NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Sandy Spring Bancorp, Inc. ("Bancorp" or, together with its subsidiaries, the "Company"), a Maryland corporation, is the bank holding company for Sandy Spring Bank (the “Bank”). Independent and community-oriented, the Bank offers a broad range of commercial banking, retail banking, mortgage services and trust services throughout central Maryland, Northern Virginia, and the greater Washington, D.C. market. The Bank also offers a comprehensive menu of wealth management services through its subsidiaries, West Financial Services, Inc. (“West Financial”) and Rembert Pendleton Jackson (“RPJ”).
Basis of Presentation
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”), prevailing practices within the financial services industry for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, the interim financial statements do not include all of the information and notes required for complete financial statements. The following summary of significant accounting policies of the Company is presented to assist the reader in understanding the financial and other data presented in this report. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for any future periods or for the year ending December 31, 2023. In the opinion of management, all adjustments necessary for a fair presentation of the results of the interim periods have been included. The Company has evaluated subsequent events through the date of the issuance of its financial statements.
These statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s 2022 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on February 18, 2022. There have been no significant changes to any of the Company’s accounting policies as disclosed in the 2022 Annual Report on Form 10-K.
Principles of Consolidation
The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiary, Sandy Spring Bank, and its subsidiaries, West Financial and RPJ and former results of Sandy Spring Insurance Corporation. Consolidation has resulted in the elimination of all intercompany accounts and transactions.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, in addition to affecting the reported amounts of revenues earned and expenses incurred during the reporting period. Actual results could differ from those estimates. Estimates that could change significantly relate to the provision for credit losses and the related allowance, potential impairment of goodwill or other intangible assets, valuation of investment securities and the determination of whether available-for-sale debt securities with fair values less than amortized costs are impaired and require an allowance for credit losses, valuation of other real estate owned, valuation of share based compensation, the assessment that a liability should be recognized with respect to any matters under litigation, the calculation of current and deferred income taxes, and the actuarial projections related to pension expense and the related liability.
Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, federal funds sold and interest-bearing deposits with banks (items with stated original maturity of three months or less).
Revenue from Contracts with Customers
The Company’s revenue includes net interest income on financial instruments and non-interest income. Specific categories of revenue are presented in the Condensed Consolidated Statements of Income. Most of the Company’s revenue is not within the scope of Accounting Standard Codification (“ASC”) 606 – Revenue from Contracts with Customers. For revenue within the scope of ASC 606, the Company provides services to customers and has related performance obligations. The revenue from such services is recognized upon satisfaction of all contractual performance obligations. The following discusses key revenue streams within the scope of this revenue recognition guidance.
West Financial and RPJ provide comprehensive investment management and financial planning services. Wealth management income is comprised of income for providing trust, estate and investment management services. Trust services include acting as a trustee for corporate or personal trusts. Investment management services include investment management, record-keeping and
reporting of security portfolios. Fees for these services are recognized based on a contractually-agreed fixed percentage applied to net assets under management at the end of each reporting period. The Company does not charge/recognize any performance-based fees.
Prior to the sale of its assets in June 2022, Sandy Spring Insurance Corporation performed the function of an insurance intermediary by introducing the policyholder and insurer and was compensated by a commission fee for placement of an insurance policy. Sandy Spring Insurance did not provide any captive management services or any claim handling services. Commission fees were set as a percentage of the premium for the insurance policy for which Sandy Spring Insurance was a producer. Sandy Spring Insurance recognized revenue when the insurance policy was contractually agreed to by the insurer and policyholder (at transaction date).
Service charges on deposit accounts are earned on depository accounts for consumer and commercial account holders and include fees for account and overdraft services. Account services include fees for event-driven services and periodic account maintenance activities. An obligation for event-driven services is satisfied at the time of the event when service is delivered and revenue recognized as earned. Obligation for maintenance activities is satisfied over the course of each month and revenue is recognized at month end. The overdraft services obligation is satisfied at the time of the overdraft and revenue is recognized as earned.
Loan Financing Receivables
The Company’s financing receivables consist primarily of loans that are stated at their principal balance outstanding, net of any unearned income, acquisition fair value marks and deferred loan origination fees and costs. Interest income on loans is accrued at the contractual rate based on the principal balance outstanding. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.
Loans are considered past due or delinquent when the principal or interest due in accordance with the contractual terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment. Immaterial shortfalls in payment amounts do not necessarily result in a loan being considered delinquent or past due. If any payments are past due and subsequent payments are resumed without payment of the delinquent amount, the loan shall continue to be considered past due. Whenever any loan is reported delinquent on a principal or interest payment or portion thereof, the amount reported as delinquent is the outstanding principal balance of the loan.
Loans, except for consumer installment loans, are placed into non-accrual status when any portion of the loan principal or interest becomes 90 days past due. Management may determine that certain circumstances warrant earlier discontinuance of interest accruals on specific loans if an evaluation of other relevant factors (such as bankruptcy, interruption of cash flows, etc.) indicates collection of amounts contractually due is unlikely. These loans are considered, collectively, to be non-performing loans. Consumer installment loans that are not secured by real estate are not placed on non-accrual, but are charged down to their net realizable value when they are four months past due. Loans designated as non-accrual have all previously accrued but unpaid interest reversed. Interest income is not recognized on non-accrual loans. All payments received on non-accrual loans are applied using a cost-recovery method to reduce the outstanding principal balance until the loan returns to accrual status. Loans may be returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.
On January 1, 2023, the Company adopted provisions of ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326)", which eliminated accounting guidance for TDRs by creditors. Prior to the effective adoption date, the Company considered loans to be TDRs if their terms were restructured (e.g., interest rates, loan maturity date, payment and amortization period, etc.) in circumstances that provided a payment concession to a borrower experiencing financial difficulty. Loans could be removed from a TDR category if the borrower no longer experienced financial difficulty, a re-underwriting event took place, and the revised loan terms of the subsequent restructuring agreement were considered to be consistent with terms that could be obtained in the market for loans with comparable credit risk. Subsequent to the effective adoption date, the Company continues to offer modifications to certain borrowers experiencing financial difficulty, mainly in the form of interest rate concessions or term extensions, without classifying and accounting for them as TDRs.
Allowance for Credit Losses
The allowance for credit losses (“allowance” or “ACL”) represents an amount which, in management's judgment, reflects the lifetime expected losses that may be sustained on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The allowance is measured and recorded upon the initial recognition of a financial asset. The allowance is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision or credit for credit losses, which is recorded as a current period expense.
Determination of the appropriateness of the allowance is inherently complex and requires the use of significant and highly subjective estimates. The reasonableness of the allowance is reviewed periodically by the Risk Committee of the Board of Directors and formally approved quarterly by that same committee of the Board.
The Company’s methodology for estimating the allowance includes: (1) a collective quantified reserve that reflects the Company’s historical default and loss experience adjusted for expected economic conditions throughout a reasonable and supportable period and the Company’s prepayment and curtailment rates; (2) collective qualitative factors that consider the expected impact of certain factors not fully captured in the collective quantified reserve, including concentrations of the loan portfolio, expected changes to the economic forecasts, large relationships, early delinquencies, and factors related to credit administration, including, among others, loan-to-value ratios, borrowers’ risk rating and credit score migrations; and (3) individual allowances on collateral-dependent loans where borrowers are experiencing financial difficulty or when the Company determines that the foreclosure is probable. The Company excludes accrued interest from the measurement of the allowance as the Company has a non-accrual policy to reverse any accrued, uncollected interest income as loans are moved to non-accrual status.
Loans are pooled into segments based on the similar risk characteristics of the underlying borrowers, in addition to consideration of collateral type, industry and business purpose of the loans. Portfolio segments used to estimate the allowance are the same as portfolio segments used for general credit risk management purposes. Refer to Note 4 for more details on the Company’s portfolio segments.
The Company applies two calculation methodologies to estimate the collective quantified component of the allowance: discounted cash flows method and weighted average remaining life method. Allowance estimates on commercial acquisition, development and construction (“AD&C”) and residential construction segments are based on the weighted average remaining life method. Allowance estimates on all other portfolio segments are based on the discounted cash flows method. Segments utilizing the discounted cash flows method are further sub-segmented into risk level pools, determined either by risk rating for commercial loans or Beacon Scores ranges for residential and consumer loans. To better manage risk and reasonably determine the sufficiency of reserves, this segregation allows the Company to monitor the allowance component applicable to higher risk loans separate from the remainder of the portfolio. Collective calculation methodologies utilize the Company’s historical default and loss experience adjusted for future economic forecasts. The reasonable and supportable forecast period represents a two-year economic outlook for the applicable economic variables. Following the end of the reasonable and supportable forecast period expected losses revert back to the historical mean over the next two years on a straight-line basis. Economic variables that have the most significant impact on the allowance include: unemployment rate, house price index and business bankruptcies. Contractual loan level cash flows within the discounted cash flows methodology are adjusted for the Company’s historical prepayment and curtailment rate experience.
The individual reserve assessment is applied to collateral dependent loans where borrowers are experiencing financial difficulty or when the Company determines that a foreclosure is probable. The determination of the fair value of the collateral depends on whether a repayment of the loan is expected to be from the sale or the operation of the collateral. When a repayment is expected from the operation of the collateral, the Company uses the present value of expected cash flows from the operation of the collateral as the fair value. When the repayment of the loan is expected from the sale of the collateral the fair value of the collateral is based on an observable market price or the collateral’s appraised value, less estimated costs to sell. Third-party appraisals used in the individual reserve assessment are conducted at least annually with underlying assumptions that are reviewed by management. Third-party appraisals may be obtained on a more frequent basis if deemed necessary. Internal evaluations of collateral value are conducted quarterly to ensure any further deterioration of the collateral value is recognized on a timely basis. During the individual reserve assessment, management also considers the potential future changes in the value of the collateral over the remainder of the loan’s remaining life. The Company may receive updated appraisals which contradict the preliminary determination of fair value used to establish an individual allowance on a loan. In these instances the individual allowance is adjusted to reflect the Company’s evaluation of the updated appraised fair value. In the event a loss was previously confirmed and the loan was charged down to the estimated fair value based on a previous appraisal, the balance of partially charged-off loans are not subsequently increased, but could be further decreased depending on the direction of the change in fair value. Payments on fully or partially charged-off loans are accounted for under the cost-recovery method. Under this method, all payments received are applied on a cash basis to reduce the entire outstanding principal balance, then to recognize a recovery of all previously charged-off amounts before any interest income may be recognized. Based on the individual reserve assessment, if the Company determines that the fair value of the collateral is less than the amortized cost basis of the loan, an individual allowance will be established measured as the difference between the fair value of the collateral (less costs to sell) and the amortized cost basis of the loan. Once a loss has been confirmed, the loan is charged-down to its estimated fair value.
Large groups of smaller non-accrual homogeneous loans are not individually evaluated for allowance and include residential permanent and construction mortgages and consumer installment loans. These portfolios are reserved for on a collective basis using historical loss rates of similar loans over the weighted average life of each pool.
Unfunded lending commitments are reviewed to determine if they are considered unconditionally cancellable. The Company establishes reserves for unfunded commitments that do not meet that criteria as a liability in the Condensed Consolidated Statements of Condition. Changes to the liability are recorded through the provision for credit losses in the Condensed Consolidated Statements of Income. The establishment of the reserves for unfunded commitments considers both the likelihood that the funding will occur and an estimate of the expected credit losses over the life of the respective commitments.
Management believes it uses relevant information available to make determinations about the allowance and reserve for unfunded commitments and that it has established the existing reserves in accordance with GAAP. However, the determination of the allowance requires significant judgment, and estimates of expected lifetime losses in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize expected losses, future additions to the allowance may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers.
Held-to-maturity debt securities
Debt securities that are purchased with the positive intent and ability to be held until their maturity are classified as held-to-maturity (“HTM”). HTM debt securities are recorded at cost adjusted for amortization of premiums and accretion of discounts. Transfers of debt securities from available-for-sale ("AFS") category to HTM category are made at fair value as of the transfer date. The unrealized gain or loss at the date of transfer continues to be reported in accumulated other comprehensive income and in the carrying amount of the HTM securities. Both amounts are amortized over the remaining life of the security as a yield adjustment in interest income and effectively offset each other.
