UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the Quarterly Period EndedSeptember 30, | |
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OR | |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-39325
ATLANTIC UNION BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
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Virginia | 54-1598552 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
1051 East Cary Street
Suite 1200
Richmond, Virginia 23219
(Address of principal executive offices) (Zip Code)
(804) 633-5031
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
| Trading symbol(s) |
| Name of each exchange on which registered |
Common Stock, par value $1.33 per share | | AUB | | The NASDAQ Global Select Market |
Depositary Shares, Each Representing a 1/400th Interest in a Share of 6.875% Perpetual Non-Cumulative Preferred Stock, Series A | | AUBAP | | The NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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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).
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| Yes ☐ No ☒ |
The number of shares of common stock outstanding as of October 28, 20202021 was 78,718,695.75,653,113.
ATLANTIC UNION BANKSHARES CORPORATION
FORM 10-Q
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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Glossary of Acronyms and Defined Terms
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| – | Annual Report on Form 10-K for the year ended December 31, |
Access | – | Access National Corporation and its subsidiaries |
ACL | – | Allowance for credit losses |
AFS | – | Available for sale |
ALCO | – | Asset Liability Committee |
ALLL | – | Allowance for loan and lease losses, a component of ACL |
AOCI | – | Accumulated other comprehensive income (loss) |
ASC | – | Accounting Standards Codification |
ASC 326 | – | ASU 2016-13, Financial Instruments and Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments |
ASC 820 | – | ASC 820, Fair Value Measurements and Disclosures |
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ASU | – | Accounting Standards Update |
ATM | – | Automated teller machine |
AUB | – | Atlantic Union Bankshares Corporation |
AUBAP | – | Atlantic Union Bankshares Corporation trading symbol |
the Bank | – | Atlantic Union Bank (formerly, Union Bank & Trust) |
BOLI | – | Bank-owned life insurance |
bps | – | Basis points |
CAA | – | Consolidated Appropriations Act, 2021 |
CARES Act | – | Coronavirus Aid, Relief, and Economic Security Act |
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CECL | – | Current expected credit losses |
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the Company | – | Atlantic Union Bankshares Corporation (formerly, Union Bankshares Corporation) and its subsidiaries |
COVID-19 | – |
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depositary shares | – | Depositary shares, each representing a 1/400th ownership interest in a share of the Company’s Series A preferred stock, |
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EPS | – | Earnings per common share |
Exchange Act | – | Securities Exchange Act of 1934, as amended |
FASB | – | Financial Accounting Standards Board |
FCMs | – | Futures Commission Merchants |
FDIC | – | Federal Deposit Insurance Corporation |
Federal Reserve | – | Board of Governors of the Federal Reserve System |
Federal Reserve |
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| – | Federal Reserve Bank of Richmond |
FHLB | – | Federal Home Loan Bank of Atlanta |
FHLMC | – | Federal Home Loan Mortgage Corporation |
FNMA | – | Federal National Mortgage Association |
FOMC | – | Federal Open Markets Committee |
FTE | – | Fully taxable equivalent |
GAAP or U.S. GAAP | – | Accounting principles generally accepted in the United States |
GNMA | – | Government National Mortgage Association |
HTM | – | Held to maturity |
ICE Data Services | – | Intercontinental Exchange Data Services |
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| – | The five federal bank regulatory agencies and the Conference of State Bank Supervisors guidance issued on March 22, 2020 (subsequently revised on April 7, 2020) |
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NOW | – | Negotiable order of withdrawal |
NPA | – | Nonperforming assets |
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OCI | – | Other comprehensive income |
OREO | – | Other real estate owned |
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PCD | – | Purchased credit deteriorated |
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PD/LGD | – | Probability of default/loss given default |
PPPLF | – | Paycheck Protection Program Liquidity Facility |
PPP | – | Paycheck Protection Program |
Quarterly Report | – | Quarterly Report on Form 10-Q for the quarter ended September 30, |
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ROU Asset | – | Right of Use Asset |
RUC | – | Reserve for unfunded commitments |
RVI | – | Residual value insurance |
SBA | – | Small Business Administration |
SEC | – | Securities and Exchange Commission |
Series A preferred stock | – | 6.875% Perpetual Non-Cumulative Preferred Stock, Series A, par value $10.00 per share |
SSFA | – | Simplified supervisory formula approach |
TDR | – | Troubled debt restructuring |
Topic 606 | – | ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606” |
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PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
| | | | | | | | | | |
| September 30, | | December 31, | September 30, | | December 31, | ||||
| 2020 |
| 2019 | 2021 |
| 2020 | ||||
ASSETS | | (unaudited) | | | (audited) | | (unaudited) | | | (audited) |
Cash and cash equivalents: | | | | | | | | | | |
Cash and due from banks | $ | 178,563 | | $ | 163,050 | $ | 255,648 | | $ | 172,307 |
Interest-bearing deposits in other banks | | 335,111 | | | 234,810 | | 807,225 | | | 318,974 |
Federal funds sold | | 7,292 | | | 38,172 | | 377 | | | 2,013 |
Total cash and cash equivalents | | 520,966 | | | 436,032 | | 1,063,250 | | | 493,294 |
Securities available for sale, at fair value | | 2,443,340 | | | 1,945,445 | | 3,195,176 | | | 2,540,419 |
Securities held to maturity, at carrying value | | 546,661 | | | 555,144 | | 535,722 | | | 544,851 |
Restricted stock, at cost | | 112,216 | | | 130,848 | | 76,825 | | | 94,782 |
Loans held for sale, at fair value | | 52,607 | | | 55,405 | | 35,417 | | | 96,742 |
Loans held for investment, net of deferred fees and costs | | 14,383,215 | | | 12,610,936 | | 13,139,586 | | | 14,021,314 |
Less allowance for loan and lease losses | | 174,122 | | | 42,294 | | 101,798 | | | 160,540 |
Total loans held for investment, net | | 14,209,093 | | | 12,568,642 | | 13,037,788 | | | 13,860,774 |
Premises and equipment, net | | 156,934 | | | 161,073 | | 159,588 | | | 163,829 |
Goodwill | | 935,560 | | | 935,560 | | 935,560 | | | 935,560 |
Amortizable intangibles, net | | 61,068 | | | 73,669 | | 46,537 | | | 57,185 |
Bank owned life insurance | | 325,538 | | | 322,917 | | 430,341 | | | 326,892 |
Other assets | | 566,667 | | | 378,255 | | 419,453 | | | 514,121 |
Total assets | $ | 19,930,650 | | $ | 17,562,990 | $ | 19,935,657 | | $ | 19,628,449 |
LIABILITIES | | | | | | | | | | |
Noninterest-bearing demand deposits | $ | 4,420,665 | | $ | 2,970,139 | $ | 5,328,838 | | $ | 4,368,703 |
Interest-bearing deposits | | 11,155,433 | | | 10,334,842 | | 11,293,322 | | | 11,354,062 |
Total deposits | | 15,576,098 | | | 13,304,981 | | 16,622,160 | | | 15,722,765 |
Securities sold under agreements to repurchase | | 91,086 | | | 66,053 | | 95,181 | | | 100,888 |
Other short-term borrowings | | 175,200 | | | 370,200 | | 0 | | | 250,000 |
Long-term borrowings | | 1,048,036 | | | 1,077,495 | | 290,584 | | | 489,829 |
Other liabilities | | 379,345 | | | 231,159 | | 233,293 | | | 356,477 |
Total liabilities | | 17,269,765 | | | 15,049,888 | | 17,241,218 | | | 16,919,959 |
Commitments and contingencies (Note 8) | | | | | | |||||
Commitments and contingencies (Note 7) | | | | | | |||||
STOCKHOLDERS' EQUITY | | | | | | | | | | |
Preferred stock, $10.00 par value | | 173 | | | 0 | | 173 | | | 173 |
Common stock, $1.33 par value | | 104,141 | | | 105,827 | | 100,062 | | | 104,169 |
Additional paid-in capital | | 1,914,640 | | | 1,790,305 | | 1,804,617 | | | 1,917,081 |
Retained earnings | | 579,269 | | | 581,395 | | 760,164 | | | 616,052 |
Accumulated other comprehensive income (loss) | | 62,662 | | | 35,575 | | 29,423 | | | 71,015 |
Total stockholders' equity | | 2,660,885 | | | 2,513,102 | | 2,694,439 | | | 2,708,490 |
Total liabilities and stockholders' equity | $ | 19,930,650 | | $ | 17,562,990 | $ | 19,935,657 | | $ | 19,628,449 |
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Common shares outstanding | | 78,718,850 | | | 80,001,185 | | 75,645,031 | | | 78,729,212 |
Common shares authorized | | 200,000,000 | | | 200,000,000 | | 200,000,000 | | | 200,000,000 |
Preferred shares outstanding | | 17,250 | | | 0 | | 17,250 | | | 17,250 |
Preferred shares authorized | | 500,000 | | | 500,000 | | 500,000 | | | 500,000 |
See accompanying notes to consolidated financial statements.
-2-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except share and per share data)
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| Three Months Ended | | Nine Months Ended | | | | | | | | | | | | ||||||||
| September 30, | | September 30, | | September 30, | | September 30, | Three Months Ended | | Nine Months Ended | ||||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | September 30, | | September 30, | | September 30, | | September 30, | ||||||||
| (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||
Interest and dividend income: | | | | | | | | | | | | | | | | | | | | | | |
Interest and fees on loans | $ | 138,402 | | $ | 156,651 | | $ | 432,763 | | $ | 459,603 | $ | 124,999 | | $ | 138,402 | | $ | 383,575 | | $ | 432,763 |
Interest on deposits in other banks | | 137 | | | 1,030 | | | 1,154 | | | 2,047 | | 291 | | | 137 | | | 454 | | | 1,154 |
Interest and dividends on securities: | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | 10,275 | | | 12,625 | | | 33,170 | | | 39,059 | | 11,230 | | | 10,275 | | | 32,102 | | | 33,170 |
Nontaxable | | 8,600 | | | 8,039 | | | 24,520 | | | 24,413 | | 9,859 | | | 8,600 | | | 28,773 | | | 24,520 |
Total interest and dividend income | | 157,414 | | | 178,345 | | | 491,607 | | | 525,122 | | 146,379 | | | 157,414 | | | 444,904 | | | 491,607 |
Interest expense: | | | | | | | | | | | | | | | | | | | | | | |
Interest on deposits | | 15,568 | | | 30,849 | | | 63,943 | | | 84,088 | | 5,837 | | | 15,568 | | | 22,203 | | | 63,943 |
Interest on short-term borrowings | | 72 | | | 2,200 | | | 1,598 | | | 14,313 | | 22 | | | 72 | | | 91 | | | 1,598 |
Interest on long-term borrowings | | 4,393 | | | 8,695 | | | 16,372 | | | 23,978 | | 3,032 | | | 4,393 | | | 9,676 | | | 16,372 |
Total interest expense | | 20,033 | | | 41,744 | | | 81,913 | | | 122,379 | | 8,891 | | | 20,033 | | | 31,970 | | | 81,913 |
Net interest income | | 137,381 | | | 136,601 | | | 409,694 | | | 402,743 | | 137,488 | | | 137,381 | | | 412,934 | | | 409,694 |
Provision for credit losses | | 6,558 | | | 9,100 | | | 100,954 | | | 18,192 | | (18,850) | | | 6,558 | | | (59,888) | | | 100,954 |
Net interest income after provision for credit losses | | 130,823 | | | 127,501 | | | 308,740 | | | 384,551 | | 156,338 | | | 130,823 | | | 472,822 | | | 308,740 |
Noninterest income: | | | | | | | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | | 6,041 | | | 7,675 | | | 18,549 | | | 22,331 | | 7,198 | | | 6,041 | | | 19,314 | | | 18,549 |
Other service charges, commissions and fees | | 1,621 | | | 1,513 | | | 4,600 | | | 4,879 | | 1,534 | | | 1,621 | | | 4,970 | | | 4,600 |
Interchange fees | | 1,979 | | | 2,108 | | | 5,300 | | | 12,765 | | 2,203 | | | 1,979 | | | 6,252 | | | 5,300 |
Fiduciary and asset management fees | | 6,045 | | | 6,082 | | | 17,543 | | | 16,834 | | 7,029 | | | 6,045 | | | 20,323 | | | 17,543 |
Mortgage banking income | | 8,897 | | | 3,374 | | | 16,744 | | | 7,614 | | 4,818 | | | 8,897 | | | 17,692 | | | 16,744 |
Gains on securities transactions | | 18 | | | 7,104 | | | 12,293 | | | 7,306 | | 9 | | | 18 | | | 87 | | | 12,293 |
Bank owned life insurance income | | 3,421 | | | 2,062 | | | 7,498 | | | 6,191 | | 2,727 | | | 3,421 | | | 8,202 | | | 7,498 |
Loan-related interest rate swap fees | | 3,170 | | | 5,480 | | | 12,602 | | | 10,656 | | 1,102 | | | 3,170 | | | 4,176 | | | 12,602 |
Other operating income | | 3,215 | | | 12,708 | | | 4,116 | | | 15,045 | | 3,318 | | | 3,215 | | | 8,372 | | | 4,116 |
Total noninterest income | | 34,407 | | | 48,106 | | | 99,245 | | | 103,621 | | 29,938 | | | 34,407 | | | 89,388 | | | 99,245 |
Noninterest expenses: | | | | | | | | | | | | | | | | | | | | | | |
Salaries and benefits | | 49,000 | | | 49,718 | | | 149,013 | | | 148,116 | | 53,534 | | | 49,000 | | | 156,959 | | | 149,013 |
Occupancy expenses | | 7,441 | | | 7,493 | | | 21,798 | | | 22,427 | | 7,251 | | | 7,441 | | | 21,705 | | | 21,798 |
Furniture and equipment expenses | | 3,895 | | | 3,719 | | | 11,042 | | | 10,656 | | 4,040 | | | 3,895 | | | 11,919 | | | 11,042 |
Printing, postage, and supplies | | 904 | | | 1,268 | | | 3,194 | | | 3,763 | |||||||||||
Technology and data processing | | 6,564 | | | 5,787 | | | 19,187 | | | 17,203 | | 7,534 | | | 6,564 | | | 21,657 | | | 19,187 |
Professional services | | 2,914 | | | 2,681 | | | 9,211 | | | 8,269 | | 3,792 | | | 2,914 | | | 13,161 | | | 9,211 |
Marketing and advertising expense | | 2,631 | | | 2,600 | | | 7,413 | | | 7,891 | | 2,548 | | | 2,631 | | | 7,330 | | | 7,413 |
FDIC assessment premiums and other insurance | | 1,811 | | | 381 | | | 7,578 | | | 5,620 | | 2,172 | | | 1,811 | | | 6,798 | | | 7,578 |
Other taxes | | 4,124 | | | 3,971 | | | 12,364 | | | 11,779 | | 4,432 | | | 4,124 | | | 13,303 | | | 12,364 |
Loan-related expenses | | 2,314 | | | 2,566 | | | 7,512 | | | 7,250 | | 1,503 | | | 2,314 | | | 5,289 | | | 7,512 |
OREO and credit-related expenses | | 413 | | | 1,005 | | | 1,512 | | | 3,162 | |||||||||||
Amortization of intangible assets | | 4,053 | | | 4,764 | | | 12,676 | | | 13,919 | | 3,381 | | | 4,053 | | | 10,679 | | | 12,676 |
Training and other personnel costs | | 746 | | | 1,618 | | | 3,192 | | | 4,240 | |||||||||||
Merger-related costs | | 0 | | | 2,435 | | | 0 | | | 26,928 | |||||||||||
Rebranding expense | | 0 | | | 1,133 | | | 0 | | | 5,553 | |||||||||||
Loss on debt extinguishment | | 0 | | | 16,397 | | | 10,306 | | | 16,397 | | 0 | | | 0 | | | 14,695 | | | 10,306 |
Other expenses | | 6,412 | | | 4,151 | | | 15,683 | | | 10,849 | | 5,156 | | | 8,475 | | | 15,756 | | | 23,581 |
Total noninterest expenses | | 93,222 | | | 111,687 | | | 291,681 | | | 324,022 | | 95,343 | | | 93,222 | | | 299,251 | | | 291,681 |
Income from continuing operations before income taxes | | 72,008 | | | 63,920 | | | 116,304 | | | 164,150 | | 90,933 | | | 72,008 | | | 262,959 | | | 116,304 |
Income tax expense | | 11,008 | | | 10,724 | | | 17,506 | | | 26,330 | | 16,368 | | | 11,008 | | | 46,821 | | | 17,506 |
Income from continuing operations | $ | 61,000 | | $ | 53,196 | | $ | 98,798 | | $ | 137,820 | |||||||||||
Discontinued operations: | | | | | | | | | | | | |||||||||||
Income (loss) from operations of discontinued mortgage segment | $ | 0 | | $ | 56 | | $ | 0 | | $ | (173) | |||||||||||
Income tax expense (benefit) | | 0 | | | 14 | | | 0 | | | (45) | |||||||||||
Income (loss) on discontinued operations | | 0 | | | 42 | | | 0 | | | (128) | |||||||||||
Net income | | 61,000 | | | 53,238 | | | 98,798 | | | 137,692 | | 74,565 | | | 61,000 | | | 216,138 | | | 98,798 |
Dividends on preferred stock | | 2,691 | | | - | | | 2,691 | | | - | | 2,967 | | | 2,691 | | | 8,901 | | | 2,691 |
Net income available to common shareholders | $ | 58,309 | | $ | 53,238 | | $ | 96,107 | | $ | 137,692 | $ | 71,598 | | $ | 58,309 | | $ | 207,237 | | $ | 96,107 |
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Basic earnings per common share | $ | 0.74 | | $ | 0.65 | | $ | 1.22 | | $ | 1.72 | $ | 0.94 | | $ | 0.74 | | $ | 2.66 | | $ | 1.22 |
Diluted earnings per common share | $ | 0.74 | | $ | 0.65 | | $ | 1.22 | | $ | 1.72 | $ | 0.94 | | $ | 0.74 | | $ | 2.66 | | $ | 1.22 |
Dividends declared per common share | $ | 0.25 | | $ | 0.25 | | $ | 0.75 | | $ | 0.71 | $ | 0.28 | | $ | 0.25 | | $ | 0.81 | | $ | 0.75 |
Basic weighted average number of common shares outstanding | | 78,714,353 | | | 81,769,193 | | | 78,904,792 | | | 80,120,725 | | 76,309,355 | | | 78,714,353 | | | 77,988,151 | | | 78,904,792 |
Diluted weighted average number of common shares outstanding | | 78,725,346 | | | 81,832,868 | | | 78,921,108 | | | 80,183,113 | | 76,322,736 | | | 78,725,346 | | | 78,007,543 | | | 78,921,108 |
See accompanying notes to consolidated financial statements.
-3-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| Nine Months Ended | | Three Months Ended |
| Nine Months Ended | ||||||||||||||||
| | September 30, |
| September 30, | | September 30, |
| September 30, | ||||||||||||||||
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| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||
Net income | | $ | 61,000 | | $ | 53,238 | | $ | 98,798 | | $ | 137,692 | | $ | 74,565 | | $ | 61,000 | | $ | 216,138 | | $ | 98,798 |
Other comprehensive income (loss): | |
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Cash flow hedges: | |
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Change in fair value of cash flow hedges | |
| 0 | |
| 6,025 | |
| (699) | |
| 1,970 | |
| (545) | |
| 0 | |
| 634 | |
| (699) |
Reclassification adjustment for losses included in net income (net of tax, $0 and $42 for the three months and $394 and $120 for the nine months ended September 30, 2020 and 2019, respectively) (1) | |
| 0 | |
| 158 | |
| 1,481 | |
| 451 | ||||||||||||
Reclassification adjustment for losses (gains) included in net income (net of tax, $0 and $0 for the three months and $12 and $394 for the nine months ended September 30, 2021 and 2020, respectively) (1) | |
| 0 | |
| 0 | |
| (47) | |
| 1,481 | ||||||||||||
AFS securities: | |
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Unrealized holding gains arising during period (net of tax, $332 and $3,287 for the three months and $9,824 and $14,513 for the nine months ended September 30, 2020 and 2019, respectively) | |
| 1,250 | |
| 12,364 | |
| 36,956 | |
| 54,598 | ||||||||||||
Reclassification adjustment for gains included in net income (net of tax, $4 and $1,492 for the three months and $2,582 and $1,534 for the nine months ended September 30, 2020 and 2019, respectively) (2) | |
| (14) | |
| (5,612) | |
| (9,711) | |
| (5,772) | ||||||||||||
Unrealized holding gains (losses) arising during period (net of tax, $6,178 and $332 for the three months and $11,311 and $9,824 for the nine months ended September 30, 2021 and 2020, respectively) | |
| (23,242) | |
| 1,250 | |
| (42,549) | |
| 36,956 | ||||||||||||
Reclassification adjustment for gains included in net income (net of tax, $2 and $4 for the three months and $18 and $2,582 for the nine months ended September 30, 2021 and 2020, respectively) (2) | |
| (7) | |
| (14) | |
| (69) | |
| (9,711) | ||||||||||||
HTM securities: | |
|
| |
|
| |
|
| |
| | |
| | |
| | |
| | |
| |
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $1 and $1 for the three months and $4 and $4 for the nine months ended September 30, 2020 and 2019, respectively) (3) | |
| (5) | |
| (5) | |
| (15) | |
| (15) | ||||||||||||
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $1 and $1 for the three months and $4 and $4 for the nine months ended September 30, 2021 and 2020, respectively) (3) | |
| (5) | |
| (5) | |
| (15) | |
| (15) | ||||||||||||
Bank owned life insurance: | |
|
| |
|
| |
| | | | | |
| | |
| | |
| | | | |
Unrealized holding losses arising during the period | | | 0 | | | (647) | | | (1,289) | | | (647) | | | 0 | | | 0 | | | 0 | | | (1,289) |
Reclassification adjustment for losses included in net income (4) | |
| 127 | |
| 19 | |
| 364 | |
| 57 | |
| 150 | |
| 127 | |
| 454 | |
| 364 |
Other comprehensive income (loss) | |
| 1,358 | |
| 12,302 | |
| 27,087 | |
| 50,642 | |
| (23,649) | |
| 1,358 | |
| (41,592) | |
| 27,087 |
Comprehensive income | | $ | 62,358 | | $ | 65,540 | | $ | 125,885 | | $ | 188,334 | | $ | 50,916 | | $ | 62,358 | | $ | 174,546 | | $ | 125,885 |
(1)The gross amounts reclassified into earnings for the nine months ended September 30, 2020 included a $1.8 million loss related to the termination of a cash flow hedge that is reported in “Other operating income” with the corresponding income tax effect being reflected as a component of income tax expense. The remaining gross amounts are reported in the interest income and interest expense sections of the Company’s Consolidated Statements of Income with the corresponding income tax effect being reflected as a component of income tax expense.
(2)The gross amounts reclassified into earnings are reported as "Gains on securities transactions" on the Company’s Consolidated Statements of Income with the corresponding income tax effect being reflected as a component of income tax expense.
(3)The gross amounts reclassified into earnings are reported within interest income on the Company’s Consolidated Statements of Income with the corresponding income tax effect being reflected as a component of income tax expense.
(4)Reclassifications in earnings are reported in "Salaries and benefits" expense on the Company’s Consolidated Statements of Income.
See accompanying notes to consolidated financial statements.
-4-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
(Dollars in thousands, except share and per share amounts)
| | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| Accumulated |
| | | |
| | | | | | | | Additional | | | | | Other | | | | ||
| | Common | | Preferred | | Paid-In | | Retained | | Comprehensive | | | | |||||
| | Stock | | Stock | | Capital | | Earnings | | Income | | Total | ||||||
Balance - December 31, 2020 | | $ | 104,169 | | $ | 173 | | $ | 1,917,081 | | $ | 616,052 | | $ | 71,015 | | $ | 2,708,490 |
Net Income | |
| | | | | | | | | | 56,189 | | | | |
| 56,189 |
Other comprehensive loss (net of taxes of $8,835) | |
| | | | | | | | | | | | | (34,514) | |
| (34,514) |
Dividends on common stock ($0.25 per share) | |
| | | | | | | | | | (19,700) | | | | |
| (19,700) |
Dividends on preferred stock ($171.88 per share) | |
| | | | | | | | | | (2,967) | | | | |
| (2,967) |
Issuance of common stock under Equity Compensation Plans, for services rendered, and vesting of restricted stock, net of shares held for taxes (243,884 shares) | |
| 324 | | | | | | (289) | | | | | | | | | 35 |
Stock-based compensation expense | |
| | | | | | | 2,199 | | | | | | | |
| 2,199 |
Balance - March 31, 2021 | | $ | 104,493 | | $ | 173 | | $ | 1,918,991 | | $ | 649,574 | | $ | 36,501 | | $ | 2,709,732 |
Net Income | |
| | | | | | | | | | 85,384 | | | | |
| 85,384 |
Other comprehensive gain (net of taxes of $3,672) | |
| | | | | | | | | | | | | 16,571 | |
| 16,571 |
Dividends on common stock ($0.28 per share) | |
| | | | | | | | | | (22,125) | | | | |
| (22,125) |
Dividends on preferred stock ($171.88 per share) | |
| | | | | | | | | | (2,967) | | | | |
| (2,967) |
Stock purchased under stock repurchase plan (1,090,169 shares) | | | (1,450) | | | | | | (40,913) | | | | | | | | | (42,363) |
Issuance of common stock under Equity Compensation Plans, for services rendered, and vesting of restricted stock, net of shares held for taxes (35,693 shares) | | | 48 | | | | | | 663 | | | | | | | | | 711 |
Stock-based compensation expense | | | | | | | | | 2,654 | | | | | | | | | 2,654 |
Balance- June 30, 2021 | | $ | 103,091 | | $ | 173 | | $ | 1,881,395 | | $ | 709,866 | | $ | 53,072 | | $ | 2,747,597 |
Net Income | |
| | | | | | | | | | 74,565 | | | | |
| 74,565 |
Other comprehensive loss (net of taxes of $6,181) | |
| | | | | | | | | | | | | (23,649) | |
| (23,649) |
Dividends on common stock ($0.28 per share) | |
| | | | | | | | | | (21,300) | | | | |
| (21,300) |
Dividends on preferred stock ($171.88 per share) | |
| | | | | | | | | | (2,967) | | | | |
| (2,967) |
Stock purchased under stock repurchase plan (2,288,961 shares) | | | (3,045) | | | | | | (79,592) | | | | | | | | | (82,637) |
Issuance of common stock under Equity Compensation Plans, for services rendered, and vesting of restricted stock, net of shares held for taxes (11,953 shares) | | | 16 | | | | | | 175 | | | | | | | | | 191 |
Stock-based compensation expense | | | | | | | | | 2,639 | | | | | | | | | 2,639 |
Balance- September 30, 2021 | | $ | 100,062 | | $ | 173 | | $ | 1,804,617 | | $ | 760,164 | | $ | 29,423 | | $ | 2,694,439 |
See accompanying notes to consolidated financial statements.
-5-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
(Dollars in thousands, except share and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| Accumulated |
| | |
| | |
| | |
| | |
| | |
| Accumulated |
| | | ||
| | | | | | | | Additional | | | | | Other | | | | | | | | | | | Additional | | | | | Other | | | | ||||
| | Common | | Preferred | | Paid-In | | Retained | | Comprehensive | | | | | Common | | Preferred | | Paid-In | | Retained | | Comprehensive | | | | ||||||||||
| | Stock | | Stock | | Capital | | Earnings | | Income (Loss) | | Total | | Stock | | Stock | | Capital | | Earnings | | Income | | Total | ||||||||||||
Balance - December 31, 2019 | | $ | 105,827 | | $ | — | | $ | 1,790,305 | | $ | 581,395 | | $ | 35,575 | | $ | 2,513,102 | | $ | 105,827 | | $ | — | | $ | 1,790,305 | | $ | 581,395 | | $ | 35,575 | | $ | 2,513,102 |
Net Income | |
| | | | | | | | |
| 7,089 | |
| | |
| 7,089 | |
| | | | | |
|
| |
| 7,089 | |
|
| |
| 7,089 |
Other comprehensive income (net of taxes of $3,890) | |
| | | | | | | | |
| | |
| 12,754 | |
| 12,754 | |
|
| | | | |
|
| |
|
| |
| 12,754 | |
| 12,754 |
Dividends on common stock ($0.25 per share) | |
| | | | | | | | |
| (19,825) | |
| | |
| (19,825) | |
|
| | | | |
|
| |
| (19,825) | |
|
| |
| (19,825) |
Stock purchased under stock repurchase plan (1,493,472 shares) | | | (1,985) | |
| | | | (47,894) | | | | | | | | | (49,879) | | | (1,985) | | | | | | (47,894) | | | | | | | | | (49,879) |
Issuance of common stock under Equity Compensation Plans (34,714 shares) | |
| 46 | |
| | |
| 731 | | | | |
| | | | 777 | ||||||||||||||||||
Issuance of common stock for services rendered (6,860 shares) | |
| 9 | |
| | |
| 195 | | | | |
| | |
| 204 | ||||||||||||||||||
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (142,176 shares) | |
| 189 | |
| | |
| (2,199) | | | | |
| | |
| (2,010) | ||||||||||||||||||
Issuance of common stock under Equity Compensation Plans, for services rendered, and vesting of restricted stock, net of shares held for taxes (183,750 shares) | |
| 244 | | | | |
| (1,273) | |
|
| |
|
| |
| (1,029) | ||||||||||||||||||
Impact of adoption of ASC 326 | | | | |
| | | | | | | (39,053) | | | | |
| (39,053) | | | | | | | | | | | | (39,053) | | | | | | (39,053) |
Stock-based compensation expense | |
| | |
| | |
| 2,291 | | | | |
| | |
| 2,291 | |
|
| | | | |
| 2,291 | |
|
| |
|
| |
| 2,291 |
Balance - March 31, 2020 | | $ | 104,086 | | $ | — | | $ | 1,743,429 | | $ | 529,606 | | $ | 48,329 | | $ | 2,425,450 | ||||||||||||||||||
Balance- March 31, 2020 | | $ | 104,086 | | $ | — | | $ | 1,743,429 | | $ | 529,606 | | $ | 48,329 | | $ | 2,425,450 | ||||||||||||||||||
Net Income | |
| | | | | | | | | | 30,709 | | | | | | 30,709 | |
| | | | | | | | | | 30,709 | | | | |
| 30,709 |
Other comprehensive income (net of taxes of $3,415) | |
| | | | | | | | | | | | | 12,975 | | | 12,975 | | | | | | | | | | | | | | | 12,975 | | | 12,975 |
Issuance of preferred stock (17,250 shares) | | | | | | 173 | | | 166,190 | | | | | | | | | 166,363 | ||||||||||||||||||
Issuance of preferred stock (17,250 shares) | | | | | | 173 | | | 166,190 | | | | | | | | | 166,363 | ||||||||||||||||||
Dividends on common stock ($0.25 per share) | |
| | | | | | | | | | (19,677) | | | | | | (19,677) | | | | | | | | | | | | (19,677) | | | | | | (19,677) |
Issuance of common stock under Equity Compensation Plans (1,632 shares) | |
| 2 | | | | | | 22 | | | | | | | | | 24 | ||||||||||||||||||
Issuance of common stock for services rendered (8,640 shares) | |
| 11 | | | | | | 189 | | | | | | | | | 200 | ||||||||||||||||||
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (19,848) | |
| 27 | | | | | | (206) | | | | | | | | | (179) | ||||||||||||||||||
Issuance of common stock under Equity Compensation Plans, for services rendered, and vesting of restricted stock, net of shares held for taxes (30,120 shares) | | | 40 | | | | | | 5 | | | | | | | | | 45 | ||||||||||||||||||
Stock-based compensation expense | |
| | | | | | | 2,361 | | | | | | | | | 2,361 | | | | | | | | | 2,361 | | | | | | | | | 2,361 |
Balance - June 30, 2020 | | $ | 104,126 | | $ | 173 | | $ | 1,911,985 | | $ | 540,638 | | $ | 61,304 | | $ | 2,618,226 | | $ | 104,126 | | $ | 173 | | $ | 1,911,985 | | $ | 540,638 | | $ | 61,304 | | $ | 2,618,226 |
Net Income | | | | | | | | | | | | 61,000 | | | | | | 61,000 | |
| | | | | | | | | | 61,000 | | | | |
| 61,000 |
Other comprehensive income (net of taxes of $327) | | | | | | | | | | | | | | | 1,358 | | | 1,358 | | | | | | | | | | | | | | | 1,358 | | | 1,358 |
Net proceeds from preferred stock | | | | | | | | | (7) | | | | | | | | | (7) | | | | | | | | | (7) | | | | | | | | | (7) |
Dividends on common stock ($0.25 per share) | | | | | | | | | | | | (19,678) | | | | | | (19,678) | | | | | | | | | | | | (19,678) | | | | | | (19,678) |
Dividends on preferred stock ($156.60 per share) | | | | | | | | | | | | (2,691) | | | | | | (2,691) | | | | | | | | | | | | (2,691) | | | | | | (2,691) |
Issuance of common stock for services rendered (8,592 shares) | | | 11 | | | | | | 189 | | | | | | | | | 200 | ||||||||||||||||||
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (3,009 shares) | | | 4 | | | | | | (27) | | | | | | | | | (23) | ||||||||||||||||||
Issuance of common stock under Equity Compensation Plans, for services rendered, and vesting of restricted stock, net of shares held for taxes (11,601 shares) | | | 15 | | | | | | 162 | | | | | | | | | 177 | ||||||||||||||||||
Stock-based compensation expense | | | | | | | | | 2,500 | | | | | | | | | 2,500 | | | | | | | | | 2,500 | | | | | | | | | 2,500 |
Balance - September 30, 2020 | | $ | 104,141 | | $ | 173 | | $ | 1,914,640 | | $ | 579,269 | | $ | 62,662 | | $ | 2,660,885 | | $ | 104,141 | | $ | 173 | | $ | 1,914,640 | | $ | 579,269 | | $ | 62,662 | | $ | 2,660,885 |
See accompanying notes to consolidated financial statements.
-5-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019
(Dollars in thousands, except share and per share amounts)
| | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| Accumulated |
| | | |
| | | | | Additional | | | | | Other | | | | ||
| | Common | | Paid-In | | Retained | | Comprehensive | | | | ||||
| | Stock | | Capital | | Earnings | | Income (Loss) | | Total | |||||
Balance - December 31, 2018 | | $ | 87,250 | | $ | 1,380,259 | | $ | 467,345 | | $ | (10,273) | | $ | 1,924,581 |
Net Income | |
| | |
|
| |
| 35,631 | |
|
| |
| 35,631 |
Other comprehensive income (net of taxes of $5,346) | |
|
| |
|
| |
|
| |
| 18,670 | |
| 18,670 |
Issuance of common stock in regard to acquisition (15,842,026 shares) | |
| 21,070 | |
| 478,904 | |
|
| |
|
| |
| 499,974 |
Dividends on common stock ($0.23 per share) | |
|
| |
|
| |
| (18,838) | |
|
| |
| (18,838) |
Issuance of common stock under Equity Compensation Plans (6,127 shares) | |
| 8 | |
| 130 | |
|
| |
|
| |
| 138 |
Issuance of common stock for services rendered (6,085 shares) | |
| 8 | |
| 211 | |
|
| |
|
| |
| 219 |
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (104,151 shares) | |
| 139 | |
| (1,786) | |
|
| |
|
| |
| (1,647) |
Impact of adoption of ASC 842 | | | | | | | | | (1,133) | | | | | | (1,133) |
Stock-based compensation expense | |
|
| |
| 1,870 | |
|
| |
|
| |
| 1,870 |
Balance- March 31, 2019 | | $ | 108,475 | | $ | 1,859,588 | | $ | 483,005 | | $ | 8,397 | | $ | 2,459,465 |
Net Income | |
|
| |
|
| |
| 48,823 | |
|
| |
| 48,823 |
Other comprehensive income (net of taxes of $5,913) | |
|
| |
|
| |
|
| |
| 19,670 | |
| 19,670 |
Dividends on common stock ($0.23 per share) | |
| | |
| | |
| (18,876) | |
|
| |
| (18,876) |
Issuance of common stock under Equity Compensation Plans (36,551 shares) | |
| 48 | |
| 938 | |
| | |
|
| |
| 986 |
Issuance of common stock for services rendered (6,192 shares) | |
| 8 | |
| 192 | |
|
| |
|
| |
| 200 |
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (21,447 shares) | |
| 29 | |
| (336) | |
| | |
|
| |
| (307) |
Stock-based compensation expense | |
|
| |
| 2,334 | |
| | |
|
| |
| 2,334 |
Balance- June 30, 2019 | | $ | 108,560 | | $ | 1,862,716 | | $ | 512,952 | | $ | 28,067 | | $ | 2,512,295 |
Net Income | |
|
| |
|
| |
| 53,238 | |
|
| |
| 53,238 |
Other comprehensive income (net of taxes of $1,836) | | | | | | | | | | | | 12,302 | | | 12,302 |
Dividends on common stock ($0.25 per share) | | | | | | | | | (20,525) | | | | | | (20,525) |
Stock purchased under stock repurchase plan (969,265 shares) | | | (1,289) | | | (33,995) | | | | | | | | | (35,284) |
Issuance of common stock under Equity Compensation Plans (28,253 shares) | | | 38 | | | 656 | | | | | | | | | 694 |
Issuance of common stock for services rendered (7,840 shares) | | | 10 | | | 269 | | | | | | | | | 279 |
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (8,247 shares) | | | 11 | | | (138) | | | | | | | | | (127) |
Stock-based compensation expense | | | | | | 2,159 | | | | | | | | | 2,159 |
Balance - September 30, 2019 | | $ | 107,330 | | $ | 1,831,667 | | $ | 545,665 | | $ | 40,369 | | $ | 2,525,031 |
See accompanying notes to consolidated financial statements.
-6-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 20202021 AND 20192020
| | | | | | | | | | | | |
(Dollars in thousands) |
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||
Operating activities (1): |
| |
|
| |
| ||||||
Operating activities: |
| |
|
| |
| ||||||
Net income | | $ | 98,798 | | $ | 137,692 | | $ | 216,138 | | $ | 98,798 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
|
| |
|
| |
|
| |
|
|
Depreciation of premises and equipment | |
| 11,311 | |
| 11,138 | |
| 11,992 | |
| 11,311 |
Writedown of foreclosed properties and former bank premises | |
| 4,847 | |
| 1,162 | |
| 1,119 | |
| 4,847 |
Amortization, net | |
| 20,151 | |
| 19,033 | |
| 24,397 | |
| 20,151 |
Amortization (accretion) related to acquisitions, net | |
| (7,736) | |
| (5,200) | ||||||
Accretion related to acquisitions, net | |
| (1,792) | |
| (7,736) | ||||||
Provision for credit losses | |
| 100,954 | |
| 18,192 | |
| (59,888) | |
| 100,954 |
Gains on securities transactions, net | |
| (12,293) | |
| (7,306) | |
| (87) | |
| (12,293) |
BOLI income | |
| (7,498) | |
| (6,191) | |
| (8,202) | |
| (7,498) |
Decrease (increase) in loans held for sale, net | |
| 2,798 | |
| (50,981) | ||||||
Losses (gains) on sales of foreclosed properties and former bank premises, net | |
| 37 | |
| 144 | ||||||
Originations and purchases of loans held for sale | |
| (491,895) | |
| (514,760) | ||||||
Proceeds from sales of loans held for sale | | | 550,683 | | | 516,516 | ||||||
Losses on sales of foreclosed properties and former bank premises, net | |
| 638 | |
| 37 | ||||||
Losses on debt extinguishment | | | 10,306 | | | 16,397 | | | 14,695 | | | 10,306 |
Stock-based compensation expenses | |
| 7,152 | |
| 6,363 | |
| 7,492 | |
| 7,152 |
Issuance of common stock for services | |
| 604 | |
| 698 | |
| 372 | |
| 604 |
Net decrease (increase) in other assets | |
| (180,310) | |
| (76,118) | ||||||
Net increase in other liabilities | |
| 128,298 | |
| 44,312 | ||||||
Net cash provided by (used in) operating activities | |
| 177,419 | |
| 109,335 | ||||||
Net (increase) decrease in other assets | |
| 108,677 | |
| (180,343) | ||||||
Net increase (decrease) in other liabilities | |
| (134,336) | |
| 128,323 | ||||||
Net cash provided by operating activities | |
| 240,003 | |
| 176,369 | ||||||
Investing activities: | |
|
| |
|
| |
|
| |
|
|
Purchases of AFS securities and restricted stock | |
| (940,745) | |
| (312,120) | |
| (1,142,304) | |
| (940,745) |
Purchases of HTM securities | |
| 0 | |
| (47,217) | ||||||
Proceeds from sales of AFS securities and restricted stock | |
| 232,946 | |
| 486,925 | |
| 45,436 | |
| 232,946 |
Proceeds from maturities, calls and paydowns of AFS securities | |
| 271,986 | |
| 176,824 | |
| 392,129 | |
| 271,986 |
Proceeds from maturities, calls and paydowns of HTM securities | |
| 5,996 | |
| 2,523 | |
| 6,642 | |
| 5,996 |
Net increase in loans held for investment | |
| (1,761,350) | |
| (371,260) | ||||||
Net decrease (increase) in loans held for investment | |
| 891,240 | |
| (1,760,300) | ||||||
Net increase in premises and equipment | |
| (18,557) | |
| (11,547) | |
| (9,221) | |
| (18,557) |
Cash proceeds from BOLI settlements | | | 439 | | | 0 | ||||||
Proceeds from BOLI settlements | | | 4,843 | | | 439 | ||||||
Purchases of BOLI policies | | | (100,000) | | | 0 | ||||||
Proceeds from sales of foreclosed properties and former bank premises | |
| 2,706 | |
| 5,329 | |
| 8,632 | |
| 2,706 |
Cash paid in acquisitions | |
| 0 | |
| (12) | ||||||
Cash acquired in acquisitions | |
| 0 | |
| 46,164 | ||||||
Net cash provided by (used in) investing activities | |
| (2,206,579) | |
| (24,391) | |
| 97,397 | |
| (2,205,529) |
Financing activities: | |
|
| |
|
| |
|
| |
|
|
Net increase in noninterest-bearing deposits | |
| 1,450,526 | |
| 376,160 | |
| 960,135 | |
| 1,450,526 |
Net increase in interest-bearing deposits | |
| 820,701 | |
| 471,204 | |
| (60,716) | |
| 820,701 |
Net increase (decrease) in short-term borrowings | |
| (169,967) | |
| (896,622) | ||||||
Cash paid for contingent consideration | | | 0 | | | (565) | ||||||
Net decrease in short-term borrowings | |
| (255,707) | |
| (169,967) | ||||||
Proceeds from issuance of long-term debt | | | 189,945 | | | 550,000 | | | 0 | | | 189,945 |
Repayments of long-term debt | | | (230,306) | | | (160,614) | | | (214,695) | | | (230,306) |
Cash dividends paid - common stock | |
| (59,180) | |
| (58,239) | |
| (63,125) | |
| (59,180) |
Cash dividends paid - preferred stock | | | (2,691) | | | 0 | | | (8,901) | | | (2,691) |
Repurchase of common stock | | | (49,879) | | | (35,284) | | | (125,000) | | | (49,879) |
Issuance of common stock | |
| 801 | |
| 1,818 | |
| 2,955 | |
| 801 |
Issuance of preferred stock, net | | | 166,356 | | | 0 | | | 0 | | | 166,356 |
Vesting of restricted stock, net of shares held for taxes | |
| (2,212) | |
| (2,081) | |
| (2,390) | |
| (2,212) |
Net cash provided by (used in) financing activities | |
| 2,114,094 | |
| 245,777 | ||||||
Increase (decrease) in cash and cash equivalents | |
| 84,934 | |
| 330,721 | ||||||
Cash, cash equivalents and restricted cash at beginning of the period | |
| 436,032 | |
| 261,199 | ||||||
Cash, cash equivalents and restricted cash at end of the period | | $ | 520,966 | | $ | 591,920 | ||||||
Net cash provided by financing activities | |
| 232,556 | |
| 2,114,094 | ||||||
Increase in cash and cash equivalents | |
| 569,956 | |
| 84,934 | ||||||
Cash, cash equivalents, and restricted cash at beginning of the period | |
| 493,294 | |
| 436,032 | ||||||
Cash, cash equivalents, and restricted cash at end of the period | | $ | 1,063,250 | | $ | 520,966 |
-7-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 20202021 AND 20192020
(Dollars in thousands)
| | | | | | |
|
| 2020 |
| 2019 | ||
Supplemental Disclosure of Cash Flow Information |
| |
|
| |
|
Cash payments for: |
| |
|
| |
|
Interest | | $ | 82,409 | | $ | 118,067 |
Income taxes | |
| 13,649 | |
| 20,416 |
| | | | | | |
Supplemental schedule of noncash investing and financing activities | |
|
| |
|
|
Transfers from loans (foreclosed properties) to foreclosed properties (loans) | |
| 615 | |
| 1,816 |
Transfers from bank premises to OREO | | | 7,949 | | | — |
Issuance of common stock in exchange for net assets in acquisitions | |
| 0 | |
| 499,974 |
| | | | | | |
Transactions related to acquisitions | |
|
| |
|
|
Assets acquired | |
| 0 | |
| 2,855,993 |
Liabilities assumed | |
| 0 | |
| 2,558,638 |
(1) Discontinued operations have an immaterial impact to the Company’s Consolidated Statements of Cash Flows.
| | | | | | |
|
| 2021 |
| 2020 | ||
Supplemental Disclosure of Cash Flow Information |
| |
|
| |
|
Cash payments for: |
| |
|
| |
|
Interest | | $ | 30,749 | | $ | 82,409 |
Income taxes | |
| 1,260 | |
| 13,649 |
| | | | | | |
Supplemental schedule of noncash investing and financing activities | |
|
| |
|
|
Transfers from loans to foreclosed properties | |
| 14 | |
| 615 |
Transfers from bank premises to OREO | | | 1,109 | | | 7,949 |
Transfers from LHFS to LHFI | | | 0 | | | 1,050 |
See accompanying notes to consolidated financial statements.
-8-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated FinancialFinancial Statements (Unaudited)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The Company
Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (Nasdaq: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank has 135130 branches and approximately 155150 ATMs located throughout Virginia, and in portions of Maryland and North Carolina. Middleburg Financial is a brand name used by Atlantic Union Bank and certain affiliates when providing trust, wealth management, private banking, and investment advisory products and services. Certain non-bank financial services affiliates of Atlantic Union Bank include: Old Dominion Capital Management,Atlantic Union Equipment Finance, Inc., and its subsidiary, Outfitter Advisors, Ltd., andwhich provides equipment financing; Dixon, Hubard, Feinour & Brown, Inc., which provideprovides investment advisory services, Middleburg Investment Services,services; Atlantic Union Financial Consultants, LLC, which provides brokerage services; and Union Insurance Group, LLC, which offers various lines of insurance products.
Effective March 1, 2021, Middleburg Financial, the Bank’s wealth management division was rebranded to Atlantic Union Bank Wealth Management, and Middleburg Investment Services, LLC changed its name to Atlantic Union Financial Consultants, LLC.
Effective October 1, 2021, Old Dominion Capital Management, Inc., and its subsidiary, Outfitter Advisors, Ltd., merged with and into DHFB, as part of an internal reorganization to streamline operations. Old Dominion Capital Management operates as a division of DHFB.
The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements; however, in the opinion of management all adjustments necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other period.
TheseThe unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s 20192020 Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.
Impact of COVID-19
On March 13, 2020, the United States President declared a national emergency in the face of a growing public health and economic crisis due to the COVID-19 global pandemic. Within a few days of the declaration of a national emergency, governors of states comprising the Company’s geographic footprint issued states of emergency in response to the novel COVID-19. As a result of this pandemic, actions were taken around the world to help mitigate the spread of COVID 19, which have impacted the economies and financial markets of many countries, including the geographical area in which the Company operates. On March 27, 2020, the CARES Act was signed into law. The CARES Act is designated to provide financial relief to the American people and American businesses in response to the economic fallout from COVID-19. On March 22, 2020, the five federal bank regulatory agencies and the Conference of State Bank Supervisors issued joint guidance (subsequently revised on April 7, 2020) with respect to loan modifications for borrowers affected by COVID-19. The CARES Act, as well as the March 22 Joint Guidance, provide enhanced guidelines and accounting for COVID-19 related modifications.
The federal banking regulators have confirmed with the FASB that short-term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current (i.e., less than 30 days past due on contractual payments) when the modification program was implemented are not considered TDRs. In addition, Section 4013 of the CARES Act provides banks, savings associations, and credit unions with the ability to make loan modifications related to COVID-19 without categorizing the loan as a TDR or conducting the analysis to make the determination, which is intended to streamline the loan modification process. Any such suspension is effective for the term of the loan modification; however, the suspension is only permitted for loan modifications made during the effective period of Section 4013 and only for those loans that were not more than thirty days past due as of December 31, 2019. The Company has made $1.8 billion of loan modifications pursuant to the March 22 Joint Guidance or Section 4013 of the CARES Act and as of September 30, 2020 approximately $769.6 million remain under their modified terms. The majority of the Company’s modifications as of September 30, 2020 were in the commercial real estate portfolios.
The Bank processed over 11,000 PPP loans, which totaled $1.7 billion with a recorded investment of $1.6 billion as of September 30, 2020, which included unamortized deferred fees of $32.6 million. The loans carry a 1% interest rate.
Adoption of New Accounting Standards
In March 2020, the FASB issued Topic 848. This guidance provides temporary, optional guidance to ease the potential burden in accounting for reference rate reform associated with the LIBOR transition. LIBOR and other interbank offered rates are widely used benchmark or reference rates that have been used in the valuation of loans, derivatives, and other financial contracts. Topic 848 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. Topic 848 is intended to help stakeholders during the global market-wide reference rate transition period. The amendments are effective as of March 12, 2020 through December 31, 2022 and can be adopted at an instrument level. As of March 31, 2021, the Company utilized the expedient to assert probability of the hedged interest, regardless of any expected modification in terms related to reference rate reform for the newly executed cash flow hedges. The Company expects to incorporate other components of Topic 848 at a later date. This amendment does not have a material impact on the consolidated financial statements.
On January 1, 2020,2021, the Company adopted ASC 326.Topic 740. This ASU updates theguidance was issued to simplify accounting for income taxes by removing specific technical exceptions that often produce information difficult for users of financial statements to understand. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. This ASU replaces the incurred loss impairment methodology
-9-
in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.guidance. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to- maturity debt securities. It also applies to unfunded credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments). The Company established a cross-functional governance structure to oversee the Company’s implementation of the CECL methodology, which included evaluating key assumptions used and assessing the internal controls over financial reporting related to the adoption of ASC 326. The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and unfunded credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. As a result of adopting ASC 326, the Company recorded a net decrease to retained earnings of $39.1 million.
ASC 326 also replaced the Company’s current accounting for PCI loans. With the adoption of ASC 326, previously classified PCI loans are now classified as PCD loans. In accordance with ASC 326, the Company did not re-assess whether individual modifications were needed to individual acquired financial assets accounted for in the pools with troubled debt restructurings as of the date of adoption. The Company adopted ASC 326 using the prospective transition approach for financial assets with PCD that were previously identified as PCI and accounted for under ASC 310-30. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $2.4 million to the ACL. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1,2020.
The Company adopted ASC 326 using the prospective transition approach for debt securities. The effective interest rate on these debt securities was not changed. Upon adoption of ASC 326, the CompanyTopic 740 did not have any securities included in its portfolio where OTTI had previously beenrecognized.
The following table illustrates thea material impact of ASC326.
| | | | | | |
| | December 31, | | January 1, | | January 1, |
| | 2019 | | 2020 | | 2020 |
| | As Previously Reported (Incurred Loss) | | Impact of CECL Adoption | | As Reported Under CECL |
Assets: | | | | | | |
Loans | | | | | | |
Commercial | $ | 30,941 | $ | 6,184 | $ | 37,125 |
Consumer | | 11,353 | | 41,300 | | 52,653 |
Allowance for loan and lease losses | | 42,294 | | 47,484 | | 89,778 |
Liabilities: | | | | | | |
Allowance for credit losses on unfunded credit exposure | | 900 | | 4,160 | | 5,060 |
Total Allowance for credit losses | $ | 43,194 | $ | 51,644 | $ | 94,838 |
Allowance for Loan and Lease Losses
The provision for loan losses charged to operations is an amount sufficient to bring the allowance to an estimated balance that management considers adequate to absorb expected losses in the Company’s loan portfolio. The ALLL is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Amortized cost is the principal balance outstanding, net of any purchase premiums and discounts and net of any deferred loan fees and costs.
The ALLL represents management’s estimate of credit losses over the remaining life of the loan portfolio. Loans are charged off against the ALLL when management believes the loan balance is no longer collectible. Subsequent recoveries of previously charged off amounts are recorded as increases to theALLL.
-10-
Management’s determination of the adequacy of the ALLL is based on an evaluation of the composition of the loan portfolio, the value and adequacy of collateral, current economic conditions, historical loan loss experience, reasonable and supportable forecasts, and other risk factors. The ALLL is estimated by pooling loans by call code and credit risk indicator and applying a loan-level PD/LGD method for all loans with the exception of its auto and third party consumer lending portfolios. For auto and third party consumer portfolios, the Company has elected to pool those loans based on similar risk characteristics to determine the ALLL using vintage and loss rate methods. The Company utilizes a forecast period of two years and then reverts to the mean of historical loss factors on a straight-line basis over the following two-year period. The Company considers economic forecasts and recession probabilities from highly recognized third-parties to inform the model for loss estimation. The Company’s ALLL estimate is particularly impacted by the unemployment rate forecast in its geographic footprint. In the current quarter forecast, the unemployment rate in the Company’s geographic footprint is projected to remain significantly elevated through the forecast period. Management also considers qualitative factors when estimating loan losses to take into account model limitations. For the current quarter, the largest qualitative additions were related to industries that are particularly impacted by the COVID-19 pandemic and uncertainty regarding the extent and duration of the pandemic and the timing and efficacy of any potential future government stimulus. These qualitative factors were partially offset by qualitative reductions meant to account for enhanced unemployment benefits, bank deferrals, the PPP loan program and other factors. The Company’s Allowance Committee approves the key methodologies and assumptions, as well as the final ALLL on a quarterly basis. While management uses available information to estimate expected losses on loans, future changes in the ALLL may be necessary based on changes in portfolio composition, portfolio credit quality, and/or economic conditions.
Loans that do not share risk characteristics are evaluated on an individual basis. The individual reserve component relates to loans that have shown substantial credit deterioration as measured by risk rating and/or delinquency status. In addition, the Company has elected the practical expedient that would include loans for individual assessment consideration if the repayment of the loan is expected substantially through the operation or sale of collateral because the borrower is experiencingconsolidated financial difficulty. Where the source of repayment is the sale of collateral, the ALLL is based on the fair value of the underlying collateral, less selling costs, compared to the amortized cost basis of the loan. If the ALLL is based on the operation of the collateral, the reserve is calculated based on the fair value of the collateral calculated as the present value of expected cash flows from the operation of the collateral, compared to the amortized cost basis. If the Company determines that the value of a collateral dependent loan is less than the recorded investment in the loan, the Company charges off the deficiency if it is determined that such amount is deemed to be a confirmed loss. Typically, a loss is confirmed when the Company is moving towards foreclosure (or final disposition).
In situations where, for economic or legal reasons related to a borrower’s financial condition, the Company grants a concession in the loan structure to the borrower that it would not otherwise consider, the related loan is classified as a TDR. With the exception of loans with interest rate concessions, the ALLL on a TDR is measured using the same method as all other loans held for investment. For loans with interest rate concessions, the Company uses a discounted cash flow approach using the original interest rate.statements.
Reserve for Unfunded Commitments
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The reserve for unfunded commitments is adjusted as a provision for credit loss expense and is measured using the same measurement objectives as the ALLL. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded and is included in “Other Liabilities” within the Company’s Consolidated Balance Sheets.
Accrued Interest Receivable
The Company has elected to exclude accrued interest from the amortized cost basis in its determination of the ACL reserve for both loans and HTM securities, as well as elected the policy to write-off accrued interest receivable directly through the reversal of interest income. Accrued interest receivable totaled $55.4 million on loans held for investment and, $5.1 million on HTM securities at September 30, 2020 and is included in “Other Assets” on the Company’s Consolidated Balance Sheets.
-11-
Acquired Loans
The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. Acquired loans are recorded at their fair value at acquisition date without carryover of the acquiree’s previously established ALLL, as credit discounts are included in the determination of fair value. The fair value of the loans is determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected on the loans and then applying a market-based discount rate to those cash flows. During evaluation upon acquisition, acquired loans are also classified as either PCD or acquired performing.
The purchase discount on acquired performing loans is accounted for under ASC 310-20, Receivables – Nonrefundable Fees and Other Costs. The difference between the fair value and unpaid principal balance of the loan at acquisition date (premium or discount) is amortized or accreted into interest income over the life of the loans. If the acquired performing loan has revolving privileges, it is accounted for using the straight-line method; otherwise, the effective interest method is used.
PCD loans reflect loans that have experienced more-than-insignificant credit deterioration since origination. These PCD loans are accounted for under ASC 326. Credit risk characteristics include risk rating groups, nonaccrual status, and past due status. For valuation purposes, these pools are further disaggregated by maturity, pricing characteristics, and re-payment structure.
PCD loans are recorded at the amount paid. An ALLL is determined using the same methodology as other loans held for investment. For PCD loans not individually assessed, the initial ALLL is determined on a collective basis and is allocated to individual loans. The sum of the loan's purchase price and ALLL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan.Subsequent changes to the ALLL are recorded through provision expense.
ThePCDloansareandwillcontinuetobesubjecttotheCompany’sinternalandexternalcreditreviewandmonitoring.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company defines cash and cash equivalents as cash, cash due from banks, interest-bearing deposits in other banks, money market investments, other interest-bearing deposits, and federal funds sold.
-9-
Restricted cash is disclosed in Note 87 “Commitments and Contingencies” and is comprised of cash maintained at various correspondent banks as collateral for the Company’s derivative portfolio and is included in interest-bearing deposits in other banks in the Company’s Consolidated Balance Sheets. In addition, the Company is required to maintain reserve balances with the Federal Reserve Bank based on the type and amount of deposits; however, on March 15, 2020 the Federal Reserve Board announced that reserve requirement ratios would be reduced to zero percent effective March 26, 2020 due to economic conditions, which eliminated the reserve requirement for all depository institutions.
Accrued Interest Receivable
The Company has elected to exclude accrued interest from the amortized cost basis in its determination of the ALLL, as well as the ACL reserve for securities. Accrued interest receivable totaled $46.2 million and $56.7 million on loans held for investment, $5.1 million and $6.8 million on HTM securities, and $13.0 million and $11.9 million on AFS securities at September 30, 2021 and December 31, 2020, respectively, and is included in “Other Assets” on the Company’s Consolidated Balance Sheets. The Company’s policy is to write off accrued interest receivable through reversal of interest income when it becomes probable the Company will not be able to collect the accrued interest. For the quarters ended September 30, 2021 and September 30, 2020, accrued interest receivable write offs were not material to the Company’s consolidated financial statements.
Segment Reporting
Operating segments are components of a business about which separate financial information is available and evaluated regularly by the chief operating decision makers in deciding how to allocate resources and assessing performance. The Bank is the Company’s only reportable operating segment upon which management makes decisions regarding how to allocate resources and assess performance. While the Company’s chief operating decision makers do have some limited financial information about its various financial products and services, that information is not complete since it does not include a full allocation of revenue, costs, and capital from key corporate functions; therefore, the Company evaluates financial performance on the Company-wide basis. Management continues to evaluate these business units for separate reporting as facts and circumstances change.
Investment Securities
Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are generally amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securitieswhere prepayments are anticipated. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.
The Company regularly evaluates all securities whose values have declined below amortized cost to assess whether the decline in fair value is the result of credit impairment. For AFS securities, the Company evaluates the fair value and credit quality of its AFS securities on at least a quarterly basis. In the event the fair value of a security falls below its amortized cost basis, the security will be evaluated to determine whether the decline in value was caused by changes in market interest rates or security credit quality. The primary indicators of credit quality for the Company’s AFS portfolio are security type and credit rating, which are influenced by a number of security-specific factors that may include obligor cash flow, geography, seniority, structure, credit enhancement and other factors.
