NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation (the "Company") as of September 30, 2021 and December 31, 2020, the consolidated statements of income for the three and nine months ended September 30, 2021 and 2020, the consolidated statements of comprehensive income for the three and nine months ended September 30, 2021 and 2020, the consolidated statements of changes in shareholders' equity for the three and nine months ended September 30, 2021 and 2020, and the consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020. The consolidated financial statements include the accounts of the Company and Camden National Bank (the "Bank"), a wholly-owned subsidiary of the Company (which includes the consolidated accounts of Healthcare Professional Funding Corporation ("HPFC") and Property A, Inc. as of and for the three and nine months ended September 30, 2021, and HPFC, Property A, Inc. and Property P, Inc. as of and for the three and nine months ended September 30, 2020). All intercompany accounts and transactions have been eliminated in consolidation. Assets held by the Bank in a fiduciary capacity, through Camden National Wealth Management, a division of the Bank, are not assets of the Company and, therefore, are not included in the consolidated statements of condition. The Company also owns 100% of the common stock of Camden Capital Trust A and Union Bankshares Capital Trust I. These entities are unconsolidated subsidiaries of the Company. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. Such reclassifications did not impact net income or shareholders' equity as previously reported. Net income reported for the three and nine months ended September 30, 2021, is not necessarily indicative of the results that may be expected for the full year. The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
The acronyms, abbreviations and definitions identified below are used throughout this Form 10-Q, including Part I. "Financial Information" and Part II. "Management's Discussion and Analysis of Financial Condition and Results of Operations." The following is provided to aid the reader and provide a reference page when reviewing these sections of the Form 10-Q.
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AFS:
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Available-for-sale
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FRBB:
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Federal Reserve Bank of Boston
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ALCO:
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Asset/Liability Committee
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GAAP:
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Generally accepted accounting principles in the United States
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ACL:
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Allowance for credit losses
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GDP:
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Gross domestic product
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AOCI:
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Accumulated other comprehensive income (loss)
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HPFC:
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Healthcare Professional Funding Corporation, a wholly-owned subsidiary of Camden National Bank
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ASC:
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Accounting Standards Codification
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HTM:
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Held-to-maturity
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ASU:
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Accounting Standards Update
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IRS:
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Internal Revenue Service
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Bank:
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Camden National Bank, a wholly-owned subsidiary of Camden National Corporation
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LGD:
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Loss given default
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BOLI:
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Bank-owned life insurance
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LIBOR:
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London Interbank Offered Rate
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Board ALCO:
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Board of Directors' Asset/Liability Committee
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LTIP:
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Long-Term Performance Share Plan
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CARES Act:
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Coronavirus Aid, Relief, and Economic Security Act, signed into law in March 2020 in response to COVID-19
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Management ALCO:
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Management Asset/Liability Committee
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CCTA:
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Camden Capital Trust A, an unconsolidated entity formed by Camden National Corporation
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MBS:
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Mortgage-backed security
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CDs:
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Certificate of deposits
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MSPP:
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Management Stock Purchase Plan
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CECL:
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Current Expected Credit Losses
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N/A:
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Not applicable
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Company:
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Camden National Corporation
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N.M.:
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Not meaningful
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CMO:
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Collateralized mortgage obligation
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OCC:
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Office of the Comptroller of the Currency
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CUSIP:
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Committee on Uniform Securities Identification Procedures
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OCI:
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Other comprehensive income (loss)
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DCRP:
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Defined Contribution Retirement Plan
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OREO:
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Other real estate owned
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EPS:
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Earnings per share
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OTTI:
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Other-than-temporary impairment
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FASB:
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Financial Accounting Standards Board
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PD:
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Probability of default
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FDIC:
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Federal Deposit Insurance Corporation
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SBA:
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U.S. Small Business Administration
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FHLB:
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Federal Home Loan Bank
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SBA PPP:
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U.S. Small Business Administration Paycheck Protection Program
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FHLBB:
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Federal Home Loan Bank of Boston
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SERP:
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Supplemental executive retirement plans
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FHLMC:
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Federal Home Loan Mortgage Corporation
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TDR:
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Troubled-debt restructured loan
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FNMA:
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Federal National Mortgage Association
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UBCT:
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Union Bankshares Capital Trust I, an unconsolidated entity formed by Union Bankshares Company that was subsequently acquired by Camden National Corporation
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FRB:
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Federal Reserve System Board of Governors
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U.S.:
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United States of America
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NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted and updated its accounting policies for the following accounting standards that have been applied to the Company's interim consolidated financial statements for the three and nine months ended September 30, 2021:
ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The FASB issued ASU 2019-12 to simplify the accounting for income taxes by removing certain technical exceptions and by clarifying and amending certain areas. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, and as such the Company adopted effective January 1, 2021. There was no material impact on the Company's consolidated financial statements as a result of adopting ASU 2019-12.
ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform ("ASU 2020-04"), as amended by ASU No. 2021-01, Reference Rate Reform (Topic 848) Scope ("ASU 2021-01"). On March 12, 2020, the FASB issued ASU 2020-04, which was subsequently amended by ASU 2021-01. The FASB issued these updates to ease the burden in accounting for the effects of reference rate reform on financial reporting. ASU 2020-04 and ASU 2021-01 contain optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The Company adopted ASU 2020-04 and ASU 2021-01 effective January 1, 2021, and there was no material impact on the Company's consolidated financial statements as a result of adopting this guidance.
NOTE 3 – INVESTMENTS
Trading Securities
Trading securities are reported on the Company's consolidated statements of condition at fair value. As of September 30, 2021 and December 31, 2020, the fair value of the Company's trading securities were $4.3 million and $4.2 million, respectively. These securities are held in a rabbi trust account and invested in mutual funds. The trading securities will be used for future payments associated with the Company's Executive Deferred Compensation Plan and Director Deferred Compensation Plan.
AFS Debt Securities
AFS debt securities are reported on the Company's consolidated statements of condition at fair value. The following table summarizes the amortized cost, estimated fair value, and unrealized gains (losses) of AFS debt securities, as of the dates indicated:
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(In thousands)
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Amortized
Cost
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Unrealized
Gains
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Unrealized
Losses
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Fair
Value
|
September 30, 2021
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|
|
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Obligations of U.S. government-sponsored enterprises
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$
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8,585
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$
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1
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$
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(134)
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|
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$
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8,452
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Obligations of states and political subdivisions
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112,688
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5,267
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(202)
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117,753
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Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
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915,317
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11,286
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(6,611)
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919,992
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Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
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391,128
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4,595
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(2,896)
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392,827
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Subordinated corporate bonds
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16,082
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205
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(101)
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16,186
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Total AFS debt securities
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$
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1,443,800
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$
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21,354
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$
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(9,944)
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|
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$
|
1,455,210
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|
December 31, 2020
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|
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Obligations of states and political subdivisions
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|
$
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119,608
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|
$
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7,627
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|
$
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(115)
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|
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$
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127,120
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Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
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547,396
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19,796
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(574)
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566,618
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Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
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399,937
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10,652
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(135)
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410,454
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Subordinated corporate bonds
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11,533
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186
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(98)
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|
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11,621
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Total AFS debt securities
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$
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1,078,474
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$
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38,261
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$
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(922)
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$
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1,115,813
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As of September 30, 2021 and December 31, 2020, there was no allowance carried on AFS debt securities in accordance with ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13").
The net unrealized gains on AFS debt securities reported within AOCI at September 30, 2021, were $9.0 million, net of a deferred tax liability of $2.5 million. The net unrealized gains on AFS debt securities reported within AOCI at December 31, 2020, were $29.3 million, net of a deferred tax liability of $8.0 million.
For the three and nine months ended September 30, 2021 and 2020, the Company did not sell any AFS debt securities.
The following table presents the Company's AFS debt securities with gross unrealized losses, for which an ACL has not been recorded, segregated by the length of time the securities have been in a continuous loss position, as of the dates indicated:
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|
|
|
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|
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Less Than 12 Months
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12 Months or More
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Total
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(In thousands, except number of holdings)
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Number of
Holdings
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|
Fair
Value
|
|
Unrealized
Losses
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|
Fair
Value
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|
Unrealized
Losses
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|
Fair
Value
|
|
Unrealized
Losses
|
September 30, 2021
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|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government-sponsored enterprises
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|
3
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|
|
$
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7,451
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|
|
$
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(134)
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|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,451
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|
|
$
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(134)
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Obligations of states and political subdivisions
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|
3
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|
2,554
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|
(6)
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|
2,322
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|
(196)
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|
4,876
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|
|
(202)
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Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
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|
83
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528,776
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|
(6,286)
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|
14,565
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|
(325)
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|
|
$
|
543,341
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|
|
(6,611)
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Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
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|
44
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180,559
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|
(2,664)
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|
|
13,241
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|
|
(232)
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|
|
193,800
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|
|
(2,896)
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|
Subordinated corporate bonds
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|
5
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|
|
8,471
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|
|
(101)
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|
|
—
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|
|
—
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|
|
8,471
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|
|
(101)
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|
Total AFS debt securities
|
|
138
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|
|
$
|
727,811
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|
|
$
|
(9,191)
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|
|
$
|
30,128
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|
|
$
|
(753)
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|
|
$
|
757,939
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|
|
$
|
(9,944)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
1
|
|
|
$
|
2,404
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|
|
$
|
(115)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,404
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|
|
$
|
(115)
|
|
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
|
|
15
|
|
|
61,222
|
|
|
(568)
|
|
|
980
|
|
|
(6)
|
|
|
62,202
|
|
|
(574)
|
|
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
|
|
9
|
|
|
39,107
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|
|
(135)
|
|
|
—
|
|
|
—
|
|
|
39,107
|
|
|
(135)
|
|
Subordinated corporate bonds
|
|
5
|
|
|
4,902
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|
|
(98)
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|
|
—
|
|
|
—
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|
|
4,902
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|
|
(98)
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|
Total AFS debt securities
|
|
30
|
|
|
$
|
107,635
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|
|
$
|
(916)
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|
|
$
|
980
|
|
|
$
|
(6)
|
|
|
$
|
108,615
|
|
|
$
|
(922)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2021 and 2020, the unrealized losses on Company's AFS debt securities have not been recognized within income because management does not intend to sell and it is not more-likely-than-not it will be required to sell any of the AFS debt securities before recovery of its amortized cost basis. Furthermore, the unrealized losses were due to changes in interest rates and other market conditions and not reflective of credit events. The issuers continue to make timely principal and interest payments on the bonds.
At September 30, 2021 and December 31, 2020, total accrued interest receivable on AFS debt securities, which has been excluded from reported amortized cost basis on AFS debt securities, was $3.5 million and $3.1 million, respectively, and was reported within other assets on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date.
The amortized cost and estimated fair values of the Company's AFS debt securities by contractual maturity at September 30, 2021, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-related securities are shown in total, as their maturities are highly variable.
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|
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|
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|
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|
(In thousands)
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|
Amortized
Cost
|
|
Fair
Value
|
Due in one year or less
|
|
$
|
3,726
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|
|
$
|
3,773
|
|
Due after one year through five years
|
|
5,665
|
|
|
6,063
|
|
Due after five years through ten years
|
|
78,395
|
|
|
81,078
|
|
Due after ten years
|
|
49,569
|
|
|
51,477
|
|
Subtotal
|
|
137,355
|
|
|
142,391
|
|
Mortgage-related securities
|
|
1,306,445
|
|
|
1,312,819
|
|
Total
|
|
$
|
1,443,800
|
|
|
$
|
1,455,210
|
|
HTM Debt Securities
HTM debt securities are reported on the Company's consolidated statements of condition at amortized cost. The following table summarizes the amortized cost, estimated fair value and unrealized gains (losses) of HTM debt securities as of the dates indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
September 30, 2021
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
1,293
|
|
|
$
|
97
|
|
|
$
|
—
|
|
|
$
|
1,390
|
|
Total HTM debt securities
|
|
$
|
1,293
|
|
|
$
|
97
|
|
|
$
|
—
|
|
|
$
|
1,390
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
1,297
|
|
|
$
|
114
|
|
|
$
|
—
|
|
|
$
|
1,411
|
|
Total HTM debt securities
|
|
$
|
1,297
|
|
|
$
|
114
|
|
|
$
|
—
|
|
|
$
|
1,411
|
|
As of September 30, 2021 and December 31, 2020, the Company’s HTM debt securities portfolio was made up of three investment grade municipal debt securities, of which two securities also carried credit enhancements. The HTM debt securities portfolio was comprised solely of high credit quality (rated AA or higher) state and municipal obligations. High credit quality state and municipal obligations have a history of zero to near-zero credit loss. As a result, the Company determined that the expected credit loss on its HTM portfolio was immaterial, and therefore, an allowance was not carried on its HTM debt securities at September 30, 2021 or December 31, 2020.
As of September 30, 2021 and December 31, 2020, none of the Company's HTM debt securities were past due or on non-accrual status. For the three and nine months ended September 30, 2021 and 2020, the Company did not recognize any interest income on non-accrual HTM debt securities. At September 30, 2021 and December 31, 2020, total accrued interest receivable on HTM debt securities, which has been excluded from reported amortized cost basis on HTM debt securities, was $8,000 and $10,000, respectively, and was reported within other assets on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date.
The amortized cost and estimated fair values of HTM debt securities by contractual maturity at September 30, 2021 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amortized
Cost
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
—
|
|
|
$
|
—
|
|
Due after one year through five years
|
|
868
|
|
|
927
|
|
Due after five years through ten years
|
|
425
|
|
|
463
|
|
Due after ten years
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
1,293
|
|
|
$
|
1,390
|
|
AFS and HTM Debt Securities Pledged
At September 30, 2021 and December 31, 2020, AFS and HTM debt securities with an amortized cost of $720.4 million and $485.0 million and estimated fair values of $728.9 million and $507.1 million, respectively, were pledged to secure FHLBB advances, public deposits, and securities sold under agreements to repurchase and for other purposes required or permitted by law.
Other Investments
The Company's FHLBB and FRB common stock are reported at cost within other investments on the consolidated statements of condition. The Company evaluates these investments for impairment based on the ultimate recoverability of the par value. The Company did not record any impairment on its FHLBB and FRB stock for the three and nine months ended September 30, 2021 and 2020.