Leases
The Company determines if an arrangement is a lease at inception. All of the Company’s leases are currently classified as operating leases and are included in other assets and other liabilities on the Company’s Condensed Consolidated Statements of Condition. Periodic operating lease costs are recorded in occupancy expenses of premises on the Company's Condensed Consolidated Statements of Income.
Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease arrangements. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of the expected future lease payments over the remaining lease term. In determining the present value of future lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The operating ROU assets are adjusted for any lease payments made at or before the lease commencement date, initial direct costs, any lease incentives received and, for acquired leases, any favorable or unfavorable fair value adjustments. The present value of the lease liability may include the impact of options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options provided in the lease terms. Lease expense is recognized on a straight-line basis over the expected lease term. Lease agreements that include lease and non-lease components, such as common area maintenance charges, are accounted for separately.
Adopted Accounting Pronouncements
In March 2022, the FASB issued ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326)", which eliminated the accounting guidance on troubled debt restructurings (“TDR”) and amended the guidance on “vintage disclosures” to require disclosure of current period gross charge-offs by year of origination. The ASU also added enhanced disclosures for creditors with respect to loan refinancing and restructurings for borrowers experiencing financial difficulty. The objective of the disclosures was to provide information about the type and magnitude of modifications and the degree of their success in mitigating potential credit losses. The Company fully adopted this update effective January 1, 2023 on a prospective basis. The adoption of this pronouncement did not have a material impact on the Consolidated Financial Statements.
Pending Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”. This ASU provided temporary, optional
guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from the London Interbank Offered Rate ("LIBOR") or other reference rate expected to be discontinued on financial reporting. The standard was elective and provided optional expedients and exceptions for applying GAAP to contracts, hedging relationships, or other transactions that reference LIBOR, or another reference rate expected to be discontinued. The amendments in the update were effective for all entities between March 12, 2020 and December 31, 2022. In January 2021, the FASB issued ASU 2021-01,
“Reference Rate Reform (Topic 848): Scope”. This ASU refines the scope of Topic 848 and addresses questions about whether Topic 848 can be applied to derivative instruments that do not reference a rate that is expected to be discontinued, but that use an interest rate for margining, discounting or contract price alignment that is expected to be modified as a result of reference rate reform. ASU 2021-01 is effective upon issuance through December 31, 2024, and can be adopted at any time during this period. The Company has not offered LIBOR for any new contracts since 2021. The Company has identified all known LIBOR exposures, created a plan to address the exposures, and continues to communicate with all stakeholders in order to facilitate the transition to an alternative reference rate. The Company adopted ASU 2020-04 on January 1, 2022. The adoption did not have a material impact on the Company’s Consolidated Financial Statements. The Company continues to evaluate the adoption of ASU 2021-01 and does not expect it to have a material impact on the Company's Consolidated Financial Statements.
NOTE 2 – INVESTMENTS
Investments available-for-sale and held-to-maturity
The amortized cost and estimated fair values of investments available-for-sale and held-to-maturity at the dates indicated are presented in the following table:
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| | | March 31, 2023 | | December 31, 2022 |
| (In thousands) | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Estimated
Fair
Value | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Estimated
Fair
Value |
| Available-for-sale debt securities: | | | | | | | | | | | | | | | | |
| U.S. treasuries and government agencies | | $ | 101,112 | | | $ | — | | | $ | (6,022) | | | $ | 95,090 | | | $ | 100,926 | | | $ | — | | | $ | (7,304) | | | $ | 93,622 | |
| State and municipal | | 320,799 | | | 5 | | | (47,876) | | | 272,928 | | | 322,519 | | | 4 | | | (56,526) | | | 265,997 | |
| Mortgage-backed and asset-backed | | 905,338 | | | 65 | | | (77,693) | | | 827,710 | | | 943,398 | | | 73 | | | (88,552) | | | 854,919 | |
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| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total available-for-sale debt securities | | $ | 1,327,249 | | | $ | 70 | | | $ | (131,591) | | | $ | 1,195,728 | | | $ | 1,366,843 | | | $ | 77 | | | $ | (152,382) | | | $ | 1,214,538 | |
| Held-to-maturity debt securities: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Mortgage-backed and asset-backed | | 254,219 | | | — | | | (34,802) | | | 219,417 | | | 259,452 | | | — | | | (39,329) | | | 220,123 | |
| Total held-to-maturity debt securities | | $ | 254,219 | | | $ | — | | | $ | (34,802) | | | $ | 219,417 | | | $ | 259,452 | | | $ | — | | | $ | (39,329) | | | $ | 220,123 | |
| Total debt securities | | $ | 1,581,468 | | | $ | 70 | | | $ | (166,393) | | | $ | 1,415,145 | | | $ | 1,626,295 | | | $ | 77 | | | $ | (191,711) | | | $ | 1,434,661 | |
Any unrealized losses in the U.S. treasuries and government agencies, state and municipal, mortgage-backed and asset-backed available-for-sale debt securities at March 31, 2023 are due to changes in interest rates and not credit-related events. As such, no allowance for credit losses is required at March 31, 2023. Unrealized losses on available-for-sale debt securities are expected to recover over time as these securities approach maturity. The Company does not intend to sell, nor is it more likely than not it will be required to sell, these securities and has sufficient liquidity to hold these securities for an adequate period of time, which may be maturity, to allow for any anticipated recovery in fair value.
All held-to-maturity investments are either issued by a direct governmental entity or a government-sponsored entity and have no historical evidence supporting expected credit losses. Therefore, the Company has estimated these losses at zero and will monitor this assumption in the future for any economic or governmental policies that could affect this assumption.
The available-for-sale and held-to-maturity mortgage-backed securities portfolio at March 31, 2023 is composed entirely of either the most senior tranches of GNMA, FNMA or FHLMC collateralized mortgage obligations ($483.1 million), GNMA, FNMA or FHLMC mortgage-backed securities ($636.5 million) or SBA asset-backed securities ($40.0 million).
Gross unrealized losses and fair value by length of time that the individual available-for-sale debt securities have been in an unrealized loss position at the dates indicated are presented in the following tables:
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| | | March 31, 2023 |
| | | Number
of
Securities | | Less Than 12 Months | | 12 Months or More | | Total |
| (Dollars in thousands) | | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| U.S. treasuries and government agencies | | 10 | | | $ | 12,638 | | | $ | 318 | | | $ | 82,452 | | | $ | 5,704 | | | $ | 95,090 | | | $ | 6,022 | |
| State and municipal | | 125 | | | 35,791 | | | 719 | | | 233,683 | | | 47,157 | | | 269,474 | | | 47,876 | |
| Mortgage-backed and asset-backed | | 323 | | | 194,940 | | | 5,603 | | | 616,616 | | | 72,090 | | | 811,556 | | | 77,693 | |
| | | | | | | | | | | | | | |
| Total | | 458 | | | $ | 243,369 | | | $ | 6,640 | | | $ | 932,751 | | | $ | 124,951 | | | $ | 1,176,120 | | | $ | 131,591 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 |
| | | Number
of
Securities | | Less Than 12 Months | | 12 Months or More | | Total |
| (Dollars in thousands) | | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| U.S. treasuries and government agencies | | 10 | | | $ | 53,139 | | | $ | 3,653 | | | $ | 40,483 | | | $ | 3,651 | | | $ | 93,622 | | | $ | 7,304 | |
| State and municipal | | 130 | | | 200,439 | | | 30,803 | | | 62,482 | | | 25,723 | | | 262,921 | | | 56,526 | |
| Mortgage-backed and asset-backed | | 324 | | | 526,387 | | | 44,952 | | | 297,216 | | | 43,600 | | | 823,603 | | | 88,552 | |
| | | | | | | | | | | | | | |
| Total | | 464 | | | $ | 779,965 | | | $ | 79,408 | | | $ | 400,181 | | | $ | 72,974 | | | $ | 1,180,146 | | | $ | 152,382 | |
The Company has allocated mortgage-backed securities into the four maturity groupings reflected in the following tables using the expected average life of the individual securities based on statistics provided by independent third-party industry sources. Expected maturities will differ from contractual maturities as borrowers may have the right to prepay obligations with or without prepayment penalties.
The estimated fair values and amortized costs of available-for-sale and held-to-maturity debt securities by contractual maturity are provided in the following tables.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| (In thousands) | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost |
| Available-for-sale debt securities | | | | | | | | |
| U.S. treasuries and government agencies: | | | | | | | | |
| One year or less | | $ | 4,805 | | | $ | 4,992 | | | $ | — | | | $ | — | |
| One to five years | | 90,285 | | | 96,120 | | | 93,622 | | | 100,926 | |
| Five to ten years | | — | | | — | | | — | | | — | |
| After ten years | | — | | | — | | | — | | | — | |
| State and municipal: | | | | | | | | |
| One year or less | | 8,333 | | | 8,400 | | | 8,694 | | | 8,783 | |
| One to five years | | 52,746 | | | 54,641 | | | 51,576 | | | 53,948 | |
| Five to ten years | | 30,415 | | | 35,453 | | | 28,806 | | | 34,042 | |
| After ten years | | 181,434 | | | 222,305 | | | 176,921 | | | 225,746 | |
| Mortgage-backed and asset-backed: | | | | | | | | |
| One year or less | | 4,746 | | | 4,806 | | | 7,622 | | | 7,704 | |
| One to five years | | 45,281 | | | 46,495 | | | 45,366 | | | 46,802 | |
| Five to ten years | | 293,295 | | | 320,654 | | | 303,697 | | | 335,285 | |
| After ten years | | 484,388 | | | 533,383 | | | 498,234 | | | 553,607 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total available-for-sale debt securities | | $ | 1,195,728 | | | $ | 1,327,249 | | | $ | 1,214,538 | | | $ | 1,366,843 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| (In thousands) | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost |
| Held-to-maturity debt securities | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
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| | | | | | | | |
| | | | | | | | |
| Mortgage-backed and asset-backed: | | | | | | | | |
| One year or less | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| One to five years | | — | | | — | | | — | | | — | |
| Five to ten years | | 34,752 | | | 37,994 | | | 35,304 | | | 39,213 | |
| After ten years | | 184,665 | | | 216,225 | | | 184,819 | | | 220,239 | |
| Total held-to-maturity debt securities | | $ | 219,417 | | | $ | 254,219 | | | $ | 220,123 | | | $ | 259,452 | |
At March 31, 2023 and December 31, 2022, available-for-sale and held-to-maturity debt securities with a book value of $455.6 million and $533.9 million, respectively, were pledged and designated as collateral for certain government deposits, public and trust funds, securities sold under repurchase agreements and other purposes as required or permitted by law. The outstanding balance of no single issuer, except for U.S. Agencies securities, exceeded ten percent of stockholders' equity at March 31, 2023 and December 31, 2022.
Other investments
Other investments are presented in the following table:
| | | | | | | | | | | | | | |
| (In thousands) | | March 31, 2023 | | December 31, 2022 |
| Federal Reserve Bank stock, at cost | | $ | 38,923 | | | $ | 38,873 | |
| Federal Home Loan Bank of Atlanta stock, at cost | | 38,789 | | | 29,668 | |
| Other | | 677 | | | 677 | |
| Total other investments, at cost | | $ | 78,389 | | | $ | 69,218 | |
NOTE 3 – LOANS
Outstanding loan balances at March 31, 2023 and December 31, 2022 are net of unearned income, including net deferred loan fees of $10.5 million at the end of each period.
The loan portfolio segment balances at the dates indicated are presented in the following table:
| | | | | | | | | | | | | | |
| (In thousands) | | March 31, 2023 | | December 31, 2022 |
| Commercial real estate: | | | | |
| Commercial investor real estate | | $ | 5,167,456 | | | $ | 5,130,094 | |
| Commercial owner-occupied real estate | | 1,769,928 | | | 1,775,037 | |
| Commercial AD&C | | 1,046,665 | | | 1,090,028 | |
| Commercial business | | 1,437,478 | | | 1,455,885 | |
| Total commercial loans | | 9,421,527 | | | 9,451,044 | |
| Residential real estate: | | | | |
| Residential mortgage | | 1,328,524 | | | 1,287,933 | |
| Residential construction | | 223,456 | | | 224,772 | |
| Consumer | | 421,734 | | | 432,957 | |
| Total residential and consumer loans | | 1,973,714 | | | 1,945,662 | |
| Total loans | | $ | 11,395,241 | | | $ | 11,396,706 | |
Portfolio Segments
The Company currently manages its credit products and the respective exposure to credit losses (credit risk) by the following specific portfolio segments (classes) which are levels at which the Company develops and documents its systematic methodology to determine the allowance for credit losses attributable to each respective portfolio segment. These segments are:
•Commercial investor real estate loans - Commercial investor real estate loans consist of loans secured by nonowner-occupied properties where an established banking relationship exists and involves investment properties for warehouse, retail, and office space with a history of occupancy and cash flow. This commercial investor real estate category contains mortgage loans to the developers and owners of commercial real estate where the borrower intends to operate or sell the property at a profit and use the income stream or proceeds from the sale(s) to repay the loan.
