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HWC Hancock Whitney

Filed: 5 May 21, 8:00pm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

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: 001-36872

HANCOCK WHITNEY CORPORATION

(Exact name of registrant as specified in its charter)

 

Mississippi

 

64-0693170

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)



 

 

Hancock Whitney Plaza, 2510 14th Street,

Gulfport, Mississippi

 

39501

(Address of principal executive offices)

 

(Zip Code)

(228) 868-4000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock, par value $3.33 per share

HWC

Nasdaq

6.25% Subordinated Notes

HWCPZ

Nasdaq

5.95% Subordinated Notes

HWCPL

Nasdaq

 

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 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, smaller reporting company, or an emerging growth company. See the definition s of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 

86,800,497 common shares were outstanding at April 30, 2021.

 

 

 

 


Table of Contents

 

 

Hancock Whitney Corporation

Index

 

2

 


Table of Contents

 

 

Hancock Whitney Corporation

Glossary of Defined Terms

Entities:

Hancock Whitney Corporation – a financial holding company registered with the Securities and Exchange Commission

Hancock Whitney Bank – a wholly-owned subsidiary of Hancock Whitney Corporation through which Hancock Whitney Corporation conducts its banking operations

Company – Hancock Whitney Corporation and its consolidated subsidiaries

Parent – Hancock Whitney Corporation, exclusive of its subsidiaries

Bank – Hancock Whitney Bank

Other Terms:

 

ACL – allowance for credit losses

AFS – available for sale securities

AMERIBOR - Index created by the American Financial Exchange as a potential replacement for LIBOR; calculated daily as the volume-weighted average interest rate of the overnight unsecured loans on American Financial Exchange

AOCI – accumulated other comprehensive income or loss

ALLL – allowance for loan and lease losses

ARRC – Alternative Reference Rates Committee

ASC – Accounting Standards Codification

ASR – accelerated share repurchase

ASU – Accounting Standards Update

ATM automated teller machine

Basel III – Basel Committee's 2010 Regulatory Capital Framework (Third Accord)

Beta – amount by which deposit or loan costs change in response to movement in short-term interest rates

BOLI – bank-owned life insurance

bp(s) – basis point(s)

C&I – commercial and industrial loans

CARES Act – Coronavirus Aid, Relief, and Economic Security Act

CD – certificate of deposit

CDE – Community Development Entity

CECL – Current Expected Credit Losses, the term commonly used to refer to the methodology of estimating credit losses required by ASC 326, “Financial Instruments – Credit Losses.” ASC 326 was adopted by the Company on January 1, 2020, superseding the methodology prescribed by ASC 310.

CEO – Chief Executive Officer

CFO – Chief Financial Officer

CMO – collateralized mortgage obligation

Core Loans – loans excluding Paycheck Protection Program (PPP) loans

Coronavirus – the novel coronavirus declared a pandemic during the first quarter of 2020, resulting in prolonged market disruptions

COVID-19 – disease caused by the novel coronavirus

CRE – commercial real estate

Excess Liquidity – deposits held at the Federal Reserve above $200 million, plus excess investments in the securities portfolio above normal cash flows

FASB – Financial Accounting Standards Board

FDIC – Federal Deposit Insurance Corporation

FDICIA – Federal Deposit Insurance Corporation Improvement Act of 1991

Federal Reserve Board – The 7-member Board of Governors that oversees the Federal Reserve System, establishes

monetary policy (interest rates, credit, etc.), and monitors the economic health of the country. Its members are appointed

by the President subject to Senate confirmation, and serve 14-year terms.

Federal Reserve System – The 12 Federal Reserve Banks, with each one serving member banks in its own district.

FHLB – Federal Home Loan Bank

GAAP – Generally Accepted Accounting Principles in the United States of America

HTM – held to maturity securities

IRS – Internal Revenue Service

LIBOR – London Interbank Offered Rate

LIHTC – Low Income Housing Tax Credit

LTIP – long-term incentive plan

MBS – mortgage-backed securities

MD&A – management’s discussion and analysis of financial condition and results of operations

MidSouth – MidSouth Bancorp, Inc., an entity the Company acquired on September 21, 2019

NAICS – North American Industry Classification System

NII – net interest income

n/m – not meaningful

OCI – other comprehensive income or loss

ORE – other real estate defined as foreclosed and surplus real estate

PCD – purchased credit deteriorated loans, as defined by ASC 326

PCI – purchased credit impaired loans, as defined by ASC 310-30

3

 


Table of Contents

 

PPP – Paycheck Protection Program, a loan program administered by the Small Business Administration designed to provide a direct incentive for small businesses to keep workers on payroll during interruptions caused by the COVID-19 pandemic

Reference rate reform – refers to the global transition away from LIBOR and other interbank offered rates toward new reference rates that are more reliable and robust

Repos – securities sold under agreements to repurchase

SBA – Small Business Administration

SBIC – Small Business Investment Company

SEC – U.S. Securities and Exchange Commission

Securities Act – Securities Act of 1933, as amended

SOFR – secured overnight financing rate

Structured Solutions – longer-term contractual payment modifications of original loan agreement

te – taxable equivalent adjustment, or the term used to indicate that a financial measure is presented on a fully taxable equivalent basis

TDR – troubled debt restructuring

TSR – total shareholder return

U.S. Treasury – The United States Department of the Treasury

VERIP – Voluntary Early Retirement Incentive Program

 

 

4

 


Table of Contents

 

 

Part I. Financial Information

Item 1. Financial Statements

Hancock Whitney Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

 

 

March 31,

 

 

December 31,

 

(in thousands, except per share data)

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

508,673

 

 

$

526,306

 

Interest-bearing bank deposits

 

 

2,338,661

 

 

 

1,333,352

 

Federal funds sold

 

 

450

 

 

 

434

 

Securities available for sale, at fair value (amortized cost of $6,609,893 and $5,766,234)

 

 

6,630,648

 

 

 

5,999,327

 

Securities held to maturity (fair value of $1,455,224 and $1,467,581)

 

 

1,375,342

 

 

 

1,357,170

 

Loans held for sale

 

 

124,677

 

 

 

136,063

 

Loans

 

 

21,664,859

 

 

 

21,789,931

 

Less: allowance for loan losses

 

 

(424,360

)

 

 

(450,177

)

Loans, net

 

 

21,240,499

 

 

 

21,339,754

 

Property and equipment, net of accumulated depreciation of $278,383 and $271,801

 

 

377,514

 

 

 

380,516

 

Right of use assets, net of accumulated amortization of $26,291 and $23,330

 

 

106,925

 

 

 

110,691

 

Prepaid expenses

 

 

40,466

 

 

 

41,443

 

Other real estate and foreclosed assets, net

 

 

9,467

 

 

 

11,648

 

Accrued interest receivable

 

 

108,290

 

 

 

104,268

 

Goodwill

 

 

855,453

 

 

 

855,453

 

Other intangible assets, net

 

 

82,473

 

 

 

86,892

 

Life insurance contracts

 

 

624,512

 

 

 

615,780

 

Funded pension assets, net

 

 

176,391

 

 

 

171,175

 

Other assets

 

 

472,202

 

 

 

568,330

 

Total assets

 

$

35,072,643

 

 

$

33,638,602

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

13,174,911

 

 

$

12,199,750

 

Interest-bearing

 

 

16,035,609

 

 

 

15,498,127

 

Total deposits

 

 

29,210,520

 

 

 

27,697,877

 

Short-term borrowings

 

 

1,652,747

 

 

 

1,667,513

 

Long-term debt

 

 

397,583

 

 

 

378,322

 

Accrued interest payable

 

 

4,257

 

 

 

4,315

 

Lease liabilities

 

 

126,142

 

 

 

130,627

 

Deferred tax liability, net

 

 

22,993

 

 

 

49,406

 

Other liabilities

 

 

241,498

 

 

 

271,517

 

Total liabilities

 

 

31,655,740

 

 

 

30,199,577

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock

 

 

309,513

 

 

 

309,513

 

Capital surplus

 

 

1,764,145

 

 

 

1,757,937

 

Retained earnings

 

 

1,374,688

 

 

 

1,291,506

 

Accumulated other comprehensive income (loss), net

 

 

(31,443

)

 

 

80,069

 

Total stockholders' equity

 

 

3,416,903

 

 

 

3,439,025

 

Total liabilities and stockholders' equity

 

$

35,072,643

 

 

$

33,638,602

 

Preferred shares authorized (par value of $20.00 per share)

 

 

50,000

 

 

 

50,000

 

Preferred shares issued and outstanding

 

 

 

 

 

 

Common shares authorized (par value of $3.33 per share)

 

 

350,000

 

 

 

350,000

 

Common shares issued

 

 

92,947

 

 

 

92,947

 

Common shares outstanding

 

 

86,777

 

 

 

86,728

 

 

See notes to unaudited consolidated financial statements.

5

 


Table of Contents

 

Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

 

 

Three Months Ended

 

 

March 31,

 

(in thousands, except per share data)

2021

 

 

2020

 

Interest income:

 

 

 

 

 

 

 

Loans, including fees

$

213,713

 

 

$

238,723

 

Loans held for sale

 

671

 

 

 

621

 

Securities-taxable

 

31,203

 

 

 

32,607

 

Securities-tax exempt

 

4,783

 

 

 

4,944

 

Short-term investments

 

415

 

 

 

448

 

Total interest income

 

250,785

 

 

 

277,343

 

Interest expense:

 

 

 

 

 

 

 

Deposits

 

9,227

 

 

 

38,937

 

Short-term borrowings

 

1,533

 

 

 

4,462

 

Long-term debt

 

5,438

 

 

 

2,756

 

Total interest expense

 

16,198

 

 

 

46,155

 

Net interest income

 

234,587

 

 

 

231,188

 

Provision for credit losses

 

(4,911

)

 

 

246,793

 

Net interest income (loss) after provision for credit losses

 

239,498

 

 

 

(15,605

)

Noninterest income:

 

 

 

 

 

 

 

Service charges on deposit accounts

 

19,146

 

 

 

22,837

 

Trust fees

 

15,003

 

 

 

14,806

 

Bank card and ATM fees

 

18,120

 

 

 

17,362

 

Investment and annuity fees and insurance commissions

 

7,458

 

 

 

7,150

 

Secondary mortgage market operations

 

11,710

 

 

 

6,053

 

Other income

 

15,652

 

 

 

16,179

 

Total noninterest income

 

87,089

 

 

 

84,387

 

Noninterest expense:

 

 

 

 

 

 

 

Compensation expense

 

95,846

 

 

 

91,071

 

Employee benefits

 

23,769

 

 

 

22,478

 

Personnel expense

 

119,615

 

 

 

113,549

 

Net occupancy expense

 

12,910

 

 

 

12,522

 

Equipment expense

 

4,781

 

 

 

4,617

 

Data processing expense

 

22,947

 

 

 

22,047

 

Professional services expense

 

11,251

 

 

 

9,741

 

Amortization of intangible assets

 

4,419

 

 

 

5,345

 

Deposit insurance and regulatory fees

 

3,395

 

 

 

5,815

 

Other real estate and foreclosed asset expense

 

6

 

 

 

10,130

 

Other expense

 

13,748

 

 

 

19,569

 

Total noninterest expense

 

193,072

 

 

 

203,335

 

Income (loss) before income taxes

 

133,515

 

 

 

(134,553

)

Income taxes expense (benefit)

 

26,343

 

 

 

(23,520

)

Net income (loss)

$

107,172

 

 

$

(111,033

)

Earnings (loss) per common share-basic

$

1.21

 

 

$

(1.28

)

Earnings (loss) per common share-diluted

$

1.21

 

 

$

(1.28

)

Dividends paid per share

$

0.27

 

 

$

0.27

 

Weighted average shares outstanding-basic

 

86,752

 

 

 

87,186

 

Weighted average shares outstanding-diluted

 

86,805

 

 

 

87,186

 

 

See notes to unaudited consolidated financial statements.

 

6

 


Table of Contents

 

 

Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2021

 

 

2020

 

Net income (loss)

 

$

107,172

 

 

$

(111,033

)

Other comprehensive income (loss) before income taxes:

 

 

 

 

 

 

 

 

Net change in unrealized gain or loss on securities available for sale and cash flow hedges

 

 

(145,490

)

 

 

165,297

 

Reclassification of net gain or loss realized and included in earnings

 

 

286

 

 

 

368

 

Amortization of unrealized net loss or gain on securities transferred to held to maturity

 

 

(56

)

 

 

(195

)

Other comprehensive income (loss) before income taxes

 

 

(145,260

)

 

 

165,470

 

Income tax expense (benefit)

 

 

(33,748

)

 

 

37,480

 

Other comprehensive income (loss) net of income taxes

 

 

(111,512

)

 

 

127,990

 

Comprehensive income (loss)

 

$

(4,340

)

 

$

16,957

 

 

See notes to unaudited consolidated financial statements.

 

7

 


Table of Contents

 

 

Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

Three Months Ended March 31, 2021 and 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Accumulated

Other

 

 

 

 

 

 

 

Shares

Issued

 

 

Amount

 

 

Capital

Surplus

 

 

Retained

Earnings

 

 

Comprehensive

Income (Loss), Net

 

 

Total

 

(in thousands, except parenthetical share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

 

92,947

 

 

$

309,513

 

 

$

1,736,664

 

 

$

1,476,232

 

 

$

(54,724

)

 

$

3,467,685

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(111,033

)

 

 

 

 

 

(111,033

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

127,990

 

 

 

127,990

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

(111,033

)

 

 

127,990

 

 

 

16,957

 

Cumulative effect of change in accounting principle

 

 

 

 

 

 

 

 

 

 

 

(44,087

)

 

 

 

 

 

(44,087

)

Cash dividends declared ($0.27 per common share)

 

 

 

 

 

 

 

 

 

 

 

(24,028

)

 

 

 

 

 

(24,028

)

Common stock activity, long-term incentive plan

 

 

 

 

 

 

 

 

4,114

 

 

 

45

 

 

 

 

 

 

4,159

 

Repurchase of common stock

 

 

 

 

 

 

 

 

(12,716

)

 

 

 

 

 

 

 

 

(12,716

)

Net settlement of accelerated share repurchase agreement (1,001,472 shares)

 

 

 

 

 

 

 

 

12,110

 

 

 

 

 

 

 

 

 

12,110

 

Issuance of stock from dividend reinvestment and stock purchase plans

 

 

 

 

 

 

 

 

984

 

 

 

 

 

 

 

 

 

984

 

Balance, March 31, 2020

 

 

92,947

 

 

$

309,513

 

 

$

1,741,156

 

 

$

1,297,129

 

 

$

73,266

 

 

$

3,421,064

 

Balance, December 31, 2020

 

 

92,947

 

 

$

309,513

 

 

$

1,757,937

 

 

$

1,291,506

 

 

$

80,069

 

 

$

3,439,025

 

Net income

 

 

 

 

 

 

 

 

 

 

 

107,172

 

 

 

 

 

 

107,172

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(111,512

)

 

 

(111,512

)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

107,172

 

 

 

(111,512

)

 

 

(4,340

)

Cash dividends declared ($0.27 per common share)

 

 

 

 

 

 

 

 

 

 

 

(24,021

)

 

 

 

 

 

(24,021

)

Common stock activity, long-term incentive plans

 

 

 

 

 

 

 

 

5,204

 

 

 

31

 

 

 

 

 

 

5,235

 

Issuance of stock from dividend reinvestment and stock purchase plans

 

 

 

 

 

 

 

 

1,004

 

 

 

 

 

 

 

 

 

1,004

 

Balance, March 31, 2021

 

 

92,947

 

 

$

309,513

 

 

$

1,764,145

 

 

$

1,374,688

 

 

$

(31,443

)

 

$

3,416,903

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

��

 

 

 

See notes to unaudited consolidated financial statements.

 

8

 


Table of Contents

 

 

Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

107,172

 

 

$

(111,033

)

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,083

 

 

 

7,880

 

Provision for credit losses

 

 

(4,911

)

 

 

246,793

 

(Gain) loss on other real estate and foreclosed assets

 

 

(253

)

 

 

10,550

 

Gain on sale of securities

 

 

 

 

 

(112

)

Deferred tax expense (benefit)

 

 

2,300

 

 

 

(34,279

)

Increase in cash surrender value of life insurance contracts

 

 

(9,400

)

 

 

(646

)

Net (increase) decrease in loans held for sale

 

 

8,031

 

 

 

(5,709

)

Net amortization of securities premium/discount

 

 

13,211

 

 

 

9,349

 

Amortization of intangible assets

 

 

4,419

 

 

 

5,345

 

Stock-based compensation expense

 

 

5,517

 

 

 

5,583

 

Net change in liability from variation margin collateral

 

 

56,744

 

 

 

(105,921

)

Decrease in interest payable and other liabilities

 

 

(23,472

)

 

 

(18,641

)

Decrease in other assets

 

 

98,052

 

 

 

9,887

 

Other, net

 

 

(9,453

)

 

 

(7,521

)

Net cash provided by operating activities

 

 

255,040

 

 

 

11,525

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from the sale of available for sale securities

 

 

 

 

 

124,122

 

Proceeds from maturities of securities available for sale

 

 

311,232

 

 

 

166,265

 

Purchases of securities available for sale

 

 

(1,164,798

)

 

 

(367,944

)

Proceeds from maturities of securities held to maturity

 

 

37,830

 

 

 

84,176

 

Purchases of securities held to maturity

 

 

(59,362

)

 

 

 

Net increase in short-term investments

 

 

(1,005,325

)

 

 

(766,085

)

Proceeds from sales of loans and leases

 

 

7,373

 

 

 

2,608

 

Net (increase) decrease in loans

 

 

101,924

 

 

 

(339,888

)

Purchase of life insurance contracts

 

 

(45,000

)

 

 

 

Proceeds from the surrender of life insurance contracts

 

 

44,045

 

 

 

 

Purchases of property and equipment

 

 

(4,269

)

 

 

(9,460

)

Proceeds from sales of other real estate

 

 

4,191

 

 

 

3,007

 

Other, net

 

 

5,809

 

 

 

(1,731

)

Net cash used in investing activities

 

 

(1,766,350

)

 

 

(1,104,930

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

1,512,643

 

 

 

1,204,921

 

Net decrease in short-term borrowings

 

 

(14,766

)

 

 

(41,589

)

Proceeds from the issuance of long-term debt

 

 

22,388

 

 

 

 

Repayments of long-term debt

 

 

(3,209

)

 

 

(76

)

Dividends paid

 

 

(24,021

)

 

 

(24,028

)

Payroll tax remitted on net share settlement of equity awards

 

 

(494

)

 

 

(1,494

)

Proceeds from exercise of stock options

 

 

132

 

 

 

 

Proceeds from dividend reinvestment and stock purchase plans

 

 

1,004

 

 

 

984

 

Settlement of forward contract portion of accelerated share repurchase

 

 

 

 

 

12,110

 

Repurchase of shares

 

 

 

 

 

(12,716

)

Net cash provided by financing activities

 

 

1,493,677

 

 

 

1,138,112

 

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS

 

 

(17,633

)

 

 

44,707

 

CASH AND DUE FROM BANKS, BEGINNING

 

 

526,306

 

 

 

432,104

 

CASH AND DUE FROM BANKS, ENDING

 

$

508,673

 

 

$

476,811

 

SUPPLEMENTAL INFORMATION FOR NON-CASH

 

 

 

 

 

 

 

 

INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Assets acquired in settlement of loans

 

$

1,799

 

 

$

1,612

 

 

See notes to unaudited consolidated financial statements.