The following table summarizes the Company's investment in FHLBB stock and FRBB stock as presented within other investments on the consolidated statements of condition, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
September 30,
2021
|
|
December 31,
2020
|
FHLBB
|
|
$
|
4,906
|
|
|
$
|
6,167
|
|
FRB
|
|
5,374
|
|
|
5,374
|
|
Total other investments
|
|
$
|
10,280
|
|
|
$
|
11,541
|
|
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS
Loans
The composition of the Company’s loan portfolio, excluding residential loans held for sale, was as follows for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
September 30,
2021
|
|
December 31,
2020
|
Commercial Loans:
|
|
|
|
|
Commercial real estate - non owner-occupied
|
|
$
|
1,128,560
|
|
|
$
|
1,097,975
|
|
Commercial real estate - owner-occupied
|
|
291,117
|
|
|
271,495
|
|
Commercial
|
|
352,533
|
|
|
381,494
|
|
SBA PPP
|
|
81,959
|
|
|
135,095
|
|
Total commercial loans
|
|
1,854,169
|
|
|
1,886,059
|
|
Retail Loans:
|
|
|
|
|
Residential real estate
|
|
1,222,084
|
|
|
1,054,798
|
|
Home equity
|
|
218,797
|
|
|
258,573
|
|
Consumer
|
|
20,253
|
|
|
20,392
|
|
Total retail loans
|
|
1,461,134
|
|
|
1,333,763
|
|
Total loans
|
|
$
|
3,315,303
|
|
|
$
|
3,219,822
|
|
The loan balances for each portfolio segment presented above are net of their respective unamortized fair value mark discount on acquired loans and net of unamortized loan origination costs for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
September 30,
2021
|
|
December 31,
2020
|
Net unamortized fair value mark discount on acquired loans
|
|
$
|
(703)
|
|
|
$
|
(1,291)
|
|
Net unamortized loan origination costs(1)
|
|
176
|
|
|
856
|
|
Total
|
|
$
|
(527)
|
|
|
$
|
(435)
|
|
(1) Includes unamortized loan fees on SBA PPP loans of $3.7 million and $2.2 million as of September 30, 2021 and December 31, 2020, respectively.
The Company's lending activities are primarily conducted in Maine, but also include loan production offices in Massachusetts and New Hampshire. The Company originates single- and multi-family residential loans, commercial real estate loans, business loans, municipal loans and a variety of consumer loans. In addition, the Company makes loans for the construction of residential homes, multi-family properties and commercial real estate properties. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the geographic area and the general economy.
Beginning in April 2020, the Company started funding SBA PPP loans issued to qualifying businesses as part of the federal stimulus package issued due to the COVID-19 pandemic. Effective May 31, 2021, the SBA PPP loan program ended and the Company is no longer originating loans under this program. For the nine months ended September 30, 2021, the Company originated 1,620 SBA PPP loans totaling $102.2 million to qualifying businesses across our markets in need of financial support due to the COVID-19 pandemic. Of these SBA PPP loans originated during 2021, 1,230 loans totaling $78.7 million remain outstanding as of September 30, 2021. For the year ended December 31, 2020, the Company originated 3,034 SBA PPP loans totaling $244.8 million. Of these SBA PPP loans originated during 2020, 120 loans totaling $3.2 million remain outstanding as of September 30, 2021. This program provided qualifying businesses a specialized low-interest loan by the U.S. Treasury Department and is administered by the SBA. The PPP provides borrower guarantees for lenders, as well as loan forgiveness incentives for borrowers that utilize the loan proceeds to cover employee compensation-related business operating costs, and certain other costs up to pre-established limits.
In the normal course of business, the Bank makes loans to certain officers, directors and their associated companies, under terms that are consistent with the Company's lending policies and regulatory requirements and that do not involve more than the normal risk of collectability or present other unfavorable features. At September 30, 2021 and December 31, 2020, outstanding loans to certain officers, directors and their associated companies was less than 5% of the Company's shareholders' equity.
Loan Sales
For the three months ended September 30, 2021 and 2020, the Company sold $86.2 million and $182.7 million, respectively, of residential mortgage loans on the secondary market, which resulted in gains on the sale of loans (net of costs) of $2.2 million and $4.3 million, respectively. For the nine months ended September 30, 2021 and 2020, the Company sold $389.6 million and $449.7 million, respectively, of residential mortgage loans on the secondary market which resulted in gains on the sale of loans (net of costs) of $11.3 million and $10.4 million.
At September 30, 2021 and December 31, 2020, the Company had certain residential mortgage loans with a principal balance of $10.8 million and $40.5 million, respectively, designated as held for sale. The Company has elected the fair value option of accounting for its loans held for sale, and at September 30, 2021 and December 31, 2020, recorded an unrealized gain of $37,000 and $1.1 million, respectively. For the three months ended September 30, 2021 and 2020, the Company recorded an unrealized loss on loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income of $216,000 and $47,000, respectively. For the nine months ended September 30, 2021 and 2020, the Company recorded an unrealized (loss) gain on loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income of ($1.0 million) and $695,000, respectively.
The Company has forward delivery commitments with a secondary market investor on each of its loans held for sale at September 30, 2021 and December 31, 2020. Refer to Note 8 for further discussion of the Company's forward delivery commitments.
ACL on Loans
Under CECL, effective January 1, 2020 but applied to interim reporting periods on or after October 1, 2020, the ACL on loans is management's estimate of expected credit losses within its loan portfolio as of each reporting date.
The Board of Directors monitors credit risk through: (i) the Directors' Credit Committee, which reviews large credit exposures, monitors external loan review reports, reviews the lending authority for individual loan officers when required, and has approval authority and responsibility for all matters regarding the loan policy and other credit-related policies, including reviewing and monitoring asset quality trends, and concentration levels; and (ii) the Audit Committee, which has approval authority and oversight responsibility for ACL adequacy and methodology.
Credit Risk Administration and the Credit Risk Policy Committee oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, and maintain the integrity of the loan rating system. The adequacy of the ACL, including the ACL on loans, is overseen by the Management Provision Committee, which is an internal management committee comprised of various Company executives and senior managers across business lines, including Accounting and Finance, Credit Risk, Compliance, and Commercial and Retail Banking. The Management Provision Committee is further supported by other management-level committees to ensure the adequacy of the ACL. The Management Provision Committee supports the oversight efforts of the director-level committees discussed in the paragraph above and the Board of Directors. The Company's practice is to manage its loan portfolio proactively such that management can identify problem credits early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions.
For purposes of determining the ACL on loans, the Company disaggregates its loans into portfolio segments. Each portfolio segment possesses unique risk characteristics that are considered when determining the appropriate level of allowance. As of September 30, 2021, the Company's loan portfolio segments, as determined based on the unique risk characteristics of each, include the following:
Commercial Real Estate - Non Owner-Occupied. Non-owner occupied commercial real estate loans are, in substance, all commercial real estate loans that are not categorized by the Company as owner-occupied commercial real estate loans. Non owner-occupied commercial estate loans are investment properties in which the primary source for repayment of the loan by the borrower is derived from rental income associated with the property or the proceeds of the sale, refinancing, or permanent refinancing of the property. Non owner-occupied commercial real estate loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, multi-family residential, commercial/retail office space, industrial/warehouse space, hotels, assisted living facilities and other specific use properties. Also included within the non owner-occupied commercial real estate loan segment are construction projects until they are completed. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines.
Commercial Real Estate - Owner-Occupied. Generally, owner-occupied commercial real estate loans are properties that are owned and operated by the borrower, and the primary source for repayment is the cash flow from the ongoing operations and activities conducted by the borrower's business. Owner-occupied commercial real estate loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, commercial/retail office space, restaurants, educational and medical practice facilities and other specific use properties. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines.
Commercial. Commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate, if applicable. Commercial loans are primarily paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.
SBA PPP. SBA PPP loans are unsecured, fully-guaranteed commercial loans backed by the SBA, issued to qualifying small businesses as part of federal stimulus issued in response to the COVID-19 pandemic. Loans made under the program during the year ended December 31, 2020 have terms of two or five years, and those made during the nine months ended September 30, 2021 have a term of five years. SBA PPP loans are to be used by the borrower to offset certain payroll and other operating costs, such as rent and utilities. The loan and accrued interest, or a portion thereof, is eligible for forgiveness by the SBA should the qualifying small business meet certain conditions. These loans were originated under the guidance of the SBA, which has been subject to change. Effective May 31, 2021, the SBA PPP loan program ended and the Company is no longer originating loans under this program.
Residential Real Estate. Residential real estate loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. Collateral consists of mortgage liens on one- to four-family residences, including for investment purposes.
Home Equity. Home equity loans and lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.
Consumer. Consumer loan products include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. Consumer loans may be secured or unsecured.
The following table presents the activity in the ACL on loans, as reported under CECL, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Non Owner-Occupied
|
|
Owner- Occupied
|
|
Commercial
|
|
SBA PPP
|
|
Residential Real Estate
|
|
Home Equity
|
|
Consumer
|
|
Total
|
At or For The Three Months Ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, June 30, 2021
|
|
$
|
19,577
|
|
|
$
|
2,516
|
|
|
$
|
4,342
|
|
|
$
|
66
|
|
|
$
|
3,205
|
|
|
$
|
2,065
|
|
|
$
|
289
|
|
|
$
|
32,060
|
|
Loans charged off
|
|
—
|
|
|
—
|
|
|
(97)
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
|
(20)
|
|
|
(121)
|
|
Recoveries
|
|
—
|
|
|
2
|
|
|
49
|
|
|
—
|
|
|
2
|
|
|
4
|
|
|
7
|
|
|
64
|
|
Provision (credit) for loan losses
|
|
157
|
|
|
(214)
|
|
|
295
|
|
|
(23)
|
|
|
450
|
|
|
(231)
|
|
|
(165)
|
|
|
269
|
|
Ending balance, September 30, 2021
|
|
$
|
19,734
|
|
|
$
|
2,304
|
|
|
$
|
4,589
|
|
|
$
|
43
|
|
|
$
|
3,653
|
|
|
$
|
1,838
|
|
|
$
|
111
|
|
|
$
|
32,272
|
|
At or For The Nine Months Ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, December 31, 2020
|
|
$
|
21,778
|
|
|
$
|
2,832
|
|
|
$
|
6,703
|
|
|
$
|
69
|
|
|
$
|
3,474
|
|
|
$
|
2,616
|
|
|
$
|
393
|
|
|
$
|
37,865
|
|
Loans charged off
|
|
—
|
|
|
—
|
|
|
(503)
|
|
|
—
|
|
|
(92)
|
|
|
(145)
|
|
|
(88)
|
|
|
(828)
|
|
Recoveries
|
|
—
|
|
|
7
|
|
|
159
|
|
|
—
|
|
|
72
|
|
|
4
|
|
|
30
|
|
|
272
|
|
(Credit) provision for loan losses
|
|
(2,044)
|
|
|
(535)
|
|
|
(1,770)
|
|
|
(26)
|
|
|
199
|
|
|
(637)
|
|
|
(224)
|
|
|
(5,037)
|
|
Ending balance, September 30, 2021
|
|
$
|
19,734
|
|
|
$
|
2,304
|
|
|
$
|
4,589
|
|
|
$
|
43
|
|
|
$
|
3,653
|
|
|
$
|
1,838
|
|
|
$
|
111
|
|
|
$
|
32,272
|
|
At or For The Year Ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, December 31, 2019
|
|
$
|
10,924
|
|
|
$
|
1,490
|
|
|
$
|
3,985
|
|
|
$
|
—
|
|
|
$
|
5,842
|
|
|
$
|
2,423
|
|
|
$
|
507
|
|
|
$
|
25,171
|
|
Impact of adopting CECL(1)
|
|
(668)
|
|
|
(90)
|
|
|
1,548
|
|
|
—
|
|
|
(1,129)
|
|
|
792
|
|
|
(220)
|
|
|
233
|
|
Loans charged off
|
|
(82)
|
|
|
(21)
|
|
|
(1,130)
|
|
|
—
|
|
|
(121)
|
|
|
(317)
|
|
|
(167)
|
|
|
(1,838)
|
|
Recoveries
|
|
107
|
|
|
13
|
|
|
572
|
|
|
—
|
|
|
292
|
|
|
33
|
|
|
67
|
|
|
1,084
|
|
Provision (credit) for loan losses
|
|
11,497
|
|
|
1,440
|
|
|
1,728
|
|
|
69
|
|
|
(1,410)
|
|
|
(315)
|
|
|
206
|
|
|
13,215
|
|
Ending balance, December 31, 2020
|
|
$
|
21,778
|
|
|
$
|
2,832
|
|
|
$
|
6,703
|
|
|
$
|
69
|
|
|
$
|
3,474
|
|
|
$
|
2,616
|
|
|
$
|
393
|
|
|
$
|
37,865
|
|
(1) The Company adopted ASU 2016-13, "CECL," effective January 1, 2020 but applied to reporting periods on or after October 1, 2020.
During the nine months ended September 30, 2021, there were no significant changes in our CECL modeling methodology to determine the ACL on loans at September 30, 2021. The significant key assumptions used with the ACL on loans calculation at September 30, 2021 and December 31, 2020, included: (i) Company-specific macroeconomic factors (i.e., loss drivers), (ii) our forecast period and reversion speed, (iii) prepayment speeds, and (iv) various qualitative factors.
The ACL on loans, as presented and accounted for under the CECL methodology, decreased $5.6 million during the nine months ended September 30, 2021, to $32.3 million as of September 30, 2021. The decrease in the ACL on loans across all loan segments, with the exception of residential real estate, was driven by an overall improvement in management's forecast of macroeconomic factors over a one-year forecast period. Net loan growth of $167.3 million, or 16%, in the residential real estate loan segment during the during the nine months ended September 30, 2021, drove the increase in the ACL of $179,000 over this period, offsetting the impact of management's improved forecast of macroeconomic factors over the one-year forecast period.
