NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – The accompanying unaudited condensed consolidated interim financial statements ("consolidated financial statements") of First Midwest Bancorp, Inc. (the "Company"), a Delaware corporation, were prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q and reflect all adjustments that management deems necessary for the fair presentation of the financial position and results of operations for the periods presented. The results of operations for the quarter and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally accepted accounting principles ("GAAP") and general practices within the banking industry. The accompanying consolidated financial statements do not include certain information and note disclosures required by GAAP for complete annual financial statements. Therefore, these financial statements should be read in conjunction with the Company's 2020 Annual Report on Form 10-K ("2020 10-K"). The Company uses the accrual basis of accounting for financial reporting purposes. Certain reclassifications were made to prior year amounts to conform to the current year presentation.
Use of Estimates – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates and assumptions are based on the best available information, actual results could differ from those estimates.
Principles of Consolidation – The accompanying consolidated financial statements include the financial position and results of operations of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions. Assets held in a fiduciary or agency capacity are not assets of the Company or its subsidiaries and are not included in the consolidated financial statements.
The accounting policies related to business combinations, loans, the allowance for credit losses, and derivative financial instruments are presented below. For a summary of all other significant accounting policies, see Note 1, "Summary of Significant Accounting Policies," in the Company's 2020 10-K.
Business Combinations – Business combinations are accounted for under the acquisition method of accounting. Assets acquired and liabilities assumed are recorded at their estimated fair values as of the date of acquisition, with any excess of the purchase price of the acquisition over the fair value of the identifiable net tangible and intangible assets acquired recorded as goodwill. Alternatively, a gain is recorded if the fair value of assets purchased exceeds the fair value of liabilities assumed and consideration paid. The results of operations of the acquired business are included in the Condensed Consolidated Statements of Income from the effective date of the acquisition.
Loans – Loans held-for-investment are loans that the Company intends to hold until they are paid in full and are carried at the principal amount outstanding, including certain net deferred loan origination fees. Loan origination fees, commitment fees, and certain direct loan origination costs are deferred, and the net amount is amortized as a yield adjustment over the contractual life of the related loans or commitments and included in interest income. Fees related to letters of credit are amortized into fee income over the contractual life of the commitment. Other credit-related fees are recognized as fee income when earned. The Company's net investment in direct financing leases is included in loans and consists of future minimum lease payments and estimated residual values, net of unearned income. Interest income on loans is accrued based on principal amounts outstanding. Loans held-for-sale are carried at the lower of aggregate cost or fair value and included in other assets in the Consolidated Statements of Financial Condition.
Acquired Loans – Acquired loans consist of all loans acquired in business combinations and are included within loans held-for-investment. Acquired loans are separated into (i) non-purchased credit deteriorated ("non-PCD") loans and (ii) purchased credit deteriorated ("PCD") loans. Non-PCD loans include loans that did not have evidence of more-than-insignificant credit deterioration since origination at the acquisition date. PCD loans include loans that had evidence of more-than-insignificant credit deterioration since origination. Evidence of credit deterioration was evaluated using various indicators, such as past due and non-accrual status. Leases and revolving loans do not qualify to be accounted for as PCD loans and are accounted for as non-PCD loans.
The acquisition adjustment related to non-PCD loans is amortized into interest income over the contractual life of the related loans. If an acquired non-PCD loan is renewed subsequent to the acquisition date, any remaining acquisition adjustment is accreted into interest income and the loan is considered a new loan that is no longer classified as an acquired loan.
PCD loans are generally accounted for based on estimates of expected future cash flows. The Company uses a discounted cash flow analysis involving significant unobservable inputs and assumptions to measure the fair value of PCD loans. The significant assumptions utilized in the cash flow analysis include the probability of default ("PD"), loss given default ("LGD"), and discount rate. PCD loans are recorded at fair value, excluding credit-related adjustments, for which an allowance for loan losses is established at the acquisition date through purchase accounting adjustments. Expected future cash flows in excess of the fair value of loans at the purchase date ("accretable yield") are recorded as interest income over the life of the loans if the timing and amount of the expected future cash flows can be reasonably estimated. Subsequent to the acquisition date, the allowance for loan losses on PCD loans is estimated as are the allowances for all other loans in the portfolio.
90-Days Past Due Loans – The Company's accrual of interest on loans is generally discontinued at the time the loan is 90 days past due unless the credit is sufficiently collateralized and in the process of renewal or collection.
Non-accrual Loans – Generally, corporate loans are placed on non-accrual status (i) when either principal or interest payments become 90 days or more past due unless the credit is sufficiently collateralized and in the process of renewal or collection, or (ii) when an individual analysis of a borrower's creditworthiness warrants a downgrade to non-accrual regardless of past due status. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed, and unpaid interest accrued in prior years is charged against the allowance for loan losses. After the loan is placed on non-accrual status, all debt service payments are applied to the principal on the loan. Future interest income may only be recorded on a cash basis after recovery of principal is reasonably assured. Non-accrual loans are returned to accrual status when the financial position of the borrower and other relevant factors indicate that the Company will collect all principal and interest.
Non-accrual loans with balances under a specified threshold are not individually evaluated for impairment. For all other non-accrual loans, impairment is measured by comparing the estimated value of the loan to the recorded book value. The value of collateral-dependent loans is based on the fair value of the underlying collateral, less costs to sell. The value of other loans is measured using the present value of expected future cash flows discounted at the loan's effective interest rate.
Commercial loans and loans secured by real estate are charged-off when deemed uncollectible. A loss is recorded if the net realizable value of the underlying collateral is less than the outstanding principal and interest. Consumer loans that are not secured by real estate are subject to mandatory charge-off at a specified delinquency date and are usually not classified as non-accrual prior to being charged-off. Closed-end consumer loans, which include installment, consumer secured, and single payment loans, are usually charged-off no later than the end of the month in which the loan becomes 120 days past due.
Troubled Debt Restructurings ("TDRs") – A restructuring is considered a TDR when (i) the borrower is experiencing financial difficulties, and (ii) the creditor grants a concession, such as forgiveness of principal, reduction of the interest rate, changes in payments, or extension of the maturity date. Loans are not classified as TDRs when the modification is short-term or results in an insignificant delay in payments. The Company's TDRs are determined on a case-by-case basis.
The Company does not accrue interest on a TDR unless it believes collection of all principal and interest under the modified terms is reasonably assured. For a TDR to begin accruing interest, the borrower must demonstrate some level of past performance and the future capacity to perform under the modified terms. Generally, six months of consecutive payment performance under the restructured terms is required before a TDR is returned to accrual status. However, the period could vary depending on the individual facts and circumstances of the loan. An evaluation of the borrower's current creditworthiness is used to assess the borrower's capacity to repay the loan under the modified terms. This evaluation includes an estimate of expected future cash flows, evidence of strong financial position, and estimates of the value of collateral, if applicable. For TDRs to be removed from TDR status in the calendar year after the restructuring, the loans must (i) have an interest rate and terms that reflect market conditions at the time of restructuring, and (ii) be in compliance with the modified terms. If the loan was restructured at below market rates and terms, it continues to be separately reported as restructured until it is paid in full or charged-off.
Allowance for Credit Losses – The allowance for credit losses is comprised of the allowance for loan losses and the allowance for unfunded commitments and is maintained by management at a level believed adequate to absorb current expected credit losses in the existing loan portfolio. Determination of the allowance for credit losses is subjective since it requires significant estimates and management judgment, including the amounts and timing of expected future cash flows, actual loss experience, consideration of current national, regional, and local economic trends and conditions, reasonable and supportable forecasts about the future, changes in interest rates and property values, various internal and external qualitative factors, and other factors.
Loans deemed to be uncollectible are charged-off against the allowance for loan losses, while recoveries of amounts previously charged-off are credited to the allowance for loan losses. Additions to the allowance for loan losses are charged to expense through the provision for loan losses. The amount of provision depends on a number of factors, including net charge-off levels,
loan growth, changes in the composition of the loan portfolio, and the Company's assessment of the allowance for loan losses based on the methodology discussed below.
Allowance for Loan Losses – The allowance for loan losses consists of (i) specific allowance for individual loans where the recorded investment exceeds the value, (ii) an allowance based on historical credit loss experience with consideration of reasonable and supportable forecasts of economic conditions for each loan category, and (iii) an allowance based on other internal and external qualitative factors.
The allowance for individual loans is based on a periodic analysis of non-accrual loans individually exceeding a specific dollar amount. If the estimated value of a non-accrual loan is less than its recorded book value, the Company either (i) provides an allowance in the amount of the excess of the book value over the estimated value of the related loan or, (ii) if the loss is confirmed, charges off the loss.
The allowance by loan category is based on a discounted cash flows analysis as future cash flows are discounted at an effective rate of return. In addition, estimates of losses on future cash flows is forecasted by applying probability of default and loss given default factors as well as prepayment and curtailment assumptions to cash flows that are adjusted to a present value. This discounted cash flow analysis is updated quarterly, primarily using actual loss experience adjusted for current reasonable and supportable forecasts of economic conditions over a one-year forecast period. After the one-year forecast period, a one-year reversion period adjusts loss experience to the historical average on a straight-line basis. These forecasts consider multiple scenarios of key assumptions including national unemployment rates, housing price indices, and gross domestic product.
This general allowance component is then adjusted based on management's consideration of many internal and external qualitative factors, including:
•Changes in the composition of the loan portfolio, trends in the volume of loans, and trends in delinquent and non-accrual loans that could indicate that historical trends do not reflect current conditions.
•Changes in credit policies and procedures, such as underwriting standards and collection, charge-off, and recovery practices.
•Changes in the experience, ability, and depth of credit management and other relevant staff.
•Changes in the quality of the Company's loan review system and Board of Directors oversight.
•The effect of any concentration of credit and changes in the level of concentrations, such as loan type or risk rating.
•Changes in the value of the underlying collateral for collateral-dependent loans.
•Changes in the national, regional, and local economy that affect the collectability of various segments of the portfolio.
•The effect of other external factors, such as competition and legal and regulatory requirements, on the Company's loan portfolio.
The allowance for loan losses also includes an allowance on acquired non-PCD and PCD loans. An allowance for loan losses is recorded on acquired PCD loans at the acquisition date through purchase accounting adjustments. Subsequent to the acquisition date, the allowance for loan losses on PCD loans is estimated as are the allowances for all other loans in the portfolio. No allowance for loan losses is recorded on acquired non-PCD loans at the acquisition date through purchase accounting. Instead, an allowance is established on acquired non-PCD loans at the acquisition date in-line with all other loans in the portfolio as if the loans were originated at the acquisition date. On a periodic basis, the adequacy of this allowance is determined using either a PD/LGD methodology or a specific review methodology.
Allowance for Unfunded Commitments – The Company also maintains an allowance for unfunded commitments, including letters of credit, for the risk of loss inherent in these arrangements. The allowance for unfunded commitments is estimated using the historical credit loss experience with consideration of reasonable and supportable forecasts of economic conditions for each loan category. The allowance for unfunded commitments is included in other liabilities in the Consolidated Statements of Financial Condition.
The establishment of the allowance for credit losses involves a high degree of judgment and estimation given the difficulty of assessing the factors impacting loan repayment and estimating the timing and amount of losses. While management utilizes its best judgment and information available, the adequacy of the allowance for credit losses depends on a variety of factors beyond the Company's control, including the performance of its loan portfolio, current national, regional, and local economic trends, reasonable and supportable forecasts about the future, changes in interest rates and property values, the amounts and timing of expected future cash flows on non-accrual loans, estimated losses on pools of homogenous loans, the interpretation of loan risk classifications by regulatory authorities, various internal and external qualitative factors, and other factors.
Derivative Financial Instruments – To provide derivative products to customers and in the ordinary course of business, the Company enters into derivative transactions as part of its overall interest rate risk management strategy to minimize significant unplanned fluctuations in earnings and expected future cash flows caused by interest rate volatility. All derivative instruments
are recorded at fair value as either other assets or other liabilities in the Consolidated Statements of Financial Condition. Subsequent changes in a derivative's fair value are recognized in earnings unless specific hedge accounting criteria are met.
On the date the Company enters into a derivative contract, the derivative is designated as a fair value hedge, a cash flow hedge, or a non-hedge derivative instrument. Fair value hedges are designed to mitigate exposure to changes in the fair value of an asset or liability attributable to a particular risk, such as interest rate risk. Cash flow hedges are designed to mitigate exposure to variability in expected future cash flows to be received or paid related to an asset, liability, or other type of forecasted transaction. The Company formally documents all relationships between hedging instruments and hedged items, including its risk management objective and strategy, at inception.
At the hedge's inception, a formal assessment is performed to determine the effectiveness of the derivative in offsetting changes in the fair values or expected future cash flows of the hedged items in the current period and prospectively. If a derivative instrument designated as a hedge is terminated or ceases to be highly effective, hedge accounting is discontinued prospectively, and the gain or loss is amortized into earnings. For fair value hedges, the gain or loss is amortized over the remaining life of the hedged asset or liability. For cash flow hedges, the gain or loss is amortized over the same period that the forecasted hedged transactions impact earnings. If the hedged item is disposed of, any fair value adjustments are included in the gain or loss from the disposition of the hedged item. If the forecasted transaction is no longer probable, the gain or loss is included in earnings immediately.
For fair value hedges, changes in the fair value of the derivative instruments, as well as changes in the fair value of the hedged item, are recognized in earnings in the same income statement line item as the earnings effect of the hedged item. For cash flow hedges, the effective portion of the change in fair value of the derivative instrument is reported as a component of accumulated other comprehensive income (loss) and is reclassified to earnings when the hedged transaction is reflected in earnings.