9

 


Table of Contents

 

HANCOCK WHITNEY CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The consolidated financial statements include the accounts of Hancock Whitney Corporation and all other entities in which it has a controlling interest (the “Company”). The financial statements include all adjustments that are, in the opinion of management, necessary to fairly state the Company’s financial condition, results of operations, changes in stockholders’ equity and cash flows for the interim periods presented. The Company has also evaluated all subsequent events for potential recognition and disclosure through the date of the filing of this Quarterly Report on Form 10-Q. Some financial information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been condensed or omitted in this Quarterly Report on Form 10-Q pursuant to Securities and Exchange Commission rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Financial information reported in these financial statements is not necessarily indicative of the Company’s financial condition, results of operations, or cash flows for any other interim or annual period.

 

Use of Estimates

The accounting principles the Company follows and the methods for applying these principles conform to GAAP and general practices followed by the banking industry. These accounting principles require management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

Critical Accounting Policies and Estimates

There were no material changes or developments during the reporting period with respect to methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020. Refer to Note 14 – Recent Accounting Pronouncements for a discussion of accounting standards adopted during the three months ended March 31, 2021 and the impact to the Company’s financial statements.

 

2.  Securities

The following tables set forth the amortized cost, gross unrealized gains and losses, and estimated fair value of debt securities classified as available for sale and held to maturity at March 31, 2021 and December 31, 2020. Amortized cost of securities does not include accrued interest which is reflected in the accrued interest line item on the consolidated balance sheets totaling $24.4 million at both March 31, 2021 and December 31, 2020.

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

 

 

Securities Available for Sale

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

(in thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. Treasury and government agency securities

 

$

219,343

 

 

$

2,703

 

 

$

4,554

 

 

$

217,492

 

 

$

207,365

 

 

$

6,289

 

 

$

284

 

 

$

213,370

 

Municipal obligations

 

 

308,298

 

 

 

13,757

 

 

 

5,393

 

 

 

316,662

 

 

 

309,342

 

 

 

17,536

 

 

 

153

 

 

 

326,725

 

Residential mortgage-backed securities

 

 

2,976,621

 

 

 

45,861

 

 

 

51,672

 

 

 

2,970,810

 

 

 

2,560,249

 

 

 

69,570

 

 

 

8

 

 

 

2,629,811

 

Commercial mortgage-backed securities

 

 

2,789,053

 

 

 

78,043

 

 

 

64,901

 

 

 

2,802,195

 

 

 

2,323,306

 

 

 

135,516

 

 

 

3,288

 

 

 

2,455,534

 

Collateralized mortgage obligations

 

 

305,078

 

 

 

6,835

 

 

 

 

 

 

311,913

 

 

 

354,472

 

 

 

7,651

 

 

 

 

 

 

362,123

 

Corporate debt securities

 

 

11,500

 

 

 

76

 

 

 

 

 

 

11,576

 

 

 

11,500

 

 

 

264

 

 

 

 

 

 

11,764

 



 

$

6,609,893

 

 

$

147,275

 

 

$

126,520

 

 

$

6,630,648

 

 

$

5,766,234

 

 

$

236,826

 

 

$

3,733

 

 

$

5,999,327

 

10

 


Table of Contents

 

 

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

 

 

Securities Held to Maturity

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

(in thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. Treasury and government agency securities

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Municipal obligations

 

 

624,649

 

 

 

42,623

 

 

 

311

 

 

 

666,961

 

 

 

627,019

 

 

 

51,408

 

 

 

2

 

 

 

678,425

 

Residential mortgage-backed securities

 

 

53,298

 

 

 

1,315

 

 

 

459

 

 

 

54,154

 

 

 

21,951

 

 

 

1,469

 

 

 

 

 

 

23,420

 

Commercial mortgage-backed securities

 

 

574,923

 

 

 

35,164

 

 

 

1,041

 

 

 

609,046

 

 

 

549,686

 

 

 

54,587

 

 

 

 

 

 

604,273

 

Collateralized mortgage obligations

 

 

122,472

 

 

 

2,591

 

 

 

 

 

 

125,063

 

 

 

158,514

 

 

 

2,949

 

 

 

 

 

 

161,463

 



 

$

1,375,342

 

 

$

81,693

 

 

$

1,811

 

 

$

1,455,224

 

 

$

1,357,170

 

 

$

110,413

 

 

$

2

 

 

$

1,467,581

 

 

The following tables present the amortized cost and estimated fair value of debt securities available for sale and held to maturity at March 31, 2021 by contractual maturity.  Actual maturities will differ from contractual maturities because of rights to call or repay obligations with or without penalties and scheduled and unscheduled principal payments on mortgage-backed securities and collateralized mortgage obligations.

 

Debt Securities Available for Sale

 

Amortized

 

 

Fair

 

(in thousands)

 

Cost

 

 

Value

 

Due in one year or less

 

$

3,787

 

 

$

3,789

 

Due after one year through five years

 

 

259,889

 

 

 

278,591

 

Due after five years through ten years

 

 

2,861,768

 

 

 

2,875,550

 

Due after ten years

 

 

3,484,449

 

 

 

3,472,718

 

Total available for sale debt securities

 

$

6,609,893

 

 

$

6,630,648

 

 

Debt Securities Held to Maturity

 

Amortized

 

 

Fair

 

(in thousands)

 

Cost

 

 

Value

 

Due in one year or less

 

$

2,339

 

 

$

2,341

 

Due after one year through five years

 

 

225,806

 

 

 

239,613

 

Due after five years through ten years

 

 

662,066

 

 

 

704,949

 

Due after ten years

 

 

485,131

 

 

 

508,321

 

Total held to maturity securities

 

$

1,375,342

 

 

$

1,455,224

 

 

The Company held 0 securities classified as trading at March 31, 2021 and December 31, 2020.  

 

The following table presents the proceeds from, gross gain on, and gross losses on sales of securities during the three months ended March 31, 2021 and 2020.

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2021

 

 

2020

 

Proceeds

 

$

 

 

$

124,122

 

Gross gains

 

 

 

 

 

1,082

 

Gross losses

 

 

 

 

 

970

 

 

Securities with carrying values totaling $3.0 billion and $3.4 billion were pledged as collateral at March 31, 2021 and December 31, 2020, respectively, primarily to secure public deposits or securities sold under agreements to repurchase.

11

 


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Credit Quality

The Company’s policy is to invest only in securities of investment grade quality. These investments are largely limited to U.S. agency securities and municipal securities. Management has concluded, based on the long history of no credit losses, that the expectation of nonpayment of the held to maturity securities carried at amortized cost is zero for securities that are backed by the full faith and credit of and/or guaranteed by the U.S. government. As such,0 allowance for credit losses has been recorded for these securities. The municipal portfolio is analyzed separately for allowance for credit loss in accordance with the applicable guidance for each portfolio as noted below.    

At each reporting period, the Company evaluates credit impairment for individual securities available for sale whose fair value was below amortized cost with a more than inconsequential risk of default and where the Company had assessed whether the decline in fair value was significant enough to suggest a credit event occurred. There were 0 securities that met the criteria of a credit loss event and, therefore, 0 allowance for credit loss was recorded for either period presented.

The fair value and gross unrealized losses for securities classified as available for sale with unrealized losses for the periods indicated follow.

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2021

 

Losses < 12 months

 

 

Losses 12 months or >

 

 

Total

 

(in thousands)

 

Fair

Value

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

Gross

Unrealized

Losses

 

U.S. Treasury and government agency securities

 

$

125,672

 

 

$

4,554

 

 

$

 

 

$

 

 

$

125,672

 

 

$

4,554

 

Municipal obligations

 

 

66,344

 

 

 

5,393

 

 

 

 

 

 

 

 

 

66,344

 

 

 

5,393

 

Residential mortgage-backed securities

 

 

1,669,212

 

 

 

51,668

 

 

 

728

 

 

 

4

 

 

 

1,669,940

 

 

 

51,672

 

Commercial mortgage-backed securities

 

 

1,247,473

 

 

 

64,901

 

 

 

 

 

 

 

 

 

1,247,473

 

 

 

64,901

 

Collateralized mortgage obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

$

3,108,701

 

 

$

126,516

 

 

$

728

 

 

$

4

 

 

$

3,109,429

 

 

$

126,520

 

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

Losses < 12 months

 

 

Losses 12 months or >

 

 

Total

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

(in thousands)

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

U.S. Treasury and government agency securities

 

$

35,845

 

 

 

284

 

 

$

 

 

$

 

 

$

35,845

 

 

$

284

 

Municipal obligations

 

 

30,170

 

 

 

153

 

 

 

 

 

 

 

 

 

30,170

 

 

 

153

 

Residential mortgage-backed securities

 

 

530

 

 

 

2

 

 

 

760

 

 

 

6

 

 

 

1,290

 

 

 

8

 

Commercial mortgage-backed securities

 

 

446,190

 

 

 

3,288

 

 

 

 

 

 

 

 

 

446,190

 

 

 

3,288

 

Collateralized mortgage obligations

 

 

70

 

 

 

 

 

 

 

 

 

 

 

 

70

 

 

 

 

Corporate debt securities

 

 

2,000

 

 

 

 

 

 

 

 

 

 

 

 

2,000

 

 

 

 



 

$

514,805

 

 

$

3,727

 

 

$

760

 

 

$

6

 

 

$

515,565

 

 

$

3,733

 

 

12

 


Table of Contents

 

 

At each reporting period, the Company evaluates its held to maturity municipal obligation portfolio for credit loss using probability of default and loss given default models. The models are run using a long-term average probability of default migration and with a probability weighting of Moody’s economic forecasts. The economic forecasts are largely weighted to a baseline scenario with some weight given to one or more upside and/or downside scenarios. The forecasts are further stressed by running a more severe probability of default migration. The resulting credit loss was negligible for both periods presented and no allowance for credit loss was recorded. The fair value and gross unrealized losses for securities classified as held to maturity with unrealized losses for the periods indicated follow.

 

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2021

 

Losses < 12 months

 

 

Losses 12 months or >

 

 

Total

 



 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 



 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

(in thousands)

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

U.S. Treasury and government agency securities

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Municipal obligations

 

 

7,690

 

 

 

310

 

 

 

190

 

 

 

1

 

 

 

7,880

 

 

 

311

 

Residential mortgage-backed securities

 

 

33,123

 

 

 

459

 

 

 

 

 

 

 

 

 

33,123

 

 

 

459

 

Commercial mortgage-backed securities

 

 

37,033

 

 

 

1,041

 

 

 

 

 

 

 

 

 

37,033

 

 

 

1,041

 

Collateralized mortgage obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

$

77,846

 

 

$

1,810

 

 

$

190

 

 

$

1

 

 

$

78,036

 

 

$

1,811

 

 

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

Losses < 12 months

 

 

Losses 12 months or >

 

 

Total

 



 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 



 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

(in thousands)

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

U.S. Treasury and government agency securities

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Municipal obligations

 

 

 

 

 

 

 

 

2,381

 

 

 

2

 

 

 

2,381

 

 

 

2

 

Residential mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

$

 

 

$

 

 

$

2,381

 

 

$

2

 

 

$

2,381

 

 

$

2

 

 

As of March 31, 2021 and December 31, 2020, the Company had 105 and 28 securities, respectively, with market values below their cost basis. None of the unrealized losses relate primarily to the marketability of the securities or the issuer’s ability to meet contractual obligations. In all cases, the indicated impairment on these debt securities would be recovered no later than the security’s maturity date or possibly earlier if the market price for the security increases with a reduction in the yield required by the market. The unrealized losses were deemed to be non-credit related at March 31, 2021 and December 31, 2020. The Company has adequate liquidity and, therefore does not plan to, and more likely than not, will not be required to sell these securities before recovery of the indicated impairment.

 

 

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Table of Contents

 

 

3.  Loans and Allowance for Credit Losses

The Company generally makes loans in its market areas of south and central Mississippi; southern and central Alabama; northwest, central and south Louisiana; the northern, central, and panhandle regions of Florida; certain areas of east and northeast Texas, including Houston, Beaumont and Dallas; and Nashville, Tennessee. Loans, net of unearned income, by portfolio are presented at amortized cost basis in the table below. Amortized cost does not include accrued interest, which is reflected in the accrued interest line item in the Consolidated Balance Sheets, totaling $80.1 million and $76.2 million at March 31, 2021 and December 31, 2020, respectively. Included in commercial non-real estate loans at March 31, 20201 and December 31, 2020 was $2.3 billion and $2.0 billion, respectively, of Paycheck Protection Program loans, described in more detail below. The following table presents loans, net of unearned income, by portfolio class at March 31, 2021 and December 31, 2020.

 

 

 

March 31,

 

 

December 31,

 

(in thousands)

 

2021

 

 

2020

 

Commercial non-real estate

 

$

10,091,342

 

 

$

9,986,983

 

Commercial real estate - owner occupied

 

 

2,795,104

 

 

 

2,857,445

 

Total commercial and industrial

 

 

12,886,446

 

 

 

12,844,428

 

Commercial real estate - income producing

 

 

3,411,028

 

 

 

3,357,939

 

Construction and land development

 

 

1,122,141

 

 

 

1,065,057

 

Residential mortgages

 

 

2,488,792

 

 

 

2,665,212

 

Consumer

 

 

1,756,452

 

 

 

1,857,295

 

Total loans

 

$

21,664,859

 

 

$

21,789,931

 

 

 

The following briefly describes the composition of each loan category.

Commercial and industrial

Commercial and industrial loans are made available to businesses for working capital (including financing of inventory and receivables), business expansion, to facilitate the acquisition of a business, and the purchase of equipment and machinery, including equipment leasing. These loans are primarily made based on the identified cash flows of the borrower and, when secured, have the added strength of the underlying collateral.

Commercial non-real estate loans may be secured by the assets being financed or other tangible or intangible business assets such as accounts receivable, inventory, ownership, enterprise value or commodity interests, and may incorporate a personal or corporate guarantee; however, some short-term loans may be made on an unsecured basis, including a small portfolio of corporate credit cards, generally issued as a part of overall customer relationships.

Commercial non-real estate loans also include loans made under the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). PPP loans are guaranteed by the SBA and are forgivable to the debtor upon satisfaction of certain criteria. The loans bear interest at 1% per annum and have two or five year terms, depending on the date of origination. These loans also earn an origination fee of 1%, 3%, or 5%, depending on the loan size; this origination fee is deferred and amortized over the estimated life of the loan using the effective yield method.

Commercial real estate – owner occupied loans consist of commercial mortgages on properties where repayment is generally dependent on the cash flow from the ongoing operations and activities of the borrower.  Like commercial non-real estate, these loans are primarily made based on the identified cash flows of the borrower, but also have the added strength of the value of underlying real estate collateral.  

Commercial real estate – income producing

Commercial real estate – income producing loans consist of loans secured by commercial mortgages on properties where the loan is made to real estate developers or investors and repayment is dependent on the sale, refinance, or income generated from the operation of the property.  Properties financed include retail, office, multifamily, senior housing, hotel/motel, skilled nursing facilities and other commercial properties. 

Construction and land development

Construction and land development loans are made to facilitate the acquisition, development, improvement and construction of both commercial and residential-purpose properties.  Such loans are made to builders and investors where repayment is expected to be

14

 


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made from the sale, refinance or operation of the property or to businesses to be used in their business operations.  This portfolio also includes a small amount of residential construction loans and loans secured by raw land not yet under development.   

Residential mortgages

Residential mortgages consist of closed-end loans secured by first liens on 1- 4 family residential properties. The portfolio includes both fixed and adjustable rate loans, although most longer term, fixed rate loans originated are sold in the secondary mortgage market.  

Consumer

Consumer loans include second lien mortgage home loans, home equity lines of credit and nonresidential consumer purpose loans. Nonresidential consumer loans include both direct and indirect loans. Direct nonresidential consumer loans are made to finance the purchase of personal property, including automobiles, recreational vehicles and boats, and for other personal purposes (secured and unsecured), and deposit account secured loans. Indirect nonresidential consumer loans include automobile financing provided to the consumer through an agreement with automobile dealerships, though the Company is no longer engaged in this type of lending and the remaining portfolio is in runoff. Consumer loans also include a small portfolio of credit card receivables issued on the basis of applications received through referrals from the Bank’s branches, online and other marketing efforts.   

Allowance for Credit Losses

The following tables show activity in the allowance for credit losses by portfolio class for the three months ended March 31, 2021 and 2020, as well as the corresponding recorded investment in loans at the end of each period. Effective January 1, 2020, the Company adopted the provisions of Accounting Standards Codification (ASC) 326, “Financial Instruments – Credit Losses,” using a modified retrospective basis. ASC 326, commonly referred to as CECL, prescribed a change in computing allowance for credit losses from an incurred methodology to a life of loan methodology. The difference between the December 31, 2019 incurred allowance and the CECL allowance is reflected as a cumulative effect of change in accounting principle in the table below.  