The following table presents activity in the ACL on loans and select loan information by portfolio segment, under the incurred loss methodology, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Commercial
Real Estate(1)
|
|
Commercial
|
|
SBA PPP
|
|
Residential
Real Estate
|
|
Home
Equity
|
|
Consumer
|
|
Total
|
At or For The Three and Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
18,386
|
|
|
$
|
4,849
|
|
|
$
|
113
|
|
|
$
|
8,603
|
|
|
$
|
3,084
|
|
|
$
|
504
|
|
|
$
|
35,539
|
|
Loans charged off
|
|
(33)
|
|
|
(184)
|
|
|
—
|
|
|
(25)
|
|
|
(10)
|
|
|
(55)
|
|
|
(307)
|
|
Recoveries
|
|
3
|
|
|
139
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
36
|
|
|
182
|
|
Provision (credit)
|
|
1,173
|
|
|
(267)
|
|
|
2
|
|
|
124
|
|
|
(51)
|
|
|
19
|
|
|
1,000
|
|
Ending balance
|
|
$
|
19,529
|
|
|
$
|
4,537
|
|
|
$
|
115
|
|
|
$
|
8,706
|
|
|
$
|
3,023
|
|
|
$
|
504
|
|
|
$
|
36,414
|
|
Allowance for the nine months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
12,414
|
|
|
$
|
3,985
|
|
|
$
|
—
|
|
|
$
|
5,842
|
|
|
$
|
2,423
|
|
|
$
|
507
|
|
|
$
|
25,171
|
|
Loans charged off
|
|
(104)
|
|
|
(857)
|
|
|
—
|
|
|
(121)
|
|
|
(61)
|
|
|
(138)
|
|
|
(1,281)
|
|
Recoveries
|
|
10
|
|
|
255
|
|
|
—
|
|
|
27
|
|
|
4
|
|
|
56
|
|
|
352
|
|
Provision
|
|
7,209
|
|
|
1,154
|
|
|
115
|
|
|
2,958
|
|
|
657
|
|
|
79
|
|
|
12,172
|
|
Ending balance
|
|
$
|
19,529
|
|
|
$
|
4,537
|
|
|
$
|
115
|
|
|
$
|
8,706
|
|
|
$
|
3,023
|
|
|
$
|
504
|
|
|
$
|
36,414
|
|
Allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
371
|
|
|
$
|
87
|
|
|
$
|
—
|
|
|
$
|
494
|
|
Collectively evaluated for impairment
|
|
19,493
|
|
|
4,537
|
|
|
115
|
|
|
8,335
|
|
|
2,936
|
|
|
504
|
|
|
35,920
|
|
Total ending allowance
|
|
$
|
19,529
|
|
|
$
|
4,537
|
|
|
$
|
115
|
|
|
$
|
8,706
|
|
|
$
|
3,023
|
|
|
$
|
504
|
|
|
$
|
36,414
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
460
|
|
|
$
|
171
|
|
|
$
|
—
|
|
|
$
|
3,128
|
|
|
$
|
365
|
|
|
$
|
—
|
|
|
$
|
4,124
|
|
Collectively evaluated for impairment
|
|
1,333,273
|
|
|
375,377
|
|
|
223,838
|
|
|
1,040,975
|
|
|
274,378
|
|
|
22,877
|
|
|
3,270,718
|
|
Total ending loans balance
|
|
$
|
1,333,733
|
|
|
$
|
375,548
|
|
|
$
|
223,838
|
|
|
$
|
1,044,103
|
|
|
$
|
274,743
|
|
|
$
|
22,877
|
|
|
$
|
3,274,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes both commercial real estate - non owner-occupied and owner-occupied loan segments.
The Company focuses on maintaining a well-balanced and diversified loan portfolio. Despite such efforts, it is recognized that credit concentrations may occasionally emerge as a result of economic conditions, changes in local demand, natural loan growth and runoff. To identify credit concentrations effectively, all commercial and commercial real estate loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes, and state and county codes. Shifts in portfolio concentrations are monitored. As of September 30, 2021, the Company's total exposure to the lessors of nonresidential buildings' industry was 14% of total loans and 32% of total commercial real estate loans. There were no other industry exposures exceeding 10% of the Company's total loan portfolio as of September 30, 2021.
COVID-19 Loan Deferral Program
In response to the COVID-19 pandemic, the Company worked with businesses and consumers through the year ended 2020 to provide temporary debt payment relief that generally provided principal and/or interest payment deferrals for a period of 180 days or less. All loans that were granted temporary payment relief during the year ended 2020 complied with the terms of the CARES Act, which was signed into law in March 2020, and bank regulator guidance, and thus were not individually assessed, designated or accounted for as TDRs.
The Company did not issue or extend temporary debt relief to customers due to COVID-19 hardships during the nine months ended September 30, 2021. However, the Company may do so on case-by-case under bank regulator guidance or the Consolidated Appropriations Act of 2021, which extended the provisions within the CARES Act that provided TDR accounting relief to the earlier of: (i) December 31, 2021 or (ii) the date that is 60 days after the date the national emergency concerning the COVID-19 pandemic declared by the President on March 13, 2020 terminates.
At September 30, 2021, the Company did not have any loans operating under temporary short-term payment deferral arrangements due to being impacted by the COVID-19 pandemic, compared to $26.5 million at December 31, 2020. The majority of these loans have returned to normal payment status or have since been fully repaid. Of those loans that were previously operating under a short-term deferral arrangement, $1.0 million were classified as non-accrual and $310,000 were 30-89 days past due as of September 30, 2021.
Credit Quality Indicators
To further identify loans with similar risk profiles, the Company categorizes each portfolio segment into classes by credit risk characteristic and applies a credit quality indicator to each portfolio segment. The indicators for commercial real estate - non owner-occupied and owner-occupied, commercial and residential real estate portfolio segments are represented by Grades 1 through 10 as outlined below. In general, risk ratings are adjusted periodically throughout the year as updated analysis and review warrants. This process may include, but is not limited to, annual credit and loan reviews, periodic reviews of loan performance metrics, such as delinquency rates, and quarterly reviews of adversely risk rated loans. The Company uses the following definitions when assessing grades for the purpose of evaluating the risk and adequacy of the ACL on loans:
•Grade 1 through 6 — Grades 1 through 6 represent groups of loans that are not subject to adverse criticism as defined in regulatory guidance. Loans in these groups exhibit characteristics that represent low to moderate risks, which is measured using a variety of credit risk criteria, such as cash flow coverage, debt service coverage, balance sheet leverage, liquidity, management experience, industry position, prevailing economic conditions, support from secondary sources of repayment and other credit factors that may be relevant to a specific loan. In general, these loans are supported by properly margined collateral and guarantees of principal parties.
•Grade 7 — Loans with potential weakness (Special Mention). Loans in this category are currently protected based on collateral and repayment capacity and do not constitute undesirable credit risk, but have potential weakness that may result in deterioration of the repayment process at some future date. This classification is used if a negative trend is evident in the obligor’s financial situation. Special mention loans do not sufficiently expose the Company to warrant adverse classification.
•Grade 8 — Loans with definite weakness (Substandard). Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by collateral pledged. Borrowers experience difficulty in meeting debt repayment requirements. Deterioration is sufficient to cause the Company to look to the sale of collateral.
•Grade 9 — Loans with potential loss (Doubtful). Loans classified as doubtful have all the weaknesses inherent in the substandard grade with the added characteristic that the weaknesses make collection or liquidation of the loan in full highly questionable and improbable. The possibility of some loss is extremely high, but because of specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.
•Grade 10 — Loans with definite loss (Loss). Loans classified as loss are considered uncollectible. The loss classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset because recovery and collection time may be protracted.
Loans that were granted temporary debt relief due to the COVID-19 pandemic were not automatically downgraded into lower credit risk ratings.
The Company periodically reassesses asset quality indicators to reflect appropriately the risk composition of the Company’s loan portfolio. Home equity and consumer loans are not individually risk rated, but rather analyzed as groups taking into account delinquency rates and other economic conditions which may affect the ability of borrowers to meet debt service requirements, including interest rates and energy costs. Performing loans include loans that are current and loans that are past due less than 90 days. Loans that are past due over 90 days and non-accrual loans, including TDRs, are considered non-performing.
Based on the most recent analysis performed, the risk category of loans by portfolio segment by vintage, reported under the CECL methodology, was as follows as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2021
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
Prior
|
|
Revolving Loans
Amortized Cost Basis
|
|
Revolving Loans
Converted to Term
|
|
Total
|
As of September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - non owner-occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass (Grades 1-6)
|
|
$
|
157,849
|
|
|
$
|
193,303
|
|
|
$
|
186,028
|
|
|
$
|
122,607
|
|
|
$
|
102,457
|
|
|
$
|
302,680
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,064,924
|
|
Special mention (Grade 7)
|
|
—
|
|
|
7,309
|
|
|
2,351
|
|
|
33
|
|
|
4,318
|
|
|
10,655
|
|
|
—
|
|
|
—
|
|
|
24,666
|
|
Substandard (Grade 8)
|
|
212
|
|
|
1,688
|
|
|
220
|
|
|
10,028
|
|
|
394
|
|
|
26,428
|
|
|
—
|
|
|
—
|
|
|
38,970
|
|
Doubtful (Grade 9)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial real estate - non owner-occupied
|
|
158,061
|
|
|
202,300
|
|
|
188,599
|
|
|
132,668
|
|
|
107,169
|
|
|
339,763
|
|
|
—
|
|
|
—
|
|
|
1,128,560
|
|
Commercial real estate - owner-occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass (Grades 1-6)
|
|
61,023
|
|
|
34,052
|
|
|
32,078
|
|
|
45,469
|
|
|
47,963
|
|
|
62,421
|
|
|
—
|
|
|
—
|
|
|
283,006
|
|
Special mention (Grade 7)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,427
|
|
|
—
|
|
|
1,554
|
|
|
—
|
|
|
—
|
|
|
4,981
|
|
Substandard (Grade 8)
|
|
—
|
|
|
—
|
|
|
63
|
|
|
—
|
|
|
1,808
|
|
|
1,259
|
|
|
—
|
|
|
—
|
|
|
3,130
|
|
Doubtful (Grade 9)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial real estate - owner occupied
|
|
61,023
|
|
|
34,052
|
|
|
32,141
|
|
|
48,896
|
|
|
49,771
|
|
|
65,234
|
|
|
—
|
|
|
—
|
|
|
291,117
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass (Grades 1-6)
|
|
60,833
|
|
|
47,710
|
|
|
50,233
|
|
|
26,459
|
|
|
15,094
|
|
|
32,082
|
|
|
83,456
|
|
|
31,621
|
|
|
347,488
|
|
Special mention (Grade 7)
|
|
—
|
|
|
73
|
|
|
118
|
|
|
295
|
|
|
716
|
|
|
455
|
|
|
494
|
|
|
265
|
|
|
2,416
|
|
Substandard (Grade 8)
|
|
—
|
|
|
280
|
|
|
347
|
|
|
298
|
|
|
113
|
|
|
1,282
|
|
|
—
|
|
|
309
|
|
|
2,629
|
|
Doubtful (Grade 9)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial
|
|
60,833
|
|
|
48,063
|
|
|
50,698
|
|
|
27,052
|
|
|
15,923
|
|
|
33,819
|
|
|
83,950
|
|
|
32,195
|
|
|
352,533
|
|
SBA PPP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass (Grades 1-6)
|
|
78,252
|
|
|
3,238
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81,490
|
|
Special mention (Grade 7)
|
|
469
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
469
|
|
Substandard (Grade 8)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Doubtful (Grade 9)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total SBA PPP
|
|
78,721
|
|
|
3,238
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81,959
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass (Grades 1-6)
|
|
430,952
|
|
|
303,375
|
|
|
119,118
|
|
|
73,832
|
|
|
49,827
|
|
|
239,596
|
|
|
892
|
|
|
—
|
|
|
1,217,592
|
|
Special mention (Grade 7)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
234
|
|
|
—
|
|
|
—
|
|
|
234
|
|
Substandard (Grade 8)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
142
|
|
|
—
|
|
|
4,116
|
|
|
—
|
|
|
—
|
|
|
4,258
|
|
Doubtful (Grade 9)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total residential real estate
|
|
430,952
|
|
|
303,375
|
|
|
119,118
|
|
|
73,974
|
|
|
49,827
|
|
|
243,946
|
|
|
892
|
|
|
—
|
|
|
1,222,084
|
|
Home equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
553
|
|
|
559
|
|
|
7,060
|
|
|
12,368
|
|
|
2,678
|
|
|
12,429
|
|
|
168,441
|
|
|
13,308
|
|
|
217,396
|
|
Non-performing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41
|
|
|
—
|
|
|
196
|
|
|
930
|
|
|
234
|
|
|
1,401
|
|
Total home equity
|
|
553
|
|
|
559
|
|
|
7,060
|
|
|
12,409
|
|
|
2,678
|
|
|
12,625
|
|
|
169,371
|
|
|
13,542
|
|
|
218,797
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
6,270
|
|
|
4,169
|
|
|
3,839
|
|
|
1,397
|
|
|
667
|
|
|
2,046
|
|
|
1,837
|
|
|
—
|
|
|
20,225
|
|
Non-performing
|
|
—
|
|
|
9
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
28
|
|
Total consumer
|
|
6,270
|
|
|
4,178
|
|
|
3,855
|
|
|
1,397
|
|
|
667
|
|
|
2,049
|
|
|
1,837
|
|
|
—
|
|
|
20,253
|
|
Total Loans
|
|
$
|
796,413
|
|
|
$
|
595,765
|
|
|
$
|
401,471
|
|
|
$
|
296,396
|
|
|
$
|
226,035
|
|
|
$
|
697,436
|
|
|
$
|
256,050
|
|
|
$
|
45,737
|
|
|
$
|
3,315,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
Revolving Loans
Amortized Cost Basis
|
|
Revolving Loans
Converted to Term
|
|
Total
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - non owner-occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass (Grades 1-6)
|
|
$
|
138,010
|
|
|
$
|
224,148
|
|
|
$
|
144,552
|
|
|
$
|
119,409
|
|
|
$
|
157,588
|
|
|
$
|
264,253
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,047,960
|
|
Special mention (Grade 7)
|
|
5,739
|
|
|
—
|
|
|
—
|
|
|
4,256
|
|
|
3,497
|
|
|
847
|
|
|
—
|
|
|
—
|
|
|
14,339
|
|
Substandard (Grade 8)
|
|
24
|
|
|
125
|
|
|
2,070
|
|
|
405
|
|
|
1,522
|
|
|
31,530
|
|
|
—
|
|
|
—
|
|
|
35,676
|
|
Doubtful (Grade 9)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial real estate - non owner-occupied
|
|
143,773
|
|
|
224,273
|
|
|
146,622
|
|
|
124,070
|
|
|
162,607
|
|
|
296,630
|
|
|
—
|
|
|
—
|
|
|
1,097,975
|
|
Commercial real estate - owner-occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass (Grades 1-6)
|
|
35,948
|
|
|
29,217
|
|
|
48,312
|
|
|
47,065
|
|
|
25,507
|
|
|
76,098
|
|
|
—
|
|
|
—
|
|
|
262,147
|
|
Special mention (Grade 7)
|
|
—
|
|
|
—
|
|
|
4,584
|
|
|
—
|
|
|
—
|
|
|
1,513
|
|
|
—
|
|
|
—
|
|
|
6,097
|
|
Substandard (Grade 8)
|
|
—
|
|
|
—
|
|
|
891
|
|
|
462
|
|
|
—
|
|
|
1,898
|
|
|
—
|
|
|
—
|
|
|
3,251
|
|
Doubtful (Grade 9)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial real estate - owner occupied
|
|
35,948
|
|
|
29,217
|
|
|
53,787
|
|
|
47,527
|
|
|
25,507
|
|
|
79,509
|
|
|
—
|
|
|
—
|
|
|
271,495
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass (Grades 1-6)
|
|
53,966
|
|
|
72,863
|
|
|
40,688
|
|
|
25,478
|
|
|
15,788
|
|
|
51,869
|
|
|
72,425
|
|
|
37,026
|
|
|
370,103
|
|
Special mention (Grade 7)
|
|
—
|
|
|
22
|
|
|
313
|
|
|
4,924
|
|
|
117
|
|
|
400
|
|
|
—
|
|
|
867
|
|
|
6,643
|
|
Substandard (Grade 8)
|
|
187
|
|
|
1,012
|
|
|
211
|
|
|
51
|
|
|
42
|
|
|
2,081
|
|
|
65
|
|
|
1,099
|
|
|
4,748
|
|
Doubtful (Grade 9)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial
|
|
54,153
|
|
|
73,897
|
|
|
41,212
|
|
|
30,453
|
|
|
15,947
|
|
|
54,350
|
|
|
72,490
|
|
|
38,992
|
|
|
381,494
|
|
SBA PPP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass (Grades 1-6)
|
|
135,095
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
135,095
|
|
Special mention (Grade 7)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Substandard (Grade 8)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Doubtful (Grade 9)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total SBA PPP
|
|
135,095
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
135,095
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass (Grades 1-6)
|
|
339,834
|
|
|
183,877
|
|
|
119,426
|
|
|
79,159
|
|
|
57,269
|
|
|
266,324
|
|
|
3,028
|
|
|
—
|
|
|
1,048,917
|
|
Special mention (Grade 7)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
398
|
|
|
—
|
|
|
—
|
|
|
398
|
|
Substandard (Grade 8)
|
|
—
|
|
|
—
|
|
|
176
|
|
|
487
|
|
|
—
|
|
|
4,820
|
|
|
—
|
|
|
—
|
|
|
5,483
|
|
Doubtful (Grade 9)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total residential real estate
|
|
339,834
|
|
|
183,877
|
|
|
119,602
|
|
|
79,646
|
|
|
57,269
|
|
|
271,542
|
|
|
3,028
|
|
|
—
|
|
|
1,054,798
|
|
Home equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
855
|
|
|
9,415
|
|
|
17,281
|
|
|
3,478
|
|
|
1,339
|
|
|
17,664
|
|
|
194,065
|
|
|
12,480
|
|
|
256,577
|
|
Non-performing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
207
|
|
|
1,241
|
|
|
548
|
|
|
1,996
|
|
Total home equity
|
|
855
|
|
|
9,415
|
|
|
17,281
|
|
|
3,478
|
|
|
1,339
|
|
|
17,871
|
|
|
195,306
|
|
|
13,028
|
|
|
258,573
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
6,572
|
|
|
6,525
|
|
|
3,096
|
|
|
1,359
|
|
|
378
|
|
|
1,780
|
|
|
678
|
|
|
—
|
|
|
20,388
|
|
Non-performing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Total consumer
|
|
6,572
|
|
|
6,525
|
|
|
3,096
|
|
|
1,359
|
|
|
382
|
|
|
1,780
|
|
|
678
|
|
|
—
|
|
|
20,392
|
|
Total Loans
|
|
$
|
716,230
|
|
|
$
|
527,204
|
|
|
$
|
381,600
|
|
|
$
|
286,533
|
|
|
$
|
263,051
|
|
|
$
|
721,682
|
|
|
$
|
271,502
|
|
|
$
|
52,020
|
|
|
$
|
3,219,822
|
|
Past Due and Non-Accrual Loans
The Company closely monitors the performance of its loan portfolio. A loan is placed on non-accrual status when the financial condition of the borrower is deteriorating, payment in full of both principal and interest is not expected as scheduled, or principal or interest has been in default for 90 days or more. Exceptions may be made if the asset is secured by collateral sufficient to satisfy both the principal and accrued interest in full and collection is reasonably assured. When one loan to a borrower is placed on non-accrual status, all other loans to the borrower are re-evaluated to determine if they should also be placed on non-accrual status. All previously accrued and unpaid interest is reversed at this time. A loan will return to accrual status when collection of principal and interest is assured and the borrower has demonstrated timely payments of principal and interest for a reasonable period, generally at least six months. Unsecured loans, however, are not normally placed on non-accrual status because they are generally charged-off once their collectability is in doubt.
