NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Summary of Significant Accounting Policies
General
Glacier Bancorp, Inc. (“Company”) is a Montana corporation headquartered in Kalispell, Montana. The Company provides a full range of banking services to individuals and businesses in Montana, Idaho, Utah, Washington, Wyoming, Colorado, Arizona and Nevada through its wholly-owned bank subsidiary, Glacier Bank (“Bank”). The Company offers a wide range of banking products and services, including: 1) retail banking; 2) business banking; 3) real estate, commercial, agriculture and consumer loans; and 4) mortgage origination services. The Company serves individuals, small to medium-sized businesses, community organizations and public entities.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the results for the interim periods. All such adjustments are of a normal recurring nature. These interim financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements and they should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Operating results for the six months ended June 30, 2021 are not necessarily indicative of the results anticipated for the year ending December 31, 2021. The condensed consolidated statement of financial condition of the Company as of December 31, 2020 has been derived from the audited consolidated statements of the Company as of that date.
The Company is a defendant in legal proceedings arising in the normal course of business. In the opinion of management, the disposition of pending litigation will not have a material affect on the Company’s consolidated financial position, results of operations or liquidity.
Material estimates that are particularly susceptible to significant change include: 1) the determination of the allowance for credit losses (“ACL” or “allowance”) on loans; 2) the valuation of debt securities; 3) the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans; and 4) the evaluation of goodwill impairment. For the determination of the ACL on loans and real estate valuation estimates, management obtains independent appraisals (new or updated) for significant items. Estimates relating to the investment valuations are obtained from independent third parties. Estimates relating to the evaluation of goodwill for impairment are determined based on internal calculations using independent party inputs.
Principles of Consolidation
The consolidated financial statements of the Company include the parent holding company and the Bank, which consists of sixteen bank divisions and a corporate division. The corporate division includes the Bank’s investment portfolio, wholesale borrowings and other centralized functions. The Bank divisions operate under separate names, management teams and advisory directors. The Company considers the Bank to be its sole operating segment as the Bank 1) engages in similar bank business activity from which it earns revenues and incurs expenses; 2) the operating results of the Bank are regularly reviewed by the Chief Executive Officer (“CEO”) (i.e., the chief operating decision maker) who makes decisions about resources to be allocated to the Bank; and 3) financial information is available for the Bank. All significant inter-company transactions have been eliminated in consolidation.
The Bank has subsidiary interests in variable interest entities (“VIE”) for which the Bank has both the power to direct the VIE’s significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could potentially be significant to the VIE. These subsidiary interests are included in the Company’s consolidated financial statements. The Bank also has subsidiary interests in VIEs for which the Bank does not have a controlling financial interest and is not the primary beneficiary. These subsidiary interests are not included in the Company’s consolidated financial statements.
The parent holding company owns non-bank subsidiaries that have issued trust preferred securities. The trust subsidiaries are not included in the Company’s consolidated financial statements. The Company's investments in the trust subsidiaries are included in other assets on the Company's statements of financial condition.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash held as demand deposits at various banks and the Federal Reserve Bank (“FRB”), interest bearing deposits, federal funds sold, and liquid investments with original maturities of three months or less. The Bank is required to maintain an average reserve balance with either the FRB or in the form of cash on hand. During 2020, the Fed temporarily reduced the reserve requirement due to the coronavirus disease of 2019 (“COVID-19.”) The required reserve balance at June 30, 2021 was $0.
Debt Securities
On January 1, 2020, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses, which significantly changed the allowance for credit loss accounting policies for debt securities. The following debt securities and allowance for credit loss accounting policies are presented under Accounting Standards Codification™ (“ASC”) Topic 326.
Debt securities for which the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortized cost. Debt securities held primarily for the purpose of selling in the near term are classified as trading securities and are reported at fair value, with unrealized gains and losses included in income. Debt securities not classified as held-to-maturity or trading are classified as available-for-sale and are reported at fair value with unrealized gains and losses, net of income taxes, as a separate component of other comprehensive income (“OCI”). Premiums and discounts on debt securities are amortized or accreted into income using a method that approximates the interest method. The objective of the interest method is to calculate periodic interest income at a constant effective yield. The Company does not have any debt securities classified as trading securities. When the Company acquires another entity, it designates all debt securities as available-for-sale at acquisition date and records the debt securities at fair value.
The Company reviews and analyzes the various risks that may be present within the investment portfolio on an ongoing basis, including market risk, credit risk and liquidity risk. Market risk is the risk to an entity’s financial condition resulting from adverse changes in the value of its holdings arising from movements in interest rates, foreign exchange rates, equity prices or commodity prices. The Company assesses the market risk of individual debt securities as well as the investment portfolio as a whole. Credit risk, broadly defined, is the risk that an issuer or counterparty will fail to perform on an obligation. The credit rating of a security is considered the primary credit quality indicator for debt securities. Liquidity risk refers to the risk that a security will not have an active and efficient market in which the security can be sold.
A debt security is investment grade if the issuer has adequate capacity to meet its commitment over the expected life of the investment, i.e., the risk of default is low and full and timely repayment of interest and principal is expected. To determine investment grade status for debt securities, the Company conducts due diligence of the creditworthiness of the issuer or counterparty prior to acquisition and ongoing thereafter consistent with the risk characteristics of the security and the overall risk of the investment portfolio. Credit quality due diligence takes into account the extent to which a security is guaranteed by the U.S. government and other agencies of the U.S. government. The depth of the due diligence is based on the complexity of the structure, the size of the security, and takes into account material positions and specific groups of securities or stratifications for analysis and review of similar risk positions. The due diligence includes consideration of payment performance, collateral adequacy, internal analyses, third party research and analytics, external credit ratings and default statistics.
The Company has acquired debt securities through acquisitions and if the securities have more than insignificant credit deterioration since origination, they are designated as purchased credit-deteriorated (“PCD”) securities. An ACL is determined using the same methodology as with other debt securities. The sum of a PCD security’s fair value and associated ACL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the debt security is a noncredit discount or premium, which is amortized into interest income over the life of the security. Subsequent changes to the ACL are recorded through provision for credit losses.
For additional information relating to debt securities, see Note 2.
Allowance for Credit Losses - Available-for-Sale Debt Securities
For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more-likely-than-not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through other expense. For the available-for-sale securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In such assessment, the Company considers the extent to which fair value is less than amortized cost, if there are any changes to the investment grade of the security by a rating agency, and if there are any adverse conditions that impact the security. If this assessment indicates a credit loss exists, the present value of the cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a potential credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any estimated credit losses that have not been recorded through an ACL are recognized in OCI.
The Company has elected to exclude accrued interest from the estimate of credit losses for available-for-sale debt securities. As part of its non-accrual policy, the Company charges-off uncollectable interest at the time it is determined to be uncollectable.
Allowance for Credit Losses - Held-to-Maturity Debt Securities
For estimating the allowance for held-to-maturity (“HTM”) debt securities that share similar risk characteristics with other securities, such securities are pooled based on major security type. For pools of such securities with similar risk characteristics, the historical lifetime probability of default and severity of loss in the event of default is derived or obtained from external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected lives of the securities on those historical credit losses. Expected credit losses on securities in the held-to-maturity portfolio that do not share similar risk characteristics with any of the pools of debt securities are individually measured based on net realizable value, or the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the recorded amortized cost basis of the securities.
The Company has elected to exclude accrued interest from the estimate of credit losses for held-to-maturity debt securities. As part of its non-accrual policy, the Company charges off uncollectable interest at the time it is determined to be uncollectable.
Loans Held for Sale
Loans held for sale generally consist of long-term, fixed rate, conforming, single-family residential real estate loans intended to be sold on the secondary market. Loans held for sale are recorded at fair value and may or may not be sold with servicing rights released. Changes in fair value are recognized in non-interest income. Fair value elections are made at the time of origination based on the Company’s fair value election policy.
Loans Receivable
On January 1, 2020, the Company adopted FASB ASU 2016-13, Financial Instruments - Credit Losses, which significantly changed the loan and allowance for credit loss accounting policies. The following loan and allowance for credit loss accounting policies are presented under ASC Topic 326, whereas prior periods are presented in accordance with the incurred loss model as disclosed in the Company’s 2019 Annual Report on Form 10-K.
The Company’s loan segments or classes are based on the purpose of the loan and consist of residential real estate, commercial real estate, other commercial, home equity, and other consumer loans. Loans that are intended to be held-to-maturity are reported at the unpaid principal balance less net charge-offs and adjusted for deferred fees and costs on originated loans and unamortized premiums or discounts on acquired loans. Interest income is accrued on the unpaid principal balance. Fees and costs on originated loans and premiums or discounts on acquired loans are deferred and subsequently amortized or accreted as a yield adjustment over the expected life of the loan utilizing the interest or straight-line methods. The interest method is utilized for loans with scheduled payment terms and the objective is to calculate periodic interest income at a constant effective yield. The straight-line method is utilized for revolving lines of credit or loans with no scheduled payment terms. When a loan is paid off prior to maturity, the remaining unamortized fees and costs on originated loans and unamortized premiums or discounts on acquired loans are immediately recognized into interest income.
Loans that are thirty days or more past due based on payments received and applied to the loan are considered delinquent. Loans are designated non-accrual and the accrual of interest is discontinued when the collection of the contractual principal or interest is unlikely. A loan is typically placed on non-accrual when principal or interest is due and has remained unpaid for ninety days or more. When a loan is placed on non-accrual status, interest previously accrued but not collected is reversed against current period interest income. Subsequent payments on non-accrual loans are applied to the outstanding principal
balance if doubt remains as to the ultimate collectability of the loan. Interest accruals are not resumed on partially charged-off impaired loans. For other loans on non-accrual, interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.
The Company has acquired loans through acquisitions, some of which have experienced more than insignificant credit deterioration since origination. The Company considers all acquired non-accrual loans to be PCD loans. In addition, the Company considers loans accruing ninety days or more past due with estimated credit losses or substandard loans with estimated credit losses to be PCD loans. An ACL is determined using the same methodology as other loans held for investment. The ACL determined on a collective basis is allocated to individual loans. The sum of a loan’s fair value and ACL becomes the initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the ACL are recorded through provision for credit losses.
For additional information relating to loans, see Note 3.
Allowance for Credit Losses - Loans Receivable
The allowance for credit losses for loans receivable represents management’s estimate of credit losses over the expected contractual life of the loan portfolio. The estimate is determined based on the amortized cost of the loan portfolio including the loan balance adjusted for charge-offs, recoveries, deferred fees and costs, and loan discount and premiums. Recoveries are included only to the extent that such amounts were previously charged-off. The Company has elected to exclude accrued interest from the estimate of credit losses for loans. Determining the adequacy of the allowance is complex and requires a high degree of judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance in those future periods.
The allowance is increased for estimated credit losses which are recorded as expense. The portion of loans and overdraft balances determined by management to be uncollectable are charged-off as a reduction to the allowance and recoveries of amounts previously charged-off increase the allowance. The Company’s charge-off policy is consistent with bank regulatory standards. Consumer loans generally are charged-off when the loan becomes over 120 days delinquent. Real estate acquired as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned (“OREO”) until such time as it is sold.
The expected credit loss estimate process involves procedures to consider the unique characteristics of each of the Company’s loan portfolio segments, which consist of residential real estate, commercial real estate, other commercial, home equity, and other consumer loans. When computing the allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, credit and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. The Company has determined a four consecutive quarter forecasting period is a reasonable and supportable period. Expected credit loss for periods beyond reasonable and supportable forecast periods are determined based on a reversion method which reverts back to historical loss estimate over a four consecutive quarter period on a straight-line basis.
Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and the process for estimating the expected credit losses. The following paragraphs describe the risk characteristics relevant to each portfolio segment.
Residential Real Estate. Residential real estate loans are secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans is impacted by economic conditions within the Company’s market areas that affect the value of the residential property securing the loans and affect the borrowers' personal incomes. Mitigating risk factors for this loan segment include a large number of borrowers, geographic dispersion of market areas and the loans are originated for relatively smaller amounts.
Commercial Real Estate. Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operation of the property securing the loan and/or the business conducted on the property securing the loan. Credit risk in these loans is impacted by the creditworthiness of a borrower, valuation of the property securing the loan and conditions within the local economies in the Company’s diverse, geographic market areas.
Commercial. Commercial loans consist of loans to commercial customers for use in financing working capital needs, equipment purchases and business expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations across the Company’s diverse, geographic market areas.
Home Equity. Home equity loans consist of junior lien mortgages and first and junior lien lines of credit (revolving open-end and amortizing closed-end) secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans is impacted by economic conditions within the Company’s market areas that affect the value of the residential property securing the loans and affect the borrowers' personal incomes. Mitigating risk factors for this loan segment are a large number of borrowers, geographic dispersion of market areas and the loans are originated for terms that range from 10 to 15 years.
Other Consumer. The other consumer loan portfolio consists of various short-term loans such as automobile loans and loans for other personal purposes. Repayment of these loans is primarily dependent on the personal income of the borrowers. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Company’s diverse, geographic market area) and the creditworthiness of a borrower.
The allowance is impacted by loan volumes, delinquency status, credit ratings, historical loss experiences, estimated prepayment speeds, weighted average lives and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses reported in the allowance has two basic components: 1) individual loans that do not share similar risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and 2) the expected credit losses for pools of loans that share similar risk characteristics.
