UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Quarterly Period Ended | |
OR | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
(Address of principal executive offices) (Zip Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading symbol(s) |
| Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | ||
Smaller reporting company | |||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes |
The number of shares of common stock outstanding as of October 27, 2022 was
ATLANTIC UNION BANKSHARES CORPORATION
FORM 10-Q
INDEX
Glossary of Acronyms and Defined Terms
2021 Form 10-K | – | Annual Report on Form 10-K for the year ended December 31, 2021 |
2031 Notes | – | $250.0 million of 2.875% fixed-to-floating rate subordinate notes issued by the Company during the fourth quarter of 2021 with a maturity date of December 15, 2031 |
Access | – | Access National Corporation and its subsidiaries |
ACL | – | Allowance for credit losses |
AFS | – | Available for sale |
ALCO | – | Asset Liability Committee |
ALLL | – | Allowance for loan and lease losses, a component of ACL |
AOCI | – | Accumulated other comprehensive income (loss) |
ASC | – | Accounting Standards Codification |
ASC 820 | – | ASC 820, Fair Value Measurements and Disclosures |
ASU | – | Accounting Standards Update |
ATM | – | Automated teller machine |
AUB | – | Atlantic Union Bankshares Corporation |
AUBAP | – | Atlantic Union Bankshares Corporation trading symbol |
the Bank | – | Atlantic Union Bank (formerly, Union Bank & Trust) |
BOLI | – | Bank owned life insurance |
bps | – | Basis points |
BVAL | – | Bloomberg Valuation Service |
CAA | – | Consolidated Appropriations Act, 2021 |
CARES Act | – | Coronavirus Aid, Relief, and Economic Security Act |
CECL | – | Current expected credit losses |
CODM | – | Chief operating decision maker |
the Company | – | Atlantic Union Bankshares Corporation (formerly, Union Bankshares Corporation) and its subsidiaries |
COVID-19 | – | COVID-19 global pandemic |
CSP | – | Cary Street Partners Financial LLC |
depositary shares | – | Depositary shares, each representing a 1/400th ownership interest in a share of the Company’s Series A preferred stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share) |
DHFB | – | Dixon, Hubard, Feinour & Brown, Inc. |
EPS | – | Earnings per common share |
Exchange Act | – | Securities Exchange Act of 1934, as amended |
FASB | – | Financial Accounting Standards Board |
FCMs | – | Futures Commission Merchants |
FDIC | – | Federal Deposit Insurance Corporation |
Federal Reserve | – | Board of Governors of the Federal Reserve System |
FRB | – | Federal Reserve Bank of Richmond |
FHLB | – | Federal Home Loan Bank of Atlanta |
FHLMC | – | Federal Home Loan Mortgage Corporation |
FNB | – | FNB Corporation |
FNMA | – | Federal National Mortgage Association |
FOMC | – | Federal Open Markets Committee |
FR Y9-C | – | Consolidated financial statements for a U.S. bank holding company, a savings and loan holding company, a U.S. intermediate holding company, and a securities holding company |
FTE | – | Fully taxable equivalent |
GAAP or U.S. GAAP | – | Accounting principles generally accepted in the United States |
GNMA | – | Government National Mortgage Association |
HTM | – | Held to maturity |
ICE | – | Intercontinental Exchange Data Services |
the Joint Guidance | – | The five federal bank regulatory agencies and the Conference of State Bank Supervisors guidance |
Issued on March 22, 2020 (subsequently revised on April 7, 2020) | ||
LHFI | – | Loans held for investment |
LHFS | – | Loans held for sale |
LIBOR | – | London Interbank Offered Rate |
MBS | – | Mortgage-Backed Securities |
MFC | – | Middleburg Financial Corporation |
NASDAQ | – | National Association of Securities Dealers Automated Quotation exchange |
NM | – | Not meaningful |
NOW | – | Negotiable order of withdrawal |
NPA | – | Nonperforming assets |
OCI | – | Other comprehensive income |
OREO | – | Other real estate owned |
OTC | – | Over-the-counter |
PD/LGD | – | Probability of default/loss given default |
PPP | – | Paycheck Protection Program |
Quarterly Report | – | Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 |
Repurchase Program | – | The share repurchase program, approved on December 10, 2021 by the Company’s Board of Directors, which authorizes the Company to purchase up to $100.0 million worth of the Company’s common stock |
ROU asset | – | Right of Use Asset |
RPAs | – | Risk Participation Agreements |
RUC | – | Reserve for unfunded commitments |
RVI | – | Residual value insurance |
SBA | – | Small Business Administration |
SEC | – | Securities and Exchange Commission |
Series A preferred stock | – | 6.875% Perpetual Non-Cumulative Preferred Stock, Series A, par value $10.00 per share |
SOFR | – | Secured Overnight Financing Rate |
SSFA | – | Simplified supervisory formula approach |
TDR | – | Troubled debt restructuring |
Topic 606 | – | ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606” |
Topic 848 | – | ASU 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting” |
VFG | – | Virginia Financial Group, Inc. |
PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021
(Dollars in thousands, except share data)
September 30, | December 31, | ||||
2022 |
| 2021 | |||
ASSETS | (unaudited) | (audited) | |||
Cash and cash equivalents: | |||||
Cash and due from banks | $ | | $ | | |
Interest-bearing deposits in other banks | | | |||
Federal funds sold | | | |||
Total cash and cash equivalents | | | |||
Securities available for sale, at fair value | | | |||
Securities held to maturity, at carrying value | | | |||
Restricted stock, at cost | | | |||
Loans held for sale, at fair value | | | |||
Loans held for investment, net of deferred fees and costs | | | |||
Less: allowance for loan and lease losses | | | |||
Total loans held for investment, net | | | |||
Premises and equipment, net | | | |||
Goodwill | | | |||
Amortizable intangibles, net | | | |||
Bank owned life insurance | | | |||
Other assets | | | |||
Total assets | $ | | $ | | |
LIABILITIES | |||||
Noninterest-bearing demand deposits | $ | | $ | | |
Interest-bearing deposits | | | |||
Total deposits | | | |||
Securities sold under agreements to repurchase | | | |||
Other short-term borrowings | | | |||
Long-term borrowings | | | |||
Other liabilities | | | |||
Total liabilities | | | |||
Commitments and contingencies (Note 7) | |||||
STOCKHOLDERS' EQUITY | |||||
Preferred stock, $ | | | |||
Common stock, $ | | | |||
Additional paid-in capital | | | |||
Retained earnings | | | |||
Accumulated other comprehensive (loss) income | ( | | |||
Total stockholders' equity | | | |||
Total liabilities and stockholders' equity | $ | | $ | | |
Common shares outstanding | | | |||
Common shares authorized | | | |||
Preferred shares outstanding | | | |||
Preferred shares authorized | | |
See accompanying notes to consolidated financial statements.