All loans that were granted temporary payment relief due to the COVID-19 pandemic were current with payments in accordance with the terms of the CARES Act and bank regulatory guidance at the time of initial relief. As of September 30, 2021, all loans that were once granted temporary debt relief and had outstanding principal balances have returned to regular payment status. As of December 31, 2020, the payment status for loans that continued to operate under a payment deferral arrangement were reported based on payment status at the time the deferral was granted to the borrower. Of those loans operating under a short-term deferral arrangement, $1.0 million were classified as non-accrual and $310,000 were 30-89 days past due as of September 30, 2021, compared to $457,000 and $1.2 million, respectively, as of December 31, 2020.
The following is a loan aging analysis by portfolio segment (including loans past due over 90 days and non-accrual loans) and loans past due over 90 days and accruing as of the following dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90 Days or Greater
Past Due
|
|
Total
Past Due
|
|
Current
|
|
Total Loans
Outstanding
|
|
Loans > 90
Days Past
Due and
Accruing
|
|
|
September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - non owner-occupied
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
52
|
|
|
$
|
52
|
|
|
$
|
1,128,508
|
|
|
$
|
1,128,560
|
|
|
$
|
—
|
|
|
|
Commercial real estate - owner-occupied
|
|
86
|
|
|
—
|
|
|
47
|
|
|
133
|
|
|
290,984
|
|
|
291,117
|
|
|
|
|
|
Commercial
|
|
557
|
|
|
—
|
|
|
813
|
|
|
1,370
|
|
|
351,163
|
|
|
352,533
|
|
|
—
|
|
|
|
SBA PPP
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81,959
|
|
|
81,959
|
|
|
—
|
|
|
|
Residential real estate
|
|
1,056
|
|
|
240
|
|
|
1,158
|
|
|
2,454
|
|
|
1,219,630
|
|
|
1,222,084
|
|
|
—
|
|
|
|
Home equity
|
|
369
|
|
|
30
|
|
|
894
|
|
|
1,293
|
|
|
217,504
|
|
|
218,797
|
|
|
—
|
|
|
|
Consumer
|
|
45
|
|
|
8
|
|
|
28
|
|
|
81
|
|
|
20,172
|
|
|
20,253
|
|
|
—
|
|
|
|
Total
|
|
$
|
2,113
|
|
|
$
|
278
|
|
|
$
|
2,992
|
|
|
$
|
5,383
|
|
|
$
|
3,309,920
|
|
|
$
|
3,315,303
|
|
|
$
|
—
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - non owner-occupied
|
|
$
|
—
|
|
|
$
|
50
|
|
|
$
|
173
|
|
|
$
|
223
|
|
|
$
|
1,097,752
|
|
|
$
|
1,097,975
|
|
|
$
|
—
|
|
|
|
Commercial real estate - owner-occupied
|
|
99
|
|
|
—
|
|
|
47
|
|
|
146
|
|
|
271,349
|
|
|
271,495
|
|
|
—
|
|
|
|
Commercial
|
|
430
|
|
|
—
|
|
|
857
|
|
|
1,287
|
|
|
380,207
|
|
|
381,494
|
|
|
—
|
|
|
|
SBA PPP
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
135,095
|
|
|
135,095
|
|
|
—
|
|
|
|
Residential real estate
|
|
1,406
|
|
|
1,103
|
|
|
2,535
|
|
|
5,044
|
|
|
1,049,754
|
|
|
1,054,798
|
|
|
—
|
|
|
|
Home equity
|
|
335
|
|
|
173
|
|
|
1,416
|
|
|
1,924
|
|
|
256,649
|
|
|
258,573
|
|
|
—
|
|
|
|
Consumer
|
|
92
|
|
|
67
|
|
|
4
|
|
|
163
|
|
|
20,229
|
|
|
20,392
|
|
|
—
|
|
|
|
Total
|
|
$
|
2,362
|
|
|
$
|
1,393
|
|
|
$
|
5,032
|
|
|
$
|
8,787
|
|
|
$
|
3,211,035
|
|
|
$
|
3,219,822
|
|
|
$
|
—
|
|
|
|
The following table presents the amortized cost basis of loans on non-accrual status (including non-accruing TDRs) by portfolio segment as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
(In thousands)
|
|
Non-Accrual Loans With an Allowance
|
|
Non-Accrual Loans Without an Allowance
|
|
Total Non-Accrual Loans
|
|
Non-Accrual Loans With an Allowance
|
|
Non-Accrual Loans Without an Allowance
|
|
Total Non-Accrual Loans
|
Commercial real estate - non owner-occupied
|
|
$
|
59
|
|
|
$
|
14
|
|
|
$
|
73
|
|
|
$
|
351
|
|
|
$
|
15
|
|
|
$
|
366
|
|
Commercial real estate - owner-occupied
|
|
87
|
|
|
47
|
|
|
134
|
|
|
99
|
|
|
47
|
|
|
146
|
|
Commercial
|
|
811
|
|
|
49
|
|
|
860
|
|
|
1,549
|
|
|
58
|
|
|
1,607
|
|
Residential real estate
|
|
2,378
|
|
|
198
|
|
|
2,576
|
|
|
3,136
|
|
|
341
|
|
|
3,477
|
|
Home equity
|
|
1,401
|
|
|
—
|
|
|
1,401
|
|
|
1,961
|
|
|
35
|
|
|
1,996
|
|
Consumer
|
|
28
|
|
|
—
|
|
|
28
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Total
|
|
$
|
4,764
|
|
|
$
|
308
|
|
|
$
|
5,072
|
|
|
$
|
7,100
|
|
|
$
|
496
|
|
|
$
|
7,596
|
|
The following table presents the amortized cost basis of collateral-dependent non-accrual loans (including non-accruing TDRs) by portfolio segment and collateral type, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
|
Collateral Type
|
|
Total Collateral -Dependent
Non-Accrual Loans
|
|
Collateral Type
|
|
Total Collateral -Dependent
Non-Accrual Loans
|
(In thousands)
|
|
Real Estate
|
|
General Business Assets
|
|
|
Real Estate
|
|
General Business Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
689
|
|
|
$
|
689
|
|
Residential real estate
|
|
131
|
|
|
—
|
|
|
131
|
|
|
248
|
|
|
—
|
|
|
248
|
|
Home equity
|
|
88
|
|
|
—
|
|
|
88
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
219
|
|
|
$
|
—
|
|
|
$
|
219
|
|
|
$
|
248
|
|
|
$
|
689
|
|
|
$
|
937
|
|
Collateral-dependent loans are loans for which the repayment is expected to be provided substantially by the underlying collateral and there are no other available and reliable sources of repayment.
Interest income that would have been recognized if loans on non-accrual status had been current in accordance with their original terms is estimated to have been $59,000 and $85,000 for the three months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020, the interest income that is estimated to have been recognized if loans on non-accrual status had been current in accordance with their original terms was $202,000 and $251,000, respectively.
The Company's policy is to reverse previously recorded interest income when a loan is placed on non-accrual. As a result, the Company did not record any interest income on its non-accruals for the three or nine months ended September 30, 2021 and 2020. An immaterial amount of accrued interest on non-accrual loans was written-off during the three and nine months ended September 30, 2021 and 2020, by reversing interest income. At September 30, 2021 and December 31, 2020, total accrued interest receivable on loans, which has been excluded from reported amortized cost basis on loans, was $8.0 million and $10.2 million, respectively, and reported within other assets on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date.
TDRs
The Company takes a conservative approach with credit risk management and remains focused on community lending and reinvesting. The Company works closely with borrowers experiencing credit problems to assist in loan repayment or term modifications. TDRs consist of loans where the Company, for economic or legal reasons related to the borrower’s financial difficulties, granted a concession to the borrower that it would not otherwise consider. TDRs typically involve term modifications or a reduction of either interest or principal. Once such an obligation has been restructured, it will remain a TDR until paid in full, or until the loan is again restructured at current market rates and no concessions are granted.
The specific reserve allowance was determined by discounting the total expected future cash flows from the borrower at the original loan interest rate, or if the loan is currently collateral-dependent, using net realizable value, which was obtained through independent appraisals and internal evaluations. The following is a summary of TDRs, by portfolio segment, and the associated specific reserve included within the ACL for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Contracts
|
|
Recorded Investment
|
|
Specific Reserve
|
(In thousands, except number of contracts)
|
|
September 30,
2021
|
|
December 31,
2020
|
|
September 30,
2021
|
|
December 31,
2020
|
|
September 30,
2021
|
|
December 31,
2020
|
Commercial real estate - owner-occupied
|
|
1
|
|
|
2
|
|
|
$
|
120
|
|
|
$
|
328
|
|
|
$
|
42
|
|
|
$
|
37
|
|
Commercial
|
|
2
|
|
|
2
|
|
|
80
|
|
|
100
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
19
|
|
|
21
|
|
|
2,353
|
|
|
2,638
|
|
|
361
|
|
|
364
|
|
Consumer and home equity
|
|
2
|
|
|
—
|
|
|
230
|
|
|
—
|
|
|
22
|
|
|
—
|
|
Total
|
|
24
|
|
|
25
|
|
|
$
|
2,783
|
|
|
$
|
3,066
|
|
|
$
|
425
|
|
|
$
|
401
|
|
At September 30, 2021, the Company had performing and non-performing TDRs with a recorded investment balance of $2.6 million and $219,000, respectively. At December 31, 2020, the Company had performing and non-performing TDRs with a recorded investment balance of $2.8 million and $248,000, respectively.
The following represents loan modifications that qualify as TDRs that occurred during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Contracts
|
|
Pre-Modification
Outstanding
Recorded Investment
|
|
Post-Modification
Outstanding
Recorded Investment
|
|
Specific Reserve
|
|
|
|
|
|
|
|
|
|
(In thousands, except number of contracts)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate concession and payment deferral
|
|
1
|
|
|
—
|
|
|
$
|
159
|
|
|
$
|
—
|
|
|
$
|
170
|
|
|
$
|
—
|
|
|
$
|
56
|
|
|
$
|
—
|
|
Maturity concession
|
|
1
|
|
|
—
|
|
|
144
|
|
|
—
|
|
|
143
|
|
|
—
|
|
|
6
|
|
|
—
|
|
Total
|
|
2
|
|
|
—
|
|
|
$
|
303
|
|
|
$
|
—
|
|
|
$
|
313
|
|
|
$
|
—
|
|
|
$
|
62
|
|
|
$
|
—
|
|
There were no loan modifications that qualify as TDRs that occurred for the three months ended September 30, 2021 and 2020.
As of September 30, 2021 and December 31, 2020, the Company did not have any material commitments to lend additional funds to borrowers with loans classified as TDRs.
For the three and nine months ended September 30, 2021 and 2020, no loans were modified as TDRs within the previous 12 months for which the borrower subsequently defaulted.