Loans that do not Share Similar Risk Characteristics with Other Loans. For a loan that does not share similar risk characteristics with other loans, expected credit loss is measured based on the net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan. For these loans, the expected credit loss is equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs and deferred loan fees and costs), except when the loan is collateral-dependent, that is, when foreclosure is probable or the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral. The Company has determined that non-accrual loans do not share similar risk characteristics with other loans and these loans are individually evaluated for estimated allowance for credit losses. The Company, through its credit monitoring process, may also identify other loans that do no share similar risk characteristics and individually evaluate such loans. The starting point for determining the fair value of collateral is to obtain external appraisals or evaluations (new or updated). The valuation techniques used in preparing appraisals or evaluations (new or updated) include the cost approach, income approach, sales comparison approach, or a combination of the preceding valuation techniques. The Company’s credit department reviews appraisals, giving consideration to the highest and best use of the collateral. The appraisals or evaluations (new or updated) are reviewed at least quarterly and more frequently based on current market conditions, including deterioration in a borrower’s financial condition and when property values may be subject to significant volatility. Adjustments may be made to the fair value of the collateral after review and acceptance of the collateral appraisal or evaluation (new or updated).
Loans that Share Similar Risk Characteristics with other Loans. For estimating the allowance for loans that share similar risk characteristics with other loans, such loans are segregated into loan segments. Loans are designated into loan segments based on loans pooled by product types and similar risk characteristics or areas of risk concentration. In determining the ACL, the Company derives an estimated credit loss assumption from a model that categorizes loan pools based on loan type which is further segregated by the credit quality indicators. This model calculates an expected loss percentage for each loan segment by considering the non-discounted simple annual average historical loss rate of each loan segment (calculated through an “open pool” method), multiplying the loss rate by the amortized loan balance and incorporating that segment’s internally generated prepayment speed assumption and contractually scheduled remaining principal pay downs on a loan level basis. The annual historical loss rates are adjusted over a reasonable economic forecast period by a multiplier that is calculated based upon current national economic forecasts as a proportion of each segment’s historical average loss levels. The Company will then revert from the economic forecast period back to the historical average loss rate in a straight-line basis. After the reversion period, the loans will be assumed to experience their historical loss rate for the remainder of their contractual lives. The model applies the
expected loss rate over the projected cash flows at the individual loan level and then aggregates the losses by loan segment in determining their quantitative allowance. The Company will also include qualitative adjustments to adjust the ACL on loan segments to the extent the current or future market conditions are believed to vary substantially from historical conditions in regards to:
•lending policies and procedures;
•international, national, regional and local economic business conditions and developments that affect the collectability of the portfolio, including the condition of various markets;
•the nature and volume of the loan portfolio including the terms of the loans;
•the experience, ability, and depth of the lending management and other relevant staff;
•the volume and severity of past due and adversely classified or graded loans and the volume of non-accrual loans;
•the quality of our loan review system;
•the value of underlying collateral for collateralized loans;
•the existence and effect of any concentrations of credit, and changes in the level of concentrations; and
•the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.
The Company regularly reviews loans in the portfolio to assess credit quality indicators and to determine the appropriate loan classification and grading in accordance with applicable bank regulations. The primary credit quality indicator for residential, home equity and other consumer loans is the days past due status, which consists of the following categories: 1) performing loans; 2) 30 to 89 days past due loans; and 3) non-accrual and ninety days or more past due loans. The primary credit quality indicator for commercial real estate and commercial loans is the Company’s internal risk rating system, which includes the following categories: 1) pass loans; 2) special mention loans; 3) substandard loans; and 4) doubtful or loss loans. Such credit quality indicators are regularly monitored and incorporated into the Company’s allowance estimate. The following paragraphs further define the internal risk ratings for commercial real estate and commercial loans.
Pass Loans. These ratings represent loans that are of acceptable, good or excellent quality with very limited to no risk. Loans that do not have one of the following ratings are considered pass loans.
Special Mention Loans. These ratings represent loans that are designated as special mention per the regulatory definition. Special mention loans are currently protected but are potentially weak. The credit risk may be relatively minor yet constitute an undue and unwarranted risk in light of the circumstances surrounding a specific loan. The rating may be used to identify credit with potential weaknesses that if not corrected may weaken the loan to the point of inadequately protecting the Bank’s credit position. Examples include a lack of supervision, inadequate loan agreement, condition, or control of collateral, incomplete, or improper documentation, deviations from lending policy, and adverse trends in operations or economic conditions.
Substandard Loans. This rating represents loans that are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. A loan so classified must have a well-defined weakness that jeopardizes the liquidation of the debt. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregated amount of substandard loans, does not have to exist in an individual loan classified substandard.
Doubtful/Loss Loans. A loan classified as doubtful has the characteristics that make collection in full, on the basis of currently existing facts, conditions, and values, highly improbable. The possibility of loss is extremely high, but because of pending factors, which may work to the advantage and strengthening of the loan, its classification as loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. Loans are classified as loss when they are deemed to be not collectible and of such little value that continuance as an active asset of the Bank is not warranted. Loans classified as loss must be charged-off. Assignment of this classification does not mean that an asset has absolutely no recovery or salvage value, but that it is not practical or desirable to defer writing off a basically worthless asset, even though partial recovery may be attained in the future.
Restructured Loans
A restructured loan is considered a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The Company periodically enters into restructure agreements with borrowers whereby the loans were previously identified as TDRs. When such circumstances occur, the Company carefully evaluates the facts of the subsequent restructure to determine the appropriate accounting and under certain circumstances it may be acceptable not to account for the subsequently restructured loan as a TDR. When assessing whether a concession has been granted by the Company, any prior forgiveness on a cumulative basis is considered a continuing concession. The Company has made the following types of loan modifications, some of which were considered a TDR:
•reduction of the stated interest rate for the remaining term of the debt;
•extension of the maturity date(s) at a stated rate of interest lower than the current market rate for newly originated debt having similar risk characteristics; and
•reduction of the face amount of the debt as stated in the debt agreements.
The Company recognizes that while borrowers may experience deterioration in their financial condition, many continue to be creditworthy borrowers who have the willingness and capacity for debt repayment. In determining whether non-restructured or performing loans issued to a single or related party group of borrowers should continue to accrue interest when the borrower has other loans that are non-performing or are TDRs, the Company on a quarterly or more frequent basis performs an updated and comprehensive assessment of the willingness and capacity of the borrowers to timely and ultimately repay their total debt obligations, including contingent obligations. Such analysis takes into account current financial information about the borrowers and financially responsible guarantors, if any, including for example:
•analysis of global, i.e., aggregate debt service for total debt obligations;
•assessment of the value and security protection of collateral pledged using current market conditions and alternative market assumptions across a variety of potential future situations; and
•loan structures and related covenants.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law which includes many provisions that impact the Company and its customers. The banking regulatory agencies have encouraged banks to work with borrowers who have been impacted by the coronavirus disease of 2019 (“COVID-19”) and the CARES Act, along with related regulatory guidance, allows banks to not designate certain modifications as TDRs that otherwise may have been classified as TDRs. In general, in order to qualify for such treatment, the modifications need to be short-term and made on a good faith basis in response to the COVID-19 pandemic to borrowers who were previously deemed current as outlined in the regulatory guidance. The Company has made such modifications to assist borrowers impacted by the COVID-19 pandemic.
The allowance for credit losses on a TDR is measured using the same method as all other loans held for investment. For a TDR that is individually reviewed and not collateral-dependent, the value of the concession can only be measured using the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the ACL is determined by discounting the expected future cash flows at the original interest of the loan.
Allowance for Credit Losses - Off-Balance Sheet Credit Exposures
The Company maintains a separate allowance for off-balance sheet credit exposures, including unfunded loan commitments, which is included in other liabilities on the Company’s statements of financial condition. The Company estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for exposures and applying the loss factors used in the allowance for credit loss methodology to the results of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan segment. No credit loss estimate is reported for off-balance sheet credit exposures that are unconditionally cancellable by the Bank or for unfunded amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.
Provision for Credit Losses
The Company recognizes provision for credit losses on the allowance for off-balance sheet credit exposures (e.g., unfunded loan commitments) together with provision for credit losses on the loan portfolio in the income statement line item provision for credit losses.
The following table presents the provision for credit losses on the loan portfolio and off-balance sheet exposures:
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Three Months ended
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Six Months ended
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(Dollars in thousands)
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June 30,
2021
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June 30,
2020
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June 30,
2021
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June 30,
2020
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Provision for credit loss loans
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$
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(5,723)
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13,552
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(5,234)
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36,296
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Provision for credit losses unfunded
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70
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3,377
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(371)
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(182)
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Total provision for credit losses
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$
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(5,653)
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16,929
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(5,605)
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36,114
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There was no provision for credit losses on debt securities for the three and six months ended June 30, 2021, and 2020 respectively.
Premises and Equipment
Premises and equipment are accounted for at cost less depreciation. Depreciation is computed on a straight-line method over the estimated useful lives or the term of the related lease. The estimated useful life for office buildings is 15 to 40 years and the estimated useful life for furniture, fixtures, and equipment is 3 to 10 years. Interest is capitalized for any significant building projects.
Leases
The Company leases certain land, premises and equipment from third parties. A lessee lease is classified as an operating lease unless it meets certain criteria (e.g., lease contains option to purchase that Company is reasonably certain to exercise), in which case it is classified as a finance lease. Operating leases are included in net premises and equipment and other liabilities on the Company’s statements of financial condition and lease expense for lease payments is recognized on a straight-line basis over the lease term. Finance leases are included in net premises and equipment and other borrowed funds on the Company’s statements of financial condition. Right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. An ROU asset represents the right to use the underlying asset for the lease term and also includes any direct costs and payments made prior to lease commencement and excludes lease incentives. When an implicit rate is not available, an incremental borrowing rate based on the information available at commencement date is used in determining the present value of the lease payments. A lease term may include an option to extend or terminate the lease when it is reasonably certain the option will be exercised. The Company accounts for lease and nonlease components (e.g., common-area maintenance) together as a single combined lease component for all asset classes. Short-term leases of 12 months or less are excluded from accounting guidance; as a result, the lease payments are recognized on a straight-line basis over the lease term and the leases are not reflected on the Company’s statements of financial condition. Renewal and termination options are considered when determining short-term leases. Leases are accounted for on an individual lease level.
Lease improvements incurred at the inception of the lease are recorded as an asset and depreciated over the initial term of the lease and lease improvements incurred subsequently are depreciated over the remaining term of the lease.
The Company also leases certain premises and equipment to third parties. A lessor lease is classified as an operating lease unless it meets certain criteria that would classify it as either a sales-type lease or a direct financing lease. For additional information relating to leases, see Note 4.
Other Real Estate Owned
Property acquired by foreclosure or deed-in-lieu of foreclosure is initially recorded at fair value, less estimated selling cost, at acquisition date (i.e., cost of the property). The Company is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan upon the occurrence of either the Company obtaining legal title to the property or the borrower conveying all interest in the property through a deed-in-lieu or similar agreement. Fair value is determined as the amount that could be reasonably expected in a current sale between a willing buyer and a willing seller in an orderly transaction between market participants at the measurement date. Subsequent to the initial acquisition, if the fair value of the asset, less estimated selling cost, is less than the cost of the property, a loss is recognized in other expense and the asset carrying value is reduced. Gain or loss on disposition of OREO is recorded in non-interest income or non-interest expense, respectively. In determining the fair value of the properties on the date of transfer and any subsequent estimated losses of net realizable value, the fair value of other real estate acquired by foreclosure or deed-in-lieu of foreclosure is determined primarily based upon appraisal or evaluation of the underlying property value.
Business Combinations and Intangible Assets
Acquisition accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets. Goodwill is recorded if the purchase price exceeds the net fair value of assets acquired and a bargain purchase gain is recorded in other income if the net fair value of assets acquired exceeds the purchase price.
Adjustment of the allocated purchase price may be related to fair value estimates for which all information has not been obtained of the acquired entity known or discovered during the allocation period, the period of time required to identify and measure the fair values of the assets and liabilities acquired in the business combination. The allocation period is generally limited to one year following consummation of a business combination.
Core deposit intangible represents the intangible value of depositor relationships resulting from deposit liabilities assumed in acquisitions and is amortized using an accelerated method based on an estimated runoff of the related deposits. The core deposit intangible is evaluated for impairment and recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, with any changes in estimated useful life accounted for prospectively over the revised remaining life.
The Company tests goodwill for impairment at the reporting unit level annually during the third quarter. The Company has identified that each of the Bank divisions are reporting units (i.e., components of the Glacier Bank operating segment) given that each division has a separate management team that regularly reviews its respective division financial information; however, the reporting units are aggregated into a single reporting unit due to the reporting units having similar economic characteristics.
The goodwill of a reporting unit is tested for impairment between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. Examples of events and circumstances that could trigger the need for interim impairment testing include:
•a significant change in legal factors or in the business climate;
•an adverse action or assessment by a regulator;
•unanticipated competition;
•a loss of key personnel;
•a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of; and
•the testing for recoverability of a significant asset group within a reporting unit.
For the goodwill impairment assessment, the Company has the option, to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. The Company opted to bypass the qualitative assessment for its 2020 and 2019 annual goodwill impairment testing and proceed directly to the goodwill impairment assessment. The goodwill impairment process requires the Company to make assumptions and judgments regarding fair value. The Company calculates an implied fair value and if the implied fair value is less than the carrying value, an impairment loss is recognized for the difference. For additional information relating to goodwill, see Note 5.