•Commercial owner-occupied real estate loans - Commercial owner-occupied real estate loans consist of commercial mortgage loans secured by owner occupied properties where an established banking relationship exists and involves a variety of property types to conduct the borrower’s operations. The decision to extend a loan is based upon the borrower’s financial health and the ability of the borrower and the business to repay. The primary source of repayment for this type of loan is the cash flow from the operations of the business.
•Commercial acquisition, development and construction loans - Commercial acquisition, development and construction loans are intended to finance the construction of commercial properties and include loans for the acquisition and development of land. Construction loans represent a higher degree of risk than permanent real estate loans and may be affected by a variety of additional factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to periodically advance loan funds to pay interest charges on the outstanding balance of the loan.
•Commercial business loans - Commercial loans are made to provide funds for equipment and general corporate needs. Repayment of a loan primarily comes from the funds obtained from the operation of the borrower’s business.
Commercial loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory. Loans issued under the PPP are also included in this category, a substantial portion of which are expected to be forgiven by the Small Business Administration pursuant to the CARES Act.
•Residential mortgage loans - The residential mortgage loans category contains permanent mortgage loans principally to consumers secured by residential real estate. Residential real estate loans are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores, debt-to-income ratios, and collateral values. Loans may be either conforming or non-conforming.
•Residential construction loans - The Company makes residential construction loans generally to provide interim financing on residential property during the construction period. Borrowers are typically individuals who will ultimately occupy the single-family dwelling. Loan funds are disbursed periodically as pre-specified stages of completion are attained based upon site inspections.
•Consumer loans - This category of loans includes primarily home equity loans and lines, installment loans, personal lines of credit, and other loans. The home equity category consists mainly of revolving lines of credit to consumers which are secured by residential real estate. These loans are typically secured with second mortgages on the homes. Other consumer loans include installment loans used by customers to purchase automobiles, boats and recreational vehicles.
NOTE 4 – CREDIT QUALITY ASSESSMENT
Allowance for Credit Losses
Summary information on the allowance for credit losses on loans for the period indicated is provided in the following table:
| | | | | | | | | | | |
| | Three Months Ended March 31, |
| (In thousands) | 2023 | | 2022 |
| Balance at beginning of period | $ | 136,242 | | | $ | 109,145 | |
| | | |
| | | |
| | | |
Provision/ (credit) for credit losses - loans (1) | (18,945) | | | 1,635 | |
| Loan charge-offs | (171) | | | (306) | |
| Loan recoveries | 487 | | | 114 | |
| Net charge-offs | 316 | | | (192) | |
| Balance at period end | $ | 117,613 | | | $ | 110,588 | |
(1) Excludes the total credit to the provision on unfunded loan commitments for three months ended March 31, 2023 of $2.6 million.
The following table provides summary information regarding collateral dependent loans individually evaluated for credit loss at the dates indicated:
| | | | | | | | | | | | | | |
| (In thousands) | | March 31, 2023 | | December 31, 2022 |
| Collateral dependent loans individually evaluated for credit loss with an allowance | | $ | 18,596 | | | $ | 9,743 | |
| Collateral dependent loans individually evaluated for credit loss without an allowance | | 11,246 | | | 16,454 | |
| Total individually evaluated collateral dependent loans | | $ | 29,842 | | | $ | 26,197 | |
| | | | |
| Allowance for credit losses related to loans evaluated individually | | $ | 9,870 | | | $ | 6,902 | |
| Allowance for credit losses related to loans evaluated collectively | | 107,743 | | | 129,340 | |
| Total allowance for credit losses - loans | | $ | 117,613 | | | $ | 136,242 | |
The following tables provide information on the activity in the allowance for credit losses by the respective loan portfolio segment for the period indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, 2023 |
| | | Commercial Real Estate | | | | Residential Real Estate | | | | |
| (Dollars in thousands) | | Commercial
Investor R/E | | Commercial
Owner-
Occupied R/E | | Commercial
AD&C | | Commercial
Business | | Residential
Mortgage | | Residential
Construction | | Consumer | | Total |
| Balance at beginning of period | | $ | 64,737 | | | $ | 11,646 | | | $ | 18,646 | | | $ | 28,027 | | | $ | 9,424 | | | $ | 1,337 | | | $ | 2,425 | | | $ | 136,242 | |
| Provision/ (credit) for credit losses - loans | | (7,780) | | | (1,796) | | | (6,693) | | | (2,254) | | | 350 | | | (233) | | | (539) | | | (18,945) | |
| Charge-offs | | — | | | — | | | — | | | (54) | | | (23) | | | — | | | (94) | | | (171) | |
| Recoveries | | 5 | | | 26 | | | — | | | 181 | | | 2 | | | — | | | 273 | | | 487 | |
| Net recoveries (charge-offs) | | 5 | | | 26 | | | — | | | 127 | | | (21) | | | — | | | 179 | | | 316 | |
| Balance at end of period | | $ | 56,962 | | | $ | 9,876 | | | $ | 11,953 | | | $ | 25,900 | | | $ | 9,753 | | | $ | 1,104 | | | $ | 2,065 | | | $ | 117,613 | |
| | | | | | | | | | | | | | | | |
| Total loans | | $ | 5,167,456 | | | $ | 1,769,928 | | | $ | 1,046,665 | | | $ | 1,437,478 | | | $ | 1,328,524 | | | $ | 223,456 | | | $ | 421,734 | | | $ | 11,395,241 | |
| Allowance for credit losses on loans to total loans ratio | | 1.10 | % | | 0.56 | % | | 1.14 | % | | 1.80 | % | | 0.73 | % | | 0.49 | % | | 0.49 | % | | 1.03 | % |
| | | | | | | | | | | | | | | | |
| Average loans | | $ | 5,136,204 | | | $ | 1,769,680 | | | $ | 1,082,791 | | | $ | 1,444,588 | | | $ | 1,307,761 | | | $ | 223,313 | | | $ | 424,122 | | | $ | 11,388,459 | |
| Annualized net charge-offs/ (recoveries) to average loans | | — | % | | (0.01) | % | | — | % | | (0.04) | % | | 0.01 | % | | — | % | | (0.17) | % | | (0.01) | % |
| | | | | | | | | | | | | | | | |
| Balance of loans individually evaluated for credit loss | | $ | 15,451 | | | $ | 4,949 | | | $ | — | | | $ | 9,442 | | | $ | — | | | $ | — | | | $ | — | | | $ | 29,842 | |
| Allowance related to loans evaluated individually | | $ | 1,935 | | | $ | 1,259 | | | $ | — | | | $ | 6,676 | | | $ | — | | | $ | — | | | $ | — | | | $ | 9,870 | |
| Individual allowance to loans evaluated individually ratio | | 12.52 | % | | 25.44 | % | | — | % | | 70.71 | % | | — | % | | — | % | | — | % | | 33.07 | % |
| Contractual balance of individually evaluated loans | | $ | 15,526 | | | $ | 5,694 | | | $ | — | | | $ | 10,717 | | | $ | — | | | $ | — | | | $ | — | | | $ | 31,937 | |
| | | | | | | | | | | | | | | | |
| Balance of loans collectively evaluated for credit loss | | $ | 5,152,005 | | | $ | 1,764,979 | | | $ | 1,046,665 | | | $ | 1,428,036 | | | $ | 1,328,524 | | | $ | 223,456 | | | $ | 421,734 | | | $ | 11,365,399 | |
| Allowance related to loans evaluated collectively | | $ | 55,027 | | | $ | 8,617 | | | $ | 11,953 | | | $ | 19,224 | | | $ | 9,753 | | | $ | 1,104 | | | $ | 2,065 | | | $ | 107,743 | |
| Collective allowance to loans evaluated collectively ratio | | 1.07 | % | | 0.49 | % | | 1.14 | % | | 1.35 | % | | 0.73 | % | | 0.49 | % | | 0.49 | % | | 0.95 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2022 |
| | | Commercial Real Estate | | | | Residential Real Estate | | | | |
| (Dollars in thousands) | | Commercial
Investor R/E | | Commercial
Owner-
Occupied R/E | | Commercial
AD&C | | Commercial
Business | | Residential
Mortgage | | Residential
Construction | | Consumer | | Total |
| Balance at beginning of period | | $ | 45,289 | | | $ | 11,687 | | | $ | 20,322 | | | $ | 23,170 | | | $ | 5,384 | | | $ | 1,048 | | | $ | 2,245 | | | $ | 109,145 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Provision for credit losses - loans | | 19,128 | | | (90) | | | (1,676) | | | 4,774 | | | 4,093 | | | 281 | | | 170 | | | 26,680 | |
| Charge-offs | | — | | | — | | | — | | | (716) | | | (155) | | | — | | | (234) | | | (1,105) | |
| Recoveries | | 320 | | | 49 | | | — | | | 799 | | | 102 | | | 8 | | | 244 | | | 1,522 | |
| Net recoveries (charge-offs) | | 320 | | | 49 | | | — | | | 83 | | | (53) | | | 8 | | | 10 | | | 417 | |
| Balance at end of period | | $ | 64,737 | | | $ | 11,646 | | | $ | 18,646 | | | $ | 28,027 | | | $ | 9,424 | | | $ | 1,337 | | | $ | 2,425 | | | $ | 136,242 | |
| | | | | | | | | | | | | | | | |
| Total loans | | $ | 5,130,094 | | | $ | 1,775,037 | | | $ | 1,090,028 | | | $ | 1,455,885 | | | $ | 1,287,933 | | | $ | 224,772 | | | $ | 432,957 | | | $ | 11,396,706 | |
| Allowance for credit losses on loans to total loans ratio | | 1.26 | % | | 0.66 | % | | 1.71 | % | | 1.93 | % | | 0.73 | % | | 0.59 | % | | 0.56 | % | | 1.20 | % |
| | | | | | | | | | | | | | | | |
| Average loans | | $ | 4,681,607 | | | $ | 1,730,293 | | | $ | 1,112,936 | | | $ | 1,351,906 | | | $ | 1,117,053 | | | $ | 221,341 | | | $ | 423,746 | | | $ | 10,638,882 | |
| Net charge-offs/ (recoveries) to average loans | | (0.01) | % | | — | % | | — | % | | (0.01) | % | | — | % | | — | % | | — | % | | — | % |
| | | | | | | | | | | | | | | | |
| Balance of loans individually evaluated for credit loss | | $ | 9,943 | | | $ | 6,155 | | | $ | — | | | $ | 8,274 | | | $ | 1,487 | | | $ | — | | | $ | 338 | | | $ | 26,197 | |
| Allowance related to loans evaluated individually | | $ | 134 | | | $ | 1,261 | | | $ | — | | | $ | 5,507 | | | $ | — | | | $ | — | | | $ | — | | | $ | 6,902 | |
| Individual allowance to loans evaluated individually ratio | | 1.35 | % | | 20.49 | % | | — | % | | 66.56 | % | | — | % | | — | % | | — | % | | 26.35 | % |
| Contractual balance of individually evaluated loans | | $ | 10,882 | | | $ | 6,849 | | | $ | — | | | $ | 9,893 | | | $ | 1,487 | | | $ | — | | | $ | 364 | | | $ | 29,475 | |