-2-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Dollars in thousands, except share and per share data)
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | September 30, | September 30, | ||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Interest and dividend income: | |||||||||||
Interest and fees on loans | $ | | $ | | $ | | $ | | |||
Interest on deposits in other banks | | | | | |||||||
Interest and dividends on securities: | |||||||||||
Taxable | | | | | |||||||
Nontaxable | | | | | |||||||
Total interest and dividend income | | | | | |||||||
Interest expense: | |||||||||||
Interest on deposits | | | | | |||||||
Interest on short-term borrowings | | | | | |||||||
Interest on long-term borrowings | | | | | |||||||
Total interest expense | | | | | |||||||
Net interest income | | | | | |||||||
Provision for credit losses | | ( | | ( | |||||||
Net interest income after provision for credit losses | | | | | |||||||
Noninterest income: | |||||||||||
Service charges on deposit accounts | | | | | |||||||
Other service charges, commissions and fees | | | | | |||||||
Interchange fees | | | | | |||||||
Fiduciary and asset management fees | | | | | |||||||
Mortgage banking income | | | | | |||||||
Bank owned life insurance income | | | | | |||||||
Loan-related interest rate swap fees | | | | | |||||||
Other operating income | | | | | |||||||
Total noninterest income | | | | | |||||||
Noninterest expenses: | |||||||||||
Salaries and benefits | | | | | |||||||
Occupancy expenses | | | | | |||||||
Furniture and equipment expenses | | | | | |||||||
Technology and data processing | | | | | |||||||
Professional services | | | | | |||||||
Marketing and advertising expense | | | | | |||||||
FDIC assessment premiums and other insurance | | | | | |||||||
Franchise and other taxes | | | | | |||||||
Loan-related expenses | | | | | |||||||
Amortization of intangible assets | | | | | |||||||
Loss on debt extinguishment | | | | | |||||||
Other expenses | | | | | |||||||
Total noninterest expenses | | | | | |||||||
Income from continuing operations before income taxes | | | | | |||||||
Income tax expense | | | | | |||||||
Net income | | | | | |||||||
Dividends on preferred stock | | | | | |||||||
Net income available to common shareholders | $ | | $ | | $ | | $ | | |||
Basic earnings per common share | $ | | $ | | $ | | $ | | |||
Diluted earnings per common share | $ | | $ | | $ | | $ | | |||
Dividends declared per common share | $ | | $ | | $ | | $ | | |||
Basic weighted average number of common shares outstanding | | | |||||||||
Diluted weighted average number of common shares outstanding | | |
See accompanying notes to consolidated financial statements.
-3-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Dollars in thousands)
Three Months Ended |
| Nine Months Ended | ||||||||||
September 30, |
| September 30, | ||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive (loss) income: |
|
|
|
|
| |||||||
Cash flow hedges: |
|
|
|
|
| |||||||
Change in fair value of cash flow hedges (net of tax, $ |
| ( |
| ( |
| ( |
| | ||||
Reclassification adjustment for (gains) included in net income (net of tax, $ |
| |
| |
| |
| ( | ||||
AFS securities: |
|
|
|
| ||||||||
Unrealized holding (losses) arising during period (net of tax, $ |
| ( |
| ( |
| ( |
| ( | ||||
Reclassification adjustment for (gains) losses included in net income (net of tax, $ |
| |
| ( |
| |
| ( | ||||
HTM securities: |
|
|
|
| ||||||||
Reclassification adjustment for accretion of unrealized (gain) on AFS securities transferred to HTM (net of tax, $ |
| ( |
| ( |
| ( |
| ( | ||||
Bank owned life insurance: |
|
|
| |||||||||
Reclassification adjustment for losses included in net income (4) |
| |
| |
| |
| | ||||
Other comprehensive (loss) income: |
| ( |
| ( |
| ( |
| ( | ||||
Comprehensive (loss) income | $ | ( | $ | | $ | ( | $ | |
(1)
(2)
(3)
(4)
See accompanying notes to consolidated financial statements.
-4-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2022
(Dollars in thousands, except share and per share amounts)
|
|
|
|
| Accumulated |
| ||||||||||||
Additional | Other | |||||||||||||||||
Common | Preferred | Paid-In | Retained | Comprehensive | ||||||||||||||
Stock | Stock | Capital | Earnings | Income (Loss) | Total | |||||||||||||
Balance - December 31, 2021 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Net Income |
| |
| | ||||||||||||||
Other comprehensive loss (net of taxes of $ |
| ( |
| ( | ||||||||||||||
Dividends on common stock ($ |
| ( |
| ( | ||||||||||||||
Dividends on preferred stock ($ |
| ( |
| ( | ||||||||||||||
Stock purchased under stock repurchase plan ( | ( | ( | ( | |||||||||||||||
Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes ( |
| | | | ||||||||||||||
Stock-based compensation expense |
| |
| | ||||||||||||||
Balance - March 31, 2022 | $ | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net Income |
| |
| | ||||||||||||||
Other comprehensive loss (net of taxes of $ |
| ( |
| ( | ||||||||||||||
Dividends on common stock ($ |
| ( |
| ( | ||||||||||||||
Dividends on preferred stock ($ |
| ( |
| ( | ||||||||||||||
Stock purchased under stock repurchase plan ( | ( | ( | ( | |||||||||||||||
Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes ( |
| | ( |
| ( | |||||||||||||
Stock-based compensation expense | | | ||||||||||||||||
Balance - June 30, 2022 | $ | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net Income |
| |
| | ||||||||||||||
Other comprehensive loss (net of taxes of $ |
| ( |
| ( | ||||||||||||||
Dividends on common stock ($ |
| ( |
| ( | ||||||||||||||
Dividends on preferred stock ($ |
| ( |
| ( | ||||||||||||||
Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes ( |
| | |
| | |||||||||||||
Stock-based compensation expense | | | ||||||||||||||||
Balance - September 30, 2022 | $ | | $ | | $ | | $ | | $ | ( | $ | |
-5-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2021
(Dollars in thousands, except share and per share amounts)
|
|
|
|
| Accumulated |
| ||||||||||||
Additional | Other | |||||||||||||||||
Common | Preferred | Paid-In | Retained | Comprehensive | ||||||||||||||
Stock | Stock | Capital | Earnings | Income (Loss) | Total | |||||||||||||
Balance - December 31, 2020 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Net Income |
| |
| | ||||||||||||||
Other comprehensive loss (net of taxes of $ |
|
| ( |
| ( | |||||||||||||
Dividends on common stock ($ |
|
| ( |
| ( | |||||||||||||
Dividends on preferred stock ($ | ( | ( | ||||||||||||||||
Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes ( |
| | ( |
| | |||||||||||||
Stock-based compensation expense |
|
| |
| | |||||||||||||
Balance - March 31, 2021 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Net Income |
| |
| | ||||||||||||||
Other comprehensive income (net of taxes of $ | | | ||||||||||||||||
Dividends on common stock ($ | ( | ( | ||||||||||||||||
Dividends on preferred stock ($ | ( | ( | ||||||||||||||||
Stock purchased under stock repurchase plan ( | ( | ( | ( | |||||||||||||||
Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes ( | | | | |||||||||||||||
Stock-based compensation expense | | | ||||||||||||||||
Balance - June 30, 2021 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Net Income |
| | | |||||||||||||||
Other comprehensive loss (net of taxes of $ | ( | ( | ||||||||||||||||
Dividends on common stock ($ | ( | ( | ||||||||||||||||
Dividends on preferred stock ($ | ( | ( | ||||||||||||||||
Stock purchased under stock repurchase plan ( | ( | ( | ( | |||||||||||||||
Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes ( | | | | |||||||||||||||
Stock-based compensation expense | | | ||||||||||||||||
Balance - September 30, 2021 | $ | | $ | | $ | | $ | | $ | | $ | |
See accompanying notes to consolidated financial statements.