Loan Servicing Rights
For residential real estate loans that are sold with servicing retained, servicing rights are initially recorded at fair value in other assets and gain on sale of loans. Fair value is based on market prices for comparable mortgage servicing contracts. The servicing asset is subsequently measured using the amortization method which requires the servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.
Loan servicing rights are evaluated for impairment based upon the fair value of the servicing rights compared to the carrying value. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the carrying value. If the Company later determines that all or a portion of the impairment no longer exists, a reduction in the valuation allowance may be recorded. Changes in the valuation allowance are recorded in other income. The fair value of the servicing assets are subject to significant fluctuations as a result of changes in estimated actual prepayment speeds and default rates and losses.
Servicing fee income is recognized in other income for fees earned for servicing loans. The fees are based on contractual percentage of the outstanding principal; or a fixed amount per loan and is recorded when earned. The amortization of loans servicing fees is netted against loan servicing fee income. For additional information relating to loan servicing rights, see Note 6.
Equity Securities
Non-marketable equity securities primarily consist of Federal Home Loan Bank (“FHLB”) stock. FHLB stock is restricted because such stock may only be sold to FHLB at its par value. Due to restrictive terms, and the lack of a readily determinable fair value, FHLB stock is carried at cost and evaluated for impairment. The investments in FHLB stock are required investments related to the Company’s borrowings from FHLB. FHLB obtains its funding primarily through issuance of consolidated obligations of the FHLB system. The U.S. government does not guarantee these obligations, and each of the regional FHLBs is jointly and severally liable for repayment of each other’s debt.
The Company also has an insignificant amount of marketable equity securities that are included in other assets on the Company’s statements of financial condition. Marketable equity securities with readily determinable fair values are measured at fair value and changes in fair value are recognized in other income. Marketable equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.
Other Borrowings
Borrowings of the Company’s consolidated variable interest entities and finance lease arrangements are included in other borrowings. For additional information relating to VIE’s, see Note 7.
Bank-Owned Life Insurance
The Company maintains bank-owned life insurance policies on certain current and former employees and directors, which are recorded at their cash surrender values as determined by the insurance carriers. The appreciation in the cash surrender value of the policies is recognized as a component of other non-interest income in the Company’s statements of operations.
Derivatives and Hedging Activities
The Company is exposed to certain risks relating to its ongoing operations. The primary risk managed by using derivative instruments is interest risk. Interest rate caps and interest rate swaps have been entered into to manage interest rate risk associated with variable rate borrowings and were designated as cash flow hedges. The Company does not enter into derivative instruments for trading or speculative purposes.
These cash flow hedges were recognized as assets or liabilities on the Company’s statements of financial condition and were measured at fair value. Cash flows resulting from the interest rate derivative financial instruments that were accounted for as hedges of assets and liabilities were classified in the Company’s cash flow statement in the same category as the cash flows of the items being hedged. For additional information relating to the interest rate caps, see Note 9.
Revenue Recognition
The Company recognizes revenue when services or products are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled. The Company’s principal source of revenue is interest income from debt securities and loans. Revenue from contracts with customers within the scope of ASC Topic 606 was $28,901,000 and $26,239,000 for the six months ended June 30, 2021 and 2020, respectively, and largely consisted of revenue from service charges and other fees from deposits (e.g., overdraft fees, ATM fees, debit card fees). Due to the short-term nature of the Company’s contracts with customers, an insignificant amount of receivables related to such revenue was recorded at June 30, 2021 and December 31, 2020 and there were no impairment losses recognized. Policies specific to revenue from contracts with customers include the following:
Service Charges. Revenue from service charges consists of service charges and fees on deposit accounts under depository agreements with customers to provide access to deposited funds and, when applicable, pay interest on deposits. Service charges on deposit accounts may be transactional or non-transactional in nature. Transactional service charges occur in the form of a service or penalty and are charged upon the occurrence of an event (e.g., overdraft fees, ATM fees, wire transfer fees). Transactional service charges are recognized as services are delivered to and consumed by the customer, or as penalty fees are charged. Non-transactional service charges are charges that are based on a broader service, such as account maintenance fees and dormancy fees, and are recognized on a monthly basis.
Debit Card Fees. Revenue from debit card fees includes interchange fee income from debit cards processed through card association networks. Interchange fees represent a portion of a transaction amount that the Company and other involved parties retain to compensate themselves for giving the cardholder immediate access to funds. Interchange rates are generally set by the card association networks and are based on purchase volumes and other factors. The Company records interchange fees as services are provided.
Recently Issued Accounting Guidance
The ASC is the FASB officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under the authority of the federal securities laws are also sources of authoritative GAAP for the Company as an SEC registrant. All other accounting literature is non-authoritative. The Company has not adopted any ASU’s in the current year that may have had a material effect on the Company’s financial position or results of operations. Furthermore, there are no newly issued but not yet effective ASUs that could have a material effect on the Company’s financial position or results of operations.
Note 2. Debt Securities
The following tables present the amortized cost, the gross unrealized gains and losses and the fair value of the Company’s debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
34,544
|
|
|
243
|
|
|
(306)
|
|
|
34,481
|
|
|
U.S. government sponsored enterprises
|
48,303
|
|
|
11
|
|
|
(298)
|
|
|
48,016
|
|
|
State and local governments
|
504,524
|
|
|
32,164
|
|
|
(141)
|
|
|
536,547
|
|
|
Corporate bonds
|
249,058
|
|
|
8,824
|
|
|
(4)
|
|
|
257,878
|
|
|
Residential mortgage-backed securities
|
4,139,439
|
|
|
14,819
|
|
|
(14,673)
|
|
|
4,139,585
|
|
|
Commercial mortgage-backed securities
|
1,093,676
|
|
|
40,991
|
|
|
(4,031)
|
|
|
1,130,636
|
|
|
Total available-for-sale
|
$
|
6,069,544
|
|
|
97,052
|
|
|
(19,453)
|
|
|
6,147,143
|
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
State and local governments
|
$
|
1,024,730
|
|
|
22,542
|
|
|
(259)
|
|
|
1,047,013
|
|
|
Total held-to-maturity
|
$
|
1,024,730
|
|
|
22,542
|
|
|
(259)
|
|
|
1,047,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
38,568
|
|
|
287
|
|
|
(267)
|
|
|
38,588
|
|
|
U.S. government sponsored enterprises
|
9,747
|
|
|
34
|
|
|
—
|
|
|
9,781
|
|
|
State and local governments
|
1,321,763
|
|
|
94,974
|
|
|
(54)
|
|
|
1,416,683
|
|
|
Corporate bonds
|
336,867
|
|
|
12,239
|
|
|
(8)
|
|
|
349,098
|
|
|
Residential mortgage-backed securities
|
2,261,463
|
|
|
27,631
|
|
|
(4)
|
|
|
2,289,090
|
|
|
Commercial mortgage-backed securities
|
1,177,458
|
|
|
57,575
|
|
|
(459)
|
|
|
1,234,574
|
|
|
Total available-for-sale
|
$
|
5,145,866
|
|
|
192,740
|
|
|
(792)
|
|
|
5,337,814
|
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
State and local governments
|
$
|
189,836
|
|
|
13,380
|
|
|
—
|
|
|
203,216
|
|
|
Total held-to-maturity
|
$
|
189,836
|
|
|
13,380
|
|
|
—
|
|
|
203,216
|
|
Maturity Analysis
The following table presents the amortized cost and fair value of available-for-sale and held-to-maturity debt securities by contractual maturity at June 30, 2021. Actual maturities may differ from expected or contractual maturities since some issuers have the right to prepay obligations with or without prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
|
(Dollars in thousands)
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
|
Due within one year
|
$
|
77,093
|
|
|
78,370
|
|
|
1,924
|
|
|
1,956
|
|
|
Due after one year through five years
|
236,705
|
|
|
247,063
|
|
|
26,870
|
|
|
28,562
|
|
|
Due after five years through ten years
|
266,078
|
|
|
274,949
|
|
|
86,095
|
|
|
91,222
|
|
|
Due after ten years
|
256,553
|
|
|
276,540
|
|
|
909,841
|
|
|
925,273
|
|
|
|
836,429
|
|
|
876,922
|
|
|
1,024,730
|
|
|
1,047,013
|
|
|
Mortgage-backed securities 1
|
5,233,115
|
|
|
5,270,221
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
6,069,544
|
|
|
6,147,143
|
|
|
1,024,730
|
|
|
1,047,013
|
|
______________________________
1 Mortgage-backed securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.
Sales and Calls of Debt Securities
Proceeds from sales and calls of debt securities and the associated gains and losses that have been included in earnings are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
Six Months ended
|
|
(Dollars in thousands)
|
June 30,
2021
|
|
June 30,
2020
|
|
June 30,
2021
|
|
June 30,
2020
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
Proceeds from sales and calls of debt securities
|
$
|
22,361
|
|
|
37,711
|
|
|
76,697
|
|
|
114,784
|
|
|
Gross realized gains 1
|
69
|
|
|
142
|
|
|
438
|
|
|
1,104
|
|
|
Gross realized losses 1
|
(23)
|
|
|
(14)
|
|
|
(66)
|
|
|
(114)
|
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
Proceeds from calls of debt securities
|
2,230
|
|
|
—
|
|
|
6,360
|
|
|
20,250
|
|
|
Gross realized gains 1
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Gross realized losses 1
|
(107)
|
|
|
—
|
|
|
(149)
|
|
|
—
|
|
______________________________
1 The gain or loss on the sale or call of each debt security is determined by the specific identification method.
Allowance for Credit Losses - Available-For-Sale Debt Securities
In assessing whether a credit loss existed on available-for-sale debt securities with unrealized losses, the Company compared the present value of cash flows expected to be collected from the debt securities with the amortized cost basis of the debt securities. In addition, the following factors were evaluated individually and collectively in determining the existence of expected credit losses:
•credit ratings from Nationally Recognized Statistical Rating Organizations (“NRSRO” entities such as Standard and Poor’s [“S&P”] and Moody’s);
•extent to which the fair value is less than cost;
•adverse conditions, if any, specifically related to the impaired securities, including the industry and geographic area;
•the overall deal and payment structure of the debt securities, including the investor entity’s position within the structure, underlying obligors, financial condition and near-term prospects of the issuer, including specific events which may affect the issuer’s operations or future earnings, and credit support or enhancements; and
•failure of the issuer and underlying obligors, if any, to make scheduled payments of interest and principal.
The following table summarizes available-for-sale debt securities that were in an unrealized loss position for which an ACL has not been recorded, based on the length of time the individual securities have been in an unrealized loss position. The number of available-for-sale debt securities in an unrealized position is also disclosed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
Number
of
Securities
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
(Dollars in thousands)
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
23
|
|
|
$
|
8,991
|
|
|
(47)
|
|
|
6,789
|
|
|
(259)
|
|
|
15,780
|
|
|
(306)
|
|
|
U.S. government sponsored enterprises
|
3
|
|
|
45,234
|
|
|
(298)
|
|
|
—
|
|
|
—
|
|
|
45,234
|
|
|
(298)
|
|
|
State and local governments
|
11
|
|
|
17,169
|
|
|
(141)
|
|
|
—
|
|
|
—
|
|
|
17,169
|
|
|
(141)
|
|
|
Corporate bonds
|
1
|
|
|
10,005
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
10,005
|
|
|
(4)
|
|
|
Residential mortgage-backed securities
|
92
|
|
|
2,903,724
|
|
|
(14,673)
|
|
|
—
|
|
|
—
|
|
|
2,903,724
|
|
|
(14,673)
|
|
|
Commercial mortgage-backed securities
|
18
|
|
|
236,994
|
|
|
(4,031)
|
|
|
—
|
|
|
—
|
|
|
236,994
|
|
|
(4,031)
|
|
|
Total available-for-sale
|
148
|
|
|
$
|
3,222,117
|
|
|
(19,194)
|
|
|
6,789
|
|
|
(259)
|
|
|
3,228,906
|
|
|
(19,453)
|
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local governments
|
61
|
|
|
$
|
79,147
|
|
|
(259)
|
|
|
—
|
|
|
—
|
|
|
79,147
|
|
|
(259)
|
|
|
Total held-to-maturity
|
61
|
|
|
$
|
79,147
|
|
|
(259)
|
|
|
—
|
|
|
—
|
|
|
79,147
|
|
|
(259)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Number
of
Securities
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
(Dollars in thousands)
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
18
|
|
|
$
|
13,814
|
|
|
(258)
|
|
|
726
|
|
|
(9)
|
|
|
14,540
|
|
|
(267)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local governments
|
6
|
|
|
3,121
|
|
|
(54)
|
|
|
—
|
|
|
—
|
|
|
3,121
|
|
|
(54)
|
|
|
Corporate bonds
|
3
|
|
|
5,500
|
|
|
(8)
|
|
|
—
|
|
|
—
|
|
|
5,500
|
|
|
(8)
|
|
|
Residential mortgage-backed securities
|
14
|
|
|
2,354
|
|
|
(4)
|
|
|
27
|
|
|
—
|
|
|
2,381
|
|
|
(4)
|
|
|
Commercial mortgage-backed securities
|
5
|
|
|
120,741
|
|
|
(459)
|
|
|
—
|
|
|
—
|
|
|
120,741
|
|
|
(459)
|
|
|
Total available-for-sale
|
46
|
|
|
$
|
145,530
|
|
|
(783)
|
|
|
753
|
|
|
(9)
|
|
|
146,283
|
|
|
(792)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With respect to severity, the majority of available-for-sale debt securities with unrealized loss positions at June 30, 2021 have unrealized losses as a percentage of book value of less than five percent. A substantial portion of such securities were issued by Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”), Government National Mortgage Association (“Ginnie Mae”) and other agencies of the U.S. government or have credit ratings issued by one or more of the NRSRO entities in the four highest credit rating categories. All of the Company’s available-for-sale debt securities with unrealized loss positions at June 30, 2021 have been determined to be investment grade.