| | | | | | | | | | | | | | | | |
| Balance of loans collectively evaluated for credit loss | | $ | 5,120,151 | | | $ | 1,768,882 | | | $ | 1,090,028 | | | $ | 1,447,611 | | | $ | 1,286,446 | | | $ | 224,772 | | | $ | 432,619 | | | $ | 11,370,509 | |
| Allowance related to loans evaluated collectively | | $ | 64,603 | | | $ | 10,385 | | | $ | 18,646 | | | $ | 22,520 | | | $ | 9,424 | | | $ | 1,337 | | | $ | 2,425 | | | $ | 129,340 | |
| Collective allowance to loans evaluated collectively ratio | | 1.26 | % | | 0.59 | % | | 1.71 | % | | 1.56 | % | | 0.73 | % | | 0.59 | % | | 0.56 | % | | 1.14 | % |
Credit Quality
The following section provides information on the credit quality of the loan portfolio for the periods indicated below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, 2023 |
| | | Commercial Real Estate | | | | Residential Real Estate | | | | |
| (In thousands) | | Commercial
Investor R/E | | Commercial
Owner-
Occupied R/E | | Commercial
AD&C | | Commercial
Business | | Residential
Mortgage | | Residential
Construction | | Consumer | | Total |
| Analysis of non-accrual loan activity: | | | | | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 9,943 | | | $ | 5,019 | | | $ | — | | | $ | 7,322 | | | $ | 7,439 | | | $ | — | | | $ | 5,059 | | | $ | 34,782 | |
| Loans placed on non-accrual | | 14,601 | | | — | | | — | | | 2,621 | | | 2,045 | | | — | | | 447 | | | 19,714 | |
| Non-accrual balances transferred to OREO | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Non-accrual balances charged-off | | — | | | — | | | — | | | (54) | | | (23) | | | — | | | (49) | | | (126) | |
| Net payments or draws | | (9,093) | | | (70) | | | — | | | (446) | | | (169) | | | — | | | (434) | | | (10,212) | |
| Non-accrual loans brought current | | — | | | — | | | — | | | — | | | (357) | | | — | | | (123) | | | (480) | |
| Balance at end of period | | $ | 15,451 | | | $ | 4,949 | | | $ | — | | | $ | 9,443 | | | $ | 8,935 | | | $ | — | | | $ | 4,900 | | | $ | 43,678 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2022 |
| | | Commercial Real Estate | | | | Residential Real Estate | | | | |
| (In thousands) | | Commercial
Investor R/E | | Commercial
Owner-
Occupied R/E | | Commercial
AD&C | | Commercial
Business | | Residential
Mortgage | | Residential
Construction | | Consumer | | Total |
| Analysis of non-accrual loan activity: | | | | | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 12,489 | | | $ | 9,306 | | | $ | 650 | | | $ | 8,420 | | | $ | 8,441 | | | $ | 55 | | | $ | 6,725 | | | $ | 46,086 | |
| | | | | | | | | | | | | | | | |
| Loans placed on non-accrual | | 4,761 | | | 2,370 | | | — | | | 1,591 | | | 2,593 | | | — | | | 815 | | | 12,130 | |
| Non-accrual balances transferred to OREO | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Non-accrual balances charged-off | | — | | | — | | | — | | | (677) | | | (151) | | | — | | | (32) | | | (860) | |
| Net payments or draws | | (7,307) | | | (4,366) | | | (650) | | | (2,012) | | | (2,615) | | | (55) | | | (2,060) | | | (19,065) | |
| Non-accrual loans brought current | | — | | | (2,291) | | | — | | | — | | | (829) | | | — | | | (389) | | | (3,509) | |
| Balance at end of period | | $ | 9,943 | | | $ | 5,019 | | | $ | — | | | $ | 7,322 | | | $ | 7,439 | | | $ | — | | | $ | 5,059 | | | $ | 34,782 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2023 |
| | | Commercial Real Estate | | | | Residential Real Estate | | | | |
| (In thousands) | | Commercial
Investor R/E | | Commercial
Owner-
Occupied R/E | | Commercial
AD&C | | Commercial
Business | | Residential
Mortgage | | Residential
Construction | | Consumer | | Total |
| Performing loans: | | | | | | | | | | | | | | | | |
| Current | | $ | 5,150,572 | | | $ | 1,761,671 | | | $ | 1,043,979 | | | $ | 1,424,758 | | | $ | 1,304,124 | | | $ | 222,387 | | | $ | 413,306 | | | $ | 11,320,797 | |
| 30-59 days | | 945 | | | — | | | 2,240 | | | 154 | | | 13,402 | | | 739 | | | 2,528 | | | 20,008 | |
| 60-89 days | | 273 | | | 3,308 | | | 446 | | | 121 | | | 1,711 | | | 330 | | | 1,000 | | | 7,189 | |
| Total performing loans | | 5,151,790 | | | 1,764,979 | | | 1,046,665 | | | 1,425,033 | | | 1,319,237 | | | 223,456 | | | 416,834 | | | 11,347,994 | |
| Non-performing loans: | | | | | | | | | | | | | | | | |
| Non-accrual loans | | 15,451 | | | 4,949 | | | — | | | 9,443 | | | 8,935 | | | — | | | 4,900 | | | 43,678 | |
| Loans greater than 90 days past due | | 215 | | | — | | | — | | | 3,002 | | | 352 | | | — | | | — | | | 3,569 | |
Restructured loans (1) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total non-performing loans | | 15,666 | | | 4,949 | | | — | | | 12,445 | | | 9,287 | | | — | | | 4,900 | | | 47,247 | |
| Total loans | | $ | 5,167,456 | | | $ | 1,769,928 | | | $ | 1,046,665 | | | $ | 1,437,478 | | | $ | 1,328,524 | | | $ | 223,456 | | | $ | 421,734 | | | $ | 11,395,241 | |
(1) Effective January 1, 2023, the Company adopted ASU 2022-02, which eliminated the accounting and recognition of troubled debt restructurings ("TDRs").
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 |
| | | Commercial Real Estate | | | | Residential Real Estate | | | | |
| (In thousands) | | Commercial
Investor R/E | | Commercial
Owner-
Occupied R/E | | Commercial
AD&C | | Commercial
Business | | Residential
Mortgage | | Residential
Construction | | Consumer | | Total |
| Performing loans: | | | | | | | | | | | | | | | | |
| Current | | $ | 5,104,204 | | | $ | 1,767,875 | | | $ | 1,090,028 | | | $ | 1,443,012 | | | $ | 1,261,878 | | | $ | 222,144 | | | $ | 422,989 | | | $ | 11,312,130 | |
| 30-59 days | | 9,735 | | | 1,007 | | | — | | | 3,556 | | | 11,307 | | | 2,628 | | | 4,343 | | | 32,576 | |
| 60-89 days | | 6,212 | | | — | | | — | | | 41 | | | 5,822 | | | — | | | 566 | | | 12,641 | |
| Total performing loans | | 5,120,151 | | | 1,768,882 | | | 1,090,028 | | | 1,446,609 | | | 1,279,007 | | | 224,772 | | | 427,898 | | | 11,357,347 | |
| Non-performing loans: | | | | | | | | | | | | | | | | |
| Non-accrual loans | | 9,943 | | | 5,019 | | | — | | | 7,322 | | | 7,439 | | | — | | | 5,059 | | | 34,782 | |
| Loans greater than 90 days past due | | — | | | — | | | — | | | 1,002 | | | — | | | — | | | — | | | 1,002 | |
| Restructured loans | | — | | | 1,136 | | | — | | | 952 | | | 1,487 | | | — | | | — | | | 3,575 | |
| Total non-performing loans | | 9,943 | | | 6,155 | | | — | | | 9,276 | | | 8,926 | | | — | | | 5,059 | | | 39,359 | |
| Total loans | | $ | 5,130,094 | | | $ | 1,775,037 | | | $ | 1,090,028 | | | $ | 1,455,885 | | | $ | 1,287,933 | | | $ | 224,772 | | | $ | 432,957 | | | $ | 11,396,706 | |
The following tables present average principal balance of total non-accrual loans and contractual interest due on non-accrual loans for the periods indicated below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, 2023 |
| | | Commercial Real Estate | | | | Residential Real Estate | | | | |
| (In thousands) | | Commercial
Investor R/E | | Commercial
Owner-
Occupied R/E | | Commercial
AD&C | | Commercial
Business | | Residential
Mortgage | | Residential
Construction | | Consumer | | Total |
| Average non-accrual loans for the period | | $ | 12,697 | | | $ | 4,984 | | | $ | — | | | $ | 8,383 | | | $ | 8,187 | | | $ | — | | | $ | 4,980 | | | $ | 39,231 | |
Contractual interest income due on non- accrual loans during the period | | $ | 140 | | | $ | 73 | | | $ | — | | | $ | 140 | | | $ | 90 | | | $ | — | | | $ | 106 | | | $ | 549 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2022 |
| | | Commercial Real Estate | | | | Residential Real Estate | | | | |
| (In thousands) | | Commercial
Investor R/E | | Commercial
Owner-
Occupied R/E | | Commercial
AD&C | | Commercial
Business | | Residential
Mortgage | | Residential
Construction | | Consumer | | Total |
| Average non-accrual loans for the period | | $ | 11,892 | | | $ | 7,314 | | | $ | 617 | | | $ | 7,768 | | | $ | 7,769 | | | $ | 21 | | | $ | 5,811 | | | $ | 41,192 | |
Contractual interest income due on non- accrual loans during the period | | $ | 713 | | | $ | 106 | | | $ | 30 | | | $ | 491 | | | $ | 319 | | | $ | 1 | | | $ | 349 | | | $ | 2,009 | |
There was no interest income recognized on non-accrual loans during the three months ended March 31, 2023. See Note 1 for additional information on the Company's policies for non-accrual loans. Loans designated as non-accrual have all previously accrued but unpaid interest reversed from interest income. During the three months ended March 31, 2023 new loans placed on non-accrual status totaled $19.7 million and the related amount of reversed uncollected accrued interest was $0.3 million.
The credit quality indicators for commercial loans are developed through review of individual borrowers on an ongoing basis. Each borrower is evaluated at least annually with more frequent evaluation of more severely criticized loans. The indicators represent the rating for loans as of the date presented is based on the most recent credit review performed. These credit quality indicators are defined as follows:
Pass - A pass rated credit is not adversely classified because it does not display any of the characteristics for adverse classification.
Special mention – A special mention credit has potential weaknesses that deserve management’s close attention. If uncorrected, such weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.
Substandard – A substandard loan is inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility of loss if the deficiencies are not corrected.
Doubtful – A loan that is classified as doubtful has all the weaknesses inherent in a loan classified as substandard with added characteristics that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions and values.
Loss – Loans classified as a loss are considered uncollectible and of such little value that their continuing to be carried as a loan is not warranted. This classification is not necessarily equivalent to no potential for recovery or salvage value, but rather that it is not appropriate to defer a full write-off even though partial recovery may be effected in the future.
