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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2022
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 000-55983
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Pennsylvania | 83-1561918 | ||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
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(484)568-5000
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Title of class | Trading Symbol | Name of exchange on which registered | ||||||
Common Stock, $1 par value | MRBK | The NASDAQ Stock Market |
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
Large Accelerated Filer | ☐ | Accelerated Filer | ||||||||||||
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Non-accelerated Filer | ☐ | Smaller Reporting Company | ☒ | |||||||||||
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Emerging Growth Company |
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Consolidated Balance Sheets – September 30, | |||||
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Consolidated Statements of Income – Three and Nine Months Ended September 30, | |||||
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Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, | |||||
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Consolidated Statements of Stockholders’ Equity – Three and Nine Months Ended September 30, | |||||
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Consolidated Statements of Cash Flows – Nine Months EndedSeptember 30, |
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Acronym | Description | ||||
ALLL | Allowance for loan and lease losses | ||||
AOCI | Accumulated other comprehensive (loss) income | ||||
ASC | Accounting Standards Codification | ||||
ASU | Accounting Standards Update | ||||
BOLI | Bank owned life insurance | ||||
CECL | Current expected credit losses | ||||
CET1 | Common equity tier 1 | ||||
CMO | Collateralized mortgage obligation | ||||
ESOP | Employee Stock Ownership Plan | ||||
FASB | Financial Accounting Standards Board | ||||
FHLB | Federal Home Loan Bank of Pittsburgh | ||||
FRB | Board of Governors of the Federal Reserve System | ||||
FTE | Fully taxable equivalent | ||||
GAAP | U.S. generally accepted accounting principles | ||||
JOBS Act | Jumpstart Our Business Startups Act of 2012 | ||||
LIBOR | London Inter-bank Offering Rate | ||||
MBS | Mortgage-backed securities | ||||
MSLP | Main Street Lending Programs | ||||
MSR | Mortgage servicing rights | ||||
PPP | Paycheck Protection Program | ||||
ROU | Right-of-use | ||||
SBA | Small Business Administration | ||||
SEC | Securities and Exchange Commission | ||||
SERP | Supplemental Executive Retirement Plan | ||||
TDR | Troubled debt restructuring |
(Unaudited)
| | | | | |
| | September 30, | | December 31, | |
(dollars in thousands, except per share data) |
| 2021 |
| 2020 | |
Cash and due from banks | | $ | 45,875 | | 34,190 |
Federal funds sold | | | 17,246 | | 2,554 |
Cash and cash equivalents | | | 63,121 | | 36,744 |
Securities available-for-sale (amortized cost of $145,129 and $120,215 as of September 30, 2021 and December 31, 2020) | | | 146,149 | | 123,562 |
Securities held-to-maturity (fair value of $6,660 and $6,857 as of September 30, 2021 and December 31, 2020) | | | 6,406 | | 6,510 |
Equity investments | | | 1,011 | | 1,031 |
Mortgage loans held for sale (amortized cost of $116,968 and $225,007 as of September 30, 2021 and December 31, 2020), at fair value | | | 117,996 | | 229,199 |
Loans, net of fees and costs (includes $17,142 and $12,182 of loans at fair value, amortized cost of $16,515 and $11,514 as of September 30, 2021 and December 31, 2020) | | | 1,378,670 | | 1,284,764 |
Allowance for loan and lease losses | | | (18,976) | | (17,767) |
Loans, net of the allowance for loan and lease losses | | | 1,359,694 | | 1,266,997 |
Restricted investment in bank stock | | | 4,162 | | 7,861 |
Bank premises and equipment, net | | | 8,242 | | 7,777 |
Bank owned life insurance | | | 22,362 | | 12,138 |
Accrued interest receivable | | | 5,080 | | 5,482 |
Deferred income taxes | | | 1,457 | | 62 |
Servicing assets | | | 11,932 | | 5,617 |
Goodwill | | | 899 | | 899 |
Intangible assets | | | 3,430 | | 3,601 |
Other assets | | | 10,504 | | 12,717 |
Total assets | | $ | 1,762,445 | | 1,720,197 |
Liabilities: | | | | | |
Deposits: | | | | | |
Non-interest bearing | | $ | 265,842 | | 203,843 |
Interest bearing | | | 1,173,205 | | 1,037,492 |
Total deposits | | | 1,439,047 | | 1,241,335 |
Short-term borrowings | | | 22,278 | | 106,862 |
Long-term debt | | | 78,405 | | 165,546 |
Subordinated debentures | | | 40,760 | | 40,671 |
Accrued interest payable | | | 663 | | 1,154 |
Other liabilities | | | 22,876 | | 23,007 |
Total liabilities | | | 1,604,029 | | 1,578,575 |
Stockholders’ equity: | | | | | |
Common stock, $1 par value. Authorized 25,000,000 and 10,000,000 shares as of September 30, 2021 and December 31, 2020; issued 6,506,028 and 6,455,566 as of September 30, 2021 and December 31, 2020 | | | 6,506 | | 6,456 |
Surplus | | | 82,508 | | 81,196 |
Treasury stock - 398,491 and 320,000 shares at September 30, 2021 and December 31, 2020 | | | (8,025) | | (5,828) |
Unearned common stock held by employee stock ownership plan | | | (1,768) | | (1,768) |
Retained earnings | | | 78,408 | | 59,010 |
Accumulated other comprehensive income | | | 787 | | 2,556 |
Total stockholders’ equity | | | 158,416 | | 141,622 |
Total liabilities and stockholders’ equity | | $ | 1,762,445 | | 1,720,197 |
Seeaccompanying notes to the unaudited consolidated financial statements.
3
(dollars in thousands, except per share data) | September 30, 2022 | December 31, 2021 | |||||||||
Assets: | |||||||||||
Cash and due from banks | $ | 12,114 | $ | 3,966 | |||||||
Interest-bearing deposits at other banks | 20,774 | 19,514 | |||||||||
Cash and cash equivalents | 32,888 | 23,480 | |||||||||
Securities available-for-sale, at fair value (amortized cost of $143,581 and $158,387, respectively) | 127,999 | 159,302 | |||||||||
Securities held-to-maturity, at amortized cost (fair value of $32,323 and $6,591, respectively) | 37,922 | 6,372 | |||||||||
Equity investments | 2,092 | 2,354 | |||||||||
Mortgage loans held for sale | 33,800 | 80,882 | |||||||||
Loans, net of fees and costs | 1,610,349 | 1,386,457 | |||||||||
Allowance for loan and lease losses | (18,974) | (18,758) | |||||||||
Loans, net of the allowance for loan and lease losses | 1,591,375 | 1,367,699 | |||||||||
Restricted investment in bank stock | 5,217 | 5,117 | |||||||||
Bank premises and equipment, net | 12,835 | 11,806 | |||||||||
Bank owned life insurance | 22,916 | 22,503 | |||||||||
Accrued interest receivable | 6,008 | 5,009 | |||||||||
Deferred income taxes | 5,722 | 1,413 | |||||||||
Servicing assets | 12,807 | 12,765 | |||||||||
Goodwill | 899 | 899 | |||||||||
Intangible assets | 3,226 | 3,379 | |||||||||
Other assets | 26,218 | 10,463 | |||||||||
Total assets | $ | 1,921,924 | $ | 1,713,443 | |||||||
Liabilities: | |||||||||||
Deposits: | |||||||||||
Non-interest bearing | $ | 290,169 | $ | 274,528 | |||||||
Interest bearing | 1,383,384 | 1,171,885 | |||||||||
Total deposits | 1,673,553 | 1,446,413 | |||||||||
Short-term borrowings | 23,458 | 41,344 | |||||||||
Subordinated debentures | 40,597 | 40,508 | |||||||||
Accrued interest payable | 1,154 | 31 | |||||||||
Other liabilities | 32,001 | 19,787 | |||||||||
Total liabilities | 1,770,763 | 1,548,083 | |||||||||
Stockholders’ equity: | |||||||||||
Common stock, $1 par value per share. 25,000,000 shares authorized; 6,566,356 and 6,534,587 shares issued and outstanding, respectively | 6,566 | 6,535 | |||||||||
Surplus | 84,848 | 83,663 | |||||||||
Treasury stock, 721,927 and 426,693 shares, respectively, at cost | (18,033) | (8,860) | |||||||||
Unearned common stock held by employee stock ownership plan | (1,602) | (1,602) | |||||||||
Retained earnings | 92,405 | 84,916 | |||||||||
Accumulated other comprehensive (loss) income | (13,023) | 708 | |||||||||
Total stockholders’ equity | 151,161 | 165,360 | |||||||||
Total liabilities and stockholders’ equity | $ | 1,921,924 | $ | 1,713,443 |
MERIDIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | | | | | | | | |
| Three months ended | | | Nine months ended | |||||
| September 30, | | | September 30, | |||||
(dollars in thousands, except per share data) | 2021 |
| 2020 | |
| 2021 |
| 2020 | |
Interest income: | | | | | | | | | |
Loans, including fees | $ | 17,626 | | 15,321 | | $ | 51,287 | | 43,048 |
Securities: | | | | | | | | | |
Taxable | | 284 | | 251 | | | 837 | | 920 |
Tax-exempt | | 379 | | 305 | | | 1,125 | | 698 |
Cash and cash equivalents | | 17 | | 3 | | | 25 | | 63 |
Total interest income | | 18,306 | | 15,880 | | | 53,274 | | 44,729 |
Interest expense: | | | | | | | | | |
Deposits | | 1,327 | | 2,235 | | | 4,261 | | 8,064 |
Borrowings | | 722 | | 930 | | | 2,224 | | 2,687 |
Total interest expense | | 2,049 | | 3,165 | | | 6,485 | | 10,751 |
Net interest income | | 16,257 | | 12,715 | | | 46,789 | | 33,978 |
Provision for loan losses | | 597 | | 3,956 | | | 1,292 | | 7,139 |
Net interest income after provision for loan losses | | 15,660 | | 8,759 | | | 45,497 | | 26,839 |
Non-interest income: | | | | | | | | | |
Mortgage banking income | | 18,726 | | 21,812 | | | 62,293 | | 45,395 |
Wealth management income | | 1,232 | | 951 | | | 3,531 | | 2,825 |
SBA loan income | | 2,688 | | 641 | | | 5,423 | | 1,821 |
Earnings on investment in life insurance | | 93 | | 70 | | | 224 | | 210 |
Net change in the fair value of derivative instruments | | (339) | | 3,028 | | | (3,431) | | 6,346 |
Net change in the fair value of loans held-for-sale | | (532) | | 2,932 | | | (3,164) | | 4,424 |
Net change in the fair value of loans held-for-investment | | 37 | | 93 | | | (24) | | 174 |
Net gain (loss) on hedging activity | | (1,189) | | (2,637) | | | 2,397 | | (7,363) |
Net gain on sale of investment securities available-for-sale | | 314 | | 1,290 | | | 362 | | 1,345 |
Service charges | | 35 | | 28 | | | 99 | | 77 |
Other | | 1,057 | | 852 | | | 3,192 | | 1,718 |
Total non-interest income | | 22,122 | | 29,060 | | | 70,902 | | 56,972 |
Non-interest expenses: | | | | | | | | | |
Salaries and employee benefits | | 19,472 | | 20,447 | | | 61,824 | | 46,529 |
Occupancy and equipment | | 1,133 | | 1,108 | | | 3,460 | | 3,159 |
Professional fees | | 873 | | 681 | | | 2,629 | | 2,118 |
Advertising and promotion | | 1,089 | | 781 | | | 2,795 | | 1,996 |
Data processing | | 530 | | 460 | | | 1,666 | | 1,260 |
Information technology | | 476 | | 394 | | | 1,365 | | 1,100 |
Pennsylvania bank shares tax | | 152 | | 254 | | | 478 | | 734 |
Other | | 1,756 | | 1,709 | | | 5,773 | | 4,256 |
Total non-interest expenses | | 25,481 | | 25,834 | | | 79,990 | | 61,152 |
Income before income taxes | | 12,301 | | 11,985 | | | 36,409 | | 22,659 |
Income tax expense | | 2,863 | | 2,773 | | | 8,543 | | 5,218 |
Net income | $ | 9,438 | | 9,212 | | $ | 27,866 | | 17,441 |
Basic earnings per common share | $ | 1.56 | | 1.51 | | $ | 4.62 | | 2.83 |
Diluted earnings per common share | $ | 1.52 | | 1.51 | | $ | 4.49 | | 2.82 |
See accompanying notes to the unaudited consolidated financial statements.
4
| | | | | | | | | |
| | | Three months ended | | Nine months ended | ||||
| | | September 30, | | September 30, | ||||
(dollars in thousands) |
| | 2021 |
| 2020 | | 2021 |
| 2020 |
Net income: | | $ | 9,438 | | 9,212 | | 27,866 | | 17,441 |
| | | | | | | | | |
Other comprehensive (loss) income: | | | | | | | | | |
Net change in unrealized gains on investment securities available for sale: | | | | | | | | | |
Net unrealized (losses) gains arising during the period, net of tax expense of ($312), $144, ($475), and $761, respectively | | | (1,021) | | 304 | | (1,490) | | 2,489 |
Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of ($71), ($301), ($83), and ($313), respectively | | | (243) | | (989) | | (279) | | (1,032) |
Unrealized investment (losses) gains, net of tax expense of $(383), $(157), $(558), and $448, respectively | | | (1,264) | | (685) | | (1,769) | | 1,457 |
Total other comprehensive (loss) income | | | (1,264) | | (685) | | (1,769) | | 1,457 |
Total comprehensive income | | $ | 8,174 | | 8,527 | | 26,097 | | 18,898 |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(dollars in thousands, except per share data) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Interest income: | |||||||||||||||||||||||
Loans, including fees | $ | 21,848 | $ | 17,626 | $ | 58,187 | $ | 51,287 | |||||||||||||||
Securities - taxable | 648 | 357 | 1,599 | 1,076 | |||||||||||||||||||
Securities - tax-exempt | 369 | 306 | 1,015 | 886 | |||||||||||||||||||
Cash and cash equivalents | 93 | 17 | 157 | 25 | |||||||||||||||||||
Total interest income | 22,958 | 18,306 | 60,958 | 53,274 | |||||||||||||||||||
Interest expense: | |||||||||||||||||||||||
Deposits | 4,075 | 1,327 | 7,182 | 4,261 | |||||||||||||||||||
Borrowings | 857 | 722 | 2,166 | 2,224 | |||||||||||||||||||
Total interest expense | 4,932 | 2,049 | 9,348 | 6,485 | |||||||||||||||||||
Net interest income | 18,026 | 16,257 | 51,610 | 46,789 | |||||||||||||||||||
Provision for loan losses | 526 | 597 | 1,743 | 1,292 | |||||||||||||||||||
Net interest income after provision for loan losses | 17,500 | 15,660 | 49,867 | 45,497 | |||||||||||||||||||
Non-interest income: | |||||||||||||||||||||||
Mortgage banking income | 7,329 | 18,726 | 21,367 | 62,293 | |||||||||||||||||||
Wealth management income | 1,114 | 1,232 | 3,672 | 3,531 | |||||||||||||||||||
SBA loan income | 989 | 2,688 | 3,946 | 5,423 | |||||||||||||||||||
Earnings on investment in life insurance | 138 | 93 | 413 | 224 | |||||||||||||||||||
Net change in the fair value of derivative instruments | 127 | (339) | (713) | (3,431) | |||||||||||||||||||
Net change in the fair value of loans held-for-sale | (237) | (532) | (1,094) | (3,164) | |||||||||||||||||||
Net change in the fair value of loans held-for-investment | (886) | 37 | (2,499) | (24) | |||||||||||||||||||
Net gain (loss) on hedging activity | 399 | (1,189) | 4,941 | 2,397 | |||||||||||||||||||
Net gain on sale of investment securities available-for-sale | — | 314 | — | 362 | |||||||||||||||||||
Service charges | 32 | 35 | 90 | 99 | |||||||||||||||||||
Other | 1,219 | 1,057 | 3,605 | 3,192 | |||||||||||||||||||
Total non-interest income | 10,224 | 22,122 | 33,728 | 70,902 | |||||||||||||||||||
Non-interest expense: | |||||||||||||||||||||||
Salaries and employee benefits | 13,360 | 19,472 | 41,585 | 61,824 | |||||||||||||||||||
Occupancy and equipment | 1,191 | 1,133 | 3,619 | 3,460 | |||||||||||||||||||
Professional fees | 899 | 873 | 2,659 | 2,629 | |||||||||||||||||||
Advertising and promotion | 1,165 | 1,089 | 3,340 | 2,795 | |||||||||||||||||||
Data processing | 574 | 530 | 1,633 | 1,666 | |||||||||||||||||||
Information technology | 868 | 476 | 2,306 | 1,365 | |||||||||||||||||||
Pennsylvania bank shares tax | 202 | 152 | 612 | 478 | |||||||||||||||||||
Other | 2,002 | 1,756 | 5,646 | 5,773 | |||||||||||||||||||
Total non-interest expense | 20,261 | 25,481 | 61,400 | 79,990 | |||||||||||||||||||
Income before income taxes | 7,463 | 12,301 | 22,195 | 36,409 | |||||||||||||||||||
Income tax expense | 1,665 | 2,863 | 4,927 | 8,543 | |||||||||||||||||||
Net income | $ | 5,798 | $ | 9,438 | $ | 17,268 | $ | 27,866 | |||||||||||||||
Basic earnings per common share | $ | 0.99 | $ | 1.56 | $ | 2.90 | $ | 4.62 | |||||||||||||||
Diluted earnings per common share | $ | 0.96 | $ | 1.52 | $ | 2.80 | $ | 4.49 | |||||||||||||||
Basic weighted average shares outstanding | 5,868 | 6,045 | 5,964 | 6,033 | |||||||||||||||||||
Diluted weighted average shares outstanding | 6,060 | 6,231 | 6,172 | 6,201 |
5
(Unaudited)
| | | | | | | | | | | | | | |
| | | | | | | | Unearned | | | | Accumulated | | |
| | | | | | | | Common | | | | Other | | |
| | Common | | | | Treasury | | Stock - | | Retained | | Comprehensive | | |
(dollars in thousands) |
| Stock |
| Surplus |
| Stock |
| ESOP | | Earnings |
| Income |
| Total |
Balance, January 1, 2020 | $ | 6,408 | | 80,255 | | (62) | | — | | 34,097 | | (3) | | 120,695 |
Comprehensive income: | | | | | | | | | | | | | | |
Net income | | | | | | | | | | 2,516 | | | | 2,516 |
Change in unrealized gains on securities available-for-sale, net of tax | | | | | | | | | | | | 429 | | 429 |
Total comprehensive income | | | | | | | | | | | | | | 2,945 |
Share-based awards and exercises | | 6 | | 26 | | | | | | | | | | 32 |
Net purchase of treasury stock through publicly announced plans | | | | 63 | | (5,766) | | | | | | | | (5,703) |
Compensation expense related to stock option grants | | | | 64 | | | | | | | | | | 64 |
Balance, March 31, 2020 | $ | 6,414 | | 80,408 | | (5,828) | | — | | 36,613 | | 426 | | 118,033 |
Comprehensive income: | | | | | | | | | | | | | | |
Net income | | | | | | | | | | 5,713 | | | | 5,713 |
Change in unrealized gains on securities available-for-sale, net of tax | | | | | | | | | | | | 1,713 | | 1,713 |
Total comprehensive income | | | | | | | | | | | | | | 7,426 |
Compensation expense related to stock option grants | | | | 59 | | | | | | | | | | 59 |
Balance, June 30, 2020 | $ | 6,414 | | 80,467 | | (5,828) | | — | | 42,326 | | 2,139 | | 125,518 |
Comprehensive income: | | | | | | | | | | | | | | |
Net income | | | | | | | | | | 9,212 | | | | 9,212 |
Change in unrealized gains on securities available-for-sale, net of tax | | | | | | | | | | | | (685) | | (685) |
Total comprehensive income | | | | | | | | | | | | | | 8,527 |
Dividends paid or accrued, $0.125 per share | | | | | | | | | | (763) | | | | (763) |
Shares purchased for ESOP plan (133,601) | | | | | | | | (2,000) | | | | | | (2,000) |
Common stock issued through share-based awards and exercises | | 36 | | 337 | | | | | | | | | | 373 |
Stock based compensation | | | | 177 | | | | | | | | | | 177 |
Balance, September 30, 2020 | $ | 6,450 | | 80,981 | | (5,828) | | (2,000) | | 50,775 | | 1,454 | | 131,832 |
6
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(dollars in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Net income: | $ | 5,798 | $ | 9,438 | $ | 17,268 | $ | 27,866 | |||||||||||||||
Net change in unrealized gains on investment securities available for sale: | |||||||||||||||||||||||
Change in fair value of investment securities available for sale, net of tax of $(1,129), $(312), $(3,694), and $(475), respectively | (3,910) | (1,021) | (12,760) | (1,490) | |||||||||||||||||||
Reclassification adjustment for net gains (losses) realized in net income, net of tax effect of $0, $(71), $(1), and $(83), respectively | — | (243) | (9) | (279) | |||||||||||||||||||
Reclassification adjustment for securities transferred from available-for-sale to held-to-maturity, net of tax effect of $8, $0, $(293), and $0, respectively | 37 | — | (962) | — | |||||||||||||||||||
Unrealized investment losses, net of tax effect of $(1,121), $(383), $(3,989), and $(558), respectively | (3,873) | (1,264) | (13,731) | (1,769) | |||||||||||||||||||
Other comprehensive loss | (3,873) | (1,264) | (13,731) | (1,769) | |||||||||||||||||||
Comprehensive income | $ | 1,925 | $ | 8,174 | $ | 3,537 | $ | 26,097 |
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| | | | | | | | Unearned | | | | Accumulated | | |
| | | | | | | | Common | | | | Other | | |
| | Common | | | | Treasury | | Stock - | | Retained | | Comprehensive | | |
(dollars in thousands) |
| Stock |
| Surplus |
| Stock | | ESOP | | Earnings |
| Income |
| Total |
Balance, January 1, 2021 | $ | 6,456 | | 81,196 | | (5,828) | | (1,768) | | 59,010 | | 2,556 | | 141,622 |
Comprehensive income: | | | | | | | | | | | | | | |
Net income | | | | | | | | | | 10,170 | | | | 10,170 |
Net change in unrealized losses on securities available-for-sale, net of tax | | | | | | | | | | | | (1,919) | | (1,919) |
Total comprehensive income | | | | | | | | | | | | | | 8,251 |
Dividends paid or accrued, $1.125 per share | | | | | | | | | | (6,931) | | | | (6,931) |
Common stock issued through share-based awards and exercises | | 32 | | 302 | | | | | | | | | | 334 |
Stock based compensation | | | | 229 | | | | | | | | | | 229 |
Balance, March 31, 2021 | $ | 6,488 | | 81,727 | | (5,828) | | (1,768) | | 62,249 | | 637 | | 143,505 |
Comprehensive income: | | | | | | | | | | | | | | |
Net income | | | | | | | | | | 8,258 | | | | 8,258 |
Change in unrealized gains on securities available-for-sale, net of tax | | | | | | | | | | | | 1,414 | | 1,414 |
Total comprehensive income | | | | | | | | | | | | | | 9,672 |
Dividends paid or accrued, $0.125 per share | | | | | | | | | | (768) | | | | (768) |
Common stock issued through share-based awards and exercises | | 5 | | 52 | | | | | | | | | | 57 |
Stock based compensation | | | | 419 | | | | | | | | | | 419 |
Balance, June 30, 2021 | $ | 6,493 | | 82,198 | | (5,828) | | (1,768) | | 69,739 | | 2,051 | | 152,885 |
Comprehensive income: | | | | | | | | | | | | | | |
Net income | | | | | | | | | | 9,438 | | | | 9,438 |
Change in unrealized gains on securities available-for-sale, net of tax | | | | | | | | | | | | (1,264) | | (1,264) |
Total comprehensive income | | | | | | | | | | | | | | 8,174 |
Dividends paid or accrued, $0.125 per share | | | | | | | | | | (769) | | | | (769) |
Net purchase of treasury stock through publicly announced plans (78,491) | | | | | | (2,197) | | | | | | | | (2,197) |
Common stock issued through share-based awards and exercises | | 13 | | 167 | | | | | | | | | | 180 |
Stock based compensation | | | | 143 | | | | | | | | | | 143 |
Balance, September 30, 2021 | $ | 6,506 | | 82,508 | | (8,025) | | (1,768) | | 78,408 | | 787 | | 158,416 |
See accompanying notes to the unaudited consolidated financial statements.