-6-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Dollars in thousands)
| 2022 |
| 2021 | |||
Operating activities: |
|
|
|
| ||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
| ||
Depreciation of premises and equipment |
| |
| | ||
Writedown of ROU assets, foreclosed properties, and equipment |
| |
| | ||
Amortization, net |
| |
| | ||
Amortization (accretion) related to acquisitions, net |
| |
| ( | ||
Provision for credit losses |
| |
| ( | ||
Gain on sale of DHFB |
| ( |
| | ||
BOLI income | ( | ( | ||||
Originations and purchases of LHFS |
| ( |
| ( | ||
Proceeds from sales of LHFS | | | ||||
(Gains) losses on sales of foreclosed properties and former bank premises, net | ( | | ||||
Losses on debt extinguishment | | | ||||
Stock-based compensation expenses |
| |
| | ||
Issuance of common stock for services |
| |
| | ||
Net (increase) decrease in other assets |
| ( |
| | ||
Net increase (decrease) in other liabilities |
| |
| ( | ||
Net cash provided by operating activities |
| |
| | ||
Investing activities: |
|
|
|
| ||
Purchases of AFS securities, restricted stock, and other investments |
| ( |
| ( | ||
Purchases of HTM securities |
| ( |
| | ||
Proceeds from sales of AFS securities and restricted stock |
| |
| | ||
Proceeds from maturities, calls and paydowns of AFS securities |
| |
| | ||
Proceeds from maturities, calls and paydowns of HTM securities |
| |
| | ||
Net (increase) decrease in LHFI | ( | | ||||
Net increase in premises and equipment |
| ( |
| ( | ||
Proceeds from BOLI settlements | | | ||||
Purchases of BOLI policies | | ( | ||||
Proceeds from sales of foreclosed properties and former bank premises |
| |
| | ||
Net cash (used in) provided by investing activities |
| ( |
| | ||
Financing activities: |
|
|
|
| ||
Net increase in noninterest-bearing deposits |
| |
| | ||
Net decrease in interest-bearing deposits |
| ( |
| ( | ||
Net increase (decrease) in short-term borrowings |
| |
| ( | ||
Repayments of long-term debt | | ( | ||||
Cash dividends paid - common stock |
| ( |
| ( | ||
Cash dividends paid - preferred stock | ( | ( | ||||
Repurchase of common stock | ( | ( | ||||
Issuance of common stock |
| |
| | ||
Vesting of restricted stock, net of shares held for taxes |
| ( |
| ( | ||
Net cash (used in) provided by financing activities |
| ( |
| | ||
(Decrease) increase in cash and cash equivalents |
| ( | | |||
Cash, cash equivalents and restricted cash at beginning of the period |
| |
| | ||
Cash, cash equivalents and restricted cash at end of the period | $ | | $ | |
-7-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Dollars in thousands)
| 2022 |
| 2021 | |||
Supplemental Disclosure of Cash Flow Information |
|
|
|
| ||
Cash payments for: |
|
|
|
| ||
Interest | $ | | $ | | ||
Income taxes |
| |
| | ||
Supplemental schedule of noncash investing and financing activities |
|
|
|
| ||
Transfers from loans to foreclosed properties |
| |
| | ||
Transfers from bank premises to OREO | | |
See accompanying notes to consolidated financial statements.
-8-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The Company
Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (Nasdaq: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank has
Effective June 30, 2022, the Company completed the sale of DHFB, which was formerly a subsidiary of the Bank.
The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements; however, in the opinion of management all adjustments necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other period.
The unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s 2021 Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.
Adoption of New Accounting Standards
In March 2020, the FASB issued Topic 848. This guidance provides temporary, optional guidance to ease the potential burden in accounting for reference rate reform associated with the LIBOR transition. LIBOR and other interbank offered rates
are widely used benchmark or reference rates that have been used in the valuation of loans, derivatives, and other financial
contracts. Topic 848 provides optional expedients and exceptions, subject to meeting certain criteria, for applying current
GAAP to contract modifications and hedging relationships, for contracts that reference LIBOR or other reference rates
expected to be discontinued. Topic 848 is intended to help stakeholders during the global market-wide reference rate
transition period. The amendments are effective as of March 12, 2020 through December 31, 2022 and can be adopted at an
instrument level. As of March 31, 2021, the Company utilized the expedient to assert probability of the hedged interest,
regardless of any expected modification in terms related to reference rate reform for the newly executed cash flow hedges.
The Company expects to incorporate other components of Topic 848 at a later date. This amendment does not have a material
impact on the consolidated financial statements.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company defines cash and cash equivalents as cash, cash due from banks, interest-bearing deposits in other banks, short-term money market investments, other interest-bearing deposits, and federal funds sold.
Restricted cash is disclosed in Note 7 “Commitments and Contingencies” in Part I, Item I of this Quarterly Report and is comprised of cash maintained at various correspondent banks as collateral for the Company’s derivative portfolio and is included in interest-bearing deposits in other banks in the Company’s Consolidated Balance Sheets. In addition, the Company is required to maintain reserve balances with the FRB based on the type and amount of deposits; however, on March 15, 2020 the Federal Reserve announced that reserve requirement ratios would be reduced to zero percent effective March 26, 2020 due to economic conditions, which eliminated the reserve requirement for all depository institutions. The reserve requirement is still at zero percent as of September 30, 2022.
Accrued Interest Receivable
The Company has elected to exclude accrued interest from the amortized cost basis in its determination of the ALLL, as well as the ACL reserve for securities. Accrued interest receivable totaled $
-9-
Company’s policy is to write off accrued interest receivable through reversal of interest income when it becomes probable the Company will not be able to collect the accrued interest. For the quarters ended September 30, 2022 and September 30, 2021, accrued interest receivable write offs were not material to the Company’s consolidated financial statements.
Segment Reporting
Operating segments are components of a business where separate financial information is available and evaluated regularly by the CODMs in deciding how to allocate resources and in assessing performance. ASC Topic 280, Segment Reporting, requires information to be reported about a company’s operating segments using a “management approach,” meaning it is based on the way management organizes segments internally to make operating decisions and assess performance. Based on this guidance, historically, the Company has had only one reportable operating segment, the Bank. However, effective for the third quarter of 2022, the Company completed system conversions that allow its CODMs to evaluate the business, establish the overall business strategy, allocate resources, and assess business performance within two reportable operating segments: Wholesale Banking and Consumer Banking, with corporate support functions such as corporate treasury and others included in Corporate Other. The application and development of management reporting methodologies is a dynamic process subject to periodic enhancements. As these enhancements are made, financial results presented by each reportable segment may be periodically revised. Refer to Note 12 "Segment Reporting and Revenue" in Part I, Item I of this Quarterly Report for additional details on the Company’s reportable operating segments.
-10-
2. SECURITIES
Available for Sale
The Company’s AFS investment portfolio is generally highly-rated or agency backed. All AFS securities were current with
The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of September 30, 2022 are summarized as follows (dollars in thousands):
Amortized | Gross Unrealized | Estimated | ||||||||||
| Cost |
| Gains |
| (Losses) |
| Fair Value | |||||
September 30, 2022 |
|
|
|
|
|
|
| |||||
U.S. government and agency securities | $ | | $ | | $ | ( | $ | | ||||
Obligations of states and political subdivisions |
| |
| |
| ( |
| | ||||
Corporate and other bonds (1) |
| |
| |
| ( |
| | ||||
Commercial MBS |
|
| ||||||||||
Agency | |
| |
| ( | | ||||||
Non-agency | |
| |
| ( | | ||||||
Total commercial MBS | |
| |
| ( | | ||||||
Residential MBS | ||||||||||||
Agency | |
| |
| ( | | ||||||
Non-agency | |
| |
| ( | | ||||||
Total residential MBS | |
| |
| ( | | ||||||
Other securities |
| |
| |
| |
| | ||||
Total AFS securities | $ | | $ | | $ | ( | $ | |
(1) Other bonds include asset-backed securities
The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of December 31, 2021 are summarized as follows (dollars in thousands):
Amortized | Gross Unrealized | Estimated | ||||||||||
| Cost |
| Gains |
| (Losses) |
| Fair Value | |||||
December 31, 2021 | ||||||||||||
U.S. government and agency securities | $ | | $ | | $ | ( | $ | | ||||
Obligations of states and political subdivisions | | | ( | | ||||||||
Corporate and other bonds (1) |
| |
| |
| ( |
| | ||||
Commercial MBS |
|
| ||||||||||
Agency | | | ( | | ||||||||
Non-agency | | | ( | | ||||||||
Total commercial MBS | | | ( | | ||||||||
Residential MBS | ||||||||||||
Agency | | | ( | | ||||||||
Non-agency | | | ( | | ||||||||
Total residential MBS | | | ( | | ||||||||
Other securities |
| |
| |
| |
| | ||||
Total AFS securities | $ | | $ | | $ | ( | $ | |
(1) Other bonds include asset-backed securities
-11-
The following table shows the gross unrealized losses and fair value of the Company’s AFS securities with unrealized losses for which an ACL has not been recorded at September 30, 2022 and December 31, 2021 and that are not deemed to be impaired as of those dates. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position (dollars in thousands).