-12--10-
There is currently 0 ACL held against the Company’s AFS securities portfolio at September 30, 2020. See Note 3 “Securities,” for additional information on the Company’s ACL analysis. If unrealized losses are related to credit quality, the Company estimates the credit related loss by evaluating the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security and a credit loss exists, an ACL shall be recorded for the credit loss, limited by the amount that the fair value is less than amortized cost basis. Non-credit related declines in fair value are recognized in other comprehensive income, net of applicable taxes. Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Charge-offs are recorded against the ACL when management believes the AFS security is no longer collectible. Currently, the Company does not have an ACL on its AFS debt securities portfolio. A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent.
The Company evaluates the credit risk of its HTM securities on at least a quarterly basis. Management estimates expected credit losses on held-to-maturity debt securities based on an individual basis based on the PD/LGD methodology primarily using security-level credit ratings. Management recorded an immaterial ACL on HTM securities as a result of the adoption of ASC 326, and no additional changes were needed at September 30, 2020.
-13-
2. ACQUISITIONS
Access Acquisition
On February 1, 2019, the Company completed its acquisition of Access National Corporation (and its subsidiaries), a bank holding company based in Reston, Virginia. Holders of shares of Access’s common stock received 0.75 shares of the Company’s common stock in exchange for each share of Access’s common stock, resulting in the Company issuing 15,842,026 shares of the Company’s common stock at a fair value of approximately $500.0 million. In addition, the Company paid cash of approximately $12,000 in lieu of fractional shares.
The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition, in accordance with ASC 350, Intangibles-Goodwill and Other. The measurement period was formally closed as of February 1, 2020, and the Company did not make any measurement period adjustments in 2020.
There were 0 merger-related costs associated with the acquisition of Access during the first nine months of 2020. Merger- related costs associated with the acquisition of Access were $2.0 million and $25.6 million for the three and nine months ended September 30, 2019, respectively. Such costs include legal and accounting fees, lease and contract termination expenses, system conversion, and employee severances, which have been expensed as incurred.
-14-
3.2. SECURITIES
On January 1, 2020, the Company adopted ASC 326, which made changes to the accounting for AFS debt securities whereby credit losses should be presented as an allowance, rather than as a write-down when management does not intend to sell and does not believe that it is more likely than not they will be required to sell prior to maturity. In addition, ASC 326 requires financial assets measured at amortized cost, including held-to-maturity debt securities, to measure an expected credit loss under the CECL methodology that requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For further discussion on the Company’s accounting policies and policy elections related to the accounting standard update refer to Note 1 “Accounting Policies”.
All securities information presented as of September 30, 2020 is in accordance with ASC 326. All securities information presented prior to March 31, 2020 is in accordance with previous applicable GAAP. See the Company’s prior accounting policies in Note 1 “Summary of Significant Accounting Policies” of the 2019 Form 10-K.
Available for Sale
The Company’s AFS investment portfolio is generally highly-rated or agency backed. All AFS securities were current with 0 securities past due or on non-accrual as of September 30, 2021 and December 31, 2020.
The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of September 30, 20202021 are summarized as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized | | Gross Unrealized | | Estimated | | Amortized | | Gross Unrealized | | Estimated | ||||||||||||
|
| Cost |
| Gains |
| (Losses) |
| Fair Value |
| Cost |
| Gains |
| (Losses) |
| Fair Value | ||||||||
September 30, 2020 |
| |
|
| |
|
| |
| | |
| ||||||||||||
September 30, 2021 |
| |
|
| |
|
| |
| | |
| ||||||||||||
U.S. government and agency securities | | $ | 13,463 | | $ | 465 | | $ | (50) | | $ | 13,878 | | $ | 74,214 | | $ | 645 | | $ | (41) | | $ | 74,818 |
Obligations of states and political subdivisions | |
| 759,936 | |
| 39,033 | |
| (2,113) | |
| 796,856 | |
| 971,987 | |
| 34,885 | |
| (7,991) | |
| 998,881 |
Corporate and other bonds (1) | |
| 147,438 | |
| 2,217 | |
| (737) | |
| 148,918 | |
| 145,151 | |
| 3,931 | |
| (54) | |
| 149,028 |
Commercial mortgage-backed securities | |
| | | | | | | | |
| | |
| | | | | | | | |
| |
Agency | | | 340,706 | |
| 17,945 | |
| (116) | | | 358,535 | | | 338,327 | |
| 9,213 | |
| (2,557) | | | 344,983 |
Non-agency | | | 30,359 | |
| 71 | |
| — | | | 30,430 | | | 95,405 | |
| 250 | |
| (296) | | | 95,359 |
Total commercial mortgage-backed securities | | | 371,065 | |
| 18,016 | |
| (116) | | | 388,965 | | | 433,732 | |
| 9,463 | |
| (2,853) | | | 440,342 |
Residential mortgage-backed securities | | | | | | | | | | | | | | | | | | | | | | | | |
Agency | | | 960,141 | |
| 35,275 | |
| (1,410) | | | 994,006 | | | 1,449,753 | |
| 20,630 | |
| (14,030) | | | 1,456,353 |
Non-agency | | | 99,252 | |
| 587 | |
| (743) | | | 99,096 | | | 73,783 | |
| 530 | |
| (195) | | | 74,118 |
Total residential mortgage-backed securities | | | 1,059,393 | |
| 35,862 | |
| (2,153) | | | 1,093,102 | | | 1,523,536 | |
| 21,160 | |
| (14,225) | | | 1,530,471 |
Other securities | |
| 1,621 | |
| 0 | |
| 0 | |
| 1,621 | |
| 1,636 | |
| 0 | |
| 0 | |
| 1,636 |
Total AFS securities | | $ | 2,352,916 | | $ | 95,593 | | $ | (5,169) | | $ | 2,443,340 | | $ | 3,150,256 | | $ | 70,084 | | $ | (25,164) | | $ | 3,195,176 |
-15-(1) Other bonds include asset-backed securities
The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of December 31, 20192020 are summarized as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized | | Gross Unrealized | | Estimated | | Amortized | | Gross Unrealized | | Estimated | ||||||||||||
December 31, 2019 |
| Cost |
| Gains |
| (Losses) |
| Fair Value | ||||||||||||||||
|
| Cost |
| Gains |
| (Losses) |
| Fair Value | ||||||||||||||||
December 31, 2020 | | | | | | | | | | | | | ||||||||||||
U.S. government and agency securities | | $ | 21,149 | | $ | 209 | | $ | (38) | | $ | 21,320 | | $ | 13,009 | | $ | 437 | | $ | (52) | | $ | 13,394 |
Obligations of states and political subdivisions | | | 421,344 | | | 25,776 | | | (29) | | | 447,091 | | | 786,466 | | | 50,878 | | | (18) | | | 837,326 |
Corporate and other bonds (1) | |
| 134,342 | |
| 1,991 | |
| (374) | |
| 135,959 | |
| 148,747 | |
| 2,430 | |
| (99) | |
| 151,078 |
Commercial mortgage-backed securities | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Agency | | | 405,731 | | | 8,786 | | | (619) | | | 413,898 | | | 321,015 | | | 16,277 | | | (2) | | | 337,290 |
Non-agency | | | 11,173 | | | — | | | (24) | | | 11,149 | | | 51,244 | | | 167 | | | (17) | | | 51,394 |
Total commercial mortgage-backed securities | | | 416,904 | | | 8,786 | | | (643) | | | 425,047 | | | 372,259 | | | 16,444 | | | (19) | | | 388,684 |
Residential mortgage-backed securities | | | | | | | | | | | | | | | | | | | | | | | | |
Agency | | | 852,300 | | | 16,680 | | | (816) | | | 868,164 | | | 1,012,237 | | | 31,816 | | | (1,946) | | | 1,042,107 |
Non-agency | | | 44,309 | | | 476 | | | — | | | 44,785 | | | 104,904 | | | 1,507 | | | (206) | | | 106,205 |
Total residential mortgage-backed securities | | | 896,609 | | | 17,156 | | | (816) | | | 912,949 | | | 1,117,141 | | | 33,323 | | | (2,152) | | | 1,148,312 |
Other securities | |
| 3,079 | |
| 0 | |
| 0 | |
| 3,079 | |
| 1,625 | |
| 0 | |
| 0 | |
| 1,625 |
Total AFS securities | | $ | 1,893,427 | | $ | 53,918 | | $ | (1,900) | | $ | 1,945,445 | | $ | 2,439,247 | | $ | 103,512 | | $ | (2,340) | | $ | 2,540,419 |
(1) Other bonds include asset-backed securities
-16--11-
The following table shows the gross unrealized losses and fair value of the Company’s AFS securities with unrealized losses for which an allowance for credit lossesACL has not been recorded at September 30, 2021 and December 31, 2020 and that are not deemed to be other than temporarily impaired as of December 31, 2019.those dates. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position (dollars in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | More than 12 months | | Total | | Less than 12 months | | More than 12 months | | Total | ||||||||||||||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||||||||
| | Value | | Losses | | Value | | Losses | | Value | | Losses | | Value | | Losses | | Value | | Losses | | Value | | Losses | ||||||||||||
September 30, 2020 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||
September 30, 2021 | |
| | |
| | |
| | |
| | |
| | |
| | ||||||||||||||||||
U.S. government and agency securities | | $ | 0 | | $ | 0 | | $ | 5,956 | | $ | (50) | | $ | 5,956 | | | (50) | | $ | 0 | | $ | 0 | | $ | 4,255 | | $ | (41) | | $ | 4,255 | | $ | (41) |
Obligations of states and political subdivisions | | | 175,282 | | | (2,113) | | | 0 | | | 0 | | | 175,282 | | $ | (2,113) | | | 394,065 | | | (7,885) | | | 2,072 | | | (106) | | | 396,137 | | | (7,991) |
Corporate and other bonds(1) | |
| 38,137 | |
| (477) | |
| 20,283 | |
| (260) | |
| 58,420 | |
| (737) | |
| 11,594 | |
| (51) | |
| 1,903 | |
| (3) | |
| 13,497 | |
| (54) |
Commercial mortgage-backed securities | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Agency | | | 33,827 | | | (115) | | | 446 | | | (1) | | | 34,273 | | | (116) | | | 136,397 | | | (2,556) | | | 344 | | | (1) | | | 136,741 | | | (2,557) |
Non-agency | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 21,407 | | | (103) | | | 11,789 | | | (193) | | | 33,196 | | | (296) |
Total commercial mortgage-backed securities | | | 33,827 | | | (115) | | | 446 | | | (1) | | | 34,273 | | | (116) | | | 157,804 | | | (2,659) | | | 12,133 | | | (194) | | | 169,937 | | | (2,853) |
Residential mortgage-backed securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Agency | | | 198,687 | | | (1,407) | | | 1,121 | | | (3) | | | 199,808 | | | (1,410) | | | 857,253 | | | (12,584) | | | 76,393 | | | (1,446) | | | 933,646 | | | (14,030) |
Non-agency | | | 57,044 | | | (743) | | | 0 | | | 0 | | | 57,044 | | | (743) | | | 13,182 | | | (195) | | | 0 | | | 0 | | | 13,182 | | | (195) |
Total residential mortgage-backed securities | | | 255,731 | | | (2,150) | | | 1,121 | | | (3) | | | 256,852 | | | (2,153) | | | 870,435 | | | (12,779) | | | 76,393 | | | (1,446) | | | 946,828 | | | (14,225) |
Total AFS securities | | $ | 502,977 | | $ | (4,855) | | $ | 27,806 | | $ | (314) | | $ | 530,783 | | $ | (5,169) | | $ | 1,433,898 | | $ | (23,374) | | $ | 96,756 | | $ | (1,790) | | $ | 1,530,654 | | $ | (25,164) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||
December 31, 2020 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||
U.S. government and agency securities | | $ | 7,638 | | $ | (38) | | $ | 0 | | $ | 0 | | $ | 7,638 | | $ | (38) | | $ | 0 | | $ | 0 | | $ | 5,456 | | $ | (52) | | $ | 5,456 | | $ | (52) |
Obligations of states and political subdivisions | | | 4,526 | | | (29) | | | 0 | | | 0 | | | 4,526 | | | (29) | | | 5,091 | | | (18) | | | 0 | | | 0 | | | 5,091 | | | (18) |
Corporate and other bonds(1) | |
| 17,323 | |
| (83) | |
| 19,901 | |
| (291) | |
| 37,224 | |
| (374) | |
| 17,946 | |
| (52) | |
| 10,698 | |
| (47) | |
| 28,644 | |
| (99) |
Commercial mortgage-backed securities | |
| | |
| | |
| | |
| | |
| | | | | |
| | |
| | |
| | |
| | |
| | |
| |
Agency | | | 43,552 | | | (530) | | | 14,966 | | | (89) | | | 58,518 | | | (619) | | | 5,893 | | | (2) | | | 376 | | | 0 | | | 6,269 | | | (2) |
Non-agency | | | 11,162 | | | (24) | | | 0 | | | 0 | | | 11,162 | | | (24) | | | 17,654 | | | (17) | | | 0 | | | 0 | | | 17,654 | | | (17) |
Total commercial mortgage-backed securities | | | 54,714 | | | (554) | | | 14,966 | | | (89) | | | 69,680 | | | (643) | | | 23,547 | | | (19) | | | 376 | | | 0 | | | 23,923 | | | (19) |
Residential mortgage-backed securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Agency | | | 114,147 | | | (500) | | | 40,168 | | | (316) | | | 154,315 | | | (816) | | | 219,388 | | | (1,944) | | | 1,055 | | | (2) | | | 220,443 | | | (1,946) |
Non-agency | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 36,942 | | | (206) | | | 0 | | | 0 | | | 36,942 | | | (206) |
Total residential mortgage-backed securities | | | 114,147 | | | (500) | | | 40,168 | | | (316) | | | 154,315 | | | (816) | | | 256,330 | | | (2,150) | | | 1,055 | | | (2) | | | 257,385 | | | (2,152) |
Total AFS securities | | $ | 198,348 | | $ | (1,204) | | $ | 75,035 | | $ | (696) | | $ | 273,383 | | $ | (1,900) | | $ | 302,914 | | $ | (2,239) | | $ | 17,585 | | $ | (101) | | $ | 320,499 | | $ | (2,340) |
(1) Other bonds includes asset-backed securities.securities
-12-
As of September 30, 2020,2021, there were $27.8 $96.8million, or 18 issues,comprised of 26 individual AFS securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $314,000.approximately $1.8 million. As of December 31, 2019,2020, there were $75.0$17.6 million, or 47 issues,comprised of 15 individual securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $696,000.$101,000.
The Company has evaluated AFS securities in an unrealized loss position for credit related impairment at September 30, 20202021 and December 31, 20192020 and concluded 0 impairment existed based on several factors which included: (1) the majority of these securities are of high credit quality, (2) unrealized losses are primarily the result of market volatility, (3) the contractual terms of the investments do not permit the issuer(s) to settle the securities at a price less than the cost basis of each investment, (4) issuers continue to make timely principal and interest payments, and (5) the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis.
Additionally, the majority of the Company’s mortgage-backed securities are issued by FNMA, FHLMC, and GNMA and do not have credit risk given the implicit and explicit government guarantees associated with these agencies. In addition, the non-agency mortgage-backed and asset-backed securities generally received a 20% SSFA rating.
-17-
The following table presents the amortized cost and estimated fair value of AFS securities as of September 30, 20202021 and December 31, 2019,2020, by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (dollars in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 | ||||||||||||||||
|
| Amortized |
| Estimated |
| Amortized |
| Estimated |
| Amortized |
| Estimated |
| Amortized |
| Estimated | ||||||||
| | Cost | | Fair Value | | Cost | | Fair Value | | Cost | | Fair Value | | Cost | | Fair Value | ||||||||
Due in one year or less | | $ | 28,581 | | $ | 28,834 | | $ | 35,177 | | $ | 35,329 | | $ | 11,823 | | $ | 11,927 | | $ | 19,875 | | $ | 19,997 |
Due after one year through five years | |
| 140,844 | |
| 148,114 | |
| 164,605 | |
| 166,873 | |
| 175,393 | |
| 180,836 | |
| 161,448 | |
| 169,103 |
Due after five years through ten years | |
| 251,501 | |
| 258,806 | |
| 249,713 | |
| 254,790 | |
| 316,877 | |
| 325,440 | |
| 235,021 | |
| 242,791 |
Due after ten years | |
| 1,931,990 | |
| 2,007,586 | |
| 1,443,932 | |
| 1,488,453 | |
| 2,646,163 | |
| 2,676,973 | |
| 2,022,903 | |
| 2,108,528 |
Total AFS securities | | $ | 2,352,916 | | $ | 2,443,340 | | $ | 1,893,427 | | $ | 1,945,445 | | $ | 3,150,256 | | $ | 3,195,176 | | $ | 2,439,247 | | $ | 2,540,419 |
Refer to Note 87 "Commitments and Contingencies" for information regarding the estimated fair value of AFS securities that were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of September 30, 20202021 and December 31, 2019.2020.
Held to Maturity
The Company’s HTM investment portfolio primarily consists of highly-rated municipal securities and the estimated credit loss inherent in the portfolio is currently immaterial. The Company’s HTM securities were all current, with 0 securities past due or on non-accrual at September 30, 2021 and December 31, 2020.
The Company reports HTM securities on the Company’s Consolidated Balance Sheets at carrying value. Carrying value is amortized cost, which includes any unamortized unrealized gains and losses recognized in accumulated other comprehensive income prior to reclassifying the securities from AFS securities to HTM securities. Investment securities transferred into the HTM category from the AFS category are recorded at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the HTM securities. Such unrealized gains or losses are accreted over the remaining life of the security with no impact on future net income.
-13-
The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of September 30, 2021 are summarized as follows (dollars in thousands):
| | | | | | | | | | | | |
| | Carrying | | Gross Unrealized | | Estimated | ||||||
|
| Value |
| Gains |
| (Losses) | | Fair Value | ||||
September 30, 2021 |
| |
|
| |
|
| |
| | |
|
U.S. government and agency securities | | $ | 2,637 | | $ | 2 | | $ | (8) | | $ | 2,631 |
Obligations of states and political subdivisions | | | 528,157 | | | 62,763 | | | 0 | | | 590,920 |
Commercial mortgage-backed securities | |
| | | | | | | | | | |
Agency | | | 4,928 | | | 3 | | | (30) | | | 4,901 |
Non-agency | | | 0 | | | 0 | | | 0 | | | 0 |
Total commercial mortgage-backed securities | | | 4,928 | | | 3 | | | (30) | | | 4,901 |
Total held-to-maturity securities | | $ | 535,722 | | $ | 62,768 | | $ | (38) | | $ | 598,452 |
The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of December 31, 2020 are summarized as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying | | Gross Unrealized | | Estimated | | Carrying | | Gross Unrealized | | Estimated | ||||||||||||
|
| Value |
| Gains |
| (Losses) | | Fair Value |
| Value |
| Gains |
| (Losses) |
| Fair Value | ||||||||
September 30, 2020 |
| |
|
| |
|
| |
| | |
| ||||||||||||
December 31, 2020 | |
|
| |
|
| |
|
| |
|
| ||||||||||||
U.S. government and agency securities | | $ | 2,767 | | $ | 0 | | $ | (14) | | $ | 2,753 | | $ | 2,751 | | $ | 0 | | $ | (18) | | $ | 2,733 |
Obligations of states and political subdivisions | | | 538,352 | | | 67,561 | | | 0 | | | 605,913 | | | 536,767 | | | 74,978 | | | 0 | | | 611,745 |
Commercial mortgage-backed securities | |
| | | | | | | | | | | | | | |
| | |
| | |
| |
Agency | | | 5,542 | | | 5 | | | (40) | | | 5,507 | | | 5,333 | | | 4 | | | (50) | | | 5,287 |
Non-agency | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 |
Total commercial mortgage-backed securities | | | 5,542 | | | 5 | | | (40) | | | 5,507 | | | 5,333 | | | 4 | | | (50) | | | 5,287 |
Total held-to-maturity securities | | $ | 546,661 | | $ | 67,566 | | $ | (54) | | $ | 614,173 | | $ | 544,851 | | $ | 74,982 | | $ | (68) | | $ | 619,765 |
Credit Quality Indicators & Allowance for Credit Losses - HTM
For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis based on the PD/LGD methodology primarily using security-level credit ratings. The Company’s HTM securities ACL was immaterial at September 30, 2021 and December 31, 2020. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The Company’s only HTM securities with credit risk are obligations of states and political subdivisions.
-18--14-
The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of December 31, 2019 are summarized as follows (dollars in thousands):
| | | | | | | | | | | | |
| | Carrying | | Gross Unrealized | | Estimated | ||||||
|
| Value |
| Gains |
| (Losses) |
| Fair Value | ||||
December 31, 2019 | |
|
| |
|
| |
|
| |
|
|
U.S. government and agency securities | | $ | 2,813 | | $ | 26 | | $ | 0 | | $ | 2,839 |
Obligations of states and political subdivisions | | | 545,148 | | | 48,274 | | | 0 | | | 593,422 |
Commercial mortgage-backed securities | | | | |
| | |
| | |
| |
Agency | | | 7,183 | | | 59 | | | 0 | | | 7,242 |
Non-agency | | | 0 | | | 0 | | | 0 | | | 0 |
Total commercial mortgage-backed securities | | | 7,183 | | | 59 | | | 0 | | | 7,242 |
Total held-to-maturity securities | | $ | 555,144 | | $ | 48,359 | | $ | 0 | | $ | 603,503 |
Credit Quality Indicators & Allowance for Credit Losses - HTM
For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis based on the PD/LGD methodology primarily using security-level credit ratings. The Company’s HTM securities ACL was immaterial at the adoption of ASC 326. The Company re-evaluated the HTM securities ACL and concluded 0 additional reserve was needed at September 30, 2020. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The Company’s only HTM securities with credit risk are obligations of states and political subdivisions.
The following table presents the amortized cost of HTM securities as of September 30, 2021 and December 31, 2020 by security type and credit rating (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 |
| U.S. Government and Agency |
| Obligations of states and political |
| Mortgage-backed |
| Total HTM | ||||||||||||||
|
| U.S. Government and Agency |
| Obligations of states and political |
| Mortgage-backed | | Total HTM | | securities | | subdivisions | | securities | | securities | ||||||||
| | securities | | subdivisions | | securities | | securities | ||||||||||||||||
September 30, 2021 | | | | | | | | | | | | | ||||||||||||
Credit Rating: | |
| | |
| | | | | | | | |
| | |
| | | | | | | |
AAA/AA/A | | $ | 0 | | $ | 533,742 | | $ | 0 | | $ | 533,742 | | $ | 0 | | $ | 528,157 | | $ | 0 | | $ | 528,157 |
Not Rated - Agency(1) | | | 2,767 | | | 0 | | | 5,542 | | | 8,309 | | | 2,637 | | | 0 | | | 4,928 | | | 7,565 |
Not Rated - Non-Agency | | | 0 | |
| 4,610 | | | 0 | | | 4,610 | | | 0 | |
| 0 | | | 0 | | | — |
Total | | $ | 2,767 | | $ | 538,352 | | $ | 5,542 | | $ | 546,661 | | $ | 2,637 | | $ | 528,157 | | $ | 4,928 | | $ | 535,722 |
December 31, 2020 | | | | | | | | | | | | | ||||||||||||
Credit Rating: | |
| | |
| | | | | | | | ||||||||||||
AAA/AA/A | | $ | 0 | | $ | 532,157 | | $ | 0 | | $ | 532,157 | ||||||||||||
Not Rated - Agency(1) | | | 2,751 | | | 0 | | | 5,333 | | | 8,084 | ||||||||||||
Not Rated - Non-Agency | | | 0 | |
| 4,610 | | | 0 | | | 4,610 | ||||||||||||
Total | | $ | 2,751 | | $ | 536,767 | | $ | 5,333 | | $ | 544,851 |
(1) Generally considered not to have credit risk given the government guarantees associated with these agencies
The following table presents the amortized cost and estimated fair value of HTM securities as of September 30, 20202021 and December 31, 2019,2020, by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (dollars in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 | ||||||||||||||||
|
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| Carrying |
| Estimated | ||||||||
| | Value | | Fair Value | | Value | | Fair Value | | Value | | Fair Value | | Value | | Fair Value | ||||||||
Due in one year or less | | $ | 1,005 | | $ | 1,024 | | $ | 502 | | $ | 504 | | $ | 3,501 | | $ | 3,512 | | $ | 1,443 | | $ | 1,460 |
Due after one year through five years | |
| 9,076 | |
| 9,436 | |
| 10,258 | |
| 10,539 | |
| 5,890 | |
| 6,142 | |
| 8,577 | |
| 8,893 |
Due after five years through ten years | |
| 1,749 | |
| 1,796 | |
| 1,768 | |
| 1,800 | |
| 14,061 | |
| 16,091 | |
| 1,744 | |
| 1,805 |
Due after ten years | |
| 534,831 | |
| 601,917 | |
| 542,616 | |
| 590,660 | |
| 512,270 | |
| 572,707 | |
| 533,087 | |
| 607,607 |
Total HTM securities | | $ | 546,661 | | $ | 614,173 | | $ | 555,144 | | $ | 603,503 | | $ | 535,722 | | $ | 598,452 | | $ | 544,851 | | $ | 619,765 |
-19-
Refer to Note 87 "Commitments and Contingencies" for information regarding the estimated fair value of HTM securities that were pledged to secure public deposits as permitted or required by law as of September 30, 20202021 and December 31, 2019.2020.
Restricted Stock, at cost
Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. At September 30, 2020 and December 31, 2019, theThe FHLB required the Bank to maintain stock in an amount equal to 3.75% and 4.25% of outstanding borrowings at September 30, 2021 and December 31, 2020, respectively, as well as a specific percentage of the Bank’s total assets. The Federal Reserve Bank required the Bank to maintain stock with a par value equal to 6% of the Bank’s outstanding capital at both September 30, 20202021 and December 31, 2019.2020. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $67.0 million for September 30, 20202021 and December 31, 20192020 and FHLB stock in the amount of $45.2$9.8 million and $63.9$27.8 million as of September 30, 20202021 and December 31, 2019,2020, respectively.
-15-
Realized Gains and Losses
The following table presents the gross realized gains and losses on and the proceeds from the sale of securities during the three and nine months ended September 30, 20202021 and 20192020 (dollars in thousands).:
| | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended |
| Nine Months Ended | ||||
| | September 30, 2020 | | September 30, 2020 | | September 30, 2021 | | September 30, 2021 | ||||
Realized gains (losses): |
| |
|
| |
| ||||||
Realized gains (losses)(1): |
| |
|
| |
| ||||||
Gross realized gains | | $ | 18 | | $ | 12,522 | | $ | 9 | | $ | 147 |
Gross realized losses | |
| 0 | |
| (229) | |
| 0 | |
| (60) |
Net realized gains | | $ | 18 | | $ | 12,293 | | $ | 9 | | $ | 87 |
| | | | | | | | | | | | |
Proceeds from sales of securities | | $ | 4,675 | | $ | 232,946 | | $ | 0 | | $ | 45,436 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended |
| Nine Months Ended | ||||
| | September 30, 2019 | | September 30, 2019 | | September 30, 2020 | | September 30, 2020 | ||||
Realized gains (losses): |
| |
|
| |
| ||||||
Realized gains (losses)(1): |
| |
|
| |
| ||||||
Gross realized gains | | $ | 7,104 | | $ | 9,161 | | $ | 18 | | $ | 12,522 |
Gross realized losses | |
| 0 | |
| (1,855) | |
| 0 | |
| (229) |
Net realized gains | | $ | 7,104 | | $ | 7,306 | | $ | 18 | | $ | 12,293 |
| | | | | | | | | | | | |
Proceeds from sales of securities | | $ | 98,975 | | $ | 486,925 | | $ | 4,675 | | $ | 232,946 |
(1) Includes gains (losses) on sales and calls of securities
-20--16-
4.3. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES
On January 1, 2020, the Company adopted ASC 326. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. For further discussion on the Company’s accounting policies and policy elections related to the accounting standard update refer to Note 1“Accounting Policies” in this Quarterly Report. All loan information presented as of September 30, 2020 is in accordance with ASC 326. All loan information presented prior to January 1, 2020 is in accordance with previous applicable GAAP. During March 2020, in response to the economic fallout from the COVID-19 pandemic, the CARES Act was passed by Congress and signed into law by the President along with the March 22 Joint Guidance that provided enhanced guidelines and accounting for COVID-19 related modifications. For further discussion on the CARES Act and the March 22 Joint Guidance and related loan impact refer to Note 1 “Accounting Polices” in this Quarterly Report. The information included below reflects the impact of the CARES Act, as amended by the CAA, and the March 22 Joint Guidance. See Note 1 “Summary of Significant Accounting Policies” in the Company’s 2020 Form 10-K for information about COVID-19 and related legislative and regulatory developments.
The Company’s loans are stated at their face amount, net of deferred fees and costs, and consist of the following at September 30, 20202021 and December 31, 20192020 (dollars in thousands):
| | | | | | | | | | | | |
| | September 30, 2020 |
| December 31, 2019 | | September 30, 2021 |
| December 31, 2020 | ||||
Construction and Land Development | | $ | 1,207,190 | | $ | 1,250,924 | | $ | 877,351 | | $ | 925,798 |
Commercial Real Estate - Owner Occupied | |
| 2,107,333 | |
| 2,041,243 | |
| 2,027,299 | |
| 2,128,909 |
Commercial Real Estate - Non-Owner Occupied | |
| 3,497,929 | |
| 3,286,098 | |
| 3,730,720 | |
| 3,657,562 |
Multifamily Real Estate | |
| 731,582 | |
| 633,743 | |
| 776,287 | |
| 814,745 |
Commercial & Industrial(1) | |
| 3,536,249 | |
| 2,114,033 | |
| 2,580,190 | |
| 3,263,460 |
Residential 1-4 Family - Commercial | |
| 696,944 | |
| 724,337 | |
| 624,347 | |
| 671,949 |
Residential 1-4 Family - Consumer | |
| 830,144 | |
| 890,503 | |
| 822,971 | |
| 822,866 |
Residential 1-4 Family - Revolving | |
| 618,320 | |
| 659,504 | |
| 557,803 | |
| 596,996 |
Auto | |
| 387,417 | |
| 350,419 | |
| 425,436 | |
| 401,324 |
Consumer | |
| 276,023 | |
| 372,853 | |
| 182,039 | |
| 247,730 |
Other Commercial | |
| 494,084 | |
| 287,279 | |
| 535,143 | |
| 489,975 |
Total loans held for investment, net of deferred fees and costs | | | 14,383,215 | | | 12,610,936 | | | 13,139,586 | | | 14,021,314 |
Allowance for loan and lease losses | | | (174,122) | | | (42,294) | | | (101,798) | | | (160,540) |
Total loans held for investment, net | | $ | 14,209,093 | | $ | 12,568,642 | | $ | 13,037,788 | | $ | 13,860,774 |
(1)Commercial & industrial loans include approximately $455.8 million and other$1.2 billion in loans from the PPP at September 30, 2021 and December 31, 2020, respectively.
(2)Other commercial loans include approximately $1.610.8 billionmillion and $21.311.3 million respectively, in new loans from the PPP loan program at September 30, 2020.2021 and December 31, 2020, respectively.
(3) Total loans include unamortized premiums and discounts, and unamortized deferred fees and costs totaling $60.0 million and $69.7 million as of September 30, 2021 and December 31, 2020, respectively.
-21--17-
The following table shows the aging of the Company’s loan portfolio, by class, at September 30, 20202021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| |
| Greater than |
| | |
| | | ||
| | | | | 30-59 Days | | 60-89 Days | | 90 Days and | | | | | | | |||
| | Current | | Past Due | | Past Due | | still Accruing | | Nonaccrual | | Total Loans | ||||||
Construction and Land Development | | $ | 1,200,729 | | $ | 2,625 | | $ | 223 | | $ | 93 | | $ | 3,520 | | $ | 1,207,190 |
Commercial Real Estate - Owner Occupied | |
| 2,090,106 | |
| 4,924 | |
| 1,310 | |
| 1,726 | |
| 9,267 | |
| 2,107,333 |
Commercial Real Estate - Non-Owner Occupied | |
| 3,493,107 | |
| 1,291 | |
| 1,371 | |
| 168 | |
| 1,992 | |
| 3,497,929 |
Multifamily Real Estate | |
| 731,190 | |
| — | |
| — | |
| 359 | |
| 33 | |
| 731,582 |
Commercial & Industrial | |
| 3,528,283 | |
| 4,322 | |
| 1,448 | |
| 604 | |
| 1,592 | |
| 3,536,249 |
Residential 1-4 Family - Commercial | |
| 683,730 | |
| 1,236 | |
| 937 | |
| 5,298 | |
| 5,743 | |
| 696,944 |
Residential 1-4 Family - Consumer | |
| 806,055 | |
| 2,998 | |
| 3,976 | |
| 4,495 | |
| 12,620 | |
| 830,144 |
Residential 1-4 Family - Revolving | |
| 608,570 | |
| 2,669 | |
| 1,141 | |
| 2,276 | |
| 3,664 | |
| 618,320 |
Auto | |
| 384,619 | |
| 1,513 | |
| 453 | |
| 315 | |
| 517 | |
| 387,417 |
Consumer | |
| 273,829 | |
| 1,020 | |
| 772 | |
| 327 | |
| 75 | |
| 276,023 |
Other Commercial | | | 493,044 | | | 613 | | | 427 | | | — | | | — | | | 494,084 |
Total loans held for investment | | $ | 14,293,262 | | $ | 23,211 | | $ | 12,058 | | $ | 15,661 | | $ | 39,023 | | $ | 14,383,215 |
These balances reflect the impact of the CARES Act and the March 22 Joint Guidance which provides relief for TDR designations and also provides guidance on past due reporting for modified loans.
| | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| |
| Greater than |
| | |
| | | | ||
| | | | | 30-59 Days | | 60-89 Days | | 90 Days and | | | | | | | | |||
| | Current | | Past Due | | Past Due | | still Accruing | | Nonaccrual | | Total Loans | | ||||||
Construction and Land Development | | $ | 873,535 | | $ | 744 | | $ | 58 | | $ | 304 | | $ | 2,710 | | $ | 877,351 | |
Commercial Real Estate - Owner Occupied | |
| 2,016,831 | |
| 735 | |
| 61 | |
| 1,886 | |
| 7,786 | |
| 2,027,299 | |
Commercial Real Estate - Non-Owner Occupied | |
| 3,723,499 | |
| 1,302 | |
| 570 | |
| 1,175 | |
| 4,174 | |
| 3,730,720 | |
Multifamily Real Estate | |
| 776,174 | |
| 0 | |
| 0 | |
| 0 | |
| 113 | |
| 776,287 | |
Commercial & Industrial | |
| 2,562,455 | |
| 11,089 | |
| 3,328 | |
| 1,256 | |
| 2,062 | |
| 2,580,190 | |
Residential 1-4 Family - Commercial | |
| 619,306 | |
| 807 | |
| 698 | |
| 1,091 | |
| 2,445 | |
| 624,347 | |
Residential 1-4 Family - Consumer | |
| 805,765 | |
| 406 | |
| 2,188 | |
| 2,462 | |
| 12,150 | |
| 822,971 | |
Residential 1-4 Family - Revolving | |
| 549,927 | |
| 1,092 | |
| 587 | |
| 2,474 | |
| 3,723 | |
| 557,803 | |
Auto | |
| 423,222 | |
| 1,548 | |
| 202 | |
| 209 | |
| 255 | |
| 425,436 | |
Consumer | |
| 180,705 | |
| 790 | |
| 317 | |
| 173 | |
| 54 | |
| 182,039 | |
Other Commercial | | | 533,912 | | | 631 | | | 600 | | | 0 | | | 0 | | | 535,143 | |
Total loans held for investment | | $ | 13,065,331 | | $ | 19,144 | | $ | 8,609 | | $ | 11,030 | | $ | 35,472 | | $ | 13,139,586 | |
% of total loans | | | 99.43 | % | | 0.15 | % | | 0.07 | % | | 0.08 | % | | 0.27 | % | | 100.00 | % |
The following table shows the aging of the Company’s amortized cost basis of loans on nonaccrual status as of January 1, 2020 as well as amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of September 30,loan portfolio, by class, at December 31, 2020 (dollars in thousands):
| | | | | | | | | | | | |
| | Nonaccrual | | | | | | | ||||
| | January 1, 2020 | | September 30, 2020 | | Nonaccrual With No ALLL | | 90 Days and still Accruing | ||||
Construction and Land Development | | $ | 4,060 | | $ | 3,520 | | $ | 1,985 | | $ | 93 |
Commercial Real Estate - Owner Occupied | | | 13,889 | | | 9,267 | | | 1,994 | | | 1,726 |
Commercial Real Estate - Non-Owner Occupied | | | 1,368 | | | 1,992 | | | 0 | | | 168 |
Multifamily Real Estate | | | 0 | | | 33 | | | 0 | | | 359 |
Commercial & Industrial | | | 3,037 | | | 1,592 | | | 0 | | | 604 |
Residential 1-4 Family - Commercial | | | 6,492 | | | 5,743 | | | 1,738 | | | 5,298 |
Residential 1-4 Family - Consumer | | | 13,117 | | | 12,620 | | | 1,069 | | | 4,495 |
Residential 1-4 Family - Revolving | | | 2,490 | | | 3,664 | | | 60 | | | 2,276 |
Auto | | | 565 | | | 517 | | | 0 | | | 315 |
Consumer | | | 88 | | | 75 | | | 0 | | | 327 |
Other Commercial | | | 98 | | | — | | | 0 | | | 0 |
Total loans held for investment | | $ | 45,204 | | $ | 39,023 | | $ | 6,846 | | $ | 15,661 |
There was 0 interest income recognized on nonaccrual loans during the three or nine months endedSeptember 30, 2020. See Note 1 “Summary of Significant Accounting Policies” in the Company’s 2019 Form 10-K for additional information on the Company’s policies for nonaccrual loans.
| | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| Greater than |
| | |
| | |
| |
| | | | | 30-59 Days | | 60-89 Days | | 90 Days and | | | | | | |
| |||
| | Current | | Past Due | | Past Due | | still Accruing | | Nonaccrual | | Total Loans |
| ||||||
Construction and Land Development | | $ | 920,276 | | $ | 1,903 | | $ | 547 | | $ | 0 | | $ | 3,072 | | $ | 925,798 | |
Commercial Real Estate - Owner Occupied | |
| 2,114,804 | |
| 1,870 | |
| 1,380 | |
| 3,727 | |
| 7,128 | |
| 2,128,909 | |
Commercial Real Estate - Non-Owner Occupied | |
| 3,651,232 | |
| 2,144 | |
| 1,721 | |
| 148 | |
| 2,317 | |
| 3,657,562 | |
Multifamily Real Estate | |
| 814,095 | |
| 617 | |
| 0 | |
| 0 | |
| 33 | |
| 814,745 | |
Commercial & Industrial | |
| 3,257,201 | |
| 1,848 | |
| 1,190 | |
| 1,114 | |
| 2,107 | |
| 3,263,460 | |
Residential 1-4 Family - Commercial | |
| 657,351 | |
| 2,227 | |
| 818 | |
| 1,560 | |
| 9,993 | |
| 671,949 | |
Residential 1-4 Family - Consumer | |
| 792,852 | |
| 10,182 | |
| 1,533 | |
| 5,699 | |
| 12,600 | |
| 822,866 | |
Residential 1-4 Family - Revolving | |
| 587,522 | |
| 2,975 | |
| 1,044 | |
| 826 | |
| 4,629 | |
| 596,996 | |
Auto | |
| 398,206 | |
| 2,076 | |
| 376 | |
| 166 | |
| 500 | |
| 401,324 | |
Consumer | |
| 245,551 | |
| 1,166 | |
| 550 | |
| 394 | |
| 69 | |
| 247,730 | |
Other Commercial | | | 489,959 | | | 16 | | | 0 | | | 0 | | | 0 | | | 489,975 | |
Total loans held for investment | | $ | 13,929,049 | | $ | 27,024 | | $ | 9,159 | | $ | 13,634 | | $ | 42,448 | | $ | 14,021,314 | |
% of total loans | | | 99.34 | % | | 0.19 | % | | 0.07 | % | | 0.10 | % | | 0.30 | % | | 100.00 | % |
-22--18-
The following table shows the Company’s amortized cost basis of loans on nonaccrual status as of January 1, 2021, as well as amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of September 30, 2021 (dollars in thousands):
| | | | | | | | | | | | |
| | Nonaccrual | | | | | | | ||||
| | January 1, 2021 | | September 30, 2021 | | Nonaccrual With No ALLL | | 90 Days and still Accruing | ||||
Construction and Land Development | | $ | 3,072 | | $ | 2,710 | | $ | 1,985 | | $ | 304 |
Commercial Real Estate - Owner Occupied | | | 7,128 | | | 7,786 | | | 1,996 | | | 1,886 |
Commercial Real Estate - Non-Owner Occupied | | | 2,317 | | | 4,174 | | | 1,089 | | | 1,175 |
Multifamily Real Estate | | | 33 | | | 113 | | | 0 | | | 0 |
Commercial & Industrial | | | 2,107 | | | 2,062 | | | 1 | | | 1,256 |
Residential 1-4 Family - Commercial | | | 9,993 | | | 2,445 | | | 0 | | | 1,091 |
Residential 1-4 Family - Consumer | | | 12,600 | | | 12,150 | | | 1,047 | | | 2,462 |
Residential 1-4 Family - Revolving | | | 4,629 | | | 3,723 | | | 60 | | | 2,474 |
Auto | | | 500 | | | 255 | | | 0 | | | 209 |
Consumer | | | 69 | | | 54 | | | 0 | | | 173 |
Total loans held for investment | | $ | 42,448 | | $ | 35,472 | | $ | 6,178 | | $ | 11,030 |
The following table shows the Company’s amortized cost basis of loans on nonaccrual status as of January 1, 2020, as well as amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of December 31, 2020 (dollars in thousands):
| | | | | | | | | | | | |
| | Nonaccrual | | | | | | | ||||
| | January 1, 2020 | | December 31, 2020 | | Nonaccrual With No ALLL | | 90 Days and still Accruing | ||||
Construction and Land Development | | $ | 4,060 | | $ | 3,072 | | $ | 1,985 | | $ | 0 |
Commercial Real Estate - Owner Occupied | | | 13,889 | | | 7,128 | | | 1,994 | | | 3,727 |
Commercial Real Estate - Non-Owner Occupied | | | 1,368 | | | 2,317 | | | 0 | | | 148 |
Multifamily Real Estate | | | 0 | | | 33 | | | 0 | | | 0 |
Commercial & Industrial | | | 3,037 | | | 2,107 | | | 1 | | | 1,114 |
Residential 1-4 Family - Commercial | | | 6,492 | | | 9,993 | | | 6,388 | | | 1,560 |
Residential 1-4 Family - Consumer | | | 13,117 | | | 12,600 | | | 1,069 | | | 5,699 |
Residential 1-4 Family - Revolving | | | 2,490 | | | 4,629 | | | 60 | | | 826 |
Auto | | | 565 | | | 500 | | | 0 | | | 166 |
Consumer | | | 88 | | | 69 | | | 0 | | | 394 |
Other Commercial | | | 98 | | | 0 | | | 0 | | | 0 |
Total loans held for investment | | $ | 45,204 | | $ | 42,448 | | $ | 11,497 | | $ | 13,634 |
There was 0 interest income recognized on nonaccrual loans during the three and nine months ended September 30, 2021 and 2020. See Note 1 “Summary of Significant Accounting Policies” in the Company’s 2020 Form 10-K for additional information on the Company’s policies for nonaccrual loans.
-19-
Troubled Debt Restructurings
The CARES Act, as amended by the CAA, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020January 1, 2022 or 60 days after the end of the COVID-19 emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. In addition, federal bank regulatory authorities havealso issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs.COVID-19. As of September 30, 2021, there were immaterial loans still under their modified terms. As of December 31, 2020, the Company had approximately $769.6$146.1 million in loans still under their modified terms. The Company’s modification program primarily included payment deferrals and interest only modifications.
In addition to the above mentioned modifications, as
As of September 30, 2020,2021, the Company has TDRs totaling $21.6$18.7 million with an estimated $2.7 million$854,000 of allowance for those loans for the current period.
As of December 31, 2020, the Company had TDRs totaling $20.6 million with an estimated $1.6 million of allowance for those loans.
A modification of a loan���sloan’s terms constitutes a TDR if the creditor grants a concession that it would not otherwise consider to the borrower for economic or legal reasons related to the borrower’s financial difficulties. All loans that are considered to be TDRs are evaluated for credit losses in accordance with the Company’s ALLL methodology. For the three and nine months ended September 30, 2021 and September 30, 2020, the recorded investment in TDRs prior to modifications was not materially impacted by the modifications.
The following table provides a summary, by class, of TDRs that continue to accrue interest under the terms of the applicable restructuring agreement, which are considered to be performing, and TDRs that have been placed on nonaccrual status, which are considered to be nonperforming, as of September 30, 2021 and December 31, 2020 (dollars in thousands):
| | | | | | | | |
| | September 30, 2020 | ||||||
|
| No. of |
| Recorded |
| Outstanding | ||
| | Loans | | Investment | | Commitment | ||
Performing |
|
|
| |
|
| |
|
Construction and Land Development |
| 4 | | $ | 219 | | $ | 0 |
Commercial Real Estate - Owner Occupied |
| 6 | |
| 2,140 | |
| 101 |
Commercial Real Estate - Non-Owner Occupied |
| 1 | |
| 1,089 | |
| 0 |
Commercial & Industrial |
| 5 | |
| 1,117 | |
| 0 |
Residential 1-4 Family - Commercial |
| 3 | |
| 247 | |
| 0 |
Residential 1-4 Family - Consumer |
| 80 | |
| 9,165 | |
| 0 |
Residential 1-4 Family - Revolving |
| 2 | |
| 55 | |
| 0 |
Consumer |
| 5 | |
| 31 | |
| 0 |
Other Commercial | | 1 | | | 452 | | | 0 |
Total performing |
| 107 | | $ | 14,515 | | $ | 101 |
Nonperforming |
|
| |
|
| |
|
|
Commercial Real Estate - Owner Occupied |
| 2 | | $ | 293 | | $ | 0 |
Commercial Real Estate - Non-Owner Occupied | | 1 | | | 137 | | | 0 |
Commercial & Industrial |
| 3 | |
| 261 | |
| 0 |
Residential 1-4 Family - Commercial |
| 4 | |
| 1,313 | |
| 0 |
Residential 1-4 Family - Consumer |
| 23 | |
| 4,937 | |
| 0 |
Residential 1-4 Family - Revolving |
| 3 | |
| 104 | |
| 0 |
Total nonperforming |
| 36 | | $ | 7,045 | | $ | 0 |
Total performing and nonperforming |
| 143 | | $ | 21,560 | | $ | 101 |
| | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 | ||||||||||||
|
| No. of |
| Recorded |
| Outstanding |
| No. of |
| Recorded |
| Outstanding | ||||
| | Loans | | Investment | | Commitment | | Loans | | Investment | | Commitment | ||||
Performing |
|
|
| |
|
| |
|
|
|
| |
|
| |
|
Construction and Land Development |
| 4 | | $ | 205 | | $ | 0 |
| 4 | | $ | 215 | | $ | 0 |
Commercial Real Estate - Owner Occupied |
| 4 | |
| 1,003 | |
| 0 |
| 6 | |
| 2,033 | |
| 176 |
Commercial Real Estate - Non-Owner Occupied |
| 0 | |
| — | |
| 0 |
| 1 | |
| 1,089 | |
| 0 |
Commercial & Industrial |
| 2 | |
| 413 | |
| 0 |
| 4 | |
| 727 | |
| 0 |
Residential 1-4 Family - Commercial |
| 0 | |
| — | |
| 0 |
| 3 | |
| 245 | |
| 0 |
Residential 1-4 Family - Consumer |
| 75 | |
| 9,182 | |
| 0 |
| 77 | |
| 8,943 | |
| 0 |
Residential 1-4 Family - Revolving |
| 3 | |
| 268 | |
| 4 |
| 3 | |
| 277 | |
| 0 |
Consumer |
| 2 | |
| 16 | |
| 0 |
| 3 | |
| 22 | |
| 0 |
Other Commercial | | 1 | | | 248 | | | 0 | | 1 | | | 410 | | | 0 |
Total performing |
| 91 | | $ | 11,335 | | $ | 4 |
| 102 | | $ | 13,961 | | $ | 176 |
Nonperforming |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
Commercial Real Estate - Owner Occupied |
| 2 | | $ | 831 | | $ | 0 |
| 1 | | $ | 20 | | $ | 0 |
Commercial Real Estate - Non-Owner Occupied | | 3 | | | 1,366 | | | 0 | | 1 | | | 134 | | | 0 |
Commercial & Industrial |
| 4 | |
| 362 | |
| 0 |
| 3 | |
| 237 | |
| 0 |
Residential 1-4 Family - Commercial |
| 3 | |
| 393 | |
| 0 |
| 4 | |
| 1,296 | |
| 0 |
Residential 1-4 Family - Consumer |
| 24 | |
| 4,312 | |
| 0 |
| 23 | |
| 4,865 | |
| 0 |
Residential 1-4 Family - Revolving |
| 3 | |
| 101 | |
| 0 |
| 3 | |
| 103 | |
| 0 |
Total nonperforming |
| 39 | | $ | 7,365 | | $ | 0 |
| 35 | | $ | 6,655 | | $ | 0 |
Total performing and nonperforming |
| 130 | | $ | 18,700 | | $ | 4 |
| 137 | | $ | 20,616 | | $ | 176 |
The Company considers a default of a TDR to occur when the borrower is 90 days past due following the restructure or a foreclosure and repossession of the applicable collateral occurs. During the three and nine months ended September 30, 2021 and 2020, the Company did not have any material loans that went into default that had been restructured in the twelve-month period prior to the time of default.
-23--20-
The following table shows, by class and modification type, TDRs that occurred during the three and nine months ended September 30, 2021 (dollars in thousands):
| | | | | | | | | | |
| | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | ||||||
|
| |
| Recorded |
| |
| Recorded | ||
| | No. of | | Investment at | | No. of | | Investment at | ||
| | Loans | | Period End | | Loans | | Period End | ||
Modified to interest only, at a market rate |
|
|
| |
|
|
|
| |
|
Total interest only at market rate of interest |
| 0 | | $ | 0 |
| 0 | | $ | 0 |
| | | | | | | | | | |
Term modification, at a market rate |
|
| |
|
|
|
| |
|
|
Commercial Real Estate - Non-Owner Occupied |
| 1 | |
| 157 |
| 1 | |
| 157 |
Residential 1-4 Family - Consumer |
| 0 | | $ | 0 |
| 2 | | $ | 102 |
Total loan term extended at a market rate |
| 1 | | $ | 157 |
| 3 | | $ | 259 |
| | | | | | | | | | |
Term modification, below market rate |
|
| |
|
|
|
| |
|
|
Residential 1-4 Family - Consumer |
| 0 | | $ | 0 |
| 11 | | $ | 1,813 |
Consumer |
| 0 | |
| 0 |
| 1 | |
| 15 |
Total loan term extended at a below market rate |
| 0 | | $ | 0 |
| 12 | | $ | 1,828 |
| | | | | | | | | | |
Interest rate modification, below market rate |
|
| |
|
|
|
| |
|
|
Residential 1-4 Family - Commercial |
| 0 | | $ | 0 |
| 1 | | $ | 45 |
Total interest only at below market rate of interest |
| 0 | | $ | 0 |
| 1 | | $ | 45 |
| | | | | | | | | | |
Total |
| 1 | | $ | 157 |
| 16 | | $ | 2,132 |
-21-
The following table shows, by class and modification type, TDRs that occurred during the three and nine months ended September 30, 2020 (dollars in thousands):
| | | | | | | | | | |
| | All Restructurings | ||||||||
| | Three Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 | ||||||
|
| |
| Recorded |
| |
| Recorded | ||
| | No. of | | Investment at | | No. of | | Investment at | ||
| | Loans | | Period End | | Loans | | Period End | ||
Modified to interest only, at a market rate |
|
|
| |
|
|
|
| |
|
Commercial Real Estate - Owner Occupied | | 0 | | $ | 0 | | 1 | | $ | 272 |
Residential 1-4 Family - Commercial | | 1 | | | 652 | | 1 | | | 652 |
Total interest only at market rate of interest |
| 1 | | $ | 652 |
| 2 | | $ | 924 |
| | | | | | | | | | |
Term modification, at a market rate |
|
| |
|
|
|
| |
|
|
Commercial & Industrial |
| 0 | | $ | 0 |
| 3 | | $ | 127 |
Residential 1-4 Family - Commercial |
| 1 | | | 299 |
| 1 | | | 299 |
Residential 1-4 Family - Consumer |
| 0 | |
| 0 |
| 4 | |
| 324 |
Consumer | | 0 | | | 0 | | 1 | | | 10 |
Total loan term extended at a market rate |
| 1 | | $ | 299 |
| 9 | | $ | 760 |
| | | | | | | | | | |
Term modification, below market rate |
|
| |
|
|
|
| |
|
|
Construction and Land Development | | 0 | | $ | 0 | | 1 | | $ | 34 |
Commercial & Industrial |
| 1 | |
| 143 |
| 2 | |
| 358 |
Residential 1-4 Family - Commercial | | 1 | | | 290 | | 1 | | | 290 |
Residential 1-4 Family - Consumer |
| 4 | | | 423 |
| 17 | | | 2,387 |
Residential 1-4 Family - Revolving |
| 0 | |
| 0 |
| 1 | |
| 52 |
Total loan term extended at a below market rate |
| 6 | | $ | 856 |
| 22 | | $ | 3,121 |
| | | | | | | | | | |
Interest rate modification, below market rate |
|
| |
|
|
|
| |
|
|
Total interest only at below market rate of interest |
| 0 | | $ | 0 |
| 0 | | $ | 0 |
| | | | | | | | | | |
Total |
| 8 | | $ | 1,807 |
| 33 | | $ | 4,805 |
| | | | | | | | | | |
| | Three Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 | ||||||
|
| |
| Recorded |
| |
| Recorded | ||
| | No. of | | Investment at | | No. of | | Investment at | ||
| | Loans | | Period End | | Loans | | Period End | ||
Modified to interest only, at a market rate |
|
|
| |
|
|
|
| |
|
Commercial Real Estate - Owner Occupied | | 0 | | $ | 0 | | 1 | | $ | 272 |
Residential 1-4 Family - Commercial |
| 1 | | | 652 |
| 1 | | | 652 |
Total interest only at market rate of interest |
| 1 | | $ | 652 |
| 2 | | $ | 924 |
| | | | | | | | | | |
Term modification, at a market rate |
|
| |
|
|
|
| |
|
|
Commercial & Industrial |
| 0 | | $ | 0 |
| 3 | | $ | 127 |
Residential 1-4 Family - Commercial |
| 1 | |
| 299 |
| 1 | |
| 299 |
Residential 1-4 Family - Consumer |
| 0 | |
| 0 |
| 4 | |
| 324 |
Consumer |
| 0 | |
| 0 |
| 1 | |
| 10 |
Total loan term extended at a market rate |
| 1 | | $ | 299 |
| 9 | | $ | 760 |
| | | | | | | | | | |
Term modification, below market rate |
|
| |
|
|
|
| |
|
|
Construction and Land Development | | 0 | | $ | 0 | | 1 | | $ | 34 |
Commercial & Industrial |
| 1 | |
| 143 |
| 2 | |
| 358 |
Residential 1-4 Family - Commercial |
| 1 | |
| 290 |
| 1 | |
| 290 |
Residential 1-4 Family - Consumer |
| 4 | |
| 423 |
| 17 | |
| 2,387 |
Residential 1-4 Family - Revolving | | 0 | | | 0 | | 1 | | | 52 |
Total loan term extended at a below market rate |
| 6 | | $ | 856 |
| 22 | | $ | 3,121 |
| | | | | | | | | | |
Interest rate modification, below market rate |
|
| |
|
|
|
| |
|
|
Total interest only at below market rate of interest |
| 0 | | $ | 0 |
| 0 | | $ | 0 |
| | | | | | | | | | |
Total |
| 8 | | $ | 1,807 |
| 33 | | $ | 4,805 |
-24--22-
Allowance for Loan and Lease Losses
ALLL on the loan portfolio is a material estimate for the Company. The Company estimates its ALLL on its loan portfolio on a quarterly basis. The Company models the ALLL using two primary segments, Commercial and Consumer. Within eachEach loan segment loanis further disaggregated into classes are further identified based on similar risk characteristics. The Company has identified the following classes within each loan segment:
● | Commercial: Construction and Land Development, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Multifamily Real Estate, Commercial & Industrial, Residential 1-4 Family – Commercial, and Other Commercial |
● | Consumer: Residential 1-4 Family – Consumer, Residential 1-4 Family – Revolving, Auto, and Consumer |
The following tables show the ALLL activity by loan segment for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | |
| | | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | |
| | | ||||||||||||||||||
|
| | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||
| | Three Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 | | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||
| | Commercial | | Consumer | | Total | | Commercial | | Consumer | | Total | | Commercial | | Consumer | | Total |
| Commercial | | Consumer | | Total | ||||||||||||
Balance at beginning of period | | $ | 111,954 | | $ | 58,023 | | $ | 169,977 | | $ | 30,941 | | $ | 11,353 | | $ | 42,294 | | $ | 89,837 | | $ | 28,424 | | $ | 118,261 | | $ | 117,403 | | $ | 43,137 | | $ | 160,540 |
Impact of ASC 326 adoption on non-PCD loans | |
| — | |
| — | |
| — | |
| 4,432 | |
| 40,666 | |
| 45,098 | ||||||||||||||||||
Impact of ASC 326 adoption on PCD loans | |
| — | |
| — | |
| — | |
| 1,752 | |
| 634 | |
| 2,386 | ||||||||||||||||||
Impact of adopting ASC 326 | |
| — | |
| — | |
| — | |
| 6,184 | |
| 41,300 | |
| 47,484 | ||||||||||||||||||
Loans charged-off | |
| (995) | |
| (1,983) | |
| (2,978) | |
| (5,553) | |
| (9,253) | |
| (14,806) | |
| (967) | |
| (1,299) | |
| (2,266) |
|
| (3,832) | |
| (4,020) | |
| (7,852) |
Recoveries credited to allowance | |
| 718 | |
| 848 | |
| 1,566 | |
| 2,580 | |
| 2,557 | |
| 5,137 | |
| 1,281 | |
| 872 | |
| 2,153 | |
| 3,929 | |
| 2,569 | |
| 6,498 |
Provision charged to operations | |
| 14,978 | |
| (9,421) | |
| 5,557 | |
| 92,503 | |
| 1,510 | |
| 94,013 | |
| (15,173) | |
| (1,177) | |
| (16,350) |
|
| (42,522) | |
| (14,866) | |
| (57,388) |
Balance at end of period | | $ | 126,655 | | $ | 47,467 | | $ | 174,122 | | $ | 126,655 | | $ | 47,467 | | $ | 174,122 | | $ | 74,978 | | $ | 26,820 | | $ | 101,798 |
| $ | 74,978 | | $ | 26,820 | | $ | 101,798 |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 | ||||||||||||||
| | Commercial | | Consumer | | Total |
| Commercial | | Consumer | | Total | ||||||
Balance at beginning of period | | $ | 111,954 | | $ | 58,023 | | $ | 169,977 |
| $ | 30,941 | | $ | 11,353 | | $ | 42,294 |
Impact of ASC 326 adoption on non-PCD loans | |
| — | |
| — | |
| — | |
| 4,432 | |
| 40,666 | |
| 45,098 |
Impact of ASC 326 adoption on PCD loans | |
| — | |
| — | |
| — |
|
| 1,752 | |
| 634 | |
| 2,386 |
Impact of adopting ASC 326 | |
| — | |
| — | |
| — | |
| 6,184 | |
| 41,300 | |
| 47,484 |
Loans charged-off | |
| (995) | |
| (1,983) | |
| (2,978) |
|
| (5,553) | |
| (9,253) | |
| (14,806) |
Recoveries credited to allowance | |
| 718 | |
| 848 | |
| 1,566 |
|
| 2,580 | |
| 2,557 | |
| 5,137 |
Provision charged to operations | |
| 14,978 | |
| (9,421) | |
| 5,557 |
|
| 92,503 | |
| 1,510 | |
| 94,013 |
Balance at end of period | | $ | 126,655 | | $ | 47,467 | | $ | 174,122 | | $ | 126,655 | | $ | 47,467 | | $ | 174,122 |
-25--23-
Credit Quality Indicators
Credit quality indicators are utilized to help estimate the collectability of each loan class within the Commercial and Consumer loan segments. For classes of loans within the Commercial segment, the primary credit quality indicator used for evaluating credit quality and estimating the ALLL is risk rating categories of Pass, Watch, & Special Mention, Substandard, and Doubtful. For classes of loans within the Consumer segment, the primary credit quality indicator used for evaluating credit quality and estimating the ALLL is delinquency bands of Current, 30-59, 60-89, 90+, and Nonaccrual. While other credit quality indicators are evaluated and analyzed as part of the Company’s credit risk management activities, these indicators are primarily used in estimating the ALLL. The Company evaluates the credit risk of its loan portfolio on at least a quarterly basis.