Impaired Loans
For periods prior to the adoption of CECL (i.e. periods before October 1, 2020), under the incurred loss methodology, impaired loans consisted of non-accrual loans and TDRs that were individually evaluated for impairment in accordance with the Company's policy. The following is a summary of impaired loan balances and the associated allowance by portfolio segment as of and for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Three Months Ended
|
|
For the
Nine Months Ended
|
(In thousands)
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
126
|
|
|
$
|
126
|
|
|
$
|
36
|
|
|
$
|
127
|
|
|
$
|
2
|
|
|
$
|
127
|
|
|
$
|
6
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
SBA PPP
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
2,394
|
|
|
2,394
|
|
|
371
|
|
|
2,349
|
|
|
33
|
|
|
2,328
|
|
|
79
|
|
Home equity
|
|
316
|
|
|
316
|
|
|
87
|
|
|
317
|
|
|
—
|
|
|
318
|
|
|
—
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending balance
|
|
2,836
|
|
|
2,836
|
|
|
494
|
|
|
2,793
|
|
|
35
|
|
|
2,773
|
|
|
85
|
|
Without an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
334
|
|
|
548
|
|
|
—
|
|
|
334
|
|
|
3
|
|
|
304
|
|
|
9
|
|
Commercial
|
|
171
|
|
|
233
|
|
|
—
|
|
|
175
|
|
|
1
|
|
|
242
|
|
|
4
|
|
SBA PPP
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
734
|
|
|
858
|
|
|
—
|
|
|
791
|
|
|
2
|
|
|
909
|
|
|
4
|
|
Home equity
|
|
49
|
|
|
187
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
52
|
|
|
—
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending balance
|
|
1,288
|
|
|
1,826
|
|
|
—
|
|
|
1,350
|
|
|
6
|
|
|
1,507
|
|
|
17
|
|
Total impaired loans
|
|
$
|
4,124
|
|
|
$
|
4,662
|
|
|
$
|
494
|
|
|
$
|
4,143
|
|
|
$
|
41
|
|
|
$
|
4,280
|
|
|
$
|
102
|
|
In-Process Foreclosure Proceedings
At September 30, 2021 and December 31, 2020, the Company had $1.1 million and $1.5 million, respectively, of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process.
FHLB Advances
FHLB advances are those borrowings from the FHLBB greater than 90 days. FHLB advances are collateralized by a blanket lien on qualified collateral consisting primarily of loans with first mortgages secured by one- to four-family properties, certain commercial real estate loans, certain pledged investment securities and other qualified assets. The carrying value of residential real estate and commercial loans pledged as collateral was $1.2 billion and $1.3 billion at September 30, 2021 and December 31, 2020, respectively.
Refer to Notes 3 and 6 of the consolidated financial statements for discussion of securities pledged as collateral.
NOTE 5 – BORROWINGS
The following summarizes the Company's short-term and long-term borrowed funds as presented on the consolidated statements of condition as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
September 30,
2021
|
|
December 31,
2020
|
Short-Term Borrowings:
|
|
|
|
|
Customer repurchase agreements
|
|
$
|
211,552
|
|
|
$
|
162,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings
|
|
$
|
211,552
|
|
|
$
|
162,439
|
|
Long-Term Borrowings:
|
|
|
|
|
FHLBB borrowings
|
|
$
|
—
|
|
|
$
|
25,000
|
|
Total long-term borrowings
|
|
$
|
—
|
|
|
$
|
25,000
|
|
As of September 30, 2021 and December 31, 2020, the Company's subordinated debentures were $44.3 million and $59.3 million, respectively. On April 16, 2021, the Company exercised its call option on its $15.0 million of subordinated debentures, at par plus accrued interest. As of September 30, 2021, the Company's remaining subordinated debentures were comprised of two tranches of junior subordinated debentures. Refer to Note 10 of the consolidated financial statements for further details.
NOTE 6 – REPURCHASE AGREEMENTS
The Company can raise additional liquidity by entering into repurchase agreements at its discretion. In a security repurchase agreement transaction, the Company will generally sell a security, agreeing to repurchase either the same or a substantially identical security on a specified later date, at a greater price than the original sales price. The difference between the sale price and purchase price is the cost of the proceeds, which is recorded within interest on borrowings on the consolidated statements of income. The securities underlying the agreements are delivered to counterparties as collateral for the repurchase obligations. Since the securities are treated as collateral and the agreement does not qualify for a full transfer of effective control, the transactions do not meet the criteria to be classified as sales, and are therefore considered secured borrowing transactions for accounting purposes. Payments on such borrowings are interest only until the scheduled repurchase date. In a repurchase agreement the Company is subject to the risk that the purchaser may default at maturity and not return the securities underlying the agreements. In order to minimize this potential risk, the Company either deals with established firms when entering into these transactions, or with customers whose agreements stipulate that the securities underlying the agreement are not delivered to the customer and instead are held in segregated safekeeping accounts by the Company's safekeeping agents.
The table below sets forth information regarding the Company’s repurchase agreements accounted for as secured borrowings and types of collateral as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
September 30,
2021
|
|
December 31,
2020
|
Customer Repurchase Agreements(1)(2):
|
|
|
|
|
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
|
|
$
|
151,405
|
|
|
$
|
90,015
|
|
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
|
|
57,842
|
|
|
70,902
|
|
Obligations of states and political subdivisions
|
|
2,305
|
|
|
1,522
|
|
Total
|
|
$
|
211,552
|
|
|
$
|
162,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Presented within short-term borrowings on the consolidated statements of condition.
(2) All customer repurchase agreements mature continuously or overnight for the dates indicated.
At September 30, 2021 and December 31, 2020, certain customers held CDs totaling $1.0 million, that were collateralized by CMO and MBS securities that were overnight repurchase agreements.
Certain counterparties monitor collateral, and may request additional collateral to be posted from time to time.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Commitments
In the normal course of business, the Company is a party to both on- and off-balance sheet financial instruments involving, to varying degrees, elements of credit risk and interest rate risk in addition to the amounts recognized in the consolidated statements of condition.
The following is a summary of the Company's contractual off-balance sheet commitments as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
September 30,
2021
|
|
December 31,
2020
|
Commitments to extend credit
|
|
$
|
847,371
|
|
|
$
|
723,986
|
|
Standby letters of credit
|
|
7,476
|
|
|
4,735
|
|
Total
|
|
$
|
854,847
|
|
|
$
|
728,721
|
|
The Company’s commitments to extend credit from its lending activities do not necessarily represent future cash requirements since certain of these instruments may expire without being funded and others may not be fully drawn upon. These commitments are subject to the Company’s credit approval process, including an evaluation of the customer’s creditworthiness and related collateral requirements. Commitments generally have fixed expiration dates or other termination clauses.
Standby letters of credit are conditional commitments issued to guarantee the performance of a borrower to a third party. In the event of nonperformance by the borrower, the Company would be required to fund the commitment and would be entitled to the underlying collateral, if applicable, which generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate. The maximum potential future payments are limited to the contractual amount of the commitment.
The Company establishes an ACL on off-balance sheet credit exposures on its contractual off-balance sheet commitments, except those that are unconditionally cancellable by the Company. As of September 30, 2021 and December 31, 2020, the ACL on off-balance sheet credit exposures was $3.2 million and $2.6 million, respectively, and was presented within accrued interest and other liabilities on the consolidated statements of condition.
For the three months ended September 30, 2021 and 2020, the provision (credit) for credit losses on off-balance sheet credit exposures was $670,000 and ($13,000), respectively. For the nine months ended September 30, 2021 and 2020, the provision (credit) for credit losses on off-balance sheet credit exposures was $617,000 and ($12,000).
Legal Contingencies
In the normal course of business, the Company and its subsidiaries are subject to pending and threatened litigation, claims investigations and legal and administrative cases and proceedings. Although the Company is not able to predict the outcome of such actions, after reviewing pending and threatened actions with counsel, management believes that, based on the information currently available, the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial statements.
Reserves are established for legal claims only when losses associated with the claims are judged to be probable, and the loss can be reasonably estimated. Assessments of litigation exposure are difficult because they involve inherently unpredictable factors including, but not limited to: whether the proceeding is in the early stages; whether damages are unspecified, unsupported, or uncertain; whether there is a potential for punitive or other pecuniary damages; whether the matter involves legal uncertainties, including novel issues of law; whether the matter involves multiple parties and/or jurisdictions; whether discovery has begun or is not complete; whether meaningful settlement discussions have commenced; and whether the lawsuit involves class allegations. In many lawsuits and arbitrations, it is not possible to determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case a reserve will not be recognized until that time. Assessments of class action litigation, which is generally more complex than other types of litigation, are particularly difficult, especially in the early stages of the proceeding when it is not known whether a class will be certified or how a potential class, if certified, will be defined. As a result, the Company may be unable to estimate reasonably possible losses with respect to every litigation matter it faces.
The Company did not have any material loss contingencies that were provided for and/or that are required to be disclosed as of September 30, 2021 and December 31, 2020.
NOTE 8 – DERIVATIVES AND HEDGING
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.
Derivatives Designated as Hedging Instruments - Cash Flow Hedges of Interest Rate Risk
Interest Rate Contracts
The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed rate payments or the receipt of fixed rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. For the three and nine months ended September 30, 2021 and 2020, such derivatives were used to hedge the variable cash flows associated with existing variable-rate assets or liabilities or forecasted issuances of debt.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense or interest income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense or interest income as interest payments are made or received on the Company’s variable-rate liabilities or assets. The Company estimates that an additional $2.1 million will be reclassified as an increase to interest expense and an additional $1.6 million will be reclassified as an increase to interest income over the next 12 months.
Derivatives not Designated as Hedges
Customer Loan Swaps
Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.
Fixed Rate Mortgage Interest Rate Lock Commitments
As part of the origination process of a residential loan, the Company may enter into rate lock agreements with its borrower, which is considered an interest rate lock commitment. If the Company intends to sell the loan upon origination, it will account for the interest rate lock commitment as a derivative.
Forward Delivery Commitments
The Company typically enters into a forward delivery commitment with a secondary market investor, which has been approved by the Company within its normal governance process, at the onset of the loan origination process. The Company may enter into these arrangements with the secondary market investors on a "best effort" or "mandatory delivery" basis. The Company's normal practice is typically to enter into these arrangements on a "best effort" basis. The Company enters into these arrangements with the secondary market investors to manage its interest rate exposure. The Company accounts for the forward delivery commitment as a derivative upon origination of a loan identified as held for sale.
The following table presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated statements of condition as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
(In thousands)
|
|
Notional
Amount
|
|
Location
|
|
Fair
Value
|
|
Notional
Amount
|
|
Location
|
|
Fair
Value
|
September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts(1)
|
|
$
|
160,000
|
|
|
Other assets
|
|
$
|
6,849
|
|
|
$
|
83,000
|
|
|
Accrued interest and other liabilities
|
|
$
|
8,597
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
$
|
6,849
|
|
|
|
|
|
|
$
|
8,597
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer loan swaps(1)
|
|
$
|
347,921
|
|
|
Other assets
|
|
$
|
24,045
|
|
|
$
|
347,921
|
|
|
Accrued interest and other liabilities
|
|
$
|
24,045
|
|
Fixed Rate mortgage interest rate lock commitments
|
|
35,720
|
|
|
Other assets
|
|
498
|
|
|
15,302
|
|
|
Accrued interest and other liabilities
|
|
116
|
|
Forward delivery commitments
|
|
8,492
|
|
|
Other assets
|
|
215
|
|
|
2,297
|
|
|
Accrued interest and other liabilities
|
|
22
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
|
$
|
24,758
|
|
|
|
|
|
|
$
|
24,183
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
110,000
|
|
|
Other assets
|
|
$
|
5,731
|
|
|
$
|
143,000
|
|
|
Accrued interest and other liabilities
|
|
$
|
11,625
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
$
|
5,731
|
|
|
|
|
|
|
$
|
11,625
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer loan swaps
|
|
$
|
376,290
|
|
|
Other assets
|
|
$
|
39,627
|
|
|
$
|
376,290
|
|
|
Accrued interest and other liabilities
|
|
$
|
39,627
|
|
Fixed rate mortgage interest rate lock commitments
|
|
58,574
|
|
|
Other assets
|
|
608
|
|
|
28,346
|
|
|
Accrued interest and other liabilities
|
|
248
|
|
Forward delivery commitments
|
|
24,951
|
|
|
Other assets
|
|
311
|
|
|
15,548
|
|
|
Accrued interest and other liabilities
|
|
196
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
|
$
|
40,546
|
|
|
|
|
|
|
$
|
40,071
|
|
(1) Reported fair values include accrued interest receivable and payable.