Less than 12 months | More than 12 months | Total | ||||||||||||||||
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | |||||||
Value | Losses | Value(2) | Losses | Value | Losses | |||||||||||||
September 30, 2022 |
|
|
|
|
|
| ||||||||||||
U.S. government and agency securities | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
Obligations of states and political subdivisions | | ( | | ( | | ( | ||||||||||||
Corporate and other bonds(1) |
| |
| ( |
| |
| ( |
| |
| ( | ||||||
Commercial MBS |
| |||||||||||||||||
Agency | | ( | | ( | | ( | ||||||||||||
Non-agency | | ( | | ( | | ( | ||||||||||||
Total commercial MBS | | ( | | ( | | ( | ||||||||||||
Residential MBS | ||||||||||||||||||
Agency | | ( | | ( | | ( | ||||||||||||
Non-agency | | ( | | ( | | ( | ||||||||||||
Total residential MBS | | ( | | ( | | ( | ||||||||||||
Total AFS securities | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. government and agency securities | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
Obligations of states and political subdivisions | | ( | | ( | | ( | ||||||||||||
Corporate and other bonds(1) |
| |
| ( |
| |
| ( |
| |
| ( | ||||||
Commercial MBS |
|
|
|
|
|
| ||||||||||||
Agency | | ( | | ( | | ( | ||||||||||||
Non-agency | | ( | | ( | | ( | ||||||||||||
Total commercial MBS | | ( | | ( | | ( | ||||||||||||
Residential MBS | ||||||||||||||||||
Agency | | ( | | ( | | ( | ||||||||||||
Non-agency | | ( | | ( | | ( | ||||||||||||
Total residential MBS | | ( | | ( | | ( | ||||||||||||
Total AFS securities | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( |
(1) Other bonds include asset-backed securities
(2) Comprised of
The Company has evaluated AFS securities in an unrealized loss position for credit related impairment at September 30, 2022 and December 31, 2021 and concluded
Additionally, the majority of the Company’s MBS are issued by FNMA, FHLMC, and GNMA and do not have credit risk given the implicit and explicit government guarantees associated with these agencies. In addition, the non-agency mortgage-backed and asset-backed securities generally received a
-12-
The following table presents the amortized cost and estimated fair value of AFS securities as of September 30, 2022 and December 31, 2021, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
September 30, 2022 | December 31, 2021 | |||||||||||
| Amortized |
| Estimated |
| Amortized |
| Estimated | |||||
Cost | Fair Value | Cost | Fair Value | |||||||||
Due in one year or less | $ | | $ | | $ | | $ | | ||||
Due after one year through five years |
| |
| |
| |
| | ||||
Due after five years through ten years |
| |
| |
| |
| | ||||
Due after ten years |
| |
| |
| |
| | ||||
Total AFS securities | $ | | $ | | $ | | $ | |
Refer to Note 7 "Commitments and Contingencies" in Part I, Item I of this Quarterly Report for information regarding the estimated fair value of AFS securities that were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of September 30, 2022 and December 31, 2021.
Held to Maturity
The Company’s HTM investment portfolio primarily consists of highly-rated municipal securities. The Company’s HTM securities were substantially all current at September 30, 2022 and December 31, 2021.
The Company reports HTM securities on the Company’s Consolidated Balance Sheets at carrying value. Carrying value is amortized cost, which includes any unamortized unrealized gains and losses recognized in AOCI prior to reclassifying the securities from AFS securities to HTM securities. Investment securities transferred into the HTM category from the AFS category are recorded at fair value at the date of transfer. The unrealized holding gains or losses at the date of transfer are retained in AOCI and in the carrying value of the HTM securities. Such unrealized gains or losses are accreted over the remaining life of the security with no impact on future net income.
The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of September 30, 2022 are summarized as follows (dollars in thousands):
Carrying | Gross Unrealized | Estimated | ||||||||||
| Value |
| Gains |
| (Losses) | Fair Value | ||||||
September 30, 2022 |
|
|
|
|
|
|
| |||||
U.S. government and agency securities | $ | | $ | | $ | ( | $ | | ||||
Obligations of states and political subdivisions | | | ( | | ||||||||
Commercial Agency MBS | | | ( | | ||||||||
Residential MBS | ||||||||||||
Agency | | | ( | | ||||||||
Non-agency | | | ( | | ||||||||
Total residential MBS | | | ( | | ||||||||
Total HTM securities | $ | | $ | | $ | ( | $ | |
The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of December 31, 2021 are summarized as follows (dollars in thousands):
Carrying | Gross Unrealized | Estimated | ||||||||||
| Value |
| Gains |
| (Losses) |
| Fair Value | |||||
December 31, 2021 |
|
|
|
|
|
|
|
| ||||
U.S. government and agency securities | $ | | $ | | $ | ( | $ | | ||||
Obligations of states and political subdivisions | | | ( | | ||||||||
Commercial Agency MBS | | | ( | | ||||||||
Total HTM securities | $ | | $ | | $ | ( | $ | |
-13-
Credit Quality Indicators & Allowance for Credit Losses - HTM
For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis based on the PD/LGD methodology primarily using security-level credit ratings. The Company’s HTM securities ACL was immaterial at September 30, 2022 and December 31, 2021. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The majority of the Company’s HTM securities with credit risk are obligations of states and political subdivisions.
The following table presents the amortized cost of HTM securities as of September 30, 2022 and December 31, 2021 by security type and credit rating (dollars in thousands):
| U.S. Government and Agency |
| Obligations of states and political |
| Mortgage-backed |
| Total HTM | |||||
securities | subdivisions | securities | securities | |||||||||
September 30, 2022 | ||||||||||||
Credit Rating: |
|
| ||||||||||
AAA/AA/A | $ | | $ | | $ | | $ | | ||||
BBB/BB/B | | | | | ||||||||
Not Rated - Agency(1) | | | | | ||||||||
Not Rated - Non-Agency(2) | |
| | | | |||||||
Total | $ | | $ | | $ | | $ | | ||||
December 31, 2021 | ||||||||||||
Credit Rating: |
|
| ||||||||||
AAA/AA/A | $ | | $ | | $ | | $ | | ||||
Not Rated - Agency(1) | | | | | ||||||||
Total | $ | | $ | | $ | | $ | |
(1) Generally considered not to have credit risk given the government guarantees associated with these agencies
(2) Non-agency mortgage-backed and asset-backed securities have limited credit risk, supported by most receiving a 20% SSFA rating
The following table presents the amortized cost and estimated fair value of HTM securities as of September 30, 2022 and December 31, 2021, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
September 30, 2022 | December 31, 2021 | |||||||||||
| Carrying |
| Estimated |
| Carrying |
| Estimated | |||||
Value | Fair Value | Value | Fair Value | |||||||||
Due in one year or less | $ | | $ | | $ | | $ | | ||||
Due after one year through five years |
| |
| |
| |
| | ||||
Due after five years through ten years |
| |
| |
| |
| | ||||
Due after ten years |
| |
| |
| |
| | ||||
Total HTM securities | $ | | $ | | $ | | $ | |
Refer to Note 7 "Commitments and Contingencies" in Part I, Item I of this Quarterly Report for information regarding the estimated fair value of HTM securities that were pledged to secure public deposits as permitted or required by law as of September 30, 2022 and December 31, 2021.
Restricted Stock, at cost
Due to restrictions placed upon the Bank’s common stock investment in the FRB and FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. Restricted stock consists of FRB stock in the amount of $
-14-
Realized Gains and Losses
The following table presents the gross realized gains and losses on and the proceeds from the sale of securities during the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):
| Three Months Ended |
| Nine Months Ended | |||
September 30, 2022 | September 30, 2022 | |||||
Realized gains (losses)(1): |
|
|
|
| ||
Gross realized gains | $ | | $ | | ||
Gross realized losses |
| |
| ( | ||
Net realized gains | $ | | $ | ( | ||
Proceeds from sales of securities | $ | | $ | | ||
| Three Months Ended |
| Nine Months Ended | |||
September 30, 2021 | September 30, 2021 | |||||
Realized gains (losses)(1): |
|
|
|
| ||
Gross realized gains | $ | | $ | | ||
Gross realized losses |
| |
| ( | ||
Net realized gains | $ | | $ | | ||
Proceeds from sales of securities | $ | | $ | |
(1) Includes gains (losses) on sales and calls of securities
-15-
3. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The information included below reflects the impact of the CARES Act, as amended by the CAA, and the Joint Guidance. See Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 2021 Form 10-K for information about COVID-19 and related legislative and regulatory developments.