The Company did not have any past due available-for-sale debt securities as of June 30, 2021 and December 31, 2020, respectively. Accrued interest receivable on available-for-sale debt securities totaled $15,714,000 and $20,215,000 at June 30, 2021, and December 31, 2020, respectively, and was excluded from the estimate of credit losses.
Based on an analysis of its available-for-sale debt securities with unrealized losses as of June 30, 2021, the Company determined the decline in value was unrelated to credit losses and was primarily the result of changes in interest rates and market spreads subsequent to acquisition. The fair value of the debt securities is expected to recover as payments are received and the debt securities approach maturity. In addition, as of June 30, 2021, management determined it did not intend to sell available-for-sale debt securities with unrealized losses, and there was no expected requirement to sell such securities before recovery of their amortized cost. As a result, no ACL was recorded on available-for-sale debt securities at June 30, 2021. As part of this determination, the Company considered contractual obligations, regulatory constraints, liquidity, capital, asset/liability management and securities portfolio objectives and whether or not any of the Company’s investment securities were managed by third-party investment funds.
Allowance for Credit Losses - Held-To-Maturity Debt Securities
The Company measured expected credit losses on held-to-maturity debt securities on a collective basis by major security type and NRSRO credit ratings, which is the Company’s primary credit quality indicator for state and local government securities. The estimate of expected credit losses considered historical credit loss information that was adjusted for current conditions as well as reasonable and supportable forecasts. The following table summarizes the amortized cost of held-to-maturity debt securities aggregated by NRSRO credit rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30,
2021
|
|
December 31,
2020
|
|
Held-to-maturity
|
|
|
|
|
S&P: AAA / Moody’s: Aaa
|
$
|
272,177
|
|
|
39,022
|
|
|
S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3
|
710,835
|
|
|
123,664
|
|
|
S&P: A+, A, A- / Moody’s: A1, A2, A3
|
40,139
|
|
|
27,150
|
|
|
|
|
|
|
|
Not rated by either entity
|
1,579
|
|
|
—
|
|
|
|
|
|
|
|
Total held-to-maturity
|
$
|
1,024,730
|
|
|
189,836
|
|
The Company’s held-to-maturity debt securities portfolio is primarily comprised of general obligation and revenue bonds with NRSRO ratings in the four highest credit rating categories. All of the Company’s held-to-maturity debt securities at June 30, 2021 have been determined to be investment grade.
As of June 30, 2021 and December 31, 2020, the Company did not have any held-to-maturity debt securities past due. Accrued interest receivable on held-to-maturity debt securities totaled $7,539,000 and $1,728,000 at June 30, 2021 and December 31, 2020, respectively, and were excluded from the estimate of credit losses.
Based on the Company’s evaluation, an insignificant amount of credit losses is expected on the held-to-maturity debt securities portfolio; therefore, no ACL was recorded at June 30, 2021 or December 31, 2020.
Note 3. Loans Receivable, Net
On January 1, 2020, the Company adopted FASB ASU 2016-13, Financial Instruments - Credit Losses, which significantly changed the loan and allowance for credit loss accounting disclosures. The following loan and allowance for credit loss accounting disclosures are presented in accordance with ASC Topic 326.
The following table presents loans receivable for each portfolio segment of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30,
2021
|
|
December 31,
2020
|
|
Residential real estate
|
$
|
734,838
|
|
|
802,508
|
|
|
Commercial real estate
|
6,584,322
|
|
|
6,315,895
|
|
|
Other commercial
|
2,932,419
|
|
|
3,054,817
|
|
|
Home equity
|
648,800
|
|
|
636,405
|
|
|
Other consumer
|
337,669
|
|
|
313,071
|
|
|
Loans receivable
|
11,238,048
|
|
|
11,122,696
|
|
|
Allowance for credit losses
|
(151,448)
|
|
|
(158,243)
|
|
|
Loans receivable, net
|
$
|
11,086,600
|
|
|
10,964,453
|
|
|
Net deferred origination (fees) costs included in loans receivable
|
$
|
(35,391)
|
|
|
(26,709)
|
|
|
Net purchase accounting (discounts) premiums included in loans receivable
|
$
|
(13,774)
|
|
|
(17,091)
|
|
|
Accrued interest receivable on loans
|
$
|
47,184
|
|
|
53,538
|
|
Substantially all of the Company’s loans receivable are with borrowers in the Company’s geographic market areas. Although the Company has a diversified loan portfolio, a substantial portion of borrowers’ ability to service their obligations is dependent upon the economic performance in the Company’s market areas.
The Company had no significant purchases or sales of portfolio loans or reclassification of loans held for investment to loans held for sale during the six months ended June 30, 2021.
Allowance for Credit Losses - Loans Receivable
The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on loans. The following tables summarize the activity in the ACL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended June 30, 2021
|
|
(Dollars in thousands)
|
Total
|
|
Residential Real Estate
|
|
Commercial Real Estate
|
|
Other Commercial
|
|
Home Equity
|
|
Other Consumer
|
|
Balance at beginning of period
|
$
|
156,446
|
|
|
9,018
|
|
|
95,251
|
|
|
39,385
|
|
|
8,068
|
|
|
4,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
(5,723)
|
|
|
884
|
|
|
1,269
|
|
|
(8,319)
|
|
|
(278)
|
|
|
721
|
|
|
Charge-offs
|
(1,700)
|
|
|
—
|
|
|
(41)
|
|
|
(351)
|
|
|
—
|
|
|
(1,308)
|
|
|
Recoveries
|
2,425
|
|
|
241
|
|
|
118
|
|
|
1,268
|
|
|
47
|
|
|
751
|
|
|
Balance at end of period
|
$
|
151,448
|
|
|
10,143
|
|
|
96,597
|
|
|
31,983
|
|
|
7,837
|
|
|
4,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended June 30, 2020
|
|
(Dollars in thousands)
|
Total
|
|
Residential Real Estate
|
|
Commercial Real Estate
|
|
Other Commercial
|
|
Home Equity
|
|
Other Consumer
|
|
Balance at beginning of period
|
$
|
150,190
|
|
|
9,315
|
|
|
70,848
|
|
|
56,409
|
|
|
7,934
|
|
|
5,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
13,552
|
|
|
662
|
|
|
18,309
|
|
|
(6,974)
|
|
|
2,174
|
|
|
(619)
|
|
|
Charge-offs
|
(2,668)
|
|
|
(1)
|
|
|
(150)
|
|
|
(1,088)
|
|
|
(193)
|
|
|
(1,236)
|
|
|
Recoveries
|
1,435
|
|
|
10
|
|
|
97
|
|
|
491
|
|
|
47
|
|
|
790
|
|
|
Balance at end of period
|
$
|
162,509
|
|
|
9,986
|
|
|
89,104
|
|
|
48,838
|
|
|
9,962
|
|
|
4,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months ended June 30, 2021
|
|
(Dollars in thousands)
|
Total
|
|
Residential Real Estate
|
|
Commercial Real Estate
|
|
Other Commercial
|
|
Home Equity
|
|
Other Consumer
|
|
Balance at beginning of period
|
$
|
158,243
|
|
|
9,604
|
|
|
86,999
|
|
|
49,133
|
|
|
8,182
|
|
|
4,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
(5,234)
|
|
|
302
|
|
|
8,732
|
|
|
(15,584)
|
|
|
(367)
|
|
|
1,683
|
|
|
Charge-offs
|
(5,946)
|
|
|
(38)
|
|
|
(41)
|
|
|
(3,113)
|
|
|
(45)
|
|
|
(2,709)
|
|
|
Recoveries
|
4,385
|
|
|
275
|
|
|
907
|
|
|
1,547
|
|
|
67
|
|
|
1,589
|
|
|
Balance at end of period
|
$
|
151,448
|
|
|
10,143
|
|
|
96,597
|
|
|
31,983
|
|
|
7,837
|
|
|
4,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months ended June 30, 2020
|
|
(Dollars in thousands)
|
Total
|
|
Residential Real Estate
|
|
Commercial Real Estate
|
|
Other Commercial
|
|
Home Equity
|
|
Other Consumer
|
|
Balance at beginning of period
|
$
|
124,490
|
|
|
10,111
|
|
|
69,496
|
|
|
36,129
|
|
|
4,937
|
|
|
3,817
|
|
|
Impact of adopting CECL
|
3,720
|
|
|
3,584
|
|
|
10,533
|
|
|
(13,759)
|
|
|
3,400
|
|
|
(38)
|
|
|
Acquisitions
|
49
|
|
|
—
|
|
|
49
|
|
|
—
|
|
|
|
|
—
|
|
|
Provision for credit losses
|
36,296
|
|
|
(3,707)
|
|
|
8,876
|
|
|
27,159
|
|
|
1,666
|
|
|
2,302
|
|
|
Charge-offs
|
(5,235)
|
|
|
(21)
|
|
|
(180)
|
|
|
(1,873)
|
|
|
(194)
|
|
|
(2,967)
|
|
|
Recoveries
|
3,189
|
|
|
19
|
|
|
330
|
|
|
1,182
|
|
|
153
|
|
|
1,505
|
|
|
Balance at end of period
|
$
|
162,509
|
|
|
9,986
|
|
|
89,104
|
|
|
48,838
|
|
|
9,962
|
|
|
4,619
|
|
During the six months ended June 30, 2021, the ACL decreased primarily as a result of an improvement in the quantitative factors including the economic forecasts along with adjustments to qualitative factors.
The sizeable charge-offs in the other consumer loan segment is driven by deposit overdraft charge-offs which typically experience high charge-off rates and the amounts were comparable to historical trends. The other segments experience routine charge-offs and recoveries, with occasional large credit relationships charge-offs and recoveries that cause fluctuations from prior periods. During the six months ended June 30, 2021, there have been no significant changes to the types of collateral securing collateral-dependent loans.
Aging Analysis
The following tables present an aging analysis of the recorded investment in loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
|
Accruing loans 30-59 days past due
|
$
|
8,677
|
|
|
—
|
|
|
3,230
|
|
|
1,940
|
|
|
1,808
|
|
|
1,699
|
|
|
Accruing loans 60-89 days past due
|
3,399
|
|
|
233
|
|
|
518
|
|
|
2,299
|
|
|
163
|
|
|
186
|
|
|
Accruing loans 90 days or more past due
|
4,220
|
|
|
338
|
|
|
2,349
|
|
|
1,234
|
|
|
155
|
|
|
144
|
|
|
Non-accrual loans with no ACL
|
46,843
|
|
|
2,888
|
|
|
10,648
|
|
|
30,164
|
|
|
2,617
|
|
|
526
|
|
|
Non-accrual loans with ACL
|
1,207
|
|
|
295
|
|
|
462
|
|
|
343
|
|
|
50
|
|
|
57
|
|
|
Total past due and
non-accrual loans
|
64,346
|
|
|
3,754
|
|
|
17,207
|
|
|
35,980
|
|
|
4,793
|
|
|
2,612
|
|
|
Current loans receivable
|
11,173,702
|
|
|
731,084
|
|
|
6,567,115
|
|
|
2,896,439
|
|
|
644,007
|
|
|
335,057
|
|
|
Total loans receivable
|
$
|
11,238,048
|
|
|
734,838
|
|
|
6,584,322
|
|
|
2,932,419
|
|
|
648,800
|
|
|
337,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
|
Accruing loans 30-59 days past due
|
$
|
17,123
|
|
|
6,058
|
|
|
3,854
|
|
|
4,039
|
|
|
2,130
|
|
|
1,042
|
|
|
Accruing loans 60-89 days past due
|
5,598
|
|
|
584
|
|
|
2,299
|
|
|
809
|
|
|
756
|
|
|
1,150
|
|
|
Accruing loans 90 days or more past due
|
1,725
|
|
|
934
|
|
|
231
|
|
|
293
|
|
|
135
|
|
|
132
|
|
|
Non-accrual loans with no ACL
|
29,532
|
|
|
3,129
|
|
|
14,030
|
|
|
9,231
|
|
|
2,664
|
|
|
478
|
|
|
Non-accrual loans with ACL
|
2,432
|
|
|
274
|
|
|
1,787
|
|
|
278
|
|
|
49
|
|
|
44
|
|
|
Total past due and non-accrual loans
|
56,410
|
|
|
10,979
|
|
|
22,201
|
|
|
14,650
|
|
|
5,734
|
|
|
2,846
|
|
|
Current loans receivable
|
11,066,286
|
|
|
791,529
|
|
|
6,293,694
|
|
|
3,040,167
|
|
|
630,671
|
|
|
310,225
|
|
|
Total loans receivable
|
$
|
11,122,696
|
|
|
802,508
|
|
|
6,315,895
|
|
|
3,054,817
|
|
|
636,405
|
|
|
313,071
|
|
The Company had $447,000 and $517,000 of interest reversed on non-accrual loans during the six months ended June 30, 2021 and June 30, 2020, respectively. The prior year modifications that were made under the CARES Act, along with related regulatory guidance, are included in current loan receivables.