The following table provides information about credit quality indicators by the year of origination as of March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2023 |
| | | Term Loans by Origination Year | | Revolving | | |
| (In thousands) | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Loans | | Total |
| Commercial Investor R/E: | | | | | | | | | | | | | | | | |
| Pass | | $ | 173,232 | | | $ | 1,412,186 | | | $ | 1,239,661 | | | $ | 689,500 | | | $ | 558,229 | | | $ | 1,024,028 | | | $ | 28,344 | | | $ | 5,125,180 | |
| Special Mention | | 4,619 | | | 10,349 | | | 4,587 | | | — | | | 93 | | | 3,253 | | | — | | | 22,901 | |
| Substandard | | 273 | | | 550 | | | 13,505 | | | — | | | 1,405 | | | 3,642 | | | — | | | 19,375 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total | | $ | 178,124 | | | $ | 1,423,085 | | | $ | 1,257,753 | | | $ | 689,500 | | | $ | 559,727 | | | $ | 1,030,923 | | | $ | 28,344 | | | $ | 5,167,456 | |
| Current period gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
| Commercial Owner-Occupied R/E: | | | | | | | | | | | | | | | | |
| Pass | | $ | 49,900 | | | $ | 373,223 | | | $ | 324,299 | | | $ | 236,977 | | | $ | 253,818 | | | $ | 498,559 | | | $ | 1,038 | | | $ | 1,737,814 | |
| Special Mention | | 731 | | | 1,530 | | | — | | | 1,277 | | | 1,716 | | | 8,682 | | | — | | | 13,936 | |
| Substandard | | 1,338 | | | 6,527 | | | 71 | | | 355 | | | 6,056 | | | 3,831 | | | — | | | 18,178 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total | | $ | 51,969 | | | $ | 381,280 | | | $ | 324,370 | | | $ | 238,609 | | | $ | 261,590 | | | $ | 511,072 | | | $ | 1,038 | | | $ | 1,769,928 | |
| Current period gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
| Commercial AD&C: | | | | | | | | | | | | | | | | |
| Pass | | $ | 126,933 | | | $ | 334,502 | | | $ | 325,527 | | | $ | 94,337 | | | $ | 32,053 | | | $ | 14,932 | | | $ | 116,512 | | | $ | 1,044,796 | |
| Special Mention | | — | | | 1,073 | | | — | | | — | | | — | | | — | | | — | | | 1,073 | |
| Substandard | | — | | | 796 | | | — | | | — | | | — | | | — | | | — | | | 796 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total | | $ | 126,933 | | | $ | 336,371 | | | $ | 325,527 | | | $ | 94,337 | | | $ | 32,053 | | | $ | 14,932 | | | $ | 116,512 | | | $ | 1,046,665 | |
| Current period gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
| Commercial Business: | | | | | | | | | | | | | | | | |
| Pass | | $ | 43,548 | | | $ | 337,157 | | | $ | 219,980 | | | $ | 85,098 | | | $ | 99,564 | | | $ | 147,806 | | | $ | 467,480 | | | $ | 1,400,633 | |
| Special Mention | | — | | | 330 | | | 650 | | | 1,024 | | | 6,818 | | | 564 | | | 12,977 | | | 22,363 | |
| Substandard | | — | | | 3,371 | | | 2,079 | | | 956 | | | 1,995 | | | 2,243 | | | 3,838 | | | 14,482 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total | | $ | 43,548 | | | $ | 340,858 | | | $ | 222,709 | | | $ | 87,078 | | | $ | 108,377 | | | $ | 150,613 | | | $ | 484,295 | | | $ | 1,437,478 | |
| Current period gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 29 | | | $ | 25 | | | $ | 54 | |
| | | | | | | | | | | | | | | | |
| Residential Mortgage: | | | | | | | | | | | | | | | | |
| Beacon score: | | | | | | | | | | | | | | | | |
| 660-850 | | $ | 15,508 | | | $ | 336,165 | | | $ | 369,442 | | | $ | 170,124 | | | $ | 41,488 | | | $ | 293,891 | | | $ | — | | | $ | 1,226,618 | |
| 600-659 | | — | | | 6,648 | | | 13,800 | | | 4,119 | | | 3,885 | | | 30,112 | | | — | | | 58,564 | |
| 540-599 | | 305 | | | 2,929 | | | 3,361 | | | 526 | | | 1,517 | | | 8,986 | | | — | | | 17,624 | |
| less than 540 | | — | | | 365 | | | 3,025 | | | 3,479 | | | 3,047 | | | 15,802 | | | — | | | 25,718 | |
| Total | | $ | 15,813 | | | $ | 346,107 | | | $ | 389,628 | | | $ | 178,248 | | | $ | 49,937 | | | $ | 348,791 | | | $ | — | | | $ | 1,328,524 | |
| Current period gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 23 | | | $ | — | | | $ | 23 | |
| | | | | | | | | | | | | | | | |
| Residential Construction: | | | | | | | | | | | | | | | | |
| Beacon score: | | | | | | | | | | | | | | | | |
| 660-850 | | $ | 4,482 | | | $ | 152,343 | | | $ | 50,886 | | | $ | 8,596 | | | $ | 150 | | | $ | 2,877 | | | $ | — | | | $ | 219,334 | |
| 600-659 | | — | | | 2,163 | | | 739 | | | — | | | — | | | — | | | — | | | 2,902 | |
| 540-599 | | — | | | — | | | 401 | | | — | | | — | | | — | | | — | | | 401 | |
| less than 540 | | — | | | — | | | 819 | | | — | | | — | | | — | | | — | | | 819 | |
| Total | | $ | 4,482 | | | $ | 154,506 | | | $ | 52,845 | | | $ | 8,596 | | | $ | 150 | | | $ | 2,877 | | | $ | — | | | $ | 223,456 | |
| Current period gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
| Consumer: | | | | | | | | | | | | | | | | |
| Beacon score: | | | | | | | | | | | | | | | | |
| 660-850 | | $ | 2,976 | | | $ | 6,559 | | | $ | 2,608 | | | $ | 1,133 | | | $ | 2,084 | | | $ | 23,941 | | | $ | 343,677 | | | $ | 382,978 | |
| 600-659 | | 47 | | | 554 | | | 31 | | | 34 | | | 112 | | | 5,949 | | | 12,384 | | | 19,111 | |
| 540-599 | | 12 | | | 396 | | | 84 | | | 39 | | | 129 | | | 2,299 | | | 5,519 | | | 8,478 | |
| less than 540 | | 40 | | | 228 | | | 71 | | | 30 | | | 459 | | | 3,319 | | | 7,020 | | | 11,167 | |
| Total | | $ | 3,075 | | | $ | 7,737 | | | $ | 2,794 | | | $ | 1,236 | | | $ | 2,784 | | | $ | 35,508 | | | $ | 368,600 | | | $ | 421,734 | |
| Current period gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 49 | | | $ | 45 | | | $ | 94 | |
| | | | | | | | | | | | | | | | |
| Total loans | | $ | 423,944 | | | $ | 2,989,944 | | | $ | 2,575,626 | | | $ | 1,297,604 | | | $ | 1,014,618 | | | $ | 2,094,716 | | | $ | 998,789 | | | $ | 11,395,241 | |
The following table provides information about credit quality indicators by the year of origination as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 |
| | | Term Loans by Origination Year | | Revolving | | |
| (In thousands) | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Loans | | Total |
| Commercial Investor R/E: | | | | | | | | | | | | | | | | |
| Pass | | $ | 1,510,446 | | | $ | 1,197,504 | | | $ | 694,756 | | | $ | 567,247 | | | $ | 335,103 | | | $ | 742,405 | | | $ | 15,242 | | | $ | 5,062,703 | |
| Special Mention | | 32,661 | | | 17,146 | | | 468 | | | 94 | | | 473 | | | 4,814 | | | — | | | 55,656 | |
| Substandard | | 557 | | | 1,896 | | | — | | | — | | | 8,239 | | | 1,043 | | | — | | | 11,735 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total | | $ | 1,543,664 | | | $ | 1,216,546 | | | $ | 695,224 | | | $ | 567,341 | | | $ | 343,815 | | | $ | 748,262 | | | $ | 15,242 | | | $ | 5,130,094 | |
| Current period gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
| Commercial Owner-Occupied R/E: | | | | | | | | | | | | | | | | |
| Pass | | $ | 391,340 | | | $ | 328,657 | | | $ | 240,738 | | | $ | 260,114 | | | $ | 140,841 | | | $ | 381,386 | | | $ | 1,167 | | | $ | 1,744,243 | |
| Special Mention | | 4,567 | | | — | | | 1,301 | | | 1,740 | | | 2,066 | | | 7,323 | | | — | | | 16,997 | |
| Substandard | | 3,219 | | | 160 | | | 133 | | | 6,110 | | | 2,010 | | | 2,165 | | | — | | | 13,797 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total | | $ | 399,126 | | | $ | 328,817 | | | $ | 242,172 | | | $ | 267,964 | | | $ | 144,917 | | | $ | 390,874 | | | $ | 1,167 | | | $ | 1,775,037 | |
| Current period gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
| Commercial AD&C: | | | | | | | | | | | | | | | | |
| Pass | | $ | 366,096 | | | $ | 439,468 | | | $ | 113,713 | | | $ | 34,340 | | | $ | 14,816 | | | $ | — | | | $ | 119,727 | | | $ | 1,088,160 | |
| Special Mention | | 1,073 | | | — | | | — | | | — | | | — | | | — | | | 795 | | | 1,868 | |
| Substandard | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total | | $ | 367,169 | | | $ | 439,468 | | | $ | 113,713 | | | $ | 34,340 | | | $ | 14,816 | | | $ | — | | | $ | 120,522 | | | $ | 1,090,028 | |
| Current period gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
| Commercial Business: | | | | | | | | | | | | | | | | |
| Pass | | $ | 330,598 | | | $ | 223,245 | | | $ | 95,787 | | | $ | 105,922 | | | $ | 77,891 | | | $ | 78,009 | | | $ | 508,839 | | | $ | 1,420,291 | |
| Special Mention | | 127 | | | 458 | | | 1,107 | | | 7,787 | | | 498 | | | 322 | | | 13,225 | | | 23,524 | |
| Substandard | | 2,902 | | | 1,611 | | | 1,094 | | | 2,030 | | | 449 | | | 2,121 | | | 1,863 | | | 12,070 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total | | $ | 333,627 | | | $ | 225,314 | | | $ | 97,988 | | | $ | 115,739 | | | $ | 78,838 | | | $ | 80,452 | | | $ | 523,927 | | | $ | 1,455,885 | |
| Current period gross charge-offs | | $ | 174 | | | $ | — | | | $ | — | | | $ | — | | | $ | 138 | | | $ | 404 | | | $ | — | | | $ | 716 | |
| | | | | | | | | | | | | | | | |
| Residential Mortgage: | | | | | | | | | | | | | | | | |
| Beacon score: | | | | | | | | | | | | | | | | |
| 660-850 | | $ | 330,109 | | | $ | 344,062 | | | $ | 171,330 | | | $ | 41,883 | | | $ | 51,651 | | | $ | 262,570 | | | $ | — | | | $ | 1,201,605 | |
| 600-659 | | 4,571 | | | 6,196 | | | 1,173 | | | 3,925 | | | 6,041 | | | 24,006 | | | — | | | 45,912 | |
| 540-599 | | 369 | | | 4,013 | | | 1,439 | | | 1,256 | | | 1,931 | | | 6,945 | | | — | | | 15,953 | |
| less than 540 | | 1,860 | | | 3,036 | | | 2,892 | | | 3,822 | | | 2,347 | | | 10,506 | | | — | | | 24,463 | |
| Total | | $ | 336,909 | | | $ | 357,307 | | | $ | 176,834 | | | $ | 50,886 | | | $ | 61,970 | | | $ | 304,027 | | | $ | — | | | $ | 1,287,933 | |
| Current period gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 24 | | | $ | 131 | | | $ | — | | | $ | 155 | |
| | | | | | | | | | | | | | | | |
| Residential Construction: | | | | | | | | | | | | | | | | |
| Beacon score: | | | | | | | | | | | | | | | | |
| 660-850 | | $ | 131,259 | | | $ | 75,844 | | | $ | 12,133 | | | $ | 150 | | | $ | 1,432 | | | $ | 1,245 | | | $ | — | | | $ | 222,063 | |
| 600-659 | | 908 | | | 373 | | | — | | | — | | | — | | | — | | | — | | | 1,281 | |
| 540-599 | | 609 | | | — | | | — | | | — | | | — | | | — | | | — | | | 609 | |
| less than 540 | | — | | | 819 | | | — | | | — | | | — | | | — | | | — | | | 819 | |
| Total | | $ | 132,776 | | | $ | 77,036 | | | $ | 12,133 | | | $ | 150 | | | $ | 1,432 | | | $ | 1,245 | | | $ | — | | | $ | 224,772 | |
| Current period gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
| Consumer: | | | | | | | | | | | | | | | | |
| Beacon score: | | | | | | | | | | | | | | | | |
| 660-850 | | $ | 6,689 | | | $ | 2,346 | | | $ | 1,201 | | | $ | 2,147 | | | $ | 2,047 | | | $ | 23,170 | | | $ | 359,468 | | | $ | 397,068 | |
| 600-659 | | 658 | | | 467 | | | 59 | | | 198 | | | 664 | | | 5,459 | | | 11,269 | | | 18,774 | |
| 540-599 | | 123 | | | 56 | | | — | | | 465 | | | 316 | | | 2,802 | | | 3,824 | | | 7,586 | |
| less than 540 | | 156 | | | 57 | | | 40 | | | 133 | | | 209 | | | 2,918 | | | 6,016 | | | 9,529 | |
| Total | | $ | 7,626 | | | $ | 2,926 | | | $ | 1,300 | | | $ | 2,943 | | | $ | 3,236 | | | $ | 34,349 | | | $ | 380,577 | | | $ | 432,957 | |
| Current period gross charge-offs | | $ | — | | | $ | 5 | | | $ | 15 | | | $ | — | | | $ | 13 | | | $ | 20 | | | $ | 181 | | | $ | 234 | |
| | | | | | | | | | | | | | | | |
| Total loans | | $ | 3,120,897 | | | $ | 2,647,414 | | | $ | 1,339,364 | | | $ | 1,039,363 | | | $ | 649,024 | | | $ | 1,559,209 | | | $ | 1,041,435 | | | $ | 11,396,706 | |
Effective January 1, 2023, the Company fully adopted provision of ASU 2022-02 that eliminated accounting, classification and disclosures of loans modified into troubled debt restructurings.
