||||
Commercial real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Construction and land development | | $ | 212 | | $ | 0 | | $ | 212 | | $ | 258 | | $ | 0 | | $ | 258 |
Other commercial real estate | |
| 1,818 | |
| 2,684 | |
| 4,502 | |
| 2,888 | |
| 343 | |
| 3,231 |
Total commercial real estate | |
| 2,030 | |
| 2,684 | |
| 4,714 | |
| 3,146 | |
| 343 | |
| 3,489 |
| | | | | | | | | | | | | | | | | | |
Commercial and industrial: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial | |
| 918 | |
| 416 | |
| 1,334 | |
| 932 | |
| 626 | |
| 1,558 |
Agricultural | |
| 486 | |
| 0 | |
| 486 | |
| 278 | |
| 0 | |
| 278 |
Tax exempt | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Total commercial and industrial | |
| 1,404 | |
| 416 | |
| 1,820 | |
| 1,210 | |
| 626 | |
| 1,836 |
| | | | | | | | | | | | | | | | | | |
Total commercial loans | |
| 3,434 | |
| 3,100 | |
| 6,534 | |
| 4,356 | |
| 969 | |
| 5,325 |
| | | | | | | | | | | | | | | | | | |
Residential real estate: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Residential mortgages | |
| 3,864 | |
| 3,290 | |
| 7,154 | |
| 3,362 | |
| 1,973 | |
| 5,335 |
Total residential real estate | |
| 3,864 | |
| 3,290 | |
| 7,154 | |
| 3,362 | |
| 1,973 | |
| 5,335 |
| | | | | | | | | | | | | | | | | | |
Consumer: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Home equity | |
| 450 | |
| 255 | |
| 705 | |
| 615 | |
| 254 | |
| 869 |
Other consumer | |
| 15 | |
| 0 | |
| 15 | |
| 21 | |
| 0 | |
| 21 |
Total consumer | |
| 465 | |
| 255 | |
| 720 | |
| 636 | |
| 254 | |
| 890 |
| | | | | | | | | | | | | | | | | | |
Total loans | | $ | 7,763 | | $ | 6,645 | | $ | 14,408 | | $ | 8,354 | | $ | 3,196 | | $ | 11,550 |
| | | | | | | | | |
| | September 30, 2021 | |||||||
| | | | | Nonaccrual With No | | 90+ Days Past | ||
(in thousands) |
| Nonaccrual |
| Related Allowance |
| Due and Accruing | |||
Commercial construction | | $ | — | | $ | — | | $ | — |
Commercial real estate owner occupied | |
| 1,184 | |
| 808 | |
| 366 |
Commercial real estate non-owner occupied | |
| 770 | |
| 314 | |
| — |
Tax exempt | |
| — | |
| — | |
| — |
Commercial and industrial | |
| 775 | |
| 629 | |
| 149 |
Residential real estate | |
| 8,174 | |
| 3,217 | |
| 105 |
Home equity | |
| 1,298 | |
| 316 | |
| — |
Consumer other | |
| 6 | |
| — | |
| — |
Total | | $ | 12,207 | | $ | 5,284 | | $ | 620 |
| | | | | | | | | |
| | December 31, 2020 | |||||||
| | | | | Nonaccrual With No | | 90+ Days Past | ||
(in thousands) |
| Nonaccrual |
| Related Allowance |
| Due and Accruing | |||
Commercial construction | | $ | 258 | | $ | — | | $ | — |
Commercial real estate owner occupied | |
| 3,038 | |
| 929 | |
| — |
Commercial real estate non-owner occupied | |
| 383 | |
| 118 | |
| — |
Tax exempt | |
| — | |
| — | |
| — |
Commercial and industrial | |
| 1,223 | |
| 1,065 | |
| — |
Residential real estate | |
| 5,883 | |
| 4,948 | |
| — |
Home equity | |
| 1,345 | |
| 1,346 | |
| 267 |
Consumer other | |
| 58 | |
| 58 | |
| — |
Total | | $ | 12,188 | | $ | 8,464 | | $ | 267 |
2331
Collateral Dependent Loans
Loans that do not share risk characteristics are evaluated on an individual basis. For loans that are individually evaluated and collateral dependent, financial loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date.
The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment for the periods ended.
| | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 | ||||||||
(in thousands) |
| Real Estate |
| Other |
| Real Estate |
| Other | ||||
Commercial construction | | $ | — | | $ | — | | $ | 259 | | $ | — |
Commercial real estate owner occupied | |
| 1,184 | |
| — | |
| 3,441 | |
| — |
Commercial real estate non-owner occupied | |
| 770 | |
| — | |
| 383 | |
| — |
Tax exempt | |
| — | |
| — | |
| — | |
| — |
Commercial and industrial | |
| 436 | |
| 339 | |
| 625 | |
| 607 |
Residential real estate | |
| 8,174 | |
| — | |
| 7,432 | |
| — |
Home equity | |
| 1,298 | |
| — | |
| 1,493 | |
| — |
Consumer other | |
| 6 | |
| — | |
| 60 | |
| — |
Total | | $ | 11,868 | | $ | 339 | | $ | 13,693 | | $ | 607 |
Pre Adoption of ASC 326 – Impaired Loans
For periods prior to the adoption of CECL, loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. The Company identified loan relationships having aggregate balances in excess of $150 thousand with potential credit weaknesses. Such loan relationships were identified primarily through the Company's analysis of internal loan evaluations, past due loan reports, TDRs and loans adversely classified. Each loan so identified was then individually evaluated for impairment. Substantially all impaired loans have historically been collateral dependent, meaning repayment of the loan was expected or was considered to be provided solely from the sale of the loan's underlying collateral. For such loans, the Company measured impairment based on the fair value of the loan's collateral, which is generally determined utilizing current appraisals. A specific reserve was established in an amount equal to the excess, if any, of the recorded investment in each impaired loan over the fair value of its underlying collateral, less estimated costs to sell. The Company's policy was to re-evaluate the fair value of collateral dependent loans at least every twelve months unless there is a known deterioration in the collateral's value, in which case a new appraisal is obtained.
32
Loans evaluated for impairment asThe tables reflects the activity associated with impaired loans in 2020 prior to the adoption of September 30, 2020 and December 31, 2019 are, as follows:CECL.
Business Activities Loans
| | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | Residential | | | | | | | |||
(in thousands) |
| real estate |
| and industrial |
| real estate |
| Consumer |
| Total | |||||
September 30, 2020 |
| |
|
| |
|
| |
|
| |
|
| |
|
Balance at end of period |
| |
|
| |
|
| |
|
| |
|
| |
|
Individually evaluated for impairment | | $ | 2,586 | | $ | 1,274 | | $ | 2,233 | | $ | 12 | | $ | 6,105 |
Collectively evaluated | |
| 849,812 | |
| 439,847 | |
| 693,533 | |
| 67,549 | |
| 2,050,741 |
Total | | $ | 852,398 | | $ | 441,121 | | $ | 695,766 | | $ | 67,561 | | $ | 2,056,846 |
Acquired Loans
| | | | | | | | | | | | | | | |
|
| Commercial |
| Commercial |
| Residential |
| | |
| | | |||
(in thousands) | | real estate | | and industrial | | real estate | | Consumer | | Total | |||||
September 30, 2020 |
| |
|
| |
|
| |
|
| |
|
| |
|
Balance at end of period |
| |
|
| |
|
| |
|
| |
|
| |
|
Individually evaluated for impairment | | $ | 2,358 | | $ | 322 | | $ | 832 | | $ | — | | $ | 3,512 |
Purchased credit impaired | |
| 7,448 | |
| 1,338 | |
| 4,657 | |
| 755 | |
| 14,198 |
Collectively evaluated | |
| 183,431 | |
| 79,729 | |
| 319,951 | |
| 51,024 | |
| 634,135 |
Total | | $ | 193,237 | | $ | 81,389 | | $ | 325,440 | | $ | 51,779 | | $ | 651,845 |
Business Activities Loans
| | | | | | | | | | | | | | | |
|
| Commercial |
| Commercial |
| Residential |
| | |
| | | |||
(in thousands) | | real estate | | and industrial | | real estate | | Consumer | | Total | |||||
December 31, 2019 |
| |
|
| |
|
| |
|
| |
|
| |
|
Balance at end of period |
| |
|
| |
|
| |
|
| |
|
| |
|
Individually evaluated for impairment | | $ | 3,964 | | $ | 1,353 | | $ | 2,620 | | $ | 13 | | $ | 7,950 |
Collectively evaluated | |
| 693,474 | |
| 325,217 | |
| 738,067 | |
| 70,522 | |
| 1,827,280 |
Total | | $ | 697,438 | | $ | 326,570 | | $ | 740,687 | | $ | 70,535 | | $ | 1,835,230 |
Acquired Loans
| | | | | | | | | | | | | | | |
|
| Commercial |
| Commercial |
| Residential |
| | |
| | | |||
(in thousands) | | real estate | | and industrial | | real estate | | Consumer | | Total | |||||
December 31, 2019 |
| |
|
| |
|
| |
|
| |
|
| |
|
Balance at end of period |
| |
|
| |
|
| |
|
| |
|
| |
|
Individually evaluated for impairment | | $ | 258 | | $ | 385 | | $ | 1,032 | | $ | — | | $ | 1,675 |
Purchased credit impaired | |
| 8,673 | |
| 2,932 | |
| 5,591 | |
| 1,357 | |
| 18,553 |
Collectively evaluated | |
| 224,292 | |
| 93,404 | |
| 404,547 | |
| 63,391 | |
| 785,634 |
Total | | $ | 233,223 | | $ | 96,721 | | $ | 411,170 | | $ | 64,748 | | $ | 805,862 |
| | | | | | | | | | | | | | | |
|
| December 31, 2020 | |||||||||||||
| | Recorded |
| Unpaid Principal |
| Related |
| Average Recorded |
| Interest | |||||
(in thousands) | | Investment | | Balance | | Allowance | | Investment | | Income Recognized | |||||
With no related allowance: |
| |
|
| |
|
| |
|
| |
|
| |
|
Construction and land development | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Other commercial real estate | |
| 2,001 | |
| 2,047 | |
| — | |
| 1,610 | |
| — |
Commercial | |
| 1,095 | |
| 1,254 | |
| — | |
| 1,140 | |
| 4 |
Agricultural | |
| 361 | |
| 150 | |
| — | |
| 114 | |
| 2 |
Tax exempt loans | |
| — | |
| — | |
| — | |
| — | |
| — |
Residential real estate | |
| 2,745 | |
| 3,165 | |
| — | |
| 1,077 | |
| 17 |
Home equity | |
| — | |
| — | |
| — | |
| — | |
| — |
Other consumer | |
| — | |
| — | |
| — | |
| — | |
| — |
| | | | | | | | | | | | | | | |
With an allowance recorded: | |
|
| |
|
| |
|
| |
|
| |
|
|
Construction and land development | |
| 258 | |
| 258 | |
| 205 | |
| 203 | |
| — |
Other commercial real estate | |
| 1,963 | |
| 2,108 | |
| 1,038 | |
| 1,973 | |
| 17 |
Commercial | |
| 282 | |
| 289 | |
| 164 | |
| 73 | |
| — |
Agricultural | |
| — | |
| — | |
| — | |
| — | |
| — |
Tax exempt loans | |
| — | |
| — | |
| — | |
| — | |
| — |
Residential real estate | |
| 887 | |
| 944 | |
| 106 | |
| 1,865 | |
| 37 |
Home equity | |
| 13 | |
| 13 | |
| — | |
| 12 | |
| 1 |
Other consumer | |
| — | |
| — | |
| — | |
| — | |
| — |
| | | | | | | | | | | | | | | |
Total | |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial real estate | |
| 4,222 | |
| 4,413 | |
| 1,243 | |
| 3,786 | |
| 17 |
Commercial and industrial | |
| 1,738 | |
| 1,693 | |
| 164 | |
| 1,327 | |
| 6 |
Residential real estate | |
| 3,632 | |
| 4,109 | |
| 106 | |
| 2,942 | |
| 54 |
Consumer | |
| 13 | |
| 13 | |
| — | |
| 12 | |
| 1 |
Total impaired loans | | $ | 9,605 | | $ | 10,228 | | $ | 1,513 | | $ | 8,067 | | $ | 78 |
2433
The following is a summary of impaired loans at September 30, 2020 and December 31, 2019:
Business Activities Loans
| | | | | | | | | |
| | September 30, 2020 | |||||||
|
| Recorded |
| Unpaid Principal |
| Related | |||
(in thousands) | | Investment |
| Balance | | Allowance | |||
With no related allowance: |
| |
|
| |
|
| |
|
Construction and land development | | $ | 0 | | $ | 0 | | $ | 0 |
Other commercial real estate | |
| 1,941 | |
| 2,020 | |
| 0 |
Commercial | |
| 678 | |
| 773 | |
| 0 |
Agricultural | |
| 155 | |
| 158 | |
| 0 |
Tax exempt loans | |
| 0 | |
| 0 | |
| 0 |
Residential real estate | |
| 1,555 | |
| 1,649 | |
| 0 |
Home equity | |
| 0 | |
| 0 | |
| 0 |
Other consumer | |
| 0 | |
| 0 | |
| 0 |
| | | | | | | | | |
With an allowance recorded: | |
|
| |
|
| |
|
|
Construction and land development | | | 210 | | | 210 | | | 158 |
Other commercial real estate | | | 435 | | | 503 | | | 185 |
Commercial | | | 216 | | | 216 | | | 18 |
Agricultural | | | 225 | | | 361 | | | 225 |
Tax exempt loans | | | 0 | | | 0 | | | 0 |
Residential real estate | | | 678 | | | 725 | | | 45 |
Home equity | | | 12 | | | 12 | | | 1 |
Other consumer | | | 0 | | | 0 | | | 0 |
| | | | | | | | | |
Total | | |
| | |
| | |
|
Commercial real estate | | | 2,586 | | | 2,733 | | | 343 |
Commercial and industrial | |
| 1,274 | |
| 1,508 | |
| 243 |
Residential real estate | |
| 2,233 | |
| 2,374 | |
| 45 |
Consumer | |
| 12 | |
| 12 | |
| 1 |
Total impaired loans | | $ | 6,105 | | $ | 6,627 | | $ | 632 |
25
Acquired Loans
| | | | | | | | | |
| | September 30, 2020 | |||||||
|
| Recorded |
| Unpaid Principal |
| Related | |||
(in thousands) | | Investment |
| Balance | | Allowance | |||
With no related allowance: |
| |
|
| |
|
| |
|
Construction and land development | | $ | — | | $ | — | | $ | — |
Other commercial real estate | |
| 1,584 | |
| 1,605 | |
| — |
Commercial | |
| 257 | |
| 353 | |
| — |
Agricultural | |
| — | |
| — | |
| — |
Tax exempt loans | |
| — | |
| — | |
| — |
Residential real estate | |
| 403 | |
| 683 | |
| — |
Home equity | |
| — | |
| — | |
| — |
Other consumer | |
| — | |
| — | |
| — |
| | | | | | | | | |
With an allowance recorded: | |
|
| |
|
| |
|
|
Construction and land development | | | — | | | — | | | — |
Other commercial real estate | | | 774 | | | 793 | | | 297 |
Commercial | | | 65 | | | 67 | | | 7 |
Agricultural | | | — | | | — | | | — |
Tax exempt loans | | | — | | | — | | | — |
Residential real estate | | | 429 | | | 522 | | | 52 |
Home equity | | | — | | | — | | | — |
Other consumer | | | — | | | — | | | — |
| | | | | | | | | |
Total | | |
| | |
| | |
|
Commercial real estate | | | 2,358 | | | 2,398 | | | 297 |
Commercial and industrial | |
| 322 | |
| 420 | |
| 7 |
Residential real estate | |
| 832 | |
| 1,205 | |
| 52 |
Consumer | |
| — | |
| — | |
| — |
Total impaired loans | | $ | 3,512 | | $ | 4,023 | | $ | 356 |
26
Business Activities Loans
| | | | | | | | | |
| | December 31, 2019 | |||||||
|
| Recorded |
| Unpaid Principal |
| Related | |||
(in thousands) |
| Investment |
| Balance |
| Allowance | |||
With no related allowance: |
| |
|
| |
|
| |
|
Construction and land development | | $ | — | | $ | — | | $ | — |
Other commercial real estate | |
| 1,911 | |
| 1,957 | |
| — |
Commercial | |
| 710 | |
| 773 | |
| — |
Agricultural | |
| 361 | |
| 361 | |
| — |
Tax exempt loans | |
| — | |
| — | |
| — |
Residential real estate | |
| 2,067 | |
| 2,227 | |
| — |
Home equity | |
| — | |
| — | |
| — |
Other consumer | |
| — | |
| — | |
| — |
| | | | | | | | | |
With an allowance recorded: | |
|
| |
|
| |
|
|
Construction and land development | | | 258 | | | 258 | | | 205 |
Other commercial real estate | | | 1,795 | | | 1,940 | | | 1,026 |
Commercial | | | 282 | | | 289 | | | 164 |
Agricultural | | | — | | | — | | | — |
Tax exempt loans | | | — | | | — | | | — |
Residential real estate | | | 553 | | | 590 | | | 57 |
Home equity | | | 13 | | | 13 | | | — |
Other consumer | | | — | | | — | | | — |
| | | | | | | | | |
Total | | |
| | |
| | |
|
Commercial real estate | | | 3,964 | | | 4,155 | | | 1,231 |
Commercial and industrial | |
| 1,353 | |
| 1,423 | | | 164 |
Residential real estate | |
| 2,620 | |
| 2,817 | |
| 57 |
Consumer | |
| 13 | |
| 13 | |
| — |
Total impaired loans | | $ | 7,950 | | $ | 8,408 | | $ | 1,452 |
27
Acquired Loans
| | | | | | | | | |
| | December 31, 2019 | |||||||
|
| Recorded |
| Unpaid Principal |
| Related | |||
(in thousands) |
| Investment |
| Balance |
| Allowance | |||
With no related allowance: |
| |
|
| |
|
| |
|
Construction and land development | | $ | — | | $ | — | | $ | — |
Other commercial real estate | |
| 90 | |
| 90 | |
| — |
Commercial | |
| 385 | |
| 481 | |
| — |
Agricultural | |
| — | |
| — | |
| — |
Tax exempt | |
| — | |
| — | |
| — |
Residential mortgages | |
| 678 | |
| 938 | |
| — |
Home equity | |
| — | |
| — | |
| — |
Other consumer | |
| — | |
| — | |
| — |
| | | | | | | | | |
With an allowance recorded: | |
|
| |
|
| |
|
|
Construction and land development | | | — | | | — | | | — |
Other commercial real estate | | | 168 | | | 168 | | | 12 |
Commercial | | | — | | | — | | | — |
Agricultural | | | — | | | — | | | — |
Tax exempt | | | — | | | — | | | — |
Residential mortgages | | | 354 | | | 376 | | | 49 |
Home equity | | | — | | | — | | | — |
Other consumer | | | — | | | — | | | — |
| | | | | | | | | |
Total | | |
| | |
| | |
|
Commercial real estate | | | 258 | | | 258 | | | 12 |
Commercial and industrial | |
| 385 | |
| 481 | |
| — |
Residential real estate | |
| 1,032 | |
| 1,314 | |
| 49 |
Consumer | |
| — | |
| — | |
| — |
Total impaired loans | | $ | 1,675 | | $ | 2,053 | | $ | 61 |
28
The following is a summary of the average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2020 and 2019:
Business Activities Loans
| | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2019 | ||||||||
|
| Average Recorded |
| Interest |
| Average Recorded |
| Interest | ||||
(in thousands) |
| Investment |
| Income Recognized |
| Investment |
| Income Recognized | ||||
With no related allowance: |
| |
|
| |
|
| |
|
| |
|
Construction and land development | | $ | — | | $ | — | | $ | — | | $ | — |
Other commercial real estate | |
| 1,899 | |
| 14 | |
| 5,528 | |
| 63 |
Commercial | |
| 692 | |
| 1 | |
| 747 | |
| 4 |
Agricultural | |
| 157 | |
| — | |
| — | |
| — |
Tax exempt loans | |
| — | |
| — | |
| — | |
| — |
Residential real estate | |
| 1,547 | |
| 12 | |
| 2,041 | |
| 16 |
Home equity | |
| — | |
| — | |
| — | |
| — |
Other consumer | |
| — | |
| — | |
| — | |
| — |
| | | | | | | | | | | | |
With an allowance recorded: | |
|
| |
|
| |
|
| |
|
|
Construction and land development | | | 205 | | | — | | | 1 | | | — |
Other commercial real estate | | | 429 | | | — | | | 3,217 | | | — |
Commercial | | | 212 | | | 1 | | | 654 | | | — |
Agricultural | | | — | | | — | | | — | | | — |
Tax exempt loans | | | — | | | — | | | — | | | — |
Residential real estate | | | 665 | | | 3 | | | 551 | | | 2 |
Home equity | | | 12 | | | — | | | 12 | | | — |
Other consumer | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | |
Total | | |
| | |
| | |
| | |
|
Commercial real estate | | | 2,533 | | | 14 | | | 8,746 | | | 52 |
Commercial and industrial | | | 1,061 | |
| 2 | | | 1,401 | | | 4 |
Residential real estate | |
| 2,212 | |
| 15 | |
| 2,592 | |
| 18 |
Consumer | |
| 12 | |
| — | |
| 12 | |
| — |
Total impaired loans | | $ | 5,818 | | $ | 31 | | $ | 12,751 | | $ | 74 |
29
Business Activities Loans
| | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2019 | ||||||||
|
| Average Recorded |
| Interest |
| Average Recorded |
| Interest | ||||
(in thousands) |
| Investment |
| Income Recognized |
| Investment |
| Income Recognized | ||||
With no related allowance: |
| |
|
| |
|
| |
|
| |
|
Construction and land development | | $ | — | | $ | — | | $ | — | | $ | — |
Other commercial real estate | |
| 1,427 | |
| 14 | |
| 5,466 | |
| 56 |
Commercial | |
| 732 | |
| 2 | |
| 792 | |
| 7 |
Agricultural | |
| 101 | |
| — | |
| — | |
| — |
Tax exempt loans | |
| — | |
| — | |
| — | |
| — |
Residential real estate | |
| 1,581 | |
| 25 | |
| 2,089 | |
| 47 |
Home equity | |
| — | |
| — | |
| — | |
| — |
Other consumer | |
| — | |
| — | |
| — | |
| — |
| | | | | | | | | | | | |
With an allowance recorded: | |
|
| |
|
| |
|
| |
|
|
Construction and land development | | | 208 | | | — | | | 2 | | | — |
Other commercial real estate | | | 452 | | | — | | | 2,972 | | | 29 |
Commercial | | | 97 | | | 2 | | | 497 | | | — |
Agricultural | | | — | | | — | | | — | | | — |
Tax exempt loans | | | — | | | — | | | — | | | — |
Residential real estate | | | 681 | | | 9 | | | 540 | | | 7 |
Home equity | | | 12 | | | — | | | 13 | | | — |
Other consumer | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | |
Total | | |
| | |
| | |
| | |
|
Commercial real estate | | | 2,087 | | | 14 | | | 8,440 | | | 85 |
Commercial and industrial | |
| 930 | | | 4 | | | 1,289 | |
| 7 |
Residential real estate | |
| 2,262 | |
| 34 | | | 2,629 | |
| 54 |
Consumer | |
| 12 | |
| — | | | 13 | |
| — |
Total impaired loans | | $ | 5,291 | | $ | 52 | | $ | 12,371 | | $ | 146 |
30
Acquired Loans
| | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2019 | ||||||||
| | Average Recorded |
| Interest |
| Average Recorded |
| Interest | ||||
(in thousands) |
| Investment |
| Income Recognized |
| Investment |
| Income Recognized | ||||
With no related allowance: | | |
| | |
| | |
| | |
|
Construction and land development | | $ | — | | $ | — | | $ | — | | $ | — |
Other commercial real estate | |
| 1,566 | |
| — | |
| 88 | |
| — |
Commercial | |
| 264 | |
| — | |
| 395 | |
| — |
Agricultural | |
| — | |
| — | |
| — | |
| — |
Tax exempt loans | |
| — | |
| — | |
| — | |
| — |
Residential real estate | |
| 519 | |
| — | |
| 702 | |
| — |
Home equity | |
| — | |
| — | |
| — | |
| — |
Other consumer | |
| — | |
| — | |
| — | |
| — |
| | | | | | | | | | | | |
With an allowance recorded: | |
|
| |
|
| |
|
| |
|
|
Construction and land development | | | — | | | — | | | — | | | — |
Other commercial real estate | | | 782 | | | 3 | | | 165 | | | — |
Commercial | | | 67 | | | — | | | — | | | — |
Agricultural | | | — | | | — | | | — | | | — |
Tax exempt loans | | | — | | | — | | | — | | | — |
Residential real estate | | | 420 | | | — | | | 352 | | | — |
Home equity | | | — | | | — | | | — | | | — |
Other consumer | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | |
Total | | |
| | |
| | |
| | |
|
Commercial real estate | | | 2,348 | | | 3 | | | 253 | | | — |
Commercial and industrial | |
| 331 | | | — | |
| 395 | |
| — |
Residential real estate | |
| 939 | | | — | |
| 1,054 | |
| — |
Consumer | |
| — | | | — | |
| — | |
| — |
Total impaired loans | | $ | 3,618 | | $ | 3 | | $ | 1,702 | | $ | — |
31
Acquired Loans
| | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2019 | ||||||||
|
| Average Recorded |
| Interest |
| Average Recorded |
| Interest | ||||
(in thousands) |
| Investment |
| Income Recognized |
| Investment |
| Income Recognized | ||||
With no related allowance: |
| |
|
| |
|
| |
|
| |
|
Construction and land development | | $ | — | | $ | — | | $ | — | | $ | — |
Other commercial real estate | |
| 1,097 | |
| — | |
| 89 | |
| — |
Commercial | |
| 318 | |
| — | |
| 429 | |
| — |
Agricultural | |
| — | |
| — | |
| — | |
| — |
Tax exempt loans | |
| — | |
| — | |
| — | |
| — |
Residential real estate | |
| 541 | |
| — | |
| 593 | |
| — |
Home equity | |
| — | |
| — | |
| — | |
| — |
Other consumer | |
| — | |
| — | |
| — | |
| — |
| | | | | | | | | | | | |
With an allowance recorded: | |
|
| |
|
| |
|
| |
|
|
Construction and land development | | | — | | | — | | | — | | | — |
Other commercial real estate | | | 639 | | | 3 | | | 123 | | | — |
Commercial | | | 75 | | | — | | | — | | | — |
Agricultural | | | — | | | — | | | — | | | — |
Tax exempt loans | | | — | | | — | | | — | | | — |
Residential real estate | | | 432 | | | — | | | 361 | | | — |
Home equity | | | — | | | — | | | — | | | — |
Other consumer | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | |
Total | | |
| | |
| | |
| | |
|
Commercial real estate | | | 1,736 | | | 3 | | | 212 | | | — |
Commercial and industrial | |
| 393 | |
| — | | | 429 | | | — |
Residential real estate | |
| 973 | |
| — | | | 954 | |
| — |
Consumer | |
| — | |
| — | |
| — | |
| — |
Total impaired loans | | $ | 3,102 | | $ | 3 | | $ | 1,595 | | $ | — |
32
Troubled Debt Restructuring Loans
The Company’s loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring ("TDR")(TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as non-performing at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. TDRs are evaluated individually for impairment and may result in a specific allowance amount allocated to an individual loan.
The following tables include the recorded investment and number of modifications identified during the three and nine months ended September 30, 2020 and 2019, respectively.periods ended. The table includes the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured. Modifications may include adjustments to interest rates, payment amounts, extensions of maturity, court ordered concessions or other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. There were 0 modifications qualifying as TDR’s for the three and nine months ended September 30, 2021.
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2020 | |||||||||||||||
| | | | Pre-Modification | | Post-Modification | | | | Pre-Modification | | Post-Modification | | | | ||||
| | Number of | | Outstanding Recorded | | Outstanding Recorded | | Number of | | Outstanding | | Outstanding | | | | ||||
(in thousands, except modifications) |
| Modifications |
| Investment |
| Investment | |||||||||||||
Troubled Debt Restructurings |
|
|
| |
|
| |
| |||||||||||
Agricultural |
| 1 | | $ | 86 | | $ | 86 | |||||||||||
(in thousands) |
| Modifications |
| Balance |
| Balance |
| Reserve | |||||||||||
Commercial and industrial |
| 1 | |
| 86 | |
| 86 | |
| — | ||||||||
Total |
| 1 | | $ | 86 | | $ | 86 |
| 1 | | $ | 86 | | $ | 86 | | $ | — |
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2020 | |||||||||||||||
| | | | Pre-Modification | | Post-Modification | | | | Pre-Modification | | Post-Modification | | | | ||||
| | Number of | | Outstanding Recorded | | Outstanding Recorded | | Number of | | Outstanding | | Outstanding | | | | ||||
(in thousands, except modifications) |
| Modifications |
| Investment |
| Investment | |||||||||||||
Troubled Debt Restructurings |
|
|
| |
|
| |
| |||||||||||
Other commercial real estate |
| 4 | | $ | 268 | | $ | 267 | |||||||||||
Agricultural |
| 1 | |
| 141 | |
| 141 | |||||||||||
Residential mortgages |
| 2 | |
| 399 | |
| 342 | |||||||||||
(in thousands) |
| Modifications |
| Balance |
| Balance |
| Reserve | |||||||||||
Commercial construction | | — | | $ | — | | $ | — | | $ | — | ||||||||
Commercial real estate owner occupied |
| — | |
| — | |
| — | |
| — | ||||||||
Commercial real estate non-owner occupied |
| 1 | |
| 54 | |
| 247 | |
| — | ||||||||
Tax exempt |
| — | |
| — | |
| — | |
| — | ||||||||
Commercial and industrial |
| 4 | |
| 127 | |
| 248 | |
| — | ||||||||
Residential real estate |
| — | |
| — | |
| — | |
| — | ||||||||
Home equity |
| 1 | |
| 26 | |
| 24 | |
| — | ||||||||
Consumer other |
| 1 | |
| 9 | |
| 9 | |
| — | ||||||||
Total |
| 7 | | $ | 808 | | $ | 750 |
| 7 | | $ | 216 | | $ | 528 | | $ | — |
| | | | | | | | |
| | Nine Months Ended September 30, 2020 | ||||||
| | | | Pre-Modification | | Post-Modification | ||
| | Number of | | Outstanding Recorded | | Outstanding Recorded | ||
(in thousands, except modifications) |
| Modifications |
| Investment |
| Investment | ||
Troubled Debt Restructurings |
|
|
| |
|
| |
|
Other commercial real estate |
| 1 | | $ | 54 | | $ | 247 |
Other commercial |
| 3 | |
| 41 | |
| 162 |
Agricultural | | 1 | | | 86 | | | 86 |
Home equity | | 1 | | | 26 | | | 24 |
Other consumer | | 1 | | | 9 | | | 9 |
Total |
| 7 | | $ | 216 | | $ | 528 |
| | | | | | | | |
| | Nine Months Ended September 30, 2019 | ||||||
| | | | Pre-Modification | | | Post-Modification | |
| | Number of | | Outstanding Recorded | | Outstanding Recorded | ||
(in thousands, except modifications) |
| Modifications |
| Investment |
| Investment | ||
Troubled Debt Restructurings |
|
|
| |
|
| |
|
Other commercial real estate |
| 9 | | $ | 543 | | $ | 529 |
Other commercial |
| 4 | |
| 168 | |
| 91 |
Agricultural |
| 1 | |
| 141 | |
| 141 |
Residential mortgages |
| 11 | |
| 1,133 | |
| 1,034 |
Total |
| 25 | | $ | 1,985 | | $ | 1,795 |
33
The following tables summarize the types of loan concessions made for the periods presented:
| | | | | | | | | | |
| | Three Months Ended September 30, | ||||||||
| | 2020 | | 2019 | ||||||
| | | | Post-Modification | | | | Post-Modification | ||
| | | | Outstanding | | | | Outstanding | ||
| | Number of | | Recorded | | Number of | | Recorded | ||
(in thousands, except modifications) |
| Modifications |
| Investment |
| Modifications |
| Investment | ||
Troubled Debt Restructurings | | | | | | | | | | |
Interest only payments |
| — | | $ | — |
| 2 | | $ | 90 |
Forbearance |
| — | | | — |
| 1 | | | 141 |
Forbearance and interest only payments |
| — | |
| — |
| 2 | |
| 176 |
Forbearance, amortization and maturity concession |
| — | |
| — |
| 2 | |
| 343 |
Maturity concession | | 1 | | | 86 | | — | | | — |
Total |
| 1 | | $ | 86 |
| 7 | | $ | 750 |
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | September 30, 2021 | | September 30, 2020 | ||||||||||||||
| | 2020 | | 2019 |
| |
| Post-Modification |
| |
| Post-Modification | ||||||||
|
| |
| Post-Modification |
| |
| Post-Modification | | Number of | | Outstanding | | Number of | | Outstanding | ||||
| | | | Outstanding | | | | outstanding | ||||||||||||
| | Number of | | Recorded | | Number of | | Recorded | ||||||||||||
(in thousands, except modifications) |
| Modifications |
| Investment |
| Modifications |
| Investment | ||||||||||||
Troubled Debt Restructurings | | | | | | | | | | | ||||||||||
Interest only payments |
| 0 | | $ | 0 | | 2 | | $ | 90 | ||||||||||
Interest only payments and maturity concession |
| 0 | |
| 0 | | 2 | |
| 73 | ||||||||||
(in thousands) | | Modifications | | Balance | | Modifications | | Balance | ||||||||||||
Interest rate, forbearance and maturity concession | | 4 | | | 409 | | 0 | | | 0 |
| — | | $ | — |
| 4 | | $ | 409 |
Amortization and maturity concession |
| 0 | |
| 0 | | 4 | |
| 273 | ||||||||||
Amortization, interest rate and maturity concession | | 0 | | | 0 | | 1 | | | 77 | ||||||||||
Forbearance |
| 0 | |
| 0 | | 3 | |
| 253 | ||||||||||
Forbearance and interest only payments | | 1 | | | 24 | | 5 | | | 331 |
| — | |
| — |
| 1 | |
| 24 |
Forbearance, amortization and maturity concession |
| 0 | |
| 0 | | 7 | |
| 640 | ||||||||||
Maturity concession |
| 2 | |
| 95 | | 0 | |
| 0 |
| — | |
| — |
| 2 | |
| 95 |
Other | | 0 | | | 0 | | 1 | | | 58 | ||||||||||
Total |
| 7 | | $ | 528 | | 25 | | $ | 1,795 |
| — | | $ | — |
| 7 | | $ | 528 |
For the three and nine months ended September 30, 2020,2021 there were 0 loans that were restructured that had subsequently defaulted during the period. The evaluation of certain loans individually for specific impairment includes loans that were previously classified as TDRs or continue to be classified as TDRs.