7
STOCKHOLDERS’ EQUITY
| | | | | |
| | Nine months ended | |||
| | September 30, | |||
(dollars in thousands) |
| 2021 |
| 2020 | |
Net income | | $ | 27,866 | | 17,441 |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | | | |
Gain on sale of investment securities | | | (362) | | (1,345) |
Depreciation and amortization, net | | | (4,677) | | (992) |
Net amortization of investment premiums and discounts and change in fair value of equity securities | | | 991 | | 238 |
Provision for loan losses | | | 1,292 | | 7,139 |
Amortization of issuance costs on subordinated debt | | | 88 | | 83 |
Share-based compensation | | | 791 | | 300 |
Net change in fair value of derivative instruments | | | 3,431 | | (6,346) |
Net change in fair value of loans held for sale | | | 3,164 | | (4,424) |
Net change in fair value of loans held for investment | | | 24 | | (174) |
Gain on sale of OREO | | | — | | (6) |
Amortization and net impairment of servicing rights | | | 707 | | 350 |
Capitalization of servicing rights, net | | | (7,021) | | (2,992) |
SBA loan income | | | (5,423) | | (1,821) |
Proceeds from sale of loans | | | 2,034,464 | | 1,356,637 |
Loans originated for sale | | | (1,864,132) | | (1,498,614) |
Mortgage banking income | | | (62,293) | | (45,395) |
Decrease (increase) in accrued interest receivable | | | 402 | | (1,518) |
(Increase) decrease in other assets | | | (2,648) | | 8,503 |
Earnings from investment in life insurance | | | (224) | | (210) |
(Increase) decrease income in deferred income tax | | | (817) | | 1,274 |
(Decrease) increase in accrued interest payable | | | (490) | | 1,170 |
Increase in other liabilities | | | 1,299 | | 9,054 |
Net cash provided by (used in) operating activities | | | 126,432 | | (161,648) |
Cash flows from investing activities: | | | | | |
Activity in available-for-sale securities: | | | | | |
Maturities, repayments and calls | | | 6,173 | | 6,319 |
Sales | | | 20,855 | | 44,592 |
Purchases | | | (52,468) | | (92,476) |
Activity in held-to-maturity securities: | | | | | |
Maturities, repayments and calls | | | — | | 2,140 |
Proceeds from sale of OREO | | | — | | 126 |
Decrease in restricted stock | | | 3,699 | | 422 |
Net increase in loans | | | (82,711) | | (339,459) |
Purchases of premises and equipment | | | (1,496) | | (651) |
Purchase of bank owned life insurance | | | (10,000) | | — |
Net cash used in investing activities | | | (115,948) | | (378,987) |
Cash flows from financing activities: | | | | | |
Net increase in deposits | | | 197,712 | | 357,856 |
(Decrease) increase in short-term borrowings | | | (3,187) | | (31,928) |
Decrease in short-term borrowings with original maturity > 90 days | | | (81,397) | | 12,902 |
(Repayment) proceeds from long-term debt, net | | | (87,141) | | 247,008 |
Repayment of acquisition note payable | | | — | | (413) |
Issuance costs on subordinated debt | | | — | | (231) |
Net purchase of treasury stock | | | (2,197) | | (5,703) |
Dividends paid | | | (8,468) | | (763) |
Purchase of common shares for ESOP | | | — | | (2,000) |
Share based awards and exercises | | | 571 | | 405 |
Net cash provided by financing activities | | | 15,893 | | 577,133 |
Net change in cash and cash equivalents | | | 26,377 | | 36,498 |
Cash and cash equivalents at beginning of period | | | 36,744 | | 39,371 |
Cash and cash equivalents at end of period | | $ | 63,121 | | 75,869 |
Supplemental disclosure of cash flow information: | | | | | |
Cash paid during the period for: | | | | | |
Interest | | $ | 6,976 | | 9,581 |
Income taxes | | | 11,354 | | 2,490 |
Supplemental disclosure of cash flow information: | | | | | |
Transfers from loans held for sale to loans held for investment | | | 7,116 | | — |
Net loans sold, not settled | | | — | | (1,657) |
(dollars in thousands, except per share data) | Common Stock | Surplus | Treasury Stock | Unearned ESOP | Retained Earnings | AOCI | Total | ||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | 6,561 | $ | 84,359 | $ | (11,896) | $ | (1,602) | $ | 87,815 | $ | (9,150) | $ | 156,087 | |||||||||||||||||||||||||||
Net income | — | — | — | — | 5,798 | — | 5,798 | ||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (3,873) | (3,873) | ||||||||||||||||||||||||||||||||||
Dividends paid or accrued, $0.20 per share | — | — | — | — | (1,208) | — | (1,208) | ||||||||||||||||||||||||||||||||||
Net purchase of treasury stock through publicly announced plans (197,849 shares) | — | — | (6,137) | — | — | — | (6,137) | ||||||||||||||||||||||||||||||||||
Common stock issued through share-based awards and exercises | 5 | 112 | — | — | — | — | 117 | ||||||||||||||||||||||||||||||||||
Stock based compensation expense | — | 377 | — | — | — | — | 377 | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | $ | 6,566 | $ | 84,848 | $ | (18,033) | $ | (1,602) | $ | 92,405 | $ | (13,023) | $ | 151,161 |
(dollars in thousands, except per share data) | Common Stock | Surplus | Treasury Stock | Unearned ESOP | Retained Earnings | AOCI | Total | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | $ | 6,535 | $ | 83,663 | $ | (8,860) | $ | (1,602) | $ | 84,916 | $ | 708 | $ | 165,360 | |||||||||||||||||||||||||||
Net income | — | — | — | — | 17,268 | — | 17,268 | ||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (13,731) | (13,731) | ||||||||||||||||||||||||||||||||||
Dividends paid or accrued, $1.60 per share | — | — | — | — | (9,779) | — | (9,779) | ||||||||||||||||||||||||||||||||||
Net purchase of treasury stock through publicly announced plans (295,234 shares) | — | — | (9,173) | — | — | — | (9,173) | ||||||||||||||||||||||||||||||||||
Common stock issued through share-based awards and exercises | 31 | 454 | — | — | — | — | 485 | ||||||||||||||||||||||||||||||||||
Stock based compensation expense | — | 731 | — | — | — | — | 731 | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | $ | 6,566 | $ | 84,848 | $ | (18,033) | $ | (1,602) | $ | 92,405 | $ | (13,023) | $ | 151,161 |
(dollars in thousands, except per share data) | Common Stock | Surplus | Treasury Stock | Unearned ESOP | Retained Earnings | AOCI | Total | ||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | 6,493 | $ | 82,198 | $ | (5,828) | $ | (1,768) | $ | 69,739 | $ | 2,051 | $ | 152,885 | |||||||||||||||||||||||||||
Net income | — | — | — | — | 9,438 | — | 9,438 | ||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (1,264) | (1,264) | ||||||||||||||||||||||||||||||||||
Dividends paid or accrued, $0.125 per share | — | — | — | — | (769) | — | (769) | ||||||||||||||||||||||||||||||||||
Net purchase of treasury stock through publicly announced plans (78,491 shares) | — | — | (2,197) | — | — | — | (2,197) | ||||||||||||||||||||||||||||||||||
Common stock issued through share-based awards and exercises | 13 | 167 | — | — | — | — | 180 | ||||||||||||||||||||||||||||||||||
Stock based compensation expense | — | 143 | — | — | — | — | 143 | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | $ | 6,506 | $ | 82,508 | $ | (8,025) | $ | (1,768) | $ | 78,408 | $ | 787 | $ | 158,416 |
(dollars in thousands, except per share data) | Common Stock | Surplus | Treasury Stock | Unearned ESOP | Retained Earnings | AOCI | Total | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | $ | 6,456 | $ | 81,196 | $ | (5,828) | $ | (1,768) | $ | 59,010 | $ | 2,556 | $ | 141,622 | |||||||||||||||||||||||||||
Net income | — | — | — | — | 27,866 | — | 27,866 | ||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (1,769) | (1,769) | ||||||||||||||||||||||||||||||||||
Dividends declared, $1.375 per share | — | — | — | — | (8,468) | — | (8,468) | ||||||||||||||||||||||||||||||||||
Net purchase of treasury stock through publicly announced plans (78,491 shares) | — | — | (2,197) | — | — | — | (2,197) | ||||||||||||||||||||||||||||||||||
Common stock issued through share-based awards and exercises | 50 | 521 | — | — | — | — | 571 | ||||||||||||||||||||||||||||||||||
Stock based compensation expense | — | 791 | — | — | — | — | 791 | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | $ | 6,506 | $ | 82,508 | $ | (8,025) | $ | (1,768) | $ | 78,408 | $ | 787 | $ | 158,416 |
8
Nine months ended September 30, | |||||||||||
(dollars in thousands) | 2022 | 2021 | |||||||||
Net income | $ | 17,268 | $ | 27,866 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Gain on sale of investment securities | — | (362) | |||||||||
Net amortization of investment premiums and discounts and change in fair value of equity securities | 668 | 991 | |||||||||
Depreciation and amortization, net | (1,343) | (4,677) | |||||||||
Provision for loan losses | 1,743 | 1,292 | |||||||||
Amortization of issuance costs on subordinated debt | 89 | 88 | |||||||||
Stock based compensation | 731 | 791 | |||||||||
Net change in fair value of derivative instruments | 713 | 3,431 | |||||||||
Net change in fair value of loans held for sale | 1,094 | 3,164 | |||||||||
Net change in fair value of loans held for investment | 2,499 | 24 | |||||||||
Amortization and net impairment of servicing rights | 1,753 | 707 | |||||||||
SBA loan income | (3,946) | (5,423) | |||||||||
Proceeds from sale of loans | 863,056 | 2,027,443 | |||||||||
Loans originated for sale | (794,541) | (1,864,132) | |||||||||
Mortgage banking income | (21,367) | (62,293) | |||||||||
(Increase) decrease in accrued interest receivable | (999) | 402 | |||||||||
Increase in other assets | (1,675) | (2,648) | |||||||||
Earnings from investment in life insurance | (413) | (224) | |||||||||
Decrease in deferred income tax | (219) | (817) | |||||||||
Increase (decrease) in accrued interest payable | 1,123 | (490) | |||||||||
(Decrease) increase in other liabilities | (2,579) | 1,299 | |||||||||
Net cash provided by operating activities | 63,655 | 126,432 | |||||||||
Cash flows from investing activities: | |||||||||||
Activity in available-for-sale securities: | |||||||||||
Maturities, repayments and calls | 8,662 | 6,173 | |||||||||
Sales | — | 20,855 | |||||||||
Purchases | (22,176) | (52,468) | |||||||||
Activity in held-to-maturity securities: | |||||||||||
Maturities, repayments and calls | 540 | — | |||||||||
Purchases | (5,500) | — | |||||||||
Increase (decrease) in restricted stock | (100) | 3,699 | |||||||||
Net increase in loans | (225,967) | (82,711) | |||||||||
Purchases of premises and equipment | (2,020) | (1,496) | |||||||||
Purchase of bank owned life insurance | — | (10,000) | |||||||||
Net cash used in investing activities | (246,561) | (115,948) | |||||||||
Cash flows from financing activities: | |||||||||||
Net increase in deposits | 227,140 | 197,712 | |||||||||
Decrease in short-term borrowings | — | (3,187) | |||||||||
Decrease in short-term borrowings with original maturity > 90 days | (17,886) | (81,397) | |||||||||
Repayment of long-term debt, net | — | (87,141) | |||||||||
Net purchase of treasury stock | (9,173) | (2,197) | |||||||||
Dividends paid | (9,779) | (8,468) | |||||||||
Share based awards and exercises | 485 | 571 | |||||||||
Net cash provided by financing activities | 190,787 | 15,893 | |||||||||
Net change in cash and cash equivalents | 7,881 | 26,377 | |||||||||
Cash and cash equivalents at beginning of period | 23,480 | 36,744 | |||||||||
Cash and cash equivalents at end of period | $ | 31,361 | $ | 63,121 | |||||||
Supplemental disclosure of cash flow information: | |||||||||||
Cash paid during the period for: | |||||||||||
Interest | $ | 8,225 | $ | 6,976 | |||||||
Income taxes | 5,365 | 11,354 | |||||||||
Transfers from loans held for sale to loans held for investment | 2,955 | 7,116 | |||||||||
Transfer of securities from AFS to HTM | 23,655 | — | |||||||||
Lease liabilities arising from obtaining right-of-use assets | 10,995 | — |
Estimates for the allowance for loan and lease losses at September 30, 2021 include probable losses related to the COVID-19 pandemic. While there have been signals of economic recovery and a resumption of many types of business activity, there remains significant uncertainty involved in the measurement of these losses. If economic conditions deteriorate further, then additional provision for loan losses may be required in future periods. It is unknown how long these conditions will last and what the ultimate financial impact will be to the Corporation.
9
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(dollars in thousands, except per share data) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Numerator for earnings per share: | |||||||||||||||||||||||
Net income available to common stockholders | $ | 5,798 | $ | 9,438 | $ | 17,268 | $ | 27,866 | |||||||||||||||
Denominators for earnings per share: | |||||||||||||||||||||||
Weighted average shares outstanding | 5,968 | 6,157 | 6,038 | 6,148 | |||||||||||||||||||
Average unearned ESOP shares | (100) | (112) | (74) | (115) | |||||||||||||||||||
Basic weighted averages shares outstanding | 5,868 | 6,045 | 5,964 | 6,033 | |||||||||||||||||||
Dilutive effects of assumed exercises of stock options | 116 | 125 | 137 | 113 | |||||||||||||||||||
Dilutive effects of SERP shares | 75 | 61 | 71 | 55 | |||||||||||||||||||
Diluted weighted averages shares outstanding | 6,060 | 6,231 | 6,172 | 6,201 | |||||||||||||||||||
Basic earnings per share | $ | 0.99 | $ | 1.56 | $ | 2.90 | $ | 4.62 | |||||||||||||||
Diluted earnings per share | $ | 0.96 | $ | 1.52 | $ | 2.80 | $ | 4.49 | |||||||||||||||
Antidilutive shares excluded from computation of average dilutive earnings per share | 237 | 140 | 236 | 140 |
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(dollars in thousands, except per share data) |
| 2021 |
| 2020 | | 2021 |
| 2020 | ||||
Numerator: | | | | | | | | | | | | |
Net income available to common stockholders | | $ | 9,438 | | | 9,212 | | $ | 27,866 | | | 17,441 |
Denominator for basic earnings per share | | | | | | | | | | | | |
Weighted average shares outstanding | | | 6,157 | | | 6,099 | | | 6,148 | | | 6,172 |
Average unearned ESOP shares | | | (112) | | | — | | | (115) | | | — |
Basic weighted averages shares outstanding | | | 6,045 | | | 6,099 | | | 6,033 | | | 6,172 |
Effect of dilutive common shares | | | 186 | | | 11 | | | 168 | | | 21 |
Denominator for diluted earnings per share - adjusted weighted average shares outstanding | | | 6,231 | | | 6,110 | | | 6,201 | | | 6,193 |
Basic earnings per share | | $ | 1.56 | | | 1.51 | | $ | 4.62 | | | 2.83 |
Diluted earnings per share | | $ | 1.52 | | | 1.51 | | $ | 4.49 | | | 2.82 |
Antidilutive shares excluded from computation of average dilutive earnings per share | | | 140 | | | 265 | | | 140 | | | 192 |
| | | | | | | | | | | |
| | September 30, 2021 | |||||||||
| | | | | Gross | | Gross | | | | # of Securities |
| | Amortized | | unrealized | | unrealized | | Fair | | in unrealized | |
(dollars in thousands) |
| cost |
| gains |
| losses |
| value | | loss position | |
Securities available-for-sale: | | | | | | | | | | | |
U.S. asset backed securities | | $ | 21,120 | | 199 | | (26) | | 21,293 | | 4 |
U.S. government agency mortgage-backed securities | | | 5,351 | | 137 | | (29) | | 5,459 | | 1 |
U.S. government agency collateralized mortgage obligations | | | 23,712 | | 483 | | (142) | | 24,053 | | 7 |
State and municipal securities | | | 72,415 | | 874 | | (461) | | 72,828 | | 23 |
U.S. Treasuries | | | 15,082 | | 6 | | (78) | | 15,010 | | 11 |
Non-U.S. government agency collateralized mortgage obligations | | | 999 | | — | | — | | 999 | | 1 |
Corporate bonds | | | 6,450 | | 73 | | (16) | | 6,507 | | 4 |
Total securities available-for-sale | | $ | 145,129 | | 1,772 | | (752) | | 146,149 | | 51 |
Securities held-to-maturity: | | | | | | | | | | | |
State and municipal securities | | | 6,406 | | 254 | | ─ | | 6,660 | | — |
Total securities held-to-maturity | | $ | 6,406 | | 254 | | — | | 6,660 | | — |
10
September 30, 2022 | |||||||||||||||||||||||||||||
(dollars in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | # of Securities in unrealized loss position | ||||||||||||||||||||||||
Securities available-for-sale: | |||||||||||||||||||||||||||||
U.S. asset backed securities | $ | 15,763 | $ | 21 | $ | (311) | $ | 15,473 | 14 | ||||||||||||||||||||
U.S. government agency MBS | 12,079 | — | (735) | 11,344 | 13 | ||||||||||||||||||||||||
U.S. government agency CMO | 21,248 | — | (2,079) | 19,169 | 28 | ||||||||||||||||||||||||
State and municipal securities | 44,885 | — | (7,646) | 37,239 | 34 | ||||||||||||||||||||||||
U.S. Treasuries | 32,980 | — | (3,699) | 29,281 | 25 | ||||||||||||||||||||||||
Non-U.S. government agency CMO | 9,426 | — | (599) | 8,827 | 11 | ||||||||||||||||||||||||
Corporate bonds | 7,200 | — | (534) | 6,666 | 12 | ||||||||||||||||||||||||
Total securities available-for-sale | $ | 143,581 | $ | 21 | $ | (15,603) | $ | 127,999 | 137 | ||||||||||||||||||||
Securities held-to-maturity: | |||||||||||||||||||||||||||||
State and municipal securities | $ | 37,922 | $ | — | $ | (5,599) | $ | 32,323 | 27 | ||||||||||||||||||||
Total securities held-to-maturity | $ | 37,922 | $ | — | $ | (5,599) | $ | 32,323 | — | ||||||||||||||||||||
December 31, 2021 | |||||||||||||||||||||||||||||
(dollars in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | # of Securities in unrealized loss position | ||||||||||||||||||||||||
Securities available-for-sale: | |||||||||||||||||||||||||||||
U.S. asset backed securities | $ | 16,850 | $ | 55 | $ | (68) | $ | 16,837 | 10 | ||||||||||||||||||||
U.S. government agency MBS | 9,749 | 124 | (60) | 9,813 | 3 | ||||||||||||||||||||||||
U.S. government agency CMO | 22,276 | 358 | (253) | 22,381 | 10 | ||||||||||||||||||||||||
State and municipal securities | 72,099 | 1,379 | (496) | 72,982 | 12 | ||||||||||||||||||||||||
U.S. Treasuries | 29,973 | 1 | (246) | 29,728 | 21 | ||||||||||||||||||||||||
Non-U.S. government agency CMO | 990 | — | (15) | 975 | 1 | ||||||||||||||||||||||||
Corporate bonds | 6,450 | 154 | (18) | 6,586 | 5 | ||||||||||||||||||||||||
Total securities available-for-sale | $ | 158,387 | $ | 2,071 | $ | (1,156) | $ | 159,302 | 62 | ||||||||||||||||||||
Securities held-to-maturity: | |||||||||||||||||||||||||||||
State and municipal securities | $ | 6,372 | $ | 219 | $ | — | $ | 6,591 | — | ||||||||||||||||||||
Total securities held-to-maturity | $ | 6,372 | $ | 219 | $ | — | $ | 6,591 | — | ||||||||||||||||||||
| | | | | | | | | | | |
| | December 31, 2020 | |||||||||
| | | | | Gross | | Gross | | | | # of Securities |
| | Amortized | | unrealized | | unrealized | | Fair | | in unrealized | |
(dollars in thousands) |
| cost |
| gains |
| losses |
| value | | loss position | |
Securities available-for-sale: | | | | | | | | | | | |
U.S. asset backed securities | | $ | 25,303 | | 364 | | (75) | | 25,592 | | 8 |
U.S. government agency mortgage-backed securities | | | 3,854 | | 192 | | — | | 4,046 | | — |
U.S. government agency collateralized mortgage obligations | | | 23,010 | | 916 | | (17) | | 23,909 | | 1 |
State and municipal securities | | | 63,848 | | 2,025 | | (63) | | 65,810 | | 3 |
Corporate bonds | | | 4,200 | | 7 | | (2) | | 4,205 | | 2 |
Total securities available-for-sale | | $ | 120,215 | | 3,504 | | (157) | | 123,562 | | 14 |
Securities held-to-maturity: | | | | | | | | | | | |
State and municipal securities | | | 6,510 | | 347 | | — | | 6,857 | | — |
Total securities held-to-maturity | | $ | 6,510 | | 347 | | — | | 6,857 | | — |
Although the Corporation’s investment portfolio overall is in a net unrealized gainloss position at September 30, 2021,2022, the temporary impairment in the above noted securities is primarily the result of changes in market interest rates subsequent to purchase and the Corporation does not intend to sell these securities prior to recovery and it is more likely than not that the Corporation will not be required to sell these securities prior to recovery to satisfy liquidity needs, and therefore, 0no securities are deemed to be other-than-temporarily impaired.
| | | | | | | | | | | | | |
| | September 30, 2021 | |||||||||||
| | Less than 12 Months | | 12 Months or more | | Total | |||||||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | |
(dollars in thousands) |
| value |
| losses |
| value |
| losses |
| value |
| losses | |
Securities available-for-sale: | | | | | | | | | | | | | |
U.S. asset backed securities | | $ | 4,158 | | (26) | | — | | — | | 4,158 | | (26) |
U.S. government agency mortgage-backed securities | | | 1,614 | | (29) | | — | | — | | 1,614 | | (29) |
U.S. government agency collateralized mortgage obligations | | | 7,315 | | (142) | | — | | — | | 7,315 | | (142) |
State and municipal securities | | | 34,808 | | (451) | | 568 | | (10) | | 35,376 | | (461) |
U.S. Treasuries | | | 12,049 | | (78) | | — | | — | | 12,049 | | (78) |
Corporate bonds | | | 2,244 | | (6) | | 439 | | (10) | | 2,683 | | (16) |
Total securities available-for-sale | | $ | 62,188 | | (732) | | 1,007 | | (20) | | 63,195 | | (752) |
11
September 30, 2022 | |||||||||||||||||||||||||||||||||||
Less than 12 Months | 12 Months or more | Total | |||||||||||||||||||||||||||||||||
(dollars in thousands) | Fair value | Unrealized losses | Fair value | Unrealized losses | Fair value | Unrealized losses | |||||||||||||||||||||||||||||
Securities available-for-sale: | |||||||||||||||||||||||||||||||||||
U.S. asset backed securities | $ | 10,122 | $ | (129) | $ | 3,254 | $ | (182) | $ | 13,376 | $ | (311) | |||||||||||||||||||||||
U.S. government agency MBS | 9,795 | (638) | 1,549 | (97) | 11,344 | (735) | |||||||||||||||||||||||||||||
U.S. government agency CMO | 10,526 | (850) | 8,617 | (1,229) | 19,143 | (2,079) | |||||||||||||||||||||||||||||
State and municipal securities | 34,801 | (7,077) | 2,438 | (569) | 37,239 | (7,646) | |||||||||||||||||||||||||||||
U.S. Treasuries | 15,468 | (1,443) | 13,813 | (2,256) | 29,281 | (3,699) | |||||||||||||||||||||||||||||
Non-U.S. government agency CMO | 8,112 | (470) | 715 | (129) | 8,827 | (599) | |||||||||||||||||||||||||||||
Corporate bonds | 5,565 | (384) | 1,101 | (150) | 6,666 | (534) | |||||||||||||||||||||||||||||
Total securities available-for-sale | $ | 94,389 | $ | (10,991) | $ | 31,487 | $ | (4,612) | $ | 125,876 | $ | (15,603) | |||||||||||||||||||||||
Securities held-to-maturity: | |||||||||||||||||||||||||||||||||||
State and municipal securities | $ | — | $ | — | $ | 24,955 | $ | (5,599) | $ | 24,955 | $ | (5,599) | |||||||||||||||||||||||
Total securities held-to-maturity | $ | — | $ | — | $ | 24,955 | $ | (5,599) | $ | 24,955 | $ | (5,599) | |||||||||||||||||||||||
December 31, 2021 | |||||||||||||||||||||||||||||||||||
Less than 12 Months | 12 Months or more | Total | |||||||||||||||||||||||||||||||||
(dollars in thousands) | Fair value | Unrealized losses | Fair value | Unrealized losses | Fair value | Unrealized losses | |||||||||||||||||||||||||||||
Securities available-for-sale: | |||||||||||||||||||||||||||||||||||
U.S. asset backed securities | $ | 12,330 | $ | (68) | $ | — | $ | — | $ | 12,330 | $ | (68) | |||||||||||||||||||||||
U.S. government agency MBS | 3,852 | (60) | — | — | 3,852 | (60) | |||||||||||||||||||||||||||||
U.S. government agency CMO | 8,836 | (187) | 1,657 | (66) | 10,493 | (253) | |||||||||||||||||||||||||||||
State and municipal securities | 14,994 | (427) | 2,019 | (69) | 17,013 | (496) | |||||||||||||||||||||||||||||
U.S. Treasuries | 28,750 | (246) | — | — | 28,750 | (246) | |||||||||||||||||||||||||||||
Non-U.S. government agency CMO | 975 | (15) | — | — | 975 | (15) | |||||||||||||||||||||||||||||
Corporate bonds | 2,232 | (18) | — | — | 2,232 | (18) | |||||||||||||||||||||||||||||
Total securities available-for-sale | $ | 71,969 | $ | (1,021) | $ | 3,676 | $ | (135) | $ | 75,645 | $ | (1,156) |
| | | | | | | | | | | | | |
| | December 31, 2020 | |||||||||||
| | Less than 12 Months | | 12 Months or more | | Total | |||||||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | |
(dollars in thousands) |
| value |
| losses |
| value |
| losses |
| value |
| losses | |
Securities available-for-sale: | | | | | | | | | | | | | |
U.S. asset backed securities | | $ | 2,884 | | (4) | | 7,443 | | (71) | | 10,327 | | (75) |
U.S. government agency collateralized mortgage obligations | | | 2,284 | | (17) | | — | | — | | 2,284 | | (17) |
State and municipal securities | | | 4,163 | | (63) | | — | | — | | 4,163 | | (63) |
Corporate bonds | | | 1,198 | | (2) | | — | | — | | 1,198 | | (2) |
Total securities available-for-sale | | $ | 10,529 | | (86) | | 7,443 | | (71) | | 17,972 | | (157) |
The amortized cost and carrying value of securities at September 30, 2021 and December 31, 2020 are shown below by contractual maturities.maturities at the dates indicated. Actual maturities may differ from contractual maturities as issuers may have the right to call or repay obligations with or without call or prepayment penalties.