The Company’s loans are stated at their face amount, net of deferred fees and costs, and consisted of the following at September 30, 2022 and December 31, 2021 (dollars in thousands):
September 30, 2022 |
| December 31, 2021 | ||||
Construction and Land Development | $ | | $ | | ||
Commercial Real Estate - Owner Occupied |
| |
| | ||
Commercial Real Estate - Non-Owner Occupied |
| |
| | ||
Multifamily Real Estate |
| |
| | ||
Commercial & Industrial(1) |
| |
| | ||
Residential 1-4 Family - Commercial |
| |
| | ||
Residential 1-4 Family - Consumer |
| |
| | ||
Residential 1-4 Family - Revolving |
| |
| | ||
Auto |
| |
| | ||
Consumer |
| |
| | ||
Other Commercial(2) |
| |
| | ||
Total LHFI, net of deferred fees and costs(3) | | | ||||
Allowance for loan and lease losses | ( | ( | ||||
Total LHFI, net | $ | | $ | |
(1) Commercial & industrial loans included approximately $
(2) There are
(3) Total loans include unamortized premiums and discounts, and unamortized deferred fees and costs totaling $
-16-
The following table shows the aging of the Company’s loan portfolio, by class, at September 30, 2022 (dollars in thousands):
|
|
|
| Greater than |
|
| |||||||||||||
30-59 Days | 60-89 Days | 90 Days and | |||||||||||||||||
Current | Past Due | Past Due | still Accruing | Nonaccrual | Total Loans | ||||||||||||||
Construction and Land Development | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
Commercial Real Estate - Owner Occupied |
| |
| |
| |
| |
| |
| | |||||||
Commercial Real Estate - Non-Owner Occupied |
| |
| |
| |
| |
| |
| | |||||||
Multifamily Real Estate |
| |
| |
| |
| |
| |
| | |||||||
Commercial & Industrial |
| |
| |
| |
| |
| |
| | |||||||
Residential 1-4 Family - Commercial |
| |
| |
| |
| |
| |
| | |||||||
Residential 1-4 Family - Consumer |
| |
| |
| |
| |
| |
| | |||||||
Residential 1-4 Family - Revolving |
| |
| |
| |
| |
| |
| | |||||||
Auto |
| |
| |
| |
| |
| |
| | |||||||
Consumer |
| |
| |
| |
| |
| |
| | |||||||
Other Commercial | | | | | | | |||||||||||||
Total LHFI | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
% of total loans | % | % | % | % | % | % |
The following table shows the aging of the Company’s loan portfolio, by class, at December 31, 2021 (dollars in thousands):
|
|
|
| Greater than |
|
|
| ||||||||||||
30-59 Days | 60-89 Days | 90 Days and |
| ||||||||||||||||
Current | Past Due | Past Due | still Accruing | Nonaccrual | Total Loans |
| |||||||||||||
Construction and Land Development | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
Commercial Real Estate - Owner Occupied |
| |
| |
| |
| |
| |
| | |||||||
Commercial Real Estate - Non-Owner Occupied |
| |
| |
| |
| |
| |
| | |||||||
Multifamily Real Estate |
| |
| |
| |
| |
| |
| | |||||||
Commercial & Industrial |
| |
| |
| |
| |
| |
| | |||||||
Residential 1-4 Family - Commercial |
| |
| |
| |
| |
| |
| | |||||||
Residential 1-4 Family - Consumer |
| |
| |
| |
| |
| |
| | |||||||
Residential 1-4 Family - Revolving |
| |
| |
| |
| |
| |
| | |||||||
Auto |
| |
| |
| |
| |
| |
| | |||||||
Consumer |
| |
| |
| |
| |
| |
| | |||||||
Other Commercial | | | | | | | |||||||||||||
Total LHFI | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
% of total loans | % | % | % | % | % | % |
-17-
The following table shows the Company’s amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of September 30, 2022 (dollars in thousands):
September 30, 2022 | |||||||||
Nonaccrual | Nonaccrual With No ALLL | 90 Days Past due and still Accruing | |||||||
Construction and Land Development | $ | | $ | | $ | | |||
Commercial Real Estate - Owner Occupied | | | | ||||||
Commercial Real Estate - Non-Owner Occupied | | | | ||||||
Commercial & Industrial | | | | ||||||
Residential 1-4 Family - Commercial | | | | ||||||
Residential 1-4 Family - Consumer | | | | ||||||
Residential 1-4 Family - Revolving | | | | ||||||
Auto | | | | ||||||
Consumer | | | | ||||||
Other Commercial | | | | ||||||
Total LHFI | $ | | $ | | $ | |
The following table shows the Company’s amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of December 31, 2021 (dollars in thousands):
December 31, 2021 | |||||||||
Nonaccrual | Nonaccrual With No ALLL | 90 Days Past due and still Accruing | |||||||
Construction and Land Development | $ | | $ | | $ | | |||
Commercial Real Estate - Owner Occupied | | | | ||||||
Commercial Real Estate - Non-Owner Occupied | | | | ||||||
Multifamily Real Estate | | | | ||||||
Commercial & Industrial | | | | ||||||
Residential 1-4 Family - Commercial | | | | ||||||
Residential 1-4 Family - Consumer | | | | ||||||
Residential 1-4 Family - Revolving | | | | ||||||
Auto | | | | ||||||
Consumer | | | | ||||||
Total LHFI | $ | | $ | | $ | |
There was
-18-
Troubled Debt Restructurings
As of September 30, 2022, the Company had TDRs totaling $
A TDR occurs when a lender, for economic or legal reasons, grants a concession to the borrower related to the borrower’s financial difficulties, that it would not otherwise consider. All loans that are considered to be TDRs are evaluated for credit losses in accordance with the Company’s ALLL methodology. For the three and nine months ended September 30, 2022 and September 30, 2021, the recorded investment in TDRs prior to modifications was not materially impacted by the modifications.
The following table provides a summary, by class, of TDRs that continue to accrue interest under the terms of the applicable restructuring agreement, which are considered to be performing, and TDRs that have been placed on nonaccrual status, which are considered to be nonperforming, as of September 30, 2022 and December 31, 2021 (dollars in thousands):
September 30, 2022 | December 31, 2021 | |||||||||||||||
| No. of |
| Recorded |
| Outstanding |
| No. of |
| Recorded |
| Outstanding | |||||
Loans | Investment | Commitment | Loans | Investment | Commitment | |||||||||||
Performing |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Construction and Land Development |
| | $ | | $ | |
| | $ | | $ | | ||||
Commercial Real Estate - Owner Occupied |
| |
| |
| |
| |
| |
| | ||||
Commercial & Industrial |
| |
| |
| |
| |
| |
| | ||||
Residential 1-4 Family - Commercial |
| |
| |
| |
| |
| |
| | ||||
Residential 1-4 Family - Consumer |
| |
| |
| |
| |
| |
| | ||||
Residential 1-4 Family - Revolving |
| |
| |
| |
| |
| |
| | ||||
Consumer |
| |
| |
| |
| |
| |
| | ||||
Other Commercial | | | | | | | ||||||||||
Total performing |
| | $ | | $ | |
| | $ | | $ | | ||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial Real Estate - Owner Occupied |
| | $ | | $ | |
| | $ | | $ | | ||||
Commercial Real Estate - Non-Owner Occupied | | | | | | | ||||||||||
Commercial & Industrial |
| |
| |
| |
| |
| |
| | ||||
Residential 1-4 Family - Commercial |
| |
| |
| |
| |
| |
| | ||||
Residential 1-4 Family - Consumer |
| |
| |
| |
| |
| |
| | ||||
Residential 1-4 Family - Revolving |
| |
| |
| |
| |
| |
| | ||||
Total nonperforming |
| | $ | | $ | |
| | $ | | $ | | ||||
Total performing and nonperforming |
| | $ | | $ | |
| | $ | | $ | |
The Company considers a default of a TDR to occur when the borrower is 90 days past due following the restructure or a foreclosure and repossession of the applicable collateral occurs. During the three and nine months ended September 30, 2022 and 2021, the Company did not have any material loans that went into default that had been restructured in the twelve-month period prior to the time of default.