Modifications in response to COVID-19
The Company began offering short-term loan modifications to assist borrowers during the COVID-19 national emergency. The CARES Act along with a joint agency statement issued by banking agencies, provides that short-term modifications
34
made in response to COVID-19 do not need to be accounted for as a TDR. Accordingly, the Company does not account for such loan modifications as TDRs. See Note 1 -Basis of Presentation in December 31, 2020 10-K for more information.
The Company modified 588 commercial loans totaling $375.0 million and 564 residential loans totaling $98.5 million. As of September 30, 2020 total outstanding deferrals were $78.7 million, which primarily consist of interest only forbearance. Outstanding deferrals consisted of 110 commercial loans totaling $74.1 million and 86 residential loans totaling $4.6 million.
Foreclosure
As of September 30, 2020 and December 31, 2019, the Company maintained bank-owned residential real estate with a fair value of $1.9 million. Additionally, residentialResidential mortgage loans collateralized by real estate that are in the process of foreclosure as of September 30, 20202021 and December 31, 20192020 totaled $917$734 thousand and $810$917 thousand, respectively.
Mortgage Banking
The Company had identified and designated loans with an unpaid principal balance of $7.5 million and $24.0 million as residential loans held for sale at September 30, 2021 and December 31, 2020, respectively. The interest rate exposure on loans held for sale are mitigated through forward delivery commitments with certain approved secondary market investors. Forward delivery commitments were $14.5 million, and $50.6 million, respectively. Refer to Note 8 for further discussion of the Company's forward delivery commitments.
For the three months ended September 30, 2021 and 2020, the Company sold $28.5 million and $86.2 million, respectively, of residential mortgage loans on the secondary market, which resulted in a net gain on sale of loans (net of costs, including direct and indirect origination costs) of $682 thousand and $2.2 million, respectively. For the nine months ended September 30, 2021 and 2020, the Company sold $153.9 million and $156.0 million, respectively, of residential mortgage loans on the secondary market, which resulted in a net gain on sale of loans (net of costs, including direct and indirect origination costs) of $3.6 million and $3.1 million, respectively.
The Company sells residential loans on the secondary market with the Company primarily retaining the servicing of these loans. Servicing sold loans helps to maintain customer relationships and the Company earns fees over the servicing period. Loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to level of prepayments that result from shifts in interest rates. The Company obtains third party valuations of its servicing assets portfolio quarterly, which assumptions are reflected in Fair Value disclosures.
3435
Mortgage Banking
The Bank sells loans in the secondary market and retains the ability to service many of these loans. The Bank earns fees for the servicing provided. Loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to changes in prepayments that result from shifts in interest rates.
Servicing rights activity during the three and nine months ended September 30, 2020 and 2019, included in other assets, was as follows:
| | | | | | | | | | | | |
| | At or for the Three Months Ended September 30, | | At or for the Nine Months Ended September 30, | ||||||||
(in thousands) |
| 2020 |
| 2019 | | 2020 |
| 2019 | ||||
Balance at beginning of year | | $ | 2,939 | | $ | 2,941 | | $ | 3,001 | | $ | 3,086 |
Acquired | |
| — | |
| — | |
| — | |
| — |
Additions | |
| 515 | |
| 106 | |
| 796 | |
| 213 |
Amortization | |
| (220) | |
| (138) | |
| (563) | |
| (390) |
Balance at end of year | | $ | 3,234 | | $ | 2,909 | | $ | 3,234 | | $ | 2,909 |
Total residential loans included held for sale loans of $23.7 million and $6.5 million at September 30, 2020 and December 31, 2019, respectively.
35
NOTE 4. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level considered adequate to provide for an estimate of probable credit losses inherent in the loan portfolio. The allowance is increased by the provision charged to operating expense and reduced by net charge-offs. Loans are charged against the allowance for loan losses when the Company believes collectability has declined to a point where there is a distinct possibility of some loss of principal and interest. While the Company uses the best information available to make the evaluation, future adjustments may be necessary if there are significant changes in conditions.
The allowance is comprised of 4 distinct reserve components: (1) specific reserves related to loans individually evaluated; (2) quantitative reserves related to loans collectively evaluated; (3) qualitative reserves related to loans collectively evaluated; and (4) a temporal estimate is made for incurred loss emergence period for each loan category within the collectively evaluated pools.
A summary of the methodology employed on a quarterly basis with respect to each of these components in order to evaluate the overall adequacy of the Company's allowance for loan losses is as follows:
Specific Reserve for Loans Individually Evaluated
First, the Company identifies loan relationships having aggregate balances in excess of $150 thousand with potential credit weaknesses. Such loan relationships are identified primarily through the Company's analysis of internal loan evaluations, past due loan reports, TDRs and loans adversely classified. Each loan so identified is then individually evaluated for impairment. Loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement. Substantially all impaired loans have historically been collateral dependent, meaning repayment of the loan is expected or is considered to be provided solely from the sale of the loan's underlying collateral. For such loans, the Company measures impairment based on the fair value of the loan's collateral, which is generally determined utilizing current appraisals. A specific reserve is established in an amount equal to the excess, if any, of the recorded investment in each impaired loan over the fair value of its underlying collateral, less estimated costs to sell. The Company's policy is to re-evaluate the fair value of collateral dependent loans at least every twelve months unless there is a known deterioration in the collateral's value, in which case a new appraisal is obtained.
Purchase credit impaired (“PCI”) loans are collectively evaluated, but are not included in the general reserve as described below. The evaluation of the PCI loans requires continued quarterly assessment of key assumptions and estimates similar to the initial fair value estimate, including changes in the severity of loss, timing and speed of payments, collateral value changes, expected cash flows and other relevant factors. The quarterly assessment is compared to the initial fair value estimate and a determination is made if an adjustment to the allowance for loan loss is deemed necessary.
Quantitative Reserve for Loans Collectively Evaluated
Second, the Company stratifies the loan portfolio into 2 general business loan pools: substandard (7 risk-rated) and pass-rated (0 to 6 risk-rated) by loan type. Substandard rated loans are subject to higher credit loss rates in the allowance for loan loss calculation. The Company utilizes historical loss rates for commercial real estate and commercial and industrial loans assessed by internal risk rating. Historical loss rates on residential real estate and consumer loans are not risk graded. Residential real estate and consumer loans are considered as part of the pass-rated portfolio unless removed due to specific reserve evaluation based on past due status and/or other indications of credit deterioration. Quantitative reserves relative to each loan pool are established as follows: for all loan segments an allocation equaling 100% of the respective pool's average 3-year historical net loan charge-off rate (determined based upon the most recent 12 quarters) is applied to the aggregate recorded investment in the pool of loans. Purchased performing loans are collectively evaluated as their own separate category within each loan pool.
36
Qualitative Reserve for Loans Collectively Evaluated
Third, the Company considers the necessity to adjust the average historical net loan charge-off rates relative to each of the above 2 loan pools for potential risks factors that could result in actual losses deviating from prior loss experience. Such qualitative risk factors considered are: (1) lending policies and procedures, (2) business conditions, (3) volume and nature of the loan portfolio, (4) experience, ability and depth of lending management, (5) problem loan trends, (6) quality of the Company’s loan review system, (7) concentrations in the loan portfolio, (8) competition, legal, and regulatory environment and (9) collateral coverage and loan-to-value.
Loss Emergence Period for Loans Collectively Evaluated
Fourth, the general allowance related to loans collectively evaluated includes an estimate of incurred losses over an estimated loss emergence period ("LEP"). The LEP is generated utilizing a charge-off look-back analysis, which evaluates the time from the first indication of elevated risk of repayment (or other early event indicating a problem) to eventual charge-off to support the LEP considered in the allowance calculation. This reserving methodology establishes the approximate number of months of LEP that represents incurred losses for each loan portfolio within each portfolio segment in addition to the qualitative reserves.
Activity in the allowance for loan losses for the three and nine months ended September 30, 2020 and 2019 are, as follows:
| | | | | | | | | | | | | | | |
Business Activities Loans | | At or for the Three Months Ended September 30, 2020 | |||||||||||||
|
| Commercial |
| Commercial |
| Residential |
| | |
| | | |||
(in thousands) | | real estate | | and industrial | | real estate | | Consumer | | Total | |||||
Balance at beginning of period | | $ | 8,416 | | $ | 3,241 | | $ | 3,945 | | $ | 376 | | $ | 15,978 |
Charged-off loans | |
| (266) | |
| (4) | |
| — | |
| (146) | |
| (416) |
Recoveries on charged-off loans | |
| 12 | |
| 14 | |
| — | |
| 6 | |
| 32 |
Provision for loan losses | |
| 1,265 | |
| 269 | |
| 104 | |
| 143 | |
| 1,781 |
Balance at end of period | | $ | 9,427 | | $ | 3,520 | | $ | 4,049 | | $ | 379 | | $ | 17,375 |
Individually evaluated for impairment | |
| 343 | |
| 243 | |
| 45 | |
| 1 | |
| 632 |
Collectively evaluated | |
| 9,084 | |
| 3,277 | |
| 4,004 | |
| 378 | |
| 16,743 |
Total | | $ | 9,427 | | $ | 3,520 | | $ | 4,049 | | $ | 379 | | $ | 17,375 |
| | | | | | | | | | | | | | | |
Business Activities Loans | | At or for the Nine Months Ended September 30, 2020 | |||||||||||||
|
| Commercial |
| Commercial |
| Residential |
| | |
| | | |||
(in thousands) | | real estate | | and industrial | | real estate | | Consumer | | Total | |||||
Balance at beginning of period | | $ | 7,668 | | $ | 3,608 | | $ | 3,402 | | $ | 379 | | $ | 15,057 |
Charged-off loans | |
| (1,036) | |
| (307) | |
| (21) | |
| (335) | |
| (1,699) |
Recoveries on charged-off loans | |
| 90 | |
| 16 | |
| — | |
| 5 | |
| 111 |
Provision for loan losses | |
| 2,705 | |
| 203 | |
| 668 | |
| 330 | |
| 3,906 |
Balance at end of period | | $ | 9,427 | | $ | 3,520 | | $ | 4,049 | | $ | 379 | | $ | 17,375 |
Individually evaluated for impairment | |
| 343 | |
| 243 | |
| 45 | |
| 1 | |
| 632 |
Collectively evaluated | |
| 9,084 | |
| 3,277 | |
| 4,004 | |
| 378 | |
| 16,743 |
Total | | $ | 9,427 | | $ | 3,520 | | $ | 4,049 | | $ | 379 | | $ | 17,375 |
| | | | | | | | | | | | | | | |
Acquired Loans | | At or for the Three Months Ended September 30, 2020 | |||||||||||||
|
| Commercial |
| Commercial |
| Residential |
| | |
| | | |||
(in thousands) | | real estate | | and industrial | | real estate | | Consumer | | Total | |||||
Balance at beginning of period | | $ | 401 | | $ | 12 | | $ | 118 | | $ | — | | $ | 531 |
Charged-off loans | |
| — | |
| (20) | |
| — | |
| (3) | |
| (23) |
Recoveries on charged-off loans | |
| 2 | |
| — | |
| 1 | |
| 2 | |
| 5 |
Provision (release) for loan losses | |
| (3) | |
| 20 | |
| 1 | |
| 1 | |
| 19 |
Balance at end of period | | $ | 400 | | $ | 12 | | $ | 120 | | $ | — | | $ | 532 |
Individually evaluated for impairment | |
| 297 | |
| 7 | |
| 52 | |
| — | |
| 356 |
Collectively evaluated | |
| 103 | |
| 5 | |
| 68 | |
| — | |
| 176 |
Total | | $ | 400 | | $ | 12 | | $ | 120 | | $ | — | | $ | 532 |
37
| | | | | | | | | | | | | | | |
Acquired Loans | | At or for the Nine Months Ended September 30, 2020 | |||||||||||||
|
| Commercial |
| Commercial |
| Residential |
| | |
| | | |||
(in thousands) | | real estate | | and industrial | | real estate | | Consumer | | Total | |||||
Balance at beginning of period | | $ | 147 | | $ | 6 | | $ | 143 | | $ | — | | $ | 296 |
Charged-off loans | |
| (101) | |
| (53) | |
| (11) | |
| (6) | |
| (171) |
Recoveries on charged-off loans | |
| 19 | |
| 9 | |
| 12 | |
| 8 | |
| 48 |
Provision (release) for loan losses | |
| 335 | |
| 50 | |
| (24) | |
| (2) | |
| 359 |
Balance at end of period | | $ | 400 | | $ | 12 | | $ | 120 | | $ | — | | $ | 532 |
Individually evaluated for impairment | |
| 297 | |
| 7 | |
| 52 | |
| — | |
| 356 |
Collectively evaluated | |
| 103 | |
| 5 | |
| 68 | |
| — | |
| 176 |
Total | | $ | 400 | | $ | 12 | | $ | 120 | | $ | — | | $ | 532 |
| | | | | | | | | | | | | | | |
Business Activities Loans | | At or for the Three Months Ended September 30, 2019 | |||||||||||||
|
| Commercial |
| Commercial |
| Residential |
| | |
| | | |||
(in thousands) | | real estate | | and industrial | | real estate | | Consumer | | Total | |||||
Balance at beginning of period | | $ | 7,206 | | $ | 2,748 | | $ | 3,942 | | $ | 394 | | $ | 14,290 |
Charged-off loans | |
| — | |
| — | |
| (108) | |
| (55) | |
| (163) |
Recoveries on charged-off loans | |
| 1 | |
| 62 | |
| 36 | |
| 1 | |
| 100 |
Provision (release) for loan losses | |
| 956 | |
| 63 | |
| (111) | |
| (94) | |
| 814 |
Balance at end of period | | $ | 8,163 | | $ | 2,873 | | $ | 3,759 | | $ | 246 | | $ | 15,041 |
Individually evaluated for impairment | |
| 990 | |
| 240 | |
| 66 | |
| 1 | |
| 1,297 |
Collectively evaluated | |
| 7,173 | |
| 2,633 | |
| 3,693 | |
| 245 | |
| 13,744 |
Total | | $ | 8,163 | | $ | 2,873 | | $ | 3,759 | | $ | 246 | | $ | 15,041 |
| | | | | | | | | | | | | | | |
Business Activities Loans | | At or for the Nine Months Ended September 30, 2019 | |||||||||||||
|
| Commercial |
| Commercial |
| Residential |
| | |
| | | |||
(in thousands) | | real estate | | and industrial | | real estate | | Consumer | | Total | |||||
Balance at beginning of period | | $ | 6,811 | | $ | 2,380 | | $ | 3,982 | | $ | 408 | | $ | 13,581 |
Charged-off loans | |
| (57) | |
| (13) | |
| (110) | |
| (129) | |
| (309) |
Recoveries on charged-off loans | |
| 131 | |
| 62 | |
| 55 | |
| 8 | |
| 256 |
Provision (release) for loan losses | |
| 1,278 | |
| 444 | |
| (168) | |
| (41) | |
| 1,513 |
Balance at end of period | | $ | 8,163 | | $ | 2,873 | | $ | 3,759 | | $ | 246 | | $ | 15,041 |
Individually evaluated for impairment | |
| 990 | |
| 240 | |
| 66 | |
| 1 | |
| 1,297 |
Collectively evaluated | |
| 7,173 | |
| 2,633 | |
| 3,693 | |
| 245 | |
| 13,744 |
Total | | $ | 8,163 | | $ | 2,873 | | $ | 3,759 | | $ | 246 | | $ | 15,041 |
| | | | | | | | | | | | | | | |
Acquired Loans | | At or for the Three Months Ended September 30, 2019 | |||||||||||||
|
| Commercial |
| Commercial |
| Residential |
| | |
| | | |||
(in thousands) | | real estate | | and industrial | | real estate | | Consumer | | Total | |||||
Balance at beginning of period | | $ | 159 | | $ | 22 | | $ | 101 | | $ | — | | $ | 282 |
Charged-off loans |
| | — |
| | — |
| | (52) |
| | — |
| | (52) |
Recoveries on charged-off loans |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
Provision (release) for loan losses |
| | (2) |
| | (15) |
| | 99 |
| | (3) |
| | 79 |
Balance at end of period | | $ | 157 | | $ | 7 | | $ | 148 | | $ | — | | $ | 312 |
Individually evaluated for impairment | |
| 12 | |
| — | |
| 32 | |
| — | |
| 44 |
Collectively evaluated | |
| 145 | |
| 7 | |
| 116 | |
| — | |
| 268 |
Total | | $ | 157 | | $ | 7 | | $ | 148 | | $ | — | | $ | 312 |
38
| | | | | | | | | | | | | | | |
Acquired Loans | | At or for the Nine Months Ended September 30, 2019 | |||||||||||||
|
| Commercial |
| Commercial |
| Residential |
| | |
| | | |||
(in thousands) | | real estate | | and industrial | | real estate | | Consumer | | Total | |||||
Balance at beginning of period | | $ | 173 | | $ | 35 | | $ | 77 | | $ | — | | $ | 285 |
Charged-off loans |
| | — |
| | (15) |
| | (222) |
| | (5) |
| | (242) |
Recoveries on charged-off loans |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
Provision (releases) for loan losses |
| | (16) |
| | (13) |
| | 293 |
| | 2 |
| | 266 |
Balance at end of period | | $ | 157 | | $ | 7 | | $ | 148 | | $ | — | | $ | 312 |
Individually evaluated for impairment | |
| 12 | |
| — | |
| 32 | |
| — | |
| 44 |
Collectively evaluated | |
| 145 | |
| 7 | |
| 116 | |
| — | |
| 268 |
Total | | $ | 157 | | $ | 7 | | $ | 148 | | $ | — | | $ | 312 |
Loan Origination/Risk Management: The Company has certain lending policies and procedures in place designed to maximize loan income within an acceptable level of risk. The Company’s Board of Directors reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management and the Company's Board of Directors with frequent reports related to loan production, loan quality, concentration of credit, loan delinquencies, non-performing loans and potential problem loans. The Company seeks to diversify the loan portfolio as a means of managing risk associated with fluctuations in economic conditions.
Credit Quality Indicators/Classified Loans: In monitoring the credit quality of the portfolio, management applies a credit quality indicator and uses an internal risk rating system to categorize commercial loans. These credit quality indicators range from one through nine, with a higher number correlating to increasing risk of loss. These ratings are used as inputs to the calculation of the allowance for loan losses. Consistent with regulatory guidelines, the Company provides for the classification of loans which are considered to be of lesser quality as special mention, substandard, doubtful, or loss (i.e. risk-rated 6, 7, 8 and 9, respectively).
The following are the definitions of the Company’s credit quality indicators:
Pass: Loans the Company considers in the commercial portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes there is a low risk of loss related to these loans considered pass-rated.
Special Mention: Loans the Company considers having some potential weaknesses, but are deemed to not carry levels of risk inherent in one of the subsequent categories, are designated as 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 asset or in the institution’s credit position at some future date. This might include loans which may require a higher level of supervision or internal reporting because of: (i) declining industry trends; (ii) increasing reliance on secondary sources of repayment; (iii) the poor condition of or lack of control over collateral; or (iv) failure to obtain proper documentation or any other deviations from prudent lending practices. Economic or market conditions which may, in the future, affect the obligor may warrant special mention of the asset. Loans for which an adverse trend in the borrower's operations or an imbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized may be included in this classification. Special mention loans are not adversely classified and do not expose the Company to sufficient risks to warrant classification.
Substandard: Loans the Company considers as substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard loans have a well-defined weakness that jeopardizes liquidation of the debt. Substandard loans include those loans where there is the distinct possibility of some loss of principal, if the deficiencies are not corrected.
Doubtful: Loans the Company considers as doubtful have all of the weaknesses inherent in those loans that are classified as substandard. These loans have the added characteristic of a well-defined weakness which is inadequately protected by the current sound worth and paying capacity of borrower or of the collateral pledged, if any, and calls into question the collectability of the full balance of the loan. The possibility of loss is high but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the loan, its classification as loss is deferred
39
until its more exact status is determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. The entire amount of the loan might not be classified as doubtful when collection of a specific portion appears highly probable. Loans are generally not classified doubtful for an extended period of time (i.e., over a year).
Loss: Loans the Company considers as losses are those considered uncollectible and of such little value that their continuance as an asset is not warranted and the uncollectible amounts are charged-off. This classification does not mean the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this worthless asset even though partial recovery may be affected in the future. Losses are taken in the period in which they are determined to be uncollectible.
The following tables present the Company’s loans by risk rating at September 30, 2020 and December 31, 2019:
Business Activities Loans
Commercial Real Estate
| | | | | | | | | | | | | | | | | | |
| | Commercial construction | | | | | | | | | | | | | ||||
| | and land development | | Commercial real estate other | | Total commercial real estate | ||||||||||||
(in thousands) |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 | ||||||
Grade: | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | | $ | 86,716 | | $ | 31,057 | | $ | 742,214 | | $ | 646,886 | | $ | 828,930 | | $ | 677,943 |
Special mention | |
| 0 | |
| 0 | |
| 6,722 | |
| 5,483 | |
| 6,722 | |
| 5,483 |
Substandard | |
| — | |
| 330 | |
| 15,981 | |
| 11,974 | |
| 15,981 | |
| 12,304 |
Doubtful | |
| 211 | |
| 0 | |
| 554 | |
| 1,708 | |
| 765 | |
| 1,708 |
Total | | $ | 86,927 | | $ | 31,387 | | $ | 765,471 | | $ | 666,051 | | $ | 852,398 | | $ | 697,438 |
Acquired Loans
Commercial Real Estate
| | | | | | | | | | | | | | | | | | |
| | Commercial construction | | | | | | | | | | | | | ||||
| | and land development | | Commercial real estate other | | Total commercial real estate | ||||||||||||
(in thousands) |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 | ||||||
Grade: | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | | $ | 1,878 | | $ | 2,412 | | $ | 180,602 | | $ | 218,491 | | $ | 182,480 | | $ | 220,903 |
Special mention | |
| — | |
| 12 | |
| 1,508 | |
| 2,261 | |
| 1,508 | |
| 2,273 |
Substandard | |
| 313 | |
| 479 | |
| 7,411 | |
| 9,400 | |
| 7,724 | |
| 9,879 |
Doubtful | |
| — | |
| — | |
| 1,525 | |
| 168 | |
| 1,525 | |
| 168 |
Total | | $ | 2,191 | | $ | 2,903 | | $ | 191,046 | | $ | 230,320 | | $ | 193,237 | | $ | 233,223 |
Business Activities Loans
Commercial and Industrial
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Agricultural | | Tax exempt loans | | Total commercial | ||||||||||||||||
(in thousands) |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 | ||||||||
Grade: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | | $ | 362,351 | | $ | 221,329 | | $ | 16,744 | | $ | 18,940 | | $ | 41,951 | | $ | 66,860 | | $ | 421,046 | | $ | 307,129 |
Special mention | |
| 4,066 | |
| 2,744 | |
| 200 | |
| 298 | |
| 0 | |
| 0 | |
| 4,266 | |
| 3,042 |
Substandard | |
| 14,430 | |
| 14,866 | |
| 489 | |
| 780 | |
| 0 | |
| 0 | |
| 14,919 | |
| 15,646 |
Doubtful | |
| 665 | |
| 753 | |
| 225 | |
| 0 | |
| 0 | |
| 0 | |
| 890 | |
| 753 |
Total | | $ | 381,512 | | $ | 239,692 | | $ | 17,658 | | $ | 20,018 | | $ | 41,951 | | $ | 66,860 | | $ | 441,121 | | $ | 326,570 |
40
Acquired Loans
Commercial and Industrial
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Agricultural | | Tax exempt loans | | Total commercial | ||||||||||||||||
(in thousands) |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 | ||||||||
Grade: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | | $ | 54,667 | | $ | 51,184 | | $ | 21 | | $ | 58 | | $ | 24,375 | | $ | 37,407 | | $ | 79,063 | | $ | 88,649 |
Special mention | |
| 421 | |
| 5,432 | |
| — | |
| — | |
| — | |
| — | |
| 421 | |
| 5,432 |
Substandard | |
| 1,255 | |
| 2,115 | |
| 135 | |
| 148 | |
| — | |
| 36 | |
| 1,390 | |
| 2,299 |
Doubtful | |
| 515 | |
| 341 | |
| — | |
| — | |
| — | |
| — | |
| 515 | |
| 341 |
Total | | $ | 56,858 | | $ | 59,072 | | $ | 156 | | $ | 206 | | $ | 24,375 | | $ | 37,443 | | $ | 81,389 | | $ | 96,721 |
Business Activities Loans
Residential Real Estate and Consumer Loans
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Residential real estate | | Home equity | | Other consumer | | Total residential real estate and consumer | ||||||||||||||||
(in thousands) |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 | ||||||||
Performing | | $ | 691,902 | | $ | 737,325 | | $ | 57,894 | | $ | 58,753 | | $ | 9,202 | | $ | 11,146 | | $ | 758,998 | | $ | 807,224 |
Nonperforming |
| | 3,864 |
| | 3,362 |
| | 450 |
| | 615 |
| | 15 |
| | 21 |
| | 4,329 |
| | 3,998 |
Total | | $ | 695,766 | | $ | 740,687 | | $ | 58,344 | | $ | 59,368 | | $ | 9,217 | | $ | 11,167 | | $ | 763,327 | | $ | 811,222 |
Acquired Loans
Residential Real Estate and Consumer Loans
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Residential real estate | | Home equity | | Other consumer | | Total residential real estate and consumer | ||||||||||||||||
(in thousands) |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 |
| Sep 30, 2020 |
| Dec 31, 2019 | ||||||||
Performing | | $ | 320,772 | | $ | 407,811 | | $ | 50,059 | | $ | 62,504 | | $ | 1,249 | | $ | 1,707 | | $ | 372,080 | | $ | 472,022 |
Nonperforming |
| | 4,668 |
| | 3,359 |
| | 471 |
| | 529 |
| | — |
| | 8 |
| | 5,139 |
| | 3,896 |
Total | | $ | 325,440 | | $ | 411,170 | | $ | 50,530 | | $ | 63,033 | | $ | 1,249 | | $ | 1,715 | | $ | 377,219 | | $ | 475,918 |
The following table summarizes total classified and criticized loans as of September 30, 2020 and December 31, 2019:
| | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | ||||||||||||||
| | Business | | | | | | | | Business | | | | | | | ||
(in thousands) |
| Activities Loans |
| Acquired Loans |
| Total |
| Activities Loans |
| Acquired Loans |
| Total | ||||||
Non-accrual | | $ | 7,763 | | $ | 6,645 | | $ | 14,408 | | $ | 8,354 | | $ | 3,196 | | $ | 11,550 |
Substandard accruing |
| | 29,121 |
| | 9,648 |
| | 38,769 |
| | 26,055 |
| | 13,387 |
| | 39,442 |
Total classified |
| | 36,884 |
| | 16,293 |
| | 53,177 |
| | 34,409 |
| | 16,583 |
| | 50,992 |
Special mention |
| | 10,988 |
| | 1,929 |
| | 12,917 |
| | 8,525 |
| | 7,705 |
| | 16,230 |
Total Criticized | | $ | 47,872 | | $ | 18,222 | | $ | 66,094 | | $ | 42,934 | | $ | 24,288 | | $ | 67,222 |
41
NOTE 5. BORROWED FUNDS
Borrowed funds at September 30, 20202021 and December 31, 20192020 are summarized, as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | September 30, 2021 | | December 31, 2020 |
| |||||||||||||
| | | | | Weighted | | | | | Weighted | | | | | | Weighted | | | | | Weighted | | |
(dollars in thousands) |
| Carrying Value |
| Average Rate |
| Carrying Value |
| Average Rate |
|
| Carrying Value |
| Average Rate | | Carrying Value |
| Average Rate |
| |||||
Short-term borrowings | |
| | |
| |
| | |
|
| |
| | |
| | |
| | |
|
|
Advances from the FHLB | | $ | 41,672 |
| 1.69 | % | $ | 303,286 |
| 1.83 | % | | $ | 75,000 |
| 0.30 | % | | $ | 65,676 |
| 1.19 | % |
Other borrowings | |
| 30,048 |
| 0.60 | |
| 44,832 |
| 0.99 | | |
| 21,667 |
| 0.13 | | |
| 27,779 |
| 0.15 | |
Total short-term borrowings | |
| 71,720 |
| 1.20 | |
| 348,118 |
| 1.73 | | |
| 96,667 |
| 0.18 | | |
| 93,455 |
| 0.44 | |
Long-term borrowings | |
|
|
|
| |
|
|
|
| | |
|
|
|
| | |
|
|
|
| |
Advances from the FHLB | |
| 182,609 |
| 1.73 | |
| 123,278 |
| 1.93 | | |
| 93,600 |
| 1.57 | | |
| 182,607 |
| 1.73 | |
Advances from the FRB PPPLF | | | 131,143 | | 0.35 | | | — | | — | | ||||||||||||
Subordinated borrowings | |
| 59,920 |
| 4.48 | |
| 59,920 |
| 5.53 | | |
| 60,083 |
| 4.34 | | |
| 59,961 |
| 4.34 | |
Total long-term borrowings | |
| 373,672 |
| 1.69 | |
| 183,198 |
| 2.87 | | |
| 153,683 |
| 2.65 | | |
| 242,568 |
| 2.37 | |
Total | | $ | 445,392 |
| 1.60 | % | $ | 531,316 |
| 2.11 | % | | $ | 250,350 |
| 1.06 | % | | $ | 336,023 |
| 1.41 | % |
Short-term debt includes Federal Home Loan Bank of Boston (“FHLB”)(FHLB) advances with a maturity of less than one year. The Company also maintains a $1.0 million secured line of credit with the FHLB that bears a daily adjustable rate calculated by the FHLB. There was 0 outstanding balance on the FHLB line of credit for the periods ended September 30, 20202021 and December 31, 2019.2020.