Commercial Loans
The Company uses a risk rating system as the primary credit quality indicator for classes of loans within the Commercial segment. The risk rating system on a scale of 0 through 9 is used to determine risk level as used in the calculation of the allowance for credit loss. The risk levels, as described below, do not necessarily follow the regulatory definitions of risk levels with the same name. A general description of the characteristics of the risk levels follows:
Pass is determined by the following criteria:
● | Risk rated 0 loans have little or no risk and are with General Obligation Municipal Borrowers; |
● | Risk rated 1 loans have little or no risk and are generally secured by cash or cash equivalents; |
● | Risk rated 2 loans have minimal risk to well qualified borrowers and no significant questions as to safety; |
● | Risk rated 3 loans are satisfactory loans with strong borrowers and secondary sources of repayment; |
● | Risk rated 4 loans are satisfactory loans with borrowers not as strong as risk rated 3 loans and may exhibit a greater degree of financial risk based on the type of business supporting the loan. |
Watch & Special Mention is determined by the following criteria:
● | Risk rated 5 loans are watch loans that warrant more than the normal level of supervision and have the possibility of an event occurring that may weaken the borrower’s ability to repay; |
Special Mention is determined by the following criteria:
● | Risk rated 6 loans have increasing potential weaknesses beyond those at which the loan originally was granted and if not addressed could lead to inadequately protecting the Company’s credit position. |
Substandard is determined by the following criteria:
● | Risk rated 7 loans are substandard loans and are inadequately protected by the current sound worth or paying capacity of the obligor or the collateral pledged; these have well defined weaknesses that jeopardize the liquidation of the debt with the distinct possibility the Company will sustain some loss if the deficiencies are not corrected. |
Doubtful is determined by the following criteria:
● | Risk rated 8 loans are doubtful of collection and the possibility of loss is high but pending specific borrower plans for recovery, its classification as a loss is deferred until its more exact status is determined; |
● | Risk rated 9 loans are loss loans which are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. |
-26--24-
The table below details the amortized cost of the classes of loans within the Commercial segment by risk level and year of origination as of September 30, 2021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2021 | |||||||||||||||||||||
| | | Term Loans Amortized Cost Basis by Origination Year | | | | | | | |||||||||||||||
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving Loans | | Total | ||||||||
Construction and Land Development | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 305,044 | | $ | 265,805 | | $ | 107,223 | | $ | 46,770 | | $ | 17,980 | | $ | 50,365 | | $ | 23,429 | | $ | 816,616 |
Watch | | | 545 | | | 657 | | | 24,401 | | | 538 | | | 335 | | | 6,255 | | | 0 | | | 32,731 |
Special Mention | | | 2,742 | | | 1 | | | 181 | | | 0 | | | 0 | | | 303 | | | 0 | | | 3,227 |
Substandard | | | 0 | | | 0 | | | 263 | | | 18,901 | | | 199 | | | 5,414 | | | 0 | | | 24,777 |
Total Construction and Land Development | | $ | 308,331 | | $ | 266,463 | | $ | 132,068 | | $ | 66,209 | | $ | 18,514 | | $ | 62,337 | | $ | 23,429 | | $ | 877,351 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate - Owner Occupied | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 161,174 | | $ | 286,458 | | $ | 310,041 | | $ | 266,173 | | $ | 202,234 | | $ | 588,315 | | $ | 19,484 | | $ | 1,833,879 |
Watch | | | 187 | | | 25 | | | 11,745 | | | 16,141 | | | 17,279 | | | 48,534 | | | 903 | | | 94,814 |
Special Mention | | | 201 | | | 945 | | | 24,706 | | | 1,486 | | | 1,112 | | | 30,264 | | | 1,001 | | | 59,715 |
Substandard | | | 0 | | | 0 | | | 12,155 | | | 1,696 | | | 1,953 | | | 22,378 | | | 709 | | | 38,891 |
Total Commercial Real Estate - Owner Occupied | | $ | 161,562 | | $ | 287,428 | | $ | 358,647 | | $ | 285,496 | | $ | 222,578 | | $ | 689,491 | | $ | 22,097 | | $ | 2,027,299 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate - Non-Owner Occupied | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 360,208 | | $ | 439,673 | | $ | 531,065 | | $ | 370,114 | | $ | 391,043 | | $ | 1,161,218 | | $ | 56,566 | | $ | 3,309,887 |
Watch | | | 14,549 | | | 8,528 | | | 29,797 | | | 53,599 | | | 11,463 | | | 76,680 | | | 16 | | | 194,632 |
Special Mention | | | 0 | | | 10,649 | | | 29,923 | | | 31,347 | | | 14,062 | | | 30,133 | | | 0 | | | 116,114 |
Substandard | | | 0 | | | 0 | | | 41,595 | | | 21,279 | | | 12,557 | | | 34,354 | | | 302 | | | 110,087 |
Total Commercial Real Estate - Non-Owner Occupied | | $ | 374,757 | | $ | 458,850 | | $ | 632,380 | | $ | 476,339 | | $ | 429,125 | | $ | 1,302,385 | | $ | 56,884 | | $ | 3,730,720 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial & Industrial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 725,216 | | $ | 534,948 | | $ | 302,159 | | $ | 147,127 | | $ | 42,624 | | $ | 168,224 | | $ | 577,089 | | $ | 2,497,387 |
Watch | | | 173 | | | 3,808 | | | 2,526 | | | 21,778 | | | 4,571 | | | 4,855 | | | 14,322 | | | 52,033 |
Special Mention | | | 221 | | | 1,343 | | | 8,417 | | | 1,924 | | | 906 | | | 659 | | | 2,135 | | | 15,605 |
Substandard | | | 397 | | | 580 | | | 4,375 | | | 1,381 | | | 247 | | | 2,515 | | | 5,670 | | | 15,165 |
Total Commercial & Industrial | | $ | 726,007 | | $ | 540,679 | | $ | 317,477 | | $ | 172,210 | | $ | 48,348 | | $ | 176,253 | | $ | 599,216 | | $ | 2,580,190 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Multifamily Real Estate | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 41,843 | | $ | 163,955 | | $ | 89,602 | | $ | 136,569 | | $ | 79,594 | | $ | 250,115 | | $ | 1,597 | | $ | 763,275 |
Watch | | | 0 | | | 0 | | | 4,336 | | | 463 | | | 0 | | | 532 | | | 0 | | | 5,331 |
Special Mention | | | 0 | | | 2,261 | | | 629 | | | 4,544 | | | 0 | | | 92 | | | 42 | | | 7,568 |
Substandard | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 113 | | | 0 | | | 113 |
Total Multifamily Real Estate | | $ | 41,843 | | $ | 166,216 | | $ | 94,567 | | $ | 141,576 | | $ | 79,594 | | $ | 250,852 | | $ | 1,639 | | $ | 776,287 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 Family - Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 85,081 | | $ | 96,580 | | $ | 68,972 | | $ | 50,528 | | $ | 61,335 | | $ | 215,176 | | $ | 917 | | $ | 578,589 |
Watch | | | 0 | | | 2,047 | | | 6,727 | | | 7,494 | | | 3,708 | | | 8,772 | | | 314 | | | 29,062 |
Special Mention | | | 160 | | | 97 | | | 0 | | | 455 | | | 409 | | | 4,957 | | | 0 | | | 6,078 |
Substandard | | | 95 | | | 0 | | | 3,467 | | | 896 | | | 1,341 | | | 4,520 | | | 299 | | | 10,618 |
Total Residential 1-4 Family - Commercial | | $ | 85,336 | | $ | 98,724 | | $ | 79,166 | | $ | 59,373 | | $ | 66,793 | | $ | 233,425 | | $ | 1,530 | | $ | 624,347 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 145,656 | | $ | 173,414 | | $ | 105,143 | | $ | 5,995 | | $ | 26,284 | | $ | 50,631 | | $ | 13,425 | | $ | 520,548 |
Watch | | | 0 | | | 0 | | | 0 | | | 589 | | | 1,259 | | | 4,563 | | | 0 | | | 6,411 |
Special Mention | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | | | 203 | | | 7,730 | | | 7,936 |
Substandard | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 248 | | | 0 | | | 248 |
Total Other Commercial | | $ | 145,656 | | $ | 173,414 | | $ | 105,143 | | $ | 6,584 | | $ | 27,546 | | $ | 55,645 | | $ | 21,155 | | $ | 535,143 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 1,824,222 | | $ | 1,960,833 | | $ | 1,514,205 | | $ | 1,023,276 | | $ | 821,094 | | $ | 2,484,044 | | $ | 692,507 | | $ | 10,320,181 |
Watch | | | 15,454 | | | 15,065 | | | 79,532 | | | 100,602 | | | 38,615 | | | 150,191 | | | 15,555 | | | 415,014 |
Special Mention | | | 3,324 | | | 15,296 | | | 63,856 | | | 39,756 | | | 16,492 | | | 66,611 | | | 10,908 | | | 216,243 |
Substandard | | | 492 | | | 580 | | | 61,855 | | | 44,153 | | | 16,297 | | | 69,542 | | | 6,980 | | | 199,899 |
Total Commercial | | $ | 1,843,492 | | $ | 1,991,774 | | $ | 1,719,448 | | $ | 1,207,787 | | $ | 892,498 | | $ | 2,770,388 | | $ | 725,950 | | $ | 11,151,337 |
-25-
The table below details the amortized cost of the classes of loans within the Commercial segment by risk level and year of origination as of December 31, 2020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2020 | |||||||||||||||||||||
| | | Term Loans Amortized Cost Basis by Origination Year | | | | | | | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||
| | | | | | | | | | | | | | | | | | | | | | | ||
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Revolving Loans | | Total | ||||||||
Construction and Land Development | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 236,949 | | $ | 346,840 | | $ | 304,768 | | $ | 41,015 | | $ | 42,268 | | $ | 63,632 | | $ | 29,674 | | $ | 1,065,146 |
Watch & Special Mention | | | 2,268 | | | 67,572 | | | 40,714 | | | 347 | | | 5,863 | | | 16,549 | | | 1,645 | | | 134,958 |
Substandard | | | 0 | | | 0 | | | 368 | | | 710 | | | 2,040 | | | 3,968 | | | 0 | | | 7,086 |
Total Construction and Land Development | | $ | 239,217 | | $ | 414,412 | | $ | 345,850 | | $ | 42,072 | | $ | 50,171 | | $ | 84,149 | | $ | 31,319 | | $ | 1,207,190 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate - Owner Occupied | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 226,090 | | $ | 369,661 | | $ | 304,296 | | $ | 243,299 | | $ | 143,786 | | $ | 616,113 | | $ | 23,577 | | $ | 1,926,822 |
Watch & Special Mention | | | 2,002 | | | 17,684 | | | 23,479 | | | 17,770 | | | 31,406 | | | 64,728 | | | 2,599 | | | 159,668 |
Substandard | | | 0 | | | 118 | | | 1,099 | | | 1,113 | | | 1,039 | | | 17,175 | | | 299 | | | 20,843 |
Total Commercial Real Estate - Owner Occupied | | $ | 228,092 | | $ | 387,463 | | $ | 328,874 | | $ | 262,182 | | $ | 176,231 | | $ | 698,016 | | $ | 26,475 | | $ | 2,107,333 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate - Non-Owner Occupied | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 275,008 | | $ | 439,081 | | $ | 401,551 | | $ | 442,151 | | $ | 356,256 | | $ | 862,293 | | $ | 24,467 | | $ | 2,800,807 |
Watch & Special Mention | | | 27,599 | | | 104,352 | | | 97,973 | | | 71,618 | | | 107,934 | | | 259,591 | | | 18,318 | | | 687,385 |
Substandard | | | 0 | | | 0 | | | 6,464 | | | 0 | | | 25 | | | 3,248 | | | 0 | | | 9,737 |
Total Commercial Real Estate - Non-Owner Occupied | | $ | 302,607 | | $ | 543,433 | | $ | 505,988 | | $ | 513,769 | | $ | 464,215 | | $ | 1,125,132 | | $ | 42,785 | | $ | 3,497,929 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial & Industrial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 1,979,209 | | $ | 401,385 | | $ | 221,417 | | $ | 79,734 | | $ | 76,145 | | $ | 149,692 | | $ | 524,960 | | $ | 3,432,542 |
Watch & Special Mention | | | 5,081 | | | 29,405 | | | 16,889 | | | 4,163 | | | 5,170 | | | 6,443 | | | 28,156 | | | 95,307 |
Substandard | | | 37 | | | 928 | | | 396 | | | 129 | | | 623 | | | 2,710 | | | 3,577 | | | 8,400 |
Total Commercial & Industrial | | $ | 1,984,327 | | $ | 431,718 | | $ | 238,702 | | $ | 84,026 | | $ | 81,938 | | $ | 158,845 | | $ | 556,693 | | $ | 3,536,249 |
| | | | | | | �� | | | | | | | | | | | | | | | | | |
Multifamily Real Estate | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 131,434 | | $ | 80,234 | | $ | 69,881 | | $ | 120,758 | | $ | 70,127 | | $ | 239,525 | | $ | 2,499 | | $ | 714,458 |
Watch & Special Mention | | | 2,283 | | | 1,018 | | | 4,894 | | | 2,490 | | | 621 | | | 5,427 | | | 0 | | | 16,733 |
Substandard | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 391 | | | 0 | | | 391 |
Total Multifamily Real Estate | | $ | 133,717 | | $ | 81,252 | | $ | 74,775 | | $ | 123,248 | | $ | 70,748 | | $ | 245,343 | | $ | 2,499 | | $ | 731,582 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 Family - Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 78,631 | | $ | 100,919 | | $ | 76,284 | | $ | 87,277 | | $ | 76,710 | | $ | 226,118 | | $ | 1,251 | | $ | 647,190 |
Watch & Special Mention | | | 592 | | | 4,625 | | | 8,739 | | | 4,420 | | | 4,186 | | | 15,798 | | | 0 | | | 38,360 |
Substandard | | | 652 | | | 810 | | | 272 | | | 2,060 | | | 993 | | | 6,119 | | | 488 | | | 11,394 |
Total Residential 1-4 Family - Commercial | | $ | 79,875 | | $ | 106,354 | | $ | 85,295 | | $ | 93,757 | | $ | 81,889 | | $ | 248,035 | | $ | 1,739 | | $ | 696,944 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 221,801 | | $ | 115,346 | | $ | 9,972 | | $ | 39,542 | | $ | 16,602 | | $ | 47,858 | | $ | 31,730 | | $ | 482,851 |
Watch & Special Mention | | | 22 | | | 0 | | | 621 | | | 1,312 | | | 927 | | | 8,351 | | | 0 | | | 11,233 |
Total Other Commercial | | $ | 221,823 | | $ | 115,346 | | $ | 10,593 | | $ | 40,854 | | $ | 17,529 | | $ | 56,209 | | $ | 31,730 | | $ | 494,084 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 3,149,122 | | $ | 1,853,466 | | $ | 1,388,169 | | $ | 1,053,776 | | $ | 781,894 | | $ | 2,205,231 | | $ | 638,158 | | $ | 11,069,816 |
Watch & Special Mention(1) | | | 39,847 | | | 224,656 | | | 193,309 | | | 102,120 | | | 156,107 | | | 376,887 | | | 50,718 | | | 1,143,644 |
Substandard | | | 689 | | | 1,856 | | | 8,599 | | | 4,012 | | | 4,720 | | | 33,611 | | | 4,364 | | | 57,851 |
Total Commercial | | $ | 3,189,658 | | $ | 2,079,978 | | $ | 1,590,077 | | $ | 1,159,908 | | $ | 942,721 | | $ | 2,615,729 | | $ | 693,240 | | $ | 12,271,311 |
(1)Approximately 85.0% was comprised of Watch, which increased from December 31, 2019 due to the continued uncertainty of the COVID-19 pandemic on impacted industries.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 | |||||||||||||||||||||
| | | Term Loans Amortized Cost Basis by Origination Year | | | | | | | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||
| | | | | | | | | | | | | | | | | | | | | | | ||
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Revolving Loans | | Total | ||||||||
Construction and Land Development | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 316,585 | | $ | 277,142 | | $ | 116,800 | | $ | 24,770 | | $ | 42,970 | | $ | 54,023 | | $ | 23,324 | | $ | 855,614 |
Watch | | | 1,873 | | | 18,181 | | | 8,434 | | | 344 | | | 2,355 | | | 6,372 | | | 412 | | | 37,971 |
Special Mention | | | 0 | | | 5,532 | | | 135 | | | 0 | | | 0 | | | 2,655 | | | 0 | | | 8,322 |
Substandard | | | 0 | | | 0 | | | 17,780 | | | 64 | | | 2,037 | | | 4,010 | | | 0 | | | 23,891 |
Total Construction and Land Development | | $ | 318,458 | | $ | 300,855 | | $ | 143,149 | | $ | 25,178 | | $ | 47,362 | | $ | 67,060 | | $ | 23,736 | | $ | 925,798 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate - Owner Occupied | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 286,522 | | $ | 375,541 | | $ | 300,583 | | $ | 233,359 | | $ | 128,261 | | $ | 570,361 | | $ | 18,838 | | $ | 1,913,465 |
Watch | | | 1,942 | | | 14,611 | | | 22,224 | | | 15,623 | | | 24,979 | | | 41,361 | | | 1,648 | | | 122,388 |
Special Mention | | | 988 | | | 6,052 | | | 5,749 | | | 4,198 | | | 9,907 | | | 30,455 | | | 1,121 | | | 58,470 |
Substandard | | | 0 | | | 4,858 | | | 5,159 | | | 914 | | | 1,555 | | | 21,101 | | | 999 | | | 34,586 |
Total Commercial Real Estate - Owner Occupied | | $ | 289,452 | | $ | 401,062 | | $ | 333,715 | | $ | 254,094 | | $ | 164,702 | | $ | 663,278 | | $ | 22,606 | | $ | 2,128,909 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate - Non-Owner Occupied | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 381,849 | | $ | 455,427 | | $ | 433,183 | | $ | 403,677 | | $ | 336,630 | | $ | 850,035 | | $ | 30,421 | | $ | 2,891,222 |
Watch | | | 28,354 | | | 142,279 | | | 76,838 | | | 59,451 | | | 79,533 | | | 224,944 | | | 16,870 | | | 628,269 |
Special Mention | | | 702 | | | 11,072 | | | 34,905 | | | 18,073 | | | 40,771 | | | 11,211 | | | 723 | | | 117,457 |
Substandard | | | 246 | | | 0 | | | 13,357 | | | 0 | | | 25 | | | 6,986 | | | 0 | | | 20,614 |
Total Commercial Real Estate - Non-Owner Occupied | | $ | 411,151 | | $ | 608,778 | | $ | 558,283 | | $ | 481,201 | | $ | 456,959 | | $ | 1,093,176 | | $ | 48,014 | | $ | 3,657,562 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial & Industrial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 1,730,876 | | $ | 350,618 | | $ | 199,489 | | $ | 67,035 | | $ | 71,799 | | $ | 140,461 | | $ | 590,701 | | $ | 3,150,979 |
Watch | | | 4,872 | | | 32,028 | | | 13,073 | | | 6,500 | | | 3,182 | | | 4,906 | | | 19,972 | | | 84,533 |
Special Mention | | | 1,009 | | | 2,178 | | | 3,890 | | | 1,150 | | | 724 | | | 1,234 | | | 4,755 | | | 14,940 |
Substandard | | | 534 | | | 4,269 | | | 1,274 | | | 309 | | | 560 | | | 2,676 | | | 3,386 | | | 13,008 |
Total Commercial & Industrial | | $ | 1,737,291 | | $ | 389,093 | | $ | 217,726 | | $ | 74,994 | | $ | 76,265 | | $ | 149,277 | | $ | 618,814 | | $ | 3,263,460 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Multifamily Real Estate | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 144,805 | | $ | 85,740 | | $ | 150,724 | | $ | 117,881 | | $ | 67,984 | | $ | 231,113 | | $ | 2,311 | | $ | 800,558 |
Watch | | | 0 | | | 5,074 | | | 475 | | | 0 | | | 617 | | | 560 | | | 0 | | | 6,726 |
Special Mention | | | 2,280 | | | 0 | | | 4,388 | | | 0 | | | 0 | | | 760 | | | 0 | | | 7,428 |
Substandard | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 33 | | | 0 | | | 33 |
Total Multifamily Real Estate | | $ | 147,085 | | $ | 90,814 | | $ | 155,587 | | $ | 117,881 | | $ | 68,601 | | $ | 232,466 | | $ | 2,311 | | $ | 814,745 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 Family - Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 104,630 | | $ | 89,332 | | $ | 70,310 | | $ | 79,156 | | $ | 68,915 | | $ | 201,492 | | $ | 2,236 | | $ | 616,071 |
Watch | | | 666 | | | 6,665 | | | 8,252 | | | 4,141 | | | 4,067 | | | 9,307 | | | 195 | | | 33,293 |
Special Mention | | | 0 | | | 0 | | | 601 | | | 663 | | | 468 | | | 5,923 | | | 0 | | | 7,655 |
Substandard | | | 644 | | | 793 | | | 4,913 | | | 1,995 | | | 986 | | | 5,111 | | | 488 | | | 14,930 |
Total Residential 1-4 Family - Commercial | | $ | 105,940 | | $ | 96,790 | | $ | 84,076 | | $ | 85,955 | | $ | 74,436 | | $ | 221,833 | | $ | 2,919 | | $ | 671,949 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 223,490 | | $ | 112,045 | | $ | 9,549 | | $ | 30,314 | | $ | 16,494 | | $ | 42,158 | | $ | 44,180 | | $ | 478,230 |
Watch | | | 0 | | | 0 | | | 613 | | | 1,299 | | | 1,189 | | | 3,934 | | | 0 | | | 7,035 |
Special Mention | | | 10 | | | 0 | | | 0 | | | 7 | | | 0 | | | 4,591 | | | 102 | | | 4,710 |
Total Other Commercial | | $ | 223,500 | | $ | 112,045 | | $ | 10,162 | | $ | 31,620 | | $ | 17,683 | | $ | 50,683 | | $ | 44,282 | | $ | 489,975 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 3,188,757 | | $ | 1,745,845 | | $ | 1,280,638 | | $ | 956,192 | | $ | 733,053 | | $ | 2,089,643 | | $ | 712,011 | | $ | 10,706,139 |
Watch | | | 37,707 | | | 218,838 | | | 129,909 | | | 87,358 | | | 115,922 | | | 291,384 | | | 39,097 | | | 920,215 |
Special Mention | | | 4,989 | | | 24,834 | | | 49,668 | | | 24,091 | | | 51,870 | | | 56,829 | | | 6,701 | | | 218,982 |
Substandard | | | 1,424 | | | 9,920 | | | 42,483 | | | 3,282 | | | 5,163 | | | 39,917 | | | 4,873 | | | 107,062 |
Total Commercial | | $ | 3,232,877 | | $ | 1,999,437 | | $ | 1,502,698 | | $ | 1,070,923 | | $ | 906,008 | | $ | 2,477,773 | | $ | 762,682 | | $ | 11,952,398 |
-27--26-
Consumer Loans
For Consumer loans, the Company evaluates credit quality based on the delinquency status of the loan. The following table details the amortized cost of the classes of loans within the Consumer segment based on their delinquency status and year of origination as of September 30, 20202021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2020 | | | September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||
| | | Term Loans Amortized Cost Basis by Origination Year | | | | | | | | | Term Loans Amortized Cost Basis by Origination Year | | | | | | | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Revolving Loans | | Total | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving Loans | | Total | ||||||||||||||||
Residential 1-4 Family - Consumer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 143,716 | | $ | 83,309 | | $ | 78,957 | | $ | 77,910 | | $ | 111,043 | | $ | 311,108 | | $ | 12 | | $ | 806,055 | | $ | 194,184 | | $ | 190,849 | | $ | 57,249 | | $ | 37,678 | | $ | 49,080 | | $ | 276,715 | | $ | 10 | | $ | 805,765 |
30-59 Days Past Due | | | 0 | | | 156 | | | 1,648 | | | 43 | | | 263 | | | 888 | | | 0 | | | 2,998 | | | 0 | | | 0 | | | 117 | | | 159 | | | 47 | | | 83 | | | 0 | | | 406 |
60-89 Days Past Due | | | 0 | | | 0 | | | 708 | | | 1,138 | | | 67 | | | 2,063 | | | 0 | | | 3,976 | | | 0 | | | 0 | | | 0 | | | 0 | | | 305 | | | 1,883 | | | 0 | | | 2,188 |
90+ Days Past Due | | | 646 | | | 1,574 | | | 0 | | | 313 | | | 388 | | | 1,574 | | | 0 | | | 4,495 | | | 451 | | | 0 | | | 46 | | | 20 | | | 0 | | | 1,945 | | | 0 | | | 2,462 |
Nonaccrual | | | 0 | | | 0 | | | 708 | | | 870 | | | 774 | | | 10,268 | | | 0 | | | 12,620 | | | 0 | | | 0 | | | 0 | | | 899 | | | 1,361 | | | 9,890 | | | 0 | | | 12,150 |
Total Residential 1-4 Family - Consumer | | $ | 144,362 | | $ | 85,039 | | $ | 82,021 | | $ | 80,274 | | $ | 112,535 | | $ | 325,901 | | $ | 12 | | $ | 830,144 | | $ | 194,635 | | $ | 190,849 | | $ | 57,412 | | $ | 38,756 | | $ | 50,793 | | $ | 290,516 | | $ | 10 | | $ | 822,971 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 Family - Revolving | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 11,456 | | $ | 4,160 | | $ | 2,019 | | $ | 0 | | $ | 0 | | $ | 644 | | $ | 590,291 | | $ | 608,570 | | $ | 6,418 | | $ | 10,327 | | $ | 2,343 | | $ | 1,176 | | $ | 0 | | $ | 487 | | $ | 529,176 | | $ | 549,927 |
30-59 Days Past Due | | | 0 | | | 36 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2,633 | | | 2,669 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,092 | | | 1,092 |
60-89 Days Past Due | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,141 | | | 1,141 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 587 | | | 587 |
90+ Days Past Due | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2,276 | | | 2,276 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2,474 | | | 2,474 |
Nonaccrual | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 314 | | | 3,350 | | | 3,664 | | | 0 | | | 64 | | | 0 | | | 19 | | | 0 | | | 227 | | | 3,413 | | | 3,723 |
Total Residential 1-4 Family - Revolving | | $ | 11,456 | | $ | 4,196 | | $ | 2,019 | | $ | 0 | | $ | 0 | | $ | 958 | | $ | 599,691 | | $ | 618,320 | | $ | 6,418 | | $ | 10,391 | | $ | 2,343 | | $ | 1,195 | | $ | 0 | | $ | 714 | | $ | 536,742 | | $ | 557,803 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 26,520 | | $ | 79,119 | | $ | 79,878 | | $ | 25,836 | | $ | 11,163 | | $ | 18,017 | | $ | 33,296 | | $ | 273,829 | | $ | 14,576 | | $ | 17,830 | | $ | 44,158 | | $ | 37,069 | | $ | 14,446 | | $ | 17,697 | | $ | 34,929 | | $ | 180,705 |
30-59 Days Past Due | | | 37 | | | 261 | | | 444 | | | 87 | | | 24 | | | 41 | | | 126 | | | 1,020 | | | 9 | | | 28 | | | 287 | | | 180 | | | 49 | | | 224 | | | 13 | | | 790 |
60-89 Days Past Due | | | 38 | | | 126 | | | 273 | | | 20 | | | 25 | | | 186 | | | 104 | | | 772 | | | 1 | | | 35 | | | 53 | | | 166 | | | 7 | | | 4 | | | 51 | | | 317 |
90+ Days Past Due | | | 0 | | | 19 | | | 253 | | | 32 | | | 21 | | | 0 | | | 2 | | | 327 | | | 0 | | | 3 | | | 31 | | | 88 | | | 10 | | | 24 | | | 17 | | | 173 |
Nonaccrual | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 74 | | | 0 | | | 75 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 54 | | | 0 | | | 54 |
Total Consumer | | $ | 26,595 | | $ | 79,525 | | $ | 80,848 | | $ | 25,975 | | $ | 11,234 | | $ | 18,318 | | $ | 33,528 | | $ | 276,023 | | $ | 14,586 | | $ | 17,896 | | $ | 44,529 | | $ | 37,503 | | $ | 14,512 | | $ | 18,003 | | $ | 35,010 | | $ | 182,039 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Auto | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 129,176 | | $ | 126,243 | | $ | 62,569 | | $ | 37,390 | | $ | 20,505 | | $ | 8,736 | | $ | 0 | | $ | 384,619 | | $ | 138,193 | | $ | 136,530 | | $ | 81,956 | | $ | 36,844 | | $ | 19,660 | | $ | 10,039 | | $ | 0 | | $ | 423,222 |
30-59 Days Past Due | | | 145 | | | 490 | | | 265 | | | 288 | | | 195 | | | 130 | | | 0 | | | 1,513 | | | 79 | | | 477 | | | 423 | | | 227 | | | 190 | | | 152 | | | 0 | | | 1,548 |
60-89 Days Past Due | | | 39 | | | 132 | | | 118 | | | 116 | | | 26 | | | 22 | | | 0 | | | 453 | | | 0 | | | 81 | | | 58 | | | 45 | | | 14 | | | 4 | | | 0 | | | 202 |
90+ Days Past Due | | | 29 | | | 99 | | | 62 | | | 45 | | | 53 | | | 27 | | | 0 | | | 315 | | | 101 | | | 15 | | | 75 | | | 6 | | | 0 | | | 12 | | | 0 | | | 209 |
Nonaccrual | | | 33 | | | 128 | | | 61 | | | 107 | | | 111 | | | 77 | | | 0 | | | 517 | | | 0 | | | 98 | | | 75 | | | 11 | | | 29 | | | 42 | | | 0 | | | 255 |
Total Auto | | $ | 129,422 | | $ | 127,092 | | $ | 63,075 | | $ | 37,946 | | $ | 20,890 | | $ | 8,992 | | $ | 0 | | $ | 387,417 | | $ | 138,373 | | $ | 137,201 | | $ | 82,587 | | $ | 37,133 | | $ | 19,893 | | $ | 10,249 | | $ | 0 | | $ | 425,436 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Consumer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 310,868 | | $ | 292,831 | | $ | 223,423 | | $ | 141,136 | | $ | 142,711 | | $ | 338,505 | | $ | 623,599 | | $ | 2,073,073 | | $ | 353,371 | | $ | 355,536 | | $ | 185,706 | | $ | 112,767 | | $ | 83,186 | | $ | 304,938 | | $ | 564,115 | | $ | 1,959,619 |
30-59 Days Past Due | | | 182 | | | 943 | | | 2,357 | | | 418 | | | 482 | | | 1,059 | | | 2,759 | | | 8,200 | | | 88 | | | 505 | | | 827 | | | 566 | | | 286 | | | 459 | | | 1,105 | | | 3,836 |
60-89 Days Past Due | | | 77 | | | 258 | | | 1,099 | | | 1,274 | | | 118 | | | 2,271 | | | 1,245 | | | 6,342 | | | 1 | | | 116 | | | 111 | | | 211 | | | 326 | | | 1,891 | | | 638 | | | 3,294 |
90+ Days Past Due | | | 675 | | | 1,692 | | | 315 | | | 390 | | | 462 | | | 1,601 | | | 2,278 | | | 7,413 | | | 552 | | | 18 | | | 152 | | | 114 | | | 10 | | | 1,981 | | | 2,491 | | | 5,318 |
Nonaccrual | | | 33 | | | 128 | | | 769 | | | 977 | | | 886 | | | 10,733 | | | 3,350 | | | 16,876 | | | 0 | | | 162 | | | 75 | | | 929 | | | 1,390 | | | 10,213 | | | 3,413 | | | 16,182 |
Total Consumer | | $ | 311,835 | | $ | 295,852 | | $ | 227,963 | | $ | 144,195 | | $ | 144,659 | | $ | 354,169 | | $ | 633,231 | | $ | 2,111,904 | | $ | 354,012 | | $ | 356,337 | | $ | 186,871 | | $ | 114,587 | | $ | 85,198 | | $ | 319,482 | | $ | 571,762 | | $ | 1,988,249 |
The Company did not have any material revolving loans convert to term during the three and nine months ended September 30, 2020.2021.
-28-
Acquired Loans
The Company has purchased loans that, at the time of acquisition, exhibited more than insignificant credit deterioration since origination. The Company has elected to treat all loans that were previously identified as PCI as PCD. As of September 30, 2020, the amortized cost of the Company’s PCD loans totaled $68.8 million, which had an estimated ALLL of $4.7 million.
Prior to the adoption of ASC 326
The following table shows the aging of the Company’s loan portfolio, by class, at December 31, 2019 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| Greater than |
| | |
| | |
| | |
| | | |
| | 30-59 Days | | 60-89 Days | | 90 Days and | | | | | | | | | | | | | |||
| | Past Due | | Past Due | | still Accruing | | PCI | | Nonaccrual | | Current | | Total Loans | |||||||
Construction and Land Development | | $ | 4,563 | | $ | 482 | | $ | 189 | | $ | 10,944 | | $ | 3,703 | | $ | 1,231,043 | | $ | 1,250,924 |
Commercial Real Estate - Owner Occupied | |
| 3,482 | |
| 2,184 | |
| 1,062 | |
| 27,438 | |
| 6,003 | |
| 2,001,074 | |
| 2,041,243 |
Commercial Real Estate - Non-Owner Occupied | |
| 457 | |
| 0 | |
| 1,451 | |
| 14,565 | |
| 381 | |
| 3,269,244 | |
| 3,286,098 |
Multifamily Real Estate | |
| 223 | |
| 0 | |
| 474 | |
| 94 | |
| 0 | |
| 632,952 | |
| 633,743 |
Commercial & Industrial | |
| 8,698 | |
| 1,598 | |
| 449 | |
| 1,579 | |
| 1,735 | |
| 2,099,974 | |
| 2,114,033 |
Residential 1-4 Family - Commercial | |
| 1,479 | |
| 2,207 | |
| 674 | |
| 12,205 | |
| 4,301 | |
| 703,471 | |
| 724,337 |
Residential 1-4 Family - Consumer | |
| 16,244 | |
| 3,072 | |
| 4,515 | |
| 14,713 | |
| 9,292 | |
| 842,667 | |
| 890,503 |
Residential 1-4 Family - Revolving | |
| 10,190 | |
| 1,784 | |
| 3,357 | |
| 4,127 | |
| 2,080 | |
| 637,966 | |
| 659,504 |
Auto | |
| 2,525 | |
| 236 | |
| 272 | |
| 4 | |
| 563 | |
| 346,819 | |
| 350,419 |
Consumer | |
| 2,128 | |
| 1,233 | |
| 953 | |
| 668 | |
| 77 | |
| 367,794 | |
| 372,853 |
Other Commercial | | | 464 | | | 0 | | | 0 | | | 344 | | | 97 | | | 286,374 | | | 287,279 |
Total loans held for investment | | $ | 50,453 | | $ | 12,796 | | $ | 13,396 | | $ | 86,681 | | $ | 28,232 | | $ | 12,419,378 | | $ | 12,610,936 |
The following table shows the PCI loan portfolios, by class and their delinquency status, at December 31, 2019 (dollars in thousands):
| | | | | | | | | | | | |
|
| 30-89 Days |
| Greater than |
| | |
| | | ||
| | Past Due | | 90 Days | | Current | | Total | ||||
Construction and Land Development | | $ | 136 | | $ | 343 | | $ | 10,465 | | $ | 10,944 |
Commercial Real Estate - Owner Occupied | |
| 480 | |
| 6,884 | |
| 20,074 | |
| 27,438 |
Commercial Real Estate - Non-Owner Occupied | |
| 848 | |
| 987 | |
| 12,730 | |
| 14,565 |
Multifamily Real Estate | |
| 0 | |
| 0 | |
| 94 | |
| 94 |
Commercial & Industrial | |
| — | |
| 989 | |
| 590 | |
| 1,579 |
Residential 1-4 Family - Commercial | |
| 543 | |
| 1,995 | |
| 9,667 | |
| 12,205 |
Residential 1-4 Family - Consumer | |
| 927 | |
| 1,781 | |
| 12,005 | |
| 14,713 |
Residential 1-4 Family - Revolving | |
| 287 | |
| 205 | |
| 3,635 | |
| 4,127 |
Auto | | | — | | | — | | | 4 | | | 4 |
Consumer | | | — | | | 9 | | | 659 | | | 668 |
Other Commercial | |
| 0 | |
| 0 | |
| 344 | |
| 344 |
Total | | $ | 3,221 | | $ | 13,193 | | $ | 70,267 | | $ | 86,681 |
-29--27-
As of December 31, 2019, the Company measured the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. The following table shows the Company’s loans, excluding PCI loans, by class at December 31, 2019 (dollars in thousands):
| | | | | | | | | |
| | December 31, 2019 | |||||||
|
| | |
| Unpaid |
| | | |
| | Recorded | | Principal | | Related | |||
| | Investment | | Balance | | Allowance | |||
Loans without a specific allowance |
| |
|
| |
|
| |
|
Construction and Land Development | | $ | 5,877 | | $ | 7,174 | | $ | — |
Commercial Real Estate - Owner Occupied | |
| 8,801 | |
| 9,296 | |
| — |
Commercial Real Estate - Non-Owner Occupied | |
| 3,510 | |
| 4,059 | |
| — |
Commercial & Industrial | |
| 3,668 | |
| 3,933 | |
| — |
Residential 1-4 Family - Commercial | |
| 4,047 | |
| 4,310 | |
| — |
Residential 1-4 Family - Consumer | |
| 8,420 | |
| 9,018 | |
| — |
Residential 1-4 Family - Revolving | |
| 862 | |
| 865 | |
| — |
Total impaired loans without a specific allowance | | $ | 35,185 | | $ | 38,655 | | $ | — |
Loans with a specific allowance | |
|
| |
|
| |
|
|
Construction and Land Development | | $ | 984 | | $ | 1,032 | | $ | 49 |
Commercial Real Estate - Owner Occupied | |
| 2,820 | |
| 3,093 | |
| 146 |
Commercial Real Estate - Non-Owner Occupied | |
| 335 | |
| 383 | |
| 2 |
Commercial & Industrial | |
| 2,568 | |
| 2,590 | |
| 619 |
Residential 1-4 Family - Commercial | |
| 1,726 | |
| 1,819 | |
| 162 |
Residential 1-4 Family - Consumer | |
| 12,026 | |
| 12,670 | |
| 1,242 |
Residential 1-4 Family - Revolving | |
| 2,186 | |
| 2,369 | |
| 510 |
Auto | |
| 563 | |
| 879 | |
| 221 |
Consumer | |
| 168 | |
| 336 | |
| 46 |
Other Commercial | | | 562 | | | 567 | | | 30 |
Total impaired loans with a specific allowance | | $ | 23,938 | | $ | 25,738 | | $ | 3,027 |
Total impaired loans | | $ | 59,123 | | $ | 64,393 | | $ | 3,027 |
The following table shows the average recorded investment and interest income recognized for the Company’s loans, excluding PCI loans, by class for the three and nine months ended September 30, 2019 (dollars in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, 2019 | | September 30, 2019 | ||||||||
|
| | |
| Interest |
| | |
| Interest | ||
| | Average | | Income | | Average | | Income | ||||
| | Investment | | Recognized | | Investment | | Recognized | ||||
Construction and Land Development | | $ | 13,581 | | $ | 40 | | $ | 13,601 | | $ | 351 |
Commercial Real Estate - Owner Occupied | |
| 13,301 | |
| 85 | |
| 13,436 | |
| 339 |
Commercial Real Estate - Non-Owner Occupied | |
| 2,748 | |
| 26 | |
| 3,543 | |
| 82 |
Multifamily Real Estate | | | 1,217 | | | 15 | | | 1,234 | | | 46 |
Commercial & Industrial | |
| 3,986 | |
| 41 | |
| 4,046 | |
| 129 |
Residential 1-4 Family - Commercial | |
| 6,334 | |
| 41 | |
| 6,521 | |
| 125 |
Residential 1-4 Family - Consumer | |
| 19,802 | |
| 75 | |
| 20,007 | |
| 264 |
Residential 1-4 Family - Revolving | |
| 2,125 | |
| 5 | |
| 2,242 | |
| 31 |
Auto | |
| 691 | |
| — | |
| 781 | |
| 9 |
Consumer | |
| 184 | |
| 2 | |
| 192 | |
| 5 |
Other Commercial | | | 570 | | | 7 | | | 579 | | | 21 |
Total impaired loans | | $ | 64,539 | | $ | 337 | | $ | 66,182 | | $ | 1,402 |
-30-
At December 31, 2019, the Company considered TDRs to be impaired loans. A modification of a loan’s terms constitutes a TDR if the creditor grants a concession that it would not otherwise consider to the borrower for economic or legal reasons related to the borrower’s financial difficulties. All loans that are considered to be TDRs are evaluated for impairment in accordance with the Company’s allowance for credit loss methodology.
The following table provides a summary, by class, of TDRs that continue to accrue interest under the terms of the applicable restructuring agreement, which are considered to be performing, and TDRs that have been placed on nonaccrual status, which are considered to be nonperforming, as of December 31, 2019 (dollars in thousands):
| | | | | | | | |
| | December 31, 2019 | ||||||
|
| No. of |
| Recorded |
| Outstanding | ||
| | Loans | | Investment | | Commitment | ||
Performing |
|
|
| |
|
| |
|
Construction and Land Development |
| 4 | | $ | 1,114 | | $ | 0 |
Commercial Real Estate - Owner Occupied |
| 6 | |
| 2,228 | |
| 26 |
Commercial Real Estate - Non-Owner Occupied |
| 1 | |
| 1,089 | |
| 0 |
Commercial & Industrial |
| 4 | |
| 1,020 | |
| 0 |
Residential 1-4 Family - Commercial |
| 5 | |
| 290 | |
| 0 |
Residential 1-4 Family - Consumer |
| 69 | |
| 9,396 | |
| 0 |
Residential 1-4 Family - Revolving |
| 2 | |
| 56 | |
| 0 |
Consumer |
| 4 | |
| 29 | |
| 0 |
Other Commercial | | 1 | | | 464 | | | 0 |
Total performing |
| 96 | | $ | 15,686 | | $ | 26 |
Nonperforming |
|
| |
|
| |
|
|
Commercial Real Estate - Owner Occupied |
| 2 | | $ | 176 | | $ | 0 |
Commercial & Industrial |
| 1 | |
| 55 | |
| 0 |
Residential 1-4 Family - Consumer |
| 19 | |
| 3,522 | |
| 0 |
Residential 1-4 Family - Revolving |
| 2 | |
| 57 | |
| 0 |
Total nonperforming |
| 24 | | $ | 3,810 | | $ | 0 |
Total performing and nonperforming |
| 120 | | $ | 19,496 | | $ | 26 |
The Company considers a default of a TDR to occur when the borrower is 90 days past due following the restructuring or a foreclosure and repossession of the applicable collateral occurs. During the three and nine months ended September 30, 2019 the Company did not have any material loans that went into default that had been restructured in the twelve-month period prior to the time of default.
-31-
The following table shows, by class and modification type, TDRs that occurred duringdetails the three and nine months ended September 30, 2019 (dollars in thousands):
| | | | | | | | | | |
| | All Restructurings | ||||||||
| | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | ||||||
|
| |
| Recorded |
| |
| Recorded | ||
| | No. of | | Investment at | | No. of | | Investment at | ||
| | Loans | | Period End | | Loans | | Period End | ||
Modified to interest only, at a market rate |
|
|
| |
|
|
|
| |
|
Total interest only at market rate of interest |
| — | | $ | — |
| — | | $ | — |
| | | | | | | | | | |
Term modification, at a market rate |
|
| |
|
|
|
| |
|
|
Commercial & Industrial | | 1 | | $ | 376 |
| 1 | | $ | 376 |
Residential 1-4 Family - Commercial |
| — | | | — |
| 1 | | | 73 |
Residential 1-4 Family - Consumer |
| 1 | |
| 461 |
| 4 | |
| 761 |
Consumer |
| 2 | |
| 18 |
| 3 | |
| 26 |
Total loan term extended at a market rate |
| 4 | | $ | 855 |
| 9 | | $ | 1,236 |
| | | | | | | | | | |
Term modification, below market rate |
|
| |
|
|
|
| |
|
|
Construction and Land Development | | 2 | | $ | 164 | | 2 | | $ | 164 |
Residential 1-4 Family - Consumer |
| 5 | | | 883 |
| 17 | | | 2,211 |
Consumer | | — | | | — | | 1 | | | 5 |
Total loan term extended at a below market rate |
| 7 | | $ | 1,047 |
| 20 | | $ | 2,380 |
| | | | | | | | | | |
Total |
| 11 | | $ | 1,902 |
| 29 | | $ | 3,616 |
| | | | | | | | | | |
Allowance for Loan and Lease Losses
The following table shows the ALLL activity by class for the nine months ended September 30, 2019. The table below includes the provision for loan losses. Allocation of a portionamortized cost of the allowance to one categoryclasses of loans does not preclude its availability to absorb losses in other categories (dollars in thousands):
| | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2019 | |||||||||||||
| | Allowance for loan losses | |||||||||||||
|
| Balance, |
| Recoveries |
| Loans |
| Provision |
| Balance, | |||||
| | beginning of | | credited to | | charged | | charged to | | end of | |||||
| | the year | | allowance | | off | | operations | | period | |||||
Construction and Land Development | | $ | 6,803 | | $ | 269 | | $ | (4,028) | | $ | 2,863 | | $ | 5,907 |
Commercial Real Estate - Owner Occupied | |
| 4,023 | |
| 118 | |
| (483) | |
| 361 | |
| 4,019 |
Commercial Real Estate - Non-Owner Occupied | |
| 8,865 | |
| 95 | |
| (270) | |
| 996 | |
| 9,686 |
Multifamily Real Estate | |
| 649 | |
| 85 | |
| 0 | |
| 46 | |
| 780 |
Commercial & Industrial | |
| 7,636 | |
| 936 | |
| (2,162) | |
| 2,739 | |
| 9,149 |
Residential 1-4 Family - Commercial | |
| 1,692 | |
| 244 | |
| (397) | |
| 50 | |
| 1,589 |
Residential 1-4 Family - Consumer | |
| 1,492 | |
| 256 | |
| (108) | |
| 158 | |
| 1,798 |
Residential 1-4 Family - Revolving | |
| 1,297 | |
| 589 | |
| (570) | |
| (179) | |
| 1,137 |
Auto | |
| 1,443 | |
| 452 | |
| (957) | |
| 614 | |
| 1,552 |
Consumer and all other(1) | |
| 7,145 | |
| 1,896 | |
| (12,215) | |
| 11,377 | |
| 8,203 |
Total | | $ | 41,045 | | $ | 4,940 | | $ | (21,190) | | $ | 19,025 | | $ | 43,820 |
(1)within the Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.
-32-
The following tables show the loan and ALLL balancessegment based on impairment methodology by classtheir delinquency status and year of origination as of December 31, 20192020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||||||||||||||
| | Loans individually | | Loans collectively | | Loans acquired with | | | | | | | ||||||||||||
| | evaluated for | | evaluated for | | deteriorated credit | | | | | | | ||||||||||||
| | impairment | | impairment | | quality | | Total | ||||||||||||||||
|
| Loans |
| ALL |
| Loans |
| ALL |
| Loans |
| ALL |
| Loans |
| ALL | ||||||||
Construction and Land Development | | $ | 6,861 | | $ | 49 | | $ | 1,233,119 | | $ | 5,709 | | $ | 10,944 | | $ | 0 | | $ | 1,250,924 | | $ | 5,758 |
Commercial Real Estate - Owner Occupied | |
| 11,621 | |
| 146 | |
| 2,002,184 | |
| 3,773 | |
| 27,438 | |
| 0 | |
| 2,041,243 | |
| 3,919 |
Commercial Real Estate - Non-Owner Occupied | |
| 3,845 | |
| 2 | |
| 3,267,688 | |
| 9,541 | |
| 14,565 | |
| 0 | |
| 3,286,098 | |
| 9,543 |
Multifamily Real Estate | |
| 0 | |
| 0 | |
| 633,649 | |
| 632 | |
| 94 | |
| 0 | |
| 633,743 | |
| 632 |
Commercial & Industrial | |
| 6,236 | |
| 619 | |
| 2,106,218 | |
| 7,768 | |
| 1,579 | |
| 217 | |
| 2,114,033 | |
| 8,604 |
Residential 1-4 Family - Commercial | |
| 5,773 | |
| 162 | |
| 706,359 | |
| 1,203 | |
| 12,205 | |
| 0 | |
| 724,337 | |
| 1,365 |
Residential 1-4 Family - Consumer | |
| 20,446 | |
| 1,242 | |
| 855,344 | |
| 771 | |
| 14,713 | |
| 0 | |
| 890,503 | |
| 2,013 |
Residential 1-4 Family - Revolving | |
| 3,048 | |
| 510 | |
| 652,329 | |
| 813 | |
| 4,127 | |
| 0 | |
| 659,504 | |
| 1,323 |
Auto | |
| 563 | |
| 221 | |
| 349,852 | |
| 1,232 | |
| 4 | |
| 0 | |
| 350,419 | |
| 1,453 |
Consumer and all other(1) | |
| 730 | |
| 76 | |
| 658,390 | |
| 7,608 | |
| 1,012 | |
| 0 | |
| 660,132 | |
| 7,684 |
Total loans held for investment, net | | $ | 59,123 | | $ | 3,027 | | $ | 12,465,132 | | $ | 39,050 | | $ | 86,681 | | $ | 217 | | $ | 12,610,936 | | $ | 42,294 |
(1)Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 | |||||||||||||||||||||
| | | Term Loans Amortized Cost Basis by Origination Year | | | | | | | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||
| | | | | | | | | | | | | | | | | | | | | | | ||
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Revolving Loans | | Total | ||||||||
Residential 1-4 Family - Consumer | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 213,763 | | $ | 75,133 | | $ | 64,299 | | $ | 68,320 | | $ | 102,123 | | $ | 269,203 | | $ | 11 | | $ | 792,852 |
30-59 Days Past Due | | | 678 | | | 181 | | | 2,243 | | | 516 | | | 457 | | | 6,107 | | | 0 | | | 10,182 |
60-89 Days Past Due | | | 156 | | | 0 | | | 57 | | | 679 | | | 0 | | | 641 | | | 0 | | | 1,533 |
90+ Days Past Due | | | 608 | | | 1,696 | | | 23 | | | 0 | | | 1,246 | | | 2,126 | | | 0 | | | 5,699 |
Nonaccrual | | | 0 | | | 0 | | | 696 | | | 851 | | | 887 | | | 10,166 | | | 0 | | | 12,600 |
Total Residential 1-4 Family - Consumer | | $ | 215,205 | | $ | 77,010 | | $ | 67,318 | | $ | 70,366 | | $ | 104,713 | | $ | 288,243 | | $ | 11 | | $ | 822,866 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 Family - Revolving | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 13,217 | | $ | 3,916 | | $ | 1,593 | | $ | 300 | | $ | 0 | | $ | 636 | | $ | 567,860 | | $ | 587,522 |
30-59 Days Past Due | | | 70 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2,905 | | | 2,975 |
60-89 Days Past Due | | | 53 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 991 | | | 1,044 |
90+ Days Past Due | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 826 | | | 826 |
Nonaccrual | | | 0 | | | 0 | | | 21 | | | 0 | | | 0 | | | 227 | | | 4,381 | | | 4,629 |
Total Residential 1-4 Family - Revolving | | $ | 13,340 | | $ | 3,916 | | $ | 1,614 | | $ | 300 | | $ | 0 | | $ | 863 | | $ | 576,963 | | $ | 596,996 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 26,498 | | $ | 68,208 | | $ | 67,041 | | $ | 22,464 | | $ | 9,997 | | $ | 15,893 | | $ | 35,450 | | $ | 245,551 |
30-59 Days Past Due | | | 35 | | | 252 | | | 504 | | | 98 | | | 15 | | | 143 | | | 119 | | | 1,166 |
60-89 Days Past Due | | | 28 | | | 176 | | | 317 | | | 23 | | | 0 | | | 3 | | | 3 | | | 550 |
90+ Days Past Due | | | 5 | | | 84 | | | 242 | | | 4 | | | 0 | | | 56 | | | 3 | | | 394 |
Nonaccrual | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 69 | | | 0 | | | 69 |
Total Consumer | | $ | 26,566 | | $ | 68,720 | | $ | 68,104 | | $ | 22,589 | | $ | 10,012 | | $ | 16,164 | | $ | 35,575 | | $ | 247,730 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Auto | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 171,051 | | $ | 115,319 | | $ | 55,886 | | $ | 32,555 | | $ | 17,081 | | $ | 6,314 | | $ | 0 | | $ | 398,206 |
30-59 Days Past Due | | | 239 | | | 467 | | | 543 | | | 478 | | | 197 | | | 152 | | | 0 | | | 2,076 |
60-89 Days Past Due | | | 124 | | | 150 | | | 0 | | | 59 | | | 26 | | | 17 | | | 0 | | | 376 |
90+ Days Past Due | | | 6 | | | 23 | | | 53 | | | 58 | | | 15 | | | 11 | | | 0 | | | 166 |
Nonaccrual | | | 30 | | | 93 | | | 126 | | | 101 | | | 88 | | | 62 | | | 0 | | | 500 |
Total Auto | | $ | 171,450 | | $ | 116,052 | | $ | 56,608 | | $ | 33,251 | | $ | 17,407 | | $ | 6,556 | | $ | 0 | | $ | 401,324 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Consumer | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 424,529 | | $ | 262,576 | | $ | 188,819 | | $ | 123,639 | | $ | 129,201 | | $ | 292,046 | | $ | 603,321 | | $ | 2,024,131 |
30-59 Days Past Due | | | 1,022 | | | 900 | | | 3,290 | | | 1,092 | | | 669 | | | 6,402 | | | 3,024 | | | 16,399 |
60-89 Days Past Due | | | 361 | | | 326 | | | 374 | | | 761 | | | 26 | | | 661 | | | 994 | | | 3,503 |
90+ Days Past Due | | | 619 | | | 1,803 | | | 318 | | | 62 | | | 1,261 | | | 2,193 | | | 829 | | | 7,085 |
Nonaccrual | | | 30 | | | 93 | | | 843 | | | 952 | | | 975 | | | 10,524 | | | 4,381 | | | 17,798 |
Total Consumer | | $ | 426,561 | | $ | 265,698 | | $ | 193,644 | | $ | 126,506 | | $ | 132,132 | | $ | 311,826 | | $ | 612,549 | | $ | 2,068,916 |
The Company uses a risk rating system and past due status asdid not have any material revolving loans convert to term during the primary credit quality indicators for the loan categories. The risk rating system on a scale of 0 through 9 is used to determine risk level as used in the calculation of the allowance for loan loss; The risk levels, as described below, do not necessarily follow the regulatory definitions of risk levels with the same name. A general description of the characteristics of the risk levels follows:
Pass is determined by the following criteria:
Watch & Special Mention is determined by the following criteria:
-33-
Substandard is determined by the following criteria:
Doubtful is determined by the following criteria:
The following table shows the recorded investment in all loans, excluding PCI loans, by segment with their related risk level as ofyear ended December 31, 2019 (dollars in thousands):
| | | | | | | | | | | | | | | |
|
| Pass |
| Watch & Special Mention |
| Substandard |
| Doubtful |
| Total | |||||
Construction and Land Development | | $ | 1,197,066 | | $ | 37,182 | | $ | 5,732 | | $ | 0 | | $ | 1,239,980 |
Commercial Real Estate - Owner Occupied | |
| 1,916,492 | |
| 87,004 | |
| 10,309 | |
| 0 | |
| 2,013,805 |
Commercial Real Estate - Non-Owner Occupied | |
| 3,205,463 | |
| 62,368 | |
| 3,608 | |
| 94 | |
| 3,271,533 |
Multifamily Real Estate | |
| 613,844 | |
| 19,396 | |
| 409 | |
| 0 | |
| 633,649 |
Commercial & Industrial | |
| 2,043,903 | |
| 60,495 | |
| 8,048 | |
| 8 | |
| 2,112,454 |
Residential 1-4 Family - Commercial | |
| 680,894 | |
| 24,864 | |
| 6,374 | |
| 0 | |
| 712,132 |
Residential 1-4 Family - Consumer | |
| 841,408 | |
| 13,592 | |
| 20,534 | |
| 256 | |
| 875,790 |
Residential 1-4 Family - Revolving | |
| 641,069 | |
| 6,373 | |
| 7,935 | |
| 0 | |
| 655,377 |
Auto | |
| 345,960 | |
| 2,630 | |
| 1,825 | |
| 0 | |
| 350,415 |
Consumer | |
| 371,315 | |
| 550 | |
| 320 | |
| 0 | |
| 372,185 |
Other Commercial | |
| 284,914 | |
| 1,863 | |
| 158 | |
| 0 | |
| 286,935 |
Total | | $ | 12,142,328 | | $ | 316,317 | | $ | 65,252 | | $ | 358 | | $ | 12,524,255 |
The following table shows the recorded investment in only PCI loans by segment with their related risk level as of December 31, 2019 (dollars in thousands):
| | | | | | | | | | | | | | | |
|
| Pass |
| Watch & Special Mention |
| Substandard |
| Doubtful |
| Total | |||||
Construction and Land Development | | $ | 1,092 | | $ | 3,692 | | $ | 6,160 | | $ | 0 | | $ | 10,944 |
Commercial Real Estate - Owner Occupied | |
| 8,264 | |
| 10,524 | |
| 8,650 | |
| 0 | |
| 27,438 |
Commercial Real Estate - Non-Owner Occupied | |
| 3,826 | |
| 9,415 | |
| 1,324 | |
| 0 | |
| 14,565 |
Multifamily Real Estate | |
| 0 | |
| 94 | |
| 0 | |
| 0 | |
| 94 |
Commercial & Industrial | |
| 127 | |
| 25 | |
| 1,427 | |
| 0 | |
| 1,579 |
Residential 1-4 Family - Commercial | |
| 6,000 | |
| 2,693 | |
| 3,512 | |
| 0 | |
| 12,205 |
Residential 1-4 Family - Consumer | |
| 9,947 | |
| 557 | |
| 4,209 | |
| 0 | |
| 14,713 |
Residential 1-4 Family - Revolving | |
| 2,887 | |
| 707 | |
| 533 | |
| 0 | |
| 4,127 |
Auto | | | 2 | | | 0 | | | 2 | | | 0 | | | 4 |
Consumer | |
| 657 | |
| 0 | |
| 11 | |
| — | |
| 668 |
Other Commercial | | | 120 | | | 224 | | | 0 | | | 0 | | | 344 |
Total | | $ | 32,922 | | $ | 27,931 | | $ | 25,828 | | $ | 0 | | $ | 86,681 |
-34-
Acquired Loans
Loans acquired are originally recorded at fair value, with certain loans being identified as impaired at the date of purchase. The fair values were determined based on the credit quality of the portfolio, expected future cash flows, and timing of those expected future cash flows.
The following shows changes in the accretable yield for loans accounted for under ASC 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality, as of September 30, 2019 (dollars in thousands):
| | | |
| | For the Nine Months Ended September 30, | |
|
| 2019 | |
Balance at beginning of period | | $ | 31,201 |
Additions | |
| 2,432 |
Accretion | |
| (9,830) |
Reclass of nonaccretable difference due to improvement in expected cash flows | |
| 1,372 |
Measurement period adjustment | |
| 2,629 |
Other, net (1) | |
| 5,083 |
Balance at end of period | | $ | 32,887 |
The carrying value of the Company’s PCI loan portfolio, accounted for under ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality, totaled $86.7 million at December 31, 2019. The outstanding balance of the Company’s PCI loan portfolio totaled $104.9 million at December 31, 2019. The carrying value of the Company’s acquired performing loan portfolio, accounted for under ASC 310-20, Receivables – Nonrefundable Fees and Other Costs, totaled $3.0 billion at December 31, 2019; the remaining discount on these loans totaled $50.1 million at December 31, 2019.2020.
-35--28-
5.4. GOODWILL AND INTANGIBLE ASSETS
The Company’s intangible assets consist of core deposits, goodwill, and other intangibles arising from acquisitions. The Company has determined that core deposit intangibles have finite lives and amortizes them over their estimated useful lives. Core deposit intangibles are being amortized over the period of expected benefit, which ranges from 4 to 10 years, using an accelerated method. Other amortizable intangible assets are being amortized over the period of expected benefit, which ranges from 4 to 10 years, using various methods.