-19-
The following table shows, by class and modification type, TDRs that occurred during the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):
Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | ||||||||||
|
| Recorded |
|
| Recorded |
| |||||
No. of | Investment at | No. of | Investment at | ||||||||
Loans | Period End | Loans | Period End | ||||||||
Modified to interest only, at a market rate |
|
|
|
|
|
|
|
|
| ||
Residential 1-4 Family - Commercial | | $ | | | $ | | |||||
Total interest only at market rate of interest |
| | $ | |
| | $ | |
| ||
Term modification, at a market rate |
|
|
|
|
|
|
|
|
| ||
Commercial Real Estate - Owner Occupied |
| | $ | |
| | $ | |
| ||
Total loan term extended at a market rate |
| | $ | |
| | $ | |
| ||
Term modification, below market rate |
|
|
|
|
|
|
|
|
| ||
Residential 1-4 Family - Consumer |
| | $ | |
| | $ | |
| ||
Total loan term extended at a below market rate |
| | $ | |
| | $ | |
| ||
Total |
| | $ | |
| | $ | |
|
Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | ||||||||||
|
| Recorded |
|
| Recorded |
| |||||
No. of | Investment at | No. of | Investment at | ||||||||
Loans | Period End | Loans | Period End | ||||||||
Modified to interest only, at a market rate |
|
|
|
|
|
|
|
|
| ||
Total interest only at market rate of interest |
| | $ | |
| | $ | |
| ||
Term modification, at a market rate |
|
|
|
|
|
|
|
|
| ||
Commercial Real Estate - Non-Owner Occupied |
| | $ | | | $ | |
| |||
Residential 1-4 Family - Consumer |
| | |
| | |
| ||||
Total loan term extended at a market rate |
| | $ | |
| | $ | |
| ||
Term modification, below market rate |
|
|
|
|
|
|
|
|
| ||
Residential 1-4 Family - Consumer |
| | $ | |
| | $ | |
| ||
Consumer | | | | | |||||||
Total loan term extended at a below market rate |
| | $ | |
| | $ | |
| ||
Interest rate modification, below market rate |
|
|
|
|
|
|
|
|
| ||
Residential 1-4 Family - Commercial |
| | $ | |
| | $ | |
| ||
Total interest only at below market rate of interest |
| | $ | |
| | $ | |
| ||
Total |
| | $ | |
| | $ | |
|
-20-
Allowance for Loan and Lease Losses
ALLL on the loan portfolio is a material estimate for the Company. The Company estimates its ALLL on its loan portfolio on a quarterly basis. The Company models the ALLL using two primary segments, Commercial and Consumer. Each loan segment is further disaggregated into classes based on similar risk characteristics. The Company has identified the following classes within each loan segment:
● | Commercial: Construction and Land Development, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Multifamily Real Estate, Commercial & Industrial, Residential 1-4 Family – Commercial, and Other Commercial |
● | Consumer: Residential 1-4 Family – Consumer, Residential 1-4 Family – Revolving, Auto, and Consumer |
The following tables show the ALLL activity by loan segment for the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):
Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||||||||||||
Commercial | Consumer | Total |
| Commercial | Consumer | Total | ||||||||||||
Balance at beginning of period | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Loans charged-off |
| ( |
| ( |
| ( |
|
| ( |
| ( |
| ( | |||||
Recoveries credited to allowance |
| |
| |
| |
| |
| |
| | ||||||
Provision charged to operations |
| |
| ( |
| |
|
| |
| |
| | |||||
Balance at end of period | $ | | $ | | $ | |
| $ | | $ | | $ | |
Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||||||||||||||
Commercial | Consumer | Total |
| Commercial | Consumer | Total | ||||||||||||
Balance at beginning of period | $ | | $ | | $ | |
| $ | | $ | | $ | | |||||
Loans charged-off |
| ( |
| ( |
| ( |
|
| ( |
| ( |
| ( | |||||
Recoveries credited to allowance |
| |
| |
| |
|
| |
| |
| | |||||
Provision charged to operations |
| ( |
| ( |
| ( |
|
| ( |
| ( |
| ( | |||||
Balance at end of period | $ | | $ | | $ | | $ | | $ | | $ | |
-21-
Credit Quality Indicators
Credit quality indicators are utilized to help estimate the collectability of each loan class within the Commercial and Consumer loan segments. For classes of loans within the Commercial segment, the primary credit quality indicator used for evaluating credit quality and estimating the ALLL is risk rating categories of Pass, Watch, Special Mention, Substandard, and Doubtful. For classes of loans within the Consumer segment, the primary credit quality indicator used for evaluating credit quality and estimating the ALLL is delinquency bands of Current, 30-59, 60-89, 90+, and Nonaccrual. While other credit quality indicators are evaluated and analyzed as part of the Company’s credit risk management activities, these indicators are primarily used in estimating the ALLL. The Company evaluates the credit risk of its loan portfolio on at least a quarterly basis.
Commercial Loans
The Company uses a risk rating system as the primary credit quality indicator for classes of loans within the Commercial segment. The risk rating system on a scale of 0 through 9 is used to determine risk level as used in the calculation of the ACL. The risk levels, as described below, do not necessarily follow the regulatory definitions of risk levels with the same name. A general description of the characteristics of the risk levels follows:
Pass is determined by the following criteria:
● | Risk rated 0 loans have little or no risk and are with General Obligation Municipal Borrowers; |
● | Risk rated 1 loans have little or no risk and are generally secured by cash or cash equivalents; |
● | Risk rated 2 loans have minimal risk to well qualified borrowers and no significant questions as to safety; |
● | Risk rated 3 loans are satisfactory loans with strong borrowers and secondary sources of repayment; |
● | Risk rated 4 loans are satisfactory loans with borrowers not as strong as risk rated 3 loans and may exhibit a greater degree of financial risk based on the type of business supporting the loan. |
Watch is determined by the following criteria:
● | Risk rated 5 loans are watch loans that warrant more than the normal level of supervision and have the possibility of an event occurring that may weaken the borrower’s ability to repay. |
Special Mention is determined by the following criteria:
● | Risk rated 6 loans have increasing potential weaknesses beyond those at which the loan originally was granted and if not addressed could lead to inadequately protecting the Company’s credit position. |
Substandard is determined by the following criteria:
● | Risk rated 7 loans are substandard loans and are inadequately protected by the current sound worth or paying capacity of the obligor or the collateral pledged; these have well defined weaknesses that jeopardize the liquidation of the debt with the distinct possibility the Company will sustain some loss if the deficiencies are not corrected. |
Doubtful is determined by the following criteria:
● | Risk rated 8 loans are doubtful of collection and the possibility of loss is high but pending specific borrower plans for recovery, its classification as a loss is deferred until its more exact status is determined; |
● | Risk rated 9 loans are loss loans which are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. |
-22-
The table below details the amortized cost of the classes of loans within the Commercial segment by risk level and year of origination as of September 30, 2022 (dollars in thousands):
September 30, 2022 | ||||||||||||||||||||||||
Term Loans Amortized Cost Basis by Origination Year | ||||||||||||||||||||||||
2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans | Total | |||||||||||||||||
Construction and Land Development | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Construction and Land Development | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Commercial Real Estate - Owner Occupied | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Commercial Real Estate - Owner Occupied | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Commercial Real Estate - Non-Owner Occupied | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Commercial Real Estate - Non-Owner Occupied | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Commercial & Industrial | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Commercial & Industrial | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Multifamily Real Estate | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Total Multifamily Real Estate | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Residential 1-4 Family - Commercial | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Residential 1-4 Family - Commercial | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Other Commercial | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Other Commercial | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Total Commercial | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Commercial | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