2. RECENT ACCOUNTING PRONOUNCEMENTS AND OTHER GUIDANCE
Adopted Accounting Pronouncements
Changes to the Disclosure Requirements for Defined Benefit Plans: In August of 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2018-14 that makes minor changes and clarifications to the disclosure requirements for entities that sponsor defined benefit plans. This guidance is effective for annual and interim periods beginning after December 15, 2020. The adoption of this guidance on January 1, 2021 did not materially impact the Company's financial condition, results of operations, or liquidity.
Income Taxes: In December of 2019, the FASB issued ASU 2019-12 that removes certain exceptions to the general principles of accounting for income taxes. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The adoption of this guidance on January 1, 2021 did not materially impact the Company's financial condition, results of operations, or liquidity.
Accounting Pronouncements Pending Adoption
Reference Rate Reform: In March of 2020, the FASB issued ASU 2020-04 and in January of 2021, the FASB issued 2021-01, both of which provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued by reference rate reform, if certain criteria are met. This guidance is effective upon issuance as of March 12, 2020 and generally can be applied through December 31, 2022. Management continues to monitor efforts and evaluate the impact of reference rate reform, including this guidance and determining its impact on the Company's financial condition, results of operations, and liquidity.
3. ACQUISITIONS
Pending Merger
On June 1, 2021, the Company and Old National Bancorp ("Old National"), the holding company for Old National Bank, jointly announced that they entered into a definitive merger agreement to combine in an all-stock merger of equals transaction to create a premier Midwestern bank with approximately $45 billion of combined assets. The merger agreement provides for a fixed exchange ratio whereby holders of Company common stock will receive 1.1336 shares of Old National common stock for each share of Company common stock they own, other than certain shares held by the Company or Old National. In addition, the merger agreement provides that holders of Company depositary shares representing a 1/40th interest in a share of the Company's 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A or Series C, will receive an equal amount of Old National depositary shares each representing a 1/40th interest in a share of a corresponding new series of Old National preferred stock having terms that are not materially less favorable than the Company preferred stock. The headquarters of the surviving corporation and the main office of the surviving bank will be located in Evansville, Indiana and the name of the surviving corporation and surviving bank will be Old National Bancorp and Old National Bank, respectively. The Commercial Banking and Consumer Banking operations of the surviving bank will be headquartered in Chicago, Illinois. Michael L. Scudder, Chairman and Chief Executive Officer ("CEO") of the Company, will serve as the Executive Chairman, and James C. Ryan III, Chairman and CEO of Old National Bancorp, will maintain his role as CEO. The merger agreement has been unanimously approved by the boards of directors, and has also been approved by approximately 99% of the votes cast at the shareholder meetings, of both companies.
As of the date of announcement, the overall transaction market value was approximately $6.5 billion. On August 19, 2021, the Office of the Comptroller of the Currency approved the application for the merger of First Midwest Bank and Old National Bank. Completion of the merger remains subject to regulatory approval by the Board of Governors of the Federal Reserve System and certain other customary closing conditions set forth in the merger agreement.
Completed Acquisition
Park Bank
On March 9, 2020, the Company completed its acquisition of Bankmanagers Corp. ("Bankmanagers"), the holding company for Park Bank, based in Milwaukee, Wisconsin. At closing, the Company acquired $1.2 billion of assets, $1.0 billion of deposits, and $687.9 million of loans, net of fair value adjustments. Under the terms of the merger agreement, on March 9, 2020, each outstanding share of Bankmanagers common stock was exchanged for 29.9675 shares of Company common stock, plus $623.02 of cash (of which $346.00 per share was paid by Bankmanagers to its shareholders by a special cash dividend immediately prior to closing). This resulted in merger consideration of $174.4 million, which consisted of 4.9 million shares of Company common stock and $102.5 million of cash. Goodwill of $59.6 million associated with the acquisition was recorded by the Company. All Park Bank operating systems were converted to the Company's operating platform during the second quarter of 2020.
During the first quarter of 2021, the Company finalized the fair value adjustments associated with the Bankmanagers transaction, which required measurement period adjustments to goodwill. These adjustments were recognized in the current period in accordance with accounting guidance applicable to business combinations.
The following table presents the assets acquired and liabilities assumed, net of the fair value adjustments, in the Park Bank transaction as of the acquisition date. The assets acquired and liabilities assumed, both intangible and tangible, were recorded at their estimated fair values as of the acquisition date and have been accounted for under the acquisition method of accounting.
Acquisition Activity
(Dollar amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Park Bank
|
|
|
|
|
March 9, 2020
|
|
|
Assets
|
|
|
|
|
Cash and due from banks and interest-bearing deposits in other banks
|
|
$
|
244,781
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
136,856
|
|
|
|
Securities held-to-maturity
|
|
300
|
|
|
|
|
|
|
|
|
Loans
|
|
687,923
|
|
|
|
OREO
|
|
2,276
|
|
|
|
Goodwill
|
|
59,649
|
|
|
|
Other intangible assets
|
|
3,068
|
|
|
|
Premises, furniture, and equipment
|
|
2,550
|
|
|
|
Accrued interest receivable and other assets
|
|
13,502
|
|
|
|
Total assets
|
|
$
|
1,150,905
|
|
|
|
Liabilities
|
|
|
|
|
Noninterest-bearing deposits
|
|
$
|
356,050
|
|
|
|
Interest-bearing deposits
|
|
594,026
|
|
|
|
Total deposits
|
|
950,076
|
|
|
|
Borrowed funds
|
|
11,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest payable and other liabilities
|
|
14,915
|
|
|
|
Total liabilities
|
|
976,523
|
|
|
|
Consideration Paid
|
|
|
|
|
Common stock (2020 – 4,930,231, shares issued at $14.58 per share)
|
|
71,883
|
|
|
|
Cash paid
|
|
102,499
|
|
|
|
Total consideration paid
|
|
174,382
|
|
|
|
|
|
$
|
1,150,905
|
|
|
|
Expenses related to the acquisition and integration of completed and pending transactions are reported as a separate component within noninterest expense in the Condensed Consolidated Statements of Income. For the quarter and nine months ended September 30, 2021, these expenses totaled $2.9 million and $10.9 million, respectively, and, for the same periods in 2020, these expenses totaled $881,000 and $11.6 million, respectively.
4. SECURITIES
The significant accounting policies related to securities are presented in Note 1, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in the Company's 2020 10-K.
A summary of the Company's securities portfolio by category and maturity is presented in the following tables.
Securities Portfolio
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
As of December 31, 2020
|
|
|
Amortized Cost
|
|
Gross Unrealized
|
|
|
|
Fair
Value
|
|
Amortized Cost
|
|
Gross Unrealized
|
|
|
|
Fair
Value
|
|
|
|
Gains
|
|
Losses
|
|
|
|
|
|
Gains
|
|
Losses
|
|
|
|
Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
$
|
12,001
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
|
|
$
|
12,051
|
|
U.S. agency securities
|
|
675,866
|
|
|
1,434
|
|
|
(21,188)
|
|
|
|
|
656,112
|
|
|
654,321
|
|
|
3,129
|
|
|
(4,976)
|
|
|
|
|
652,474
|
|
Collateralized mortgage obligations
("CMOs")
|
|
1,304,762
|
|
|
11,633
|
|
|
(20,851)
|
|
|
|
|
1,295,544
|
|
|
1,415,312
|
|
|
27,529
|
|
|
(4,323)
|
|
|
|
|
1,438,518
|
|
Other mortgage-backed securities
("MBSs")
|
|
854,852
|
|
|
8,170
|
|
|
(6,926)
|
|
|
|
|
856,096
|
|
|
566,830
|
|
|
14,650
|
|
|
(640)
|
|
|
|
|
580,840
|
|
Municipal securities
|
|
216,744
|
|
|
8,776
|
|
|
(902)
|
|
|
|
|
224,618
|
|
|
224,446
|
|
|
11,573
|
|
|
(4)
|
|
|
|
|
236,015
|
|
Corporate debt securities
|
|
173,061
|
|
|
7,477
|
|
|
—
|
|
|
|
|
180,538
|
|
|
170,570
|
|
|
6,210
|
|
|
(270)
|
|
|
|
|
176,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale
|
|
$
|
3,225,285
|
|
|
$
|
37,490
|
|
|
$
|
(49,867)
|
|
|
|
|
$
|
3,212,908
|
|
|
$
|
3,043,480
|
|
|
$
|
63,141
|
|
|
$
|
(10,213)
|
|
|
|
|
$
|
3,096,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
10,853
|
|
|
$
|
—
|
|
|
$
|
(392)
|
|
|
|
|
$
|
10,461
|
|
|
$
|
12,291
|
|
|
$
|
—
|
|
|
$
|
(385)
|
|
|
|
|
$
|
11,906
|
|
Allowance for securities held-to-
maturity
|
|
(220)
|
|
|
|
|
|
|
|
|
$
|
(220)
|
|
|
(220)
|
|
|
|
|
|
|
|
|
$
|
(220)
|
|
Total securities held-to-maturity,
net
|
|
$
|
10,633
|
|
|
$
|
—
|
|
|
$
|
(392)
|
|
|
|
|
$
|
10,241
|
|
|
$
|
12,071
|
|
|
$
|
—
|
|
|
$
|
(385)
|
|
|
|
|
$
|
11,686
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
$
|
114,848
|
|
|
|
|
|
|
|
|
|
|
$
|
76,404
|
|
Accrued interest receivable on the securities portfolio totaled $10.4 million and $11.9 million as of September 30, 2021 and December 31, 2020, respectively, and is included in accrued interest receivable and other assets in the Consolidated Statements of Financial Condition.
Accounting guidance requires that the credit portion of a decline in fair value be recognized as an allowance for credit losses, established as a charge to expense through income. If a decline in fair value below carrying value is not attributable to credit deterioration and the Company does not intend to sell the security or believe it would not be more likely than not required to sell the security prior to recovery, the Company records the non-credit related portion of the decline in fair value in other comprehensive income (loss). In determining whether a decline in fair value of a security is credit related, the Company considers adverse conditions specific to the security, deterioration in economic conditions or market environment that may affect the value of the securities and related collateral, if any, events of default, changes to the credit rating of the security by a rating agency, and guarantees applicable to the security, among other factors.
Remaining Contractual Maturity of Securities
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
One year or less
|
|
$
|
115,656
|
|
|
$
|
115,178
|
|
|
$
|
1,857
|
|
|
$
|
1,790
|
|
After one year to five years
|
|
157,219
|
|
|
156,570
|
|
|
4,495
|
|
|
4,333
|
|
After five years to ten years
|
|
792,796
|
|
|
789,520
|
|
|
1,953
|
|
|
1,882
|
|
After ten years
|
|
—
|
|
|
—
|
|
|
2,548
|
|
|
2,456
|
|
Securities that do not have a single contractual maturity date
|
|
2,159,614
|
|
|
2,151,640
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
3,225,285
|
|
|
$
|
3,212,908
|
|
|
$
|
10,853
|
|
|
$
|
10,461
|
|
The carrying value of securities available-for-sale that were pledged to secure deposits or for other purposes as permitted or required by law totaled $2.1 billion as of September 30, 2021 and $1.6 billion as of December 31, 2020. No securities held-to-maturity were pledged as of September 30, 2021 or December 31, 2020.
There were no material realized gains (losses) on securities available-for-sale for the quarters ended September 30, 2021 and the nine months ended September 30, 2021. There were $14.3 million and $13.3 million of realized gains for the quarter and nine months ended September 30, 2020.
The following table presents the aggregate amount of unrealized losses and the aggregate related fair values of securities with unrealized losses as of September 30, 2021 and December 31, 2020.
Securities in an Unrealized Loss Position
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
|
Number of
Securities
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
As of September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
74
|
|
|
$
|
331,843
|
|
|
$
|
10,834
|
|
|
$
|
216,769
|
|
|
$
|
10,354
|
|
|
$
|
548,612
|
|
|
$
|
21,188
|
|
CMOs
|
|
178
|
|
|
666,381
|
|
|
13,271
|
|
|
139,952
|
|
|
7,580
|
|
|
806,333
|
|
|
20,851
|
|
MBSs
|
|
85
|
|
|
349,060
|
|
|
5,751
|
|
|
59,373
|
|
|
1,175
|
|
|
408,433
|
|
|
6,926
|
|
Municipal securities
|
|
30
|
|
|
21,497
|
|
|
742
|
|
|
5,824
|
|
|
160
|
|
|
27,321
|
|
|
902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
367
|
|
|
$
|
1,368,781
|
|
|
$
|
30,598
|
|
|
$
|
421,918
|
|
|
$
|
19,269
|
|
|
$
|
1,790,699
|
|
|
$
|
49,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
48
|
|
|
$
|
253,841
|
|
|
$
|
4,764
|
|
|
$
|
14,932
|
|
|
$
|
212
|
|
|
$
|
268,773
|
|
|
$
|
4,976
|
|
CMOs
|
|
104
|
|
|
349,853
|
|
|
3,205
|
|
|
86,618
|
|
|
1,118
|
|
|
436,471
|
|
|
4,323
|
|
MBSs
|
|
19
|
|
|
69,838
|
|
|
550
|
|
|
12,307
|
|
|
90
|
|
|
82,145
|
|
|
640
|
|
Municipal securities
|
|
4
|
|
|
1,012
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
1,012
|
|
|
4
|
|
Corporate debt securities
|
|
3
|
|
|
8,100
|
|
|
105
|
|
|
9,513
|
|
|
165
|
|
|
17,613
|
|
|
270
|
|
Total
|
|
178
|
|
|
$
|
682,644
|
|
|
$
|
8,628
|
|
|
$
|
123,370
|
|
|
$
|
1,585
|
|
|
$
|
806,014
|
|
|
$
|
10,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substantially all of the Company's CMOs and other MBSs are either backed by U.S. government-owned agencies or issued by U.S. government-sponsored enterprises. Municipal securities are issued by municipal authorities, and the majority are supported by third-party insurance or some other form of credit enhancement. Management does not believe any of these securities with unrealized losses as of September 30, 2021 represent impairment related to credit deterioration. These unrealized losses are attributed to changes in interest rates and temporary market movements. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell them before recovery of their amortized cost basis, which may be at maturity.