September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
Available-for-sale | Held-to-maturity | Available-for-sale | Held-to-maturity | ||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Amortized cost | Fair value | Amortized cost | Fair value | Amortized cost | Fair value | Amortized cost | Fair value | |||||||||||||||||||||||||||||||||||||||
Due in one year or less | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 763 | $ | 769 | |||||||||||||||||||||||||||||||
Due after one year through five years | 17,892 | 16,326 | 4,665 | 4,588 | 12,934 | 12,885 | 2,354 | 2,397 | |||||||||||||||||||||||||||||||||||||||
Due after five years through ten years | 27,386 | 24,111 | 3,003 | 2,643 | 30,890 | 30,798 | 3,255 | 3,425 | |||||||||||||||||||||||||||||||||||||||
Due after ten years | 55,550 | 48,222 | 30,254 | 25,092 | 81,548 | 82,450 | — | — | |||||||||||||||||||||||||||||||||||||||
Subtotal | 100,828 | 88,659 | 37,922 | 32,323 | 125,372 | 126,133 | 6,372 | 6,591 | |||||||||||||||||||||||||||||||||||||||
Mortgage-related securities | 42,753 | 39,340 | — | — | 33,015 | 33,169 | — | — | |||||||||||||||||||||||||||||||||||||||
Total | $ | 143,581 | $ | 127,999 | $ | 37,922 | $ | 32,323 | $ | 158,387 | $ | 159,302 | $ | 6,372 | $ | 6,591 |
| | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 | ||||||||||||||
| | Available-for-sale | | Held-to-maturity | | Available-for-sale | | Held-to-maturity | ||||||||||
| | Amortized | | Fair | | Amortized | | Fair | | Amortized | | Fair | | Amortized | | Fair | ||
(dollars in thousands) |
| cost |
| value |
| cost |
| value |
| cost |
| value |
| cost |
| value | ||
Investment securities: | | | | | | | | | | | | | | | | | | |
Due in one year or less | | $ | — | | — | | — | | — | | $ | — | | — | | — | | — |
Due after one year through five years | | | — | | — | | 3,133 | | 3,197 | | | — | | — | | 3,181 | | 3,288 |
Due after five years through ten years | | | 28,999 | | 29,010 | | 3,273 | | 3,463 | | | 12,035 | | 12,095 | | 3,329 | | 3,569 |
Due after ten years | | | 86,068 | | 86,628 | | — | | — | | | 81,316 | | 83,512 | | — | | — |
Subtotal | | | 115,067 | | 115,638 | | 6,406 | | 6,660 | | | 93,351 | | 95,607 | | 6,510 | | 6,857 |
Mortgage-related securities | | | 30,062 | | 30,511 | | — | | — | | | 26,864 | | 27,955 | | — | | — |
Total | | $ | 145,129 | | 146,149 | | 6,406 | | 6,660 | | $ | 120,215 | | 123,562 | | 6,510 | | 6,857 |
Proceeds from
12
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(dollars in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Gross gain on sale of available for sale investments | $ | — | $ | 314 | $ | — | $ | 562 | |||||||||||||||
Gross loss on sale of available for sale investments | — | — | — | 200 |
| | | | | |
| | September 30, | | December 31, | |
(dollars in thousands) |
| 2021 |
| 2020 | |
Mortgage loans held for sale | | $ | 117,996 | | 229,199 |
Real estate loans: | | | | | |
Commercial mortgage | | | 542,473 | | 485,103 |
Home equity lines and loans | | | 52,819 | | 64,987 |
Residential mortgage (1) | | | 59,295 | | 52,454 |
Construction | | | 162,192 | | 140,246 |
Total real estate loans | | | 816,779 | | 742,790 |
| | | | | |
Commercial and industrial | | | 278,976 | | 261,750 |
Small business loans | | | 90,477 | | 49,542 |
Paycheck Protection Program loans ("PPP") | | | 118,585 | | 203,543 |
Main Street Lending Program Loans ("MSLP") | | | 592 | | 580 |
Consumer | | | 427 | | 511 |
Leases, net | | | 73,993 | | 31,040 |
Total portfolio loans and leases | | | 1,379,829 | | 1,289,756 |
Total loans and leases | | $ | 1,497,825 | | 1,518,955 |
| | | | | |
Loans with predetermined rates | | $ | 542,289 | | 658,458 |
Loans with adjustable or floating rates | | | 955,536 | | 860,497 |
Total loans and leases | | $ | 1,497,825 | | 1,518,955 |
| | | | | |
Net deferred loan origination (fees) costs | | $ | (1,159) | | (4,992) |
(dollars in thousands) | September 30, 2022 | December 31, 2021 | |||||||||
Real estate loans: | |||||||||||
Commercial mortgage | $ | 545,736 | $ | 516,928 | |||||||
Home equity lines and loans | 57,648 | 52,299 | |||||||||
Residential mortgage | 153,513 | 68,175 | |||||||||
Construction | 244,435 | 160,905 | |||||||||
Total real estate loans | 1,001,332 | 798,307 | |||||||||
Commercial and industrial | 329,451 | 293,771 | |||||||||
Small business loans | 133,904 | 114,158 | |||||||||
PPP loans | 8,837 | 90,194 | |||||||||
MSLP loans | 597 | 597 | |||||||||
Consumer | 497 | 419 | |||||||||
Leases, net | 129,574 | 88,242 | |||||||||
Total loans | $ | 1,604,192 | $ | 1,385,688 | |||||||
Balances included in loans, net of fees and costs: | |||||||||||
Residential mortgage real estate loans accounted under fair value option, at fair value | $ | 14,702 | $ | 17,558 | |||||||
Residential mortgage real estate loans accounted under fair value option, at amortized cost | 17,217 | 17,106 | |||||||||
Unearned lease income included in leases, net | (23,940) | (17,366) | |||||||||
Unamortized net deferred loan origination costs | 6,157 | 769 |
Components
| | | | | |
| | September 30, | | December 31, | |
(dollars in thousands) |
| 2021 |
| 2020 | |
Minimum lease payments receivable | | $ | 89,051 | | 37,919 |
Unearned lease income | | | (15,058) | | (6,879) |
Total | | $ | 73,993 | | 31,040 |
13
September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | 30-89 days past due | 90+ days past due and still accruing | Total past due | Current | Total Accruing Loans and leases | Nonaccrual loans and leases | Total loans | % Delinquent | |||||||||||||||||||||||||||||||||||||||
Commercial mortgage | $ | 684 | $ | — | $ | 684 | $ | 543,208 | $ | 543,892 | $ | 1,844 | $ | 545,736 | 0.46 | % | |||||||||||||||||||||||||||||||
Home equity lines and loans | 189 | — | 189 | 56,581 | 56,770 | 878 | 57,648 | 1.85 | |||||||||||||||||||||||||||||||||||||||
Residential mortgage (1) | 819 | — | 819 | 150,679 | 151,498 | 2,015 | 153,513 | 1.85 | |||||||||||||||||||||||||||||||||||||||
Construction | — | — | — | 244,435 | 244,435 | — | 244,435 | — | |||||||||||||||||||||||||||||||||||||||
Commercial and industrial | 887 | — | 887 | 312,220 | 313,107 | 16,344 | 329,451 | 5.23 | |||||||||||||||||||||||||||||||||||||||
Small business loans | 1,803 | — | 1,803 | 130,700 | 132,503 | 1,401 | 133,904 | 2.39 | |||||||||||||||||||||||||||||||||||||||
PPP | — | — | — | 8,837 | 8,837 | — | 8,837 | — |
Contents
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Total | | | | | | | |
| | | | 90+ days | | | | | | Accruing | | Nonaccrual | | Total loans | | | | |
September 30, 2021 | | 30-89 days | | past due and | | Total past | | | | Loans and | | loans and | | portfolio | | Delinquency | | |
(dollars in thousands) |
| past due |
| still accruing |
| due |
| Current |
| leases |
| leases |
| and leases |
| percentage |
| |
Commercial mortgage | | $ | — | | — | | — | | 542,473 | | 542,473 | | — | | 542,473 | | — | % |
Home equity lines and loans | | | 65 | | — | | 65 | | 51,844 | | 51,909 | | 910 | | 52,819 | | 1.85 | |
Residential mortgage (1) | | | 143 | | — | | 143 | | 56,874 | | 57,017 | | 2,278 | | 59,295 | | 4.08 | |
Construction | | | — | | — | | — | | 162,192 | | 162,192 | | — | | 162,192 | | — | |
Commercial and industrial | | | 770 | | — | | 770 | | 273,117 | | 273,887 | | 5,089 | | 278,976 | | 2.10 | |
Small business loans | | | — | | — | | — | | 89,561 | | 89,561 | | 916 | | 90,477 | | 1.01 | |
Paycheck Protection Program loans | | | 2,422 | | — | | 2,422 | | 116,163 | | 118,585 | | — | | 118,585 | | 2.04 | |
Main Street Lending Program loans | | | — | | — | | — | | 592 | | 592 | | — | | 592 | | — | |
Consumer | | | — | | — | | — | | 427 | | 427 | | — | | 427 | | — | |
Leases, net | | | 263 | | — | | 263 | | 73,730 | | 73,993 | | — | | 73,993 | | 0.36 | |
Total | | $ | 3,663 | | — | | 3,663 | | 1,366,973 | | 1,370,636 | | 9,193 | | 1,379,829 | | 0.93 | % |
September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | 30-89 days past due | 90+ days past due and still accruing | Total past due | Current | Total Accruing Loans and leases | Nonaccrual loans and leases | Total loans | % Delinquent | |||||||||||||||||||||||||||||||||||||||
MSLP | — | — | — | 597 | 597 | — | 597 | — | |||||||||||||||||||||||||||||||||||||||
Consumer | — | — | — | 497 | 497 | — | 497 | — | |||||||||||||||||||||||||||||||||||||||
Leases, net | 1,378 | — | 1,378 | 127,690 | 129,068 | 506 | 129,574 | 1.45 | % | ||||||||||||||||||||||||||||||||||||||
Total | $ | 5,760 | $ | — | $ | 5,760 | $ | 1,575,444 | $ | 1,581,204 | $ | 22,988 | $ | 1,604,192 | 1.79 | % |
December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | 30-89 days past due | 90+ days past due and still accruing | Total past due | Current | Total Accruing Loans and leases | Nonaccrual loans and leases | Total loans | % Delinquent | |||||||||||||||||||||||||||||||||||||||
Commercial mortgage | $ | — | $ | — | $ | — | $ | 516,928 | $ | 516,928 | $ | — | $ | 516,928 | — | % | |||||||||||||||||||||||||||||||
Home equity lines and loans | 103 | — | 103 | 51,285 | 51,388 | 911 | 52,299 | 1.94 | |||||||||||||||||||||||||||||||||||||||
Residential mortgage (1) | 600 | — | 600 | 65,177 | 65,777 | 2,398 | 68,175 | 4.40 | |||||||||||||||||||||||||||||||||||||||
Construction | — | — | — | 160,905 | 160,905 | — | 160,905 | — | |||||||||||||||||||||||||||||||||||||||
Commercial and industrial | — | — | — | 274,970 | 274,970 | 18,801 | 293,771 | 6.40 | |||||||||||||||||||||||||||||||||||||||
Small business loans | — | — | — | 113,492 | 113,492 | 666 | 114,158 | 0.58 | |||||||||||||||||||||||||||||||||||||||
PPP | — | — | — | 90,194 | 90,194 | — | 90,194 | — | |||||||||||||||||||||||||||||||||||||||
MSLP | — | — | — | 597 | 597 | — | 597 | — | |||||||||||||||||||||||||||||||||||||||
Consumer | — | — | — | 419 | 419 | — | 419 | — | |||||||||||||||||||||||||||||||||||||||
Leases, net | 390 | — | 390 | 87,640 | 88,030 | 212 | 88,242 | 0.68 | % | ||||||||||||||||||||||||||||||||||||||
Total | $ | 1,093 | $ | — | $ | 1,093 | $ | 1,361,607 | $ | 1,362,700 | $ | 22,988 | $ | 1,385,688 | 1.74 | % |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Total | | | | | | | |
| | | | 90+ days | | | | | | Accruing | | Nonaccrual | | Total loans | | | | |
December 31, 2020 | | 30-89 days | | past due and | | Total past | | | | Loans and | | loans and | | portfolio | | Delinquency | | |
(dollars in thousands) |
| past due |
| still accruing |
| due |
| Current |
| leases |
| leases |
| and leases |
| percentage |
| |
Commercial mortgage | | $ | — | | — | | — | | 482,042 | | 482,042 | | 3,061 | | 485,103 | | 0.63 | % |
Home equity lines and loans | | | — | | — | | — | | 64,128 | | 64,128 | | 859 | | 64,987 | | 1.32 | |
Residential mortgage (1) | | | 3,595 | | — | | 3,595 | | 46,134 | | 49,729 | | 2,725 | | 52,454 | | 12.05 | |
Construction | | | — | | — | | — | | 140,246 | | 140,246 | | — | | 140,246 | | — | |
Commercial and industrial | | | — | | — | | — | | 260,465 | | 260,465 | | 1,285 | | 261,750 | | 0.49 | |
Small business loans | | | — | | — | | — | | 49,542 | | 49,542 | | — | | 49,542 | | — | |
Paycheck Protection Program loans | | | — | | — | | — | | 203,543 | | 203,543 | | — | | 203,543 | | — | |
Main Street Lending Program loans | | | — | | — | | — | | 580 | | 580 | | — | | 580 | | — | |
Consumer | | | — | | — | | — | | 511 | | 511 | | — | | 511 | | — | |
Leases, net | | | 109 | | — | | 109 | | 30,931 | | 31,040 | | — | | 31,040 | | 0.35 | |
Total | | $ | 3,704 | | — | | 3,704 | | 1,278,122 | | 1,281,826 | | 7,930 | | 1,289,756 | | 0.90 | % |
14
| | | | | | | | | | | |
| | Balance, | | | | | | | | Balance, | |
(dollars in thousands) |
| June 30, 2021 |
| Charge-offs |
| Recoveries |
| Provision |
| September 30, 2021 | |
Commercial mortgage | | $ | 7,146 | | — | | — | | (604) | | 6,542 |
Home equity lines and loans | | | 281 | | — | | 1 | | (9) | | 273 |
Residential mortgage | | | 324 | | — | | 1 | | (49) | | 276 |
Construction | | | 2,241 | | — | | — | | 44 | | 2,285 |
Commercial and industrial | | | 5,360 | | — | | 15 | | 239 | | 5,614 |
Small business loans | | | 2,235 | | — | | — | | 864 | | 3,099 |
Consumer | | | 4 | | — | | 1 | | (2) | | 3 |
Leases | | | 770 | | — | | — | | 114 | | 884 |
Total | | $ | 18,361 | | — | | 18 | | 597 | | 18,976 |
| | | | | | | | | | | |
| | Balance, | | | | | | | | Balance, | |
(dollars in thousands) |
| December 31, 2020 |
| Charge-offs |
| Recoveries |
| Provision |
| September 30, 2021 | |
Commercial mortgage | | $ | 7,451 | | — | | — | | (909) | | 6,542 |
Home equity lines and loans | | | 434 | | — | | 5 | | (166) | | 273 |
Residential mortgage | | | 385 | | — | | 5 | | (114) | | 276 |
Construction | | | 2,421 | | — | | — | | (136) | | 2,285 |
Commercial and industrial | | | 5,431 | | — | | 33 | | 150 | | 5,614 |
Small business loans | | | 1,259 | | — | | — | | 1,840 | | 3,099 |
Consumer | | | 4 | | — | | 3 | | (4) | | 3 |
Leases | | | 382 | | (129) | | — | | 631 | | 884 |
Total | | $ | 17,767 | | (129) | | 46 | | 1,292 | | 18,976 |
| | | | | | | | | | | |
| | Balance, | | | | | | | | Balance, | |
(dollars in thousands) |
| June 30, 2020 |
| Charge-offs |
| Recoveries |
| Provision |
| September 30, 2020 | |
Commercial mortgage | | $ | 5,277 | | — | | — | | 1,658 | | 6,935 |
Home equity lines and loans | | | 672 | | (75) | | 2 | | (82) | | 517 |
Residential mortgage | | | 346 | | — | | 1 | | (13) | | 334 |
Construction | | | 2,019 | | — | | — | | 463 | | 2,482 |
Commercial and industrial | | | 3,606 | | (22) | | 4 | | 1,450 | | 5,038 |
Small business loans | | | 747 | | — | | — | | 360 | | 1,107 |
Consumer | | | 4 | | — | | 1 | | (1) | | 4 |
Leases | | | 35 | | — | | — | | 121 | | 156 |
Total | | $ | 12,706 | | (97) | | 8 | | 3,956 | | 16,573 |
15
Three Months Ended September 30, 2022 | |||||||||||||||||||||||||||||
(dollars in thousands) | Beginning Balance | Charge-offs | Recoveries | Provision (Credit) | Ending Balance | ||||||||||||||||||||||||
Commercial mortgage | $ | 4,327 | $ | — | $ | — | $ | (238) | $ | 4,089 | |||||||||||||||||||
Home equity lines and loans | 240 | (12) | 34 | (25) | 237 | ||||||||||||||||||||||||
Residential mortgage | 489 | — | — | 217 | 706 | ||||||||||||||||||||||||
Construction | 2,481 | — | — | 378 | 2,859 | ||||||||||||||||||||||||
Commercial and industrial | 6,287 | — | 39 | (657) | 5,669 | ||||||||||||||||||||||||
Small business loans | 3,681 | — | — | 319 | 4,000 | ||||||||||||||||||||||||
Consumer | 3 | — | 1 | (1) | 3 | ||||||||||||||||||||||||
Leases | 1,297 | (419) | — | 533 | 1,411 | ||||||||||||||||||||||||
Total | $ | 18,805 | $ | (431) | $ | 74 | $ | 526 | $ | 18,974 | |||||||||||||||||||
Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||
(dollars in thousands) | Beginning Balance | Charge-offs | Recoveries | Provision (Credit) | Ending Balance | ||||||||||||||||||||||||
Commercial mortgage | $ | 4,950 | $ | — | $ | — | $ | (861) | $ | 4,089 | |||||||||||||||||||
Home equity lines and loans | 224 | (12) | 42 | (17) | 237 | ||||||||||||||||||||||||
Residential mortgage | 283 | — | 2 | 421 | 706 | ||||||||||||||||||||||||
Construction | 2,042 | — | — | 817 | 2,859 | ||||||||||||||||||||||||
Commercial and industrial | 6,533 | — | 58 | (922) | 5,669 | ||||||||||||||||||||||||
Small business loans | 3,737 | — | — | 263 | 4,000 | ||||||||||||||||||||||||
Consumer | 3 | — | 3 | (3) | 3 | ||||||||||||||||||||||||
Leases | 986 | (1,682) | 62 | 2,045 | 1,411 | ||||||||||||||||||||||||
Total | $ | 18,758 | $ | (1,694) | $ | 167 | $ | 1,743 | $ | 18,974 |
Three Months Ended September 30, 2021 | |||||||||||||||||||||||||||||
(dollars in thousands) | Beginning Balance | Charge-offs | Recoveries | Provision (Credit) | Ending Balance | ||||||||||||||||||||||||
Commercial mortgage | $ | 7,146 | $ | — | $ | — | $ | (604) | $ | 6,542 | |||||||||||||||||||
Home equity lines and loans | 281 | — | 1 | (9) | 273 | ||||||||||||||||||||||||
Residential mortgage | 324 | — | 1 | (49) | 276 | ||||||||||||||||||||||||
Construction | 2,241 | — | — | 44 | 2,285 | ||||||||||||||||||||||||
Commercial and industrial | 5,360 | — | 15 | 239 | 5,614 | ||||||||||||||||||||||||
Small business loans | 2,235 | — | — | 864 | 3,099 | ||||||||||||||||||||||||
Consumer | 4 | — | 1 | (2) | 3 | ||||||||||||||||||||||||
Leases | 770 | — | — | 114 | 884 | ||||||||||||||||||||||||
Total | $ | 18,361 | $ | — | $ | 18 | $ | 597 | $ | 18,976 | |||||||||||||||||||
Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||
(dollars in thousands) | Beginning Balance | Charge-offs | Recoveries | Provision (Credit) | Ending Balance | ||||||||||||||||||||||||
Commercial mortgage | $ | 7,451 | $ | — | $ | — | $ | (909) | $ | 6,542 | |||||||||||||||||||
Home equity lines and loans | 434 | — | 5 | (166) | 273 | ||||||||||||||||||||||||
Residential mortgage | 385 | — | 5 | (114) | 276 | ||||||||||||||||||||||||
Construction | 2,421 | — | — | (136) | 2,285 | ||||||||||||||||||||||||
Commercial and industrial | 5,431 | — | 33 | 150 | 5,614 | ||||||||||||||||||||||||
Small business loans | 1,259 | — | — | 1,840 | 3,099 | ||||||||||||||||||||||||
Consumer | 4 | — | 3 | (4) | 3 | ||||||||||||||||||||||||
Leases | 382 | (129) | — | 631 | 884 | ||||||||||||||||||||||||
Total | $ | 17,767 | $ | (129) | $ | 46 | $ | 1,292 | $ | 18,976 |
| | | | | | | | | | | |
| | Balance, | | | | | | | | Balance, | |
(dollars in thousands) |
| December 31, 2019 |
| Charge-offs |
| Recoveries |
| Provision |
| September 30, 2020 | |
Commercial mortgage | | $ | 3,426 | | — | | — | | 3,509 | | 6,935 |
Home equity lines and loans | | | 342 | | (89) | | 6 | | 258 | | 517 |
Residential mortgage | | | 179 | | — | | 5 | | 150 | | 334 |
Construction | | | 2,362 | | — | | — | | 120 | | 2,482 |
Commercial and industrial | | | 2,684 | | (31) | | 37 | | 2,348 | | 5,038 |
Small business loans | | | 509 | | — | | — | | 598 | | 1,107 |
Consumer | | | 6 | | (10) | | 3 | | 5 | | 4 |
Leases | | | 5 | | — | | — | | 151 | | 156 |
Total | | $ | 9,513 | | (130) | | 51 | | 7,139 | | 16,573 |
Allowance Allocated by Portfolio Segment
| | | | | | | | | | | | | | | |
| | Allowance on loans and leases | | Carrying value of loans and leases | | ||||||||||
| | Individually | | Collectively | | | | Individually | | Collectively | | | | ||
September 30, 2021 | | evaluated | | evaluated | | | | evaluated | | evaluated | | | | ||
(dollars in thousands) |
| for impairment |
| for impairment |
| Total |
| for impairment |
| for impairment |
| Total | | ||
Commercial mortgage | | $ | — | | 6,542 | | 6,542 | | $ | 2,568 | | 539,905 | | 542,473 | |
Home equity lines and loans | | | 2 | | 271 | | 273 | | | 910 | | 51,909 | | 52,819 | |
Residential mortgage | | | 12 | | 264 | | 276 | | | 1,802 | | 40,351 | | 42,153 | |
Construction | | | — | | 2,285 | | 2,285 | | | 1,206 | | 160,986 | | 162,192 | |
Commercial and industrial | | | 1,526 | | 4,088 | | 5,614 | | | 3,651 | | 275,325 | | 278,976 | |
Small business loans | | | 376 | | 2,723 | | 3,099 | | | 1,057 | | 89,420 | | 90,477 | |
Paycheck Protection Program loans | | | — | | — | | — | | | — | | 118,585 | | 118,585 | (2) |
Main Street Lending Program | | | — | | — | | — | | | — | | 592 | | 592 | (2) |
Consumer | | | — | | 3 | | 3 | | | — | | 427 | | 427 | |
Leases, net | | | — | | 884 | | 884 | | | — | | 73,993 | | 73,993 | |
Total | | $ | 1,916 | | 17,060 | | 18,976 | | $ | 11,194 | | 1,351,493 | | 1,362,687 | (1) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | Allowance on loans and leases | | Carrying value of loans and leases | | ||||||||||
| | Individually | | Collectively | | | | Individually | | Collectively | | | | ||
December 31, 2020 | | evaluated | | evaluated | | | | evaluated | | evaluated | | | | ||
(dollars in thousands) |
| for impairment |
| for impairment |
| Total |
| for impairment |
| for impairment |
| Total | | ||
Commercial mortgage | | $ | — | | 7,451 | | 7,451 | | $ | 1,606 | | 483,497 | | 485,103 | |
Home equity lines and loans | | | 9 | | 425 | | 434 | | | 921 | | 64,066 | | 64,987 | |
Residential mortgage | | | 73 | | 312 | | 385 | | | 1,817 | | 38,455 | | 40,272 | |
Construction | | | — | | 2,421 | | 2,421 | | | 1,206 | | 139,040 | | 140,246 | |
Commercial and industrial | | | 1,563 | | 3,868 | | 5,431 | | | 4,645 | | 257,105 | | 261,750 | |
Small business loans | | | — | | 1,259 | | 1,259 | | | 185 | | 49,357 | | 49,542 | |
Paycheck Protection Program loans | | | — | | — | | — | | | — | | 203,543 | | 203,543 | (2) |
Main Street Lending Program | | | — | | — | | — | | | — | | 580 | | 580 | (2) |
Consumer | | | — | | 4 | | 4 | | | — | | 511 | | 511 | |
Leases, net | | | — | | 382 | | 382 | | | — | | 31,040 | | 31,040 | |
Total | | $ | 1,645 | | 16,122 | | 17,767 | | $ | 10,380 | | 1,267,194 | | 1,277,574 | (1) |
September 30, 2022 | |||||||||||||||||||||||||||||||||||
Allowance on loans and leases | Carrying value of loans and leases | ||||||||||||||||||||||||||||||||||
(dollars in thousands) | Individually evaluated for impairment | Collectively evaluated for impairment | Total | Individually evaluated for impairment | Collectively evaluated for impairment | Total | |||||||||||||||||||||||||||||
Commercial mortgage | $ | — | $ | 4,089 | $ | 4,089 | $ | 4,196 | $ | 541,540 | $ | 545,736 | |||||||||||||||||||||||
Home equity lines and loans | — | 237 | 237 | 878 | 56,770 | 57,648 | |||||||||||||||||||||||||||||
Residential mortgage | — | 706 | 706 | 1,464 | 137,347 | 138,811 | |||||||||||||||||||||||||||||
Construction | — | 2,859 | 2,859 | 1,206 | 243,229 | 244,435 | |||||||||||||||||||||||||||||
Commercial and industrial | 2,193 | 3,476 | 5,669 | 16,358 | 313,093 | 329,451 | |||||||||||||||||||||||||||||
Small business loans | 376 | 3,624 | 4,000 | 1,479 | 132,425 | 133,904 | |||||||||||||||||||||||||||||
PPP (2) | — | — | — | — | 8,837 | 8,837 | |||||||||||||||||||||||||||||
MSLP (2) | — | — | — | — | 597 | 597 | |||||||||||||||||||||||||||||
Consumer | — | 3 | 3 | — | 497 | 497 | |||||||||||||||||||||||||||||
Leases, net | — | 1,411 | 1,411 | 506 | 129,068 | 129,574 | |||||||||||||||||||||||||||||
Total (1) | $ | 2,569 | $ | 16,405 | $ | 18,974 | $ | 26,087 | $ | 1,563,403 | $ | 1,589,490 |
December 31, 2021 | |||||||||||||||||||||||||||||||||||
Allowance on loans and leases | Carrying value of loans and leases | ||||||||||||||||||||||||||||||||||
(dollars in thousands) | Individually evaluated for impairment | Collectively evaluated for impairment | Total | Individually evaluated for impairment | Collectively evaluated for impairment | Total | |||||||||||||||||||||||||||||
Commercial mortgage | $ | — | $ | 4,950 | $ | 4,950 | $ | 3,556 | $ | 513,372 | $ | 516,928 | |||||||||||||||||||||||
Home equity lines and loans | — | 224 | 224 | 905 | 51,394 | 52,299 | |||||||||||||||||||||||||||||
Residential mortgage | — | 283 | 283 | 1,797 | 48,820 | 50,617 | |||||||||||||||||||||||||||||
Construction | — | 2,042 | 2,042 | 1,206 | 159,699 | 160,905 | |||||||||||||||||||||||||||||
Commercial and industrial | 2,900 | 3,633 | 6,533 | 17,361 | 276,410 | 293,771 | |||||||||||||||||||||||||||||
Small business loans | 376 | 3,361 | 3,737 | 792 | 113,366 | 114,158 | |||||||||||||||||||||||||||||
PPP (2) | — | — | — | — | 90,194 | 90,194 | |||||||||||||||||||||||||||||
MSLP (2) | — | — | — | — | 597 | 597 | |||||||||||||||||||||||||||||
Consumer | — | 3 | 3 | — | 419 | 419 | |||||||||||||||||||||||||||||
Leases, net | — | 986 | 986 | 212 | 88,030 | 88,242 | |||||||||||||||||||||||||||||
Total (1) | $ | 3,276 | $ | 15,482 | $ | 18,758 | $ | 25,829 | $ | 1,342,301 | $ | 1,368,130 |
16
September 30, 2022 | |||||||||||||||||||||||||||||
(dollars in thousands) | Pass | Special Mention | Substandard | Doubtful | Total | ||||||||||||||||||||||||
Commercial mortgage | $ | 511,993 | $ | 28,382 | $ | 5,361 | $ | — | $ | 545,736 | |||||||||||||||||||
Home equity lines and loans | 56,290 | — | 1,358 | — | 57,648 | ||||||||||||||||||||||||
Construction | 235,464 | 8,971 | — | — | 244,435 | ||||||||||||||||||||||||
Commercial and industrial | 280,929 | 5,414 | 43,108 | — | 329,451 | ||||||||||||||||||||||||
Small business loans | 132,503 | — | 1,401 | — | 133,904 | ||||||||||||||||||||||||
PPP | 8,837 | — | — | — | 8,837 | ||||||||||||||||||||||||
MSLP | 597 | — | — | — | 597 | ||||||||||||||||||||||||
Total | $ | 1,226,613 | $ | 42,767 | $ | 51,228 | $ | — | $ | 1,320,608 |
| | | | | | | | | | | |
September 30, 2021 |
| | |
| Special |
| |
| |
| |
(dollars in thousands) | | Pass | | mention | | Substandard | | Doubtful | | Total | |
Commercial mortgage | | $ | 505,355 | | 31,464 | | 5,654 | | — | | 542,473 |
Home equity lines and loans | | | 51,427 | | — | | 1,392 | | — | | 52,819 |
Construction | | | 153,200 | | 8,992 | | — | | — | | 162,192 |
Commercial and industrial | | | 222,041 | | 35,756 | | 21,179 | | — | | 278,976 |
Small business loans | | | 87,161 | | — | | 3,316 | | — | | 90,477 |
Paycheck Protection Program loans | | | 118,585 | | — | | — | | — | | 118,585 |
Main Street Lending Program loans | | | 592 | | — | | — | | — | | 592 |
Total | | $ | 1,138,361 | | 76,212 | | 31,541 | | — | | 1,246,114 |
| | | | | | | | | | | |
December 31, 2020 |
| | |
| Special |
| |
| |
| |
(dollars in thousands) | | Pass | | mention | | Substandard | | Doubtful | | Total | |
Commercial mortgage | | $ | 449,545 | | 32,059 | | 3,499 | | — | | 485,103 |
Home equity lines and loans | | | 63,923 | | — | | 1,064 | | — | | 64,987 |
Construction | | | 132,286 | | 7,960 | | — | | — | | 140,246 |
Commercial and industrial | | | 227,349 | | 21,721 | | 9,000 | | 3,680 | | 261,750 |
Small business loans | | | 46,789 | | — | | 2,753 | | — | | 49,542 |
Paycheck Protection Program loans | | | 203,543 | | — | | — | | — | | 203,543 |
Main Street Lending Program loans | | | 580 | | — | | — | | — | | 580 |
Total | | $ | 1,124,015 | | 61,740 | | 16,316 | | 3,680 | | 1,205,751 |
2021. The majority of this amount is comprised of 16 different loan relationships with no specific industry concentration and a $13.5 million commercial loan relationship in the advertising industry that became a non-performing loan relationship late in 2021.