The Company has the capacity to borrow funds on a secured basis utilizing the Borrower in Custody program and the Discount Window at the Federal Reserve Bank of Boston (the “FRB”). At September 30, 2020,2021, the Company’s available secured line of credit at the FRB was $81.1$72.0 million. The Company has pledged certain loans and securities to the FRB to support this arrangement. There were 0 outstanding advances with the FRB for the periods ended September 30, 20202021 and December 31, 2019.
On April 15, 2020, the FRB provided a Paycheck Protection Program Lending Facility (“PPPLF”) that the Company used to fund most of its PPP loans totaling $131.1 million as of September 30, 2020.
The Company maintains, with a correspondent bank, an unused unsecured federal funds line of credit that has an aggregate overnight borrowing capacity of $50.0 million as of September 30, 20202021 and December 31, 2019.2020. There was 0 outstanding balance on the line of credit as of September 30, 20202021 and December 31, 2019.2020.
Long-term FHLB advances consist of advances with a maturity of more than one year. CallableThe advances as ofoutstanding at September 30, 2020 were $2.02021 include callable advances of $20.0 million asand amortizing advances of $300 thousand. The advances outstanding at December 31, 2019 there were 02020 included $20.0 million of callable advances. As of September 30, 2020advances and December 31, 2019 there were $309 thousand and $316 thousand$307 million of amortizing advances, respectively.advances. All FHLB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.
A summary of maturities of FHLB advances as of September 30, 20202021 is, as follows:
| | | | | | | ||||||
| | September 30, 2020 |
| | | | | | | |||
|
| | |
| Weighted Average |
|
| | |
| Weighted Average |
|
(in thousands, except rates) | | Carrying Value | | Rate |
| | Amount | | Rate |
| ||
Fixed rate advances maturing: |
| |
|
|
| | ||||||
2020 | | $ | 1,000 |
| 1.65 | % | ||||||
2021 | |
| 40,672 |
| 1.69 | | | $ | 75,000 |
| 0.30 | % |
2022 | |
| 75,000 |
| 1.87 | | |
| 15,000 |
| 1.76 | |
2023 | |
| 80,000 |
| 1.77 | | |
| 51,000 |
| 1.71 | |
2024 | |
| 7,300 |
| 1.16 | | |
| 7,300 |
| 1.16 | |
2025 and thereafter | |
| 20,309 |
| 1.25 | | ||||||
2025 | |
| 20,000 |
| 1.21 | | ||||||
2026 and thereafter | |
| 300 |
| 3.39 | | ||||||
Total FHLB advances | | $ | 224,281 |
| 1.72 | % | | $ | 168,600 |
| 1.01 | % |
42
On November 26, 2019, the Company executed a Subordinated Note Purchase Agreement with an aggregate of $40.0 million of subordinated notes (the "Notes") to accredited investors. The Notes have a maturity date of December 1, 2029 and bear a fixed interest rate of 4.625% through December 1, 2024 payable semi-annually in arrears. From December 1, 2024 and thereafter the interest rate shall be reset quarterly to an interest rate per annum equal to the then current three-monththree-
36
month SOFR plus 3.27%. The Company has the option beginning with the interest payment date of December 1, 2024, and on any scheduled payment date thereafter, to redeem the Notes, in whole or in part upon prior approval of the Federal Reserve. Netted with subordinated borrowings is amortized subordinated debt issuance costs of $700$537 thousand as of September 30, 2021 and issuance costs of $659 thousand net of amortization as of December 31, 2020.
The Company also has $20.6 million in floating Junior Subordinated Deferrable Interest Debentures ("Debentures") issued by NHTB Capital Trust II ("Trust II") and NHTB Capital Trust III ("Trust III"), which are both Connecticut statutory trusts. The Debentures were issued on March 30, 2004, carry a variable interest rate of 3-month LIBOR plus 2.79%, and mature in 2034. The debt is callable by the Company at the time when any interest payment is made. Trust II and Trust III are considered variable interest entities for which the Company is not the primary beneficiary. Accordingly, Trust II and Trust III are not consolidated into the Company’s financial statements.
4337
NOTE 6.5. DEPOSITS
A summary of time deposits is, as follows:
| | | | | | | | | | | | |
(in thousands) |
| September 30, 2020 |
| December 31, 2019 |
| September 30, 2021 |
| December 31, 2020 | ||||
Time less than $100,000 | | $ | 497,403 | | $ | 600,747 | | $ | 199,312 | | $ | 325,646 |
Time $100,000 through $250,000 | |
| 192,243 | |
| 225,505 | |
| 192,497 | |
| 278,940 |
Time $250,000 or more | |
| 123,863 | |
| 106,383 | |
| 77,412 | |
| 93,775 |
Total time deposits | | $ | 813,509 | | $ | 932,635 | ||||||
Total | | $ | 469,221 | | $ | 698,361 |
At September 30, 20202021 and December 31, 2019,2020, the scheduled maturities by year for time deposits are, as follows:
| | | | | | | | | | | | |
(in thousands) |
| September 30, 2020 | | December 31, 2019 |
| September 30, 2021 | | December 31, 2020 | ||||
Within 1 year | | $ | 635,798 | | $ | 555,074 | | $ | 362,774 | | $ | 574,007 |
Over 1 year to 2 years | |
| 111,500 | |
| 287,934 | |
| 56,926 | |
| 61,584 |
Over 2 years to 3 years | |
| 29,392 | |
| 51,444 | |
| 31,888 | |
| 41,145 |
Over 3 years to 4 years | |
| 27,598 | |
| 31,262 | |
| 9,182 | |
| 12,875 |
Over 4 years to 5 years | |
| 9,216 | |
| 6,883 | |
| 6,272 | |
| 8,728 |
Over 5 years | |
| 5 | |
| 38 | |
| 2,179 | |
| 22 |
Total | | $ | 813,509 | | $ | 932,635 | | $ | 469,221 | | $ | 698,361 |
Included in time deposits are brokered deposits of $327.2$31.4 million and $526.9$193.7 million at September 30, 20202021 and December 31, 2019,2020, respectively. Also included in time deposits are reciprocal deposits of $127.4$238.5 million and $64.1$125.0 million at September 30, 20202021 and December 31, 2019,2020, respectively.
4438
NOTE 7.6. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY
The actual and required capital ratios are, as follows:
| | | | | | | | | | | | | | | | | | |
|
| |
| Regulatory |
| |
| Regulatory |
|
| |
| Regulatory |
| |
| Regulatory |
|
| | September 30, | | Minimum to be | | December 31, | | Minimum to be |
| | September 30, | | Minimum to be | | December 31, | | Minimum to be |
|
| | 2020 | | "Well-Capitalized" | | 2019 | | "Well-Capitalized" |
| | 2021 | | "Well-Capitalized" | | 2020 | | "Well-Capitalized" |
|
Company (consolidated) |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Total capital to risk-weighted assets |
| 13.32 | % | 10.50 | % | 13.61 | % | 10.50 | % | |||||||||
Common equity tier 1 capital to risk-weighted assets |
| 10.29 |
| 7.00 |
| 10.57 |
| 7.00 | | |||||||||
Tier 1 capital to risk-weighted assets |
| 11.08 |
| 8.50 |
| 11.39 |
| 8.50 | | |||||||||
Total capital to risk-weighted assets(1) |
| 14.12 | % | 10.50 | % | 13.57 | % | 10.50 | % | |||||||||
Common equity tier 1 capital to risk-weighted assets(1) |
| 10.92 |
| 7.00 |
| 10.49 |
| 7.00 | | |||||||||
Tier 1 capital to risk-weighted assets(1) |
| 11.70 |
| 8.50 |
| 11.29 |
| 8.50 | | |||||||||
Tier 1 capital to average assets |
| 8.14 |
| 5.00 |
| 8.13 |
| 5.00 | |
| 8.54 |
| 5.00 |
| 8.12 |
| 5.00 | |
| | | | | | | | | | | | | | | | | | |
Bank |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Total capital to risk-weighted assets |
| 13.03 | % | 10.50 | % | 12.42 | % | 10.50 | % | |||||||||
Common equity tier 1 capital to risk-weighted assets |
| 12.33 |
| 7.00 |
| 11.79 |
| 7.00 | | |||||||||
Tier 1 capital to risk-weighted assets |
| 12.33 |
| 8.50 |
| 11.79 |
| 8.50 | | |||||||||
Total capital to risk-weighted assets(1) |
| 13.92 | % | 10.50 | % | 13.27 | % | 10.50 | % | |||||||||
Common equity tier 1 capital to risk-weighted assets(1) |
| 13.02 |
| 7.00 |
| 12.53 |
| 7.00 | | |||||||||
Tier 1 capital to risk-weighted assets(1) |
| 13.02 |
| 8.50 |
| 12.52 |
| 8.50 | | |||||||||
Tier 1 capital to average assets |
| 9.06 |
| 5.00 |
| 8.39 |
| 5.00 | |
| 9.50 |
| 5.00 |
| 9.02 |
| 5.00 | |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
At each date shown, the Company and the Bank met the conditions to be classified as “well-capitalized” under the relevant regulatory framework. To be categorized as "well-capitalized," an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table above.
The Company and the Bank are subject to the Basel III rule that requires the Company and the Bank to assess their Common equity tier 1 capital to risk-weighted assets and the Company and the Bank each exceed the minimum to be "well-capitalized." Effective January 1, 2019 all banking organizations must maintain a minimum Common equity tier 1 risk-based capital ratio of 7.0%, a minimum Tier 1 risk-based capital ratio of 8.5% and a minimum Total risk-based capital ratio of 10.5%.
Accumulated other comprehensive income (loss)
Components of accumulated other comprehensive income is, as follows:
| | | | | | | | | | | | |
(in thousands) |
| September 30, 2020 |
| December 31, 2019 |
| September 30, 2021 |
| December 31, 2020 | ||||
Other accumulated comprehensive income, before tax: |
| |
|
| |
| ||||||
Accumulated other comprehensive income, before tax: |
| |
|
| |
| ||||||
Net unrealized gain on AFS securities | | $ | 15,264 | | $ | 7,342 | | $ | 5,741 | | $ | 13,069 |
Net unrealized loss on hedging derivatives | |
| (1,461) | |
| (718) | ||||||
Net unrealized gain on hedging derivatives(1) | |
| (121) | |
| (2,432) | ||||||
Net unrealized loss on post-retirement plans | |
| (1,512) | |
| (1,512) | |
| (1,850) | |
| (1,850) |
| | | | | | | | | | | | |
Income taxes related to items of accumulated other comprehensive income: | |
|
| |
|
| |
|
| |
|
|
Net unrealized gain on AFS securities | |
| (3,583) | |
| (1,793) | |
| (1,343) | |
| (3,046) |
Net unrealized loss on hedging derivatives | |
| 342 | |
| 237 | ||||||
Net unrealized gain on hedging derivatives(1) | |
| 29 | |
| 567 | ||||||
Net unrealized loss on post-retirement plans | |
| 355 | |
| 355 | |
| 432 | |
| 432 |
Accumulated other comprehensive income | | $ | 9,405 | | $ | 3,911 | | $ | 2,888 | | $ | 6,740 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
4539
The following table presents the components of other comprehensive income (loss) for the three and nine months ended September 30, 20202021 and 2019:2020:
| | | | | | | | | | | | | | | | | | |
(in thousands) |
| Before Tax |
| Tax Effect |
| Net of Tax |
| Before Tax |
| Tax Effect |
| Net of Tax | ||||||
Three Months Ended September 30, 2021 |
| |
|
| |
|
| |
| |||||||||
Net unrealized gain on AFS securities: |
| |
|
| |
|
| |
| |||||||||
Net unrealized gain arising during the period | | $ | (1,770) | | $ | 403 | | $ | (1,367) | |||||||||
Less: reclassification adjustment for gains (losses) realized in net income | |
| 1,930 | |
| (458) | |
| 1,472 | |||||||||
Net unrealized gain on AFS securities | |
| (3,700) | |
| 861 | |
| (2,839) | |||||||||
| | | | | | | | | | |||||||||
Net unrealized gain on hedging derivatives: | |
|
| |
|
| |
| | |||||||||
Net unrealized gain arising during the period | |
| (203) | |
| 48 | |
| (155) | |||||||||
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — | |||||||||
Net unrealized gain on cash flow hedging derivatives | |
| (203) | |
| 48 | |
| (155) | |||||||||
| | | | | | | | | | |||||||||
Net unrealized loss on post-retirement plans: | |
|
| |
|
| |
| | |||||||||
Net unrealized loss arising during the period | |
| — | |
| — | |
| — | |||||||||
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — | |||||||||
Net unrealized loss on post-retirement plans | |
| — | |
| — | |
| — | |||||||||
Other comprehensive loss | | $ | (3,903) | | $ | 909 | | $ | (2,994) | |||||||||
| | | | | | | | | | |||||||||
Three Months Ended September 30, 2020 |
| |
|
| |
|
| |
| |
|
| |
|
| |
|
|
Net unrealized gain on AFS securities: |
| |
|
| |
|
| |
| |
|
| |
|
| |
|
|
Net unrealized gain arising during the period | | $ | 351 | | $ | (82) | | $ | 269 | | $ | 351 | | $ | (82) | | $ | 269 |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Net unrealized gain on AFS securities | |
| 351 | |
| (82) | |
| 269 | |
| 351 | |
| (82) | |
| 269 |
| | | | | | | | | | | | | | | | | | |
Net unrealized gain on cash flow hedging derivatives: | |
|
| |
|
| |
| | |||||||||
Net unrealized gain arising during the period | |
| 805 | |
| (190) | |
| 615 | |||||||||
Net unrealized gain on derivative hedgess: | |
|
| |
|
| |
| | |||||||||
Net unrealized gain arising during the period(1) | |
| 1,302 | |
| (308) | |
| 994 | |||||||||
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Net unrealized gain on cash flow hedging derivatives | |
| 805 | |
| (190) | |
| 615 | |||||||||
Net unrealized gain on cash flow derivative hedges(1) | |
| 1,302 | |
| (308) | �� |
| 994 | |||||||||
| | | | | | | | | | | | | | | | | | |
Net unrealized gain on post-retirement plans: | |
|
| |
|
| |
| | |||||||||
Net unrealized gain arising during the period | |
| — | |
| — | |
| — | |||||||||
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — | |||||||||
Net unrealized gain on post-retirement plans | |
| — | |
| — | |
| — | |||||||||
Other comprehensive income | | $ | 1,156 | | $ | (272) | | $ | 884 | |||||||||
| | | | | | | | | | |||||||||
Three Months Ended September 30, 2019 | |
|
| |
|
| |
|
| |||||||||
Net unrealized gain on AFS securities: | |
|
| |
|
| |
|
| |||||||||
Net unrealized gain arising during the period | | $ | 3,357 | | $ | (784) | | $ | 2,573 | |||||||||
Less: reclassification adjustment for gains (losses) realized in net income | |
| 157 | |
| (37) | |
| 120 | |||||||||
Net unrealized gain on AFS securities | |
| 3,200 | |
| (747) | |
| 2,453 | |||||||||
| | | | | | | | | | |||||||||
Net unrealized loss on cash flow hedging derivatives: | |
|
| |
|
| |
| | |||||||||
Net unrealized loss on post-retirement plans: | |
|
| |
|
| |
| | |||||||||
Net unrealized loss arising during the period | |
| (370) | |
| 85 | |
| (285) | |
| — | |
| — | |
| — |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Net unrealized loss on cash flow hedging derivatives | |
| (370) | |
| 85 | |
| (285) | |||||||||
| | | | | | | | | | |||||||||
Net unrealized gain on post-retirement plans: | |
|
| |
|
| |
| | |||||||||
Net unrealized gain arising during the period | |
| — | |
| — | |
| — | |||||||||
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — | |||||||||
Net unrealized gain on post-retirement plans | |
| — | |
| — | |
| — | |||||||||
Net unrealized loss on post-retirement plans | |
| — | |
| — | |
| — | |||||||||
Other comprehensive income | | $ | 2,830 | | $ | (662) | | $ | 2,168 | | $ | 1,653 | | $ | (390) | | $ | 1,263 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
4640
| | | | | | | | | |
(in thousands) |
| Before Tax |
| Tax Effect |
| Net of Tax | |||
Nine Months Ended September 30, 2020 |
| |
|
| |
|
| |
|
Net unrealized gain on AFS securities: |
| |
|
| |
|
| |
|
Net unrealized gain arising during the period | | $ | 9,408 | | $ | (2,146) | | $ | 7,262 |
Less: reclassification adjustment for gains (losses) realized in net income | |
| 1,486 | |
| (355) | |
| 1,131 |
Net unrealized gain on AFS securities | |
| 7,922 | |
| (1,791) | |
| 6,131 |
| | | | | | | | | |
Net unrealized loss on derivative hedges: | |
|
| |
|
| |
|
|
Net unrealized loss arising during the period | |
| (833) | |
| 196 | |
| (637) |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on derivative hedges | |
| (833) | |
| 196 | |
| (637) |
| | | | | | | | | |
Net unrealized gain on post-retirement plans: | |
|
| |
|
| |
|
|
Net unrealized gain arising during the period | |
| — | |
| — | |
| — |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized gain on post-retirement plans | |
| — | |
| — | |
| — |
Other comprehensive income | | $ | 7,089 | | $ | (1,595) | | $ | 5,494 |
| | | | | | | | | |
Nine Months Ended September 30, 2019 | |
|
| |
|
| |
|
|
Net unrealized gain on AFS securities: | |
|
| |
|
| |
|
|
Net unrealized gain arising during the period | | $ | 21,903 | | $ | (5,118) | | $ | 16,785 |
Less: reclassification adjustment for gains realized in net income | |
| 157 | |
| (37) | |
| 120 |
Net unrealized gain on AFS securities | |
| 21,746 | |
| (5,081) | |
| 16,665 |
| | | | | | | | | |
Net unrealized loss on cash flow hedging derivatives: | |
|
| |
|
| |
|
|
Net unrealized loss arising during the period | |
| (2,372) | |
| 554 | |
| (1,818) |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on cash flow hedging derivatives | |
| (2,372) | |
| 554 | |
| (1,818) |
| | | | | | | | | |
Net unrealized gain on post-retirement plans: | |
|
| |
|
| |
|
|
Net unrealized gain arising during the period | |
| — | |
| — | |
| — |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized gain on post-retirement plans | |
| — | |
| — | |
| — |
Other comprehensive income | | $ | 19,374 | | $ | (4,527) | | $ | 14,847 |
| | | | | | | | | |
(in thousands) |
| Before Tax |
| Tax Effect |
| Net of Tax | |||
Nine Months Ended September 30, 2021 |
| |
|
| |
|
| |
|
Net unrealized loss on AFS securities: |
| |
|
| |
|
| |
|
Net unrealized loss arising during the period | | $ | (5,348) | | $ | 1,234 | | $ | (4,114) |
Less: reclassification adjustment for gains (losses) realized in net income | |
| 1,980 | |
| (469) | |
| 1,511 |
Net unrealized loss on AFS securities | |
| (7,328) | |
| 1,703 | |
| (5,625) |
| | | | | | | | | |
Net unrealized loss on derivative hedges: | |
| | |
|
| |
|
|
Net unrealized loss arising during the period | |
| 2,311 | |
| (538) | |
| 1,773 |
Less: reclassification adjustment for (losses) gains realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on derivative hedges | |
| 2,311 | |
| (538) | |
| 1,773 |
| | | | | | | | | |
Net unrealized loss on post-retirement plans: | |
|
| |
|
| |
|
|
Net unrealized loss arising during the period | |
| — | |
| — | |
| — |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on post-retirement plans | |
| — | |
| — | |
| — |
Other comprehensive loss | | $ | (5,017) | | $ | 1,165 | | $ | (3,852) |
| | | | | | | | | |
Nine Months Ended September 30, 2020 | |
|
| |
|
| |
|
|
Net unrealized gain on AFS securities: | |
|
| |
|
| |
|
|
Net unrealized gain arising during the period | | $ | 9,408 | | $ | (2,143) | | $ | 7,265 |
Less: reclassification adjustment for gains realized in net income | |
| 1,486 | |
| (352) | |
| 1,134 |
Net unrealized gain on AFS securities | |
| 7,922 | |
| (1,791) | |
| 6,131 |
| | | | | | | | | |
Net unrealized loss on cash flow hedging derivatives: | |
|
| |
|
| |
|
|
Net unrealized loss arising during the period(1) | |
| (7,568) | |
| 1,776 | |
| (5,792) |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on cash flow hedging derivatives(1) | |
| (7,568) | |
| 1,776 | |
| (5,792) |
| | | | | | | | | |
Net unrealized gain on post-retirement plans: | |
|
| |
|
| |
|
|
Net unrealized gain arising during the period | |
| — | |
| — | |
| — |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized gain on post-retirement plans | |
| — | |
| — | |
| — |
Other comprehensive income(1) | | $ | 354 | | $ | (15) | | $ | 339 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
4741
The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax impacts, for the three and nine months ended September 30, 20202021 and 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Net unrealized |
| Net loss on |
| Net unrealized |
| | |
| Net unrealized |
| Net loss on |
| Net unrealized |
| | | ||||||
| | gain (loss) | | effective cash | | loss | | | | | gain | | effective cash | | loss | | | | ||||||
| | on AFS | | flow hedging | | on pension | | | | | on AFS | | flow hedging | | on pension | | | | ||||||
(in thousands) | | Securities | | derivatives | | plans | | Total | | Securities | | derivatives(1) | | plans | | Total(1) | ||||||||
Three Months Ended September 30, 2021 | |
| | |
| | |
| | |
| | ||||||||||||
Balance at beginning of period | | $ | 7,237 | | $ | 63 | | $ | (1,418) | | $ | 5,882 | ||||||||||||
Other comprehensive gain before reclassifications | |
| (1,367) | |
| (155) | |
| 0 | |
| (1,522) | ||||||||||||
Less: amounts reclassified from accumulated other comprehensive income | |
| 1,472 | |
| 0 | |
| 0 | |
| 1,472 | ||||||||||||
Total other comprehensive income | |
| (2,839) | |
| (155) | |
| 0 | |
| (2,994) | ||||||||||||
Balance at end of period | | $ | 4,398 | | $ | (92) | | $ | (1,418) | | $ | 2,888 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Three Months Ended September 30, 2020 | |
| | |
| | |
| | |
| | |
|
| |
|
| |
|
| |
| |
Balance at beginning of period | | $ | 11,412 | | $ | (1,734) | | $ | (1,157) | | $ | 8,521 | | $ | 11,412 | | $ | (7,387) | | $ | (1,157) | | $ | 2,868 |
Other comprehensive gain before reclassifications | |
| 269 | |
| 615 | |
| 0 | |
| 884 | |
| 269 | |
| 994 | |
| 0 | |
| 1,263 |
Less: amounts reclassified from accumulated other comprehensive income | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Total other comprehensive income | |
| 269 | |
| 615 | |
| 0 | |
| 884 | |
| 269 | |
| 994 | |
| 0 | |
| 1,263 |
Balance at end of period | | $ | 11,681 | | $ | (1,119) | | $ | (1,157) | | $ | 9,405 | | $ | 11,681 | | $ | (6,393) | | $ | (1,157) | | $ | 4,131 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2019 | |
|
| |
|
| |
|
| |
| | ||||||||||||
Nine Months Ended September 30, 2021 | |
|
| |
|
| |
|
| |
| | ||||||||||||
Balance at beginning of period | | $ | 5,547 | | $ | (3,782) | | $ | (888) | | $ | (5,628) | | $ | 10,023 | | $ | (1,865) | | $ | (1,418) | | $ | 6,740 |
Other comprehensive gain (loss) before reclassifications | |
| 2,573 | |
| (285) | |
| 0 | |
| 2,288 | ||||||||||||
Other comprehensive loss before reclassifications | |
| (4,114) | |
| 1,773 | |
| 0 | |
| (2,341) | ||||||||||||
Less: amounts reclassified from accumulated other comprehensive income | |
| 120 | |
| 0 | |
| 0 | |
| 120 | |
| 1,511 | |
| 0 | |
| 0 | |
| 1,511 |
Total other comprehensive income (loss) | |
| 2,453 | |
| (285) | |
| 0 | |
| 2,168 | ||||||||||||
Total other comprehensive loss | |
| (5,625) | |
| 1,773 | |
| 0 | |
| (3,852) | ||||||||||||
Balance at end of period | | $ | 8,000 | | $ | (4,067) | | $ | (888) | | $ | 3,045 | | $ | 4,398 | | $ | (92) | | $ | (1,418) | | $ | 2,888 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2020 | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
Balance at beginning of period | | $ | 5,550 | | $ | (482) | | $ | (1,157) | | $ | 3,911 | | $ | 5,550 | | $ | (601) | | $ | (1,157) | | $ | 3,792 |
Other comprehensive gain (loss) before reclassifications | |
| 7,262 | |
| (637) | |
| 0 | |
| 6,625 | |
| 7,265 | |
| (5,792) | |
| 0 | |
| 1,473 |
Less: amounts reclassified from accumulated other comprehensive income | |
| 1,131 | |
| 0 | |
| 0 | |
| 1,131 | |
| 1,134 | |
| 0 | |
| 0 | |
| 1,134 |
Total other comprehensive income (loss) | |
| 6,131 | |
| (637) | |
| 0 | |
| 5,494 | |
| 6,131 | |
| (5,792) | |
| 0 | |
| 339 |
Balance at end of period | | $ | 11,681 | | $ | (1,119) | | $ | (1,157) | | $ | 9,405 | | $ | 11,681 | | $ | (6,393) | | $ | (1,157) | | $ | 4,131 |
| | | | | | | | | | | | | ||||||||||||
Nine Months Ended September 30, 2019 | | | | | | | | | | | | | ||||||||||||
Balance at beginning of period | | $ | (8,665) | | $ | (2,249) | | $ | (888) | | $ | (11,802) | ||||||||||||
Other comprehensive gain (loss) before reclassifications | |
| 16,785 | |
| (1,818) | |
| 0 | |
| 14,967 | ||||||||||||
Less: amounts reclassified from accumulated other comprehensive income | |
| 120 | |
| 0 | |
| 0 | |
| 120 | ||||||||||||
Total other comprehensive income (loss) | |
| 16,665 | |
| (1,818) | |
| 0 | |
| 14,847 | ||||||||||||
Balance at end of period | | $ | 8,000 | | $ | (4,067) | | $ | (888) | | $ | 3,045 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
42
The following tables presents the amounts reclassified out of each component of accumulated other comprehensive income for three and nine months ended September 30, 20202021 and 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Affected Line Item where | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Affected Line Item where | |||||||||||||||||
(in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| Net Income is Presented |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| Net Income is Presented | |||||||||
Net realized gains on AFS securities: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| |
Before tax(1) | | $ | — | | $ | 157 | | $ | 1,486 | | $ | 157 | |
| Non-interest income | | $ | 1,930 | | $ | — | | $ | 1,980 | | $ | 1,486 |
| Non-interest income |
Tax effect | |
| — | |
| (37) | |
| (355) | |
| (37) | |
| Tax expense | |
| (458) | |
| — | |
| (469) | |
| (352) |
| Tax expense |
Total reclassifications for the period | | $ | — | | $ | 120 | | $ | 1,131 | | $ | 120 | |
| Net of tax | | $ | 1,472 | | $ | — | | $ | 1,511 | | $ | 1,134 | | |
Net realized gains before tax include $1.9 million realized gains for the three months ended September 30, 2021 and $2.0 million for the nine months ended September 30, 2021 and gross realized losses of $50 thousand for both of the respective periods. There were 0 net realized gains or losses for the three months ended September 30, 2020. Net realized gains before tax include gross realized gains $1.5 million and realized losses of $22 thousand for the nine months ended September 30, |
..
4843
NOTE 8.7. EARNINGS PER SHARE
The following table presents the calculation of earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, | | September 30, | | September 30, | ||||||||||||||||
(in thousands, except per share and share data) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||
Net income | | $ | 8,402 | | $ | 5,015 | | $ | 24,604 | | $ | 18,413 | | $ | 11,028 | | $ | 8,402 | | $ | 29,533 | | $ | 24,604 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Average number of basic common shares outstanding | |
| 15,079,413 | |
| 15,547,276 | |
| 15,358,803 | |
| 15,536,414 | |
| 14,982,766 | |
| 15,079,413 | |
| 14,960,753 | |
| 15,358,803 |
Plus: dilutive effect of stock options and awards outstanding | |
| 23,421 | |
| 34,027 | |
| 23,063 | |
| 45,282 | |
| 67,990 | |
| 23,421 | |
| 73,829 | |
| 23,063 |
Average number of diluted common shares outstanding | |
| 15,102,834 | |
| 15,581,303 | |
| 15,381,866 | |
| 15,581,696 | |
| 15,050,756 | |
| 15,102,834 | |
| 15,034,582 | |
| 15,381,866 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Earnings per share: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Basic | | $ | 0.56 | | $ | 0.32 | | $ | 1.60 | | $ | 1.19 | | $ | 0.74 | | $ | 0.56 | | $ | 1.97 | | $ | 1.60 |
Diluted | | $ | 0.56 | | $ | 0.32 | | $ | 1.60 | | $ | 1.18 | | $ | 0.73 | | $ | 0.56 | | $ | 1.96 | | $ | 1.60 |
(1) | Average diluted shares outstanding are computed using the treasury stock method. |
4944
NOTE 9.8. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
The Company uses derivative instruments to minimize fluctuations in earnings and cash flows caused by interest rate volatility. The Company’s interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets or liabilities so the changes in interest rates do not have a significant effect on net interest income. Thus, all of the Company's derivative contracts are considered to be interest rate contracts.
The Company recognizes its derivative instruments on the consolidated balance sheet at fair value. On the date the derivative instrument is entered into, the Company designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). The Company formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The Company also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of hedged items. Changes in fair value of derivative instruments that are highly effective and qualify as cash flow hedges are recorded in other comprehensive income or loss.
The Company offers derivative products in the form of interest rate swaps, to commercial loan customers to facilitate their risk management strategies. These instruments are executed through Master Netting Arrangements ("MNA")(MNA) with financial institution counterparties or Risk Participation Agreements ("RPA")(RPA) with commercial bank counterparties, for which the Company assumes a pro rata share of the credit exposure associated with a borrower's performance related to the derivative contract with the counterparty.