Collateral-Dependent Loans
A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The collateral on the loans is a significant portion of what secures the collateral-dependent loans and significant changes to the fair value of the collateral can impact the ACL. During 2021, there were no significant change to collateral which secures the collateral-dependent loans, whether due to general deterioration or other reasons. The following table presents the amortized cost basis of collateral-dependent loans by collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
|
Business assets
|
$
|
27,208
|
|
|
—
|
|
|
30
|
|
|
27,178
|
|
|
—
|
|
|
—
|
|
|
Residential real estate
|
6,727
|
|
|
3,126
|
|
|
807
|
|
|
137
|
|
|
2,480
|
|
|
177
|
|
|
Other real estate
|
24,830
|
|
|
651
|
|
|
21,313
|
|
|
2,340
|
|
|
187
|
|
|
339
|
|
|
Other
|
20,345
|
|
|
—
|
|
|
—
|
|
|
19,976
|
|
|
—
|
|
|
369
|
|
|
Total
|
$
|
79,110
|
|
|
3,777
|
|
|
22,150
|
|
|
49,631
|
|
|
2,667
|
|
|
885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
|
Business assets
|
$
|
4,325
|
|
|
—
|
|
|
37
|
|
|
4,288
|
|
|
—
|
|
|
—
|
|
|
Residential real estate
|
7,148
|
|
|
3,338
|
|
|
1,043
|
|
|
198
|
|
|
2,513
|
|
|
56
|
|
|
Other real estate
|
16,127
|
|
|
64
|
|
|
14,738
|
|
|
1,086
|
|
|
200
|
|
|
39
|
|
|
Other
|
36,855
|
|
|
—
|
|
|
—
|
|
|
36,469
|
|
|
—
|
|
|
386
|
|
|
Total
|
$
|
64,455
|
|
|
3,402
|
|
|
15,818
|
|
|
42,041
|
|
|
2,713
|
|
|
481
|
|
Restructured Loans
A restructured loan is considered a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The following tables present TDRs that occurred during the periods presented and the TDRs that occurred within the previous twelve months that subsequently defaulted during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended June 30, 2021
|
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
|
TDRs that occurred during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
3
|
|
|
—
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
Pre-modification recorded balance
|
$
|
615
|
|
|
—
|
|
|
99
|
|
|
516
|
|
|
—
|
|
|
—
|
|
|
Post-modification recorded balance
|
$
|
615
|
|
|
—
|
|
|
99
|
|
|
516
|
|
|
—
|
|
|
—
|
|
|
TDRs that subsequently defaulted
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Recorded balance
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended June 30, 2020
|
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
|
TDRs that occurred during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
8
|
|
|
1
|
|
|
3
|
|
|
3
|
|
|
1
|
|
|
—
|
|
|
Pre-modification recorded balance
|
$
|
1,672
|
|
|
210
|
|
|
1,263
|
|
|
160
|
|
|
39
|
|
|
—
|
|
|
Post-modification recorded balance
|
$
|
1,672
|
|
|
210
|
|
|
1,263
|
|
|
160
|
|
|
39
|
|
|
—
|
|
|
TDRs that subsequently defaulted
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Recorded balance
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months ended June 30, 2021
|
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
|
TDRs that occurred during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
10
|
|
|
1
|
|
|
5
|
|
|
3
|
|
|
—
|
|
|
1
|
|
|
Pre-modification recorded balance
|
$
|
2,368
|
|
|
210
|
|
|
1,473
|
|
|
554
|
|
|
—
|
|
|
131
|
|
|
Post-modification recorded balance
|
$
|
2,368
|
|
|
210
|
|
|
1,473
|
|
|
554
|
|
|
—
|
|
|
131
|
|
|
TDRs that subsequently defaulted
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Recorded balance
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months ended June 30, 2020
|
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
|
TDRs that occurred during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
13
|
|
|
1
|
|
|
6
|
|
|
5
|
|
|
1
|
|
|
—
|
|
|
Pre-modification recorded balance
|
$
|
8,940
|
|
|
210
|
|
|
8,120
|
|
|
571
|
|
|
39
|
|
|
—
|
|
|
Post-modification recorded balance
|
$
|
8,940
|
|
|
210
|
|
|
8,120
|
|
|
571
|
|
|
39
|
|
|
—
|
|
|
TDRs that subsequently defaulted
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Recorded balance
|
$
|
106
|
|
|
—
|
|
|
106
|
|
|
—
|
|
|
—
|
|
|
—
|
|
The modifications for the loans designated as TDRs during the six months ended June 30, 2021 and 2020 included one or a combination of the following: an extension of the maturity date, a reduction of the interest rate or a reduction in the principal amount.
In addition to the loans designated as TDRs during the period provided in the preceding tables, the Company had TDRs with pre-modification loan balances of $1,600,000 and $904,000 for the six months ended June 30, 2021 and 2020, respectively, for which OREO was received in full or partial satisfaction of the loans. The majority of such TDRs were in other commercial for the six months ended June 30, 2021 and commercial real estate for the six months ended June 30, 2020. At June 30, 2021 and December 31, 2020, the Company had $209,000 and $548,000, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process. At June 30, 2021 and December 31, 2020, the Company had $88,000 and $273,000, respectively, of OREO secured by residential real estate properties.
The Company also modified loans under the CARES Act, along with related regulatory guidance, that were not classified as TDRs. In addition, the state of Montana created the Montana Loan Deferment Program for only Montana-based business that utilized Cares Act funds to provide interest payments upfront on behalf of participating borrowers. The Montana Loan Deferment Program provided modifications for customers under the CARES Act that were not classified as TDRs.
Credit Quality Indicators
The Company categorizes commercial real estate and other commercial loans into risk categories based on relevant information about the ability of borrowers to service their obligations. The following tables present the amortized cost in commercial real estate and other commercial loans based on the Company’s internal risk rating. The date of a modification, renewal or extension of a loan is considered for the year of origination if the terms of the loan are as favorable to the Company as the terms are for a comparable loan to other borrowers with similar credit risk.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Total
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful/
Loss
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
Term loans by origination year
|
|
|
|
|
|
|
|
|
|
|
2021 (year-to-date)
|
$
|
1,021,389
|
|
|
1,020,590
|
|
|
—
|
|
|
799
|
|
|
—
|
|
|
2020
|
1,345,598
|
|
|
1,341,472
|
|
|
—
|
|
|
4,126
|
|
|
—
|
|
|
2019
|
960,097
|
|
|
948,682
|
|
|
—
|
|
|
11,415
|
|
|
—
|
|
|
2018
|
797,895
|
|
|
757,454
|
|
|
—
|
|
|
40,441
|
|
|
—
|
|
|
2017
|
585,881
|
|
|
556,345
|
|
|
—
|
|
|
29,536
|
|
|
—
|
|
|
Prior
|
1,741,920
|
|
|
1,691,966
|
|
|
—
|
|
|
49,868
|
|
|
86
|
|
|
Revolving loans
|
131,542
|
|
|
128,806
|
|
|
—
|
|
|
2,735
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
6,584,322
|
|
|
6,445,315
|
|
|
—
|
|
|
138,920
|
|
|
87
|
|
|
Other commercial loans 1
|
|
|
|
|
|
|
|
|
|
|
Term loans by origination year
|
|
|
|
|
|
|
|
|
|
|
2021 (year-to-date)