December 31, 2021 | |||||||||||||||||||||||||||||
(dollars in thousands) | Pass | Special mention | Substandard | Doubtful | Total | ||||||||||||||||||||||||
Commercial mortgage | $ | 481,551 | $ | 29,452 | $ | 5,925 | $ | — | $ | 516,928 | |||||||||||||||||||
Home equity lines and loans | 50,908 | — | 1,391 | — | 52,299 | ||||||||||||||||||||||||
Construction | 151,608 | 9,297 | — | — | 160,905 | ||||||||||||||||||||||||
Commercial and industrial | 236,298 | 14,603 | 42,870 | — | 293,771 | ||||||||||||||||||||||||
Small business loans | 112,096 | — | 2,062 | — | 114,158 | ||||||||||||||||||||||||
PPP | 90,194 | — | — | — | 90,194 | ||||||||||||||||||||||||
MSLP | 597 | — | — | — | 597 | ||||||||||||||||||||||||
Total | $ | 1,123,252 | $ | 53,352 | $ | 52,248 | $ | — | $ | 1,228,852 |
17
September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
(dollars in thousands) | Performing | Non- performing | Total | Performing | Non- performing | Total | |||||||||||||||||||||||||||||
Residential mortgage (1) | $ | 151,498 | $ | 2,015 | $ | 153,513 | $ | 48,820 | $ | 1,797 | $ | 50,617 | |||||||||||||||||||||||
Consumer | 497 | — | 497 | 419 | — | 419 | |||||||||||||||||||||||||||||
Leases, net | 129,068 | 506 | 129,574 | 88,030 | 212 | 88,242 | |||||||||||||||||||||||||||||
Total | $ | 281,063 | $ | 2,521 | $ | 283,584 | $ | 137,269 | $ | 2,009 | $ | 139,278 |
December 31, 2020. NaN troubled debt restructurings performing according to modified terms are included in performing residential mortgages below as of September 30, 2021 and December 31, 2020.
| | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 | ||||||||||
(dollars in thousands) |
| Performing |
| Nonperforming |
| Total |
| Performing |
| Nonperforming |
| Total | ||
Residential mortgage | | $ | 40,351 | | 1,802 | | 42,153 | | $ | 38,457 | | 1,815 | | 40,272 |
Consumer | | | 427 | | — | | 427 | | | 511 | | — | | 511 |
Leases, net | | | 73,993 | | — | | 73,993 | | | 31,040 | | — | | 31,040 |
Total | | $ | 114,771 | | 1,802 | | 116,573 | | $ | 70,008 | | 1,815 | | 71,823 |
(1) There were 3four nonperforming residential mortgage loans at September 30, 20212022 and 5four nonperforming residential mortgage loans at December 31, 20202021 with a combined outstanding principal balance of $476$551 thousand and $910$601 thousand, respectively, which were carried at fair value and not included in the table above.
This decrease was largely due to a residential mortgage loan that was nonperforming at December 31, 2021, which subsequently paid off before September 30, 2022.
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | As of September 30, 2021 | | As of December 31, 2020 | |||||||||
| | Recorded | | Principal | | Related | | Recorded | | Principal | | Related | |
(dollars in thousands) |
| investment |
| balance |
| allowance |
| investment |
| balance |
| allowance | |
Impaired loans with related allowance: | | | | | | | | | | | | | |
Commercial and industrial | | $ | 3,201 | | 3,321 | | 1,526 | | 3,860 | | 3,902 | | 1,563 |
Small business loans | | | 916 | | 916 | | 376 | | — | | — | | — |
Home equity lines and loans | | | 88 | | 102 | | 2 | | 95 | | 105 | | 9 |
Residential mortgage | | | 169 | | 169 | | 12 | | 689 | | 689 | | 73 |
Total | | $ | 4,374 | | 4,508 | | 1,916 | | 4,644 | | 4,696 | | 1,645 |
Impaired loans without related allowance: | | | | | | | | | | | | | |
Commercial mortgage | | $ | 2,568 | | 2,568 | | — | | 1,606 | | 1,642 | | — |
Commercial and industrial | | | 450 | | 515 | | — | | 785 | | 862 | | — |
Small business loans | | | 141 | | 141 | | — | | 185 | | 185 | | — |
Home equity lines and loans | | | 822 | | 836 | | — | | 826 | | 839 | | — |
Residential mortgage | | | 1,633 | | 1,633 | | — | | 1,128 | | 1,128 | | — |
Construction | | | 1,206 | | 1,206 | | — | | 1,206 | | 1,206 | | — |
Total | | | 6,820 | | 6,899 | | — | | 5,736 | | 5,862 | | — |
Grand Total | | $ | 11,194 | | 11,407 | | 1,916 | | 10,380 | | 10,558 | | 1,645 |
18
September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
(dollars in thousands) | Recorded investment | Principal balance | Related allowance | Recorded investment | Principal balance | Related allowance | |||||||||||||||||||||||||||||
Impaired loans with related allowance: | |||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 16,095 | $ | 16,552 | $ | 2,193 | $ | 17,147 | $ | 17,310 | $ | 2,900 | |||||||||||||||||||||||
Small business loans | 666 | 666 | 376 | 666 | 666 | 376 | |||||||||||||||||||||||||||||
Total | $ | 16,761 | $ | 17,218 | $ | 2,569 | $ | 17,813 | $ | 17,976 | $ | 3,276 | |||||||||||||||||||||||
Impaired loans without related allowance: | |||||||||||||||||||||||||||||||||||
Commercial mortgage | $ | 4,196 | $ | 4,206 | $ | — | $ | 3,556 | $ | 3,559 | $ | — | |||||||||||||||||||||||
Commercial and industrial | 263 | 329 | — | 214 | 269 | — | |||||||||||||||||||||||||||||
Small business loans | 813 | 813 | — | 126 | 126 | — | |||||||||||||||||||||||||||||
Home equity lines and loans | 878 | 878 | — | 905 | 935 | — | |||||||||||||||||||||||||||||
Residential mortgage | 1,464 | 1,464 | — | 1,797 | 1,797 | — | |||||||||||||||||||||||||||||
Construction | 1,206 | 1,206 | — | 1,206 | 1,206 | — | |||||||||||||||||||||||||||||
Leases | 506 | 506 | — | 212 | 212 | — | |||||||||||||||||||||||||||||
Total | $ | 9,326 | $ | 9,402 | $ | — | $ | 8,016 | $ | 8,104 | $ | — | |||||||||||||||||||||||
Grand Total | $ | 26,087 | $ | 26,620 | $ | 2,569 | $ | 25,829 | $ | 26,080 | $ | 3,276 |
The following table details the average recorded investment and interest income recognized on impaired loans by portfolio segment.
Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | ||||||||||||||||||||||
(dollars in thousands) | Average Recorded Investment | Interest Income Recognized | Average recorded investment | Interest income recognized | |||||||||||||||||||
Impaired loans with related allowance: | |||||||||||||||||||||||
Commercial and industrial | $ | 16,195 | $ | — | $ | 3,242 | $ | 5 | |||||||||||||||
Small business loans | 666 | — | 916 | — | |||||||||||||||||||
Home equity lines and loans | — | — | 89 | — | |||||||||||||||||||
Residential mortgage | — | — | 169 | — | |||||||||||||||||||
Total | $ | 16,861 | $ | — | $ | 4,416 | $ | 5 | |||||||||||||||
Impaired loans without related allowance: | |||||||||||||||||||||||
Commercial mortgage | $ | 4,212 | $ | 29 | $ | 2,573 | $ | 8 | |||||||||||||||
Commercial and industrial | 286 | — | 473 | 19 | |||||||||||||||||||
Small business loans | 819 | 2 | 147 | 3 | |||||||||||||||||||
Home equity lines and loans | 878 | 15 | 823 | — | |||||||||||||||||||
Residential mortgage | 1,468 | 22 | 1,636 | 6 | |||||||||||||||||||
Construction | 1,206 | 20 | 1,206 | 17 | |||||||||||||||||||
Leases | 500 | — | — | — | |||||||||||||||||||
Total | $ | 9,369 | $ | 88 | $ | 6,858 | $ | 53 | |||||||||||||||
Grand Total | $ | 26,230 | $ | 88 | $ | 11,274 | $ | 58 |
Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | ||||||||||||||||||||||
(dollars in thousands) | Average recorded investment | Interest income recognized | Average recorded investment | Interest income recognized | |||||||||||||||||||
Impaired loans with related allowance: | |||||||||||||||||||||||
Commercial and industrial | $ | 16,363 | $ | — | $ | 3,306 | $ | 15 | |||||||||||||||
Small business loans | 666 | — | 917 | — |
| | | | | | | | | |
| | | Three Months Ended | | Three Months Ended | ||||
| | | September 30, 2021 | | September 30, 2020 | ||||
| | | Average | | Interest | | Average | | Interest |
| | | recorded | | Income | | recorded | | Income |
(dollars in thousands) |
| | investment | | Recognized | | investment | | Recognized |
Impaired loans with related allowance: | | | | | | | | | |
Commercial and industrial | | $ | 3,242 | | 5 | | 3,907 | | 26 |
Small business loans | | | 916 | | — | | — | | — |
Home equity lines and loans | | | 89 | | — | | 100 | | — |
Residential mortgage | | | 169 | | — | | — | | — |
Total | | $ | 4,416 | | 5 | | 4,007 | | 26 |
Impaired loans without related allowance: | | | | | | | | | |
Commercial mortgage | | $ | 2,573 | | 8 | | 2,080 | | 47 |
Commercial and industrial | | | 473 | | 19 | | 874 | | 6 |
Small business loans | | | 147 | | 3 | | 208 | | 5 |
Home equity lines and loans | | | 823 | | — | | 564 | | — |
Residential mortgage | | | 1,636 | | 6 | | 1,649 | | 41 |
Construction | | | 1,206 | | 17 | | 1,206 | | 14 |
Total | | $ | 6,858 | | 53 | | 6,581 | | 113 |
Grand Total | | $ | 11,274 | | 58 | | 10,588 | | 139 |
| | | | | | | | | |
| | | Nine Months Ended | | Nine Months Ended | ||||
| | | September 30, 2021 | | September 30, 2020 | ||||
| | | Average | | Interest | | Average | | Interest |
| | | recorded | | Income | | recorded | | Income |
(dollars in thousands) | | | investment | | Recognized | | investment | | Recognized |
Impaired loans with related allowance: | | | | | | | | | |
Commercial and industrial | | $ | 3,306 | | 15 | | 1,766 | | 36 |
Small business loans | | | 917 | | — | | — | | — |
Home equity lines and loans | | | 92 | | — | | 103 | | — |
Residential mortgage | | | 170 | | — | | — | | — |
Total | | $ | 4,485 | | 15 | | 1,869 | | 36 |
| | | | | | | | | |
Impaired loans without related allowance: | | | | | | | | | |
Commercial mortgage | | $ | 2,584 | | 24 | | 1,852 | | 89 |
Commercial and industrial | | | 485 | | 19 | | 700 | | 14 |
Small business loans | | | 161 | | 11 | | 220 | | 16 |
Home equity lines and loans | | | 824 | | — | | 575 | | — |
Residential mortgage | | | 1,640 | | 9 | | 1,478 | | 133 |
Construction | | | 1,206 | | 47 | | 1,209 | | 46 |
Leases | | | 53 | | — | | — | | — |
Total | | $ | 6,953 | | 110 | | 6,034 | | 298 |
Grand Total | | $ | 11,438 | | 125 | | 7,903 | | 334 |
Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | ||||||||||||||||||||||
(dollars in thousands) | Average recorded investment | Interest income recognized | Average recorded investment | Interest income recognized | |||||||||||||||||||
Impaired loans with related allowance: | |||||||||||||||||||||||
Home equity lines and loans | — | — | 92 | — | |||||||||||||||||||
Residential mortgage | — | — | 170 | — | |||||||||||||||||||
Total | $ | 17,029 | $ | — | $ | 4,485 | $ | 15 | |||||||||||||||
Impaired loans without related allowance: | |||||||||||||||||||||||
Commercial mortgage | 4,257 | 77 | 2,584 | 24 | |||||||||||||||||||
Commercial and industrial | 293 | — | 485 | 19 | |||||||||||||||||||
Small business loans | 835 | 7 | 161 | 11 | |||||||||||||||||||
Home equity lines and loans | 878 | 39 | 824 | — | |||||||||||||||||||
Residential mortgage | 1,478 | 190 | 1,640 | 9 | |||||||||||||||||||
Construction | 1,206 | 51 | 1,206 | 47 | |||||||||||||||||||
Leases | 510 | — | 53 | — | |||||||||||||||||||
Total | $ | 9,457 | $ | 364 | $ | 6,953 | $ | 110 | |||||||||||||||
Grand Total | $ | 26,486 | $ | 364 | $ | 11,438 | $ | 125 |
19
The determination of whether a borrower is experiencing financial difficulties takes into account not only the current financial condition of the borrower, but also the potential financial condition of the borrower, were a concession not granted. The determination of whether a concession has been granted is very subjective in nature. For example, simply extending the term of a loan at its original interest rate or even at a higher interest rate could be interpreted as a concession unless the borrower could readily obtain similar credit terms from a different lender.
(dollars in thousands) | September 30, 2022 | December 31, 2021 | |||||||||
TDRs included in nonperforming loans and leases | $ | 193 | $ | 361 | |||||||
TDRs in compliance with modified terms | 3,637 | 3,446 | |||||||||
Total TDRs | $ | 3,830 | $ | 3,807 |
| | | | | |
| | September 30, | | December 31, | |
(dollars in thousands) |
| 2021 |
| 2020 | |
TDRs included in nonperforming loans and leases | | $ | 367 |
| 244 |
TDRs in compliance with modified terms | |
| 2,476 |
| 3,362 |
Total TDRs | | $ | 2,843 |
| 3,606 |
There1 new loan modification on a commercial mortgage for $684 thousand for the nine months ended September 30, 2022, while there were 0no loan andor lease modifications granted during the three and nine months ended September 30, 2021 and 1 loan and lease modification granted during the three and nine months ended September 30, 2020 that were categorizedclassified as a TDR. NaN loanTDR, and lease modifications granted during the three and nine months ended September 30, 2021 and 2020 subsequently defaultedthere were no subsequent defaults during the same time period.
In accordance with Section 4013 of the CARES Act, loan deferrals granted to customers that resulted from the impact of COVID-19 and who were not past due at the time of deferral were not considered trouble debt restructurings under ASC 310-40 as of September 30, 2021. COVID-19 loan modifications provided to borrowers amounted to $24.9 million as of September 30, 2021, down from $26.9 million as of December 31, 2020. Loan modifications were $19.1 million as of September 30, 2020.
This provision of Section 4013 of the CARES Act was extended to January 1, 2022 under the Consolidated Appropriations Act, 2021. Management continues to monitor these deferrals and has adequately considered these credits in the September 30, 2021 allowance for loan losses balance. These modified loans are classified as performing and are not considered past due. Loans are to be placed on non-accrual when it becomes apparent that payment of interest or recovery of all principal is questionable, and the COVID-19 related modification is no longer considered short-term or the modification is deemed ineffective.
periods.
20
| | | | | | | | | |
| | | | | | Balance as of | |||
| | Maturity | | Interest | | September 30, | | December 31, | |
(dollars in thousands) | | date |
| rate |
| 2021 |
| 2020 | |
Open Repo Plus Weekly | | 05/31/2022 | | 0.33 | % | | — | | 60,416 |
Federal Reserve Discount Window | | 03/31/2021 | | 0.25 | | | — | | 10,000 |
Mid-term Repo-fixed | | 01/13/2021 | | 0.36 | | | — | | 4,605 |
Mid-term Repo-fixed | | 06/10/2021 | | 0.10 | | | — | | 6,376 |
Mid-term Repo-fixed | | 09/10/2021 | | 0.11 | | | — | | 10,000 |
Mid-term Repo-fixed | | 12/10/2021 | | 0.16 | | | 10,000 | | 10,000 |
Mid-term Repo-fixed | | 01/27/2021 | | 0.23 | | | — | | 5,465 |
Mid-term Repo-fixed | | 06/29/2022 | | 0.32 | | | 7,392 | | — |
Mid-term Repo-fixed | | 09/12/2022 | | 0.23 | | | 4,886 | | — |
Total | | | | | | $ | 22,278 | | 106,862 |
As partdates indicated:
(dollars in thousands) | Maturity date | Interest rate | September 30, 2022 | December 31, 2021 | |||||||||||||||||||
Open Repo Plus Weekly | 6/5/2023 | 3.11 | % | $ | 23,458 | $ | 36,458 | ||||||||||||||||
Mid-term Repo-fixed | 9/12/2022 | 0.23 | — | 4,886 | |||||||||||||||||||
Total | $ | 23,458 | $ | 41,344 |
Long-term debt at September 30, 2021 and2022 or December 31, 2020 consisted of the following notes:
| | | | | | | | | |
| | | | | | Balance as of | |||
| | Maturity | | Interest | | September 30, | | December 31, | |
(dollars in thousands) |
| date |
| rate |
| 2021 |
| 2020 | |
PPPLF Advances | | 2022 | | 0.35 | % | | — | | 153,269 |
PPPLF Advances | | 2026 | | 0.35 | | $ | 78,405 | | — |
Mid-term Repo-fixed | | 06/29/2022 | | 0.32 | | | — | | 7,392 |
Mid-term Repo-fixed | | 09/12/2022 | | 0.23 | | | — | | 4,885 |
Total | | ` | | | | $ | 78,405 | | 165,546 |
2021.
the remainder of 2022.
21
assets in accordance with ASC 860, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.
Residential Mortgage Loan Servicing Rights
Loans
| | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||
(dollars in thousands) | | 2021 |
| 2020 | | 2021 |
| 2020 | ||
Balance at beginning of the period | | $ | 8,942 | | 1,294 | | $ | 4,647 | | 446 |
Servicing rights capitalized | | | 1,360 | | 1,333 | | | 5,856 | | 2,469 |
Amortization of servicing rights | | | (316) | | (90) | | | (786) | | (173) |
Change in valuation allowance | | | 111 | | 102 | | | 380 | | (103) |
Balance at end of the period | | $ | 10,097 | | 2,639 | | $ | 10,097 | | 2,639 |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(dollars in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Balance at beginning of the period | $ | 10,610 | $ | 8,942 | $ | 10,756 | $ | 4,647 | |||||||||||||||
Servicing rights capitalized | 65 | 1,360 | 648 | 5,856 | |||||||||||||||||||
Amortization of servicing rights | (356) | (316) | (1,092) | (786) | |||||||||||||||||||
Change in valuation allowance | (4) | 111 | 3 | 380 | |||||||||||||||||||
Balance at end of the period | $ | 10,315 | $ | 10,097 | $ | 10,315 | $ | 10,097 |
| | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||
(dollars in thousands) | | 2021 |
| 2020 | | 2021 |
| 2020 | ||
Valuation allowance, beginning of period | | $ | (166) | | (303) | | $ | (435) | | (98) |
Impairment | | | — | | — | | | — | | (103) |
Recovery | | | 111 | | 102 | | | 380 | | — |
Valuation allowance, end of period | | $ | (55) | | (201) | | $ | (55) | | (201) |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(dollars in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Valuation allowance, beginning of period | $ | (1) | $ | (166) | $ | (8) | $ | (435) | |||||||||||||||
Impairment | (4) | — | (4) | — | |||||||||||||||||||
Recovery | — | 111 | 7 | 380 | |||||||||||||||||||
Valuation allowance, end of period | $ | (5) | $ | (55) | $ | (5) | $ | (55) |
22
At September 30, 2021 and December 31, 2020, theThe sensitivity of the current fair value of the residential mortgage servicing rights to immediate 10% and 20% favorable and unfavorable changes in key economic assumptions are included in the following table.
| | | | | | |
| | | | | | |
(dollars in thousands) | | September 30, 2021 |
| December 31, 2020 | ||
Fair value of residential mortgage servicing rights | | $ | 10,296 | | $ | 4,647 |
| | | | | | |
Weighted average life (years) | | | 9.0 | | | 5.0 |
| | | | | | |
Prepayment speed | | | 7.26% | | | 9.39% |
Impact on fair value: | | | | | | |
10% adverse change | | $ | (358) | | $ | (183) |
20% adverse change | | | (695) | | | (354) |
| | | | | | |
Discount rate | | | 9.00% | | | 9.00% |
Impact on fair value: | | | | | | |
10% adverse change | | $ | (397) | | $ | (168) |
20% adverse change | | | (768) | | | (329) |
(dollars in thousands) | September 30, 2022 | December 31, 2021 | |||||||||
Fair value of residential mortgage servicing rights | $ | 12,132 | $ | 11,241 | |||||||
Weighted average life (months) | 19 | 11 | |||||||||
Prepayment speed | 7.11 | % | 7.23 | % | |||||||
Impact on fair value: | |||||||||||
10% adverse change | $ | (524) | $ | (376) | |||||||
20% adverse change | (1,010) | (731) | |||||||||
Discount rate | 9.50 | % | 9.00 | % | |||||||
Impact on fair value: | |||||||||||
10% adverse change | $ | (426) | $ | (436) | |||||||
20% adverse change | (824) | (840) |
Loans
| | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||
(dollars in thousands) | | 2021 |
| 2020 | | 2021 |
| 2020 | ||
Balance at beginning of the period | | $ | 1,385 | | 632 | | $ | 970 | | 337 |
Servicing rights capitalized | | | 588 | | 183 | | | 1,166 | | 524 |
Amortization of servicing rights | | | (112) | | (42) | | | (266) | | (88) |
Change in valuation allowance | | | (26) | | 14 | | | (35) | | 14 |
Balance at end of the period | | $ | 1,835 | | 787 | | $ | 1,835 | | 787 |
23
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(dollars in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Balance at beginning of the period | $ | 2,250 | $ | 1,385 | $ | 2,009 | $ | 970 | |||||||||||||||
Servicing rights capitalized | 306 | 588 | 1,146 | 1,166 | |||||||||||||||||||
Amortization of servicing rights | (173) | (112) | (523) | (266) | |||||||||||||||||||
Change in valuation allowance | 109 | (26) | (140) | (35) | |||||||||||||||||||
Balance at end of the period | $ | 2,492 | $ | 1,835 | $ | 2,492 | $ | 1,835 |
Activity in the valuation allowance for SBA loan servicing assets was as follows:
| | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||
(dollars in thousands) | | 2021 |
| 2020 | | 2021 |
| 2020 | ||
Valuation allowance, beginning of period | | $ | (48) | | (26) | | $ | (39) | | (26) |
Impairment | | | (26) | | — | | | (35) | | — |
Recovery | | | — | | 14 | | | — | | 14 |
Valuation allowance, end of period | | $ | (74) | | (12) | | $ | (74) | | (12) |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(dollars in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Valuation allowance, beginning of period | $ | (345) | $ | (48) | $ | (96) | $ | (39) | |||||||||||||||
Impairment | — | (26) | (280) | (35) | |||||||||||||||||||
Recovery | 109 | — | 140 | — | |||||||||||||||||||
Valuation allowance, end of period | $ | (236) | $ | (74) | $ | (236) | $ | (74) |
At September 30, 2021The change in valuation allowance due to impairment, noted in the tables above, was largely due to the increased prepayment speed experienced in the current year periods and December 31, 2020, the rising interest rate environment.
| | | | | | | |
| | | | | | | |
(dollars in thousands) | | September 30, 2021 |
| December 31, 2020 | |||
Fair value of SBA loan servicing rights | | $ | 1,954 | | $ | 1,010 | |
| | | | | | | |
Weighted average life (years) | | | 3.8 | | | 3.7 | |
| | | | | | | |
Prepayment speed | | | 12.91% | | | 12.73% | |
Impact on fair value: | | | | | | | |
10% adverse change | | $ | (77) | | $ | (37) | |
20% adverse change | | | (148) | | | (71) | |
| | | | | | | |
Discount rate | | | 7.47% | | | 8.33% | |
Impact on fair value: | | | | | | | |
10% adverse change | | $ | (53) | | $ | (25) | |
20% adverse change | | | (103) | | | (49) | |
(dollars in thousands) | September 30, 2022 | December 31, 2021 | |||||||||
Fair value of SBA loan servicing rights | $ | 2,578 | $ | 2,107 | |||||||
Weighted average life (years) | 3.8 | 3.8 | |||||||||
Prepayment speed | 12.88 | % | 12.38 | % | |||||||
Impact on fair value: | |||||||||||
10% adverse change | $ | (83) | $ | (69) | |||||||
20% adverse change | (160) | (132) | |||||||||
Discount rate | 12.24 | % | 9.01 | % | |||||||
Impact on fair value: | |||||||||||
10% adverse change | $ | (61) | $ | (54) | |||||||
20% adverse change | (120) | (106) |
24
assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
25
will ultimately result in a closed loan, which is a significant unobservable assumption. A significant increase or decrease in the external market price would result in a significantly higher or lower fair value measurement.