 

 

 

 

 

 

 

Commercial

 

 

Total

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

real estate-

 

 

commercial

 

 

real estate-

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

non-real

 

 

owner

 

 

and

 

 

income

 

 

and land

 

 

Residential

 

 

 

 

 

 

 

 

 

(in thousands)

 

estate

 

 

occupied

 

 

industrial

 

 

producing

 

 

development

 

 

mortgages

 

 

Consumer

 

 

Total

 

 

 

Three Months Ended March 31, 2021

 

Allowance for credit losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

149,693

 

 

$

69,134

 

 

$

218,827

 

 

$

109,474

 

 

$

26,462

 

 

$

48,842

 

 

$

46,572

 

 

$

450,177

 

Charge-offs

 

 

(17,512

)

 

 

(347

)

 

$

(17,859

)

 

 

(194

)

 

 

(248

)

 

 

(109

)

 

 

(3,694

)

 

 

(22,104

)

Recoveries

 

 

1,899

 

 

 

37

 

 

$

1,936

 

 

 

-

 

 

 

159

 

 

 

206

 

 

 

1,549

 

 

 

3,850

 

Net provision for loan losses

 

 

(5,144

)

 

 

(2,301

)

 

$

(7,445

)

 

 

6,899

 

 

 

(1,200

)

 

 

(6,420

)

 

 

603

 

 

 

(7,563

)

Ending balance - allowance for loan losses

 

$

128,936

 

 

$

66,523

 

 

$

195,459

 

 

$

116,179

 

 

$

25,173

 

 

$

42,519

 

 

$

45,030

 

 

$

424,360

 

Reserve for unfunded lending commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

4,529

 

 

$

381

 

 

$

4,910

 

 

$

1,099

 

 

$

22,694

 

 

$

19

 

 

$

1,185

 

 

$

29,907

 

Provision for losses on unfunded commitments

 

 

2,642

 

 

 

131

 

 

 

2,773

 

 

 

439

 

 

 

(617

)

 

 

3

 

 

 

54

 

 

 

2,652

 

Ending balance - reserve for unfunded lending commitments

 

 

7,171

 

 

 

512

 

 

 

7,683

 

 

 

1,538

 

 

 

22,077

 

 

 

22

 

 

 

1,239

 

 

 

32,559

 

Total allowance for credit losses

 

$

136,107

 

 

$

67,035

 

 

$

203,142

 

 

$

117,717

 

 

$

47,250

 

 

$

42,541

 

 

$

46,269

 

 

$

456,919

 

Allowance for loan losses:

 

 

 

Individually evaluated

 

$

4,564

 

 

$

1,242

 

 

$

5,806

 

 

$

22

 

 

$

21

 

 

$

486

 

 

$

739

 

 

$

7,074

 

Collectively evaluated

 

 

124,372

 

 

 

65,281

 

 

 

189,653

 

 

 

116,157

 

 

 

25,152

 

 

 

42,033

 

 

 

44,291

 

 

 

417,286

 

Allowance for loan losses

 

$

128,936

 

 

$

66,523

 

 

$

195,459

 

 

$

116,179

 

 

$

25,173

 

 

$

42,519

 

 

$

45,030

 

 

$

424,360

 

Reserve for unfunded lending commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated

 

$

190

 

 

$

51

 

 

$

241

 

 

$

 

 

$

 

 

$

 

 

$

-

 

 

$

241

 

Collectively evaluated

 

 

6,981

 

 

 

461

 

 

 

7,442

 

 

 

1,538

 

 

 

22,077

 

 

 

22

 

 

 

1,239

 

 

 

32,318

 

Reserve for unfunded lending commitments:

 

$

7,171

 

 

$

512

 

 

$

7,683

 

 

$

1,538

 

 

$

22,077

 

 

$

22

 

 

$

1,239

 

 

$

32,559

 

Total allowance for credit losses

 

$

136,107

 

 

$

67,035

 

 

$

203,142

 

 

$

117,717

 

 

$

47,250

 

 

$

42,541

 

 

$

46,269

 

 

$

456,919

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated

 

$

20,132

 

 

$

10,047

 

 

$

30,179

 

 

$

4,363

 

 

$

131

 

 

$

5,241

 

 

$

2,779

 

 

$

42,693

 

Collectively evaluated

 

 

10,071,210

 

 

 

2,785,057

 

 

 

12,856,267

 

 

 

3,406,665

 

 

 

1,122,010

 

 

 

2,483,551

 

 

 

1,753,673

 

 

 

21,622,166

 

Total loans

 

$

10,091,342

 

 

$

2,795,104

 

 

$

12,886,446

 

 

$

3,411,028

 

 

$

1,122,141

 

 

$

2,488,792

 

 

$

1,756,452

 

 

$

21,664,859

 

15

 


Table of Contents

 

 

 

 

 

 

 

 

 

Commercial

 

 

Total

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

real estate-

 

 

commercial

 

 

real estate-

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

non-real

 

 

owner

 

 

and

 

 

income

 

 

and land

 

 

Residential

 

 

 

 

 

 

 

 

 

(in thousands)

 

estate

 

 

occupied

 

 

industrial

 

 

producing

 

 

development

 

 

mortgages

 

 

Consumer

 

 

Total

 

 

 

Three Months Ended March 31, 2020

 

Allowance for credit losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

106,432

 

 

$

10,977

 

 

$

117,409

 

 

$

20,869

 

 

$

9,350

 

 

$

20,331

 

 

$

23,292

 

 

$

191,251

 

Cumulative effect of change in accounting principle

 

 

(244

)

 

 

14,877

 

 

 

14,633

 

 

 

7,287

 

 

 

7,478

 

 

 

12,921

 

 

 

7,092

 

 

 

49,411

 

Charge-offs

 

 

(40,713

)

 

 

(514

)

 

 

(41,227

)

 

 

(830

)

 

 

 

 

 

(141

)

 

 

(5,540

)

 

 

(47,738

)

Recoveries

 

 

2,226

 

 

 

81

 

 

 

2,307

 

 

 

7

 

 

 

234

 

 

 

212

 

 

 

1,214

 

 

 

3,974

 

Net provision for loan losses

 

 

119,297

 

 

 

23,414

 

 

 

142,711

 

 

 

37,627

 

 

 

16,761

 

 

 

14,877

 

 

 

17,129

 

 

 

229,105

 

Ending balance - allowance for loan losses

 

$

186,998

 

 

$

48,835

 

 

$

235,833

 

 

$

64,960

 

 

$

33,823

 

 

$

48,200

 

 

$

43,187

 

 

$

426,003

 

Reserve for unfunded lending commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

3,974

 

 

$

 

 

$

3,974

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

3,974

 

Cumulative effect of change in accounting principle

 

 

5,772

 

 

 

288

 

 

 

6,060

 

 

 

449

 

 

 

15,658

 

 

 

17

 

 

 

5,146

 

 

 

27,330

 

Provision for losses on unfunded commitments

 

 

5,182

 

 

 

289

 

 

 

5,471

 

 

 

280

 

 

 

13,205

 

 

 

 

 

 

(1,268

)

 

 

17,688

 

Ending balance - reserve for unfunded lending commitments

 

 

14,928

 

 

 

577

 

 

 

15,505

 

 

 

729

 

 

 

28,863

 

 

 

17

 

 

 

3,878

 

 

 

48,992

 

Total allowance for credit losses

 

$

201,926

 

 

$

49,412

 

 

$

251,338

 

 

$

65,689

 

 

$

62,686

 

 

$

48,217

 

 

$

47,065

 

 

$

474,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

67,404

 

 

$

102

 

 

$

67,506

 

 

$

458

 

 

$

23

 

 

$

312

 

 

$

195

 

 

$

68,494

 

Collectively evaluated for impairment

 

 

119,594

 

 

 

48,733

 

 

 

168,327

 

 

 

64,502

 

 

 

33,800

 

 

 

47,888

 

 

 

42,992

 

 

 

357,509

 

Allowance for loan losses

 

$

186,998

 

 

$

48,835

 

 

$

235,833

 

 

$

64,960

 

 

$

33,823

 

 

$

48,200

 

 

$

43,187

 

 

$

426,003

 

Reserve for unfunded lending commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated

 

$

7,215

 

 

$

 

 

$

7,215

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

7,215

 

Collectively evaluated

 

 

7,713

 

 

 

577

 

 

 

8,290

 

 

 

729

 

 

 

28,863

 

 

 

17

 

 

 

3,878

 

 

 

41,777

 

Reserve for unfunded lending commitments:

 

 

14,928

 

 

 

577

 

 

 

15,505

 

 

 

729

 

 

 

28,863

 

 

 

17

 

 

 

3,878

 

 

 

48,992

 

Total allowance for credit losses

 

$

201,926

 

 

$

49,412

 

 

$

251,338

 

 

$

65,689

 

 

$

62,686

 

 

$

48,217

 

 

$

47,065

 

 

$

474,995

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

253,790

 

 

$

4,184

 

 

$

257,974

 

 

$

7,300

 

 

$

3,350

 

 

$

4,625

 

 

$

1,280

 

 

$

274,529

 

Collectively evaluated for impairment

 

 

9,067,550

 

 

 

2,727,136

 

 

 

11,794,686

 

 

 

3,225,483

 

 

 

1,095,376

 

 

 

2,975,360

 

 

 

2,150,247

 

 

 

21,241,152

 

Total loans

 

$

9,321,340

 

 

$

2,731,320

 

 

$

12,052,660

 

 

$

3,232,783

 

 

$

1,098,726

 

 

$

2,979,985

 

 

$

2,151,527

 

 

$

21,515,681

 

The calculation of the allowance for credit losses is performed using two primary approaches: a collective approach for pools of loans that have similar risk characteristics using a loss rate analysis, and a specific reserve analysis for credits individually evaluated. The allowance for credit losses was developed using multiple Moody’s macroeconomic forecasts applied to internally developed credit models for a two year reasonable and supportable period. In the calculation of the March 31, 2021 allowance, the Company weighted the March 2021 baseline economic forecast, which Moody’s defines as the “most likely outcome” based on current conditions and its view of where the economy is headed, at 65%. The March 2021 baseline scenario assumes (1) new cases of COVID-19 peaked in January 2021; (2) no new widespread business closures; (3) the $1.9 trillion American Rescue Plan Act will boost gross domestic product growth which, along with positive job numbers reported to-date, will lead to a slightly quicker recovery in the U.S. job market than included in the December 2020 forecast; and, (4) additional legislation focused on infrastructure and social benefits will be passed in the second half of 2021. The downside scenario S-2 was weighted at 35% to incorporate a reasonably possible alternative economic outcome. The S-2 scenario reflects slower economic recovery, with a delay in herd immunity until December 2021, a slower unwinding of restrictions on travel and business and smaller infrastructure and social benefits legislation impeding economic growth in the second half of 2021 and in 2022. The modest release across most portfolios during the first quarter of 2021 reflects the improvements in the economic forecast. The continued elevated allowance level is a result of uncertainty surrounding future performance as the impact of stimulus diminishes and modifications expire.

 

16

 


Table of Contents

 

 

Nonaccrual loans and loans modified in troubled Debt Restructurings

The following table shows the composition of nonaccrual loans and those without an allowance for loan loss, by portfolio class.   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

 

December 31,

 

 

 

2021

 

 

 

2020

 

(in thousands)

 

 

Total nonaccrual

 

 

 

Nonaccrual without allowance for loan loss

 

 

 

Total nonaccrual

 

 

 

Nonaccrual without allowance for loan loss

 

Commercial non-real estate

 

$

 

27,650

 

 

$

 

6,841

 

 

$

 

52,836

 

 

$

 

15,268

 

Commercial real estate - owner occupied

 

 

 

11,804

 

 

 

 

6,946

 

 

 

 

13,856

 

 

 

 

7,038

 

Total commercial and industrial

 

 

 

39,454

 

 

 

 

13,787

 

 

 

 

66,692

 

 

 

 

22,306

 

Commercial real estate - income producing

 

 

 

4,818

 

 

 

 

4,273

 

 

 

 

6,743

 

 

 

 

 

Construction and land development

 

 

 

1,689

 

 

 

 

 

 

 

 

2,486

 

 

 

 

1,116

 

Residential mortgages

 

 

 

40,715

 

 

 

 

1,603

 

 

 

 

40,573

 

 

 

 

1,705

 

Consumer

 

 

 

21,758

 

 

 

 

 

 

 

 

23,385

 

 

 

 

 

Total loans

 

$

 

108,434

 

 

$

 

19,663

 

 

$

 

139,879

 

 

$

 

25,127

 

 

Nonaccrual loans include nonaccruing loans modified in troubled debt restructurings (“TDRs”) of $7.2 million and $21.6 million at March 31, 2021 and December 31, 2020, respectively. Total TDRs, both accruing and nonaccruing, were $13.5 million at March 31, 2021 and $25.8 million at December 31, 2020.  All TDRs are individually evaluated for credit loss.  At March 31, 2021 and December 31, 2020, the Company had unfunded commitments of $0.4 million and $4.6 million, respectively, to borrowers whose loan terms have been modified in a TDR.

The tables below detail by portfolio class TDRs that were modified during the three months ended March 31, 2021 and 2020. All such loans are individually evaluated for credit loss.

 

 

 

Three Months Ended

 

($ in thousands)

 

March 31, 2021

 

 

March 31, 2020

 

 

 

 

 

 

 

Pre-

Modification

 

 

Post-

Modification

 

 

 

 

 

 

Pre-

Modification

 

 

Post-

Modification

 

 

 

Number

 

 

Outstanding

 

 

Outstanding

 

 

Number

 

 

Outstanding

 

 

Outstanding

 

 

 

of

 

 

Recorded

 

 

Recorded

 

 

of

 

 

Recorded

 

 

Recorded

 

Troubled Debt Restructurings:

 

Contracts

 

 

Investment

 

 

Investment

 

 

Contracts

 

 

Investment

 

 

Investment

 

Commercial non-real estate

 

 

3

 

 

$

6,935

 

 

$

6,935

 

 

 

1

 

 

$

395

 

 

$

395

 

Commercial real estate - owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial and industrial

 

 

3

 

 

 

6,935

 

 

 

6,935

 

 

 

1

 

 

 

395

 

 

 

395

 

Commercial real estate - income producing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and land development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgages

 

 

1

 

 

 

210

 

 

 

210

 

 

 

1

 

 

 

256

 

 

 

256

 

Consumer

 

 

1

 

 

 

54

 

 

 

54

 

 

 

3

 

 

 

34

 

 

 

34

 

Total loans

 

 

5

 

 

$

7,199

 

 

$

7,199

 

 

 

5

 

 

$

685

 

 

$

685

 

 

The TDRs modified during the three months ended March 31, 2021 reflected in the table above include $1.9 million of loans with extended amortization terms or other payment concessions, and $5.3 million of loans with other modifications. The TDRs modified during the three months ended March 31, 2020 include $0.3 million of loans with extended amortization terms or other payment concessions and $0.4 million with significant covenant waivers.

NaN residential loan totaling $0.6 million that defaulted during the three months ended March 31, 2021 had been modified in a TDR during the twelve months prior to default. NaN loans that defaulted during the three months ended March 31, 2020 had been modified in a TDR during the twelve months prior to default.

The TDR disclosures above do not include loans eligible for exclusion from TDR assessment under Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Loans modified under the CARES Act are reported in the aging analysis that follows based on the modified terms.

17

 


Table of Contents

 

Aging Analysis

The tables below present the aging analysis of past due loans by portfolio class at March 31, 2021 and December 31, 2020.

 

March 31, 2021

 

30-59

days

past due

 

 

60-89

days

past due

 

 

Greater

than

90 days

past due

 

 

Total

past due

 

 

Current

 

 

Total

Loans

 

 

Recorded

investment

> 90 days

and still

accruing

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

$

7,175

 

 

$

1,484

 

 

$

24,690

 

 

$

33,349

 

 

$

10,057,993

 

 

$

10,091,342

 

 

$

4,474

 

Commercial real estate - owner occupied

 

 

2,777

 

 

 

499

 

 

 

9,036

 

 

 

12,312

 

 

 

2,782,792

 

 

 

2,795,104

 

 

 

 

Total commercial and industrial

 

 

9,952

 

 

 

1,983

 

 

 

33,726

 

 

 

45,661

 

 

 

12,840,785

 

 

 

12,886,446

 

 

 

4,474

 

Commercial real estate - income producing

 

 

914

 

 

 

1,441

 

 

 

5,426

 

 

 

7,781

 

 

 

3,403,247

 

 

 

3,411,028

 

 

 

775

 

Construction and land development

 

 

2,310

 

 

 

88

 

 

 

913

 

 

 

3,311

 

 

 

1,118,830

 

 

 

1,122,141

 

 

 

 

Residential mortgages

 

 

28,856

 

 

 

7,117

 

 

 

20,321

 

 

 

56,294

 

 

 

2,432,498

 

 

 

2,488,792

 

 

 

303

 

Consumer

 

 

6,036

 

 

 

1,916

 

 

 

11,212

 

 

 

19,164

 

 

 

1,737,288

 

 

 

1,756,452

 

 

 

1,340

 

Total

 

$

48,068

 

 

$

12,545

 

 

$

71,598

 

 

$

132,211

 

 

$

21,532,648

 

 

$

21,664,859

 

 

$

6,892

 

 

December 31, 2020

 

30-59

days

past due

 

 

60-89

days

past due

 

 

Greater

than

90 days

past due

 

 

Total

past due

 

 

Current

 

 

Total

Loans

 

 

Recorded

investment

> 90 days

and still

accruing

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

$

7,963

 

 

$

2,564

 

 

$

39,530

 

 

$

50,057

 

 

$

9,936,926

 

 

$

9,986,983

 

 

$

583

 

Commercial real estate - owner occupied

 

 

1,525

 

 

 

753

 

 

 

13,663

 

 

 

15,941

 

 

 

2,841,504

 

 

 

2,857,445

 

 

 

955

 

Total commercial and industrial

 

 

9,488

 

 

 

3,317

 

 

 

53,193

 

 

 

65,998

 

 

 

12,778,430

 

 

 

12,844,428

 

 

 

1,538

 

Commercial real estate - income producing

 

 

1,494

 

 

 

798

 

 

 

5,744

 

 

 

8,036

 

 

 

3,349,903

 

 

 

3,357,939

 

 

 

182

 

Construction and land development

 

 

4,168

 

 

 

284

 

 

 

2,001

 

 

 

6,453

 

 

 

1,058,604

 

 

 

1,065,057

 

 

 

 

Residential mortgages

 

 

29,319

 

 

 

9,858

 

 

 

27,886

 

 

 

67,063

 

 

 

2,598,149

 

 

 

2,665,212

 

 

 

912

 

Consumer

 

 

12,215

 

 

 

5,012

 

 

 

11,714

 

 

 

28,941

 

 

 

1,828,354

 

 

 

1,857,295

 

 

 

729

 

Total

 

$

56,684

 

 

$

19,269

 

 

$

100,538

 

 

$

176,491

 

 

$

21,613,440

 

 

$

21,789,931

 

 

$

3,361

 

 

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Credit Quality Indicators

The following tables present the credit quality indicators by segment and portfolio class of loans held for investment at March 31, 2021 and December 31, 2020. The Company routinely assesses the ratings of loans in its portfolio through an established and comprehensive portfolio management process. In addition, the Company often examines portfolios of loans to determine if there are areas of risk not specifically identified in its loan by loan approach.

 

 

 

March 31, 2021

 

(in thousands)

 

Commercial

non-real

estate

 

 

Commercial

real estate -

owner-

occupied

 

 

Total

commercial

and industrial

 

 

Commercial

real estate -

income

producing

 

 

Construction

and land

development

 

 

Total

commercial

 

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

9,623,336

 

 

$

2,601,254

 

 

$

12,224,590

 

 

$

3,282,794

 

 

$

1,102,030

 

 

$

16,609,414

 

Pass-Watch

 

 

263,754

 

 

 

106,179

 

 

 

369,933

 

 

 

80,597

 

 

 

12,056

 

 

 

462,586

 

Special Mention

 

 

56,639

 

 

 

19,152

 

 

 

75,791

 

 

 

4,374

 

 

 

5,989

 

 

 

86,154

 

Substandard

 

 

147,613

 

 

 

68,519

 

 

 

216,132

 

 

 

43,263

 

 

 

2,066

 

 

 

261,461

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

10,091,342

 

 

$

2,795,104

 

 

$

12,886,446

 

 

$

3,411,028

 

 

$

1,122,141

 

 

$

17,419,615

 

 

 

December 31, 2020

 

(in thousands)

 

Commercial

non-real

estate

 

 

Commercial

real estate -

owner-

occupied

 

 

Total

commercial

and industrial

 

 

Commercial

real estate -

income

producing

 

 

Construction

and land

development

 

 

Total

commercial

 

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

9,439,264

 

 

$

2,641,423

 

 

$

12,080,687

 

 

$

3,219,155

 

 

$

1,033,060

 

 

$

16,332,902

 

Pass-Watch

 

 

314,739

 

 

 

114,358

 

 

 

429,097

 

 

 

89,968

 

 

 

22,820

 

 

 

541,885

 

Special Mention

 

 

79,613

 

 

 

46,239

 

 

 

125,852

 

 

 

5,989

 

 

 

5,751

 

 

 

137,592

 

Substandard

 

 

153,367

 

 

 

55,425

 

 

 

208,792

 

 

 

42,827

 

 

 

3,426

 

 

 

255,045

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

9,986,983

 

 

$

2,857,445

 

 

$

12,844,428

 

 

$

3,357,939

 

 

$

1,065,057

 

 

$

17,267,424

 

 

 

 

March 31, 2021

 

 

December 31, 2020

 

(in thousands)

 

Residential

mortgage

 

 

Consumer

 

 

Total

 

 

Residential

mortgage

 

 

Consumer

 

 

Total

 

Performing

 

$

2,445,620

 

 

$

1,733,630

 

 

$

4,179,250

 

 

$

2,622,422

 

 

$

1,832,885

 

 

$

4,455,307

 

Nonperforming

 

 

43,172

 

 

 

22,822

 

 

 

65,994

 

 

 

42,790

 

 

 

24,410

 

 

 

67,200

 

Total

 

$

2,488,792

 

 

$

1,756,452

 

 

$

4,245,244

 

 

$

2,665,212

 

 

$

1,857,295

 

 

$

4,522,507

 

 

Below are the definitions of the Company’s internally assigned grades:

Commercial:

 

Pass – loans properly approved, documented, collateralized, and performing which do not reflect an abnormal credit risk.