|
$
|
766,841
|
|
|
765,356
|
|
|
—
|
|
|
1,485
|
|
|
—
|
|
|
2020
|
613,476
|
|
|
591,994
|
|
|
—
|
|
|
21,481
|
|
|
1
|
|
|
2019
|
266,759
|
|
|
258,482
|
|
|
—
|
|
|
8,274
|
|
|
3
|
|
|
2018
|
201,000
|
|
|
194,842
|
|
|
—
|
|
|
6,157
|
|
|
1
|
|
|
2017
|
226,830
|
|
|
225,041
|
|
|
—
|
|
|
1,786
|
|
|
3
|
|
|
Prior
|
357,769
|
|
|
341,707
|
|
|
—
|
|
|
15,511
|
|
|
551
|
|
|
Revolving loans
|
499,744
|
|
|
471,791
|
|
|
—
|
|
|
27,936
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
2,932,419
|
|
|
2,849,213
|
|
|
—
|
|
|
82,630
|
|
|
576
|
|
___________________________
1 Includes PPP loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Total
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful/
Loss
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
Term loans by origination year
|
|
|
|
|
|
|
|
|
|
|
2020
|
$
|
1,496,094
|
|
|
1,490,947
|
|
|
—
|
|
|
5,147
|
|
|
—
|
|
|
2019
|
1,077,461
|
|
|
1,069,503
|
|
|
—
|
|
|
7,958
|
|
|
—
|
|
|
2018
|
914,506
|
|
|
874,673
|
|
|
—
|
|
|
39,833
|
|
|
—
|
|
|
2017
|
723,448
|
|
|
696,371
|
|
|
—
|
|
|
27,077
|
|
|
—
|
|
|
2016
|
496,275
|
|
|
481,392
|
|
|
—
|
|
|
14,883
|
|
|
—
|
|
|
Prior
|
1,488,281
|
|
|
1,450,596
|
|
|
—
|
|
|
37,574
|
|
|
111
|
|
|
Revolving loans
|
119,830
|
|
|
116,548
|
|
|
—
|
|
|
3,282
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
6,315,895
|
|
|
6,180,030
|
|
|
—
|
|
|
135,754
|
|
|
111
|
|
|
Other commercial loans 1
|
|
|
|
|
|
|
|
|
|
|
Term loans by origination year
|
|
|
|
|
|
|
|
|
|
|
2020
|
$
|
1,366,664
|
|
|
1,341,316
|
|
|
19,564
|
|
|
5,784
|
|
|
—
|
|
|
2019
|
304,430
|
|
|
284,981
|
|
|
12,582
|
|
|
6,864
|
|
|
3
|
|
|
2018
|
241,222
|
|
|
234,988
|
|
|
—
|
|
|
6,233
|
|
|
1
|
|
|
2017
|
269,857
|
|
|
264,651
|
|
|
—
|
|
|
5,114
|
|
|
92
|
|
|
2016
|
179,225
|
|
|
177,164
|
|
|
—
|
|
|
2,056
|
|
|
5
|
|
|
Prior
|
218,306
|
|
|
206,431
|
|
|
—
|
|
|
11,329
|
|
|
546
|
|
|
Revolving loans
|
475,113
|
|
|
467,929
|
|
|
54
|
|
|
7,112
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
3,054,817
|
|
|
2,977,460
|
|
|
32,200
|
|
|
44,492
|
|
|
665
|
|
______________________________
1 Includes PPP loans.
For residential real estate, home equity and other consumer loan segments, the Company evaluates credit quality primarily on the aging status of the loan. The following tables present the amortized cost in residential real estate, home equity and other consumer loans based on payment performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Total
|
|
Performing
|
|
30-89 Days Past Due
|
|
Non-Accrual and 90 Days or More Past Due
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
Term loans by origination year
|
|
|
|
|
|
|
|
|
2021 (year-to-date)
|
$
|
121,489
|
|
|
121,489
|
|
|
—
|
|
|
—
|
|
|
2020
|
205,741
|
|
|
205,741
|
|
|
—
|
|
|
—
|
|
|
2019
|
101,077
|
|
|
101,077
|
|
|
—
|
|
|
—
|
|
|
2018
|
67,729
|
|
|
67,445
|
|
|
52
|
|
|
232
|
|
|
2017
|
58,675
|
|
|
58,495
|
|
|
—
|
|
|
180
|
|
|
Prior
|
177,776
|
|
|
174,486
|
|
|
181
|
|
|
3,109
|
|
|
Revolving loans
|
2,351
|
|
|
2,351
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
734,838
|
|
|
731,084
|
|
|
233
|
|
|
3,521
|
|
|
Home equity loans
|
|
|
|
|
|
|
|
|
Term loans by origination year
|
|
|
|
|
|
|
|
|
2021 (year-to-date)
|
$
|
47
|
|
|
47
|
|
|
—
|
|
|
—
|
|
|
2020
|
69
|
|
|
69
|
|
|
—
|
|
|
—
|
|
|
2019
|
607
|
|
|
573
|
|
|
—
|
|
|
34
|
|
|
2018
|
1,093
|
|
|
1,093
|
|
|
—
|
|
|
—
|
|
|
2017
|
852
|
|
|
827
|
|
|
—
|
|
|
25
|
|
|
Prior
|
11,616
|
|
|
11,068
|
|
|
24
|
|
|
524
|
|
|
Revolving loans
|
634,516
|
|
|
630,330
|
|
|
1,947
|
|
|
2,239
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
648,800
|
|
|
644,007
|
|
|
1,971
|
|
|
2,822
|
|
|
Other consumer loans
|
|
|
|
|
|
|
|
|
Term loans by origination year
|
|
|
|
|
|
|
|
|
2021 (year-to-date)
|
$
|
98,287
|
|
|
98,258
|
|
|
29
|
|
|
—
|
|
|
2020
|
100,652
|
|
|
100,363
|
|
|
247
|
|
|
42
|
|
|
2019
|
48,832
|
|
|
48,485
|
|
|
104
|
|
|
243
|
|
|
2018
|
27,480
|
|
|
27,170
|
|
|
99
|
|
|
211
|
|
|
2017
|
11,159
|
|
|
11,115
|
|
|
37
|
|
|
7
|
|
|
Prior
|
22,098
|
|
|
20,568
|
|
|
1,308
|
|
|
222
|
|
|
Revolving loans
|
29,161
|
|
|
29,098
|
|
|
61
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
337,669
|
|
|
335,057
|
|
|
1,885
|
|
|
727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Total
|
|
Performing
|
|
30-89 Days Past Due
|
|
Non-Accrual and 90 Days or More Past Due
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
Term loans by origination year
|
|
|
|
|
|
|
|
|
2020
|
$
|
208,679
|
|
|
207,432
|
|
|
1,247
|
|
|
—
|
|
|
2019
|
181,924
|
|
|
179,915
|
|
|
2,009
|
|
|
—
|
|
|
2018
|
100,273
|
|
|
99,135
|
|
|
556
|
|
|
582
|
|
|
2017
|
76,394
|
|
|
75,527
|
|
|
867
|
|
|
—
|
|
|
2016
|
53,819
|
|
|
52,905
|
|
|
87
|
|
|
827
|
|
|
Prior
|
179,085
|
|
|
174,281
|
|
|
1,876
|
|
|
2,928
|
|
|
Revolving loans
|
2,334
|
|
|
2,334
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
802,508
|
|
|
791,529
|
|
|
6,642
|
|
|
4,337
|
|
|
Home equity loans
|
|
|
|
|
|
|
|
|
Term loans by origination year
|
|
|
|
|
|
|
|
|
2020
|
$
|
89
|
|
|
89
|
|
|
—
|
|
|
—
|
|
|
2019
|
807
|
|
|
771
|
|
|
—
|
|
|
36
|
|
|
2018
|
1,782
|
|
|
1,782
|
|
|
—
|
|
|
—
|
|
|
2017
|
1,452
|
|
|
1,426
|
|
|
26
|
|
|
—
|
|
|
2016
|
1,016
|
|
|
1,016
|
|
|
—
|
|
|
—
|
|
|
Prior
|
14,025
|
|
|
13,042
|
|
|
463
|
|
|
520
|
|
|
Revolving loans
|
617,234
|
|
|
612,545
|
|
|
2,397
|
|
|
2,292
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
636,405
|
|
|
630,671
|
|
|
2,886
|
|
|
2,848
|
|
|
Other consumer loans
|
|
|
|
|
|
|
|
|
Term loans by origination year
|
|
|
|
|
|
|
|
|
2020
|
$
|
131,302
|
|
|
131,098
|
|
|
158
|
|
|
46
|
|
|
2019
|
66,327
|
|
|
65,921
|
|
|
170
|
|
|
236
|
|
|
2018
|
42,827
|
|
|
42,557
|
|
|
212
|
|
|
58
|
|
|
2017
|
16,287
|
|
|
16,202
|
|
|
38
|
|
|
47
|
|
|
2016
|
10,519
|
|
|
10,409
|
|
|
48
|
|
|
62
|
|
|
Prior
|
18,692
|
|
|
17,334
|
|
|
1,155
|
|
|
203
|
|
|
Revolving loans
|
27,117
|
|
|
26,704
|
|
|
411
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
313,071
|
|
|
310,225
|
|
|
2,192
|
|
|
654
|
|
Note 4. Leases
The Company leases certain land, premises and equipment from third parties. ROU assets for operating and finance leases are included in net premises and equipment and lease liabilities are included in other liabilities and other borrowed funds, respectively, on the Company’s statements of financial condition. The following table summarizes the Company’s leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
Finance
Leases
|
|
Operating
Leases
|
|
Finance
Leases
|
|
Operating
Leases
|
|
ROU assets
|
$
|
5,999
|
|
|
|
|
5,999
|
|
|
|
|
Accumulated depreciation
|
(396)
|
|
|
|
|
(273)
|
|
|
|
|
Net ROU assets
|
$
|
5,603
|
|
|
45,273
|
|
|
5,726
|
|
|
46,820
|
|
|
Lease liabilities
|
$
|
5,837
|
|
|
48,296
|
|
|
5,891
|
|
|
49,675
|
|
|
Weighted-average remaining lease term
|
23 years
|
|
17 years
|
|
24 years
|
|
17 years
|
|
Weighted-average discount rate
|
2.6
|
%
|
|
3.4
|
%
|
|
2.6
|
%
|
|
3.4
|
%
|
Maturities of lease liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(Dollars in thousands)
|
Finance
Leases
|
|
Operating
Leases
|
|
Maturing within one year
|
$
|
263
|
|
|
4,742
|
|
|
Maturing one year through two years
|
269
|
|
|
4,214
|
|
|
Maturing two years through three years
|
275
|
|
|
3,938
|
|
|
Maturing three years through four years
|
283
|
|
|
3,895
|
|
|
Maturing four years through five years
|
289
|
|
|
3,792
|
|
|
Thereafter
|
6,591
|
|
|
45,582
|
|
|
Total lease payments
|
7,970
|
|
|
66,163
|
|
|
Present value of lease payments
|
|
|
|
|
Short-term
|
114
|
|
|
3,176
|
|
|
Long-term
|
5,723
|
|
|
45,120
|
|
|
Total present value of lease payments
|
5,837
|
|
|
48,296
|
|
|
Difference between lease payments and present value of lease payments
|
$
|
2,133
|
|
|
17,867
|
|
The components of lease expense consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
Six Months ended
|
|
(Dollars in thousands)
|
June 30,
2021
|
|
June 30,
2020
|
|
June 30,
2021
|
|
June 30,
2020
|
|
Finance lease cost
|
|
|
|
|
|
|
|
|
Amortization of ROU assets
|
$
|
62
|
|
|
58
|
|
|
123
|
|
|
115
|
|
|
Interest on lease liabilities
|
38
|
|
|
40
|
|
|
75
|
|
|
81
|
|
|
Operating lease cost
|
1,302
|
|
|
1,191
|
|
|
2,581
|
|
|
2,299
|
|
|
Short-term lease cost
|
82
|
|
|
88
|
|
|
168
|
|
|
178
|
|
|
Variable lease cost
|
234
|
|
|
328
|
|
|
495
|
|
|
713
|
|
|
Sublease income
|
(10)
|
|
|
(1)
|
|
|
(21)
|
|
|
(3)
|
|
|
Total lease expense
|
$
|
1,708
|
|
|
1,704
|
|
|
3,421
|
|
|
3,383
|
|
Supplemental cash flow information related to leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
(Dollars in thousands)
|
Finance
Leases
|
|
Operating
Leases
|
|
Finance
Leases
|
|
Operating
Leases
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
|
|
|
|
Operating cash flows
|
$
|
38
|
|
|
786
|
|
|
40
|
|
|
673
|
|
|
Financing cash flows
|
27
|
|
|
N/A
|
|
21
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
(Dollars in thousands)
|
Finance
Leases
|
|
Operating
Leases
|
|
Finance
Leases
|
|
Operating
Leases
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
|
|
|
|
Operating cash flows
|
$
|
75
|
|
|
1,566
|
|
|
81
|
|
|
1,288
|
|
|
Financing cash flows
|
54
|
|
|
N/A
|
|
44
|
|
|
N/A
|
The Company also leases office space to third parties through operating leases. Rent income from these leases for the six months ended June 30, 2021 and 2020 was not significant.
Note 5. Goodwill
The following schedule discloses the changes in the carrying value of goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
Six Months ended
|
|
(Dollars in thousands)
|
June 30,
2021
|
|
June 30,
2020
|
|
June 30,
2021
|
|
June 30,
2020
|
|
Net carrying value at beginning of period
|
$
|
514,013
|
|
|
513,355
|
|
|
514,013
|
|
|
456,418
|
|
|
Acquisitions and adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
56,937
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying value at end of period
|
$
|
514,013
|
|
|
513,355
|
|
|
514,013
|
|
|
513,355
|
|
The Company performed its annual goodwill impairment test during the third quarter of 2020 and determined the fair value of the aggregated reporting units exceeded the carrying value, such that the Company’s goodwill was not considered impaired. Changes in the economic environment, operations of the aggregated reporting units, or other factors could result in the decline in the fair value of the aggregated reporting units which could result in a goodwill impairment in the future. Accumulated impairment charges were $40,159,000 as of June 30, 2021 and December 31, 2020.
Note 6. Loan Servicing
Mortgage loans that are serviced for others are not reported as assets, only the servicing rights are recorded and included in other assets. The following schedules disclose the change in the carrying value of mortgage servicing rights that is included in other assets, principal balances of loans serviced and the fair value of mortgage servicing rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30,
2021
|
|
December 31,
2020
|
|
|
|
Carrying value at beginning of period
|
$
|
8,976
|
|
|
1,618
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
3,351
|
|
|
8,298
|
|
|
|
|
Amortization
|
(821)
|
|
|
(940)
|
|
|
|
|
Carrying value at end of period
|
$
|
11,506
|
|
|
8,976
|
|
|
|
|
Principal balances of loans serviced for others
|
$
|
1,506,310
|
|
|
1,269,080
|
|
|
|
|
Fair value of servicing rights
|
$
|
15,182
|
|
|
12,087
|
|
|
|
Note 7. Variable Interest Entities
A VIE is a partnership, limited liability company, trust or other legal entity that meets one of the following criteria: 1) the entity’s equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties; 2) the holders of the equity investment at risk, as a group, lack the characteristics of a controlling financial interest; and 3) the voting rights of some holders of the equity investment at risk are disproportionate to their obligation to absorb losses or receive returns, and substantially all of the activities are conducted on behalf of the holder of equity investment at risk with disproportionately few voting rights. A VIE must be consolidated by the Company if it is deemed to be the primary beneficiary, which is the party involved with the VIE that has both: 1) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and 2) the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company’s VIEs are regularly monitored to determine if any reconsideration events have occurred that could cause the primary beneficiary status to change. A previously unconsolidated VIE is consolidated when the Company becomes the primary beneficiary. A previously consolidated VIE is deconsolidated when the Company ceases to be the primary beneficiary or the entity is no longer a VIE.
Consolidated Variable Interest Entities
The Company has equity investments in Certified Development Entities (“CDE”) which have received allocations of New Markets Tax Credits (“NMTC”). The NMTC program provides federal tax incentives to investors to make investments in distressed communities and promotes economic improvements through the development of successful businesses in these communities. The NMTC is available to investors over seven years and is subject to recapture if certain events occur during such period. The maximum exposure to loss in the CDEs is the amount of equity invested and credit extended by the Company. However, the Company has credit protection in the form of indemnification agreements, guarantees, and collateral arrangements. The Company has evaluated the variable interests held by the Company in each CDE (NMTC) investment and determined the Company does not individually meet the characteristics of a primary beneficiary; however, the related-party group does meet the criteria as a group and substantially all of the activities of the CDEs either involve or are conducted on behalf of the Company. As a result, the Company is the primary beneficiary of the CDEs and their assets, liabilities, and results of operations are included in the Company’s consolidated financial statements. The primary activities of the CDEs are recognized in commercial loans interest income and other borrowed funds interest expense on the Company’s statements of operations and the federal income tax credit allocations from the investments are recognized in the Company’s statements of operations as a component of income tax expense. Such related cash flows are recognized in loans originated, principal collected on loans and change in other borrowed funds.
The Bank is also the sole member of certain tax credit funds that make direct investments in qualified affordable housing projects (e.g., Low-Income Housing Tax Credit [“LIHTC”] partnerships). As such, the Company is the primary beneficiary of these tax credit funds and their assets, liabilities, and results of operations are included in the Company’s consolidated financial statements.