5. LOANS
Loans Held-for-Investment
The following table presents the Company's loans held-for-investment by class.
Loan Portfolio
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30,
2021
|
|
December 31,
2020
|
Commercial and industrial
|
|
$
|
4,705,458
|
|
|
$
|
4,578,254
|
|
Agricultural
|
|
349,159
|
|
|
364,038
|
|
Commercial real estate:
|
|
|
|
|
Office, retail, and industrial
|
|
1,765,592
|
|
|
1,861,768
|
|
Multi-family
|
|
1,082,941
|
|
|
872,813
|
|
Construction
|
|
595,204
|
|
|
612,611
|
|
Other commercial real estate
|
|
1,408,955
|
|
|
1,481,976
|
|
Total commercial real estate
|
|
4,852,692
|
|
|
4,829,168
|
|
Total corporate loans, excluding Paycheck Protection Program ("PPP") loans
|
|
9,907,309
|
|
|
9,771,460
|
|
PPP loans
|
|
384,100
|
|
|
785,563
|
|
Total corporate loans
|
|
10,291,409
|
|
|
10,557,023
|
|
Home equity
|
|
591,126
|
|
|
761,725
|
|
1-4 family mortgages
|
|
3,332,732
|
|
|
3,022,413
|
|
Installment
|
|
573,465
|
|
|
410,071
|
|
Total consumer loans
|
|
4,497,323
|
|
|
4,194,209
|
|
Total loans
|
|
$
|
14,788,732
|
|
|
$
|
14,751,232
|
|
Deferred loan fees included in total loans
|
|
$
|
8,688
|
|
|
$
|
9,696
|
|
Overdrawn demand deposits included in total loans
|
|
8,562
|
|
|
8,444
|
|
Accrued interest receivable on the loan portfolio totaled $51.6 million and $56.7 million as of September 30, 2021 and December 31, 2020, respectively and is included in accrued interest receivable and other assets in the Consolidated Statements of Financial Condition.
The Company primarily lends to community-based and mid-sized businesses, commercial real estate customers, and consumers in its markets. Within these areas, the Company diversifies its loan portfolio by loan type, industry, and borrower.
It is the Company's policy to review each prospective credit to determine the appropriateness and the adequacy of security or collateral prior to making a loan. In the event of borrower default, the Company seeks recovery in compliance with state lending laws, the Company's lending standards, and credit monitoring and remediation procedures. A discussion of risk characteristics relevant to each portfolio segment is presented in Note 5, "Loans" to the Consolidated Financial Statements in the Company's 2020 10-K.
Loan Sales
The following table presents loan sales and purchases for the quarters and nine months ended September 30, 2021 and 2020.
Loan Sales and Purchases
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Corporate loan sales
|
|
|
|
|
|
|
|
|
Proceeds from sales
|
|
$
|
—
|
|
|
$
|
50
|
|
|
$
|
17,227
|
|
|
$
|
4,648
|
|
Less book value of loans sold
|
|
—
|
|
|
65
|
|
|
17,177
|
|
|
4,542
|
|
Net (losses) gains on corporate loan sales(1)
|
|
—
|
|
|
(15)
|
|
|
50
|
|
|
106
|
|
1-4 family mortgage loan sales
|
|
|
|
|
|
|
|
|
Proceeds from sales
|
|
205,699
|
|
|
258,695
|
|
|
713,775
|
|
|
551,105
|
|
Less book value of loans sold
|
|
199,938
|
|
|
251,819
|
|
|
691,620
|
|
|
537,120
|
|
Net gains on 1-4 family mortgage loan sales(2)
|
|
5,761
|
|
|
6,876
|
|
|
22,155
|
|
|
13,985
|
|
Total net gains on loan sales
|
|
$
|
5,761
|
|
|
$
|
6,861
|
|
|
$
|
22,205
|
|
|
$
|
14,091
|
|
Corporate loan purchases(3)
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
65,633
|
|
|
$
|
10,196
|
|
|
$
|
299,708
|
|
|
$
|
178,912
|
|
|
|
|
|
|
|
|
|
|
Office, retail, and industrial
|
|
1,198
|
|
|
—
|
|
|
8,636
|
|
|
—
|
|
Multi-family
|
|
7
|
|
|
—
|
|
|
26,136
|
|
|
—
|
|
Construction
|
|
5
|
|
|
3,692
|
|
|
1,041
|
|
|
7,589
|
|
Other commercial real estate
|
|
—
|
|
|
—
|
|
|
35,000
|
|
|
10,000
|
|
Total corporate loan purchases
|
|
$
|
66,843
|
|
|
$
|
13,888
|
|
|
$
|
370,521
|
|
|
$
|
196,501
|
|
Consumer loan purchases
|
|
|
|
|
|
|
|
|
Home equity
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
144,967
|
|
1-4 family mortgages
|
|
186,910
|
|
|
168,052
|
|
|
772,828
|
|
|
417,637
|
|
Installment
|
|
—
|
|
|
—
|
|
|
253,376
|
|
|
—
|
|
Total consumer loan purchases
|
|
$
|
186,910
|
|
|
$
|
168,052
|
|
|
$
|
1,026,204
|
|
|
$
|
562,604
|
|
(1)Net gains on corporate loan sales are included in other service charges, commissions, and fees in the Condensed Consolidated Statements of Income.
(2)Net gains on 1-4 family mortgage loan sales are included in mortgage banking income in the Condensed Consolidated Statements of Income.
(3)Consists of the Company's portion of loan participations purchased.
The Company retained servicing responsibilities for a portion of the 1-4 family mortgage loans sold and collects servicing fees equal to a percentage of the outstanding principal balance. For additional disclosure related to the Company's obligations resulting from the sale of certain 1-4 family mortgage loans, see Note 13, "Commitments, Guarantees, and Contingent Liabilities."
6. ACQUIRED LOANS
The significant accounting policies related to acquired loans, which are classified as PCD and non-PCD at September 30, 2021 and December 31, 2020, are presented in Note 1, "Summary of Significant Accounting Policies."
The following table presents the carrying amount of acquired loans as of September 30, 2021 and December 31, 2020.
Acquired Loans(1)
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
As of December 31, 2020
|
|
|
PCD
|
|
Non-PCD
|
|
Total
|
|
PCD
|
|
Non-PCD
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans
|
|
$
|
161,154
|
|
|
$
|
787,636
|
|
|
$
|
948,790
|
|
|
$
|
212,021
|
|
|
$
|
1,198,818
|
|
|
$
|
1,410,839
|
|
(1)Included in loans in the Consolidated Statements of Financial Condition.
The outstanding balance of PCD loans was $206.2 million as of September 30, 2021 and $247.3 million as of December 31, 2020.
Total accretion on acquired loans for the quarter and nine months ended September 30, 2021 was $6.2 million and $19.4 million, respectively, and $8.0 million and $21.9 million for the same periods in 2020.
7. PAST DUE LOANS, ALLOWANCE FOR CREDIT LOSSES, NON-ACCRUAL LOANS, AND TDRS
Past Due and Non-accrual Loans
The following table presents an aging analysis of the Company's past due loans as of September 30, 2021 and December 31, 2020 with balances presented on an amortized cost basis. The aging is determined without regard to accrual status. The table also presents non-performing loans, consisting of non-accrual loans (the majority of which are past due) and loans 90 days or more past due and still accruing interest, as of each balance sheet date.
Aging Analysis of Past Due Loans and Non-performing Loans by Class
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aging Analysis (Accruing and Non-accrual)
|
|
|
Non-performing Loans
|
|
|
Current
|
|
30-89 Days
Past Due
|
|
90 Days or
More Past
Due
|
|
Total
Past Due
|
|
Total
Loans
|
|
|
Non-
accrual
|
|
90 Days or More Past Due, Still Accruing Interest
|
As of September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
4,687,711
|
|
|
$
|
6,475
|
|
|
$
|
11,272
|
|
|
$
|
17,747
|
|
|
$
|
4,705,458
|
|
|
|
$
|
14,616
|
|
|
$
|
722
|
|
Agricultural
|
|
344,374
|
|
|
1,388
|
|
|
3,397
|
|
|
4,785
|
|
|
349,159
|
|
|
|
6,682
|
|
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office, retail, and industrial
|
|
1,738,178
|
|
|
15,351
|
|
|
12,063
|
|
|
27,414
|
|
|
1,765,592
|
|
|
|
20,632
|
|
|
—
|
|
Multi-family
|
|
1,077,754
|
|
|
2,085
|
|
|
3,102
|
|
|
5,187
|
|
|
1,082,941
|
|
|
|
3,450
|
|
|
—
|
|
Construction
|
|
592,433
|
|
|
920
|
|
|
1,851
|
|
|
2,771
|
|
|
595,204
|
|
|
|
1,851
|
|
|
—
|
|
Other commercial real estate
|
|
1,388,152
|
|
|
6,314
|
|
|
14,489
|
|
|
20,803
|
|
|
1,408,955
|
|
|
|
18,060
|
|
|
32
|
|
Total commercial real estate
|
|
4,796,517
|
|
|
24,670
|
|
|
31,505
|
|
|
56,175
|
|
|
4,852,692
|
|
|
|
43,993
|
|
|
32
|
|
Total corporate loans,
excluding PPP loans
|
|
9,828,602
|
|
|
32,533
|
|
|
46,174
|
|
|
78,707
|
|
|
9,907,309
|
|
|
|
65,291
|
|
|
754
|
|
PPP loans
|
|
384,100
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
384,100
|
|
|
|
—
|
|
|
—
|
|
Total corporate loans
|
|
10,212,702
|
|
|
32,533
|
|
|
46,174
|
|
|
78,707
|
|
|
10,291,409
|
|
|
|
65,291
|
|
|
754
|
|
Home equity
|
|
585,157
|
|
|
2,043
|
|
|
3,926
|
|
|
5,969
|
|
|
591,126
|
|
|
|
10,006
|
|
|
75
|
|
1-4 family mortgages
|
|
3,319,223
|
|
|
3,978
|
|
|
9,531
|
|
|
13,509
|
|
|
3,332,732
|
|
|
|
12,786
|
|
|
—
|
|
Installment
|
|
570,600
|
|
|
2,401
|
|
|
464
|
|
|
2,865
|
|
|
573,465
|
|
|
|
—
|
|
|
464
|
|
Total consumer loans
|
|
4,474,980
|
|
|
8,422
|
|
|
13,921
|
|
|
22,343
|
|
|
4,497,323
|
|
|
|
22,792
|
|
|
539
|
|
Total loans
|
|
$
|
14,687,682
|
|
|
$
|
40,955
|
|
|
$
|
60,095
|
|
|
$
|
101,050
|
|
|
$
|
14,788,732
|
|
|
|
$
|
88,083
|
|
|
$
|
1,293
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
4,530,546
|
|
|
$
|
9,254
|
|
|
$
|
38,454
|
|
|
$
|
47,708
|
|
|
$
|
4,578,254
|
|
|
|
$
|
42,965
|
|
|
$
|
591
|
|
Agricultural
|
|
359,373
|
|
|
705
|
|
|
3,960
|
|
|
4,665
|
|
|
364,038
|
|
|
|
10,719
|
|
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office, retail, and industrial
|
|
1,827,891
|
|
|
3,961
|
|
|
29,916
|
|
|
33,877
|
|
|
1,861,768
|
|
|
|
34,224
|
|
|
257
|
|
Multi-family
|
|
867,815
|
|
|
2,510
|
|
|
2,488
|
|
|
4,998
|
|
|
872,813
|
|
|
|
2,488
|
|
|
—
|
|
Construction
|
|
606,934
|
|
|
1,154
|
|
|
4,523
|
|
|
5,677
|
|
|
612,611
|
|
|
|
4,980
|
|
|
1,065
|
|
Other commercial real estate
|
|
1,448,258
|
|
|
15,015
|
|
|
18,703
|
|
|
33,718
|
|
|
1,481,976
|
|
|
|
25,824
|
|
|
434
|
|
Total commercial real estate
|
|
4,750,898
|
|
|
22,640
|
|
|
55,630
|
|
|
78,270
|
|
|
4,829,168
|
|
|
|
67,516
|
|
|
1,756
|
|
Total corporate loans,
excluding PPP loans
|
|
9,640,817
|
|
|
32,599
|
|
|
98,044
|
|
|
130,643
|
|
|
9,771,460
|
|
|
|
121,200
|
|
|
2,347
|
|
PPP loans
|
|
785,563
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
785,563
|
|
|
|
—
|
|
|
—
|
|
Total corporate loans
|
|
10,426,380
|
|
|
32,599
|
|
|
98,044
|
|
|
130,643
|
|
|
10,557,023
|
|
|
|
121,200
|
|
|
2,347
|
|
Home equity
|
|
750,263
|
|
|
5,563
|
|
|
5,899
|
|
|
11,462
|
|
|
761,725
|
|
|
|
10,795
|
|
|
956
|
|
1-4 family mortgages
|
|
3,009,564
|
|
|
5,296
|
|
|
7,553
|
|
|
12,849
|
|
|
3,022,413
|
|
|
|
10,530
|
|
|
115
|
|
Installment
|
|
404,831
|
|
|
4,263
|
|
|
977
|
|
|
5,240
|
|
|
410,071
|
|
|
|
—
|
|
|
977
|
|
Total consumer loans
|
|
4,164,658
|
|
|
15,122
|
|
|
14,429
|
|
|
29,551
|
|
|
4,194,209
|
|
|
|
21,325
|
|
|
2,048
|
|
Total loans
|
|
$
|
14,591,038
|
|
|
$
|
47,721
|
|
|
$
|
112,473
|
|
|
$
|
160,194
|
|
|
$
|
14,751,232
|
|
|
|
$
|
142,525
|
|
|
$
|
4,395
|
|
Allowance for Credit Losses
The Company maintains an allowance for credit losses at a level deemed adequate by management to absorb estimated losses expected in the existing loan portfolio. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for the allowance for credit losses. A rollforward of the allowance for credit losses by portfolio segment for the quarters and nine months ended September 30, 2021 and 2020 is presented in the table below. PPP loans are excluded from this table as there is no allowance for credit losses associated with these loans because they are fully guaranteed by the U.S. Small Business Administration ("SBA").