 

Pass-Watch – credits in this category are of sufficient risk to cause concern.  This category is reserved for credits that display negative performance trends.  The “Watch” grade should be regarded as a transition category.

 

Special Mention – a criticized asset category defined as having potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the credit or the institution’s credit position.  Special mention credits are not considered part of the Classified credit categories and do not expose the institution to sufficient risk to warrant adverse classification.

 

Substandard – an asset that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.  Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Doubtful – an asset that has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

 

Loss – credits classified as Loss are considered uncollectable and are charged off promptly once so classified.

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Residential and Consumer:

 

Performing – accruing loans that have not been modified in a troubled debt restructuring.  

 

Nonperforming – loans for which there are good reasons to doubt that payments will be made in full. All loans with nonaccrual status and all loans that have been modified in a troubled debt restructuring are classified as nonperforming.

 

Vintage Analysis

 

The following table presents credit quality disclosures of amortized cost by class and vintage for term loans and by revolving and revolving converted to amortizing at March 31, 2021. The Company defines vintage as the later of origination, renewal or restructure date.

 

Term Loans

 

 

 

 

 

 

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

Prior

 

 

Revolving Loans

 

 

Revolving Loans Converted to Term Loans

 

 

Total

 

Commercial Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

1,785,609

 

 

$

4,899,613

 

 

$

2,713,484

 

 

$

1,641,419

 

 

$

1,257,878

 

 

$

1,928,878

 

 

$

2,353,884

 

 

$

28,649

 

 

$

16,609,414

 

Pass-Watch

 

 

28,339

 

 

 

70,487

 

 

 

88,986

 

 

 

45,747

 

 

 

42,878

 

 

 

102,659

 

 

 

79,774

 

 

 

3,716

 

 

 

462,586

 

Special Mention

 

 

15,621

 

 

 

3,150

 

 

 

24,326

 

 

 

4,087

 

 

 

15,110

 

 

 

9,743

 

 

 

13,567

 

 

 

550

 

 

 

86,154

 

Substandard

 

 

9,571

 

 

 

73,499

 

 

 

41,404

 

 

 

20,353

 

 

 

47,528

 

 

 

34,410

 

 

 

33,912

 

 

 

784

 

 

 

261,461

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Commercial Loans

 

$

1,839,140

 

 

$

5,046,749

 

 

$

2,868,200

 

 

$

1,711,606

 

 

$

1,363,394

 

 

$

2,075,690

 

 

$

2,481,137

 

 

$

33,699

 

 

$

17,419,615

 

Residential Mortgage and Consumer Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

106,606

 

 

$

410,414

 

 

$

465,522

 

 

$

369,198

 

 

$

489,147

 

 

$

1,179,718

 

 

$

1,154,507

 

 

$

4,138

 

 

 

4,179,250

 

Nonperforming

 

 

193

 

 

 

2,268

 

 

 

4,723

 

 

 

6,317

 

 

 

10,586

 

 

 

38,452

 

 

 

3,403

 

 

 

52

 

 

 

65,994

 

Total Consumer Loans

 

$

106,799

 

 

$

412,682

 

 

$

470,245

 

 

$

375,515

 

 

$

499,733

 

 

$

1,218,170

 

 

$

1,157,910

 

 

$

4,190

 

 

$

4,245,244

 

 

Residential Mortgage Loans in Process of Foreclosure

Loans in process of foreclosure include those for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. Included in loans at March 31, 2021 and December 31, 2020 was $12.5 million and $17.2 million of consumer loans secured by single family residential real estate that were in process of foreclosure. In addition to the single family residential real estate loans in process of foreclosure, the Company also held $4.2 million and $3.4 million of foreclosed single family residential properties in other real estate owned at March 31, 2021 and December 31, 2020, respectively.

Loans Held for Sale

Loans held for sale is composed primarily of mortgage loans originated for sale in the secondary market.

 

 

 

4. Securities Sold under Agreements to Repurchase

Included in short-term borrowings are securities sold under agreements to repurchase that mature daily and are secured by U.S. agency securities totaling $548.4 million and $567.2 million at March 31, 2021 and December 31, 2020, respectively. The Company borrows funds on a secured basis by selling securities under agreements to repurchase, mainly in connection with treasury management services offered to its deposit customers. As the Company maintains effective control over assets sold under agreements to repurchase, the securities continue to be carried on the consolidated statements of financial condition. Because the Company acts as borrower transferring assets to the counterparty, and the agreements mature daily, the Company’s risk is limited.

 

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5. Derivatives

Risk Management Objective of Using Derivatives

The Company enters into derivative financial instruments to manage risks related to differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments. The Bank also entered into interest rate derivative agreements as a service to certain qualifying customers. The Bank manages a matched book with respect to these customer derivatives in order to minimize its net interest rate risk exposure resulting from such agreements. In addition, the Bank also enters into risk participation agreements under which it may either sell or buy credit risk associated with a customer’s performance under certain interest rate derivative contracts related to loans in which participation interests have been sold to or purchased from other banks.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the notional or contractual amounts and fair values of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets at March 31, 2021 and December 31, 2020. 

 

 

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

Derivative (1)

 

 

 

 

 

 

Derivative (1)

 

(in thousands)

 

Type of

Hedge

 

Notional or

Contractual

Amount

 

 

Assets

 

 

Liabilities

 

 

Notional or

Contractual

Amount

 

 

Assets

 

 

Liabilities

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps - variable rate loans

 

Cash Flow

 

$

1,425,000

 

 

$

42,996

 

 

$

2,322

 

 

$

1,175,000

 

 

$

50,962

 

 

$

 

Interest rate swaps - securities

 

Fair Value

 

 

1,520,150

 

 

 

58,925

 

 

 

538

 

 

 

1,158,150

 

 

 

6,686

 

 

 

18,920

 

 

 

 

 

 

2,945,150

 

 

 

101,921

 

 

 

2,860

 

 

 

2,333,150

 

 

 

57,648

 

 

 

18,920

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

N/A

 

 

4,868,800

 

 

 

98,029

 

 

 

97,894

 

 

 

4,806,258

 

 

 

145,517

 

 

 

148,778

 

Risk participation agreements

 

N/A

 

 

200,699

 

 

 

30

 

 

 

58

 

 

 

216,511

 

 

 

35

 

 

 

108

 

Forward commitments to sell residential mortgage loans

 

N/A

 

 

300,063

 

 

 

2,075

 

 

 

1,276

 

 

 

310,458

 

 

 

19

 

 

 

3,211

 

Interest rate-lock commitments on residential mortgage loans

 

N/A

 

 

203,886

 

 

 

817

 

 

 

1,032

 

 

 

206,258

 

 

 

1,793

 

 

 

14

 

Foreign exchange forward contracts

 

N/A

 

 

60,825

 

 

 

1,734

 

 

 

1,592

 

 

 

58,822

 

 

 

2,816

 

 

 

2,785

 

Visa Class B derivative contract

 

N/A

 

 

43,565

 

 

 

 

 

 

5,257

 

 

 

43,565

 

 

 

 

 

 

5,645

 

 

 

 

 

 

5,677,838

 

 

 

102,685

 

 

 

107,109

 

 

 

5,641,872

 

 

 

150,180

 

 

 

160,541

 

Total derivatives

 

 

 

$

8,622,988

 

 

$

204,606

 

 

$

109,969

 

 

$

7,975,022

 

 

$

207,828

 

 

$

179,461

 

Less:  netting adjustment (2)

 

 

 

 

 

 

 

 

(104,880

)

 

 

(67,460

)

 

 

 

 

 

 

(57,648

)

 

 

(124,204

)

Total derivative assets/liabilities

 

 

 

 

 

 

 

$

99,726

 

 

$

42,509

 

 

 

 

 

 

$

150,180

 

 

$

55,257

 

 

(1)

Derivative assets and liabilities are reported at fair value in other assets or other liabilities, respectively, in the consolidated balance sheets.

 

(2)

Represents balance sheet netting of derivative assets and liabilities for variation margin collateral held or placed with the same central clearing counterparty. See offsetting assets and liabilities for further information.

Cash Flow Hedges of Interest Rate Risk

The Company is party to various interest rate swap agreements designated and qualifying as cash flow hedges of the Company’s forecasted variable cash flows for pools of variable rate loans. For each agreement, the Company receives interest at a fixed rate and pays at a variable rate. The notional amounts of the swap agreements in place at March 31, 2021 expire as follows: $50 million in 2021; $475 million in 2022; $550 million in 2023; $100 million in 2024; $250 million thereafter.

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Fair Value Hedges of Interest Rate Risk

Interest rate swaps on securities available for sale

The Company is party to forward-starting fixed payer swaps that convert the latter portion of the term of certain available for sale securities to a floating rate. These derivative instruments are designated as fair value hedges of interest rate risk. This strategy provides the Company with a fixed rate coupon during the front-end unhedged tenor of the bonds and results in a floating rate security during the back-end hedged tenor with hedged start dates between August 2023 through September 2025, and maturity dates from December 2027 through March 2031. The fair value of the hedged item attributable to interest rate risk will be presented in interest income along with the change in the fair value of the hedging instrument.

The majority of the hedged available for sale securities is a closed portfolio of pre-payable commercial mortgage backed securities. In accordance with ASC 815, prepayment risk may be excluded when measuring the change in fair value of such hedged items attributable to interest rate risk under the last-of-layer approach. At March 31, 2021, the amortized cost basis of the closed portfolio of pre-payable commercial mortgage backed securities totaled $1.7 billion. The amount that represents the hedged items was $1.4 billion and the basis adjustment associated with the hedged items totaled $55.5 million.

Derivatives Not Designated as Hedges

Customer interest rate derivative program

The Bank enters into interest rate derivative agreements, primarily rate swaps, with commercial banking customers to facilitate their risk management strategies. The Bank enters into offsetting agreements with unrelated financial institutions, thereby mitigating its net risk exposure resulting from such transactions. Because the interest rate derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

Risk participation agreements

The Bank also enters into risk participation agreements under which it may either assume or sell credit risk associated with a borrower’s performance under certain interest rate derivative contracts. In those instances where the Bank has assumed credit risk, it is not a direct counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because it is a party to the related loan agreement with the borrower. In those instances in which the Bank has sold credit risk, it is the sole counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because other banks participate in the related loan agreement. The Bank manages its credit risk under risk participation agreements by monitoring the creditworthiness of the borrower, based on the Bank’s normal credit review process.

Mortgage banking derivatives

The Bank also enters into certain derivative agreements as part of its mortgage banking activities. These agreements include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a best efforts delivery basis.

Customer foreign exchange forward contract derivatives

The Company enters into foreign exchange forward derivative agreements, primarily forward foreign currency contracts, with commercial banking customers to facilitate their risk management strategies. The Bank manages its risk exposure from such transactions by entering into offsetting agreements with unrelated financial institutions. The Bank has not elected to designate these foreign exchange forward contract derivatives as hedge; as such changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

 

Visa Class B derivative contract

 

The Company is a member of Visa USA. During the fourth quarter of 2018, the Company sold the majority of its Visa Class B holdings, at which time it entered into a derivative agreement with the purchaser whereby the Company will make or receive cash payments whenever the conversion ratio of the Visa Class B shares into Visa Class A shares is adjusted. The conversion ratio changes when Visa deposits funds to a litigation escrow account established by Visa to pay settlements for certain litigation, for which Visa is

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indemnified by Visa USA members. The Company is also required to make periodic financing payments to the purchaser until all of Visa’s covered litigation matters are resolved. Thus, the derivative contract extends until the end of Visa’s covered litigation matters, the timing of which is uncertain.

The contract includes a contingent accelerated termination clause based on the credit ratings of the Company. At March 31, 2021 and December 31, 2020, the fair value of the liability associated with this contract was $5.3 million and $5.6 million, respectively. Refer to Note 13 – Fair Value of Financial Instruments for discussion of the valuation inputs and process for this derivative liability.

 

Effect of Derivative Instruments on the Statements of Income

The effects of derivative instruments on the consolidated statements of income for the three months ended March 31, 2021 and 2020 are presented in the table below. Interest income or the reduction of interest income attributable to cash flow hedges includes amortization of accumulated other comprehensive loss that resulted from termination of certain interest rate swap contracts.

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

 

Derivative Instruments:

 

Location of Gain (Loss)

Recognized in the

Statements of Income:

 

2021

 

 

2020

 

Cash flow hedges - variable rate loans

 

Interest income

 

$

6,136

 

 

$

864

 

Fair value hedges - securities

 

Interest income

 

 

83

 

 

 

41

 

Fair value hedges - brokered deposits

 

Interest expense

 

 

 

 

 

46

 

All other instruments

 

Other noninterest income

 

 

5,035

 

 

 

3,871

 

Total gain

 

 

 

$

11,254

 

 

$

4,822

 

 

Credit Risk-Related Contingent Features

Certain of the Bank’s derivative instruments contain provisions allowing the financial institution counterparty to terminate the contracts in certain circumstances, such as a downgrade of the Bank’s credit ratings below specified levels, a default by the Bank on its indebtedness, or the failure of the Bank to maintain specified minimum regulatory capital ratios or its regulatory status as a well-capitalized institution. These derivative agreements also contain provisions regarding the posting of collateral by each party. At March 31, 2021, the Company was not in violation of any such provisions. The aggregate fair value of derivative instruments with credit risk-related contingent features that were in a net liability position at March 31, 2021 and December 31, 2020 was $16.0 million and $109.7 million, respectively, for which the Company had posted collateral of $18.4 million and $44.7 million, respectively.

Offsetting Assets and Liabilities

The Bank’s derivative instruments with certain counterparties contain legally enforceable netting provisions that allow for net settlement of multiple transactions to a single amount, which may be positive, negative, or zero. Agreements with certain bilateral counterparties require both parties to maintain collateral in the event that the fair values of derivative instruments exceed established exposure thresholds. For centrally cleared derivatives, the Company is subject to initial margin posting and daily variation margin exchange with the central clearinghouses. Offsetting information in regards to all derivative assets and liabilities, including accrued interest, subject to these master netting agreements at March 31, 2021 and December 31, 2020 is presented in the following tables.

 

(in thousands)

 

 

 

 

 

Gross

Amounts

 

 

Net Amounts

 

 

Gross Amounts Not Offset in the

Statement of Financial Condition

 

Description

 

Gross

Amounts

Recognized

 

 

Offset in

the Statement

of Financial Condition

 

 

Presented in

the Statement

of Financial Condition

 

 

Financial

Instruments

 

 

Cash

Collateral

 

 

Net

Amount

 

As of March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

$

116,776

 

 

$

(106,902

)

 

$

9,874

 

 

$

9,874

 

 

$

0

 

 

$

0

 

Derivative Liabilities

 

$

93,881

 

 

$

(69,574

)

 

$

24,307

 

 

$

9,874

 

 

$

70,794

 

 

$

(56,361

)

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Table of Contents

 

 

 

(in thousands)

 

 

 

 

 

Gross

Amounts

 

 

Net Amounts

 

 

Gross Amounts Not Offset in the

Statement of Financial Condition

 

Description

 

Gross

Amounts

Recognized

 

 

Offset in

the Statement

of Financial Condition

 

 

Presented in

the Statement

of Financial Condition

 

 

Financial

Instruments

 

 

Cash

Collateral

 

 

Net

Amount

 

As of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

 

61,529

 

 

$

(58,660

)

 

$

2,869

 

 

$

2,869

 

 

$

0

 

 

$

0

 

Derivative Liabilities

 

 

171,275

 

 

$

(126,434

)

 

$

44,841

 

 

$

2,869

 

 

$

90,312

 

 

$

(48,340

)

 

The Company has excess collateral compared to total exposure due to initial margin requirements for day-to-day rate volatility. 

 

6. Stockholders’ Equity

Common Shares Outstanding

Common shares outstanding excludes treasury shares totaling 4.5 million at both March 31, 2021 and December 31, 2020, with a first-in-first-out cost basis of $147.4 million and $150.7 million at March 31, 2021 and December 31, 2020, respectively. Shares outstanding also excludes unvested restricted share awards totaling 1.7 million at both March 31, 2021 and December 31, 2020.

Stock Buyback Program

 

Prior to its expiration date of December 31, 2020, the Company had in place a stock buyback program that authorized the repurchase up to 5.5 million shares of its common stock. The program, as amended, allowed the Company to repurchase its common shares in the open market, by block purchase, through accelerated share repurchase programs, in privately negotiated transactions, or as otherwise determined by the Company in one or more transactions. The Company was not obligated to purchase any shares under this program, and the board of directors had the ability to terminate or amend the program at any time prior to the expiration date. In total, the Company repurchased 4.9 million of the 5.5 million authorized shares under this buyback program at an average price of $37.65 per share.

 

The Company was party to an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co. LLC whereby the Company made a $185 million payment to Morgan Stanley and received from Morgan Stanley an initial delivery of 3,611,870 shares of the Company’s common stock, which represented 75% of the estimated total number of shares to be repurchased, based on the closing price of the Company’s common stock on October 18, 2019. Final settlement of the ASR agreement occurred on March 18, 2020. Pursuant to the terms of the settlement, the Company received cash of approximately $12.1 million and a final delivery of 1,001,472 shares.

 

In January 2020, the company repurchased 315,851 shares of its common stock at a price of $40.26 in a privately negotiated transaction.

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Accumulated Other Comprehensive Income (Loss)

The components of Accumulated Other Comprehensive Income (Loss) and changes in those components are presented in the following table.

 



 

Available

for Sale

Securities

 

 

HTM Securities

Transferred

from AFS

 

 

Employee

Benefit Plans

 

 

Cash

Flow Hedges

 

 

Equity Method Investment

 

 

Total

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

$

28,950

 

 

$

639

 

 

$

(101,278

)

 

$

17,399

 

 

$

(434

)

 

$

(54,724

)

Net change in unrealized loss

 

 

124,018

 

 

 

 

 

 

 

 

 

41,476

 

 

 

(197

)

 

 

165,297

 

Reclassification of net loss realized and included in earnings

 

 

 

 

 

 

 

 

1,232

 

 

 

(864

)

 

 

 

 

 

368

 

Amortization of unrealized net loss on securities transferred to HTM

 

 

 

 

 

(195

)

 

 

 

 

 

 

 

 

 

 

 

(195

)

Income tax expense (benefit)

 

 

28,056

 

 

 

(44

)

 

 

279

 

 

 

9,189

 

 

 

 

 

 

37,480

 

Balance, March 31, 2020

 

$

124,912

 

 

$

488

 

 

$

(100,325

)

 

$

48,822

 

 

$

(631

)

 

$

73,266

 

Balance, December 31, 2020

 

$

171,224

 

 

$

276

 

 

$

(125,573

)

 

$

39,511

 

 

$

(5,369

)

 

$

80,069

 

Net change in unrealized gain or loss

 

 

(141,800

)

 

 

 

 

 

 

(4,152

)

 

 

462

 

 

 

(145,490

)

Reclassification of net income or loss realized and included in earnings

 

 

 

 

 

 

1,954

 

 

 

(6,136

)

 

 

4,468

 

 

 

286

 

Amortization of unrealized net gain on securities transferred to HTM

 

 

 

 

(56

)

 

 

 

 

 

 

 

 

 

(56

)

Income tax expense (benefit)

 

 

(31,862

)

 

 

(13

)

 

 

439

 

 

 

(2,312

)

 

 

 

 

 

(33,748

)

Balance, March 31, 2021

 

$

61,286

 

 

$

233

 

 

$

(124,058

)

 

$

31,535

 

 

$

(439

)

 

$

(31,443

)

 

Accumulated Other Comprehensive Income or Loss (“AOCI”) is reported as a component of stockholders’ equity. AOCI can include, among other items, unrealized holding gains and losses on securities available for sale (“AFS”), including the Company’s share of unrealized gains and losses reported by a partnership accounted for under the equity method, gains and losses associated with pension or other post-retirement benefits that are not recognized immediately as a component of net periodic benefit cost, and gains and losses on derivative instruments that are designated as, and qualify as, cash flow hedges. Net unrealized gains and losses on AFS securities reclassified as securities held to maturity (“HTM”) also continue to be reported as a component of AOCI and will be amortized over the estimated remaining life of the securities as an adjustment to interest income. Subject to certain thresholds, unrealized losses on employee benefit plans will be reclassified into income as pension and post-retirement costs are recognized over the remaining service period of plan participants. Accumulated gains or losses on cash flow hedges of variable rate loans described in Note 5 will be reclassified into income over the life of the hedge. Gains and losses within AOCI are net of deferred income taxes, where applicable.  