As a part of our risk management practices, we may consider modifying a loan for a borrower experiencing a financial difficulty that provides a certain degree of a payment relief. Modification types primarily include a reduction in the interest rate or an extension of the existing term. We do not provide modifications that result in the reduction of the outstanding principal balance. During the three months ended March 31, 2023, we modified two commercial loans to borrowers experiencing financial difficulty with a total outstanding balance of $0.2 million. Both of the modified loans were provided term extensions ranging from six to 12 months and were performing in line with their contractual loan agreements at March 31, 2023.
Other Real Estate Owned
Other real estate owned ("OREO") totaled $0.6 million at both March 31, 2023 and December 31, 2022, respectively. There were no consumer mortgage loans secured by residential real estate property for which formal foreclosure proceedings were in process as of March 31, 2023.
NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS
The amount of goodwill by reporting units is presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Community
Banking | | | | Investment
Management | | Total |
| Balances at December 31, 2022 | | $ | 331,689 | | | | | $ | 31,747 | | | $ | 363,436 | |
| | | | | | | | |
| No activity | | — | | | | | — | | | — | |
| Balances at March 31, 2023 | | $ | 331,689 | | | | | $ | 31,747 | | | $ | 363,436 | |
The gross carrying amounts and accumulated amortization of intangible assets and goodwill are presented at the dates indicated in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2023 | | Weighted
Average
Remaining
Life | | December 31, 2022 | | Weighted
Average
Remaining
Life |
| (Dollars in thousands) | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount | | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount | |
| Amortizing intangible assets: | | | | | | | | | | | | | | | | |
| Core deposit intangibles | | $ | 29,038 | | | $ | (17,602) | | | $ | 11,436 | | | 6.2 years | | $ | 29,038 | | | $ | (16,694) | | | $ | 12,344 | | | 6.5 years |
| Other identifiable intangibles | | 13,906 | | | (6,793) | | | 7,113 | | | 8.0 years | | 13,906 | | | (6,395) | | | 7,511 | | | 8.8 years |
| Total amortizing intangible assets | | $ | 42,944 | | | $ | (24,395) | | | $ | 18,549 | | | | | $ | 42,944 | | | $ | (23,089) | | | $ | 19,855 | | | |
| | | | | | | | | | | | | | | | |
| Goodwill | | $ | 363,436 | | | | | $ | 363,436 | | | | | $ | 363,436 | | | | | $ | 363,436 | | | |
The following table presents the estimated future amortization expense for amortizing intangible assets within the years ending December 31:
| | | | | | | | |
| (In thousands) | | Amount |
| Remaining 2023 | | $ | 3,734 | |
| 2024 | | 4,291 | |
| 2025 | | 3,530 | |
| 2026 | | 2,702 | |
| 2027 | | 1,945 | |
| Thereafter | | 2,347 | |
| Total amortizing intangible assets | | $ | 18,549 | |
NOTE 6 – DEPOSITS
The following table presents the composition of deposits at the dates indicated:
| | | | | | | | | | | | | | |
| (In thousands) | | March 31, 2023 | | December 31, 2022 |
| Noninterest-bearing deposits | | $ | 3,228,678 | | | $ | 3,673,300 | |
| Interest-bearing deposits: | | | | |
| Demand | | 1,472,234 | | | 1,435,454 | |
| Money market savings | | 3,210,637 | | | 3,213,045 | |
| Regular savings | | 517,751 | | | 513,360 | |
| | | | |
| | | | |
| Time deposits of less than $250,000 | | 2,143,718 | | | 1,644,645 | |
| Time deposits of $250,000 or more | | 502,973 | | | 473,617 | |
| Total interest-bearing deposits | | 7,847,313 | | | 7,280,121 | |
| Total deposits | | $ | 11,075,991 | | | $ | 10,953,421 | |
NOTE 7 – BORROWINGS
Subordinated Debt
On March 15, 2022, the Company completed an offering of $200.0 million aggregate principal amount Fixed to Floating Rate Subordinated Notes due in 2032. The notes bear a fixed interest rate of 3.875% per year through March 29, 2027. Commencing on March 30, 2027, the notes will bear interest at a floating rate per annum equal to the benchmark rate (which is expected to be the three-month SOFR rate) plus a spread of 196.5 basis points, payable quarterly in arrears. The total amount of debt issuance costs incurred was $3.1 million, which are being amortized through the contractual life of the debt. The entire amount of the subordinated debt is considered Tier 2 capital under current regulatory guidelines.
On November 5, 2019, the Company completed an offering of $175.0 million aggregate principal amount Fixed to Floating Rate Subordinated Notes due in 2029. The notes bear a fixed interest rate of 4.25% per year through November 14, 2024. Beginning November 15, 2024, the interest rate will become a floating rate equal to three month LIBOR, or an alternative benchmark rate as determined pursuant to the terms of the indenture for the notes in the event LIBOR has been discontinued by November 15, 2024, plus 262 basis points through the remaining maturity or early redemption date of the notes. The interest will be paid in arrears semi-annually during the fixed rate period and quarterly during the floating rate period. The Company incurred $2.9 million of debt issuance costs which are being amortized through the contractual life of the debt. The entire amount of the subordinated debt is considered Tier 2 capital under current regulatory guidelines.
The following table provides information on subordinated debt as of the date indicated:
| | | | | | | | | | | | | | |
| (In thousands) | | March 31, 2023 | | December 31, 2022 |
Fixed to floating rate subordinated debt, 3.875% | | $ | 200,000 | | | $ | 200,000 | |
Fixed to floating rate subordinated debt, 4.25% | | 175,000 | | | 175,000 | |
| | | | |
| | | | |
| Total subordinated debt | | 375,000 | | | 375,000 | |
| | | | |
| | | | |
| Less: Debt issuance costs | | (4,646) | | | (4,795) | |
| | | | |
| | | | |
| | | | |
| | | | |
| Long-term borrowings | | $ | 370,354 | | | $ | 370,205 | |
Other Borrowings
At March 31, 2023 and December 31, 2022, the Company had $47.6 million and $62.0 million, respectively, of outstanding retail repurchase agreements.
The Company had $205.0 million of outstanding federal funds purchased at March 31, 2023 and $260.0 million at December 31, 2022. The available borrowing federal funds capacity under unsecured lines of credit with the correspondent banks was $1.4 billion and $1.6 billion at March 31, 2023 and December 31, 2022, respectively.
At March 31, 2023, the Company had the ability to pledge collateral at prevailing market rates under a line of credit with the FHLB of $3.2 billion. FHLB availability based on pledged collateral at March 31, 2023, amounted to $2.4 billion, with $750.0 million outstanding. At December 31, 2022, the Company had the ability to pledge collateral at prevailing market rates under a line of credit with the FHLB of $3.2 billion. The availability of FHLB borrowings based on the collateral pledged at December 31, 2022 was $2.6 billion with $550.0 million outstanding.
Under a blanket lien, the Company has pledged qualifying residential mortgage loans amounting to $1.2 billion, commercial real estate loans amounting to $3.7 billion, home equity lines of credit (“HELOC”) amounting to $213.4 million, and multifamily loans amounting to $532.4 million at March 31, 2023, as collateral under the borrowing agreement with the FHLB. At December 31, 2022, the Company had pledged collateral of qualifying mortgage loans of $1.2 billion, commercial real estate loans of $3.6 billion, HELOC loans of $214.3 million, and multifamily loans of $514.8 million under the FHLB borrowing agreement.
The Company had secured lines of credit available from the Federal Reserve Bank and correspondent banks of $749.4 million and $718.6 million at March 31, 2023 and December 31, 2022, respectively, collateralized by loans, with no borrowings outstanding at the end of either period.
At March 31, 2023, the Company also had $303.4 million available through Federal Reserve's Bank Term Funding Program, which provides available funding collateralized by designated investment securities. There were no borrowings outstanding at the end of the current period.
NOTE 8 – STOCKHOLDERS' EQUITY
On March 30, 2022, the Company's board of directors authorized a stock repurchase plan that permits the repurchase of up to $50.0 million of the Company's common stock. During 2022 , the Company repurchased and retired 625,710 common shares at an average price of $39.93 per share for the total cost of $25.0 million. The Company did not repurchase any shares of its common stock during the quarter ended March 31, 2023. Under the current authorization, common stock with a total value of up to $25.0 million remains available to be repurchased.
NOTE 9 – SHARE BASED COMPENSATION
The Company’s 2015 Omnibus Incentive Plan ("Omnibus Incentive Plan") was approved on May 6, 2015 and provides for the granting of incentive stock options, non-qualifying stock options, stock appreciation rights, restricted stock grants, restricted stock units and performance share units to selected directors and employees on a periodic basis at the discretion of the Company’s Board of Directors. The Omnibus Incentive Plan authorizes the issuance of up to 1,500,000 shares of common stock, of which 388,640 are available for issuance at March 31, 2023, has a term of 10 years, and is administered by a committee of at least three directors appointed by the Board of Directors. Options granted under the plan have an exercise price which may not be less than 100% of the fair market value of the common stock on the date of the grant and must be exercised within seven or 10 years from the date of grant depending on the terms of the grant agreement. The exercise price of stock options must be paid for in full in cash or shares of common stock, or a combination of both. The board committee has the discretion when making a grant of stock options to impose restrictions on the shares to be purchased upon the exercise of such options. The Company generally issues authorized but previously unissued shares to satisfy option exercises.
Compensation expense is recognized on a straight-line basis over the vesting period of the respective stock option, restricted stock, restricted stock unit grant or performance share units. The Company recognized compensation expense of $1.2 million and $1.5 million for the three months ended March 31, 2023 and 2022, respectively, related to the awards of restricted stock award grants, restricted stock unit grants and performance share unit grants. There was no unrecognized compensation cost related to stock options as of March 31, 2023. The total of unrecognized compensation cost related to restricted stock awards, restricted stock unit grants, and performance share unit grants was approximately $12.5 million as of March 31, 2023. That cost is expected to be recognized over a weighted average period of approximately 2.37 years.
During the three months ended March 31, 2023, the Company granted 253,712 restricted stock units and performance share units, of which 62,124 units are subject to achievement of certain performance conditions measured over a three-year performance period and 191,588 restricted stock units are subject to a three year vesting schedule. The Company did not grant any stock options under the Omnibus Incentive Plan during the three months ended March 31, 2023.
A summary of the activity for the Company’s restricted stock, restricted stock units and performance share units for the period indicated is presented in the following table:
| | | | | | | | | | | | | | |
| | | Number
of
Common
Shares/Units | | Weighted
Average
Grant-Date
Fair Value |
| Non-vested at January 1, 2023 | | 389,475 | | | $ | 37.44 | |
| Granted | | 253,712 | | | $ | 27.51 | |
| Vested | | (60,080) | | | $ | 27.10 | |
| Forfeited/ cancelled | | — | | | $ | — | |
| Non-vested at March 31, 2023 | | 583,107 | | | $ | 34.17 | |
A summary of share option activity for the period indicated is reflected in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number
of
Common
Shares | | Weighted
Average
Exercise
Share Price | | Weighted
Average
Contractual
Remaining
Life (Years) | | Aggregate
Intrinsic
Value
(in thousands) |
| Balance at January 1, 2023 | | 144,047 | | | $ | 16.61 | | | 1.6 years | | $ | 2,633 | |
| Granted | | — | | | $ | — | | | | | |
| | | | | | | | |
| Exercised | | (7,530) | | | $ | 20.12 | | | | | $ | 106 | |
| Forfeited | | — | | | $ | — | | | | | |
| Expired | | (3,338) | | | $ | 27.46 | | | | | |
| Balance at March 31, 2023 | | 133,179 | | | $ | 16.14 | | | 1.4 years | | $ | 2,374 | |
| | | | | | | | |
| Exercisable at March 31, 2023 | | 133,179 | | | $ | 16.14 | | | 1.4 years | | $ | 2,374 | |
NOTE 10 – PENSION PLAN
Defined Benefit Pension Plan
The Company has a qualified, noncontributory, defined benefit pension plan (the “Plan”). Benefits after January 1, 2005 are based on the benefit earned as of December 31, 2004, plus benefits earned in future years of service based on the employee’s compensation during each such year. All benefit accruals for employees were frozen as of December 31, 2007 based on past service and thus salary increases and additional years of service after such date no longer affect the defined benefit provided by the Plan, although additional vesting may continue to occur.