ForThe following table presents the fair value of financial assets measured at fair value on a recurring basis the fair value measurements by level within the fair value hierarchy used at September 30, 2021 and December 31, 2020 are as followsthe dates indicated:
| | | | | | | | | |
| | September 30, 2021 | |||||||
(dollars in thousands) |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | |
Assets | | | | | | | | | |
Securities available for sale: | | | | | | | | | |
U.S. asset backed securities | | $ | 21,293 | | — | | 21,293 | | — |
U.S. government agency mortgage-backed securities | | | 5,459 | | — | | 5,459 | | — |
U.S. government agency collateralized mortgage obligations | | | 24,053 | | — | | 24,053 | | — |
State and municipal securities | | | 72,828 | | — | | 72,828 | | — |
U.S. Treasuries | | | 15,010 | | — | | 15,010 | | — |
Non-U.S. government agency collateralized mortgage obligations | | | 999 | | — | | 999 | | — |
Corporate bonds | | | 6,507 | | — | | 6,507 | | — |
Equity investments | | | 1,011 | | — | | 1,011 | | — |
Mortgage loans held for sale | | | 117,996 | | — | | 117,996 | | — |
Mortgage loans held for investment | | | 17,142 | | — | | 17,142 | | — |
Interest rate lock commitments | | | 1,712 | | — | | — | | 1,712 |
Forward commitments | | | 447 | | — | | 447 | | — |
Customer derivatives - interest rate swaps | | | 1,052 | | — | | 1,052 | | — |
Total | | $ | 285,509 | | — | | 283,797 | | 1,712 |
| | | | | | | | | |
Liabilities | | | | | | | | | |
Interest rate lock commitments | | | 360 | | — | | — | | 360 |
Forward commitments | | | 22 | | — | | 22 | | — |
Customer derivatives - interest rate swaps | | | 1,101 | | — | | 1,101 | | — |
| | $ | 1,483 | | — | | 1,123 | | 360 |
| | | | | | | | | |
| | December 31, 2020 | |||||||
(dollars in thousands) |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | |
Assets | | | | | | | | | |
Securities available for sale: | | | | | | | | | |
U.S. asset backed securities | | $ | 25,592 | | — | | 25,592 | | — |
U.S. government agency mortgage-backed securities | | | 4,046 | | — | | 4,046 | | — |
U.S. government agency collateralized mortgage obligations | | | 23,909 | | — | | 23,909 | | — |
State and municipal securities | | | 65,810 | | — | | 65,810 | | — |
Corporate bonds | | | 4,205 | | — | | 4,205 | | — |
Equity investments | | | 1,031 | | — | | 1,031 | | — |
Mortgage loans held for sale | | | 229,199 | | — | | 229,199 | | — |
Mortgage loans held for investment | | | 12,182 | | — | | 12,182 | | — |
Interest rate lock commitments | | | 6,932 | | — | | — | | 6,932 |
Forward commitments | | | — | | — | | — | | — |
Customer derivatives - interest rate swaps | | | 1,118 | | — | | 1,118 | | — |
Total | | $ | 374,024 | | — | | 367,092 | | 6,932 |
| | | | | | | | | |
Liabilities | | | | | | | | | |
Interest rate lock commitments | | | 100 | | — | | — | | 100 |
Forward commitments | | | 1,572 | | — | | 1,572 | | — |
Customer derivatives - interest rate swaps | | | 1,219 | | — | | 1,219 | | — |
| | $ | 2,891 | | — | | 2,791 | | 100 |
26
September 30, 2022 | |||||||||||||||||||||||
(dollars in thousands) | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
Assets | |||||||||||||||||||||||
Securities available for sale: | |||||||||||||||||||||||
U.S. asset backed securities | $ | 15,473 | $ | — | $ | 15,473 | $ | — | |||||||||||||||
U.S. government agency MBS | 11,344 | — | 11,344 | — | |||||||||||||||||||
U.S. government agency CMO | 19,169 | — | 19,169 | — | |||||||||||||||||||
State and municipal securities | 37,239 | — | 37,239 | — | |||||||||||||||||||
U.S. Treasuries | 29,281 | 29,281 | — | — | |||||||||||||||||||
Non-U.S. government agency CMO | 8,827 | — | 8,827 | ||||||||||||||||||||
Corporate bonds | 6,666 | — | 6,666 | — | |||||||||||||||||||
Equity investments | 2,092 | — | 2,092 | — | |||||||||||||||||||
Mortgage loans held for sale | 33,800 | — | 33,800 | — | |||||||||||||||||||
Mortgage loans held for investment | 14,702 | — | 14,702 | — | |||||||||||||||||||
Interest rate lock commitments | 137 | — | — | 137 | |||||||||||||||||||
Forward commitments | 475 | — | 475 | — | |||||||||||||||||||
Customer derivatives - interest rate swaps | 4,572 | — | 4,572 | — | |||||||||||||||||||
Total | $ | 183,777 | $ | 29,281 | $ | 154,359 | $ | 137 | |||||||||||||||
Liabilities | |||||||||||||||||||||||
Interest rate lock commitments | $ | 598 | $ | — | $ | — | $ | 598 | |||||||||||||||
Forward commitments | — | — | — | — | |||||||||||||||||||
Customer derivatives - interest rate swaps | 4,479 | — | 4,479 | — | |||||||||||||||||||
Total | $ | 5,077 | $ | — | $ | 4,479 | $ | 598 |
FinancialDecember 31, 2021 (dollars in thousands) Total Level 1 Level 2 Level 3 Assets Securities available for sale: U.S. asset backed securities $ 16,837 $ — $ 16,837 $ — U.S. government agency MBS 9,813 — 9,813 — U.S. government agency CMO 22,381 — 22,381 — State and municipal securities 72,982 — 72,982 — U.S. Treasuries 29,728 29,728 — — Non-U.S. government agency CMO 975 — 975 — Corporate bonds 6,586 — 6,586 — Equity investments 2,354 — 2,354 — Mortgage loans held for sale 80,882 — 80,882 — Mortgage loans held for investment 17,558 — 17,558 — Interest rate lock commitments 1,122 — — 1,122 Forward commitments 65 — 65 — Customer derivatives - interest rate swaps 961 — 961 — Total $ 262,244 $ 29,728 $ 231,394 $ 1,122 Liabilities Interest rate lock commitments $ 203 $ — $ — $ 203 Forward commitments 106 — 106 — Customer derivatives - interest rate swaps 1,018 — 1,018 — Total $ 1,327 $ — $ 1,124 $ 203
(dollars in thousands) | September 30, 2022 | December 31, 2021 | |||||||||
Mortgage servicing rights | $ | 10,315 | $ | 10,756 | |||||||
SBA loan servicing rights | 2,492 | 2,009 | |||||||||
Impaired loans (1) | |||||||||||
Commercial and industrial | 820 | 1,837 | |||||||||
Small business loans | — | 290 | |||||||||
Total | $ | 13,627 | $ | 14,892 |
| | | | | | |
| | September 30, 2021 | | | December 31, 2020 | |
(dollars in thousands) |
| Fair Value |
|
| Fair Value | |
Mortgage servicing rights | | $ | 10,097 | | | 4,647 |
SBA loan servicing rights | | | 1,835 | | | 970 |
Impaired loans (1) | | | 2,458 | | | 2,998 |
Total | | $ | 14,390 | | | 8,615 |
(dollars in thousands) | Valuation Technique | Significant Unobservable Input | Range of Inputs | ||||||||||||||||||||||||||
September 30, 2022 | $ | 820 | Appraisal of collateral | Management adjustments on | 2%-15% discount | ||||||||||||||||||||||||
December 31, 2021 | $ | 2,127 | Appraisal of | Management adjustments on appraisals | 2%-15% discount |
Below is management’s estimate of the fair value of all financial instruments, whether carried at cost or fair value on the Corporation’s balance sheet. The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair value of the Corporation’s financial instruments:
Loan
Assets
Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the Allowance policy.
27
Deposit Liabilities
Long-Term Debt
Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.
28
| | | | | | | | | | | |
| | | | September 30, 2021 | | December 31, 2020 | |||||
| | Fair Value | | Carrying | | | | Carrying | | | |
(dollars in thousands) |
| Hierarchy Level |
| amount |
| Fair value |
| amount |
| Fair value | |
Financial assets: | | | | | | | | | | | |
Cash and cash equivalents | | Level 1 | | $ | 63,121 | | 63,121 | | 36,744 | | 36,744 |
Securities available-for-sale | | Level 2 | | | 146,149 | | 146,149 | | 123,562 | | 123,562 |
Securities held-to-maturity | | Level 2 | | | 6,406 | | 6,660 | | 6,510 | | 6,857 |
Equity investments | | Level 2 | | | 1,011 | | 1,011 | | 1,031 | | 1,031 |
Mortgage loans held for sale | | Level 2 | | | 117,996 | | 117,996 | | 229,199 | | 229,199 |
Loans receivable, net of the allowance for loan and lease losses | | Level 3 | | | 1,361,528 | | 1,391,260 | | 1,272,582 | | 1,289,776 |
Mortgage loans held for investment | | Level 2 | | | 17,142 | | 17,142 | | 12,182 | | 12,182 |
Interest rate lock commitments | | Level 3 | | | 1,712 | | 1,712 | | 6,932 | | 6,932 |
Forward commitments | | Level 2 | | | 447 | | 447 | | — | | — |
Restricted investment in bank stock | | NA | | | 4,162 | | NA | | 7,861 | | NA |
Accrued interest receivable | | Level 3 | | | 5,080 | | 5,080 | | 5,482 | | 5,482 |
Customer derivatives - interest rate swaps | | Level 2 | | | 1,052 | | 1,052 | | 1,118 | | 1,118 |
Financial liabilities: | | | | | | | | | | | |
Deposits | | Level 2 | | | 1,439,047 | | 1,552,500 | | 1,241,335 | | 1,392,500 |
Short-term borrowings | | Level 2 | | | 22,278 | | 22,278 | | 106,862 | | 106,862 |
Long-term debt | | Level 2 | | | 78,405 | | 79,373 | | 165,546 | | 168,000 |
Subordinated debentures | | Level 2 | | | 40,760 | | 41,859 | | 40,671 | | 38,375 |
Accrued interest payable | | Level 2 | | | 663 | | 663 | | 1,154 | | 1,154 |
Interest rate lock commitments | | Level 3 | | | 360 | | 360 | | 100 | | 100 |
Forward commitments | | Level 2 | | | 22 | | 22 | | 1,572 | | 1,572 |
Customer derivatives - interest rate swaps | | Level 2 | | | 1,101 | | 1,101 | | 1,219 | | 1,219 |
| | | | | | | | | | | |
| | | | Notional | | | | Notional | | | |
Off-balance sheet financial instruments: |
| |
| amount |
| Fair value |
| amount |
| Fair value | |
Commitments to extend credit | | Level 2 | | $ | 505,018 | | 1,712 | | 421,399 | | 6,932 |
Letters of credit | | Level 2 | | | 17,711 | | — | | 8,928 | | — |
the dates indicated:
September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||
(dollars in thousands) | Fair Value Hierarchy Level | Carrying amount | Fair value | Carrying amount | Fair value | ||||||||||||||||||||||||
Financial assets: | |||||||||||||||||||||||||||||
Cash and cash equivalents | Level 1 | $ | 32,888 | $ | 32,888 | $ | 23,480 | $ | 23,480 | ||||||||||||||||||||
Securities available-for-sale | Level 1 / 2 | 127,999 | 127,999 | 159,302 | 159,302 | ||||||||||||||||||||||||
Securities held-to-maturity | Level 2 | 37,922 | 32,323 | 6,372 | 6,591 | ||||||||||||||||||||||||
Equity investments | Level 2 | 2,092 | 2,092 | 2,354 | 2,354 | ||||||||||||||||||||||||
Mortgage loans held for sale | Level 2 | 33,800 | 33,800 | 80,882 | 80,882 | ||||||||||||||||||||||||
Loans receivable, net of the allowance for loan and lease losses | Level 3 | 1,595,647 | 1,535,398 | 1,368,899 | 1,370,885 | ||||||||||||||||||||||||
Mortgage loans held for investment | Level 2 | 14,702 | 14,702 | 17,558 | 17,558 | ||||||||||||||||||||||||
Interest rate lock commitments | Level 3 | 137 | 137 | 1,122 | 1,122 | ||||||||||||||||||||||||
Forward commitments | Level 2 | 475 | 475 | 65 | 65 | ||||||||||||||||||||||||
Restricted investment in bank stock | NA | 5,217 | NA | 5,117 | NA | ||||||||||||||||||||||||
Accrued interest receivable | Level 3 | 6,008 | 6,008 | 5,009 | 5,009 | ||||||||||||||||||||||||
Customer derivatives - interest rate swaps | Level 2 | 4,572 | 4,572 | 961 | 961 | ||||||||||||||||||||||||
Financial liabilities: | |||||||||||||||||||||||||||||
Deposits | Level 2 | 1,673,553 | 1,526,400 | 1,446,413 | 1,549,100 | ||||||||||||||||||||||||
Short-term borrowings | Level 2 | 23,458 | 23,458 | 41,344 | 41,344 | ||||||||||||||||||||||||
Subordinated debentures | Level 2 | 40,597 | 40,285 | 40,508 | 40,803 | ||||||||||||||||||||||||
Accrued interest payable | Level 2 | 1,154 | 1,154 | 31 | 31 | ||||||||||||||||||||||||
Interest rate lock commitments | Level 3 | 598 | 598 | 203 | 203 | ||||||||||||||||||||||||
Forward commitments | Level 2 | — | — | 106 | 106 | ||||||||||||||||||||||||
Customer derivatives - interest rate swaps | Level 2 | 4,479 | 4,479 | 1,018 | 1,018 | ||||||||||||||||||||||||
Notional | Notional | ||||||||||||||||||||||||||||
Off-balance sheet financial instruments: | amount | Fair value | amount | Fair value | |||||||||||||||||||||||||
Commitments to extend credit | Level 2 | $ | 505,860 | $ | — | $ | 486,632 | $ | — | ||||||||||||||||||||
Letters of credit | Level 2 | 21,462 | — | 25,986 | — |
| | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||
| | 2021 |
| 2020 | | 2021 |
| 2020 | ||
Balance at beginning of the period | | $ | 2,667 | | 4,595 | | $ | 6,932 | | 504 |
(Decrease) increase in value | | | (955) | | 3,203 | | | (5,220) | | 7,294 |
Balance at end of the period | | $ | 1,712 | | 7,798 | | $ | 1,712 | | 7,798 |
periods indicated.
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(dollars in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Balance at beginning of the period | $ | 374 | $ | 2,667 | $ | 1,122 | $ | 6,932 | |||||||||||||||
Decrease in value | (237) | (955) | (985) | (5,220) | |||||||||||||||||||
Balance at end of the period | $ | 137 | $ | 1,712 | $ | 137 | $ | 1,712 |
| | | | | | | | | | | | |
| | | | | | | Significant | | | | | |
| | Fair Value | | | | Unobservable | | Range of | | Weighted | | |
|
| Level 3 |
| Valuation Technique |
| Input |
| Inputs |
| Average |
| |
September 30, 2021 | | $ | 1,712 | | Market comparable pricing | | Pull through | | 1 - 99 | % | 87.26 | % |
December 31, 2020 | | | 6,932 | | Market comparable pricing | | Pull through | | 1 - 99 | | 83.08 | |
29
(dollars in thousands) | Fair Value | Valuation Technique | Significant Unobservable Input | Range of Inputs | Weighted Average | ||||||||||||||||||||||||
September 30, 2022 | $ | 137 | Market comparable pricing | Pull through | 1 - 99% | 96.93% | |||||||||||||||||||||||
December 31, 2021 | 1,122 | Market comparable pricing | Pull through | 1 - 99 | 87.66 |
Net realized gains and losses due to changes in the fair value of interest rate lock commitments, which are classified as Level 3 assets and liabilities, are recorded in non-interest income as net change in the fair value of derivative instruments in the Corporation’s consolidated statements of income. Net realized losses of $1.1 million and $5.5 million were recorded for the three and nine months ended September 30, 2021, respectively, while net realized gains of $3.2 million and $7.2 million were recorded for the three and nine months ended September 30, 2020, respectively.
(9) Derivative Financial Instruments
30
The following table presents a summary of the notional amounts and fair values of derivative financial instruments:
| | | | | | | | | | |
| | | September 30, 2021 | | December 31, 2020 | |||||
(dollars in thousands) | Balance Sheet Line Item | | Notional |
| Asset |
| Notional |
| Asset | |
Interest Rate Lock Commitments | | | | | | | | | | |
Positive fair values | Other assets | | $ | 159,507 | | 1,712 | | 406,422 | | 6,932 |
Negative fair values | Other liabilities | | | 58,039 | | (360) | | 22,406 | | (100) |
Total | | | | 217,546 | | 1,352 | | 428,828 | | 6,832 |
| | | | | | | | | | |
Forward Commitments | | | | | | | | | | |
Positive fair values | Other assets | | | 86,000 | | 447 | | — | | — |
Negative fair values | Other liabilities | | | 11,500 | | (22) | | 218,000 | | (1,572) |
Total | | | | 97,500 | | 425 | | 218,000 | | (1,572) |
| | | | | | | | | | |
Customer Derivatives - Interest Rate Swaps | | | | | | | | | | |
Positive fair values | Other assets | | | 35,790 | | 1,052 | | 20,979 | | 1,118 |
Negative fair values | Other liabilities | | | 35,790 | | (1,101) | | 20,979 | | (1,219) |
Total | | | | 71,580 | | (49) | | 41,958 | | (101) |
Total derivative financial instruments | | | $ | 386,626 | | 1,728 | | 688,786 | | 5,159 |
instruments at the dates indicated:
September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||
(dollars in thousands) | Balance Sheet Line Item | Notional Amount | Asset (Liability) Fair Value | Notional Amount | Asset (Liability) Fair Value | ||||||||||||||||||||||||
Interest Rate Lock Commitments | |||||||||||||||||||||||||||||
Positive fair values | Other assets | $ | 23,037 | $ | 137 | $ | 108,653 | $ | 1,122 | ||||||||||||||||||||
Negative fair values | Other liabilities | 45,063 | (598) | 35,264 | (203) | ||||||||||||||||||||||||
Total | 68,100 | (461) | 143,917 | 919 | |||||||||||||||||||||||||
Forward Commitments | |||||||||||||||||||||||||||||
Positive fair values | Other assets | 12,000 | 475 | 30,500 | 65 | ||||||||||||||||||||||||
Negative fair values | Other liabilities | — | — | 45,500 | (106) | ||||||||||||||||||||||||
Total | 12,000 | 475 | 76,000 | (41) | |||||||||||||||||||||||||
Customer Derivatives - Interest Rate Swaps | |||||||||||||||||||||||||||||
Positive fair values | Other assets | 41,352 | 4,572 | 35,447 | 961 | ||||||||||||||||||||||||
Negative fair values | Other liabilities | 41,352 | (4,479) | 35,447 | (1,018) | ||||||||||||||||||||||||
Total | 82,704 | 93 | 70,894 | (57) | |||||||||||||||||||||||||
Total derivative financial instruments | $ | 162,804 | $ | 107 | $ | 290,811 | $ | 821 |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(dollars in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Interest Rate Lock Commitments | $ | (405) | $ | (1,056) | $ | (1,380) | $ | (5,480) | |||||||||||||||
Forward Commitments | 485 | 703 | 516 | 1,997 | |||||||||||||||||||
Customer Derivatives - Interest Rate Swaps | 47 | 14 | 151 | 52 | |||||||||||||||||||
Net fair value (losses) gains on derivative financial instruments | $ | 127 | $ | (339) | $ | (713) | $ | (3,431) |
| | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine Months Ended September 30, | |||||
(dollars in thousands) |
| 2021 |
| 2020 | | |
| 2021 |
| 2020 | |
Interest Rate Lock Commitments | | $ | (1,056) | | 3,161 | | | $ | (5,480) | | 7,226 |
Forward Commitments | | | 703 | | (129) | | | | 1,997 | | (801) |
Customer Derivatives - Interest Rate Swaps | | | 14 | | (4) | | | | 52 | | (79) |
Net fair value (losses) gains on derivative financial instruments | | $ | (339) | | 3,028 | | | $ | (3,431) | | 6,346 |
Net realized losses on derivatives were $1.2 million and net realized gains were $2.4 million for the three and nine months ended September 30, 2021, respectively, and net realized losses on derivatives were $2.6 million and $7.4 million for the three and nine months ended September 30, 2020, respectively.
31
Meridian Wealth Partners (“Wealth”), is a registered investment advisor and wholly-owned subsidiary of the Bank, that provides a comprehensive array of wealth management services and products and the trusted guidance to help its clients and our banking customers prepare for the future. The unit generates non-interest income through advisory fees.
Meridian Mortgage
gains (losses).
| | | | | | | | | | | | | | | | | | |
| | Segment Information | ||||||||||||||||
| | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2020 | ||||||||||||||
(Dollars in thousands) |
| Bank |
| Wealth |
| Mortgage |
| Total |
| Bank |
| Wealth |
| Mortgage |
| Total | ||
Net interest income | | $ | 15,777 | | 2 | | 478 | | 16,257 | | $ | 12,104 | | (19) | | 630 | | 12,715 |
Provision for loan losses | | | 597 | | — | | — | | 597 | | | 3,956 | | — | | — | | 3,956 |
Net interest income after provision | | | 15,180 | | 2 | | 478 | | 15,660 | | | 8,148 | | (19) | | 630 | | 8,759 |
| | | | | | | | | | | | | | | | | | |
Non-interest Income | | | | | | | | | | | | | | | | | | |
Mortgage banking income | | | 215 | | — | | 18,511 | | 18,726 | | | 574 | | — | | 21,238 | | 21,812 |
Wealth management income | | | — | | 1,232 | | — | | 1,232 | | | — | | 951 | | — | | 951 |
SBA income | | | 2,688 | | — | | — | | 2,688 | | | 641 | | — | | — | | 641 |
Net change in fair values | | | 13 | | — | | (847) | | (834) | | | (4) | | — | | 6,057 | | 6,053 |
Net loss on hedging activity | | | — | | — | | (1,189) | | (1,189) | | | — | | — | | (2,637) | | (2,637) |
Other | | | 836 | | — | | 663 | | 1,499 | | | 2,045 | | — | | 195 | | 2,240 |
Non-interest income | | | 3,752 | | 1,232 | | 17,138 | | 22,122 | | | 3,256 | | 951 | | 24,853 | | 29,060 |
Non-interest expense | | | 10,633 | | 802 | | 14,046 | | 25,481 | | | 8,829 | | 788 | | 16,217 | | 25,834 |
Income before income taxes | | $ | 8,299 | | 432 | | 3,570 | | 12,301 | | $ | 2,575 | | 144 | | 9,266 | | 11,985 |
Total Assets | | $ | 1,625,468 | | 6,396 | | 130,581 | | 1,762,445 | | $ | 1,525,883 | | 5,399 | | 227,366 | | 1,758,648 |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2020 | ||||||||||||||
(Dollars in thousands) |
| Bank |
| Wealth |
| Mortgage |
| Total |
| Bank |
| Wealth |
| Mortgage |
| Total | ||
Net interest income | | $ | 45,340 | | (249) | | 1,698 | | 46,789 | | $ | 32,725 | | (24) | | 1,277 | | 33,978 |
Provision for loan losses | | | 1,292 | | — | | — | | 1,292 | | | 7,139 | | — | | — | | 7,139 |
Net interest income after provision | | | 44,048 | | (249) | | 1,698 | | 45,497 | | | 25,586 | | (24) | | 1,277 | | 26,839 |
| | | | | | | | | | | | | | | | | | |
Non-interest Income | | | | | | | | | | | | | | | | | | |
Mortgage banking income | | | 892 | | — | | 61,401 | | 62,293 | | | 973 | | — | | 44,422 | | 45,395 |
Wealth management income | | | — | | 3,531 | | — | | 3,531 | | | — | | 2,825 | | — | | 2,825 |
SBA income | | | 5,423 | | — | | — | | 5,423 | | | 1,821 | | — | | — | | 1,821 |
Net change in fair values | | | 52 | | — | | (6,671) | | (6,619) | | | (68) | | — | | 11,012 | | 10,944 |
Net gain (loss) on hedging activity | | | — | | — | | 2,397 | | 2,397 | | | — | | — | | (7,363) | | (7,363) |
Other | | | 2,110 | | — | | 1,767 | | 3,877 | | | 2,931 | | 14 | | 405 | | 3,350 |
Non-interest income | | | 8,477 | | 3,531 | | 58,894 | | 70,902 | | | 5,657 | | 2,839 | | 48,476 | | 56,972 |
Non-interest expense | | | 28,981 | | 2,486 | | 48,523 | | 79,990 | | | 23,341 | | 2,363 | | 35,448 | | 61,152 |
Income before income taxes | | $ | 23,544 | | 796 | | 12,069 | | 36,409 | | $ | 7,902 | | 452 | | 14,305 | | 22,659 |
Total Assets | | $ | 1,625,468 | | 6,396 | | 130,581 | | 1,762,445 | | $ | 1,525,883 | | 5,399 | | 227,366 | | 1,758,648 |
32
Segment Information | |||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Bank | Wealth | Mortgage | Total | Bank | Wealth | Mortgage | Total | |||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 17,664 | $ | 218 | $ | 144 | $ | 18,026 | $ | 15,777 | $ | 2 | $ | 478 | $ | 16,257 | |||||||||||||||||||||||||||||||
Provision for loan losses | 526 | — | — | 526 | 597 | — | — | 597 | |||||||||||||||||||||||||||||||||||||||
Net interest income after provision | 17,138 | 218 | 144 | 17,500 | 15,180 | 2 | 478 | 15,660 | |||||||||||||||||||||||||||||||||||||||
Non-interest Income | |||||||||||||||||||||||||||||||||||||||||||||||
Mortgage banking income | 72 | — | 7,257 | 7,329 | 215 | — | 18,511 | 18,726 | |||||||||||||||||||||||||||||||||||||||
Wealth management income | — | 1,114 | — | 1,114 | — | 1,232 | — | 1,232 | |||||||||||||||||||||||||||||||||||||||
SBA loan income | 989 | — | — | 989 | 2,688 | — | — | 2,688 | |||||||||||||||||||||||||||||||||||||||
Net change in fair values | 47 | — | (1,043) | (996) | 13 | — | (847) | (834) | |||||||||||||||||||||||||||||||||||||||
Net gain on hedging activity | — | — | 399 | 399 | — | — | (1,189) | (1,189) | |||||||||||||||||||||||||||||||||||||||
Other | 622 | — | 767 | 1,389 | 836 | — | 663 | 1,499 | |||||||||||||||||||||||||||||||||||||||
Non-interest income | 1,730 | 1,114 | 7,380 | 10,224 | 3,752 | 1,232 | 17,138 | 22,122 | |||||||||||||||||||||||||||||||||||||||
Non-interest expense | 11,354 | 780 | 8,127 | 20,261 | 10,633 | 802 | 14,046 | 25,481 | |||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | $ | 7,514 | $ | 552 | $ | (603) | $ | 7,463 | $ | 8,299 | $ | 432 | $ | 3,570 | $ | 12,301 | |||||||||||||||||||||||||||||||
Total Assets | $ | 1,858,770 | $ | 7,927 | $ | 55,227 | $ | 1,921,924 | $ | 1,625,468 | $ | 6,396 | $ | 130,581 | $ | 1,762,445 |
Segment Information Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 (Dollars in thousands) Bank Wealth Mortgage Total Bank Wealth Mortgage Total Net interest income $ 50,197 $ 628 $ 785 $ 51,610 $ 45,340 $ (249) $ 1,698 $ 46,789 Provision for loan losses 1,743 — — 1,743 1,292 — — 1,292 Net interest income after provision 48,454 628 785 49,867 44,048 (249) 1,698 45,497 Non-interest Income Mortgage banking income 394 — 20,973 21,367 892 — 61,401 62,293 Wealth management income — 3,672 — 3,672 — 3,531 — 3,531 SBA loan income 3,946 — — 3,946 5,423 — — 5,423 Net change in fair values 151 — (4,457) (4,306) 52 — (6,671) (6,619) Net gain on hedging activity — — 4,941 4,941 — — 2,397 2,397 Other 1,776 (1) 2,333 4,108 2,110 — 1,767 3,877 Non-interest income 6,267 3,671 23,790 33,728 8,477 3,531 58,894 70,902 Non-interest expense 32,186 2,480 26,734 61,400 28,981 2,486 48,523 79,990 Income (loss) before income taxes $ 22,535 $ 1,819 $ (2,159) $ 22,195 $ 23,544 $ 796 $ 12,069 $ 36,409 Total Assets $ 1,858,770 $ 7,927 $ 55,227 $ 1,921,924 $ 1,625,468 $ 6,396 $ 130,581 $ 1,762,445
DuringLeases
(dollars in thousands) | Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||||
Operating lease expense | $ | 585 | $ | 1,742 | |||||||
Short term lease expense | 1 | 3 | |||||||||
Variable lease expense | — | — | |||||||||
Total lease expense | $ | 586 | $ | 1,745 |
(dollars in thousands) | Nine Months Ended September 30, 2022 | ||||
Cash paid for amounts included in the measurement of lease liabilities | |||||
Operating cash flows from operating leases | $ | 563 | |||
ROU asset obtained in exchange for lease liabilities | $ | 10,995 |
(dollars in thousands) | September 30, 2022 | ||||
2022 | $ | 559 | |||
2023 | 1,919 | ||||
2024 | 1,746 | ||||
2025 | 1,456 | ||||
2026 | 1,436 | ||||
Thereafter | 3,134 | ||||
Total | $ | 10,250 | |||
Less: Present value discount | (887) | ||||
Total operating lease liabilities | $ | 9,363 |
| | | | | | | | | | |
Date | | Date of | | Date | | | Quarterly | | | Special |
Declared |
| Record | | Paid | | | Dividend | | | Dividend |
January 28, 2021 | | February 8, 2021 | | February 22, 2021 | | $ | 0.125 | | $ | — |
February 16, 2021 | | March 1, 2021 | | March 15, 2021 | | | — | | | 1.00 |
April 22, 2021 | | May 10, 2021 | | May 17, 2021 | | | 0.125 | | | — |
July 22, 2021 | | August 9, 2021 | | August 16, 2021 | | | 0.125 | | | — |
On April 26, 2021, the Corporation announcednot entered into any material leases that its Board of Directors has authorized a stock repurchase plan pursuant to which the Corporation may repurchase up to $6 million of the company’s outstanding common stock, par value $1.00 per share. Stock will be purchased from time to time in the open market or through privately negotiated transactions, or otherwise, at the discretion of management of the company in accordance with legal requirements. This program is subject to applicable regulatory protocol. There were 78,491 shares purchased during the three months ended September 30, 2021 at an average price of $27.41, for an aggregate purchase price of $2.2 million.
have not yet commenced.
At the Annual Meeting of Shareholders held on June 17, 2021, the shareholders of the Corporation approved to amend the Corporation’s Articles of Incorporation to increase the authorized numbers of shares of common stock of the Corporation from 10,000,000 shares to 25,000,000 shares. The Articles of Amendment of the Corporation were filed with the Secretary of State of the Commonwealth of Pennsylvania on June 21, 2021.
entities
33
apply the guidance in this ASU. A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. In October 2019, the FASB approved a delay for the implementation of the ASU. Accordingly, as an emerging growth company, the Corporation’s effective date for the implementation of the ASU will be January 1, 2023. The Corporation is currently determiningexpects to recognize a one-time cumulative-effect adjustment to the allowance for credit losses as of the date of adoption. While the Corporation anticipates the allowance for credit losses will increase under which method we will adopt this ASU. The Corporation has assembled a cross-functional team from Finance, Credit, and IT that is leading the implementation efforts to evaluatecurrent model assumptions, it expects the impact of adopting ASU 2016-13 will be influenced by the composition, characteristics and quality of its loan and investment securities portfolios, as well as general economic conditions and
perform a model validation prior to adoption.