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The following table shows the line items of the consolidated statements of income affected by amounts reclassified from AOCI.

 



 

Three Months Ended

 

 

 

Amount reclassified from AOCI (a)

 

March 31,

 

 

Affected line item on

(in thousands)

 

2021

 

 

2020

 

 

the statement of income

Amortization of unrealized net gain or loss or gain on securities transferred to HTM

 

$

56

 

 

$

195

 

 

Interest income

Tax effect

 

 

(13

)

 

 

(44

)

 

Income taxes

Net of tax

 

 

43

 

 

 

151

 

 

Net income

Amortization of defined benefit pension and post-retirement items

 

 

(1,954

)

 

 

(1,232

)

 

Other noninterest expense (b)

Tax effect

 

 

439

 

 

 

279

 

 

Income taxes

Net of tax

 

 

(1,515

)

 

 

(953

)

 

Net income

Reclassification of unrealized gain on cash flow hedges

 

 

6,136

 

 

 

1,569

 

 

Interest income

Tax effect

 

 

(1,379

)

 

 

(355

)

 

Income taxes

Net of tax

 

 

4,757

 

 

 

1,214

 

 

Net income

Reclassification of unrealized loss on equity method investment

 

 

(4,468

)

 

 

 

 

Noninterest income

Tax effect

 

 

 

 

 

 

 

Income taxes

Net of tax

 

 

(4,468

)

 

 

 

 

Net income

Amortization of loss on terminated cash flow hedges

 

 

 

 

 

(705

)

 

Interest income

Tax effect

 

 

 

 

 

159

 

 

Income taxes

Net of tax

 

 

 

 

 

(546

)

 

Net income

Total reclassifications, net of tax

 

$

(1,183

)

 

$

(134

)

 

Net income

 

(a)

Amounts in parentheses indicate reduction in net income.

(b)

These AOCI components are included in the computation of net periodic pension and post-retirement cost that is reported with other noninterest expense (see Note 10 – Retirement Plans for additional details).

 

On March 27, 2020, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation issued an interim final rule that provides an option to delay the estimated impact on regulatory capital stemming from the implementation of CECL for a transition period of five years. The five-year rule provides a full delay of the estimated impact of CECL on regulatory capital transition (0%) for the first two years, followed by a three-year transition (25% of the impact included in 2022, 50% in 2023, 75% in 2024 and 100% thereafter). The two-year delay includes the full impact of day one CECL plus the estimated impact of current CECL activity calculated quarterly as 25% of the current ACL over the day one balance (“modified transition amount”). The modified transition amount was and will be recalculated each quarter in 2020 and 2021, with the December 31, 2021 impact carrying through the remaining three years of the transition. The Company elected the five-year transition period option upon issuance of the interim final rule.

 

7. Other Noninterest Income

Components of other noninterest income are as follows:

 

 

Three Months Ended

 

 

March 31,

 

(in thousands)

2021

 

 

2020

 

Income from bank-owned life insurance

$

7,281

 

 

$

4,266

 

Credit related fees

 

2,844

 

 

 

3,065

 

Income from derivatives

 

5,035

 

 

 

3,871

 

Other miscellaneous

 

492

 

 

 

4,977

 

Total other noninterest income

$

15,652

 

 

$

16,179

 

 

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8. Other Noninterest Expense

Components of other noninterest expense are as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2021

 

 

2020

 

Advertising

 

$

2,486

 

 

$

4,234

 

Corporate value and franchise taxes

 

 

4,464

 

 

 

4,296

 

Telecommunications and postage

 

 

3,318

 

 

 

4,065

 

Entertainment and contributions

 

 

1,448

 

 

 

2,447

 

Travel expense

 

 

357

 

 

 

1,111

 

Printing and supplies

 

 

978

 

 

 

1,108

 

Tax credit investment amortization

 

 

1,112

 

 

 

961

 

Net other retirement expense

 

 

(6,545

)

 

 

(6,122

)

Other miscellaneous

 

 

6,130

 

 

 

7,469

 

Total other noninterest expense

 

$

13,748

 

 

$

19,569

 

 

9. Earnings (Loss) Per Common Share

The Company calculates earnings (loss) per share using the two-class method. The two-class method allocates net income or loss to each class of common stock and participating security according to common dividends declared and participation rights in undistributed earnings. For reporting periods in which a net loss is recorded, net loss is not allocated to participating securities because the holders of such securities bear no contractual obligation to fund or otherwise share in the losses. Participating securities consist of nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents. 

A summary of the information used in the computation of earnings (loss) per common share follows.

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands, except per share data)

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

Net income (loss) to common shareholders

 

$

107,172

 

 

$

(111,033

)

Net dividends or income allocated to participating securities - basic and diluted

 

 

2,337

 

 

 

427

 

Net income (loss) allocated to common shareholders - basic and diluted

 

$

104,835

 

 

$

(111,460

)

Denominator:

 

 

 

 

 

 

 

 

Weighted-average common shares - basic

 

 

86,752

 

 

 

87,186

 

Dilutive potential common shares

 

 

53

 

 

 

 

Weighted-average common shares - diluted

 

 

86,805

 

 

 

87,186

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

Basic

 

$

1.21

 

 

$

(1.28

)

Diluted

 

$

1.21

 

 

$

(1.28

)

 

Potential common shares consist of stock options, nonvested performance-based awards, and nonvested restricted share awards deferred under the Company’s nonqualified deferred compensation plan. These potential common shares do not enter into the calculation of diluted earnings per share if the impact would be antidilutive, i.e., increase earnings per share or reduce a loss per share. For reporting periods in which a net loss is reported, no effect is given to potentially dilutive common shares in the computation of loss per common share as any impact from such shares would be antidilutive. For the three months ended March 31, 2021, potentially dilutive common shares with a weighted average of 7,191 were excluded from the calculation of earnings per common share, as the effect would have been antidilutive.

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10. Retirement Plans

The Company offers a qualified defined benefit pension plan, the Hancock Whitney Corporation Pension Plan and Trust Agreement (“Pension Plan”), covering certain eligible associates. Eligibility is based on minimum age and service-related requirements. The Pension Plan excludes any individual hired or rehired by the Company after June 30, 2017 from eligibility to participate, and the accrued benefits of any participant in the Pension Plan whose combined age plus years of service as of January 1, 2018 totaled less than 55 were frozen as of January 1, 2018 and will not thereafter increase. The Company makes contributions to the Pension Plan in amounts sufficient to meet funding requirements set forth in federal employee benefit and tax laws, plus such additional amounts as the Company may determine to be appropriate.

During the first quarter of 2021, the Company offered a voluntary early retirement incentive program (VERIP) to select Pension Plan participants meeting certain age and length of service criteria. Most participants electing the VERIP retired on April 30, 2021. Those electing the VERIP will receive, in addition to already accrued plan benefits, a lump-sum incentive benefit based on years of service to the Company. Substantially all of benefit will be paid through the Pension Plan, and the Pension Plan will be amended during the second quarter of 2021 to reflect the implementation of this program.

The Company also offers a defined contribution retirement benefit plan (401(k) plan), the Hancock Whitney Corporation 401(k) Savings Plan and Trust Agreement (“401(k) Plan”), that covers substantially all associates who have been employed 60 days and meet a minimum age requirement and employment classification criteria. The Company matches 100% of the first 1% of compensation saved by a participant, and 50% of the next 5% of compensation saved. Newly eligible associates are automatically enrolled at an initial 3% savings rate unless the associate actively opts out of participation in the plan. Beginning January 1, 2018, the Company makes an additional basic contribution to associates hired or rehired after June 30, 2017 in an amount equal to 2% of the associate’s eligible compensation. For Pension Plan participants whose benefits were frozen as of January 1, 2018, the 401(k) Plan provides an enhanced Company contribution in the amount of 2%, 4% or 6% of such participant’s eligible compensation, based on the participant’s current age and years of service with the Company. Participants vest in basic and enhanced Company contributions upon completion of three years of service.

The Company sponsors a nonqualified defined benefit plan covering certain legacy Whitney employees that was frozen as of December 31, 2012 and no future benefits are accrued under this plan.

The Company sponsors defined benefit postretirement plans for both legacy Hancock and legacy Whitney employees that provide health care and life insurance benefits. Benefits under the Hancock plan are not available to employees hired on or after January 1, 2000. Benefits under the Whitney plan are restricted to retirees who were already receiving benefits at the time of plan amendments in 2007 or active participants who were eligible to receive benefits as of December 31, 2007.

The following tables show the components of net periodic benefits cost included in expense for the plans for the periods indicated.

 



 

 

 

 

 

 

 

 

 

Other Post-

 

(in thousands)

 

Pension Benefits

 

 

Retirement Benefits

 

For The Three Months Ended March 31,

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Service cost

 

$

3,450

 

 

$

3,275

 

 

$

27

 

 

$

22

 

Interest cost

 

 

3,460

 

 

 

3,782

 

 

 

99

 

 

 

164

 

Expected return on plan assets

 

 

(12,058

)

 

 

(11,300

)

 

 

 

 

 

Amortization of net loss and prior service costs

 

 

2,100

 

 

 

1,461

 

 

 

(146

)

 

 

(229

)

Net reduction of periodic benefit cost

 

$

(3,048

)

 

$

(2,782

)

 

$

(20

)

 

$

(43

)

 

 

 

11. Share-Based Payment Arrangements

The Company maintains incentive compensation plans that provide for awards of share-based compensation to employees and directors. These plans have been approved by the Company’s shareholders. Detailed descriptions of these plans were included in Note 19 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

 

At March 31, 2021, the Company had 19,510 outstanding and exercisable stock options, with a weighted average exercise price of $34.15, weighted average remaining contractual term of 1.2 years and an aggregate intrinsic value of $0.2 million.  

 

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Table of Contents

 

 

During the three months ended March 31, 2021, there were exercises of 3,654 stock options with a total intrinsic value of less than $0.1 million.

The Company’s restricted and performance-based share awards to certain employees and directors are subject to service requirements. A summary of the status of the Company’s nonvested restricted and performance-based share awards at March 31, 2021 are presented in the following table.

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

Number of

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

Nonvested at January 1, 2021

 

 

1,886,853

 

 

$

34.77

 

Granted

 

 

200,335

 

 

 

34.31

 

Vested

 

 

(3,635

)

 

 

41.06

 

Forfeited

 

 

(32,470

)

 

 

36.85

 

Nonvested at March 31, 2021

 

 

2,051,083

 

 

$

34.68

 

 

At March 31, 2021, there was $58.5 million of total unrecognized compensation expense related to nonvested restricted and performance shares expected to vest in the future. This compensation is expected to be recognized in expense over a weighted average period of 3.3 years. The total fair value of shares that vested during three months ended March 31, 2021 was $0.2 million.

During the three months ended March 31, 2021, the Company granted 60,996 performance share awards subject to a total shareholder return (“TSR”) performance metric with a grant date fair value of $38.49 per share and 60,996 performance shares subject to an operating earnings per share performance metric with a grant date fair value of $32.17 per share to key members of executive management. The number of performance shares subject to TSR that ultimately vest at the end of the three-year performance period, if any, will be based on the relative rank of the Company’s three-year TSR among the TSRs of a peer group of 50 regional banks. The fair value of the performance shares subject to TSR at the grant date was determined using a Monte Carlo simulation method. The number of performance shares subject to operating earnings per share that ultimately vest will be based on the Company’s attainment of certain operating earnings per share goals over the two-year performance period. The maximum number of performance shares that could vest is 200% of the target award. Compensation expense for these performance shares is recognized on a straight line basis over the three-year service period.

12. Commitments and Contingencies

In the normal course of business, the Bank enters into financial instruments, such as commitments to extend credit and letters of credit, to meet the financing needs of its customers. Such instruments are not reflected in the accompanying consolidated financial statements until they are funded, although they expose the Bank to varying degrees of credit risk and interest rate risk in much the same way as funded loans. Under regulatory capital guidelines, the Company and Bank must include unfunded commitments meeting certain criteria in risk-weighted capital calculations.

Commitments to extend credit include revolving commercial credit lines, nonrevolving loan commitments issued mainly to finance the acquisition and development or construction of real property or equipment, and credit card and personal credit lines. The availability of funds under commercial credit lines and loan commitments generally depends on whether the borrower continues to meet credit standards established in the underlying contract and has not violated other contractual conditions. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the borrower. Credit card and personal credit lines are generally subject to cancellation if the borrower’s credit quality deteriorates. A number of commercial and personal credit lines are used only partially or, in some cases, not at all before they expire, and the total commitment amounts do not necessarily represent future cash requirements of the Company.

A substantial majority of the letters of credit are standby agreements that obligate the Bank to fulfill a customer’s financial commitments to a third party if the customer is unable to perform. The Bank issues standby letters of credit primarily to provide credit enhancement to its customers’ other commercial or public financing arrangements and to help them demonstrate financial capacity to vendors of essential goods and services. 

The contract amounts of these instruments reflect the Company’s exposure to credit risk. The Company undertakes the same credit evaluation in making loan commitments and assuming conditional obligations as it does for on-balance sheet instruments and may require collateral or other credit support. At March 31, 2021, the Company had a reserve for unfunded lending commitments of $32.6 million.

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Table of Contents

 

The following table presents a summary of the Company’s off-balance sheet financial instruments as of March 31, 2021 and December 31, 2020:

 



 

March 31,

 

 

December 31,

 

(in thousands)

 

2021

 

 

2020

 

Commitments to extend credit

 

$

8,492,654

 

 

$

8,106,223

 

Letters of credit

 

 

364,626

 

 

 

365,510

 

 

Legal Proceedings

The Company is party to various legal proceedings arising in the ordinary course of business. Management does not believe that loss contingencies, if any, arising from pending litigation and regulatory matters will have a material adverse effect on the consolidated financial position or liquidity of the Company.

13. Fair Value Measurements

The FASB defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The FASB’s guidance also establishes a fair value hierarchy that prioritizes the inputs to these valuation techniques used to measure fair value, giving preference to quoted prices in active markets for identical assets or liabilities (“level 1”) and the lowest priority to unobservable inputs such as a reporting entity’s own data (“level 3”). Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in markets that are not active, observable inputs other than quoted prices, such as interest rates and yield curves, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Fair Value of Assets and Liabilities Measured on a Recurring Basis

The following tables present for each of the fair value hierarchy levels the Company’s financial assets and liabilities that are measured at fair value on a recurring basis in the consolidated balance sheets at March 31, 2021 and December 31, 2020:

 



 

March 31, 2021

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agency securities

 

$

 

 

$

217,492

 

 

$

 

 

$

217,492

 

Municipal obligations

 

 

 

 

 

316,662

 

 

 

 

 

 

316,662

 

Corporate debt securities

 

 

 

 

 

11,576

 

 

 

 

 

 

11,576

 

Residential mortgage-backed securities

 

 

 

 

 

2,970,810

 

 

 

 

 

 

2,970,810

 

Commercial mortgage-backed securities

 

 

 

 

 

2,802,195

 

 

 

 

 

 

2,802,195

 

Collateralized mortgage obligations

 

 

 

 

 

311,913

 

 

 

 

 

 

311,913

 

Total available for sale securities

 

 

 

 

 

6,630,648

 

 

 

 

 

 

6,630,648

 

Derivative assets (1)

 

 

 

 

 

99,726

 

 

 

 

 

 

99,726

 

Total recurring fair value measurements - assets

 

$

 

 

$

6,730,374

 

 

$

 

 

$

6,730,374

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities (1)

 

$

 

 

$

37,252

 

 

$

5,257

 

 

$

42,509

 

Total recurring fair value measurements - liabilities

 

$

 

 

$

37,252

 

 

$

5,257

 

 

$

42,509

 

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December 31, 2020

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agency securities

 

$

 

 

$

213,370

 

 

$

 

 

$

213,370

 

Municipal obligations

 

 

 

 

 

326,725

 

 

 

 

 

 

326,725

 

Corporate debt securities

 

 

 

 

 

11,764

 

 

 

 

 

 

11,764

 

Residential mortgage-backed securities

 

 

 

 

 

2,629,811

 

 

 

 

 

 

2,629,811

 

Commercial mortgage-backed securities

 

 

 

 

 

2,455,534

 

 

 

 

 

 

2,455,534

 

Collateralized mortgage obligations

 

 

 

 

 

362,123

 

 

 

 

 

 

362,123

 

Total available for sale securities

 

 

 

 

 

5,999,327

 

 

 

 

 

 

5,999,327

 

Derivative assets (1)

 

 

 

 

 

150,180

 

 

 

 

 

 

150,180

 

Total recurring fair value measurements - assets

 

$

 

 

$

6,149,507

 

 

$

 

 

$

6,149,507

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities (1)

 

$

 

 

$

49,612

 

 

$

5,645

 

 

$

55,257

 

Total recurring fair value measurements - liabilities

 

$

 

 

$

49,612

 

 

$

5,645

 

 

$

55,257

 

 

(1)

For further disaggregation of derivative assets and liabilities, see Note 5 - Derivatives.

Securities classified as level 2 include obligations of U.S. Government agencies and U.S. Government-sponsored agencies, residential and commercial mortgage-backed securities and collateralized mortgage obligations that are issued or guaranteed by U.S. government agencies, and state and municipal bonds. The level 2 fair value measurements for investment securities are obtained quarterly from a third-party pricing service that uses industry-standard pricing models. Substantially all of the model inputs are observable in the marketplace or can be supported by observable data. 

The Company invests only in securities of investment grade quality with a targeted duration, for the overall portfolio, generally between two and five and a half years. Company policies generally limit investments to U.S. agency securities and municipal securities determined to be investment grade according to an internally generated score which generally includes a rating of not less than “Baa” or its equivalent by a nationally recognized statistical rating agency.  