Allowance for Credit Losses by Portfolio Segment
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
Industrial, and
Agricultural
|
|
Office,
Retail, and
Industrial
|
|
Multi-
family
|
|
Construction
|
|
Other
Commercial
Real Estate
|
|
Consumer
|
|
Allowance for
Unfunded
Commitments
|
|
Total
Allowance for Credit Losses
|
Quarter Ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
116,396
|
|
|
$
|
17,992
|
|
|
$
|
3,459
|
|
|
$
|
4,924
|
|
|
$
|
20,058
|
|
|
$
|
51,772
|
|
|
$
|
8,625
|
|
|
$
|
223,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
(7,081)
|
|
|
(673)
|
|
|
(1)
|
|
|
(1,153)
|
|
|
(857)
|
|
|
(1,992)
|
|
|
—
|
|
|
(11,757)
|
|
Recoveries
|
|
2,116
|
|
|
117
|
|
|
—
|
|
|
167
|
|
|
28
|
|
|
969
|
|
|
—
|
|
|
3,397
|
|
Net charge-offs
|
|
(4,965)
|
|
|
(556)
|
|
|
(1)
|
|
|
(986)
|
|
|
(829)
|
|
|
(1,023)
|
|
|
—
|
|
|
(8,360)
|
|
Provision for loan
losses and other
|
|
508
|
|
|
272
|
|
|
172
|
|
|
(210)
|
|
|
693
|
|
|
(1,435)
|
|
|
—
|
|
|
—
|
|
Ending balance
|
|
$
|
111,939
|
|
|
$
|
17,708
|
|
|
$
|
3,630
|
|
|
$
|
3,728
|
|
|
$
|
19,922
|
|
|
$
|
49,314
|
|
|
$
|
8,625
|
|
|
$
|
214,866
|
|
Quarter Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
123,977
|
|
|
$
|
24,441
|
|
|
$
|
5,311
|
|
|
$
|
11,522
|
|
|
$
|
21,862
|
|
|
$
|
52,939
|
|
|
$
|
7,625
|
|
|
$
|
247,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance established
for acquired PCD
loans
|
|
(1,188)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,188)
|
|
Charge-offs
|
|
(6,853)
|
|
|
(1,344)
|
|
|
—
|
|
|
(4,889)
|
|
|
(1,823)
|
|
|
(2,629)
|
|
|
—
|
|
|
(17,538)
|
|
Recoveries
|
|
1,118
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
70
|
|
|
602
|
|
|
—
|
|
|
1,795
|
|
Net charge-offs
|
|
(5,735)
|
|
|
(1,339)
|
|
|
—
|
|
|
(4,889)
|
|
|
(1,753)
|
|
|
(2,027)
|
|
|
—
|
|
|
(15,743)
|
|
Provision for loan
losses and other
|
|
8,674
|
|
|
1,636
|
|
|
428
|
|
|
99
|
|
|
3,522
|
|
|
1,568
|
|
|
200
|
|
|
16,127
|
|
Ending balance
|
|
$
|
125,728
|
|
|
$
|
24,738
|
|
|
$
|
5,739
|
|
|
$
|
6,732
|
|
|
$
|
23,631
|
|
|
$
|
52,480
|
|
|
$
|
7,825
|
|
|
$
|
246,873
|
|
Nine Months Ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
119,954
|
|
|
$
|
24,078
|
|
|
$
|
5,709
|
|
|
$
|
6,674
|
|
|
$
|
24,309
|
|
|
$
|
58,293
|
|
|
$
|
8,025
|
|
|
$
|
247,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
(26,688)
|
|
|
(9,048)
|
|
|
(5)
|
|
|
(1,371)
|
|
|
(1,928)
|
|
|
(7,661)
|
|
|
—
|
|
|
(46,701)
|
|
Recoveries
|
|
4,887
|
|
|
237
|
|
|
7
|
|
|
177
|
|
|
269
|
|
|
2,250
|
|
|
—
|
|
|
7,827
|
|
Net charge-offs
|
|
(21,801)
|
|
|
(8,811)
|
|
|
2
|
|
|
(1,194)
|
|
|
(1,659)
|
|
|
(5,411)
|
|
|
—
|
|
|
(38,874)
|
|
Provision for loan
losses and other
|
|
13,786
|
|
|
2,441
|
|
|
(2,081)
|
|
|
(1,752)
|
|
|
(2,728)
|
|
|
(3,568)
|
|
|
600
|
|
|
6,698
|
|
Ending balance
|
|
$
|
111,939
|
|
|
$
|
17,708
|
|
|
$
|
3,630
|
|
|
$
|
3,728
|
|
|
$
|
19,922
|
|
|
$
|
49,314
|
|
|
$
|
8,625
|
|
|
$
|
214,866
|
|
Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
62,830
|
|
|
$
|
7,580
|
|
|
$
|
2,950
|
|
|
$
|
1,697
|
|
|
$
|
6,408
|
|
|
$
|
26,557
|
|
|
$
|
1,200
|
|
|
$
|
109,222
|
|
Adjustment to apply
recent accounting
pronouncements(1)
|
|
20,159
|
|
|
11,686
|
|
|
397
|
|
|
10,300
|
|
|
11,427
|
|
|
16,235
|
|
|
5,553
|
|
|
75,757
|
|
Allowance established
for acquired PCD
loans
|
|
11,452
|
|
|
2,003
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
872
|
|
|
14,366
|
|
Charge-offs
|
|
(19,592)
|
|
|
(4,774)
|
|
|
(19)
|
|
|
(7,495)
|
|
|
(2,162)
|
|
|
(11,660)
|
|
|
—
|
|
|
(45,702)
|
|
Recoveries
|
|
3,097
|
|
|
20
|
|
|
5
|
|
|
—
|
|
|
226
|
|
|
1,574
|
|
|
—
|
|
|
4,922
|
|
Net charge-offs
|
|
(16,495)
|
|
|
(4,754)
|
|
|
(14)
|
|
|
(7,495)
|
|
|
(1,936)
|
|
|
(10,086)
|
|
|
—
|
|
|
(40,780)
|
|
Provision for loan
losses and other
|
|
47,782
|
|
|
8,223
|
|
|
2,406
|
|
|
2,230
|
|
|
7,732
|
|
|
19,735
|
|
|
200
|
|
|
88,308
|
|
Ending balance
|
|
$
|
125,728
|
|
|
$
|
24,738
|
|
|
$
|
5,739
|
|
|
$
|
6,732
|
|
|
$
|
23,631
|
|
|
$
|
52,480
|
|
|
$
|
7,825
|
|
|
$
|
246,873
|
|
(1) As a result of accounting guidance adopted in the first quarter of 2020, the increase in allowance for credit losses, net of tax, was recognized as a cumulative-effect adjustment to retained earnings as of January 1, 2020.
Determination of the allowance for credit losses considers multiple macroeconomic scenarios of stressed GDP, unemployment, and housing price index, detailed portfolio reviews of elevated risk sectors, and the effects of governmental responses to the pandemic. The allowance for credit losses increased from December 31, 2019 primarily due to the adoption of current expected credit losses ("CECL") and the estimated impact of the pandemic on the allowance for credit losses.
The table below provides a breakdown of loans and the related allowance for credit losses by portfolio segment as of September 30, 2021 and December 31, 2020.
Loans and Related Allowance for Credit Losses by Portfolio Segment
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
Allowance for Credit Losses
|
|
|
Individually
Evaluated
|
|
Collectively
Evaluated
|
|
PCD
|
|
Total
|
|
Individually
Evaluated
|
|
Collectively
Evaluated
|
|
PCD
|
|
Total
|
As of September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, industrial,
agricultural
|
|
$
|
14,580
|
|
|
$
|
4,993,501
|
|
|
$
|
46,536
|
|
|
$
|
5,054,617
|
|
|
$
|
1,499
|
|
|
$
|
105,470
|
|
|
$
|
4,970
|
|
|
$
|
111,939
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office, retail, and industrial
|
|
12,498
|
|
|
1,719,005
|
|
|
34,089
|
|
|
1,765,592
|
|
|
384
|
|
|
13,902
|
|
|
3,422
|
|
|
17,708
|
|
Multi-family
|
|
2,171
|
|
|
1,074,323
|
|
|
6,447
|
|
|
1,082,941
|
|
|
—
|
|
|
3,555
|
|
|
75
|
|
|
3,630
|
|
Construction
|
|
1,154
|
|
|
582,683
|
|
|
11,367
|
|
|
595,204
|
|
|
—
|
|
|
3,406
|
|
|
322
|
|
|
3,728
|
|
Other commercial real estate
|
|
11,993
|
|
|
1,353,603
|
|
|
43,359
|
|
|
1,408,955
|
|
|
164
|
|
|
10,083
|
|
|
9,675
|
|
|
19,922
|
|
Total commercial real estate
|
|
27,816
|
|
|
4,729,614
|
|
|
95,262
|
|
|
4,852,692
|
|
|
548
|
|
|
30,946
|
|
|
13,494
|
|
|
44,988
|
|
Total corporate loans,
excluding PPP loans
|
|
42,396
|
|
|
9,723,115
|
|
|
141,798
|
|
|
9,907,309
|
|
|
2,047
|
|
|
136,416
|
|
|
18,464
|
|
|
156,927
|
|
PPP loans
|
|
—
|
|
|
384,100
|
|
|
—
|
|
|
384,100
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total corporate loans
|
|
42,396
|
|
|
10,107,215
|
|
|
141,798
|
|
|
10,291,409
|
|
|
2,047
|
|
|
136,416
|
|
|
18,464
|
|
|
156,927
|
|
Consumer
|
|
—
|
|
|
4,477,967
|
|
|
19,356
|
|
|
4,497,323
|
|
|
—
|
|
|
48,815
|
|
|
499
|
|
|
49,314
|
|
Allowance for unfunded
commitments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,625
|
|
|
—
|
|
|
8,625
|
|
Total loans
|
|
$
|
42,396
|
|
|
$
|
14,585,182
|
|
|
$
|
161,154
|
|
|
$
|
14,788,732
|
|
|
$
|
2,047
|
|
|
$
|
193,856
|
|
|
$
|
18,963
|
|
|
$
|
214,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, industrial, and
agricultural
|
|
$
|
45,650
|
|
|
$
|
4,826,017
|
|
|
$
|
70,625
|
|
|
$
|
4,942,292
|
|
|
$
|
3,536
|
|
|
$
|
107,763
|
|
|
$
|
8,655
|
|
|
$
|
119,954
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office, retail, and industrial
|
|
26,384
|
|
|
1,792,618
|
|
|
42,766
|
|
|
1,861,768
|
|
|
1,123
|
|
|
15,106
|
|
|
7,849
|
|
|
24,078
|
|
Multi-family
|
|
1,279
|
|
|
864,677
|
|
|
6,857
|
|
|
872,813
|
|
|
—
|
|
|
5,438
|
|
|
271
|
|
|
5,709
|
|
Construction
|
|
1,154
|
|
|
595,550
|
|
|
15,907
|
|
|
612,611
|
|
|
—
|
|
|
4,535
|
|
|
2,139
|
|
|
6,674
|
|
Other commercial real estate
|
|
13,736
|
|
|
1,414,541
|
|
|
53,699
|
|
|
1,481,976
|
|
|
171
|
|
|
12,651
|
|
|
11,487
|
|
|
24,309
|
|
Total commercial real estate
|
|
42,553
|
|
|
4,667,386
|
|
|
119,229
|
|
|
4,829,168
|
|
|
1,294
|
|
|
37,730
|
|
|
21,746
|
|
|
60,770
|
|
Total corporate loans,
excluding PPP loans
|
|
88,203
|
|
|
9,493,403
|
|
|
189,854
|
|
|
9,771,460
|
|
|
4,830
|
|
|
145,493
|
|
|
30,401
|
|
|
180,724
|
|
PPP loans
|
|
—
|
|
|
785,563
|
|
|
—
|
|
|
785,563
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total corporate loans
|
|
88,203
|
|
|
10,278,966
|
|
|
189,854
|
|
|
10,557,023
|
|
|
4,830
|
|
|
145,493
|
|
|
30,401
|
|
|
180,724
|
|
Consumer
|
|
—
|
|
|
4,172,042
|
|
|
22,167
|
|
|
4,194,209
|
|
|
—
|
|
|
57,567
|
|
|
726
|
|
|
58,293
|
|
Allowance for unfunded
commitments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,025
|
|
|
—
|
|
|
8,025
|
|
Total loans
|
|
$
|
88,203
|
|
|
$
|
14,451,008
|
|
|
$
|
212,021
|
|
|
$
|
14,751,232
|
|
|
$
|
4,830
|
|
|
$
|
211,085
|
|
|
$
|
31,127
|
|
|
$
|
247,042
|
|
The following table presents collateral-dependent loans, including PCD loans, without regard to accrual status by primary collateral type and non-accrual loans with no related allowance as of September 30, 2021 and December 31, 2020. PPP loans are excluded from this table as there is no allowance for credit losses associated with these loans because they are fully guaranteed by the SBA.