FASB ASU 2016-02 (Topic 842), “Leases”
Issued in February 2016, ASU 2016-02 revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. In June 2020, the FASB approved a delay for the implementation of the ASU. Accordingly, the amendments in this update are effective for the Corporation for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Under ASU 2016-02, the Corporation will recognize a right-of-use asset and a lease obligation liability on the consolidated statement of financial condition, which will increase the Corporation’s assets and liabilities. The Corporation is evaluating the impacts that ASU 2016-02 will have on its consolidated financial statements when adopted as of January 1, 2022.
FASB ASU 2018-15 (Topic 350), "Intangibles - Goodwill and Other - Internal-Use Software"
Issued in August 2018, ASU 2018-15 provides clarity on capitalizing and expensing implementation costs for cloud computing arrangements in a service contract. If an implementation cost is capitalized, the cost should be recognized over the noncancellable term and periodically assessed for impairment. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2020 and interim periods within annual periods beginning after December 15, 2021. Adoption should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Corporation does not expect the adoption of this ASU to have a material impact on our consolidated financial statements and related disclosures.
34
FASB ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”
Issued in December 2019, ASU 2019-12 adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the codification. The guidance is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.
FASB ASU 2020-06, “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”Equity”
35
Critical Accounting Policies Judgments and Estimates
This critical accounting policy, along with other significant accounting policies are presenteddescribed in detail in Footnote 1the "Critical Accounting Policies" section within Item 7 of our 2021 Annual Form Form 10-K. The SEC defines "critical accounting policies" as those that require application of management's most difficult, subjective or complex judgments, often as a result of the Corporation’s Consolidated Financial Statements asneed to make estimates about the effect of matters that are inherently uncertain and formay change in future periods. There have been no material changes in these policies during the yearsnine months ended December 31, 2020 and 2019 included in the Annual Report on Form 10-K.
September 30, 2022.
36
•Non-interest income decreased $11.9 million, or 53.8%, to $10.2 million driven by a $11.4 million decrease in mortgage banking income and a $1.7 million decrease in SBA loan income.
Changes - September 30, 2022 Compared to the Same Period in Financial Condition
37
Key
| | | | | | | | | | | | | | | |
| Three Months Ended | | | Nine Months Ended | | ||||||||||
| September 30, | | | September 30, | | ||||||||||
| 2021 |
| | 2020 |
| | 2021 |
| | 2020 |
| ||||
Annualized return on average equity | | 24.07 | % | | | 29.30 | % | | | 25.43 | % | | | 18.85 | % |
Annualized return on average assets | | 2.15 | % | | | 2.29 | % | | | 2.17 | % | | | 1.65 | % |
Net interest margin (tax effected yield) | | 3.83 | % | | | 3.26 | % | | | 3.75 | % | | | 3.33 | % |
Basic earnings per share | $ | 1.56 | | | $ | 1.51 | | | $ | 4.62 | | | $ | 2.83 | |
Diluted earnings per share | $ | 1.52 | | | $ | 1.51 | | | $ | 4.49 | | | $ | 2.82 | |
periods indicated:
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Return on average assets, annualized | 1.23 | % | 2.15 | % | 1.28 | % | 2.17 | % | |||||||||||||||
Return on average equity, annualized | 14.59 | % | 24.07 | % | 14.49 | % | 25.43 | % | |||||||||||||||
Net interest margin (tax effected yield), annualized | 4.01 | % | 3.83 | % | 3.99 | % | 3.75 | % | |||||||||||||||
Basic earnings per share | $ | 0.99 | $ | 1.56 | $ | 2.90 | $ | 4.62 | |||||||||||||||
Diluted earnings per share | $ | 0.96 | $ | 1.52 | $ | 2.80 | $ | 4.49 |
| | | | | | | |
| September 30, | | | December 31, | | ||
(dollars in thousands, except per share amounts) | 2021 |
| | 2020 | | ||
Book value per common share | $ | 25.94 | | | $ | 23.08 | |
Tangible book value per common share (1) | $ | 25.23 | | | $ | 22.35 | |
Allowance as a percentage of loans and leases held for investment | | 1.38 | % | | | 1.38 | % |
Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1) | | 1.52 | % | | | 1.65 | % |
Tier I capital to risk weighted assets | | 10.64 | % | | | 10.22 | % |
Tangible common equity ratio (1) | | 8.76 | % | | | 7.99 | % |
Loans held for investment | $ | 1,378,670 | | | $ | 1,284,764 | |
Total assets | $ | 1,762,445 | | | $ | 1,720,197 | |
Stockholders' equity | $ | 158,416 | | | $ | 141,622 | |
(dollars in thousands, except per share amounts) | September 30, 2022 | December 31, 2021 | |||||||||
Book value per common share | $ | 25.86 | $ | 27.07 | |||||||
Tangible book value per common share (1) | $ | 25.16 | $ | 26.37 | |||||||
Allowance as a percentage of loans and leases held for investment | 1.18 | % | 1.35 | % | |||||||
Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1) | 1.20 | % | 1.46 | % | |||||||
Tier I capital to risk weighted assets | 9.28 | % | 10.83 | % | |||||||
Tangible common equity to tangible assets ratio (1) | 7.67 | % | 9.42 | % | |||||||
Loans, net of fees and costs | $ | 1,610,349 | $ | 1,386,457 | |||||||
Total assets | $ | 1,921,924 | $ | 1,713,443 | |||||||
Total stockholders’ equity | $ | 151,161 | $ | 165,360 |
For the Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Income/ Expense | Yields/ Rates | Average Balance | Interest Income/ Expense | Yields/ Rates | Average Balance | Interest Income/ Expense | Yields/ Rates | |||||||||||||||||||||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Due from banks | $ | 15,678 | $ | 92 | 2.33 | % | $ | 40,249 | $ | 16 | 0.16 | % | $ | (24,571) | $ | 76 | 2.17 | % | |||||||||||||||||||||||||||||||||||
Federal funds sold | 219 | 1 | 1.81 | 23,013 | 1 | 0.02 | (22,794) | — | 1.79 | ||||||||||||||||||||||||||||||||||||||||||||
Investment securities - taxable (1) | 107,929 | 648 | 2.38 | 79,785 | 357 | 1.78 | 28,144 | 291 | 0.60 | ||||||||||||||||||||||||||||||||||||||||||||
Investment securities - tax exempt (1) | 63,711 | 451 | 2.81 | 67,250 | 377 | 2.22 | (3,539) | 74 | 0.59 | ||||||||||||||||||||||||||||||||||||||||||||
Loans held for sale | 37,857 | 479 | 5.02 | 110,905 | 824 | 2.97 | (73,048) | (345) | 2.05 | ||||||||||||||||||||||||||||||||||||||||||||
Loans held for investment (1) | 1,565,861 | 21,371 | 5.41 | 1,370,439 | 16,804 | 4.84 | 195,422 | 4,567 | 0.57 | ||||||||||||||||||||||||||||||||||||||||||||
Total loans | 1,603,718 | 21,850 | 5.41 | 1,481,344 | 17,628 | 4.72 | 122,374 | 4,222 | 0.69 | ||||||||||||||||||||||||||||||||||||||||||||
Total interest-earning assets | 1,791,255 | 23,042 | 5.10 | % | 1,691,641 | 18,379 | 4.31 | % | 99,614 | 4,663 | 0.79 | % | |||||||||||||||||||||||||||||||||||||||||
Noninterest earning assets | 76,939 | 48,207 | 28,732 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 1,868,194 | $ | 1,739,848 | $ | 128,346 | |||||||||||||||||||||||||||||||||||||||||||||||
Liabilities and stockholders' equity: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 221,402 | $ | 798 | 1.43 | % | $ | 270,518 | $ | 201 | 0.29 | % | $ | (49,116) | $ | 597 | 1.14 | % | |||||||||||||||||||||||||||||||||||
Money market and savings deposits | 718,744 | 2,075 | 1.15 | 647,093 | 853 | 0.52 | 71,651 | 1,222 | 0.63 | ||||||||||||||||||||||||||||||||||||||||||||
Time deposits | 361,527 | 1,202 | 1.32 | 237,080 | 273 | 0.46 | 124,447 | 929 | 0.86 | ||||||||||||||||||||||||||||||||||||||||||||
Total deposits | 1,301,673 | 4,075 | 1.24 | 1,154,691 | 1,327 | 0.46 | 146,982 | 2,748 | 0.78 | ||||||||||||||||||||||||||||||||||||||||||||
Borrowings | 41,313 | 266 | 2.55 | 111,075 | 126 | 0.45 | (69,762) | 140 | 2.10 | ||||||||||||||||||||||||||||||||||||||||||||
Subordinated debentures | 40,578 | 591 | 5.78 | 40,740 | 596 | 5.85 | (162) | (5) | (0.07) | ||||||||||||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | 1,383,564 | 4,932 | 1.41 | 1,306,506 | 2,049 | 0.62 | 77,058 | 2,883 | 0.79 | ||||||||||||||||||||||||||||||||||||||||||||
Noninterest-bearing deposits | 295,975 | 254,843 | 41,132 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other noninterest-bearing liabilities | 31,041 | 22,919 | 8,122 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 1,710,580 | 1,584,268 | 126,312 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total stockholders' equity | 157,614 | 155,580 | 2,034 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total stockholders' equity and liabilities | $ | 1,868,194 | $ | 1,739,848 | $ | 128,346 | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest income and spread (1) | $ | 18,110 | 3.69 | $ | 16,330 | 3.69 | $ | 1,780 | — | ||||||||||||||||||||||||||||||||||||||||||||
Net interest margin (1) | 4.01 | % | 3.83 | % | 0.18 | % |
For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Income/ Expense | Yields/ Rates | Average Balance | Interest Income/ Expense | Yields/ Rates | Average Balance | Interest Income/ Expense | Yields/ Rates | |||||||||||||||||||||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Due from banks | $ | 23,612 | $ | 153 | 0.87 | % | $ | 24,340 | $ | 22 | 0.12 | % | $ | (728) | $ | 131 | 0.75 | % | |||||||||||||||||||||||||||||||||||
Federal funds sold | 1,440 | 4 | 0.37 | 18,991 | 3 | 0.02 | (17,551) | 1 | 0.35 | ||||||||||||||||||||||||||||||||||||||||||||
Investment securities - taxable (1) | 105,624 | 1,599 | 2.02 | 78,951 | 1,076 | 1.82 | 26,673 | 523 | 0.20 | ||||||||||||||||||||||||||||||||||||||||||||
Investment securities - tax exempt (1) | 63,848 | 1,240 | 2.60 | 64,023 | 1,094 | 2.28 | (175) | 146 | 0.32 | ||||||||||||||||||||||||||||||||||||||||||||
Loans held for sale | 52,495 | 1,580 | 4.02 | 139,101 | 2,922 | 2.80 | (86,606) | (1,342) | 1.22 | ||||||||||||||||||||||||||||||||||||||||||||
Loans held for investment (1) | 1,489,345 | 56,614 | 5.08 | 1,349,780 | 48,375 | 4.79 | 139,565 | 8,239 | 0.29 | ||||||||||||||||||||||||||||||||||||||||||||
Total loans | 1,541,840 | 58,194 | 5.05 | 1,488,881 | 51,297 | 4.61 | 52,959 | 6,897 | 0.44 | ||||||||||||||||||||||||||||||||||||||||||||
Total interest-earning assets | 1,736,364 | 61,190 | 4.71 | % | 1,675,186 | 53,492 | 4.27 | % | 61,178 | 7,698 | 0.44 | % | |||||||||||||||||||||||||||||||||||||||||
Noninterest earning assets | 74,313 | 44,388 | 29,925 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 1,810,677 | $ | 1,719,574 | $ | 91,103 | |||||||||||||||||||||||||||||||||||||||||||||||
Liabilities and stockholders' equity: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 242,863 | $ | 1,183 | 0.65 | % | $ | 252,074 | $ | 739 | 0.39 | % | $ | (9,211) | $ | 444 | 0.26 | % | |||||||||||||||||||||||||||||||||||
Money market and savings deposits | 702,696 | 4,003 | 0.76 | 609,201 | 2,505 | 0.55 | 93,495 | 1,498 | 0.21 | ||||||||||||||||||||||||||||||||||||||||||||
Time deposits | 319,927 | 1,996 | 0.83 | 258,099 | 1,017 | 0.53 | 61,828 | 979 | 0.30 | ||||||||||||||||||||||||||||||||||||||||||||
Total deposits | 1,265,486 | 7,182 | 0.76 | 1,119,374 | 4,261 | 0.51 | 146,112 | 2,921 | 0.25 | ||||||||||||||||||||||||||||||||||||||||||||
Borrowings | 24,621 | 391 | 2.12 | 139,716 | 437 | 0.42 | (115,095) | (46) | 1.70 | ||||||||||||||||||||||||||||||||||||||||||||
Subordinated debentures | 40,548 | 1,775 | 5.85 | 40,711 | 1,787 | 5.87 | (163) | (12) | (0.02) | ||||||||||||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | 1,330,655 | 9,348 | 0.94 | 1,299,801 | 6,485 | 0.67 | 30,854 | 2,863 | 0.27 | ||||||||||||||||||||||||||||||||||||||||||||
Noninterest-bearing deposits | 291,261 | 248,355 | 42,906 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other noninterest-bearing liabilities | 29,452 | 24,928 | 4,524 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 1,651,368 | 1,573,084 | 78,284 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total stockholders' equity | 159,309 | 146,490 | 12,819 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total stockholders' equity and liabilities | $ | 1,810,677 | $ | 1,719,574 | $ | 91,103 | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest income and spread (1) | $ | 51,842 | 3.77 | $ | 47,007 | 3.60 | $ | 4,835 | 0.17 | ||||||||||||||||||||||||||||||||||||||||||||
Net interest margin (1) | 3.99 | % | 3.75 | % | 0.24 | % |
2022 Compared to 2021 | |||||||||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
(dollars in thousands) | Rate | Volume | Total | Rate | Volume | Total | |||||||||||||||||||||||||||||
Interest income: | |||||||||||||||||||||||||||||||||||
Due from banks | $ | 91 | $ | (15) | $ | 76 | $ | 132 | $ | (1) | $ | 131 | |||||||||||||||||||||||
Federal funds sold | 2 | (2) | — | 6 | (5) | 1 | |||||||||||||||||||||||||||||
Investment securities - taxable (1) | 143 | 148 | 291 | 129 | 394 | 523 | |||||||||||||||||||||||||||||
Investment securities - tax exempt (1) | 95 | (21) | 74 | 149 | (3) | 146 | |||||||||||||||||||||||||||||
Loans held for sale | 382 | (727) | (345) | 942 | (2,284) | (1,342) | |||||||||||||||||||||||||||||
Loans held for investment (1) | 2,020 | 2,547 | 4,567 | 3,046 | 5,193 | 8,239 | |||||||||||||||||||||||||||||
Total loans | 2,402 | 1,820 | 4,222 | 3,988 | 2,909 | 6,897 | |||||||||||||||||||||||||||||
Total interest income | $ | 2,733 | $ | 1,930 | $ | 4,663 | $ | 4,404 | $ | 3,294 | $ | 7,698 | |||||||||||||||||||||||
Interest expense: | |||||||||||||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 640 | $ | (43) | $ | 597 | $ | 472 | $ | (28) | $ | 444 | |||||||||||||||||||||||
Money market and savings deposits | 1,118 | 104 | 1,222 | 1,071 | 427 | 1,498 | |||||||||||||||||||||||||||||
Time deposits | 727 | 202 | 929 | 694 | 285 | 979 | |||||||||||||||||||||||||||||
Total deposits | 2,485 | 263 | 2,748 | 2,237 | 684 | 2,921 | |||||||||||||||||||||||||||||
Borrowings | 263 | (123) | 140 | 561 | (607) | (46) | |||||||||||||||||||||||||||||
Subordinated debentures | (3) | (2) | (5) | (5) | (7) | (12) | |||||||||||||||||||||||||||||
Total interest expense | $ | 2,745 | $ | 138 | $ | 2,883 | $ | 2,793 | $ | 70 | $ | 2,863 | |||||||||||||||||||||||
Interest differential | $ | (12) | $ | 1,792 | $ | 1,780 | $ | 1,611 | $ | 3,224 | $ | 4,835 |
(dollars in thousands) | September 30, 2022 | December 31, 2021 | |||||||||
Non-performing assets: | |||||||||||
Nonaccrual loans: | |||||||||||
Real estate loans: | |||||||||||
Home equity lines and loans | $ | 878 | $ | 911 | |||||||
Residential mortgage | 2,097 | 2,398 | |||||||||
Total real estate loans | 2,975 | 3,309 | |||||||||
Commercial and industrial | 18,202 | 18,801 | |||||||||
Small business loans | 1,401 | 666 | |||||||||
Leases | 506 | 212 | |||||||||
Total nonaccrual loans | 23,084 | 22,988 | |||||||||
Total non-performing assets | $ | 23,084 | $ | 22,988 | |||||||
Troubled debt restructurings: | |||||||||||
TDRs included in non-performing loans and leases | $ | 193 | $ | 361 | |||||||
TDRs in compliance with modified terms | 3,637 | 3,446 | |||||||||
Total TDRs | $ | 3,830 | $ | 3,807 | |||||||
Asset quality ratios: | |||||||||||
Non-performing assets to total assets | 1.20 | % | 1.34 | % | |||||||
Non-performing loans to: | |||||||||||
Total loans and leases | 1.40 | % | 1.57 | % | |||||||
Total loans held-for-investment | 1.43 | % | 1.66 | % | |||||||
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1) | 1.45 | % | 1.80 | % | |||||||
Allowance for loan losses to: | |||||||||||
Total loans and leases | 1.15 | % | 1.28 | % | |||||||
Total loans held-for-investment | 1.18 | % | 1.35 | % | |||||||
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1) | 1.20 | % | 1.46 | % | |||||||
Non-performing loans | 82.20 | % | 81.60 | % | |||||||
Total loans and leases | $ | 1,644,149 | $ | 1,467,339 | |||||||
Total loans and leases held-for-investment | $ | 1,610,349 | $ | 1,386,457 | |||||||
Total loans and leases held-for-investment (excluding loans at fair value and PPP loans) | $ | 1,587,037 | $ | 1,280,654 | |||||||
Allowance for loan and lease losses | $ | 18,974 | $ | 18,758 |
Quarter Ended | |||||||||||||||||||||||
(Dollars in thousands) | September 30, 2022 | September 30, 2021 | $ Change | % Change | |||||||||||||||||||
Mortgage banking income | $ | 7,329 | $ | 18,726 | $ | (11,397) | (60.9) | % | |||||||||||||||
Wealth management income | 1,114 | 1,232 | (118) | (9.6) | % | ||||||||||||||||||
SBA loan income | 989 | 2,688 | (1,699) | (63.2) | % | ||||||||||||||||||
Earnings on investment in life insurance | 138 | 93 | 45 | 48.4 | % | ||||||||||||||||||
Net change in the fair value of derivative instruments | 127 | (339) | 466 | (137.5) | % | ||||||||||||||||||
Net change in the fair value of loans held-for-sale | (237) | (532) | 295 | (55.5) | % | ||||||||||||||||||
Net change in the fair value of loans held-for-investment | (886) | 37 | (923) | (2494.6) | % | ||||||||||||||||||
Net gain on hedging activity | 399 | (1,189) | 1,588 | (133.6) | % | ||||||||||||||||||
Net gain on sale of investment securities available-for-sale | — | 314 | (314) | (100.0) | % | ||||||||||||||||||
Service charges | 32 | 35 | (3) | (8.6) | % | ||||||||||||||||||
Other | 1,219 | 1,057 | 162 | 15.3 | % | ||||||||||||||||||
Total non-interest income | $ | 10,224 | $ | 22,122 | $ | (11,898) | (53.8) | % |
Year Ended | |||||||||||||||||||||||
(Dollars in thousands) | September 30, 2022 | September 30, 2021 | $ Change | % Change | |||||||||||||||||||
Mortgage banking income | $ | 21,367 | $ | 62,293 | $ | (40,926) | (65.7) | % | |||||||||||||||
Wealth management income | 3,672 | 3,531 | 141 | 4.0 | % | ||||||||||||||||||
SBA loan income | 3,946 | 5,423 | (1,477) | (27.2) | % | ||||||||||||||||||
Earnings on investment in life insurance | 413 | 224 | 189 | 84.4 | % | ||||||||||||||||||
Net change in the fair value of derivative instruments | (713) | (3,431) | 2,718 | (79.2) | % | ||||||||||||||||||
Net change in the fair value of loans held-for-sale | (1,094) | (3,164) | 2,070 | (65.4) | % | ||||||||||||||||||
Net change in the fair value of loans held-for-investment | (2,499) | (24) | (2,475) | 10312.5 | % | ||||||||||||||||||
Net gain on hedging activity | 4,941 | 2,397 | 2,544 | 106.1 | % | ||||||||||||||||||
Net gain on sale of investment securities available-for-sale | — | 362 | (362) | (100.0) | % | ||||||||||||||||||
Service charges | 90 | 99 | (9) | (9.1) | % | ||||||||||||||||||
Other | 3,605 | 3,192 | 413 | 12.9 | % | ||||||||||||||||||
Total non-interest income | $ | 33,728 | $ | 70,902 | $ | (37,174) | (52.4) | % |
Quarter Ended | |||||||||||||||||||||||
(Dollars in thousands) | September 30, 2022 | September 30, 2021 | $ Change | % Change | |||||||||||||||||||
Salaries and employee benefits | $ | 13,360 | $ | 19,472 | $ | (6,112) | (31.4) | % | |||||||||||||||
Occupancy and equipment | 1,191 | 1,133 | 58 | 5.1 | % | ||||||||||||||||||
Professional fees | 899 | 873 | 26 | 3.0 | % | ||||||||||||||||||
Advertising and promotion | 1,165 | 1,089 | 76 | 7.0 | % | ||||||||||||||||||
Data processing | 574 | 530 | 44 | 8.3 | % | ||||||||||||||||||
Information technology | 868 | 476 | 392 | 82.4 | % | ||||||||||||||||||
Pennsylvania bank shares tax | 202 | 152 | 50 | 32.9 | % | ||||||||||||||||||
Other | 2,002 | 1,756 | 246 | 14.0 | % | ||||||||||||||||||
Total non-interest expense | $ | 20,261 | $ | 25,481 | $ | (5,220) | (20.5) | % |
Year Ended | |||||||||||||||||||||||
(Dollars in thousands) | September 30, 2022 | September 30, 2021 | $ Change | % Change | |||||||||||||||||||
Salaries and employee benefits | $ | 41,585 | $ | 61,824 | $ | (20,239) | (32.7) | % | |||||||||||||||
Occupancy and equipment | 3,619 | 3,460 | 159 | 4.6 | % | ||||||||||||||||||
Professional fees | 2,659 | 2,629 | 30 | 1.1 | % | ||||||||||||||||||
Advertising and promotion | 3,340 | 2,795 | 545 | 19.5 | % | ||||||||||||||||||
Data processing | 1,633 | 1,666 | (33) | (2.0) | % | ||||||||||||||||||
Information technology | 2,306 | 1,365 | 941 | 68.9 | % | ||||||||||||||||||
Pennsylvania bank shares tax | 612 | 478 | 134 | 28.0 | % | ||||||||||||||||||
Other | 5,646 | 5,773 | (127) | (2.2) | % | ||||||||||||||||||
Total non-interest expense | $ | 61,400 | $ | 79,990 | $ | (18,590) | (23.2) | % |
(Dollars in thousands) | September 30, 2022 | December 31, 2021 | $ Change | % Change | |||||||||||||||||||
Mortgage loans held for sale | $ | 33,800 | $ | 80,882 | $ | (47,082) | (58.2) | % | |||||||||||||||
Real estate loans: | |||||||||||||||||||||||
Commercial mortgage | 545,736 | 516,928 | 28,808 | 5.6 | % | ||||||||||||||||||
Home equity lines and loans | 57,648 | 52,299 | 5,349 | 10.2 | % | ||||||||||||||||||
Residential mortgage (1) | 153,513 | 68,175 | 85,338 | 125.2 | % | ||||||||||||||||||
Construction | 244,435 | 160,905 | 83,530 | 51.9 | % | ||||||||||||||||||
Total real estate loans | 1,001,332 | 798,307 | 203,025 | 25.4 | % | ||||||||||||||||||
Commercial and industrial | 329,451 | 293,771 | 35,680 | 12.1 | % | ||||||||||||||||||
Small business loans | 133,904 | 114,158 | 19,746 | 17.3 | % | ||||||||||||||||||
Paycheck Protection Program loans | 8,837 | 90,194 | (81,357) | (90.2) | % | ||||||||||||||||||
Main Street Lending Program Loans | 597 | 597 | — | — | % | ||||||||||||||||||
Consumer | 497 | 419 | 78 | 18.6 | % | ||||||||||||||||||
Leases, net | 129,574 | 88,242 | 41,332 | 46.8 | % | ||||||||||||||||||
Total portfolio loans and leases | $ | 1,604,192 | $ | 1,385,688 | $ | 218,504 | 15.8 | % | |||||||||||||||
Total loans and leases | $ | 1,637,992 | $ | 1,466,570 | $ | 171,422 | 11.7 | % |
(Dollars in thousands) | September 30, 2022 | December 31, 2021 | $ Change | % Change | |||||||||||||||||||
Noninterest-bearing deposits | $ | 290,169 | $ | 274,528 | $ | 15,641 | 5.7 | % | |||||||||||||||
Interest-bearing deposits: | |||||||||||||||||||||||
Interest-bearing demand deposits | 236,562 | 268,248 | (31,686) | (11.8) | % | ||||||||||||||||||
Money market and savings deposits | 709,127 | 697,628 | 11,499 | 1.6 | % | ||||||||||||||||||
Time deposits | 437,695 | 206,009 | 231,686 | 112.5 | % | ||||||||||||||||||
Total interest-bearing deposits | 1,383,384 | 1,171,885 | 211,499 | 18.0 | % | ||||||||||||||||||
Total deposits | $ | 1,673,553 | $ | 1,446,413 | $ | 227,140 | 15.7 | % |
Corporation | Bank | Well-capitalized minimum | |||||||||||||||||||||||||||
September 30, 2022 | December 31, 2021 | September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||
Tier 1 leverage ratio | 8.54 | % | 9.39 | % | 10.52 | % | 11.51 | % | 5.00 | % | |||||||||||||||||||
Common tier 1 risk-based capital ratio | 9.28 | % | 10.83 | % | 11.44 | % | 13.27 | % | 6.50 | % | |||||||||||||||||||
Tier 1 risk-based capital ratio | 9.28 | % | 10.83 | % | 11.44 | % | 13.27 | % | 8.00 | % | |||||||||||||||||||
Total risk-based capital ratio | 12.80 | % | 14.81 | % | 12.70 | % | 14.63 | % | 10.00 | % |
38
Our management used the measure of the tangible common equity ratio to assess our capital strength. We believe that this non-GAAP financial measure is useful to investors because, by removing the impact of our goodwill and other intangible assets, it allows investors to more easily assess our capital adequacy. This non-GAAP financial measure should not be considered a substitute for any regulatory capital ratios and may not be comparable to other similarly titled measures used by other companies.
| | | | | |
| | | | | |
(dollars in thousands) | September 30, 2021 |
| December 31, 2020 | ||
Tangible common equity ratio: | | | | | |
Total stockholders' equity | | 158,416 | | | 141,622 |
Less: | | | | | |
Goodwill and intangible assets | | (4,329) | | | (4,500) |
Tangible common equity | | 154,087 | | | 137,122 |
Total assets | | 1,762,445 | | | 1,720,197 |
Less: | | | | | |
Goodwill and intangible assets | | (4,329) | | | (4,500) |
Tangible assets | $ | 1,758,116 | | $ | 1,715,697 |
Tangible common equity ratio | | 8.76% | | | 7.99% |
The table below provides the non-GAAP reconciliation for ourand tangible book value per common share for Meridian Corporation:
| | | | | | | | | | | | | | |
Reconciliation of tangible book value per common share | | | | | | | | | | 2021 | | 2020 | ||
| | | | | | | | | | September 30 | | December 31 | ||
Book value per common share | | | | | | | | | | $ | 25.94 | | $ | 23.08 |
Less: Impact of goodwill and intangible assets | | | | | | | | | | | 0.71 | | | 0.73 |
Tangible book value per common share | | | | | | | | | | $ | 25.23 | | $ | 22.35 |
share:
(dollars in thousands) | September 30, 2022 | December 31, 2021 | |||||||||
Total stockholders' equity (GAAP) | $ | 151,161 | $ | 165,360 | |||||||
Less: Goodwill and intangible assets | 4,125 | 4,278 | |||||||||
Tangible common equity (non-GAAP) | 147,036 | 161,082 | |||||||||
Total assets (GAAP) | 1,921,924 | 1,713,443 | |||||||||
Less: Goodwill and intangible assets | 4,125 | 4,278 | |||||||||
Tangible assets (non-GAAP) | $ | 1,917,799 | $ | 1,709,165 | |||||||
Stockholders' equity to total assets (GAAP) | 7.87 | % | 9.65 | % | |||||||
Tangible common equity to tangible assets (non-GAAP) | 7.67 | % | 9.42 | % | |||||||
Shares outstanding | 5,844 | 6,108 | |||||||||
Book value per share (GAAP) | $ | 25.86 | $ | 27.07 | |||||||
Tangible book value per share (non-GAAP) | $ | 25.16 | $ | 26.37 |
| | | | | | | | |
Reconciliation of Allowance for Loan Losses / Total loans held for investment | 2021 | | 2021 | | 2020 | |||
| September 30 | | June 30 | | December 31 | |||
Allowance for loan losses / Total loans held for investment | | 1.38% | | | 1.35% | | | 1.38% |
Less: Impact of loans held for investment - fair valued | | 0.01% | | | 0.01% | | | 0.00% |
Less: Impact of PPP loans | | 0.13% | | | 0.22% | | | 0.27% |
Allowance for loan losses / Total loans held for investment (excl. loans at fair value and PPP loans) | | 1.52% | | | 1.58% | | | 1.65% |
The table below provides the non-GAAP reconciliation for pre-tax, pre-provision income:
| | | | | | | | | | | |
(Dollars in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
Reconciliation of pre-tax, pre-provision income | 2021 | | 2020 | | 2021 | | 2020 | ||||
Income before income tax expense | $ | 12,301 | | $ | 11,985 | | $ | 36,409 | | $ | 22,659 |
Provision for loan losses | | 597 | | | 3,956 | | | 1,292 | | | 7,139 |
Pre-tax, pre-provision income | $ | 12,898 | | $ | 15,941 | | $ | 37,701 | | $ | 29,798 |
The following sections discuss, in detail, the Corporation’s results of operations for the three and nine months ended September 30, 2021, as compared to the same periods in 2020, and the changes in its financial condition as of September 30, 2021 as compared to December 31, 2020.