The table below presents the effect of cash flow hedge accounting, before tax, on AOCI for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Amount of Gain (Loss) Recognized in OCI on Derivative
|
|
Amount of Gain (Loss) Recognized in OCI Included Component
|
|
Amount of Gain (Loss) Recognized in OCI Excluded Component
|
Location of Gain (Loss) Recognized
from AOCI into Income
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income Included Component
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income Excluded Component
|
Derivatives in Cash Flow Hedge Relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
48
|
|
|
$
|
48
|
|
|
$
|
—
|
|
Interest and fees on loans
|
|
$
|
410
|
|
|
$
|
410
|
|
|
$
|
—
|
|
Interest rate contracts
|
|
190
|
|
|
190
|
|
|
—
|
|
Interest on deposits
|
|
(170)
|
|
|
(170)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
228
|
|
|
228
|
|
|
—
|
|
Interest on subordinated debentures
|
|
(369)
|
|
|
(369)
|
|
|
—
|
|
Total
|
|
$
|
466
|
|
|
$
|
466
|
|
|
$
|
—
|
|
|
|
$
|
(129)
|
|
|
$
|
(129)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(688)
|
|
|
$
|
(688)
|
|
|
$
|
—
|
|
Interest and fees on loans
|
|
$
|
1,205
|
|
|
$
|
1,205
|
|
|
$
|
—
|
|
Interest rate contracts
|
|
2,142
|
|
|
2,142
|
|
|
—
|
|
Interest on deposits
|
|
(490)
|
|
|
(490)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
2,201
|
|
|
2,201
|
|
|
—
|
|
Interest on subordinated debentures
|
|
(1,222)
|
|
|
(1,222)
|
|
|
—
|
|
Total
|
|
$
|
3,655
|
|
|
$
|
3,655
|
|
|
$
|
—
|
|
|
|
$
|
(507)
|
|
|
$
|
(507)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(81)
|
|
|
$
|
(81)
|
|
|
$
|
—
|
|
Interest and fees on loans
|
|
$
|
311
|
|
|
$
|
311
|
|
|
$
|
—
|
|
Interest rate contracts
|
|
140
|
|
|
140
|
|
|
—
|
|
Interest on deposits
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest rate contracts
|
|
197
|
|
|
197
|
|
|
—
|
|
Interest on borrowings
|
|
(74)
|
|
|
(74)
|
|
|
—
|
|
Interest rate contracts
|
|
432
|
|
|
432
|
|
|
—
|
|
Interest on subordinated debentures
|
|
(405)
|
|
|
(405)
|
|
|
—
|
|
Total
|
|
$
|
688
|
|
|
$
|
688
|
|
|
$
|
—
|
|
|
|
$
|
(168)
|
|
|
$
|
(168)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
5,844
|
|
|
$
|
5,844
|
|
|
$
|
—
|
|
Interest and fees on loans
|
|
$
|
610
|
|
|
$
|
610
|
|
|
$
|
—
|
|
Interest rate contracts
|
|
(838)
|
|
|
(838)
|
|
|
—
|
|
Interest on deposits
|
|
(26)
|
|
|
(26)
|
|
|
—
|
|
Interest rate contracts
|
|
(922)
|
|
|
(922)
|
|
|
—
|
|
Interest on borrowings
|
|
(22)
|
|
|
(22)
|
|
|
—
|
|
Interest rate contracts
|
|
(4,502)
|
|
|
(4,502)
|
|
|
—
|
|
Interest on subordinated debentures
|
|
(942)
|
|
|
(942)
|
|
|
—
|
|
Total
|
|
$
|
(418)
|
|
|
$
|
(418)
|
|
|
$
|
—
|
|
|
|
$
|
(380)
|
|
|
$
|
(380)
|
|
|
$
|
—
|
|
The table below presents the effect of cash flow hedge accounting on the consolidated statements of income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss) Recognized in Income
|
|
|
Three Months Ended
September 30,
|
|
|
2021
|
|
2020
|
(Dollars in thousands)
|
|
Interest and fees on loans
|
|
Interest on deposits
|
|
Interest on borrowings
|
|
Interest on subordinated debentures
|
|
Interest and fees on loans
|
|
Interest on deposits
|
|
Interest on borrowings
|
|
Interest on subordinated debentures
|
Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded
|
|
$
|
31,185
|
|
|
$
|
1,973
|
|
|
$
|
122
|
|
|
$
|
538
|
|
|
$
|
33,025
|
|
|
$
|
2,899
|
|
|
$
|
394
|
|
|
$
|
893
|
|
Gain (loss) on cash flow hedging relationships
|
Interest rate contracts:
|
Amount of gain (loss) reclassified from AOCI into income
|
|
$
|
410
|
|
|
$
|
(170)
|
|
|
$
|
—
|
|
|
$
|
(369)
|
|
|
$
|
311
|
|
|
$
|
—
|
|
|
$
|
(74)
|
|
|
$
|
(405)
|
|
Amount of gain (loss) reclassified from AOCI into income - included component
|
|
$
|
410
|
|
|
$
|
(170)
|
|
|
$
|
—
|
|
|
$
|
(369)
|
|
|
$
|
311
|
|
|
$
|
—
|
|
|
$
|
(74)
|
|
|
$
|
(405)
|
|
Amount of gain (loss) reclassified from AOCI into income - excluded component
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss) Recognized in Income
|
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
(Dollars in thousands)
|
|
Interest and fees on loans
|
|
Interest on deposits
|
|
Interest on borrowings
|
|
Interest on subordinated debentures
|
|
Interest and fees on loans
|
|
Interest on deposits
|
|
Interest on borrowings
|
|
Interest on subordinated debentures
|
Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded
|
|
$
|
92,610
|
|
|
$
|
5,957
|
|
|
$
|
454
|
|
|
$
|
1,983
|
|
|
$
|
100,190
|
|
|
$
|
12,953
|
|
|
$
|
1,591
|
|
|
$
|
2,668
|
|
Gain (loss) on cash flow hedging relationships
|
Interest rate contracts:
|
Amount of gain (loss) reclassified from AOCI into income
|
|
$
|
1,205
|
|
|
$
|
(490)
|
|
|
$
|
—
|
|
|
$
|
(1,222)
|
|
|
$
|
610
|
|
|
$
|
(26)
|
|
|
$
|
(22)
|
|
|
$
|
(942)
|
|
Amount of gain (loss) reclassified from AOCI into income - included component
|
|
$
|
1,205
|
|
|
$
|
(490)
|
|
|
$
|
—
|
|
|
$
|
(1,222)
|
|
|
$
|
610
|
|
|
$
|
(26)
|
|
|
$
|
(22)
|
|
|
$
|
(942)
|
|
Amount of gain (loss) reclassified from AOCI into income - excluded component
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The table below presents the effect of the Company's derivative financial instruments that are not designated as hedging instruments on the consolidated statements of income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain Recognized in Income
|
|
Amount of Gain (Loss)
Recognized in Income
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(Dollars in thousands)
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Fixed rate mortgage interest rate lock commitments
|
|
Mortgage banking income, net
|
|
$
|
(434)
|
|
|
$
|
(386)
|
|
|
$
|
22
|
|
|
$
|
110
|
|
Forward delivery commitments
|
|
Mortgage banking income, net
|
|
65
|
|
|
123
|
|
|
78
|
|
|
(33)
|
|
Total
|
|
|
|
$
|
(369)
|
|
|
$
|
(263)
|
|
|
$
|
100
|
|
|
$
|
77
|
|
Credit Risk-Related Contingent Features
By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining
collateral, where appropriate. As such, management believes the risk of incurring credit losses on derivative contracts with institutional counterparties is remote.
The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. In addition, the Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well- capitalized institution, then the counterparty could terminate the derivative position(s) and the Company could be required to settle its obligations under the agreements.
As of September 30, 2021 and December 31, 2020, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for non-performance risk, related to these agreements was $31.1 million and $50.5 million, respectively. As of September 30, 2021 and December 31, 2020, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted cash collateral of $33.0 million and $57.5 million, respectively. If the Company had breached any of these provisions at September 30, 2021 or December 31, 2020, it could have been required to settle its obligations under the agreements at their termination value of $31.1 million and $50.5 million, respectively.
NOTE 9 – BALANCE SHEET OFFSETTING
The Company does not offset the carrying value for derivative instruments or repurchase agreements on the consolidated statements of condition. The Company does net the amount recognized for the right to reclaim cash collateral against the obligation to return cash collateral arising from instruments executed with the same counterparty under a master netting arrangement. Collateral legally required to be pledged or received is monitored and adjusted as necessary. Refer to Note 6 for further discussion of repurchase agreements and Note 8 for further discussion of derivative instruments.
The following table presents the Company's derivative positions and repurchase agreements, and the potential effect of netting arrangements on its financial position, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount Not Offset in the Consolidated Statements of Condition
|
|
|
(In thousands)
|
|
Gross Amount Recognized in the Consolidated Statements of Condition
|
|
Gross Amount Offset in the Consolidated Statements of Condition
|
|
Net Amount Presented in the Consolidated Statements of Condition
|
|
Financial Instruments Pledged (Received)(1)
|
|
Cash Collateral Pledged (Received)(1)
|
|
Net Amount
|
September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer loan swaps - commercial customer(2)
|
|
$
|
24,045
|
|
|
$
|
—
|
|
|
$
|
24,045
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,045
|
|
Interest rate contracts(3)
|
|
6,849
|
|
|
—
|
|
|
6,849
|
|
|
—
|
|
|
(6,590)
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,894
|
|
|
$
|
—
|
|
|
$
|
30,894
|
|
|
$
|
—
|
|
|
$
|
(6,590)
|
|
|
$
|
24,304
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer loan swaps - dealer bank(3)
|
|
$
|
24,045
|
|
|
$
|
—
|
|
|
$
|
24,045
|
|
|
$
|
—
|
|
|
$
|
24,045
|
|
|
$
|
—
|
|
Interest rate contracts(3)
|
|
8,597
|
|
|
—
|
|
|
8,597
|
|
|
—
|
|
|
8,597
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
32,642
|
|
|
$
|
—
|
|
|
$
|
32,642
|
|
|
$
|
—
|
|
|
$
|
32,642
|
|
|
$
|
—
|
|
Customer repurchase agreements
|
|
$
|
211,552
|
|
|
$
|
—
|
|
|
$
|
211,552
|
|
|
$
|
211,552
|
|
|
$
|
—
|
|
|
$
|
—
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer loan swaps - commercial customer(2)
|
|
$
|
39,627
|
|
|
$
|
—
|
|
|
$
|
39,627
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,627
|
|
Interest rate contracts(3)
|
|
5,731
|
|
|
—
|
|
|
5,731
|
|
|
—
|
|
|
(5,595)
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,358
|
|
|
$
|
—
|
|
|
$
|
45,358
|
|
|
$
|
—
|
|
|
$
|
(5,595)
|
|
|
$
|
39,763
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer loan swaps - dealer bank(3)
|
|
$
|
39,627
|
|
|
$
|
—
|
|
|
$
|
39,627
|
|
|
$
|
—
|
|
|
$
|
39,627
|
|
|
$
|
—
|
|
Interest rate contracts(3)
|
|
11,625
|
|
|
—
|
|
|
11,625
|
|
|
—
|
|
|
11,625
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
51,252
|
|
|
$
|
—
|
|
|
$
|
51,252
|
|
|
$
|
—
|
|
|
$
|
51,252
|
|
|
$
|
—
|
|
Customer repurchase agreements
|
|
$
|
162,439
|
|
|
$
|
—
|
|
|
$
|
162,439
|
|
|
$
|
162,439
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1) The amount presented was the lesser of the amount pledged (received) or the net amount presented in the consolidated statements of condition.
(2) The Company manages its net exposure on its commercial customer loan swaps by obtaining collateral as part of the normal loan policy and underwriting practices.
(3) Interest rate swap contracts were completed with the same dealer bank. The Company maintains a master netting arrangement and settles collateral requested or pledged on a net basis for all contracts.
NOTE 10 – REGULATORY CAPITAL REQUIREMENTS
The Company and Bank are subject to various regulatory capital requirements administered by the FRB and the OCC. Failure to meet minimum capital requirements can result in mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.
The Company and Bank are required to maintain certain levels of capital based on risk-adjusted assets. These capital requirements represent quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and Bank's capital classification is also subject to qualitative judgments by our regulators about components, risk weightings and other factors. The quantitative measures established to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of total capital, Tier 1 capital, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets, or the leverage ratio. These guidelines apply to the Company on a consolidated basis.
Under the current guidelines, banking organizations must have a minimum total risk-based capital ratio of 8.0%, a minimum Tier 1 risk-based capital ratio of 6.0%, a minimum common equity Tier 1 risk-based capital ratio of 4.5%, and a minimum leverage ratio of 4.0% in order to be "adequately capitalized." In addition to these requirements, banking organizations must maintain a capital conservation buffer consisting of common Tier 1 equity in an amount above the minimum
risk-based capital requirements for "adequately capitalized" institutions equal to 2.5% of total risk-weighted assets, resulting in a requirement for the Company and the Bank effectively to maintain common equity Tier 1, Tier 1 and total capital ratios of 7.0%, 8.5% and 10.5%, respectively. The Company and the Bank must maintain the capital conservation buffer to avoid restrictions on the ability to pay dividends, pay discretionary bonuses and to engage in share repurchases based on the amount of the shortfall and the institution's "eligible retained income" (that is, the greater of (i) net income for the preceding four quarters, net of distributions and associated tax effects not reflected in net income and (ii) average net income over the preceding four quarters).
The Company and Bank's risk-based capital ratios exceeded regulatory requirements, including the capital conservation buffer, at September 30, 2021 and December 31, 2020, and the Bank's capital ratios met the requirements for it to be considered "well capitalized" under prompt corrective action provisions for each period. There were no changes to the Company or Bank's capital ratios that occurred subsequent to September 30, 2021 that would change the Company or Bank's regulatory capital categorization. The following table presents the Company and Bank's regulatory capital ratios at the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer
|
|
Minimum Regulatory Provision To Be "Well Capitalized"
|
|
December 31,
2020
|
|
Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer
|
|
Minimum Regulatory Provision To Be "Well Capitalized"
|
(Dollars in thousands)
|
|
Amount
|
|
Ratio
|
|
|
|
Amount
|
|
Ratio
|
|
|
Camden National Corporation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital ratio
|
|
$
|
515,656
|
|
|
15.06
|
%
|
|
10.50
|
%
|
|
10.00
|
%
|
|
$
|
498,290
|
|
|
15.40
|
%
|
|
10.50
|
%
|
|
10.00
|
%
|
Tier 1 risk-based capital ratio
|
|
480,200
|
|
|
14.02
|
%
|
|
8.50
|
%
|
|
6.00
|
%
|
|
445,858
|
|
|
13.78
|
%
|
|
8.50
|
%
|
|
6.00
|
%
|
Common equity Tier 1 risk-based capital ratio(1)
|
|
437,200
|
|
|
12.77
|
%
|
|
7.00
|
%
|
|
N/A
|
|
402,858
|
|
|
12.45
|
%
|
|
7.00
|
%
|
|
N/A
|
Tier 1 leverage capital ratio(1)
|
|
480,200
|
|
|
9.13
|
%
|
|
4.00
|
%
|
|
N/A
|
|
445,858
|
|
|
9.13
|
%
|
|
4.00
|
%
|
|
N/A
|
Camden National Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital ratio
|
|
$
|
478,574
|
|
|
14.02
|
%
|
|
10.50
|
%
|
|
10.00
|
%
|
|
$
|
460,611
|
|
|
14.28
|
%
|
|
10.50
|
%
|
|
10.00
|
%
|
Tier 1 risk-based capital ratio
|
|
443,118
|
|
|
12.98
|
%
|
|
8.50
|
%
|
|
8.00
|
%
|
|
420,294
|
|
|
13.03
|
%
|
|
8.50
|
%
|
|
8.00
|
%
|
Common equity Tier 1 risk-based capital ratio
|
|
443,118
|
|
|
12.98
|
%
|
|
7.00
|
%
|
|
6.50
|
%
|
|
420,294
|
|
|
13.03
|
%
|
|
7.00
|
%
|
|
6.50
|
%
|
Tier 1 leverage capital ratio
|
|
443,118
|
|
|
8.44
|
%
|
|
4.00
|
%
|
|
5.00
|
%
|
|
420,294
|
|
|
8.64
|
%
|
|
4.00
|
%
|
|
5.00
|
%
|
(1) “Minimum Regulatory Provisions To Be ‘Well Capitalized’” are not formally defined under applicable banking regulations for bank holding companies.
In 2006 and 2008, the Company issued $43.0 million of junior subordinated debentures in connection with the issuance of trust preferred securities. Although the junior subordinated debentures are recorded as liabilities on the Company's consolidated statements of condition, the Company is permitted, in accordance with applicable regulation, to include, subject to certain limits, the debentures within its calculation of risk-based capital. At September 30, 2021 and December 31, 2020, $43.0 million of the junior subordinated debentures were included in Tier 1 and Tier 2 capital for the Company.
On April 16, 2021, the Company redeemed its $15.0 million of subordinated debentures in full, at par plus accrued and unpaid interest, and, thus, the subordinated debentures were no longer included as Tier 2 capital within the calculation of total risk-based capital at September 30, 2021. At December 31, 2020, $12.0 million, or 80%, of the subordinated debentures were included as Tier 2 capital within the calculation of the Company's total risk-based capital.