-23-
The table below details the amortized cost of the classes of loans within the Commercial segment by risk level and year of origination as of December 31, 2021 (dollars in thousands):
December 31, 2021 | ||||||||||||||||||||||||
Term Loans Amortized Cost Basis by Origination Year | ||||||||||||||||||||||||
2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Total | |||||||||||||||||
Construction and Land Development | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Construction and Land Development | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Commercial Real Estate - Owner Occupied | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Commercial Real Estate - Owner Occupied | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Commercial Real Estate - Non-Owner Occupied | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Commercial Real Estate - Non-Owner Occupied | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Commercial & Industrial | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Commercial & Industrial | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Multifamily Real Estate | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Multifamily Real Estate | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Residential 1-4 Family - Commercial | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Residential 1-4 Family - Commercial | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Other Commercial | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Other Commercial | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Total Commercial | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Watch | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Commercial | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
-24-
Consumer Loans
For Consumer loans, the Company evaluates credit quality based on the delinquency status of the loan. The following table details the amortized cost of the classes of loans within the Consumer segment based on their delinquency status and year of origination as of September 30, 2022 (dollars in thousands):
September 30, 2022 | ||||||||||||||||||||||||
Term Loans Amortized Cost Basis by Origination Year | ||||||||||||||||||||||||
2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans | Total | |||||||||||||||||
Residential 1-4 Family - Consumer | ||||||||||||||||||||||||
Current | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
30-59 Days Past Due | | | | | | | | | ||||||||||||||||
60-89 Days Past Due | | | | | | | | | ||||||||||||||||
90+ Days Past Due | | | | | | | | | ||||||||||||||||
Nonaccrual | | | | | | | | | ||||||||||||||||
Total Residential 1-4 Family - Consumer | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Residential 1-4 Family - Revolving | ||||||||||||||||||||||||
Current | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
30-59 Days Past Due | | | | | | | | | ||||||||||||||||
60-89 Days Past Due | | | | | | | | | ||||||||||||||||
90+ Days Past Due | | | | | | | | | ||||||||||||||||
Nonaccrual | | | | | | | | | ||||||||||||||||
Total Residential 1-4 Family - Revolving | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Auto | ||||||||||||||||||||||||
Current | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
30-59 Days Past Due | | | | | | | | | ||||||||||||||||
60-89 Days Past Due | | | | | | | | | ||||||||||||||||
90+ Days Past Due | | | | | | | | | ||||||||||||||||
Nonaccrual | | | | | | | | | ||||||||||||||||
Total Auto | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Consumer | ||||||||||||||||||||||||
Current | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
30-59 Days Past Due | | | | | | | | | ||||||||||||||||
60-89 Days Past Due | | | | | | | | | ||||||||||||||||
90+ Days Past Due | | | | | | | | | ||||||||||||||||
Total Consumer | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Total Consumer | ||||||||||||||||||||||||
Current | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
30-59 Days Past Due | | | | | | | | | ||||||||||||||||
60-89 Days Past Due | | | | | | | | | ||||||||||||||||
90+ Days Past Due | | | | | | | | | ||||||||||||||||
Nonaccrual | | | | | | | | | ||||||||||||||||
Total Consumer | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
-25-
The following table details the amortized cost of the classes of loans within the Consumer segment based on their delinquency status and year of origination as of December 31, 2021 (dollars in thousands):
December 31, 2021 | ||||||||||||||||||||||||
Term Loans Amortized Cost Basis by Origination Year | ||||||||||||||||||||||||
2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Total | |||||||||||||||||
Residential 1-4 Family - Consumer | ||||||||||||||||||||||||
Current | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
30-59 Days Past Due | | | | | | | | | ||||||||||||||||
60-89 Days Past Due | | | | | | | | | ||||||||||||||||
90+ Days Past Due | | | | | | | | | ||||||||||||||||
Nonaccrual | | | | | | | | | ||||||||||||||||
Total Residential 1-4 Family - Consumer | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Residential 1-4 Family - Revolving | ||||||||||||||||||||||||
Current | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
30-59 Days Past Due | | | | | | | | | ||||||||||||||||
60-89 Days Past Due | | | | | | | | | ||||||||||||||||
90+ Days Past Due | | | | | | | | | ||||||||||||||||
Nonaccrual | | | | | | | | | ||||||||||||||||
Total Residential 1-4 Family - Revolving | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Auto | ||||||||||||||||||||||||
Current | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
30-59 Days Past Due | | | | | | | | | ||||||||||||||||
60-89 Days Past Due | | | | | | | | | ||||||||||||||||
90+ Days Past Due | | | | | | | | | ||||||||||||||||
Nonaccrual | | | | | | | | | ||||||||||||||||
Total Auto | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Consumer | ||||||||||||||||||||||||
Current | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
30-59 Days Past Due | | | | | | | | | ||||||||||||||||
60-89 Days Past Due | | | | | | | | | ||||||||||||||||
90+ Days Past Due | | | | | | | | | ||||||||||||||||
Nonaccrual | | | | | | | | | ||||||||||||||||
Total Consumer | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Total Consumer | ||||||||||||||||||||||||
Current | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
30-59 Days Past Due | | | | | | | | | ||||||||||||||||
60-89 Days Past Due | | | | | | | | | ||||||||||||||||
90+ Days Past Due | | | | | | | | | ||||||||||||||||
Nonaccrual | | | | | | | | | ||||||||||||||||
Total Consumer | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
The Company did not have any material revolving loans convert to term during the nine months ended September 30, 2022 or the year ended December 31, 2021.
-26-
4. GOODWILL AND INTANGIBLE ASSETS
The Company’s intangible assets consist of core deposits, goodwill, and other intangibles arising from acquisitions. The Company has determined that core deposit intangibles have finite lives and amortizes them over their estimated useful lives. Core deposit intangibles are being amortized over the period of expected benefit, which ranges from
Effective June 30, 2022, the Company, the Bank, and CSP completed the sale of DHFB, which was formerly a subsidiary of the Bank, resulting in a reduction in both the Company’s goodwill of $
In the third quarter of 2022, the Company moved from
The following table presents the Company’s goodwill and intangible assets by operating segment as of September 30, 2022 and December 31, 2021 (dollars in thousands):
Wholesale Banking | Consumer Banking | Corporate Other | Total | |||||||||
As of September 30, 2022 | ||||||||||||
Goodwill | $ | 642,256 | $ | 282,955 | $ | — | $ | 925,211 | ||||
Intangible assets | — | 1,704 | 27,438 | 29,142 | ||||||||
As of December 31, 2021 | ||||||||||||
Goodwill | $ | 642,256 | $ | 293,304 | $ | — | $ | 935,560 | ||||
Intangible assets | — | 8,327 | 34,985 | 43,312 |
Refer to Note 12 “Segment Reporting and Revenue” in Part I, Item 1 “Financial Statements” of this Quarterly Report for more information on the Company’s reportable operating segment changes.
Amortization expense of intangibles for the three months ended September 30, 2022 and 2021 totaled $
As of September 30, 2022, the estimated remaining amortization expense of intangibles is as follows for the years ending (dollars in thousands):
For the remaining three months of 2022 |
| $ | |
2023 | | ||
2024 | | ||
2025 | | ||
2026 | | ||
Thereafter | | ||
Total estimated amortization expense | $ | |
-27-
5. LEASES
The Company enters into both lessor and lessee arrangements and determines if an arrangement is a lease at inception. As both a lessee and lessor, the Company elected the practical expedient permitted under the transition guidance within the standard to account for lease and non-lease components as a single lease component for all asset classes.