Collateral-dependent Loans and Non-accrual Loans With No Related Allowance by Class
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Collateral
|
|
|
Non-accrual Loans
With No Related
Allowance
|
|
|
Real
Estate
|
|
Blanket
Lien
|
|
Equipment
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
4,296
|
|
|
$
|
11,572
|
|
|
$
|
923
|
|
|
|
$
|
10,619
|
|
Agricultural
|
|
6,445
|
|
|
—
|
|
|
—
|
|
|
|
2,784
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
Office, retail, and industrial
|
|
20,285
|
|
|
—
|
|
|
—
|
|
|
|
11,868
|
|
Multi-family
|
|
2,950
|
|
|
—
|
|
|
—
|
|
|
|
2,950
|
|
Construction
|
|
2,223
|
|
|
—
|
|
|
—
|
|
|
|
327
|
|
Other commercial real estate
|
|
30,952
|
|
|
—
|
|
|
—
|
|
|
|
6,475
|
|
Total commercial real estate
|
|
56,410
|
|
|
—
|
|
|
—
|
|
|
|
21,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate loans
|
|
67,151
|
|
|
11,572
|
|
|
923
|
|
|
|
35,023
|
|
Home equity
|
|
96
|
|
|
—
|
|
|
—
|
|
|
|
96
|
|
1-4 family mortgages
|
|
1,130
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Installment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Total consumer loans
|
|
1,226
|
|
|
—
|
|
|
—
|
|
|
|
96
|
|
Total loans
|
|
$
|
68,377
|
|
|
$
|
11,572
|
|
|
$
|
923
|
|
|
|
$
|
35,119
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
27,007
|
|
|
$
|
35,632
|
|
|
$
|
2,555
|
|
|
|
$
|
36,686
|
|
Agricultural
|
|
8,583
|
|
|
1,737
|
|
|
—
|
|
|
|
5,213
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
Office, retail, and industrial
|
|
42,790
|
|
|
—
|
|
|
—
|
|
|
|
23,508
|
|
Multi-family
|
|
2,097
|
|
|
—
|
|
|
—
|
|
|
|
1,279
|
|
Construction
|
|
5,370
|
|
|
—
|
|
|
—
|
|
|
|
1,831
|
|
Other commercial real estate
|
|
40,430
|
|
|
—
|
|
|
—
|
|
|
|
20,158
|
|
Total commercial real estate
|
|
90,687
|
|
|
—
|
|
|
—
|
|
|
|
46,776
|
|
Total corporate loans
|
|
126,277
|
|
|
37,369
|
|
|
2,555
|
|
|
|
88,675
|
|
Home equity
|
|
211
|
|
|
—
|
|
|
—
|
|
|
|
99
|
|
1-4 family mortgages
|
|
2,807
|
|
|
—
|
|
|
—
|
|
|
|
578
|
|
Installment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Total consumer loans
|
|
3,018
|
|
|
—
|
|
|
—
|
|
|
|
677
|
|
Total loans
|
|
$
|
129,295
|
|
|
$
|
37,369
|
|
|
$
|
2,555
|
|
|
|
$
|
89,352
|
|
|
|
|
|
|
|
|
|
|
|
Loans Individually Evaluated
The following table presents loans individually evaluated by class of loan as of September 30, 2021 and December 31, 2020. PCD loans are excluded from this disclosure.
Loans Individually Evaluated by Class
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
|
As of December 31, 2020
|
|
|
Recorded Investment In
|
|
|
|
|
Recorded Investment In
|
|
|
|
|
Loans with
No Specific
Allowance
|
|
Loans with
a Specific
Allowance
|
|
Unpaid
Principal
Balance
|
|
Specific
Allowance
|
|
|
Loans with
No Specific
Allowance
|
|
Loans with
a Specific
Allowance
|
|
Unpaid
Principal
Balance
|
|
Specific
Allowance
|
Commercial and industrial
|
|
$
|
7,284
|
|
|
$
|
850
|
|
|
$
|
22,314
|
|
|
$
|
294
|
|
|
|
$
|
33,643
|
|
|
$
|
1,687
|
|
|
$
|
40,055
|
|
|
$
|
398
|
|
Agricultural
|
|
2,784
|
|
|
3,662
|
|
|
10,917
|
|
|
1,205
|
|
|
|
5,213
|
|
|
5,107
|
|
|
14,972
|
|
|
3,138
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office, retail, and industrial
|
|
10,643
|
|
|
1,855
|
|
|
14,849
|
|
|
384
|
|
|
|
21,537
|
|
|
4,847
|
|
|
30,474
|
|
|
1,123
|
|
Multi-family
|
|
2,171
|
|
|
—
|
|
|
2,171
|
|
|
—
|
|
|
|
1,279
|
|
|
—
|
|
|
1,279
|
|
|
—
|
|
Construction
|
|
—
|
|
|
1,154
|
|
|
1,182
|
|
|
—
|
|
|
|
1,154
|
|
|
—
|
|
|
1,507
|
|
|
—
|
|
Other commercial real estate
|
|
2,593
|
|
|
9,400
|
|
|
12,863
|
|
|
164
|
|
|
|
12,822
|
|
|
914
|
|
|
14,240
|
|
|
171
|
|
Total commercial real estate
|
|
15,407
|
|
|
12,409
|
|
|
31,065
|
|
|
548
|
|
|
|
36,792
|
|
|
5,761
|
|
|
47,500
|
|
|
1,294
|
|
Total corporate loans
|
|
25,475
|
|
|
16,921
|
|
|
64,296
|
|
|
2,047
|
|
|
|
75,648
|
|
|
12,555
|
|
|
102,527
|
|
|
4,830
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total non-accrual loans
individually evaluated
|
|
$
|
25,475
|
|
|
$
|
16,921
|
|
|
$
|
64,296
|
|
|
$
|
2,047
|
|
|
|
$
|
75,648
|
|
|
$
|
12,555
|
|
|
$
|
102,527
|
|
|
$
|
4,830
|
|
Interest income recognized on non-accrual loans using the cash basis of accounting for the quarter and nine months ended September 30, 2021, was $291,000 and $864,000, respectively, and $1.0 million and $1.4 million for the same periods in 2020.
Credit Quality Indicators
Corporate loans and commitments are assessed for credit risk and assigned ratings based on various characteristics, such as the borrower's cash flow, leverage, and collateral. Ratings for commercial credits are reviewed at least annually or more often if events or circumstances arise that could impact the rating. The following tables present credit quality indicators for corporate and consumer loans on an amortized cost basis as of September 30, 2021 and net loan charge-offs for the nine months ended September 30, 2021. PPP loans are excluded from this table as there is no allowance for credit losses associated with these loans because they are fully guaranteed by the SBA. For a summary of credit quality indicators as of December 31, 2020, see Note 7, "Past Due Loans, Allowance for Credit Losses, Impaired Loans, and TDRs," in the Company's 2020 10-K.
Corporate Loan Portfolio by Origination Year
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021(1)
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
Prior
|
|
Revolving
Loans
|
|
Total
|
Commercial, industrial, agricultural:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
752,464
|
|
|
$
|
641,813
|
|
|
$
|
723,079
|
|
|
$
|
588,007
|
|
|
$
|
308,785
|
|
|
$
|
430,650
|
|
|
$
|
1,280,272
|
|
|
$
|
4,725,070
|
|
Special Mention(2)
|
|
2,370
|
|
|
894
|
|
|
26,523
|
|
|
37,174
|
|
|
20,750
|
|
|
32,822
|
|
|
36,094
|
|
|
156,627
|
|
Substandard(3)
|
|
252
|
|
|
2,039
|
|
|
21,011
|
|
|
64,985
|
|
|
22,195
|
|
|
19,296
|
|
|
21,844
|
|
|
151,622
|
|
Non-accrual(4)
|
|
—
|
|
|
1,046
|
|
|
1,587
|
|
|
2,432
|
|
|
2,141
|
|
|
13,128
|
|
|
964
|
|
|
21,298
|
|
Total commercial,
industrial,
agricultural
|
|
$
|
755,086
|
|
|
$
|
645,792
|
|
|
$
|
772,200
|
|
|
$
|
692,598
|
|
|
$
|
353,871
|
|
|
$
|
495,896
|
|
|
$
|
1,339,174
|
|
|
$
|
5,054,617
|
|
Commercial, industrial,
agricultural, net loan
charge-offs
|
|
$
|
—
|
|
|
$
|
835
|
|
|
$
|
4,738
|
|
|
$
|
4,745
|
|
|
$
|
9,770
|
|
|
$
|
(873)
|
|
|
$
|
2,586
|
|
|
$
|
21,801
|
|
Office, retail, and industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
139,452
|
|
|
$
|
138,270
|
|
|
$
|
205,148
|
|
|
$
|
157,894
|
|
|
$
|
238,194
|
|
|
$
|
727,319
|
|
|
$
|
14,479
|
|
|
$
|
1,620,756
|
|
Special Mention(2)
|
|
1,717
|
|
|
312
|
|
|
4,577
|
|
|
3,301
|
|
|
17,234
|
|
|
35,009
|
|
|
—
|
|
|
62,150
|
|
Substandard(3)
|
|
732
|
|
|
628
|
|
|
—
|
|
|
15,922
|
|
|
5,330
|
|
|
39,442
|
|
|
—
|
|
|
62,054
|
|
Non-accrual(4)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
324
|
|
|
20,308
|
|
|
—
|
|
|
20,632
|
|
Total office, retail,
and industrial
|
|
$
|
141,901
|
|
|
$
|
139,210
|
|
|
$
|
209,725
|
|
|
$
|
177,117
|
|
|
$
|
261,082
|
|
|
$
|
822,078
|
|
|
$
|
14,479
|
|
|
$
|
1,765,592
|
|
Office, retail, and
industrial net loan
charge-offs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
246
|
|
|
$
|
3,899
|
|
|
$
|
1,023
|
|
|
$
|
3,643
|
|
|
$
|
—
|
|
|
$
|
8,811
|
|
Multi-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
220,347
|
|
|
$
|
154,304
|
|
|
$
|
153,338
|
|
|
$
|
80,207
|
|
|
$
|
117,350
|
|
|
$
|
277,778
|
|
|
$
|
18,237
|
|
|
$
|
1,021,561
|
|
Special Mention(2)
|
|
—
|
|
|
—
|
|
|
5,775
|
|
|
4,385
|
|
|
—
|
|
|
31,356
|
|
|
—
|
|
|
41,516
|
|
Substandard(3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
378
|
|
|
70
|
|
|
15,966
|
|
|
—
|
|
|
16,414
|
|
Non-accrual(4)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
935
|
|
|
2,515
|
|
|
—
|
|
|
3,450
|
|
Total multi-family
|
|
$
|
220,347
|
|
|
$
|
154,304
|
|
|
$
|
159,113
|
|
|
$
|
84,970
|
|
|
$
|
118,355
|
|
|
$
|
327,615
|
|
|
$
|
18,237
|
|
|
$
|
1,082,941
|
|
Multi-family net loan
charge-offs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
(7)
|
|
|
$
|
—
|
|
|
$
|
(2)
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
62,941
|
|
|
$
|
135,694
|
|
|
$
|
89,579
|
|
|
$
|
133,832
|
|
|
$
|
62,946
|
|
|
$
|
73,511
|
|
|
$
|
24,970
|
|
|
$
|
583,473
|
|
Special Mention(2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
162
|
|
|
—
|
|
|
200
|
|
Substandard(3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,392
|
|
|
8,288
|
|
|
—
|
|
|
9,680
|
|
Non-accrual(4)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,154
|
|
|
697
|
|
|
—
|
|
|
1,851
|
|
Total construction
|
|
$
|
62,941
|
|
|
$
|
135,694
|
|
|
$
|
89,579
|
|
|
$
|
133,870
|
|
|
$
|
65,492
|
|
|
$
|
82,658
|
|
|
$
|
24,970
|
|
|
$
|
595,204
|
|
Construction net loan
charge-offs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,104
|
|
|
$
|
49
|
|
|
$
|
41
|
|
|
$
|
1,194
|
|
Other commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
180,456
|
|
|
$
|
167,456
|
|
|
$
|
157,047
|
|
|
$
|
206,984
|
|
|
$
|
138,750
|
|
|
$
|
335,895
|
|
|
$
|
23,160
|
|
|
$
|
1,209,748
|
|
Special Mention(2)
|
|
—
|
|
|
—
|
|
|
24,396
|
|
|
12,462
|
|
|
10,464
|
|
|
22,403
|
|
|
—
|
|
|
69,725
|
|
Substandard(3)
|
|
—
|
|
|
—
|
|
|
1,912
|
|
|
30,358
|
|
|
20,727
|
|
|
58,183
|
|
|
242
|
|
|
111,422
|
|
Non-accrual(4)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
205
|
|
|
1,056
|
|
|
16,658
|
|
|
141
|
|
|
18,060
|
|
Total other
commercial real
estate
|
|
$
|
180,456
|
|
|
$
|
167,456
|
|
|
$
|
183,355
|
|
|
$
|
250,009
|
|
|
$
|
170,997
|
|
|
$
|
433,139
|
|
|
$
|
23,543
|
|
|
$
|
1,408,955
|
|
Other commercial real
estate net loan charge-
offs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
245
|
|
|
$
|
11
|
|
|
$
|
1,403
|
|
|
$
|
—
|
|
|
$
|
1,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Represents year-to-date loans originated during 2021.