The following tables present information about derivative assets and liabilities at September 30, 20202021 and December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | September 30, 2021 | ||||||||||||||||||
| | | | Weighted | | |
| | | | | Weighted | | |
| | ||||||
| | Notional | | Average | | Fair Value | | Location Fair | | Notional | | Average | | Fair Value | | Location Fair | ||||||
| | Amount | | Maturity | | Asset (Liability) |
| Value Asset | | Amount | | Maturity | | Asset (Liability) |
| Value Asset | ||||||
|
| (in thousands) |
| (in years) |
| (in thousands) |
| (Liability) |
| (in thousands) |
| (in years) |
| (in thousands) |
| (Liability) | ||||||
Cash flow hedges: | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swap on wholesale fundings | | $ | 125,000 |
| | 4.1 | | $ | (6,835) | | Other liabilities | | $ | 75,000 |
| | 3.3 | | $ | (1,168) | | Other liabilities |
Interest rate swap on variable rate loans | | | 50,000 | | | 4.5 | | | (121) | | Other liabilities | |||||||||||
Total cash flow hedges | |
| 125,000 |
| | 4.1 | | | (6,835) | | | |
| 125,000 |
| | | | | (1,289) | | |
| | | | | | | | | | | | | | | | | | | | | | |
Fair value hedges: | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swap on securities | |
| 37,190 |
| | 8.7 | |
| 3,445 | | Other assets | |
| 37,190 |
| | 7.8 | |
| (841) | | Other liabilities |
Total fair value hedges | |
| 37,190 |
| | 8.7 | | | 3,445 | | | |
| 37,190 |
| | | | | (841) | | |
| | | | | | | | | | | | | | | | | | | | | | |
Economic hedges: | | | | | | | | | | | | | | | | | | | | | | |
Forward sale commitments | |
| 47,739 |
| | 0.2 | |
| (87) | | Other liabilities | |
| 14,533 |
| | 0.1 | |
| (140) | | Other liabilities |
Customer Loan Swaps-MNA Counterparty | | | 189,244 | | | 7.1 | | | (16,965) | | Other liabilities | | | 250,852 | | | 6.4 | | | (10,258) | | Other liabilities |
Customer Loan Swaps-RPA Counterparty | | | 103,391 | | | 7.8 | | | (11,071) | | Other liabilities | | | 119,285 | | | 7.1 | | | (5,892) | | Other liabilities |
Customer Loan Swaps-Customer | | | 292,635 | | | 7.4 | | | 28,036 | | Other assets | | | 370,137 | | | 6.6 | | | 16,150 | | Other assets |
Total economic hedges | |
| 633,009 |
| | | | | (87) | | | |
| 754,807 |
| | | | | (140) | | |
| | | | | | | | | | | | | | | | | | | | | | |
Non-hedging derivatives: | | | | | | | | | | | | | | | | | | | | | | |
Interest rate lock commitments | |
| 27,730 |
| | 0.1 | |
| 24 | | Other assets | |
| 12,885 |
| | 0.1 | |
| 47 | | Other assets |
Total non-hedging derivatives | |
| 27,730 |
| | 0.1 | | | 24 | | | |
| 12,885 |
| | | | | 47 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 822,929 | | | | | $ | (3,453) | | | | $ | 929,882 | | | | | $ | (2,223) | | |
5045
| | | | | | | | | | | |
| | December 31, 2020 | |||||||||
| | | | Weighted | | |
| | |||
| | Notional | | Average | | Fair Value | | Location Fair | |||
| | Amount | | Maturity | | Asset (Liability) |
| Value Asset | |||
|
| (in thousands) |
| (in years) |
| (in thousands) |
| (Liability) | |||
Cash flow hedges: |
| |
|
| |
|
| |
| | |
Interest rate swap on wholesale fundings | | $ | 75,000 |
| | 4.0 | | $ | (2,664) | | Other liabilities |
Total cash flow hedges | |
| 75,000 |
| | | | | (2,664) | | |
| | | | | | | | | | | |
Fair value hedges: | | | | | | | | | | | |
Interest rate swap on securities(1) | |
| 37,190 |
| | 8.6 | |
| (2,789) | | Other liabilities |
Total fair value hedges | |
| 37,190 |
| | | | | (2,789) | | |
| | | | | | | | | | | |
Economic hedges: | | | | | | | | | | | |
Forward sale commitments | | | 50,629 |
| | 0.2 | |
| (95) | | Other liabilities |
Customer Loan Swaps-MNA Counterparty | | | 235,947 | | | 6.8 | | | (15,938) | | Other liabilities |
Customer Loan Swaps-RPA Counterparty | | | 119,285 | | | 7.9 | | | (9,957) | | Other liabilities |
Customer Loan Swaps-Customer | | | 355,232 | | | 7.1 | | | 25,895 | | Other assets |
Total economic hedges | |
| 761,093 |
| | | | | (95) | | |
| | | | | | | | | | | |
Non-hedging derivatives: | |
| | | | | | | | | |
Interest rate lock commitments | |
| 3,320 |
| | 0.1 | |
| 22 | | Other assets |
Total non-hedging derivatives | |
| 3,320 |
| | | | | 22 | | |
| | | | | | | | | | | |
Total | | $ | 876,603 | | | | | $ | (5,526) | | |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
As of September 30, 2021 and December 31, 2020, the following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges:
| | | | | | | | |
|
| |
| | |
| Cumulative Amount of Fair | |
| | Location of Hedged Item on | | Carrying Amount of Hedged | | Value Hedging Adjustment in | ||
|
| Balance Sheet |
| Assets |
| Carrying Amount | ||
September 30, 2021 |
|
|
| |
|
| |
|
Interest rate swap on securities |
| Securities Available for Sale | | $ | 39,200 | | $ | 2,010 |
| | | | | | | | |
December 31, 2020 |
|
| |
|
| |
|
|
Interest rate swap on securities |
| Securities Available for Sale | | $ | 40,209 | | $ | 3,019 |
46
Information about derivative assets and liabilities for the three and nine months ended September 30, 2021 and December 31, 2020, follows:
| | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 | |||||||||||
|
| Amount of |
| |
| Amount of |
| |
| | |||
| | Gain (Loss) | | | | Gain (Loss) | | | | | |||
| | Recognized in | | | | Reclassified | | Location of | | Amount of | |||
| | Other | | Location of Gain (Loss) | | from Other | | Gain (Loss) | | Gain (Loss) | |||
| | Comprehensive | | Reclassified from Other | | Comprehensive | | Recognized in | | Recognized | |||
(in thousands) |
| Income |
| Comprehensive Income |
| Income |
| Income |
| in Income | |||
Cash flow hedges: |
| |
|
|
|
| |
|
|
|
| |
|
Interest rate swap on wholesale funding | | $ | 167 | | Interest expense | | $ | — |
| Interest expense | | $ | (205) |
Interest rate swap on variable rate loans | | | (101) | | Interest income | | | — | | Interest income | | | 92 |
Total cash flow hedges | |
| 66 |
| | |
| — |
|
| |
| (113) |
| | | | | | | | | | | | | |
Fair value hedges: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate swap on securities | |
| (221) |
| Interest income | |
| — |
| Interest income | |
| (144) |
Total fair value hedges | |
| (221) |
| | |
| — |
|
| |
| (144) |
| | | | | | | | | | | | | |
Economic hedges: | |
|
|
|
| |
|
|
|
| |
|
|
Forward commitments | |
| — |
| Other income | |
| — |
| Other income | |
| (96) |
Total economic hedges | |
| — |
| | |
| — |
|
| |
| (96) |
| | | | | | | | | | | | | |
Non-hedging derivatives: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate lock commitments | |
| — |
| Other income | |
| — |
| Other income | |
| 22 |
Total non-hedging derivatives | |
| — |
| | |
| — |
|
| |
| 22 |
| | | | | | | | | | | | | |
Total | | $ | (155) | | | | $ | — |
|
| | $ | (331) |
47
| | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 | |||||||||||
|
| Amount of |
| |
| Amount of |
| |
| | |||
| | Gain (Loss) | | | | Gain (Loss) | | | | | |||
| | Recognized in | | | | Reclassified | | Location of | | Amount of | |||
| | Other | | Location of Gain (Loss) | | from Other | | Gain (Loss) | | Gain (Loss) | |||
| | Comprehensive | | Reclassified from Other | | Comprehensive | | Recognized in | | Recognized | |||
(in thousands) |
| Income |
| Comprehensive Income |
| Income |
| Income |
| in Income | |||
Cash flow hedges: |
| |
|
|
|
| |
|
|
|
| |
|
Interest rate swap on wholesale funding | | $ | 1,148 | | Interest expense | | $ | — |
| Interest expense | | $ | (589) |
Interest rate swap on variable rate loans | | | (93) | | Interest income | | | — | | Interest income | | | 189 |
Total cash flow hedges | |
| 1,055 |
| | |
| — |
|
| |
| (400) |
| | | | | | | | | | | | | |
Fair value hedges: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate swap on securities | |
| 720 |
| Interest income | |
| — |
| Interest income | |
| (421) |
Total fair value hedges | |
| 720 |
| | |
| — |
|
| |
| (421) |
| | | | | | | | | | | | | |
Economic hedges: | |
|
|
|
| |
|
|
|
| |
|
|
Forward commitments | |
| — |
| Other income | |
| — |
| Other income | |
| (45) |
Total economic hedges | |
| — |
| | |
| — |
|
| |
| (45) |
| | | | | | | | | | | | | |
Non-hedging derivatives: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate lock commitments | |
| — |
| Other income | |
| — |
| Other income | |
| 26 |
Total non-hedging derivatives | |
| — |
| | |
| — |
|
| |
| 26 |
| | | | | | | | | | | | | |
Total | | $ | 1,775 | | | | $ | — |
|
| | $ | (840) |
The Company expects approximately $1.0 million of losses (pre-tax) related to the Company’s cash flow hedges to be reclassified to earnings from AOCI over the next 12 months. This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve as of September 30, 2021.
48
| | | | | | | | | | | |
| | December 31, 2019 | |||||||||
| | | | Weighted | | |
| | |||
| | Notional | | Average | | Fair Value | | Location Fair | |||
| | Amount | | Maturity | | Asset (Liability) |
| Value Asset | |||
|
| (in thousands) |
| (in years) |
| (in thousands) |
| (Liability) | |||
Cash flow hedges: |
| |
|
| |
|
| |
| | |
Interest rate swap on wholesale fundings | | $ | 100,000 |
| | 4.6 | | $ | (1,311) | | Other liabilities |
Total cash flow hedges | |
| 100,000 |
| | | |
| (1,311) | | |
| | | | | | | | | | | |
Fair value hedges: | | | | | | | | | | | |
Interest rate swap on securities | |
| 37,190 |
| | 9.6 | |
| 593 | | Other liabilities |
Total fair value hedges | |
| 37,190 |
| | | | | 593 | | |
| | | | | | | | | | | |
Economic hedges: | | | | | | | | | | | |
Forward sale commitments | | | 11,228 |
| | 0.1 | |
| (84) | | Other liabilities |
Customer Loan Swaps-MNA Counterparty | | | 135,598 |
| | 7.5 | |
| (4,669) | | (1) |
Customer Loan Swaps-RPA Counterparty | | | 69,505 |
| | 8.8 | |
| (3,377) | | (1) |
Customer Loan Swaps-Customer | | | 205,103 |
| | 8.1 | |
| 8,046 | | (1) |
Total economic hedges | |
| 421,434 |
| | | | | (84) | | |
| | | | | | | | | | | |
Non-hedging derivatives: | |
|
|
| |
| |
|
| | |
Interest rate lock commitments | |
| 21,748 |
| | 0.1 | |
| 59 | | Other assets |
Total non-hedging derivatives | |
| 21,748 |
| | | |
| 59 | | |
| | | | | | | | | | | |
Total | | $ | 580,372 | | | | | $ | (743) | | |
| | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | |||||||||||
|
| Amount of |
| |
| Amount of |
| |
| | |||
| | Gain (Loss) | | | | Gain (Loss) | | | | | |||
| | Recognized in | | | | Reclassified | | Location of | | Amount of | |||
| | Other | | Location of Gain (Loss) | | from Other | | Gain (Loss) | | Gain (Loss) | |||
| | Comprehensive | | Reclassified from Other | | Comprehensive | | Recognized in | | Recognized | |||
(in thousands) | | Income(1) | | Comprehensive Income | | Income | | Income | | in Income | |||
Cash flow hedges: |
| |
|
|
| |
|
|
|
|
| |
|
Interest rate swap on wholesale funding | | $ | 362 |
| Interest expense | | $ | — |
| Interest expense | | $ | (427) |
Total cash flow hedges | | | 362 | | | |
| — |
| | |
| (427) |
| |
| | | | | | | | | | | |
Fair value hedges: | | |
|
|
| |
|
|
|
| |
|
|
Interest rate swap on securities | |
| 635 |
| Interest income | |
| — |
| Interest income | |
| (204) |
Total economic hedges | | | 635 | | | |
| — |
|
| |
| (204) |
| | | | | | | | | | | | | |
Economic hedges: | | |
|
|
| |
|
|
|
| |
|
|
Forward commitments | |
| — |
| Other income | |
| — |
| Other income | |
| 40 |
Total economic hedges | | | — | | | |
| — |
|
| |
| 40 |
| |
| | | | | | | | | | | |
Non-hedging derivatives: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate lock commitments | |
| — |
| Other income | |
| — |
| Other Income | |
| (39) |
Total non-hedging derivatives | | | — | | | |
| — |
|
| |
| (39) |
| | | | | | | | | | | | | |
Total | | $ | 997 |
|
| | $ | — |
|
| | $ | (630) |
(1) |
Asof September 30, 2020 and December 31, 2019,thefollowingamountswererecordedonthebalancesheetrelatedtocumulative basis adjustments for fair valuehedges:
| | | | | | | | | | | | | | | | | | | | | |
|
| |
| | |
| Cumulative Amount of Fair | | Nine Months Ended September 30, 2020 | ||||||||||||
| | Location of Hedged Item on | | Carrying Amount of Hedged | | Value Hedging Adjustment in |
| Amount of |
| |
| Amount of |
| |
| | |||||
|
| Balance Sheet |
| Assets (Liabilities) |
| Carrying Amount | | Gain (Loss) | | | | Gain (Loss) | | | | | |||||
September 30, 2020 |
|
|
| |
|
| |
| |||||||||||||
| | Recognized in | | | | Reclassified | | Location of | | Amount of | |||||||||||
| | Other | | Location of Gain (Loss) | | from Other | | Gain (Loss) | | Gain (Loss) | |||||||||||
| | Comprehensive | | Reclassified from Other | | Comprehensive | | Recognized in | | Recognized | |||||||||||
(in thousands) | | Income(1) | | Comprehensive Income | | Income | | Income | | in Income | |||||||||||
Cash flow hedges: |
| |
|
|
| |
|
|
|
|
| |
| ||||||||
Interest rate swap on wholesale funding | | $ | (4,247) |
| Interest expense | | $ | — |
| Interest expense | | $ | (642) | ||||||||
Total cash flow hedges | | | (4,247) | | | |
| — |
| | |
| (642) | ||||||||
| |
| | | | | | | | | | | | ||||||||
Fair value hedges: |
|
|
| |
|
| |
| | |
|
|
| |
|
|
|
| |
|
|
Interest rate swap on securities |
| Securities Available for Sale | | $ | 42,564 | | $ | 5,374 | |
| (1,545) |
| Interest income | |
| — |
| Interest income | |
| (145) |
Total economic hedges | | | (1,545) | | | |
| — |
|
| |
| (145) | ||||||||
| | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 |
|
| |
|
| |
|
| |||||||||||||
Fair value hedges: |
|
| |
|
| |
|
| |||||||||||||
Interest rate swap on securities |
| Securities Available for Sale | | $ | 39,026 | | $ | 523 | |||||||||||||
Economic hedges: | | |
|
|
| |
|
|
|
| |
|
| ||||||||
Forward commitments | |
| — |
| Other income | |
| — |
| Other income | |
| (3) | ||||||||
Total economic hedges | | | — | | | |
| — |
|
| |
| (3) | ||||||||
| |
| | | | | | | | | | | | ||||||||
Non-hedging derivatives: | |
|
|
|
| |
|
|
|
| |
|
| ||||||||
Interest rate lock commitments | |
| — |
| Other income | |
| — |
| Other Income | |
| (35) | ||||||||
Total non-hedging derivatives | | | — | | | |
| — |
|
| |
| (35) | ||||||||
| | | | | | | | | | | | | | ||||||||
Total | | $ | (5,792) |
|
| | $ | — |
|
| | $ | (825) |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement. |
5149
Information about derivative assetsThe effect of cash flow hedging and liabilitiesfair value accounting on the consolidated statements of income for the three months ended September 30, 20202021 and December 31, 2019, follows:2020:
| | | | | | | | | | | | | | |||||||||||||||
| | Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||
|
| Amount of |
| |
| Amount of |
| |
| | ||||||||||||||||||
| | Gain (Loss) | | | | Gain (Loss) | | | | | ||||||||||||||||||
| | Recognized in | | | | Reclassified | | Location of | | Amount of | | | | | | | | | | | | | | | | |||
| | Other | | Location of Gain (Loss) | | from Other | | Gain (Loss) | | Gain (Loss) | | Three Months Ended September 30, 2021 | ||||||||||||||||
| | Comprehensive | | Reclassified from Other | | Comprehensive | | Recognized in | | Recognized | | Interest and Dividend Income | | Interest Expense | | | | |||||||||||
(in thousands) |
| Income |
| Comprehensive Income |
| Income |
| Income |
| in Income |
| Loans | | Securities and other |
| Deposits | | Borrowings |
| Non-interest Income | ||||||||
Cash flow hedges: |
| |
|
|
|
| |
|
|
|
| |
| |||||||||||||||
Income and exepense line items presented in the consolidated statements of income |
| $ | 25,094 | | $ | 3,821 | | $ | 1,555 | | $ | 1,778 | | $ | 11,350 | |||||||||||||
|
| |
| | | |
| |
| | | |
| |
| |||||||||||||
The effects of cash flow and fair value hedging: | | | | | | | | | | | | | | | | |||||||||||||
| |
|
| | | | |
|
| | | | |
|
| |||||||||||||
Gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | | |||||||||||||
Interest rate swap on wholesale funding | | $ | (5,231) | | Interest expense | | $ | — |
| Interest expense | | $ | (642) | | | — | | | — | | | — | | | (205) | | | — |
Total cash flow hedges | |
| (5,231) |
| | |
| — |
|
| |
| (642) | |||||||||||||||
Interest rate swap on variable rate loans | |
| 92 | | | — | |
| — | | | — | |
| — | |||||||||||||
| | | | | | | | | | | | | | |
|
| | | | |
|
| | | | |
|
|
Fair value hedges: | |
|
|
|
| |
|
|
|
| |
|
| |||||||||||||||
Gain (loss) on fair value hedges: | |
| | | | | |
|
| | | | |
|
| |||||||||||||
Interest rate swap on securities | |
| 4,113 |
| Interest income | |
| — |
| Interest income | |
| (145) | | | — | | | (144) | | | — | | | — | | | — |
Total fair value hedges | |
| 4,113 |
| | |
| — |
|
| |
| (145) | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Economic hedges: | |
|
|
|
| |
|
|
|
| |
|
| |||||||||||||||
Forward commitments | |
| — |
| Other income | |
| — |
| Other income | |
| (3) | |||||||||||||||
Total economic hedges | |
| — |
| | |
| — |
|
| |
| (3) | |||||||||||||||
| | | | | | | | | | | | | | | Three Months Ended September 30, 2020 | |||||||||||||
Non-hedging derivatives: | |
|
|
|
| |
|
|
|
| |
|
| |||||||||||||||
Interest rate lock commitments | |
| — |
| Other income | |
| — |
| Other income | |
| (35) | |||||||||||||||
Total non-hedging derivatives | |
| — |
| | |
| — |
|
| |
| (35) | |||||||||||||||
| | | | | | | | | | | | | | | Interest and Dividend Income | | Interest Expense | | | | ||||||||
Total | | $ | (1,118) | | | | $ | — |
|
| | $ | (825) | |||||||||||||||
(in thousands) |
| Loans | | Securities and other |
| Deposits | | Borrowings |
| Non-interest Income | ||||||||||||||||||
Income and exepense line items presented in the consolidated statements of income |
| $ | 25,918 | | $ | 4,557 | | $ | 3,869 | | $ | 1,941 | | $ | 10,102 | |||||||||||||
|
| |
| | | |
| |
| | | |
| |
| |||||||||||||
The effects of cash flow and fair value hedging: | | | | | | | | | | | | | | | | |||||||||||||
| |
|
| | | | |
|
| | | | |
|
| |||||||||||||
Gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | | |||||||||||||
Interest rate swap on wholesale funding | | | — | | | — | | | (365) | | | (62) | | | — | |||||||||||||
Interest rate swap on variable rate loans | |
| — | | | — | |
| — | | | — | |
| — | |||||||||||||
| |
|
| | | | |
|
| | | | |
|
| |||||||||||||
Gain (loss) on fair value hedges: | |
| | | | | |
|
| | | | |
|
| |||||||||||||
Interest rate swap on securities | | | — | | | (204) | | | — | | | — | | | — |
5250
The effect of cash flow hedging and fair value accounting on the consolidated statements of income for the nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 | |||||||||||||
| | Interest and Dividend Income | | Interest Expense | | | | ||||||||
(in thousands) |
| Loans | | Securities and other |
| Deposits | | Borrowings |
| Non-interest Income | |||||
Income and exepense line items presented in the consolidated statements of income |
| $ | 72,490 | | | 11,792 | | $ | 7,109 | | | 5,415 | | $ | 31,103 |
|
| |
| | | |
| |
| | | |
| |
|
The effects of cash flow and fair value hedging: | | | | | | | | | | | | | | | |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | |
Interest rate swap on wholesale funding | | | — | | | — | | | — | | | (589) | | | — |
Interest rate swap on variable rate loans | |
| 189 | | | — | |
| — | | | — | |
| — |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on fair value hedges: | |
| | | | | |
|
| | | | |
|
|
Interest rate swap on securities | | | — | | | (421) | | | — | | | — | | | — |
| | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | |||||||||||||
| | Interest and Dividend Income | | Interest Expense | | | | ||||||||
(in thousands) |
| Loans | | Securities and other |
| Deposits | | Borrowings |
| Non-interest Income | |||||
Income and exepense line items presented in the consolidated statements of income |
| $ | 80,398 | | | 15,006 | | $ | 14,437 | | | 7,149 | | $ | 28,233 |
|
| |
| | | |
| |
| | | |
| |
|
The effects of cash flow and fair value hedging: | | | | | | | | | | | | | | | |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | |
Interest rate swap on wholesale funding | | | — | | | — | | | (580) | | | (62) | | | — |
Interest rate swap on variable rate loans | |
| — | | | — | |
| — | | | — | |
| — |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on fair value hedges: | |
| | | | | |
|
| | | | |
|
|
Interest rate swap on securities | | | — | | | (145) | | | — | | | — | | | — |
Cash flow hedges
Interest rate swaps on wholesale funding
As of September 30, 2021 the Company has 2 interest rate swaps on wholesale borrowings (the "SWAPS") to limit its exposure to rising interest rates over a five year term on 3-month FHLB borrowings or brokered certificates, or a combination thereof at each maturity date. The first of the 2 agreements were entered in November 2019 with a $50.0 million notional amount and pays a fixed interest rate of 1.53%. A second agreement was entered on April 2020 with a $25.0 million notional amount and pays a fixed rate of 0.59%. The financial institution counterparty pays the Company interest on the three-month LIBOR rate. The Company designated the swaps as a cash flow hedge.
Interest rate swap on variable rate loans
In March 2021, the Company entered into a contract with a counterparty to manage interest rate risk associated with its variable rate loans. The instrument is specifically designed to hedge the risk of changes in its cash flows from interest receipts attributable to changes in a contractually specified interest rate, on an amount of the Company’s variable rate loan assets equal to $50 million. The interest rate swap will effectively fix the Company’s interest rate on $50 million of 1 month USD-LIBOR-BBA (or LIBOR less two days) based loan assets at 0.806% plus the credit spread on the loans that reprices on weighted average basis. The Company designated the swap as a cash flow hedge.
51
| | | | | | | | | | | | | |
| | Years Ended December 31, 2019 | |||||||||||
|
| Amount of |
| |
| Amount of |
| |
| | |||
| | Gain (Loss) | | | | Gain (Loss) | | | | Amount of | |||
| | Recognized in | | | | Reclassified | | Location of | | Gain (Loss) | |||
| | Other | | Location of Gain (Loss) | | from Other | | Gain (Loss) | | Recognized | |||
| | Comprehensive | | Reclassified from Other | | Comprehensive | | Recognized in | | Recognized | |||
(in thousands) | | Income | | Comprehensive Income | | Income | | Income | | in Income | |||
Cash flow hedges: |
| |
|
|
| |
|
|
|
|
| |
|
Interest rate swap on wholesale funding | | $ | — |
| Acquisition, restructuring, and other expenses | | $ | 3,156 |
| Interest expense | | $ | (603) |
Interest rate cap agreements | | | 2,291 | | Interest expense | | | — | | Interest expense | | | (2) |
Total cash flow hedges | | | 2,291 | | | |
| 3,156 |
| | |
| (605) |
| |
| | | | | | | | | | | |
Fair value hedges: | | |
|
|
| |
|
|
|
| |
|
|
Interest rate swap on securities | |
| (523) |
| Interest income | |
| — |
| Interest expense | |
| 7 |
Total economic hedges | | | (523) | | | |
| — |
|
| |
| 7 |
| | | | | | | | | | | | | |
Economic hedges: | | |
|
|
| |
|
|
|
| |
|
|
Forward commitments | |
| — |
| Other income | |
| — |
| Other income | |
| (84) |
Total economic hedges | | | — | | | |
| — |
|
| |
| (84) |
| |
| | | | | | | | | | | |
Non-hedging derivatives: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate lock commitments | |
| — |
| Other income | |
| — |
| Other Income | |
| 52 |
Total non-hedging derivatives | | | — | | | |
| — |
|
| |
| 52 |
| | | | | | | | | | | | | |
Total | | $ | 1,768 |
|
| | $ | 3,156 |
|
| | $ | (630) |
Cash flow hedges
Interest rate swaps on wholesale funding
In March and November 2019 and April 2020, the Company entered into interest rate swaps on wholesale borrowings (the "SWAPS") to limit its exposure to rising interest rates over a five year term on 3-month FHLB borrowings or brokered certificates, or a combination thereof at each maturity date. Under the terms of the agreement, the Company has 2 swaps each with a $50.0 million notional amount and pays a fixed interest rate of 2.46% and 1.53% respectively and 1 swap with a $25.0 million notional amount and pays a fixed rate of 0.59%. The financial institution counterparty pays the Company interest on the three-month LIBOR rate. The Company designated the swap as a cash flow hedge.
Interest rate cap agreements
In 2014, interest rate cap agreements were purchased to limit the Company’s exposure to rising interest rates on 4 rolling, three-month borrowings indexed to three-month LIBOR. Under the terms of the agreements, the Company paid total premiums of $4.6 million for the right to receive cash flow payments if three-month LIBOR rises above the caps of 3.00%, thus effectively ensuring interest expense on the borrowings at maximum rates of 3.00% for the duration of the agreements. The interest rate cap agreements were designated as cash flow hedges; however, the caps were terminated in the fourth quarter of 2019 and the unamortized premium totaling $3.2 million was recognized in acquisition, restructuring and other expenses.
Fair value hedges
Interest rate swap on securities
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate callable securities available-for-sale. The hedging strategy on securities
53
converts the fixed interest rates to LIBOR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities. During 2019, the Company entered into 8 swap transactions with a notional amount of $37.2 million designated as fair value hedges. These derivatives are intended to protect against the effects of changing interest rates on the fair values of fixed rate securities. The fixed rates on the transactions have a weighted average of 1.696%.
Economic hedges
Forward sale commitments
The Company utilizes forward sale commitments on residential mortgage loans to hedge interest rate risk and the associated effects on the fair value of interest rate lock commitments and loans originated for sale. The forward sale commitments are accounted for as derivatives. The Company typically uses a combination of best efforts and mandatory delivery contracts. The contracts are loan sale agreements where the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. Generally, the Company may enter into contracts just prior to the loan closing with a customer.
Customer loan derivatives
The Company enters into customer loan derivatives to facilitate the risk management strategies for commercial banking customers. The Company mitigates this risk by entering into equal and offsetting loan swap agreements with highly rated third-party financial institutions. The loan swap agreements are free standing derivatives and are recorded at fair value in the Company's consolidated balance sheet. The Company is party to master netting arrangements with its financial institutional counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes.
The master netting arrangements provide for a single net settlement of all loan swap agreements, as well as collateral or cash funds, in the event of default on, or termination of, any one contract. Collateral is provided by cash or securities received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds. Currently, the Company has posted cash of $30.5$17.0 million with counterparties.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Amounts Offset in the Consolidated Balance Sheet | | Gross Amounts Offset in the Consolidated Balance Sheet | ||||||||||||||||||||
| | Derivative | | | | Cash Collateral | | | | | Derivative | | | | Cash Collateral | | | | ||||||
(in thousands) |
| Liabilities |
| Derivative Assets |
| Pledged |
| Net Amount |
| Liabilities |
| Derivative Assets |
| Pledged |
| Net Amount | ||||||||
As of September 30, 2020 | |
| | |
| | |
| | |
| | ||||||||||||
As of September 30, 2021 | |
| | |
| | |
| | |
| | ||||||||||||
Customer Loan Derivatives: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
MNA counterparty | | $ | (16,965) | | $ | 16,965 | | $ | 30,450 | | $ | — | | $ | (10,258) | | $ | 10,258 | | $ | 17,000 | | $ | 17,000 |
RPA counterparty | |
| (11,071) | |
| 11,071 | |
| — | |
| — | |
| (5,892) | |
| 5,892 | |
| — | |
| — |
Total | | $ | (28,036) | | $ | 28,036 | | $ | 30,450 | | $ | — | | $ | (16,150) | | $ | 16,150 | | $ | 17,000 | | $ | 17,000 |
| | | | | | | | | | | | |
| | Gross Amounts Offset in the Consolidated Balance Sheet | ||||||||||
| | Derivative | | | | Cash Collateral | | | | |||
(in thousands) |
| Liabilities |
| Derivative Assets |
| Pledged |
| Net Amount | ||||
As of December 31, 2019 | |
| | |
| | |
| | |
| |
Customer Loan Derivatives: |
| |
|
| |
|
| |
|
| |
|
MNA counterparty | | $ | (4,669) | | $ | 4,669 | | $ | 10,700 | | $ | — |
RPA counterparty | |
| (3,377) | |
| 3,377 | |
| — | |
| — |
Total | | $ | (8,046) | | $ | 8,046 | | $ | 10,700 | | $ | — |
| | | | | | | | | | | | |
| | Gross Amounts Offset in the Consolidated Balance Sheet | ||||||||||
| | Derivative | | | | Cash Collateral | | | | |||
(in thousands) |
| Liabilities |
| Derivative Assets |
| Pledged |
| Net Amount | ||||
As of December 31, 2020 | |
| | |
| | |
| | |
| |
Customer Loan Derivatives: |
| |
|
| |
|
| |
|
| |
|
MNA counterparty | | $ | (15,938) | | $ | 15,938 | | $ | 23,450 | | $ | 23,450 |
RPA counterparty | |
| (9,957) | |
| 9,957 | |
| — | |
| — |
Total | | $ | (25,895) | | $ | 25,895 | | $ | 23,450 | | $ | 23,450 |
5452
Non-hedging derivatives
Interest rate lock commitments
The Company enters into interest rate lock commitments (“IRLCs”)(IRLCs) for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs relate to the origination of residential mortgage loans that are held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose the Company to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free standing derivatives which are carried at fair value with changes recorded in non-interest income in the Company’s Consolidated Statements of Income. Changes in the fair value of IRLCs subsequent to inception are based on; (i) changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and (ii) changes in the probability when the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.