The Company's funding policy is to contribute amounts to the Plan sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended. In addition, the Company contributes additional amounts as it deems appropriate based on benefits attributed to service prior to the date of the Plan freeze. The Plan invests primarily in a diversified portfolio of managed fixed income and equity funds.
On March 30, 2022, the Board of Directors approved the termination of the Plan to be effective as of June 30, 2022. The Company has executed plan amendments regarding the Plan termination and filed an Application for Determination for Terminating Plan with the Internal Revenue Service (“IRS”) for a determination as to the tax-qualified status of the Plan at the time of termination. The Company has also filed appropriate notices and documents related to the Plan’s termination and wind-down with the Pension Benefit Guaranty Corporation (“PBGC”).
The Company will make an additional cash contribution, if necessary, in order to fully fund the Plan on a plan termination basis, followed by the purchase of annuity contracts to transfer its remaining liabilities under the Plan. The actual amount of this cash contribution, if any, will depend upon the nature and timing of participant settlements, as well as prevailing market conditions. In addition, the Company expects to recognize a non-cash pension settlement charge upon settlement of the obligations of the Plan.
All participants who are not already receiving annuities will be given the opportunity to elect a lump sum payout. Benefit obligations of participants who do not elect a lump sum or who are being paid in an annuity form will be transferred under an annuity contract from a highly-rated insurance company that will pay and administer future benefit payments. There will be no
change in the benefit earned by Plan participants as a result of these actions. The Plan termination is subject to regulatory approvals and the Company has the right to change the effective date of the Plan termination or to revoke its decision to terminate the Plan, but it has no intent to do so. The Company anticipates distributing assets from the Plan in the third quarter of 2023.
The components of net periodic benefit cost for the periods indicated are presented in the following table:
| | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | | |
| (In thousands) | | 2023 | | 2022 | | | | |
| Interest cost on projected benefit obligation | | $ | 438 | | | $ | 325 | | | | | |
| Expected return on plan assets | | (373) | | | (353) | | | | | |
| Recognized net actuarial loss | | 225 | | | 196 | | | | | |
| | | | | | | | |
| Net periodic benefit cost | | $ | 290 | | | $ | 168 | | | | | |
The decision as to whether or not to make a plan contribution and the amount of any such contribution is dependent on a number of factors. Such factors include the investment performance of Plan assets in the current economy and, since the Plan is currently frozen, the remaining investment horizon of the Plan. The Company did not make any contribution to the Plan during the three months ended March 31, 2023. Management continues to monitor the funding level of the Plan and may make additional contributions as necessary during 2023.
NOTE 11 – NET INCOME PER COMMON SHARE
The calculation of net income per common share for the periods indicated is presented in the following table:
| | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | | |
| (Dollars and amounts in thousands, except per share data) | | 2023 | | 2022 | | | | |
| Net income | | $ | 51,253 | | | $ | 43,935 | | | | | |
| Distributed and undistributed earnings allocated to participating securities | | (169) | | | (268) | | | | | |
| Net income attributable to common shareholders | | $ | 51,084 | | | $ | 43,667 | | | | | |
| | | | | | | | |
| Total weighted average outstanding shares | | 44,825 | | | 45,424 | | | | | |
| Less: Weighted average participating securities | | (148) | | | (282) | | | | | |
| Basic weighted average common shares | | 44,677 | | | 45,142 | | | | | |
| Dilutive weighted average common stock equivalents | | 195 | | | 191 | | | | | |
| Diluted weighted average common shares | | 44,872 | | | 45,333 | | | | | |
| | | | | | | | |
| Basic net income per common share | | $ | 1.14 | | | $ | 0.97 | | | | | |
| Diluted net income per common share | | $ | 1.14 | | | $ | 0.96 | | | | | |
| | | | | | | | |
| Anti-dilutive shares | | 15 | | | — | | | | | |
NOTE 12 – ACCUMULATED OTHER COMPREHENSIVE LOSS
Comprehensive income/ (loss) is defined as net income/ (loss) plus transactions and other occurrences that are the result of non-owner changes in equity. For Condensed Consolidated Financial Statements presented for the Company, non-owner changes in equity are comprised of unrealized gains or losses on investments available-for-sale and held-to-maturity, and any minimum pension liability adjustments.
The following table presents the activity in net accumulated other comprehensive income/ (loss) and the components of the activity for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Unrealized Gains/(Losses)
on Debt Securities
Available-for-Sale | | Defined Benefit
Pension Plan | | Unrealized Losses
on Debt Securities Transferred from
Available-for-Sale to Held-to-Maturity | | Total |
| Balance at January 1, 2023 | | $ | (113,513) | | | $ | (8,002) | | | $ | (10,436) | | | $ | (131,951) | |
| Other comprehensive loss before reclassification from accumulated other comprehensive loss, net of tax | | 15,490 | | | — | | | — | | | 15,490 | |
| Reclassifications from accumulated other comprehensive loss to earnings, net of tax | | — | | | 168 | | | 302 | | | 470 | |
| Current period change in other comprehensive loss, net of tax | | 15,490 | | | 168 | | | 302 | | | 15,960 | |
| Balance at March 31, 2023 | | $ | (98,023) | | | $ | (7,834) | | | $ | (10,134) | | | $ | (115,991) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Unrealized Gains/
(Losses) on
Debt Securities
Available-for-Sale | | Defined Benefit
Pension Plan | | Unrealized Losses
on Debt Securities Transferred from
Available-for-Sale to Held-to-Maturity | | Total |
| Balance at January 1, 2022 | | $ | (336) | | | $ | (8,203) | | | $ | — | | | $ | (8,539) | |
| Other comprehensive income before reclassification, net of tax | | (49,026) | | | — | | | (12,083) | | | (61,109) | |
| Reclassifications from accumulated other comprehensive income, net of tax | | (6) | | | 146 | | | 237 | | | 377 | |
| Current period change in other comprehensive income, net of tax | | (49,032) | | | 146 | | | (11,846) | | | (60,732) | |
| Balance at March 31, 2022 | | $ | (49,368) | | | $ | (8,057) | | | $ | (11,846) | | | $ | (69,271) | |
The following table provides the information on the reclassification adjustments out of accumulated other comprehensive income/ (loss) for the periods indicated:
| | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| (In thousands) | | 2023 | | 2022 |
| Unrealized gains on available-for-sale debt securities: | | | | |
| Affected line item in the Statements of Income: | | | | |
| Investment securities gains/ (losses) | | $ | — | | | $ | 8 | |
| Income before taxes | | — | | | 8 | |
| Tax (expense)/ benefit | | — | | | (2) | |
| Net income/ (loss) | | $ | — | | | $ | 6 | |
| | | | |
| Amortization of unrealized losses on debt securities transferred from available-for-sale to held-to-maturity: | | | | |
| Affected line item in the Statements of Income: | | | | |
Interest and dividends on investment securities (1) | | $ | (405) | | | $ | (319) | |
| Income before taxes | | (405) | | | (319) | |
| Tax benefit | | 103 | | | 82 | |
| Net loss | | $ | (302) | | | $ | (237) | |
| | | | |
| Amortization of defined benefit pension plan items: | | | | |
| Affected line item in the Statements of Income: | | | | |
Recognized actuarial loss (2) | | $ | (225) | | | $ | (196) | |
| | | | |
| Loss before taxes | | (225) | | | (196) | |
| Tax benefit | | 57 | | | 50 | |
| Net loss | | $ | (168) | | | $ | (146) | |
(1)Amortization of unrealized losses on held-to-maturity debt securities is fully offset by accretion of a discount on held-to-maturity debt securities with no overall impact on net income and yield.
(2)This amount is included in the computation of net periodic benefit cost. See Note 10 for additional information on the pension plan.
NOTE 13 – LEASES
The Company leases real estate properties for its network of bank branches, financial centers and corporate offices. All of the Company’s leases are currently classified as operating. Most lease agreements include one or more options to renew, with renewal terms that can extend the original lease term from one to twenty years or more. The Company does not sublease any of its leased real estate properties.
The following table provides information regarding the Company's leases as of the dates indicated:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2023 | | 2022 |
| Components of lease expense: | | | | | | | | |
| Operating lease cost (resulting from lease payments) | | | | | | $ | 2,715 | | | $ | 2,765 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Supplemental cash flow information related to leases: | | | | | | |
| Operating cash flows from operating leases | | | | | | $ | 2,889 | | | $ | 2,939 | |
| ROU assets obtained in the exchange for lease liabilities due to: | | | | | | | | |
| New leases | | | | | | $ | 703 | | | $ | — | |
| Acquisitions | | | | | | $ | — | | | $ | — | |
| | | | | | | | |
| | | | | | March 31, 2023 | | December 31, 2022 |
| Supplemental balance sheet information related to leases: | | | | | | |
| Operating lease ROU assets | | | | | | $ | 52,749 | | | $ | 48,910 | |
| Operating lease liabilities | | | | | | $ | 61,067 | | | $ | 57,402 | |
| | | | | | | | |
| Other information related to leases: | | | | | | | | |
| Weighted average remaining lease term of operating leases | | | | 8.5 years | | 8.6 years |
| Weighted average discount rate of operating leases | | | | | | 3.06% | | 3.02% |
At March 31, 2023, the maturities of the Company’s operating lease liabilities were as follows:
| | | | | | | | |
| (In thousands) | | Amount |
| Maturity: | | |
| Remaining 2023 | | $ | 8,604 | |
| 2024 | | 10,765 | |
| 2025 | | 9,086 | |
| 2026 | | 8,341 | |
| 2027 | | 6,945 | |
| Thereafter | | 26,845 | |
| Total undiscounted lease payments | | 70,586 | |
| Less: Present value discount | | (9,519) | |
| Lease liability | | $ | 61,067 | |
At March 31, 2023, the Company had one operating lease that has not yet commenced operations and is expected to commence operations during the second half of 2023. The total amount of ROU asset and lease liability at March 31, 2023 was $0.7 million. The Company does not have any lease arrangements with any of its related parties as of March 31, 2023.
NOTE 14 – DERIVATIVES
The Company has entered into interest rate swaps (“swaps”) to facilitate customer transactions and meet their financing needs. These swaps qualify as derivatives, but are not designated as hedging instruments. Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or customer owes the Company and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the customer or counterparty
and, therefore, has no credit risk. The notional value of the swaps outstanding was $336.9 million as of March 31, 2023 compared to $339.1 million as of December 31, 2022. The fair values of swap positions net to zero to minimize the potential impact on the Company’s Condensed Consolidated Financial Statements. Fair values of the swaps are carried as both gross assets and gross liabilities in other assets and other liabilities, respectively, in the Condensed Consolidated Statements of Condition. The associated net gains and losses on the swaps are recorded in Other income in the Condensed Consolidated Statements of Income.
NOTE 15 – LITIGATION
In the ordinary course of business, the Company and its subsidiaries are subject to various pending or threatened legal proceedings in which claims for monetary damages are asserted. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these legal matters will have a material adverse effect on the Company's financial condition, operating results or liquidity.
NOTE 16 – FAIR VALUE
GAAP provides entities the option to measure eligible financial assets, financial liabilities and commitments at fair value (i.e. the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a commitment. Subsequent changes in fair value must be recorded in earnings. The Company applies the fair value option on residential mortgage loans held for sale. The fair value option on residential mortgage loans held for sale allows the recognition of gains on the sale of mortgage loans to more accurately reflect the timing and economics of the transaction.
The standard for fair value measurement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below.
Basis of Fair Value Measurement:
Level 1- Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2- Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3- Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Changes to interest rates may result in changes in the cash flows due to prepayments or extinguishments. Accordingly, changes to interest rates could result in higher or lower measurements of the fair values.
Assets and Liabilities
Residential mortgage loans held for sale
Residential mortgage loans held for sale are valued based on quotations from the secondary market for similar instruments and are classified as Level 2 in the fair value hierarchy.