(2)Loans categorized as special mention exhibit potential weaknesses that require the close attention of management since these potential weaknesses may result in the deterioration of repayment prospects in the future.
(3)Loans categorized as substandard exhibit well-defined weaknesses that may jeopardize the liquidation of the debt. These loans continue to accrue interest because they are well-secured, and collection of principal and interest is expected within a reasonable time.
(4)Loans categorized as non-accrual exhibit well-defined weaknesses that may jeopardize the liquidation of the debt or result in a loss if the deficiencies are not corrected.
Consumer Loan Portfolio by Origination Year
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021(1)
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
Prior
|
|
Revolving
Loans
|
|
Total
|
Home equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
7,471
|
|
|
$
|
10,778
|
|
|
$
|
8,168
|
|
|
$
|
9,650
|
|
|
$
|
8,508
|
|
|
$
|
48,409
|
|
|
$
|
488,136
|
|
|
$
|
581,120
|
|
Non-accrual
|
|
—
|
|
|
—
|
|
|
62
|
|
|
453
|
|
|
223
|
|
|
7,049
|
|
|
2,219
|
|
|
10,006
|
|
Total home equity
|
|
$
|
7,471
|
|
|
$
|
10,778
|
|
|
$
|
8,230
|
|
|
$
|
10,103
|
|
|
$
|
8,731
|
|
|
$
|
55,458
|
|
|
$
|
490,355
|
|
|
$
|
591,126
|
|
Home equity net
loan charge-offs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
(42)
|
|
|
$
|
(347)
|
|
|
$
|
(26)
|
|
|
$
|
(388)
|
|
1-4 family mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
908,935
|
|
|
$
|
1,579,102
|
|
|
$
|
379,230
|
|
|
$
|
118,836
|
|
|
$
|
74,276
|
|
|
$
|
258,947
|
|
|
$
|
620
|
|
|
$
|
3,319,946
|
|
Non-accrual
|
|
—
|
|
|
982
|
|
|
380
|
|
|
627
|
|
|
636
|
|
|
10,161
|
|
|
—
|
|
|
12,786
|
|
Total 1-4 family
mortgages
|
|
$
|
908,935
|
|
|
$
|
1,580,084
|
|
|
$
|
379,610
|
|
|
$
|
119,463
|
|
|
$
|
74,912
|
|
|
$
|
269,108
|
|
|
$
|
620
|
|
|
$
|
3,332,732
|
|
1-4 family mortgages
net loan charge-offs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
247
|
|
|
$
|
—
|
|
|
$
|
249
|
|
Installment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
165,389
|
|
|
$
|
132,025
|
|
|
$
|
108,820
|
|
|
$
|
74,939
|
|
|
$
|
31,654
|
|
|
$
|
18,255
|
|
|
$
|
42,383
|
|
|
$
|
573,465
|
|
Non-accrual
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total installment
|
|
$
|
165,389
|
|
|
$
|
132,025
|
|
|
$
|
108,820
|
|
|
$
|
74,939
|
|
|
$
|
31,654
|
|
|
$
|
18,255
|
|
|
$
|
42,383
|
|
|
$
|
573,465
|
|
Installment net loan
charge-offs
|
|
$
|
247
|
|
|
$
|
1,323
|
|
|
$
|
2,590
|
|
|
$
|
1,439
|
|
|
$
|
97
|
|
|
$
|
(182)
|
|
|
$
|
36
|
|
|
$
|
5,550
|
|
(1)Represents year-to-date loans originated during 2021.
During the quarter and nine months ended September 30, 2021, $12.9 million and $34.0 million, respectively, and $5.2 million and $29.0 million, for the same periods in 2020, of revolving loans converted to term loans.
TDRs
TDRs are generally performed at the request of the individual borrower and may include forgiveness of principal, reduction in interest rates, changes in payments, and maturity date extensions. The table below presents TDRs by class as of September 30, 2021 and December 31, 2020. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for TDRs.
TDRs by Class
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
As of December 31, 2020
|
|
|
Accruing
|
|
Non-accrual(1)
|
|
Total
|
|
Accruing
|
|
Non-accrual(1)
|
|
Total
|
Commercial and industrial
|
|
$
|
—
|
|
|
$
|
6,255
|
|
|
$
|
6,255
|
|
|
$
|
—
|
|
|
$
|
8,859
|
|
|
$
|
8,859
|
|
Agricultural
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office, retail, and industrial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,340
|
|
|
2,340
|
|
Multi-family
|
|
—
|
|
|
151
|
|
|
151
|
|
|
—
|
|
|
160
|
|
|
160
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other commercial real estate
|
|
155
|
|
|
—
|
|
|
155
|
|
|
184
|
|
|
—
|
|
|
184
|
|
Total commercial real estate
|
|
155
|
|
|
151
|
|
|
306
|
|
|
184
|
|
|
2,500
|
|
|
2,684
|
|
Total corporate loans
|
|
155
|
|
|
6,406
|
|
|
6,561
|
|
|
184
|
|
|
11,359
|
|
|
11,543
|
|
Home equity
|
|
29
|
|
|
103
|
|
|
132
|
|
|
31
|
|
|
116
|
|
|
147
|
|
1-4 family mortgages
|
|
355
|
|
|
217
|
|
|
572
|
|
|
598
|
|
|
228
|
|
|
826
|
|
Installment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total consumer loans
|
|
384
|
|
|
320
|
|
|
704
|
|
|
629
|
|
|
344
|
|
|
973
|
|
Total loans
|
|
$
|
539
|
|
|
$
|
6,726
|
|
|
$
|
7,265
|
|
|
$
|
813
|
|
|
$
|
11,703
|
|
|
$
|
12,516
|
|
(1)These TDRs are included in non-accrual loans in the preceding tables.
In March of 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted by the U.S. government in response to the economic disruption caused by the pandemic. The Company's banking regulators issued the "Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus" that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the pandemic. Additionally, the CARES Act as amended by the 2021 Consolidated Appropriations Act, which was signed into law in December 2020, provides that a qualified loan modification is exempt from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of January 1, 2022 or the date that is 60 days after the date on which the national emergency concerning the pandemic declared by the President of the United States terminates. As of September 30, 2021, the Company has eligible modifications with outstanding balances totaling $40.6 million, which are not classified as TDRs.
TDRs are included in the calculation of the allowance for credit losses in the same manner as non-accrual loans. As of September 30, 2021 and December 31, 2020 there were $245,000 and $140,000 of specific allowances, respectively, related to TDRs.
There were no material restructurings during the quarters and nine months ended September 30, 2021 and 2020.
Accruing TDRs that do not perform in accordance with their modified terms are transferred to non-accrual. There were no material TDRs that defaulted within twelve months of the restructure date during the quarters and nine months ended September 30, 2021 and 2020.
A rollforward of the carrying value of TDRs for the quarters and nine months ended September 30, 2021 and 2020 is presented in the following table.
TDR Rollforward
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Accruing
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
782
|
|
|
$
|
1,201
|
|
|
$
|
813
|
|
|
$
|
1,233
|
|
Additions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net payments
|
|
(243)
|
|
|
(13)
|
|
|
(274)
|
|
|
(45)
|
|
|
|
|
|
|
|
|
|
|
Net transfers to non-accrual
|
|
—
|
|
|
(347)
|
|
|
—
|
|
|
(347)
|
|
Ending balance
|
|
539
|
|
|
841
|
|
|
539
|
|
|
841
|
|
Non-accrual
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
7,403
|
|
|
12,093
|
|
|
11,703
|
|
|
20,514
|
|
Additions
|
|
—
|
|
|
11,636
|
|
|
—
|
|
|
11,636
|
|
Net payments
|
|
(677)
|
|
|
(5,886)
|
|
|
(3,951)
|
|
|
(8,205)
|
|
Charge-offs
|
|
—
|
|
|
(2,353)
|
|
|
(1,026)
|
|
|
(8,455)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers from accruing
|
|
—
|
|
|
347
|
|
|
—
|
|
|
347
|
|
Ending balance
|
|
6,726
|
|
|
15,837
|
|
|
6,726
|
|
|
15,837
|
|
Total TDRs
|
|
$
|
7,265
|
|
|
$
|
16,678
|
|
|
$
|
7,265
|
|
|
$
|
16,678
|
|
There were no commitments to lend additional funds to borrowers with TDRs as of September 30, 2021 and December 31, 2020.
8. LEASE OBLIGATIONS
The significant accounting policies related to lease obligations are presented in Note 1, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in the Company's 2020 10-K.
The Company has the right to utilize certain premises under non-cancelable operating leases with varying maturity dates through the year ending December 31, 2059. As of September 30, 2021, the weighted-average remaining lease term on these leases was 9.2 years. Various leases contain renewal or termination options controlled by the Company or options to purchase the leased property during or at the expiration of the lease period at specific prices. Some leases contain escalation clauses calling for rentals to be adjusted for increased real estate taxes and other operating expenses or proportionately adjusted for increases in consumer or other price indices. Variable payments for real estate taxes and other operating expenses are considered to be non-lease components and are excluded from the determination of the lease liability. In addition, the Company leases or subleases certain real estate to third-parties. The following summary reflects the future minimum payments by year required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year and a reconciliation of those payments to the Company's lease liability as of September 30, 2021.
Lease Liability
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
As of
September 30, 2021
|
Year Ending December 31,
|
|
|
2021
|
|
$
|
5,670
|
|
2022
|
|
22,517
|
|
2023
|
|
22,624
|
|
2024
|
|
22,502
|
|
2025
|
|
21,317
|
|
2026 and thereafter
|
|
96,149
|
|
Total minimum lease payments
|
|
190,779
|
|
Discount(1)
|
|
(23,349)
|
|
Lease liability(2)
|
|
$
|
167,430
|
|
(1)Represents the net present value adjustment related to minimum lease payments.
(2)Included in accrued interest payable and other liabilities in the Consolidated Statements of Financial Condition.
The discount rate for the Company's operating leases is the rate implicit in the lease and, if that rate cannot be readily determined, the Company's incremental borrowing rate. The weighted-average discount rate on the Company's operating leases was 2.71% as of September 30, 2021.
As of September 30, 2021, right-of-use assets of $140.2 million associated with lease liabilities were included in accrued interest receivable and other assets in the Consolidated Statements of Financial Condition.
During 2020, the Company initiated certain actions that include optimizing its retail branch network and delivery model through the consolidation of 17 branches, or approximately 15% of its branch network, which were completed in the first quarter of 2021. These actions resulted in pre-tax costs of $19.9 million, including $9.1 million of right-of-use asset impairment charges and $8.9 million of impairment charges on branch locations, furniture, and equipment associated with valuation adjustments related to locations identified for closure, among other items, and were recorded within optimization costs within noninterest expense during the third and fourth quarters of 2020.
The following table presents net operating lease expense for the quarters and nine months ended September 30, 2021 and 2020.
Net Operating Lease Expense
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Lease expense charged to operations
|
|
$
|
4,558
|
|
|
$
|
4,739
|
|
|
$
|
13,610
|
|
|
$
|
14,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income from premises leased to others (1)
|
|
(71)
|
|
|
(158)
|
|
|
(293)
|
|
|
(556)
|
|
Net operating lease expense
|
|
$
|
4,487
|
|
|
$
|
4,581
|
|
|
$
|
13,317
|
|
|
$
|
13,697
|
|
(1)Included as reductions to net occupancy and equipment expense in the Condensed Consolidated Statements of Income.
9. BORROWED FUNDS
The following table summarizes the Company's borrowed funds by funding source.
Summary of Borrowed Funds
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30,
2021
|
|
December 31,
2020
|
Securities sold under agreements to repurchase
|
|
$
|
124,044
|
|
|
$
|
141,886
|
|
|
|
|
|
|
FHLB advances
|
|
1,150,528
|
|
|
1,404,528
|
|
|
|
|
|
|
Total borrowed funds
|
|
$
|
1,274,572
|
|
|
$
|
1,546,414
|
|
Securities sold under agreements to repurchase generally mature within 1 to 90 days from the transaction date, are treated as financings, and are included as a liability in the Consolidated Statements of Financial Condition. Repurchase agreements are secured by U.S. treasury and agency securities which are held in third-party pledge accounts, if required. The securities underlying the agreements remain in the respective asset accounts. As of September 30, 2021, the Company did not have amounts at risk under repurchase agreements with any individual counterparty or group of counterparties that exceeded 10% of stockholders' equity.
The Bank is a member of the FHLB and has access to term financing from the FHLB. These advances are secured by designated assets that may include qualifying commercial real estate, residential and multi-family mortgages, home equity loans, and certain municipal and mortgage-backed securities. As of September 30, 2021, FHLB advances, including certain putable advances, had fixed interest rates that range from 0.00% to 1.97% and maturity dates that range from June 12, 2024 to March 4, 2030.
The Company hedges interest rates on borrowed funds using interest rate swaps through which the Company receives variable amounts and pays fixed amounts. See Note 12 "Derivative Instruments and Hedging Activities" for a detailed discussion of interest rate swaps.
The following table presents short-term credit lines available for use, for which the Company did not have an outstanding balance as of September 30, 2021 and December 31, 2020.
Short-Term Credit Lines Available for Use
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30,
2021
|
|
December 31,
2020
|
FRB's Discount Window Primary Credit Program
|
|
$
|
857,758
|
|
|
$
|
864,867
|
|
Available federal funds lines
|
|
982,000
|
|
|
844,000
|
|
Correspondent bank line of credit
|
|
—
|
|
|
50,000
|
|
On September 27, 2016, the Company entered into a loan agreement with U.S. Bank National Association providing for a $50.0 million short-term, unsecured revolving credit facility. On September 26, 2020, the Company entered into a fourth amendment to this credit facility, which extended the maturity to September 26, 2021, at which time the facility was not renewed.