The following table summarizes the carrying amounts of the consolidated VIEs’ assets and liabilities included in the Company’s statements of financial condition and are adjusted for intercompany eliminations. All assets presented can be used only to settle obligations of the consolidated VIEs and all liabilities presented consist of liabilities for which creditors and other beneficial interest holders therein have no recourse to the general credit of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30,
2021
|
|
December 31,
2020
|
|
Assets
|
|
|
|
|
Loans receivable
|
$
|
108,717
|
|
|
90,183
|
|
|
Accrued interest receivable
|
574
|
|
|
410
|
|
|
Other assets
|
39,989
|
|
|
40,282
|
|
|
Total assets
|
$
|
149,280
|
|
|
130,875
|
|
|
Liabilities
|
|
|
|
|
Other borrowed funds
|
$
|
27,719
|
|
|
27,176
|
|
|
Accrued interest payable
|
149
|
|
|
53
|
|
|
Other liabilities
|
51
|
|
|
171
|
|
|
Total liabilities
|
$
|
27,919
|
|
|
27,400
|
|
Unconsolidated Variable Interest Entities
The Company has equity investments in LIHTC partnerships, both directly and through tax credit funds, with carrying values of $46,589,000 and $45,953,000 as of June 30, 2021 and December 31, 2020, respectively. The LIHTCs are indirect federal subsidies to finance low-income housing and are used in connection with both newly constructed and renovated residential rental buildings. Once a project is placed in service, it is generally eligible for the tax credit for ten years. To continue generating the tax credit and to avoid tax credit recapture, a LIHTC building must satisfy specific low-income housing compliance rules for a full fifteen years. The maximum exposure to loss in the VIEs is the amount of equity invested and credit extended by the Company. However, the Company has credit protection in the form of indemnification agreements, guarantees, and collateral arrangements. The Company has evaluated the variable interests held by the Company in each LIHTC investment and determined that the Company does not have controlling financial interests in such investments, and is not the primary beneficiary. The Company reports the investments in the unconsolidated LIHTCs as other assets on the Company’s statements of financial condition. There were no impairment losses on the Company’s LIHTC investments during the six months ended June 30, 2021 and 2020. Future unfunded contingent equity commitments related to the Company’s LIHTC investments at June 30, 2021 are as follows:
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Amount
|
|
Years ending December 31,
|
|
|
2021
|
$
|
15,277
|
|
|
2022
|
28,037
|
|
|
2023
|
14,448
|
|
|
2024
|
1,610
|
|
|
2025
|
232
|
|
|
Thereafter
|
904
|
|
|
Total
|
$
|
60,508
|
|
The Company has elected to use the proportional amortization method, and more specifically the practical expedient method, for the amortization of all eligible LIHTC investments and amortization expense is recognized as a component of income tax expense. The following table summarizes the amortization expense and the amount of tax credits and other tax benefits recognized for qualified affordable housing project investments during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
Six Months ended
|
|
(Dollars in thousands)
|
June 30,
2021
|
|
June 30,
2020
|
|
June 30,
2021
|
|
June 30,
2020
|
|
Amortization expense
|
$
|
2,400
|
|
|
1,988
|
|
|
4,726
|
|
|
3,830
|
|
|
Tax credits and other tax benefits recognized
|
3,182
|
|
|
2,678
|
|
|
6,277
|
|
|
5,163
|
|
The Company also owns the following trust subsidiaries, each of which issued trust preferred securities as capital instruments: Glacier Capital Trust II, Glacier Capital Trust III, Glacier Capital Trust IV, Citizens (ID) Statutory Trust I, Bank of the San Juans Bancorporation Trust I, First Company Statutory Trust 2001, First Company Statutory Trust 2003, FNB (UT) Statutory Trust I and FNB (UT) Statutory Trust II. The trust subsidiaries have no assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the securities held by third parties. The trust subsidiaries are not included in the Company’s consolidated financial statements because the sole asset of each trust subsidiary is a receivable from the Company, even though the Company owns all of the voting equity shares of the trust subsidiaries, has fully guaranteed the obligations of the trust subsidiaries and may have the right to redeem the third party securities under certain circumstances. The Company reports the trust preferred securities issued to the trust subsidiaries as subordinated debentures on the Company’s statements of financial condition.
Note 8. Securities Sold Under Agreements to Repurchase
The following table summarizes the carrying value of the Company’s securities sold under agreements to repurchase (“repurchase agreements”) by remaining contractual maturity of the agreements and category of collateral:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overnight and Continuous
|
|
(Dollars in thousands)
|
June 30,
2021
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local governments
|
$
|
146,295
|
|
|
|
|
|
|
787,016
|
|
|
|
|
|
|
Corporate bonds
|
160,070
|
|
|
|
|
|
|
217,567
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
676,954
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Commercial mortgage-backed securities
|
11,882
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Total
|
$
|
995,201
|
|
|
|
|
|
|
1,004,583
|
|
|
|
|
|
The repurchase agreements are secured by debt securities with carrying values of $1,120,212,000 and $1,151,264,000 at June 30, 2021 and December 31, 2020, respectively. Securities are pledged to customers at the time of the transaction in an amount at least equal to the outstanding balance and are held in custody accounts by third parties. The fair value of collateral is continually monitored and additional collateral is provided as deemed appropriate.
Note 9. Derivatives and Hedging Activities
Cash Flow Hedges
The Company is exposed to certain risk relating to its ongoing business operations. The primary risk managed by using derivative instruments is interest rate risk. Interest rate caps have been entered into to manage interest rate risk associated with forecasted variable rate borrowings.
Interest Rate Cap Derivatives. In March 2020, the Company purchased interest rate caps designated as cash flow hedges with notional amounts totaling $130,500,000 on its variable rate subordinated debentures and were determined to be fully effective during the six months ended June 30, 2021. The interest rate caps require receipt of variable amounts from the counterparty when interest rates rise above the strike price in the contracts. The strike prices in the five year term contracts range from 1.5 percent to 2 percent 3 month LIBOR. At June 30, 2021 and December 31, 2020, the interest rate caps had a fair value of $566,000 and $201,000, respectively, and were reported as other assets on the Company’s statements of financial condition. Changes in fair value were recorded in OCI. Amortization recorded on the interest rate caps totaled $84,000 and $123,000 for the six months ended June 30, 2021 and 2020, respectively, and was reported as a component of interest expense on subordinated debentures.
The effect of cash flow hedge accounting on OCI for the periods ending June 30, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
Six Months ended
|
|
(Dollars in thousands)
|
June 30,
2021
|
|
June 30,
2020
|
|
June 30,
2021
|
|
June 30,
2020
|
|
Amount of loss recognized in OCI
|
$
|
(144)
|
|
|
(456)
|
|
|
449
|
|
|
(456)
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate Derivatives
The Company enters into residential real estate derivatives for commitments (“interest rate locks”) to fund certain residential real estate loans to be sold into the secondary market. At June 30, 2021 and December 31, 2020, loan commitments with interest rate lock commitments totaled $180,342,000 and $229,862,000, respectively. At June 30, 2021 and December 31, 2020, the fair value of the related derivatives on the interest rate lock commitments was $5,577,000 and $8,605,000, respectively, and was included in other assets with corresponding changes recorded in gain on sale of loans. The Company enters into free-standing derivatives to mitigate interest rate risk for most residential real estate loans to be sold. These derivatives include forward commitments to sell to-be-announced (“TBA”) securities which are used to economically hedge the interest rate risk associated with such loans and unfunded commitments. At June 30, 2021 and December 31, 2020, TBA commitments were $121,750,000 and $206,000,000, respectively. At June 30, 2021 and December 31, 2020, the fair value of the related derivatives on the TBA securities was $319,000 and $2,056,000, and was included in other liabilities with corresponding changes recorded in gain on sale of loans. The Company does not enter into a commitment to sell these loans to an investor until the loan is funded and is ready to be delivered to the investor. Due to the forward sales commitments being short-term in nature, the corresponding derivatives are not significant. For all other residential real estate loans to be sold, the Company enters into “best efforts” forward sales commitments for the future delivery of loans to third party investors when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. Forward sales commitments on a “best efforts” basis are not designated in hedge relationships until the loan is funded.
Note 10. Other Expenses
Other expenses consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
Six Months ended
|
|
|
(Dollars in thousands)
|
June 30,
2021
|
|
June 30,
2020
|
|
June 30,
2021
|
|
June 30,
2020
|
|
|
Consulting and outside services
|
$
|
2,744
|
|
|
2,319
|
|
|
4,915
|
|
|
4,554
|
|
|
|
Loan expenses
|
1,755
|
|
|
1,125
|
|
|
3,379
|
|
|
1,989
|
|
|
|
Telephone
|
1,339
|
|
|
1,313
|
|
|
2,714
|
|
|
2,551
|
|
|
|
VIE amortization and other expenses
|
1,143
|
|
|
1,045
|
|
|
2,674
|
|
|
1,886
|
|
|
|
Debit card expenses
|
970
|
|
|
1,197
|
|
|
2,292
|
|
|
2,290
|
|
|
|
Business development
|
1,048
|
|
|
923
|
|
|
1,870
|
|
|
1,971
|
|
|
|
Postage
|
874
|
|
|
833
|
|
|
1,835
|
|
|
1,628
|
|
|
|
Printing and supplies
|
823
|
|
|
924
|
|
|
1,613
|
|
|
1,827
|
|
|
|
Employee expenses
|
753
|
|
|
644
|
|
|
1,184
|
|
|
1,687
|
|
|
|
Mergers and acquisition expenses
|
1,078
|
|
|
3,728
|
|
|
1,182
|
|
|
6,519
|
|
|
|
Legal fees
|
636
|
|
|
386
|
|
|
792
|
|
|
819
|
|
|
|
Checking and operating expenses
|
598
|
|
|
551
|
|
|
754
|
|
|
908
|
|
|
|
Accounting and audit fees
|
238
|
|
|
550
|
|
|
693
|
|
|
998
|
|
|
|
(Gain) loss on dispositions of fixed assets
|
(1,045)
|
|
|
66
|
|
|
(1,398)
|
|
|
125
|
|
|
|
Other
|
1,006
|
|
|
917
|
|
|
2,107
|
|
|
1,873
|
|
|
|
Total other expenses
|
$
|
13,960
|
|
|
16,521
|
|
|
26,606
|
|
|
31,625
|
|
|
Note 11. Accumulated Other Comprehensive Income (Loss)
The following table illustrates the activity within accumulated other comprehensive income (loss) by component, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Gains (Losses) on Available-For-Sale and Transferred Debt Securities
|
|
(Losses) Gains on Derivatives Used for Cash Flow Hedges
|
|
Total
|
|
Balance at January 1, 2020
|
$
|
40,226
|
|
|
—
|
|
|
40,226
|
|
|
Other comprehensive income before reclassifications
|
90,763
|
|
|
(341)
|
|
|
90,422
|
|
|
Reclassification adjustments for gains included in net income
|
(739)
|
|
|
—
|
|
|
(739)
|
|
|
Net current period other comprehensive income (loss)
|
90,024
|
|
|
(341)
|
|
|
89,683
|
|
|
Balance at June 30, 2020
|
$
|
130,250
|
|
|
(341)
|
|
|
129,909
|
|
|
Balance at January 1, 2021
|
$
|
143,443
|
|
|
(353)
|
|
|
143,090
|
|
|
Other comprehensive (loss) income before reclassifications
|
(52,064)
|
|
|
336
|
|
|
(51,728)
|
|
|
Reclassification adjustments for gains and transfers included in net income
|
(278)
|
|
|
—
|
|
|
(278)
|
|
|
Reclassification adjustments for amortization included in net income for transferred securities
|
(642)
|
|
|
—
|
|
|
(642)
|
|
|
Net current period other comprehensive income (loss)
|
(52,984)
|
|
|
336
|
|
|
(52,648)
|
|
|
Balance at June 30, 2021
|
$
|
90,459
|
|
|
(17)
|
|
|
90,442
|
|
Note 12. Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period presented. Diluted earnings per share is computed by including the net increase in shares as if dilutive outstanding restricted stock units were vested and stock options were exercised, using the treasury stock method.
Basic and diluted earnings per share has been computed based on the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
Six Months ended
|
|
(Dollars in thousands, except per share data)
|
June 30,
2021
|
|
June 30,
2020
|
|
June 30,
2021
|
|
June 30,
2020
|
|
Net income available to common stockholders, basic and diluted
|
$
|
77,627
|
|
|
63,444
|
|
|
158,429
|
|
|
106,783
|
|
|
Average outstanding shares - basic
|
95,505,877
|
|
|
95,405,493
|
|
|
95,485,839
|
|
|
94,346,582
|
|
|
Add: dilutive restricted stock units and stock options
|
75,027
|
|
|
24,910
|
|
|
79,752
|
|
|
49,348
|
|
|
Average outstanding shares - diluted
|
95,580,904
|
|
|
95,430,403
|
|
|
95,565,591
|
|
|
94,395,930
|
|
|
Basic earnings per share
|
$
|
0.81
|
|
|
0.67
|
|
|
1.66
|
|
|
1.13
|
|
|
Diluted earnings per share
|
$
|
0.81
|
|
|
0.66
|
|
|
1.66
|
|
|
1.13
|
|
|
Restricted stock units and stock options excluded from the diluted average outstanding share calculation 1
|
—
|
|
|
143,938
|
|
|
—
|
|
|
121,533
|
|
______________________________
1 Anti-dilution occurs when the unrecognized compensation cost per share of a restricted stock units or the exercise price of a stock option exceeds the market price of the Company’s stock.
Note 13. Fair Value of Assets and Liabilities
Fair value is defined as 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. There is a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
Transfers in and out of Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) are recognized on the actual transfer date. There were no transfers between fair value hierarchy levels during the six month periods ended June 30, 2021 and 2020.
Recurring Measurements
The following is a description of the inputs and valuation methodologies used for assets and liabilities measured at fair value on a recurring basis, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended June 30, 2021.
Debt securities, available-for-sale. The fair value for available-for-sale debt securities is estimated by obtaining quoted market prices for identical assets, where available. If such prices are not available, fair value is based on independent asset pricing services and models, the inputs of which are market-based or independently sourced market parameters, including but not limited to, yield curves, interest rates, volatilities, market spreads, prepayments, defaults, recoveries, cumulative loss projections, and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. Where Level 1 or Level 2 inputs are not available, such securities are classified as Level 3 within the hierarchy.