For the Company’s derivative financial instruments designated as hedges and those under the customer interest rate program, the fair value is obtained from a third-party pricing service that uses an industry-standard discounted cash flow model that relies on inputs, LIBOR swap curves and Overnight Index swap rate curves, all observable in the marketplace. To comply with the accounting guidance, credit valuation adjustments are incorporated in the fair values to appropriately reflect nonperformance risk for both the Company and the counterparties. Although the Company has determined that the majority of the inputs used to value these derivative instruments fall within level 2 of the fair value hierarchy, the credit value adjustments utilize level 3 inputs, such as estimates of current credit spreads. The Company has determined that the impact of the credit valuation adjustments is not significant to the overall valuation of these derivatives. As a result, the Company has classified its derivative valuations for these instruments in level 2 of the fair value hierarchy. The Company’s policy is to measure counterparty credit risk quarterly for all derivative instruments subject to master netting arrangements consistent with how market participants would price the net risk exposure at the measurement date.

The Company also has certain derivative instruments associated with the Bank’s mortgage-banking activities. These derivative instruments include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a best efforts delivery basis. The fair value of these derivative instruments is measured using observable market prices for similar instruments and is classified as a level 2 measurement.

The Company’s Level 3 liability consists of a derivative contract with the purchaser of 192,163 shares of Visa Class B common stock. Pursuant to the agreement, the Company retains the risks associated with the ultimate conversion of the Visa Class B common shares into shares of Visa Class A common stock, such that the counterparty will be compensated for any dilutive adjustments to the conversion ratio and the Company will be compensated for any anti-dilutive adjustments to the ratio. The agreement also requires periodic payments by the Company to the counterparty calculated by reference to the market price of Visa Class A common shares at the time of sale and a fixed rate of interest that steps up once after the eighth scheduled quarterly payment. The fair value of the liability is determined using a discounted cash flow methodology. The significant unobservable inputs used in the fair value measurement are the Company’s own assumptions about estimated changes in the conversion rate of the Visa Class B common shares into Visa Class A common shares, the date on which such conversion is expected to occur and the estimated growth rate of the Visa Class A common share price. Refer to Note 5 – Derivatives for information about the derivative contract with the counterparty.

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The Company believes its valuation methods for its assets and liabilities carried at fair value are appropriate; however, the use of different methodologies or assumptions, particularly as applied to Level 3 assets and liabilities, could have a material effect on the computation of their estimated fair values.

 

Changes in Level 3 Fair Value Measurements and Quantitative Information about Level 3 Fair Value Measurements

The table below presents a rollforward of the amounts on the consolidated balance sheets for the three months ended March 31, 2021 and the year ended December 31, 2020 for financial instruments of a material nature that are classified within Level 3 of the fair value hierarchy and are measured at fair value on a recurring basis:

 

(in thousands)

 

 

 

 

Balance at December 31, 2019

 

$

5,704

 

Cash settlement

 

 

(1,656

)

Losses included in earnings

 

 

1,597

 

Balance at December 31, 2020

 

 

5,645

 

Cash settlement

 

 

(436

)

Losses included in earnings

 

 

48

 

Balance at March 31, 2021

 

$

5,257

 

The table below provides an overview of the valuation techniques and significant unobservable inputs used in those techniques to measure the financial instrument measured on a recurring basis and classified within Level 3 of the valuation. The range of sensitivities that management utilized in its fair value calculations is deemed acceptable in the industry with respect to the identified financial instrument.

 

($ in thousands)

 

 

 

 

 

 

 

 



 

Fair Value

 

Level 3 Class

 

March 31, 2021

 

 

December 31, 2020

 

Derivative liability

 

$

5,257

 

 

$

5,645

 

Valuation technique

 

Discounted cash flow

 

 

Discounted cash flow

 

Unobservable inputs:

 

 

 

 

 

 

 

 

Visa Class A appreciation - range

 

6%-12%

 

 

6%-12%

 

Visa Class A appreciation - weighted average

 

9%

 

 

9%

 

Conversion rate - range

 

1.62x-1.60x

 

 

1.62x-1.60x

 

Conversion rate -weighted average

 

1.6114x

 

 

1.6114x

 

Time until resolution

 

3-33 months

 

 

3-36 months

 

 

The Company’s policy is to recognize transfers between valuation hierarchy levels as of the end of a reporting period

 

Fair Value of Assets Measured on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis. Collateral-dependent loans individually evaluated for credit loss are level 2 assets measured at the fair value of the underlying collateral based on independent third-party appraisals that take into consideration market-based information such as recent sales activity for similar assets in the property’s market. 

Other real estate owned and foreclosed assets, including both foreclosed property and surplus banking property, are level 3 assets that are adjusted to fair value, less estimated selling costs, upon transfer from loans or property and equipment. Subsequently, other real estate owned and foreclosed assets is carried at the lower of carrying value or fair value less estimated selling costs. Fair values are determined by sales agreement or third-party appraisals as discounted for estimated selling costs, information from comparable sales, and marketability of the assets. 

The fair value information presented below is not as of the period end, rather it was as of the date the fair value adjustment was recorded during the twelve months for each of the dates presented below, and excludes nonrecurring fair value measurements of assets no longer on the balance sheet. 

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The following tables present the Company’s financial assets that are measured at fair value on a nonrecurring basis for each of the fair value hierarchy levels.

 



 

March 31, 2021

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Collateral-dependent loans individually evaluated for credit loss

 

$

 

 

$

33,859

 

 

$

 

 

$

33,859

 

Other real estate owned and foreclosed assets, net

 

 

 

 

 

 

 

 

9,467

 

 

 

9,467

 

Total nonrecurring fair value measurements

 

$

 

 

$

33,859

 

 

$

9,467

 

 

$

43,326

 

 



 

December 31, 2020

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Collateral-dependent loans individually evaluated for credit loss

 

$

 

 

$

60,451

 

 

$

 

 

$

60,451

 

Other real estate owned and foreclosed assets, net

 

 

 

 

 

 

 

 

11,648

 

 

 

11,648

 

Total nonrecurring fair value measurements

 

$

 

 

$

60,451

 

 

$

11,648

 

 

$

72,099

 

 

Accounting guidance from the FASB requires the disclosure of estimated fair value information about certain on- and off-balance sheet financial instruments, including those financial instruments that are not measured and reported at fair value on a recurring basis. The significant methods and assumptions used by the Company to estimate the fair value of financial instruments are discussed below.

Cash, Short-Term Investments and Federal Funds Sold – For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities – The fair value measurement for securities available for sale was discussed earlier in the note. The same measurement techniques were applied to the valuation of securities held to maturity. 

Loans, Net – The fair value measurement for certain impaired loans was discussed earlier in the note. For the remaining portfolio, fair values were generally determined by discounting scheduled cash flows using discount rates determined with reference to current market rates at which loans with similar terms would be made to borrowers of similar credit quality. 

Loans Held for Sale – These loans are recorded at fair value and carried at the lower of cost or market. The carrying amount is considered a reasonable estimate of fair value. 

Deposits – The accounting guidance requires that the fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking and savings accounts, be assigned fair values equal to amounts payable upon demand (“carrying amounts”). The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Federal Funds Purchased and Securities Sold under Agreements to Repurchase – For these short-term liabilities, the carrying amount is a reasonable estimate of fair value.

Short-Term FHLB Borrowings – The fair value is estimated by discounting the future contractual cash flows using current market rates at which borrowings with similar terms and options could be obtained.

Long-Term Debt – The fair value is estimated by discounting the future contractual cash flows using current market rates at which debt with similar terms could be obtained.

Derivative Financial Instruments – The fair value measurement for derivative financial instruments was discussed earlier in the note.

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The following tables present the estimated fair values of the Company’s financial instruments by fair value hierarchy levels and the corresponding carrying amounts:

 



 

March 31, 2021

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Total Fair

 

 

Carrying

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Value

 

 

Amount

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, interest-bearing bank deposits, and federal funds sold

 

$

2,847,784

 

 

$

 

 

$

 

 

$

2,847,784

 

 

$

2,847,784

 

Available for sale securities

 

 

 

 

 

6,630,648

 

 

 

 

 

 

6,630,648

 

 

 

6,630,648

 

Held to maturity securities

 

 

 

 

 

1,455,224

 

 

 

 

 

 

1,455,224

 

 

 

1,375,342

 

Loans, net

 

 

 

 

 

33,859

 

 

 

21,249,135

 

 

 

21,282,994

 

 

 

21,240,499

 

Loans held for sale

 

 

 

 

 

124,677

 

 

 

 

 

 

124,677

 

 

 

124,677

 

Derivative financial instruments

 

 

 

 

 

99,726

 

 

 

 

 

 

99,726

 

 

 

99,726

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

 

 

 

 

 

 

29,185,386

 

 

 

29,185,386

 

 

$

29,210,520

 

Federal funds purchased

 

 

4,300

 

 

 

 

 

 

 

 

 

4,300

 

 

 

4,300

 

Securities sold under agreements to repurchase

 

 

548,447

��

 

 

 

 

 

 

 

 

548,447

 

 

 

548,447

 

FHLB short-term borrowings

 

 

 

 

 

1,106,829

 

 

 

 

 

 

1,106,829

 

 

 

1,100,000

 

Long-term debt

 

 

 

 

 

394,806

 

 

 

 

 

 

394,806

 

 

 

397,583

 

Derivative financial instruments

 

 

 

 

 

37,252

 

 

 

5,257

 

 

 

42,509

 

 

 

42,509

 

 



 

December 31, 2020

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total Fair

Value

 

 

Carrying

Amount

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, interest-bearing bank deposits, and federal funds sold

 

$

1,860,092

 

 

$

 

 

$

 

 

$

1,860,092

 

 

$

1,860,092

 

Available for sale securities

 

 

 

 

 

5,999,327

 

 

 

 

 

 

5,999,327

 

 

 

5,999,327

 

Held to maturity securities

 

 

 

 

 

1,467,581

 

 

 

 

 

 

1,467,581

 

 

 

1,357,170

 

Loans, net

 

 

 

 

 

60,451

 

 

 

21,472,933

 

 

 

21,533,384

 

 

 

21,339,754

 

Loans held for sale

 

 

 

 

 

136,063

 

 

 

 

 

 

136,063

 

 

 

136,063

 

Derivative financial instruments

 

 

 

 

 

150,180

 

 

 

 

 

 

150,180

 

 

 

150,180

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

 

 

$

 

 

$

27,679,321

 

 

$

27,679,321

 

 

$

27,697,877

 

Federal funds purchased

 

 

300

 

 

 

 

 

 

 

 

 

300

 

 

 

300

 

Securities sold under agreements to repurchase

 

 

567,213

 

 

 

 

 

 

 

 

 

567,213

 

 

 

567,213

 

FHLB short-term borrowings

 

 

 

 

 

1,147,335

 

 

 

 

 

 

1,147,335

 

 

 

1,100,000

 

Long-term debt

 

 

 

 

 

404,880

 

 

 

 

 

 

404,880

 

 

 

378,322

 

Derivative financial instruments

 

 

 

 

 

49,612

 

 

 

5,645

 

 

 

55,257

 

 

 

55,257

 

 

 

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14. Recent Accounting Pronouncements

Accounting Standards Adopted in 2021

 

In January 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-01, “Reference Rate Reform (Topic 848),” to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the transition to new reference rates. The amendments in the update do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship (including periods after December 31, 2022). The provisions of this guidance were effective upon issuance for all entities. An entity may elect to apply the amendments in this update on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The Company adopted this guidance on a full retrospective basis in upon issuance. Adoption of this guidance did not have a material impact upon the Company’s financial position and results of operations.

 

In October 2020, the FASB issued ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables- Nonrefundable Fees and Other Costs,” to clarify that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. Securities within the scope of this paragraph are those that have explicit, noncontingent call options that are callable at fixed prices and on preset dates at prices less than the amortized cost basis of the security. Whether a security is subject to this paragraph may change depending on the amortized cost basis of the security and the terms of the next call option. For instruments that fall within the scope, the premium should be amortized to the next call date, which is defined as the first date at which a call option at a specified price becomes exercisable. Once the next call date has passed, the next call date after that (if applicable) is the date at which the next call option at a specified price becomes exercisable, and, if there is no remaining premium or if there are no further call dates, the effective yield should be reset using the payment terms of the debt security. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, and entities should apply the amendments in the update on a prospective basis for existing and newly purchased callable debt securities. The Company assessed its bond portfolio at March 31, 2021 and determined that there were no bonds with premium calls at such date. The Company will evaluate its bond portfolio at each interim and annual reporting date to determine if any instruments fall within the scope of paragraph 310-20-35-33.

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740).” The amendments in this update are meant to simplify the accounting for income taxes by removing certain exceptions to GAAP. The amendments also improve consistent application of and simplify GAAP by modifying and/or revising the accounting for certain income tax transactions and by clarifying certain existing codification. The amendments in the update are effective for public business entities for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. The Company adopted this guidance on January 1, 2021. Adoption of this guidance did not have a material impact upon the Company’s financial position and results of operations.

 

 

 

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements within the meaning and protections of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q and in other reports or documents that we file from time to time with the SEC include, but are not limited to, the following:

 

 

the negative impacts and disruptions resulting from the outbreak of the novel coronavirus, or COVID-19, on the economies and communities we serve, which has had and may continue to have an adverse impact on our business operations and performance, and has and may continue to have a negative impact on our credit portfolio, stock price, borrowers and the economy as a whole both globally and domestically;

 

government or regulatory responses to the COVID-19 pandemic;

 

balance sheet and revenue growth expectations may differ from actual results;

 

the risk that our provision for credit losses may be inadequate or may be negatively affected by credit risk exposure;

 

loan growth expectations;

 

the impact of Paycheck Protection Program (PPP) loans on our results;

 

management’s predictions about charge-offs;

 

the risk that our enterprise risk management framework may not identify or address risks adequately, which may result in unexpected losses;

 

the impact of future business combinations upon our performance and financial condition including our ability to successfully integrate the businesses;

 

deposit trends;

 

credit quality trends;

 

changes in interest rates;

 

the impact of reference rate reform;

 

net interest margin trends;

 

future expense levels, including the impact from the Voluntary Early Retirement Program;

 

improvements in expense to revenue (efficiency ratio);

 

success of revenue-generating and cost reduction initiatives;

 

the effectiveness of derivative financial instruments and hedging activities to manage risks;

 

risks related to our reliance on third parties to provide key components of our business infrastructure, including the risks related to disruptions in services or financial difficulties of a third-party vendor;

 

risks related to the ability of our operational framework to manage risks associated with our business such as credit risk and operation risk, including third-party vendors and other service providers, which could among other things, result in a breach of operating or security systems as a result of a cyber-attack or similar act;

 

projected tax rates;

 

future profitability;

 

purchase accounting impacts, such as accretion levels;

 

our ability to identify and address potential cybersecurity risks, heightened by the increased use of our virtual private network platform, including data security breaches, credential stuffing, malware, “denial-of-service” attacks, “hacking” and identity theft, a failure of which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage to our systems, increased costs, losses, or adverse effects to our reputation;

 

our ability to receive dividends from Hancock Whitney Bank could affect our liquidity, including our ability to pay dividends or take other capital actions;

 

a material decrease in net income or a net loss over several quarters could result in a decrease in, or the elimination of, our quarterly cash dividend;

 

the impact on our financial results, reputation, and business if we are unable to comply with all applicable federal and state regulations or other supervisory actions or directives and any necessary capital initiatives;

 

our ability to effectively compete with other traditional and non-traditional financial services companies, some of whom possess greater financial resources than we do or are subject to different regulatory standards than we are;

 

our ability to maintain adequate internal controls over financial reporting;

 

potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions, including costs and effects of litigation related to our participation in stimulus programs associated with the government’s response to the COVID-19 pandemic;

 

the financial impact of future tax legislation; and

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changes in laws and regulations affecting our businesses, including governmental monetary and fiscal policies, legislation and regulations relating to bank products and services, as well as changes in the enforcement and interpretation of such laws and regulations by applicable governmental and self-regulatory agencies, which could require us to change certain business practices, increase compliance risk, reduce our revenue, impose additional costs on us, or otherwise negatively affect our businesses.

Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “forecast,” “goals,” “targets,” “initiatives,” “focus,” “potentially,” “probably,” “projects,” “outlook,” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.” Forward-looking statements are based upon the current beliefs and expectations of management and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events.

Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward looking statements. Additional factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and in other periodic reports that we file with the SEC.

You are cautioned not to place undue reliance on these forward-looking statements. We do not intend, and undertake no obligation, to update or revise any forward-looking statements, whether as a result of differences in actual results, changes in assumptions or changes in other factors affecting such statements, except as required by law.

OVERVIEW

Non-GAAP Financial Measures

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations include non-GAAP measures used to describe our performance. These non-GAAP financial measures have inherent limitations as analytical tools and should not be considered on a standalone basis or as a substitute for analyses of financial condition and results as reported under GAAP. Non-GAAP financial measures are not standardized and therefore, it may not be possible to compare these measures with other companies that present measures having the same or similar names. These disclosures should not be considered an alternative to GAAP.

A reconciliation of those measures to GAAP measures are provided within the Selected Financial Data section that appears later in this item. The following is a summary of these non-GAAP measures and an explanation as to why they are deemed useful. 

Consistent with the provisions of subpart 229.1400 of the Securities and Exchange Commission’s Regulation S-K, “Disclosures by Bank and Savings and Loan Registrants,” we present net interest income, net interest margin and efficiency ratios on a fully taxable equivalent (“te”) basis. The te basis adjusts for the tax-favored status of net interest income from certain loans and investments using a statutory federal tax rate of 21% to increase tax-exempt interest income to a taxable equivalent basis. We believe this measure to be the preferred industry measurement of net interest income, and that it enhances comparability of net interest income arising from taxable and tax-exempt sources.

We present certain additional non-GAAP financial measures to assist the reader with a better understanding of the Company’s performance period over period, as well as to provide investors with assistance in understanding the success management has experienced in executing its strategic initiatives. These non-GAAP measures may reference the concept “operating.” We use the term “operating” to describe a financial measure that excludes income or expense considered to be nonoperating in nature. Items identified as nonoperating are those that, when excluded from a reported financial measure, provide management or the reader with a measure that may be more indicative of forward-looking trends in our business.

We define Operating Pre-Provision Net Revenue as total revenue (te) less noninterest expense, excluding nonoperating items. Management believes that operating pre-provision net revenue is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle.

 

 

 

 

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Ongoing Impact of COVID-19 and Economic Outlook

The COVID-19 pandemic continues to impact economic conditions throughout the United States and globally. While infection rates abated considerably during the first quarter of 2021, the virus is not yet fully contained and there is continued uncertainty related to mutated variants of the virus that, in some cases, may spread more easily between humans, have more severe symptoms, require different treatments, or could change the effectiveness of current vaccines. Vaccination rates have ramped up considerably in the United States since the end of 2020, with the Centers for Disease Control and Prevention (CDC) reporting more than 43% of the population receiving at least one dose and 30% of the population fully vaccinated through April 28, 2021.

 

The various measures from the federal government to deliver temporary economic aid to individuals and businesses financially impacted by COVID-19 continue to have a stabilizing impact on economic conditions. National economic activity accelerated to a moderate pace from late February to early April, and consumer spending strengthened during the same period. Reports on tourism were more upbeat, bolstered by a pickup in demand for leisure activities and travel, largely attributed to spring break, an easing of pandemic-related restrictions, increased vaccinations, and recent stimulus payments among other factors. National economic metrics showed meaningful signs of recovery through the latter half of 2020 and continued to do so in the first quarter of 2021, although have not yet returned to pre-pandemic levels. After peaking at 14.8% in April 2020, the rate of unemployment has declined steadily and reached 6% in March 2021, and Real Gross Domestic Product (GDP) showed gains, on an annualized basis, of 33% and 4% in the third and fourth quarters of 2020, respectively, and 6% in the first quarter of 2021, after falling precipitously in the second quarter of 2020.