A discussion of terms relevant to senior and subordinated debt is presented in Note 13, "Senior and Subordinated Debt" to the Consolidated Financial Statements in the Company's 2020 10-K.
10. MATERIAL TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY
Issuance of Common Stock
On March 9, 2020, the Company issued 4.9 million shares of its common stock with a market value of $14.58 per share at issuance as part of the consideration in the Park Bank acquisition. Additional information regarding the Park Bank acquisition is presented in Note 3, "Acquisitions."
Issuance of Preferred Stock
During the second quarter of 2020, the Company issued 4.3 million depositary shares, each representing a 1/40th interest in a share of the Company's 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, and 4.9 million depositary shares, each representing a 1/40th interest in a share of the Company's 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C, for an aggregate of $230.5 million. The Company received proceeds of $221.2 million, net of underwriting discounts and commissions and issuance costs and expects to use the proceeds for general corporate purposes.
Stock Repurchases
On February 26, 2020, the Company announced a stock repurchase program authorizing the discretionary repurchase of up to $200 million of its outstanding common stock through December 31, 2021. This program replaced the Company's prior $180 million stock repurchase program, which expired in March 2020. The Company repurchased 715,000 shares of its common stock at a total cost of $14.9 million during the nine months ended September 30, 2021. The Company did not repurchase any shares of its common stock during the third quarter of 2021.
11. EARNINGS PER COMMON SHARE
The table below displays the calculation of basic and diluted earnings per common share ("EPS").
Basic and Diluted EPS
(Amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net income
|
|
$
|
54,863
|
|
|
$
|
27,623
|
|
|
$
|
151,007
|
|
|
$
|
66,293
|
|
Preferred dividends
|
|
(4,033)
|
|
|
(4,033)
|
|
|
(12,101)
|
|
|
(5,070)
|
|
Net income applicable to unvested restricted shares
|
|
(517)
|
|
|
(236)
|
|
|
(1,524)
|
|
|
(615)
|
|
Net income applicable to common shares
|
|
$
|
50,313
|
|
|
$
|
23,354
|
|
|
$
|
137,382
|
|
|
$
|
60,608
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding (basic)
|
|
112,898
|
|
|
113,160
|
|
|
112,953
|
|
|
112,079
|
|
Dilutive effect of common stock equivalents
|
|
878
|
|
|
276
|
|
|
789
|
|
|
322
|
|
Weighted-average diluted common shares outstanding
|
|
113,776
|
|
|
113,436
|
|
|
113,742
|
|
|
112,401
|
|
Basic EPS
|
|
$
|
0.45
|
|
|
$
|
0.21
|
|
|
$
|
1.22
|
|
|
$
|
0.54
|
|
Diluted EPS
|
|
$
|
0.44
|
|
|
$
|
0.21
|
|
|
$
|
1.21
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the ordinary course of business, the Company enters into derivative transactions as part of its overall interest rate risk management strategy. The significant accounting policies related to derivative instruments and hedging activities are presented in Note 1, "Summary of Significant Accounting Policies."
Cash Flow Hedges
As of September 30, 2021, the Company hedged $430.0 million of certain corporate variable rate loans using interest rate swaps through which the Company receives fixed amounts and pays variable amounts. The Company also hedged $25.0 million of borrowed funds using interest rate swaps through which the Company receives variable amounts and pays fixed amounts. These transactions allow the Company to add stability to net interest income and manage its exposure to interest rate movements.
The forward starting interest rate swaps totaling $25.0 million begin in January of 2023 and mature in January of 2026. The weighted-average fixed interest rate to be paid on these interest rate swaps that have not yet begun was 0.60% as of September 30, 2021. These derivative contracts are designated as cash flow hedges.
Cash Flow Hedges
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Gross notional amount outstanding
|
|
$
|
455,000
|
|
|
$
|
455,000
|
|
Derivative asset fair value in other assets(1)
|
|
460
|
|
|
3,707
|
|
Derivative liability fair value in other liabilities(1)
|
|
—
|
|
|
(1)
|
|
Weighted-average interest rate received
|
|
2.18
|
%
|
|
2.18
|
%
|
Weighted-average interest rate paid
|
|
0.08
|
%
|
|
0.15
|
%
|
Weighted-average maturity (in years)
|
|
0.75
|
|
1.50
|
|
|
|
|
|
(1)Certain cash flow hedges are transacted through a clearinghouse ("centrally cleared") and their change in fair value is settled by the counterparties to the transaction, which results in no fair value.
Changes in the fair value of cash flow hedges are recorded in accumulated other comprehensive income (loss) on an after-tax basis and are subsequently reclassified to interest income or expense in the period that the forecasted hedged item impacts earnings. As of September 30, 2021, the Company estimates that $5.8 million will be reclassified from accumulated other comprehensive income (loss) as an increase to interest income over the next twelve months.
Other Derivative Instruments
The Company also enters into derivative transactions through capital market products with its commercial customers and simultaneously enters into an offsetting interest rate derivative transaction with third-parties. This transaction allows the Company's customers to effectively convert a variable rate loan into a fixed rate loan. Due to the offsetting nature of these transactions, the Company does not apply hedge accounting treatment. The Company's credit exposure on these derivative transactions results primarily from counterparty credit risk. The credit valuation adjustment ("CVA") is a fair value adjustment to the derivative to account for this risk. As of September 30, 2021 and December 31, 2020, the Company's credit exposure was fully secured by the underlying collateral on customer loans and mitigated through netting arrangements with third-parties; therefore, no CVA was recorded. Capital market products income related to commercial customer derivative instruments totaled $1.3 million and $5.4 million for the quarter and nine months ended September 30, 2021, and were $886,000 and $6.3 million for the quarter and nine months ended September 30, 2020.
Other Derivative Instruments
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Gross notional amount outstanding
|
|
$
|
4,564,808
|
|
|
$
|
4,491,398
|
|
Derivative asset fair value in other assets(1)
|
|
90,710
|
|
|
149,997
|
|
Derivative liability fair value in other liabilities(1)
|
|
(30,729)
|
|
|
(44,580)
|
|
Fair value of derivative(2)
|
|
32,262
|
|
|
46,018
|
|
(1)Certain other derivative instruments are centrally cleared and their change in fair value is settled by the counterparties to the transaction, which results in no fair value.
(2)This amount represents the fair value if credit risk related contingent features were triggered.
The Company occasionally enters into risk participation agreements with counterparty banks to transfer or assume a portion of the credit risk related to customer transactions. The amounts of these instruments were not material for any periods presented. The Company had no other derivative instruments as of September 30, 2021 and December 31, 2020. The Company does not enter into derivative transactions for purely speculative purposes.
The following table presents the impact of derivative instruments on comprehensive income (loss) and the reclassification of gains (losses) from accumulated other comprehensive income (loss) to net interest income for the quarters and nine months ended September 30, 2021 and 2020.
Cash Flow Hedge Accounting on AOCI
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
(Losses) gains recognized in other comprehensive income
|
|
|
|
|
|
|
|
|
Interest rate swaps in interest income
|
|
$
|
(119)
|
|
|
$
|
96
|
|
|
$
|
235
|
|
|
$
|
28,051
|
|
Interest rate swaps in interest expense
|
|
(28)
|
|
|
(239)
|
|
|
(730)
|
|
|
(13,924)
|
|
Reclassification of gains (losses) included in net income
|
|
|
|
|
|
|
|
|
Interest rate swaps in interest income
|
|
$
|
2,238
|
|
|
$
|
2,165
|
|
|
$
|
6,668
|
|
|
$
|
5,234
|
|
Interest rate swaps in interest expense
|
|
—
|
|
|
(16,350)
|
|
|
—
|
|
|
(16,350)
|
|
The following table presents the impact of derivative instruments on net interest income for the quarters and nine months ended September 30, 2021 and 2020.
Hedge Income
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
Interest rate swaps in interest income
|
|
$
|
2,238
|
|
|
$
|
2,165
|
|
|
$
|
6,668
|
|
|
$
|
5,234
|
|
Interest rate swaps in interest expense
|
|
—
|
|
|
(16,350)
|
|
|
—
|
|
|
(16,350)
|
|
Total cash flow hedges
|
|
$
|
2,238
|
|
|
$
|
(14,185)
|
|
|
$
|
6,668
|
|
|
$
|
(11,116)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Risk
Derivative instruments are inherently subject to credit risk, which represents the Company's risk of loss when the counterparty to a derivative contract fails to perform according to the terms of the agreement. Credit risk is managed by limiting and collateralizing the aggregate amount of net unrealized losses by transaction, monitoring the size and the maturity structure of the derivatives, and applying uniform credit standards. Company policy establishes limits on credit exposure to any single counterparty. In addition, the Company established bilateral collateral agreements with derivative counterparties that provide for exchanges of marketable securities or cash to collateralize either party's net losses above a stated minimum threshold. As of September 30, 2021 and December 31, 2020, these collateral agreements covered 100% of the fair value of the Company's outstanding derivatives. Derivative assets and liabilities are presented gross, rather than net, of pledged collateral amounts.
Certain derivative instruments are subject to master netting agreements with counterparties. The Company records these transactions at their gross fair values and does not offset derivative assets and liabilities in the Consolidated Statements of Financial Condition. The following table presents the fair value of the Company's derivatives and offsetting positions as of September 30, 2021 and December 31, 2020.
Fair Value of Offsetting Derivatives
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
As of December 31, 2020
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Gross amounts recognized
|
|
$
|
91,170
|
|
|
$
|
30,729
|
|
|
$
|
153,704
|
|
|
$
|
44,581
|
|
Less: amounts offset in the Consolidated Statements of
Financial Condition
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net amount presented in the Consolidated Statements of
Financial Condition(1)
|
|
91,170
|
|
|
30,729
|
|
|
153,704
|
|
|
44,581
|
|
Gross amounts not offset in the Consolidated Statements of
Financial Condition:
|
|
|
|
|
|
|
|
|
Offsetting derivative positions
|
|
(2,285)
|
|
|
(2,285)
|
|
|
(5,239)
|
|
|
(5,239)
|
|
Cash collateral pledged
|
|
—
|
|
|
(26,470)
|
|
|
—
|
|
|
(39,970)
|
|
Net credit exposure
|
|
$
|
88,885
|
|
|
$
|
1,974
|
|
|
$
|
148,465
|
|
|
$
|
(628)
|
|
(1)Included in other assets or other liabilities in the Consolidated Statements of Financial Condition.
As of September 30, 2021 and December 31, 2020, the Company's derivative instruments generally contained provisions that require the Company's debt to remain above a certain credit rating by each of the major credit rating agencies or that the Company maintain certain capital levels. If the Company's debt were to fall below that credit rating or the Company's capital were to fall below the required levels, it would be in violation of those provisions, and the counterparties to the derivative instruments could terminate the swap transaction and demand cash settlement of the derivative instrument in an amount equal to the derivative liability fair value. As of September 30, 2021 and December 31, 2020 the Company was in compliance with these provisions.
13. COMMITMENTS, GUARANTEES, AND CONTINGENT LIABILITIES
Credit Commitments and Guarantees
In the normal course of business, the Company enters into a variety of financial instruments with off-balance sheet risk to meet the financing needs of its customers and to conduct lending activities, including commitments to extend credit as well as standby and commercial letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition.
Contractual or Notional Amounts of Financial Instruments
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Commitments to extend credit:
|
|
|
|
|
Commercial, industrial, and agricultural
|
|
$
|
2,313,362
|
|
|
$
|
2,318,346
|
|
Commercial real estate
|
|
515,624
|
|
|
378,282
|
|
Home equity
|
|
608,440
|
|
|
611,640
|
|
Other commitments(1)
|
|
273,734
|
|
|
264,869
|
|
Total commitments to extend credit
|
|
$
|
3,711,160
|
|
|
$
|
3,573,137
|
|
|
|
|
|
|
Letters of credit
|
|
$
|
114,797
|
|
|
$
|
115,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Other commitments includes installment and overdraft protection program commitments.
Commitments to extend credit are agreements to lend funds to a customer, subject to contractual terms and covenants. Commitments generally have fixed expiration dates or other termination clauses, variable interest rates, and fee requirements, when applicable. Since many of the commitments are expected to expire without being drawn, the total commitment amounts do not necessarily represent future cash flow requirements.
In the event of a customer's non-performance, the Company's credit loss exposure is equal to the contractual amount of the commitments. The credit risk is essentially the same as extending loans to customers for the full contractual amount. The Company uses the same credit policies for credit commitments as its loans and minimizes exposure to credit loss through various collateral requirements.
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Letters of credit generally are contingent on the failure of the customer to perform according to the terms of the contract with the third-party and are often issued in favor of a municipality where construction is taking place to ensure the customer adequately completes the construction. Commercial letters of credit are issued to facilitate transactions between a customer and a third-party based on agreed upon terms.
The maximum potential future payments guaranteed by the Company under letters of credit arrangements are equal to the contractual amount of the commitment. If a commitment is funded, the Company may seek recourse through the liquidation of the underlying collateral, including real estate, production plants and property, marketable securities, or receipt of cash.
As a result of the sale of certain 1-4 family mortgage loans, the Company is contractually obligated to repurchase early payment default loans or loans that do not meet underwriting requirements at recorded value. In accordance with the sales agreements, there is no limitation to the maximum potential future payments or expiration of the Company's recourse obligation. There were no material loan repurchases during the quarters and nine months ended September 30, 2021 and 2020.