5553
NOTE 10.9. FAIR VALUE MEASUREMENTS
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value.
Recurring Fair Value Measurements
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 20202021 and December 31, 2019,2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | September 30, 2021 | ||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
(in thousands) | | Inputs | | Inputs | | Inputs | | Fair Value | | Inputs | | Inputs | | Inputs | | Fair Value | ||||||||
Available for sale securities: | | | | |
| | |
| | |
| | | | | |
| | |
| | |
| |
Mortgage-backed securities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
US Government-sponsored enterprises | | $ | 0 | | $ | 235,172 | | $ | 0 | | $ | 235,172 | | $ | 0 | | $ | 183,268 | | $ | 0 | | $ | 183,268 |
US Government agency | |
| 0 | |
| 95,785 | |
| 0 | |
| 95,785 | |
| 0 | |
| 54,706 | |
| 0 | |
| 54,706 |
Private label | |
| 0 | |
| 19,603 | |
| 0 | |
| 19,603 | |
| 0 | |
| 62,914 | |
| 0 | |
| 62,914 |
Obligations of states and political subdivisions thereof | |
| 0 | |
| 154,157 | |
| 0 | |
| 154,157 | |
| 0 | |
| 160,177 | |
| 0 | |
| 160,177 |
Corporate bonds | |
| 0 | |
| 99,812 | |
| 0 | |
| 99,812 | |
| 0 | |
| 84,262 | |
| 0 | |
| 84,262 |
Derivative assets | |
| 0 | |
| 31,481 | |
| 24 | |
| 31,505 | |
| 0 | |
| 16,149 | |
| 47 | |
| 16,196 |
Derivative liabilities | |
| 0 | |
| (34,871) | |
| (87) | |
| (34,958) | |
| 0 | |
| (18,159) | |
| (140) | |
| (18,299) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2020 | ||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
(in thousands) | | Inputs | | Inputs | | Inputs | | Fair Value | | Inputs | | Inputs | | Inputs | | Fair Value | ||||||||
Available for sale securities: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Mortgage-backed securities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
US Government-sponsored enterprises | | $ | — | | $ | 321,969 | | $ | — | | $ | 321,969 | | $ | — | | $ | 212,390 | | $ | — | | $ | 212,390 |
US Government agency | |
| — | |
| 99,661 | |
| — | |
| 99,661 | |
| — | |
| 85,632 | |
| — | |
| 85,632 |
Private label | |
| — | |
| 19,533 | |
| — | |
| 19,533 | |
| — | |
| 19,709 | |
| — | |
| 19,709 |
Obligations of states and political subdivisions thereof | |
| — | |
| 142,006 | |
| — | |
| 142,006 | |
| — | |
| 169,004 | |
| — | |
| 169,004 |
Corporate bonds | |
| — | |
| 80,061 | |
| — | |
| 80,061 | |
| — | |
| 98,311 | |
| — | |
| 98,311 |
Derivative assets | |
| — | |
| 6,791 | |
| 59 | |
| 6,850 | |
| — | |
| 28,895 | |
| 22 | |
| 28,917 |
Derivative liabilities | |
| — | |
| (8,102) | |
| (84) | |
| (8,186) | |
| — | |
| (31,348) | |
| (95) | |
| (31,443) |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement. |
Securities Available for Sale: All securities and major categories of securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from independent pricing providers. The fair value measurements used by the pricing providers consider observable data that may include dealer quotes, market maker quotes and live trading systems. If quoted prices are not readily available, fair values are determined using matrix pricing models, or other model-based valuation techniques requiring observable inputs other than quoted prices such as market pricing spreads, credit information, callable features, cash flows, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, default rates, and the securities’ terms and conditions, among other things.
Derivative Assets and Liabilities
Cash Flow and Fair Value Hedges. The valuation of the Company's cash flow hedges are obtained from a third party. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The inputs used to value the Company's cash flow hedges are all classified as Level 2 measurements.
5654
Interest Rate Lock Commitments. The Company enters into IRLCs for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood of a loan in a lock position will ultimately close. The closing ratio is derived from the Company’s internal data and is adjusted using significant management judgment. As such, IRLCs are classified as Level 3 measurements.
Forward Sale Commitments. The Company utilizes forward sale commitments as economic hedges against potential changes in the values of the IRLCs and loans originated for sale. The fair values of the Company’s mandatory delivery loan sale commitments are determined similarly to the IRLCs using quoted prices in the market place that are observable. However, closing ratios included in the calculation are internally generated and are based on management’s judgment and prior experience, which are not considered observable factors. As such, mandatory delivery forward commitments are classified as Level 3 measurements.
Customer Loan Derivatives. The valuation of the Company’s customer loan derivatives is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of master netting arrangements and any applicable credit enhancements, such as collateral postings.
Although the Company has determined that the majority of the inputs used to value its customer loan derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2020,2021, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis for the three and nine months ended September 30, 2020:
| | | | | | |
| | Assets (Liabilities) | ||||
| | Interest Rate Lock | | Forward | ||
(in thousands) |
| Commitments |
| Commitments | ||
Three Months Ended September 30, 2020 | |
| | |
| |
Balance at beginning of period | | $ | 63 | | $ | (126) |
Realized (loss) gain recognized in non-interest income | |
| (39) | |
| 39 |
Balance at end of period | | $ | 24 | | $ | (87) |
| | | | | | |
Nine Months Ended September 30, 2020 | |
|
| |
|
|
Balance at beginning of period | | $ | 59 | | $ | (84) |
Realized loss recognized in non-interest income | |
| (35) | |
| (3) |
Balance at end of period | | $ | 24 | | $ | (87) |
5755
The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis for the three and nine months ended September 30, 2021:
| | | | | | |
| | Assets (Liabilities) | ||||
| | Interest Rate Lock | | Forward | ||
(in thousands) |
| Commitments |
| Commitments | ||
Three Months Ended September 30, 2021 | |
| | |
| |
Balance at beginning of period | | $ | 25 | | $ | (45) |
Realized gain recognized in non-interest income | |
| 22 | |
| (95) |
Balance at end of period | | $ | 47 | | $ | (140) |
| | | | | | |
Three Months Ended September 30, 2020 | |
| | |
| |
Balance at beginning of period | | $ | 63 | | $ | (126) |
Realized gain recognized in non-interest income | |
| (39) | |
| 39 |
Balance at end of period | | $ | 24 | | $ | (87) |
| | | | | | |
Nine Months Ended September 30, 2021 | |
|
| |
|
|
Balance at beginning of period | | $ | 22 | | $ | (95) |
Realized loss recognized in non-interest income | |
| 25 | |
| (45) |
Balance at end of period | | $ | 47 | | $ | (140) |
| | | | | | |
Nine Months Ended September 30, 2020 | |
|
| |
|
|
Balance at beginning of period | | $ | 59 | | $ | (84) |
Realized loss recognized in non-interest income | |
| (35) | |
| (3) |
Balance at end of period | | $ | 24 | | $ | (87) |
Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is, as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | Fair Value | | | | | | | | |
| | | | | | | |
| |
| Significant |
| |||
(in thousands, | | September 30, | | December 31, | | Valuation | | Unobservable | | Unobservable | | |||||||||||||||||
except ratios) |
| 2020 |
| 2019 |
| Techniques |
| Inputs |
| Input Value |
| |||||||||||||||||
| | Fair Value | | Fair Value | | | | | | Unobservable | | |||||||||||||||||
(in thousands, except ratios) |
| September 30, 2021 |
| December 31, 2020 | | Valuation Techniques |
| Unobservable Inputs |
| Input Value | | |||||||||||||||||
Assets (Liabilities) | |
| | |
| | |
| |
| |
| |
| |
| | |
| | |
| |
| |
| |
|
Interest Rate Lock Commitment |
| $ | 24 | | $ | 59 | | Historical trend |
| Closing Ratio |
| | 90 | % |
| $ | 47 | | $ | 22 | | Historical trend |
| Closing Ratio |
| | 85 | % |
| |
| | |
| | | Pricing Model | | Origination Costs, per loan | | $ | 1.7 | | |
| | |
| | | Pricing Model | | Origination Costs, per loan | | $ | 1.7 | |
| | | | | | | | |
| | | | | | | | | | | | | |
| | | | | |
Forward Commitments | |
| (87) | |
| (84) | | Quoted prices for similar loans in active markets. |
| Freddie Mac pricing system | |
| Pair-off contract price | | |
| (140) | |
| (95) | | Quoted prices for similar loans in active markets |
| Freddie Mac pricing system | |
| Pair-off contract price | |
Total | | $ | (63) | | $ | (25) | |
|
|
| |
|
| | | $ | (93) | | $ | (73) | |
|
|
| |
|
| |
56
Non-Recurring Fair Value Measurements
The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with GAAP. The following is a summary of applicable non-recurring fair value measurements:
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Fair Value |
| | | | | | | | Three Months Ended | | Nine Months Ended | | Measurement Date as of | ||
| | Sep 30, 2020 | | Dec 31, 2019 | | September 30, 2020 | | September 30, 2020 | | September 30, 2020 | ||||
| | Level 3 | | Level 3 | | Total | | Total | | Level 3 | ||||
(in thousands) |
| Inputs |
| Inputs |
| Gains (Losses) |
| Gains (Losses) |
| Inputs | ||||
Assets | |
| | |
| | |
| | |
| | |
|
Impaired loans | | $ | 9,617 | | $ | 9,625 | | $ | (6) | | $ | (8) | | September 2020 |
Capitalized servicing rights | |
| 3,234 | | | 4,301 |
| | 323 |
| | (1,067) |
| September 2020 |
Other real estate owned | |
| 1,983 | | | 2,236 |
| | (335) |
| | (253) |
| September 2020 |
Premises held for sale | |
| 1,764 | | | 1,764 |
| | — |
| | — |
| September 2019 |
Total | | $ | 16,598 | | $ | 17,926 | | $ | (18) | | $ | (1,328) |
|
|
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 | | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | | Fair Value Measurement Date as of September 30, 2021 | ||||
| | Level 3 | | Level 3 | | Total | | Total | | Level 3 | ||||
(in thousands) |
| Inputs |
| Inputs |
| Gains (Losses) |
| Gains (Losses) |
| Inputs | ||||
Assets | |
| | |
| | |
| | |
| | |
|
Individually evaluated loans | | $ | 9,247 | | $ | 8,746 | | $ | 707 | | $ | (501) | | September 2021 |
Capitalized servicing rights | |
| 4,867 | | | 3,605 |
| | (136) |
| | (1,262) |
| September 2021 |
Premises held for sale | |
| 822 | | | 962 |
| | 149 |
| | 140 |
| December 2020 |
Total | | $ | 14,936 | | $ | 13,313 | | $ | 720 | | $ | (1,623) |
|
|
There are no0 liabilities measured at fair value on a non-recurring basis in 20202021 and 2019.2020.
5857
Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is, as follows:
| | | | | | | | | | | | |||||||||||
(in thousands, | | Fair Value | | | | | | Range |
| |||||||||||||
except ratios) |
| Sep 30, 2020 |
| Valuation Techniques |
| Unobservable Inputs |
| (Weighted Average)(a) |
| |||||||||||||
Assets |
| |
|
|
|
|
| | |
| | |||||||||||
Impaired loans | | $ | 7,071 |
| Fair value of collateral-appraised value |
| Loss severity | | | 0% to 53% | | |||||||||||
| | | | | |
| Appraised value | | | $0 to $1,730 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| ||
Impaired loans | |
| 2,546 |
| Discount cash flow |
| Discount rate |
| | 3.50% to 9.50% | | |||||||||||
(in thousands, except ratios) |
| Fair Value September 30, 2021 |
| Valuation Techniques |
| Unobservable Inputs |
| Range (Weighted Average)(a) |
| |||||||||||||
Assets |
| |
|
|
|
|
| | |
| | |||||||||||
Individually evaluated loans | | $ | 6,226 |
| Fair value of collateral-appraised value |
| Loss severity | | | 10% to 70% | | |||||||||||
| | | | | |
| Appraised value | | | $71 to $1,792 | | |||||||||||
| | | | | | | | | | | | |||||||||||
Individually evaluated loans | |
| 3,021 |
| Discount cash flow |
| Discount rate |
| | 2.88% to 9.50% | | |||||||||||
| | | | | |
| Cash flows | | | $21 to $1,002 | | | | | | |
| Cash flows | | | $6 to $939 | |
| | | | | | | | | | | | | | | | | | | | | | |
Capitalized servicing rights | |
| 3,234 |
| Discounted cash flow |
| Constant prepayment rate (CPR) |
| | 16.73% | | |
| 4,867 |
| Discounted cash flow |
| Constant prepayment rate (CPR) |
| | 13.66% | |
| |
|
|
|
|
| Discount rate |
| | 10.05% | | |
|
|
|
|
| Discount rate |
| | 9.53% | |
| | | | | | | | | | | | | | | | | | | | | | |
Other real estate owned | |
| 1,983 |
| Fair value of collateral less selling costs |
| Appraised value |
| | $2,000 | | |||||||||||
| |
|
|
|
|
| Selling Costs |
| | 6% | | |||||||||||
| | | | | | | | | | | | |||||||||||
Premises held for sale(b) | |
| 1,764 |
| Fair value of asset less selling costs |
| Appraised value | | | $136 to $527 | | |||||||||||
Premises held for sale | |
| 822 |
| Fair value of asset less selling costs |
| Appraised value | | | $220 to $386 | | |||||||||||
| |
|
|
|
|
| Selling Costs |
| | 6% | | |
| |
|
|
| Selling Costs |
| | 6% | |
Total | | $ | 16,598 |
|
|
|
|
| |
| | | $ | 14,936 |
|
|
|
|
| |
| |
(b) | Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individual properties. |
(c) | The carrying value of premises held for sale was $822 thousand as of September 30, 2021. |
| | | | | | | | | | | |
| | | | | | | | | | ||
(in thousands, except ratios) |
| Fair Value Dec 31, 2020 |
| Valuation Techniques |
| Unobservable Inputs |
| Range (Weighted Average)(a) | | ||
Assets | | | | | | | | | | | |
Individually evaluated loans | | $ | 6,128 | | Fair value of collateral-appraised value | | Loss severity | | | 0% to 70% | |
| | | | | | | Appraised value | | | $0 to $1730 | |
| | | | | | | | | | | |
Individually evaluated loans | |
| 2,618 | | Discount cash flow | | Discount rate |
| | 3.50% to 9.50% | |
| | | | | | | Cash flows | | | $19 to $953 | |
| | | | | | | | | | | |
Capitalized servicing rights | |
| 3,605 | | Discounted cash flow | | Constant prepayment rate (CPR) |
| | 18.53% | |
| | | | | | | Discount rate |
| | 10.05% | |
| | | | | | | | | | | |
Premises held for sale | |
| 962 | | Fair value of asset less selling costs | | Appraised value |
| | $220 to $386 | |
| | | | | | | Selling Costs |
| | 6% | |
Total | | $ | 13,313 | | | | | | | | |
(a) | Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individual properties. |
| | | | | | | | | | | |
(in thousands, | | Fair Value | | | | | | Range | | ||
except ratios) |
| Dec 31, 2019 |
| Valuation Techniques |
| Unobservable Inputs |
| (Weighted Average)(a) | | ||
Assets | | | | | | | | | | | |
Impaired loans | | $ | 6,137 | | Fair value of collateral-appraised value | | Loss severity | | | 0% to 55.00% | |
| | | | | | | Appraised value | | | $0 to $6,915 | |
| | | | | | | | | | | |
Impaired loans | |
| 3,488 | | Discount cash flow | | Discount rate |
| | 2.88% to 9.50% | |
| | | | | | | Cash flows | | | $22 to $1,002 | |
| | | | | | | | | | | |
Capitalized servicing rights | |
| 4,301 | | Discounted cash flow | | Constant prepayment rate (CPR) |
| | 9.95% | |
| | | | | | | Discount rate |
| | 10.07% | |
| | | | | | | | | | | |
Other real estate owned | |
| 2,236 | | Fair value of collateral less selling costs | | Appraised value |
| | $2,695 | |
| | | | | | | Selling Costs | | | 10% to 20% | |
| | | | | | | | | | | |
Premises held for sale(b) | |
| 1,764 | | Fair value of asset less selling costs | | Appraised value |
| | $136 to $527 | |
| | | | | | | Selling Costs |
| | 6% | |
Total | | $ | 17,926 | | | | | | | | |
There were no Level 1 or Level 2 non-recurring fair value measurements for the periods ended September 30, 20202021 and December 31, 2019.2020.
5958
ImpairedIndividually evaluated loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, non-recurring fair value measurement adjustments relating to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral supporting commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.
Capitalized loan servicing rights. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of loan servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.
Other real estate owned (“OREO”)(OREO). OREO results from the foreclosure process on residential or commercial loans issued by the Company. Upon assuming the real estate, the Company records the property at the fair value of the asset less the estimated sales costs. Thereafter, OREO properties are recorded at the lower of cost or fair value less the estimated sales costs. OREO fair values are primarily determined based on Level 3 data including sales comparables and appraisals.
Premises held for sale. Assets held for sale, identified as part of the Company’s strategic review and branch optimization exercise, were transferred from premises and equipment at the lower of amortized cost or fair value less the estimated sales costs. Assets held for sale fair values are primarily determined based on Level 3 data including sales comparables and appraisals.
6059
Summary of Estimated Fair Values of Financial Instruments
The estimated fair values, and related carrying amounts, of the Company’s financial instruments are included in the table below. Certain financial instruments and all non-financial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | September 30, 2021 | ||||||||||||||||||||||||||
| | Carrying | | Fair | | | | | | | | | | | Carrying | | Fair | | | | | | | | | | ||||
(in thousands) |
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||||
Financial Assets |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 215,657 | | $ | 215,657 | | $ | 215,657 | | $ | 0 | | $ | 0 | | $ | 341,199 | | $ | 341,199 | | $ | 341,199 | | $ | 0 | | $ | 0 |
Securities available for sale | |
| 604,529 | |
| 604,529 | |
| 0 | |
| 604,529 | |
| 0 | |
| 545,327 | |
| 545,327 | |
| 0 | |
| 545,327 | |
| 0 |
FHLB stock | |
| 13,975 | |
| 13,975 | |
| 0 | |
| 13,975 | |
| 0 | |
| 10,192 | |
| 10,192 | |
| 0 | |
| 10,192 | |
| 0 |
Loans held for sale | | | 7,505 | | | 7,505 | | | 0 | | | 0 | | | 7,505 | |||||||||||||||
Net loans | |
| 2,690,784 | |
| 2,672,882 | |
| 0 | |
| 0 | |
| 2,672,882 | |
| 2,511,706 | |
| 2,472,108 | |
| 0 | |
| 0 | |
| 2,472,108 |
Accrued interest receivable | |
| 3,171 | |
| 3,171 | |
| 0 | |
| 3,171 | |
| 0 | |
| 3,272 | |
| 3,272 | |
| 0 | |
| 3,272 | |
| 0 |
Cash surrender value of bank-owned life insurance policies | |
| 77,388 | |
| 77,388 | |
| 0 | |
| 77,388 | |
| 0 | |
| 79,380 | |
| 79,380 | |
| 0 | |
| 79,380 | |
| 0 |
Derivative assets | |
| 31,505 | |
| 31,505 | |
| 0 | |
| 31,481 | |
| 24 | |
| 17,019 | |
| 17,019 | |
| 0 | |
| 16,972 | |
| 47 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial Liabilities | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Non-maturity deposits | | $ | 2,121,406 | | $ | 2,037,099 | | $ | 0 | | $ | 2,037,099 | | $ | 0 | | $ | 2,538,044 | | $ | 2,452,990 | | $ | 0 | | $ | 2,452,990 | | $ | 0 |
Time deposits | | | 813,509 | | | 805,783 | | | 0 | | | 805,783 | | | 0 | | | 469,221 | | | 470,000 | | | 0 | | | 470,000 | | | 0 |
Securities sold under agreements to repurchase | | | 30,048 | | | 30,048 | | | 0 | | | 30,048 | | | 0 | | | 21,667 | | | 21,667 | | | 0 | | | 21,667 | | | 0 |
FHLB advances | |
| 224,282 | |
| 229,413 | |
| 0 | |
| 229,413 | |
| 0 | |
| 168,600 | |
| 169,815 | |
| 0 | |
| 169,815 | |
| 0 |
FRB PPPLF | | | 131,236 | | | 131,141 | | | 0 | | | 131,141 | | | 0 | |||||||||||||||
Subordinated borrowings | |
| 59,920 | |
| 59,920 | |
| 0 | |
| 59,920 | |
| 0 | |
| 60,083 | |
| 63,660 | |
| 0 | |
| 63,660 | |
| 0 |
Derivative liabilities | |
| 34,958 | |
| 34,958 | |
| 0 | |
| 34,871 | |
| 87 | |
| 18,299 | |
| 18,299 | |
| 0 | |
| 18,159 | |
| 140 |
| | | | | | | | | | | | | | | |
| | December 31, 2019 | |||||||||||||
| | Carrying | | Fair | | | | | | | | | | ||
(in thousands) |
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial Assets |
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 56,910 | | $ | 56,910 | | $ | 56,910 | | $ | — | | $ | — |
Securities available for sale | |
| 663,230 | |
| 663,230 | |
| — | |
| 663,230 | |
| — |
FHLB stock | |
| 20,679 | |
| 20,679 | |
| — | |
| 20,679 | |
| — |
Net loans | |
| 2,625,739 | |
| 2,634,147 | |
| — | |
| — | |
| 2,634,147 |
Accrued interest receivable | |
| 3,294 | |
| 3,294 | |
| — | |
| 3,294 | |
| — |
Cash surrender value of bank-owned life insurance policies | |
| 75,863 | |
| 75,863 | |
| — | |
| 75,863 | |
| — |
Derivative assets | |
| 6,850 | |
| 6,850 | |
| — | |
| 6,791 | |
| 59 |
| | | | | | | | | | | | | | | |
Financial Liabilities | |
|
| |
|
| |
|
| |
|
| |
|
|
Non-maturity deposits | | $ | 1,763,116 | | $ | 1,751,481 | | $ | — | | $ | 1,751,481 | | $ | — |
Time deposits | | | 932,635 | | | 932,886 | | | — | | | 932,886 | | | — |
Short-term other borrowings | |
| 44,832 | |
| 44,831 | |
| — | |
| 44,831 | |
| — |
FHLB advances | |
| 426,564 | |
| 425,989 | |
| — | |
| 425,989 | |
| — |
Subordinated borrowings | |
| 59,920 | |
| 59,920 | |
| — | |
| 59,920 | |
| — |
Derivative liabilities | |
| 8,186 | |
| 8,186 | |
| — | |
| 8,102 | |
| 84 |
| | | | | | | | | | | | | | | |
| | December 31, 2020 | |||||||||||||
| | Carrying | | Fair | | | | | | | | | | ||
(in thousands) |
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial Assets |
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 226,007 | | $ | 226,007 | | $ | 226,007 | | $ | — | | $ | — |
Securities available for sale | |
| 585,046 | |
| 585,046 | |
| — | |
| 585,046 | |
| — |
FHLB stock | |
| 14,036 | |
| 14,036 | |
| — | |
| 14,036 | |
| — |
Loans held for sale | | | 23,988 | | | 24,163 | | | — | | | — | | | 24,163 |
Net loans | |
| 2,543,803 | |
| 2,547,970 | |
| — | |
| — | |
| 2,547,970 |
Accrued interest receivable | |
| 2,964 | |
| 2,964 | |
| — | |
| 2,964 | |
| — |
Cash surrender value of bank-owned life insurance policies | |
| 77,870 | |
| 77,870 | |
| — | |
| 77,870 | |
| — |
Derivative assets(1) | |
| 28,895 | |
| 25,895 | |
| — | |
| 25,917 | |
| 22 |
| | | | | | | | | | | | | | | |
Financial Liabilities | |
|
| |
|
| |
|
| |
|
| |
|
|
Non-maturity deposits | | $ | 2,207,854 | | $ | 2,122,222 | | $ | — | | $ | 2,122,222 | | $ | — |
Time deposits | | | 698,361 | | | 694,700 | | | — | | | 694,700 | | | — |
Short-term other borrowings | |
| 27,779 | |
| 27,779 | |
| — | |
| 27,779 | |
| — |
FHLB advances | |
| 248,283 | |
| 252,698 | |
| — | |
| 252,698 | |
| — |
Subordinated borrowings | |
| 59,961 | |
| 57,091 | |
| — | |
| 57,091 | |
| — |
Derivative liabilities(1) | |
| 31,348 | |
| 31,348 | |
| — | |
| 31,443 | |
| 95 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement. |
6160
NOTE 11.10. REVENUE FROM CONTRACTS WITH CUSTOMER
The Company has accounted for the various non-interest revenue streams and related contracts under ASC 606.
Disaggregation of Revenue
The following tables present disaggregation of the Company’s non-interest revenue by major business line and timing of revenue recognition for the transfer of products or services:
| | | | | | | | | | | | | ||||||||||||
| | Three Months Ended | | Nine Months Ended | | | | | | | | | | | | | ||||||||
| | September 30, | | September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||||||||||
(in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||
Major Products/Service Lines |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Trust management fees | | $ | 3,256 | | $ | 2,737 | | $ | 9,194 | | $ | 8,055 | | $ | 3,403 | | $ | 3,256 | | $ | 10,052 | | $ | 9,193 |
Financial services fees | |
| 276 | |
| 276 | |
| 867 | |
| 781 | |
| 465 | |
| 276 | |
| 1,283 | |
| 867 |
Interchange fees | |
| 1,709 | |
| 1,323 | |
| 4,910 | |
| 3,567 | |
| 1,882 | |
| 1,709 | |
| 5,509 | |
| 4,910 |
Customer deposit fees | |
| 937 | |
| 1,112 | |
| 2,836 | |
| 3,046 | |
| 1,363 | |
| 937 | |
| 3,542 | |
| 2,836 |
Other customer service fees | |
| 240 | |
| 118 | |
| 691 | |
| 723 | |
| 270 | |
| 240 | |
| 691 | |
| 691 |
Total | | $ | 6,418 | | $ | 5,566 | | $ | 18,497 | | $ | 16,172 | | $ | 7,383 | | $ | 6,418 | | $ | 21,077 | | $ | 18,497 |
| | | | | | | | | | | | | ||||||||||||
| | Three Months Ended | | Nine Months Ended | | | | | | | | | | | | | ||||||||
| | September 30, | | September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||||||||||
(in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||
Timing of Revenue Recognition |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Products and services transferred at a point in time | | $ | 3,133 | | $ | 2,839 | | $ | 9,026 | | $ | 7,874 | | $ | 3,737 | | $ | 3,133 | | $ | 10,593 | | $ | 9,026 |
Products and services transferred over time | |
| 3,285 | |
| 2,727 | |
| 9,471 | |
| 8,298 | |
| 3,646 | |
| 3,285 | |
| 10,484 | |
| 9,471 |
Total | | $ | 6,418 | | $ | 5,566 | | $ | 18,497 | | $ | 16,172 | | $ | 7,383 | | $ | 6,418 | | $ | 21,077 | | $ | 18,497 |
Trust Management Fees
The trust management business generates revenue through a range of fiduciary services including trust and estate administration, wealth advisory, and investment management to individuals, businesses, not-for-profit organizations, and municipalities. Revenue from these servicesThese fees are primarily earned over time as the Company charges its customers on a monthly or quarterly basis in accordance with its investment advisory agreements. Fees are generally recognized over time and is typicallyassessed based on a time elapsed measuretiered scale of service.the market value of assets under management at month end. Certain fees, such as bill paying fees, distribution fees, real estate sale fees, and supplemental tax service fees, are recorded as revenue at a point in time upon the completion of the service.
Financial Services Fees
Bar Harbor Financial Services is a branch office of Infinex, an independent registered broker dealer offering securities and insurance products not affiliated with the Company or its subsidiaries. The Company has a revenue sharing agreement with Infinex for any financial service fee income generated. Financial services fees are recognized at a point in time upon the completion of service requirements.
Interchange Fees
The Company earns interchange fees from transaction fees that merchants pay whenever a customer uses a debit card to make a purchase from their store. The fees are paid to the card-issuing bank to cover handling costs, fraud, bad debt costs and the risk involved in approving the payment. Interchange fees are generally recognized as revenue at a point in time upon the completion of a debit card transaction.
Customer Deposit Fees
The Customer Deposit business offers a variety of deposit accounts with a range of interest rates, fee schedules and other terms, which are designed to meet the customer's financial needs. Additional depositor-related services provided to customers include ATM, bank-by-phone, internet banking, internet bill pay, mobile banking, and other cash management
62
services which include remote deposit capture, ACH origination, and wire transfers. These customer deposit fees are generally recognized by the Company at a point in time upon the completion of the service.
61
Other Customer Service Fees
The Company has certain incentive and referral fee arrangements with independent third parties in which fees are earned for new account activity, product sales, or transaction volume generated for the respective third parties. The Company also earns a percentage of the fees generated from third-party credit card plans promoted through the Bank. Revenue from these incentive and referral fee arrangements are recognized over time using the right to invoice measure of progress.
Contract Balances from Contracts with Customers
The following table provides information about contract assets or receivables and contract liabilities or deferred revenues from contracts with customers:
| | | | | | | | | | | | |
|
| Balance at |
| Balance at |
| |
| | ||||
(in thousands) | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 | ||||
Balances from contracts with customers only: |
| |
|
| |
|
| |
|
| |
|
Other Assets | | $ | 1,311 | | $ | 1,236 | | $ | 1,277 | | $ | 1,121 |
Other Liabilities | |
| 2,918 | |
| 3,114 | |
| 2,467 | |
| 2,785 |
The timing of revenue recognition, billings and cash collections results in contract assets or receivables and contract liabilities or deferred revenue on the consolidated balance sheets. For most customer contracts, fees are deducted directly from customer accounts and, therefore, there is no associated impact on the accounts receivable balance. For certain types of service contracts, the Company has an unconditional right to consideration under the service contract and an accounts receivable balance is recorded for services completed. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.
Costs to Obtain and Fulfill a Contract
The Company currently expenses contract costs for processing and administrative fees for debit card transactions. The Company also expenses custody fees and transactional costs associated with securities transactions as well as third party tax preparation fees. The Company has elected the practical expedient in ASC 340-40-25-4, whereby the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets the Company otherwise would have recognized is one year or less.
6362
NOTE 12.11. LEASES
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” and all subsequent ASUs modifying ASC 842. Substantially all of the leases pursuant to which the Company is the lessee are comprised of real estate property for branches, ATM locations, and office space with terms extending through 2040. All leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheets. With the adoption of ASC 842, operating lease agreements are required to be recognized on the consolidated balance sheets as a right-of-use (“ROU”)(ROU) asset with a corresponding lease liability using the modified retrospective approach.