In accordance with ASC 350, Intangibles-GoodwillCOVID-19 has disrupted and Other, the Company reviews the carrying value of indefinite lived intangible assets at least annually or more frequently if certain impairment indicators exist. The COVID-19 pandemic has disruptedadversely impacted the economy and created significant volatility in the financial markets. The volatility in the financial markets has adversely affected the Company’s expected future cash flows, due to the lower interest rate environment and other factors, and resulted in a declinefactors. The forecasted impact from COVID-19 was included in the market price of the Company’s common stock, along with others in the financial services industry. The Company performed its annual goodwill impairment testingtest in the second quarter of 20202021 and while the fair value of the reporting unit declined from the prior test, the Company determined that there was 0 impairment to its goodwill or intangible assets. In the normal course of business, the Company routinely monitors the impact of the changes in the financial markets and includes these assessments in the Company’s goodwill impairment process.
The Company analyzed its intangible assets at September 30, 2021 and concluded 0 impairment existed as of the balance sheet date. Amortization expense of intangibles for the three and nine months ended September 30, 2021 and 2020 totaled $3.4 million and $10.7 million, and $4.1 million and $12.7 million, respectively; and for the three and nine months ended September 30, 2019 totaled $4.8 million and $13.9 million, respectively.
As of September 30, 2020,2021, the estimated remaining amortization expense of intangibles is as follows for the years ending (dollars in thousands):
| | | | | | |
For the remaining three months of 2020 |
| $ | 3,883 | |||
2021 | | | 13,874 | |||
For the remaining three months of 2021 |
| $ | 3,226 | |||
2022 | | | 11,490 | | | 11,490 |
2023 | | | 9,687 | | | 9,687 |
2024 | | | 7,819 | | | 7,818 |
2025 | | | 6,219 | |||
Thereafter | | | 14,315 | | | 8,097 |
Total estimated amortization expense | | $ | 61,068 | | $ | 46,537 |
-36--29-
6.5. LEASES
The Company enters into both lessor and lessee arrangements and determines if an arrangement is a lease at inception. As both a lessee and lessor, the Company elected the practical expedient permitted under the transition guidance within the standard to account for lease and non-lease components as a single lease component for all asset classes.
Lessor Arrangements
The Company’s lessor arrangements consist of sales-type and direct financing leases for equipment. Lease payment terms are fixed and are typically payable in monthly installments with terms ranging from 31 months to 125 months. The lease arrangements may contain renewal options and purchase options that allow the lessee to purchase the leased equipment at the end of the lease term. The leases generally do not contain non-lease components. The Company has no material sale leaseback transactions and 0 lease transactions with related parties.
At lease inception the Company estimates the expected residual value of the leased property at the end of the lease term by considering both internal and third-party appraisals. In certain cases, the Company obtains lessee-provided residual value guarantees and third-party RVI to reduce its residual asset risk. At September 30, 2021 and December 31, 2020, the carrying value of residual assets covered by residual value guarantees and RVI was $14.2 million.$20.5 million and $14.7 million, respectively.
The net investment in sales-type and direct financing leases consists of the carrying amount of the lease receivables plus unguaranteed residual assets, net of unearned income and any deferred selling profit on direct financing leases. The lease receivables include the lessor’s right to receive lease payments and the guaranteed residual asset value the lessor expects to derive from the underlying assets at the end of the lease term. At September 30, 2020, the total net investment in sales-type and direct financing leases was $146.5 million, comprised of $142.1 million in lease receivables and $4.4 million in unguaranteed residuals. There were no significant changes in the balance of the Company’s unguaranteed residual assets for the period ending September 30, 2020. The Company’s net investment in sales-type and direct financing leases are included in Loans Held for Investment (net of deferred fees and costs) on the Company’s Consolidated Balance Sheets. For the three and nine months ended September 30, 2020, total leaseLease income was $782,000 and $1.1 million, respectively, and is recorded within Interest Income on the Company’s Consolidated Statements of Income. There was 0 lease incomewere no significant changes in the balance of the Company’s unguaranteed residual assets for the three and nine months endedperiods ending September 30, 2019.2021 and December 31, 2020.
Total net investment in sales-type and direct financing leases consists of the following (dollars in thousands):
| | | | | | | |
|
| September 30, 2021 | | | December 31, 2020 | ||
Sales-type and direct financing leases: | | | | | | | |
Lease receivables, net of unearned income and deferred selling profit | | $ | 161,703 | | | $ | 141,180 |
Unguaranteed residual values, net of unearned income and deferred selling profit | | | 6,805 | | | | 4,796 |
Total net investment in sales-type and direct financing leases |
| $ | 168,508 | | | $ | 145,976 |
Lessee Arrangements
The Company’s lessee arrangements consist of operating and finance leases; however, the majority of the leases have been classified as non-cancellable operating leases and are primarily for real estate leases with remaining lease terms of up to 2524 years. The Company’s real estate lease agreements do not contain residual value guarantees and most agreements do not contain restrictive covenants. The Company does not have any material arrangements where the Company is in a sublease contract.
Lessee arrangements with an initial term of twelve12 months or less are not recorded on the Consolidated Balance Sheets. The ROU Assets and lease liabilities associated with operating and finance leases greater than twelve12 months are recorded in the Company’s Consolidated Balance Sheets; ROU Assets within Other Assets and lease liabilities within Other Liabilities. ROU Assets represent the Company’s right to use an underlying asset over the course of the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The initial measurement of lease liabilities and ROU Assets are the same for operating and finance leases. Lease liabilities are recognized at the commencement date based on the present value of the remaining lease payments, discounted using the incremental borrowing rate. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU Assets are recognized at commencement date based on the initial measurement of the lease liability, any lease payments made excluding lease incentives, and any initial direct costs incurred. Most of the Company’s operating leases include one or more options to renew. Therenew and if the Company is reasonably certain to exercise those options they areit would be included in the measurement of the operating ROU Assets and lease liabilities.
Lease expense for operating lease payments is recognized on a straight-line basis over the lease term and recorded in Occupancy Expense within noninterest expense on the Company’s Consolidated Statements of Income. Finance lease expenses consist of straight-line amortization expense of the ROU Assets recognized over the lease term and interest expense on the lease liability. Total finance lease expenses for the amortization of the ROU Assets are recorded in Occupancy Expense within noninterest expense on the Company’s Consolidated Statements of Income and interest expense on the finance lease liability is recorded in Interest Expense on Long-Term Borrowings within total interest expense on the Company’s Consolidated Statements of Income.
-37--30-
Lease expense for operating lease payments is recognized on a straight-line basis over the lease term and recorded in Occupancy Expenses within noninterest expense on the Company’s Consolidated Statements of Income. Finance lease expenses consist of straight-line amortization expense of the ROU Assets recognized over the lease term and interest expense on the lease liability. Total finance lease expenses for the amortization of the ROU Assets are recorded in Occupancy Expenses within noninterest expense on the Company’s Consolidated Statements of Income and interest expense on the finance lease liability is recorded in Interest on Long-Term Borrowings within total interest expense on the Company’s Consolidated Statements of Income.
As of September 30, 2020,2021, the Company had 0 sales leaseback transactions or leases that have 0t yet commenced that create significant rights and obligations.
The tables below provide information about the Company’s lessee lease portfolio and other supplemental lease information (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |||||
|
| September 30, 2020 | | | | December 31, 2019 |
| September 30, 2021 | | | | December 31, 2020 | | ||||||||||||||||
| | Operating | | | Finance | | | | Operating | | Operating | | | Finance | | | | Operating | | | Finance | | |||||||
Right-of-use-assets | | $ | 53,948 | | $ | 7,654 | | | $ | 54,941 | | | $ | 43,299 | | | $ | 6,736 | | | | $ | 48,051 | | $ | 7,425 | | ||
Lease liabilities | | | 64,757 | | 10,590 | | | | 66,052 | | | | 52,766 | | | 9,770 | | | | | 58,901 | | 10,621 | | |||||
Lease Term and Discount Rate of Operating leases: |
| | | | | | | | | |
| | | | | | | | | | | | | | |||||
Weighted-average remaining lease term (years) |
| | 7.41 | | 8.33 | | | | 7.36 | |
| | 6.85 | | | 7.33 | | | | | 7.27 | | 8.08 | | |||||
Weighted-average discount rate (1) |
| | 2.26 | % | | 1.17 | % | | | 2.69 | % |
| | 2.60 | % | | 1.17 | % | | | | 2.66 | % | | 1.17 | % |
(1)An incremental borrowing rate is used based on information available at commencement date of lease or at remeasurement date.
| | | | | | | | | | | ||
| | Nine months ended September 30, | | Nine months ended September 30, | ||||||||
|
| 2020 | | 2019 |
| 2021 | | 2020 | ||||
Cash paid for amounts included in measurement of lease liabilities: | | | | | | | | | | | | |
Operating Cash Flows from Finance Leases | | $ | 41 | | $ | - | | $ | 89 | | $ | 41 |
Operating Cash Flows from Operating Leases | |
| 10,398 | | 10,327 | |
| 8,961 | | 10,398 | ||
Financing Cash Flows from Finance Leases | | | 851 | | 0 | |||||||
Right-of-use assets obtained in exchange for lease obligations: | | |
| | | | |
| | | ||
Operating leases | |
| 7,566 | | 5,979 | |
| 2,412 | | 7,566 | ||
Finance leases | | | 10,549 | | - | | | 0 | | 10,549 |
| | | | | | | | | | | | | | | | | | | | | | | ||
| | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, | ||||||||||||||||
| | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2021 | | | 2020 | | | 2021 | | | 2020 |
Net Operating Lease Cost | | $ | 2,536 | | $ | 2,928 | | $ | 8,383 | | $ | 8,940 | | $ | 2,535 | | $ | 2,536 | | $ | 7,615 | | $ | 8,383 |
Finance Lease Cost: | | | | | | | | | | | | | | | | | | | | | | | ||
Amortization of right-of-use assets | | | 230 | | - | | | 306 | | | - | | | 230 | | 230 | | | 689 | | | 306 | ||
Interest on lease liabilities | | | 31 | | | - | | | 41 | | | - | | | 29 | | | 31 | | | 89 | | | 41 |
Total Lease Cost | | $ | 2,797 | | $ | 2,928 | | $ | 8,730 | | $ | 8,940 | | $ | 2,794 | | $ | 2,797 | | $ | 8,393 | | $ | 8,730 |
The maturities of lessor and lessee arrangements outstanding at September 30, 2020 are presented in the tables below (dollars in thousands):
| | | | | | | | | |
| | September 30, 2020 | |||||||
| | Lessor | | Lessee | |||||
| | | Sales-type and Direct Financing | | Operating | | Finance | ||
For the remaining three months of 2020 |
| $ | 7,416 | | $ | 3,193 | | $ | 0 |
2021 | |
| 28,883 | | | 12,500 | | | 1,261 |
2022 | |
| 29,799 | | | 11,289 | | | 1,292 |
2023 | |
| 28,136 | | | 10,324 | | | 1,325 |
2024 | |
| 26,185 | | | 9,007 | | | 1,358 |
2025 | | | 17,780 | | | 6,712 | | | 1,392 |
Thereafter | |
| 13,594 | | | 17,701 | | | 4,515 |
Total undiscounted cash flows | |
| 151,793 | | | 70,726 | | | 11,143 |
Less: Adjustments (1) | |
| 9,645 | | | 5,969 | | | 553 |
Total (2) | | $ | 142,148 | | $ | 64,757 | | $ | 10,590 |
-38--31-
The maturities of lessor and lessee arrangements outstanding at September 30, 2021 are presented in the tables below (dollars in thousands):
| | | | | | | | | |
| | September 30, 2021 | |||||||
| | Lessor | | Lessee | |||||
| | | Sales-type and Direct Financing | | Operating | | Finance | ||
For the remaining three months of 2021 |
| $ | 9,333 | | $ | 2,976 | | $ | 321 |
2022 | | | 39,099 | | | 11,348 | | | 1,292 |
2023 | |
| 37,133 | | | 10,204 | | | 1,325 |
2024 | |
| 36,889 | | | 9,183 | | | 1,358 |
2025 | |
| 24,928 | | | 6,857 | | | 1,392 |
Thereafter | |
| 28,242 | | | 17,534 | | | 4,515 |
Total undiscounted cash flows | |
| 175,624 | | | 58,102 | | | 10,203 |
Less: Adjustments (1) | |
| 13,921 | | | 5,336 | | | 433 |
Total (2) | | $ | 161,703 | | $ | 52,766 | | $ | 9,770 |
(1) Lessor – unearned income and unearned guaranteed residual value; Lessee – imputed interest.
(2) Representslease receivables for lessor arrangements and lease liabilities for lessee arrangements.
-32-
7.6. BORROWINGS
Short-term Borrowings
The Company classifies all borrowings that will mature within a year from the date on which the Company enters into them as short-term borrowings. Total short-term borrowings consist primarily of advances from the FHLB, federal funds purchased (which are secured overnight borrowings from other financial institutions), and other lines of credit. Also included in total short-term borrowings are securities sold under agreements to repurchase, which are secured transactions with customers and generally mature the day following the date sold.
Total short-term borrowings consist of the following as of September 30, 20202021 and December 31, 20192020 (dollars in thousands):
| | | | | | | | | | | | | | |
|
| September 30, | | December 31, |
|
| September 30, | | December 31, |
| ||||
| | 2020 | | 2019 |
| | 2021 | | 2020 |
| ||||
Securities sold under agreements to repurchase | | $ | 91,086 | | $ | 66,053 | | | $ | 95,181 | | $ | 100,888 | |
Federal Funds Purchased | | | 25,000 | | | 0 | | | | 0 | | | 150,000 | |
FHLB Advances | |
| 150,200 | |
| 370,200 | | |
| 0 | |
| 100,000 | |
Total short-term borrowings | | $ | 266,286 | | $ | 436,253 | | | $ | 95,181 | | $ | 350,888 | |
| | | | | | | | | | | | | | |
Average outstanding balance during the period | | $ | 223,068 | | $ | 673,116 | | | $ | 114,710 | | $ | 213,932 | |
Average interest rate (during the period) | |
| 0.96 | % |
| 2.30 | % | |||||||
Average interest rate during the period | |
| 0.11 | % |
| 0.79 | % | |||||||
Average interest rate at end of period | |
| 0.25 | % |
| 1.52 | % | |
| 0.06 | % |
| 0.13 | % |
The Bank maintains federal funds lines with several correspondent banks, the remaining available balance was $942.0$997.0 million and $682.0$847.0 million at September 30, 20202021 and December 31, 2019,2020, respectively. The Company maintains an alternate line of credit at a correspondent bank, which had an available balance of $25.0 million at both September 30, 20202021 and December 31, 2019.2020. The Company has certain restrictive covenants related to certain asset quality, capital, and profitability metrics associated with these lines and is considered to be in compliance with such covenants as of September 30,2021 and December 31, 2020. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to $5.9 billion and $5.2$6.0 billion at both September 30, 20202021 and December 31, 2019, respectively.2020.
Long-term Borrowings
In connection with several previous bank acquisitions,response to the current interest rate environment, the Company issued and acquired trust preferred capital notes of $58.5prepaid a $200.0 million and $87.0 million, respectively. Most recently, in connection with the acquisition of Accesslong-term FHLB advance on February 1, 2019, the Company acquired additional trust preferred capital notes totaling $5.0 million. The remaining fair value discount on all acquired trust preferred capital notes was $14.326, 2021 and $550.0 million at September 30, 2020.
On August 23, 2012, the Company modified its fixed rateof long-term FHLB advances to floating rate advances,in 2020, which resulted in reducing the Company’s FHLB borrowing costs. In connection with this modification, the Company incurred a prepayment penaltypenalties of $19.6$14.7 million on the original advances which was deferred and to be amortized over the term of the modified advances using the effective rate method. On August 29, 2019, the Company repaid the floating rate FHLB advances. In connection with this repayment, the remaining unamortized prepayment penalty of $7.4$31.2 million, was immediately recognized as a component of noninterest expense during the third quarter of 2019.respectively.
During the second quarter of 2020, in connection with the loans originated as part of the PPP, the Company borrowed under the Federal Reserve’s PPPLF. Under the terms of the PPPLF, the Company can borrow funds which are secured by the Company’s PPP loans, and the interest rate on these borrowings is fixed.
-39--33-
Total long-term borrowings consist of the following as of September 30, 20202021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Spread to | | | | | | | | | | | Spread to | | | | | | | | ||
| | Principal | | 3-Month LIBOR | | Rate (1) | | Maturity | | Investment (2) | | Principal | | 3-Month LIBOR | | Rate (1) | | Maturity | | Investment (2) | ||||
Trust Preferred Capital Securities | | | | | | | | | | | | | | | | | | | | | | | | |
Trust Preferred Capital Note - Statutory Trust I | | $ | 22,500 |
| 2.75 | % | 2.98 | % | 6/17/2034 | | $ | 696 | | $ | 22,500 |
| 2.75 | % | 2.88 | % | 6/17/2034 | | $ | 696 |
Trust Preferred Capital Note - Statutory Trust II | |
| 36,000 |
| 1.40 | % | 1.63 | % | 6/15/2036 | |
| 1,114 | |
| 36,000 |
| 1.40 | % | 1.53 | % | 6/15/2036 | |
| 1,114 |
VFG Limited Liability Trust I Indenture | |
| 20,000 |
| 2.73 | % | 2.96 | % | 3/18/2034 | |
| 619 | |
| 20,000 |
| 2.73 | % | 2.86 | % | 3/18/2034 | |
| 619 |
FNB Statutory Trust II Indenture | |
| 12,000 |
| 3.10 | % | 3.33 | % | 6/26/2033 | |
| 372 | |
| 12,000 |
| 3.10 | % | 3.23 | % | 6/26/2033 | |
| 372 |
Gateway Capital Statutory Trust I | |
| 8,000 |
| 3.10 | % | 3.33 | % | 9/17/2033 | |
| 248 | |
| 8,000 |
| 3.10 | % | 3.23 | % | 9/17/2033 | |
| 248 |
Gateway Capital Statutory Trust II | |
| 7,000 |
| 2.65 | % | 2.88 | % | 6/17/2034 | |
| 217 | |
| 7,000 |
| 2.65 | % | 2.78 | % | 6/17/2034 | |
| 217 |
Gateway Capital Statutory Trust III | |
| 15,000 |
| 1.50 | % | 1.73 | % | 5/30/2036 | |
| 464 | |
| 15,000 |
| 1.50 | % | 1.63 | % | 5/30/2036 | |
| 464 |
Gateway Capital Statutory Trust IV | |
| 25,000 |
| 1.55 | % | 1.78 | % | 7/30/2037 | |
| 774 | |
| 25,000 |
| 1.55 | % | 1.68 | % | 7/30/2037 | |
| 774 |
MFC Capital Trust II | |
| 5,000 |
| 2.85 | % | 3.08 | % | 1/23/2034 | |
| 155 | |
| 5,000 |
| 2.85 | % | 2.98 | % | 1/23/2034 | |
| 155 |
Total Trust Preferred Capital Securities | | $ | 150,500 |
|
|
|
|
|
| | $ | 4,659 | | $ | 150,500 |
|
|
|
|
|
| | $ | 4,659 |
FHLB Advances(3) | | | | | | | | | | | | | ||||||||||||
Convertible Flipper | | $ | 50,000 | | - | % | 0.85 | % | 8/17/2029 | | | | ||||||||||||
Convertible Flipper | | | 150,000 | | (0.75) | % | - | % | 5/22/2029 | | | | ||||||||||||
Convertible Flipper | | | 50,000 | | (0.75) | % | - | % | 5/30/2029 | | | | ||||||||||||
Convertible Flipper | | | 100,000 | | (0.75) | % | - | % | 6/21/2029 | | | | ||||||||||||
Fixed Rate Convertible | | | 200,000 | | - | % | 1.78 | % | 10/26/2028 | | | | ||||||||||||
Fixed Rate Credit | | | 10,000 | | - | % | 1.54 | % | 10/2/2020 | | | | ||||||||||||
Total FHLB Advances | | $ | 560,000 | | | | | | | | | | ||||||||||||
Subordinated Debt(4)(5) | | | | | | | | | | | | | ||||||||||||
2025 Subordinated Debt | | $ | 8,500 | | - | % | 6.75 | % | 6/30/2025 | | | | ||||||||||||
2026 Subordinated Debt(6) | | | 150,000 | | - | % | 5.00 | % | 12/15/2026 | | | | ||||||||||||
Subordinated Debt(3)(4) | | | | | | | | | | | | | ||||||||||||
2026 Subordinated Debt(5) | | | 150,000 | | - | % | 5.00 | % | 12/15/2026 | | | | ||||||||||||
Total Subordinated Debt | | $ | 158,500 | | | | | | | | | | | $ | 150,000 | | | | | | | | | |
PPPLF Advances(7) | | | | | | | | | | | | | ||||||||||||
PPPLF Advance 4/8/2022 | | $ | 55,422 | | - | % | 0.35 | % | 4/8/2022 | | | | ||||||||||||
PPPLF Advance 4/11/2022 | | | 134,523 | | - | % | 0.35 | % | 4/11/2022 | | | | ||||||||||||
Total PPPLF Advances | | $ | 189,945 | | | | | | | | | | ||||||||||||
Fair Value Premium (Discount)(8) | | | (15,568) | | | | | | | | | | ||||||||||||
Fair Value Premium (Discount)(6) | | | (14,575) | | | | | | | | | | ||||||||||||
Investment in Trust Preferred Capital Securities | | | 4,659 | | | | | | | | | | | | 4,659 | | | | | | | | | |
Total Long-term Borrowings | | $ | 1,048,036 | | | | | | | | | | | $ | 290,584 | | | | | | | | | |
(1) Rate as of September 30, 2021. (2) The total of the trust preferred capital securities and investments in the respective trusts represents the principal asset of the Company’s junior subordinated debt securities with like maturities and like interest rates to the capital securities. The Company’s investment in the trusts is reported in "Other Assets" on the Company’s Consolidated Balance Sheets. (3) The remaining issuance discount as of September 30, 2021 is $1.0 million. (4) Subordinated notes qualify as Tier 2 capital for the Company for regulatory purposes. (5) Fixed-to-floating rate notes are redeemable, at the Company’s option, on any interest payment date occurring on or after December 15, 2021, at which time the interest rate will change to a floating rate of LIBOR plus 3.175% through its maturity date or earlier redemption. (6) Includes discount on issued subordinated notes. |
-40--34-
Total long-term borrowings consist of the following as of December 31, 20192020 (dollars in thousands):
| | | | | | | | | | | | |
| | | | Spread to | | | | | | | | |
| | Principal | | 3-Month LIBOR | | Rate (1) | | Maturity | | Investment (2) | ||
Trust Preferred Capital Securities | | | | | | | | | | | | |
Trust Preferred Capital Note - Statutory Trust I | | $ | 22,500 |
| 2.75 | % | 4.66 | % | 6/17/2034 | | $ | 696 |
Trust Preferred Capital Note - Statutory Trust II | |
| 36,000 |
| 1.40 | % | 3.31 | % | 6/15/2036 | |
| 1,114 |
VFG Limited Liability Trust I Indenture | |
| 20,000 |
| 2.73 | % | 4.64 | % | 3/18/2034 | |
| 619 |
FNB Statutory Trust II Indenture | |
| 12,000 |
| 3.10 | % | 5.01 | % | 6/26/2033 | |
| 372 |
Gateway Capital Statutory Trust I | |
| 8,000 |
| 3.10 | % | 5.01 | % | 9/17/2033 | |
| 248 |
Gateway Capital Statutory Trust II | |
| 7,000 |
| 2.65 | % | 4.56 | % | 6/17/2034 | |
| 217 |
Gateway Capital Statutory Trust III | |
| 15,000 |
| 1.50 | % | 3.41 | % | 5/30/2036 | |
| 464 |
Gateway Capital Statutory Trust IV | |
| 25,000 |
| 1.55 | % | 3.46 | % | 7/30/2037 | |
| 774 |
MFC Capital Trust II | |
| 5,000 |
| 2.85 | % | 4.76 | % | 1/23/2034 | |
| 155 |
Total Trust Preferred Capital Securities | | $ | 150,500 |
|
|
|
|
|
| | $ | 4,659 |
FHLB Advances(3) | | | | | | | | | | | | |
Convertible Flipper | | $ | 50,000 | | (0.75) | % | 1.16 | % | 8/17/2029 | | | |
Convertible Flipper | | | 200,000 | | (0.50) | % | 1.41 | % | 5/15/2024 | | | |
Convertible Flipper | | | 150,000 | | (0.75) | % | 1.16 | % | 5/22/2029 | | | |
Convertible Flipper | | | 50,000 | | (0.75) | | 1.16 | | 5/30/2029 | | | |
Convertible Flipper | | | 100,000 | | (0.75) | % | 1.16 | % | 6/21/2029 | | | |
Fixed Rate Convertible | | | 200,000 | | - | % | 1.78 | % | 10/26/2028 | | | |
Fixed Rate Hybrid | | | 20,000 | | - | % | 1.58 | % | 5/18/2020 | | | |
Fixed Rate Credit | | | 10,000 | | - | % | 1.54 | % | 10/2/2020 | | | |
Total FHLB Advances | | $ | 780,000 | | | | | | | | | |
Subordinated Debt(4)(5) | | | | | | | | | | | | |
2025 Subordinated Debt | | $ | 8,500 | | - | % | 6.75 | % | 6/30/2025 | | | |
2026 Subordinated Debt(6) | | | 150,000 | | - | % | 5.00 | % | 12/15/2026 | | | |
Total Subordinated Debt | | $ | 158,500 | | | | | | | | | |
Fair Value Premium (Discount)(7) | | | (16,164) | | | | | | | | | |
Investment in Trust Preferred Capital Securities | | | 4,659 | | | | | | | | | |
Total Long-term Borrowings | | $ | 1,077,495 | | | | | | | | | |
| | | | | | | | | | | | |
| | | | Spread to | | | | | | | | |
| | Principal | | 3-Month LIBOR | | Rate (1) | | Maturity | | Investment (2) | ||
Trust Preferred Capital Securities | | | | | | | | | | | | |
Trust Preferred Capital Note - Statutory Trust I | | $ | 22,500 |
| 2.75 | % | 2.99 | % | 6/17/2034 | | $ | 696 |
Trust Preferred Capital Note - Statutory Trust II | |
| 36,000 |
| 1.40 | % | 1.64 | % | 6/15/2036 | |
| 1,114 |
VFG Limited Liability Trust I Indenture | |
| 20,000 |
| 2.73 | % | 2.97 | % | 3/18/2034 | |
| 619 |
FNB Statutory Trust II Indenture | |
| 12,000 |
| 3.10 | % | 3.34 | % | 6/26/2033 | |
| 372 |
Gateway Capital Statutory Trust I | |
| 8,000 |
| 3.10 | % | 3.34 | % | 9/17/2033 | |
| 248 |
Gateway Capital Statutory Trust II | |
| 7,000 |
| 2.65 | % | 2.89 | % | 6/17/2034 | |
| 217 |
Gateway Capital Statutory Trust III | |
| 15,000 |
| 1.50 | % | 1.74 | % | 5/30/2036 | |
| 464 |
Gateway Capital Statutory Trust IV | |
| 25,000 |
| 1.55 | % | 1.79 | % | 7/30/2037 | |
| 774 |
MFC Capital Trust II | |
| 5,000 |
| 2.85 | % | 3.09 | % | 1/23/2034 | |
| 155 |
Total Trust Preferred Capital Securities | | $ | 150,500 |
|
|
|
|
|
| | $ | 4,659 |
FHLB Advances | | | | | | | | | | | | |
Fixed Rate Convertible | | | 200,000 | | - | % | 1.78 | % | 10/26/2028 | | | |
Total FHLB Advances | | $ | 200,000 | | | | | | | | | |
Subordinated Debt(3)(4) | | | | | | | | | | | | |
2026 Subordinated Debt(5) | | | 150,000 | | - | % | 5.00 | % | 12/15/2026 | | | |
Total Subordinated Debt | | $ | 150,000 | | | | | | | | | |
Fair Value Premium (Discount)(6) | | | (15,330) | | | | | | | | | |
Investment in Trust Preferred Capital Securities | | | 4,659 | | | | | | | | | |
Total Long-term Borrowings | | $ | 489,829 | | | | | | | | | |
(1) Rate as of December 31, 2020.
(2) The total of the trust preferred capital securities and investments in the respective trusts represents the principal asset of the Company’s junior subordinated debt securities with like maturities and like interest rates to the capital securities. The Company’s investment in the trusts is reported in "Other Assets" on the Company’s Consolidated Balance Sheets.
(3) The remaining issuance discount as of December 31, 2020 is $1.2 million.
-41-
(4) Subordinated notes qualify as Tier 2 capital for the Company for regulatory purposes.
Table
(5) Fixed-to-floating rate notes are redeemable, at the Company’s option, on any interest payment date occurring on or after December 15, 2021, at which time the interest rate will change to a floating rate of ContentsLIBOR plus 3.175% through its maturity date or earlier redemption.
(6) Includes discount on issued subordinated notes.
As of September 30, 2020,2021, the contractual maturities of long-term debt are as follows for the years ending (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||
|
| Trust |
| |
| |
| |
| |
| |
| Trust |
| |
| |
| | ||||||||||
|
| Preferred |
| |
| |
| |
| Fair Value |
| Total |
| Preferred |
| |
| Fair Value |
| Total | ||||||||||
|
| Capital |
| Subordinated |
| PPPLF |
| FHLB |
| Premium |
| Long-term |
| Capital |
| Subordinated |
| Premium |
| Long-term | ||||||||||
|
| Notes |
| Debt |
| Advances |
| Advances |
| (Discount) (1) |
| Borrowings |
| Notes |
| Debt |
| (Discount) (1) |
| Borrowings | ||||||||||
For the remaining three months of 2020 | | $ | 0 | | $ | 0 | | $ | — | | $ | 10,000 | | $ | (238) | | $ | 9,762 | ||||||||||||
2021 | |
| 0 | |
| 0 | | | — | |
| 0 | |
| (1,008) | |
| (1,008) | ||||||||||||
For the remaining three months of 2021 | | $ | 0 | | $ | 0 | | $ | (254) | | $ | (254) | ||||||||||||||||||
2022 | |
| 0 | |
| 0 | | | 189,945 | |
| 0 | |
| (1,030) | |
| 188,915 | |
| 0 | |
| 0 | |
| (1,030) | |
| (1,030) |
2023 | |
| 0 | |
| 0 | | | — | |
| 0 | |
| (1,053) | |
| (1,053) | |
| 0 | |
| 0 | |
| (1,053) | |
| (1,053) |
2024 | |
| 0 | |
| 0 | | | — | |
| 0 | |
| (1,078) | |
| (1,078) | |
| 0 | |
| 0 | |
| (1,078) | |
| (1,078) |
2025 | |
| 0 | |
| 0 | |
| (1,102) | |
| (1,102) | ||||||||||||||||||
Thereafter | |
| 155,159 | |
| 158,500 | | | — | |
| 550,000 | |
| (11,161) | |
| 852,498 | |
| 155,159 | |
| 150,000 | |
| (10,058) | |
| 295,101 |
Total long-term borrowings | | $ | 155,159 | | $ | 158,500 | | $ | 189,945 | | $ | 560,000 | | $ | (15,568) | | $ | 1,048,036 | | $ | 155,159 | | $ | 150,000 | | $ | (14,575) | | $ | 290,584 |
(1)Includes discount on issued subordinated notes. |
-42--35-
8.7. COMMITMENTS AND CONTINGENCIES
Litigation Matters
In the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business, financial condition, or results of operations of the Company.
Financial Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amount recognized on the Company’s Consolidated Balance Sheets. The contractual amounts of these instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit written is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Company does not require collateral or other security to support off-balance sheet financial instruments with credit risk. The Company considers credit losses related to off-balance sheet commitments by undergoing a similar process in evaluating losses for loans that are carried on the balance sheet. The Company considers historical loss and funding information, current and future economic conditions, risk ratings, and past due status among other factors in the consideration of expected credit losses in the Company’s off-balance sheet commitments to extend credit. The Company also records an indemnification reserve that includes balances relating to mortgage loans previously sold based on historical statistics and loss rates.
As of September 30, 20202021 and December 31, 2019,2020, the Company’s reserves for off-balance sheet credit riskunfunded commitments and indemnification were $14.0$8.0 million and $2.6$10.8 million, respectively.
Commitments to extend credit are agreements to lend to customers as long as there are no violations of any conditions established in the contracts. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Letters of credit are conditional commitments issued by the Company to guarantee the performance of customers to third parties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.
The following table presents the balances of commitments and contingencies as of the following dates (dollars in thousands):
| | | | | | | | | | | | |
|
| September 30, 2020 |
| December 31, 2019 |
| September 30, 2021 |
| December 31, 2020 | ||||
Commitments with off-balance sheet risk: |
| |
|
| |
|
| |
|
| |
|
Commitments to extend credit (1) | | $ | 4,631,361 | | $ | 4,691,272 | | $ | 5,793,342 | | $ | 4,722,412 |
Letters of credit | |
| 164,303 | |
| 209,658 | |
| 153,350 | |
| 161,827 |
Total commitments with off-balance sheet risk | | $ | 4,795,664 | | $ | 4,900,930 | | $ | 5,946,692 | | $ | 4,884,239 |
(1) Includes unfunded overdraft protection. | | | | | | | | | | | | |
Prior to the first quarter of 2020, the Company was required to maintain a reserve against its deposits in accordance with Regulation D of the Federal Reserve Act. On March 15, 2020, the Federal Reserve Board announced that reserve requirement ratios would be reduced to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
As of September 30, 2020,2021, the Company had approximately $296.2$212.8 million in deposits in other financial institutions, of which $276.8$88.4 million served as collateral for cash flow and loan swap derivatives. As of December 31, 2020, the Company had approximately $290.5 million in deposits in other financial institutions, of which $251.0 million served as collateral for cash flow and loan swap derivatives. For the OTC derivatives cleared with the central clearinghouses, the variation margin is treated as a settlement of the related derivatives fair values. The Company had approximately $16.3$121.5 million and $36.4 million in deposits in other financial institutions that were uninsured at September 30, 2020.2021 and December 31, 2020, respectively. At least annually, the Company’s management evaluates the loss risk of its uninsured deposits in financial counterparties.
-43--36-
For asset/liability management purposes, the Company uses interest rate swap agreements to hedge various exposures or to modify the interest rate characteristics of various balance sheet accounts. Refer to Note 98 “Derivatives” for additional information.
As part of the Company’s liquidity management strategy, it pledges collateral to secure various financing and other activities that occur during the normal course of business. The following tables present the types of collateral pledged at September 30, 20202021 and December 31, 20192020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pledged Assets as of September 30, 2020 | | | | | Pledged Assets as of September 30, 2021 | | | | ||||||||||||||||||||
|
| | |
| AFS |
| HTM |
| | |
| | |
| | |
| AFS |
| HTM |
| | |
| | | ||||
| | Cash | | Securities (1) | | Securities (1) | | Loans (2) | | Total | | Cash | | Securities (1) | | Securities (1) | | Loans (2) | | Total | ||||||||||
Public deposits | | $ | 0 | | $ | 476,167 | | $ | 432,791 | | $ | 0 | | $ | 908,958 | | $ | 0 | | $ | 662,373 | | $ | 424,355 | | $ | 0 | | $ | 1,086,728 |
Repurchase agreements | |
| 0 | |
| 111,781 | |
| 0 | |
| 0 | |
| 111,781 | |
| 0 | |
| 131,669 | |
| 0 | |
| 0 | |
| 131,669 |
FHLB advances | |
| 0 | |
| 54,195 | |
| 0 | |
| 4,354,063 | |
| 4,408,258 | |
| 0 | |
| 45,976 | |
| 0 | |
| 4,282,408 | |
| 4,328,384 |
Derivatives | |
| 276,786 | |
| 939 | |
| 0 | |
| 0 | |
| 277,725 | |
| 88,446 | |
| 65,615 | |
| 0 | |
| 0 | |
| 154,061 |
Fed Funds | | | 0 | | | 0 | | | 0 | | | 316,561 | | | 316,561 | | | 0 | | | 0 | | | 0 | | | 361,987 | | | 361,987 |
PPP Loans | | | 0 | | | 0 | | | 0 | | | 189,945 | | | 189,945 | |||||||||||||||
Other purposes | |
| 0 | | | 124,517 | | | 8,862 | | | 0 | | | 133,379 | |
| 0 | | | 21,424 | | | 976 | | | 0 | | | 22,400 |
Total pledged assets | | $ | 276,786 | | $ | 767,599 | | $ | 441,653 | | $ | 4,860,569 | | $ | 6,346,607 | | $ | 88,446 | | $ | 927,057 | | $ | 425,331 | | $ | 4,644,395 | | $ | 6,085,229 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) Balance represents market value. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(2) Balance represents book value. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pledged Assets as of December 31, 2019 | | | | | Pledged Assets as of December 31, 2020 | | | | ||||||||||||||||||||
|
| | |
| AFS |
| HTM |
| | |
| | |
| | |
| AFS |
| HTM |
| | |
| | | ||||
| | Cash | | Securities (1) | | Securities (1) | | Loans (2) | | Total | | Cash | | Securities (1) | | Securities (1) | | Loans (2) | | Total | ||||||||||
Public deposits | | $ | 0 | | $ | 467,266 | | $ | 292,096 | | $ | 0 | | $ | 759,362 | | $ | 0 | | $ | 469,864 | | $ | 436,449 | | $ | 0 | | $ | 906,313 |
Repurchase agreements | |
| 0 | |
| 79,299 | |
| 7,602 | |
| 0 | |
| 86,901 | |
| 0 | |
| 116,876 | |
| 0 | |
| 0 | |
| 116,876 |
FHLB advances | |
| 0 | |
| 63,812 | |
| 0 | |
| 3,846,934 | |
| 3,910,746 | |
| 0 | |
| 52,323 | |
| 0 | |
| 4,374,383 | |
| 4,426,706 |
Derivatives | |
| 116,839 | |
| 1,260 | |
| 0 | |
| 0 | |
| 118,099 | |
| 251,047 | |
| 785 | |
| 0 | |
| 0 | |
| 251,832 |
Fed Funds | | | 0 | | | 0 | | | 0 | | | 292,738 | | | 292,738 | | | 0 | | | 0 | | | 0 | | | 340,847 | | | 340,847 |
Other purposes | |
| 0 | |
| 122,358 | |
| 10,654 | |
| 0 | |
| 133,012 | |
| 0 | |
| 123,388 | |
| 8,634 | |
| 0 | |
| 132,022 |
Total pledged assets | | $ | 116,839 | | $ | 733,995 | | $ | 310,352 | | $ | 4,139,672 | | $ | 5,300,858 | | $ | 251,047 | | $ | 763,236 | | $ | 445,083 | | $ | 4,715,230 | | $ | 6,174,596 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) Balance represents book value. | | | | | | | | | | | | | | | | |||||||||||||||
(2) Balance represents market value. | | | | | | | | | | | | | | | | |||||||||||||||
(1) Balance represents market value. | | | | | | | | | | | | | | | | |||||||||||||||
(2) Balance represents book value. | | | | | | | | | | | | | | | |
-44--37-
9.8. DERIVATIVES
The Company is exposed to economic risks arising from its business operations and uses derivatives primarily to manage risk associated with changing interest rates, and to assist customers with their risk management objectives. The Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship (cash flow or fair value hedge). The remaining are classified as free-standing derivatives consisting of customer accommodation loan swaps and interest rate lock commitments that do not qualify for hedge accounting.
Derivatives Counterparty Credit Risk
Derivative instruments contain an element of credit risk that arises from the potential failure of a counterparty to perform according to the terms of the contract. The Company’s exposure to derivative counterparty credit risk, at any point in time, is equal to the amount reported as a derivative asset on the Company’s Consolidated Balance Sheets, assuming no recoveries of underlying collateral.
Effective January 1, 2019, as required under the Dodd-Frank Act, the Company clears eligible derivative transactions through CCPs such as the CME and LCH, which are often referred to as “central clearinghouses”. The Company clears certain OTC derivatives with central clearinghouses through FCMs as part of thedue to applicable regulatory requirement. The use of the CCPs and the FCMsrequirement, which reduces the Company’s bilateral counterparty credit exposures while it increases the Company’s credit exposures to CCPs and FCMs. The Company is required by CCPs to post initial and variation margin to mitigate the risk of non-payment through the Company’s FCMs. The Company’s FCM agreements governing these derivative transactions generally include provisions that may require the Company to post more collateral or otherwise change terms in the Company’s agreements under certain circumstances. For CME and LCH-cleared OTC derivatives, the Company characterizes variation margin cash payments as settlements.risk.
The Company also enters into legally enforceable master netting agreements and collateral agreements, where possible, with certain derivative counterparties to mitigate the risk of default on a bilateral basis. These bilateral agreements typically provide the right to offset exposures and require one counterparty to post collateral on derivative instruments in a net liability position to the other counterparty. For the OTC derivatives cleared with central clearinghouses, the variation margin is treated as settlement of the related derivatives fair values.
Cash Flow Hedges
The Company designates derivatives as cash flow hedges when they are used to manage exposure to variability in cash flows related to forecasted transactions on variable rate financial instruments. The Company uses interest rate swap agreements as part of its hedging strategy by exchanging a notional amount, equal to the principal amount of the borrowings or commercial loans, for fixed-rate interest based on benchmarked interest rates. The original terms and conditions of the interest rate swaps vary and range in length. Amounts receivable or payable are recognized as accrued under the terms of the agreements.
All swaps were entered into with counterparties that met the Company’s credit standards, and the agreements contain collateral provisions protecting the at-risk party. The Company concluded that the credit risk inherent in the contract is not significant.
The Company assessesFor derivatives designated and qualifying as cash flow hedges, ineffectiveness is not measured or separately disclosed. Rather, as long as the effectiveness of each hedging relationship on a periodic basis using statistical regression analysis. The Company also measurescontinues to qualify for hedge accounting, the ineffectiveness of each hedging relationship using theentire change in variable cash flows method which compares the cumulative changes in cash flowsfair value of the hedging instrument relative to cumulative changesis recorded in OCI and recognized in earnings as the hedged item’s cash flows. In accordancetransaction affects earnings. Derivative amounts affecting earnings are recognized consistent with ASC 815, Derivatives and Hedging, the effective portionsclassification of the derivatives’ unrealized gains or losses are recordedhedged item.
During the nine months ended September 30, 2021, the Company entered into two interest rate swaps with notional amounts totaling $200 million designated and qualifying as a component of other comprehensive income. For the period ended December 31, 2019, the Company’s cash flow hedges were highly effective.
of the Company’s forecasted variable interest receipts on variable rate loans. The Company did 0tnot have any derivatives designated as cash flow hedges outstanding at September 30,December 31, 2020. For each agreement, the Company receives interest at a fixed rate and pays at a variable rate.
Fair Value Hedge
Derivatives are designated as fair value hedges when they are used to manage exposure to changes in the fair value of certain financial assets and liabilities, referred to as the hedged items, which fluctuate in value as a result of movements in interest rates.
-45-
Loans: During the normal course of business, the Company enters into swap agreements to convert certain long-term fixed-rate loans to floating rates to hedge the Company’s exposure to interest rate risk. The Company pays a fixed interest rate to the counterparty and receives a floating rate from the same counterparty calculated on the aggregate notional amount. At September 30, 20202021 and December 31, 2019,2020, the aggregate notional amount of the related hedged items for certain long-term fixed rate loans totaled $75.9$89.8 million and $83.1$74.7 million, respectively, and the fair value of the swaps associated with the derivative related to hedged items was an unrealized loss of $5.9$1.2 million and $2.0$5.1 million, respectively.
-38-
AFS Securities: The Company has entered into a swap agreement to hedge the interest rate risk on a portion of its fixed rate available for sale securities. At September 30, 20202021 and December 31, 2019,2020, the aggregate notional amount of the related hedged items of the AFS securities totaled $50 million and the fair value of the swaps associated with the derivative related to hedged items was an unrealized loss of $8.0$5.0 million and $4.1$7.3 million, respectively.
The Company applies hedge accounting in accordance with ASC 815, Derivatives and Hedging, and the fair value hedge and the underlying hedged item, attributable to the risk being hedged, are recorded at fair value with unrealized gains and losses being recorded on the Company’s Consolidated Statements of Income. Statistical regression analysis is used to assess hedgeThe Company assesses the effectiveness both at inception of theeach hedging relationship by comparing the changes in fair value or cash flows on the derivative hedging instrument with the changes in fair value or cash flows on the designated hedged item or transactions for the risk being hedged. If a hedging relationship ceases to qualify for hedge accounting, the relationship is discontinued and on an ongoing basis. The regression analysis involves regressingfuture changes in the periodic change in fair value of the hedgingderivative instrument against the periodic changesare recognized in current period earnings. For a discontinued or terminated fair value hedging relationship, all remaining basis adjustments to the carrying amount of the asset being hedged dueitem are amortized to changes ininterest income or expense over the remaining life of the hedged risk.item consistent with the amortization of other discounts or premiums. Previous balances deferred in AOCI from discontinued or terminated cash flow hedges are reclassified to interest income or expense as the hedged transactions affect earnings or over the originally specified term of the hedging relationship. The Company’s fair value hedges continue to be highly effective and had no material impact on the Consolidated Statements of Income, but if any ineffectiveness exists, portions of the unrealized gains or losses would be recorded in interest income or interest expense on the Company’s Consolidated Statements of Income.
Loan Swaps
During the normal course of business, the Company offers interest rate swap loan relationships (“loan swaps”) to its borrowers to help meet their financing needs. Upon entering into the loan swaps, the Company enters into offsetting positions with a third party in order to minimize interest rate risk. These back-to-back loan swaps qualify as financial derivatives with fair values as reported in “Other Assets” and “Other Liabilities” on the Company’s Consolidated Balance Sheets.
The following table summarizes key elements of the Company’s derivative instruments as of September 30, 20202021 and December 31, 2019,2020, segregated by derivatives that are considered accounting hedges and those that are not (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| September 30, 2020 |
| December 31, 2019 |
| September 30, 2021 |
| December 31, 2020 | ||||||||||||||||||||||||||||
| | | | | Derivative (2) | | | | | Derivative (2) | | | | | Derivative (2) | | | | | Derivative (2) | ||||||||||||||||
|
| Notional or |
| | |
| | |
| Notional or |
| | |
| | |
| Notional or |
| | |
| | |
| Notional or |
| | |
| | | ||||
| | Contractual | | | | | | | | Contractual | | | | | | | | Contractual | | | | | | | | Contractual | | | | | | | ||||
| | Amount (1) | | Assets | | Liabilities | | Amount (1) | | Assets | | Liabilities | | Amount (1) | | Assets | | Liabilities | | Amount (1) | | Assets | | Liabilities | ||||||||||||
Derivatives designated as accounting hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts: |
| | |
| |
|
| |
| | | |
| |
|
| |
|
| | |
| |
|
| |
| | | |
| |
|
| |
|
Cash flow hedges | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 100,000 | | $ | 0 | | $ | 1,147 | | $ | 200,000 | | $ | 0 | | $ | — | | $ | 0 | | $ | 0 | | $ | 0 |
Fair value hedges | |
| 125,856 | |
| — | |
| 13,912 | |
| 133,078 | |
| 182 | |
| 6,256 | |
| 139,792 | |
| 0 | |
| 6,769 | |
| 124,726 | |
| 0 | |
| 12,483 |
Derivatives not designated as accounting hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loan Swaps : | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||
Loan Swaps: (3) | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||
Pay fixed - receive floating interest rate swaps | |
| 2,192,085 | |
| — | |
| 187,299 | |
| 1,575,149 | |
| 753 | |
| 53,592 |
| | 2,440,163 | |
| 953 | |
| 39,664 | |
| 2,356,453 | |
| 212 | |
| 163,148 |
Pay floating - receive fixed interest rate swaps | |
| 2,192,085 | |
| 187,299 | |
| — | |
| 1,575,149 | |
| 53,592 | |
| 753 | |
| 2,440,163 | |
| 89,293 | |
| 12,431 | |
| 2,356,453 | |
| 163,148 | |
| 212 |
(1) Notional amounts are not recorded on the Company’s Consolidated Balance Sheets and are generally used only as a basis on which interest and other payments are determined.
(2) Balances represent fair value of derivative financial instruments.
(3) The Company’s cleared derivatives are classified as a single-unit of accounting, resulting in the fair value of the designated swap being reduced by the variation margin, which is treated as settlement of the related derivatives fair value for accounting purposes and is reported on a net basis at September 30, 2021. The previous periods presented do not include the offsetting impact of variation margin.
-46--39-
The following table summarizes the carrying value of the Company’s hedged assets in fair value hedges and the associated cumulative basis adjustments included in those carrying values as of September 30, 20202021 and December 31, 20192020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 | ||||||||||||||||
|
| | |
| Cumulative |
| |
| Cumulative |
| | |
| Cumulative |
| |
| Cumulative | ||||||
| | | | | Amount of Basis | | | | Amount of Basis | | | | | Amount of Basis | | | | Amount of Basis | ||||||
| | | | | Adjustments | | | | Adjustments | | | | | Adjustments | | | | Adjustments | ||||||
| | | | | Included in the | | | | Included in the | | | | | Included in the | | | | Included in the | ||||||
| | Carrying Amount | | Carrying | | Carrying Amount | | Carrying | | Carrying Amount | | Carrying | | Carrying Amount | | Carrying | ||||||||
| | of Hedged | | Amount of the | | of Hedged | | Amount of the | | of Hedged | | Amount of the | | of Hedged | | Amount of the | ||||||||
| | Assets/(Liabilities) | | Hedged | | Assets/(Liabilities) | | Hedged | | Assets/(Liabilities) | | Hedged | | Assets/(Liabilities) | | Hedged | ||||||||
| | Amount (1) |
| Assets/(Liabilities) | | Amount (1) |
| Assets/(Liabilities) | | Amount (1) |
| Assets/(Liabilities) | | Amount (1) |
| Assets/(Liabilities) | ||||||||
Line items on the Consolidated Balance Sheets in which the hedged item is included: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Securities available-for-sale (1) (2) | | $ | 179,908 | | $ | 7,992 | | $ | 206,799 | | $ | 4,072 | | $ | 122,522 | | $ | 4,993 | | $ | 166,413 | | $ | 7,297 |
Loans | |
| 75,856 | |
| 5,830 | |
| 83,078 | |
| 1,972 | |
| 89,792 | |
| 1,170 | |
| 74,726 | |
| 5,088 |
(1) These amounts include the amortized cost basis of the investment securities designated in hedging relationships for which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At September 30, 2021 and December 31, 2020, the amortized cost basis of this portfolio was $123 million and $166 million, respectively, and the cumulative basis adjustment associated with this hedge was $5.0 million and $7.3 million, respectively. The amount of the designated hedged item at September 30, 2021 and December 31, 2020 totaled $50 million.
(2) Carrying value represents amortized cost.
-47--40-
10.9. STOCKHOLDERS’ EQUITY
Series A Preferred Stock
On June 9, 2020, the Company issued and sold 6,900,000 depositary shares, each representing a 1/400th ownership interest in a share of its 6.875% Perpetual Non-Cumulative Preferred Stock, Series A par value $10.00 per share (the “Series A preferred stock”),stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share), including 900,000 depositary shares pursuant to the exercise in full by the underwriters of their option to purchase additional depositary shares. The total net proceeds to the Company were approximately $166.4 million, after deducting the underwriting discount and other offering expenses payable by the Company.
Repurchase Program
In 2019, the Company’s Board of Directors has authorized a share repurchase program to purchase up to $150.0 million of the Company’s common stock through June 30, 2021 in open market transactions or privately negotiated transactions. On March 20, 2020, the Company suspended its share repurchase program, which had approximately $20 million remaining in authorization at the time. The Company intendsrepurchased an aggregate of approximately 3.7 million shares, at an average price of $35.48 per share, under the authorization prior to usesuspension. On May 4, 2021, the net proceedsCompany’s Board of Directors authorized a new share repurchase program (the “Repurchase Program”) to purchase up to $125 million worth of the offering for general corporate purposesCompany’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the ordinary courseExchange Act, that was due to expire on June 30, 2022. As part of its business. General corporate purposes may include repayment of debt, loan funding, acquisitions, additions to working capital, capital expendituresthe Repurchase Program, 1.1 million shares (or $42.3 million) were repurchased during the quarter ended June 30, 2021, and investments in2.3 million shares (or $82.7 million) were repurchased during the Company’s subsidiaries.
quarter ended September 30, 2021, fully utilizing the $125 million repurchase authorization under the Repurchase Program.
Accumulated Other Comprehensive Income (Loss)
The change in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 20202021 is summarized as follows, net of tax (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| Unrealized Gains |
| | |
| | |
| | |
| | |
| Unrealized Gains |
| | |
| | |
| | | ||
| | | | | (Losses) | | | | | | | | | | | | | | (Losses) | | | | | | | | | | ||
| | Unrealized | | for AFS | | | | | Unrealized | | | | | Unrealized | | for AFS | | | | | Unrealized | | | | ||||||
| | Gains (Losses) | | Securities | | Change in Fair | | Gains | | | | | Gains (Losses) | | Securities | | Change in Fair | | Gains | | | | ||||||||
| | on AFS | | Transferred to | | Value of Cash | | (Losses) on | | | | | on AFS | | Transferred to | | Value of Cash | | (Losses) on | | | | ||||||||
| | Securities | | HTM | | Flow Hedge | | BOLI | | Total | | Securities | | HTM | | Flow Hedge | | BOLI | | Total | ||||||||||
Balance - June 30, 2020 | | $ | 63,886 | | $ | 65 | | $ | 0 | | $ | (2,647) | | $ | 61,304 | |||||||||||||||
Balance - June 30, 2021 | | $ | 54,792 | | $ | 45 | | $ | 1,132 | | $ | (2,897) | | $ | 53,072 | |||||||||||||||
Other comprehensive income (loss): | |
| | | | | | | | | | | |
|
| |
| | | | | | | | | | | |
|
|
Other comprehensive income (loss) before reclassification | |
| 1,250 | | | 0 | | | 0 | | | 0 | |
| 1,250 | |
| (23,242) | | | 0 | | | (545) | | | 0 | |
| (23,787) |
Amounts reclassified from AOCI into earnings | |
| (14) | | | (5) | | | 0 | | | 127 | |
| 108 | |
| (7) | | | (5) | | | 0 | | | 150 | |
| 138 |
Net current period other comprehensive income (loss) | |
| 1,236 | |
| (5) | |
| 0 | |
| 127 | |
| 1,358 | |
| (23,249) | |
| (5) | |
| (545) | |
| 150 | |
| (23,649) |
Balance - September 30, 2020 | | $ | 65,122 | | $ | 60 | | $ | 0 | | $ | (2,520) | | $ | 62,662 | |||||||||||||||
Balance - September 30, 2021 | | $ | 31,543 | | $ | 40 | | $ | 587 | | $ | (2,747) | | $ | 29,423 |
| | | | | | | | | | | | | | | |
|
| | |
| Unrealized Gains |
| | |
| | |
| | | |
| | | | | (Losses) | | | | | | | | | | |
| | Unrealized | | for AFS | | | | | Unrealized | | | | |||
| | Gains (Losses) | | Securities | | Change in Fair | | Gains | | | | ||||
| | on AFS | | Transferred to | | Value of Cash | | (Losses) on | | | | ||||
| | Securities | | HTM | | Flow Hedge | | BOLI | | Total | |||||
Balance - December 31, 2019 | | $ | 37,877 | | $ | 75 | | $ | (782) | | $ | (1,595) | | $ | 35,575 |
Other comprehensive income (loss): | |
| | | | | | | | | | | |
|
|
Other comprehensive income (loss) before reclassification | |
| 36,956 | | | 0 | | | (699) | | | (1,289) | |
| 34,968 |
Amounts reclassified from AOCI into earnings | |
| (9,711) | | | (15) | | | 1,481 | | | 364 | |
| (7,881) |
Net current period other comprehensive income (loss) | |
| 27,245 | |
| (15) | |
| 782 | |
| (925) | |
| 27,087 |
Balance - September 30, 2020 | | $ | 65,122 | | $ | 60 | | $ | 0 | | $ | (2,520) | | $ | 62,662 |
| | | | | | | | | | | | | | | |
|
| | |
| Unrealized Gains |
| | |
| | |
| | | |
| | | | | (Losses) | | | | | | | | | | |
| | Unrealized | | for AFS | | | | | Unrealized | | | | |||
| | Gains (Losses) | | Securities | | Change in Fair | | Gains | | | | ||||
| | on AFS | | Transferred to | | Value of Cash | | (Losses) on | | | | ||||
| | Securities | | HTM | | Flow Hedge | | BOLI | | Total | |||||
Balance - December 31, 2020 | | $ | 74,161 | | $ | 55 | | $ | 0 | | $ | (3,201) | | $ | 71,015 |
Other comprehensive income (loss): | |
| | | | | | | | | | | |
|
|
Other comprehensive income (loss) before reclassification | |
| (42,549) | | | 0 | | | 634 | | | 0 | |
| (41,915) |
Amounts reclassified from AOCI into earnings | |
| (69) | | | (15) | | | (47) | | | 454 | |
| 323 |
Net current period other comprehensive income (loss) | |
| (42,618) | |
| (15) | |
| 587 | |
| 454 | |
| (41,592) |
Balance - September 30, 2021 | | $ | 31,543 | | $ | 40 | | $ | 587 | | $ | (2,747) | | $ | 29,423 |
-48--41-
The change in accumulated other comprehensive income (loss) for the three months and nine months ended September 30, 20192020 is summarized as follows, net of tax (dollars in thousands):
| | | | | | | | | | | | | | | |
|
| | |
| Unrealized Gain |
| | |
| | |
| | | |
| | | | | (Losses) | | | | | | | | | | |
| | Unrealized | | for AFS | | | | | Unrealized | | | | |||
| | Gains (Losses) | | Securities | | Change in Fair | | Gains | | | | ||||
| | on AFS | | Transferred to | | Value of Cash | | (Losses) | | | | ||||
| | Securities | | HTM | | Flow Hedge | | on BOLI | | Total | |||||
Balance - June 30, 2019 | | $ | 36,125 | | $ | 85 | | $ | (7,155) | | $ | (988) | | $ | 28,067 |
Other comprehensive income (loss): | |
| | | | | | | | | | | | | |
Other comprehensive income (loss) before reclassification | |
| 12,364 | | | 0 | | | 6,025 | | | (647) | | | 17,742 |
Amounts reclassified from AOCI into earnings | |
| (5,612) | | | (5) | | | 158 | | | 19 | | | (5,440) |
Net current period other comprehensive income (loss) | |
| 6,752 | |
| (5) | |
| 6,183 | |
| (628) | |
| 12,302 |
Balance - September 30, 2019 | | $ | 42,877 | | $ | 80 | | $ | (972) | | $ | (1,616) | | $ | 40,369 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| Unrealized Gain |
| | |
| | |
| | |
| | |
| Unrealized Gain |
| | |
| | |
| | | ||
| | | | | (Losses) | | | | | | | | | | | | | | (Losses) | | | | | | | | | | ||
| | Unrealized | | for AFS | | | | | Unrealized | | | | | Unrealized | | for AFS | | | | | Unrealized | | | | ||||||
| | Gains (Losses) | | Securities | | Change in Fair | | Gains | | | | | Gains (Losses) | | Securities | | Change in Fair | | Gains | | | | ||||||||
| | on AFS | | Transferred to | | Value of Cash | | (Losses) | | | | | on AFS | | Transferred to | | Value of Cash | | (Losses) | | | | ||||||||
| | Securities | �� | HTM | | Flow Hedge | | on BOLI | | Total | | Securities | | HTM | | Flow Hedge | | on BOLI | | Total | ||||||||||
Balance - December 31, 2018 | | $ | (5,949) | | $ | 95 | | $ | (3,393) | | $ | (1,026) | | $ | (10,273) | |||||||||||||||
Balance - June 30, 2020 | | $ | 63,886 | | $ | 65 | | $ | 0 | | $ | (2,647) | | $ | 61,304 | |||||||||||||||
Other comprehensive income (loss): | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Other comprehensive income (loss) before reclassification | |
| 54,598 | | | 0 | | | 1,970 | | | (647) | | | 55,921 | |
| 1,250 | | | 0 | | | 0 | | | 0 | | | 1,250 |
Amounts reclassified from AOCI into earnings | |
| (5,772) | | | (15) | | | 451 | | | 57 | | | (5,279) | |
| (14) | | | (5) | | | 0 | | | 127 | | | 108 |
Net current period other comprehensive income (loss) | |
| 48,826 | |
| (15) | |
| 2,421 | |
| (590) | |
| 50,642 | |
| 1,236 | |
| (5) | |
| 0 | |
| 127 | |
| 1,358 |
Balance - September 30, 2019 | | $ | 42,877 | | $ | 80 | | $ | (972) | | $ | (1,616) | | $ | 40,369 | |||||||||||||||
Balance - September 30, 2020 | | $ | 65,122 | | $ | 60 | | $ | 0 | | $ | (2,520) | | $ | 62,662 |
| | | | | | | | | | | | | | | |
|
| | |
| Unrealized Gain |
| | |
| | |
| | | |
| | | | | (Losses) | | | | | | | | | | |
| | Unrealized | | for AFS | | | | | Unrealized | | | | |||
| | Gains (Losses) | | Securities | | Change in Fair | | Gains | | | | ||||
| | on AFS | | Transferred to | | Value of Cash | | (Losses) | | | | ||||
| | Securities | | HTM | | Flow Hedge | | on BOLI | | Total | |||||
Balance - December 31, 2019 | | $ | 37,877 | | $ | 75 | | $ | (782) | | $ | (1,595) | | $ | 35,575 |
Other comprehensive income (loss): | |
| | | | | | | | | | | | | |
Other comprehensive income (loss) before reclassification | |
| 36,956 | | | 0 | | | (699) | | | (1,289) | | | 34,968 |
Amounts reclassified from AOCI into earnings | |
| (9,711) | | | (15) | | | 1,481 | | | 364 | | | (7,881) |
Net current period other comprehensive income (loss) | |
| 27,245 | |
| (15) | |
| 782 | |
| (925) | |
| 27,087 |
Balance - September 30, 2020 | | $ | 65,122 | | $ | 60 | | $ | 0 | | $ | (2,520) | | $ | 62,662 |
-49--42-
11.10. FAIR VALUE MEASUREMENTS
The Company follows ASC 820Fair Value Measurements and Disclosures, to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. ASC 820 clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants.
ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy under ASC 820 based on these two types of inputs are as follows:
Level 1 Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the markets.
Level 3 Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. These unobservable inputs reflect the Company’s assumptions about what market participants would use and information that is reasonably available under the circumstances without undue cost and effort.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements.
Derivative instrumentsInstruments
As discussed in Note 98 “Derivatives”, the Company records derivative instruments at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third partythird-party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. Third party valuations are validated by the Company using Bloomberg Valuation Service’s derivative pricing functions. No material differences were identified during the validation as of September 30, 20202021 and December 31, 2019.2020. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities. Mortgage banking derivatives as of September 30, 2021 and December 31, 2020 did not have a material impact on the Company’s Consolidated Financial Statements.
AFS Securities
AFS securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data (Level 2). If the inputs used to provide the evaluation for certain securities are unobservable and/or there is little, if any, market activity, then the security would fall to the lowest level of the hierarchy (Level 3).
The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third partythird-party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is ICE Data Services, which evaluates securities based on market data. ICE Data Services utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs.
-50--43-
The vendor utilizes proprietary valuation matrices for valuing all municipals securities. The initial curves for determining the price, movement, and yield relationships within the municipal matrices are derived from industry benchmark curves or sourced from a municipal trading desk. The securities are further broken down according to issuer, credit support, state of issuance, and rating to incorporate additional spreads to the industry benchmark curves.
The Company primarily uses Bloomberg Valuation Service, an independent information source that draws on quantitative models and market data contributed from over 4,000 market participants, to validate third party valuations. Any material differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No material differences were identified during the validation as of September 30, 20202021 and December 31, 2019.2020.
The carrying value of restricted Federal Reserve BankFRB and FHLB stock approximates fair value based on the redemption provisions of each entity and is therefore excluded from the table below.
Loans Held for Sale
Loans held for sale are carried at fair value. These loans currently consist of residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). Gains and losses on the sale of loans are recorded in current period earnings as a component of "Mortgage banking income" on the Company’s Consolidated Statements of Income.
The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis at September 30, 20202021 and December 31, 20192020 (dollars in thousands):
| | | | | | | | | | | | |
|
| Fair Value Measurements at September 30, 2020 using | ||||||||||
|
| | |
| Significant |
| | |
| | | |
| | Quoted Prices in | | Other | | Significant | | | | |||
| | Active Markets for | | Observable | | Unobservable | | | | |||
| | Identical Assets | | Inputs | | Inputs | | | | |||
| | Level 1 | | Level 2 | | Level 3 | | Balance | ||||
ASSETS | | |
|
| |
|
| |
|
| |
|
AFS securities: | | |
|
| |
|
| |
|
| |
|
U.S. government and agency securities | | $ | 0 | | $ | 13,878 | | $ | 0 | | $ | 13,878 |
Obligations of states and political subdivisions | |
| 0 | |
| 796,856 | |
| 0 | |
| 796,856 |
Corporate and other bonds(1) | |
| 0 | |
| 148,918 | |
| 0 | |
| 148,918 |
Mortgage-backed securities | |
| 0 | |
| 1,482,067 | |
| 0 | |
| 1,482,067 |
Other securities | |
| 0 | |
| 1,621 | |
| 0 | |
| 1,621 |
Loans held for sale | |
| 0 | |
| 52,607 | |
| 0 | |
| 52,607 |
Derivatives: | |
|
| |
|
| |
|
| |
|
|
Interest rate swap | |
| 0 | |
| 187,299 | |
| 0 | |
| 187,299 |
| | | | | | | | | | | | |
LIABILITIES | |
|
| |
|
| |
|
| |
|
|
Derivatives: | |
|
| |
|
| |
|
| |
|
|
Interest rate swap | | $ | 0 | | $ | 187,299 | | $ | 0 | | $ | 187,299 |
Fair value hedges | |
| 0 | |
| 13,912 | |
| 0 | |
| 13,912 |
| | | | | | | | | | | | |
|
| Fair Value Measurements at September 30, 2021 using | ||||||||||
|
| | |
| Significant |
| | |
| | | |
| | Quoted Prices in | | Other | | Significant | | | | |||
| | Active Markets for | | Observable | | Unobservable | | | | |||
| | Identical Assets | | Inputs | | Inputs | | | | |||
| | Level 1 | | Level 2 | | Level 3 | | Balance | ||||
ASSETS | | |
|
| |
|
| |
|
| |
|
AFS securities: | | |
|
| |
|
| |
|
| |
|
U.S. government and agency securities | | $ | 64,955 | | $ | 9,863 | | $ | 0 | | $ | 74,818 |
Obligations of states and political subdivisions | |
| 0 | |
| 998,881 | |
| 0 | |
| 998,881 |
Corporate and other bonds(1) | |
| 0 | |
| 149,028 | |
| 0 | |
| 149,028 |
Mortgage-backed securities | |
| 0 | |
| 1,970,813 | |
| 0 | |
| 1,970,813 |
Other securities | |
| 0 | |
| 1,636 | |
| 0 | |
| 1,636 |
Loans held for sale | |
| 0 | |
| 35,417 | |
| 0 | |
| 35,417 |
Derivatives: | |
|
| |
|
| |
|
| |
|
|
Interest rate swap | |
| 0 | |
| 90,246 | |
| 0 | |
| 90,246 |
| | | | | | | | | | | | |
LIABILITIES | |
|
| |
|
| |
|
| |
|
|
Derivatives: | |
|
| |
|
| |
|
| |
|
|
Interest rate swap | | $ | 0 | | $ | 52,096 | | $ | 0 | | $ | 52,096 |
Fair value hedges | |
| 0 | |
| 6,769 | |
| 0 | |
| 6,769 |
(1) Other bonds include asset-backed securities.
-51--44-
| | | | | | | | | | | | |
|
| Fair Value Measurements at December 31, 2019 using | ||||||||||
|
| | |
| Significant |
| | |
| | | |
| | Quoted Prices in | | Other | | Significant | | | | |||
| | Active Markets for | | Observable | | Unobservable | | | | |||
| | Identical Assets | | Inputs | | Inputs | | | | |||
| | Level 1 | | Level 2 | | Level 3 | | Balance | ||||
ASSETS | | |
|
| |
|
| |
|
| |
|
AFS securities: | | |
|
| |
|
| |
|
| |
|
U.S. government and agency securities | | $ | — | | $ | 21,320 | | $ | — | | $ | 21,320 |
Obligations of states and political subdivisions | | | 0 | | | 447,091 | | | 0 | | | 447,091 |
Corporate and other bonds(1) | |
| 0 | |
| 135,959 | |
| 0 | |
| 135,959 |
Mortgage-backed securities | |
| 0 | |
| 1,337,996 | |
| 0 | |
| 1,337,996 |
Other securities | |
| 0 | |
| 3,079 | |
| 0 | |
| 3,079 |
Loans held for sale | | | 0 | | | 55,405 | | | 0 | | | 55,405 |
Derivatives: | |
|
| |
|
| |
|
| |
|
|
Interest rate swap | |
| 0 | |
| 54,345 | |
| 0 | |
| 54,345 |
Fair value hedges | |
| 0 | |
| 182 | |
| 0 | |
| 182 |
| | | | | | | | | | | | |
LIABILITIES | |
|
| |
|
| |
|
| |
|
|
Derivatives: | |
|
| |
|
| |
|
| |
|
|
Interest rate swap | | $ | 0 | | $ | 54,345 | | $ | 0 | | $ | 54,345 |
Cash flow hedges | |
| 0 | |
| 1,147 | |
| 0 | |
| 1,147 |
Fair value hedges | |
| 0 | |
| 6,256 | |
| 0 | |
| 6,256 |
| | | | | | | | | | | | |
|
| Fair Value Measurements at December 31, 2020 using | ||||||||||
|
| | |
| Significant |
| | |
| | | |
| | Quoted Prices in | | Other | | Significant | | | | |||
| | Active Markets for | | Observable | | Unobservable | | | | |||
| | Identical Assets | | Inputs | | Inputs | | | | |||
| | Level 1 | | Level 2 | | Level 3 | | Balance | ||||
ASSETS | | |
|
| |
|
| |
|
| |
|
AFS securities: | | |
|
| |
|
| |
|
| |
|
U.S. government and agency securities | | $ | 0 | | $ | 13,394 | | $ | 0 | | $ | 13,394 |
Obligations of states and political subdivisions | | | 0 | | | 837,326 | | | 0 | | | 837,326 |
Corporate and other bonds(1) | |
| 0 | |
| 151,078 | |
| 0 | |
| 151,078 |
Mortgage-backed securities | |
| 0 | |
| 1,536,996 | |
| 0 | |
| 1,536,996 |
Other securities | |
| 0 | |
| 1,625 | |
| 0 | |
| 1,625 |
Loans held for sale | | | 0 | | | 96,742 | | | 0 | | | 96,742 |
Derivatives: | |
|
| |
|
| |
|
| |
|
|
Interest rate swap | |
| 0 | |
| 163,360 | |
| 0 | |
| 163,360 |
| | | | | | | | | | | | |
LIABILITIES | |
|
| |
|
| |
|
| |
|
|
Derivatives: | |
|
| |
|
| |
|
| |
|
|
Interest rate swap | | $ | 0 | | $ | 163,360 | | $ | 0 | | $ | 163,360 |
Fair value hedges | |
| 0 | |
| 12,483 | |
| 0 | |
| 12,483 |
(1) Other bonds include asset-backed securities.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets are measured at fair value on a nonrecurring basis in accordance with U.S. GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets after they are evaluated for impairment. The primary assets accounted for at fair value on a nonrecurring basis are related to foreclosed properties, former bank premises, and collateral-dependent loans that are individually assessed. When the asset is secured by real estate, the Company measures the fair value utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data. Management may discount the value from the appraisal in determining the fair value if, based on its understanding of the market conditions, the collateral had been impaired below the appraised value (Level 3). The assets for which a nonrecurring fair value measurement was recorded during the period ended September 30, 20202021 and December 31, 20192020 was $14.04.2 million and $11.9$12.7 million, respectively. The nonrecurring valuation adjustments for these assets did not have a material impact on the Company’s consolidated financial statements.
Fair Value of Financial Instruments
ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments for interim periods and excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
Cash and Cash Equivalents
For those short-term instruments, the carrying amount is a reasonable estimate of fair value.
HTM Securities
The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third partythird-party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is ICE Data Services, which evaluates securities based on market data. ICE Data Services utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs.
-52--45-
The vendor utilizes proprietary valuation matrices for valuing all municipals securities. The initial curves for determining the price, movement, and yield relationships within the municipal matrices are derived from industry benchmark curves or sourced from a municipal trading desk. The securities are further broken down according to issuer, credit support, state of issuance, and rating to incorporate additional spreads to the industry benchmark curves.
The Company primarily uses Bloomberg Valuation Service, an independent information source that draws on quantitative models and market data contributed from over 4,000 market participants, to validate third party valuations. Any material differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No material differences were identified during the validation as of September 30, 20202021 and December 31, 2019.2020. The Company’s levelLevel 3 securities are a result of the Access acquisition and are comprised of asset-backed securities and municipal bonds. Valuations of the asset-backed securities are provided by a third party vendor specializing in the SBA markets, and are based on underlying loan pool information, market data, and recent trading activity for similar securities. Valuations of the municipal bonds are provided by a third party vendor that specializes in hard-to-value securities, and are based on a discounted cash flow model and considerations for the complexity of the instrument, likelihood it will be called and credit ratings. The Company reviews the valuation of both security types for reasonableness in the context of market conditions and to similar bonds in the Company’s portfolio. Any material differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No material differences were identified during the validation as of September 30, 20202021 and December 31, 2019.2020.
Loans and Leases
The fair value of loans wasand leases were estimated using an exit price, representing the amount that would be expected to be received if the Company sold the loans.loans and leases. The fair value of performing loans wasand leases were estimated through use of discounted cash flows. Credit loss assumptions were based on market PD/LGD for loan and lease cohorts. The discount rate was based primarily on recent market origination rates. Fair value of loans and leases individually assessed for impairment and their respective levels within the fair value hierarchy are described in the previous section related to fair value measurements of assets that are measured on a nonrecurring basis.
Bank owned life insuranceOwned Life Insurance
The carrying value of BOLI approximates fair value. The Company records these policies at their cash surrender value, which is estimated using information provided by insurance carriers.
Deposits
The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposits were valued using a discounted cash flow calculation that includes a market rate analysis of the current rates offered by market participants for certificates of deposits that mature in the same period.
Accrued Interest
The carrying amounts of accrued interest approximate fair value.
-53--46-
The carrying values and estimated fair values of the Company’s financial instruments at September 30, 20202021 and December 31, 20192020 are as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at September 30, 2020 using | | Fair Value Measurements at September 30, 2021 using | ||||||||||||||||||||||||||
|
| | |
| Quoted Prices |
| Significant |
| | |
| | |
| | |
| Quoted Prices |
| Significant |
| | |
| | | ||||
| | | | | in Active | | Other | | Significant | | | | | | | | in Active | | Other | | Significant | | | | ||||||
| | | | | Markets for | | Observable | | Unobservable | | Total Fair | | | | | Markets for | | Observable | | Unobservable | | Total Fair | ||||||||
| | | | | Identical Assets | | Inputs | | Inputs | | Value | | | | | Identical Assets | | Inputs | | Inputs | | Value | ||||||||
| | Carrying | | | | | | | | | | | | | | Carrying | | | | | | | | | | | | | ||
|
| Value | | Level 1 | | Level 2 | | Level 3 | | Balance |
| Value | | Level 1 | | Level 2 | | Level 3 | | Balance | ||||||||||
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 520,966 | | $ | 520,966 | | $ | 0 | | $ | 0 | | $ | 520,966 | | $ | 1,063,250 | | $ | 1,063,250 | | $ | 0 | | $ | 0 | | $ | 1,063,250 |
AFS securities | |
| 2,443,340 | |
| 0 | |
| 2,443,340 | |
| 0 | |
| 2,443,340 | |
| 3,195,176 | |
| 64,955 | |
| 3,130,221 | |
| 0 | |
| 3,195,176 |
HTM securities | |
| 546,661 | |
| 0 | |
| 600,679 | |
| 13,494 | |
| 614,173 | |
| 535,722 | |
| 0 | |
| 590,920 | |
| 7,532 | |
| 598,452 |
Restricted stock | |
| 112,216 | |
| 0 | |
| 112,216 | |
| 0 | |
| 112,216 | |
| 76,825 | |
| 0 | |
| 76,825 | |
| 0 | |
| 76,825 |
Loans held for sale | |
| 52,607 | |
| 0 | |
| 52,607 | |
| 0 | |
| 52,607 | |
| 35,417 | |
| 0 | |
| 35,417 | |
| 0 | |
| 35,417 |
Net loans | |
| 14,209,093 | |
| 0 | |
| 0 | |
| 14,102,010 | |
| 14,102,010 | |
| 13,037,788 | |
| 0 | |
| 0 | |
| 12,791,350 | |
| 12,791,350 |
Derivatives: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest rate swap | |
| 187,299 | |
| 0 | |
| 187,299 | |
| 0 | |
| 187,299 | |
| 90,246 | |
| 0 | |
| 90,246 | |
| 0 | |
| 90,246 |
Accrued interest receivable | |
| 71,475 | |
| 0 | |
| 71,475 | |
| 0 | |
| 71,475 | |
| 64,610 | |
| 0 | |
| 64,610 | |
| 0 | |
| 64,610 |
BOLI | |
| 325,538 | |
| 0 | |
| 325,538 | |
| 0 | |
| 325,538 | |
| 430,341 | |
| 0 | |
| 430,341 | |
| 0 | |
| 430,341 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LIABILITIES | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Deposits | | $ | 15,576,098 | | $ | 0 | | $ | 15,624,786 | | $ | 0 | | $ | 15,624,786 | | $ | 16,622,160 | | $ | 0 | | $ | 16,643,354 | | $ | 0 | | $ | 16,643,354 |
Borrowings | |
| 1,314,322 | |
| 0 | |
| 1,279,838 | |
| 0 | |
| 1,279,838 | |
| 385,765 | |
| 0 | |
| 375,577 | |
| 0 | |
| 375,577 |
Accrued interest payable | |
| 5,126 | |
| 0 | |
| 5,126 | |
| 0 | |
| 5,126 | |
| 3,008 | |
| 0 | |
| 3,008 | |
| 0 | |
| 3,008 |
Derivatives: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest rate swap | |
| 187,299 | |
| 0 | |
| 187,299 | |
| 0 | |
| 187,299 | |
| 52,096 | |
| 0 | |
| 52,096 | |
| 0 | |
| 52,096 |
Fair value hedges | |
| 13,912 | |
| 0 | |
| 13,912 | |
| 0 | |
| 13,912 | |
| 6,769 | |
| 0 | |
| 6,769 | |
| 0 | |
| 6,769 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Fair Value Measurements at December 31, 2019 using |
| Fair Value Measurements at December 31, 2020 using | ||||||||||||||||||||||||||
| | | | | Quoted Prices | | Significant | | | | | | | | | | | Quoted Prices | | Significant | | | | | | | ||||
| | | | | in Active | | Other | | Significant | | | | | | | | in Active | | Other | | Significant | | | | ||||||
| | | | | Markets for | | Observable | | Unobservable | | Total Fair | | | | | Markets for | | Observable | | Unobservable | | Total Fair | ||||||||
| | | | | Identical Assets | | Inputs | | Inputs | | Value | | | | | Identical Assets | | Inputs | | Inputs | | Value | ||||||||
| | Carrying | | | | | | | | | | | | | | Carrying | | | | | | | | | | | | | ||
| | Value | | Level 1 | | Level 2 | | Level 3 | | Balance | | Value | | Level 1 | | Level 2 | | Level 3 | | Balance | ||||||||||
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 436,032 | | $ | 436,032 | | $ | 0 | | $ | 0 | | $ | 436,032 | | $ | 493,294 | | $ | 493,294 | | $ | 0 | | $ | 0 | | $ | 493,294 |
AFS securities | |
| 1,945,445 | |
| 0 | |
| 1,945,445 | |
| 0 | |
| 1,945,445 | |
| 2,540,419 | |
| 0 | |
| 2,540,419 | |
| 0 | |
| 2,540,419 |
HTM securities | |
| 555,144 | |
| 0 | |
| 585,820 | |
| 17,683 | |
| 603,503 | |
| 544,851 | |
| 0 | |
| 606,496 | |
| 13,269 | |
| 619,765 |
Restricted stock | |
| 130,848 | |
| 0 | |
| 130,848 | |
| 0 | |
| 130,848 | |
| 94,782 | |
| 0 | |
| 94,782 | |
| 0 | |
| 94,782 |
Loans held for sale | | | 55,405 | | | 0 | |
| 55,405 | |
| 0 | | | 55,405 | | | 96,742 | | | 0 | |
| 96,742 | |
| 0 | | | 96,742 |
Net loans | |
| 12,568,642 | |
| 0 | |
| 0 | |
| 12,449,505 | |
| 12,449,505 | |
| 13,860,774 | |
| 0 | |
| 0 | |
| 13,710,640 | |
| 13,710,640 |
Derivatives: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest rate swap | |
| 54,345 | |
| 0 | |
| 54,345 | |
| 0 | |
| 54,345 | |
| 163,360 | |
| 0 | |
| 163,360 | |
| 0 | |
| 163,360 |
Fair value hedges | |
| 182 | |
| 0 | |
| 182 | |
| 0 | |
| 182 | |||||||||||||||
Accrued interest receivable | |
| 52,721 | |
| 0 | |
| 52,721 | |
| 0 | |
| 52,721 | |
| 75,757 | |
| 0 | |
| 75,757 | |
| 0 | |
| 75,757 |
BOLI | |
| 322,917 | |
| 0 | |
| 322,917 | |
| 0 | |
| 322,917 | |
| 326,892 | |
| 0 | |
| 326,892 | |
| 0 | |
| 326,892 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LIABILITIES | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Deposits | | $ | 13,304,981 | | $ | 0 | | $ | 13,349,943 | | $ | 0 | | $ | 13,349,943 | | $ | 15,722,765 | | $ | 0 | | $ | 15,763,991 | | $ | 0 | | $ | 15,763,991 |
Borrowings | |
| 1,513,748 | |
| 0 | |
| 1,479,606 | |
| 0 | |
| 1,479,606 | |
| 840,717 | |
| 0 | |
| 821,516 | |
| 0 | |
| 821,516 |
Accrued interest payable | |
| 6,108 | |
| 0 | |
| 6,108 | |
| 0 | |
| 6,108 | |
| 2,516 | |
| 0 | |
| 2,516 | |
| 0 | |
| 2,516 |
Derivatives: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest rate swap | |
| 54,345 | |
| 0 | |
| 54,345 | |
| 0 | |
| 54,345 | |
| 163,360 | |
| 0 | |
| 163,360 | |
| 0 | |
| 163,360 |
Cash flow hedges | |
| 1,147 | |
| 0 | |
| 1,147 | |
| 0 | |
| 1,147 | |||||||||||||||
Fair value hedges | |
| 6,256 | |
| 0 | |
| 6,256 | |
| 0 | |
| 6,256 | |
| 12,483 | |
| 0 | |
| 12,483 | |
| 0 | |
| 12,483 |
-54--47-
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. Borrowers with fixed rate obligations, however, are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
-55--48-
12.11. REVENUE
The majority of the Company’s noninterest income comes from short term contracts associated with fees for services provided on deposit accounts, credit cards, and wealth management accounts and is being accounted for in accordance with Topic 606. Typically, the duration of a contract does not extend beyond the services performed; therefore, the Company concluded that discussion regarding contract balances is immaterial.
The Company’s performance obligations on revenue from interchange fees and deposit accounts are generally satisfied immediately, when the transaction occurs, or by month-end. Performance obligations on revenue from fiduciary and asset management fees are generally satisfied monthly or quarterly. For a majority of fee income on deposit accounts, the Company is a principal, controlling the promised good or service before transferring it to the customer. For the majority of income related to wealth management income, the Company is an agent, responsible for arranging for the provision of goods and services by another party. Mortgage banking income is earned when the originated loans are sold to an investor on the secondary market. The loans are classified as loans held for sale prior to being sold. Additionally, the changes in fair value of the loans held for sale, loan commitments, and related derivatives are included in mortgage banking income.
Noninterest income disaggregated by major source for the three and nine months ended September 30, 20202021 and 2019,2020, consisted of the following (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended |
| Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, |
| September 30, | | September 30, | | September 30, | | September 30, |
| September 30, | | September 30, | ||||||||
| | 2020 | | 2019 |
| 2020 | | 2019 | | 2021 | | 2020 |
| 2021 | | 2020 | ||||||||
Noninterest income: |
| |
|
| |
| | |
|
| |
|
| |
|
| |
| | |
|
| |
|
Deposit Service Charges (1): |
| |
|
| |
| | |
|
| |
|
| |
|
| |
| | |
|
| |
|
Overdraft fees | | $ | 4,231 | | $ | 6,021 | | $ | 13,240 | | $ | 17,847 | | $ | 4,648 | | $ | 4,231 | | $ | 11,864 | | $ | 13,240 |
Maintenance fees & other | |
| 1,810 | |
| 1,654 | |
| 5,309 | |
| 4,484 | |
| 2,550 | |
| 1,810 | |
| 7,450 | |
| 5,309 |
Other service charges, commissions, and fees (1) | |
| 1,621 | |
| 1,513 | |
| 4,600 | |
| 4,879 | |
| 1,534 | |
| 1,621 | |
| 4,970 | |
| 4,600 |
Interchange fees(1) | |
| 1,979 | |
| 2,108 | |
| 5,300 | |
| 12,765 | |
| 2,203 | |
| 1,979 | |
| 6,252 | |
| 5,300 |
Fiduciary and asset management fees (1): | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Trust asset management fees | |
| 2,729 | |
| 2,661 | |
| 8,026 | |
| 5,977 | |
| 3,233 | |
| 2,729 | |
| 9,127 | |
| 8,026 |
Registered advisor management fees | |
| 2,224 | |
| 2,219 | |
| 6,402 | |
| 7,919 | |
| 2,510 | |
| 2,224 | |
| 7,299 | |
| 6,402 |
Brokerage management fees | |
| 1,092 | |
| 1,202 | |
| 3,115 | |
| 2,938 | |
| 1,286 | |
| 1,092 | |
| 3,897 | |
| 3,115 |
Mortgage banking income | |
| 8,897 | |
| 3,374 | |
| 16,744 | |
| 7,614 | |
| 4,818 | |
| 8,897 | |
| 17,692 | |
| 16,744 |
Gains on securities transactions | |
| 18 | |
| 7,104 | |
| 12,293 | |
| 7,306 | |
| 9 | |
| 18 | |
| 87 | |
| 12,293 |
Bank owned life insurance income | |
| 3,421 | |
| 2,062 | |
| 7,498 | |
| 6,191 | |
| 2,727 | |
| 3,421 | |
| 8,202 | |
| 7,498 |
Loan-related interest rate swap fees | |
| 3,170 | |
| 5,480 | |
| 12,602 | |
| 10,656 | |
| 1,102 | |
| 3,170 | |
| 4,176 | |
| 12,602 |
Other operating income | |
| 3,215 | |
| 12,708 | |
| 4,116 | |
| 15,045 | |
| 3,318 | |
| 3,215 | |
| 8,372 | |
| 4,116 |
Total noninterest income | | $ | 34,407 | | $ | 48,106 | | $ | 99,245 | | $ | 103,621 | | $ | 29,938 | | $ | 34,407 | | $ | 89,388 | | $ | 99,245 |
(1)(1) Income within scope of Topic 606.
(2) Includes income within the scope of Topic 606 ofa $1.21.8 million and $343,000 forloss related to the three months ended September 30, 2020 and 2019, respectively, and $2.4 million and $2.2 milliontermination of a cash flow hedge for the nine months ended September 30, 2020 and 2019, respectively. The remaining balance is outside the scope of Topic 606.
(3) For the three and nine months ended September 30, 2019, the remaining balance outside the scope of Topic 606 includes 2020.$9.3 million from life insurance proceeds received during that period related to a Xenith acquired loan that had been charged off prior to the Company’s acquisition of Xenith.
(4) Noninterest income for the discontinued mortgage segment is reported in Note 14 "Segment Reporting & Discontinued Operations."
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13.12. EARNINGS PER SHARE
Basic EPS is computed by dividing net income available to common shareholders after deducting dividends on preferred stock by the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, including the effect of dilutive potential common shares outstanding attributable to stock awards.
The following table presents basic and diluted EPS from continuing operations, discontinued operations and total net income available to common shareholderscalculations for the three and nine months ended September 30, 20202021 and 20192020 (dollars in thousands except per share data):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, | | September 30, | | September 30, | ||||||||||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 | ||||||||
Net Income: | | | | | | | | | | | | | | | | | | | | | | | | |
Income from continuing operations | | $ | 61,000 | | $ | 53,196 | | $ | 98,798 | | $ | 137,820 | ||||||||||||
Income (loss) from discontinued operations | |
| 0 | |
| 42 | |
| 0 | |
| (128) | ||||||||||||
Net Income | | | 61,000 | | | 53,238 | | | 98,798 | | | 137,692 | | $ | 74,565 | | $ | 61,000 | | $ | 216,138 | | $ | 98,798 |
Preferred Stock Dividends | | | 2,691 | | | — | | | 2,691 | | | — | ||||||||||||
Less: Preferred Stock Dividends | | | 2,967 | | | 2,691 | | | 8,901 | | | 2,691 | ||||||||||||
Net income available to common shareholders | | $ | 58,309 | | $ | 53,238 | | $ | 96,107 | | $ | 137,692 | | $ | 71,598 | | $ | 58,309 | | $ | 207,237 | | $ | 96,107 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average shares outstanding, basic | |
| 78,714 | |
| 81,769 | |
| 78,905 | |
| 80,121 | |
| 76,309 | |
| 78,714 | |
| 77,989 | |
| 78,905 |
Dilutive effect of stock awards and warrants | |
| 11 | |
| 64 | |
| 16 | |
| 63 | ||||||||||||
Dilutive effect of stock awards | |
| 14 | |
| 11 | |
| 19 | |
| 16 | ||||||||||||
Weighted average shares outstanding, diluted | |
| 78,725 | |
| 81,833 | |
| 78,921 | |
| 80,184 | |
| 76,323 | |
| 78,725 | |
| 78,008 | |
| 78,921 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | ||||||||||||
Basic EPS: | |
| | |
| | |
| | |
| | ||||||||||||
EPS from continuing operations | | $ | 0.74 | | $ | 0.65 | | $ | 1.22 | | $ | 1.72 | ||||||||||||
EPS from discontinued operations | |
| 0 | |
| 0 | |
| 0 | |
| 0 | ||||||||||||
EPS available to common shareholders | | $ | 0.74 | | $ | 0.65 | | $ | 1.22 | | $ | 1.72 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Diluted EPS: | |
| | |
| | |
| | |
| | ||||||||||||
EPS from continuing operations | | $ | 0.74 | | $ | 0.65 | | $ | 1.22 | | $ | 1.72 | ||||||||||||
EPS from discontinued operations | |
| 0 | |
| 0 | |
| 0 | |
| 0 | ||||||||||||
EPS available to common shareholders | | $ | 0.74 | | $ | 0.65 | | $ | 1.22 | | $ | 1.72 | ||||||||||||
Earnings per common share, basic | | $ | 0.94 | | $ | 0.74 | | $ | 2.66 | | $ | 1.22 | ||||||||||||
Earnings per common share, diluted | | $ | 0.94 | | $ | 0.74 | | $ | 2.66 | | $ | 1.22 |
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14. SEGMENT REPORTING & DISCONTINUED OPERATIONS
On May 23, 2018, the Bank announced that it had entered into an agreement with a third-party mortgage company TFSB to allow TFSB to offer residential mortgages from certain Bank locations on the terms and conditions set forth in the agreement. Concurrently with that arrangement, the Bank began the process of winding down the operations of UMG, the Company’s reportable mortgage segment. Effective at the close of business June 1, 2018, UMG was no longer originating mortgages in its name. The decision to wind down the operations of UMG was based on a number of strategic priorities and other factors, including the additional investment in the business required to achieve the necessary scale to be competitive. As a result of this decision, the community bank segment is the only remaining reportable segment and does not require separate reporting disclosures.
On May 30, 2019, the Bank notified TFSB that the Bank was terminating its primary agreement with TFSB and will no longer allow TFSB to offer residential mortgages from Bank locations. UMG operations remain discontinued, although the Company continues to offer residential mortgages through a division of the Bank.
As of and for the three and nine months ended September 30, 2020, the assets and liabilities, as well as the operating results, of the discontinued mortgage segment were not considered material. As of December 31, 2019, the Company’s Consolidated Balance Sheets included assets and liabilities from discontinued operations of $668,000 and $640,000, respectively. Management believes there are no material on-going obligations with respect to UMG’s business that have not been recorded in the Company’s consolidated financial statements.
The following table presents summarized operating results of the discontinued mortgage segment for the three and nine months ended September 30, 2019 (dollars in thousands):
| | | | | |
| Three Months Ended | | Nine Months Ended | ||
| September 30, 2019 |
| September 30, 2019 | ||
Net interest income | $ | 0 | | $ | 0 |
Provision for credit losses | | 0 | | | 0 |
Net interest income after provision for credit losses | | 0 | | | 0 |
Noninterest income | | 0 | | | 1 |
Noninterest expenses | | (56) | | | 174 |
Income before income taxes | | 56 | | | (173) |
Income tax expense (benefit) | | 14 | | | (45) |
Net income (loss) on discontinued operations | $ | 42 | | $ | (128) |
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15.13. SUBSEQUENT EVENTS
On October 29, 2020,28, 2021, the Company’s Board of Directors declared a quarterly dividend of $0.25$0.28 per share of common stock. The common stock dividend amount is the same as that paid in the prior quarter and an increase of $0.03, or 12.0%, from the dividend paid in the fourth quarter of 2019.2020. The common stock dividend is payable on November 27, 202026, 2021 to common shareholders of record as of November 13, 2020.12, 2021.
The Board also declared a quarterly dividend on the outstanding shares of its Series A preferred stock. The Series A preferred stock is represented by depositary shares, each representing a 1/400th ownership interest in a share of Series A preferred stock. The dividend of $171.88 per share (equivalent to $0.43 per outstanding depositary share) is consistent with the prior quarter. The preferred stock dividend is payable on December 1, 20202021 to preferred shareholders of record as of November 16, 2020.2021.
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Report of Independent Registered PublicPublic Accounting Firm
To the Stockholders and the Board of Directors of Atlantic Union Bankshares Corporation
Results of Review of Interim Financial Statements
We have reviewed the accompanying consolidated balance sheet of Atlantic Union Bankshares Corporation (the Company) as of September 30, 2020,2021, the related consolidated statements of income, and comprehensive income, and stockholders’ equity for the three and nine-month periods ended September 30, 20202021 and 2019,2020, the consolidated statements of changes in stockholders’ equity and cash flows for the nine-month periods ended September 30, 20202021 and 2019,2020, and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019,2020, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated February 25, 2020,26, 2021, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2019,2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Adoption of ASC 326
As discussed in Note 1 to the consolidated interim financial statements, the Company changed its method of accounting for the allowance for credit losses effective January 1, 2020 due to the adoption of ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326 in the Accounting Standards Codification).
Basis for Review Results
These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Ernst & Young LLP
Richmond, Virginia
November 3, 20204, 2021
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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of the Company. This discussion and analysis should be read with the Company’s consolidated financial statements, the notes to the financial statements, and the other financial data included in this report, as well as the Company’s 20192020 Form 10-K, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section therein. Highlighted in the discussion are material changes from prior reporting periods and identifiable trends materially affecting the Company. Results of operations for the interim periods are not necessarily indicative of results that may be expected for the full year or for any other period. Amounts are rounded for presentation purposes; however, some of the percentages presented are computed based on unrounded amounts.
In management’s discussion and analysis, the Company provides certain financial information determined by methods other than in accordance with US GAAP. The Company believes the presentation of non-GAAP financial measures provides a meaningful basis for period-to-period and company-to-company comparisons. Non-GAAP financial measures may be identified with the symbol (+) and may be labeled as adjusted. Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these non-GAAP financial measures, including a reconciliation of these measures to the most directly comparable financial measures in accordance with GAAP.
FORWARD-LOOKING STATEMENTS
Certain statements in this report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, areincluding without limitation, statements thatregarding future interest rate environments and potential impacts on the Company’s net interest margin, future economic conditions, and developments related to the COVID-19 pandemic, and may include without limitation,other projections, predictions, expectations, or beliefs about future events or results that are not statements of historical fact. Such forward-looking statements are based on various assumptions as of the time they are made, and are inherently subject to known and unknown risks, uncertainties, and other factors, some of which cannot be predicted or quantified, that may cause actual results, performance, or achievements to be materially different from those expressed or implied by such forward-looking statements. Forward-looking statements are often accompanied by words that convey projected future events or outcomes such as “expect,” “believe,” “estimate,” “plan,” “project,” “anticipate,” “intend,” “will,” “may,” “view,” “opportunity,” “potential,” or words of similar meaning or other statements concerning opinions or judgment of the Company and its management about future events. Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of, or trends affecting, the Company will not differ materially from any projected future results, performance, achievements or trendsachievements expressed or implied by such forward-looking statements. Actual future results, performance, achievements or trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to:to the effects of or changes in:
● |
● | general economic and financial market conditions, in the United States generally and particularly in the markets in which the Company operates and which its loans are concentrated, including the effects of declines in real estate values, an increase in unemployment levels and slowdowns in economic growth, including as a result of |
● | the quality or composition of the loan or investment portfolios and changes therein; |
● | demand for loan products and financial services in the Company’s market area; |
● | the Company’s ability to manage its growth or implement its growth strategy; |
● | the effectiveness of expense reduction plans; |
● | the introduction of new lines of business or new products and services; |
● | the Company’s ability to recruit and retain key employees; |
● | the incremental cost and/or decreased revenues associated with exceeding $10 billion in assets; |
● | real estate values in the Bank’s lending area; |
● | an insufficient ACL; |
● | changes in accounting |
● | the Company’s liquidity and capital positions; |
● | concentrations of loans secured by real estate, particularly commercial real estate; |
● | the effectiveness of the Company’s credit processes and management of the Company’s credit risk; |
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● | the Company’s ability to compete in the market for financial services and increased competition from fintech companies; |
● | technological risks and developments, and cyber threats, attacks, or events; |
● | the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts or public health events (such as |
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services, on incidents of cyberattack and fraud, on the Company’s liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Company's business operations and on financial markets and economic growth; |
● | the effect of steps the Company takes in response to |
● | the discontinuation of LIBOR and its impact on the financial markets, and the Company’s ability to manage operational, legal and compliance risks related to the discontinuation of LIBOR and implementation of one or more alternate reference rates, |
● | performance by the Company’s counterparties or vendors; |
● | deposit flows; |
● | the availability of financing and the terms thereof; |
● | the level of prepayments on loans and mortgage-backed securities; |
● | legislative or regulatory changes and requirements, including the impact of the CARES Act, as amended by the CAA, and other legislative and regulatory reactions to |
● | potential claims, damages, and fines related to litigation or government actions, including litigation or actions arising from the Company’s participation in and administration of programs related to |
Act, as amended by the CAA, and other legislative |
● | the effects of changes in federal, state or local tax laws and regulations; |
● | monetary and fiscal policies of the U.S. government, including policies of the U.S. Department of the Treasury and the Federal Reserve; |
● | changes to applicable accounting principles and guidelines; and |
● | other factors, many of which are beyond the control of the Company. |
Please refer to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s 20192020 Form 10-K and comparable sections of this Quarterly Report and related disclosures in other filings, including the Company’s Quarterly ReportReports on Form 10-Q for the quarterquarters ended March 31, 2021 and June 30, 2020,
2021, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov. All of the forward-looking statements made in this Quarterly Reportreport are expressly qualified by the cautionary statements contained or referred to in this Quarterly Report. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on the Company or its businesses or operations. Readers are cautioned not to rely too heavily on the forward-looking statements contained in this Quarterly Report. Forward-looking statements speak only as of the date they are made and the Company does not undertake any obligation to update, revise or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of the Company are in accordance with U.S. GAAP and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them, as needed. Management has discussed the Company’s critical accounting policies and estimates with the Audit Committee of the Board of Directors of the Company.
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The critical accounting and reporting policies include the Company’s accounting for the ACL, acquired loans, business combinations and divestitures, and goodwill and intangible assets. The Company’s accounting policies are fundamental to understanding the Company’s consolidated financial position and consolidated results of operations. Accordingly, the Company’s significant accounting policies are discussed in detail in Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 "Financial Statements and Supplementary Data" of the Company’s 20192020 Form 10-K.
The Company provides additional information on its critical accounting policies and estimates listed above under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in its 20192020 Form 10-K and in Note 1 “Accounting“Summary of Significant Accounting Policies” within Part I, of Item I1 of this Quarterly Report.
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RECENT ACCOUNTING PRONOUNCEMENTS (ISSUED BUT NOT FULLY ADOPTED)
In AugustMarch 2020, the FASB issued ASU No. 2020-06,2020-04 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”This guidance was issuedprovides temporary, optional guidance to improve financial reportingease the potential burden in accounting for reference rate reform associated with accountingthe LIBOR transition. LIBOR and other interbank offered rates are widely used benchmark or reference rates that have been used in the valuation of loans, derivatives, and other financial contracts. Global capital markets are going to be required to move away from LIBOR and other interbank offered rates and toward rates that are more observable or transaction based and less susceptible to manipulation. Topic 848 provides optional expedients and exceptions for convertible instrumentsapplying GAAP to contract modifications and contracts in an entity’s own equity.hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. Topic 848 is intended to help stakeholders during the global market-wide reference rate transition period. The amendments are effective for fiscal years beginning afteras of March 12, 2020 through December 15,31, 2022 and can be adopted at an instrument level. As of March 31, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15,the Company utilized the expedient to assert probability of hedged interested as detailed in Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 "Financial Statements and Supplementary Data" of the Company’s 2020 including interim periods within those years.Form 10-K. The Company is still evaluating the impacts from this standard.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This guidance was issued to simplify accounting for income taxes by removing specific technical exceptions that often produce information investors have a hard time understanding. The amendments also improve consistent application of and simplify GAAP formay incorporate other areascomponents of Topic 740 by clarifying848 at a later date and amending existing guidance. The amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company evaluatedcontinuing to evaluate the impacts from this standardremaining components of Topic 848 and does not expect a material financial statement impact.its impact to the Company.
ABOUT ATLANTIC UNION BANKSHARES CORPORATION
Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (Nasdaq: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank has 135130 branches and approximately 155150 ATMs located throughout Virginia, and in portions of Maryland and North Carolina. Middleburg Financial is a brand name used by Atlantic Union Bank and certain affiliates when providing trust, wealth management, private banking, and investment advisory products and services. Certain non-bank financial services affiliates of Atlantic Union Bank include: Old Dominion Capital Management,Atlantic Union Equipment Finance, Inc., and its subsidiary, Outfitter Advisors, Ltd., andwhich provides equipment financing; Dixon, Hubard, Feinour & Brown, Inc., which provideprovides investment advisory services; Middleburg Investment Services,Atlantic Union Financial Consultants, LLC, which provides brokerage services; and Union Insurance Group, LLC, which offers various lines of insurance products.
Shares of the Company’s common stock are traded on the Nasdaq Global Select Market under the symbol "AUB". Additional information is available on the Company’s website at https://investors.atlanticunionbank.com. The information contained on the Company’s website is not a part of or incorporated into this Quarterly Report.
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RESULTS OF OPERATIONS
Executive Overview
On February 1, 2019, the Company completed the acquisition of Access, a bank holding company based in Reston, Virginia. The Company’s results for the first quarter of 2019 include two months of financial condition and results of Access.
On May 20, 2019, the Company re-branded to Atlantic Union Bankshares Corporationoperations as of and successfully completed the integration of Access National Bank branches and operations into Atlantic Union Bank. Rebranding-related costs amounted to $1.1 million and $5.6 million duringfor the three and nine months ended September 30, 2019, respectively. There were no rebranding costs during the nine months ended September 30, 2020.
On January 1, 2020, the Company adopted ASC 326, which resulted in an increase of $51.7 million in the ACL on January 1, 2020. The impact of the worsening economic forecast related2021 have been impacted by COVID-19 and governmental programs and initiatives that have responded to COVID-19, subsequent toincluding the adoption of ASC 326 has further increased the ACL by $91.3 million to $186.1 million at September 30, 2020. The ACL included an ALLL of $174.1 million and an RUC of $12.0 million at September 30, 2020.PPP.
On June 9, 2020,The Company participated in SBA PPP under the CARES Act, which was intended to provide economic relief to small businesses that had been adversely impacted by COVID-19. The PPP loan funding program expired on May 31, 2021. The Company had PPP loans with a recorded investment of $481.7 million and unamortized deferred fees of $15.1 million as of September 30, 2021. The PPP loans carry a 1% interest rate.
In addition to an insignificant amount of PPP loan pay offs, the Company announcedhas processed $1.7 billion(*) of loan forgiveness on 13,000 PPP loans(*) since the closing of an offering of 6,900,000 depositary shares, each representing a 1/400th ownership interest in a share of its Series A preferred stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share), including 900,000 depositary shares pursuant to the exercise in full by the underwriters of their option to purchase additional depositary shares. The total net proceeds to the Company were approximately $166.4 million, after deducting the underwriting discount and other offering expenses payable by the Company. The Company intends to use the net proceedsinception of the offering for general corporate purposesprogram through September 30, 2021 with $165.0 million(*) on 2,500 loans(*) occurring in the ordinary coursefirst quarter of its business. General corporate purposes may include repayment of debt, loan funding, acquisitions, additions to working capital, capital expenditures and investments2021, $705.0 million(*) on 5,000 loans(*) occurring in the Company’s subsidiaries.second quarter of 2021, and $392.0 million(*) on 3,000 loans(*) occurring in the third quarter of 2021.
During 2020, the Company undertooklaunched several expense reduction actions, including the consolidation of 14 branches, which was completed in September 2020,initiatives to reduce expenses in light of the current and expected operating environment.environment, including the consolidation of certain branch locations. The Company completed the consolidation of 15 branches in 2020, and five additional branches were consolidated in February 2021. These actions resulted in expensesbranch closure costs of $2.6approximately $1.1 million in the first quarter of 2021 primarily related to lease termination costs, severance costs, and real estate related write-downs,write-downs.
On May 4, 2021, the Company’s Board of Directors authorized the Repurchase Program to purchase up to $125 million worth of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the Exchange Act, that was due to expire on June 30, 2022. Under the Repurchase Program, 1.1 million shares were repurchased for $42.3 million during the three monthsquarter ended June 30, 2021 and 2.3 million shares were repurchased for $82.7 million during the quarter ended September 30, 2020, and expenses of $6.02021, fully utilizing the $125 million primarily related to real estate related write-downs and severance, duringrepurchase authorization under the nine months ended September 30, 2020.Repurchase Program.
Third Quarter Net Income and Performance Metrics
● | Net income available to common shareholders was |
● | Pre-tax pre-provision adjusted operating earnings |
Nine Month Net Income and Performance Metrics
● | Net income available to common shareholders was $207.2 million and basic and diluted EPS was $2.66 for the nine months ended September 30, 2021, compared to $96.1 million and |
● | Adjusted operating earnings available to common shareholders(+), which exclude gains on sales of securities and net |
● | Pre-tax pre-provision adjusted operating earnings |
Balance Sheet
● | Cash and cash equivalents were $1.1 billion at September 30, 2021, an increase of $570.0 million or 154.5% (annualized) from December 31, 2020. |
● | AFS securities were $3.2 billion at September 30, 2021, an increase of $654.8 million or 34.5% (annualized) from December 31, 2020. |
● | Loans held for investment (net of deferred fees and costs) were |
(1) Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these non-GAAP financial measures, including a reconciliation of these measures to the most directly comparable financial measures in accordance with GAAP.
-64--56-
● | Total deposits were $16.6 billion at September 30, 2021, an increase of $889.4 million or 7.6% (annualized) from December 31, 2020. |
Recent Developments
(*) PPP forgiveness values are rounded and approximate values
COVID-19 Pandemic
. The Company’s financial performance generally, and in particular the ability of its borrowers to repay their loans, the value of collateral securing those loans, as well as demand for loans and other products and services the Company offers, is highly dependent on the business environment in its primary markets where it operates and in the United States as a whole.
In December 2019, COVID-19 was reported in Wuhan, China. The WHO declared the COVID-19 outbreakhas had and may continue to constitutehave a Public Health Emergencywide range of International Concern on January 30, 2020. Over the course ofeconomic impacts. Since the first quarter of 2020, COVID-19 developed into a worldwide outbreak and, on March 11, 2020, the WHO characterized COVID-19 as a pandemic. On March 13, 2020, the President of the United States issued a proclamation declaring a national state of emergency in response to COVID-19. During the final two weeks of March 2020, the governors of multiple U.S. states, including Virginia, where the Company has its principal place of business, issued stay-at-home orders that directed the closing of non-essential businesses and restricted public gatherings. Beginning in the second quarter of 2020, businesses began to re-open in many areas of the United States under government social distancing and other restrictions. However, the COVID-19 pandemic will likely continue to be a significant health concern in the Company’s areas of operation, the United States and across the globe.
The pandemic is having a wide range of economic impacts, involving the possibility of an extended economic recession. The pandemic has severely disrupted supply chains and adversely affected production, demand, sales, and employee productivity across a range of industries. Itindustries, and has dramatically increased unemployment in the Company’s areas of operation and nationally. It is expected thatDuring 2021, the economy has, with certain setbacks, started to reopen, as there was wider vaccine distribution, resulting in the easing of restrictions related to COVID-19, which appear to be leading to greater economic activity. However, the national economy and economies in the Company’s areas of operations will continue to be affected throughout the remainder of fiscal year 2020,impacted during 2021 and are likely to be impacted into 2022, despite the fact that many businesses have opened to one degree or another.re-opened at full capacity. In addition, the pandemicCOVID-19 may have social and other impacts that are not yet known but may affect the Company’s customers, employees, and vendors. These events have adversely affectedIf a resurgence in the Company’s operations duringCOVID-19 pandemic leads to signficant restrictions on economic activity or significant impacts on public health, COVID-19 may still present the possibility of an extended economic recession.
During 2020 and the first nine months of 20202021, the Company has taken and is continuing to take precautions to protect the safety and well-being of the Bank’s employees and customers during COVID-19. The Bank has implemented additional safety policies and procedures and follows guidance issued by the Centers for Disease Control and Prevention, state health authorities, and state and local executive orders where our branches and corporate offices are expectedlocated. The Bank remains very focused on the safety and well-being of its employees and customers during COVID-19 and is committed to impactsafely and responsibly operating its branch network and maintaining appropriate staffing in each branch.
COVID-19 has adversely affected the Company’s business, financial condition, and results of operations throughoutsince the remainderfirst quarter of fiscal year 2020. The duration, nature and severity of the impactfuture impacts of the COVID-19 pandemic on the Company’s operational and financial performance will depend on certain developments, including the duration, spread, and severity of the outbreak, the pandemic’s impact on its customers, employees, and vendors and the nature and effect of past and future federal and state governmental and private sector responses to the pandemic, all of which are uncertain and cannot be predicted. New information may emerge concerning the severity of the outbreak and the actions taken to contain COVID-19 infections or treat its impact may change or become more restrictive if a resurgence of COVID-19 infections occurs as a result of the loosening of governmental restrictions or otherwise.
Future developments with respect to COVID-19, all of which remain highly uncertain and cannot be predicted, and new information may emerge concerning the nature and severity of the outbreak,COVID-19 pandemic, the emergence of new COVID-19 variants, short- and long-term health impacts, the actions to contain the outbreakpandemic or treataddress its impact,impacts (including the efficacy of vaccine and treatment developments and the success of vaccination programs), the pace and durability of any economic recovery, and unforeseen effects of the pandemic, among others. Other national health concerns, including the outbreak of other contagious diseases or pandemics, may adversely affect the Company in the future.
During 2020, the Bank participated in the SBA PPP under the CARES Act, which was intended to provide economic relief to small businesses that have been adversely impacted by COVID-19. The Bank processed over 11,000 PPP loans, which totaled $1.7 billion with a recorded investment of $1.6 billion as of September 30, 2020, which included unamortized deferred fees of $32.6 million.
Loans under the PPP generally have a two-year term, earn interest at 1.00%, and are forgivable to the extent that the proceeds are used for payroll costs and other qualifying expenses in accordance with the terms of the program. Lenders participating in the program are scheduled to receive loan processing fees from the SBA ranging from 1.00% to 5.00% of the initial principal amount of the loan. Beginning in the third quarter of 2020, the Bank began to work with these borrowers and the SBA to achieve forgiveness and repayment of these loans.
The Bank has also implemented a short-term loan modification program that is intended to provide temporary relief for certain of our borrowers who expected to be or may have already been adversely affected by the outbreak of COVID-19 by providing short-term deferrals of loan payments on amortizing loans. The Bank offered a three- to six-month full payment deferral option or a three- to six-month interest-only payment option. In accordance with the March 22 Guidance and the CARES Act, these short-term deferrals are not deemed to be TDRs to the extent they meet the terms of such guidance.
-65--57-
As of September 30, 2020, approximately $769.6 million remained under their modified loan terms. As of October 16, 2020, the loans that remained under their modified terms declined from September 30, 2020 by approximately 32% to approximately $522.6 million, over 90% of which were related to the commercial portfolio. The significant majority of the commercial loans that rolled off of their initial modification did not require a subsequent modification. Subsequent modification requests have been primarily concentrated in the Company’s hotel portfolio.
Additionally, the Bank has offered a greater than six-month interest-only payment option, although the Bank currently expects minimal use of that option by customers.
The Bank has not registered as a lender under the MSLP but continues to monitor developments related thereto.
Net Interest Income
| | | | | | | | | | | |
| | For the Three Months Ended | | | | | | ||||
| | September 30, | | | | | | ||||
|
| 2020 |
| 2019 |
| Change |
| | |||
| | (Dollars in thousands) | | | |||||||
Average interest-earning assets | | $ | 17,748,152 | | $ | 15,191,792 | | $ | 2,556,360 |
|
|
Interest and dividend income | | $ | 157,414 | | $ | 178,345 | | $ | (20,931) |
|
|
Interest and dividend income (FTE) (1) | | $ | 160,315 | | $ | 181,149 | | $ | (20,834) |
|
|
Yield on interest-earning assets | |
| 3.53 | % |
| 4.66 | % |
| (113) |
| bps |
Yield on interest-earning assets (FTE) (1) | |
| 3.59 | % |
| 4.73 | % |
| (114) |
| bps |
Average interest-bearing liabilities | | $ | 12,444,083 | | $ | 11,427,305 | | $ | 1,016,778 |
|
|
Interest expense | | $ | 20,033 | | $ | 41,744 | | $ | (21,711) |
|
|
Cost of interest-bearing liabilities | |
| 0.64 | % |
| 1.45 | % |
| (81) |
| bps |
Cost of funds | |
| 0.45 | % |
| 1.09 | % |
| (64) |
| bps |
Net interest income | | $ | 137,381 | | $ | 136,601 | | $ | 780 |
|
|
Net interest income (FTE) (1) | | $ | 140,282 | | $ | 139,405 | | $ | 877 |
|
|
Net interest margin | |
| 3.08 | % |
| 3.57 | % |
| (49) |
| bps |
Net interest margin (FTE) (1) | |
| 3.14 | % |
| 3.64 | % |
| (50) |
| bps |
| | | | | | | | | | | |
| | For the Three Months Ended | | | | | | ||||
| | September 30, | | | | | | ||||
|
| 2021 |
| 2020 |
| Change |
| | |||
| | (Dollars in thousands) | | | |||||||
Average interest-earning assets | | $ | 17,910,389 | | $ | 17,748,152 | | $ | 162,237 |
|
|
Interest and dividend income | | $ | 146,379 | | $ | 157,414 | | $ | (11,035) |
|
|
Interest and dividend income (FTE) (1) | | $ | 149,543 | | $ | 160,315 | | $ | (10,772) |
|
|
Yield on interest-earning assets | |
| 3.24 | % |
| 3.53 | % |
| (29) |
| bps |
Yield on interest-earning assets (FTE) (1) | |
| 3.31 | % |
| 3.59 | % |
| (28) |
| bps |
Average interest-bearing liabilities | | $ | 11,908,809 | | $ | 12,444,083 | | $ | (535,274) |
|
|
Interest expense | | $ | 8,891 | | $ | 20,033 | | $ | (11,142) |
|
|
Cost of interest-bearing liabilities | |
| 0.30 | % |
| 0.64 | % |
| (34) |
| bps |
Cost of funds | |
| 0.19 | % |
| 0.45 | % |
| (26) |
| bps |
Net interest income | | $ | 137,488 | | $ | 137,381 | | $ | 107 |
|
|
Net interest income (FTE) (1) | | $ | 140,652 | | $ | 140,282 | | $ | 370 |
|
|
Net interest margin | |
| 3.05 | % |
| 3.08 | % |
| (3) |
| bps |
Net interest margin (FTE) (1) | |
| 3.12 | % |
| 3.14 | % |
| (2) |
| bps |
(1) Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these measures, including a reconciliation of these measures to the most directly comparable financial measures calculated in accordance with GAAP.
For the third quarter of 2020,2021, net interest income was $137.4$137.5 million, an increase of $780,000 from the third quarter of 2019. For the third quarter of 2020, net interest income (FTE) was $140.3 million, an increase of $877,000 from the third quarter of 2019. The increases in both net interest income and net interest income (FTE)(+) was $140.7 million, both of which were primarily driven by higher average loan balances partially offset by lower purchased loan discount accretion. Net accretion related to acquisition accounting decreased $1.4 million from the third quarter of 2019 to $3.7 million in line with the third quarter of 2020. In the third quarter of 2020,2021, net interest margin decreased 493 basis points to 3.08%3.05% from 3.57%3.08% in the third quarter of 2019,2020, and net interest margin (FTE)(+) decreased 502 basis points compared to the third quarter of 2019.2020. The net decline in net interest margin and net interest margin (FTE)(+) measures were primarily driven by a decrease in the yield on interest-earning assets, partially offset by a decrease in the Bank’s cost of funds. The decline in the Company’s earning asset yields was primarily driven by lower loan accretion income, an increase in the earning asset mix of lower yielding investment securities and the impact of excess liquidity, and declines in loan and investment securities yields, as a result of the lowerdecrease in market interest rate environment.rates. The cost of funds decline was driven by lower deposit costs and wholesale borrowing costs driven by lower market interest rates and a favorable funding mix.
-66--58-
| | | | | | | | | | | |
| | For the Nine Months Ended | | | | | | ||||
| | September 30, | | | | | | ||||
|
| 2020 |
| 2019 |
| Change |
| | |||
| | (Dollars in thousands) | | | |||||||
Average interest-earning assets | | $ | 16,809,423 | | $ | 14,700,019 | | $ | 2,109,404 |
|
|
Interest and dividend income | | $ | 491,607 | | $ | 525,122 | | $ | (33,515) |
|
|
Interest and dividend income (FTE) (1) | | $ | 500,069 | | $ | 533,590 | | $ | (33,521) |
|
|
Yield on interest-earning assets | |
| 3.91 | % |
| 4.78 | % |
| (87) |
| bps |
Yield on interest-earning assets (FTE) (1) | |
| 3.97 | % |
| 4.85 | % |
| (88) |
| bps |
Average interest-bearing liabilities | | $ | 12,200,209 | | $ | 11,161,458 | | $ | 1,038,751 |
|
|
Interest expense | | $ | 81,913 | | $ | 122,379 | | $ | (40,466) |
|
|
Cost of interest-bearing liabilities | |
| 0.90 | % |
| 1.47 | % |
| (57) |
| bps |
Cost of funds | |
| 0.65 | % |
| 1.11 | % |
| (46) |
| bps |
Net interest income | | $ | 409,694 | | $ | 402,743 | | $ | 6,951 |
|
|
Net interest income (FTE) (1) | | $ | 418,156 | | $ | 411,211 | | $ | 6,945 |
|
|
Net interest margin | |
| 3.26 | % |
| 3.66 | % |
| (40) |
| bps |
Net interest margin (FTE) (1) | |
| 3.32 | % |
| 3.74 | % |
| (42) |
| bps |
| | | | | | | | | | | |
| | For the Nine Months Ended | | | | | | ||||
| | September 30, | | | | | | ||||
|
| 2021 |
| 2020 |
| Change |
| | |||
| | (Dollars in thousands) | | | |||||||
Average interest-earning assets | | $ | 17,824,607 | | $ | 16,809,423 | | $ | 1,015,184 |
|
|
Interest and dividend income | | $ | 444,904 | | $ | 491,607 | | $ | (46,703) |
|
|
Interest and dividend income (FTE) (1) | | $ | 454,265 | | $ | 500,069 | | $ | (45,804) |
|
|
Yield on interest-earning assets | |
| 3.34 | % |
| 3.91 | % |
| (57) |
| bps |
Yield on interest-earning assets (FTE) (1) | |
| 3.41 | % |
| 3.97 | % |
| (56) |
| bps |
Average interest-bearing liabilities | | $ | 11,939,838 | | $ | 12,200,209 | | $ | (260,371) |
|
|
Interest expense | | $ | 31,970 | | $ | 81,913 | | $ | (49,943) |
|
|
Cost of interest-bearing liabilities | |
| 0.36 | % |
| 0.90 | % |
| (54) |
| bps |
Cost of funds | |
| 0.24 | % |
| 0.65 | % |
| (41) |
| bps |
Net interest income | | $ | 412,934 | | $ | 409,694 | | $ | 3,240 |
|
|
Net interest income (FTE) (1) | | $ | 422,295 | | $ | 418,156 | | $ | 4,139 |
|
|
Net interest margin | |
| 3.10 | % |
| 3.26 | % |
| (16) |
| bps |
Net interest margin (FTE) (1) | |
| 3.17 | % |
| 3.32 | % |
| (15) |
| bps |
(1) Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these measures, including a reconciliation of these measures to the most directly comparable financial measures calculated in accordance with GAAP.