Legal Proceedings
At September 30, 2021, there were certain legal proceedings pending against the Company and its subsidiaries in the ordinary course of business. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company's management does not expect that any potential liabilities arising from pending legal matters will have a material adverse effect on the Company's business, financial position, or results of operations.
14. FAIR VALUE
Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, the Company measures, records, and reports various types of assets and liabilities at fair value on either a recurring or non-recurring basis in the Consolidated Statements of Financial Condition. Those assets and liabilities are presented below in the sections titled "Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis" and "Assets and Liabilities Required to be Measured at Fair Value on a Non-Recurring Basis."
Other assets and liabilities are not required to be measured at fair value in the Consolidated Statements of Financial Condition, but must be disclosed at fair value. See the "Fair Value Measurements of Other Financial Instruments" section of this note. Any aggregation of the estimated fair values presented in this note does not represent the value of the Company.
Depending on the nature of the asset or liability, the Company uses various valuation methodologies and assumptions to estimate fair value. GAAP provides a three-tiered fair value hierarchy based on the inputs used to measure fair value. The hierarchy is defined as follows:
•Level 1 – Quoted prices in active markets for identical assets or liabilities.
•Level 2 – Observable inputs other than level 1 prices, such as quoted prices for similar instruments, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
•Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs require significant management judgment or estimation, some of which use model-based techniques and may be internally developed.
Assets and liabilities are assigned to a level within the fair value hierarchy based on the lowest level of significant input used to measure fair value. Assets and liabilities may change levels within the fair value hierarchy due to market conditions or other circumstances. Those transfers are recognized on the date of the event that prompted the transfer. There were no transfers of assets or liabilities required to be measured at fair value on a recurring basis between levels of the fair value hierarchy during the periods presented.
Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis
The following table provides the fair value for assets and liabilities required to be measured at fair value on a recurring basis in the Consolidated Statements of Financial Condition by level in the fair value hierarchy.
Recurring Fair Value Measurements
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
As of December 31, 2020
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
87,232
|
|
|
$
|
22,616
|
|
|
$
|
—
|
|
|
$
|
52,888
|
|
|
$
|
18,516
|
|
|
$
|
—
|
|
Securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,051
|
|
|
—
|
|
|
—
|
|
U.S. agency securities
|
|
—
|
|
|
656,112
|
|
|
—
|
|
|
—
|
|
|
652,474
|
|
|
—
|
|
CMOs
|
|
—
|
|
|
1,295,544
|
|
|
—
|
|
|
—
|
|
|
1,438,518
|
|
|
—
|
|
MBSs
|
|
—
|
|
|
856,096
|
|
|
—
|
|
|
—
|
|
|
580,840
|
|
|
—
|
|
Municipal securities
|
|
—
|
|
|
224,618
|
|
|
—
|
|
|
—
|
|
|
236,015
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
—
|
|
|
180,538
|
|
|
—
|
|
|
—
|
|
|
176,510
|
|
|
—
|
|
Total securities available-for-sale
|
|
—
|
|
|
3,212,908
|
|
|
—
|
|
|
12,051
|
|
|
3,084,357
|
|
|
—
|
|
Mortgage servicing rights ("MSRs")(1)
|
|
—
|
|
|
—
|
|
|
6,306
|
|
|
—
|
|
|
—
|
|
|
4,899
|
|
Derivative assets(1)
|
|
—
|
|
|
91,170
|
|
|
—
|
|
|
—
|
|
|
153,704
|
|
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities(2)
|
|
$
|
—
|
|
|
$
|
30,729
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
44,581
|
|
|
$
|
—
|
|
(1)Included in other assets in the Consolidated Statements of Financial Condition.
(2)Included in other liabilities in the Consolidated Statements of Financial Condition.
The following sections describe the specific valuation techniques and inputs used to measure financial assets and liabilities at fair value.
Equity Securities
The Company's equity securities consist primarily of community development investments and certain diversified securities held in a grantor trust for participants in the Company's nonqualified deferred compensation plan that are invested in money market and mutual funds, and various preferred equity investments. The fair value of certain community development investments is based on quoted prices in active markets or market prices for similar securities obtained from external pricing services or dealer market participants and is classified in level 2 of the fair value hierarchy. As of September 30, 2021, the fair value of certain community development investments totaling $5.0 million was based on the net asset value per share ("NAV") practical expedient and can be redeemed at any month end with 30 days notice. Because these investments are measured at fair value using the NAV practical expedient, they are not classified in the fair value hierarchy. The fair value of the money market, mutual funds, and preferred equity investments is based on quoted market prices in active exchange markets and is classified in level 1 of the fair value hierarchy.
Securities Available-for-Sale
The Company's securities available-for-sale are primarily fixed income instruments that are not quoted on an exchange but may be traded in active markets. The fair values for these securities are based on quoted prices in active markets or market prices for similar securities obtained from external pricing services or dealer market participants and are classified in level 2 of the fair value hierarchy. The fair value of U.S. treasury securities is based on quoted market prices in active exchange markets and is classified in level 1 of the fair value hierarchy. Quarterly, the Company evaluates the methodologies used by its external pricing services to estimate the fair value of these securities in order to determine whether the valuations represent an exit price in the Company's principal markets.
MSRs
The Company services loans for others totaling $808.6 million and $766.1 million as of September 30, 2021 and December 31, 2020, respectively. These loans are owned by third-parties and are not included in the Consolidated Statements of Financial Condition. The Company determines the fair value of MSRs by estimating the present value of expected future cash flows associated with the mortgage loans being serviced and classifies them in level 3 of the fair value hierarchy. The following table presents the ranges of significant, unobservable inputs used by the Company to determine the fair value of MSRs as of September 30, 2021 and December 31, 2020.
Significant Unobservable Inputs Used in the Valuation of MSRs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Prepayment speed
|
|
2.4
|
%
|
-
|
15.4%
|
|
5.3
|
%
|
-
|
16.3%
|
Maturity (months)
|
|
14
|
-
|
82
|
|
13
|
-
|
71
|
Discount rate
|
|
9.5
|
%
|
-
|
15.0%
|
|
9.5
|
%
|
-
|
12.0%
|
The impact of changes in these key inputs could result in a significantly higher or lower fair value measurement for MSRs. Significant increases in expected prepayment speeds and discount rates have negative impacts on the valuation. Higher maturity assumptions have a favorable effect on the estimated fair value.
A rollforward of the carrying value of MSRs for the quarters and nine months ended September 30, 2021 and 2020 is presented in the following table.
Carrying Value of MSRs
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Beginning balance
|
|
$
|
6,269
|
|
|
$
|
4,464
|
|
|
$
|
4,899
|
|
|
$
|
5,858
|
|
|
|
|
|
|
|
|
|
|
New MSRs
|
|
267
|
|
|
727
|
|
|
1,834
|
|
|
1,628
|
|
Total gains (losses) included in earnings(1):
|
|
|
|
|
|
|
|
|
Changes in valuation inputs and assumptions
|
|
137
|
|
|
(432)
|
|
|
603
|
|
|
(2,090)
|
|
Other changes in fair value(2)
|
|
(367)
|
|
|
(301)
|
|
|
(1,030)
|
|
|
(938)
|
|
Ending balance(3)
|
|
$
|
6,306
|
|
|
$
|
4,458
|
|
|
$
|
6,306
|
|
|
$
|
4,458
|
|
Contractual servicing fees earned(1)
|
|
$
|
512
|
|
|
$
|
424
|
|
|
$
|
1,472
|
|
|
$
|
1,221
|
|
(1)Included in mortgage banking income in the Condensed Consolidated Statements of Income and related to assets held as of September 30, 2021 and 2020.
(2)Primarily represents changes in expected future cash flows due to payoffs and paydowns.
(3)Included in other assets in the Consolidated Statements of Financial Condition.
Derivative Assets and Derivative Liabilities
The Company enters into interest rate swaps and derivative transactions with commercial customers. These derivative transactions are executed in the dealer market, and pricing is based on market quotes obtained from the counterparties. The market quotes were developed using market observable inputs, which primarily include LIBOR. Therefore, derivatives are classified in level 2 of the fair value hierarchy. For its derivative assets and liabilities, the Company also considers non-performance risk, including the likelihood of default by itself and its counterparties, when evaluating whether the market quotes from the counterparty are representative of an exit price.
Assets and Liabilities Required to be Measured at Fair Value on a Non-Recurring Basis
The following table provides the fair value for each class of assets and liabilities required to be measured at fair value on a non-recurring basis in the Consolidated Statements of Financial Condition by level in the fair value hierarchy.
Non-Recurring Fair Value Measurements
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
As of December 31, 2020
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Collateral-dependent non-accrual loans(1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,198
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,246
|
|
OREO(2)
|
|
—
|
|
|
—
|
|
|
2,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loans held-for-sale(3)
|
|
—
|
|
|
—
|
|
|
15,725
|
|
|
—
|
|
|
—
|
|
|
44,965
|
|
Assets held-for-sale(4)
|
|
—
|
|
|
—
|
|
|
3,438
|
|
|
—
|
|
|
—
|
|
|
3,722
|
|
(1)Includes non-accrual loans with charge-offs and non-accrual loans with a specific allowance during the periods presented.
(2)Includes OREO with fair value adjustments subsequent to initial transfer that occurred during the periods presented.
(3)Included in other assets in the Consolidated Statements of Financial Condition.
(4)Included in premises, furniture, and equipment in the Consolidated Statements of Financial Condition.
Collateral-Dependent Non-accrual Loans
Certain collateral-dependent non-accrual loans are subject to fair value adjustments to reflect the difference between the carrying value of the loan and the fair value of the underlying collateral. The fair values of collateral-dependent non-accrual loans are primarily determined by current appraised values of the underlying collateral. Based on the age and/or type of collateral, appraisals may be adjusted in the range of 0% to 15%. In certain cases, an internal valuation may be used when the underlying collateral is located in areas where comparable sales data is limited or unavailable. Accordingly, collateral-dependent non-accrual loans are classified in level 3 of the fair value hierarchy.
Collateral-dependent non-accrual loans for which the fair value is greater than the recorded investment are not measured at fair value in the Consolidated Statements of Financial Condition and are not included in this disclosure.
OREO
The fair value of OREO is measured using the current appraised value of the properties. In certain circumstances, a current appraisal may not be available or may not represent an accurate measurement of the property's fair value due to outdated market information or other factors. In these cases, the fair value is determined based on the lower of the (i) most recent appraised value, (ii) broker price opinion, (iii) current listing price, or (iv) signed sales contract, all less estimated costs to sell. Given these valuation methods, OREO is classified in level 3 of the fair value hierarchy.
Loans Held-for-Sale
As of September 30, 2021 and December 31, 2020, loans held-for-sale consists of 1-4 family mortgage loans, which were originated with the intent to sell. These loans were recorded in the held-for-sale category at the contract price and, accordingly, are classified in level 3 of the fair value hierarchy.
Assets Held-for-Sale
Assets held-for-sale as of September 30, 2021 and December 31, 2020 consists of former branches that are no longer in operation and parcels of land previously purchased for expansion. These properties are being actively marketed and were transferred into the held-for-sale category at their fair value as determined by current appraisals. Based on these valuation methods, they are classified in level 3 of the fair value hierarchy.
Financial Instruments Not Required to be Measured at Fair Value
For certain financial instruments that are not required to be measured at fair value in the Consolidated Statements of Financial Condition, the Company must disclose the estimated fair values and the level within the fair value hierarchy as shown in the following table.
Fair Value Measurements of Other Financial Instruments
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
Fair Value Hierarchy
Level
|
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
1
|
|
$
|
270,020
|
|
|
$
|
270,020
|
|
|
$
|
196,364
|
|
|
$
|
196,364
|
|
Interest-bearing deposits in other banks
|
|
2
|
|
1,654,917
|
|
|
1,654,917
|
|
|
920,880
|
|
|
920,880
|
|
Securities held-to-maturity
|
|
2
|
|
10,853
|
|
|
10,461
|
|
|
12,071
|
|
|
11,686
|
|
FHLB and FRB stock
|
|
2
|
|
106,090
|
|
|
106,090
|
|
|
117,420
|
|
|
117,420
|
|
Loans
|
|
3
|
|
14,582,491
|
|
|
14,425,048
|
|
|
14,512,215
|
|
|
14,614,029
|
|
Investment in BOLI
|
|
3
|
|
300,387
|
|
|
300,387
|
|
|
301,101
|
|
|
301,101
|
|
Accrued interest receivable
|
|
3
|
|
62,018
|
|
|
62,018
|
|
|
68,390
|
|
|
68,390
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
2
|
|
$
|
17,198,402
|
|
|
$
|
17,199,593
|
|
|
$
|
16,012,464
|
|
|
$
|
16,007,133
|
|
Borrowed funds
|
|
2
|
|
1,274,572
|
|
|
1,274,572
|
|
|
1,546,414
|
|
|
1,546,414
|
|
Senior and subordinated debt
|
|
2
|
|
235,383
|
|
|
283,439
|
|
|
234,768
|
|
|
281,843
|
|
Accrued interest payable
|
|
2
|
|
2,915
|
|
|
2,915
|
|
|
4,826
|
|
|
4,826
|
|
Management uses various methodologies and assumptions to determine the estimated fair values of the financial instruments in the table above. The fair value estimates are made at a discrete point in time based on relevant market information and consider management's judgments regarding future expected economic conditions, loss experience, and specific risk characteristics of the financial instruments. Loans include net loans, which consists of loans held-for-investment, acquired loans, and the allowance for loan losses. As of both September 30, 2021 and December 31, 2020, the Company estimated the fair value of lending commitments outstanding to be immaterial.