The Company elected the following practical expedients in conjunction with implementation of ASC 842 as follows:
● | Package of practical expedients: |
o | Lease classification as an operating lease under the prior standards is grandfathered. |
o | Re-evaluation of embedded leases evaluated under the prior standards is not required. |
o | No re-assessment of previously recorded initial direct lease costs. |
● | Election to exclude short-term leases (i.e., leases with initial terms of twelve months or less), from capitalization on the consolidated balance sheets. |
The following table presents the consolidated statements of condition classification of the Company’s ROU assets and lease liabilities as of September 30, 2020:liabilities:
| | | | | | | | | | | | | | | | |
(in thousands) |
| |
| September 30, 2020 |
| December 31, 2019 |
| Classification |
| September 30, 2021 |
| December 31, 2020 | ||||
Lease Right-of-Use Assets |
| Classification | | |
| | |
|
| | | |
| | |
|
Operating lease right-of-use assets |
| Other assets | | $ | 10,617 | | $ | 9,623 |
| Other assets | | $ | 9,488 | | $ | 10,338 |
| | | | | | | | | | | | | | | | |
Lease Liabilities |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
Operating lease liabilities |
| Other liabilities | |
| 10,881 | |
| 9,651 |
| Other liabilities | |
| 9,841 | |
| 10,627 |
The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used for the present value of the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. If there are multiple renewals typically only the next lease renewal is considered. Regarding the discount rate, ASC 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.
The following table presents the weighted average lease term and discount rate of the Company’s leases:
| | | | | | | | | | | | |
|
| September 30, 2020 |
| December 31, 2019 |
| September 30, 2021 |
| December 31, 2020 | ||||
Weighted-average remaining lease term (in years) | |
| | |
| | |
| | |
| |
Operating leases | | 9.04 | | | 8.96 | | | 8.57 | | | 9.26 | |
| | | | | | | | | | | | |
Weighted-average discount rate | |
| | |
| | |
| | |
| |
Operating leases | | 3.15 | % | | 3.27 | % | | 3.15 | % | | 3.15 | % |
6463
The following table represents lease costs, which includes prepaids and expenses and other lease information. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as real estate taxes, common area maintenance and utilities.
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended | ||||||||||
(in thousands) |
| September 30, 2020 |
| September 30, 2020 | | September 30, 2021 |
| September 30, 2020 |
| September 30, 2021 |
| September 30, 2020 | ||||||
Lease Costs |
| |
|
| |
| | |
|
| |
|
| |
|
| |
|
Operating lease cost | | $ | 344 | | $ | 988 | | $ | 324 | | $ | 344 | | $ | 966 | | $ | 988 |
Variable lease cost | |
| 59 | |
| 177 | |
| 43 | |
| 59 | |
| 179 | |
| 177 |
Total lease cost | | $ | 403 | | $ | 1,165 | | $ | 367 | | $ | 403 | | $ | 1,145 | | $ | 1,165 |
Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 20202021 are, as follows:
| | | | | | |
(in thousands) |
| Operating Leases |
| Payments | ||
Twelve Months Ended: |
| |
|
| |
|
September 30, 2021 | | $ | 1,375 | |||
September 30, 2022 | |
| 1,404 | | $ | 1,314 |
September 30, 2023 | |
| 1,410 | |
| 1,318 |
September 30, 2024 | |
| 1,413 | |
| 1,319 |
September 30, 2025 | |
| 1,221 | |
| 1,125 |
September 30, 2026 | |
| 1,032 | |||
Thereafter | |
| 7,444 | |
| 4,301 |
Total future minimum lease payments | |
| 14,267 | |
| 10,409 |
Amounts representing interest | |
| (3,386) | |
| (568) |
Present value of net future minimum lease payments | | $ | 10,881 | | $ | 9,841 |
6564
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in Part I, Item 1 of this document and with the Company’s consolidated financial statements and the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. In the following discussion, income statement comparisons are against the same period of the previous year and balance sheet comparisons are against the previous fiscal year-end, unless otherwise noted. Operating results discussed herein are not necessarily indicative of the results for the full year 2020 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable.2020.
Bar Harbor Bankshares (the "Company") is the parent company of Bar Harbor Bank & Trust (the "Bank”), which is the only community bank headquartered in Northern New England with branches in Maine, New Hampshire and Vermont. The Bank is a trueregional community bank providing exceptional commercial, retail,that thinks differently about banking. The Bank provides the technology offerings and capabilities of larger banks, accompanied by access to local decision makers who are acutely focused on their local markets. As the Company approaches the 135th anniversary of its founding, they have not forgotten that helping customers achieve their goals is the key to the Bank’s success. The Company delivers banking, lending and wealth management banking services from overmore than 50 locations. The Company’s corporate goal is to be among the most profitable banks in New England, and its business model is centered on the following:
● | Employee and customer experience is the foundation of superior performance, which leads to significant financial benefit to shareholders |
● | Geography, heritage, and performance are key while remaining true to a |
● | Strong commitment to risk management while balancing growth and earnings |
● | Service and sales driven culture with a focus on core business growth |
● | Fee income is fundamental to the |
● | Investment in processes, products, technology, training, leadership, and infrastructure |
● | Expansion of the Company’s brand and business to deepen market presence |
● | Opportunity and growth for existing employees while adding catalyst recruits across all levels of the Company |
Shown below is a profile of the Company as of September 30, 2020:2021:
6665
SELECTED FINANCIAL DATA
The following summary data is based in part on the consolidated financial statements and accompanying notes and other information appearing elsewhere in this or prior Forms 10-Q.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | Three Months Ended | | Nine Months Ended |
| |||||||||||||||||
| | September 30, | | September 30, |
| | September 30, | | | September 30, |
| ||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| | 2021 |
| 2020 |
| ||||||||
PER SHARE DATA | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings, diluted | | $ | 0.56 | | $ | 0.32 | | $ | 1.60 | | $ | 1.18 | | | $ | 0.73 | | $ | 0.56 | | $ | 1.97 | | $ | 1.60 | | |
Adjusted earnings, diluted(1) | |
| 0.61 | |
| 0.47 | |
| 1.66 | |
| 1.35 | | |
| 0.73 | |
| 0.61 | |
| 2.04 | |
| 1.66 | | |
Total book value | |
| 27.09 | |
| 25.37 | |
| 27.09 | |
| 25.37 | | |
| 27.92 | |
| 26.74 | |
| 27.92 | |
| 26.74 | | |
Tangible book value(1) | |
| 18.56 | |
| 18.49 | |
| 18.56 | |
| 18.49 | | ||||||||||||||
Tangible book value(1) (5) | |
| 19.48 | |
| 18.21 | |
| 19.48 | |
| 18.21 | | ||||||||||||||
Market price at period end | |
| 20.55 | |
| 24.93 | |
| 20.55 | |
| 24.93 | | |
| 28.05 | |
| 20.55 | |
| 28.05 | |
| 20.55 | | |
Dividends | |
| 0.22 | |
| 0.22 | |
| 0.66 | |
| 0.64 | | |
| 0.24 | |
| 0.22 | |
| 0.70 | |
| 0.66 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
PERFORMANCE RATIOS(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Return on assets | |
| 0.88 | % |
| 0.55 | % |
| 0.87 | % |
| 0.68 | % | |
| 1.16 | % |
| 0.88 | % | |
| 1.05 | % |
| 0.87 | % |
Adjusted return on assets(1) | |
| 0.96 | |
| 0.80 | |
| 0.91 | |
| 0.77 | | |
| 1.16 | |
| 0.96 | |
| 1.09 | |
| 0.91 | | |
Return on equity | |
| 8.22 | |
| 5.04 | |
| 8.09 | |
| 6.37 | | ||||||||||||||
Adjusted return on equity(1) | |
| 8.98 | |
| 7.36 | |
| 8.41 | |
| 7.25 | | ||||||||||||||
Adjusted return on tangible equity(1) | |
| 13.36 | |
| 10.31 | |
| 12.54 | |
| 10.25 | | ||||||||||||||
Pre-tax, pre-provision return on assets | | | 1.43 | |
| 1.29 | |
| 1.26 | |
| 1.24 | | ||||||||||||||
Adjusted pre-tax, pre-provision return on assets (1) (2) | | | 1.43 | |
| 1.39 | |
| 1.31 | |
| 1.29 | | ||||||||||||||
Return on equity(5) | |
| 10.38 | |
| 8.25 | |
| 9.54 | |
| 8.10 | | ||||||||||||||
Adjusted return on equity(1) (5) | |
| 10.39 | |
| 9.02 | |
| 9.98 | |
| 8.42 | | ||||||||||||||
Return on tangible equity(5) | | | 15.08 | | | 12.32 | | | 14.01 | | | 12.10 | | ||||||||||||||
Adjusted return on tangible equity(1) (5) | |
| 15.09 | |
| 13.44 | |
| 14.50 | |
| 12.57 | | ||||||||||||||
Net interest margin, fully taxable equivalent (FTE)(1) (3) | |
| 2.98 | |
| 2.75 | |
| 3.01 | |
| 2.72 | | |
| 3.02 | |
| 2.90 | |
| 2.88 | |
| 2.95 | | |
Net interest margin (FTE), excluding purchased loan accretion(3) | |
| 2.92 | |
| 2.65 | |
| 2.93 | |
| 2.63 | | ||||||||||||||
Adjusted net interest margin(1) (5) | |
| 2.75 | |
| 2.89 | |
| 2.73 | |
| 2.94 | | ||||||||||||||
Efficiency ratio(1) | |
| 59.47 | |
| 65.02 | |
| 61.62 | |
| 65.83 | | |
| 59.18 | |
| 59.47 | |
| 61.48 | |
| 61.62 | | |
| | | | | | | | | | | | | | ||||||||||||||
GROWTH (Year-to-date)(1) | | | | | | | | | | | | | | ||||||||||||||
Total commercial loans | |
| 27 | % |
| 11 | % |
| 27 | % |
| 11 | % | ||||||||||||||
Total loans | |
| 3 | |
| 5 | |
| 3 | |
| 5 | | ||||||||||||||
Total deposits | |
| 12 | |
| 1 | |
| 12 | |
| 1 | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
FINANCIAL DATA (In millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 3,860 | | $ | 3,612 | | $ | 3,860 | | $ | 3,612 | | | $ | 3,738 | | $ | 3,861 | | $ | 3,738 | | $ | 3,861 | | |
Total earning assets(4) | |
| 3,312 | |
| 3,270 | |
| 3,312 | |
| 3,270 | | |
| 3,394 | |
| 3,505 | |
| 3,394 | |
| 3,505 | | |
Total investments | |
| 619 | |
| 703 | |
| 619 | |
| 703 | | |
| 556 | |
| 619 | |
| 556 | |
| 619 | | |
Total loans | |
| 2,709 | |
| 2,577 | |
| 2,709 | |
| 2,577 | | |
| 2,534 | |
| 2,685 | |
| 2,534 | |
| 2,685 | | |
Allowance for loan losses | |
| 18 | |
| 15 | |
| 18 | |
| 15 | | |
| 22 | |
| 18 | |
| 22 | |
| 18 | | |
Total goodwill and intangible assets | |
| 127 | |
| 107 | |
| 127 | |
| 107 | | |
| 126 | |
| 127 | |
| 126 | |
| 127 | | |
Total deposits | |
| 2,935 | |
| 2,494 | |
| 2,935 | |
| 2,494 | | |
| 3,007 | |
| 2,935 | |
| 3,007 | |
| 2,935 | | |
Total shareholders' equity | |
| 404 | |
| 394 | |
| 404 | |
| 394 | | ||||||||||||||
Total shareholders' equity(5) | |
| 418 | |
| 399 | |
| 418 | |
| 399 | | ||||||||||||||
Net income | |
| 8 | |
| 5 | |
| 25 | |
| 18 | | |
| 11 | |
| 8 | |
| 30 | |
| 25 | | |
Adjusted income(1) | |
| 9 | |
| 7 | |
| 26 | |
| 21 | | |
| 11 | |
| 9 | |
| 31 | |
| 26 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
ASSET QUALITY AND CONDITION RATIOS | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net charge-offs (annualized)/average loans | |
| 0.06 | % |
| 0.02 | % |
| 0.08 | % |
| 0.02 | % | |
| 0.03 | % |
| 0.06 | % | |
| (0.02) | % |
| 0.07 | % |
Allowance for loan losses/total loans | |
| 0.66 | |
| 0.60 | |
| 0.66 | |
| 0.60 | | ||||||||||||||
Allowance for credit losses/total loans | |
| 0.89 | |
| 0.67 | |
| 0.89 | |
| 0.67 | | ||||||||||||||
Loans/deposits | |
| 92 | |
| 103 | |
| 92 | |
| 103 | | |
| 84 | |
| 91 | |
| 84 | |
| 91 | | |
Shareholders' equity to total assets | |
| 10.48 | |
| 10.92 | |
| 10.48 | |
| 10.92 | | ||||||||||||||
Tangible shareholders' equity to tangible assets(1) | |
| 7.42 | |
| 8.20 | |
| 7.42 | |
| 8.20 | | ||||||||||||||
Shareholders' equity to total assets(5) | |
| 11.19 | |
| 10.34 | |
| 11.19 | |
| 10.34 | | ||||||||||||||
Tangible shareholders' equity to tangible assets(1) (5) | |
| 8.08 | |
| 7.27 | |
| 8.08 | |
| 7.27 | |
(1) | Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures section of Management's Discussion and Analysis for additional information. |
(2) | All performance ratios are annualized and are based on average balance sheet amounts, where applicable. |
(3) | Fully taxable equivalent considers the impact of tax-advantaged investment securities and loans. |
(4) | Earning assets includes non-accruing loans and securities are valued at amortized cost. |
(5) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement. |
6766
CONSOLIDATED LOAN AND DEPOSIT ANALYSIS
The following tables present the quarterly trend in loan and deposit data and accompanying quarterly growth rates as of September 30, 20202021 on an annualized basis:
LOAN ANALYSIS
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | Annualized Growth % |
| | | | | | | | | | | | | | | | | | | | | | |||
| | | | | | | | | | | | | | | | | September 30, 2020 |
| | | | | | | | | | | | | | | | | Annualized Growth % | |||||||
(in thousands, except ratios) |
| Sep 30, 2020 |
| Jun 30, 2020 |
| Mar 31, 2020 |
| Dec 31, 2019 |
| Sep 30, 2019 |
| Quarter To Date | | Year To Date |
| Sep 30, 2021 |
| Jun 30, 2021 |
| Mar 31, 2021 |
| Dec 31, 2020 |
| Sep 30, 2020 |
| Quarter To Date | | Year To Date | ||||||||||||||
Commercial real estate | | $ | 1,045,635 | | $ | 982,070 | | $ | 948,178 | | $ | 930,661 | | $ | 923,773 |
| 26 | % | | 16 | % | | $ | 1,170,372 | | $ | 1,135,857 | | $ | 1,118,669 | | $ | 1,084,381 | | $ | 1,045,635 |
| 12 | % | | 11 | % |
Commercial and industrial | |
| 456,184 | |
| 472,524 | |
| 321,605 | |
| 318,988 | |
| 301,590 |
| (14) |
| | 57 | | |
| 331,091 | |
| 327,729 | |
| 317,500 | |
| 323,864 | |
| 324,647 |
| 4 |
| | 3 | |
Paycheck Protection Program (PPP) | | | 24,227 | | | 65,918 | | | 77,878 | | | 53,774 | | | 131,537 | | * | | | (74) | | |||||||||||||||||||||
Total commercial loans | |
| 1,501,819 | |
| 1,454,594 | |
| 1,269,783 | |
| 1,249,649 | |
| 1,225,363 |
| 13 |
| | 27 | | |
| 1,525,690 | |
| 1,529,504 | |
| 1,514,047 | |
| 1,462,019 | |
| 1,501,819 |
| (1) | | | 6 | |
Total commercial loans, excluding PPP | | | 1,501,463 | | | 1,463,586 | | | 1,436,169 | | | 1,408,245 | | | 1,370,282 | | 10 | | | 9 | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Residential real estate | |
| 1,021,206 | |
| 1,083,708 | |
| 1,132,328 | |
| 1,151,857 | |
| 1,143,452 |
| (23) |
| | (15) | | |
| 849,692 | |
| 822,774 | |
| 868,084 | |
| 923,891 | |
| 997,485 |
| 13 |
| | (11) | |
Consumer | |
| 119,340 | |
| 124,197 | |
| 128,120 | |
| 135,283 | |
| 107,375 |
| (16) |
| | (16) | | |
| 100,933 | |
| 103,589 | |
| 106,835 | |
| 113,544 | |
| 119,340 |
| (10) |
| | (15) | |
Tax exempt and other | |
| 66,326 | |
| 66,918 | |
| 104,752 | |
| 104,303 | |
| 101,116 |
| (4) |
| | (49) | | |
| 57,839 | |
| 59,693 | |
| 62,098 | |
| 63,431 | |
| 66,326 |
| (12) |
| | (12) | |
Total loans | | $ | 2,708,691 | | $ | 2,729,417 | | $ | 2,634,983 | | $ | 2,641,092 | | $ | 2,577,306 |
| (3) | % | | 3 | % | | $ | 2,534,154 | | $ | 2,515,560 | | $ | 2,551,064 | | $ | 2,562,885 | | $ | 2,684,970 |
| 3 | % | | (1) | % |
DEPOSIT ANALYSIS
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | Annualized Growth % | | | | | | | | | | | | | | | | | | | | | | | |||
| | | | | | | | | | | | | | | | | September 30, 2020 |
| | | | | | | | | | | | | | | | | Annualized Growth % | |||||||
(in thousands, except ratios) |
| Sep 30, 2020 |
| Jun 30, 2020 |
| Mar 31, 2020 |
| Dec 31, 2019 |
| Sep 30, 2019 |
| Quarter To Date | | Year To Date |
|
| Sep 30, 2021 |
| Jun 30, 2021 |
| Mar 31, 2021 |
| Dec 31, 2020 |
| Sep 30, 2020 |
| Quarter To Date | | Year To Date | |||||||||||||
Demand | | $ | 515,064 | | $ | 504,325 | | $ | 400,410 | | $ | 414,534 | | $ | 380,707 |
| 9 | % | | 32 | % | | $ | 664,395 | | $ | 599,598 | | $ | 586,487 | | $ | 544,636 | | $ | 515,064 |
| 43 | % | | 29 | % |
NOW | |
| 706,048 | |
| 642,908 | |
| 578,320 | |
| 575,809 | |
| 490,315 |
| 39 |
| | 30 | | |
| 888,021 | |
| 802,681 | |
| 761,817 | |
| 738,849 | |
| 706,048 |
| 43 |
| | 27 | |
Savings | |
| 511,938 | |
| 466,668 | |
| 423,345 | |
| 388,683 | |
| 360,570 |
| 39 |
| | 42 | | |
| 605,977 | |
| 578,361 | |
| 560,095 | |
| 521,638 | |
| 511,938 |
| 19 |
| | 22 | |
Money market | |
| 388,356 | |
| 402,835 | |
| 404,385 | |
| 384,090 | |
| 359,328 |
| (14) |
| | 1 | | |
| 379,651 | |
| 371,075 | |
| 365,507 | |
| 402,731 | |
| 388,356 |
| 9 |
| | (8) | |
Total non-maturity deposits | |
| 2,121,406 | |
| 2,016,736 | |
| 1,806,460 | |
| 1,763,116 | |
| 1,590,920 |
| 21 |
| | 27 | | |
| 2,538,044 | |
| 2,351,715 | |
| 2,273,906 | |
| 2,207,854 | |
| 2,121,406 |
| 32 |
| | 20 | |
Total time deposits | |
| 813,509 | |
| 678,126 | |
| 844,097 | |
| 932,635 | |
| 902,665 |
| 80 |
| | (17) | | |
| 469,221 | |
| 470,758 | |
| 638,436 | |
| 698,361 | |
| 813,509 |
| (1) |
| | (44) | |
Total deposits | | $ | 2,934,915 | | $ | 2,694,862 | | $ | 2,650,557 | | $ | 2,695,751 | | $ | 2,493,585 |
| 36 | % | | 12 | % | | $ | 3,007,265 | | $ | 2,822,473 | | $ | 2,912,342 | | $ | 2,906,215 | | $ | 2,934,915 |
| 26 | % | | 5 | % |
6867
AVERAGE BALANCES AND AVERAGE YIELDS/RATES
The following tables present average balances and average yields and rates on an annualized fully taxable equivalent basis for the periods included:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended September 30, |
|
| Three Months Ended September 30, |
| |||||||||||||||||||||||||||||
| | 2020 | | 2019 |
| | 2021 | | | 2020 |
| ||||||||||||||||||||||||
| | Average | | | | | | | Average | | | | | |
| | Average | | | | | | | | Average | | | | | |
| ||||
(in thousands, except ratios) |
| Balance |
| Interest(3) |
| Yield/Rate(3) |
| Balance |
| Interest(3) |
| Yield/Rate(3) |
|
| Balance |
| Interest(3) |
| Yield/Rate(3) |
| | Balance |
| Interest(3) |
| Yield/Rate(3) |
| ||||||||
Assets |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
| |
|
| |
|
|
|
| | |
|
| |
|
|
| |
Interest-bearing deposits with other banks(4) | | $ | 284,429 | | $ | 110 | | 0.15 | % | | $ | 92,066 | | $ | 21 | | 0.09 | % | |||||||||||||||||
Securities available for sale and FHLB stock(2)(3) | | | 610,381 | | | 3,986 | | 2.59 | | | | 627,162 | | | 4,787 | | 3.04 | | |||||||||||||||||
Loans: | | | | | | | | | | | | | | | | | | | |||||||||||||||||
Commercial real estate | | $ | 1,012,194 | | $ | 9,691 |
| 3.81 | % | $ | 900,568 | | $ | 10,750 |
| 4.74 | % | | | 1,153,813 | | | 10,269 |
| 3.53 | | | | 1,012,194 | | | 9,691 |
| 3.81 | |
Commercial and industrial | |
| 531,339 | |
| 5,463 |
| 4.09 | |
| 410,453 | |
| 4,947 |
| 4.78 | | |
| 391,191 | |
| 3,739 |
| 3.79 | | |
| 399,734 | |
| 4,411 |
| 4.39 | |
Paycheck protection program | | | 45,835 | | | 2,690 | | 23.28 | | | | 131,605 | | | 1,052 | | 3.18 | | |||||||||||||||||
Residential | |
| 1,060,084 | |
| 9,886 |
| 3.71 | |
| 1,154,552 | |
| 11,293 |
| 3.88 | | |
| 824,686 | |
| 7,574 |
| 3.64 | | |
| 1,060,084 | |
| 9,886 |
| 3.71 | |
Consumer | |
| 121,248 | |
| 1,042 |
| 3.42 | |
| 109,562 | |
| 1,418 |
| 5.13 | | |
| 101,545 | |
| 968 |
| 3.78 | | |
| 121,248 | |
| 1,042 |
| 3.42 | |
Total loans (1) | |
| 2,724,865 | |
| 26,082 |
| 3.81 | |
| 2,575,135 | |
| 28,408 |
| 4.38 | | |
| 2,517,070 | |
| 25,240 |
| 3.98 | | |
| 2,724,865 | |
| 26,082 |
| 3.81 | |
Securities and other (2) | |
| 627,162 | |
| 4,808 |
| 3.05 | |
| 732,925 | |
| 6,356 |
| 3.44 | | ||||||||||||||||||
Total earning assets | |
| 3,352,027 | |
| 30,890 |
| 3.67 | % |
| 3,308,060 | |
| 34,764 |
| 4.17 | % | |
| 3,411,880 | |
| 29,336 |
| 3.41 | % | |
| 3,444,093 | |
| 30,890 |
| 3.57 | % |
Other assets | |
| 462,383 | | | |
|
| |
| 333,896 | |
|
|
| | | ||||||||||||||||||
Total assets | | $ | 3,814,410 | | | |
|
| | $ | 3,641,956 | |
|
|
| | | ||||||||||||||||||
Other assets(6) | |
| 352,208 | | | |
|
| | |
| 370,335 | |
|
|
| | | |||||||||||||||||
Total assets(6) | | $ | 3,764,088 | | | |
|
| | | $ | 3,814,428 | |
|
|
| | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities | |
|
| |
|
|
|
| |
|
| |
|
|
|
| | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
NOW | | $ | 677,706 | | $ | 243 |
| 0.14 | % | $ | 487,506 | | $ | 621 |
| 0.51 | % | | $ | 860,206 | | $ | 272 |
| 0.13 | % | | $ | 677,706 | | $ | 243 |
| 0.14 | % |
Savings | |
| 488,508 | |
| 157 |
| 0.13 | |
| 359,242 | |
| 193 |
| 0.21 | | |
| 591,440 | |
| 124 |
| 0.08 | | |
| 488,508 | |
| 157 |
| 0.13 | |
Money market | |
| 396,351 | |
| 163 |
| 0.16 | |
| 338,013 | |
| 1,168 |
| 1.37 | | |
| 381,755 | |
| 115 |
| 0.12 | | |
| 396,351 | |
| 163 |
| 0.16 | |
Time deposits | |
| 777,424 | |
| 3,307 |
| 1.69 | |
| 947,949 | |
| 5,161 |
| 2.16 | | |
| 471,934 | |
| 1,044 |
| 0.88 | | |
| 777,424 | |
| 3,307 |
| 1.69 | |
Total interest bearing deposits | |
| 2,339,989 | |
| 3,870 |
| 0.66 | |
| 2,132,710 | |
| 7,143 |
| 1.33 | | |
| 2,305,335 | |
| 1,555 |
| 0.27 | | |
| 2,339,989 | |
| 3,870 |
| 0.66 | |
Borrowings | |
| 481,687 | |
| 1,941 |
| 1.60 | |
| 708,222 | |
| 4,674 |
| 2.62 | | |
| 334,097 | |
| 1,778 |
| 2.11 | | |
| 481,687 | |
| 1,941 |
| 1.60 | |
Total interest bearing liabilities | |
| 2,821,676 | |
| 5,811 |
| 0.82 | % |
| 2,840,932 | |
| 11,817 |
| 1.65 | % | |
| 2,639,432 | |
| 3,333 |
| 0.50 | % | |
| 2,821,676 | |
| 5,811 |
| 0.82 | % |
Non-interest bearing demand deposits | |
| 507,844 | |
|
|
|
| |
| 368,100 | |
|
|
| | | |
| 641,769 | |
|
|
|
| | |
| 507,844 | |
|
|
| | |
Other liabilities | |
| 78,072 | |
|
|
|
| |
| 37,975 | |
|
|
| | | ||||||||||||||||||
Total liabilities | |
| 3,407,592 | |
|
|
|
| |
| 3,247,007 | |
|
|
| | | ||||||||||||||||||
Other liabilities(6) | |
| 61,436 | |
|
|
|
| | |
| 79,848 | |
|
|
| | | |||||||||||||||||
Total liabilities(6) | |
| 3,342,637 | |
|
|
|
| | |
| 3,409,368 | |
|
|
| | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total shareholders' equity | |
| 406,818 | |
|
|
|
| |
| 394,949 | |
|
|
| | | ||||||||||||||||||
Total shareholders' equity(6) | |
| 421,451 | |
|
|
|
| | |
| 405,060 | |
|
|
| | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders' equity | | $ | 3,814,410 | |
|
|
|
| | $ | 3,641,956 | |
|
|
|
| | ||||||||||||||||||
Total liabilities and shareholders' equity(6) | | $ | 3,764,088 | |
|
|
|
| | | $ | 3,814,428 | |
|
|
|
| | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest spread | |
|
| |
|
|
| 2.85 | % |
|
| |
|
|
| 2.52 | % | |
|
| |
|
|
| 2.91 | % | |
|
| |
|
|
| 2.75 | % |
Net interest margin | |
|
| |
|
|
| 2.98 | |
|
| |
|
|
| 2.75 | | ||||||||||||||||||
Net interest margin (1) | | | | | | | | 3.02 | | |
|
| |
|
|
| 2.90 | | |||||||||||||||||
Adjusted net interest margin(5) | |
|
| |
|
|
| 2.75 | | | | | | | | | 2.89 | |
(1) | The average balances of loans include non-accrual loans and unamortized deferred fees and costs. |
(2) | The average balance for securities available for sale is based on amortized cost. |
(3) | Fully taxable equivalent considers the impact of tax-advantaged securities and loans. |
(4) | Income from interest-bearing deposits with other banks has been separated from securities and restated for prior periods to conform to the current period presentation. |
(5) | Adjusted net interest margin excludes Paycheck Protection Program loans. |
(6) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement. |
68
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | ||||||||||||||||
| | 2021 | | 2020 |
| |||||||||||||
| | Average | | | | | Yield/ | | Average | | | | | Yield/ | ||||
(in thousands, except ratios) |
| Balance |
| Interest(3) |
| Rate(3) | | Balance |
| Interest(3) |
| Rate(3) | ||||||
Assets | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits with other banks(4) | | $ | 229,235 | | $ | 203 | | 0.12 | % | | $ | 52,326 | | $ | 84 | | 0.21 | % |
Securities available for sale and FHLB stock(2)(3) | | | 617,373 | | | 12,424 | | 2.69 | | | | 643,978 | | | 15,798 | | 3.28 | |
Loans: | | | | | | | | | | | | | | | | | | |
Commercial real estate | | | 1,128,134 | | | 30,177 |
| 3.58 | | | | 972,330 | | | 29,895 |
| 4.11 | |
Commercial and industrial(3) | |
| 381,753 | |
| 10,727 |
| 3.76 | | |
| 414,532 | |
| 13,847 |
| 4.46 | |
Paycheck protection program | | | 62,562 | | | 5,058 | | 10.81 | | | | 78,782 | | | 1,921 | | 3.26 | |
Residential | |
| 861,629 | |
| 24,145 |
| 3.75 | | |
| 1,103,442 | |
| 31,386 |
| 3.80 | |
Consumer | |
| 105,371 | |
| 2,833 |
| 3.59 | | |
| 126,189 | |
| 3,929 |
| 4.16 | |
Total loans (1) | |
| 2,539,449 | |
| 72,940 |
| 3.84 | | |
| 2,695,275 | |
| 80,978 |
| 4.01 | |
Total earning assets | |
| 3,386,057 | |
| 85,567 |
| 3.38 | % | |
| 3,391,579 | |
| 96,860 |
| 3.81 | % |
Other assets(6) | |
| 357,334 | | | |
|
| | |
| 371,792 | | | |
|
| |
Total assets(6) | | $ | 3,743,391 | | | |
|
| | | $ | 3,763,371 | | | |
|
| |
| | | | | | | | | | | | | | | | | | |
Liabilities | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
NOW | | $ | 801,292 | | $ | 760 |
| 0.13 | % | | $ | 622,702 | | $ | 1,021 |
| 0.22 | % |
Savings | |
| 568,726 | |
| 431 |
| 0.10 | | |
| 451,952 | |
| 587 |
| 0.17 | |
Money market | |
| 376,775 | |
| 354 |
| 0.13 | | |
| 393,702 | |
| 1,511 |
| 0.51 | |
Time deposits | |
| 583,529 | |
| 5,565 |
| 1.28 | | |
| 813,442 | |
| 11,320 |
| 1.86 | |
Total interest bearing deposits | |
| 2,330,322 | |
| 7,110 |
| 0.41 | | |
| 2,281,798 | |
| 14,439 |
| 0.85 | |
Borrowings | |
| 336,432 | |
| 5,415 |
| 2.15 | | |
| 547,557 | |
| 7,149 |
| 1.74 | |
Total interest bearing liabilities | |
| 2,666,754 | |
| 12,525 |
| 0.63 | % | |
| 2,829,355 | |
| 21,588 |
| 1.02 | % |
Non-interest bearing demand deposits | |
| 598,434 | |
|
|
|
| | |
| 464,476 | |
|
|
|
| |
Other liabilities(6) | |
| 64,360 | |
|
|
|
| | |
| 63,812 | |
|
|
|
| |
Total liabilities(6) | |
| 3,329,548 | |
|
|
|
| | |
| 3,357,643 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Total shareholders' equity(6) | |
| 413,843 | |
|
|
|
| | |
| 405,728 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders' equity(6) | | $ | 3,743,391 | |
|
|
|
| | | $ | 3,763,371 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Net interest spread | | | | | | | | 2.75 | % | | | | | | | | 2.79 | % |
Net interest margin | |
|
| |
|
|
| 2.88 | | |
|
| |
|
|
| 2.95 | |
Adjusted net interest margin(5) | | | | | | | | 2.73 | | | | | | | | | 2.94 | |
(1) | The average balances of loans include non-accrual loans and unamortized deferred fees and costs. |
(2) | The average balance for securities available for sale is based on amortized cost. |
(3) | Fully taxable equivalent considers the impact of tax-advantaged securities and loans. |
(4) | Income from interest-bearing deposits with other banks has been separated from securities and restated for prior periods to conform to the current period presentation. |
(5) | Adjusted net interest margin excludes Paycheck Protection Program loans. |
(6) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement. |
69
| | | | | | | | | | | | | | | | | |
|
| Nine Months Ended September 30, |
| ||||||||||||||
| | 2020 | | 2019 |
| ||||||||||||
| | Average | | | | | | | Average | | | | | |
| ||
(in thousands, except ratios) |
| Balance |
| Interest (3) |
| Yield/Rate (3) |
| Balance |
| Interest (3) |
| Yield/Rate (3) |
| ||||
Assets | | | | | | | | | | | | | | | | | |
Commercial real estate | | $ | 972,330 | | $ | 29,895 |
| 4.11 | % | $ | 859,613 | | $ | 30,480 |
| 4.74 | % |
Commercial and industrial | |
| 493,314 | |
| 15,768 |
| 4.27 | |
| 410,350 | |
| 14,662 |
| 4.78 | |
Residential | |
| 1,103,442 | |
| 31,386 |
| 3.80 | |
| 1,157,923 | |
| 33,941 |
| 3.92 | |
Consumer | |
| 126,189 | |
| 3,929 |
| 4.16 | |
| 111,274 | |
| 4,333 |
| 5.21 | |
Total loans (1) | |
| 2,695,275 | |
| 80,978 |
| 4.01 | |
| 2,539,160 | |
| 83,416 |
| 4.39 | |
Securities and other (2) | |
| 643,978 | |
| 15,882 |
| 3.29 | |
| 761,234 | |
| 19,389 |
| 3.41 | |
Total earning assets | |
| 3,339,253 | |
| 96,860 |
| 3.87 | % |
| 3,300,394 | |
| 102,805 |
| 4.16 | % |
Other assets | |
| 424,118 | | | |
|
| |
| 335,883 | |
|
|
|
| |
Total assets | | $ | 3,763,371 | | | |
|
| | $ | 3,636,277 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Liabilities | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
NOW | | $ | 622,702 | | $ | 1,021 |
| 0.22 | % | $ | 472,542 | | $ | 1,764 |
| 0.50 | % |
Savings | |
| 451,952 | |
| 587 |
| 0.17 | |
| 353,117 | |
| 545 |
| 0.21 | |
Money market | |
| 393,702 | |
| 1,511 |
| 0.51 | |
| 337,822 | |
| 3,521 |
| 1.39 | |
Time deposits | |
| 813,442 | |
| 11,318 |
| 1.86 | |
| 925,508 | |
| 14,505 |
| 2.10 | |
Total interest bearing deposits | |
| 2,281,798 | |
| 14,437 |
| 0.85 | |
| 2,088,989 | |
| 20,335 |
| 1.30 | |
Borrowings | |
| 547,557 | |
| 7,149 |
| 1.74 | |
| 751,016 | |
| 15,232 |
| 2.71 | |
Total interest bearing liabilities | |
| 2,829,355 | |
| 21,586 |
| 1.02 | % |
| 2,840,005 | |
| 35,567 |
| 1.67 | % |
Non-interest bearing demand deposits | |
| 464,476 | |
|
|
|
| |
| 377,014 | |
|
|
|
| |
Other liabilities | |
| 63,226 | |
|
|
|
| |
| 32,676 | |
|
|
|
| |
Total liabilities | |
| 3,357,057 | |
|
|
|
| |
| 3,249,695 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Total shareholders' equity | |
| 406,314 | |
|
|
|
| |
| 386,582 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Total liabilities and shareholders' equity | | $ | 3,763,371 | |
|
|
|
| | $ | 3,636,277 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Net interest spread | |
|
| |
|
|
| 2.86 | % |
|
| |
|
|
| 2.49 | % |
Net interest margin | |
|
| |
|
|
| 3.01 | |
|
| |
|
|
| 2.72 | |
(1) The average balances of loans include non-accrual loans and unamortized deferred fees and costs.