39
September 30, 2022 | December 31, 2021 | ||||||||||
Allowance for loan and lease losses | $ | 18,974 | $ | 18,758 | |||||||
Loans, net of fees and costs (GAAP) | 1,610,349 | 1,386,457 | |||||||||
Less: PPP loans | (8,610) | (88,245) | |||||||||
Less: Loans fair valued | (14,702) | (17,558) | |||||||||
Loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP) | $ | 1,587,037 | $ | 1,280,654 | |||||||
Allowance for loan and leases losses to loans, net of fees and costs (GAAP) | 1.18 | % | 1.35 | % | |||||||
Allowance for loan and leases losses to loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP) | 1.20 | % | 1.46 | % |
ComponentsSimulations of Net Income
Net income is comprised of five major elements:
NET INTEREST INCOME
Net interest income is an integral source of the Corporation’s revenue. The tables below present a summary, for the three and nine months ended September 30, 2021 and 2020, of the Corporation’s average balances and yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities. The net interest margin is the net interest income as a percentage of average interest-earning assets. The net interest spread is the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. The difference between the net interest margin and the net interest spread is the result of net free funding sources such as non-interest bearing deposits and stockholders’ equity.
Total interest income for the three months ending September 30, 2021 was $18.3 million (and $18.4 million on a tax equivalent basis), which represented a $2.4 million, or 15.3%, increase compared with the three months ending September 30, 2020. The increase in interest income was attributable to a $133.0 million increase in average interest earning assets, year over year, led by increases of $48.7 million, $111.9 million and $65.6 million in average balances of small business loans, commercial real estate loans and leases, respectively. The yield on interest earning assets increased 24 basis points over the same period in 2020, led by a 43 basis point increase in the yield on loans held for investment. Partially offsetting the loan yield expansion was the yield on cash, cash equivalents and investments, which declined 26 basis points over the prior quarter.
Total interest expense declined $1.1 million or 35.3% to $2.0 million for the three months ending September 30, 2021, compared with $3.2 million for the three months ending September 30, 2020. Total interest-bearing deposit balances increased $50.7 million in total from September 30, 2020 compared to September 30, 2021, which was offset by the decline in the cost of all deposit types of 44 basis points. The cost of money market and savings deposits declined 15 basis points and the cost of time deposits decreased by 91 basis points over the period. Interest expense on borrowings declined $208 thousand or 62.3% to $126 thousand for the three months ended September 30, 2021. The average balance of borrowings decreased $124.4 million due largely to a decline in PPPLF advances used to fund PPP loans as such loans continue to pay off, while the cost of borrowings declined 11 basis points over this period.
Net interest income increased $3.5 million, or 27.8%, to $16.3 million on a tax-equivalent basis for the three months ended September 30, 2021, compared to $12.8 million for the three months ended September 30, 2020. The net-interest margin increased 57 basis points for the three months ending September 30, 2021 at 3.83%, compared with 3.26% for the three month ending September 30, 2020. The increase in net interest margin reflects the increased yield on interest earnings assets, combined with the declining interest rates paid on deposits and borrowings loan portfolios overall. Contributing to
40
the decline in interest expense on deposits over this period was the $61.8 million increase in average non-interest bearing deposits.
Total interest income for the nine months ending September 30, 2021 was $53.5 million on a tax-equivalent basis, which represented a $8.6 million, or 19.3%, increase compared with the nine months ending September 30, 2020. The increase in interest income was attributable to a $306.0 million increase in average interest earning assets, year over year, led by increases of $36.0 million, $47.0 million, $119.3 million, and $54.2 million in the average balances of small business loans, PPP loans, commercial real estate loans and leases, respectively, as well as an increase of $67.4 million of average interest earning cash and cash equivalents and investments. Overall the loans held for investment yield increased 9 basis points over the same period in 2020, but this expansion was partially offset by a lower yield on cash, cash equivalents and investments.
Total interest expense declined $4.3 million or 39.7% to $6.5 million for the nine months ending September 30, 2021, compared with $10.8 million for the nine months ending September 30, 2020. While all interest-bearing deposit balances increased $216.0 million from September 30, 2020 compared to September 30, 2021, the cost of all deposit types declined sharply over this period. The cost of interest-bearing deposits declined 53 basis points, while the cost of money market and savings deposits declined 38 basis points and the cost of time deposits decreased by 114 basis points over the period. Interest expense on borrowings declined $463 thousand or 51.4% to $437 thousand for the nine months ended September 30, 2021. The average balance of borrowings decreased $8.5 million due largely to PPPLF advances used to fund PPP loans, while the cost of borrowings increased 46 basis points over this period.
Net interest income increased $12.9 million, or 37.8%, to $47.0 million on a tax-equivalent basis for the nine months ended September 30, 2021, compared to $34.1 million for the nine months ended September 30, 2020. The net-interest margin increased 42 basis points for the nine months ending September 30, 2021 at 3.75%, compared with 3.33% for the nine month ending September 30, 2020. The increase in net interest margin reflects declining interest rates paid on deposits and borrowings overall, out-pacing the declines in the yields on interest earning assets during the year-over-year period presented. Contributing to the decline in interest expense on deposits over this period was the $63.9 million increase in non-interest bearing deposits.
41
Analyses of Interest Rates and Interest Differential
The tables below present the major asset and liability categories on an average daily balance basis for the periods presented, along with interest income, interest expense and key rates and yields on a tax equivalent basis.
| | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | ||||||||||||
| | | | Interest | | | | | | Interest | | | ||||
For the Three Months Ended September 30, | | Average | | Income/ | | Yields/ | | Average | | Income/ | | Yields/ | ||||
(dollars in thousands) |
| Balance |
| Expense |
| rates |
| Balance |
| Expense |
| rates | ||||
Assets | | | | | | | | | | | | | | | | |
Interest-earning assets | | | | | | | | | | | | | | | | |
Due from banks | | $ | 40,249 | | | 16 | | 0.16% | | $ | 10,928 | | | 2 | | 0.08% |
Federal funds sold | | | 23,013 | | | 1 | | 0.02% | | | 12,655 | | | 2 | | 0.02% |
Investment securities(1) | | | 147,035 | | | 734 | | 2.01% | | | 109,106 | | | 612 | | 2.27% |
Loans held for sale | | | 110,905 | | | 824 | | 2.97% | | | 150,925 | | | 1,100 | | 2.91% |
Loans held for investment(1) | | | 1,370,439 | | | 16,804 | | 4.84% | | | 1,275,046 | | | 14,224 | | 4.41% |
Total loans | | | 1,481,344 | | | 17,628 | | 4.72% | | | 1,425,971 | | | 15,324 | | 4.28% |
Total interest-earning assets | | | 1,691,641 | | | 18,379 | | 4.31% | | | 1,558,660 | | | 15,940 | | 4.07% |
Noninterest earning assets | | | 48,207 | | | | | | | | 39,647 | | | | | |
Total assets | | $ | 1,739,848 | | | | | | | $ | 1,598,307 | | | | | |
Liabilities and stockholders' equity | | | | | | | | | | | | | | | | |
Interest-bearing liabilities | | | | | | | | | | | | | | | | |
Interest-bearing deposits | | $ | 270,518 | | | 201 | | 0.29% | | $ | 219,853 | | | 392 | | 0.71% |
Money market and savings deposits | | | 647,093 | | | 853 | | 0.52% | | | 454,922 | | | 770 | | 0.67% |
Time deposits | | | 237,080 | | | 273 | | 0.46% | | | 312,538 | | | 1,073 | | 1.37% |
Total deposits | | | 1,154,691 | | | 1,327 | | 0.46% | | | 987,313 | | | 2,235 | | 0.90% |
Total Borrowings | | | 111,075 | | | 126 | | 0.45% | | | 235,455 | | | 334 | | 0.56% |
Subordinated Debentures | | | 40,740 | | | 596 | | 5.85% | | | 40,802 | | | 596 | | 5.84% |
Total interest-bearing liabilities | | | 1,306,506 | | | 2,049 | | 0.62% | | | 1,263,570 | | | 3,165 | | 1.00% |
Noninterest-bearing deposits | | | 254,843 | | | | | | | | 193,020 | | | | | |
Other noninterest-bearing liabilities | | | 22,919 | | | | | | | | 16,664 | | | | | |
Total liabilities | | $ | 1,584,268 | | | | | | | $ | 1,473,254 | | | | | |
Total stockholders' equity | | | 155,580 | | | | | | | | 125,053 | | | | | |
Total stockholders' equity and liabilities | | $ | 1,739,848 | | | | | | | $ | 1,598,307 | | | | | |
Net interest income (1) | | | | | $ | 16,330 | | | | | | | $ | 12,775 | | |
Net interest spread (1) | | | | | | | | 3.69% | | | | | | | | 3.07% |
Net interest margin (1) | | | | | | | | 3.83% | | | | | | | | 3.26% |
42
| | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | ||||||||||||
| | | | Interest | | | | | | Interest | | | ||||
For the Nine Months Ended September 30, | | Average | | Income/ | | Yields/ | | Average | | Income/ | | Yields/ | ||||
(dollars in thousands) |
| Balance |
| Expense |
| rates |
| Balance |
| Expense |
| rates | ||||
Assets | | | | | | | | | | | | | | | | |
Interest-earning assets | | | | | | | | | | | | | | | | |
Due from banks | | $ | 24,340 | | | 22 | | 0.12% | | $ | 7,620 | | | 27 | | 0.47% |
Federal funds sold | | | 18,991 | | | 3 | | 0.02% | | | 15,692 | | | 36 | | 0.30% |
Investment securities(1) | | | 142,974 | | | 2,170 | | 2.06% | | | 95,563 | | | 1,735 | | 2.45% |
Loans held for sale | | | 139,101 | | | 2,922 | | 2.80% | | | 99,633 | | | 2,301 | | 3.08% |
Loans held for investment(1) | | | 1,349,780 | | | 48,375 | | 4.79% | | | 1,150,662 | | | 40,753 | | 4.70% |
Total loans | | | 1,488,881 | | | 51,297 | | 4.61% | | | 1,250,295 | | | 43,054 | | 4.60% |
Total interest-earning assets | | | 1,675,186 | | | 53,492 | | 4.27% | | | 1,369,170 | | | 44,852 | | 4.38% |
Noninterest earning assets | | | 44,388 | | | | | | | | 43,940 | | | | | |
Total assets | | $ | 1,719,574 | | | | | | | $ | 1,413,110 | | | | | |
Liabilities and stockholders' equity | | | | | | | | | | | | | | | | |
Interest bearing liabilities | | | | | | | | | | | | | | | | |
Interest-bearing deposits | | $ | 252,074 | | | 739 | | 0.39% | | $ | 187,987 | | | 1,302 | | 0.92% |
Money market and savings deposits | | | 609,201 | | | 2,505 | | 0.55% | | | 392,863 | | | 2,736 | | 0.93% |
Time deposits | | | 258,099 | | | 1,017 | | 0.53% | | | 322,574 | | | 4,026 | | 1.67% |
Total deposits | | | 1,119,374 | | | 4,261 | | 0.51% | | | 903,424 | | | 8,064 | | 1.19% |
Total Borrowings | | | 139,716 | | | 437 | | 0.42% | | | 148,192 | | | 900 | | 0.81% |
Subordinated Debentures | | | 40,711 | | | 1,787 | | 5.85% | | | 41,075 | | | 1,787 | | 5.80% |
Total interest-bearing liabilities | | | 1,299,801 | | | 6,485 | | 0.67% | | | 1,092,691 | | | 10,751 | | 1.31% |
Non-interest bearing deposits | | | 248,355 | | | | | | | | 184,503 | | | | | |
Other non-interest bearing liabilities | | | 24,928 | | | | | | | | 12,349 | | | | | |
Total liabilities | | $ | 1,573,084 | | | | | | | $ | 1,289,543 | | | | | |
Total stockholders' equity | | | 146,490 | | | | | | | | 123,567 | | | | | |
Total stockholders' equity and liabilities | | $ | 1,719,574 | | | | | | | $ | 1,413,110 | | | | | |
Net interest income (1) | | | | | $ | 47,007 | | | | | | | $ | 34,101 | | |
Net interest spread (1) | | | | | | | | 3.60% | | | | | | | | 3.06% |
Net interest margin (1) | | | | | | | | 3.75% | | | | | | | | 3.33% |
43
Rate/Volume Analysis
The rate/volume analysis table below analyzes dollar changes in the components of interest income and interest expense as they relate to the change in balances (volume) and the change in interest rates (rate) of tax-equivalent net interest income for the three and nine months ended September 30, 2021 as compared to the same periods in 2020, allocated by rate and volume. Changes in interest income and/or expense attributable to both volume and rate have been allocated proportionately based on the relationship of the absolute dollar amount of the change in each category.
| | | | | | | | | | | | | |
| 2021 Compared to 2020 | ||||||||||||
| Three Months Ended | | Nine Months Ended | ||||||||||
| September 30, | | September 30, | ||||||||||
(dollars in thousands) | Rate |
| Volume |
| Total | | Rate |
| Volume |
| Total | ||
Interest income: | | | | | | | | | | | | | |
Due from banks | $ | 4 | | 10 | | 14 | | $ | (41) | | 36 | | (5) |
Federal funds sold | | (1) | | (0) | | (1) | | | (43) | | 10 | | (33) |
Investment securities(1) | | (406) | | 528 | | 122 | | | (790) | | 1,225 | | 435 |
Loans held for sale | | 153 | | (429) | | (276) | | | (337) | | 958 | | 621 |
Loans held for investment(1) | | 1,464 | | 1,116 | | 2,580 | | | 797 | | 6,825 | | 7,622 |
Total loans | | 1,617 | | 687 | | 2,304 | | | 460 | | 7,783 | | 8,243 |
Total interest income | $ | 1,214 | | 1,225 | | 2,439 | | $ | (414) | | 9,054 | | 8,640 |
Interest expense: | | | | | | | | | | | | | |
Interest bearing deposits | $ | (653) | | 462 | | (191) | | $ | (1,093) | | 530 | | (563) |
Money market and savings deposits | | (852) | | 935 | | 83 | | | (1,813) | | 1,582 | | (231) |
Time deposits | | (588) | | (213) | | (801) | | | (2,329) | | (680) | | (3,009) |
Total interest bearing deposits | | (2,093) | | 1,184 | | (909) | | | (5,235) | | 1,432 | | (3,803) |
Total borrowings | | (56) | | (152) | | (208) | | | (296) | | (167) | | (463) |
Subordinated debentures | | 4 | | (4) | | — | | | 21 | | (21) | | — |
Total interest expense | | (2,145) | | 1,028 | | (1,117) | | | (5,510) | | 1,244 | | (4,266) |
Interest differential | $ | 3,359 | | 197 | | 3,556 | | $ | 5,096 | | 7,810 | | 12,906 |
|
|
For the three months ended September 30, 2021 as compared to the same period in 2020, tax-equivalent interest income increased $2.4 million as volume changes in average earning assets contributed $1.2 million and favorable rate changes increased interest income by $1.2 million. The favorable change in interest income due to volume changes was driven mostly from growth in the loans held for investment portfolio, which increased $95.4 million on average over the three month periods, along with an increase in investment securities of $37.9 million on average. The loans held for sale portfolio decreased $40.0 million on average over this period. Within the loans held for investment portfolio, the average balance on small business loans, commercial real estate loans and leases increased $48.7 million, $111.9 million, and $65.6 million, respectively, while PPP loans decreased $109.5 million. Partially off-setting these favorable volume changes was an unfavorable rate change of 26 basis points on investment securities, reducing interest income by $406 thousand.
On the funding side, interest expense decreased $1.1 million due to the impact from rate declines which offset the impact from volume increases. The cost of deposits and borrowings were down across the board, having a $2.1 million positive effect on interest expense. The cost of interest-bearing deposits, money market and savings accounts and time deposits declined 42 basis points, 15 basis points and 91 basis points, respectively, while the cost of borrowings declined 11 basis points. Interest-bearing deposits, and money market and savings accounts increased $50.7 million, and $192.2 million on average, while time deposits decreased $75.5 million on average, and borrowings overall were down $124.4 million on average. These average balance changes led to a $1.0 million increase in interest expense.
Overall, the increase in net interest income from rate changes contributed $3.4 million while volume changes contributed $197 thousand to improve tax-equivalent net interest income by $3.6 million.
44
For the nine months ended September 30, 2021 as compared to the same period in 2020, tax-equivalent interest income increased $8.6 million as volume changes in average earning assets contributed $9.1 million and unfavorable rate changes reduced interest income by $414 thousand. The favorable change in interest income due to volume changes was driven by growth in all asset portfolios, most notably the loans held for investment portfolio, which increased $199.1 million on average over the nine month periods. The loans held for sale portfolio increased $39.5 million and the investment securities portfolio increased $47.4 million on average over this period. Within the loans held for investment portfolio, the average balance on small business loans, PPP loans, commercial real estate loans and leases increased $36.0 million, $47.0 million, $119.3 million, and $54.2 million, respectively. Partially off-setting these favorable volume changes were unfavorable rate changes of 87 basis points and 28 basis points on investment securities and loans held for sale, reducing interest income by $790 thousand and $337 thousand, respectively.
On the funding side, interest expense decreased $4.3 million due to the impact from rate declines which offset the impact from volume increases. The cost of deposits and borrowings were down across the board, having a $5.5 million positive effect on interest expense. The cost of interest-bearing deposits, money market and savings accounts and time deposits declined 53 basis points, 38 basis points and 114 basis points, respectively, while the cost of borrowings increased 46 basis points. Interest-bearing deposits, and money market and savings accounts increased $64.1 million, and $216.3 million on average, while time deposits decreased $64.5 million on average, and borrowings overall were down $8.5 million on average. These average balance changes led to a $1.2 million increase in interest expense.
Overall, the increase in net interest income from volume changes contributed $7.8 million while rate changes contributed $5.1 million to improve tax-equivalent net interest income by $12.9 million.
Simulations of net interest income. We use a simulation model on a quarterly basis to measure and evaluate potential changes in our net interest income resulting from various hypothetical interest rate scenarios. Our model incorporates various assumptions that management believes to be reasonable, but which may have a significant impact on results such as:
45
Nine Months Ended September 30, | |||||||||||
Changes in Market Interest Rates | 2022 | 2021 | |||||||||
+300 basis points over next 12 months | 0.13 | % | 1.75 | % | |||||||
+200 basis points over next 12 months | 0.29 | % | 1.01 | % | |||||||
+100 basis points over next 12 months | 0.15 | % | 0.43 | % | |||||||
No Change | |||||||||||
-100 basis points over next 12 months | (1.40) | % | (0.68) | % | |||||||
-200 basis points over next 12 months | (3.19) | % | (3.03) | % |
Rate Ramp
| | | | | |
| | Estimated increase |
| ||
| | (decrease) in Net Interest |
| ||
| | Income |
| ||
| | For the year ending |
| ||
| | September 30, |
| ||
Changes in Market Interest Rates |
| 2021 |
| 2020 |
|
+300 basis points over next 12 months |
| 1.75 | % | 1.98 | % |
+200 basis points over next 12 months |
| 1.01 | % | 0.95 | % |
+100 basis points over next 12 months |
| 0.43 | % | 0.15 | % |
No Change |
|
|
|
| |
-100 basis points over next 12 months | | (0.68) | % | (4.33) | % |
-200 basis points over next 12 months | | (3.03) | % | (14.19) | % |
The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of September 30, 2021.2022. In its current position, the table indicates that a 100 200 or 300 basis point increase in interest rates would have a positive impact from rising rates on net interest income over the next 12 months.months as well as in a 200 and 300 basis point increase. The simulated exposure to a change in interest rates is contained, manageable and well within policy guidelines. The results continue to drive our funding strategy of increasing relationship-based accounts (core deposits) and utilizing term deposits to fund short to medium duration assets.
Simulation of economic value of equity. To quantify the amount of capital required to absorb potential losses in value of our interest-earning assets and interest-bearing liabilities resulting from adverse market movements, we calculate economic value of equity on a quarterly basis. We define economic value of equity as the net present value of our balance sheet’s cash flow, and we calculate economic value of equity by discounting anticipated principal and interest cash flows under the prevailing and hypothetical interest rate environments. Potential changes to our economic value of equity between a flat rate scenario and hypothetical rising and declining rate scenarios, measured as of September 30, 2021 and 2020, are presented in the following table. The projections assume shifts upward and downward in the yield curve of 100, 200 and 300 basis points occurring immediately. We would note that starting in the first quarter of 2020 that our simulations in a downward parallel shift of the yield curve, interest and discount rates at the short-end of the yield curve are allowed to decline below 0%. Management has and continues to employ strategies to mitigate risk in these scenarios. Strategies include actively lowering deposit and funding rates as well as adding and maintaining the use of interest rate floors on floating rate loans. | | | | | |
| | | | | |
| | Estimated increase (decrease) in Net | | ||
| | Economic Value at September 30, | | ||
Changes in Market Interest Rates |
| 2021 | | 2020 | |
+300 basis points |
| 62 | % | 129 | % |
+200 basis points |
| 47 | % | 98 | % |
+100 basis points |
| 28 | % | 57 | % |
No Change |
|
|
| |
|
-100 basis points |
| (41) | % | (83) | % |
-200 basis points |
| (103) | % | (213) | % |
Changes in Market Interest Rates | September 30, 2022 | September 30, 2021 | |||||||||
+300 basis points | 5 | % | 62 | % | |||||||
+200 basis points | 6 | % | 47 | % | |||||||
+100 basis points | 4 | % | 28 | % | |||||||
No Change | |||||||||||
-100 basis points | (9) | % | (41) | % | |||||||
-200 basis points | (25) | % | (103) | % |
Finally, these simulation results do not contemplate all the actions that we may undertake in response to changes in interest rates, such as changes to our loan, investment, deposit, funding or other strategies.
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Management has and continues to employ strategies to mitigate risk in the Net Interest Income and Economic Value simulations. Strategies include actively lowering deposit and funding rates, adding and maintaining interest rate floors on assets and lengthening liabilities in the low rate environment.
Gap Analysis
Management measures and evaluates the potential effects of interest rate movements on earnings through an interest rate sensitivity “gap” analysis. Given the size and turnover rate of the originated mortgage loans held for sale, these loans are treated as having a maturity of 12 months or less. Interest rate sensitivity reflects the potential effect on net interest income when there is movement in interest rates. An institution is considered to be asset sensitive, or having a positive gap, when the amount of its interest-earning assets repricing within a given period exceeds the amount of its interest-bearing liabilities also repricing within that time period. Conversely, an institution is considered to be liability sensitive, or having a negative gap, when the amount of its interest-bearing liabilities repricing within a given period exceeds the amount of its interest-earning assets also within that time period. During a period of rising interest rates, a negative gap would tend to decrease net interest income, while a positive gap would tend to increase net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to decrease net interest income.