The Company and Bank's regulatory capital and risk-weighted assets fluctuate due to normal business, including profits and losses generated by the Company and Bank as well as changes to their asset mix. Of particular significance are changes within the Company and Bank's loan portfolio mix due to the differences in regulatory risk-weighting between retail and commercial loans. Furthermore, the Company and Bank's regulatory capital and risk-weighted assets are subject to change due to changes in GAAP and regulatory capital standards. The Company and Bank proactively monitor their regulatory capital and risk-weighted assets, and the impact of changes to their asset mix, and the impact of proposed and pending changes as a result of new and/or amended GAAP standards and regulatory changes.
NOTE 11 – OTHER COMPREHENSIVE INCOME (LOSS)
The following tables present a reconciliation of the changes in the components of other comprehensive income and loss for the periods indicated, including the amount of tax (expense) benefit allocated to each component:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
September 30, 2021
|
|
September 30, 2020
|
(In thousands)
|
|
Pre-Tax
Amount
|
|
Tax (Expense)
Benefit
|
|
After-Tax
Amount
|
|
Pre-Tax
Amount
|
|
Tax (Expense)
Benefit
|
|
After-Tax
Amount
|
AFS Debt Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value
|
|
$
|
(6,546)
|
|
|
$
|
1,407
|
|
|
$
|
(5,139)
|
|
|
$
|
(746)
|
|
|
$
|
160
|
|
|
$
|
(586)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value
|
|
(6,546)
|
|
|
1,407
|
|
|
(5,139)
|
|
|
(746)
|
|
|
160
|
|
|
(586)
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value
|
|
466
|
|
|
(100)
|
|
|
366
|
|
|
688
|
|
|
(148)
|
|
|
540
|
|
Less: reclassified AOCI loss into interest expense(1)
|
|
(539)
|
|
|
116
|
|
|
(423)
|
|
|
(479)
|
|
|
103
|
|
|
(376)
|
|
Less: reclassified AOCI gain into interest income(2)
|
|
410
|
|
|
(88)
|
|
|
322
|
|
|
311
|
|
|
(67)
|
|
|
244
|
|
Net change in fair value
|
|
595
|
|
|
(128)
|
|
|
467
|
|
|
856
|
|
|
(184)
|
|
|
672
|
|
Postretirement Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of settlement recognition of net loss and prior service credit(3)
|
|
217
|
|
|
(46)
|
|
|
171
|
|
|
169
|
|
|
(36)
|
|
|
133
|
|
Other comprehensive (loss) income
|
|
$
|
(5,734)
|
|
|
$
|
1,233
|
|
|
$
|
(4,501)
|
|
|
$
|
279
|
|
|
$
|
(60)
|
|
|
$
|
219
|
|
(1) Reclassified into interest on deposits, borrowings and/or subordinated debentures on the consolidated statements of income. Refer to Note 8 of the consolidated financial statements for further details.
(2) Reclassified into interest and fees on loans on the consolidated statements of income. Refer to Note 8 of the consolidated financial statements for further details.
(3) Reclassified into other expenses on the consolidated statements of income. Refer to Note 13 of the consolidated financial statements for further details.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
September 30, 2021
|
|
September 30, 2020
|
(In thousands)
|
|
Pre-Tax
Amount
|
|
Tax (Expense)
Benefit
|
|
After-Tax
Amount
|
|
Pre-Tax
Amount
|
|
Tax (Expense)
Benefit
|
|
After-Tax
Amount
|
AFS Debt Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value
|
|
$
|
(25,926)
|
|
|
$
|
5,574
|
|
|
$
|
(20,352)
|
|
|
$
|
32,451
|
|
|
$
|
(6,977)
|
|
|
$
|
25,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value
|
|
(25,926)
|
|
|
5,574
|
|
|
(20,352)
|
|
|
32,451
|
|
|
(6,977)
|
|
|
25,474
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value
|
|
3,655
|
|
|
(785)
|
|
|
2,870
|
|
|
(418)
|
|
|
90
|
|
|
(328)
|
|
Less: reclassified AOCI loss into interest expense(1)
|
|
(1,712)
|
|
|
368
|
|
|
(1,344)
|
|
|
(990)
|
|
|
213
|
|
|
(777)
|
|
Less: reclassified AOCI gain into interest income(2)
|
|
1,205
|
|
|
(258)
|
|
|
947
|
|
|
610
|
|
|
(131)
|
|
|
479
|
|
Net change in fair value
|
|
4,162
|
|
|
(895)
|
|
|
3,267
|
|
|
(38)
|
|
|
8
|
|
|
(30)
|
|
Postretirement Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of settlement recognition of net loss and prior service credit(3)
|
|
652
|
|
|
(140)
|
|
|
512
|
|
|
508
|
|
|
(109)
|
|
|
399
|
|
Other comprehensive (loss) income
|
|
$
|
(21,112)
|
|
|
$
|
4,539
|
|
|
$
|
(16,573)
|
|
|
$
|
32,921
|
|
|
$
|
(7,078)
|
|
|
$
|
25,843
|
|
(1) Reclassified into interest on deposits, borrowings and/or subordinated debentures on the consolidated statements of income. Refer to Note 8 of the consolidated financial statements for further details.
(2) Reclassified into interest and fees on loans on the consolidated statements of income. Refer to Note 8 of the consolidated financial statements for further details.
(3) Reclassified into other expenses on the consolidated statements of income. Refer to Note 13 of the consolidated financial statements for further details.
The following table presents the changes in each component of AOCI, after tax, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Net Unrealized Gains (Losses) on AFS Debt Securities
|
|
Net Unrealized Losses (Gains) on Cash Flow Hedges
|
|
Defined Benefit Postretirement Plans
|
|
AOCI
|
At or For the Three Months Ended September 30, 2021
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021
|
|
$
|
14,097
|
|
|
$
|
(1,826)
|
|
|
$
|
(3,603)
|
|
|
$
|
8,668
|
|
Other comprehensive (loss) income before reclassifications
|
|
(5,139)
|
|
|
366
|
|
|
—
|
|
|
(4,773)
|
|
Less: Amounts reclassified from AOCI
|
|
—
|
|
|
(101)
|
|
|
(171)
|
|
|
(272)
|
|
Other comprehensive (loss) income
|
|
(5,139)
|
|
|
467
|
|
|
171
|
|
|
(4,501)
|
|
Balance at September 30, 2021
|
|
$
|
8,958
|
|
|
$
|
(1,359)
|
|
|
$
|
(3,432)
|
|
|
$
|
4,167
|
|
At or For the Nine Months Ended September 30, 2021
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
$
|
29,310
|
|
|
$
|
(4,626)
|
|
|
$
|
(3,944)
|
|
|
$
|
20,740
|
|
Other comprehensive (loss) income before reclassifications
|
|
(20,352)
|
|
|
2,870
|
|
|
—
|
|
|
(17,482)
|
|
Less: Amounts reclassified from AOCI
|
|
—
|
|
|
(397)
|
|
|
(512)
|
|
|
(909)
|
|
Other comprehensive (loss) income
|
|
(20,352)
|
|
|
3,267
|
|
|
512
|
|
|
(16,573)
|
|
Balance at September 30, 2021
|
|
$
|
8,958
|
|
|
$
|
(1,359)
|
|
|
$
|
(3,432)
|
|
|
$
|
4,167
|
|
At or For the Three Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
|
$
|
29,310
|
|
|
$
|
(6,750)
|
|
|
$
|
(3,204)
|
|
|
$
|
19,356
|
|
Other comprehensive (loss) income before reclassifications
|
|
(586)
|
|
|
540
|
|
|
—
|
|
|
(46)
|
|
Less: Amounts reclassified from AOCI
|
|
—
|
|
|
(132)
|
|
|
(133)
|
|
|
(265)
|
|
Other comprehensive (loss) income
|
|
(586)
|
|
|
672
|
|
|
133
|
|
|
219
|
|
Balance at September 30, 2020
|
|
$
|
28,724
|
|
|
$
|
(6,078)
|
|
|
$
|
(3,071)
|
|
|
$
|
19,575
|
|
At or For the Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
3,250
|
|
|
$
|
(6,048)
|
|
|
$
|
(3,470)
|
|
|
$
|
(6,268)
|
|
Other comprehensive income (loss) before reclassifications
|
|
25,474
|
|
|
(328)
|
|
|
—
|
|
|
25,146
|
|
Less: Amounts reclassified from AOCI
|
|
—
|
|
|
(298)
|
|
|
(399)
|
|
|
(697)
|
|
Other comprehensive income (loss)
|
|
25,474
|
|
|
(30)
|
|
|
399
|
|
|
25,843
|
|
Balance at September 30, 2020
|
|
$
|
28,724
|
|
|
$
|
(6,078)
|
|
|
$
|
(3,071)
|
|
|
$
|
19,575
|
|
NOTE 12 – REVENUE FROM CONTRACTS WITH CUSTOMERS
A portion of the Company's non-interest income is derived from contracts with customers, and, as such, the revenue recognized depicts the transfer of promised goods or services to its customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company considers the terms of the contract and all relevant facts and circumstances when applying this guidance.
The Company has disaggregated its revenue from contracts with customers into categories based on the nature of the revenue. The categorization of revenues from contracts with customers that are within the scope of ASC 606 closely aligns with the presentation of revenue categories presented within non-interest income on the consolidated statements of income. The following table presents the revenue streams within the scope of ASC 606 for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location on Consolidated Statements of Income
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In thousands)
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Debit card interchange income
|
|
Debit card income
|
|
$
|
3,278
|
|
|
$
|
2,627
|
|
|
$
|
9,126
|
|
|
$
|
7,159
|
|
Services charges on deposit accounts
|
|
Service charges on deposit accounts
|
|
1,744
|
|
|
1,606
|
|
|
4,800
|
|
|
4,955
|
|
Fiduciary services income
|
|
Income from fiduciary services
|
|
1,627
|
|
|
1,504
|
|
|
4,860
|
|
|
4,609
|
|
Investment program income
|
|
Brokerage and insurance commissions
|
|
993
|
|
|
755
|
|
|
2,885
|
|
|
2,034
|
|
Other non-interest income
|
|
Other income
|
|
521
|
|
|
467
|
|
|
1,368
|
|
|
1,275
|
|
Total non-interest income within the scope of ASC 606
|
|
|
|
8,163
|
|
|
6,959
|
|
|
23,039
|
|
|
20,032
|
|
Total non-interest income not in scope of ASC 606
|
|
|
|
2,936
|
|
|
5,737
|
|
|
14,595
|
|
|
16,127
|
|
Total non-interest income
|
|
|
|
$
|
11,099
|
|
|
$
|
12,696
|
|
|
$
|
37,634
|
|
|
$
|
36,159
|
|
In each of the revenue streams identified above, there were no significant judgments made in determining or allocating the transaction price, as the consideration and services are generally explicitly identified in the associated contracts.
NOTE 13 – EMPLOYEE BENEFIT PLANS
The Company sponsors unfunded, non-qualified SERPs for certain officers and provides medical and life insurance to certain eligible retired employees.
The components of net periodic pension and postretirement benefit cost were as follow for the following periods:
Supplemental Executive Retirement Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Location on Consolidated Statements of Income
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
Net periodic pension cost
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Service cost
|
|
Salaries and employee benefits
|
|
$
|
126
|
|
|
$
|
116
|
|
|
$
|
378
|
|
|
$
|
348
|
|
Interest cost
|
|
Other expenses
|
|
97
|
|
|
116
|
|
|
292
|
|
|
346
|
|
Recognized net actuarial loss
|
|
Other expenses
|
|
194
|
|
|
155
|
|
|
583
|
|
|
467
|
|
Total
|
|
|
|
$
|
417
|
|
|
$
|
387
|
|
|
$
|
1,253
|
|
|
$
|
1,161
|
|
Other Postretirement Benefit Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Location on Consolidated Statements of Income
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
Net periodic postretirement benefit cost
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Service cost
|
|
Salaries and employee benefits
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
20
|
|
|
$
|
21
|
|
Interest cost
|
|
Other expenses
|
|
26
|
|
|
31
|
|
|
77
|
|
|
92
|
|
Recognized net actuarial loss
|
|
Other expenses
|
|
29
|
|
|
20
|
|
|
87
|
|
|
59
|
|
Amortization of prior service credit
|
|
Other expenses
|
|
(6)
|
|
|
(6)
|
|
|
(18)
|
|
|
(18)
|
|
Total
|
|
|
|
$
|
56
|
|
|
$
|
52
|
|
|
$
|
166
|
|
|
$
|
154
|
|
NOTE 14 – EPS
The following is an analysis of basic and diluted EPS, reflecting the application of the two-class method, as described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In thousands, except number of shares and per share data)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net income
|
|
$
|
14,640
|
|
|
$
|
16,775
|
|
|
$
|
52,523
|
|
|
$
|
41,208
|
|
Dividends and undistributed earnings allocated to participating securities(1)
|
|
(40)
|
|
|
(47)
|
|
|
(145)
|
|
|
(101)
|
|
Net income available to common shareholders
|
|
$
|
14,600
|
|
|
$
|
16,728
|
|
|
$
|
52,378
|
|
|
$
|
41,107
|
|
Weighted-average common shares outstanding for basic EPS
|
|
14,931,056
|
|
|
14,961,465
|
|
|
14,930,387
|
|
|
15,008,004
|
|
Dilutive effect of stock-based awards(2)
|
|
67,957
|
|
|
39,582
|
|
|
66,154
|
|
|
36,423
|
|
Weighted-average common and potential common shares for diluted EPS
|
|
14,999,013
|
|
|
15,001,047
|
|
|
14,996,541
|
|
|
15,044,427
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
0.98
|
|
|
$
|
1.12
|
|
|
$
|
3.51
|
|
|
$
|
2.74
|
|
Diluted EPS
|
|
$
|
0.97
|
|
|
$
|
1.11
|
|
|
$
|
3.49
|
|
|
$
|
2.73
|
|
Awards excluded from the calculation of diluted EPS(3):
|
|
|
|
|
|
|
|
|
MSPP
|
|
—
|
|
|
6,345
|
|
|
—
|
|
|
—
|
|
Performance-based awards
|
|
3,382
|
|
|
861
|
|
|
—
|
|
|
2,206
|
|
Stock options
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
1,000
|
|
(1) Represents dividends paid and undistributed earnings allocated to nonvested stock-based awards that contain non-forfeitable rights to dividends.
(2) Represents the assumed dilutive effect of unexercised and/or unvested stock options, restricted shares, restricted share units and contingently issuable performance-based awards utilizing the treasury stock method.
(3) Represents stock-based awards not included in the computation of potential common shares for purposes of calculating diluted EPS as the exercise prices were greater than the average market price of the Company's common stock, and, therefore, are considered anti-dilutive.
Nonvested stock-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of the Company’s nonvested stock-based awards qualify as participating securities.