For the first nine months of 2020,2021, net interest income was $409.7$412.9 million, an increase of $7.0$3.2 million from the same period of 2019.2020. For the first nine months of 2020,2021, net interest income (FTE)(+) was $418.2$422.3 million, an increase of $6.9$4.1 million from the same period of 2019.2020. The increases in both net interest income and net interest income (FTE)(+) were primarily driven by higher average loan balancesa decline in interest expense due to decreased deposit costs and higher purchased loan discount accretion. Net accretion relateda favorable funding mix partially offset by lower interest income due to acquisition accounting increased $769,000 fromlower earning asset yields and an unfavorable earning asset mix. In the first nine months of 20192021, net interest margin decreased 16 basis points to $19.5 million3.10% from 3.26% in the first nine months of 2020. In the first nine months of 2020, net interest margin decreased 40 basis points to 3.26% from 3.66% in the first nine months of 2019, and net interest margin (FTE)(+) decreased 4215 basis points compared to the first nine months of 2019.2020. The net decline in net interest margin and net interest margin (FTE)(+) measures were primarily driven by a decrease in the yield on interest-earning assets, partially offset by a decrease in the cost of funds. The decline in the Company’s earning asset yields was primarily driven by an increase in the earning asset mix of lower yielding investment securities and the impact of excess liquidity and declines in loan and investment securities yields, as a result of the lowerdecrease in market interest rate environment.rates. The cost of funds decline was driven by lower deposit costs and wholesale borrowing costs driven by lower market interest rates and a favorable funding mix.
The Federal Open Markets Committee lowered
In response to COVID-19, the FOMC reduced its Federal Funds target rates forto its current range of 0% to 0.25%, compared to an upper bound in the first time in 11 years on July 31, 2019 and then again in September 2019 and October 2019, for a combined decrease of 75 basis points during 2019. In response to market volatility related to the COVID-19 pandemic, the FOMC again lowered Federal Funds target rates twice in March 2020, for a combined decrease of 150 basis points. The FOMC’s current Federal Funds target rate range is currently 0% to 0.25%.of 1.75% during the first quarter of 2020. As a consequence long-term interestof reduced short-term rates, have decreased. Thethe Company anticipates that these actions by the FOMC will continue to put downward pressurehas seen compression on its net interest margin.margin as earning asset yields have decreased by more than the decrease in the Company’s cost of funds due primarily to the impact of excess liquidity.
-67--59-
The following tables show interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the periods indicated:
AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE EQUIVALENT BASIS)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, |
| | For the Three Months Ended September 30, |
| ||||||||||||||||||||||||||||
| | 2020 | | 2019 |
| | 2021 | | 2020 |
| ||||||||||||||||||||||||
|
| | |
| Interest |
| |
| | |
| Interest |
| |
|
| | |
| Interest |
| |
| | |
| Interest |
| |
| ||||
| | Average | | Income / | | Yield / | | Average | | Income / | | Yield / |
| | Average | | Income / | | Yield / | | Average | | Income / | | Yield / |
| ||||||||
| | Balance | | Expense (1) | | Rate (1)(2) | | Balance | | Expense (1) | | Rate (1)(2) |
| | Balance | | Expense (1) | | Rate (1)(2) | | Balance | | Expense (1) | | Rate (1)(2) |
| ||||||||
|
| (Dollars in thousands) | |
| (Dollars in thousands) | | ||||||||||||||||||||||||||||
Assets: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Securities: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Taxable | | $ | 1,738,033 | | $ | 10,275 |
| 2.35 | % | $ | 1,670,270 | | $ | 12,625 |
| 3.00 | % | | $ | 2,248,478 | | $ | 11,230 |
| 1.98 | % | $ | 1,738,033 | | $ | 10,275 |
| 2.35 | % |
Tax-exempt | |
| 1,153,177 | |
| 10,886 |
| 3.76 | % |
| 990,000 | |
| 10,181 |
| 4.08 | % | |
| 1,431,499 | |
| 12,480 |
| 3.46 | % |
| 1,153,177 | |
| 10,886 |
| 3.76 | % |
Total securities | |
| 2,891,210 | |
| 21,161 |
| 2.91 | % |
| 2,660,270 | |
| 22,806 |
| 3.40 | % | |
| 3,679,977 | |
| 23,710 |
| 2.56 | % |
| 2,891,210 | |
| 21,161 |
| 2.91 | % |
Loans, net (3) (4) | |
| 14,358,666 | |
| 138,635 |
| 3.84 | % |
| 12,240,254 | |
| 156,471 |
| 5.07 | % | |
| 13,451,674 | |
| 125,290 |
| 3.70 | % |
| 14,358,666 | |
| 138,635 |
| 3.84 | % |
Other earning assets | |
| 498,276 | |
| 519 |
| 0.41 | % |
| 291,268 | |
| 1,872 |
| 2.55 | % | |
| 778,738 | |
| 543 |
| 0.28 | % |
| 498,276 | |
| 519 |
| 0.41 | % |
Total earning assets | |
| 17,748,152 | | $ | 160,315 |
| 3.59 | % |
| 15,191,792 | | $ | 181,149 |
| 4.73 | % | |
| 17,910,389 | | $ | 149,543 |
| 3.31 | % |
| 17,748,152 | | $ | 160,315 |
| 3.59 | % |
Allowance for credit losses | |
| (174,171) | | | |
|
| |
| (46,229) | |
|
|
|
| | |
| (117,414) | | | |
|
| |
| (174,171) | |
|
|
|
| |
Total non-earning assets | |
| 2,211,186 | | | |
|
| |
| 2,057,765 | |
|
|
|
| | |
| 2,263,595 | | | |
|
| |
| 2,211,186 | |
|
|
|
| |
Total assets | | $ | 19,785,167 | | | |
|
| | $ | 17,203,328 | |
|
|
|
| | | $ | 20,056,570 | | | |
|
| | $ | 19,785,167 | |
|
|
|
| |
Liabilities and Stockholders' Equity: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Interest-bearing deposits: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Transaction and money market accounts | | $ | 7,834,317 | | $ | 4,684 |
| 0.24 | % | $ | 6,290,112 | | $ | 16,389 |
| 1.03 | % | | $ | 8,345,410 | | $ | 1,501 |
| 0.07 | % | $ | 7,834,317 | | $ | 4,684 |
| 0.24 | % |
Regular savings | |
| 845,936 | |
| 128 |
| 0.06 | % |
| 743,938 | |
| 266 |
| 0.14 | % | |
| 1,058,284 | |
| 55 |
| 0.02 | % |
| 845,936 | |
| 128 |
| 0.06 | % |
Time deposits (5) | |
| 2,579,991 | |
| 10,756 |
| 1.66 | % |
| 2,769,574 | |
| 14,194 |
| 2.03 | % | |
| 2,109,131 | |
| 4,281 |
| 0.81 | % |
| 2,579,991 | |
| 10,756 |
| 1.66 | % |
Total interest-bearing deposits | |
| 11,260,244 | |
| 15,568 |
| 0.55 | % |
| 9,803,624 | |
| 30,849 |
| 1.25 | % | |
| 11,512,825 | |
| 5,837 |
| 0.20 | % |
| 11,260,244 | |
| 15,568 |
| 0.55 | % |
Other borrowings (6) | |
| 1,183,839 | |
| 4,465 |
| 1.50 | % |
| 1,623,681 | |
| 10,895 |
| 2.66 | % | |
| 395,984 | |
| 3,054 |
| 3.06 | % |
| 1,183,839 | |
| 4,465 |
| 1.50 | % |
Total interest-bearing liabilities | |
| 12,444,083 | | $ | 20,033 |
| 0.64 | % |
| 11,427,305 | | $ | 41,744 |
| 1.45 | % | |
| 11,908,809 | | $ | 8,891 |
| 0.30 | % |
| 12,444,083 | | $ | 20,033 |
| 0.64 | % |
Noninterest-bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Demand deposits | |
| 4,320,225 | | | |
|
| |
| 3,008,587 | |
|
|
|
| | |
| 5,205,319 | | | |
|
| |
| 4,320,225 | |
|
|
|
| |
Other liabilities | |
| 372,082 | | | |
|
| |
| 239,001 | |
|
|
|
| | |
| 224,410 | | | |
|
| |
| 372,082 | |
|
|
|
| |
Total liabilities | |
| 17,136,390 | | | |
|
| |
| 14,674,893 | |
|
|
|
| | |
| 17,338,538 | | | |
|
| |
| 17,136,390 | |
|
|
|
| |
Stockholders' equity | |
| 2,648,777 | | | |
|
| |
| 2,528,435 | |
|
|
|
| | |
| 2,718,032 | | | |
|
| |
| 2,648,777 | |
|
|
|
| |
Total liabilities and stockholders' equity | | $ | 19,785,167 | | | |
|
| | $ | 17,203,328 | |
|
|
|
| | | $ | 20,056,570 | | | |
|
| | $ | 19,785,167 | |
|
|
|
| |
Net interest income | | | | | $ | 140,282 |
|
| |
|
| | $ | 139,405 |
|
| | | | | | $ | 140,652 |
|
| |
|
| | $ | 140,282 |
|
| |
Interest rate spread | | | | | | |
| 2.95 | % |
|
| |
|
|
| 3.28 | % | | | | | | |
| 3.01 | % |
|
| |
|
|
| 2.95 | % |
Cost of funds | | | | | | |
| 0.45 | % |
|
| |
|
|
| 1.09 | % | | | | | | |
| 0.19 | % |
|
| |
|
|
| 0.45 | % |
Net interest margin | | | | | | |
| 3.14 | % |
|
| |
|
|
| 3.64 | % | | | | | | |
| 3.12 | % |
|
| |
|
|
| 3.14 | % |
(1) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 21%.
(2) Rates and yields are annualized and calculated from actual, not rounded amounts in thousands, which appear above.
(3) Nonaccrual loans are included in average loans outstanding.
(4) Interest income on loans includes $3.8$4.2 million and $5.0$3.8 million for the three months ended September 30, 20202021 and 2019,2020, respectively, in accretion of the fair market value adjustments related to acquisitions.
(5) Interest expense on time deposits includes $26,000amortization of $8,000 for the three months ended September 30, 2021 and $179,000accretion of $26,000 for the three months ended September 30, 2020, and 2019, respectively, in accretion offor the fair market value adjustments related to acquisitions.
(6) Interest expense on borrowings includes $167,000$203,000 and $97,000$167,000 for the three months ended September 30, 20202021 and 2019,2020, respectively, in amortization of the fair market value adjustments related to acquisitions.
-68--60-
AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE EQUIVALENT BASIS)
| | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, |
| ||||||||||||||
| | 2020 | | 2019 |
| ||||||||||||
|
| | |
| Interest |
| |
| | |
| Interest |
| |
| ||
| | Average | | Income / | | Yield / | | Average | | Income / | | Yield / |
| ||||
| | Balance | | Expense (1) | | Rate (1)(2) | | Balance | | Expense (1) | | Rate (1)(2) |
| ||||
|
| (Dollars in thousands) | | ||||||||||||||
Assets: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Securities: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Taxable | | $ | 1,676,528 | | $ | 33,170 |
| 2.64 | % | $ | 1,680,570 | | $ | 39,059 |
| 3.11 | % |
Tax-exempt | |
| 1,044,633 | |
| 31,038 |
| 3.97 | % |
| 1,000,893 | |
| 30,916 |
| 4.13 | % |
Total securities | |
| 2,721,161 | |
| 64,208 |
| 3.15 | % |
| 2,681,463 | |
| 69,975 |
| 3.49 | % |
Loans, net (3) (4) | |
| 13,639,401 | |
| 433,286 |
| 4.24 | % |
| 11,821,612 | |
| 459,905 |
| 5.20 | % |
Other earning assets | |
| 448,861 | |
| 2,575 |
| 0.77 | % |
| 196,944 | |
| 3,710 |
| 2.52 | % |
Total earning assets | |
| 16,809,423 | | $ | 500,069 |
| 3.97 | % |
| 14,700,019 | | $ | 533,590 |
| 4.85 | % |
Allowance for loan losses | |
| (138,524) | | | |
|
| |
| (43,480) | |
|
|
|
| |
Total non-earning assets | |
| 2,166,681 | | | |
|
| |
| 1,982,502 | |
|
|
|
| |
Total assets | | $ | 18,837,580 | | | |
|
| | $ | 16,639,041 | |
|
|
|
| |
Liabilities and Stockholders' Equity: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Interest-bearing deposits: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Transaction and money market accounts | | $ | 7,415,491 | | $ | 26,508 |
| 0.48 | % | $ | 6,102,783 | | $ | 46,895 |
| 1.03 | % |
Regular savings | |
| 792,994 | |
| 409 |
| 0.07 | % |
| 751,341 | |
| 1,083 |
| 0.19 | % |
Time deposits (5) | |
| 2,667,267 | |
| 37,026 |
| 1.85 | % |
| 2,554,058 | |
| 36,110 |
| 1.89 | % |
Total interest-bearing deposits | |
| 10,875,752 | |
| 63,943 |
| 0.79 | % |
| 9,408,182 | |
| 84,088 |
| 1.19 | % |
Other borrowings (6) | |
| 1,324,457 | |
| 17,970 |
| 1.81 | % |
| 1,753,276 | |
| 38,291 |
| 2.92 | % |
Total interest-bearing liabilities | |
| 12,200,209 | | $ | 81,913 |
| 0.90 | % |
| 11,161,458 | | $ | 122,379 |
| 1.47 | % |
Noninterest-bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Demand deposits | |
| 3,756,957 | | | |
|
| |
| 2,842,017 | |
|
|
|
| |
Other liabilities | |
| 338,558 | | | |
|
| |
| 205,654 | |
|
|
|
| |
Total liabilities | |
| 16,295,724 | | | |
|
| |
| 14,209,129 | |
|
|
|
| |
Stockholders' equity | |
| 2,541,856 | | | |
|
| |
| 2,429,912 | |
|
|
|
| |
Total liabilities and stockholders' equity | | $ | 18,837,580 | | | |
|
| | $ | 16,639,041 | |
|
|
|
| |
Net interest income | | | | | $ | 418,156 |
|
| |
|
| | $ | 411,211 |
|
| |
Interest rate spread | | | | | | |
| 3.07 | % |
|
| |
|
|
| 3.38 | % |
Cost of funds | | | | | | |
| 0.65 | % |
|
| |
|
|
| 1.11 | % |
Net interest margin | | | | | | |
| 3.32 | % |
|
| |
|
|
| 3.74 | % |
| | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, |
| ||||||||||||||
| | 2021 | | 2020 |
| ||||||||||||
|
| | |
| Interest |
| |
| | |
| Interest |
| |
| ||
| | Average | | Income / | | Yield / | | Average | | Income / | | Yield / |
| ||||
| | Balance | | Expense (1) | | Rate (1)(2) | | Balance | | Expense (1) | | Rate (1)(2) |
| ||||
|
| (Dollars in thousands) | | ||||||||||||||
Assets: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Securities: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Taxable | | $ | 2,062,486 | | $ | 32,102 |
| 2.08 | % | $ | 1,676,528 | | $ | 33,170 |
| 2.64 | % |
Tax-exempt | |
| 1,375,799 | |
| 36,421 |
| 3.54 | % |
| 1,044,633 | |
| 31,038 |
| 3.97 | % |
Total securities | |
| 3,438,285 | |
| 68,523 |
| 2.66 | % |
| 2,721,161 | |
| 64,208 |
| 3.15 | % |
Loans, net (3) (4) | |
| 13,827,002 | |
| 384,252 |
| 3.72 | % |
| 13,639,401 | |
| 433,286 |
| 4.24 | % |
Other earning assets | |
| 559,320 | |
| 1,490 |
| 0.36 | % |
| 448,861 | |
| 2,575 |
| 0.77 | % |
Total earning assets | |
| 17,824,607 | | $ | 454,265 |
| 3.41 | % |
| 16,809,423 | | $ | 500,069 |
| 3.97 | % |
Allowance for credit losses | |
| (137,589) | | | |
|
| |
| (138,524) | |
|
|
|
| |
Total non-earning assets | |
| 2,203,137 | | | |
|
| |
| 2,166,681 | |
|
|
|
| |
Total assets | | $ | 19,890,155 | | | |
|
| | $ | 18,837,580 | |
|
|
|
| |
Liabilities and Stockholders' Equity: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Interest-bearing deposits: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Transaction and money market accounts | | $ | 8,189,587 | | $ | 5,462 |
| 0.09 | % | $ | 7,415,491 | | $ | 26,508 |
| 0.48 | % |
Regular savings | |
| 1,005,537 | |
| 169 |
| 0.02 | % |
| 792,994 | |
| 409 |
| 0.07 | % |
Time deposits (5) | |
| 2,288,530 | |
| 16,572 |
| 0.97 | % |
| 2,667,267 | |
| 37,026 |
| 1.85 | % |
Total interest-bearing deposits | |
| 11,483,654 | |
| 22,203 |
| 0.26 | % |
| 10,875,752 | |
| 63,943 |
| 0.79 | % |
Other borrowings (6) | |
| 456,184 | |
| 9,767 |
| 2.86 | % |
| 1,324,457 | |
| 17,970 |
| 1.81 | % |
Total interest-bearing liabilities | |
| 11,939,838 | | $ | 31,970 |
| 0.36 | % |
| 12,200,209 | | $ | 81,913 |
| 0.90 | % |
Noninterest-bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Demand deposits | |
| 4,949,816 | | | |
|
| |
| 3,756,957 | |
|
|
|
| |
Other liabilities | |
| 271,896 | | | |
|
| |
| 338,558 | |
|
|
|
| |
Total liabilities | |
| 17,161,550 | | | |
|
| |
| 16,295,724 | |
|
|
|
| |
Stockholders' equity | |
| 2,728,605 | | | |
|
| |
| 2,541,856 | |
|
|
|
| |
Total liabilities and stockholders' equity | | $ | 19,890,155 | | | |
|
| | $ | 18,837,580 | |
|
|
|
| |
Net interest income | | | | | $ | 422,295 |
|
| |
|
| | $ | 418,156 |
|
| |
Interest rate spread | | | | | | |
| 3.05 | % |
|
| |
|
|
| 3.07 | % |
Cost of funds | | | | | | |
| 0.24 | % |
|
| |
|
|
| 0.65 | % |
Net interest margin | | | | | | |
| 3.17 | % |
|
| |
|
|
| 3.32 | % |
(1) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 21%.
(2) Rates and yields are annualized and calculated from actual, not rounded amounts in thousands, which appear above.
(3) Nonaccrual loans are included in average loans outstanding.
(4) Interest income on loans includes $19.8$12.6 million and $18.2$19.8 million for the nine months ended September 30, 20202021 and 2019,2020, respectively, in accretion of the fair market value adjustments related to acquisitions.
(5) Interest expense on time deposits includes $24,000 and $110,000 and $684,000for the nine months ended September 30, 20202021 and 2019,2020, respectively, in accretion of the fair market value adjustments related to acquisitions.
(6) Interest expense on borrowings includes $445,000$603,000 and $237,000$445,000 for the nine months ended September 30, 20202021 and 2019,2020, respectively, in amortization of the fair market value adjustments related to acquisitions.
-69--61-
The table below presents changes in interest income and interest expense and distinguishes between the changes related to increases or decreases in average outstanding balances of interest-earning assets and interest-bearing liabilities (volume), and the changes related to increases or decreases in average interest rates on such assets and liabilities (rate). Changes attributable to both volume and rate have been allocated proportionally. Results, on a taxable equivalent basis, are as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | Three Months Ended |
| Nine Months Ended | | Three Months Ended |
| Nine Months Ended | ||||||||||||||||||||||||||||
| | September 30, 2020 vs. September 30, 2019 |
| September 30, 2020 vs. September 30, 2019 | | September 30, 2021 vs. September 30, 2020 |
| September 30, 2021 vs. September 30, 2020 | ||||||||||||||||||||||||||||
| | Increase (Decrease) Due to Change in: |
| Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: |
| Increase (Decrease) Due to Change in: | ||||||||||||||||||||||||||||
|
| Volume |
| Rate |
| Total |
| Volume |
| Rate |
| Total |
| Volume |
| Rate |
| Total |
| Volume |
| Rate |
| Total | ||||||||||||
Earning Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Taxable | | $ | 494 | | $ | (2,844) | | $ | (2,350) | | $ | (94) | | $ | (5,795) | | $ | (5,889) | | $ | 2,711 | | $ | (1,756) | | $ | 955 | | $ | 6,791 | | $ | (7,859) | | $ | (1,068) |
Tax-exempt | |
| 1,587 | |
| (882) | |
| 705 | |
| 1,324 | |
| (1,202) | |
| 122 | |
| 2,475 | |
| (881) | |
| 1,594 | |
| 9,041 | |
| (3,658) | |
| 5,383 |
Total securities | |
| 2,081 | |
| (3,726) | |
| (1,645) | |
| 1,230 | |
| (6,997) | |
| (5,767) | |
| 5,186 | |
| (2,637) | |
| 2,549 | |
| 15,832 | |
| (11,517) | |
| 4,315 |
Loans, net (1) | |
| 24,335 | |
| (42,171) | |
| (17,836) | |
| 64,803 | |
| (91,422) | |
| (26,619) | |
| (8,559) | |
| (4,786) | |
| (13,345) | |
| 5,886 | |
| (54,920) | |
| (49,034) |
Other earning assets | |
| 819 | |
| (2,172) | |
| (1,353) | |
| 2,608 | |
| (3,743) | |
| (1,135) | |
| 231 | |
| (207) | |
| 24 | |
| 527 | |
| (1,612) | |
| (1,085) |
Total earning assets | | $ | 27,235 | | $ | (48,069) | | $ | (20,834) | | $ | 68,641 | | $ | (102,162) | | $ | (33,521) | | $ | (3,142) | | $ | (7,630) | | $ | (10,772) | | $ | 22,245 | | $ | (68,049) | | $ | (45,804) |
Interest-Bearing Liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest-bearing deposits: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Transaction and money market accounts | | $ | 3,274 | | $ | (14,979) | | $ | (11,705) | | $ | 8,540 | | $ | (28,927) | | $ | (20,387) | | $ | 287 | | $ | (3,470) | | $ | (3,183) | | $ | 2,511 | | $ | (23,557) | | $ | (21,046) |
Regular savings | |
| 32 | |
| (170) | |
| (138) | |
| 56 | |
| (730) | |
| (674) | |
| 27 | |
| (100) | |
| (73) | |
| 89 | |
| (329) | |
| (240) |
Time Deposits (2) | |
| (923) | |
| (2,515) | |
| (3,438) | |
| 1,580 | |
| (664) | |
| 916 | |
| (1,699) | |
| (4,776) | |
| (6,475) | |
| (4,682) | |
| (15,772) | |
| (20,454) |
Total interest-bearing deposits | |
| 2,383 | |
| (17,664) | |
| (15,281) | |
| 10,176 | |
| (30,321) | |
| (20,145) | |
| (1,385) | |
| (8,346) | |
| (9,731) | |
| (2,082) | |
| (39,658) | |
| (41,740) |
Other borrowings (3) | |
| (2,457) | |
| (3,973) | |
| (6,430) | |
| (7,973) | |
| (12,348) | |
| (20,321) | |
| (4,180) | |
| 2,769 | |
| (1,411) | |
| (15,400) | |
| 7,197 | |
| (8,203) |
Total interest-bearing liabilities | |
| (74) | |
| (21,637) | |
| (21,711) | |
| 2,203 | |
| (42,669) | |
| (40,466) | |
| (5,565) | |
| (5,577) | |
| (11,142) | |
| (17,482) | |
| (32,461) | |
| (49,943) |
Change in net interest income | | $ | 27,309 | | $ | (26,432) | | $ | 877 | | $ | 66,438 | | $ | (59,493) | | $ | 6,945 | | $ | 2,423 | | $ | (2,053) | | $ | 370 | | $ | 39,727 | | $ | (35,588) | | $ | 4,139 |
(1)(1) The rate-related change in interest income on loans includes the impact of higher accretion of $362,000 for the three month change and lower accretion of $7.2 million for the nine month change of the acquisition-related fair market value adjustments of $1.2 million for the three month change, and higher accretion of $1.6 million for the nine month change, respectively.adjustments.
(2)(2) The rate-related change in interest expense on deposits includes the impact of lower accretion of the acquisition-related fair market value adjustments of $153,000$34,000 and $574,000$86,000 for the three-and-nine-month change, respectively.
(3)(3) The rate-related change in interest expense on other borrowings includes the impact of higher amortization of the acquisition-related fair market value adjustments of $70,000$36,000 and $208,000$158,000 for the three-and-nine-month change, respectively.
The Company’s net interest margin (FTE) includes the impact of acquisition accounting fair value adjustments. The impact of net accretion related to acquisition accounting fair value adjustments for the first, threesecond and third quarters of 2019,2020, and the first, threesecond and third quarters of 20202021 are reflected in the following table (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| Deposit |
| Borrowings |
| | |
| | |
| | |
| | |
| | | ||
| | Loan | | Accretion | | Accretion | | | | | Loan | | Deposit | | Borrowings | | | | ||||||
| | Accretion | | (Amortization) | | (Amortization) | | Total | | Accretion | | Accretion (Amortization) | | Amortization | | Total | ||||||||
For the quarter ended March 31, 2019 | | $ | 5,557 | | $ | 292 | | $ | (70) | | $ | 5,779 | ||||||||||||
For the quarter ended June 30, 2019 | | | 7,659 | | | 213 | | | (70) | | | 7,802 | ||||||||||||
For the quarter ended September 30, 2019 | | | 5,018 | | | 179 | | | (97) | | | 5,100 | ||||||||||||
For the quarter ended March 31, 2020 | | | 9,528 | | | 50 | | | (138) | | | 9,440 | | $ | 9,528 | | $ | 50 | | $ | (138) | | $ | 9,440 |
For the quarter ended June 30, 2020 | | | 6,443 | | | 34 | | | (140) | | | 6,337 | | | 6,443 | | | 34 | | | (140) | | | 6,337 |
For the quarter ended September 30, 2020 | | | 3,814 | | | 26 | | | (167) | | | 3,673 | | | 3,814 | | | 26 | | | (167) | | | 3,673 |
For the quarter ended March 31, 2021 | | | 4,287 | | | 20 | | | (198) | | | 4,109 | ||||||||||||
For the quarter ended June 30, 2021 | | | 4,132 | | | 12 | | | (202) | | | 3,942 | ||||||||||||
For the quarter ended September 30, 2021 | | | 4,176 | | | (8) | | | (203) | | | 3,965 |
-70--62-
Noninterest Income
| | | | | | | | | | | | |
| | For the Three Months Ended | | | | | |
| ||||
| | September 30, | | Change |
| |||||||
|
| 2021 |
| 2020 |
| $ | | % |
| |||
| | (Dollars in thousands) |
| |||||||||
Noninterest income: | | | | | | | | | | | | |
Service charges on deposit accounts | | $ | 7,198 | | $ | 6,041 | | $ | 1,157 | | 19.2 | % |
Other service charges, commissions, and fees | |
| 1,534 | |
| 1,621 | |
| (87) | | (5.4) | % |
Interchange fees | |
| 2,203 | |
| 1,979 | |
| 224 | | 11.3 | % |
Fiduciary and asset management fees | |
| 7,029 | |
| 6,045 | |
| 984 | | 16.3 | % |
Mortgage banking income | |
| 4,818 | |
| 8,897 | |
| (4,079) | | (45.8) | % |
Gains on securities transactions | |
| 9 | |
| 18 | |
| (9) | | (50.0) | % |
Bank owned life insurance income | |
| 2,727 | |
| 3,421 | |
| (694) | | (20.3) | % |
Loan-related interest rate swap fees | |
| 1,102 | |
| 3,170 | |
| (2,068) | | (65.2) | % |
Other operating income | |
| 3,318 | |
| 3,215 | |
| 103 | | 3.2 | % |
Total noninterest income | | $ | 29,938 | | $ | 34,407 | | $ | (4,469) | | (13.0) | % |
Noninterest income decreased $4.5 million or 13.0% to $29.9 million for the quarter ended September 30, 2021, compared to $34.4 million for the quarter ended September 30, 2020. The decrease was primarily driven by a decrease in mortgage banking income of $4.1 million due to lower mortgage origination volumes and a decrease in loan-related interest swap income of $2.1 million due to lower transaction volumes. Partially offsetting these decreases was an increase of $1.2 million in service charges on deposit accounts and an increase of $1.0 million in fiduciary and asset management fees due to growth in assets under management.
| | | | | | | | | | | | |
| | For the Nine Months Ended | | | | | |
| ||||
| | September 30, | | Change |
| |||||||
|
| 2021 |
| 2020 |
| $ | | % |
| |||
| | (Dollars in thousands) |
| |||||||||
Noninterest income: | | | | | | | | | | | | |
Service charges on deposit accounts | | $ | 19,314 | | $ | 18,549 | | $ | 765 | | 4.1 | % |
Other service charges, commissions, and fees | |
| 4,970 | |
| 4,600 | |
| 370 | | 8.0 | % |
Interchange fees | |
| 6,252 | |
| 5,300 | |
| 952 | | 18.0 | % |
Fiduciary and asset management fees | |
| 20,323 | |
| 17,543 | |
| 2,780 | | 15.8 | % |
Mortgage banking income | |
| 17,692 | |
| 16,744 | |
| 948 | | 5.7 | % |
Gains on securities transactions | |
| 87 | |
| 12,293 | |
| (12,206) | | (99.3) | % |
Bank owned life insurance income | |
| 8,202 | |
| 7,498 | |
| 704 | | 9.4 | % |
Loan-related interest rate swap fees | |
| 4,176 | | | 12,602 | | | (8,426) | | (66.9) | % |
Other operating income | |
| 8,372 | | | 4,116 | | | 4,256 | | 103.4 | % |
Total noninterest income | | $ | 89,388 | | $ | 99,245 | | $ | (9,857) | | (9.9) | % |
Noninterest income decreased $9.9 million or 9.9% to $89.4 million for the nine months ended September 30, 2021, compared to $99.2 million for the nine months ended September 30, 2020. Excluding gains on securities transactions and losses related to balance sheet repositioning, adjusted operating noninterest income(+) for the nine months ended September 30, 2021 remained comparable with a slight decrease of $580,000 or 0.7% compared to the nine months ended September 30, 2020. Key changes from the first nine months of 2020 to the same period during 2021 related to fiduciary and asset management fees increasing $2.8 million due to growth in assets under management and other operating income increasing primarily due to the change in unrealized gains on equity method investments of approximately $4.3 million. Partially offsetting these increases was a decrease in loan-related interest swap income of $8.4 million due to lower transaction volumes.
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Noninterest Expense
| | | | | | | | | | | | |
| | For the Three Months Ended | | | | | |
| ||||
| | September 30, | | Change |
| |||||||
|
| 2021 |
| 2020 |
| $ | | % |
| |||
| | (Dollars in thousands) |
| |||||||||
Noninterest expense: | | | | | | | | | | | | |
Salaries and benefits | | $ | 53,534 | | $ | 49,000 | | $ | 4,534 | | 9.3 | % |
Occupancy expenses | |
| 7,251 | |
| 7,441 | |
| (190) | | (2.6) | % |
Furniture and equipment expenses | |
| 4,040 | |
| 3,895 | |
| 145 | | 3.7 | % |
Technology and data processing | |
| 7,534 | |
| 6,564 | |
| 970 | | 14.8 | % |
Professional services | |
| 3,792 | |
| 2,914 | |
| 878 | | 30.1 | % |
Marketing and advertising expense | |
| 2,548 | |
| 2,631 | |
| (83) | | (3.2) | % |
FDIC assessment premiums and other insurance | |
| 2,172 | |
| 1,811 | |
| 361 | | 19.9 | % |
Other taxes | |
| 4,432 | |
| 4,124 | |
| 308 | | 7.5 | % |
Loan-related expenses | |
| 1,503 | |
| 2,314 | |
| (811) | | (35.0) | % |
Amortization of intangible assets | |
| 3,381 | |
| 4,053 | |
| (672) | | (16.6) | % |
Other expenses | |
| 5,156 | |
| 8,475 | |
| (3,319) | | (39.2) | % |
Total noninterest expense | | $ | 95,343 | | $ | 93,222 | | $ | 2,121 | | 2.3 | % |
Noninterest expense increased $2.1 million or 2.3% to $95.3 million for the quarter ended September 30, 2021 compared to $93.2 million for the quarter ended September 30, 2020. The increase was mainly driven by higher salaries and benefits of $4.5 million, technology and data processing of approximately $1.0 million, and professional services of approximately $878,000. Other expenses decreased $3.3 million, primarily due to a decrease in expenses associated with the Company’s 2020 expense reduction plans, which totaled $2.6 million for the quarter ended September 30, 2020, and primarily included branch closure costs that were not incurred during the third quarter of 2021.
| | | | | | | | | | | | |
| | For the Nine Months Ended | | | | | |
| ||||
| | September 30, | | Change |
| |||||||
|
| 2021 |
| 2020 |
| $ | | % |
| |||
| | (Dollars in thousands) |
| |||||||||
Noninterest expense: | | | | | | | | | | | | |
Salaries and benefits | | $ | 156,959 | | $ | 149,013 | | $ | 7,946 | | 5.3 | % |
Occupancy expenses | |
| 21,705 | |
| 21,798 | |
| (93) | | (0.4) | % |
Furniture and equipment expenses | |
| 11,919 | |
| 11,042 | |
| 877 | | 7.9 | % |
Technology and data processing | |
| 21,657 | |
| 19,187 | |
| 2,470 | | 12.9 | % |
Professional services | |
| 13,161 | |
| 9,211 | |
| 3,950 | | 42.9 | % |
Marketing and advertising expense | |
| 7,330 | |
| 7,413 | |
| (83) | | (1.1) | % |
FDIC assessment premiums and other insurance | |
| 6,798 | |
| 7,578 | |
| (780) | | (10.3) | % |
Other taxes | |
| 13,303 | |
| 12,364 | |
| 939 | | 7.6 | % |
Loan-related expenses | |
| 5,289 | |
| 7,512 | |
| (2,223) | | (29.6) | % |
Amortization of intangible assets | |
| 10,679 | |
| 12,676 | |
| (1,997) | | (15.8) | % |
Loss on debt extinguishment | | | 14,695 | | | 10,306 | | | 4,389 | | 42.6 | % |
Other expenses | |
| 15,756 | |
| 23,581 | |
| (7,825) | | (33.2) | % |
Total noninterest expense | | $ | 299,251 | | $ | 291,681 | | $ | 7,570 | | 2.6 | % |
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Noninterest Income
| | | | | | | | | | | | |
| | For the Three Months Ended | | | | | |
| ||||
| | September 30, | | Change |
| |||||||
|
| 2020 |
| 2019(1) |
| $ | | % |
| |||
| | (Dollars in thousands) |
| |||||||||
Noninterest income: | | | | | | | | | | | | |
Service charges on deposit accounts | | $ | 6,041 | | $ | 7,675 | | $ | (1,634) | | (21.3) | % |
Other service charges, commissions, and fees | |
| 1,621 | |
| 1,513 | |
| 108 | | 7.1 | % |
Interchange fees | |
| 1,979 | |
| 2,108 | |
| (129) | | (6.1) | % |
Fiduciary and asset management fees | |
| 6,045 | |
| 6,082 | |
| (37) | | (0.6) | % |
Mortgage banking income | |
| 8,897 | |
| 3,374 | |
| 5,523 | | 163.7 | % |
Gains on securities transactions | |
| 18 | |
| 7,104 | |
| (7,086) | | (99.7) | % |
Bank owned life insurance income | |
| 3,421 | |
| 2,062 | |
| 1,359 | | 65.9 | % |
Loan-related interest rate swap fees | |
| 3,170 | |
| 5,480 | |
| (2,310) | | (42.2) | % |
Other operating income | |
| 3,215 | |
| 12,708 | |
| (9,493) | | (74.7) | % |
Total noninterest income | | $ | 34,407 | | $ | 48,106 | | $ | (13,699) | | (28.5) | % |
(1) Amounts exclude discontinued operations. Refer to Note 14 "Segment Reporting & Discontinued Operations" in Item 1 "Financial Statements", of this Quarterly Report for further discussion regarding discontinued operations.
Noninterest income decreased $13.7expense increased $7.6 million or 28.5%,2.6% to $34.4 million for the quarter ended September 30, 2020 compared to $48.1 million for the quarter ended September 30, 2019. The decrease in the third quarter of 2020 was primarily driven by approximately $9.3 million in life insurance proceeds received during the third quarter of 2019 related to a Xenith-acquired loan that had been charged off prior to the Company’s acquisition of Xenith. In addition, there was a decline of $7.1 million in gains on securities transactions, a decline of $2.3 million in loan-related interest rate swap income due to lower transaction volumes, and a decline in service charges on deposit accounts of $1.6 million primarily due to lower NSF and overdraft fees. Partially offsetting these decreases was an increase in mortgage banking income of $5.5 million primarily due to increased mortgage loan origination volumes due to the current low interest rate environment, and an increase in bank owned life insurance income of $1.4 million primarily related to death benefit proceeds received during the third quarter of 2020.
| | | | | | | | | | | | |
| | For the Nine Months Ended | | | | | |
| ||||
| | September 30, | | Change |
| |||||||
|
| 2020 |
| 2019(1) |
| $ | | % |
| |||
| | (Dollars in thousands) |
| |||||||||
Noninterest income: | | | | | | | | | | | | |
Service charges on deposit accounts | | $ | 18,549 | | $ | 22,331 | | $ | (3,782) | | (16.9) | % |
Other service charges, commissions, and fees | |
| 4,600 | |
| 4,879 | |
| (279) | | (5.7) | % |
Interchange fees | |
| 5,300 | |
| 12,765 | |
| (7,465) | | (58.5) | % |
Fiduciary and asset management fees | |
| 17,543 | |
| 16,834 | |
| 709 | | 4.2 | % |
Mortgage banking income | |
| 16,744 | |
| 7,614 | |
| 9,130 | | 119.9 | % |
Gains on securities transactions | |
| 12,293 | |
| 7,306 | |
| 4,987 | | 68.3 | % |
Bank owned life insurance income | |
| 7,498 | |
| 6,191 | |
| 1,307 | | 21.1 | % |
Loan-related interest rate swap fees | |
| 12,602 | | | 10,656 | | | 1,946 | | 18.3 | % |
Other operating income | |
| 4,116 | | | 15,045 | | | (10,929) | | (72.6) | % |
Total noninterest income | | $ | 99,245 | | $ | 103,621 | | $ | (4,376) | | (4.2) | % |
(1) Amounts exclude discontinued operations. Refer to Note 14 "Segment Reporting & Discontinued Operations" in Item 1 "Financial Statements", of this Quarterly Report for further discussion regarding discontinued operations.
Noninterest income decreased $4.4 million, or 4.2%, to $99.2$299.3 million for the nine months ended September 30, 20202021, compared to $103.6 million for the nine months ended September 30, 2019. The decrease was primarily driven by approximately $9.3 million in life insurance proceeds received during the third quarter of 2019 related to a Xenith-acquired loan that had been charged off prior to the Company’s acquisition of Xenith. In addition, there was a decline in service charges on deposit accounts of $3.8 million primarily due to lower NSF and overdraft fees, and a decline of $7.5 million in interchange fees
-71-
primarily due to reduced debit card interchange transaction fees as a result of the Durbin Amendment which was effective for the Company on July 1, 2019. Partially offsetting these decreases was a $5.0 million increase in gains on securities transactions, an increase of $1.9 million in loan related interest rate swap income, and an increase in bank owned life insurance income of $1.3 million primarily related to death benefit proceeds received during the third quarter of 2020. In addition, mortgage banking income increased $9.1 million primarily due to increased mortgage loan origination volumes due to the current low interest rate environment.
Noninterest Expense
| | | | | | | | | | | | |
| | For the Three Months Ended | | | | | |
| ||||
| | September 30, | | Change |
| |||||||
|
| 2020 |
| 2019(1) |
| $ | | % |
| |||
| | (Dollars in thousands) |
| |||||||||
Noninterest expense: | | | | | | | | | | | | |
Salaries and benefits | | $ | 49,000 | | $ | 49,718 | | $ | (718) | | (1.4) | % |
Occupancy expenses | |
| 7,441 | |
| 7,493 | |
| (52) | | (0.7) | % |
Furniture and equipment expenses | |
| 3,895 | |
| 3,719 | |
| 176 | | 4.7 | % |
Printing, postage, and supplies | |
| 904 | |
| 1,268 | |
| (364) | | (28.7) | % |
Technology and data processing | |
| 6,564 | |
| 5,787 | |
| 777 | | 13.4 | % |
Professional services | |
| 2,914 | |
| 2,681 | |
| 233 | | 8.7 | % |
Marketing and advertising expense | |
| 2,631 | |
| 2,600 | |
| 31 | | 1.2 | % |
FDIC assessment premiums and other insurance | |
| 1,811 | |
| 381 | |
| 1,430 | | 375.3 | % |
Other taxes | |
| 4,124 | |
| 3,971 | |
| 153 | | 3.9 | % |
Loan-related expenses | |
| 2,314 | |
| 2,566 | |
| (252) | | (9.8) | % |
OREO and credit-related expenses | |
| 413 | |
| 1,005 | |
| (592) | | (58.9) | % |
Amortization of intangible assets | |
| 4,053 | |
| 4,764 | |
| (711) | | (14.9) | % |
Training and other personnel costs | |
| 746 | |
| 1,618 | |
| (872) | | (53.9) | % |
Merger-related costs | |
| — | |
| 2,435 | |
| (2,435) | | (100.0) | % |
Rebranding expense | | | — | | | 1,133 | | | (1,133) | | (100.0) | % |
Loss on debt extinguishment | | | — | | | 16,397 | | | (16,397) | | (100.0) | % |
Other expenses | |
| 6,412 | |
| 4,151 | |
| 2,261 | | 54.5 | % |
Total noninterest expense | | $ | 93,222 | | $ | 111,687 | | $ | (18,465) | | (16.5) | % |
(1) Amounts exclude discontinued operations. Refer to Note 14 "Segment Reporting & Discontinued Operations" in Item 1 "Financial Statements", of this Quarterly Report for further discussion regarding discontinued operations.
Noninterest expense decreased $18.5 million, or 16.5%, to $93.2 million for the quarter ended September 30, 2020 compared to $111.7 million for the quarter ended September 30, 2019. Excluding merger-related costs, amortization of intangible assets, and rebranding-related costs, operating noninterest expense(2) for the quarter ended September 30, 2020 decreased $14.2 million, or 13.7%, compared to the third quarter of 2019. The decrease in the third quarter of 2020 was primarily driven by the recognition of an approximately $16.4 million loss on debt extinguishment resulting from the repayment of approximately $140.0 million in FHLB advances and the termination of the related cash flow hedges in the third quarter of 2019. This decrease was partially offset by an increase in FDIC assessment premiums of $1.4 million. Noninterest expense also included approximately $2.6 million in costs related to the Company’s expense reduction plans, including the closure of 14 branches in September 2020, approximately $639,000 in costs related to the Company’s response to COVID-19, and marketing expenses related to donations made by the Company to support organizations that fight the injustices of inequality and contribute to change in our communities.
(2) Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about this non-GAAP financial measure, including a reconciliation of these measures to the most directly comparable financial measures calculated in accordance with GAAP.
-72-
| | | | | | | | | | | | |
| | For the Nine Months Ended | | | | | |
| ||||
| | September 30, | | Change |
| |||||||
|
| 2020 |
| 2019(1) |
| $ | | % |
| |||
| | (Dollars in thousands) |
| |||||||||
Noninterest expense: | | | | | | | | | | | | |
Salaries and benefits | | $ | 149,013 | | $ | 148,116 | | $ | 897 | | 0.6 | % |
Occupancy expenses | |
| 21,798 | |
| 22,427 | |
| (629) | | (2.8) | % |
Furniture and equipment expenses | |
| 11,042 | |
| 10,656 | |
| 386 | | 3.6 | % |
Printing, postage, and supplies | |
| 3,194 | |
| 3,763 | |
| (569) | | (15.1) | % |
Technology and data processing | |
| 19,187 | |
| 17,203 | |
| 1,984 | | 11.5 | % |
Professional services | |
| 9,211 | |
| 8,269 | |
| 942 | | 11.4 | % |
Marketing and advertising expense | |
| 7,413 | |
| 7,891 | |
| (478) | | (6.1) | % |
FDIC assessment premiums and other insurance | |
| 7,578 | |
| 5,620 | |
| 1,958 | | 34.8 | % |
Other taxes | |
| 12,364 | |
| 11,779 | |
| 585 | | 5.0 | % |
Loan-related expenses | |
| 7,512 | |
| 7,250 | |
| 262 | | 3.6 | % |
OREO and credit-related expenses | |
| 1,512 | |
| 3,162 | |
| (1,650) | | (52.2) | % |
Amortization of intangible assets | |
| 12,676 | |
| 13,919 | |
| (1,243) | | (8.9) | % |
Training and other personnel costs | |
| 3,192 | |
| 4,240 | |
| (1,048) | | (24.7) | % |
Merger-related costs | |
| — | |
| 26,928 | |
| (26,928) | | (100.0) | % |
Rebranding expense | |
| — | |
| 5,553 | |
| (5,553) | | (100.0) | % |
Loss on debt extinguishment | | | 10,306 | | | 16,397 | | | (6,091) | | (37.1) | % |
Other expenses | |
| 15,683 | |
| 10,849 | |
| 4,834 | | 44.6 | % |
Total noninterest expense | | $ | 291,681 | | $ | 324,022 | | $ | (32,341) | | (10.0) | % |
(1) Amounts exclude discontinued operations. Refer to Note 14 "Segment Reporting & Discontinued Operations" in Item 1 "Financial Statements", of this Quarterly Report for further discussion regarding discontinued operations.
Noninterest expense decreased $32.3 million, or 10.0%, to $291.7 million for the nine months ended September 30, 2020 compared to $324.0 million for the nine months ended September 30, 2019.2020. Excluding merger-related costs, amortization of intangible assets and rebranding-related costs,losses on debt extinguishment, adjusted operating noninterest expense(2)(+) for the nine months ended September 30, 20202021 increased $1.4$5.2 million or 0.5%,1.9% compared to the same period in 2019. Thenine months ended September 30, 2020. The increase was primarily driven by $6.0an increase of $7.9 million in salaries and benefits due to higher wages, contract labor costs, and performance based variable incentive compensation, $4.0 million in professional services costs due to an increase in legal fees and costs related to strategic projects, and $2.5 million in technology and data processing expenses. These increases were partially offset by a decrease in other operating expenses driven by a decrease in loan-related expenses of $2.2 million due to lower third-party lending costs, and a decrease of $2.3 million in OREO and credit-related expenses, reflecting the impact of $1.8 million in gains on the sale of closed branches recorded as a reduction in other expenses in the current year and also reflecting the impact of the Company’s continued low levels of nonperforming assets.
Noninterest expense reduction plans, includingfor the nine months ended September 30, 2021 included $1.2 million in real-estate related branch closure of 14 branches incosts, compared to $4.9 million during the nine months ended September 2020, and30, 2020.
Noninterest expense for the nine months ended September 30, 2021 included approximately $1.6 million$500,000 in costs related to the Company’s response to COVID-19, incurred during the nine months ended September 30, 2020. In addition, both technology and data processing costs and FDIC assessment premiums increased by $2.0 million. Noninterest expense also included the recognition of an approximately $10.3compared to $1.6 million loss on debt extinguishment during the nine months ended September 30, 2020, resulting fromand approximately $640,000 during the prepayment of approximately $200.0 millionnine months ended September 30, 2021 in long-term FHLB advances.The increasesexpenses associated with PPP loan forgiveness processing, specific to technology, digital and contract worker spending, which were partially offset by a declinenot incurred in OREO and credit-related expenses of approximately $1.7 million due to lower OREO valuation adjustments, and a decline in training and personnel costs of $1.0 million.the prior period.
(2) Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about this non-GAAP
financial measure, including a reconciliation of these measures to the most directly comparable financial measures
calculated in accordance with GAAP.
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Income Taxes
The provision for income taxes is based upon the results of operations, adjusted for the effect of certain tax-exempt income and non-deductible expenses. In addition, certain items of income and expense are reported in different periods for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate.
The Bank is not subject to a state income tax in its primary place of business (Virginia). The Company’s other subsidiaries are subject to state income taxes and have historically generated losses for state income tax purposes. State net operating loss carryovers will begin to expire after 2026.
The effective tax rate for the three months ended September 30, 2021 and 2020 was 18.0% and 2019 was 15.3% and 16.8%, respectively. The effective tax rate for the nine months ended September 30, 2021 and 2020 was 17.8% and 2019 was 15.1% and 16.0%, respectively. The decreaseincrease in the effective tax rates is primarily due to the lower proportion of tax-exempt income to pre-tax income.income in the 2021 periods.
-65-
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Overview
Assets
At September 30, 2020,2021, total assets were $19.9 billion, an increase of $2.4 billion,$307.2 million or approximately 18.0%2.1% (annualized), from $17.5$19.6 billion at December 31, 2019. The increase2020. Total assets have remained relatively consistent from December 31, 2020 to September 30, 2021, with loans declining due to PPP forgiveness and the negative impacts of increased loan paydowns, cash and cash equivalents increasing due to excess liquidity, and net growth in assets was primarily a result of both organic and PPP loan growth.the investment securities portfolio.
Loans held for investment (net of deferred fees and costs) were $14.4$13.1 billion, including $466.6 million in PPP loans, at September 30, 2020, an increase2021, a decrease of $1.8 billion,$881.7 million or 18.8%8.4% (annualized), from December 31, 2019. 2020. Excluding the effects of the PPP(+), loans held for investment (net of deferred fees and costs) increased $171.7decreased $168.8 million or 1.8% (annualized) during this period. Quarterly average loans increased $2.1 billion, or 17.3%, forFor the quarter ended September 30, 20202021, quarterly average loans decreased $907.0 million compared to the quarter ended September 30, 2019. 2020. Excluding the effects of the PPP(+), quarterly average loans for the quarter ended September 30, 2021 increased $480.2$44.0 million or 3.9%0.3% from the prior year. quarter ended September 30, 2020. Refer to "Loan Portfolio" within Item 2 and Note 43 "Loans and Allowance for Loan and Lease Losses" in Part I, of Item I1 for additional information on the Company’s loan activity. Refer to "Non-GAAP Financial Measures" within Item 2 for additional information on PPP adjusted impacts, including a reconciliation of this non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP.
Liabilities and Stockholders’ Equity
At September 30, 2020,2021, total liabilities were $17.3$17.2 billion, an increase of $2.2 billion$321.3 million from $15.1$16.9 billion at December 31, 2019.2020.
Total deposits were $15.6$16.6 billion at September 30, 2020,2021, an increase of $2.3 billion,$899.4 million or approximately 22.8%7.6% (annualized), from December 31, 2019. Quarterly average deposits increased $2.8 billion, or 21.6%, for2020. For the quarter ended September 30, 20202021, quarterly average deposits increased $1.1 billion or 7.3% compared to the quarter ended September 30, 20192020 primarily due to additional liquidity of bank customers due to higher levels of government assistance programs responding to the impact of PPP loan related deposits and government stimulus.COVID-19 pandemic. Refer to “Deposits” within this Item 2 for further discussion on this topic.
Total short-term and long-term borrowings decreased from $840.7 million at December 31, 2020 to $385.8 million at September 30, 2021. The Company prepaid a $200.0 million long-term FHLB advance during the first quarter of 2021. At September 30, 2021, the Company no longer has any federal funds purchased or short-term advances with the FHLB as compared to $150.0 million and $100.0 million at December 31, 2020, respectively. Refer to Note 6 “Borrowings” in Part I of Item I for further discussion on this topic.
At September 30, 2021, stockholders’ equity was $2.7 billion, an increasea decrease of $147.8$14.1 million from December 31, 2019. The increase in stockholders’ equity is primarily related to the issuance and sale of Series A preferred stock that took place on June 9, 2020. Refer to “Capital Resources” within this Item 2, andas well as Note 109 "Stockholders’ Equity" in Part I, of Item I1 for additional information on the Company’s capital ratios.
For information related to the Company’s stock repurchase activity and the Repurchase Program, please refer to Note 9 “Stockholders’ Equity” in Part I, Item 1 and Part II, Item 2 of this Quarterly Report.
The Company declared and paid a cash dividend of $0.25$0.28 per common share during both the third quarter of 2020 and the third quarter of 2019.2021. Dividends for the nine months ended September 30, 20202021 were $0.75,$0.81, an increase of $0.04$0.06 per common share, or 5.6%8.0% compared to the nine months ended September 30, 2019.2020. During the third quarter of 2020,2021, the Board also declared and paid a quarterly dividend on the outstanding shares of Series A Preferred Stock of $156.60$171.88 per share (equivalent to $0.39$0.43 per outstanding depositary share). Dividends paid on the outstanding shares of Series A Preferred Stock for the nine months ended September 30, 2021 were $515.64 per share (equivalent to $1.29 per outstanding depositary share).
-74--66-
Securities
At September 30, 2020,2021, the Company had total investments in the amount of $3.1$3.8 billion, or 15.6%19.1% of total assets, as compared to $2.6$3.2 billion, or 15.0%16.2% of total assets, at December 31, 2019.2020. The Company seeks to diversify its portfolio to minimize risk. It focuses on purchasing mortgage-backed securities for cash flow and reinvestment opportunities and securities issued by states and political subdivisions due to the tax benefits and the higher yield offered from these securities. The majority of the Company’s mortgage-backed securities are agency-backed securities, which have a government guarantee. The investment portfolio has a high percentage of municipal securities; therefore, the Company earns a higher taxable equivalent yield on its portfolio as compared to many of its peers. For information regarding the hedge transaction related to available for sale securities, see Note 98 "Derivatives" in Part I, of Item I1 of this Quarterly Report.
The table below sets forth a summary of the AFS securities, HTM securities, and restricted stock as of the dates indicated (dollars in thousands):
| | | | | | | | | | | | |
|
| September 30, |
| December 31, |
| September 30, |
| December 31, | ||||
| | 2020 | | 2019 | | 2021 | | 2020 | ||||
Available for Sale: |
| |
|
| |
|
| |
|
| |
|
U.S. government and agency securities | | $ | 13,878 | | $ | 21,320 | | $ | 74,818 | | $ | 13,394 |
Obligations of states and political subdivisions | |
| 796,856 | |
| 447,091 | |
| 998,881 | |
| 837,326 |
Corporate and other bonds | |
| 148,918 | |
| 135,959 | |
| 149,028 | |
| 151,078 |
Mortgage-backed securities | |
| | |
| | |
| | |
| |
Commercial | | | 388,965 | | | 425,047 | | | 440,342 | | | 388,684 |
Residential | | | 1,093,102 | | | 912,949 | | | 1,530,471 | | | 1,148,312 |
Total mortgage-back securities | | | 1,482,067 | | | 1,337,996 | | | 1,970,813 | | | 1,536,996 |
Other securities | |
| 1,621 | |
| 3,079 | |
| 1,636 | |
| 1,625 |
Total AFS securities, at fair value | |
| 2,443,340 | |
| 1,945,445 | |
| 3,195,176 | |
| 2,540,419 |
Held to Maturity: | |
|
| |
|
| |
|
| |
|
|
U.S. government and agency securities | | | 2,767 | | | 2,813 | | | 2,637 | | | 2,751 |
Obligations of states and political subdivisions, at carrying value | |
| 538,352 | |
| 545,148 | ||||||
Obligations of states and political subdivisions | |
| 528,157 | |
| 536,767 | ||||||
Mortgage-backed securities | |
| | |
| | |
| | |
| |
Commercial | | | 5,542 | | | 7,183 | | | 4,928 | | | 5,333 |
Residential | | | — | | | — | | | — | | | — |
Total mortgage-back securities | | | 5,542 | | | 7,183 | | | 4,928 | | | 5,333 |
Total held to maturity securities | |
| 546,661 | |
| 555,144 | ||||||
Total held to maturity securities, at carrying value | |
| 535,722 | |
| 544,851 | ||||||
Restricted Stock: | |
|
| |
|
| |
|
| |
|
|
Federal Reserve Bank stock | |
| 67,032 | |
| 66,964 | |
| 67,032 | |
| 67,032 |
FHLB stock | |
| 45,184 | |
| 63,884 | |
| 9,793 | |
| 27,750 |
Total restricted stock, at cost | |
| 112,216 | |
| 130,848 | |
| 76,825 | |
| 94,782 |
Total investments | | $ | 3,102,217 | | $ | 2,631,437 | | $ | 3,807,723 | | $ | 3,180,052 |
-75--67-
The following table summarizes the contractual maturity of AFS securities at fair value and their weighted average yields as of September 30, 20202021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| 1 Year or |
| | |
| 5 – 10 |
| Over 10 |
| | |
|
| 1 Year or |
| | |
| 5 – 10 |
| Over 10 |
| | |
| ||||||
| | Less | | 1 - 5 Years | | Years | | Years | | Total |
| | Less | | 1 - 5 Years | | Years | | Years | | Total |
| ||||||||||
U.S. government and agency securities |
| |
|
| |
|
| |
|
| |
|
| |
| |
| |
|
| |
|
| |
|
| |
|
| |
| |
Amortized cost | | $ | — | | $ | — | | $ | 13,463 | | $ | — | | $ | 13,463 | | | $ | — | | $ | — | | $ | 74,214 | | $ | — | | $ | 74,214 | |
Fair value | |
| — | |
| — | |
| 13,878 | |
| — | |
| 13,878 | | |
| — | |
| — | |
| 74,818 | |
| — | |
| 74,818 | |
Weighted average yield (1) | |
| — | % |
| — | % |
| 2.29 | % | | — | % |
| 2.29 | % | |
| — | % |
| — | % |
| 1.48 | % | | — | % |
| 1.48 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Obligations of states and political subdivisions: | |
| | |
| | | | | | | | | | | | |
| | |
| | | | | | | | | | | |
Amortized cost | | $ | 2,484 | | $ | 9,030 | | $ | 47,380 | | $ | 701,042 | | $ | 759,936 | | | $ | 2,276 | | $ | 16,261 | | $ | 44,408 | | $ | 909,042 | | $ | 971,987 | |
Fair value | |
| 2,505 | |
| 9,401 | |
| 49,785 | |
| 735,165 | |
| 796,856 | | |
| 2,325 | |
| 16,897 | |
| 46,525 | |
| 933,134 | |
| 998,881 | |
Weighted average yield (1) | |
| 5.27 | % |
| 4.02 | % |
| 2.66 | % |
| 3.00 | % |
| 2.99 | % | |
| 4.93 | % |
| 2.78 | % |
| 2.63 | % |
| 2.77 | % |
| 2.77 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds and other securities: | |
| | |
| | | | | | | | | | | | |
| | |
| | | | | | | | | | | |
Amortized cost | | $ | 1,621 | | $ | 5,208 | | $ | 103,292 | | $ | 38,938 | | $ | 149,059 | | | $ | 1,636 | | $ | 12,799 | | $ | 111,069 | | $ | 21,283 | | $ | 146,787 | |
Fair value | |
| 1,621 | |
| 5,155 | |
| 105,178 | |
| 38,585 | |
| 150,539 | | |
| 1,636 | |
| 13,127 | |
| 114,498 | |
| 21,403 | |
| 150,664 | |
Weighted average yield (1) | |
| 1.48 | % |
| 2.28 | % |
| 4.50 | % |
| 1.80 | % |
| 3.68 | % | |
| 0.72 | % |
| 4.14 | % |
| 4.11 | % |
| 1.81 | % |
| 3.74 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage backed securities: | |
| | |
| | | | | | | | | | | | |
| | |
| | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortized cost | | $ | 24,445 | | $ | 113,359 | | $ | 26,713 | | $ | 206,548 | | $ | 371,065 | | | $ | 7,886 | | $ | 134,472 | | $ | 23,887 | | $ | 267,487 | | $ | 433,732 | |
Fair value | |
| 24,676 | |
| 120,246 | |
| 27,757 | |
| 216,286 | |
| 388,965 | | |
| 7,941 | |
| 138,840 | |
| 24,277 | |
| 269,284 | |
| 440,342 | |
Weighted average yield (1) | |
| 2.66 | % |
| 2.68 | % |
| 2.72 | % |
| 2.86 | % |
| 2.78 | % | |
| 2.35 | % |
| 3.23 | % |
| 2.46 | % |
| 2.23 | % |
| 2.56 | % |
Residential | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortized cost | | $ | 31 | | $ | 13,247 | | $ | 60,653 | | $ | 985,462 | | $ | 1,059,393 | | | $ | 25 | | $ | 11,861 | | $ | 63,299 | | $ | 1,448,351 | | $ | 1,523,536 | |
Fair value | | | 32 | | | 13,312 | | | 62,208 | | | 1,017,550 | | | 1,093,102 | | | | 25 | | | 11,972 | | | 65,322 | | | 1,453,152 | | | 1,530,471 | |
Weighted average yield (1) | | | 2.90 | % | | 2.74 | % | | 2.54 | % | | 2.21 | % | | 2.23 | % | | | 2.78 | % | | 2.47 | % | | 2.33 | % | | 1.75 | % | | 1.78 | % |
Total mortgage-backed securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortized cost | | $ | 24,476 | | $ | 126,606 | | $ | 87,366 | | $ | 1,192,010 | | $ | 1,430,458 | | | $ | 7,911 | | $ | 146,333 | | $ | 87,186 | | $ | 1,715,838 | | $ | 1,957,268 | |
Fair value | | | 24,708 | | | 133,558 | | | 89,965 | | | 1,233,836 | | | 1,482,067 | | | | 7,966 | | | 150,812 | | | 89,599 | | | 1,722,436 | | | 1,970,813 | |
Weighted average yield (1) | | | 2.66 | % | | 2.69 | % | | 2.60 | % | | 2.32 | % | | 2.38 | % | | | 2.36 | % | | 3.16 | % | | 2.37 | % | | 1.83 | % | | 1.95 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total AFS securities: | |
| | |
| | | | | | | | | | | | |
| | |
| | | | | | | | | | | |
Amortized cost | | $ | 28,581 | | $ | 140,844 | | $ | 251,501 | | $ | 1,931,990 | | $ | 2,352,916 | | | $ | 11,823 | | $ | 175,393 | | $ | 316,877 | | $ | 2,646,163 | | $ | 3,150,256 | |
Fair value | |
| 28,834 | |
| 148,114 | |
| 258,806 | |
| 2,007,586 | |
| 2,443,340 | | |
| 11,927 | |
| 180,836 | |
| 325,440 | |
| 2,676,973 | |
| 3,195,176 | |
Weighted average yield (1) | |
| 2.82 | % |
| 2.76 | % |
| 3.37 | % |
| 2.55 | % |
| 2.66 | % | |
| 2.63 | % |
| 3.20 | % |
| 2.81 | % |
| 2.15 | % |
| 2.28 | % |
(1) Yields on tax-exempt securities have been computed on a tax-equivalent basis.