The following tables present the interest rate gap analysis of our assets and liabilities as of September 30, 2021 and December 31, 2020.
| | | | | | | | | | | |
| | | | | | | | | Greater | | |
| | | | | | | | | Than | | |
| | | | | | | | 5 years and | | | |
As of September 30, 2021 | | 12 Months | | | | | | Not Rate | | | |
(dollars in thousands) |
| or Less |
| 1-2 Years |
| 2-5 Years |
| Sensitive |
| Total | |
Cash and investments | | $ | 81,095 | | 5,172 | | 19,318 | | 111,102 | | 216,687 |
Loans (1) | | | 953,683 | | 185,714 | | 330,199 | | 8,094 | | 1,477,690 |
Other Assets | | | — | | — | | — | | 68,068 | | 68,068 |
Total Assets | | $ | 1,034,778 | | 190,886 | | 349,517 | | 187,264 | | 1,762,445 |
| | | | | | | | | | | |
Non-interest bearing deposits | | | 9,324 | | 8,994 | | 26,075 | | 221,449 | | 265,842 |
Interest bearing deposits | | | 949,760 | | — | | — | | — | | 949,760 |
Time deposits | | | 142,699 | | 18,786 | | 61,960 | | — | | 223,445 |
Borrowings | | | 65,232 | | 22,704 | | 12,747 | | — | | 100,683 |
Other Liabilities | | | — | | — | | — | | 64,299 | | 64,299 |
Total stockholders' equity | | | — | | — | | — | | 158,416 | | 158,416 |
Total liabilities and stockholders' equity | | $ | 1,167,015 | | 50,484 | | 100,782 | | 444,164 | | 1,762,445 |
| | | | | | | | | | | |
Repricing gap: | | | | | | | | | | | |
Positive (negative) | | $ | (132,237) | | 140,402 | | 248,735 | | (256,900) | | — |
Cumulative repricing gap: Dollar amount | | $ | (132,237) | | 8,165 | | 256,900 | | — | | |
Percent of total assets | | | (7.5)% | | 0.5% | | 14.6% | | — | | |
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| | | | | | | | | | | |
| | | | | | | | | Greater | | |
| | | | | | | | | Than | | |
| | | | | | | | | 5 years and | | |
As of December 31, 2020 | | | | | | | | Not Rate | | | |
(dollars in thousands) |
| 12 Months |
| 1-2 Years |
| 2-5 Years |
| Sensitive |
| Total | |
Cash and investments | | $ | 59,739 | | 5,376 | | 20,303 | | 82,429 | | 167,847 |
Loans (1) | | | 1,041,269 | | 199,978 | | 226,594 | | 10,588 | | 1,478,429 |
Other Assets | | | — | | — | | — | | 73,921 | | 73,921 |
Total Assets | | | 1,101,008 | | 205,354 | | 246,897 | | 166,938 | | 1,720,197 |
| | | | | | | | | | | |
Noninterest-bearing deposits | | | 6,871 | | 6,638 | | 19,280 | | 171,054 | | 203,843 |
Interest-bearing deposits | | | 779,195 | | — | | — | | — | | 779,195 |
Time deposits | | | 197,649 | | 41,533 | | 19,115 | | — | | 258,297 |
Borrowings | | | 106,862 | | 165,546 | | — | | — | | 272,408 |
Other Liabilities | | | — | | — | | 169 | | 64,663 | | 64,832 |
Total stockholders' equity | | | — | | — | | — | | 141,622 | | 141,622 |
Total liabilities and stockholders' equity | | $ | 1,090,577 | | 213,717 | | 38,564 | | 377,339 | | 1,720,197 |
| | | | | | | | | | | |
Repricing gap: | | | | | | | | | | | |
Positive (negative) | | | 10,431 | | (8,363) | | 208,333 | | (210,401) | | — |
Cumulative repricing gap: Dollar amount | | $ | 10,431 | | 2,068 | | 210,401 | | — | | |
Percent of total assets | | | 0.6% | | 0.1% | | 12.2% | | — | | |
Under the repricing gap analysis for the period ended September 30, 2021, we are liability-sensitive in the short term due mainly to core-deposit growth which has outpacing loan growth. Deposit growth has been strong throughout the year, driven by economic conditions and customer preference for short-term or liquid deposits. Loan growth has been impacted by PPP loan forgiveness. Although PPP loans are contractually longer term loans, the majority are expected to be forgiven in the near term, which will continue to impact asset growth rates. With the strong growth in deposits, management has been able to reduce balances of borrowings and wholesale deposits, lower costs and lengthen maturities. On a cumulative basis through projecting out 2 years our profile is more neutral. We generally manage our interest rate risk profile close to neutral, using a strategy that is focused on increasing our concentration of relationship-based transaction accounts through efforts of our business developers and new branches.
The gap results presented could vary substantially if different assumptions are used or if actual experience differs from the assumptions used in the preparation of the gap analysis. Furthermore, the gap analysis provides a static view of interest rate risk exposure at a specific point in time and offers only an approximate estimate of the relative sensitivity of our interest-earning assets and interest-bearing liabilities to changes in market interest rates. In addition, the impact of certain optionality is embedded in our balance sheet such as contractual caps and floors, and trends in asset and liability growth. Accordingly, we combine the use of gap analysis with the use of an earnings simulation model that provides a dynamic assessment of interest rate sensitivity.
PROVISION FOR LOAN AND LEASE LOSSES
For the three months ended September 30, 2021, the Corporation recorded a provision for loan and lease losses (“Provision”) of $597 thousand which was a $3.4 million, or 84.9% decrease from the same period in 2020. For the three months ended September 30, 2021 there was a net recovery of $18 thousand as compared to net charge-offs of $89 thousand for the same period in 2020. The third quarter 2020 provision was calculated at the time the COVID-19 pandemic was intensifying locally and nationally and was therefore impacted by qualitative provisioning for the economic uncertainty as a result of the pandemic, while the third quarter 2021 provision had less such impact as certain financial and economic indicators have improved period over period.
For the nine months ended September 30, 2021, the Corporation recorded a provision of $1.3 million which was a $5.8 million, 81.9% decrease from the same period in 2020. For the nine months ended September 30, 2021 there were net
48
charge-offs of $83 thousand as compared to net charge-offs of $79 thousand for the same period in 2020. The decline in the provision period over period is the result of an improvement in the trend of certain financial and economic factors used in the allowance for loan losses that had been negatively impacted in 2020 due to the COVID-19 pandemic, which have since started to rebound as the economy continues to recover.
The provision for loan and lease losses could increase in future periods based on our belief that the credit quality of our loan portfolio could decline and loan defaults could increase if the COVID-19 pandemic continues for a prolonged period of time.
Asset Quality and Analysis of Credit Risk
Asset quality remains strong despite the pressures that the COVID-19 pandemic has had on businesses and the economy locally and nationally. COVID-19 loan modifications provided to borrowers amounted to $24.9 million as of September 30, 2021, compared to $29.0 million as of June 30, 2021.
Meridian realized net recoveries of 0.00% of total average loans for the quarter ending September 30, 2021, compared to net charge-offs of 0.00% for the quarter ended December 31, 2020 and net charge-offs of 0.01% for the quarter ended September 30, 2020. Total non-performing assets, including loans and other real estate property, were $9.2 million as of September 30, 2021, compared to $7.9 million as of December 31, 2020 and September 30, 2020. The ratio of non-performing assets to total assets as of September 30, 2021 was 0.52% compared to 0.46% as of December 31, 2020, and 0.45% as of September 30, 2020. The ratio of allowance for loan losses to total loans held for investment, excluding loans at fair value and PPP loans (a non-GAAP measure), was 1.52% as of September 30, 2021, 1.65% as of December 31, 2020, and 1.59% as of September 30, 2020. PPP loans are excluded from calculation of this ratio as they are guaranteed by the SBA and therefore we have not provided for in the allowance for loan losses. A reconciliation of this non-GAAP measure is included in the Non-GAAP Financial Measures section above.
There were no properties in OREO as of September 30, 2021 and December 31, 2020.
As of September 30, 2021, the Corporation had $2.8 million of troubled debt restructurings (“TDRs”), of which $2.5 million were in compliance with the modified terms and excluded from non-performing loans and leases. As of December 31, 2020, the Corporation had $3.6 million of TDRs, of which $3.4 million were in compliance with the modified terms, and were excluded from non-performing loans and leases. As of September 30, 2020, the Corporation had $3.7 million of TDRs, of which $3.4 million were in compliance with the modified terms, and were excluded from non-performing loans and leases. As of September 30, 2021, the Corporation had a recorded investment of $11.2 million of impaired loans and leases which included $2.8 million of TDRs.
The Corporation continues to be diligent in its credit underwriting process and proactive with its loan review process, including the engagement of the services of an independent outside loan review firm, which helps identify developing credit issues. Proactive steps that are taken include the procurement of additional collateral (preferably outside the current loan structure) whenever possible and frequent contact with the borrower. The Corporation believes that timely identification of credit issues and appropriate actions early in the process serve to mitigate overall risk of loss.
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Nonperforming Assets and Related Ratios
| | | | | | |
| | As of | ||||
| | September 30, | | December 31, | ||
(dollars in thousands) |
| 2021 |
| 2020 | ||
Non-performing assets: | | | | | | |
Nonaccrual loans: | | | | | | |
Real estate loans: | | | | | | |
Commercial mortgage | | $ | — | | | 3,061 |
Shared national commercial credits | | | — | | | — |
Home equity lines and loans | | | 910 | | | 859 |
Residential mortgage | | | 2,278 | | | 2,725 |
Total real estate loans | | $ | 3,188 | | | 6,645 |
Commercial and industrial | | | 5,089 | | | 1,285 |
Small business loans | | | 916 | | | |
Total nonaccrual loans | | $ | 9,193 | | | 7,930 |
Total non-performing loans | | $ | 9,193 | | | 7,930 |
Total non-performing assets | | $ | 9,193 | | | 7,930 |
| | | | | | |
Troubled debt restructurings: | | | | | | |
TDRs included in non-performing loans | | | 367 | | | 244 |
TDRs in compliance with modified terms | | | 2,476 | | | 3,362 |
Total TDRs | | $ | 2,843 | | | 3,606 |
| | | | | | |
Asset quality ratios: | | | | | | |
Non-performing assets to total assets | | | 0.52% | | | 0.46% |
Non-performing loans to: | | | | | | |
Total loans and leases | | | 0.61% | | | 0.52% |
Total loans held-for-investment | | | 0.67% | | | 0.62% |
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1) | | | 0.74% | | | 0.74% |
Allowance for loan losses to: | | | | | | |
Total loans and leases | | | 1.27% | | | 1.17% |
Total loans held-for-investment | | | 1.38% | | | 1.38% |
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1) | | | 1.52% | | | 1.65% |
Non-performing loans | | | 206.42% | | | 224.04% |
| | | | | | |
Total loans and leases | | $ | 1,496,666 | | | 1,513,963 |
Total loans and leases held-for-investment | | $ | 1,378,670 | | | 1,284,764 |
Total loans and leases held-for-investment (excluding loans at fair value and PPP loans) | | $ | 1,245,895 | | | 1,072,727 |
Allowance for loan and lease losses | | $ | 18,976 | | | 17,767 |
(1) The allowance for loan losses to total loans held-for-investment (excluding loans at fair value and PPP loans) ratio is a non-GAAP financial measure. See “Non-GAAP Financial Measures” above for a reconciliation of this measure to its most comparable GAAP measure. PPP loans have only been excluded from this calculation as of September 30, 2021.
NON-INTEREST INCOME
Three Months Ended September 30, 2021 Compared to the Same Period in 2020
Total non-interest income for the third quarter of 2021 was $22.1 million, down $6.9 million or 23.9% from the comparable period in 2020. This overall decrease in non-interest income came largely from our mortgage segment. Mortgage banking net revenue decreased $3.1 million or 14.2% over the third quarter of 2020. The decrease in third quarter 2021 came from decreased levels of mortgage loan originations as rate-driven refinancing activity declined. Our mortgage segment originated $522.9 million in loans during the third quarter of 2021, a decrease of $185.3 million, or 26.2%, from the third quarter of 2020. The fair value of derivative instruments and loans held for sale decreased a combined $6.8 million over
50
the period. Net hedging activity improved as the net loss decreased $1.5 million to a net loss of $1.2 million for the third quarter of 2021.
Net revenue from the sales of SBA 7(a) loans increased $2.0 million as $25.0 million in loans were sold in the third quarter of 2021 compared to $9.5 million in loans sold in the third quarter of 2020, an increase of nearly 162.0%. Wealth management revenue increased $281 thousand year-over-year due to an increase of $340.0 million in assets under management over this period, due to new clients and more favorable market conditions. Other fee income was up $205 thousand or 24.1% from the third quarter of 2020, to $1.1 million, due to increases in wire fees, title fee income, and servicing fee income.
Nine Months Ended September 30, 2021 Compared to the Same Period in 2020
Total non-interest income for the nine months ended September 30, 2021 was $70.9 million, up $13.9 million or 24.5%, from the nine months ended September 30, 2020. This increase in non-interest income came primarily from our mortgage segment as mortgage banking net revenue increased $16.9 million or 37.2% over the prior year period. The significant increase in the current year period came from increased levels of mortgage loan originations due to both the expansion of the segment into Maryland as well as the favorable rate environment. Our mortgage segment originated $1.9 billion in loans during the nine months ended September 30, 2021, an increase of $365.4 million, or 24.4%, from the prior year period. Refinance activity represented 50% of the total residential mortgage loans originated for the nine months ended September 30, 2021, compared to 59% for the nine months ended September 30, 2020. The changes in the mortgage pipeline as a result of the expansion and the refinance activity generated significant fair value changes in derivative instruments and loans held-for-sale. These fair value changes decreased non-interest income a combined $17.4 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. These changes were offset by increases in net hedging gains of $9.8 million.
Wealth management revenue increased $706 thousand, or 25.0%, year-over-year due to an increase in assets under management of $315.7 million over this period due to new clients and the more favorable market conditions that existed in the nine months ended September 30, 2021, compared to the prior year period.
Net revenue from the sales of SBA 7(a) loans increased $3.6 million, or 197.8%, from the prior year period, to $5.4 million, as the bank sold $22.1 million, or 74.9% more loans in the current year period. Other fee income was up $1.5 million or 85.8% for the nine months ended September 30, 2021, from the nine months ended September 30, 2020 due to increases in wire fees, title fee income, as well as an increase in income recorded on interest rate swaps entered into with several loan customers, and an increase in mortgage and SBA servicing fee income.
NON-INTEREST EXPENSE
Three Months Ended September 30, 2021 Compared to the Same Period in 2020
Total non-interest expense for the third quarter of 2021 was $25.5 million, down $353 thousand or 1.4%, from the comparable period in 2020. The decrease in non-interest expense is largely attributable to a decrease in salaries and employee benefits expense, which decreased $975 thousand or 4.8%, from the comparable period in 2020. Of this decrease, $2.5 million relates to the variable portion of the mortgage segment, while there was an increase of $1.5 million for the bank and wealth segments due to an increase of 31 in FTE’s and a higher level of incentive and stock -based compensation expense.
Professional fees increased $192 thousand, or 28.2%, from the comparable period in 2020 largely due to increased consulting costs incurred throughout the organization. As we continue to improve and add to our customer facing and back office IT systems, business intelligence initiatives, software and information systems for loan processing and reporting have been implemented, as well as upgrades to cloud-based file storage and retrieval, desktop operating systems, mail archiving and security.
Advertising and promotion expense increased $308 thousand, or 39.4%, from the comparable period in 2020 as the result of an increase in the business development and community outreach efforts that our employees were more able to do in
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the third quarter of 2021 as the weather improved and COVID-19 restrictions continued to lessen and allow for more in person gatherings.
Nine Months Ended September 30, 2021 Compared to the Same Period in 2020
Total non-interest expense for the nine months ended September 30, 2021 was $80.0 million, up $18.8 million or 30.8%, from the nine months ended September 30, 2020. The increase is largely attributable to the variable expenses from loan originations overall, particularly mortgage commissions. Total salaries and employee benefits expense was $61.8 million, an increase of $15.3 million or 32.9%, compared to the nine months ended September 30, 2020. Of this increase, $10.9 million relates to the mortgage segment as the number of employees in this segment have increased period over period. Salaries and benefits for the Bank and Wealth segments increased due to an increased level of full-time equivalent employees as well as increase in incentives and stock-based compensation expense.
Occupancy and equipment expense increased $301 thousand, or 9.5%, over the period due largely to the expansion of our physical office footprint into Maryland with 8 mortgage loan production offices having opened since early 2020. Professional fees were up $511 thousand, or 24.1%, over the period due largely to one-time consent fees incurred in 2021 related to the filing of the Corporation’s December 31, 2020 Form 10K, in conjunction with the change in Accountants we made in 2020. This is combined with an increase in consulting fees as Meridian continues to invest in various company-wide technology focused projects as discussed above. Advertising and promotion expenses were up $799 thousand, or 40.1%, over the same period due to the improvements to the economy and a pull back on COVID-19 related restrictions that has allowed bank employees to spend more time in business development and community outreach capacity.
INCOME TAXES
Income tax expense for the three months ended September 30, 2021 was $2.9 million, as compared to $2.8 million for the same period in 2020. The increase in income tax expense was attributable to the increase in earnings, period over period. Our effective tax rate was 23.3% for the third quarter of 2021 and 23.1% for the third quarter of 2020.
Income tax expense for the nine months ended September 30, 2021 was $8.5 million, as compared to $5.2 million, for the same periods in 2020. The increase in income tax expense was attributable to the increase in earnings, period over period. Our effective tax rate was 23.5% for the first nine months of 2021 and 23.0% for the first nine months of 2020.
BALANCE SHEET ANALYSIS
As of September 30, 2021, total assets were $1.8 billion, an increase of $42.2 million from December 31, 2020. Total assets increased $3.8 million, or 0.2%, from September 30, 2020 due to a higher level of cash, investments, commercial loans and PPP loans on the balance sheet as of September 30, 2020. Cash and cash equivalents increased $26.4 million due to liquidity from mortgage loans held for sale and PPP loan forgiveness. The securities available-for-sale portfolio grew to $146.1 million as of September 30, 2021, up $22.6 million, or 18.3%, from December 31, 2020. State and municipal securities increased $7.0 million and U.S. treasuries were up $15 million.
Total loans, net of allowance, grew $92.7 million, or 7.3%, to $1.4 billion as of September 30, 2021, from $1.3 billion as of December 31, 2020. There was growth in several commercial loan categories from December 31, 2020, as we continue to expand our presence in the Philadelphia market region. Small business loans increased $41.2 million, or 82.7%, commercial real estate loans increased $60.7 million, or 12.1%, and lease financings increased $45.2 million, or 136.8%, as our Meridian Equipment Finance (“MEF”) leasing team continued their strong growth pattern after starting up in early 2020. Residential real estate loans held for sale decreased $111.2 million, or 48.5%, to $118.0 million as of September 30, 2021, while PPP loans decreased $83.0 million, or 41.8%, over this period.
Servicing assets were $11.9 million as of September 30, 2021, up $6.3 million, or 112.4%, from December 31, 2020. $10.1 million of this balance is comprised of mortgage servicing rights, while $1.8 million is comprised of SBA loan servicing assets. The increase in both servicing asset types was the result of the continued strong loan sales markets since December 31, 2020.
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Deposits were $1.4 billion as of September 30, 2021, up $197.7 million, or 15.9%, from December 31, 2020. Non-interest bearing deposits increased $62.0 million, or 30.4%, from December 31, 2020. Interest-bearing checking accounts increased $73.1 million, or 35.4%, from December 31, 2020, while money market accounts/savings accounts increased $97.5 million, or 17.0% since December 31, 2020. Increases in core deposits were driven from loan customers as part of new business and municipal relationships and also as a result of the PPP loan process. Certificates of deposits decreased $34.9 million, or 13.5%, from December 31, 2020, as lower levels of wholesale funding have been replaced by core deposits.
Short-term borrowings were $22.3 million as of September 30, 2021, down $84.6 million, or 79.2%, from December 31, 2020, while long-term debt was $78.4 million as of September 30, 2021, down $87.1 million, or 52.6%, from December 31, 2020. Short-term borrowings declined from December 31, 2020 to September 30, 2021, largely due to the increase in non-interest deposits noted above. As non-interest bearing deposits increased over this period, the need for borrowings to fund loan growth, declined. The decline in long-term debt was due to a decrease in PPPLF advances, which were funding sources for PPP loans.
Capital
Consolidated stockholders’ equity of the Corporation was $158.4 million, or 9.0% of total assets as of September 30, 2021, as compared to $141.6 million, or 8.2% of total assets as of December 31, 2020. The change in stockholders’ equity is the result of year-to-date net income of $27.9 million, partially offset by dividends of $8.5 million paid during the first nine months of 2021 as well as an increase in treasury stock from the publicly announced share repurchase program.
As of September 30, 2021, the Tier 1 leverage ratio was 9.28% for the Corporation and 11.55% for the Bank, the Tier 1 risk-based capital and common equity ratios were 10.64% for the Corporation and 13.25% for the Bank, and total risk-based capital was 14.72% for the Corporation and 14.62% for the Bank. Quarter-end numbers show a tangible common equity to tangible assets ratio (a non-GAAP measure) of 8.76% for the Corporation and 10.90% for the Bank. A reconciliation of this non-GAAP measure is included in the Appendix. Tangible book value per share was $25.23 as of September 30, 2021, compared with $24.06 as of June 30, 2021.
The following table presents the Corporation’s capital ratios and the minimum capital requirements to be considered “well capitalized” by regulators as of September 30, 2021 and December 31, 2020:
| | | | | | | | | | |
| | September 30, 2021 | ||||||||
| | | | | | | To Be Well Capitalized | |||
| | Actual | | Under CBLR Framework | ||||||
(dollars in thousands) |
| Amount |
| Ratio |
| Amount |
| Ratio | ||
Tier 1 capital (to average assets) | | | | | | | | | | |
Corporation | | $ | 153,300 | | 9.28% | | $ | 132,220 | | 8.00% |
Bank | | | 190,892 | | 11.55% | | | 132,219 | | 8.00% |
| | | | | | | | | | |
| | December 31, 2020 | ||||||||
| | | | | | | To Be Well Capitalized | |||
| | Actual | | Under CBLR Framework | ||||||
(dollars in thousands) |
| Amount |
| Ratio |
| Amount |
| Ratio | ||
Tier 1 capital (to average assets) | | | | | | | | | | |
Corporation | | $ | 134,564 | | 8.96% | | $ | 120,082 | | 8.00% |
Bank | | | 173,231 | | 11.54% | | | 120,080 | | 8.00% |
Community banks have long raised concerns with bank regulators about the regulatory burden, complexity, and costs associated with certain provisions of the Basel III Rule. In response, Congress provided an “off-ramp” for institutions, like us, with total consolidated assets of less than $10 billion. Section 201 of the Regulatory Relief Act instructed the federal banking regulators to establish a single "Community Bank Leverage Ratio" (“CBLR”) of between 8 and 10%. Under the final rule, a community banking organization is eligible to elect the new framework if it has: less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%.The bank regulatory agencies temporarily lowered the CBLR to 8% as a result of the COVID-19 pandemic. During the first
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quarter of 2020, the Bank adopted the CBLR framework as its primary regulatory capital ratio, but reports all ratios for comparative purposes.
Liquidity
Management maintains liquidity to meet depositors’ needs for funds, to satisfy or fund loan commitments, and for other operating purposes. Meridian’s foundation for liquidity is a stable and loyal customer deposit base, cash and cash equivalents, and a marketable investment portfolio that provides periodic cash flow through regular maturities and amortization or that can be used as collateral to secure funding. In addition, as part of its liquidity management, Meridian maintains a segment of commercial loan assets that are comprised of shared national credits (“SNCs”), which have a national market and can be sold in a timely manner. Meridian’s primary liquidity, which totaled $323.0 million at September 30, 2021, compared to $408.8 million at December 31, 2020, includes investments, SNCs, Federal funds sold, mortgages held-for-sale and cash and cash equivalents, less the amount of securities required to be pledged for certain liabilities. Meridian also anticipates scheduled payments and prepayments on its loan and mortgage-backed securities portfolios.
In addition, Meridian maintains borrowing arrangements with various correspondent banks, the FHLB and the Federal Reserve Bank of Philadelphia to meet short-term liquidity needs. Through its relationship at the Federal Reserve, Meridian had available credit of approximately $3.7 million at September 30, 2021. At September 30, 2021, Meridian had no borrowings from the Federal Reserve. As a member of the FHLB, we are eligible to borrow up to a specific credit limit, which is determined by the amount of our residential mortgages, commercial mortgages and other loans that have been pledged as collateral. As of September 30, 2021, Meridian’s maximum borrowing capacity with the FHLB was $533.4 million. At September 30, 2021, Meridian had borrowed $22.3 million and the FHLB had issued letters of credit, on Meridian’s behalf, totaling $128.5 million against its available credit lines. At September 30, 2021, Meridian also had available $39 million of unsecured federal funds lines of credit with other financial institutions as well as $263.2 million of available short or long term funding through the Certificate of Deposit Account Registry Service (“CDARS”) program and $397.0 million of available short or long term funding through brokered CD arrangements. Management believes that Meridian has adequate resources to meet its short-term and long-term funding requirements.
Discussion of Segments
As of September 30, 2021, the Corporation has three principal segments as defined by FASB ASC 280, “Segment Reporting.” The segments are Banking, Mortgage Banking and Wealth Management (see Note 10 in the accompanying Notes to Unaudited Consolidated Financial Statements).
The Banking Segment recorded income before tax of $8.3 million and $23.5 million for the three and nine months ended September 30, 2021, as compared to income before tax of $2.6 million and $7.9 million for the same periods in 2020. The Banking Segment provided 67.5% and 64.7% of the Corporation’s pre-tax profit for the three and nine month periods ended September 30, 2021, as compared to 21.5% and 34.9% for the same periods in 2020.
The Wealth Management Segment recorded income before tax of $432 thousand and $796 thousand for the three and nine months ended September 30, 2021, as compared to income before tax of $144 thousand and $452 thousand for the same periods in 2020.
The Mortgage Banking Segment recorded income before tax of $3.6 million and $12.1 million for the three and nine months ended September 30, 2021, as compared to income before tax of $9.3 million and $14.3 million for the same periods in 2020. Mortgage Banking income and expenses related to loan originations and sales increased due to higher origination volume.
Off Balance Sheet Risk
The Corporation 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. These financial instruments include commitments to extend credit, standby letters of credit, and loan repurchase commitments.
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Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Total commitments to extend credit at September 30, 2021 were $505.0 million, as compared to $421.4 million at December 31, 2020.
Standby letters of credit are conditional commitments issued by the Corporation to a customer for a third party. Such standby letters of credit are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in granting loan facilities to customers. The Corporation’s obligation under standby letters of credit at September 30, 2021 amounted to $17.7 million, as compared to $8.9 million at December 31, 2020.
Estimated fair values of the Corporation’s off-balance sheet instruments are based on fees and rates currently charged to enter into similar loan agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. Since fees and rates charged for off-balance sheet items are at market levels when set, there is no material difference between the stated amount and the estimated fair value of off-balance sheet instruments.
In certain circumstances the Corporation may be required to repurchase residential mortgage loans from investors under the terms of loan sale agreements. Generally, these circumstances include the breach of representations and warranties made to investors regarding borrower default or early payment, as well as a violation of the applicable federal, state, or local lending laws. The Corporation agrees to repurchase loans if the representations and warranties made with respect to such loans are breached. Based on the obligations described above, the Corporation repurchased one loan in the amount of $115 thousand for the three months ended September 30, 2021 and a total of four loans totaling $561 thousand for the nine months ended September 30, 2021. The Corporation repurchased one loan in the amount of $154 thousand for the three and nine months ended September 30, 2020.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
See the discussion of quantitative and qualitative disclosures about market risks in “Management’s Discussion and Analysis of Results of Operations – Interest Rate Summary,” “– Interest Rate Sensitivity,” and “Gap Analysis” in this Quarterly Report on Form 10-Q.
Item 4. Controls and Procedures
Changes inInternal Control Over Financial Reporting
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2021.
Issuer Purchases of Equity Securities | |||||||||||||||||||||||
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value that May Yet Be Purchased Under the Plan or Programs (1)($000's) | |||||||||||||||||||
(Dollars in thousands, except shares and per share amounts) | |||||||||||||||||||||||
July 1 to July 31, 2022 | 16,370 | $ | 28.74 | 16,370 | |||||||||||||||||||
August 1 to August 31, 2022 | 159,010 | $ | 30.53 | 159,010 | |||||||||||||||||||
September 1 to September 30, 2022 | 22,469 | $ | 29.90 | 22,469 | |||||||||||||||||||
Total | 197,849 | $ | 29.76 | $5,610 |
| | | | | | | | | |
| | Issuer Purchases of Equity Securities | |||||||
| | | | | | | Total Number of | | Maximum Number |
| | | | | | | Shares Purchased | | of Shares that May |
| | | | | | | as Part of Publicly | | Yet Be Purchased |
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| Total Number of |
| Average Price Paid |
| Announced Plans or |
| Under the Plan or | |
Period | | Shares Purchased | | Per Share | | Programs (1) | | Programs | |
July 1, 2021 - July 31, 2021 | | 4,427 | | $ | 27.11 | | 4,427 | | 132,486 |
August 1, 2021 - August 31, 2021 | | 19,316 | | | 27.15 | | 19,316 | | 132,486 |
September 1, 2021 - September 30, 2021 | | 54,748 | | | 28.02 | | 54,748 | | 132,486 |
Total | | 78,491 | | $ | 27.41 | | 78,491 | | 132,486 |
The exhibits filed or incorporated by reference as part of this report are listed in the Exhibit Index, which appears at page 57.
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101.INS |
| XBRL Instance Document – The instance document does not appear in the interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||||
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document | ||||||
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document | ||||||
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||||
Exhibit 104 |
| Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||||
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