Net income is allocated between the common stock and participating securities pursuant to the two-class method. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested stock-based awards. Diluted EPS is computed in a similar manner, except that the denominator includes the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method.
NOTE 15 – FAIR VALUE MEASUREMENT AND DISCLOSURE
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined using quoted market prices. However, in many instances, quoted market prices are not available. In such instances, fair values are determined using various valuation techniques. Various assumptions and observable inputs must be relied upon in applying these techniques. GAAP establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
GAAP permits an entity to choose to measure eligible financial instruments and other items at fair value. The Company has elected the fair value option for its loans held for sale. Electing the fair value option for loans held for sale enables the Company’s financial position to more clearly align with the economic value of the actively traded asset.
The fair value hierarchy for valuation of an asset or liability is as follows:
Level 1: Valuation is based upon unadjusted quoted prices in active markets for identical assets and liabilities that the entity has the ability to access as of the measurement date.
Level 2: Valuation is determined from quoted prices for similar assets or liabilities in active markets, from quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.
Level 3: Valuation is derived from model-based and other techniques in which at least one significant input is unobservable and which may be based on the Company’s own estimates about the assumptions that market participants would use to value the asset or liability.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon model-based techniques incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using model-based techniques are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
Financial Instruments Recorded at Fair Value on a Recurring Basis
Trading Securities: The fair value of trading securities is reported using market quoted prices and has been classified as Level 1 as they are actively traded and no valuation adjustments have been applied.
Debt Securities: The fair value of investments in debt securities is reported utilizing prices provided by an independent pricing service based on recent trading activity and other observable information including, but not limited to, dealer quotes, market spreads, cash flows, market interest rate curves, market consensus prepayment speeds, credit information, and the bond’s terms and conditions. The fair value of debt securities is classified as Level 2.
Loans Held For Sale: The fair value of loans held for sale is determined on an individual loan basis using quoted secondary market prices and is classified as Level 2.
Derivatives: The fair value of interest rate swaps is determined using inputs that are observable in the market place obtained from third parties including yield curves, publicly available volatilities, and floating indexes and, accordingly, are classified as Level 2 inputs. The credit value adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of September 30, 2021 and December 31, 2020, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives as sufficient collateral exists, mitigating the credit risk.
The fair value of the Company's fixed rate interest rate lock commitments were determined using secondary market pricing for loans with similar structures, including term, rate and borrower credit quality, adjusted for the Company's pull-through rate estimate (i.e. estimate of loans within its loan pipeline that will ultimately complete the origination process and be funded). The Company has classified its fixed rate interest rate lock commitments as Level 2, as the quoted secondary market prices are the more significant input, and, although the Company's internal pull-through rate estimate is a Level 3 estimate, it is less significant to the ultimate valuation.
The fair value of the Company's forward delivery commitments is determined using secondary market pricing for loans with similar structures, including term, rate and borrower credit quality, and the locked and agreed to price with the secondary market investor. The Company has classified its fixed rate interest rate lock commitments as Level 2.
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Fair
Value
|
|
Readily
Available
Market
Prices
(Level 1)
|
|
Observable
Market
Data
(Level 2)
|
|
Company
Determined
Fair Value
(Level 3)
|
September 30, 2021
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
4,335
|
|
|
$
|
4,335
|
|
|
$
|
—
|
|
|
$
|
—
|
|
AFS debt securities:
|
|
|
|
|
|
|
|
|
Obligations of U.S. government-sponsored enterprises
|
|
8,452
|
|
|
—
|
|
|
8,452
|
|
|
—
|
|
Obligations of states and political subdivisions
|
|
117,753
|
|
|
—
|
|
|
117,753
|
|
|
—
|
|
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
|
|
919,992
|
|
|
—
|
|
|
919,992
|
|
|
—
|
|
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
|
|
392,827
|
|
|
—
|
|
|
392,827
|
|
|
—
|
|
Subordinated corporate bonds
|
|
16,186
|
|
|
—
|
|
|
16,186
|
|
|
—
|
|
Loans held for sale
|
|
10,826
|
|
|
—
|
|
|
10,826
|
|
|
—
|
|
Customer loan swaps
|
|
24,045
|
|
|
—
|
|
|
24,045
|
|
|
—
|
|
Interest rate contracts
|
|
6,849
|
|
|
—
|
|
|
6,849
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Fixed rate mortgage interest rate lock commitments
|
|
498
|
|
|
—
|
|
|
498
|
|
|
—
|
|
Forward delivery commitments
|
|
215
|
|
|
—
|
|
|
215
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
4,335
|
|
|
$
|
4,335
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Customer loan swaps
|
|
24,045
|
|
|
—
|
|
|
24,045
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
8,597
|
|
|
—
|
|
|
8,597
|
|
|
—
|
|
Fixed rate mortgage interest rate lock commitments
|
|
116
|
|
|
—
|
|
|
116
|
|
|
—
|
|
Forward delivery commitments
|
|
22
|
|
|
—
|
|
|
22
|
|
|
—
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
4,161
|
|
|
$
|
4,161
|
|
|
$
|
—
|
|
|
$
|
—
|
|
AFS debt securities:
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
127,120
|
|
|
—
|
|
|
127,120
|
|
|
—
|
|
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
|
|
566,618
|
|
|
—
|
|
|
566,618
|
|
|
—
|
|
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
|
|
410,454
|
|
|
—
|
|
|
410,454
|
|
|
—
|
|
Subordinated corporate bonds
|
|
11,621
|
|
|
—
|
|
|
11,621
|
|
|
—
|
|
Loans held for sale
|
|
41,557
|
|
|
—
|
|
|
41,557
|
|
|
—
|
|
Customer loan swaps
|
|
39,627
|
|
|
—
|
|
|
39,627
|
|
|
—
|
|
Interest rate contracts
|
|
5,731
|
|
|
—
|
|
|
5,731
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate mortgage interest rate lock commitments
|
|
608
|
|
|
—
|
|
|
608
|
|
|
—
|
|
Forward delivery commitments
|
|
311
|
|
|
—
|
|
|
311
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
4,161
|
|
|
$
|
4,161
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Customer loan swaps
|
|
39,627
|
|
|
—
|
|
|
39,627
|
|
|
—
|
|
Interest rate contracts
|
|
11,625
|
|
|
—
|
|
|
11,625
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate mortgage interest rate lock commitments
|
|
248
|
|
|
—
|
|
|
248
|
|
|
—
|
|
Forward delivery commitments
|
|
196
|
|
|
—
|
|
|
196
|
|
|
—
|
|
The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, 2021. The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in transfer between levels.
Financial Instruments Recorded at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period.
Collateral-Dependent Loans: Expected credit losses on individually assessed loans deemed to be collateral dependent are valued based upon the lower of amortized cost of fair value of the underlying collateral less costs to sell. Management estimates the fair values of these assets using Level 2 inputs, such as the fair value of collateral based on independent third-party market approach appraisals for collateral-dependent loans, and Level 3 inputs where circumstances warrant an adjustment to the appraised value based on the age of the appraisal and/or comparable sales, condition of the collateral, and market conditions.
Servicing Assets: The Company accounts for mortgage servicing assets at cost, subject to impairment testing. When the carrying value of a tranche exceeds fair value, a valuation allowance is established to reduce the carrying cost to fair value. Fair value is based on a valuation model that calculates the present value of estimated net servicing income. The Company obtains a third-party valuation based upon loan level data including note rate, type and term of the underlying loans. The model utilizes two significant unobservable inputs, namely loan prepayment assumptions and the discount rate used, to calculate the fair value of each tranche, and, as such, the Company has classified the model within Level 3 of the fair value hierarchy.
Non-Financial Instruments Recorded at Fair Value on a Non-Recurring Basis
The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Non-financial assets measured at fair value on a non-recurring basis consist of OREO, goodwill and core deposit intangible assets.
OREO: OREO properties acquired through foreclosure or deed in lieu of foreclosure are recorded at net realizable value, which is the fair value of the real estate, less estimated costs to sell. Any write-down of the recorded investment in the related loan is charged to the ACL upon transfer to OREO. Upon acquisition of a property, a current appraisal is used or an internal valuation is prepared to substantiate fair value of the property. After foreclosure, management periodically, but at least annually, obtains updated valuations of the OREO properties and, if additional impairments are deemed necessary, the subsequent write-downs for declines in value are recorded through a valuation allowance and a provision for credit losses charged to other non-interest expense within the consolidated statements of income. As management considers appropriate, adjustments are made to the appraisal obtained for the OREO property to account for recent sales activity of comparable properties, changes in the condition of the property, and changes in market conditions. These adjustments are not observable in an active market and are classified as Level 3.
Goodwill: Goodwill represents the excess cost of an acquisition over the fair value of the net assets acquired. The fair value of goodwill is estimated by utilizing several standard valuation techniques, including discounted cash flow analyses, bank merger multiples, and/or an estimation of the impact of business conditions and investor activities on the long-term value of the goodwill. Should an impairment occur, the associated goodwill is written-down to fair value and the impairment charge is recorded within non-interest expense in the consolidated statements of income. The Company conducts an annual impairment test of goodwill in the fourth quarter each year, or more frequently as necessary. There have been no indications or triggering events during the nine months ended September 30, 2021, for which management believes it is more likely than not that goodwill is impaired.
Core Deposit Intangible Assets: The Company's core deposit intangible assets represent the estimated value of acquired customer relationships and are amortized over the estimated life of those relationships. Core deposit intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no events or changes in circumstances for the nine months ended September 30, 2021, that indicated the carrying amount may not be recoverable.
The table below highlights financial and non-financial assets measured and recorded at fair value on a non-recurring basis for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Fair
Value
|
|
Readily
Available
Market
Prices
(Level 1)
|
|
Observable
Market
Data
(Level 2)
|
|
Company
Determined
Fair Value
(Level 3)
|
September 30, 2021
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Collateral-dependent loans
|
|
$
|
74
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Servicing assets
|
|
$
|
1,010
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,010
|
|
|
|
|
|
|
|
|
|
|
Non-financial assets:
|
|
|
|
|
|
|
|
|
OREO
|
|
$
|
236
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
236
|
|
The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Fair Value
|
|
Valuation Methodology
|
|
Unobservable Input
|
|
Discount
|
|
September 30, 2021
|
|
|
|
|
|
|
|
|
|
Collateral-dependent loans:
|
|
|
|
|
|
|
|
|
|
Specifically reserved
|
|
$
|
74
|
|
|
Market approach appraisal of
collateral
|
|
Estimated selling costs
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
Servicing assets
|
|
$
|
1,010
|
|
|
Discounted cash flow
|
|
Weighted-average constant prepayment rate
|
|
19%
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
10%
|
|
OREO
|
|
$
|
236
|
|
|
Market approach appraisal of
collateral
|
|
Management adjustment of appraisal
|
|
5%
|
|
|
|
|
|
|
|
Estimated selling cost
|
|
11%
|
|
The estimated fair values and related carrying amounts for assets and liabilities for which fair value is only disclosed are shown below as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Carrying
Amount
|
|
Fair Value
|
|
Readily
Available
Market
Prices
(Level 1)
|
|
Observable
Market
Prices
(Level 2)
|
|
Company
Determined
Market
Prices
(Level 3)
|
September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
HTM debt securities
|
|
$
|
1,293
|
|
|
$
|
1,390
|
|
|
$
|
—
|
|
|
$
|
1,390
|
|
|
$
|
—
|
|
Commercial real estate loans(1)(2)
|
|
1,397,639
|
|
|
1,360,937
|
|
|
—
|
|
|
—
|
|
|
1,360,937
|
|
Commercial loans(2)
|
|
347,944
|
|
|
345,341
|
|
|
—
|
|
|
—
|
|
|
345,341
|
|
SBA PPP loans(2)
|
|
81,916
|
|
|
85,660
|
|
|
—
|
|
|
—
|
|
|
85,660
|
|
Residential real estate loans(2)
|
|
1,218,431
|
|
|
1,225,153
|
|
|
—
|
|
|
—
|
|
|
1,225,153
|
|
Home equity loans(2)
|
|
216,959
|
|
|
214,909
|
|
|
—
|
|
|
—
|
|
|
214,909
|
|
Consumer loans(2)
|
|
20,142
|
|
|
18,234
|
|
|
—
|
|
|
—
|
|
|
18,234
|
|
Servicing assets
|
|
2,495
|
|
|
3,215
|
|
|
—
|
|
|
—
|
|
|
3,215
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
$
|
373,414
|
|
|
$
|
374,316
|
|
|
$
|
—
|
|
|
$
|
374,316
|
|
|
$
|
—
|
|
Short-term borrowings
|
|
211,552
|
|
|
211,530
|
|
|
—
|
|
|
211,530
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debentures
|
|
44,331
|
|
|
33,027
|
|
|
—
|
|
|
33,027
|
|
|
—
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
HTM debt securities
|
|
$
|
1,297
|
|
|
$
|
1,411
|
|
|
$
|
—
|
|
|
$
|
1,411
|
|
|
$
|
—
|
|
Commercial real estate loans(1)(2)
|
|
1,344,860
|
|
|
1,307,132
|
|
|
—
|
|
|
—
|
|
|
1,307,132
|
|
Commercial loans(2)
|
|
374,791
|
|
|
372,194
|
|
|
—
|
|
|
—
|
|
|
372,194
|
|
SBA PPP loans(2)
|
|
135,026
|
|
|
137,209
|
|
|
|
|
|
|
137,209
|
|
Residential real estate loans(2)
|
|
1,051,324
|
|
|
1,066,991
|
|
|
—
|
|
|
—
|
|
|
1,066,991
|
|
Home equity loans(2)
|
|
255,957
|
|
|
253,276
|
|
|
—
|
|
|
—
|
|
|
253,276
|
|
Consumer loans(2)
|
|
19,999
|
|
|
18,102
|
|
|
—
|
|
|
—
|
|
|
18,102
|
|
Servicing assets
|
|
2,196
|
|
|
1,437
|
|
|
—
|
|
|
—
|
|
|
1,437
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
$
|
457,694
|
|
|
$
|
460,278
|
|
|
$
|
—
|
|
|
$
|
460,278
|
|
|
$
|
—
|
|
Short-term borrowings
|
|
162,439
|
|
|
162,420
|
|
|
—
|
|
|
162,420
|
|
|
—
|
|
Long-term borrowings
|
|
25,000
|
|
|
25,442
|
|
|
—
|
|
|
25,442
|
|
|
—
|
|
Subordinated debentures
|
|
59,331
|
|
|
46,475
|
|
|
—
|
|
|
46,475
|
|
|
—
|
|
(1) Commercial real estate loan includes non owner-occupied and owner-occupied properties.
(2) The presented carrying amount is net of the allocated ACL on loans.
Excluded from the summary were financial instruments measured at fair value on a recurring and nonrecurring basis, as previously described.
The Company considers its financial instruments' current use to be the highest and best use of the instruments.