(2) The average balance for securities available for sale is based on amortized cost.
(3) Fully taxable equivalent considers the impact of tax-advantaged securities and loans.
70
NON-GAAP FINANCIAL MEASURES
This document contains certain non-GAAP financial measures in addition to results presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company's GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is provided below. In all cases, it should be understood that non-GAAP measures do not depict amounts that accrue directly to the benefit of shareholders. An item that management excludes when computing non-GAAP adjusted earnings can be of substantial importance to the Company's results for any particular quarter or year. The Company's non-GAAP adjusted earnings information set forth is not necessarily comparable to non-GAAP information that may be presented by other companies. Each non-GAAP measure used by the Company in this report as supplemental financial data should be considered in conjunction with the Company's GAAP financial information.
The Company utilizes the non-GAAP measure of adjusted earnings in evaluating operating trends, including components for adjusted revenue and expense. These measures exclude amounts that the Company views as unrelated to its normalized operations, including gains/losses on securities, premises, equipment and other real estate owned, acquisition costs, restructuring costs, legal settlements, and systems conversion costs. Non-GAAP adjustments are presented net of an adjustment for income tax expense.
The Company also calculates adjusted earnings per share based on its measure of adjusted earnings. The Company views these amounts as important to understanding its operating trends, particularly due to the impact of accounting standards related to acquisition activity. Analysts also rely on these measures in estimating and evaluating the Company's performance. Management also believes that the computation of non-GAAP adjusted earnings and adjusted earnings per share may facilitate the comparison of the Company to other companies in the financial services industry. The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community.
7170
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table summarizes the reconciliation of non-GAAP items for the time periods presented:
| | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
(in thousands) |
| Calculations |
| 2020 |
| 2019 | | 2020 |
| 2019 | ||||
GAAP net income |
|
| | $ | 8,402 | | $ | 5,015 | | $ | 24,604 | | $ | 18,413 |
Plus (less): |
|
| |
|
| |
|
| |
|
| |
|
|
Gain on sale of securities, net |
|
| |
| — | |
| (157) | |
| (1,486) | |
| (157) |
Loss on sale of premises and equipment, net |
|
| |
| — | |
| — | |
| 90 | |
| 21 |
Loss on other real estate owned |
|
| |
| 335 | |
| 146 | |
| 366 | |
| 146 |
Loss on debt extinguishment | | | | | — | | | — | | | 1,351 | | | — |
Acquisition, restructuring and other expenses |
|
| |
| 691 | |
| 3,039 | |
| 952 | |
| 3,319 |
Income tax expense(1) |
|
| |
| (245) | |
| (720) | |
| (304) | |
| (792) |
Total adjusted income(2) |
| (A) | | $ | 9,183 | | $ | 7,323 | | $ | 25,573 | | $ | 20,950 |
| | | | | | | | | | | | | | |
GAAP net interest income |
| (B) | | $ | 24,665 | | $ | 22,445 | | $ | 73,818 | | $ | 65,706 |
Plus: Non-interest income |
|
| |
| 10,102 | |
| 7,643 | |
| 28,233 | |
| 21,263 |
Total Revenue |
|
| |
| 34,767 | |
| 30,088 | |
| 102,051 | |
| 86,969 |
Less: Gain on sale of securities, net |
|
| |
| — | |
| (157) | |
| (1,486) | |
| (157) |
Total adjusted revenue(2) |
| (C) | | $ | 34,767 | | $ | 29,931 | | $ | 100,565 | | $ | 86,812 |
| | | | | | | | | | | | | | |
GAAP total non-interest expense |
|
| | $ | 22,419 | | $ | 23,400 | | $ | 67,044 | | $ | 62,930 |
Less: Loss on sale of premises and equipment, net |
|
| |
| — | |
| — | |
| (90) | |
| (21) |
Less: Loss on other real estate owned |
|
| |
| (335) | |
| (146) | |
| (366) | |
| (146) |
Less: Loss on debt extinguishment | | | | | — | | | — | | | (1,351) | | | — |
Less: Acquisition, restructuring and other expenses |
|
| |
| (691) | |
| (3,039) | |
| (952) | |
| (3,319) |
Adjusted non-interest expense(2) |
| (D) | | $ | 21,393 | | $ | 20,215 | | $ | 64,285 | | $ | 59,444 |
| | | | | | | | | | | | | | |
(in millions) |
|
| |
|
| |
|
| |
|
| |
|
|
Total average earning assets |
| (E) | | $ | 3,352 | | $ | 3,308 | | $ | 3,339 | | $ | 3,300 |
Total average assets |
| (F) | |
| 3,814 | |
| 3,642 | |
| 3,763 | |
| 3,636 |
Total average shareholders' equity |
| (G) | |
| 407 | |
| 395 | |
| 406 | |
| 387 |
Total average tangible shareholders' equity(2)(3) |
| (H) | |
| 279 | |
| 288 | |
| 279 | |
| 279 |
Total tangible shareholders' equity, period-end(2)(3) |
| (I) | |
| 277 | |
| 287 | |
| 277 | |
| 287 |
Total tangible assets, period-end(2)(3) |
| (J) | |
| 3,732 | |
| 3,506 | |
| 3,732 | |
| 3,506 |
| | | | | | | | | | | | | | |
(in thousands) |
|
| |
|
| |
|
| |
|
| |
|
|
Total common shares outstanding, period-end |
| (K) | |
| 14,929 | |
| 15,549 | |
| 14,929 | |
| 15,549 |
Average diluted shares outstanding |
| (L) | |
| 15,103 | |
| 15,581 | |
| 15,382 | |
| 15,582 |
| | | | | | | | | | | | | | |
Adjusted earnings per share, diluted |
| (A/L) | | $ | 0.61 | | $ | 0.47 | | $ | 1.66 | | $ | 1.35 |
Tangible book value per share, period-end(2) |
| (I/K) | |
| 18.56 | |
| 18.49 | |
| 18.56 | |
| 18.49 |
Securities adjustment, net of tax(1)(4) |
| (M) | |
| 11,681 | |
| 8,002 | |
| 11,681 | |
| 8,002 |
Tangible book value per share, excluding securities adjustment(2)(4) |
| (I+M)/K | |
| 17.78 | |
| 17.98 | |
| 17.78 | |
| 17.98 |
Total tangible shareholders' equity/total tangible assets(2) |
| (I/J) | |
| 7.42 | |
| 8.20 | |
| 7.42 | |
| 8.20 |
| | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
(in thousands) |
| Calculations |
| 2021 |
| 2020 | | 2021 |
| 2020 | ||||
Net income |
|
| | $ | 11,028 | | $ | 8,402 | | $ | 29,533 | | $ | 24,604 |
Non-recurring items: | | | | | | | | | | | | | | |
Gain on sale of securities, net |
|
| |
| (1,930) | |
| — | |
| (1,980) | |
| (1,486) |
Loss (gain) on sale of premises and equipment, net |
|
| |
| (146) | |
| — | |
| (137) | |
| 90 |
Loss on other real estate owned |
|
| |
| — | |
| 335 | |
| (11) | |
| 366 |
Loss on debt extinguishment | | | | | 1,768 | | | — | | | 1,768 | | | 1,351 |
Acquisition, conversion and other expenses |
|
| |
| 318 | |
| 691 | |
| 1,759 | |
| 952 |
Income tax expense (1) |
|
| |
| (2) | |
| (245) | |
| (332) | |
| (304) |
Total non-recurring items | | | | | 8 | | | 781 | | | 1,067 | | | 969 |
Total adjusted income(2) |
| (A) | | $ | 11,036 | | $ | 9,183 | | $ | 30,600 | | $ | 25,573 |
| | | | | | | | | | | | | | |
Net interest income |
| (B) | | $ | 25,582 | | $ | 24,665 | | $ | 71,758 | | $ | 73,818 |
Plus: Non-interest income |
|
| |
| 11,350 | |
| 10,102 | |
| 31,103 | |
| 28,233 |
Total Revenue |
|
| |
| 36,932 | |
| 34,767 | |
| 102,861 | |
| 102,051 |
Gain on sale of securities, net |
|
| |
| (1,930) | |
| ��� | |
| (1,980) | |
| (1,486) |
Total adjusted revenue(2) |
| (C) | | $ | 35,002 | | $ | 34,767 | | $ | 100,881 | | $ | 100,565 |
| | | | | | | | | | | | | | |
Total non-interest expense |
|
| | $ | 23,372 | | $ | 22,419 | | $ | 67,587 | | $ | 67,044 |
Non-recurring expenses: | | | | | | | | | | | | | | |
(Loss) gain on sale of premises and equipment, net |
|
| |
| 146 | |
| — | |
| 137 | |
| (90) |
Loss on other real estate owned |
|
| |
| — | |
| (335) | |
| 11 | |
| (366) |
Loss on debt extinguishment | | | | | (1,768) | | | — | | | (1,768) | | | (1,351) |
Acquisition, conversion and other expenses |
|
| |
| (318) | |
| (691) | |
| (1,759) | |
| (952) |
Total non-recurring expenses | | | | | (1,940) | | | (1,026) | | | (3,379) | | | (2,759) |
Adjusted non-interest expense(2) |
| (D) | | $ | 21,432 | | $ | 21,393 | | $ | 64,208 | | $ | 64,285 |
| | | | | | | | | | | | | | |
Total revenue | | | | | 36,932 | | | 34,767 | | | 102,861 | | | 102,051 |
Total non-interest expense | | | | | 23,372 | | | 22,419 | | | 67,587 | | | 67,044 |
Pre-tax, pre-provision net revenue | | | | $ | 13,560 | | $ | 12,348 | | $ | 35,274 | | $ | 35,007 |
| | | | | | | | | | | | | | |
Adjusted revenue(2) | | | | | 35,002 | | | 34,767 | | | 100,881 | | | 100,565 |
Adjusted non-interest expense(2) | | | | | 21,432 | | | 21,393 | | | 64,208 | | | 64,285 |
Adjusted pre-tax, pre-provision net revenue(2) | | | | $ | 13,570 | | $ | 13,374 | | $ | 36,673 | | $ | 36,280 |
| | | | | | | | | | | | | | |
(in millions) |
|
| |
|
| |
|
| |
|
| |
|
|
Average earning assets |
| (E) | | $ | 3,412 | | $ | 3,444 | | $ | 3,386 | | $ | 3,392 |
Average paycheck protection program (PPP) loans | | (R) | | | 46 | | | 132 | | | 63 | | | 79 |
Average earning assets, excluding PPP loans | | (S) | | | 3,366 | | | 3,312 | | | 3,323 | | | 3,313 |
Average assets |
| (F) | |
| 3,764 | |
| 3,814 | |
| 3,743 | |
| 3,763 |
Average shareholders' equity(8) |
| (G) | |
| 421 | |
| 405 | |
| 414 | |
| 406 |
Average tangible shareholders' equity(2)(3)(8) |
| (H) | |
| 295 | |
| 278 | |
| 287 | |
| 278 |
Tangible shareholders' equity, period-end(2)(3)(8) |
| (I) | |
| 292 | |
| 272 | |
| 292 | |
| 272 |
Tangible assets, period-end(2)(3)(8) |
| (J) | |
| 3,612 | |
| 3,734 | |
| 3,612 | |
| 3,734 |
| | | | | | | | | | | | | | |
7271
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | | | Three Months Ended September 30, |
| Nine Months Ended September 30, | | ||||||||||||||||
| | Calculations | | 2021 | | 2020 | | 2021 | | 2020 | | ||||||||||||||||||
(in thousands) |
|
| |
|
| |
|
| |
|
| |
|
| | ||||||||||||||
Common shares outstanding, period-end |
| (K) | |
| 14,987 | |
| 14,929 | |
| 14,987 | |
| 14,929 | | ||||||||||||||
Average diluted shares outstanding |
| (L) | |
| 15,051 | |
| 15,103 | |
| 15,035 | |
| 15,382 | | ||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||
Adjusted earnings per share, diluted(2) |
| (A/L) | | $ | 0.73 | | $ | 0.61 | | $ | 2.04 | | $ | 1.66 | | ||||||||||||||
Tangible book value per share, period-end(2)(8) |
| (I/K) | |
| 19.48 | |
| 18.21 | |
| 19.48 | |
| 18.21 | | ||||||||||||||
Securities adjustment, net of tax(1)(4) |
| (M) | |
| 4,398 | |
| 11,681 | |
| 4,398 | |
| 11,681 | | ||||||||||||||
Tangible book value per share, excluding securities adjustment(2)(4)(8) |
| (I+M)/K | |
| 19.19 | |
| 17.42 | |
| 19.19 | |
| 17.42 | | ||||||||||||||
Total tangible shareholders' equity/total tangible assets(2)(8) |
| (I/J) | |
| 8.08 | |
| 7.28 | |
| 8.08 | |
| 7.28 | | ||||||||||||||
| | Calculations | | 2020 | | 2019 | | 2020 | | 2019 | | | | | | | | | | | | | | | | ||||
Performance ratios(5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Return on assets | |
| | | 0.88 | % | | 0.55 | % | | 0.87 | % | | 0.68 | |
| | | 1.16 | % | | 0.88 | | | 1.05 | % | | 0.87 | % |
Adjusted return on assets(2) | | (A/F) | | | 0.96 | | | 0.80 | | | 0.91 | | | 0.77 | | (A/F) | | | 1.16 | | | 0.96 | | | 1.09 | | | 0.91 | |
Return on equity | |
| | | 8.22 | | | 5.04 | | | 8.09 | | | 6.37 | |||||||||||||||
Adjusted return on equity(2) | | (A/G) | | | 8.98 | | | 7.36 | | | 8.41 | | | 7.25 | |||||||||||||||
Adjusted return on tangible equity(2)(6) | | (A+Q)/H | | | 13.36 | | | 10.31 | | | 12.54 | | | 10.25 | |||||||||||||||
Efficiency ratio(2)(7) | | (D-O-Q)/(C+N) | | | 59.47 | | | 65.02 | | | 61.62 | | | 65.83 | |||||||||||||||
Net interest margin(2) | | (B+P)/E | | | 2.98 | | | 2.75 | | | 3.01 | | | 2.72 | |||||||||||||||
Pre-tax, pre-provision return on assets | | | | | 1.43 | | | 1.29 | | | 1.26 | | | 1.24 | | ||||||||||||||
Adjusted pre-tax, pre-provision return on assets (2) | | (U/F) | | | 1.43 | | | 1.39 | | | 1.31 | | | 1.29 | | ||||||||||||||
Return on equity(8) | |
| | | 10.38 | | | 8.25 | | | 9.54 | | | 8.10 | | ||||||||||||||
Adjusted return on equity(2)(8) | | (A/G) | | | 10.39 | | | 9.02 | | | 9.98 | | | 8.42 | | ||||||||||||||
Return on tangible equity(8) | | | | | 15.08 | | | 12.32 | | | 14.01 | | | 12.10 | | ||||||||||||||
Adjusted return on tangible equity(1)(2)(8) | | (A+Q)/H | | | 15.09 | | | 13.44 | | | 14.50 | | | 12.57 | | ||||||||||||||
Efficiency ratio(2)(6) | | (D-O-Q)/(C+N) | | | 59.18 | | | 59.47 | | | 61.48 | | | 61.62 | | ||||||||||||||
Net interest margin | | (B+P)/E | | | 3.02 | | | 2.90 | | | 2.88 | | | 2.95 | | ||||||||||||||
Adjusted net interest margin(2)(7) | | (B+P-T)/S | | | 2.75 | | | 2.89 | | | 2.73 | | | 2.94 | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Supplementary data (in thousands) | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| |
Taxable equivalent adjustment for efficiency ratio | | (N) | | $ | 570 | | $ | 658 | | $ | 1,935 | | $ | 2,018 | | (N) | | $ | 576 | | $ | 570 | | $ | 1,757 | | $ | 1,395 | |
Franchise taxes included in non-interest expense | | (O) | | | 121 | | | 119 | | | 360 | | | 350 | | (O) | | | 143 | | | 121 | | | 396 | | | 360 | |
Tax equivalent adjustment for net interest margin | | (P) | | | 416 | | | 503 | | | 1,457 | | | 1,532 | | (P) | | | 421 | | | 416 | | | 1,284 | | | 1,041 | |
Intangible amortization | | (Q) | | | 256 | | | 207 | | | 768 | | | 621 | | (Q) | | | 233 | | | 256 | | | 707 | | | 768 | |
Interest and fees on PPP loans | | (T) | | | 2,690 | | | 1,052 | | | 5,058 | | | 1,921 | |
(1) | Assumes a marginal tax rate of 23.71% for 2021 and the fourth quarter of 2020 and 23.87% |
(2) | Non-GAAP financial measure. |
(3) | Tangible shareholders' equity is computed by taking total shareholders' equity less the intangible assets at period-end. Tangible assets is computed by taking total assets less the intangible assets at period-end. |
(4) | Securities adjustment, net of tax represents the total unrealized loss on available-for-sale securities recorded on the Company's consolidated balance sheets within total common shareholders' equity. |
(5) | All performance ratios are based on average balance sheet amounts, where applicable. |
(6) |
Efficiency ratio is computed by dividing |
(7) | Adjusted net interest margin excludes Paycheck Protection Program loans. |
(8) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement. |
7372
FINANCIAL SUMMARY
The Company reported third quarter 20202021 net income of $11.0 million or $0.73 per diluted share, up from $8.4 million or $0.56 per share compared to $5.0 million or $0.32 perdiluted share in the same quarter of 2019.2020. Adjusted earnings (non-GAAP measure) increased 30%(non-GAAP) were also $11.0 million or $0.73 per diluted share in the third quarter of 2021, compared to $9.2 million, or $0.61 per share in the third quarter 2020 compared to $7.3 million or $0.47 per share in the third quarter of 2019.
Financial highlights for the third quarter 2020 include the following, assame period of 2020.
THIRD QUARTER HIGHLIGHTS (ratios compared to the third quarter of 2019 unless otherwise noted:2020)
● |
● |
● |
● |
● | 15% increase in fee income, excluding mortgage banking income and security gains |
● | Bar Harbor Bank & Trust named as America’s Best Bank in Maine by Newsweek Magazine |
AsAdjusted earnings per share (non-GAAP) in the third quarter 2021 grew 20% over the same quarter of 2020. The adjusted return on assets in the third quarter was 1.16% compared to 0.96% in the third quarter of 2020, evidencing continued execution of strategies that balance growth with earnings. This is indicative of the strength in the Company’s core businesses and the results of strategic initiatives. The momentum seen in each area affords the Company flexibility with diverse revenue streams to support operations, even in uncertain economic environments.
While fee income and efficiency improvements contributed to increased profitability, the quarterly results also benefited from a 13 basis point expansion in the margin to 2.99% compared with 2.86% in the second quarter 2021 on a normalized basis (excluding PPP and excess cash effects). This improvement is a direct result of well executed strategies, the Company expanded all key performance metrics on a year-over-year and prior quarter basis. These strategies not only entailed expense and deleveraging initiatives, but also focused on increasingincreased core deposits thus reducing overalldeposit funding costs, and expanding fee income. Adjusted return on assets increased to 0.96% as the Company continues to achieve positive operating leverage with minimalgained market share and reduced reliance on accretion from PPP related fees. Customer activity withinwholesale borrowings. As of September 30, 2021, the Company’s footprint has increased since state economies re-opened on a limited basis during the summer. Branch operations have also rebounded compared to the first half of the year. The loan to deposit ratio improved to 92% as deposits continue to grow on relatively flat, total loan growth. Given the current economic environment, the Company selectively grew commercial loans by 14% for the quarter, excluding PPP loans, and directed most mortgage production through the secondary market platform. The Company kept pace with the high demand of mortgage markets for new and refinanced loans, which resulted in four times the gains on loan sales compared to the same quarter 2019. The Company continues to adhere to risk-based credit philosophies and profitability disciplines as evidenced by third quarter results. Excess liquidity generated during the quarter was used to pay down wholesale borrowings as parta percentage of on-going initiatives to de-lever and expand net interest margin.funding was 9%, down from 23% in the prior year.
The Company’s wealth management business continuescommercial teams continue to be a significant contributor to fee income, as well as a keystone for deepening customerdeliver strong loan growth despite the competitive landscape within its footprint. Commercial real estate loan growth this quarter was driven by new multi-family residential and light industrial & manufacturing relationships with $2.1 billion in assets under management. Recently,proven operators. Risk management remains at the leadershipforefront of all that the Company does. The Company saw yields bottoming out on residential loans this quarter and operationswas able to increase contractual rates at times. Given the overall interest rate risk position of the wealth management businesses was combinedbalance sheet and this recent rate increase, the Company strategically directed more residential mortgage production onto a common platform, which led to unified policies and best practices. The Company is now working with regulators to bring both of its wealth management companies and brokerage teams under one name Bar Harbor Wealth Management. Bringing this business together under one brand was the logical next step as talent, engagement and culture is aligned.
The Company’s allowance for loan losses is well established to absorb any inherent lossesbalance sheet rather than sell in the portfolio and increased during the quarter on higher commercial loan growth. Steady allowance levels coupled with an extensive stress testing process reflects the quality of the Company’s credit culture as net charge-offs and past due accounts remain low. Third quarter stress testing resulted in no significant risk-rating downgrades or changes to reserves. While the hotel industry is a large credit exposure for the Company there has been minimal degradation as those borrowers are strong, proven operators with an average loan to value ratio of less than 60% for the segment. In addition, any individual hotel exposure with a loan to value ratio greater than 65% was specifically included in the stress testing. The Company had a significant decrease in loans under COVID-related forbearance during the third quarter. As of September 30, 2020 total outstanding deferrals were $78.7 million or 3% of total loans, which primarily consist of interest only forbearance. Outstanding deferrals of residential loans totaled $4.6 million or less than ½ of a percent of the total residential portfolio. secondary market.”
The Company has supported its customersexecuted another delever and security remix strategy during the COVID-19 pandemic by originating approximately 1,900 PPP loans totaling $131.5 million. Net unearned fees remaining on PPP loans at the end of the third quarter, prepaying $89 million of FHLB borrowings and selling $44 million of credit sensitive municipal and corporate bonds. The additional purchase of securities was $3.8 millioncompleted subsequent to quarter end. This transaction is expected to expand the NIM by 12 basis points and accretion will accelerate as the loans are reimbursedbe accretive to earnings by the Small Business Administration (“SBA”). Despite the significant challenges posed by the pandemic and related market conditions, the$0.02 on a quarterly basis.
The Company continues to maintain high levelsbuild long term shareholder value while providing a favorable dividend rate relative to other community banks. The Company’s return on equity for the third quarter rose to 10.38% from 8.25% in the same quarter of capital2020. The Company remains committed to underwriting standards as evidenced by further improvement in past-due accounts, non-accruals and liquidity, diversified revenue streams, strong credita near zero net-charge-off ratio.
The Company was named by Newsweek Magazine as one of "America's Best Banks." Best Bank winners were selected from over 2,500 financial institutions and assessed on more than 30 separate factors including the overall health of the bank, customer service performance and an exceptional core deposit base.features, digital and branch presence, account and loan options, interest rate offerings, and fees.
7473
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 20202021 AND DECEMBER 31, 20192020
Total assets were $3.9$3.7 billion at the end of the third quarter 2021 as well as at year-end 2020. In the third quarter the Company executed a balance sheet delever and security remix strategy, prepaying $89.0 million of Federal Home Loan Bank advances and selling $43.5 million of securities. The replenishment of those securities is expected to be fulfilled in the fourth quarter 2021. Total loans decreased $28.7 million from year-end 2020 primarily due to PPP loan forgiveness outpacing 2021 originations by $29.5 million from year-end 2020. Non-maturity deposits (core deposits) increased $330.2 million from the end of 2020 as over 800 new accounts were opened during the quarter, continuing a trend of almost 1,000 new accounts per quarter. The loan to deposit ratio was 84% at the end of the third quarter compared to $3.7 billion88% at year-end 2019.2020. Asset quality metrics remain strong with an allowance for loancredit losses to total loans ratio of 0.66% compared0.89% and a coverage ratio to 0.58%non-accruing loans of 184%, up from 157% as of year-end 2019. The loan to deposit ratio was 92% in the third quarter compared to 98% at year-end 2019. The Company's tangible2020. Tangible book value per share (non-GAAP) increased 10%,to $19.48 from $18.77 at year-end on an annualized basis,strong earnings offset by the impact of the CECL adoption in the first nine monthsquarter 2021.
Cash
Total cash and cash equivalents at September 30, 2021 were $341.2 million, compared to $226.0 million at December 31, 2020. Interest bearing deposits held with other banks totaled $302.1 million at quarter end and $198.4 million at year-end 2020 carrying a yield of 2020 from year-end 2019.0.15% and 0.11% respectively. The increase in cash balances reflects the growth in core deposits.
Securities
Securities totaled $618.5$555.5 million in the third quarter 20202021 and $683.9$599.1 million at year-end 20192020 representing 16%15% and 19%16% of total assets, respectively. The decrease inis primarily due to the security holdings reflectssale of $43.5 million as a part of the Company’s deleveraging strategy to reduce borrowingsbalance sheet delever and allow for the natural run-off of amortizing and maturing fixed rate investments. Securities purchased insecurity remix strategy. In the first nine months of 2020 included $66.02021 purchases totaled $123.3 million of mortgage-backed securities guaranteed by US Government-sponsored enterprises, $31.2 million of tax exempt municipal bonds, $32.0 million of corporate bonds and $1.9 million in community investments, in addition to a net $6.7 million decrease in FHLB stock. The purchases were offset by $199.3$52.4 million of sales, $103.4 million of maturities, calls and pay-downs of amortizing securities.securities and a $3.8 million reduction in FHLB stock. Fair value adjustments increased the security portfolio by $11.7$7.3 million at the end of the third quarter 20202021 and $5.5$13.1 million at year-end 2019. The improvement2020. Unrealized gains decreased for the nine months ended September 30, 2021 due to sales and changes in fair value continues to be the result of lower long-term interest rates.treasury yield curve. The weighted average yield onof the Company's securities portfolio was 2.82% as of September 30, 2020 was 3.05%2021 compared to 3.42%2.96% at year-end 2019.2020. At the end of the third quarter 2020,2021 securities held by the Company had an average life of 4.05.1 years and aan effective duration of 2.94.4 years compared to 5.04.8 years and 3.64.3 years at the end of 2019,2020, respectively.
Loans Held For Sale
Held for sale loans decreased to $7.5 million at September 30, 2021 from $24.0 million at December 31, 2020. The Company sold $28.5 million of residential loan originations in the third quarter 2021 compared with $86.2 million in the same quarter of 2020. Sales in the nine month period of 2021 totaled $153.9 million and $156.0 million in the comparable period of 2020. The decrease in sales reflects the Company strategically directing residential loan production to the balance sheet when rates were higher in the quarter.