-76--68-
The following table summarizes the contractual maturity of HTM securities at carrying value and their weighted average yields as of September 30, 20202021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| 1 Year or |
| | |
| 5 – 10 |
| Over 10 |
| | |
|
| 1 Year or |
| | |
| 5 – 10 |
| Over 10 |
| | |
| ||||||
| | Less | | 1 - 5 Years | | Years | | Years | | Total |
| | Less | | 1 - 5 Years | | Years | | Years | | Total |
| ||||||||||
U.S. government and agency securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Carrying value | | $ | — | | $ | 1,580 | | $ | 1,187 | | $ | — | | $ | 2,767 | | | $ | 1,526 | | $ | — | | $ | 1,111 | | $ | — | | $ | 2,637 | |
Fair value | | | — | | | 1,571 | | | 1,182 | | | — | | | 2,753 | | | | 1,518 | | | — | | | 1,113 | | | — | | | 2,631 | |
Weighted average yield (1) | | | — | % | | 4.60 | % | | 4.17 | % | | — | % | | 4.41 | % | | | 4.27 | % | | — | % | | 4.05 | % | | — | % | | 4.18 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Obligations of states and political subdivisions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Carrying value | | $ | 1,005 | | $ | 7,496 | | $ | 562 | | $ | 529,289 | | $ | 538,352 | | | $ | 1,975 | | $ | 5,890 | | $ | 12,950 | | $ | 507,342 | | $ | 528,157 | |
Fair value | |
| 1,024 | |
| 7,865 | |
| 614 | |
| 596,410 | |
| 605,913 | | |
| 1,994 | |
| 6,142 | |
| 14,978 | |
| 567,806 | |
| 590,920 | |
Weighted average yield (1) | |
| 3.35 | % |
| 2.49 | % |
| 3.16 | % |
| 4.10 | % |
| 4.07 | % | |
| 2.32 | % |
| 2.60 | % |
| 4.35 | % |
| 4.10 | % |
| 4.08 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage backed securities: | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortized cost | | $ | — | | $ | — | | $ | — | | $ | 5,542 | | $ | 5,542 | | | $ | — | | $ | — | | $ | — | | $ | 4,928 | | $ | 4,928 | |
Fair value | | | — | | | — | | | — | | | 5,507 | | | 5,507 | | | | — | | | — | | | — | | | 4,901 | | | 4,901 | |
Weighted average yield (1) | | | — | % | | — | % | | — | % | | 4.98 | % | | 4.98 | % | | | — | % | | — | % | | — | % | | 4.92 | % | | 4.92 | % |
Residential | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortized cost | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
Fair value | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | — | | | — | |
Weighted average yield (1) | | | — | % | | — | % | | — | % | | — | % | | — | % | | | — | % | | — | % | | — | % | | — | % | | — | % |
Total mortgage-backed securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortized cost | | $ | — | | $ | — | | $ | — | | $ | 5,542 | | $ | 5,542 | | | $ | — | | $ | — | | $ | — | | $ | 4,928 | | $ | 4,928 | |
Fair value | |
| — | |
| — | |
| — | |
| 5,507 | |
| 5,507 | | |
| — | |
| — | |
| — | |
| 4,901 | |
| 4,901 | |
Weighted average yield (1) | |
| — | % |
| — | % |
| — | % |
| 4.98 | % |
| 4.98 | % | |
| — | % |
| — | % |
| — | % |
| 4.92 | % |
| 4.92 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total HTM securities: | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Carrying value | | $ | 1,005 | | $ | 9,076 | | $ | 1,749 | | $ | 534,831 | | $ | 546,661 | | | $ | 3,501 | | $ | 5,890 | | $ | 14,061 | | $ | 512,270 | | $ | 535,722 | |
Fair value | |
| 1,024 | |
| 9,436 | |
| 1,796 | |
| 601,917 | |
| 614,173 | | |
| 3,512 | |
| 6,142 | |
| 16,091 | |
| 572,707 | |
| 598,452 | |
Weighted average yield (1) | |
| 3.35 | % |
| 2.86 | % |
| 3.84 | % |
| 4.11 | % |
| 4.09 | % | |
| 3.17 | % |
| 2.60 | % |
| 4.33 | % |
| 4.10 | % |
| 4.09 | % |
(1) Yields on tax-exempt securities have been computed on a tax-equivalent basis.
As of September 30, 2020,2021, the Company maintained a diversified municipal bond portfolio with approximately 74%64% of its holdings in general obligation issues and the majority of the remainder backed by revenue bonds. Issuances within the statesstate of Texas and Virginia represented 25% and 22%20% of the municipal portfolio, respectively;portfolio; no other state had a concentration above 10%. Substantially all municipal holdings are considered investment grade. When purchasing municipal securities, the Company focuses on strong underlying ratings for general obligation issuers or bonds backed by essential service revenues.
-77--69-
Liquidity
Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, money market investments, federal funds sold, loans held for sale, and securities and loans maturing or re-pricing within one year. Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary through federal funds lines with several correspondent banks, a line of credit with the FHLB, the Federal Reserve Discount Window, the purchase of brokered certificates of deposit, corporate line of credit with a large correspondent bank, and debt and capital issuance. Management considers the Company’s overall liquidity to be sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.
On June 9, 2020, the Company announced the closing of an offering ofissued and sold 6,900,000 depositary shares, each representing a 1/400th ownership interest in a share of its Series A preferred stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share), including 900,000 depositary shares pursuant to the exercise in full by the underwriters of their option to purchase additional depositary shares. The total net proceeds to the Company were approximately $166.4 million, after deducting the underwriting discount and other offering expenses payable by the Company. The Company intends to use the net proceeds of the offering for general corporate purposes in the ordinary course of its business. General corporate purposes may include repayment of debt, loan funding, acquisitions, additions to working capital, capital expenditures and investments in the Company’s subsidiaries.
As a result of adverse market conditions including the impacts of COVID-19, theThe Company has continued to see elevated customer deposit balances. These increased balances are due primarily toas a result of the combinationimpacts of COVID-19 as a result of government stimulus programs, and customer expense and savings habits in response to the pandemic.programs. As a result of the increases in customer deposits, the Company has reduced its wholesale borrowings during 2020.2020 and in the first three quarters of 2021. The Company considers a portion of the increases in customer deposits to be temporary, which it expects will result in outflows in subsequent quartersquarters.
During the second quarter of 2020, in connection with the loans originated as part of the PPP, the Company borrowed under the Federal Reserve’s PPPLF. Under the terms of the PPPLF, prior to that program’s expiration, the Company cancould borrow funds which are secured by the Company’s PPP loans. As of September 30,During 2020, the Company’s outstanding advances underborrowings pursuant to the PPPLF were $189.9fluctuated; however, at its peak, the Company borrowed $200.5 million. The interest ratePPPLF expired on July 30, 2021, following an extension by the advances is fixed at a rateFederal Reserve from the previously scheduled expiration date of 0.35% through the advance maturities in April 2022. The Company’s available borrowing capacity under the PPPLF as of SeptemberJune 30, 2020 was $1.4 billion.2021.
During the second quarter of 2020, inIn response to the low market interest rate environment, in February 2021 the Company prepaid approximatelya $200.0 million in long-term FHLB advances,advance, which resulted in a pre-tax prepayment penalty of approximately $10.3 million, and sold several securities, which resulted in a gain of approximately $10.3$14.7 million.
As of September 30, 2020,2021, liquid assets totaled $6.2$6.8 billion or 31.3%,34.3% of total assets, and liquid earning assets totaled $6.1$6.6 billion or 34.0%37.0% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows. As of September 30, 2020,2021, loan payments of approximately $5.2$5.4 billion or 36.4%40.7% of total loans are scheduled to matureexpected within one year based on contractual maturity,terms, adjusted for expected prepayments, and approximately $441.7$380.3 million or 14.2%10.0% of total securities are scheduled to maturebe paid down within one year.year based on contractual terms, adjusted for expected prepayments.
Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary. Refer to Note 7 “Borrowings” in Part I of Item 1 forFor additional information and the available balances on various lines of credit.credit, please refer to Note 6 “Borrowings” in the “Notes to the Consolidated Financial Statements” contained in Part I of Item 1 of this Quarterly Report. In addition to lines of credit, the Bank may also borrow additional funds by purchasing certificates of deposit through a nationally recognized network of financial institutions. Refer to “Deposits” within this Item 2 forFor additional information and outstanding balances on purchased certificates of deposits.deposits, please refer to “Deposits” within this Item 2.
-78--70-
Loan Portfolio
Loans held for investment, net of deferred fees and costs, were $13.1 billion at September 30, 2021, $14.0 billion at December 31, 2020, and $14.4 billion at September 30, 2020, $12.6 billion at December 31, 2019, and $12.3 billion at September 30, 2019.2020. Commercial & industrial loans and commercial real estateestate-non-owner occupied loans represented the Company’s largest categories at September 30, 2020.2021. Commercial and industrial loans included approximately $1.6 billion$455.8 million in loans from the PPP loan program. When adjusting for the impactprogram as of PPP loans, commercial real estate – non-owner occupied loans remained the largest category.September 30, 2021.
The following table presents the Company’s composition of loans held for investment, net of deferred fees and costs, in dollar amounts and as a percentage of total gross loans as of and for the quarterquarters ended (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
| | September 30, 2021 | | June 30, 2021 | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 |
| ||||||||||||||||||||||||||||||
Commercial loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||
Construction and Land Development |
| $ | 1,207,190 |
| 8.4 | % | $ | 1,247,939 |
| 8.7 | % | $ | 1,318,252 |
| 10.3 | % | $ | 1,250,924 |
| 9.9 | % | $ | 1,201,149 |
| 9.8 | % |
| $ | 877,351 |
| 6.7 | % | $ | 838,722 |
| 6.1 | % | $ | 884,303 |
| 6.2 | % | $ | 925,798 |
| 6.6 | % | $ | 1,207,190 |
| 8.4 | % |
Commercial Real Estate - Owner Occupied | |
| 2,107,333 |
| 14.7 | % |
| 2,067,087 |
| 14.4 | % |
| 2,051,904 |
| 16.1 | % |
| 2,041,243 |
| 16.2 | % |
| 1,979,052 |
| 16.1 | % | |
| 2,027,299 |
| 15.4 | % |
| 2,069,658 |
| 15.1 | % |
| 2,083,155 |
| 14.6 | % |
| 2,128,909 |
| 15.2 | % |
| 2,107,333 |
| 14.7 | % |
Commercial Real Estate - Non-Owner Occupied | |
| 3,497,929 |
| 24.3 | % |
| 3,455,125 |
| 24.1 | % |
| 3,328,012 |
| 26.1 | % |
| 3,286,098 |
| 26.1 | % |
| 3,198,580 |
| 26.0 | % | |
| 3,730,720 |
| 28.4 | % |
| 3,712,607 |
| 27.1 | % |
| 3,671,471 |
| 25.7 | % |
| 3,657,562 |
| 26.1 | % |
| 3,497,929 |
| 24.3 | % |
Multifamily Real Estate | |
| 731,582 |
| 5.1 | % |
| 717,719 |
| 5.0 | % |
| 679,390 |
| 5.3 | % |
| 633,743 |
| 5.0 | % |
| 659,946 |
| 5.4 | % | |
| 776,287 |
| 5.9 | % |
| 860,081 |
| 6.3 | % |
| 842,906 |
| 5.9 | % |
| 814,745 |
| 5.8 | % |
| 731,582 |
| 5.1 | % |
Commercial & Industrial | |
| 3,536,249 |
| 24.6 | % |
| 3,555,971 |
| 24.9 | % |
| 2,177,932 |
| 17.1 | % |
| 2,114,033 |
| 16.8 | % |
| 2,058,133 |
| 16.7 | % | |
| 2,580,190 |
| 19.6 | % |
| 2,990,622 |
| 21.8 | % |
| 3,599,884 |
| 25.2 | % |
| 3,263,460 |
| 23.3 | % |
| 3,536,249 |
| 24.6 | % |
Residential 1-4 Family - Commercial | |
| 696,944 |
| 4.8 | % |
| 715,384 |
| 5.0 | % |
| 721,800 |
| 5.7 | % |
| 724,337 |
| 5.7 | % |
| 721,185 |
| 5.9 | % | |
| 624,347 |
| 4.8 | % |
| 637,485 |
| 4.7 | % |
| 658,051 |
| 4.6 | % |
| 671,949 |
| 4.8 | % |
| 696,944 |
| 4.8 | % |
Other Commercial | |
| 535,143 |
| 4.1 | % |
| 600,276 |
| 4.4 | % |
| 529,748 |
| 3.7 | % |
| 489,975 |
| 3.5 | % |
| 494,084 |
| 3.4 | % | ||||||||||||||||||||||||||
Total Commercial Loans | | $ | 11,151,337 | | 84.9 | % | $ | 11,709,451 | | 85.5 | % | $ | 12,269,518 | | 85.9 | % | $ | 11,952,398 | | 85.3 | % | $ | 12,271,311 | | 85.3 | % | ||||||||||||||||||||||||||
Consumer loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||
Residential 1-4 Family - Consumer | |
| 830,144 |
| 5.8 | % |
| 841,051 |
| 5.9 | % |
| 854,550 |
| 6.7 | % |
| 890,503 |
| 7.1 | % |
| 913,245 |
| 7.4 | % | | $ | 822,971 |
| 6.3 | % | $ | 823,355 |
| 6.0 | % | $ | 816,916 |
| 5.7 | % | $ | 822,866 |
| 5.8 | % | $ | 830,144 |
| 5.8 | % |
Residential 1-4 Family - Revolving | |
| 618,320 |
| 4.3 | % |
| 627,765 |
| 4.4 | % |
| 652,135 |
| 5.1 | % |
| 659,504 |
| 5.2 | % |
| 660,963 |
| 5.4 | % | |
| 557,803 |
| 4.2 | % |
| 559,014 |
| 4.1 | % |
| 563,786 |
| 4.0 | % |
| 596,996 |
| 4.2 | % |
| 618,320 |
| 4.3 | % |
Auto | |
| 387,417 |
| 2.7 | % |
| 380,053 |
| 2.7 | % |
| 358,039 |
| 2.8 | % |
| 350,419 |
| 2.8 | % |
| 328,456 |
| 2.7 | % | |
| 425,436 |
| 3.2 | % |
| 411,073 |
| 3.0 | % |
| 406,349 |
| 2.9 | % |
| 401,324 |
| 2.9 | % |
| 387,417 |
| 2.7 | % |
Consumer | |
| 276,023 |
| 1.9 | % |
| 311,362 |
| 2.2 | % |
| 352,572 |
| 2.8 | % |
| 372,853 |
| 3.0 | % |
| 386,848 |
| 3.1 | % | |
| 182,039 |
| 1.4 | % |
| 195,036 |
| 1.4 | % |
| 215,711 |
| 1.5 | % |
| 247,730 |
| 1.8 | % |
| 276,023 |
| 1.9 | % |
Other Commercial | |
| 494,084 |
| 3.4 | % |
| 389,190 |
| 2.7 | % |
| 274,255 |
| 2.0 | % |
| 287,279 |
| 2.2 | % |
| 199,440 |
| 1.5 | % | ||||||||||||||||||||||||||
Total Consumer Loans | | $ | 1,988,249 | | 15.1 | % | $ | 1,988,478 | | 14.5 | % | $ | 2,002,762 | | 14.1 | % | $ | 2,068,916 | | 14.7 | % | $ | 2,111,904 | | 14.7 | % | ||||||||||||||||||||||||||
Total loans held for investment | | $ | 14,383,215 |
| 100.0 | % | $ | 14,308,646 |
| 100.0 | % | $ | 12,768,841 |
| 100.0 | % | $ | 12,610,936 |
| 100.0 | % | $ | 12,306,997 |
| 100.0 | % | | $ | 13,139,586 |
| 100.0 | % | $ | 13,697,929 |
| 100.0 | % | $ | 14,272,280 |
| 100.0 | % | $ | 14,021,314 |
| 100.0 | % | $ | 14,383,215 |
| 100.0 | % |
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The following table presents the remaining maturities, based on contractual maturity, by loan type and by rate type (variable or fixed), as of September 30, 20202021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| Variable Rate |
| Fixed Rate | ||||||||||||||
|
| Total |
| Less than 1 |
| | |
| | |
| More than 5 |
| | |
| | |
| More than 5 | ||||
| | Maturities | | year | | Total | | 1-5 years | | years | | Total | | 1-5 years | | years | ||||||||
Construction and Land Development | | $ | 1,207,190 | | $ | 536,238 | | $ | 417,054 | | $ | 288,204 | | $ | 128,850 | | $ | 253,898 | | $ | 163,324 | | $ | 90,574 |
Commercial Real Estate - Owner Occupied | |
| 2,107,333 | |
| 172,574 | |
| 620,319 | |
| 120,517 | |
| 499,802 | |
| 1,314,440 | |
| 633,692 | |
| 680,748 |
Commercial Real Estate - Non-Owner Occupied | |
| 3,497,929 | |
| 414,575 | |
| 1,590,183 | |
| 603,718 | |
| 986,465 | |
| 1,493,171 | |
| 1,095,756 | |
| 397,415 |
Multifamily Real Estate | |
| 731,582 | |
| 74,989 | |
| 397,660 | |
| 78,449 | |
| 319,211 | |
| 258,933 | |
| 196,620 | |
| 62,313 |
Commercial & Industrial | |
| 3,536,249 | |
| 431,867 | |
| 857,897 | |
| 679,191 | |
| 178,706 | |
| 2,246,485 | |
| 1,959,064 | |
| 287,421 |
Residential 1-4 Family - Commercial | |
| 696,944 | |
| 108,451 | |
| 150,064 | |
| 21,226 | |
| 128,838 | |
| 438,429 | |
| 354,419 | |
| 84,010 |
Residential 1-4 Family - Consumer | |
| 830,144 | |
| 5,213 | |
| 326,391 | |
| 2,357 | |
| 324,034 | |
| 498,540 | |
| 15,809 | |
| 482,731 |
Residential 1-4 Family - Revolving | |
| 618,320 | |
| 52,370 | |
| 551,420 | |
| 61,693 | |
| 489,727 | |
| 14,530 | |
| 1,190 | |
| 13,340 |
Auto | |
| 387,417 | |
| 2,707 | |
| — | |
| — | |
| — | |
| 384,710 | |
| 162,898 | |
| 221,812 |
Consumer | |
| 276,023 | |
| 23,932 | |
| 19,369 | |
| 16,243 | |
| 3,126 | |
| 232,722 | |
| 107,253 | |
| 125,469 |
Other Commercial | |
| 494,084 | |
| 41,676 | |
| 82,574 | |
| 7,611 | |
| 74,963 | |
| 369,834 | |
| 209,030 | |
| 160,804 |
Total loans held for investment | | $ | 14,383,215 | | $ | 1,864,592 | | $ | 5,012,931 | | $ | 1,879,209 | | $ | 3,133,722 | | $ | 7,505,692 | | $ | 4,899,055 | | $ | 2,606,637 |
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| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| Variable Rate |
| Fixed Rate | ||||||||||||||
|
| Total |
| Less than 1 |
| | |
| | |
| More than 5 |
| | |
| | |
| More than 5 | ||||
| | Maturities | | year | | Total | | 1-5 years | | years | | Total | | 1-5 years | | years | ||||||||
Construction and Land Development | | $ | 877,351 | | $ | 395,868 | | $ | 328,559 | | $ | 267,643 | | $ | 60,916 | | $ | 152,924 | | $ | 92,457 | | $ | 60,467 |
Commercial Real Estate - Owner Occupied | |
| 2,027,299 | |
| 172,203 | |
| 630,565 | |
| 133,535 | |
| 497,030 | |
| 1,224,531 | |
| 539,635 | |
| 684,896 |
Commercial Real Estate - Non-Owner Occupied | |
| 3,730,720 | |
| 466,112 | |
| 1,885,139 | |
| 779,672 | |
| 1,105,467 | |
| 1,379,469 | |
| 1,018,486 | |
| 360,983 |
Multifamily Real Estate | |
| 776,287 | |
| 71,924 | |
| 469,310 | |
| 131,776 | |
| 337,534 | |
| 235,053 | |
| 168,287 | |
| 66,766 |
Commercial & Industrial | |
| 2,580,190 | |
| 402,254 | |
| 1,096,894 | |
| 923,938 | |
| 172,956 | |
| 1,081,042 | |
| 784,645 | |
| 296,397 |
Residential 1-4 Family - Commercial | |
| 624,347 | |
| 100,988 | |
| 133,031 | |
| 27,656 | |
| 105,375 | |
| 390,328 | |
| 296,776 | |
| 93,552 |
Residential 1-4 Family - Consumer | |
| 822,971 | |
| 1,043 | |
| 224,994 | |
| 2,045 | |
| 222,949 | |
| 596,934 | |
| 13,015 | |
| 583,919 |
Residential 1-4 Family - Revolving | |
| 557,803 | |
| 37,532 | |
| 501,633 | |
| 40,830 | |
| 460,803 | |
| 18,638 | |
| 1,573 | |
| 17,065 |
Auto | |
| 425,436 | |
| 3,080 | |
| — | |
| — | |
| — | |
| 422,356 | |
| 176,417 | |
| 245,939 |
Consumer | |
| 182,039 | |
| 8,045 | |
| 32,016 | |
| 28,676 | |
| 3,340 | |
| 141,978 | |
| 52,264 | |
| 89,714 |
Other Commercial | |
| 535,143 | |
| 33,996 | |
| 82,719 | |
| 9,228 | |
| 73,491 | |
| 418,428 | |
| 176,395 | |
| 242,033 |
Total loans held for investment | | $ | 13,139,586 | | $ | 1,693,045 | | $ | 5,384,860 | | $ | 2,344,999 | | $ | 3,039,861 | | $ | 6,061,681 | | $ | 3,319,950 | | $ | 2,741,731 |
The Company remains committed to originating soundly underwritten loans to qualifying borrowers within its markets. The Company is focused on providing community-based financial services and discourages the origination of portfolio loans outside of its principal trade areas. As reflected in the loan table, at September 30, 2020,2021, the largest components of the Company’s loan portfolio consisted of commercial real estate and commercial & industrial and construction and land development loans. The risks attributable to these concentrations are mitigated by the Company’s credit underwriting and monitoring processes, including oversight by a centralized credit administration function and credit policy and risk management committee, as well as seasoned bankers focusing their lending to borrowers with proven track records in markets with which the Company is familiar.
The majority of the Company’sTotal short-term loan portfolio is comprised of segments not disrupted by themodifications related to COVID-19 pandemic. Of those segments disrupted by COVID-19, the hospitality segment makes up the largest portion of the Company’s portfolio (less than 5% of total loans), followed by health care, retail trade, senior living, and restaurants. The Company has no significant exposureare immaterial to the energy, cruise, or passenger aviation sectors.Company as a whole at September 30, 2021.
-80--72-
Asset Quality
Overview
At September 30, 2020,2021, the Company experienced increasesdecreases in NPAs compared to December 31, 2019, primarily due to the inclusion of assets not previously reported as nonperforming that are now considered such under the CECL methodology. Total2020. Accruing past due loan levels as a percentage of total loans held for investment at September 30, 20202021 were down from totalaccruing past due loan levels at December 31, 2019.2020 and September 30, 2020.
Net charge-offs decreased for the nine months ended September 30, 20202021 compared to the nine months ended September 30, 2019.2020. Total net charge-offs as a percentage of total average loans on an annualized basis also decreased for the nine months ended September 30, 20202021 compared to the nine months ended September 30, 2019.2020. The allowance for credit losses increaseddecreased from December 31, 2019,2020 due to lower expected losses than previously estimated as a result of benign credit quality metrics to date, improvements in credit trends particularly during the adoptionthird quarter of ASC 326 as well as a worsening2021, and an improved economic forecast dueoutlook.
The Company believes its continued proactive efforts to effectively manage its loan portfolio, combined with the unprecedented government stimulus and programs and regulatory support, have contributed to the impactsustained historically low levels of COVID-19,NPAs. The Company’s efforts included identifying potential problem credits through early identification and diligent monitoring of specific problem credits where the uncertainty has been realized, or conversely, has been reduced or eliminated. The Company continues to refrain from originating or purchasing loans from foreign entities. The Company selectively originates loans to higher risk borrowers. The Company’s loan portfolio generally does not include exposure to option adjustable rate mortgage products, high loan-to-value ratio mortgages, interest only mortgage loans, subprime mortgage loans or mortgage loans with initial teaser rates, which also led to an increase in the provision for credit losses.are all considered higher risk instruments.
As discussed under “Recent Developments”“Executive Overview” within this Item 2, the pandemic is havingCOVID-19 has had a wide range of economic impacts, including impacts in the Company’s area of operations and on the Company’s clients and borrowers. Whileborrowers, but the Company has not yet experienced material deterioration in asset quality as compared to pre-pandemic performance, the Company does expect that at some point asset quality willbefore COVID-19. The Company’s asset quality may in the future be adversely affectedimpacted to some degree due to pandemic-related bankruptcies, business closures, unemployment,the effects of COVID-19 (including the emergence and other effects. Atimpact of new COVID-19 variants), although at this time it is impossible for the Company to estimate either the timing or the magnitude of any such adverse changes in asset quality. The Company continues to monitor asset quality trends and economic and market conditions for indications that COVID-19 may have more significant impacts on the Company’s asset quality than experienced to date. As of September 30, 2021, the Company’s management believes that the ultimate impact of COVID-19 on the Company’s asset quality will be less severe than initially projected at the start of the pandemic, and the Company’s management anticipates economic activity to increase over the next several quarters.
Nonperforming Assets
At September 30, 2021, NPAs totaled $37.2 million, a decrease of $8.1 million from December 31, 2020. NPAs as a percentage of total outstanding loans at September 30, 2021 were 0.28%, a decrease of 4 basis points from 0.32% at December 31, 2020.
-73-
The following table shows a summary of asset quality balances and related ratios as of and for the quarters ended (dollars in thousands):
| | | | | | | | | | | | | | | | |
|
| September 30, |
| June 30, |
| March 31, |
| December 31, |
| September 30, |
| |||||
|
| 2021 |
| 2021 |
| 2021 |
| 2020 |
| 2020 | | |||||
Nonaccrual loans | | $ | 35,472 | | $ | 36,399 | | $ | 41,866 | | $ | 42,448 | | $ | 39,023 | |
Foreclosed properties | |
| 1,696 | |
| 1,696 | |
| 2,344 | |
| 2,773 | |
| 4,159 | |
Total NPAs | |
| 37,168 | |
| 38,095 | |
| 44,210 | |
| 45,221 | |
| 43,182 | |
Loans past due 90 days and accruing interest | |
| 11,030 | |
| 8,746 | |
| 9,776 | |
| 13,634 | |
| 15,661 | |
Total NPAs and loans past due 90 days and accruing interest | | $ | 48,198 | | $ | 46,841 | | $ | 53,986 | | $ | 58,855 | | $ | 58,843 | |
| | | | | | | | | | | | | | | | |
Performing TDRs | | $ | 11,335 | | $ | 13,053 | | $ | 13,670 | | $ | 13,961 | | $ | 14,515 | |
| | | | | | | | | | | | | | | | |
Balances | |
|
| |
|
| |
|
| |
|
| |
|
| |
Allowance for loan and lease losses | | $ | 101,798 | | $ | 118,261 | | $ | 142,911 | | $ | 160,540 | | $ | 174,122 | |
Average loans, net of deferred fees and costs | |
| 13,451,674 | |
| 13,971,939 | |
| 14,064,123 | |
| 13,777,467 | |
| 14,358,666 | |
Loans, net of deferred fees and costs | |
| 13,139,586 | |
| 13,697,929 | |
| 14,272,280 | |
| 14,021,314 | |
| 14,383,215 | |
| | | | | | | | | | | | | | | | |
Ratios | |
|
| |
|
| |
|
| |
|
| |
|
| |
Nonaccrual loans to total loans | | | 0.27 | % | | 0.27 | % | | 0.29 | % | | 0.30 | % | | 0.27 | % |
NPAs to total loans | |
| 0.28 | % |
| 0.28 | % |
| 0.31 | % |
| 0.32 | % |
| 0.30 | % |
NPAs to total adjusted loans(1) | | | 0.29 | % | | 0.30 | % | | 0.35 | % | | 0.35 | % | | 0.34 | % |
NPAs & loans 90 days past due to total loans | |
| 0.37 | % |
| 0.34 | % |
| 0.38 | % |
| 0.42 | % |
| 0.41 | % |
NPAs to total loans & foreclosed property | |
| 0.28 | % |
| 0.28 | % |
| 0.31 | % |
| 0.32 | % |
| 0.30 | % |
NPAs & loans 90 days past due to total loans & foreclosed property | |
| 0.37 | % |
| 0.34 | % |
| 0.38 | % |
| 0.42 | % |
| 0.41 | % |
(1) Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these non-GAAP financial measures, including a reconciliation of these measures to the most directly comparable financial measures in accordance with GAAP.
The following table shows the activity in nonaccrual loans for the quarters ended (dollars in thousands):
| | | | | | | | | | | | | | | |
|
| September 30, |
| June 30, |
| March 31, |
| December 31, |
| September 30, | |||||
| | 2021 |
| 2021 |
| 2021 |
| 2020 |
| 2020 | |||||
Beginning Balance | | $ | 36,399 | | $ | 41,866 | | $ | 42,448 | | $ | 39,023 | | $ | 39,624 |
Additions | |
| 4,177 | |
| 4,162 | |
| 3,821 | |
| 8,211 | |
| 2,790 |
Net customer payments | |
| (4,719) | |
| (9,307) | |
| (4,133) | |
| (4,640) | |
| (2,803) |
Charge-offs | |
| (385) | |
| (183) | |
| (270) | |
| (146) | |
| (588) |
Loans returning to accruing status | |
| — | |
| (153) | |
| — | |
| — | |
| — |
Transfers to foreclosed property | |
| — | |
| 14 | |
| — | |
| — | |
| — |
Ending Balance | | $ | 35,472 | | $ | 36,399 | | $ | 41,866 | | $ | 42,448 | | $ | 39,023 |
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The following table presents the composition of nonaccrual loans at the quarters ended (dollars in thousands):
| | | | | | | | | | | | | | | |
|
| September 30, |
| June 30, |
| March 31, |
| December 31, |
| September 30, | |||||
| | 2021 |
| 2021 |
| 2021 |
| 2020 |
| 2020 | |||||
Construction and Land Development | | $ | 2,710 | | $ | 2,685 | | $ | 2,637 | | $ | 3,072 | | $ | 3,520 |
Commercial Real Estate - Owner Occupied | |
| 7,786 | |
| 6,969 | |
| 7,016 | |
| 7,128 | |
| 9,267 |
Commercial Real Estate - Non-owner Occupied | |
| 4,174 | |
| 3,026 | |
| 1,958 | |
| 2,317 | |
| 1,992 |
Multifamily Real Estate | | | 113 | | | 113 | | | — | | | 33 | | | 33 |
Commercial & Industrial | |
| 2,062 | |
| 1,908 | |
| 2,023 | |
| 2,107 | |
| 1,592 |
Residential 1-4 Family - Commercial | |
| 2,445 | |
| 4,200 | |
| 9,190 | |
| 9,993 | |
| 5,743 |
Residential 1-4 Family - Consumer | |
| 12,150 | |
| 13,489 | |
| 14,770 | |
| 12,600 | |
| 12,620 |
Residential 1-4 Family - Revolving | |
| 3,723 | |
| 3,726 | |
| 3,853 | |
| 4,629 | |
| 3,664 |
Auto | |
| 255 | |
| 179 | |
| 303 | |
| 500 | |
| 517 |
Consumer | | | 54 | | | 104 | | | 116 | | | 69 | | | 75 |
Total | | $ | 35,472 | | $ | 36,399 | | $ | 41,866 | | $ | 42,448 | | $ | 39,023 |
NPAs at September 30, 2021 also includes $1.7 million in foreclosed property, a decrease of $1.1 million or 38.8% from December 31, 2020. The following table shows the activity in foreclosed property for the quarters ended (dollars in thousands):
| | | | | | | | | | | | | | | |
|
| September 30, |
| June 30, |
| March 31, |
| December 31, |
| September 30, | |||||
| | 2021 |
| 2021 |
| 2021 |
| 2020 |
| 2020 | |||||
Beginning Balance | | $ | 1,696 | | $ | 2,344 | | $ | 2,773 | | $ | 4,159 | | $ | 4,397 |
Additions of foreclosed property | |
| — | |
| 14 | |
| — | |
| — | |
| — |
Valuation adjustments | |
| — | |
| — | |
| — | |
| (35) | |
| — |
Proceeds from sales | |
| — | |
| (572) | |
| (419) | |
| (1,357) | |
| (254) |
Gains (losses) from sales | |
| — | |
| (90) | |
| (10) | |
| 6 | |
| 16 |
Ending Balance | | $ | 1,696 | | $ | 1,696 | | $ | 2,344 | | $ | 2,773 | | $ | 4,159 |
The following table presents the composition of the foreclosed property portfolio at the quarter ended (dollars in thousands):
| | | | | | | | | | | | | | | |
|
| September 30, |
| June 30, |
| March 31, |
| December 31, |
| September 30, | |||||
| | 2021 |
| 2021 |
| 2021 |
| 2020 |
| 2020 | |||||
Land | | $ | 728 | | $ | 728 | | $ | 1,227 | | $ | 1,227 | | $ | 1,238 |
Land Development | |
| 894 | |
| 894 | |
| 894 | |
| 1,323 | |
| 1,965 |
Residential Real Estate | |
| 74 | |
| 74 | |
| 60 | |
| 60 | |
| 793 |
Commercial Real Estate | |
| — | |
| — | |
| 163 | |
| 163 | |
| 163 |
Total | | $ | 1,696 | | $ | 1,696 | | $ | 2,344 | | $ | 2,773 | | $ | 4,159 |
Past Due Loans
At September 30, 2021, total accruing past due loans were $38.8 million or 0.30% of total loans held for investment, compared to $49.8 million or 0.36% of total loans held for investment at December 31, 2020 and $50.9 million or 0.35% of total loans held for investment at September 30, 2020. Of the total past due loans still accruing interest $11.0 million or 0.08% of total loans held for investment were past due 90 days or more at September 30, 2021, compared to $13.6 million or 0.10% of total loans held for investment at December 31, 2020 and $15.6 million or 0.11% of total loans held for investment at September 30, 2020.
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Troubled Debt Restructurings
A modification of a loan’s terms constitutes a TDR if the creditor grants a concession that it would not otherwise consider to the borrower for economic or legal reasons related to the borrower’s financial difficulties. Management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, extension of terms that are considered to be below market, conversion to interest only, principal forgiveness and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.
The total recorded investment in TDRs as ofat September 30, 20202021 was $21.6$18.7 million, an increasea decrease of $2.1$1.9 million or 10.6%,9.3% from $19.5$20.6 million at December 31, 2019 and an increase of $2.8 million, or 15.1%, from $18.7 million at September 30, 2019.2020. Of the $21.6$18.7 million of TDRs at September 30, 2020, $14.52021, $11.3 million or 67.3%,60.6% were considered performing, while the remaining $7.1$7.4 million were considered nonperforming.
Loan Modifications for Borrowers Affected by COVID-19
On March 22, 2020, Of the five federal bank regulatory agencies and the Conference$20.6 million of State Bank Supervisors issued joint
guidance (subsequently revised on April 7, 2020) with respect to loan modifications for borrowers affected by COVID-19 (the “March 22 Joint Guidance”). The March 22 Joint Guidance encourages banks, savings associations, and credit unions to make loan modifications for borrowers affected by COVID-19 and, importantly, assures those financial institutions that they will not (i) receive supervisory criticism for such prudent loan modifications and (ii) be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The federal banking regulators have confirmed with the FASB that short-term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current (i.e., less than 30 days past due on contractual payments) when the modification program was implemented are not considered TDRs.
In addition, Section 4013 of the CARES Act, provides banks, savings associations, and credit unions with the ability to make loan modifications related to COVID-19 without categorizing the loan as a TDR or conducting the analysis to make the determination, which is intended to streamline the loan modification process. Any such suspension is effective for the term of the loan modification; however, the suspension is only permitted for loan modifications made during the effective period of Section 4013 and only for those loans that were not more than thirty days past due as of December 31, 2019.
The Company has made certain loan modifications pursuant to the March 22 Joint Guidance or Section 4013 of the CARES Act and as of September 30, 2020 approximately $769.6 million remain under their modified terms. The majority of the Company’s modifications as of September 30, 2020 were in the commercial real estate portfolios.
The Company’s modification program included payment deferrals and interest only modifications. A majority of the modifications were three-month deferrals.
Nonperforming Assets
At September 30, 2020, NPAs totaled $43.2 million, an increase of $10.2 million from December 31, 2019. NPAs as a percentage of total outstanding loans at September 30, 2020 were 0.30%, an increase of 4 basis points from 0.26%TDRs at December 31, 2019. 2020, $14.0 million or 68.0% were considered performing while the remaining $6.6 million were considered nonperforming. Loans are removed from TDR status in accordance with the established policy described in Note 1 “Summary of Significant Accounting Policies” in the Company’s 2020 Form 10-K.
Net Charge-offs
ExcludingIncluding and excluding the impact of the PPP loans(2)(+), NPAs as a percentagenet charge-offs were $113,000 or less than 0.01% of total outstandingaverage loans were 0.34%,on an
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increase of 8 annualized basis points from December 31, 2019. The Company’s adoption of ASC 326 resulted in a change in the accounting and reporting related to PCI loans which are now defined as PCD and evaluated at the loan level instead of being evaluated in pools under PCI accounting. All prior period nonaccrual and past due loan metrics discussed herein have not been restated for CECL accounting and exclude PCI-related loan balances.
The following table shows a summary of asset quality balances and related ratios as of and for the quarters ended (dollars in thousands):
| | | | | | | | | | | | | | | | |
|
| September 30, |
| June 30, |
| March 31, |
| December 31, |
| September 30, |
| |||||
|
| 2020 |
| 2020 |
| 2020 |
| 2019 |
| 2019 | | |||||
Nonaccrual loans(1) | | $ | 39,023 | | $ | 39,624 | | $ | 44,022 | | $ | 28,232 | | $ | 30,032 | |
Foreclosed properties | |
| 4,159 | |
| 4,397 | |
| 4,444 | |
| 4,708 | |
| 6,385 | |
Total NPAs | |
| 43,182 | |
| 44,021 | |
| 48,466 | |
| 32,940 | |
| 36,417 | |
Loans past due 90 days and accruing interest(1) | |
| 15,661 | |
| 19,255 | |
| 12,876 | |
| 13,396 | |
| 12,036 | |
Total NPAs and loans past due 90 days and accruing interest | | $ | 58,843 | | $ | 63,276 | | $ | 61,342 | | $ | 46,336 | | $ | 48,453 | |
| | | | | | | | | | | | | | | | |
Performing TDRs | | $ | 14,515 | | $ | 15,303 | | $ | 14,865 | | $ | 15,686 | | $ | 15,156 | |
| | | | | | | | | | | | | | | | |
Balances | |
|
| |
|
| |
|
| |
|
| |
|
| |
Allowance for loan and lease losses | | $ | 174,122 | | $ | 169,977 | | $ | 141,043 | | $ | 42,294 | | $ | 43,820 | |
Average loans, net of deferred fees and costs | |
| 14,358,666 | |
| 13,957,711 | |
| 12,593,923 | |
| 12,327,692 | |
| 12,240,254 | |
Loans, net of deferred fees and costs | |
| 14,383,215 | |
| 14,308,646 | |
| 12,768,841 | |
| 12,610,936 | |
| 12,306,997 | |
| | | | | | | | | | | | | | | | |
Ratios | |
|
| |
|
| |
|
| |
|
| |
|
| |
NPAs to total loans | |
| 0.30 | % |
| 0.31 | % |
| 0.38 | % |
| 0.26 | % |
| 0.30 | % |
NPAs to total adjusted loans(2) | | | 0.34 | % | | 0.35 | % | | 0.38 | % | | 0.26 | % | | 0.30 | % |
NPAs & loans 90 days past due to total loans | |
| 0.41 | % |
| 0.44 | % |
| 0.48 | % |
| 0.37 | % |
| 0.39 | % |
NPAs to total loans & foreclosed property | |
| 0.30 | % |
| 0.31 | % |
| 0.38 | % |
| 0.26 | % |
| 0.30 | % |
NPAs & loans 90 days past due to total loans & foreclosed property | |
| 0.41 | % |
| 0.44 | % |
| 0.48 | % |
| 0.37 | % |
| 0.39 | % |
ALL to nonaccrual loans | |
| 446.20 | % |
| 428.97 | % |
| 320.39 | % |
| 149.81 | % |
| 145.91 | % |
ALL to nonaccrual loans & loans 90 days past due | |
| 318.41 | % |
| 288.69 | % |
| 247.89 | % |
| 101.60 | % |
| 104.16 | % |
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The following table shows the activity in nonaccrual loans for the quarters ended (dollars in thousands):
| | | | | | | | | | | | | | | |
|
| September 30, |
| June 30, |
| March 31, |
| December 31, |
| September 30, | |||||
| | 2020 |
| 2020 |
| 2020 |
| 2019 |
| 2019 | |||||
Beginning Balance | | $ | 39,624 | | $ | 44,022 | | $ | 28,232 | | $ | 30,032 | | $ | 27,462 |
Impact of ASC 326 adoption | | | — | | | — | | | 14,381 | | | — | | | — |
Additions | |
| 2,790 | |
| 3,206 | |
| 6,059 | |
| 5,631 | |
| 8,327 |
Net customer payments | |
| (2,803) | |
| (6,524) | |
| (3,451) | |
| (5,741) | |
| (3,612) |
Charge-offs | |
| (588) | |
| (1,088) | |
| (1,199) | |
| (1,690) | |
| (884) |
Loans returning to accruing status | |
| — | |
| 8 | |
| — | |
| — | |
| (1,103) |
Transfers to foreclosed property | |
| — | |
| — | |
| — | |
| — | |
| (158) |
Ending Balance | | $ | 39,023 | | $ | 39,624 | | $ | 44,022 | | $ | 28,232 | | $ | 30,032 |
The following table presents the composition of nonaccrual loans at the quarters ended (dollars in thousands):
| | | | | | | | | | | | | | | |
|
| September 30, |
| June 30, |
| March 31, |
| December 31, |
| September 30, | |||||
| | 2020 |
| 2020 |
| 2020 |
| 2019 |
| 2019 | |||||
Construction and Land Development | | $ | 3,520 | | $ | 3,977 | | $ | 3,234 | | $ | 3,703 | | $ | 7,785 |
Commercial Real Estate - Owner Occupied | |
| 9,267 | |
| 8,924 | |
| 11,250 | |
| 6,003 | |
| 5,684 |
Commercial Real Estate - Non-owner Occupied | |
| 1,992 | |
| 1,877 | |
| 1,642 | |
| 381 | |
| 381 |
Multifamily Real Estate | | | 33 | | | 33 | | | 53 | | | — | | | — |
Commercial & Industrial | |
| 1,592 | |
| 2,708 | |
| 3,431 | |
| 1,735 | |
| 1,585 |
Residential 1-4 Family - Commercial | |
| 5,743 | |
| 5,784 | |
| 7,040 | |
| 4,301 | |
| 3,879 |
Residential 1-4 Family - Consumer | |
| 12,620 | |
| 12,029 | |
| 13,088 | |
| 9,292 | |
| 8,292 |
Residential 1-4 Family - Revolving | |
| 3,664 | |
| 3,626 | |
| 3,547 | |
| 2,080 | |
| 1,641 |
Auto | |
| 517 | |
| 584 | |
| 550 | |
| 563 | |
| 604 |
Consumer | | | 75 | | | 81 | | | 91 | | | 77 | | | 84 |
Other Commercial | |
| — | |
| 1 | |
| 96 | |
| 97 | |
| 97 |
Total | | $ | 39,023 | | $ | 39,624 | | $ | 44,022 | | $ | 28,232 | | $ | 30,032 |
NPAs at September 30, 2020 also included $4.2 million in foreclosed property, a decrease of $549,000, or 11.7%, from December 31, 2019. The following table shows the activity in foreclosed property for the quarters ended (dollars in thousands):
| | | | | | | | | | | | | | | |
|
| September 30, |
| June 30, |
| March 31, |
| December 31, |
| September 30, | |||||
| | 2020 |
| 2020 |
| 2020 |
| 2019 |
| 2019 | |||||
Beginning Balance | | $ | 4,397 | | $ | 4,444 | | $ | 4,708 | | $ | 6,385 | | $ | 6,506 |
Additions of foreclosed property | |
| — | |
| — | |
| 615 | |
| 62 | |
| 645 |
Valuation adjustments | |
| — | |
| — | |
| (44) | |
| (375) | |
| (62) |
Proceeds from sales | |
| (254) | |
| (55) | |
| (854) | |
| (1,442) | |
| (737) |
Gains (losses) from sales | |
| 16 | |
| 8 | |
| 19 | |
| 78 | |
| 33 |
Ending Balance | | $ | 4,159 | | $ | 4,397 | | $ | 4,444 | | $ | 4,708 | | $ | 6,385 |
The following table presents the composition of the foreclosed property portfolio at the quarter ended (dollars in thousands):
| | | | | | | | | | | | | | | |
|
| September 30, |
| June 30, |
| March 31, |
| December 31, |
| September 30, | |||||
| | 2020 |
| 2020 |
| 2020 |
| 2019 |
| 2019 | |||||
Land | | $ | 1,238 | | $ | 1,245 | | $ | 1,251 | | $ | 1,615 | | $ | 1,842 |
Land Development | |
| 1,965 | |
| 1,965 | |
| 1,965 | |
| 1,978 | |
| 2,788 |
Residential Real Estate | |
| 793 | |
| 793 | |
| 834 | |
| 721 | |
| 1,214 |
Commercial Real Estate | |
| 163 | |
| 394 | |
| 394 | |
| 394 | |
| 541 |
Total | | $ | 4,159 | | $ | 4,397 | | $ | 4,444 | | $ | 4,708 | | $ | 6,385 |
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Past Due Loans
At September 30, 2020, total accruing past due loans were $50.9 million, or 0.35% of total loans held for investment, compared to $76.6 million, or 0.61% of total loans held for investment, at December 31, 2019 and $55.1 million, or 0.45% of total loans held for investment, at September 30, 2019. Excluding the impact of the PPP loans(1), past due loans still accruing interest were 0.40% of total loans held for investment at September 30, 2020. Of the total past due loans still accruing interest at September 30, 2020, $15.6 million, or 0.11% of total loans held for investment, were past due 90 days or more, compared to $13.4 million, or 0.11% of total loans held for investment, at December 31, 2019 and $12.0 million, or 0.10% of total loans held for investment, at September 30, 2019.
Net Charge-offs
For the quarter ended September 30, 2020,2021, compared to $1.4 million or 0.04% for the same quarter last year. For the nine months ended September 30, 2021, net charge-offs were $1.4 million or 0.04%0.01% of total average loans on an annualized basis, compared to $7.7$9.7 million or 0.25%,0.09% for the same quarterperiod last year. Excluding the impact of the PPP loans(1)(+), net charge-offs were 0.04%0.01% of total adjusted average loans on an annualized basis. Forbasis for the nine months ended September 30, 2020, net charge-offs were $9.7 million, or 0.09% of total average loans on annualized basis,2021, compared to $16.2 million, or 0.18%, for the same period in 2019. Excluding the impact of the PPP loans(1), net charge-offs were 0.11% of total adjusted average loans on an annualized basis. The majority of net charge-offs in 2020 were related tobasis for the third-party consumer loan portfolio.nine months ended September 30, 2020.
Provision for Credit Losses
The Company recorded a negative provision for credit losses of $18.8 million for the quarter ended September 30, 2020 was2021 a decrease of $25.4 million compared to the provision for credit losses of $6.6 million recorded during the same quarter of 2020. For the nine months ended September 30, 2021, the Company recorded a declinenegative $59.9 million provision for credit losses, a decrease of $2.5$160.8 million compared withto the provision for credit losses of $100.9 million recorded during the same quarterperiod last year. The provision for credit losses for the third quarter of 2020 included $5.62021 reflected a negative provision of $16.3 million in provision for loan losses and $1.0negative $2.5 million in provision for unfunded commitments. The provision for credit losses for the nine months ended September 30, 2020 was $100.9 million compared to $18.2 million for the nine months ended September 30, 2019. The provision for credit losses for the nine months ended September 30, 2020 included $94.0 million in provision for loan losses and $6.9 million in provision for unfunded commitments. The increasedecrease in the provision for credit losses for the nine months ended September 30, 2020as compared to the same periodquarter in 20192020 was due todriven by the impact ofbenign credit impacts since the worseningpandemic began, the significant recovery in the economy since last year, as well as the improvement in the economic forecast due toutilized in estimating the impactACL as of COVID-19 under CECL accounting for credit losses.September 30, 2021.
Allowance for Credit Losses
At September 30, 2020,2021, the ACL was $186.1$109.3 million and included an ALLL of $174.1$101.8 million and an RUC of $12.0$7.5 million. The ACL increased $142.9decreased $61.2 million from December 31, 2019,2020, including a decline in the ALLL of $58.7 million and a decline in the RUC of $2.5 million. The decline in the ACL was primarily due to negative provisions for credit losses that were driven by lower expected losses than previously estimated as a result of benign credit quality metrics to date and an improved economic outlook due to the adoptionroll-out of CECL (the “CECL Day 1 impact”)COVID-19 vaccines, as well as the impactadditional government stimulus inclusive of the worsening economic forecast related to COVID-19 subsequent to the adoption of CECL (the “CECL Day 2 impact”).more PPP funding.
The ALLL increased $131.8 millionACL as a percentage of the total loan portfolio was 0.83% at September 30, 2021 and 1.22% at December 31, 2020. The ACL as a percentage of total adjusted loans(+) decreased 47 bps from December 31, 2019, due2020 to the CECL Day 1 impact of $47.5 million and the CECL Day 2 impact of $84.3 million. 0.86% at September 30, 2021.
The ALLL as a percentage of the total loan portfolio was 1.21%0.77% at September 30, 20202021 and 0.34%1.14% at December 31, 2019.2020. When excluding PPP loans(1)(+), which are 100% guaranteed by the SBA, the ALLL as a percentage of total adjusted loans increased 102decreased 45 bps to 1.36% from December 31, 2019. The ratio of the ALLL to nonaccrual loans was 446.20%0.80% at September 30, 2020 and 149.81%2021 from 1.25% at December 31, 2019.
The ACL as a percentage of the total loan portfolio was 1.29% at September 30, 2020 and 0.34% at December 31, 2019. The ACL as a percentage of adjusted loans(1) increased 112 bps to 1.46% from December 31, 2019.
The RUC increased $11.1 million from December 31, 2019, due to the CECL Day 1 impact of $4.2 million and the CECL Day 2 impact of $6.9 million.2020.
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The following table summarizes activity in the ALLL during the quarters ended (dollars in thousands):
| | | | | | | | | | | | | | | | |
|
| September 30, |
| June 30, |
| March 31, |
| December 31, |
| September 30, |
| |||||
| | 2021 |
| 2021 |
| 2021 |
| 2020 |
| 2020 |
| |||||
ALLL Balance, beginning of period | | $ | 118,261 | | $ | 142,911 | | $ | 160,540 | | $ | 174,122 | | $ | 169,977 | |
Less: Loans charged-off: | |
|
| |
|
| |
|
| |
|
| |
|
| |
Commercial | |
| 967 | |
| 891 | |
| 1,974 | |
| 1,118 | |
| 995 | |
Consumer | |
| 1,299 | |
| 1,054 | |
| 1,667 | |
| 2,268 | |
| 1,983 | |
Total loans charged-off | |
| 2,266 | |
| 1,945 | |
| 3,641 | |
| 3,386 | |
| 2,978 | |
Add: Recoveries: | |
|
| |
|
| |
|
| |
|
| |
|
| |
Commercial | |
| 1,281 | |
| 1,042 | |
| 1,606 | |
| 937 | |
| 718 | |
Consumer | |
| 872 | |
| 834 | |
| 863 | |
| 680 | |
| 848 | |
Total recoveries | |
| 2,153 | |
| 1,876 | |
| 2,469 | |
| 1,617 | |
| 1,566 | |
Net charge-offs | |
| 113 | |
| 69 | |
| 1,172 | |
| 1,769 | |
| 1,412 | |
Add: Provision for loan losses | |
| (16,350) | |
| (24,581) | |
| (16,457) | |
| (11,813) | |
| 5,557 | |
ALLL Balance, end of period | | $ | 101,798 | | $ | 118,261 | | $ | 142,911 | | $ | 160,540 | | $ | 174,122 | |
| | | | | | | | | | | | | | | | |
Total RUC | | $ | 7,500 | | $ | 10,000 | | $ | 12,833 | | $ | 10,000 | | $ | 12,000 | |
Total ACL | | $ | 109,298 | | $ | 128,261 | | $ | 155,744 | | $ | 170,540 | | $ | 186,122 | |
| | | | | | | | | | | | | | | | |
ALLL to loans | |
| 0.77 | % |
| 0.86 | % |
| 1.00 | % |
| 1.14 | % |
| 1.21 | % |
ALLL to adjusted loans(1) | | | 0.80 | % | | 0.92 | % | | 1.12 | % | | 1.25 | % | | 1.36 | % |
ACL to loans | | | 0.83 | % | | 0.94 | % | | 1.09 | % | | 1.22 | % | | 1.29 | % |
ACL to adjusted loans(1) | | | 0.86 | % | | 1.00 | % | | 1.22 | % | | 1.33 | % | | 1.46 | % |
Net charge-offs to average loans | |
| 0.00 | % |
| 0.00 | % |
| 0.03 | % |
| 0.05 | % |
| 0.04 | % |
Net charge-offs to adjusted average loans(1) | | | 0.00 | % | | 0.00 | % | | 0.04 | % | | 0.06 | % | | 0.04 | % |
Provision for loan losses to average loans | |
| (0.48) | % |
| (0.71) | % |
| (0.47) | % |
| (0.33) | % |
| 0.15 | % |
Provision for loan losses to adjusted average loans(1) | | | (0.51) | % |
| (0.77) | % |
| (0.52) | % |
| (0.37) | % |
| 0.17 | % |
(1) Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these non-GAAP financial measures, including a reconciliation of these measures to the most directly comparable financial measures in accordance with GAAP.
The following table shows the ALLL by loan segment and the percentage of the loan portfolio that the related ALLL covers as of the quarters ended (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| June 30, |
| March 31, |
| December 31, |
| September 30, |
| |||||||||||||||
| | 2021 | | 2021 | | 2021 | | 2020 | | 2020 |
| |||||||||||||||
|
| $ |
| % (1) |
| $ |
| % (1) |
| $ |
| % (1) |
| $ |
| % (1) |
| $ |
| % (1) |
| |||||
Commercial | | $ | 74,978 | | 84.9 | % | $ | 89,837 | | 85.5 | % | $ | 106,432 | | 85.9 | % | $ | 117,403 | | 85.3 | % | $ | 126,655 | | 85.3 | % |
Consumer | |
| 26,820 | | 15.1 | % |
| 28,424 | | 14.5 | % |
| 36,479 | | 14.1 | % |
| 43,137 | | 14.7 | % |
| 47,467 | | 14.7 | % |
Total | | $ | 101,798 | | 100.0 | % | $ | 118,261 | | 100.0 | % | $ | 142,911 | | 100.0 | % | $ | 160,540 | | 100.0 | % | $ | 174,122 | | 100.0 | % |
(1) Represents the loan balance divided by total loans held for investment.