Fair value determinations of available-for-sale debt securities are the responsibility of the Company’s corporate accounting and treasury departments. The Company obtains fair value estimates from independent third party vendors on a monthly basis. The vendors’ pricing system methodologies, procedures and system controls are reviewed to ensure they are appropriately designed and operating effectively. The Company reviews the vendors’ inputs for fair value estimates and the recommended assignments of levels within the fair value hierarchy. The review includes the extent to which markets for debt securities are determined to have limited or no activity, or are judged to be active markets. The Company reviews the extent to which observable and unobservable inputs are used as well as the appropriateness of the underlying assumptions about risk that a market participant would use in active markets, with adjustments for limited or inactive markets. In considering the inputs to the fair value estimates, the Company places less reliance on quotes that are judged to not reflect orderly transactions, or are non-binding indications. In assessing credit risk, the Company reviews payment performance, collateral adequacy, third party research and analyses, credit rating histories and issuers’ financial statements. For those markets determined to be inactive or limited, the valuation techniques used are models for which management has verified that discount rates are appropriately adjusted to reflect illiquidity and credit risk.
Loans held for sale, at fair value. Loans held for sale measured at fair value, for which an active secondary market and readily available market prices exist, are initially valued at the transaction price and are subsequently valued by using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors. Loans held for sale measured at fair value are classified within Level 2. Included in gain on sale of loans were net losses of $3,870,000 and net gains of $3,236,000 for the six month periods ended June 30, 2021 and 2020, respectively, from the changes in fair value of loans held for sale measured at fair value. Electing to measure loans held for sale at fair value reduces certain timing differences and better matches changes in fair value of these assets with changes in the value of the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting.
Loan interest rate lock commitments. Fair value estimates for loan interest rate lock commitments were based upon the estimated sales price, origination fees, direct costs, interest rate changes, etc. and were obtained from an independent third party. The components of the valuation were observable or could be corroborated by observable market data and, therefore, were classified within Level 2 of the valuation hierarchy.
Forward commitments to sell TBA securities. Forward commitments to sell TBA securities are used to economically hedge the interest rate risk associated with certain loan commitments. The fair value estimates for the TBA commitments were based upon the estimated sale of the TBA hedge obtained from an independent third party. The components of the valuation were observable or could be corroborated by observable market data and, therefore, were classified within Level 2 of the valuation hierarchy.
Interest rate cap derivative financial instruments. Fair value estimates for interest rate cap derivative financial instruments were based upon the discounted cash flows of known payments plus the option value of each caplet which incorporates market rate forecasts and implied market volatilities. The components of the valuation were observable or could be corroborated by observable market data and, therefore, were classified within Level 2 of the valuation hierarchy. The Company also obtained and compared the reasonableness of the pricing from independent third party valuations.
The following tables disclose the fair value measurement of assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
|
(Dollars in thousands)
|
Fair Value
June 30, 2021
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Debt securities, available-for-sale
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
34,481
|
|
|
—
|
|
|
34,481
|
|
|
—
|
|
|
U.S. government sponsored enterprises
|
48,016
|
|
|
—
|
|
|
48,016
|
|
|
—
|
|
|
State and local governments
|
536,547
|
|
|
—
|
|
|
536,547
|
|
|
—
|
|
|
Corporate bonds
|
257,878
|
|
|
—
|
|
|
257,878
|
|
|
—
|
|
|
Residential mortgage-backed securities
|
4,139,585
|
|
|
—
|
|
|
4,139,585
|
|
|
—
|
|
|
Commercial mortgage-backed securities
|
1,130,636
|
|
|
—
|
|
|
1,130,636
|
|
|
—
|
|
|
Loans held for sale, at fair value
|
98,410
|
|
|
—
|
|
|
98,410
|
|
|
—
|
|
|
Interest rate caps
|
566
|
|
|
—
|
|
|
566
|
|
|
—
|
|
|
Interest rate locks
|
5,577
|
|
|
—
|
|
|
5,577
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
on a recurring basis
|
$
|
6,251,696
|
|
|
—
|
|
|
6,251,696
|
|
|
—
|
|
|
TBA hedge
|
$
|
319
|
|
|
—
|
|
|
319
|
|
|
—
|
|
|
Total liabilities measured at fair value on a recurring basis
|
$
|
319
|
|
|
—
|
|
|
319
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
|
(Dollars in thousands)
|
Fair Value December 31, 2020
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Debt securities, available-for-sale
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
38,588
|
|
|
—
|
|
|
38,588
|
|
|
—
|
|
|
U.S. government sponsored enterprises
|
9,781
|
|
|
—
|
|
|
9,781
|
|
|
—
|
|
|
State and local governments
|
1,416,683
|
|
|
—
|
|
|
1,416,683
|
|
|
—
|
|
|
Corporate bonds
|
349,098
|
|
|
—
|
|
|
349,098
|
|
|
—
|
|
|
Residential mortgage-backed securities
|
2,289,090
|
|
|
—
|
|
|
2,289,090
|
|
|
—
|
|
|
Commercial mortgage-backed securities
|
1,234,574
|
|
|
—
|
|
|
1,234,574
|
|
|
—
|
|
|
Loans held for sale, at fair value
|
166,572
|
|
|
—
|
|
|
166,572
|
|
|
—
|
|
|
Interest rate caps
|
201
|
|
|
—
|
|
|
201
|
|
|
—
|
|
|
Interest rate locks
|
8,605
|
|
|
—
|
|
|
8,605
|
|
|
—
|
|
|
Total assets measured at fair value on a recurring basis
|
$
|
5,513,192
|
|
|
—
|
|
|
5,513,192
|
|
|
—
|
|
|
TBA hedge
|
$
|
2,056
|
|
|
—
|
|
|
2,056
|
|
|
—
|
|
|
Total liabilities measured at fair value on a recurring basis
|
$
|
2,056
|
|
|
—
|
|
|
2,056
|
|
|
—
|
|
Non-recurring Measurements
The following is a description of the inputs and valuation methodologies used for assets recorded at fair value on a non-recurring basis, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended June 30, 2021.
Other real estate owned. OREO is initially recorded at fair value less estimated cost to sell, establishing a new cost basis. OREO is subsequently accounted for at lower of cost or fair value less estimated cost to sell. Estimated fair value of OREO is based on appraisals or evaluations (new or updated). OREO is classified within Level 3 of the fair value hierarchy.
Collateral-dependent loans, net of ACL. Fair value estimates of collateral-dependent loans that are individually reviewed are based on the fair value of the collateral, less estimated cost to sell. Collateral-dependent individually reviewed loans are classified within Level 3 of the fair value hierarchy.
The Company’s credit department reviews appraisals for OREO and collateral-dependent loans, giving consideration to the highest and best use of the collateral. The appraisal or evaluation (new or updated) is considered the starting point for determining fair value. The valuation techniques used in preparing appraisals or evaluations (new or updated) include the cost approach, income approach, sales comparison approach, or a combination of the preceding valuation techniques. The key inputs used to determine the fair value of the collateral-dependent loans and OREO include selling costs, discounted cash flow rate or capitalization rate, and adjustment to comparables. Valuations and significant inputs obtained by independent sources are reviewed by the Company for accuracy and reasonableness. The Company also considers other factors and events in the environment that may affect the fair value. The appraisals or evaluations (new or updated) are reviewed at least quarterly and more frequently based on current market conditions, including deterioration in a borrower’s financial condition and when property values may be subject to significant volatility. After review and acceptance of the collateral appraisal or evaluation (new or updated), adjustments to the impaired loan or OREO may occur. The Company generally obtains appraisals or evaluations (new or updated) annually.
The following tables disclose the fair value measurement of assets with a recorded change during the period resulting from re-measuring the assets at fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
|
(Dollars in thousands)
|
Fair Value
June 30, 2021
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
Collateral-dependent impaired loans, net of ACL
|
15,428
|
|
|
—
|
|
|
—
|
|
|
15,428
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
on a non-recurring basis
|
$
|
15,428
|
|
|
—
|
|
|
—
|
|
|
15,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
|
(Dollars in thousands)
|
Fair Value December 31, 2020
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Other real estate owned
|
$
|
564
|
|
|
—
|
|
|
—
|
|
|
564
|
|
|
Collateral-dependent impaired loans, net of ACL
|
26,749
|
|
|
—
|
|
|
—
|
|
|
26,749
|
|
|
Total assets measured at fair value
on a non-recurring basis
|
$
|
27,313
|
|
|
—
|
|
|
—
|
|
|
27,313
|
|
Non-recurring Measurements Using Significant Unobservable Inputs (Level 3)
The following tables present additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
June 30, 2021
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
(Dollars in thousands)
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
(Weighted-Average) 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral-dependent
impaired loans, net of ACL
|
$
|
1,751
|
|
|
Cost approach
|
|
Selling costs
|
|
10.0% - 10.0% (10.0%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,677
|
|
|
Sales comparison approach
|
|
Selling costs
|
|
10.0% - 5.0% (5.1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to comparables
|
|
10.0% - 5.0% (5.4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value December 31, 2020
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
(Dollars in thousands)
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
(Weighted-Average) 1
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
$
|
564
|
|
|
Sales comparison approach
|
|
Selling costs
|
|
8.0% - 10.0% (9.0%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral-dependent
loans, net of ACL
|
$
|
144
|
|
|
Cost approach
|
|
Selling costs
|
|
10.0% - 10.0% (10.0%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,309
|
|
|
Sales comparison approach
|
|
Selling Costs
|
|
10.0% - 10.0% (0.1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to comparables
|
|
0.0% - 100.0% (11.1%)
|
|
|
1,296
|
|
|
Combined approach
|
|
Selling costs
|
|
10.0% - 10.0% (10.0%)
|
|
|
|
|
|
|
Discount rate
|
|
8.0% - 8.0% (8.0%)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,749
|
|
|
|
|
|
|
|
______________________________
1 The range for selling cost inputs represents reductions to the fair value of the assets.
Fair Value of Financial Instruments
The following tables present the carrying amounts, estimated fair values and the level within the fair value hierarchy of the Company’s financial instruments not carried at fair value. Receivables and payables due in one year or less, equity securities without readily determinable fair values and deposits with no defined or contractual maturities are excluded. There have been no significant changes in the valuation techniques during the period ended June 30, 2021.
Cash and cash equivalents: fair value is estimated at book value.
Debt securities, held-to-maturity: fair value for held-to-maturity debt securities is estimated in the same manner as available-for sale debt securities, which is described above.
Loans receivable, net of ACL: The loans were fair valued on an individual basis, with consideration given to the loans' underlying characteristics, including account types, remaining terms and balance, interest rates, past delinquencies, current market rates, etc. The model utilizes a discounted cash flow approach to estimate the fair value of the loans using various assumptions such as prepayment speeds, projected default probabilities, losses given defaults, etc. The discounted cash flow approach models the credit losses directly in the projected cash flows. The model applies various assumptions regarding credit, interest, and prepayment risks for the loans based on loan types, payment types and fixed or variable classifications.
Term Deposits: fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The market rates used were obtained from an independent third party based on current rates offered by the Company’s regional competitors.
Repurchase agreements and other borrowed funds: fair value of term repurchase agreements and other term borrowings is estimated based on current repurchase rates and borrowing rates currently available to the Company for repurchases and
borrowings with similar terms and maturities. The estimated fair value for overnight repurchase agreements and other borrowings is book value.
Subordinated debentures: fair value of the subordinated debt is estimated by discounting the estimated future cash flows using current estimated market rates obtained from an independent third party.
Off-balance sheet financial instruments: unused lines of credit and letters of credit represent the principal categories of off-balance sheet financial instruments. The fair value of commitments is based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of unused lines of credit and letters of credit is not material; therefore, such commitments are not included in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
|
(Dollars in thousands)
|
Carrying Amount
June 30, 2021
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Financial assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
921,207
|
|
|
921,207
|
|
|
—
|
|
|
—
|
|
|
Debt securities, held-to-maturity
|
1,024,730
|
|
|
—
|
|
|
1,047,013
|
|
|
—
|
|
|
Loans receivable, net of ACL
|
11,086,600
|
|
|
—
|
|
|
—
|
|
|
11,349,564
|
|
|
Total financial assets
|
$
|
13,032,537
|
|
|
921,207
|
|
|
1,047,013
|
|
|
11,349,564
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
Term deposits
|
$
|
939,563
|
|
|
—
|
|
|
942,998
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements and
other borrowed funds
|
1,028,757
|
|
|
—
|
|
|
1,028,757
|
|
|
—
|
|
|
Subordinated debentures
|
132,540
|
|
|
—
|
|
|
127,765
|
|
|
—
|
|
|
Total financial liabilities
|
$
|
2,100,860
|
|
|
—
|
|
|
2,099,520
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
|
(Dollars in thousands)
|
Carrying Amount December 31, 2020
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Financial assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
633,142
|
|
|
633,142
|
|
|
—
|
|
|
—
|
|
|
Debt securities, held-to-maturity
|
189,836
|
|
|
—
|
|
|
203,216
|
|
|
—
|
|
|
Loans receivable, net of ACL
|
10,964,453
|
|
|
—
|
|
|
—
|
|
|
11,233,002
|
|
|
Total financial assets
|
$
|
11,787,431
|
|
|
633,142
|
|
|
203,216
|
|
|
11,233,002
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
Term deposits
|
$
|
978,779
|
|
|
—
|
|
|
983,491
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements and
other borrowed funds
|
1,037,651
|
|
|
—
|
|
|
1,037,651
|
|
|
—
|
|
|
Subordinated debentures
|
139,959
|
|
|
—
|
|
|
123,944
|
|
|
—
|
|
|
Total financial liabilities
|
$
|
2,156,389
|
|
|
—
|
|
|
2,145,086
|
|
|
—
|
|