Lessor Arrangements
The Company’s lessor arrangements consist of sales-type and direct financing leases for equipment. Lease payment terms are fixed and are typically payable in monthly installments with terms ranging from
At lease inception the Company estimates the expected residual value of the leased property at the end of the lease term by considering both internal and third-party appraisals. In certain cases, the Company obtains lessee-provided residual value guarantees and third-party RVI to reduce its residual asset risk. At September 30, 2022 and December 31, 2021, the carrying value of residual assets covered by residual value guarantees and RVI was $
The net investment in sales-type and direct financing leases consists of the carrying amount of the lease receivables plus unguaranteed residual assets, net of unearned income and any deferred selling profit on direct financing leases. The lease receivables include the lessor’s right to receive lease payments and the guaranteed residual asset value the lessor expects to derive from the underlying assets at the end of the lease term. The Company’s net investment in sales-type and direct financing leases are included in “Loans held for investment, net of deferred fees and costs” on the Company’s Consolidated Balance Sheets. Lease income is recorded in “Interest and fees on loans” on the Company’s Consolidated Statements of Income.
Total net investment in sales-type and direct financing leases consists of the following (dollars in thousands):
| September 30, 2022 | December 31, 2021 | |||||
Sales-type and direct financing leases: | |||||||
Lease receivables, net of unearned income and deferred selling profit | $ | | $ | | |||
Unguaranteed residual values, net of unearned income and deferred selling profit | | | |||||
Total net investment in sales-type and direct financing leases |
| $ | | $ | |
Lessee Arrangements
The Company’s lessee arrangements consist of operating and finance leases; however, the majority of the leases have been classified as non-cancellable operating leases and are primarily for real estate leases with remaining lease terms of up to
Lessee arrangements with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. The ROU assets and lease liabilities associated with operating and finance leases greater than 12 months are recorded in the Company’s Consolidated Balance Sheets; ROU assets within “Other assets” and lease liabilities within “Other liabilities.” ROU assets represent the Company’s right to use an underlying asset over the course of the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The initial measurement of lease liabilities and ROU assets are the same for operating and finance leases. Lease liabilities are recognized at the commencement date based on the present value of the remaining lease payments, discounted using the incremental borrowing rate. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets are recognized at commencement date based on the initial measurement of the lease liability, any lease payments made excluding lease incentives, and any initial direct costs incurred. Most of the Company’s operating leases include one or more options to renew and if the Company is reasonably certain to exercise those options, it would be included in the measurement of the operating ROU assets and lease liabilities.
-28-
Lease expense for operating lease payments is recognized on a straight-line basis over the lease term and recorded in “Occupancy expenses” on the Company’s Consolidated Statements of Income. Finance lease expenses consist of straight-line amortization expense of the ROU Assets recognized over the lease term and interest expense on the lease liability. Total finance lease expenses for the amortization of the ROU assets are recorded in “Occupancy expenses” on the Company’s Consolidated Statements of Income and interest expense on the finance lease liability is recorded in “Interest on long-term borrowings” on the Company’s Consolidated Statements of Income.
The tables below provide information about the Company’s lessee lease portfolio and other supplemental lease information (dollars in thousands):
| September 30, 2022 | December 31, 2021 | |||||||||||||||
Operating | Operating | ||||||||||||||||
$ | | $ | | $ | | $ | | ||||||||||
| | | | ||||||||||||||
Lease Term and Discount Rate of Operating leases: |
| ||||||||||||||||
Weighted-average remaining lease term (years) |
| ||||||||||||||||
Weighted-average discount rate (1) |
| | % | | % | | % | | % |
(1) An incremental borrowing rate is used based on information available at commencement date of lease or at remeasurement date
Nine months ended September 30, | ||||||
| 2022 | 2021 | ||||
Cash paid for amounts included in measurement of lease liabilities: | ||||||
Operating Cash Flows from Finance Leases | $ | | $ | | ||
Operating Cash Flows from Operating Leases |
| | | |||
Financing Cash Flows from Finance Leases | | | ||||
ROU assets obtained in exchange for lease obligations: | ||||||
Operating leases | $ | | $ | |
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Net Operating Lease Cost | $ | | $ | |
| $ | | $ | | |||
Finance Lease Cost: | ||||||||||||
Amortization of right-of-use assets | | | | | ||||||||
Interest on lease liabilities | | |
| | | |||||||
Total Lease Cost | $ | | $ | | $ | | $ | |
The maturities of lessor and lessee arrangements outstanding at September 30, 2022 are presented in the table below (dollars in thousands):
September 30, 2022 | |||||||||
Lessor | Lessee | ||||||||
Sales-type and Direct Financing | Operating | Finance | |||||||
For the remaining three months of 2022 |
| $ | | $ | | $ | | ||
2023 | | | | ||||||
2024 |
| | | | |||||
2025 |
| | | | |||||
2026 |
| | | | |||||
Thereafter |
| | | | |||||
Total undiscounted cash flows |
| | | | |||||
Less: Adjustments (1) |
| | | | |||||
Total (2) | $ | | $ | | $ | |
(1) Lessor – unearned income and unearned guaranteed residual value; Lessee – imputed interest
(2) Represents lease receivables for lessor arrangements and lease liabilities for lessee arrangements
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6. BORROWINGS
Short-term Borrowings
The Company classifies all borrowings that will mature within a year from the date on which the Company enters into them as short-term borrowings. Total short-term borrowings consist primarily of securities sold under agreements to repurchase, which are secured transactions with customers and generally mature the day following the date sold, advances from the FHLB, federal funds purchased (which are secured overnight borrowings from other financial institutions), and other lines of credit.
Total short-term borrowings consist of the following as of September 30, 2022 and December 31, 2021 (dollars in thousands):
| September 30, | December 31, |
| ||||
2022 | 2021 |
| |||||
Securities sold under agreements to repurchase | $ | | $ | | |||
FHLB Advances |
| |
| | |||
Total short-term borrowings | $ | | $ | | |||
Average outstanding balance during the period | $ | | $ | | |||
Average interest rate during the period |
| % |
| % | |||
Average interest rate at end of period |
| % |
| % |
The Bank maintains federal funds lines with several correspondent banks, the available balance was $
Long-term Borrowings
During the fourth quarter of 2021, the Company issued the 2031 Notes. The 2031 Notes were sold at par resulting in net proceeds, after underwriting discounts and offering expenses, of approximately $
In connection with several previous bank acquisitions, the Company issued $
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Total long-term borrowings consist of the following as of September 30, 2022 (dollars in thousands):
Spread to | ||||||||||||
Principal | 3-Month LIBOR | Rate (1) | Maturity | Investment (2) | ||||||||
Trust Preferred Capital Securities | ||||||||||||
Trust Preferred Capital Note - Statutory Trust I | $ | |
| | % | | % | $ | | |||
Trust Preferred Capital Note - Statutory Trust II |
| |
| | % | | % |
| | |||
VFG Limited Liability Trust I Indenture |
| |
| | % | | % |
| | |||
FNB Statutory Trust II Indenture |
| |
| | % | | % |
| | |||
Gateway Capital Statutory Trust I |
| |
| | % | | % |
| | |||
Gateway Capital Statutory Trust II |
| |
| | % | | % |
| | |||
Gateway Capital Statutory Trust III |
| |
| | % | | % |
| | |||
Gateway Capital Statutory Trust IV |
| |
| | % | | % |
| | |||
MFC Capital Trust II |
| |
| | % | | % |
| | |||
Total Trust Preferred Capital Securities | $ | |
|
|
|
|
|
| $ | | ||
Subordinated Debt(3)(4) | ||||||||||||
2031 Subordinated Debt | | % | | % | ||||||||
Total Subordinated Debt(5) | $ | | ||||||||||
Fair Value Discount(6) | ( | |||||||||||
Investment in Trust Preferred Capital Securities | | |||||||||||
Total Long-term Borrowings | $ | |
(1) Rate as of September 30, 2022. Calculated using non-rounded numbers.
(2) The total of the trust preferred capital securities and investments in the respective trusts represents the principal asset of the Company’s junior subordinated debt securities with like maturities and like interest rates to the capital securities. The Company’s investment in the trusts is reported in "Other assets" on the Company’s Consolidated Balance Sheets.
(3) The remaining issuance discount as of September 30, 2022 is $
(4) Subordinated notes qualify as Tier 2 capital for the Company for regulatory purposes.
(5) Fixed-to-floating rate notes. On December 15, 2026, the interest rate changes to a floating rate of the then current Three-Month Term SOFR plus a spread of
(6) Remaining discounts of $
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