-84--77-
The following table summarizes activity in the ALLL during the quarters ended (dollars in thousands):
| | | | | | | | | | | | | | | | |
|
| September 30, |
| June 30, |
| March 31, |
| December 31, |
| September 30, |
| |||||
| | 2020 |
| 2020 |
| 2020 |
| 2019 |
| 2019 |
| |||||
Balance, beginning of period | | $ | 169,977 | | $ | 141,043 | | $ | 42,294 | | $ | 43,820 | | $ | 42,463 | |
Day 1 impact from adoption of CECL | | | — | | | — | | | 47,484 | | | — | | | — | |
Loans charged-off: | |
|
| |
|
| |
|
| |
|
| |
|
| |
Commercial | |
| 995 | |
| 1,590 | |
| 2,968 | |
| 2,092 | |
| 4,184 | |
Consumer | |
| 1,983 | |
| 3,087 | |
| 4,183 | |
| 4,826 | |
| 5,133 | |
Total loans charged-off | |
| 2,978 | |
| 4,677 | |
| 7,151 | |
| 6,918 | |
| 9,317 | |
Recoveries: | |
|
| |
|
| |
|
| |
|
| |
|
| |
Commercial | |
| 718 | |
| 708 | |
| 1,154 | |
| 1,096 | |
| 611 | |
Consumer | |
| 848 | |
| 703 | |
| 1,006 | |
| 1,196 | |
| 963 | |
Total recoveries | |
| 1,566 | |
| 1,411 | |
| 2,160 | |
| 2,292 | |
| 1,574 | |
Net charge-offs | |
| 1,412 | |
| 3,266 | |
| 4,991 | |
| 4,626 | |
| 7,743 | |
Provision for loan losses | |
| 5,557 | |
| 32,200 | |
| 56,256 | |
| 3,100 | |
| 9,100 | |
Balance, end of period | | $ | 174,122 | | $ | 169,977 | | $ | 141,043 | | $ | 42,294 | | $ | 43,820 | |
| | | | | | | | | | | | | | | | |
Total ACL | | $ | 186,122 | | $ | 180,977 | | $ | 150,043 | | $ | 43,194 | | $ | 44,920 | |
| | | | | | | | | | | | | | | | |
ACL to loans | | | 1.29 | % | | 1.26 | % | | 1.18 | % | | 0.34 | % | | 0.36 | % |
ACL to adjusted loans(1) | | | 1.46 | % | | 1.42 | % | | 1.18 | % | | 0.34 | % | | 0.36 | % |
ALLL to loans | |
| 1.21 | % |
| 1.19 | % |
| 1.10 | % |
| 0.34 | % |
| 0.36 | % |
ALLL to adjusted loans(1) | | | 1.36 | % | | 1.34 | % | | 1.10 | % | | 0.34 | % | | 0.36 | % |
Net charge-offs to average loans | |
| 0.04 | % |
| 0.09 | % |
| 0.16 | % |
| 0.15 | % |
| 0.25 | % |
Net charge-offs to adjusted average loans(1) | | | 0.04 | % | | 0.10 | % | | 0.16 | % | | 0.15 | % | | 0.25 | % |
Provision for loan losses to average loans | |
| 0.15 | % |
| 0.93 | % |
| 1.80 | % |
| 0.10 | % |
| 0.29 | % |
Provision for loan losses to adjusted average loans(1) | | | 0.17 | % |
| 1.02 | % |
| 1.80 | % |
| 0.10 | % |
| 0.29 | % |
The following table shows both an allocation of the ALLL among loan categories based upon the loan portfolio’s composition and the ratio of the related outstanding loan balances to total loans held for investment as of the quarters ended (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| June 30, |
| March 31, |
| December 31, |
| September 30, |
| |||||||||||||||
| | 2020 | | 2020 | | 2020 | | 2019 | | 2019 |
| |||||||||||||||
|
| $ |
| % (2) |
| $ | | % (2) |
| $ | | % (2) |
| $ | | % (2) |
| $ | | % (2) |
| |||||
Commercial | | $ | 126,655 | | 85.3 | % | $ | 111,954 | | 84.8 | % | $ | 77,843 | | 82.6 | % | $ | 30,941 | | 81.9 | % | $ | 31,936 | | 81.4 | % |
Consumer | |
| 47,467 | | 14.7 | % |
| 58,023 | | 15.2 | % |
| 63,200 | | 17.4 | % |
| 11,353 | | 18.1 | % |
| 11,884 | | 18.6 | % |
Total | | $ | 174,122 | | 100.0 | % | $ | 169,977 | | 100.0 | % | $ | 141,043 | | 100.0 | % | $ | 42,294 | | 100.0 | % | $ | 43,820 | | 100.0 | % |
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Deposits
As of September 30, 2020,2021, total deposits were $15.6$16.6 billion, an increase of $2.3 billion,$899.4 million or 22.8%7.6% annualized from December 31, 2019.2020. Total interest-bearing deposits consist of NOW, money market, savings, and time deposit account balances. Total time deposit balances of $2.6$2.0 billion accounted for 23.0%18.1% of total interest-bearing deposits at September 30, 2020.2021.
The following table presents the deposit balances by major category as of the quarters ended (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 |
| December 31, 2019 |
| | September 30, 2021 |
| December 31, 2020 |
| ||||||||||||
|
| | |
| % of total |
| | |
| % of total |
|
| | |
| % of total |
| | |
| % of total |
|
Deposits: | | Amount | | deposits | | Amount | | deposits |
| | Amount | | deposits | | Amount | | deposits |
| ||||
Non-interest bearing | | $ | 4,420,665 |
| 28.4 | % | $ | 2,970,139 |
| 22.3 | % | | $ | 5,328,838 |
| 32.0 | % | $ | 4,368,703 |
| 27.8 | % |
NOW accounts | |
| 3,460,480 |
| 22.2 | % |
| 2,905,714 |
| 21.8 | % | |
| 4,016,505 |
| 24.2 | % |
| 3,621,181 |
| 23.0 | % |
Money market accounts | |
| 4,269,696 |
| 27.4 | % |
| 3,951,856 |
| 29.7 | % | |
| 4,152,986 |
| 25.0 | % |
| 4,248,335 |
| 27.0 | % |
Savings accounts | |
| 861,685 |
| 5.5 | % |
| 727,847 |
| 5.5 | % | |
| 1,079,735 |
| 6.5 | % |
| 904,095 |
| 5.8 | % |
Time deposits of $100,000 and over(1) | |
| 1,474,171 |
| 9.5 | % |
| 1,618,637 |
| 12.2 | % | |
| 1,179,417 |
| 7.1 | % |
| 1,532,082 |
| 9.7 | % |
Other time deposits | |
| 1,089,401 |
| 7.0 | % |
| 1,130,788 |
| 8.5 | % | |
| 864,679 |
| 5.2 | % |
| 1,048,369 |
| 6.7 | % |
Total Deposits | | $ | 15,576,098 |
| 100.0 | % | $ | 13,304,981 |
| 100.0 | % | | $ | 16,622,160 |
| 100.0 | % | $ | 15,722,765 |
| 100.0 | % |
(1) Includes time deposits of $250,000 and over of $546.2 million and $654.2 million as of September 30, 2021 and December 31, 2020, respectively.
The Company may also borrow additional funds by purchasing certificates of deposit through a nationally recognized network of financial institutions. The Company utilizes this funding source when rates are more favorable than other funding sources. As of September 30, 20202021 and December 31, 2019,2020, there were $86.4 million$0 and $190.7$145.9 million, respectively, purchased certificates of deposit included in certificates of deposit on the Company’s Consolidated Balance Sheets. The reduced usage of purchased certificates of deposit in 2021 is due to the increase in customer deposits.
Maturities of time deposits of $100,000 or more as of September 30, 20202021 were as follows (dollars in thousands):
| | | | | | |
|
| Amount |
| Amount | ||
Within 3 Months | | $ | 273,681 | | $ | 287,135 |
3 - 6 Months | |
| 230,818 | |
| 258,953 |
6 - 12 Months | | | 530,793 | | | 288,793 |
Over 12 Months | |
| 438,879 | |
| 344,536 |
Total | | $ | 1,474,171 | | $ | 1,179,417 |
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Capital Resources
Capital resources represent funds, earned or obtained, over which financial institutions can exercise greater or longer control in comparison with deposits and borrowed funds. The adequacy of the Company’s capital is reviewed by management on an ongoing basis with reference to size, composition, and quality of the Company’s resources and consistency with regulatory requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses, yet allow management to effectively leverage its capital to maximize return to shareholders.
On June 9, 2020, the Company announced the closing of an offering ofissued and sold 6,900,000 depositary shares, each representing a 1/400th ownership interest in a share of its Series A preferred stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share), including 900,000 depositary shares pursuant to the exercise in full by the underwriters of their option to purchase additional depositary shares. The total net proceeds to the Company were approximately $166.4 million, after deducting the underwriting discount and other offering expenses payable by the Company. The Company intends to use the net proceeds of the offering for general corporate purposes in the ordinary course of its business. General corporate purposes may include repayment of debt, loan funding, acquisitions, additions to working capital, capital expenditures and investments in the Company’s subsidiaries.
On October 29, 2020 the Company announced that its Board of Directors declared a quarterly dividend of $0.25 per share of common stock. The common stock dividend is payable on November 27, 2020 to common shareholders on record as of November 13, 2020. The Board also declared a quarterly dividend on the outstanding shares of its Series A preferred stock. The Series A preferred stock is represented by depositary shares, each representing a 1/400th ownership interest in a share of Series A preferred stock. The dividend of $171.88 per share (equivalent to $0.43 per outstanding depositary share) is payable on December 1, 2020 to preferred shareholders of record as of November 16, 2020.
The Federal Reserve requires the Company and the Bank to comply with the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of 7.0% of risk-weighted assets; (ii) a Tier 1 capital ratio of 8.5% of risk-weighted assets; (iii) a total capital ratio of 10.5% of risk-weighted assets; and (iv) a leverage ratio of 4.0% of total assets. These ratios, with the exception of the leverage ratio, include a 2.5% capital conservation buffer, which is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.
On July 10, 2019, the Company announced that its Board of Directors has authorized a share repurchase program to purchase up to $150.0 million ofFor information about the Company’s common stock through June 30, 2021repurchase activity and the Repurchase Program, please refer to Note 9 “Stockholders’ Equity” in open market transactions or privately negotiated transactions. On March 20, 2020, the Company suspended its share repurchase program, which had approximately $20 million remaining in authorization at the time. The Company repurchased an aggregatePart I, Item 1 and Part II, Item 2 of approximately 3.7 million shares, at an average price of $35.48 per share, under the authorization prior to suspension.this Quarterly Report.
On March 27, 2020, the banking agencies issued an interim final rule that allows the Company to phase in the impact of adopting the CECL methodology up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay. The Company is allowed to include the impact of the CECL transition, which is defined as the CECL Day 1 impact to capital plus 25% of the Company’s provision for credit losses during 2020, in regulatory capital through 2021. The Company elected to phase-in the regulatory capital impact as permitted under the aforementioned interim final rule. Beginning in 2022, the transition amount will begin to impact regulatory capital by phasing it in over a three-year period ending in 2024.
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The table summarizes the Company’s capital and related ratios for the periods presented (3) (dollars in thousands):
| | | | | ||
| September 30, | December 31, | September 30, | September 30, | December 31, | September 30, |
| 2020 | 2019 | 2019 | 2021 | 2020 | 2020 |
Common equity Tier 1 capital | $ 1,470,639 | $ 1,437,908 | $ 1,441,259 | $ 1,541,325 | $ 1,512,507 | $ 1,470,639 |
Tier 1 capital | 1,636,995 | 1,437,908 | 1,441,259 | 1,707,681 | 1,678,863 | 1,636,995 |
Tier 2 capital | 401,456 | 335,927 | 337,436 | 340,464 | 384,494 | 401,456 |
Total risk-based capital | 2,038,451 | 1,773,835 | 1,778,695 | 2,048,146 | 2,063,356 | 2,038,451 |
Risk-weighted assets | 14,644,960 | 14,042,949 | 13,751,401 | 14,858,407 | 14,739,253 | 14,644,960 |
Capital ratios: | | | | | ||
Common equity Tier 1 capital ratio | 10.04% | 10.24% | 10.48% | 10.37% | 10.26% | 10.04% |
Tier 1 capital ratio | 11.18% | 10.24% | 10.48% | 11.49% | 11.39% | 11.18% |
Total capital ratio | 13.92% | 12.63% | 12.93% | 13.78% | 14.00% | 13.92% |
Leverage ratio (Tier 1 capital to average assets) | 8.82% | 8.79% | 8.94% | 8.97% | 8.95% | 8.82% |
Capital conservation buffer ratio (1) | 5.18% | 4.24% | 4.48% | 5.49% | 5.39% | 5.18% |
Common equity to total assets | 12.52% | 14.31% | 14.48% | 12.68% | 12.95% | 12.52% |
Tangible common equity to tangible assets (2) | 7.91% | 9.08% | 9.23% | 8.16% | 8.31% | 7.91% |
(1) Calculated by subtracting the regulatory minimum capital ratio requirements from the Company’s actual ratio results for Common equity, Tier 1, and Total risk based capital. The lowest of the three measures represents the Company’s capital conservation buffer ratio. (2) Refer to “Non-GAAP Financial Measures” section within this Item 2 for more information about this non-GAAP financial measure, including a reconciliation of this measure to the most directly comparable financial measure calculated in accordance with GAAP. (3) All ratios and amounts at September 30, 2021 are estimates and subject to change pending the Company’s filing of its FR Y9-C. All other periods are presented as filed. |
SUPERVISION AND REGULATION
The following information is intended to update, and should be read in conjunction with, the information contained under the caption “Supervision and Regulation” in the Company’s 2019 Form 10-K and the supplemental disclosure related thereto contained under the same caption in the Company’s first quarter Form 10-Q filed on May 8, 2020 and the Company’s second quarter Form 10-Q filed on August 4, 2020.
The CARES Act
On March 27, 2020, the CARES Act was passed by Congress and signed into law by the President. The CARES Act provided approximately $2.2 trillion in direct economic relief in response to the public health and economic impacts of COVID-19. Many of the CARES Act’s programs are, and remain, dependent upon the direct involvement of U.S. financial institutions like the Company and the Bank. These programs have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve, and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over the Company and the Bank. Furthermore, as the COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact supplementary COVID-19 response legislation, including new bills comparable in scope to the CARES Act, prior to the end of 2020.
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Set forth below is a brief overview of select provisions of the CARES Act and other regulations and supervisory guidance related to the COVID-19 pandemic that are applicable to the operations and activities of the Company and its subsidiaries, including the Bank. The following description is qualified in its entirety by reference to the full text of the CARES Act and the statutes, regulations, and policies described herein. Future legislation and/or amendments to the provisions of the CARES Act or changes to any of the statutes, regulations, or regulatory policies applicable to the Company and its subsidiaries could have a material effect on the Company. Such legislation and related regulations and supervisory guidance will be implemented over time and will remain subject to review by Congress and the implementing regulations issued by federal regulatory authorities. The Company continues to assess the impact of the CARES Act, the potential impact of new COVID-19 legislation, and other statutes, regulations, and supervisory guidance related to the COVID-19 pandemic.
Paycheck Protection Program. A principal provision of the CARES Act amended the SBA’s loan program, in which the Bank participates, to create a guaranteed, unsecured loan program, the PPP, to fund operational costs of eligible businesses, organizations, and self-employed persons during COVID-19. On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act into law, which among other things, gave borrowers additional time and flexibility to use PPP loan proceeds. Shortly thereafter, and due to the evolving impact of the COVID-19 pandemic, the President signed additional legislation authorizing the SBA to resume accepting PPP applications on July 6, 2020 and extending the PPP application deadline to August 8, 2020. It is anticipated that additional revisions to the SBA’s interim final rules on forgiveness and loan review procedures will be forthcoming to address these and related changes. As a participating lender in the PPP, the Bank continues to monitor legislative, regulatory, and supervisory developments related thereto.
Troubled Debt Restructuring and Loan Modifications for Affected Borrowers. The CARES Act permits banks to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the COVID-19 emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. Federal bank regulatory authorities also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19 and to assure banks that they will not be criticized by examiners for doing so. The Company is applying this guidance to qualifying loan modifications.
Regulatory Capital Rule for Revised Transition of the Current Expected Credit Losses Methodology. The federal banking agencies have issued a final rule that allows institutions that adopt the current expected credit losses or "CECL" accounting standard in 2020 to mitigate the estimated effects of the CECL methodology on regulatory capital for two years. The CECL final rule is substantially similar to the interim final rule issued in March 2020 in connection with other CARES Act related regulatory relief. The final rule gives eligible institutions the option to mitigate the estimated capital effects of the CECL methodology for two years, followed by a three-year transition period. Taken together, these measures offer a transition period of up to five years. In a change from the interim rule, the final rule expands the pool of eligible institutions to include any institution adopting the CECL methodology in 2020. The Company elected the relief provided under the final rule.
Federal Reserve Programs and Other Recent Initiatives
Main Street Lending Program. The CARES Act encouraged the Federal Reserve, in coordination with the Secretary of the Treasury, to establish or implement various programs to help midsize businesses, nonprofits, and municipalities. On April 9, 2020, the Federal Reserve proposed the creation of the MSLP to implement certain of these recommendations. On June 15, 2020, the Federal Reserve Bank of Boston opened the MSLP for lender registration. The MSLP supports lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic. The MSLP operates through five facilities: the Main Street New Loan Facility (“MSNLF”), the Main Street Priority Loan Facility (“MSPLF”), the Main Street Expanded Loan Facility (“MSELF”), the Nonprofit Organization New Loan Facility (“NONLF”), and the Nonprofit Organization Expanded Loan Facility (“NOELF”). The Federal Reserve Bank of Boston maintains the necessary legal forms and agreements for eligible borrowers and eligible lenders to participate in the MSNLF, MSELF, MSPLF, NONLF, and NOELF, and is working to refine the MSLP’s operational infrastructure and facilities. The Bank has not registered as a lender under the MSLP, butcontinues to monitor developments related thereto.
Supervisory Developments.
On June 23, 2020, the federal banking agencies released guidance to promote consistency in the supervision and examination of financial institutions affected by the COVID-19 pandemic. The federal banking agencies – including the Federal Reserve – will continue to assess institutions in accordance with existing policies and procedures. However, in
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conducting their supervisory assessment, federal bank examiners will consider whether institution management has managed risk appropriately, including taking appropriate actions in response to stress caused by COVID-19-related impacts. The interagency guidance instructs examiners to consider the unique, evolving, and potential long-term nature of the issues confronting institutions and to exercise appropriate flexibility in their supervisory response
In addition, on June 25, 2020, the Federal Reserve announced that it would take several actions to ensure large banks, remain resilient despite the ongoing economic impact of COVID-19. Specifically, in the third quarter, the Federal Reserve required large banks to preserve capital by suspending share repurchases, capping dividend payments, and allowing dividends according to a formula based on recent income. On October 6, 2020 the Federal Reserve extended these measures through the end of 2020. The Company and the Bank continue to monitor the Federal Reserve’s evolving supervisory and regulatory responses to the COVID-19 pandemic.
Modification of the Volcker Rule. Also on June 25, 2020, the Federal Reserve – along with the Commodity Futures Trading Commission, FDIC, the Office of the Comptroller of the Currency, and the SEC – issued a final rule modifying the Volcker Rule’s prohibition on banking entities investing in or sponsoring hedge funds or private equity funds (“covered funds”). The Volcker Rule generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring or having certain relationships with a hedge fund or private equity fund. The final rule modifies three areas of the Volcker Rule by: (1) streamlining the covered funds portion of the rule; (2) addressing the extraterritorial treatment of certain foreign funds; and (3) permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was intended to address. The new rule became effective October 1, 2020 but did not have a material impact on the Company or the Bank.
NON-GAAP FINANCIAL MEASURES
In reporting the results of the three and nine months ended September 30, 2020 and 2019,this Form 10-Q, the Company has provided supplemental performance measures on a tax-equivalent, tangible, operating, adjusted and/or pre-tax pre-provision basis. These non-GAAP financial measures are a supplement to GAAP used to prepare the Company’s financial statements and should not be considered in isolation or as a substitute for comparable measures calculated in accordance with GAAP. In addition, the Company’s non-GAAP measures may not be comparable to non-GAAP measures of other companies. The Company uses the non-GAAP measures discussed herein in its analysis of the Company’s performance.
Net interest income (FTE), total revenue (FTE) and total adjusted revenue (FTE), which are used in computing net interest margin (FTE) and adjusted operating efficiency ratio (FTE), respectively, provide valuable additional insight into the net interest margin and the efficiency ratio by adjusting for differences in the tax treatment of interest income sources. The entire FTE adjustment is attributable to interest income on earning assets, which is used in computing the yield on earning assets. Interest expense and the related cost of interest-bearing liabilities and cost of funds ratios are not affected by the FTE components.
-90--80-
The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | Nine Months Ended |
| | Three Months Ended |
| | Nine Months Ended |
| ||||||||||||||||
| | September 30, |
| | September 30, |
| | September 30, |
| | September 30, |
| ||||||||||||||||
|
| 2020 |
| 2019 |
|
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
|
| 2021 |
| 2020 |
| ||||||||
Interest Income (FTE) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest and dividend income (GAAP) | | $ | 157,414 | | $ | 178,345 | | | $ | 491,607 | | $ | 525,122 | | | $ | 146,379 | | $ | 157,414 | | | $ | 444,904 | | $ | 491,607 | |
FTE adjustment | |
| 2,901 | |
| 2,804 | | |
| 8,462 | |
| 8,468 | | |
| 3,164 | |
| 2,901 | | |
| 9,361 | |
| 8,462 | |
Interest and dividend income FTE (non-GAAP) | | $ | 160,315 | | $ | 181,149 | | | $ | 500,069 | | $ | 533,590 | | | $ | 149,543 | | $ | 160,315 | | | $ | 454,265 | | $ | 500,069 | |
Average earning assets | | $ | 17,748,152 | | $ | 15,191,792 | | | $ | 16,809,423 | | $ | 14,700,019 | | | $ | 17,910,389 | | $ | 17,748,152 | | | $ | 17,824,607 | | $ | 16,809,423 | |
Yield on interest-earning assets (GAAP) | |
| 3.53 | % |
| 4.66 | % | |
| 3.91 | % |
| 4.78 | % | |
| 3.24 | % |
| 3.53 | % | |
| 3.34 | % |
| 3.91 | % |
Yield on interest-earning assets (FTE) (non-GAAP) | |
| 3.59 | % |
| 4.73 | % | |
| 3.97 | % |
| 4.85 | % | |
| 3.31 | % |
| 3.59 | % | |
| 3.41 | % |
| 3.97 | % |
Net Interest Income (FTE) | |
|
| |
|
| | |
|
| |
|
| | |
|
| |
|
| | |
|
| |
|
| |
Net Interest Income (GAAP) | | $ | 137,381 | | $ | 136,601 | | | $ | 409,694 | | $ | 402,743 | | ||||||||||||||
Net interest income (GAAP) | | $ | 137,488 | | $ | 137,381 | | | $ | 412,934 | | $ | 409,694 | | ||||||||||||||
FTE adjustment | |
| 2,901 | |
| 2,804 | | |
| 8,462 | |
| 8,468 | | |
| 3,164 | |
| 2,901 | | |
| 9,361 | |
| 8,462 | |
Net Interest Income FTE (non-GAAP) | |
| 140,282 | |
| 139,405 | | |
| 418,156 | |
| 411,211 | | ||||||||||||||
Net interest income FTE (non-GAAP) | | $ | 140,652 | | $ | 140,282 | | | $ | 422,295 | | $ | 418,156 | | ||||||||||||||
Noninterest income (GAAP) | | | 34,407 | | | 48,106 | | | | 99,245 | | | 103,621 | | | | 29,938 | | | 34,407 | | | | 89,388 | | | 99,245 | |
Total Revenue (FTE) (non-GAAP) | | $ | 174,689 | | $ | 187,511 | | | $ | 517,401 | | $ | 514,832 | | ||||||||||||||
Total revenue (FTE) (non-GAAP) | | $ | 170,590 | | $ | 174,689 | | | $ | 511,683 | | $ | 517,401 | | ||||||||||||||
Average earning assets | | $ | 17,748,152 | | $ | 15,191,792 | | | $ | 16,809,423 | | $ | 14,700,019 | | | $ | 17,910,389 | | $ | 17,748,152 | | | $ | 17,824,607 | | $ | 16,809,423 | |
Net interest margin (GAAP) | |
| 3.08 | % |
| 3.57 | % | |
| 3.26 | % |
| 3.66 | % | |
| 3.05 | % |
| 3.08 | % | |
| 3.10 | % |
| 3.26 | % |
Net interest margin (FTE) (non-GAAP) | |
| 3.14 | % |
| 3.64 | % | |
| 3.32 | % |
| 3.74 | % | |
| 3.12 | % |
| 3.14 | % | |
| 3.17 | % |
| 3.32 | % |
The Company believes tangible common equity is an important indication of its ability to grow organically and through business combinations as well as its ability to pay dividends and to engage in various capital management strategies. Tangible common equity is used in the calculation of certain profitability, capital, and per share ratios. The Company believes tangible common equity and related ratios are meaningful measures of capital adequacy because they provide a meaningful base for period-to-period and company-to-company comparisons, which the Company believes will assist investors in assessing the capital of the Company and its ability to absorb potential losses.
The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands):
| | | | | | | | | | |
| | Three Months Ended | | |||||||
| | September 30, | | December 31, | | September 30, | | |||
|
| 2021 |
| 2020 |
| 2020 |
| |||
Tangible Assets | |
|
| |
|
| |
|
| |
Ending Assets (GAAP) | | $ | 19,935,657 | | $ | 19,628,449 | | $ | 19,930,650 | |
Less: Ending goodwill | |
| 935,560 | |
| 935,560 | |
| 935,560 | |
Less: Ending amortizable intangibles | |
| 46,537 | |
| 57,185 | |
| 61,068 | |
Ending tangible assets (non-GAAP) | | $ | 18,953,560 | | $ | 18,635,704 | | $ | 18,934,022 | |
Tangible Common Equity | |
|
| |
|
| |
|
| |
Ending Equity (GAAP) | | $ | 2,694,439 | | $ | 2,708,490 | | $ | 2,660,885 | |
Less: Ending goodwill | |
| 935,560 | |
| 935,560 | |
| 935,560 | |
Less: Ending amortizable intangibles | |
| 46,537 | |
| 57,185 | |
| 61,068 | |
Less: Perpetual preferred stock | | | 166,357 | | | 166,357 | | | 166,357 | |
Ending tangible common equity (non-GAAP) | | $ | 1,545,985 | | $ | 1,549,388 | | $ | 1,497,900 | |
Average equity (GAAP) | | $ | 2,718,032 | | $ | 2,679,170 | | $ | 2,648,777 | |
Less: Average goodwill | |
| 935,560 | |
| 935,560 | |
| 935,560 | |
Less: Average amortizable intangibles | |
| 48,179 | |
| 59,031 | |
| 63,016 | |
Less: Average perpetual preferred stock | | | 166,356 | | | 166,356 | | | 166,353 | |
Average tangible common equity (non-GAAP) | | $ | 1,567,937 | | $ | 1,518,223 | | $ | 1,483,848 | |
Tangible common equity to tangible assets (non-GAAP) | |
| 8.16 | % |
| 8.31 | % |
| 7.91 | % |
Adjusted operating measures exclude the gains or losses related to balance sheet repositioning, principally composed of gains and losses on debt extinguishment and gains or losses on sale of securities. The Company believes these non-GAAP adjusted measures provide investors with important information about the combined economic results of the organization’s operations.
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The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands)thousands, except per share amounts):
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | Nine Months Ended |
| ||||||||
| | September 30, |
| | September 30, |
| ||||||||
|
| 2020 |
| 2019 |
|
| 2020 |
| 2019 |
| ||||
Tangible Assets | |
|
| |
|
| | |
|
| |
|
| |
Ending Assets (GAAP) | | $ | 19,930,650 | | $ | 17,441,035 | | | $ | 19,930,650 | | $ | 17,441,035 | |
Less: Ending goodwill | |
| 935,560 | |
| 929,815 | | |
| 935,560 | |
| 929,815 | |
Less: Ending amortizable intangibles | |
| 61,068 | |
| 78,241 | | |
| 61,068 | |
| 78,241 | |
Ending tangible assets (non-GAAP) | | $ | 18,934,022 | | $ | 16,432,979 | | | $ | 18,934,022 | | $ | 16,432,979 | |
Tangible Common Equity | |
|
| |
|
| | |
|
| |
|
| |
Ending Equity (GAAP) | | $ | 2,660,885 | | $ | 2,525,031 | | | $ | 2,660,885 | | $ | 2,525,031 | |
Less: Ending goodwill | |
| 935,560 | |
| 929,815 | | |
| 935,560 | |
| 929,815 | |
Less: Ending amortizable intangibles | |
| 61,068 | |
| 78,241 | | |
| 61,068 | |
| 78,241 | |
Less: Perpetual preferred stock | | | 166,357 | | | — | | | | 166,357 | | | — | |
Ending tangible common equity (non-GAAP) | | $ | 1,497,900 | | $ | 1,516,975 | | | $ | 1,497,900 | | $ | 1,516,975 | |
Average equity (GAAP) | | $ | 2,648,777 | | $ | 2,528,435 | | | $ | 2,541,856 | | $ | 2,429,912 | |
Less: Average goodwill | |
| 935,560 | |
| 930,525 | | |
| 935,560 | |
| 906,476 | |
Less: Average amortizable intangibles | |
| 63,016 | |
| 80,510 | | |
| 67,130 | |
| 80,605 | |
Less: Average perpetual preferred stock | | | 166,353 | | | — | | | | 69,248 | | | — | |
Average tangible common equity (non-GAAP) | | $ | 1,483,848 | | $ | 1,517,400 | | | $ | 1,469,918 | | $ | 1,442,831 | |
ROE (GAAP) | |
| 9.16 | % |
| 8.35 | % | |
| 5.19 | % |
| 7.58 | % |
Common equity to assets (GAAP) | |
| 12.52 | % |
| 14.48 | % | |
| 12.52 | % |
| 14.48 | % |
Tangible common equity to tangible assets (non-GAAP) | |
| 7.91 | % |
| 9.23 | % | |
| 7.91 | % |
| 9.23 | % |
Book value per share (GAAP) | | $ | 31.86 | | $ | 31.29 | | | $ | 31.86 | | $ | 31.29 | |
Tangible book value per share (non-GAAP) | | $ | 19.13 | | $ | 18.80 | | | $ | 19.13 | | $ | 18.80 | |
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | Nine Months Ended |
| ||||||||
| | September 30, |
| | September 30, |
| ||||||||
|
| 2021 |
| 2020 |
|
| 2021 |
| 2020 |
| ||||
Adjusted Operating Earnings & EPS | | | | | | | | | | | | | | |
Net income (GAAP) | | $ | 74,565 | | $ | 61,000 | | | $ | 216,138 | | $ | 98,798 | |
Plus: Net loss related to balance sheet repositioning, net of tax | | | — | | | — | | | | 11,609 | | | 9,539 | |
Less: Gain on sale of securities, net of tax | | | 7 | | | 14 | | | | 69 | | | 9,711 | |
Adjusted operating earnings (non-GAAP) | | $ | 74,558 | | $ | 60,986 | | | $ | 227,678 | | $ | 98,626 | |
Less: Dividends on preferred stock | | | 2,967 | | | 2,691 | | | | 8,901 | | | 2,691 | |
Adjusted operating earnings available to common shareholders (non-GAAP) | | $ | 71,591 | | $ | 58,295 | | | $ | 218,777 | | $ | 95,935 | |
OperatingThe adjusted operating efficiency ratio (FTE) excludes the amortization of intangible assets and gains or losses related to balance sheet repositioning (principally composed of gains and losses on debt extinguishment). This measure is similar to the measure utilized by the Company when analyzing corporate performance and is also similar to the measure utilized for incentive compensation. Adjusted operating measures exclude merger-relatedthe amortization of intangible assets and rebranding-related costs unrelatedthe gains or losses related to the Company’s normal operations.balance sheet repositioning, principally composed of gains and losses on debt extinguishment and gains or losses on sale of securities. The Company believes these measures are useful tothis adjusted measure provides investors as they exclude certain costs resulting from acquisition activity and allow investors to more clearly seewith important information about the combined economic results of the organization'sorganization’s operations. Net interest income (FTE) and total adjusted revenue (FTE), which are used in computing net interest margin (FTE) and adjusted operating efficiency ratio (FTE), respectively, provide valuable additional insight into the net interest margin and the efficiency ratio by adjusting for differences in tax treatment of interest income sources. The entire FTE adjustment is attributable to interest income on earning assets, which is used in computing yield on earning assets. Interest expense and the related cost of interest-bearing liabilities and cost of funds ratios are not affected by the FTE components.
The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands):
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | Nine Months Ended |
| ||||||||
| | September 30, |
| | September 30, |
| ||||||||
|
| 2021 |
| 2020 |
|
| 2021 |
| 2020 |
| ||||
Adjusted Operating Noninterest Expense, Noninterest Income & Efficiency Ratio | | | | | | | | | | | | | | |
Noninterest expense (GAAP) | | $ | 95,343 | | $ | 93,222 | | | $ | 299,251 | | $ | 291,681 | |
Less: Amortization of intangible assets | |
| 3,381 | |
| 4,053 | | |
| 10,679 | |
| 12,676 | |
Less: Losses related to balance sheet repositioning | | | — | | | — | | | | 14,695 | | | 10,306 | |
Adjusted operating noninterest expense (non-GAAP) | | $ | 91,962 | | $ | 89,169 | | | $ | 273,877 | | $ | 268,699 | |
Noninterest income (GAAP) | | $ | 29,938 | | $ | 34,407 | | | $ | 89,388 | | $ | 99,245 | |
Plus: Losses related to balance sheet repositioning | | | — | | | — | | | | — | | | (1,769) | |
Less: Gains on sale of securities | | | 9 | | | 18 | | | | 87 | | | 12,293 | |
Adjusted operating noninterest income (non-GAAP) | | $ | 29,929 | | $ | 34,389 | | | $ | 89,301 | | $ | 88,721 | |
Net interest income (FTE) (non-GAAP) | | $ | 140,652 | | $ | 140,282 | | | $ | 422,295 | | $ | 418,156 | |
Adjusted operating noninterest income (non-GAAP) | | | 29,929 | | | 34,389 | | | | 89,301 | | | 88,721 | |
Total adjusted revenue (FTE)(non-GAAP) | | $ | 170,581 | | $ | 174,671 | | | $ | 511,596 | | $ | 506,877 | |
Efficiency ratio (GAAP) | |
| 56.95 | % |
| 54.27 | % | |
| 59.57 | % |
| 57.31 | % |
Adjusted operating efficiency ratio (FTE) (non-GAAP) | |
| 53.91 | % |
| 51.05 | % | |
| 53.53 | % |
| 53.01 | % |
Pre-tax pre-provision adjusted operating earnings exclude the provision for credit losses, which can fluctuate significantly from period-to-period under the CECL methodology, income tax expense, gains or losses related to balance sheet repositioning (principally composed of gains and losses on debt extinguishment and gains or losses on sale of securities). The Company believes this adjusted measure provides investors with important information about the combined economic results of the organization’s operations.
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The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands, except per share amounts):
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | Nine Months Ended |
| ||||||||
| | September 30, |
| | September 30, |
| ||||||||
|
| 2020 |
| 2019 |
|
| 2020 |
| 2019 |
| ||||
Operating Measures | | | | | | | | | | | | | | |
Net income (GAAP) | | $ | 61,000 | | $ | 53,238 | | | $ | 98,798 | | $ | 137,692 | |
Merger and rebranding-related costs, net of tax | |
| — | |
| 2,819 | | |
| — | |
| 25,973 | |
Net operating earnings (non-GAAP) | | $ | 61,000 | | $ | 56,057 | | | $ | 98,798 | | $ | 163,665 | |
Less: Dividends on preferred stock | | | 2,691 | | | — | | | | 2,691 | | | — | |
Net operating earnings available to common shareholders (non-GAAP) | | $ | 58,309 | | $ | 56,057 | | | $ | 96,107 | | $ | 163,665 | |
| | | | | | | | | | | | | | |
Weighted average common shares outstanding, diluted | |
| 78,725,346 | |
| 81,832,868 | | |
| 78,921,108 | |
| 80,183,113 | |
Earnings per common share, diluted (GAAP) | | $ | 0.74 | | $ | 0.65 | | | $ | 1.22 | | $ | 1.72 | |
Operating earnings per share, diluted (non-GAAP) | | $ | 0.74 | | $ | 0.69 | | | $ | 1.22 | | $ | 2.04 | |
| | | | | | | | | | | | | | |
Average assets (GAAP) | | $ | 19,785,167 | | $ | 17,203,328 | | | $ | 18,837,580 | | $ | 16,639,041 | |
ROA (GAAP) | |
| 1.23 | % |
| 1.23 | % | |
| 0.70 | % |
| 1.11 | % |
Operating ROA (non-GAAP) | |
| 1.23 | % |
| 1.29 | % | |
| 0.70 | % |
| 1.32 | % |
| | | | | | | | | | | | | | |
Average common equity (GAAP) | | $ | 2,648,777 | | $ | 2,528,435 | | | $ | 2,541,856 | | $ | 2,429,912 | |
ROE (GAAP) | |
| 9.16 | % |
| 8.35 | % | |
| 5.19 | % |
| 7.58 | % |
Operating ROE (non-GAAP) | |
| 9.16 | % |
| 8.80 | % | |
| 5.19 | % |
| 9.01 | % |
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| | | | | | | | | | | | | | |
| | Three Months Ended |
| | Nine Months Ended |
| ||||||||
| | September 30, |
| | September 30, |
| ||||||||
|
| 2021 |
| 2020 |
|
| 2021 |
| 2020 |
| ||||
Pre-tax pre-provision adjusted operating earnings | | | | | | | | | | | | | | |
Net Income (GAAP) | | $ | 74,565 | | $ | 61,000 | | | $ | 216,138 | | $ | 98,798 | |
Plus: Provision for credit losses | |
| (18,850) | |
| 6,558 | | |
| (59,888) | |
| 100,954 | |
Plus: Income tax expenses | |
| 16,368 | |
| 11,008 | | |
| 46,821 | |
| 17,506 | |
Plus: Net loss related to balance sheet repositioning | | | — | | | — | | | | 14,695 | | | 12,075 | |
Less: Gain on sale of securities | | | 9 | | | 18 | | | | 87 | | | 12,293 | |
Pre-tax pre-provision adjusted operating earnings (non-GAAP) | | $ | 72,074 | | $ | 78,548 | | | $ | 217,679 | | $ | 217,040 | |
The operating efficiency ratio (FTE) excludes the amortization of intangible assets and merger-related costs. This measure is similar to the measure utilized by the Company when analyzing corporate performance and is also similar to the measure utilized for incentive compensation. The Company believes this measure is useful to investors as it excludes certain costs resulting from acquisition activity allowing for greater comparability with others in the industry and allowing investors to more clearly see the combined economic results of the organization’s operations. In prior periods, the Company has not excluded the amortization of intangibles from noninterest expense when calculating the operating efficiency ratio (FTE). The Company has adjusted its presentation for all periods in this release to exclude the amortization of intangibles from noninterest expense.
The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands):
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | Nine Months Ended |
| ||||||||
| | September 30, |
| | September 30, |
| ||||||||
|
| 2020 |
| 2019 |
|
| 2020 |
| 2019 |
| ||||
| | | | | | | | | | | | | | |
Noninterest expense (GAAP) | | $ | 93,222 | | $ | 111,687 | | | $ | 291,681 | | $ | 324,022 | |
Less: Merger-related costs | |
| — | |
| 2,435 | | |
| — | |
| 26,928 | |
Less: Rebranding-related costs | | | — | | | 1,133 | | | | — | | | 5,553 | |
Less: Amortization of intangible assets | |
| 4,053 | |
| 4,764 | | |
| 12,676 | |
| 13,919 | |
Operating noninterest expense (non-GAAP) | | $ | 89,169 | | $ | 103,355 | | | $ | 279,005 | | $ | 277,622 | |
| | | | | | | | | | | | | | |
Net interest income (GAAP) | | $ | 137,381 | | $ | 136,601 | | | $ | 409,694 | | $ | 402,743 | |
Net interest income (FTE) (non-GAAP) | | $ | 140,282 | | $ | 139,405 | | | $ | 418,156 | | $ | 411,211 | |
Noninterest income (GAAP) | | $ | 34,407 | | $ | 48,106 | | | $ | 99,245 | | $ | 103,621 | |
| | | | | | | | | | | | | | |
Efficiency ratio (GAAP) | |
| 54.27 | % |
| 60.47 | % | |
| 57.31 | % |
| 63.99 | % |
Operating efficiency ratio (FTE) (non-GAAP) | |
| 51.04 | % |
| 55.12 | % | |
| 53.92 | % |
| 53.92 | % |
The Company believes that operating ROTCE is a meaningful supplement to GAAP financial measures and useful to investors because it measures the performance of a business consistently across time without regard to whether components of the business were acquired or developed internally.
The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands):
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | Nine Months Ended |
| ||||||||
| | September 30, |
| | September 30, |
| ||||||||
|
| 2020 |
| 2019 |
|
| 2020 |
| 2019 |
| ||||
Operating ROTCE | | | | | | | | | | | | | | |
Net operating earnings available to common shareholders (non-GAAP) | | $ | 58,309 | | $ | 56,057 | | | $ | 96,107 | | $ | 163,665 | |
Plus: Amortization of intangibles, tax effected | |
| 3,202 | |
| 3,764 | | |
| 10,014 | |
| 10,996 | |
Net operating earnings available to common shareholders before amortization of intangibles (non-GAAP) | | $ | 61,511 | | $ | 59,821 | | | $ | 106,121 | | $ | 174,661 | |
| | | | | | | | | | | | | | |
Average tangible common equity (non-GAAP) | | $ | 1,483,848 | | $ | 1,517,400 | | | $ | 1,469,918 | | $ | 1,442,831 | |
Operating return on average tangible common equity (non-GAAP) | | | 16.49 | % | | 15.64 | % | | | 9.64 | % | | 16.18 | % |
Pre-tax pre-provision operating earnings exclude the provision for credit losses, which can fluctuate significantly from period-to-period under the recently adopted CECL methodology, merger and rebranding-related costs unrelated to the Company’s normal operations, and income tax expense. The Company believes this measure is useful to investors as it excludes certain costs resulting from acquisition activity as well as the potentially volatile provision measure, allowing for greater comparability with others in the industry and allowing investors to more clearly see the combined economic results of the organization’s operations.
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PPP adjustment impact excludes the SBA guaranteed PPP loans funded during the first nine months of 2020.2020 and 2021. The Company believes loans held for investment (net of deferred fees and costs), excluding PPP is useful to investors as it provides more clarity on the Company’s organic growth. The Company also believes that the related non-GAAP financial measures of past due loans still accruing interest as a percentage of total loans held for investment (net of deferred fees and costs), provision for credit losses as a percentage of average loans held for investment, and net charge-offs as a percentage of average loans held for investment (net of deferred fees and costs), in each case excluding impacts from the PPP, are useful to investors as loans originated under the PPP carry an SBA guarantee. The Company believes that the ALLL and the ACL, each as a percentage of loans held for investment (net of deferred fees and costs), and each excluding impacts from the PPP, isare useful to investors because of the size of the Company’s PPP loan originations and the impact of the embedded credit enhancement provided by the SBA guarantee.
The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each
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Table of the periods presented (dollars in thousands, except per share amounts):Contents
| | | | | | | | | | | | | |
| | Three Months Ended |
| | Nine Months Ended | ||||||||
| | September 30, |
| | September 30, | ||||||||
|
| 2020 |
| 2019 |
|
| 2020 |
| 2019 | ||||
Pre-tax pre-provision operating earnings | | | | | | | | | | | | | |
Net Income (GAAP) | | $ | 61,000 | | $ | 53,238 | | | $ | 98,798 | | $ | 137,692 |
Plus: Provision for credit losses | |
| 6,558 | |
| 9,100 | | |
| 100,954 | |
| 18,192 |
Plus: Income tax expenses | |
| 11,008 | |
| 10,724 | | |
| 17,506 | |
| 26,330 |
Plus: Merger and rebranding-related costs | |
| — | |
| 3,568 | | |
| — | |
| 32,481 |
Pre-tax pre-provision operating earnings (non-GAAP) | | $ | 78,566 | | $ | 76,630 | | | $ | 217,258 | | $ | 214,695 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | |||||||||||||||||
| | September 30, | | June 30, | | March 31, | | December 31, | | September 30, | | September 30, | | September 30, | | |||||||
| | 2021 | | 2021 | | 2021 | | 2020 | | 2020 | | 2021 | | 2020 | | |||||||
Adjusted Loans | | | | | | | | | | | | | | | | | | | | | | |
Loans held for investment (net of deferred fees and costs)(GAAP) | | $ | 13,139,586 | | $ | 13,697,929 | | $ | 14,272,280 | | $ | 14,021,314 | | $ | 14,383,215 | | $ | 13,139,586 | | $ | 14,383,215 | |
Less: PPP adjustments (net of deferred fees and costs) | | | 466,609 | | | 859,386 | | | 1,512,714 | | | 1,179,522 | | | 1,600,577 | | | 466,609 | | | 1,600,577 | |
Total adjusted loans (non-GAAP) | | $ | 12,672,977 | | $ | 12,838,543 | | $ | 12,759,566 | | $ | 12,841,792 | | $ | 12,782,638 | | $ | 12,672,977 | | $ | 12,782,638 | |
| | | | | | | | | | | | | | | | | | | | | | |
Average loans held for investment (net of deferred fees and costs) (GAAP) | | $ | 13,451,674 | | $ | 13,971,939 | | $ | 14,064,123 | | $ | 14,188,661 | | $ | 14,358,666 | | $ | 13,827,002 | | $ | 13,639,401 | |
Less: Average PPP adjustments (net of deferred fees and costs) | | | 687,259 | | | 1,187,641 | | | 1,309,326 | | | 1,445,602 | | | 1,638,204 | | | 1,059,130 | | | 1,457,091 | |
Total adjusted average loans (non-GAAP) | | $ | 12,764,415 | | $ | 12,784,298 | | $ | 12,754,797 | | $ | 12,743,059 | | $ | 12,720,462 | | $ | 12,767,872 | | $ | 12,182,310 | |
Asset Quality | | | | | | | | | | | | | | | | | | | | | | |
Provision for loan losses | | $ | (16,350) | | $ | (24,581) | | $ | (16,457) | | $ | (11,813) | | $ | 5,557 | | $ | (57,388) | | $ | 94,013 | |
Net charge-offs | | | 113 | | | 69 | | | 1,172 | | | 1,769 | | | 1,412 | | | 1,354 | | | 9,669 | |
Allowance for loan and lease losses | | | 101,798 | | | 118,261 | | | 142,911 | | | 160,540 | | | 174,122 | | | 101,798 | | | 174,122 | |
Allowance for credit losses | | | 109,298 | | | 128,261 | | | 155,744 | | | 170,540 | | | 186,122 | | | 109,298 | | | 186,122 | |
Total NPAs | | | 37,168 | | | 38,095 | | | 44,210 | | | 45,221 | | | 43,182 | | | 37,168 | | | 43,182 | |
Loans past due ≥ 90 days and still accruing | | | 11,030 | | | 8,746 | | | 9,776 | | | 13,634 | | | 15,661 | | | 11,030 | | | 15,661 | |
| | | | | | | | | | | | | | | | | | | | | | |
ALLL/total outstanding loans | | | 0.77 | % | | 0.86 | % | | 1.00 | % | | 1.14 | % | | 1.21 | % | | 0.77 | % | | 1.21 | % |
ALLL/total adjusted loans (non-GAAP) | | | 0.80 | % | | 0.92 | % | | 1.12 | % | | 1.25 | % | | 1.36 | % | | 0.80 | % | | 1.36 | % |
ACL/total outstanding loans | |
| 0.83 | % | | 0.94 | % | | 1.09 | % | | 1.22 | % | | 1.29 | % |
| 0.83 | % | | 1.29 | % |
ACL/total adjusted loans (non-GAAP) | | | 0.86 | % | | 1.00 | % | | 1.22 | % | | 1.33 | % | | 1.46 | % | | 0.86 | % | | 1.46 | % |
NPAs/total outstanding loans | | | 0.28 | % | | 0.28 | % | | 0.31 | % | | 0.32 | % | | 0.30 | % | | 0.28 | % | | 0.30 | % |
NPAs/total adjusted loans (non-GAAP) | | | 0.29 | % | | 0.30 | % | | 0.35 | % | | 0.35 | % | | 0.34 | % | | 0.29 | % | | 0.34 | % |
Net charge-offs/total average loans | | | — | % | | — | % | | 0.03 | % | | 0.05 | % | | 0.04 | % | | 0.01 | % | | 0.09 | % |
Net charge-offs/total adjusted average loans (non-GAAP) | | | — | % | | — | % | | 0.04 | % | | 0.06 | % | | 0.04 | % | | 0.01 | % | | 0.11 | % |
Provision for loan losses/total average loans | | | (0.48) | % | | (0.71) | % | | (0.47) | % | | (0.33) | % | | 0.15 | % | | (0.55) | % | | 0.92 | % |
Provision for loan losses/total adjusted average loans (non-GAAP) | | | (0.51) | % | | (0.77) | % | | (0.52) | % | | (0.37) | % | | 0.17 | % | | (0.60) | % | | 1.03 | % |
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |||||||||||||||||
| | September 30, | | June 30, | | March 31, | | December 31, | | September 30, | | September 30, | | September 30, | |||||||
| | 2020 | | 2020 | | 2020 | | 2019 | | 2019 | | 2020 | | 2019 | |||||||
PPP adjustment impact | | | | | | | | | | | | | | | | | | | | | |
Loans held for investment (net of deferred fees and costs)(GAAP) | | $ | 14,383,215 | | $ | 14,308,646 | | $ | 12,768,841 | | $ | 12,610,936 | | $ | 12,306,997 | | $ | 14,383,215 | | $ | 12,306,997 |
Less: PPP adjustments | | | 1,600,577 | | | 1,598,718 | | | — | | | — | | | — | | | 1,600,577 | | | — |
Loans held for investment (net of deferred fees and costs),net adjustments, excluding PPP (non-GAAP) | | $ | 12,782,638 | | $ | 12,709,928 | | $ | 12,768,841 | | $ | 12,610,936 | | $ | 12,306,997 | | $ | 12,782,638 | | $ | 12,306,997 |
| | | | | | | | | | | | | | | | | | | | | |
Average loans held for investment (GAAP) | | $ | 14,358,666 | | $ | 13,957,711 | | $ | 12,593,923 | | $ | 12,327,692 | | $ | 12,240,254 | | $ | 13,639,401 | | $ | 11,821,612 |
Less: Average PPP adjustments | | | 1,638,204 | | | 1,273,883 | | | — | | | — | | | — | | | 1,457,091 | | | — |
Average loans held for investment, net adjustments, excluding PPP (non-GAAP) | | $ | 12,720,462 | | $ | 12,683,828 | | $ | 12,593,923 | | $ | 12,327,692 | | $ | 12,240,254 | | $ | 12,182,310 | | $ | 11,821,612 |
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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. The Company’s market risk is composed primarily of interest rate risk. The ALCO of the Company is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit exposure to this risk. The Company’s Board of Directors reviews and approves the guidelines established by ALCO.
Interest rate risk is monitored through the use of three complementary modeling tools: static gap analysis, earnings simulation modeling, and economic value simulation (net present value estimation). Each of these models measures changes in a variety
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of interest rate scenarios. While each of the interest rate risk models has limitations, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk in the Company, the distribution of risk along the yield curve, the level of risk through time, and the amount of exposure to changes in certain interest rate relationships. Static gap, which measures aggregate re-pricing values, is less utilized because it does not effectively measure the options risk impact on the Company and is not addressed here. Earnings simulation and economic value models, which more effectively measure the cash flow and optionality impacts, are utilized by management on a regular basis and are explained below.
The Company determines the overall magnitude of interest sensitivity risk and then formulates policies and practices governing asset generation and pricing, funding sources and pricing, and off-balance sheet commitments. These decisions are based on management’s expectations regarding future interest rate movements, the states of the national, regional and local economies, and other financial and business risk factors. The Company uses simulation modeling to measure and monitor the effect of various interest rate scenarios and business strategies on net interest income. This modeling reflects interest rate changes and the related impact on net interest income and net income over specified time horizons.
Earnings Simulation Analysis
Management uses simulation analysis to measure the sensitivity of net interest income to changes in interest rates. The model calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that underlie the process, but it provides a better analysis of the sensitivity of earnings to changes in interest rates than other analyses, such as the static gap analysis discussed above.
Assumptions used in the model are derived from historical trends and management’s outlook and include loan and deposit growth rates and projected yields and rates. These assumptions may not materialize and unanticipated events and circumstances may occur. The model also does not take into account any future actions of management to mitigate the impact of interest rate changes. Such assumptions are monitored by management and periodically adjusted as appropriate. All maturities, calls, and prepayments in the securities portfolio are assumed to be reinvested in like instruments. Mortgage-backed securities prepayment assumptions are based on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates. Interest rates on different asset and liability accounts move differently when the prime rate changes and are reflected in the different rate scenarios.
The Company uses its simulation model to estimate earnings in rate environments where rates are instantaneously shocked up or down around a “most likely” rate scenario, based on implied forward rates and futures curves. The analysis assesses the impact on net interest income over a 12-month time horizon after an immediate increase or “shock” in rates, of 100 basis points up to 300 basis points. The model, under all scenarios, does not drop the index below zero.
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The following table represents the interest rate sensitivity on net interest income for the Company across the rate paths modeled for balances as of September 30, 20202021 and 2019 (dollars in thousands):2020:
| | | | | | | | | | | | |
| | Change In Net Interest Income | | Change In Net Interest Income | ||||||||
| | September 30, | | September 30, | ||||||||
| | 2020 | | 2019 | | 2021 | | 2020 | ||||
|
| % |
| $ |
| % |
| $ |
| % |
| % |
Change in Yield Curve: |
|
|
|
| |
|
|
|
|
| |
|
+300 basis points |
| 11.39 |
| 61,649 | | 13.16 | | 73,140 |
| 22.43 | | 11.39 |
+200 basis points |
| 8.26 |
| 44,678 | | 8.71 | | 48,405 |
| 14.90 | | 8.26 |
+100 basis points |
| 4.37 |
| 23,637 | | 4.48 | | 24,893 |
| 7.26 | | 4.37 |
Most likely rate scenario |
| — |
| — | | — | | — |
| — | | — |
-100 basis points |
| (0.97) |
| (5,244) | | (5.39) | | (29,980) |
| (6.50) | | (0.97) |
-200 basis points |
| (1.19) |
| (6,454) | | (8.71) | | (48,423) |
| (7.73) | | (1.19) |
Asset sensitivity indicates that in a rising interest rate environment, the Company’s net interest income would increase and in a decreasing interest rate environment, the Company’s net interest income would decrease. Liability sensitivity indicates that in a rising interest rate environment, the Company’s net interest income would decrease and in a decreasing interest rate environment, the Company’s net interest income would increase.
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From a net interest income perspective, the Company was lessmore asset sensitive as of September 30, 2020,2021, compared to its position as of September 30, 2019.2020. This shift is in part due to the increase in customer deposits, the changing market characteristics of certain loan and deposit products, and in part due to various other balance sheet strategies. The Company would expect net interest income to increase with an immediate increase or shock in market rates. In the decreasing interest rate environments, the Company would expect a decline in net interest income as interest-earning assets re-price at lower rates and interest-bearing deposits remain at or near their floors.
Economic Value Simulation
Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Economic values are calculated based on discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in net economic value over different rate environments is an indication of the longer-term earnings capability of the balance sheet. The same assumptions are used in the economic value simulation as in the earnings simulation. The economic value simulation uses instantaneous rate shocks to the balance sheet.
The following chart reflects the estimated change in net economic value over different rate environments using economic value simulation for the balances at the quarterly periods ended September 30, 20202021 and 2019 (dollars in thousands):2020:
| | | | | | | | | | | | |
| | Change In Economic Value of Equity | | Change In Economic Value of Equity | ||||||||
| | September 30, | | September 30, | ||||||||
| | 2020 | | 2019 | | 2021 | | 2020 | ||||
|
| % |
| $ |
| % |
| $ |
| % |
| % |
Change in Yield Curve: |
|
| |
| |
| |
|
|
| |
|
+300 basis points |
| (1.30) | | (38,815) | | (4.13) | | (132,210) |
| 5.80 | | (1.30) |
+200 basis points |
| 0.49 | | 14,551 | | (2.44) | | (78,042) |
| 4.86 | | 0.49 |
+100 basis points |
| 1.39 | | 41,643 | | (0.97) | | (31,031) |
| 3.20 | | 1.39 |
Most likely rate scenario |
| — | | — | | — | | — |
| — | | — |
-100 basis points |
| (5.24) | | (156,742) | | (3.43) | | (109,752) |
| (6.13) | | (5.24) |
-200 basis points |
| (1.96) | | (58,650) | | (9.63) | | (307,914) |
| (7.92) | | (1.96) |
As of September 30, 2020,2021, the Company’s economic value of equity is lessgenerally more asset sensitive in a rising interest rate environment compared to September 30, 20192020 primarily due to the composition of the Consolidated Balance Sheets and duethat has been impacted by the increase in part tocustomer deposits, the marketchanging characteristics of certain loansloan and deposits.deposit products, and other balance sheet strategies.
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ITEM 4 – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2020.2021. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Exchange Act, means controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and to ensure that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2020,2021, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
In designing and evaluating the Company’s disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
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Changes in Internal Control Over Financial Reporting
Management has taken measures to maintain the internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 20212020.. There have been no changes that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
In the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business or the financial condition or results of operations of the Company.
ITEM 1A – RISK FACTORS
During the quarter ended September 30, 2020,2021, there have been no material changes from the risk factors previously disclosed under Part I, Item 1A. “Risk Factors” in the Company’s 20192020 Annual Report and Part II, Item 1A. “Risk Factors” in the Company’s second quarter Form 10-Q filed on August 4, 2020.Report.
An investment in the Company’s securities involves risks. In addition to the other information set forth in this Quarterly Report, including the information addressed under “Forward-Looking Statements,” investors in the Company’s securities should carefully consider the factors discussed below, as well as the factors discussed in the Company’s 20192020 Annual Report and second quarter Form 10-Q filed on August 4, 2020.Report. These factors could materially and adversely affect the Company’s business, financial condition, liquidity, results of operations, and capital position and could cause the Company’s actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report, in which case the trading price of the Company’s securities could decline.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Sales of Unregistered Securities – None
(b) Use of Proceeds – Not Applicable.
(c) Issuer Purchases of Securities
Stock Repurchase Program; Other
On July 8, 2019, the Company’s Board of Directors authorized a share repurchase program to purchase up to $150 million worth of the Company’s common stock through June 30, 2021, and subsequently suspended the program on March 20, 2020.
On May 4, 2021, the Company’s Board of Directors authorized a share repurchase program (or the “Repurchase Program”) to purchase up to $125 million worth of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the Exchange Act. The Repurchase Program was due to expire on June 30, 2022 and replaced the prior repurchase program that was authorized throughdue to expire on June 30, 2021, but, on March 20, 2020,2021. The $125 million repurchase authorization under the Company announced the suspension of the program.Repurchase Program was fully utilized in August 2021.
The following information describes the Company’s common stock repurchases for the three months ended September 30, 2020:2021:
| | | | | | | | | | | | | | | | | | |
Period | | Total number of shares purchased(1) | | | Average price paid per share ($) | | Total number of shares purchased as part of publicly announced plans or programs(2) | | Approximate dollar value of shares that may yet be purchased under the plans or programs ($) | | Total number of shares purchased(1) | | | Average price paid per share(2) ($) | | Total number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value of shares that may yet be purchased under the plans or programs(2) ($) |
July 1 - July 31, 2020 | | 294 | | | 22.02 | | - | | 19,951,000 | |||||||||
August 1 - August 31, 2020 | | 450 | | | 25.04 | | - | | 19,951,000 | |||||||||
September 1 - September 30, 2020 | | 281 | | | 22.03 | | - | | 19,951,000 | |||||||||
July 1 - July 31, 2021 | | 1,422,682 | | | 35.72 | | 1,422,362 | | 31,835,717 | |||||||||
August 1 - August 31, 2021 | | 866,870 | | | 36.74 | | 866,599 | | - | |||||||||
September 1 - September 30, 2021 | | 1,384 | | | 36.68 | | - | | - | |||||||||
Total | | 1,025 | | | 23.35 | | - | | | | 2,290,936 | | | 36.10 | | 2,288,961 | | |
(1) For the three months ended September 30, 2021, 1,975 shares were withheld upon vesting of restricted shares granted to employees of the Company in order to satisfy tax withholding obligations.
(2) These amounts include fees and commissions associated with the shares repurchased.
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ITEM 6 – EXHIBITS
The following exhibits are filed as part of this Quarterly Report and this list includes the Exhibit Index:
| | |
Exhibit No. |
| Description |
| | |
2.1 | | |
| | |
2.2 | | Agreement and Plan of Reorganization, dated as of October 4, 2018, as amended on December 7, 2018, by and between Union Bankshares Corporation and Access National Corporation (incorporated by reference to Annex A to Form S-4/A Registration Statement filed on December 10, 2018; SEC file no. 333-228455). |
| | |
3.1 | | |
| | |
3.1.1 | | |
| | |
3.2 | | |
| | |
10.24 | | Schedule of Atlantic Union Bankshares Corporation Non-Employee Directors’ Annual Compensation. |
| | |
15.1 | | |
| | |
31.1 | | |
| | |
31.2 | | |
| | |
32.1 | | |
| | |
| | Interactive data files formatted in Inline eXtensible Business Reporting Language for the quarter ended September 30, |
| | |
| | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, |
| | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
| Atlantic Union Bankshares Corporation | |
| | |
| (Registrant) | |
| | |
Date: November | By: | /s/ John C. Asbury |
| | John C. Asbury, |
| | President and Chief Executive Officer |
| | (principal executive officer) |
| | |
Date: November | By: | /s/ Robert M. Gorman |
| | Robert M. Gorman, |
| | Executive Vice President and Chief Financial Officer |
| | (principal financial and accounting officer) |
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