 

The pandemic remains a significant headwind to both our local and the global economy. While we expect that the worst of the economic fallout from the virus is likely behind us, risks to travel, tourism and trade will remain until effective vaccines are widely adopted or the virus is otherwise contained.

 

Impact to Our Business

 

While our results for 2020 were significantly impacted by the economic slowdown, we began to see improvement in the latter half of the year. During the first quarter of 2021, there were signs of cautious optimism across our footprint as vaccinations ramped up, restrictions were decreased or eliminated, and businesses were allowed to increase capacity. We saw growth across most revenue streams and remained focused on expense management, leading to an increase in earnings compared to the prior quarter.

 

We were pleased to participate in the second round of forgivable loans to qualifying businesses under the Small Business Administration’s Paycheck Protection Program (PPP), now extended until May 31, 2021. During the first quarter of 2021, we originated $836 million in new PPP loans, had $496 million of PPP loans forgiven, and ended the quarter with $2.3 billion PPP loans outstanding. PPP loans have provided loan growth and contributed favorably to our net interest income and margin amid the low interest rate environment, while delivering much needed assistance in the communities we serve. However, muted demand continued for most other forms of commercial and consumer loan products, resulting in a net decline of core loans (excluding PPP loans) of approximately $465 million in the first quarter of 2021.

 

We, along with many in our industry, again experienced significant deposit growth during the quarter, largely from the extension of PPP and a new round of stimulus payments. Our end of period deposits grew over $1.5 billion during the first quarter of 2021, and combined with PPP loans forgiveness and lack of core loan demand, was the source of over $2 billion of excess liquidity. The excess liquidity provided net interest income, but also contributed to the contraction of our net interest margin during the quarter.

 

Despite the challenging economic environment, our overall asset quality metrics continued to improve with both commercial criticized and nonperforming loans down compared to the prior quarter. A significant portion of our loan portfolio is concentrated in geographic areas and/or business sectors that have been disproportionately impacted by restrictions on movement, such as hospitality, retail and certain healthcare and social assistance services. Many of our customers have benefited from the various stimulus programs intended to provide assistance until full economic recovery, which has not yet been achieved for many. We continue to monitor these loans closely.

 

We continue to focus on expense control initiatives in light of the current economic environment. These initiatives included closing 12 financial centers in the fourth quarter of 2020 and eight in the second quarter of 2021. Our full time equivalent headcount has decreased by 270 since June 30, 2020 via attrition and other initiatives. In addition, during the first quarter of 2021, we offered a voluntary early retirement program to certain associates meeting age and service requirements; most associates electing the benefit retired on April 30, 2021. We continue to explore other cost saving opportunities.

 

Despite the challenges we have faced, our balance sheet remains strong and both the Company and Bank remain well capitalized with capital ratios well in excess of required regulatory minimums.

 

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Economic Outlook

 

We utilize economic forecasts produced by Moody’s Analytics (Moody’s) that provide various scenarios to assist in the development of our economic outlook. These forecasts are anchored on a baseline forecast scenario, which Moody’s defines as the “most likely outcome” of where the economy is headed based on current conditions. Several upside and downside scenarios are produced that are derived from the baseline scenario. This outlook discussion utilizes the March 2021 Moody’s forecast, the most current available at March 31, 2021. In the March 2021 baseline forecast, the near-term economic recovery was assumed to be somewhat faster compared to the assumption included in the December forecast. Key underlying assumptions in the baseline forecast are that (1) there will be no new widespread economic shutdowns; (2) herd immunity will be reached by the summer; (3) the unemployment rate continues to decline, and at a faster rate than the prior forecast, with fourth quarter of 2021 forecasted at 5.0% and fourth quarter of 2022 at 4.2%; (4) gross domestic product will increase an average of 5.7% in both 2021 and 2022; (5) the $1.9 trillion American Rescue Plan stimulus package, as well as infrastructure and social legislation forecasted in the second half of 2021, will both provide an additional boost to the economy; and, (6) the Federal Reserve will continue to respond to the economic impact of COVID-19 by maintaining rates at or near zero until the first quarter of 2023.

 

The alternative Moody’s forecast scenarios have varying degrees of positive and negative severity of the outcome of the economic downturn, as well as varying shapes and length of recovery. Management determined that assumptions provided for in the downside slower near-term growth (S-2) was reasonably possible, and as such, the S-2 scenario was given consideration through probability weighting in our allowance for credit losses calculation at March 31, 2021. The S-2 slower near-term growth assumptions (compared to baseline) include slower than expected distribution of vaccines, with fewer people electing to receive it; a slower return to consumer spending on air travel, retail and hotels, and stimulus is less effective due to slower return to spending; a near-term rise in unemployment; and smaller infrastructure and social benefit legislation, which further impedes growth. We believe this alternative scenario is less likely to occur than the Baseline and have weighted it accordingly in developing our economic forecast. The extent to which observed and forecasted economic conditions deteriorate or recover beyond that currently forecasted may result in additional volatility and allowance for credit loss builds or releases in the future.

 

As the gradual return to pre-pandemic conditions continues, we expect pressure on loan demand and earnings to remain in the near term, the extent of which is difficult to estimate. We have implemented several strategies to effectively manage our asset/liability mix, to maximize our resources, and reduce costs until the economy returns to a more normalized level of activity in our region.  The timing of such return to pre-pandemic activity levels in our region remains uncertain. Forward looking information based on management’s expectation of near-term performance is provided in several sections that follow. 

Given the ongoing and dynamic nature of the circumstances, it is not possible to accurately predict the extent, severity or duration of these conditions or when normal economic and operating conditions will resume. The continued success of government initiatives in stimulating economic activity, societal response to virus containment measures, and the availability, efficacy and satisfactory rate of vaccination that will meaningfully reduce infection rates are critical to the resolution of the crisis.

 

Highlights of the First Quarter 2021

 

We reported net income for the first quarter of 2021 of $107.2 million, or $1.21 per diluted common share (EPS), compared to $103.6 million, or $1.17 EPS in the fourth quarter of 2020 and a net loss of $111.0 million, or $(1.28) EPS in the first quarter of 2020. The first quarter of 2020 net loss reflected a provision for credit losses of $246.8 million related to the sharp decline in market conditions at the onset of the pandemic.

First quarter 2021 results compared to fourth quarter 2020:

 

 

Net income of $107.2 million, or $1.21 per diluted share, up $3.6 million or $0.04 per share

 

Pre-provision net revenue (PPNR) totaled $131.5 million, up $0.9 million, or 1%

 

Negative provision for credit losses of $4.9 million; $23.2 million reserve release, $18.3 million in net charge-offs

 

Allowance for credit losses remains elevated at 2.11% of total loans

 

Improved asset quality, with declines of 20% in nonperforming loans and 11% in criticized commercial loans

 

Net interest margin was down 13 basis points (bps) to 3.09%, mainly from the impact of excess liquidity

 

Capital levels improved with common equity Tier 1 (CET1) ratio of 11.00%, up 39 bps

 

Tangible common equity ratio was 7.26%, down 38 bps, reflecting our balance sheet growth, largely in low risk excess cash and PPP loans

 

Total loans declined $125 million, or 1%, with a net decline in core loans (loans excluding PPP loans) of $465 million, partially offset by net PPP loan growth of $340 million

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Noninterest-bearing deposits increased $1.0 billion and total deposits increased $1.5 billion, largely due to pandemic-related economic stimulus activity

 

Strong first quarter performance was the result of a more positive economic environment and improved asset quality metrics. We were able to release a modest amount of loan loss reserves this quarter while maintaining solid capital ratios and reporting improved operating leverage. We experienced improving levels of noninterest income across most fee categories as the local governments in the areas in which we operate continue to ease business and social restrictions. The increase in noninterest-bearing and other low cost deposits related to stimulus activity and limited loan demand has resulted in excess liquidity on our balance sheet, carried largely in interest-bearing bank deposits with the Federal Reserve and securities. The excess liquidity was a factor in net interest margin compression for the quarter, but also contributed to stable net interest income, when adjusted for the two fewer accrual days. We remain focused on managing our balance sheet mix and expense levels as the economy returns to a more normalized level of activity in our region.

 

Subsequent to quarter end, on April 22, 2021, our Board of Directors approved the redemption of $150 million in the aggregate of our 5.95% subordinated notes due 2045 and a new stock repurchase plan of up to 4.3 million shares, both subject to the regulatory approval of the subordinated note redemption. The Company received regulatory approval of the subordinated note redemption on April 26, 2021 and intends to redeem the notes in full on June 15, 2021. We expect cost savings from the note redemption of approximately $9 million on an annualized basis, which is net of associated costs of approximately $4.2 million to be included in second quarter 2021 financial results. These actions reflect our focus on effective capital management while improving returns to our shareholders.

 

 

RESULTS OF OPERATIONS

Net Interest Income

Net interest income (te) for the first quarter of 2021 was $237.5 million, a $3.9 million, or 2%, decrease from the fourth quarter of 2020, and an increase of $2.9 million, or 1%, from the first quarter of 2020. The linked quarter decrease was primarily attributable to two fewer accrual days, with the favorable impacts from a $1.1 billion increase in average earning assets, a reduction in cost of funds and a higher level of net interest recoveries largely offset by a decrease in the yield on earning assets due to a less favorable mix. The increase from the first quarter of 2020 was largely due to the favorable impact of a $3.4 billion increase in average earning assets, partially offset by a net unfavorable change in rates and one less accrual day, among other items discussed in more detail below.

Linked quarter average earning assets increased $1.1 billion, or 4%, with growth primarily in the investment securities and lower yielding short-term investments. Average earning asset growth was driven by excess liquidity from a $1.1 billion increase in total deposits, largely from pandemic related activity including individual stimulus payments and higher business account balances from PPP loan funding. Our net deposit growth in the quarter reflects a more favorable mix, with increased noninterest-bearing and lower-cost interest-bearing transaction deposits, while higher-cost time deposits were down. The improved funding mix, coupled with the Company’s deposit pricing strategy, resulted in a 4 bp linked quarter decrease in the cost of funds.

The $2.9 million increase in net interest income (te) in the first quarter of 2021 compared to first quarter of 2020 was largely due to a $3.4 billion increase in average earning assets, a 46 bp decrease in the cost of funds, and $5.1 million in higher net interest recoveries, partially offset by a decrease in the earning asset yield due to a less favorable mix, $3.7 million in higher securities premium amortization, $2.7 million in lower purchase accounting accretion and one less accrual day. The $3.4 billion, or 12%, increase in average earning assets includes a $1.5 billion increase in short-term investments, $1.3 billion increase in investment securities and $0.5 billion increase in loans. The increase in average earning assets was funded by a $3.8 billion increase in total deposits, with $3.6 billion from noninterest-bearing deposits and $0.2 billion from interest-bearing deposits, primarily due to pandemic-related activity.

The net interest margin for the first quarter of 2021 was 3.09%, down 13 bps from 3.22% in the fourth quarter of 2020. The compression from the prior quarter was driven by a reduction of 7 bps related to lower LIBOR and refinancing rates, and 13 bps related to an increase in average excess liquidity as noted above, partially offset by increases of 5 bps from higher interest recoveries on nonaccrual loans and 2 bps from higher purchase accounting accretion. The yield on earning assets was 3.30%, down 17 bps from the prior quarter primarily attributable to the less favorable earning asset mix described above, as well as the lower interest rate environment. Securities purchased and loans originated in the quarter were at lower yields than the linked-quarter portfolio average. Cost of funds decreased 4 bps to 0.21% in the first quarter of 2021, due to an improving deposit funding mix combined with our pricing strategy.

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The net interest margin was down 32 bps compared to the first quarter of 2020 from a lower overall rate environment and a less favorable average earning asset mix, partially offset by a favorable change in the funding mix. The yield on earning assets was down 78 bps from the first quarter of 2020, while the cost of funds decreased 46 bps from 0.67% in the first quarter of 2020, as we aggressively priced downward interest-bearing transaction and time deposits by reducing promotional rates and used excess liquidity to reduce the balance of higher costing brokered deposits. Other short-term borrowing costs were down 46 bps from the prior year as excess liquidity was also used to pay down FHLB advances. The cost of long-term debt was up 72 bps from 4.76% in the first quarter of 2020 due to the June 2020 issuance of $172.5 million in subordinated debt at 6.25%.

We expect the net interest margin to continue to compress as much as 10 to 15 bps in the second quarter of 2021, primarily as a result of elevated levels of excess liquidity and no expected interest recoveries, and to remain relatively flat during the second half of 2021. Net interest income (te) is expected to decline $2 to $4 million linked-quarter and be down 1% to 2% for the full year 2021 as compared to 2020. These expectations include the favorable impact of the previously discussed anticipated second quarter 2021 redemption of subordinated notes.

The following tables detail the components of our net interest income (te) and net interest margin.

 

 

 

Three Months Ended

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

March 31, 2020

 

(dollars in millions)

 

Volume

 

 

Interest (d)

 

 

Rate

 

 

Volume

 

 

Interest (d)

 

 

Rate

 

 

Volume

 

 

Interest (d)

 

 

Rate

 

Average earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & real estate loans (te) (a)

 

$

17,334.3

 

 

$

155.9

 

 

 

3.65

%

 

$

17,430.0

 

 

$

157.1

 

 

 

3.59

%

 

$

16,109.2

 

 

$

182.5

 

 

 

4.56

%

Residential mortgage loans

 

 

2,600.5

 

 

 

24.7

 

 

 

3.79

%

 

 

2,732.5

 

 

 

26.6

 

 

 

3.90

%

 

 

2,969.0

 

 

 

29.5

 

 

 

3.98

%

Consumer loans

 

 

1,810.5

 

 

 

21.4

 

 

 

4.79

%

 

 

1,903.2

 

 

 

22.8

 

 

 

4.76

%

 

 

2,155.9

 

 

 

29.4

 

 

 

5.48

%

Loan fees & late charges

 

 

 

 

 

13.4

 

 

 

0.00

%

 

 

 

 

 

14.6

 

 

 

0.00

%

 

 

 

 

 

(0.6

)

 

 

0.00

%

Total loans (te) (b)

 

 

21,745.3

 

 

 

215.4

 

 

 

4.01

%

 

 

22,065.7

 

 

 

221.1

 

 

 

3.99

%

 

 

21,234.1

 

 

 

240.8

 

 

 

4.56

%

Loans held for sale

 

 

111.8

 

 

 

0.7

 

 

 

2.41

%

 

 

104.4

 

 

 

0.5

 

 

 

1.99

%

 

 

40.3

 

 

 

0.6

 

 

 

6.17

%

US Treasury and government agency securities

 

 

214.5

 

 

 

0.9

 

 

 

1.77

%

 

 

196.0

 

 

 

0.9

 

 

 

1.85

%

 

 

124.7

 

 

 

0.8

 

 

 

2.37

%

Mortgage-backed securities and

   collateralized mortgage obligations

 

 

6,307.9

 

 

 

29.4

 

 

 

1.86

%

 

 

5,781.5

 

 

 

30.7

 

 

 

2.12

%

 

 

5,139.5

 

 

 

31.3

 

 

 

2.44

%

Municipals (te)

 

 

934.5

 

 

 

6.8

 

 

 

2.93

%

 

 

934.1

 

 

 

6.9

 

 

 

2.94

%

 

 

877.2

 

 

 

6.7

 

 

 

3.07

%

Other securities

 

 

11.6

 

 

 

0.1

 

 

 

4.07

%

 

 

9.5

 

 

 

0.1

 

 

 

4.20

%

 

 

8.0

 

 

 

0.1

 

 

 

4.29

%

Total securities (te) (c)

 

 

7,468.5

 

 

 

37.2

 

 

 

2.00

%

 

 

6,921.1

 

 

 

38.6

 

 

 

2.23

%

 

 

6,149.4

 

 

 

38.9

 

 

 

2.53

%

Total short-term investments

 

 

1,690.0

 

 

 

0.4

 

 

 

0.10

%

 

 

784.3

 

 

 

0.2

 

 

 

0.10

%

 

 

206.9

 

 

 

0.5

 

 

 

0.87

%

Total earning assets (te)

 

$

31,015.6

 

 

$

253.7

 

 

 

3.30

%

 

$

29,875.5

 

 

$

260.4

 

 

 

3.47

%

 

$

27,630.7

 

 

$

280.8

 

 

 

4.08

%

Average interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction and savings deposits

 

$

10,796.0

 

 

$

3.4

 

 

 

0.13

%

 

$

10,229.6

 

 

$

4.2

 

 

 

0.16

%

 

$

8,798.5

 

 

$

12.7

 

 

 

0.58

%

Time deposits

 

 

1,757.4

 

 

 

3.0

 

 

 

0.69

%

 

 

1,890.7

 

 

 

3.8

 

 

 

0.80

%

 

 

3,513.2

 

 

 

15.4

 

 

 

1.76

%

Public funds

 

 

3,211.1

 

 

 

2.8

 

 

 

0.36

%

 

 

3,160.4

 

 

 

3.9

 

 

 

0.50

%

 

 

3,252.2

 

 

 

10.8

 

 

 

1.33

%

Total interest-bearing deposits

 

 

15,764.5

 

 

 

9.2

 

 

 

0.24

%

 

 

15,280.7

 

 

 

11.9

 

 

 

0.31

%

 

 

15,563.9

 

 

 

38.9

 

 

 

1.01

%

Repurchase agreements

 

 

583.7

 

 

 

0.1

 

 

 

0.13

%

 

 

676.4

 

 

 

0.3

 

 

 

0.17

%

 

 

515.3

 

 

 

0.6

 

 

 

0.47

%

Other short-term borrowings

 

 

1,104.7

 

 

 

1.4

 

 

 

0.49

%

 

 

1,103.0

 

 

 

1.4

 

 

 

0.49

%

 

 

1,634.9

 

 

 

3.9

 

 

 

0.95

%

Long-term debt

 

 

396.7

 

 

 

5.5

 

 

 

5.48

%

 

 

385.3

 

 

 

5.4

 

 

 

5.61

%

 

 

231.4

 

 

 

2.8

 

 

 

4.76

%

Total borrowings

 

 

2,085.1

 

 

 

7.0

 

 

 

1.34

%

 

 

2,164.7

 

 

 

7.1

 

 

 

1.30

%

 

 

2,381.6

 

 

 

7.3

 

 

 

1.22

%

Total interest-bearing liabilities

 

 

17,849.6

 

 

 

16.2

 

 

 

0.37

%

 

 

17,445.4

 

 

 

19.0

 

 

 

0.43

%

 

 

17,945.5

 

 

 

46.2

 

 

 

1.03

%

Net interest-free funding sources

 

 

13,166.0

 

 

 

-

 

 

 

-

 

 

 

12,430.1

 

 

 

 

 

 

 

 

 

 

 

9,685.2

 

 

 

 

 

 

 

 

 

Total cost of funds

 

$

31,015.6

 

 

$

16.2

 

 

 

0.21

%

 

$

29,875.5

 

 

$

19.0

 

 

 

0.25

%

 

$

27,630.7

 

 

$

46.2

 

 

 

0.67

%

Net interest spread (te)

 

 

-

 

 

$

237.5

 

 

 

2.94

%

 

 

 

 

 

$

241.4

 

 

 

3.04

%

 

 

 

 

 

$

234.6

 

 

 

3.05

%

Net interest margin

 

$

31,015.6

 

 

$

237.5

 

 

 

3.09

%

 

$

29,875.5

 

 

$

241.4

 

 

 

3.22

%

 

$

27,630.7

 

 

$

234.6

 

 

 

3.41

%

 

(a)

Taxable equivalent (te) amounts were calculated using a federal income tax rate of 21%.