Investment securities available-for-sale
U.S. treasuries and government agencies securities and mortgage-backed and asset-backed securities
Valuations are based on active market data and use of evaluated broker pricing models that vary based by asset class and includes available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, descriptive terms, and databases coupled with extensive quality control programs. Quality control evaluation processes use available market, credit and deal level information to support the evaluation of the security. Additionally, proprietary models and pricing systems, mathematical tools, actual transacted prices, integration of market developments and experienced evaluators are used to determine the value of a security based on a hierarchy of market information regarding a security or securities with similar characteristics. The Company does not adjust the quoted price for such securities. Such instruments are classified within Level 2 in the fair value hierarchy.
State and municipal securities
The Company primarily uses prices obtained from third-party pricing services to determine the fair value of securities. The Company independently evaluates and corroborates the fair value received from pricing services through various methods and techniques, including references to dealer or other market quotes, by reviewing valuations of comparable instruments, and by comparing the prices realized on the sale of similar securities. Such securities are classified within Level 2 in the fair value hierarchy.
Interest rate swap agreements
Interest rate swap agreements are measured by alternative pricing sources using a discounted cash flow method that incorporates current market interest rates. Based on the complex nature of interest rate swap agreements, the markets these instruments trade in are not as efficient and are less liquid than that of the more mature Level 1 markets. These characteristics classify interest rate swap agreements as Level 2 in the fair value hierarchy.
Assets Measured at Fair Value on a Recurring Basis
The following tables set forth the Company’s financial assets and liabilities at the dates indicated that were accounted for or disclosed at fair value. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2023 |
| | | Quoted Prices in
Active Markets for
Identical Assets | | Significant Other
Observable Inputs | | Significant
Unobservable
Inputs | | |
| (In thousands) | | (Level 1) | | (Level 2) | | (Level 3) | | Total |
| Assets: | | | | | | | | |
Residential mortgage loans held for sale (1) | | $ | — | | | $ | 16,262 | | | $ | — | | | $ | 16,262 | |
| Available-for-sale debt securities: | | | | | | | | |
| U.S. treasuries and government agencies | | — | | | 95,090 | | | — | | | 95,090 | |
| State and municipal | | — | | | 272,928 | | | — | | | 272,928 | |
| Mortgage-backed and asset-backed | | — | | | 827,710 | | | — | | | 827,710 | |
| | | | | | | | |
| Total available-for-sale debt securities | | — | | | 1,195,728 | | | — | | | 1,195,728 | |
| Interest rate swap agreements | | — | | | 14,980 | | | — | | | 14,980 | |
| Total assets | | $ | — | | | $ | 1,226,970 | | | $ | — | | | $ | 1,226,970 | |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| Interest rate swap agreements | | $ | — | | | $ | (14,980) | | | $ | — | | | $ | (14,980) | |
| Total liabilities | | $ | — | | | $ | (14,980) | | | $ | — | | | $ | (14,980) | |
(1) The outstanding principal balance for residential loans held for sale as of March 31, 2023 was $15.9 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 |
| | | Quoted Prices in
Active Markets for
Identical Assets | | Significant Other
Observable Inputs | | Significant
Unobservable
Inputs | | |
| (In thousands) | | (Level 1) | | (Level 2) | | (Level 3) | | Total |
| Assets: | | | | | | | | |
Residential mortgage loans held for sale (1) | | $ | — | | | $ | 11,706 | | | $ | — | | | $ | 11,706 | |
| Investments available-for-sale: | | | | | | | | |
| U.S. treasuries and government agencies | | — | | | 93,622 | | | — | | | 93,622 | |
| State and municipal | | — | | | 265,997 | | | — | | | 265,997 | |
| Mortgage-backed and asset-backed | | — | | | 854,919 | | | — | | | 854,919 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total investments available-for-sale | | — | | | 1,214,538 | | | — | | | 1,214,538 | |
| Interest rate swap agreements | | — | | | 18,596 | | | — | | | 18,596 | |
| Total assets | | $ | — | | | $ | 1,244,840 | | | $ | — | | | $ | 1,244,840 | |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| Interest rate swap agreements | | $ | — | | | $ | (18,596) | | | $ | — | | | $ | (18,596) | |
| Total liabilities | | $ | — | | | $ | (18,596) | | | $ | — | | | $ | (18,596) | |
(1) The outstanding principal balance for residential loans held for sale as of December 31, 2022 was $11.3 million.
Assets Measured at Fair Value on a Nonrecurring Basis
The following tables set forth the Company’s financial assets subject to fair value adjustments on a nonrecurring basis at the date indicated that are valued at the lower of cost or market. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2023 |
| (In thousands) | | Quoted Prices in
Active Markets
for Identical
Assets (Level 1) | | Significant
Other
Observable
Inputs (Level 2) | | Significant
Unobservable
Inputs (Level 3) | | Total | | Total Losses |
| Loans | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Other real estate owned | | — | | | — | | | 645 | | | 645 | | | (105) | |
| Total | | $ | — | | | $ | — | | | $ | 645 | | | $ | 645 | | | $ | (105) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 |
| (In thousands) | | Quoted Prices in
Active Markets
for Identical
Assets (Level 1) | | Significant
Other
Observable
Inputs (Level 2) | | Significant
Unobservable
Inputs (Level 3) | | Total | | Total Losses |
Loans (1) | | $ | — | | | $ | — | | | $ | 190 | | | $ | 190 | | | $ | (384) | |
| Other real estate owned | | — | | | — | | | 645 | | | 645 | | | (105) | |
| Total | | $ | — | | | $ | — | | | $ | 835 | | | $ | 835 | | | $ | (489) | |
(1) Amounts represent the fair value of collateral for collateral dependent non-accrual loans allocated to the allowance for credit losses. Fair values are determined using actual market prices (Level 2), independent third-party valuations and borrower records, discounted as appropriate (Level 3).
At March 31, 2023, non-accrual loans totaling $29.8 million had estimated fair value of $20.0 million as a result of individual credit loss allowances of $9.8 million based on the most recent value of the collateral. Collateral dependent loans totaling $26.2 million had an estimated fair value of $19.3 million at December 31, 2022 as a result of individual credit loss allowances of $6.9 million.
Fair value of the collateral dependent loans is measured based on the loan’s observable market price or the fair value of the collateral (less estimated selling costs). Collateral may be real estate and/or business assets such as equipment, inventory and/or accounts receivable. The value of business equipment, inventory and accounts receivable collateral is based on net book value on the business’ financial statements and, if necessary, discounted based on management’s review and analysis. Appraised and
reported values may be discounted based on management’s historical experience, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional individual reserve and adjusted accordingly, based on the factors identified above.
OREO is adjusted to fair value upon acquisition of the real estate collateral. Subsequently, OREO is carried at the lower of carrying value or fair value. The estimated fair value for OREO included in Level 3 is determined by independent market based appraisals and other available market information, less costs to sell, that may be reduced further based on market expectations or an executed sales agreement. If the fair value of the collateral deteriorates subsequent to initial recognition, the Company records the OREO as a nonrecurring Level 3 adjustment. Valuation techniques are consistent with those techniques applied in prior periods.
Fair Value of Financial Instruments
The Company discloses fair value information, based on the exit price notion, of financial instruments that are not measured at fair value in the financial statements. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price, if one exists.
Quoted market prices, where available, are shown as estimates of fair market values. Because no quoted market prices are available for a significant portion of the Company's financial instruments, the fair value of such instruments has been derived based on the amount and timing of future cash flows and estimated discount rates based on observable inputs (“Level 2”) or unobservable inputs (“Level 3”).
Present value techniques used in estimating the fair value of many of the Company's financial instruments are significantly affected by the assumptions used. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate cash settlement of the instrument. Additionally, the accompanying estimates of fair values are only representative of the fair values of the individual financial assets and liabilities, and should not be considered an indication of the fair value of the Company. Management utilizes internal models used in asset liability management to determine the fair values disclosed below. Other investments include FRB and FHLB stock, whose carrying amounts approximate fair values based on the redemption provisions of each entity.
The carrying amounts and fair values of the Company’s financial instruments at the dates indicated are presented in the following tables:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Fair Value Measurements |
| | | March 31, 2023 | | Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Other
Observable Inputs
(Level 2) | | Significant
Unobservable Inputs
(Level 3) |
| (In thousands) | | Carrying
Amount | | Estimated
Fair
Value | | | |
| Financial assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 495,715 | | | $ | 495,715 | | | $ | 495,715 | | | $ | — | | | $ | — | |
| Residential mortgage loans held for sale | | 16,262 | | | 16,262 | | | — | | | 16,262 | | | — | |
| Available-for-sale debt securities | | 1,195,728 | | | 1,195,728 | | | — | | | 1,195,728 | | | — | |
| Held-to-maturity debt securities | | 254,219 | | | 219,417 | | | — | | | 219,417 | | | — | |
| Other investments | | 78,389 | | | 78,389 | | | — | | | 78,389 | | | — | |
| Loans, net of allowance | | 11,277,628 | | | 11,250,848 | | | — | | | — | | | 11,250,848 | |
| Interest rate swap agreements | | 14,980 | | | 14,980 | | | — | | | 14,980 | | | — | |
| Accrued interest receivable | | 42,232 | | | 42,232 | | | 42,232 | | | — | | | — | |
| Bank owned life insurance | | 153,813 | | | 153,813 | | | — | | | 153,813 | | | — | |
| | | | | | | | | | |
| Financial liabilities: | | | | | | | | | | |
| Time deposits | | $ | 2,646,691 | | | $ | 2,623,078 | | | $ | — | | | $ | 2,623,078 | | | $ | — | |
| Other deposits | | 8,429,300 | | | 8,429,300 | | | 8,429,300 | | | — | | | — | |
| Securities sold under retail repurchase agreements and | | | | | | | | | | |
| federal funds purchased | | 252,627 | | | 252,627 | | | — | | | 252,627 | | | — | |
| Advances from FHLB | | 750,000 | | | 750,088 | | | — | | | 750,088 | | | — | |
| Subordinated debt | | 370,354 | | | 336,767 | | | — | | | — | | | 336,767 | |
| Interest rate swap agreements | | 14,980 | | | 14,980 | | | — | | | 14,980 | | | — | |
| Accrued interest payable | | 18,018 | | | 18,018 | | | 18,018 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Fair Value Measurements |
| | | December 31, 2022 | | Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Other
Observable Inputs
(Level 2) | | Significant
Unobservable Inputs
(Level 3) |
| (In thousands) | | Carrying
Amount | | Estimated
Fair
Value | | | |
| Financial assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 192,232 | | | $ | 192,232 | | | $ | 192,232 | | | $ | — | | | $ | — | |
| Residential mortgage loans held for sale | | 11,706 | | | 11,706 | | | — | | | 11,706 | | | — | |
| Investments available-for-sale | | 1,214,538 | | | 1,214,538 | | | — | | | 1,214,538 | | | — | |
| Held-to-maturity debt securities | | 259,452 | | | 220,123 | | | — | | | 220,123 | | | — | |
| Other investments | | 69,218 | | | 69,218 | | | — | | | 69,218 | | | — | |
| Loans, net of allowance | | 11,260,464 | | | 11,020,992 | | | — | | | — | | | 11,020,992 | |
| Interest rate swap agreements | | 18,596 | | | 18,596 | | | — | | | 18,596 | | | — | |
| Accrued interest receivable | | 41,172 | | | 41,172 | | | 41,172 | | | — | | | — | |
| Bank owned life insurance | | 153,016 | | | 153,016 | | | — | | | 153,016 | | | — | |
| | | | | | | | | | |
| Financial liabilities: | | | | | | | | | | |
| Time deposits | | $ | 2,118,262 | | | $ | 2,082,319 | | | $ | — | | | $ | 2,082,319 | | | $ | — | |
| Other deposits | | 8,835,159 | | | 8,835,159 | | | 8,835,159 | | | — | | | — | |
| Securities sold under retail repurchase agreements and | | | | | | | | | | |
| federal funds purchased | | 321,967 | | | 321,967 | | | — | | | 321,967 | | | — | |
| | | | | | | | | | |
| Advances from FHLB | | 550,000 | | | 549,530 | | | — | | | 549,530 | | | — | |
| Subordinated debt | | 370,205 | | | 332,470 | | | — | | | — | | | 332,470 | |
| Interest rate swap agreements | | 18,596 | | | 18,596 | | | — | | | 18,596 | | | — | |
| Accrued interest payable | | 10,867 | | | 10,867 | | | 10,867 | | | — | | | — | |