Loans
Loan balances in the third quarter 20202021 were $2.7$2.5 billion compared to $2.6 billion at year-end 2019. The increase is primarily due to commercial2020. Commercial loans grew 9% on a year-to-date annualized basis, excluding PPP loans and included 2 new relationships totaling $21.2 million during the third quarter. Commercial real estate growth and PPP originations offset by secondary market sales and prepayments of residential mortgages. In the first nine months of 2020, commercial real estate increased $115.0 million during at an annualized rate of 16% and commercial and industrial (“C&I”) loans, excluding PPP, increased $9.5 million or 4%11% and 3% on ana year-to-date annualized basis, excludingrespectively. PPP loans. The increase in C&I was tempered by one customer with loans totaling $39.8totaled $24.2 million that were refinanced to a lower principalat quarter-end, consisting of $25.0 million along with an open line of credit with no current advances. Mortgage loan originations totaled $86.5$24.1 million from new2021 and refinancing activity given$145 thousand from 2020, and were $53.8 million at year-end 2020. COVID loan modifications totaled $4.7 million, down from $68.6 million at year-end, as the lower interest rate environment. Mostmajority of modified loans have resumed normal payment schedules. Total residential loans decreased $74.2 million from year-end 2020, which includes $156.3 million of originations were sold inrecorded on the secondary market to generate fee income. balance sheet and $230.5 million of prepayments/amortization.
Asset QualityAllowance for Credit Losses
The allowance for loancredit losses (ACL) totaled $17.9$22.4 million at the end of the third quarter 20202021 and $15.4$19.0 million at year-end 2019.2020. The $2.6 million increase reflects a provision for loan loss of $4.3 million offset by net charge offs of $1.7 million. Excluding PPP loans the allowance for loan losses to total loans ratio for the third quarter was 0.69% from 0.58% at year-end 2019. Delinquent and non-accrual loans as a percentage of total loans decreased to 0.77% from 1.19% at the end of 2019. Commercial non-accrual loans in the first nine months increased $1.2 millionis primarily due to two commercialthe Company’s adoption of CECL as of January 1, 2021, which increased the ACL by $5.2 million and unfunded commitment reserves by $1.6 million. Since adoption the ACL has decreased due to improved economic forecasts and lower reserves on specific loans offset by changes in loan relationships totaling $1.4 million, one was written down by $349 thousand and the other has subsequently settled at its carrying value.mix.
In March 2020, the Company elected to defer implementation of CECL as allowed under the CARES Act. As result, the Company continues to operate its incurred loss model. While the impact of COVID-19 and other market conditions remain uncertain, the Company believes the existing allowance for loan losses is sufficient to absorb inherent losses based on a disciplined credit approach, experienced losses and methodology, and current and ongoing stress testing reviews of the portfolio. The Allowance for Loan Loss calculated under the CECL method is estimated to be in a range of $23.0 million to $26.0 million as of September 30, 2020, compared to $20.0 million to $23.0 million on the effective date of January 1, 2020.
The Company performed third quarter stress testing of the commercial loan portfolio including the top 50 relationships, all criticized loans greater than $1.0 million, hospitality loans over $250 thousand with loan to values in excess of 65%, and any seasonal payment, restaurant, or term loans maturing within a year that are greater than $500 thousand. Results of the testing led to no significant risk-rating downgrades or changes to reserves or any other meaningful deterioration in the overall quality of the commercial portfolio. Any impact from the stress testing was considered in the adequacy of the allowance for loan losses as of September 30, 2020.
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Goodwill
Net charge offs totaled $434 thousand in the first nine months of 2021, or 0.02% of total average loans, compared to $1.9 million, or 0.07% of total average loans, for the same period of 2020. Non-accruing loans were $12.2 million, or 0.48% of total loans, at the end of the third quarter 2021 and were $12.2 million or 0.48% of total loans at year-end 2020. The Company completed its 2020 annual goodwill impairment test using balance sheet and market dataratio of accruing past due loans to total loans improved to 0.12% of total loans, decreasing from 0.58% as of September 30,December 31, 2020.
Other Assets
Total other assets were $322.4 million at the end of the third quarter 2021 compared to $331.4 million as of December 31, 2020. The Company’s models suggest thatdecrease is primarily from a $9.7 million decrease in the fair value in customer loan derivatives offset by $2.9 million increase in community limited partnership investments. Additionally, derivative balances and deferred taxes have been restated for prior periods as described in Note 1 Revision of the business is greater than the book value or market capitalization based on the price at which the stock is currently trading. While the Company concluded there is no goodwill impairment, it will continue to evaluate its position as economic conditions change. Previously Issued Financial Statements.
Deposits and Borrowings
Total deposits were $2.9$3.0 billion at the end of the third quarter 2020 and $2.72021 compared to $2.9 billion at year-end 2019.2020. Non-maturity deposits increased by 27%,$330.2 million over the first nine months of 2021, or 20% on an annualized basis due to growth fromin new accounts with over 2,900 new customer relationships added. Growth in core deposits during 2021 and an overall decreasethe prepayment of $89.0 million in customer spending given current market conditions.FHLB borrowings resulted in a reduction of wholesale funding as a percentage of total funding to 9% from 18% at year-end 2020. Time deposits decreased $229.1 million to $469.2 million at quarter-end as $162.3 million of brokered deposits matured in the first nine months of 2021 and were not replaced due to excess liquidity. Retail time deposits decreased $66.9 million as customers moved funds to transactional accounts upon contractual maturity. Total borrowings decreased by $85.7 million primarily from the aforementioned delever strategy. The Company's expanding branch model has helped to increase new accounts, which totaled 3,744average cost of deposits was 0.27% in the third quarter 2020of 2021 compared to 2,9180.61% in the fourth quarter 2019. Total2020 and borrowing costs were 2.11% compared to 1.83% for the same periods. The change in cost of funds reflects the attrition of balances on prepaid or matured borrowings decreased by $85.9 million and brokered certificate of deposits decreased by $325.7 million as excess liquidity primarily from higher deposit balances was used to pay down wholesale borrowings.time deposits.
Derivative Financial Instruments and Other Liabilities
The notional balance of derivative financial instruments increased to $822.9$929.9 million at the end of the third quarter 20202021 from $580.4$876.6 million at year-end 2019.2020. The increase is principally due to a $175.0$50.0 million increase in customer loan derivatives soldnew hedge on commercialvariable rate loans with matching hedges using national bank counterparties and a $36.5 million increase in forward commitmentstied to sell mortgages in the secondary market.one-month LIBOR. The net fair value of all derivatives was a liability of $3.5$2.2 million at the end of the third quarter 20202021 compared to $743 thousandliability of $5.5 million at year-end 2019.2020. The increasereduction in the net derivative liability primarilyfair values reflects the valuationrise in long-term interest rates. Additionally, derivative balances have been restated for prior periods as described in Note 1 Revision of the Company’s interest rate swaps on wholesale funding and securities based on lower market ratesPreviously Issued Financial Statements.
Other liabilities totaled $62.3 million at the end of the third quarter 2021 compared to $75.0 million as of December 31, 2020. The decrease primarily reflects the $9.7 million reduction in the fair value of customer loan derivatives and a $3.3 million decrease in cash flow and fair value hedges.
Equity
Total equity was $404.4$418.4 million, compared with $396.4$407.1 million at year-end 2019.2020. The increase includes a $6.1 million improvement in fair value of securities, net of tax, along with strong net income of $24.6 million offset by $10.1 million in dividends and common stock repurchases of $13.3 million. Stock repurchases totaled 297 thousand shares during the third quarter 2020 and 689 thousand shares on a year-to-date basis. An additional 92 thousand shares are available to be repurchased before the end of March in 2021. The Company'sCompany’s book value per share increased to $27.09was $27.92 as of September 30, 2021 compared with $27.29 at December 31, 2020. Equity included net unrealized securities totaling $4.4 million at the end of the third quarter 2020 from $25.482021 and $10.0 million at year-end 2019. Tangible book value per share (non-GAAP measure) increased2020. Equity was reduced by $5.2 million due to $18.56 per share at September 30, 2020 up from $17.30 per share at year-end 2019, an increasethe Company’s CECL adoption in the first quarter 2021. Additionally, accumulated other comprehensive income has been restated for prior periods as described in Note 1 Revision of 10% on an annualized basis. Previously Issued Financial Statements.
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20202021 AND 20192020
Summary
Net income in the third quarter 20202021 was $11.0 million, or $0.73 per diluted share, compared to $8.4 million, or $0.56 per share, compared with $5.0 million, or $0.32 per share, in the same quarter 2019. The non-GAAP measure of adjusted earnings in the third quarter 2020 totaled $9.2 million, or $0.61 per share, compared to $7.3 million or $0.47 per share, in the same quarter of 2019. The improvement2020. Net income improved on higher fee income and fees from PPP loans in the quarter. PPP loan fees contributed $0.13 to earnings per share in the third quarter of 2021 and $0.06 in the same period of 2020. Adjusted earnings totaled $11.0 million or $0.73 per share, compared to $9.1 million, or $0.61 per share, in the same
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quarter of 2020. Non-recurring items (non-GAAP) reduced net income is driven by expanded net interest margin$8 thousand and higher non-interest income.$781 thousand in third quarters of 2021 and 2020, respectively. The Company's return on assets ratio was 0.88% during1.16% in the third quarter of 20202021 and 0.55%0.88% in the same quarter of 2019. The ratio for adjusted2020. Adjusted return on assets increased to(non-GAAP) was 1.16% and 0.96% from 0.88% infor the third quarterquarters of 2019 on higher net income.2021 and 2020, respectively evidencing continued execution of strategic initiatives that balance growth and earnings
The Company reported year to dateyear-to-date 2021 net income of $29.5 million or $1.96 per diluted share, compared with $24.6 million or $1.60 per share, compared with $18.4 million or $1.18 perdiluted share in the same period of 2019.2020. Adjusted earnings increased to $25.6$30.6 million, or $1.66$2.04 per diluted share compared with $21.025.6 million, or $1.351.66 per diluted share, for the respective periods. Non-recurring items (non-GAAP) in the first nine months reduced net income by $1.1 million and $969 thousand in 2021 and 2020, respectively. The return on assets ratio year-to-date2021was1.05%comparedto0.87%intheprioryear and adjusted return on assets was 1.09% during the first nine months of 2021 and 0.91% in the same period of 2020. These changes largely reflect the same factors and trends discussed above that drove third quarter net income.income and average assets.
Net Interest Income
Net interest income was $24.7$25.6 million in the third quarter 20202021 compared with $22.4$24.7 million in the same quarter of 2019.2020. Net interest margin was 3.02% compared to 2.90% in third quarter of 2020. Acceleration of PPP loan fee amortization due to forgiveness contributed 28 basis points to NIM in the third quarter 2021 and 1 basis point in the same period of 2020. Interest-bearing cash balances, held mostly at the Federal Reserve Bank, reduced NIM by 26 basis points in the quarter and 8 basis points in the third quarter 2020. The yield on earning assets totaled 3.41% compared to 3.57% in the third quarter 2020. Excluding the impact of PPP and excess cash, the yield on earning assets totaled 3.42% and 3.67% for the same periods. The yield on loans was 3.98% in the third quarter 2021and 3.81% in the third quarter of 2020. Excluding PPP loans the yield on loans was 3.62% in the third quarter of 2021, and 3.83% in the third quarter of 2020. Costs of funds decreased to 0.50% from 0.82% in the third quarter 2020 due to increased to 2.98% from 2.75%core deposit levels, lower deposit rates and reduced wholesale borrowings.
For the first nine months of 2021, net interest income was $71.8 million compared with $73.9 million in the same period of 2019 primarily due to a lower cost of funds. Costs of funds decreased to 0.82% compared to 1.65%2020. Net interest margin for the nine months ended was 2.88% in the third quarter 20192021 compared to 2.95% in the third quarter of 2020. The decrease in net interest income and NIM was driven by rate compression triggered by the pandemic, combined with growth in the Company’s interest-bearing cash balances. PPP loan accretion in 2021 helped to offset interest rate compression on yields. Costs of funds for the nine months ended September 30, 2021 decreased to 0.63% from 1.02% due to increased core deposit levels, lower deposit rates and reduced wholesale borrowings.
Provision for Credit Losses
The provision for credit losses (the “provision”) for the quarter was a shiftbenefit of $174 thousand, compared to an expense of $1.8 million in funding sources from borrowingsthe third quarter of 2020. For the first nine months of 2021, the provision was a benefit of $1.4 million compared to non-maturity deposits. Costan expense of deposits$4.3 million in the same period of 2020. The benefits experienced in the periods of 2021 are attributable to continued strong credit quality and borrowings also benefited fromimproving economic forecasts.
Non-Interest Income
Non-interest income in the third quarter 2021 was $11.4 million, compared to $10.1 million in the same quarter of 2020. The increase was due to higher customer service fees, wealth management income, and a gain on securities sales. Customer service fees were $3.5 million in the third quarter compared to $2.9 million in the same period of 2020. The increase is due to over 800 new accounts that were opened during the quarter and a higher volume of customer activity and transactions. Wealth management income increased 10% over the same quarter of 2020 to $3.9 million with assets under management of $2.4 billion compared to $2.1 billion in the same period of 2020. The Company sold securities resulting in a $1.9 million gain as part of its delever and security remix strategy. Mortgage banking activities contributed $850 thousand, compared to $2.6 million in the same period of 2020. The Company took advantage of volatility in the yield curve in the third quarter and put residential mortgages on the balance sheet when rates were higher and sold loans in the secondary market when rates were low.
Non-interest income for the first nine months of 2021 was $31.1 million compared to $28.2 million in the same period in 2020. The increase reflects a 13% increase in wealth management income, 15% increase in customer service fees, 18% increase in mortgage banking income and gains on securities; all of which were driven by the same reasons as the quarterly period.
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Federal Reserve rate cuts in 2020 and other key indexes in response to COVID-19. Costs of interest-bearing deposits decreased to 0.66% compared to 1.33%Non-Interest Expense
Non-interest expense was $23.4 million in the third quarter 2019 and cost of borrowings improved to 1.60%2021 from 2.62%$22.4 million in the same quarter of 2019. Additionally, excess liquidity was used2020. Salaries and benefits expense decreased to pay off $239.4$11.7 million compared to $11.8 million in the same quarter of borrowings since2020, reflecting full-time equivalents of 428 compared to 457 in the third quarter of 2019 in connection with deleveraging strategies that further reduced interest expense. Yields from earning assets were 3.67% compared to 4.17%2020. Non-core expenses (non-GAAP) in the third quarter 2019 reflecting loan originations2021 totaled $1.9 million and repricingwere mostly made up of variable rate products in a lower interest rate environment. Purchased loan accretion contributed 0.06%the $1.8 million prepayment penalty on debt extinguishment. In the same quarter of 2020 non-core expenses (non-GAAP) totaled $1.0 million and included costs to net interest margin inconsolidate the Company’s wealth management systems. The efficiency ratio for the third quarter 2020was 59.18% compared to 0.10%59.47% in the third quarter 2019.same period of 2020. Excluding the effects of PPP loans, the third quarter yield on total earning assetsefficiency ratio was 3.72%. 63.35% and 61.30% for the same respective periods.
For the first nine months of the year, net interest income2021, non-interest expense was $69.6$67.6 million compared with $63.9and $67.0 million in the same monthsperiod of 20192020. The Company’s year-to-date efficiency ratio was 61.48% in 2021 compared to 61.62% in 2020 which reflects managements disciplined approach to expense management as revenue grows and net interest margin was 3.01% from 2.72% for the same respective periods. The increase is primarily driven by reduced borrowing levels and higher non-maturity deposits. The average borrowing levels decreased to $481.7 millionabove noted expense initiatives. Non-recurring expenses (non-GAAP) in the first nine months of 2020 from $708.22021 totaled $3.3 million and $2.8 million in the same period of 2019 and borrowing costs were 1.74% from 2.71% for the same respective periods. Costs of interest-bearing deposits also decreased in2020. In the first nine months of 2021 these expenses mostly consisted of workforce reduction charges and loss on debt extinguishment and in 2020 primarily consisted of a loss on debt extinguishment and costs to 0.85% compared to 1.30% in the same period of 2019. Yields from earning assets were 3.87% in the first nine months of 2020 compared to 4.16% in the first nine months of 2019.Theyear-to-dateeffect onnetinterestmarginfromearning assets and interest bearing liabilitiesisthesameasthequarterlydiscussion.
Loan Loss Provision
The third quarter 2020 provision for loan losses increased to $1.8 million from $893 thousand in the same quarter of 2019. While overall credit quality in the loan portfolio remains strong, the increase in the reserve is indicative of the continued commercial loan growth and higher economic adjustments reflecting elevated risk from COVID-19. As previously noted, the Company has maintained its incurred loss model for calculating the allowance for loan losses. consolidate wealth management systems.
Non-Interest Income
Non-interest income in the third quarter 2020 was $10.1 million compared to $7.6 million in the same quarter of 2019. The increase is primarily due to a $2.2 million increase in mortgage banking income associated with secondary market sales of $86.2 million compared to $20.7 million in the same period of 2019. Customer service fees increased 13% and trust and investment management fees increased 17% as the result of expanded operations into Central Maine partially offset by lower activity stemming from COVID-19.
Non-interest income for the first nine months of 2020 was $28.2 million compared to $21.3 million in the same period in 2019. The increase in non-interest income for the nine-month period is driven by the same reasons as the quarterly period, but also includes a $1.5 million gain on sales of securities recorded in connection with balance sheet remixing and deleveraging strategies.
Non-Interest Expense
Non-interest expense was $22.4 million in the third quarter 2020 compared to $23.4 million in the same quarter of 2019. The decrease is principally due to lower acquisition, conversion and other expenses, which totaled $691 thousand in 2020 compared to $3.0 million in 2019. Salary and benefit expense and occupancy costs were higher during the third quarter 2020 to support the Company’s expanded branch model and wealth management business. Total operating expenses remained controlled as demonstrated by the drop in the efficiency ratio to 59.5% compared to 65.0% for third quarter of 2019.
For the first nine months of 2020, non-interest expense increased to $67.0 million from $62.9 million in the same period of 2019. The increase in non-interest expense for the nine-month period is driven by the same reasons as the quarterly period along with a prepayment penalty on a longer term and higher cost FHLB borrowing in the second quarter 2020.
Income Tax Expense
The third quarter effective tax rate increaseddecreased to 20.3%19.7% in 20202021 compared with 13.5%20.3% in the same quarter of 2019,2020, reflecting higher pre-tax income being offset by the higher levelproportional amounts of taxable income and lower level of non-tax advantaged income in 2020.tax-advantaged revenue.
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Liquidity and Cash Flows
Liquidity is measured by the Company's ability to meet short-term cash needs at a reasonable cost or minimal loss. The Company seeks to obtain favorable sources of liabilities and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. Besides serving as a funding source for maturing obligations, liquidity provides flexibility in responding to customer-initiated needs. Many factors affect the Company's ability to meet liquidity needs, including variations in the markets served by its network of offices, its mix of assets and liabilities, reputation and credit standing in the marketplace, and general economic conditions.
The Bank actively manages its liquidity position through target ratios established under its Asset-Liability Management Policy. Continual monitoring of these ratios, by using historical data and through forecasts under multiple rate and stress scenarios, allows the Bank to employ strategies necessary to maintain adequate liquidity. The Bank's policy is to maintain a liquidity position of at least 4% of total assets. A portion of the Bank's deposit base has been historically seasonal in nature, with balances typically declining in the winter months through late spring, during which period the Bank's liquidity position tightens.
The Company’s liquidity position remains strong. During the quarter we initiated pandemic-specific liquidity stress tests to analyze potential impacts from payment deferrals, unanticipated use of committed lines of credit, as well as the possibility of required servicer advances on sold loans. At September 30, 2020,2021, available same-day liquidity totaled approximately $1.5$1.3 billion, including cash, borrowing capacity at FHLB and the Federal Reserve Discount Window and various lines of credit. Additional sources of liquidity include cash flows from operations, wholesale deposits, cash flow from the Company's amortizing securities and loan portfolios. The Company had unused borrowing capacity at the FHLB of $634.0$467.2 million, unused borrowing capacity at the Federal Reserve of $81.1$72.0 million and unused lines of credit totaling $51.0 million, in addition to over $200.0 million in unencumbered, liquid investment portfolio assets. The Company has also utilized the Federal Reserve's Paycheck Protection Program Liquidity Facility to provide liquidity to fund PPP loans.
The Bank maintains a liquidity contingency plan approved by the Bank's Board of Directors. This plan addresses the steps that would be taken in the event of a liquidity crisis, and identifies other sources of liquidity available to the Company. Company management believes the level of liquidity is sufficient to meet current and future funding requirements. However, changes in economic conditions, including consumer savings habits and availability or access to the brokered deposit market could potentially have a significant impact on the Company's liquidity position.
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Capital Resources
Please see the “Equity” section of the Comparison of Financial Condition for a discussion of shareholders’ equity together with the Note 6 Capital Ratios and Shareholders’ Equity in the consolidated financial statements. Additional information about regulatory capital is contained in the notes to the consolidated financial statements and in the Company's most recent Form 10-K.
The Company’s principal cash requirement is the payment of dividends on our common stock, as and when declared by the Company's Board of Directors. Dividends to shareholders in the aggregate amount of $10.5 million and $10.1 million for the nine months ended September 30, 2021 and 2020, respectively. All dividends declared and distributed by the Company will be in compliance with applicable state corporate law and regulatory requirements.
Off-Balance Sheet Arrangements
The Company is, from time to time, a party to certain off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that may be material to investors.
The Company’s off-balance sheet arrangements are limited to standby letters of credit whereby the Bank guarantees the obligations or performance of certain customers. These letters of credit are sometimes issued in support of third-party debt. The risk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers, and they are subject to the same origination, portfolio maintenance and management procedures in effect to monitor other credit products. The amount of collateral obtained, if deemed necessary by the Bank upon issuance of a standby letter of credit, is based upon management's credit evaluation of the customer.
The Company’s off-balance sheet arrangements have not changed materially since previously reported in our Annual Report on Form 10-K for the year ended December 31, 2019.
2020.
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES, AND RECENT ACCOUNTING PRONOUNCEMENTS
The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements in this Form 10-Q and in the most recent Form 10-K. Please see those policies in conjunction with this discussion. The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial
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statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While the Company bases estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.
Management has identified the Company's most critical accounting policies as related to:
• | Allowance for |
• | Income Taxes |
• | Goodwill and Identifiable Intangible Assets |
• |
Fair Value of Financial Instruments |
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. Interest rate risk is the most significant market risk affecting the Company. Other types of market risk do not arise in the normal course of the Company’s business activities.
The responsibility for interest rate risk management oversight is the function of the Bank’s Asset and Liability Committee (“ALCO”), chaired by the Chief Financial Officer and composed of various members of senior management. ALCO meets regularly to review balance sheet structure, formulate strategies in light of current and expected economic conditions, adjust product prices as necessary, implement policy, monitor liquidity, and review performance against guidelines established to control exposure to the various types of inherent risk.
Interest Rate Risk: Interest rate risk can be defined as an exposure to movement in interest rates that could have an adverse impact on the Bank's net interest income. Interest rate risk arises from the imbalance in the re-pricing, maturity and or cash flow characteristics of assets and liabilities. Management's objectives are to measure, monitor and develop strategies in response to the interest rate risk profile inherent in the Bank's balance sheet. The objectives in managing the Bank's balance sheet are to preserve the sensitivity of net interest income to actual or potential changes in interest rates, and to enhance profitability through strategies that promote sufficient reward for understood and controlled risk.
The Bank's interest rate risk measurement and management techniques incorporate the re-pricing and cash flow attributes of balance sheet and off-balance sheet instruments as each relate to current and potential changes in interest rates. The level of interest rate risk, measured in terms of the potential future effect on net interest income, is determined through the use of modeling and other techniques under multiple interest rate scenarios. Interest rate risk is evaluated in depth on a quarterly basis and reviewed by ALCO and the Company’s Board of Directors.
The Bank's Asset Liability Management Policy, approved annually by the Bank’s Board of Directors, establishes interest rate risk limits in terms of variability of net interest income under rising, flat, and decreasing rate scenarios. It is the role of the ALCO to evaluate the overall risk profile and to determine actions to maintain and achieve a posture consistent with policy guidelines.
Interest Rate Sensitivity Modeling: The Bank utilizes an interest rate risk model widely recognized in the financial industry to monitor and measure interest rate risk. The model simulates the behavior of interest income and expense for all balance sheet and off-balance sheet instruments, under different interest rate scenarios together with a dynamic future balance sheet. Interest rate risk is measured in terms of potential changes in net interest income based upon shifts in the yield curve.
The interest rate risk sensitivity model requires that assets and liabilities be broken down into components as to fixed, variable, and adjustable interest rates, as well as other homogeneous groupings, which are segregated as to maturity and type of instrument. The model includes assumptions about how the balance sheet is likely to evolve through time and in different interest rate environments. The model uses contractual re-pricing dates for variable products, contractual maturities for fixed rate products, and product-specific assumptions for deposit accounts, such as money market accounts, that are subject to re-pricing based on current market conditions. Re-pricing margins are also determined for adjustable rate assets and incorporated in the model. Investment securities and borrowings with call provisions are examined on an individual basis in each rate environment to estimate the likelihood of exercise. Prepayment assumptions for mortgage loans and mortgage-backed securities are developed from industry median estimates of prepayment speeds, based upon similar coupon ranges and degree of seasoning. Cash flows and maturities are then determined, and for certain assets, prepayment assumptions are estimated under different interest rate scenarios. Interest income and interest expense are then simulated under several hypothetical interest rate conditions including:
A flat interest rate scenario in which current prevailing rates are locked in and the only balance sheet fluctuations that occur are due to cash flows, maturities, new volumes, and re-pricing volumes consistent with this flat rate assumption;
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A 200 basis point rise or decline in interest rates (or as appropriate given the absolute level of market rates) applied against a parallel shift in the yield curve over a twelve-month horizon together with a dynamic balance sheet anticipated to be consistent with such interest rate changes;
Various non-parallel shifts in the yield curve, including changes in either short-term or long-term rates over a twelve-month horizon, together with a dynamic balance sheet anticipated to be consistent with such interest rate changes; and
An extension of the foregoing simulations to each of two, three, four and five year horizons to determine the interest rate risk with the level of interest rates stabilizing in years two through five. Even though rates remain stable during this two to five year time period, re-pricing opportunities driven by maturities, cash flow, and adjustable rate products will continue to change the balance sheet profile for each of the interest rate conditions.
Changes in net interest income based upon the foregoing simulations are measured against the flat interest rate scenario and actions are taken to maintain the balance sheet interest rate risk within established policy guidelines.
As of September 30, 20202021 interest rate sensitivity modeling results indicate that the Bank’s balance sheet in years 1 and 2 were modestlywas asset sensitive.
Assuming short-term and long-term interest rates decline 100 basis points from current levels (i.e., a parallel yield curve shift) and the Bank’s balance sheet structure and size remain at current levels, management believes net interest income will deteriorate over the one year horizon (-0.4%(-2.4% versus the base case) while deteriorating further from that level over the two-year horizon (-9.0%(-9.8% versus the base case).
Assuming the Bank’s balance sheet structure and size remain at current levels and the Federal Reserve increases short-term interest rates by 200 basis points with the balance of the yield curve shifting in parallel with these increases, management believes net interest income will improve slightly over the one and two-year horizons (1.8%(10.6% and 5.1%21.8%, respectively).
As compared to December 31, 2019,2020, the year-one sensitivity in the down 100 basis points scenario was up slightly for the nine months ended September 30, 2020 (-1.0%2021 (-2.6% prior, versus -0.4%-2.4% current). The year-two sensitivities in the down 100 basis points scenario changedwere mostly unchanged going from -3.7%-9.5% to -9.0%-9.8%. In the year-one up 200 basis points scenario, results improvedwere up slightly going from 0.7%7.7% to 1.8%10.6%. Year-two, up 200 basis points was up (3.3%(18.4% prior, versus 5.1%21.8% current).
The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels and yield curve shape, prepayment speeds on loans and securities, deposit rates, pricing decisions on loans and deposits, reinvestment or replacement of asset and liability cash flows, and renegotiated loan terms with borrowers. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.
As market conditions vary from those assumed in the sensitivity analysis, actual results may also differ due to: prepayment and refinancing levels deviating from those assumed; the impact of interest rate changes, caps or floors on adjustable rate assets; the potential effect of changing debt service levels on customers with adjustable rate loans; depositor early withdrawals and product preference changes; and other such variables. The sensitivity analysis also does not reflect additional actions that the Bank’s Senior Executive Team and Board of Directors might take in responding to or anticipating changes in interest rates, and the anticipated impact on the Bank’s net interest income.
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ITEM 4. CONTROLS AND PROCEDURES
(a) | Disclosure controls and procedures. |
Under the supervision and with the participation of our senior management, consisting of the Company’s principal executive officer and our principal financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Company’s management, including its principal executive officer and principal financial officer, concluded that as of September 30, 20202021 the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The Company’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its Exchange Act reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
(b) | Changes in internal control over financial reporting. |
There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to certain ordinary routine litigation incidental to the normal conduct of their respective businesses, which in the opinion of management based upon currently available information will have no material effect on the Company's consolidated financial statements.
ITEM 1A. RISK FACTORS
There were no material changes to the risk factors discussed in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A. of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.In addition to the other information set forth in this report, you should carefully consider those risk factors, which could materially affect our business, financial condition and future operating results. Those risk factors are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a material adverse effect on our business, financial condition and operating results.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c)
| | | | | | | | | |
|
| | | | | | Total number of shares | | Maximum number of |
| | | | | | | purchased as a part of | | shares that may yet be |
| | Total number of | | Average price |
| publicly announced |
| purchased under | |
Period |
| shares purchased |
| paid per share |
| plans or programs |
| the plans or programs(1) | |
July 1-31, 2020 |
| 108,178 | | $ | 20.38 |
| 500,501 |
| 280,499 |
August 1-31, 2020 |
| 77,767 | |
| 20.35 |
| 578,268 |
| 202,732 |
September 1-30, 2020 |
| 111,074 | |
| 19.83 |
| 689,342 |
| 91,658 |
Total |
| 297,019 | | $ | 20.19 |
| 689,342 |
| 91,658 |
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ITEM 6. EXHIBITSDirectors approved a twelve-month plan to repurchase up to 5% of its outstanding common stock, representing 747,000 shares.
The following table indicates that no shares were repurchased by the Company in the third quarter of 2021:
| | | | | | | | | |
| | | | | | Total number of shares | | Maximum number of | |
| | | | | | | purchased as a part of | | shares that may yet be |
| | Total number of | | Average price | publicly announced | purchased under | |||
Period | shares purchased | paid per share | plans or programs | the plans or programs | |||||
July 1-31, 2021 | — | | $ | — | — | 747,000 | |||
August 1-31, 2021 | — | | — | — | 747,000 | ||||
September 1-30, 2021 | — | | — | — | 747,000 | ||||
Total | — | | $ | — | — | 747,000 |
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ITEM 6. EXHIBITS
| | |
31.1 | Certification of Chief Executive Officer under Rule 13a-14(a)/15d-14(a) | Filed herewith |
| | |
31.2 | Certification of Chief Financial Officer under Rule 13a-14(a)/15d-14(a) | Filed herewith |
| | |
32.1 | Certification of Chief Executive Officer under 18 U.S.C. Sec. | Furnished herewith |
| | |
32.2 | Certification of Chief Financial Officer under 18 U.S.C. Sec. | Furnished herewith |
| | |
101 | The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, | |
| | |
104
| Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)
|
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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.
| | |
| BAR HARBOR BANKSHARES | |
| | |
| | |
Dated: November | By: | /s/ Curtis C. Simard |
| | Curtis C. Simard |
| | President & Chief Executive Officer |
| | |
| | |
Dated: November | By: | /s/ Josephine Iannelli |
| | Josephine Iannelli |
| | Executive Vice President & Chief Financial Officer |
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