(b)

Includes nonaccrual loans.

(c)

Average securities do not include unrealized holding gains/losses on available for sale securities.

(d)

Included in interest income is net purchase accounting accretion of $3.5 million, $2.2 million and $6.2 million for the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively.

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Provision for Credit Losses

In the first quarter of 2021, we recorded a negative provision for credit losses of $4.9 million, compared to a provision for credit losses of $24.2 million in the fourth quarter of 2020, and $246.8 million in the first quarter of 2020. The first quarter of 2021 negative provision included net charge-offs of $18.3 million and a reserve release of $23.2 million. The modest reserve release was largely the result of the net charge-offs, coupled with some improvement in macroeconomic forecasts, and contraction in the core loan portfolio (excluding PPP). The fourth quarter of 2020 provision for credit losses included net charge-offs of $24.3 million and a reserve release of $0.1 million. The first quarter of 2020 included net charge-offs of $43.8 million and a reserve build of $203.0 million related to the increase in expected loss from the onset of the coronavirus pandemic and declining oil prices.

Net charge-offs in the first quarter of 2021 were $18.3 million, or 0.34% of average total loans on an annualized basis, compared to $24.3 million or 0.44% in the fourth quarter of 2020, and $43.8 million, or 0.83% in the first quarter of 2020. The first quarter of 2021 included $14.6 million of energy charge-offs, with $13.8 million of the total attributable to a single legacy credit. Energy related net charge-offs were $4.0 million in the fourth quarter of 2020 and $35.9 million in the first quarter of 2020. Fourth quarter of 2020 also included $13.6 million in health-care dependent charge-offs.

We expect provision levels in the second quarter of 2021 to be similar to our first quarter results. Should the economy improve beyond current expectations and vaccination rates continue with no new COVID-19 surges or lockdowns, negative provisioning could continue and possibly increase in the second half of 2021.

Noninterest Income

Noninterest income totaled $87.1 million for the first quarter of 2021, up $4.7 million, or 6%, from the fourth quarter of 2020, and up $2.7 million, or 3%, compared to the first quarter of 2020. The linked-quarter increase was attributable to improvements in most fee categories as economic conditions continued to improve and consumer activity rebounded. The increase compared to the first quarter of 2020 is largely attributable to higher secondary mortgage market fees and derivative income driven by the low interest rate environment and higher income from bank owned life insurance, partially offset by a decrease in service charges.

The components of noninterest income are presented in the following table for the indicated periods.

 

 

Three Months Ended

 

 

 

March 31,

 

 

December 30,

 

 

March 31,

 

(in thousands)

 

2021

 

 

2020

 

 

2020

 

Service charges on deposit accounts

 

$

19,146

 

 

$

19,864

 

 

$

22,837

 

Trust fees

 

 

15,003

 

 

 

14,801

 

 

 

14,806

 

Bank card and ATM fees

 

 

18,120

 

 

 

17,590

 

 

 

17,362

 

Investment and annuity fees and insurance commissions

 

 

7,458

 

 

 

5,826

 

 

 

7,150

 

Secondary mortgage market operations

 

 

11,710

 

 

 

11,508

 

 

 

6,053

 

Income from bank-owned life insurance

 

 

7,281

 

 

 

3,968

 

 

 

4,266

 

Credit related fees

 

 

2,844

 

 

 

2,670

 

 

 

3,065

 

Income from derivatives

 

 

5,035

 

 

 

3,096

 

 

 

3,871

 

Other miscellaneous

 

 

492

 

 

 

3,027

 

 

 

4,977

 

Total noninterest income

 

$

87,089

 

 

$

82,350

 

 

$

84,387

 

Service charges are composed of overdraft and insufficient funds fees, consumer, business and corporate analysis service charges, overdraft protection fees and other customer transaction-related charges. Service charges on deposits totaled $19.1 million for the first quarter of 2021, down $0.7 million, or 4%, from the fourth quarter of 2020 and down $3.7 million, or 16%, from the first quarter of 2020. The decrease from both the fourth quarter of 2020 and first quarter of 2020 was largely due to lower overdraft and related fees resulting from higher customer deposit account balances related to economic stimulus and decreased spending.

Trust fee income represents revenue generated from asset management services provided to individuals, businesses and institutions. Trust fees increased $0.2 million, or 1%, from both the prior quarter and the same quarter a year ago. The modest increase compared to both periods is primarily due to a continued rebound from the volatility in the markets in 2020 impacting assets under management and related trust fees. Trust assets under management declined $1.1 billion in the first quarter of 2020 to $8.3 billion, and began to increase during the remainder of 2020 to $9.5 billion at December 31, 2020. Assets under management totaled $9.7 billion at March 31, 2021.

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Bank card and ATM fees include interchange and other income from credit and debit card transactions, fees earned from processing card transactions for merchants, and fees earned from ATM transactions. Bank card and ATM fees totaled $18.1 million for the first quarter of 2021, up $0.5 million, or 3%, from the fourth quarter of 2020 and up $0.8 million, or 4%, from the same quarter last year. The increase from the prior quarter is due to higher levels of merchant fees as the economic activity continued to improve, and an increase in ATM fees as customers access stimulus funds, including non-customer ATM use. The increase from the same quarter last year was largely due to an increase in debit card activity, as customers continue to shift to debit transactions as a result of the pandemic.

Investment and annuity fees and insurance commissions increased $1.6 million, or 28%, compared to the fourth quarter 2020 and were up $0.3 million, or 4%, compared to the same quarter a year ago. Investment and annuity fees and insurance commissions were up from the prior quarter primarily due to a $0.7 million increase in underwriting fees as a result of favorable interest rate movements and corporate financing opportunities, and a $0.6 million increase in annuity fees from higher annuity sales volumes. Investment and annuity fees and insurance commissions were up from the prior year due to an increase in underwriting fees and annuity sales activity, partially offset by a decline in investment commissions as the lower rate environment slowed bond trading activity.  

Income from secondary mortgage market operations is comprised of income produced from the origination and sales of residential mortgage loans in the secondary market. We offer a full range of mortgage products to our customers and typically sell longer-term fixed rate loans while retaining the majority of adjustable rate loans, as well as loans generated through programs to support customer relationships. Income from secondary mortgage market operations was $11.7 million in the first quarter of 2021, up $0.2 million, or 2%, from the fourth quarter of 2020 and up $5.7 million, or 93%, from the first quarter of 2020. As interest rates remain low, origination volume continues to be strong, and secondary market activity levels remained steady during the first quarter of 2021, with production falling less than 3% from the prior quarter. Compared to the first quarter of 2020, secondary market loan production is up 75% as the low rate environment continues to drive a surge in both refinance and home purchase activity. Secondary mortgage market operations income will vary based on origination volume and the timing of subsequent sales. To the extent low interest rate trends persist, mortgage loan production may remain elevated in the near term, but is expected to return to more normal levels in the second half of 2021.

Income from bank-owned life insurance (BOLI) is typically generated through insurance benefit proceeds as well as the growth of the cash surrender value of insurance contracts held. Income from bank-owned life insurance was $7.3 million in the first quarter of 2021, up $3.3 million, or 83%, from the fourth quarter of 2020, and up $3.0 million, or 71%, from the first quarter of 2020. The linked-quarter and year over year increases are attributable to $4.4 million of nonrecurring income received in connection with the purchase of policies in the first quarter of 2021, partially offset by $1.0 million of mortality benefits received in the prior quarter and $0.8 million received in the first quarter of 2020.

Credit related fees include unused commitment fees and letter of credit fees. Credit related fees were $2.8 million for the first quarter of 2021, up $0.2 million, or 7%, from the fourth quarter of 2020 and down $0.2 million, or 7%, from the first quarter of 2020. The linked quarter increase was due to higher unused commitment fees, as line utilization declined, partially offset by lower letter of credit fees. The decrease over the same quarter last year is primarily due to lower unused commitment fees, as many customers drew on lines of credit near the end of the first quarter of 2020 amid pandemic-driven uncertainty.

Income from derivatives is largely from our customer interest rate derivative program and totaled $5.0 million for the first quarter of 2021 compared to $3.1 million in the fourth quarter of 2020 and $3.9 million for the first quarter of 2020. The increase compared to both the previous quarter and the first quarter of 2020 reflects an increase in customer demand for interest rate swap arrangements, resulting in a higher transaction volume, due in part to the increasing long term rate environment. Derivative income can be volatile and is dependent upon the composition of the portfolio, volume and mix of sales activity and market value adjustments due to market interest rate movement.

Other miscellaneous income is comprised of various items, including income from small business investment companies, FHLB stock dividends, and syndication fees. Other miscellaneous income totaled $0.5 million in the first quarter of 2021, down $2.5 million compared to the fourth quarter of 2020 and down $4.5 million compared to the first quarter of 2020. The changes compared to both periods was largely driven by an approximately $4.7 million pandemic related write-down of investments in an SBIC in the first quarter of 2021. Compared to prior quarter, the decline was also partially offset by a $0.8 million gain on termination of a former Midsouth leased property and other smaller items. The decrease compared to the prior year also reflects a $1.5 million gain on the sale of historic tax credits recorded in the first quarter of 2020 as well as other various smaller changes.

Management expects fee income to be flat to down slightly in the second quarter of 2021, and improve on a full year over year basis in the range of 4% to 6% with increases expected in most fee categories with the exception of service charges and secondary mortgage fee income.

 

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Noninterest Expense

Noninterest expense for the first quarter of 2021 was $193.1 million, down $0.1 million, or less than 1%, from the fourth quarter of 2020, and down $10.3 million, or 5%, from the first quarter of 2020. The linked quarter decrease is largely due to hurricane related expenses and expenses related to branch closures incurred in the fourth quarter of 2020, as well as an enhanced focus on expense control with initiatives put in place to improve overall efficiency as discussed in more detail below, partially offset by an increase in incentive and payroll tax expense. The net decrease over the same quarter last year reflects changes in various categories, but is primarily due to write downs of $9.8 million on energy-related equity interests recorded in the first quarter of 2020.

The components of noninterest expense for the periods indicated are presented in the following tables.

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

(in thousands)

 

2021

 

 

2020

 

 

2020

 

Compensation expense

 

$

95,846

 

 

$

92,805

 

 

$

91,071

 

Employee benefits

 

 

23,769

 

 

 

19,440

 

 

 

22,478

 

Personnel expense

 

 

119,615

 

 

 

112,245

 

 

 

113,549

 

Net occupancy expense

 

 

12,910

 

 

 

13,317

 

 

 

12,522

 

Equipment expense

 

 

4,781

 

 

 

4,488

 

 

 

4,617

 

Data processing expense

 

 

22,947

 

 

 

22,638

 

 

 

22,047

 

Professional services expense

 

 

11,251

 

 

 

14,431

 

 

 

9,741

 

Amortization of intangible assets

 

 

4,419

 

 

 

4,614

 

 

 

5,345

 

Deposit insurance and regulatory fees

 

 

3,395

 

 

 

3,765

 

 

 

5,815

 

Other real estate and foreclosed asset expense

 

 

6

 

 

 

367

 

 

 

10,130

 

Advertising

 

 

2,486

 

 

 

2,922

 

 

 

4,234

 

Corporate value, franchise and other non-income taxes

 

 

4,464

 

 

 

2,929

 

 

 

4,296

 

Telecommunications and postage

 

 

3,318

 

 

 

3,509

 

 

 

4,065

 

Entertainment and contributions

 

 

1,448

 

 

 

2,719

 

 

 

2,447

 

Travel expense

 

 

357

 

 

 

481

 

 

 

1,111

 

Printing and supplies

 

 

978

 

 

 

1,057

 

 

 

1,108

 

Tax credit investment amortization

 

 

1,112

 

 

 

960

 

 

 

961

 

Other retirement expense

 

 

(6,545

)

 

 

(6,337

)

 

 

(6,122

)

Other miscellaneous

 

 

6,130

 

 

 

9,039

 

 

 

7,469

 

Total noninterest expense

 

$

193,072

 

 

$

193,144

 

 

$

203,335

 

Personnel expense consists of salaries, incentive compensation, long-term incentives, payroll taxes, and other employee benefits such as 401(k), pension, and medical, life and disability insurance. Personnel expense totaled $119.6 million for the first quarter of 2021, up $7.4 million, or 7%, compared to the prior quarter and up $6.1 million, or 5%, compared to the same quarter last year. The increase from prior quarter was primarily due to higher performance based incentives, and related benefit costs, and seasonally higher payroll taxes. The increase over the same quarter last year is primarily due to higher incentives and benefit costs, partially offset by lower salary expense. The decrease in salary expense compared to the first quarter of 2020 is due to one fewer payroll day and 222 fewer employees on a full-time equivalent bases (FTE) in the first quarter of 2021, partially offset by the increase related to annual merit raises. During the first quarter of 2021, management announced a voluntary early retirement package available to 647 associates that was accepted by approximately 40% of those eligible. The one-time costs associated with this offer, currently estimated at $15.3 million, will be reflected in our second quarter 2021 earnings. Management expects the annualized net reduction of personnel expense from this program to be approximately $19.0 million, which includes estimated incentives and benefits and is net of backfill costs.

Occupancy and equipment expenses are primarily composed of lease expenses, depreciation, maintenance and repairs, rent, taxes, and other equipment expenses. Occupancy and equipment expenses totaled $17.7 million in the first quarter of 2021, down $0.1 million, or 1%, from the fourth quarter of 2020 and up $0.6 million, or 3%, from the first quarter of 2020. The linked-quarter decrease was largely due to a decrease in occupancy expense due in part to lower maintenance cost, partially offset by a modest increase in equipment expense. The increase from the same quarter last year is primarily related to increases in both occupancy expense and equipment expense, largely due to higher pandemic-related cleaning expenses, maintenance costs and software amortization.

Data processing expense includes expenses related to third party technology processing and servicing costs, technology project costs and fees associated with bank card and ATM transactions. Data processing expense was $22.9 million for the first quarter of 2021, up $0.3million, or 1%, compared to the fourth quarter of 2020, and up $0.9 million, or 4%, compared to the fourth quarter of 2020. The

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increase over the fourth quarter of 2020 and the first quarter of 2020 is largely due to expense associated with investments in new technology.

Professional services expense for the first quarter of 2021 totaled $11.3 million, down $3.2 million, or 22%, compared to the previous quarter and up $1.5 million, or 16%, from the first quarter of 2020. The decrease from the fourth quarter of 2020 is primarily attributable to lower fees related to PPP support and legal fees. The increase over the first quarter of 2020 is largely related to PPP consulting support which we expect to continue to incur during the PPP forgiveness period.

Deposit insurance and regulatory fees totaled $3.4 million, down $0.4 million, or 10%, from the fourth quarter of 2020 and down $2.4 million, or 42%, from the first quarter of 2020. The decrease from the prior quarter is largely due to the favorable effect that excess liquidity and continued asset quality improvement has on the risk-based assessment rate. The decrease from the same quarter last year is also due to a lower risk-based assessment rate resulting from an improved liquidity position and improved asset quality, particularly as a result of the July 2020 energy loan sale. We expect our deposit assessment fee to return to a more normalized level as excess liquidity declines.

Corporate value, franchise and other non-income tax expense for the first quarter of 2021 totaled $4.5 million, up $1.5 million, or 52%, compared to the prior quarter and up $0.2 million, or 4%, compared to the same quarter last year. The increase from fourth quarter of 2020 is primarily due to a $1.2 million termination penalty on a BOLI transaction in the first quarter of 2021. The variance to last year reflects the first quarter 2021 termination penalty, partially offset by a decrease in bankshare tax as a result of the net loss in 2020.

Business development-related expenses (including advertising, travel, entertainment and contributions) were $4.3 million for the first quarter of 2021, down $1.8 million, or 30%, from the fourth quarter of 2020 and down $3.5 million, or 45%, from the first quarter of 2020. The linked-quarter decrease was largely due to expense control initiatives. The year over year decrease was largely due to expense control initiatives as well as lower travel expenses in response to the pandemic.  

Other real estate and foreclosed asset expense was less than $0.1 million for the first quarter of 2021, compared to $0.4 million in the fourth quarter of 2020, and $10.1 million in the first quarter of 2020. The first quarter of 2020 included a $9.8 million write-down of equity interests in two energy-related companies received in borrower bankruptcy restructurings.  

All other expenses, excluding amortization of intangibles, totaled $5.0 million for the first quarter of 2021, a decrease of $3.2 million, or 39%, from the fourth quarter of 2020 and a decrease of $2.5 million, or 33%, from the first quarter of 2020. The linked-quarter decrease was primarily due to hurricane-related expenses and financial center closing expense incurred in the fourth quarter. The first quarter of 2020 included write-down of former branch locations moved to held for sale.

Management expects second quarter 2021 noninterest expense, excluding expected non-recurring costs, to be flat to up slightly compared to the first quarter of 2021 and down 2% to 3% for the full year of 2021 compared to 2020. Expected non-recurring costs include $15.3 million for the voluntary early retirement program and $4.2 million for the redemption of the subordinated notes.

 

Income Taxes

The effective income tax rate for the first quarter of 2021 was approximately 19.7% compared to (0.29%) in the fourth quarter of 2020 and 17.5% in the first quarter of 2020. Comparability of the effective income tax rate is impacted by the pre-tax loss in 2020. The increase in the first quarter 2021 effective income tax rate is due to an improved projected annual pre-tax income forecast. Additionally, many factors impact the effective income tax rate including, but not limited to, the level of pre-tax income and relative impact of net tax benefits related to tax credit investments, tax-exempt interest income, bank-owned life insurance, and nondeductible expenses. Based on the current forecast, management expects the effective income tax rate for 2021 will be in the 19%-20% range, absent any changes in tax law.  

Our effective tax rate has historically varied from the federal statutory rate primarily because of tax-exempt income and tax credits. Interest income on bonds issued by or loans to state and municipal governments and authorities, and earnings from the life insurance contract program are the major components of tax-exempt income. The main source of tax credits has been investments in tax-advantaged securities and tax credit projects. These investments are made primarily in the markets we serve and are directed at tax credits issued under the Federal and State New Market Tax Credit (“NMTC”) programs, Low-Income Housing Tax Credit (“LIHTC”) programs, as well as pre-2018 Qualified Zone Academy Bonds (“QZAB”) and Qualified School Construction Bonds (“QSCB”). These investments generate tax credits, which reduce current and future taxes and are recognized when earned as a benefit in the provision for income taxes.

We have invested in NMTC projects through investments in our own Community Development Entities (“CDE”), as well as other unrelated CDEs. Federal tax credits from NMTC investments are recognized over a seven-year period, while recognition of the benefits from state tax credits varies from three to five years. We have also invested in affordable housing projects that generate federal LIHTC

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tax credits that are recognized over a ten-year period, beginning in the year the rental activity begins. The amortization of the LIHTC investment cost is recognized as a component of income tax expense in proportion to the tax credits recognized over the ten-year credit period.

Based on tax credit investments that have been made to date in 2021, we expect to realize benefits from federal and state tax credits over the next three years totaling $10.2 million, $10.0 million and $10.1 million in 2022, 2023, and 2024, respectively. We intend to continue making investments in tax credit projects. However, our ability to access new credits will depend upon, among other factors, federal and state tax policies and the level of competition for such credits.

 

Selected Financial Data

The following tables contain selected financial data as of the dates and for the periods indicat